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Christy Rivers - Editorial Executive

Revolutionary Environmentally Friendly Water-based Platform improving the structure of Low-Value Hydrocarbons to Make Them More Useful

Ofer Vicus

Chief Executive Office

Aduro Energy Inc

www.aduroenergy.com

Contact:

+1 647 680 3515

[email protected]

Interview conducted by:

Lynn Fosse, Senior Editor

CEOCFO Magazine

Published – March 2, 2020

CEOCFO: Mr. Vicus, what is the idea behind Aduro Energy Inc?

Mr. Vicus: Aduro Energy was founded to creatively simplify the approaches to chemical processes that are traditionally complicated. The simplification makes them more efficient such that they dramatically reduce environmental and financial penalties typical in the chemical and petroleum industry today. The novel, water-based process we developed promises to revolutionize aspects of the hydrocarbon conversion industry by upgrade low-value hydrocarbons materials cheaply, quickly, and in a way that is vastly more environment-friendly. The patented technology operates on a water “platform” that in a sense does what nature does at a highly accelerated way that has advantages over traditional processes such as avoiding the use of excessive heat.

In our everyday experience with water, we know that water and oil do not mix. But at the temperatures we use for hydrothermal processing, things change. In fact, the chemical properties of water become quite different in certain beneficial ways. For example, it interacts with oil to a much greater extent. And a fact I think is most interesting is that neutral water is actually quite acidic under our hydrothermal conditions. Though water is still water, our understanding about these curious changes in its behavior allows us to promote certain desirable chemistries that normally do not occur, such as improving the structure of low-value hydrocarbons to make them more useful.

CEOCFO: Has much research has been done using water in the way you are suggesting or is this a novel concept?

Mr. Vicus: The first related patent we identified dates back to 1938. In the intervening time, notably in the most recent decades, scientists and engineers at some of the largest players in the energy sector explored the possibility to somehow exploit water – and we studied their work. But we are particularly indebted to the late Professor Norbert Berkowitz of University of Alberta (Order of Canada), who went mining for new approaches and understanding. Continuing to dig were he did, we were able to unearth additional, critical insights buried beneath a mountain of existing ideas. Today a number of companies are doing the same, exploring other variations, which also seem to be promising.

CEOCFO: How did you come about looking at this concept? Did a light bulb go on one day?

Mr. Vicus: All of our understanding came gradually through years of risky, rolling research. Some of it yielded positive results that led in new, promising directions. And of course, some led into cul de sacs. We actually studied the science and technology in the field for almost three years prior to beginning actual research. Early on our ideas were dismissed as just the latest iteration of an old, unfruitful idea – a waste of more time and money. But we did not stop. And because of that, Anil and Marc did have a Eureka! moment in which the bulb suddenly got much, much brighter and illuminated the true potential of the technology (which still is under wraps).

What is simply lovely is how our work on two disparate chemical problems made the breakthrough possible. Our initial lessons about water-based upgrading chemistry came through our efforts on heavy oil, but that work stalled because of the incorrect assumptions mentioned earlier. Separately, we endeavored to find an efficient, economically viable way to upgrade renewable oils. But that work also stalled. The Aha! moment occurred when Anil and Marc realized that there was a common problem and a common solution. It happened because Anil and Marc simply were not content to accept conventional wisdom and were relentless in asking “why?” and “how?” Had we only been working in one field or the other, we might well not be where we are today.

CEOCFO: You have the Hydrothermal Upgrading technology (HTU) and the Thermo Catalytic De-oxidation technology, TCD. Would you tell us about both of those?

Mr. Vicus: The first thing to note is that Hydrothermal Upgrading is not a fixed technique. It is a general approach involving heat and water wherein we control particular process and chemistry variables to achieve desired chemical outcomes. With HTU, that means we can upgrade heavy oil under conditions that are far less severe than are typical in petroleum refining. Mainly, that means instead of hitting the oil with a thermal sledge hammer (high temperature), our approach employs “gentle persuasion” to get superior results at lower temperature (and lower energy consumption). Similarly, the TCD process is designed to promote specific reactions to obtain the product we want while preventing other, undesirable reactions that reduce the amount or quality of the product, or the efficiency of the process.

But if you think about it, oil sands bitumen in Alberta is quite different from making diesel from the corn oil byproduct from an ethanol plant in Iowa. We developed HTU as a greener way to improve the properties of heavy oil while TCD is for converting renewable vegetable oils into hydrocarbons just like those in refined petroleum products like diesel. Between the two, the chemical problem to be solved is very different. Yet in both processes, we put those unique, strange properties of water to work.

HTU development was motivated by a vision for a way to upgrade bitumen that was simpler, less expensive, and decentralized. By decentralized, I mean that the HTU process can be configured to operate efficiently on a relatively small scale. This contrasts the reality typical in petrochemical, which in turn allows geographically distributed deployment where the oil is produced. The problem with bitumen is that it is dense and thick compared with conventional, benchmark oils like Brent and West Texas Intermediate (WTI). And that is due to the relatively higher amounts of large molecules called asphaltenes. With the root of that word being “asphalt,” you can appreciate how the same properties that make them wonderful for paved roads complicate the transportation of heavy oils. Still worse, they stubbornly resist conversion to nice, light fuels. And as a consequence, bitumen-based heavy oils also trade at a heavily discounted price compared with those benchmark crudes.

Alberta bitumens may contain over 25% of asphaltenes and related materials, depending on how you draw the line. So, the idea with HTU is to take direct aim at those asphaltenes and break them into lighter materials, some even being in the diesel range. That allows us to turn bitumen into something much closer to conventional oil. The economics are quite impressive: a barrel of low-value heavy oil worth on average about $45/barrel now has a value closer to $60/barrel. Perhaps just as important, heavy oil producers in Alberta now can avoid the cost to purchase and transport light hydrocarbon (basically low-grade gasoline). Brought in from as far away as the U.S. Gulf Coast, it is blended with bitumen at a level of 25% to make “dilbit” that can be transported by pipeline back to refineries in the U.S. But wait, there’s more! Unlike conventional upgrading approaches for making synthetic crude, HTU does not rely on hydrogen produced from fossil fuels, and inherently non-green practice. Thus, HTU turns low-value, problematic bitumen into a higher-quality, higher-value product that eliminates costs associated with dilbit production. More than ever, crude oil is challenged on all fronts, one being fuels from renewable sources. These compete for the same end customers and pressure an industry already in the public eye regarding environmental issues. These issues are even more acute for heavy oil producers due to the additional resources needed to extract and transport it, only to sell at a discounted price. Junior or large producers fight for every dollar spent or earned, but HTU technology can help improve the situation. We anticipate that the return on investment for one of our processing units will be in less than 3 years – a very powerful financial ratio for this industry, beyond which accrue important environmental benefits.

Now let me comment briefly on our Thermo Catalytic De-oxygenation technology, TCD. It’s not so much an extension of HTU as an application of general hydrothermal processing principles. It uses a continuous-flow water-based reactor capable of processing lipids regardless of its fatty acid content. Examples of TCD feeds include waste byproduct corn oil from ethanol plants, vegetable oils that grow on marginal lands for energy production requirements, off-spec canola and soybean oils, yellow and brown grease from restaurants that often ends in waste water treatment plants, and even tallow. At the other end, TCD products are also varied. By building on the core conversion technology, we can produce renewable diesel and bio-jet fuel, saturated fatty acids for consumer and industrial applications, and specialty chemicals for coatings, adhesives, sealants and even foam seat cushions or mattresses.

A feature of TCD that is unique and advantageous compared with alternatives is that just like HTU, it does not use hydrogen from an external source. An irony of certain “green” processes touted for producing renewable diesel and biojet fuel is that they rely on hydrogen from fossil fuel (natural gas). And whereas those other technologies generally resemble petrochemical processes that operate optimally on large scales, TCD shares the downward scalability of HTU, giving it distinct appeal for small and mid-size businesses, ethanol plants, and also farmers, seed crushers, and co-ops searching for a more viable application of their biodiesel operations. Imagine them being able to grow and convert their own oil-seed crops into a variety of higher added-value products including drop-in diesel for powering their equipment. TCD offers the possibility to positively impact local, rural economies by not merely providing jobs, but also providing stability in a volatile and changing market.

CEOCFO: Where are you in development and potential commercialization of your technologies?

Mr. Vicus: Both of the technologies are pilot ready. An sub-pilot HTU demonstration unit be operational by mid-2020 while a larger TCD pilot unit will be ready within 12 months. With both technologies, we’re well beyond the laboratory R&D phase and are squarely into process engineering. Work continues in the lab, to expand the application scope (feeds and products) and deepen our knowledge. And of course, with additional knowledge comes additional ideas for extending our core technology into other markets.

CEOCFO: What has been the interest from people in the industry who are aware of what you are doing?

Mr. Vicus: It is overwhelming! Every single industry player we have engaged so far has been interested. I think they initially had low expectations, but when we pulled back the curtain their response is, “Wow, I didn’t see that coming – this is unique and potentially game-changing.” On that basis, they have made financial commitments to support directed investigations that are preludes to those demonstration scaleups.

CEOCFO: Are you seeking funding, partnerships or investment at this point?

Mr. Vicus: We welcome industry partners that may be interested to financially participate in our pilot program in exchange to some commercial benefits. And we are in the midst of closing our funding rounds. We also are open to collaborations with private, government, or academic research centers interested in participating in development of this incredible technology.

CEOCFO: How far will the current funding take you?

Mr. Vicus: We have high level of interest from industry partners, so we anticipate it will take us through the commercial demonstration phase and up to the second raise, which will take about 24-30 months. The pilots in our markets are often high risk and capital intensive. And they provide important information about product yield and quality, energy efficiency, potential for further optimization, and of course, environmental factors.

Often, companies find themselves buried under the bills of an operating demo, but we believe that this is will not be our case. Because the technology has vast amount of processing flexibility, customers will want to investigate how it adapts to their particular feedstock and commercial needs. Therefore, our business model provides for price-advantaged demonstration sessions that translate results from a battery of standard lab tests into run sessions on demo-scale equipment. Through three consecutive phases with defined milestones, the results providing information important for the next phase and giving customers understanding they need continue with the effort.

CEOCFO: What surprised you throughout this whole process of getting to this point at Aduro Energy? What was unexpected during the process?

Mr. Vicus: The discovery of the HTU potential was like trying to assess the size and shape of iceberg from its tip above the water. I never could have imagined that the technology would be so powerful and versatile. Follow-on applications beyond HTU and TCD are just as exciting. And common to all of them is the possibility to either reduce capex and opex to a fraction of that for established technologies. Even better, we envision adapting our hydrothermal technology to give life to ideas that today are not viable for economic or technical reasons. And we’ll do this in a way that that is not merely efficient, but gets top scores on environmental benefits.

Every company with a new technology likes to think theirs will be revolutionary, disruptive, game-changing, etc. That includes us, but it’s more helpful to simply recognize that we can’t expect to get different results by keep on doing the same thing. In this digital age, even companies in the chemistry business are pressed to do things better-faster-cheaper. At the core, that’s about performance: not just having power to do something, but being able to do it efficiently. In our own idiom, that’s what Aduro Energy does. Certainly, the specific HTU or TCD process is efficient, but equally important is the efficiency with which we can maneuver the core hydrothermal principles to handle new feedstocks and address new problems. What is perhaps the most surprising, and also the most satisfying, is that the power of what we do resides in its simplicity. I’d even say it’s elegant in its simplicity. A number of notable people have commented on the ease of making things complex and the genius required to make things simple. Certainly we’re in good company with many good, smart, hard-working people, some of them in the largest energy companies in the world. But I’d like to think that we’ve differentiated ourselves by seeing some things overlooked by others, imagining possibilities others haven’t considered, and refusing to be constrained by how things are supposed to be. Thanks to our capable team, we are very close to the point of harnessing the benefits this technology can bring to the energy and chemical industries.


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