Proposal to develop and document options for:

“Utilization of Heavy Oil Vent Gases - Study”

May 10 & 25, 2000

Contents

Making a Change Happen About New Paradigm Engineering Ltd. Proposal Overview Why this proposal now? What is needed to make the project happen? Project Schedule Project Deliverables Status as of June, 2000

Gas Processing6%

Other1%

Conventional Oil Production

8%

Product Transmission

16%

Accidents and Equipment Failures

5%

Heavy Oil Production

29%

Gas Production35%

The Target for Change

Oil & Gas Methane Emissions

Ref: CAPP Pub #1999-0009

Heavy OilVenting

29%

Where Are We Now?

$50M/yr of methane vented from heavy oil sites• Equivalent to 5% of O&G Industry energy use

$20-$40M/yr of energy purchased for heavy oil sites

GHG emissions from heavy oil wells• 30% of oil & gas industry methane emissions; • 15% of oil & gas GHG emissions • Over 2% of Canada’s GHG emissions

GHG, Flaring and Odour Issues affecting our ability to develop new leases

Where Do We Want To Be?

Vent gas as a revenue stream Minimize purchased energy costs No purchased energy for wells that are venting Low tech low cost operations Achieved with minimum of waste

How Could We Get There?

Displace purchased energy sources Power from vent gases Compression for sale or reinjection Use gas and/or energy for EOR Convert methane to CO2

Tank vent treatment to eliminate odours

What Is Stopping Us?

Venting seen as an environmental problem, not economic opportunity

Capital budget for conversion set on a corporate relations basis

Payouts on systems beyond fuel displacement are long Vent volumes are variable so tough to do single well

economics or design facilities No one has time to invest in studying potential options

How Can We Make Things Happen? Collaborate to define the options and the prize Work together to make the case for casing gas

utilization Co-operative and collaborative efforts on the

gas side of heavy oil Joint Industry Project (New Paradigm) to

provide focus

About New Paradigm Engineering Ltd.

Independent consulting company, Inc. 1991 Engineer “new paradigms” for industry Bruce Peachey, P.Eng. – President Colin Gosselin, E.I.T. – Technology Development Engineer Focus for last two years on reducing methane emissions and

developing new technology to support conventional heavy oil vent gas mitigation.

Previous work in collaborations: • Downhole oil/water separation (C-FER),• Novel EOR methods (C-FER and KeyTech), • Heavy Oil Pipelining Study (C-FER, SRC)• Climate change (CSChE),• PERD study on Hydrocarbons R&D (K.R. Croasdale & Associates)

New Paradigm – Bruce Peachey, P.Eng. Project Manager and Lead Engineer Past Experience:

• Principal New Paradigm Engineering (9 yrs), • Esso Resources (15 yrs):

» Sr. Facilities Engineer; » Technical Services Superintendent; » Project Engineering Section Head; » Project Engineer;» Technology Evaluations Engineer; » Heavy Oil Production Engineer;» Process Design (Gas Production/Compression)

Expertise – Gas Gathering systems/plant design; Heavy oil production; Steam generation; Operations; Project Management; R&D Prioritization; Innovation

Proposed Support for Vent Gas Utilization Study

EMF Technical Services Inc. Holly Miller, P.Eng. Marlett Engineering Ltd. Jamieson Engineering Heavy Oil and Gas Producers Vendors (New and existing technologies) Extensive contact networks (PTAC, PTRC,

Universities, ARC/C-FER/PRI, CIM, SPE, CSChE)

EMF Technical Services Inc. - Calgary Electrical Power Generation and Distribution Cogeneration facilities (proposals and economics) Electrical and control systems design Engineering design and construction Oil and gas pipelines, compressor stations, pump

stations and processing Motivated and creative solutions

Holly Miller, P.Eng. - Edmonton

Contract Engineer – Project Development and Design Past Experience:

• Sr. Engineer with Polytubes (West) Inc. 4 yrs, • Esso Resources/Petroleum/Chemical (14 yrs):

» Sr. Operations Engineer, » Sr. Process Engineer, » Development Engineer

Expertise – Refinery energy conservation, heavy oil upgrader studies, Cold Lake Phases 1-6 Debottleneck, gas conservation plant operations and facilities upgrades, managed implementation of new reactive extrusion pipe manufacturing process

Marlett Engineering Ltd. – Edmonton Principal – Fred Marlett, M.Eng., MBA, P.Eng. FCSME Specializing in combustion and gas fired equipment Past Experience:

• Enbridge Pipelines Inc. (1 yr)• Northwestern Utilities Limited (24 yrs)

» Senior Engineer, Utilization and Research» Assistant Utilization Engineer» Assistant Transmission Engineer

Key roles:• APEGGA Rep – Gas Technical Council of the Alberta Safety

Codes Council (1997-Present)• Secretary, City of Edmonton Gas Approvals Board (1974-1978)

Jamieson Engineering - Edmonton

Principal – Marnie Jamieson, P.Eng. Process Control, Materials, Process & Environmental

Engineering Past experience:

• AT Plastics (2 yrs), • Syncrude Canada (8 yrs), • Work terms Dow Chemical (Research), Esso

Resources (Operator), Environment Canada (Engineering Asst.)

Roles – Plant Engineer, Environmental Engineer, Applications Engineer, Corrosion/Materials Engineer.

Proposal Overview - Objectives

Evaluate options to utilize casing gas Assess criteria for successful application Pro’s and Con’s of the Options

• Technical, • Financial, • Operational, and,• Implementation hurdles

Overall – Facilitate Decision-making; leading to rapid and economic implementation of systems to reduce methane venting from Heavy Oil sites.

Work Scope – Focus Areas

Displace purchased fuel use – 20% Power generation and sales – 25% Gas collection and sales – 30% Use to Increase Oil Recovery - 10% Convert methane to CO2 – 10% Mitigation of tank odours - 5%

Why this proposal now?

Expansion of operations generates resistance from public

Pressure mounting to show voluntary progress Producers no longer in “survival” mode Options appear to be available and economic Producers are busy with producing Oil, not Gas Vendors with viable options frustrated Appears to be opportunity and interest in

collaboration

Benefits to Participants

Focused effort to quickly identify low cost, economic and safe options for use of vent gases

Reduces workload on in-house staff Provides leverage instead of everyone redoing the

same work Allows vendors to easily communicate information

on the options they can provide Helps define what can be achieved now and what

requires new technology

What is needed to make the project happen?

Funding to do the Work Support from Producers Operating Information Support from Vendors Product Information Others

• Regulators Drive to change

Funding

Open to any organization on same terms• Reports to participants only

Current basis $15,000 per participant (at least 4 preferred)

• Can proceed with more or less but depth of analysis varies

After study 60% complete, new participants pay a premium (20%)

• Funding used to monitor developments

Funding Basis

Base of $60k at start• Study as proposed. • Moderate detail• Main focus technology assessment

Plan for two increments of $30k each• Increment 1 – Enhanced Detail – Issues and

Implementation• Increment 2 – Manage Collaborative Piloting

Separate Thermal Venting Project• Begin planning in Fall 2000; Report March, 2001

Key Issues for Heavy Oil Venting Options Technology Issues (Base)

• Many options exist now but are not widely used. • New ones may be developed where needed

Producer Management Issues (Enhanced)• Economic Solutions - Why Not Implementing?• Environmental Solutions – Define Priorities and

Resources Government/Regulatory Issues (Enhanced)

• Rules to Level/Define Playing Field• Barriers to implementation

Overall Schedule

Start Planning – May 2000 Initial Funding Committed – May 25 Data Collection June-July Displace Purchased Energy Report – August Flowchart Options & Prioritize Focus – August Sub-contractors carry out independent analysis – Sept/Oct Pull analysis together, address interface issues – Nov Prepare Draft Report and Presentation – Dec Hold Workshop with Participants – Dec Final Deliverables - Jan

Proposed Deliverables

Interim Report on Options to Displace Purchased Energy

• Analysis; Powerpoint Summary; One Page option sheets Draft Report

• Powerpoint format and workshop to review Main Report

• Full Document (2 copies)• Powerpoint format (paper and electronic)

Options (cost recovery basis)• Field presentations, extra reports

Data Collection

New Paradigm• Input from sub-contractors on info needs

Design and Plan Survey of Producers Design and Plan Survey of Vendors Interview other stakeholders

• Regulators, power companies, gas suppliers Obtain source documents

• Maps (power systems, land plats, gas systems, pools)• Reports (CAPP, SEM, AEUB, others)

Producers Survey Contents

Main Operations Dimensions» # single wells vs. pad wells» Oil, water, gas production averages and range by area» Standard lease layouts» Costs for pressurized natural gas/propane» Pumper issues

Regulatory/business Issues» Current plans/philosophy/motivation» Main regulatory issues/concerns» Main impediments to implementation

What has been tried already» Details on where, who, results, photos, reports

Vendor Survey Contents

Main Technology Features» Capacity ranges

» Costs

» Utilities

» Operational Factors

Business Issues» Equipment buy/lease or sub-contract options

» Support in area

» Synergies

Where has technology been used» Details on where, who, results, photos, reports

Displace Purchased Energy Options

Winterization

Low Pressure Fuel

Increase Efficiency

Tracing; Dryers; Anti-freeze; Fuel Heaters

Mini-compressors;Low Pressure Burners

Improve Tank Heating:Combustion; Heat Transfer

Co-gen (heat & power)

Displace Purchased Energy Report (20%) One Page Descriptions of Options(New Paradigm)

• Typical Site Layout, • Costs vs. Capacity, • Energy Efficiency or Other Benefits• Utilities or Maintenance Support,• Pumper Issues, • Environmental impacts,• Implementation/Regulatory Issues • Potential synergies

Generic Economics for Fuel Displacement• Cost to Buy, Install, Operate vs. Savings

» Propane» Pressurized Natural Gas

Power from Vent Gas

Easy Sites

Small Sites

Remote Sites

Pads with lots of gas;Near power lines

Single, high GOR wells;Near Power lines

Small local loads;Lights, Remote Control

Power from Vent Gas (25%)

Subcontractor – EMF Technologies Technical

• Micro-turbines, gas engines, other• Characteristics, costs vs. size, fuel efficiency, potential for co-

generation of heat and power• Operations issue• Potential for Mercury Electric Pilot

Business and Regulatory• Economics vs. Size and cost to tie-in• Regulatory constraints (generation, distribution or sales)• Business Structuring Options

» Utility vs. industry/company operated systems» Key Agreement terms (access, revenue/cost sharing)

Gas Collection and Sales

Fuel for New Wells

Local Sales

Sales to Pipeline

Similar to Winterization:Temporary flowlines?

Mini-compressors;Mini-dryers; Tie-in to

Existing lines

Low pressure collection;Central treating and Compression facility

Gas Collection and Sales (30%)

Subcontractor – Marlett & NPEL Technical

• Collection/distribution methods• Dehydration or freeze protection• Compression

Business and Regulatory• Economics vs. Size and cost to tie-in• Regulatory constraints (distribution or sales)• Business Structuring Options

» Gas utility vs. industry/company operated systems» Key Agreement terms (access, revenue/cost sharing)

Increase Oil Recovery

Pressure Support

Mini-EOR

One well per pad takesCompressed Gas

Small steam generators;Methane cycling

Collect gas for use in otherAreas (Royalty Free)

Large Scale EOR

Increase Oil Recovery (10%)

Subcontractor – Miller & NPEL Technical

• Listing of Options• Pro’s & con’s• Potential facilities options

Business and Regulatory• Economics vs. Size• Reservoir Factors• Contacts for further assessment

Methane Conversion

Flares

Catalytic Oxidation

GHG Credits

Low cost, low liquidLow visibility flares

Portable, low visibility,Potential for use of energy

Requires auditableMeasurement of conversion

Methane Conversion (10%)

Subcontractors – Marlett, Jamieson & NPEL Technical

• Flare designs for variable rates• Catalytic oxidation methods• GHG credit measurement and tracking

Business and Regulatory• Economics vs. Size• Potential for Credits and their value• Business Structuring Options

» Add on to power/gas options» Key Agreement terms (access, revenue/cost sharing)» Bulletin Board test with residents

Mitigation of Tank Odours

Micro-incineration

Catalytic Oxidation

Other Options

Use casing gas; Incinerate tank vents

Low cost, low maintenance

Absorption; Adsorption;Active Dispersion

Mitigation of Tank Odours (5%)

Subcontractor – Marlett, Jamieson & NPEL Technical

• Factors resulting in odours• Sampling and neighbour issues• Assessment of low cost options

Business and Regulatory• Costs vs. Size• Safety and Operability Issues• Business Issues

» Odour emissions philosophy› Proactive or reactive

Flowchart Options

New Paradigm and sub-contractors Lay-out options in a flowchart(s) Show:

• Interactions• Synergies• Relative Value (starting assumptions on payout)

Application Based• Lease types – single, multi-well• Back-up energy type – gas, propane, power, other• Pumping equipment• Energy Demand Ranges• Casing Gas Ranges

Sub-charts by technology issues

Technical Option Summary Sheets

Standard format summaries for each option One Page Descriptions of Options(NPEL)

• Typical Site Layout, • Costs vs. Capacity, • Energy Efficiency or Other Benefits• Utilities or Maintenance Support,• Pumper Issues, • Environmental impacts,• Implementation/Regulatory Issues • Potential synergies• List of Vendors

Technology Assessment Tools

Flow Charts, Decision Trees and Scoping Economics Inputs:

• Site characteristics – layout, volumes, proximity to power lines, pipelines, residences, other factors

• Budget Constraints Outputs:

• Technically viable options• Economic Indicators

Option: Potential to build a spreadsheet tool (Enhanced)

Contract Deliverables

Interim Report on Options to Displace Purchased Energy• Analysis; Powerpoint Summary; One Page option sheets

Draft Report• Powerpoint format and workshop to review• Draft Option Assessment Tools• Draft Option summary sheets

Main Report• Full Document (2 copies)• Powerpoint format (paper and electronic)• Tools (paper minimum)

Options (cost recovery basis)• Field presentations, extra reports

Interim Reporting

All contractors will progress invoice New Paradigm and report progress

One page status reports will be e-mailed to participant contacts on a monthly basis, including:

• Progress Status• Project Cost Status• Decision items for participants

Funding Proposed

Open to any organization on similar terms• Reports to participants only

Current basis $15,000 + GST per participant• Can proceed with more or less but depth of analysis

varies• Need to decide on piloting

After study 60% complete, new participants pay a premium (20%)

• Funding used to monitor developments or pilots Option for pilot management Option to expand to thermal heavy oil venting

Agreement Terms

Purchase/service order basis New Paradigm invoice for fee plus GST. Options:

• One invoice for $15,000 (June)• Progress Invoicing

» June 1 - $5,000; August 1 - $8,500; Final Report Issue - $1,500

One page statement of deliverables and Memorandum of Understanding (MOU), principles:

• No confidential information to be communicated• Participants will only distribute reports internally• Participants to respond to surveys or requests for information• NPEL to ensure work is completed on a timely basis• Arbitration for dispute resolution

Optional Items

Piloting• Separate Agreements/MOU’s for vendors

contributing in kind• Review plans and budgets with participants• Site Selection from Participant Wells• Separate deliverables

Thermal Venting• Separate Agreements/MOU’s• Discount for participants in both

» To be determined

Summary as of June 20, 2000

Project has been launched Agreements in Place:

• Ranger Oil• Husky Oil

Obtaining Approvals:• Mobil Oil• CanOxy/Wascana• AEC Oil and Gas

Open to more participants. Prefer decision as soon as possible to assist with project planning.

Obtain copy of one page agreement from New Paradigm.

Contact Information

Advanced Technology Centre

9650-20 Avenue

Edmonton, Alberta

Canada T6N 1G1

tel: 780.450.3613

fax: 780.462.7297

email: info@newparadigm.ab.ca

web: www.newparadigm.ab.ca