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Headwaters Incorporated Announces Commercial Scale Test of Its Proprietary (HC)3(TM) Heavy Oil Hydrocracking Technology

Posted on: Monday, 7 November 2005, 18:00 CST

Headwaters Incorporated (NYSE: HW) today announced that it has begun a commercial-scale demonstration of its proprietary (HC)3(TM) Heavy Oil Hydrocracking Technology ("(HC)3 Technology") at a large commercial refinery. The (HC)3 Technology uses a unique liquid catalyst, chemically generated within the process plant, to change residual oil feedstocks into higher-value distillates which can be further refined into gasoline, diesel and other fuel products. This test will take approximately one month to complete, after which Headwaters expects to announce more technically detailed results. At this early point, the test is proceeding as expected and will be carefully monitored throughout the test period.

The refinery for this initial full-scale test was selected because the (HC)3 Technology is relatively easy to integrate with the refinery's existing hydrocracking reactor system. (HC)3 Technology utilizes a specially designed catalyst addition and conditioning system to function with the existing ebullated bed reactor.

Headwaters believes that the (HC)3 Technology represents a breakthrough in heavy oil upgrading. Older processes for upgrading so-called "bottom of the barrel" residuals have been in commercial use for almost a century. The earliest of these relied on "thermal cracking" -- breaking down large molecules into smaller ones at high temperatures -- while later technologies utilized solid catalysts and hydrogen addition to improve the quality of the main products and to minimize the production of unwanted byproducts. Solid catalysts, though, are limited by their physical structure in terms of the maximum amount of residuum that can be converted and to the quality of the products. Before the introduction of Headwaters' (HC)3 Technology and its unique liquid-phase catalyst, conventional (solid) catalytic hydrocracking was the state-of-the-art in heavy oil upgrading. Now, by utilizing this new liquid-phase catalyst technology, we believe refiners can produce more distillates of better quality than anything previously possible.

Having a combined throughput of nearly 500,000 barrels per day of residual oil, ebullated bed heavy oil upgrading units, similar to the one where the trial is being carried out, are capable of quickly integrating and utilizing the (HC)3(TM) Technology. These plants are diversely located in North America, Europe, Asia, and the Middle East, and often process the kinds of heavy crude oils found in Canada, Mexico and Russia, as well as the lower grades of Arabian and other OPEC crudes. In addition to ebullated bed reactors, heavy oil is upgraded in less efficient fixed bed reactors around the world. Fixed bed reactors are the most common upgrading technology for heavy oil.

The residuum-handling capacity of the world's ebullated and fixed bed heavy oil hydrocracking reactors is approximately 2.7 million barrels per day. In the latter half of 2005, the price-spread between No. 2 fuel oil and residual oil has been in the range of $20 to $25 per barrel. At current residuum conversion rates, those 2.7 million barrels of heavy oil are converted into just under 1 million barrels of light materials, with the remaining 1.7 million barrels sold for blending into low-value asphalt, bunker fuel and similar residual products. If these existing plants were converted to (HC)3 Technology, the increase in heavy oil conversion from today's average of 37% could go as high as 50% to 60%, equivalent to an additional 350,000 to 600,000 barrels of high-value fuel oil products. At a differential price of $25 per barrel, (HC)3 Technology potentially could add as much as $9 to $15 million of gross value per day by producing No. 2 fuel rather than residual fuel, equivalent to a total gross value creation for these refineries in the range of $3 to $5 billion dollars per year.

Beyond its application as an additive to existing heavy oil hydrocrackers, the (HC)3(TM) Technology, including hydrocracking processes and proprietary catalytic materials, is also designed for use as the principal hydrocracking technology for new projects based on heavy crudes, including Canada's tar sand bitumen. Estimated at 174 billion barrels of crude oil, Canadian bitumen represents a large portion of the world's oil reserves and efforts are underway by Canadian producers to increase production from these resources.

"We are pleased that the commercial test of our breakthrough (HC)3(TM) Technology is finally underway," said Craig Hickman, president of Headwaters Technology Innovation Group. Hickman added, "Now perhaps more than ever, the world needs new technology that makes the growing supply of heavy oil more valuable and easier to work with. Without building a new refinery, (HC)3(TM) Technology may decrease some of the need for new crude oil because we can produce additional light distillates from the heavy oil that we already have."

About Headwaters Incorporated

Headwaters Incorporated is a world leader in creating value through innovative advancements in the utilization of natural resources. Headwaters is a diversified growth company providing products, technologies and services to the energy, construction and home improvement industries. Through its alternative energy, coal combustion products, and building materials businesses, the company earns a growing revenue stream that provides the capital needed to expand and acquire synergistic new business opportunities.

Forward-Looking Statements

Certain statements contained in this report are forward-looking statements within the meaning of federal securities laws and Headwaters intends that such forward-looking statements be subject to the safe-harbor created thereby.

Forward-looking statements include Headwaters' expectations as to the managing and marketing of coal combustion products, the production and marketing of building materials and products, the licensing of technology and chemical sales to alternative fuel facilities, the receipt of product sales, license fees and royalty revenues, the development, commercialization, and financing of new technologies and other strategic business opportunities and acquisitions, and other information about Headwaters. Such statements that are not purely historical by nature, including those statements regarding Headwaters' future business plans, the operation of facilities, the availability of tax credits, the availability of feedstocks, and the marketability of the coal combustion products, building products, and synthetic fuel, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events and our future results that are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Actual results may vary materially from such expectations. Words such as "expects,""anticipates,""targets,""goals,""projects,""believes,""seeks,""estimates," variations of such words, and similar expressions are intended to identify such forward-looking statements. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances, are forward-looking.

In addition to matters affecting the coal combustion product, alternative fuel, and building products industries or the economy generally, factors which could cause actual results to differ from expectations stated in forward-looking statements include, among others, the factors described in the captions entitled "Forward-looking Statements" and "Risk Factors" in Item 7 in Headwaters' Annual Report on Form 10-K for the fiscal year ended Sept. 30, 2004, Quarterly Reports on Form 10-Q, and other periodic filings and prospectuses.

Although Headwaters believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that our results of operations will not be adversely affected by such factors. Unless legally required, we undertake no obligation to revise or update any forward-looking statements for any reason. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

Our Internet address is www.headwaters.com. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our reports can be accessed through the investor relations section of our Web site.

Source: Business Wire

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