GTL: Exploiting Remote Gas Discoveries Investor Conference

Transcription

1 GTL: Exploiting Remote Gas Discoveries Investor Conference July 12, 2005

2 Forward Looking Statements This presentation includes forward-looking statements as well as historical information. These forwardlooking statements may include statements relating to the Syntroleum Process and related technologies, liquefied natural gas development, the GTL Barge and other gas-to-liquids plants based on the Syntroleum Process, anticipated costs to design, construct and operate these plants, anticipated costs to make products from these plants, the timing of commencement and completion of the design and construction of these plants, obtaining required financing for these plants, the economic construction and operation of gas-to-liquids plants, the value and markets for plant products, testing, certification, characteristics and use of plant products, the continued development of the Syntroleum Process (alone or with partners), anticipated capital expenditures, anticipated revenues and any other statements regarding future growth, cash needs, operations, business plans and financial results. When used in this presentation, the words anticipate, believe, estimate, expect, intend, may, plan, project, should and similar expressions are intended to be among the statements that identify forward-looking statements. Although we believe that expectations reflected in these forward-looking statements are reasonable, these kinds of statements involve risks and uncertainties. Actual results may not be consistent with these forward-looking statements. For discussion of these risks and uncertainties we refer you to the risks described under Risk Factors in our Annual Report on Form 10-K. 1

3 Conference Agenda Greg Jenkins, EVP Business Development and Chief Financial Officer Syntroleum Overview Upstream Opportunities Carla Covey, Senior Vice President of Finance and Chief Accounting Officer Financial Review Kenneth Agee, Chairman and Chief Technology Officer Syntroleum Technology Review Q&A Session Lunch Catoosa Demonstration Facility Tour 2

4 Syntroleum Overview and Upstream Opportunities Greg Jenkins EVP Business Development and Chief Financial Officer

5 Syntroleum Investment Profile NASDAQ: SYNM (Common) SYNMW (Warrants) SYNMZ (Warrants) Shares O/S (Mil): 55.2 Warrants O/S (Mil): 3.5 Market Cap (Mil $): Date: 6/21/2005 Float (Mil): 41.7 Management & Insiders: 25% Institutional (1) : 40% Retail: 35% Top Institutional Holders: PEAK Investments LLC (2) Legg Mason Opportunity Trust Wellington Management Merrill Lynch Investment Managers Southern Fiduciary Group Dimensional Fund Advisors Security Management Company Barclays Bank Plc Equity Research: Foresight Research (Bernie Picchi) Jefferies (Frank Bracken) Merrill Lynch (Andrew Fairbanks) (1) Excludes PEAK Investments (2) Sits on the Board of Directors, owns 13.2% Investor Relations Contact: Mel Scott, Director of Communications (918)

6 Syntroleum History Meeting the Requirements for GTL Commercialization 20 years of comprehensive technology development 127 US and foreign patents pending and issued Over $200 million invested in development Ready for commercial deployment 5

7 Abundant Stranded Gas Presents Significant Business Opportunity TOTAL Gas Reserves = 6,200 Trillion cubic feet (Tcf) 1 Stranded Gas = 3,000 Tcf 2 North America 258 Tcf Europe & CIS 2199 Tcf Middle East 2531 Tcf S. & Cent. America 253 Tcf Africa 486 Tcf Asia Pacific 475 Tcf 1 Trillion Cubic Feet of Gas = 100 Million Barrels of GTL Fuels 1 BP Statistical Review of World Energy June EIA (DOE) International Energy Outlook

8 Plenty of Gas for Both GTL & LNG 7

9 Market for GTL Liquids is Much Bigger Than the LNG Market Middle distillate demand growing at 2.5% per year worldwide 4 years growth equals the entire size of the LNG market In 3 years, announced GTL capacity in Qatar is 1/3rd of current LNG market which took 3 decades to develop 27 Million Bpd 2.9 Million BOE/d 1.5 Million BOE/d 0.5 Million BOE/d 01 Methanol 2001 Ammonia 2003 LNG 2003 Middle Distillates Sources: American Methanol Association, Fertecon Ltd., 2004 BP Statistical Review of World Energy 8

10 Clean Fuels, Easily Sold Property Current EPA Diesel 2006 EPA Diesel Current E.U. Diesel Syntroleum GTL Diesel Sulfur (PPM) Aromatics (%) N/A 0 Cetane Number Syntroleum GTL Diesel Can be sold in existing markets Compatible with existing infrastructure (pipelines, storage terminals, retail pumps) No sulfur or aromatics Biodegradable and non-toxic Performs better than conventional diesel Valuable blending stock to meet new guidelines Syntroleum Diesel Burns Cleaner Than Regular Diesel 9

11 Syntroleum Strategy Targets 1-3 TCF Gas Fields LNG and World scale GTL projects target a few larger fields Syntroleum GTL targets many smaller fields. 1) Gas fields outside of North America 200+ non producing fields world wide with reserves of 1 to 3 TCF 10

12 Syntroleum s Niche is Potentially Huge Country Region No. of Attractive Fields Gas Reserves (Tcf)* Oil & Condensate (Mmbbls) Africa Australasia Latin America Middle East Total ,385 High-graded 40 locations in 15 countries Uncontracted gas Proximity to shore Low delivery cost Billion Barrels Total Proved Reserves Billion BOE Potential from 40 fields 8 Billion Barrels 0 ExxonMobil Shell BP ChevronTexaco 11

13 Air Based Technology Enables Access to Target Fields Modular plants for onshore Barge for swamp and coastal locations Ship-based plants for offshore 12

14 Syntroleum s First Project: Aje Field Offshore Nigeria Previously discovered oil and gas field offshore Nigeria Two wells successfully tested oil and gas GTL Technology was enabling factor in acquiring the block Nine months from initial review to partner commitment of $95 million to earn their interest Re-processed and mapped geophysical data Current status: Drilling permit granted Assignment of interest approved by the Nigerian Government Transocean SEDCO 709 to arrive late July

15 Aje Field: Potential Reserves Oil 201 MMBO and Gas 1.6 TCF Depth (ft.) X: Y: W.D.: 3,110 PTD Proposed AJE 3 X: Y: W.D.: 310 Surf. Loc. AJE 2 T/Turonian 400 ft. high to Aje-2 Max Hydrocarbon column height 662 ft. Permeability Flag Hydrocarbon Pay Flag T/Cenomanian 450 ft. high to Aje-2 Max Hydrocarbon column height 450 ft. AJE 1 Turonian: 154 ft. net gas cond pay 37 ft. net oil pay DST #4: 3,866 bopd MMcfg/d T/Turonian T/Cenomanian T/Albian SW Arb. Line D D, 2004 PSDM Processing Aje-2 Turonian + Cenomanian has additional 480 ft. net wet reservoir sands that could be productive at Aje-3 location Cenomanian: 29 ft. net oil pay DST #3: 3,473 bopd MMcfg/d TD ft MD (11601 TVD) NE 14

16 Aje Field Participant Group Syntroleum acquired 100% working interest and developed the integrated field development concept Participant group farmed in and pays 90% of first two wells to earn 67.5% cost bearing interest Syntroleum pays 10% of the cost of the first two wells to earn a 32.5% cost bearing interest in the project Participant group paid Syntroleum $5.7 million signature bonus and will pay $2.8 million production bonus 15

17 Expected Aje Field Upstream Development Plan 16

18 Early Oil Supports GTL Development EARLY OIL A Drill Aje-3 Develop Oil Field Leased OIL FPSO Production GAS FIELD DEVELOPMENT B Develop Gas Field Production GTL Barge / FPSO PDP / FEED New Build GTL Barge or OIL / GTL FPSO 17

19 Accelerate Stranded Gas Acquisition Strategy: Securing Multiple Gas Fields Expand upstream partner s commitment to Syntroleum Increase from 1 team to 6 teams seeking stranded gas Areas of interest: West Africa Middle East South East Asia Funding the expanded opportunities $50 million Stranded Gas Venture Seed money for project acquisition 80% Syntroleum, 20% investors 18

20 Multiple Opportunities in Nigeria Existing independent Nigerian field owners Currently pursuing nine (9) opportunities Nigerian National Petroleum Company (NNPC) Equity Gas GTL Venture Negotiations underway 41 potential GTL Barge sites Excess barge energy provides needed electric power source Open blocks with proven gas discoveries Participating in bid round 11 blocks of interest Have formed three bidding consortiums for specific areas 19

21 Niger Delta Joint NNPC GTL Barge Study GTL Barge 71 Elpa.9 tcf Flare GTL Barge 69,70 Nembe Creek 3.0 tcf Approx. 500 yd S3A8 3.9 tcf Distance to Coastal Waters 12 mi (19 km) 20

22 GTL Barge Study Group Results Potential GTL Production from All Fields Recognized in Study to Date TOTAL GTL PROJECT LOCATIONS: 41 TOTAL BARGES: 78 TOTAL TCF: Location(s) with 1 GTL Barge(s) 400,000 bpd ,000 bpd ,000 bpd ,000 bpd ,000 bpd ,000 bpd Potential Total 1,400,000 bpd 1,400,000 bpd potential GTL production outside OPEC If all Fields in study were converted to GTL. 21

23 Syntroleum Upstream Business Model Formed Joint Venture with proven oil and gas finders Sovereign Oil and Gas Sovereign is a privately owned international oil and gas project developer In February 2004 Sovereign signed an exclusive upstream alliance with Syntroleum targeting stranded reserves world wide 22

24 Sovereign Oil and Gas Track Record Sovereign Geoscience personnel have discovered proven reserves of 4 + billion barrels of crude oil and 2 + TCF of gas Sovereign Engineering personnel have developed major oil and gas fields world wide based upon integrated technical and commercial evaluations. 23

25 Sovereign Oil and Gas Track Record LOCATION PARTNER COMPANY UMC PETROLEUM ( ) SOVEREIGN Angola Block 19 Petrofina 70 WELLS, $3 BN Angola Block 24 Exxon Bangladesh Block 22 Expronet Cote d Ivoire Blks CI-11, CI-12 SK Corp. (Korea), Int l l Finance Corp. Cote d Ivoire Blks CI-01, CI-02 SK Corporation (Korea) Cote d Ivoire Block CI-105 Royal Dutch Shell Equatorial Guinea Block A & B Conoco, BP / Statoil Equatorial Guinea Block B & C ExxonMobil Equatorial Guinea Block C & D SK Corporation (Korea) Pakistan Blocks et al Expronet Equatorial Guinea Block K Vanco, Nexen, Repsol 7 WELLS, $185 MM Nigeria Block OPL 205 Transworld Exploration, Summit Oil Nigeria Block OML 115 Nexen,, Oriental Energy Nigeria Block OML 113 Syntroleum, Yinka Folawiyo Petroleum 24

26 Emerging Coal to Liquids Opportunity United States Government priority Energy security $4.5 million technology Research and Development grant from Department of Defense Abundant U.S. coal reserves 270 billion tons recoverable reserves World s largest coal reserves Technology components exist integration of proven gasification technologies and Syntroleum Fischer-Tropsch required Numerous unsolicited project opportunities from credible sponsors New focus on Coal to Liquids Comprehensive evaluation of opportunities underway 25

27 Summary Major opportunity associated with 3,000 TCF stranded gas Rapidly growing middle distillates market Specific opportunities targeted Aje project remains on schedule Emerging Coal to Liquids strategy 26

28 Financial Review Carla Covey Senior Vice President of Finance and Chief Accounting Officer

29 Strategy of Recent Financings Move into lower cost capital sources Private placements with long-term investors Legg Mason and Dorset Group Funding expanded business development activity with non-dilutive project equity Stranded Gas Venture 28

30 Recent Financings Raised $80 million via private offerings to Legg Mason Opportunity Trust and Dorset Group Corporation Limited equity raise in anticipation of future key events New investors aligned with long term strategy $89 million cash position at March 31 st Anticipate less dilutive future capital raises 29

31 Key Drivers of Near Term Syntroleum Financial Results Research and Development expenditures at operating plants Duration of runs Variation of unit configurations Both driven by potential efficiency gains Expanding business opportunities Greater deal flow Evaluation of new opportunities General and Administrative costs Need for new hires Market pressures on compensation 30

32 Key Driver of Mid-Term Fiancial Results Aje Current Assumptions Pricing NYMEX strip through 2010, $35/Bbl thereafter Production Volumes GTL FPSO producing 17,000 Bpd of syncrude 10,000 Bpd of condensate 50,000 Bpd of peak oil crude Infrastructure Oil reservoir: 13 producers, 3 injectors and subsea infrastructure Gas reservoir: 4 new producers plus completing Aje-1 and Aje-2 and subsea infrastructure Leased oil FPSO ( ) replaced by a leased GTL/Oil FPSO ( ) Operating and Capital Costs $28 MM for Aje-3 dry hole turnkey cost plus $8 MM for testing Total field development cost (oil and gas) of $852 Million Upstream operating costs of $2.00/Bbl crude oil and $1.50/bbl condensate Leased crude oil FPSO at a rate $100,000 per day ( ) Leased GTL/Oil FPSO at a day rate of $100,000 per day for crude oil processing and an additional toll rate of $20/Bbl of GTL products produced ( ) 31

33 AJE Production Profile Production Profile KBPD Oil GTL Condensates

34 AJE: Syntroleum Cash Flows $200 $150 $100 $50 $- $(50) $(100) $2.0 $1.5 $1.0 $0.5 $- $(0.5) $(1.0) Project Net Cash Flow, Mil $ Cumulative, Bil $ Syntroleum Net Cash Flow

35 Syntroleum s Aje Economics ($ in thousands) NYMEX Strip June Mar 29, 28, 2005 Year Total Project Net Revenue* $ 5,700 $ - $ 212,076 $ 250,163 $ 247,928 $ 357,352 3,898,711 Operating Expenses $ 1,625 $ 3,250 $ 21,353 $ 17,794 $ 17,498 $ 47, ,100 Nigerian Taxes $ - $ - $ 84,149 $ 110,718 $ 104,434 $ 137,577 1,334,038 Operating Cash Flow $ 4,075 $ (3,250) $ 106,575 $ 121,651 $ 125,996 $ 172,645 1,642,574 Capital Expenditures $ 5,400 $ 43,614 $ 19,374 $ 10,400 $ 49,400 $ 10, ,533 Free Cash Flow $ (1,325) $ (46,864) $ 87,201 $ 111,251 $ 76,596 $ 162,245 1,368,041 NPV-10 $ 594,393 IRR 100+% 187% * Gross Revenues less royalties plus bonuses and overriding royalty 34

36 AJE: Sensitivity to Crude Prices Net to Syntroleum s Interest $2,000 $1,800 $1,765 $1,600 $1,504 $1,400 $1,200 $1,243 $ Mil $1,000 $982 NPV Net Cash $800 $600 $400 $200 $181 $448 $280 $717 $377 $474 $571 $667 $ WTI Price $/Bbl 35

37 Aje Compared to Conventional E&P Projects $/BOE $14 $12 $10 $- $8 $6 $4 $2 $11.52 Prod. $5.70 F&D $5.82 Prod. $4.50 F&D $3.31 Prod. $4.98 F&D $5.72 Conventional E&P Aje Oil Only Aje Gas Dev. 1Source: 2003 John S. Herold, Inc., Herold Global Upstream Performance Review 2 Aje Oil Only - Costs assume $666 Million oil field development cost to produce 200 million bbl of oil reserves, $2.00/Bbl oil field operations cost and $100,000/day oil FPSO lease rate for an oil production rate of 40,000 Bpd. 3 Aje Gas Dev.- Costs assume $186 Million gas field development cost, $900 million capital cost for a GTL/Oil FPSO, $15,000/day gas field operations cost and FPSO operations cost of $120,000/Day. It is assumed that Aje contains 74 million bbls of condensate and can produce 116 million bbls of GTL fuels. Assumes production of 10,000 Bpd of condensate and 17,000 Bpd of syncrude from GTL. 1 $7.81 $

38 Summary Put in place financing, that is aligned well with our business model Anticipate less dilutive sources of future capital Financial results driven by: Attractive Research and Development expenditures Business Development requirements Schedule of Aje field development Applying Aje Business model to multiple high impact projects. 37

39 Syntroleum Technology Review Kenneth Agee Chairman and Chief Technology Officer

40 The Syntroleum Process Real, tested and ready for deployment Three step chemical conversion of natural gas into ultra-clean liquid fuels Steam Air Reformer Fischer Tropsch Refining LPG Naphtha Diesel Methane 39

41 The Syntroleum Process uses Air H H H H H C C C C H H H H + O H H H H C H H Unique air-based design eliminates costly oxygen plant to make syngas Air offers several key competitive advantages: Safe to operate in marine environment Ability to compress footprint mobility Scales down to capture smaller accumulations 40

42 Technology Development Facilities: Twenty Year Evolution The Shed Cherry Point Catoosa Demonstration Facility (CDF) Tulsa Pilot Plant (TPP ) Refining Pilot Unit (RPU ) Advanced Reactor Unit (ARU )

43 Reformer System Natural Gas Steam Air Compressed air No burner Very low steam Exact H 2 :CO No recycle required Commercially available catalyst Heat Boiler Syngas 2.1:1 H 2 :CO 42

44 Fischer-Tropsch Reactor System Syngas is converted into FT products Slurry bubble column reactor Proprietary Syntroleum catalyst Wax filtered from slurry Light Hydrocarbons & Tail Gas Catalyst Slurry Wax Syngas 43

45 Raw Fischer-Tropsch Products 44

46 Refining Fixed bed hydroprocessing system Hydrocracker with bottoms recycle Mild operating conditions since feed is paraffin Fractionation into products Diesel, Jet, Naphtha, LPG Lube oil production systems Commercially available catalyst optimized for our process 45

47 Refining 46

48 y Reduced Particulate Emissions with FT fuel Relative to JP-8 0% % Change in Particle Number Density -25% -50% -75% -100% -12% -13% -25% -30% -33% Cruise Idle -50% -41% -61% -51% -75% -57% -86% -68% -78% -92% -96% % Volume of FT Fuel in JP-8 Even moderate fractions of FT fuel blended in JP-8 significantly reduce exhaust emission particulates in T63 turbine engine testing. * Note: Results are highly dependent on engine model/year and composition of baseline fuel. 96% reduction* in particulate emissions at idle conditions. 47

49 Significant Technology Barriers To Entry Requires significant time and capital Invested greater than $200 million over 20 years Requires three process technologies New entrants must navigate patents of others Limited club of companies have GTL technology Syntroleum Sasol Shell ExxonMobil ConocoPhillips BP 48

50 Catoosa Plant Demonstrates all Three Process Technologies 70 bpd demonstration plant Fully integrated operation with all 3 steps commercially scalable: Syngas, F-T, and Product Upgrading Commercial catalyst with regeneration, wax separation, full heat transfer internals in FT reactors Plant will train operators for commercial plants Syntroleum Catoosa Demonstration Facility - A Fully Integrated GTL Plant 49

51 CDF Plant Aerial Overview 50

52 CDF Reforming and FT Reformer Start-up November 2003 Design capacity December 2003 FT-1 Start-up December % operation June 2004 FT-2 Start-up March % operation April

53 CDF Refining Start-up February 2004 On-spec products produced March 4, 2004 First product shipped March 12, 2004 First large product shipment March 17,

54 CDF Plant Overview Cat Regen Cat Regen FTRs Fired Heaters Ground Flare Reformer Scrubber Stripper ATR Air Compressor Syngas Compressor 53

55 Technology Advancements There have been several advancements demonstrated over the past year Increased FT reactor gas velocities by 20% Increased wax filtration performance by 100+% Demonstrated attrition resistant FT catalyst Demonstrated new reformer design Results in lower commercial plant capital and operating expenses Continue to see opportunity for significant capacity and efficiency gains 54

56 GTL: Exploiting Remote Gas Discoveries Investor Conference July 12, 2005