Industry Description and Outlook

The oil and gas market is vast; today's operations in the Alberta Oil Sands produce 1.5 million barrels per day, which is expected to double by 2020. In North America, this market’s growth and increased oil production volumes has led to large increases in the amount of contaminated water that is stored by these operations.

During the oil sands extraction processes, water is often used to separate out the oil from sand. This water becomes is contaminated through this process with fine silts alongside many highly toxic chemicals making it unsafe to return to the environment. The potential toxicity from oil sands processed water (OSPW) has led to Alberta’s zero discharge policy. All oil sands tailings water must be stored in a contained environment (known as a tailings pond) where the fine silts are settled out so the water can be reused in oil sands processing stream. In the longer term the water is stored with the goal of eventually remediating the toxins so that the site can be reclaimed.

Today, 200 million litres of contaminated tailings water is produced every day. These tailings ponds of contaminated water cover over 176 km2, an area 50% larger than Vancouver City. They are expected to reach 250 km2 by 2020. Holding 840 million m3 as of today, this will expand their volume to 1.2 billion m3. equivalent to 480 thousand Olympic-sized swimming pools of toxic, corrosive wastewater (Comprehensive Guide to the Alberta Oil Sands - May 2011). Every effort is made to reuse the water in the processing cycle, however it contains highly corrosive contaminants (naphthenic acids) that result from the extraction process and can cause corrosion damage to equipment that can lead to expensive repairs and costly shutdowns. In addition, these tailing ponds have been found to seep into the surrounding environment, releasing toxins into nearby rivers which harm wildlife and contaminate ecologically sensitive areas.

Monitoring of wastewater as well as the environment is mandated by the government. Through the Joint Canada-Alberta Implementation Plan released in 2011, the number of ground and surface water quality and soil testing sites along rivers and in ecologically sensitive areas is expected to double by 2015, with more remote testing sites to be introduced. Costs for sampling are shared unequally between government and industry players. In addition to the increased amount of legislation around environmental monitoring, many companies are moving towards adopting a greener image and with it more environmentally sound policies and management practices. Alongside a need for continuous monitoring, there is a demand for technology to pulse-spot test tailing ponds alongside sites with increased ecologically significance with both regular and increased frequency during a detected water quality event.

As a portable, fast, on-site, and easy to use toxin detector, our technology could be used to meet the need in the market for a fast, pulse-spot testing mechanism. With this technology, results could be obtained with shorter wait-times and intervals, on-site so that sample composition changes are minimized, and integration into information based processes already used in industry. This would make our system ideal for both environmental sampling in many remote locations and for the analysis of water composition to detect corrosive compounds that could damage oil processing operations when reusing process water.

Large oil companies usually hire environmental monitoring and consulting companies in order to do this testing. These groups either collect and test samples themselves or they will have samples from many waste-streams shipped to a central facility for testing. These companies are actively searching for better technologies to detect toxic compounds in processed water alongside existing soil, surface water, and groundwater testing. They are poised to be one of the largest customer bases for our technology. The environmental sensing and monitoring market in the United States is expected to reach $15.3 billion by 2016. Environmental consulting in the United States made $1.2 billion in profit in 2012, and is expected to grow with a compound annual growth rate of 8.7% until 2018. About 40% of this industry is focussed on water and soil quality management. Globally, the water and wastewater monitoring market as of 2012 was valued at 8 billion dollars.

Beyond environmental monitoring sites, contaminated water can cause significant issues when recycled back into oil sands processing systems. Oil companies are a robust second customer base, as we could provide fast on-site monitoring for compounds that could corrode and impair machinery. Our system would act as a simple tool that could spot test monitor a given water channel providing valuable simple readout to the operator. This would add a valuable new monitoring system for oil sands plant operators to measure potentially an corrosion problem that was previously unmonitorable on-site.

Target Markets

Figure 1: General Overview of the North American Oil and Gas market and the Global Waste Water Monitoring markets.

Our primary target market with our general toxin sensor is water-quality monitoring for oil and gas applications. This market segment is dominated by environmental regulation by government bodies for both technical and application components. However, this regulation has also led to a large market opportunity due to the large number of government mandated water quality monitoring sites. Each of these monitoring sites are required to take multiple samples in the surrounding areas on a quarterly or annual basis. The overall number of sites for air, water, and ecosystem quality taken from the Canada-Alberta Oil Sands Environmental Monitoring Information Portal and Information from the Joint Canada-Alberta Implementation Plan are as follows: (numbers are the number of sites required to be monitored in Alberta alone)

Figure 2. Number of sampling stations in the Alberta Oil Sands area broken down by water (blue), ecosystem (green), and air (orange) monitoring.

Monitoring is broken down into air, water, and ecosystem quality, and our technology can be applied to over 50% of the market that is being heavily regulated by government.

Figure 3. Sampling stations for water quality (grey) and air/ecosystem (green) showing the percentage of monitoring sites our technology could be applied to.

In total, more than 500 water and ecosystem quality sites are prime opportunities for our technology to transform their monitoring regimes. Our general toxin sensor technology has vast applications that can meet growing testing needs for on-site monitoring at these sites.

Alberta Implementation Plan from the years 2011 and the expected increase in sites by 2015. Orange dots represent air quality monitoring which our technology cannot presently be applied to.

Table 1. Regulatory sampling sites required to be monitored by the oil and gas industry in the year 2011.

The monitoring market is dominated by government regulation, oil sands mining companies and their respective consultant service companies are likely to use the products and technology dictated by government bodies. Therefore, it is possible to capture a large portion of this market by gaining government input. Regulation will be the key component in seeing success in this market place. Our initial market therefore looks at the government mandated monitoring sites. An overview of this market and its profitability follows:

General toxin sensing for oil and gas applications represents a $50 Million market opportunity. The potential market profitability based solely on this government framework:

500 Station Sites x 100 Samplings (per year) x $150 (cost/samples) = $7,500,000 annual revenue

500 Station Sites x $2,500 (the Unit) = $1,250,000 unit revenue

Maximum Total Revenue Annually = $8,750,000

Assuming that our product can capture 30% of the target market a profitable potential of $2,625,000.

In order to achieve this market capture, The regulatory market must be determined. Six major companies dominate the majority of water quality sensing and monitoring including HydroQual, which is responsible for a large percentage of the water toxicology sensing done for oil and gas companies. We are in the process of establishing a partnership with HydroQual Laboratories to ensure that we can capture this part of the market.

Customer Requirements

Customer requirements will be minimal as long as the technology is appropriately regulated and shows clear advantages compared to competing products. Technology will have to be sensitive, showing that it is accurate and it works as expected and has relevant regulatory clearance. Regulatory agencies will require strict comparisons between present methods and our system to show the efficacy. This will be achieved through a strong collaboration with HydroQual Laboratories. HydroQual is one of the major service companies that deals with commercial analysis of most oil and gas related toxin samples. As both a monitoring body and an end-user of the technology, they will be critical in aiding in reaching the strict regulatory agencies guidelines and requirements. These regulations require Environmental Technology Verification as well as specific EPA regulatory acceptance. See Business Strategy for more information.

Competitors

Monitoring is performed through both short- and long-term collection methods with samples then being shipped to an external lab for testing. This process requires transportation costs, sample processing, and wait times in which the composition of a sample can change dramatically. In addition, trained technicians are required who can operate expensive analytical lab equipment. Traditional Gas Chromatography Mass Spectrometry (GC/MS) or Fourier Transform Infrared Spectroscopy (FTIR) can cost upwards of $500 a sample to prepare and run on the equipment. Current testing regimes require multiple sample collections and tests per site to allow for proper analysis. Though these analytical technologies are highly rigorous their cost, need for highly trained personnel, as well as sample transport make it unrealistic to meet the changing regulatory market for increased spot-test monitoring sites planned by recent legislation. We do not wish to, nor can we compete directly with this highly analytical technology, however our technology provides an advantage in that pre-screening sites can be done. This allows samples to be screened for toxicity faster and on-site, following which those containing toxins or some level of significant change from baseline can then be sent for further processing if analytical data is needed.

Biosensor technology does exist in the industry to provide a faster alternative to these traditional analytical detection methods, when all that is desired is to determine if something toxic is present in a sample. The major system used by the industry currently is a technology known as Microtox®. This system uses a naturally luminescent bacteria to which an environmental sample is added. If the sample contains a toxin, the bacteria will slow in growth or die, causing a decrease in luminescence which can then be read on a spectrophotometer or luminometer. This test is mainly done in a laboratory environment, though a portable version does exist, and while it can provide results within a 30 minute window, has numerous concerns associated with it. A similar test, ToxTrak, is also available in both a laboratory and portable version, though bacterial survival and respiration is measured by addition of a chemical that is utilized during respiration.

Figure 4. Modern Water corporate structure. The company has acquired several companies which have produced general toxin sensing and water analysis technologies which are competitors in our market space.

Currently, the Microtox® technology is available in continuous monitoring, portable, and laboratory based systems. IP for all 3 systems is centralized in a UK based company, Modern Water. The other major biosensor technology, ToxTrak, is owned by Hach. This company is in turn owned by Danaher.

As previously mentioned, these systems both provide sample results within a 15-45 minute window, and are capable of being used for on-site testing to detect a large variety of toxins. Our technology, however, is capable of providing an advantage compared to other competitive products.

Figure 5. Competitive technology comparison chart, detailing our technology platform (FRED) versus other prominent toxin monitoring methods presently in the market. Gas chromatography/mass spectrometry (GC/MS) is a highly analytical, sensitive measurement technique while being expensive, highly technical, and non-portable. The new SPMD/POCIS systems (detailed below in emerging technologies) offer new strategies at long term monitoring and are therefore not direct competitors of our technology. Finally, the Microtox system is a direct competitor which we hope to gain advantage to by being faster, more portable, and more reliable of a measurement system.

Our product will require a change in the device that is used, and will give the customer the opportunity to more easily use the system for on-site monitoring. This may require some changes in staffing as individuals will be required to take more samples on site. Some server space will also be required, but we plan to design our system to integrate into existing server providers.

The market is only expected to grow. In the next 3 years (projected to 2015) the number of sampling sites for water monitoring according to the Joint Canada|Alberta Implementation Plan.

New Emergent Competitive Technologies

In terms of biosensor monitoring technology, a recent development has been made with the Microtox ® system in that a version which allows continuous monitoring has been put onto the market. The Microtox® CTM system can run for an on-line autonomous cycle of 4 weeks without requiring maintenance, and will take continuous readings of toxicity levels in an environmental site. We believe that the method by which this technology has accomplished this continuous monitoring using live bacteria could be something that our system could be adapted to in the future. As well, other methods are being explored theoretically in order to adapt our system so that it can provide the same complement to the Microtox® technology that the portable version provides.

Other technologies for continuous monitoring using traditional methods are also being developed, as well as smaller systems for portable analysis. However we believe that cost and ease of use of these systems will continue to be a barrier to their widespread use in field testing applications.

In addition to this direct monitoring technology, other means of collecting samples over time are being developed. SPMDs (Semi‐Permeable Membrane Device) are composed of a membrane lined with a thin film of lipid, and are put onto a metal frame to be deployed into the environment. These devices will be deployed into water systems in order to capture the bioavaliable, lipophilic pollutants present. Contaminants that can be captured by such a system belong to hydrophobic classes of chemicals (aliphatic hydrocarbons and polyaromatic hydrocarbons). These compounds are capable of penetrating and disrupting cell membranes, and often cause acute and chronic toxic effects to wildlife.

Figure 6. Environmental Sampling Technology's SPMD and POCIS systems for long-term monitoring of organic and water-soluble toxic chemicals in water samples. The systems use membrane technologies to trap a variety of toxic molecules and allows for long-term monitoring of a particular site.

Another system known as POCIS (Polar Organic Chemical Integrative Sampler) will be used to capture polar, hydrophilic, water soluble toxins. This system is composed of microporous polyethersulfone membranes, between which a solid absorbent compound is held. These systems would be deployed in a similar fashion to the SPMD technologies, and often used in consort with the SPMD.

Both these technologies are very innovative, however can only be used for sample capture over time. They must still be retrieved and brought to a lab for sample extraction and analysis on traditional analytical machinery. As opposed to on-site spot testing or continuous active monitoring, these methods are also unable to indicate at what point in a given sample collection timeframe that a perturbing event occurred, only that one had occurred during that given time frame. On-site and continuous monitoring provides the ability to not only detect the time frame within which a change occurs, but also monitor the levels that a given condition changes over that time frame.

Reaction From Specific Prospective Customers

Our product is at a early stage of development and therefore, it is not at a stage where we can demonstrate the product to customers. However, we have had the opportunity to talk to numerous end-user customers about our technology, its application, and the potential market value. We spoke to HydroQual Laboratories, who we are presently partnering with to devleop this technology. HydroQual is one of the major service providers for a myriad of oil sands companies. They hold a cornerstone for monitoring samples for oil and gas and other applications.

Our talks with HydroQual have led to a validation that there is use for our product in industry. They have also partnered with us to develop our technology. HydroQual is owned by a large service consulting based company named Golder Associates. Golder also has identified value in our product and are interested in getting involved in aiding in our technological development.

Canada’s Oil Sands Innovation Alliance (COSIA) and the Oil Sands Leadership Initiative (OSLI) have also provided a large amount of input into the project and have been interested in seeing its development. They have shown interest in our biosensor platform showing a clear interest from oil sands producers.

Marketing Activities

Once we have developed a working prototype and begin manufacturing our product, we require a market strategy to implement delivery of our product. The market is composed of a large number of small companies who may have interest in purchasing this product. Therefore direct distribution will be easiest means to release our product.

Pricing will be determined based on cost associated with the development of the technology. Because of our assessment of the market, one-use based general sensing technology of our competitors involve detectors (lab grade or portable devices) between $10,000-$25,000. Each sample test costs approximately $150-$250 depending on the specifics of the technology and the complexity of the sample to be tested. Therefore, it is our objective to reach a market pricing that would be competitive to these technologies. Our initial price point that we hope to achieve is $150 per sampling, and $2,500 per detector system.

These price points allow for maximum profitability while maintaining a competitive advantage in price-point to our competitors. The lower cost of the device also opens our market to not only target large service providers such as Golder Associates, HydroQual Laboratories, A&L Consulting, etc. but also smaller firms and laboratories who are more greatly affected by product price point.

As identified in our financial assessment, in order for our company to be profitable we require 20,000 number of catridge units sold at a cost of $150 per cartridge or 1,200 units of the detector at a price of $2,500 Provided that we capture 30% of the sensing market (150 operation sites with 100 samplings per year = $375,000 profit from detector systems and $2,250,000 from catridges) who fulfill the government of Alberta’s mandated water monitoring, this will take approximately 1.5 years of active production to achieve profitability (not including manufacturing fees, etc.). This does not include potential revenue from other water management sources for oil and gas, only mandated sources provided from Environment Canada legislation.

We plan to advertise our product through government regulatory bodies as these institutions will dictate the acceptance of our technology in the marketplace. Our initial market strategy involves the adoption of our technology in the oil and gas sector in Alberta. This will be followed by efforts to include the remainder of Canada, targeting other mining operations including precious metals, coal, etc. and further into North America, penetrating markets in the USA.

Our company is NOT planning to act as a field service company, as the water monitoring field is dominated heavily by hundreds of small service based consulting companies. We plan to fit into oil sand providers present frameworks, which does not require that we disrupt their present service company contracts. This allows for us to penetrate more of the market, reducing potential competitors that we might have faced.

Selling Activities

Penetrating this market requires that we sell our product to as many commercially accredited laboratories as well as service companies as possible. To gain a foothold in this market, three major targets have been identified as the leading laboratories who handle oil and gas related toxicological samples:

ALS Environmental* - Most water and sedimentary analyses

AXYS Laboratories* - Sediment analysis of toxins such as PAHs

HydroQual Laboratories* - Water and sediment toxicology data

*Taken from RAMP