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  • "We know more than we know we know aboutmanaging costs in Oil Sands projects!"

    In Conjunction with the University of Calgary

    9th Annual Athabasca Oil Sands ConferenceEdmonton AB, September 22 & 23, 2009

    Presenters: George Brindle, PEng, MBA, Laricina Energy Ltd.Francis Hartman, PhD, PEng, University of Calgary

  • September 23, 2009

    9th Athabasca Oil Sands Conference

    2Thank you

    Thanks to our Graduate Student:Jason Scherpenisse, B.Sc. for his help in compiling andverifying the data referenced in this presentation.

  • September 23, 2009

    9th Athabasca Oil Sands Conference

    3What do we know?

    What do we really know about In Situ project costs?

    History can provide valuable insights,

    The data is there, we have been at it for 30 years!

    In situ is not the only new industry / technology to bedeveloped and deployed to the field,

    Other industries can provide learnings as well.

    You need to do your homework beforehand to determinewhat works and what doesnt.

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    9th Athabasca Oil Sands Conference

    4Learning from past oil sands performance

    Current perceptions about costs in the oil sands.

    Costs are rising and cost inflation is unstoppable.

    What is really happening and what can we expect?

    A look at past cost records.

    Cost myths.

    Trends from other industries.

    Next steps for our study.

    Outline

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    9th Athabasca Oil Sands Conference

    5Past cost trends

    What does it tell us? What are the facts? What is conjecture?Source: Company reports and internal estimates

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    9th Athabasca Oil Sands Conference

    6The steel cost myth

    What has beenthe behavior ofsteel prices?

    Lets compareto slopesobserved forinflation andNelson-Farrarthose years.

    Source: www.bloomberg.com, www.thesteelindex.com, Statistics Canada, Bank of Canada

    Historical Steel Prices (CRSC)

    US

    $/m

    TNelson Farrar

    Construction industryIndex

    Core CPI

    7.2%4.7%

    4.9%

    8.6%

    1.6% 1.9% 2.1%1.6%1.7%

    General CAPEX CostIncreases Alberta

    16.58%

    16.29%

    12.55%

    7.57%8.49%

    GeneralconstructionCAPEX.

  • September 23, 2009

    9th Athabasca Oil Sands Conference

    7Recent steel prices connected?

    Lets take a closerlook.

    What do theindices look likethese past fewyears?

    Source: www.bloomberg.com, www.thesteelindex.com, Statistics Canada, Bank of Canada

    Cold Rolled Steel Coil

    General CAPEX CostIncreases Alberta

    Core CPIUS

    $/m

    T

    Nelson FarrarConstruction industry

    Index

    8.6%

    1.4%1.5%

    1.5%

    1.7%1.9%

    16.58%

    16.29%

    22.9%

    25.1%

    3.7%-11.3%

    -14.7%

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    9th Athabasca Oil Sands Conference

    8The steel cost myth continued

    Steel is not to blame: Steel represents only a smallportion (~8%) of total plant cost,19% of well cost

    Cost break down on a typical SAGD plant

    Cost break down on a typical SAGD well

    Labour costs are a muchmore significant component: Field labour, 22% Engineering, 12% Shop fabrication, 8% Of Total installed cost: 42% Component to indirect and sub-contract supply.

    Source: IMV Projects Limited and Laricina Energy Ltd.

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    9th Athabasca Oil Sands Conference

    9Labour costs are out of control?

    Weve seen thefinger pointed atlabour. Is this blamedeserved?

    Source: Statistics Canada

    Total Wage for Industrial Work

    Compared toinflation

    Core CPI

    1.6%1.9%

    2.1%

    1.6%

    1.7%

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    9th Athabasca Oil Sands Conference

    10Does WTI Connect to Costs?

    Currently ahypothesis hasbeenpresented thatproposes thatcost willreducebecause WTIhas gonedown

    Is thatdeserved?

    Source: Statistics Canada, Energy information Administration: Official Energy Statistics (U.S. government)

    West Texas Intermediate (WTI)

    Nelson FarrarConstruction industry

    Index

    Core CPI

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    9th Athabasca Oil Sands Conference

    11So whats up?

    How do scope and volume come into play?Source: Company reports and internal estimates, Stats Canada, Bank of Canada

    Core

    CPI

    General CAPEX CostIncreases Alberta

    General Inflation

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    9th Athabasca Oil Sands Conference

    12Is the scope understood?

    How does the volume/extent of our project affect ourcosts?

    Cost effectiveness is measured by output or capacity, butdo we know the volume of our work?

    How does the number of projects affect each projectscosts?

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    9th Athabasca Oil Sands Conference

    13Industry in rapid growth

    The in situ sector isrelatively new but hasrecently seen rapid growth,

    3 operators/3 commercialplants in 1994 to 14operators/27 commercialin situ type plants by 2008

    Few companies haverepeat experience

    Thermal operators and plants by year(plant capacity > 10 000 bopd)

    Source: Company reports and internal estimates

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    9th Athabasca Oil Sands Conference

    14Industry in rapid growth

    Most projects are FIRSTATTEMPT; and only aboutfour examples of SECONDATTEMPT

    Small pool of experiencedlabour and engineering talent

    Where have we seen thisbefore?

    Source: Company reports and internal estimates

    Thermal operators and plants by year(plant capacity > 10 000 bopd)

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    9th Athabasca Oil Sands Conference

    15Learning from the power industry

    Cost to implementtechnology has frequentlybeen underestimated inmany sectors

    True cost to develop andimplement takes time anditerations to sort out

    Best documentedexamples of the LearningCurve from powerindustry

    The rate at which costsdecrease by incorporatingpast learnings

    1980s 1990s

    Source: Yeh, Rubin et al. And Colpier & Cornland

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    9th Athabasca Oil Sands Conference

    16Learning from the power industry

    Long term costs will befar lower than seeninitially

    Is this what we are seeingin the oil sands?

    How would we know?

    What would we look for?

    1980s 1990s

    Source: Yeh, Rubin et al. And Colpier & Cornland

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    9th Athabasca Oil Sands Conference

    17A hypothesis for SAGD learning curves

    Are there learningcurve issues?

    If we know thelearning curveapplies to in situ, whatquestions does acompany need to askwith respect to theproject developmentcycle?

    Where is the technological plateau?

    Source: Company reports and internal estimates, Stats Canada, Bank of Canada

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    9th Athabasca Oil Sands Conference

    18Next steps

    Have we closed the loop on learning at both individualand organizational levels?

    Do we have enough repetitive experience?

    Are we repeating the same mistakes?

    What are we doing to retain knowledge? Are we succeeding?

    Characterizing project scope and size What attributes are needed for success

    Does our project/property have the scale and size tocapitalize on long term cost reductions?

    Questions that need to be asked,

  • September 23, 2009

    9th Athabasca Oil Sands Conference

    19

    One needs to learn from success stories both from withinOil Sands and outside,

    Small scale evidence is emerging from within the in situ sector

    that some companies have asked the right questions.

    A growing number of in situ repeats will force morecompanies to do their soul searching,

    They will begin to ask the right questions

    We will be back in the November CHOA BusinessConference with some of our evidence!

    Look back at the success stories,

    Next steps

  • September 23, 2009

    9th Athabasca Oil Sands Conference

    20Notice to Conference Participants

    Latest Presentation available for download at:www.laricinaenergy.com

    Thank you!

  • September 23, 2009

    9th Athabasca Oil Sands Conference

    21

    This Laricina Energy Ltd. (the Company) Presentation is confidential and should not be distributed to any person other thanattendees to whom this Presentation was initially presented to by the Company. Some of the statements contained in thisPresentation may be forward-looking statements. Forward-looking statements may include, but are not limited to, statementsconcerning estimates of exploitable original-bitumen-in-place, predicted recovery factors, steam-to-oil ratios and well productionrates, estimated recoverable resources, expected regulatory filing, review and approval dates, construction and start-up timelinesand schedules, company project potential production volumes as well as comparisons to other projects, statements relating to thecontinued overall advancement of the Companys projects, comparisons of recoverable resources to other oil sands projects,estimated relative supply costs, potential cost reductions, recovery and production increases resulting from the application of newtechnology and recovery schemes, estimates of carbon sequestration capacity, costs for carbon capture and sequestration andpossible implementation schedule for carbon capture and sequestration processes or related emissions mitigation or reductionscheme and other statements which are not historical facts. You are cautioned not to place undue reliance on any forward-looking statements as there can be no assurance that th