Oil Sands more than just Oil

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Oil Sands more than just Oil

• William Koenig, CFA
• March 2007

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Legal Disclaimer The material contained in this
presentation is for information purposes only and
does not constitute an advertisement or an offer
to sell or a solicitation to buy any securities
in any jurisdiction. Such an offer can only be
made by prospectus. MUTUAL FUND SHARES OF THE
NORREP GROUP OF FUNDS ARE OFFERED FOR SALE BY WAY
OF PROSPECTUS ONLY IN THE PROVINCES OF ONTARIO,
SASKATCHEWAN, ALBERTA, BRITISH COLUMBIA, MANITOBA
AND THE MARITIMES. Every effort has been made
to ensure that the information contained herein
is accurate, complete and up-to-date. However, no
guarantee, either express or implied, is made
that the information in this presentation is
accurate, complete or up-to-date. The contents of
this presentation are for informational purposes
only and are not intended to provide financial,
legal, accounting or tax advice and should not be
relied upon in that regard. Mutual funds are
not guaranteed, their values change frequently
and past performance may not be repeated.
Commissions, trailing commissions, management
fees and expenses all may be associated with
mutual fund investments. Indicated rates of
return are the historical annual compound total
returns including changes in share value and
reinvestment of all dividends and do not take
into account sales, redemption, distribution or
optional charges or income tax payable by any
security holder, if any, that would have reduced
returns. The rate of return is used to illustrate
the effects of the compound growth rate and is
not intended to reflect future sales of Norrep
Funds or returns on investment in Norrep Funds.
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Saskatchewan Oil Sands
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Alberta Oil Sands Resource Dynamics

• Estimated Resource of 1.7 trillion barrels
• 54 years worth of supply at the worlds current
  consumption levels (86 mmbbls/day) assuming all
  the reserves are recoverable
• Oil sands in Alberta cover an area the size of
  Belgium (48,000 square kilometers)

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Alberta Oil Sands Resource Dynamics

• AEUB estimates only 174 billion barrels
  recoverable using todays technology
• 32 billion barrels surface mine-able
• 142 billion barrels recovered using SAGD
• This is bitumen at depths of 75 meters or greater

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What are the Oil Sands

• Primarily composed of bitumen, clay and water
• Bitumen molecules are made up of carbon,
  hydrogen, sulphur, nitrogen, oxygen and traces of
  heavy metals
• It takes 2 tonnes of oil sands to extract enough
  oil to make one barrel
• Bitumen needs to be upgraded

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Upgrading Process

• Bitumen is a complex molecule
• It is broken down to smaller ones by either
  removing the carbon or adding more hydrogen
• To remove bitumen cokers are required to heat
  the molecule to 500oC 925oC depending on the
  process.
• The bitumen is split apart and forms two new
  products a heavy solid and a light gas vapor
• Light gas vapor is then allowed to cool and forms
  various liquid fuels

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Oil Sands Rewards

• Conventional proven reserves are currently
  trading at 20.00 per bbl in Canada
• Internationally proven is trading at 10.90 bbl
• Oil Sands have increased from 0.01 bbl in 1999
  to 4.20 bbl with Canadian Oil Sands purchase of
  Talisman Syncrude Interest

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Challenges

• Technology
• Labor
• Governments
• Taxation
• Infrastructure
• Environmental
• Water
• Air

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Technology

• Sands also contain many other impurities
  including vanadium, nickel and sulphur which need
  to be stripped out
• Sulphur content is approximately 5 which creates
  its own operational difficulties
• Composition from one area differs from another
  area so consistency is always an issue
• Water contains impurities and this affects usage
  efficiency

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Sustained Capital Spending
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Lets Compare to the Klondike

• Cities impacted were Seattle, Vancouver and
  Edmonton
• Within 6 months of the first gold shipment
  reaching Seattle 100,000 gold seeker started
  their journey
• Only 30,000 completed it
• Dawson became the largest city north of San
  Francisco

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Klondike Comparison

• Vancouver saw its population double
• Seattle saw its population triple
• While important to establishing Edmonton, only
  1,500 gold seekers left on the All Canadian
  route with about 160 people making it
• Gold at the time was worth 16 oz in 1897 about
  2 weeks worth of wages

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Klondike Comparison

• So strong was the lure along the West Coast that
  some stores had to close because they couldnt
  keep clerks
• US Army Corps of Engineers had difficulty
  retaining workers to complete fortification
  projects in Puget Sound - explained a contractor
  it is impossible to secure steady and reliable
  men in anything like adequate numbers
• Even the mayor of Seattle succumbed

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Klondike Comparison

• 20 men originally made up enforcement in the
  Yukon
• By the end of 1898 it had swelled to 285 officers
• In addition, the government sent a 200 man force,
  drawn from Canadas permanent militia
• Certain crimes did increase but not serious ones

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Infrastructure

• Crude oil pipeline capacity out of Alberta is
  approximately 1.7 mmbbls/day
• 2 3 mmbbl/d of pipeline capacity will come
  on-stream theoretically between 2009 -2010
• Coal gasification projects have the potential to
  solve the equivalent of diluent issues
• Energy sources include gas from the Mackenzie
  Delta

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North America Renewable Water Supply

• 6,945,000 cubic kilometers
• 1 cubic kilometer 1000 1000 1000 cubic
  meters or 1,000,000 cubic meters
• 1 cubic meter 10 10 10 liters or 1000
  liters
• Therefore the renewable water supply is
• 6,945,000,000,000,000,000 liters

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Athabasca River Flow

• 2,340,000 dam3
• 1 dam3 1,000 cubic meters
• 1 cubic meter 10 10 10 liters or 1000
  liters
• Therefore, the Athabasca River on average has
  2,340,000,000,000 liters

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Oil Sands Usage

• The City of Edmonton with 930,000 people consumes
  121,000,000,000 liters in a year
• Oil Sands are licensed for 395,700,000,000 liters
  of water per year
• 395,700,000,000 / 2,340,000,000,000 equates to
  1.65 of the water flowing currently

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Air Emissions

• Estimated that as much as 75 kg of carbon dioxide
  is emitted for every barrel produced
• Carbon sequestration pipeline should be
  interesting given that each oil field has
  different requirements for things like pressure,
  infrastructure required, etc.
• Adjusted ACCA will entail more motivation to
  implement clean air additions

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The patient is Seriously ill
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Thank you
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