Investor Presentation March 2014 Advisories Advisory – Forward-looking Statements This presentation contains statements that may constitute "forward-looking statements" within the meaning of applicable securities legislation. These statements include, among others, statements regarding business strategy, beliefs, plans, goals, objectives, assumptions or statements about future events or performance. By their nature, forward looking statements are subject to numerous risks and uncertainties, some of which are beyond NWU’s control, including values, the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, environmental risks, competition from other industry participants, lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect and, as such, undue reliance should not be placed on forward looking statements. Actual results, performance or achievement could differ materially from those expressed in, or implied by any forward looking statements in this presentation, and accordingly, no assurance can be given that any of the events anticipated by the forward looking statements will transpire or occur, or if any of them do so, what benefits the Corporation will derive therefrom. NWU disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. 2 Overview North West Upgrading (“NWU”) is a private company that has partnered 50/50 with Canadian Natural Resources Limited (“CNQ”) to form North West Redwater Partnership (“NWR”) to build and operate a world class bitumen refinery with an integrated CO2 solution − Equity Funded – NWU has funded $318 million of equity into NWR that has accrued to $412 million or $2.54 per basic share and is expected to accrue to $495 million ($3.05 per share) at start-up in 2017 − Experienced Team – NWU instrumental in putting together NWR team which has deep experience in building and operating upgraders and refineries (Shell, Motiva, Suncor, Syncrude, CNQ) − Approvals Complete - NWR is building a 150,000 barrel/day bitumen refinery in three 50,000 barrel/day phases – Phase 1 is being built − Quality Products - The NWR refinery will convert pipeline-delivered bitumen blend feedstock into ultra low sulphur diesel and other high value petroleum products (VGO, diluent) − Feedstock Contracted - The Alberta Petroleum Marketing Commission (“APMC”), agent of the Crown, and CNQ (together “Feedstock Partners”) provide 100% of feedstock for Phase 1 under a 30 year cost of service toll contract 3 The NWU management team: strong leadership • Ian MacGregor, Chairman, CEO, and President • • • • Larry Vadori, Executive Vice President Business Development and Business Services • • • 33 years at Shell Canada General Manager Scotford Refinery Tom Ebbern, Chief Financial Officer • • • Founded North West Upgrading 40+ years of business creation and development experience Founded or co-founded several substantial energy companies 15 years in upstream and midstream oil and gas 14 years in energy investment research and investment banking (Newcrest/TD, Tristone/Macquarie) Gary Lee, Executive Advisor Business Development and Corporate Secretary • • • Founded North West Upgrading Practising lawyer for 20 years 15 years business creation and development experience 4 Board of directors Ian MacGregor (Chairman, CEO, and President) Founder and Partner, North West Capital Gary Lee (Executive Advisor Business Development and Corporate Secretary) Founder and Partner, North West Capital Eric Schwitzer Private Investor William B. Welte Retired President and Chief Executive Officer of Motiva Enterprises Kathryn McQuade Former Executive Vice President and CFO, Canadian Pacific Railway Limited Carmine Falcone Former Royal Dutch Shell and Motiva executive 5 North West Redwater Partnership Management CNRL • • • • APMC • Steve Laut, President Réal Cusson, Senior VP, Marketing Réal Doucet, Senior VP, Horizon Projects Corey Bieber, Chief Financial Officer & Senior VP, Finance • NWU • • • Ian MacGregor, Chairman, CEO and President Carmine Falcone, Director Larry Vadori, Executive VP Business Development and Business Services Thomas Ebbern, Chief Financial Officer NWR Partnership Chris Covert, President – North West Redwater Partnership • • • 40 years experience Most recently, President and Chief Executive Officer of Foster Wheeler USA Prior to that, Senior Vice President and Project Director with Fluor Corporation 6 Sturgeon Refinery process Input Process Output Fuel gas + Bitumen ~ 50,000 + Diluent mix ~ 28,630 Bitumen Blend ~ 78,630 Product Value CO2 Sulphur LPG Diluent Light Ends Recovery LPGs (butane, Propane, Ethane) Ultra-Low Sulfur Diesel Crude & Vacuum Units Hydrocracker & Hydrotreater Resid Hydrocracker Low Sulfur Vacuum Gasoil Total Liquids 28,270 bbls/d 3,370 bbls/d 40,250 bbls/d 8,790 bbls/d 80,680 bbls/d H2 CO2 VGO Diluent Gasifier Pure CO2 Sulphur recov. Sulphur 3,500 T/d 431 T/d Diesel 7 Location advantages Evolving hub for oils sands Established infrastructure and synergies o Power, water, natural gas, hydrogen, rail and road Proximity to labour Close to fabricators 8 Supportive fundamentals Million bpd 4.0 Alberta Bitumen production growth 3.0 2.0 2012 2017 2022 Source: AER Phase 1 supply is fully contracted Bitumen supply growth will drive strong demand for Phase 2 and 3 9 Western Canada diesel fundamentals Western Canada ULSD Supply/Demand Kb/d Diesel 12 Month Average Percent of WTI 400 140% 375 350 325 120% 300 275 250 225 NWR Phase 1 200 175 100% 2007 2010 2013 Quality specifications inhibit current suppliers from expanding 150 125 Demand Current Refinery Capacity Demand Growth - 20yr Avg Rate 10 Diluent Supply/Demand Thousand bpd 1,000 Alberta Demand 500 Alberta Supply 0 2004 2009 2014 2019 Source: AER Bitumen blending creates demand NWR located at market hub Market hub price advantage 11 Strong bitumen to product margin Commodity Price Basis Differentials, % WTI 127% 114% 100% 46% 68% 74% 57% Bitumen Dilbit WCS *Various Sources 2013 Average – Nymex, OPIS, Netthruput, NetEnergy, Public Reports WTI Product Basket Diesel 12 Products margins are robust NWR Annual Margin vs. WTI $US/bbl of Feedtock $110 $100 $90 $80 $70 $60 $50 $40 $19.1 $30 $20 $27.6 $10 $0 2007 2008 2009 Feedstock Discount WTI 2010 2011 2012 2013 Product Premium Average Gross Margin $37.09 13 $8.5 billion capital cost estimate Approximately 30% of engineering completed early November 2013 Project capital cost estimate increased from $5.7 bn to $8.5 bn As of February 2014, $1.5 bn incurred and ~ $4.0 bn committed Start-up second half 2017 14 Structure CNUL 50% Owner NWU 50% Owner Equity Return on Equity Return of Equity Profit Participation Capacity Creep 30 Year Processing Contract APMC 75% Toll Payer 37,500 bbls/d Bitumen Processing Tolls Profits after toll cost 12,500 bbls/d Bitumen Processing Tolls CNRL 25% Toll Payer NWR Sturgeon Refinery Products to Market Profits after toll cost 15 Changes to 30 year cost of service processing contract Cap on capital costs removed: Additional Funding from Toll Payers: Old deal, costs in excess of $6.5b to be funded by NWU and CNRL with no additional toll Two forms of Subordinated Debt Class A Subordinated Debt funding to maintain 80/20 ratio with Senior Debt, which attracts a matching toll Class B Subordinated Debt only advanced if Senior Debt isn’t available at BBB + 150bps NWU has no further funding obligation Excess Capacity: NWU share reduced from 50% to 32.5% NWU has option to repurchase 12.5% of the excess capacity at FMV after COD Rate Base: 10% return reduced to 5% Return of equity deferred until Subordinated Debt is amortized Definitive agreements complete shortly 16 Additional financing fully provided by Toll Payers Class A Subordinated Debt with matching toll Class B Subordinated Debt Only advanced if additional senior debt cost exceeds BBB + 150bps If required, repayment will be an obligation of NWR (no matching toll) Repayment will be dedicated from the following cash flows 40% of the return on equity (60% will still be available for distribution to NWU and CNUL) Two thirds of the profit share Two thirds of the excess capacity margin 17 NWU unrisked cash flows (Phase 1 only) Unrisked NAV Before renegotiations After renegotiations Before tax $/share Cashflow NPV10 / share $/share Cashflow NPV10 / share Rate Base $0.41 $2.88 $0.15 $1.31 Profit $0.13 $1.80 $0.08 $1.28 15% Creep $0.24 $1.93 $0.17 $1.47 Total $0.78 $6.61 $0.41 $4.06 (average first 10 years after on-stream) Before renegotiations: $5.7 billion capital, last 8 year average pricing, 15% creep within 6 years, credit rating BBB+ After renegotiations: $8.5 billion capital. Last 8 year average pricing, 15% creep within 6 years, credit rating BBB+ 18 Protected downside NWU has no additional equity funding requirements to complete the project In the event of increased Senior Debt cost (BBB + 150bps), Toll Payers committed to fund all capital necessary to complete the project Disaster case scenario, cash flow of $0.09 per share, NPV10 $0.68 Rating degrades, Class B Subordinated Debt is funded to complete the project There is no excess capacity There is no profit from processing NWU receives 3% return on equity rather than 5% 19 Current status C$1.5 bn has been spent on the Project Committed to cost plus contracts totalling ~$4b ~ 30% of engineering is complete Early field construction commenced Financing plan initiated $638 mm of funded equity $1,170 mm Bridge Facility in place $225 mm of Class A Subordinated Debt provided by April Syndicated bank credit Facility and bond financing ~$5 bn expected to be completed in first half of 2014 Increasing to over $8 bn of debt capacity Commercial operations second half of 2017 20 Deep Undergrounds Warehouse/Firehall Building progress – Feb 2014 Inside of Reactor Assembly Building – Feb 2014 Last Reactor Segment Arriving on Site North West Upgrading financing plan Except for G&A, no further equity needed to complete construction NWU currently has ~ $4 mm of liquidity which based on recently initiated cost cutting, should cover G&A needs to approximately mid 2015 Management on minimum cash compensation Most management compensation is at risk Many shareholders looking for liquidity A plan being developed targeting implementation after completing contracts, forming bank syndicate and bond issuance (~ summer 2014) NWU plans to raise approximately $10 mm to fund G&A through 2018 25
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