First demonstrated over 80 years ago, GTL has a long and colorful history. It was a mainstay of the German and Japanese fuel supply in WW2. Governments, major oil companies, and new entrants have made substantial investments over the years. While limited commercial operations are in place, the technology hasn’t progressed enough to enable widespread economic use.

Blue Star Sustainable Technologies Corp. has developed a set of new catalytic processes to convert natural gas into clean liquid fuels, as a new variant on Fischer-Tropsch. Based on a number of innovations (pat. or pat pend.), Blue Star reduces costs by simplifying the GTL process and by making small-scale units that can be standardized and mass produced for use in gas fields throughout the world, rather than seeking economies through very large units.

A pilot unit (six barrels per day) has successfully demonstrated all of the process steps. The Company is now building a 10-barrel per day demonstration unit (Blue Star 10) to prove integrated system performance. Designed to operate in remote oil and gas field operations and other applications, the Blue Star 10-demonstration unit is to be located in Wyoming’s Powder River Basin gas field, where very large potential unit sales exist.

BlueStar’s approach is unlike any other player in the GTL industry, with their focus on volume sales of small-scale (10 to 500 BPD) plants. All the others do large scale facilities (10,000 to 100,000 barrels per day), and can produce only a synthetic crude oil which requires further refining.

Remarkably, the liquid fuel produced by Blue Star –in the field– will be suitable for immediate use in diesel engines. (Lab analyses show good properties, and the fuel is EPA registered; engine testing has yet to be done.) The company calls this “Direct Diesel”. Their units could serve numerous potential applications worldwide for small stranded gas fields, as just one example. Coal bed methane also looks like an attractive market possibility, not to mention the 3.7 TCF of gas that is flared around the world each year.

The Blue Star 10 is to be the Company’s first commercial product. It is skid mounted and designed to be transported to remote locations by truck. The Blue Star 10 converts approximately 200 MCFD of natural gas into 10 BPD (420 gallons per day) of a clean synthetic diesel. It also generates 300 kW of excess electricity (6,807 kWh per day). Industrial grade potable water and low temperature heat are the other byproducts of the process. The Blue Star 10 produces minimal toxic or noxious emissions.

These attributes are intended to open markets for applications where either: 1) electrical and fuel delivery infrastructures are not readily accessible; 2) power and fuel are expensive; or 3) there may be on-site uses for heat or water. Broader mandates for clean fuel emission standards are supportive of market development. In particular, the fuel produced by the Blue Star process contains essentially no sulfur, surpassing diesel fuel standards to take effect in 2006. The fuel also has improved combustion characteristics.

Blue Star will capitalize on proprietary catalyst, hardware and system concepts that provide competitive advantages for the development of small-scale GTL facilities. Interestingly, some of Blue Star’s key innovations do not lend themselves to application at large scale, with the important exception of the “direct diesel” capability. Licensing of technology is a distinct part of the company’s future plans.

The Company is also developing a mid-scale unit capable of producing 500 BPD of high-grade synthetic fuel from 5,000 MCFD of natural gas. At this size, the Blue Star 500 can deliver twice the liquid conversion efficiency of the Blue Star 10. The Blue Star 500 would be useful for converting stranded gas fields in the 50 to 100 BCF range in North America and other parts of the world to a high quality, clean and transportable fuel. Many fields with these characteristics are believed to exist worldwide. There are also numerous locations with fields of similar size where gas is currently flared or vented that provide market opportunities for both the Blue Star 10 and Blue Star 500 plants. While significantly larger, the Blue Star 500 is still substantially below the commercial scale targeted by competing companies in the GTL industry.

In Phase I, a prototype of the Blue Star 10 will be completed in 2002 and tested at an application site in 2003. Manufacturing engineering, marketing and business development activities to prepare the Company for commercial introduction of the Blue Star 10 will also be completed during Phase I of the business plan.

Following Phase I, the Company expects to proceed to commercial sales and distribution in Phase II. Manufacturing will be outsourced, possibly offshore and adjacent to international markets as sales volumes grow. A business scenario projecting Phase II performance has been developed. In this scenario, sales of the Blue Star 10 unit are projected to reach 200 units per year in 2008. The first Blue Star 500 unit is constructed in 2007.

The Company seeks a participant to fund a significant share of the next phase of its program (Phase I) covering a two year time period. The total cost of the Phase I program is $12 million. The size of the ownership share available and the structure of such participation are negotiable. Emex Corporation (EMEX-nasdaq) currently owns the Company, and is committed to continuing as an active investor. A business plan is available.

Contact: Nicholas Vanderborgh, President
Blue Star Sustainable Technologies Corp., Arvada, CO
303-432-8630 nvanderborgh@bluestarstc.com

[Text adapted from company materials with further discussions with management.]