Grizzly and its shareholders believe that the wide regional price differential afflicting heavy oil produced in western Canada due to export capacity constraints, is a long term phenomenon. In order to maximize its bitumen production netback, Grizzly has made a serious commitment to market its growing production stream by rail.

Grizzly aims to gain direct access to higher bitumen pricing available in U.S. refining markets, by establishing a complete oil-by-rail marketing infrastructure. The company is assembling the expertise, infrastructure and relationships needed to ship virtually 100 percent of its bitumen production by rail to markets with tidewater pricing.

Shipping oil by rail has numerous advantages, including:

• Foremost, gaining access to Brent based pricing, less a quality differential, for bitumen blend in the U.S. Gulf Coast refining market. The increment netback capture, after deducting all costs, is estimated to average $5-$10 per barrel over the long term, at lower volatility (not including the benefits of back-hauling condensate; see below);
• Bypassing current pipeline constraints and avoiding the uncertainty-related risks surrounding proposed crude oil pipelines;
• Avoiding the drawbacks of long-term (up to 20-year), take-or-pay shipping contracts imposed by the large trunk pipelines. These contracts create serious risks for smaller oil sands producers, requiring them to sell their bitumen to midstream aggregators, sacrificing further netback;
• Gaining flexibility for batch sizes and timing. Shipping by rail is well-suited to accommodating growing production volumes as new wells and ARMS plants are brought on-stream, as well as interruptions due to plant turnarounds or other constraints;
• Exploiting North America’s rail network to access multiple markets, creating the opportunity to direct cargoes to the most advantageous pricing locations on short notice; and
• Using rail, condensate blend amounts per barrel of bitumen can be reduced by 50 percent from conventional pipeline requirements. Back-hauling condensate can sharply reduce Grizzly’s net condensate expense. This benefit is independent of changes to the bitumen price differential or pipeline tolls;

The company has taken the following initiatives:

• Sign a 10-year rate agreement with CN Rail for haulage of Grizzly’s rail car fleet towards the U.S. Gulf Coast and potentially other markets;
• Construct a CN rail bitumen loading terminal at Windell, 8 km from the May River project, Grizzly’s main growth property, and in close proximity to 160,000 bbls/d of existing and 1.5 MMbbls/d of planned industry bitumen production;
• Order 350 newly built thermal shields rail tank cars, constructed to the latest safety standards under a 10-year lease, sufficient to handle Algar Lake phase 1 production;
• Hire terminal operators with 80 years of combined experience;
• Complete design engineering and file development permits to construct a bitumen rail-to-barge terminal on the Mississippi River in Louisiana; proximate to over 2 million barrels per day of heavy oil refinery capacity;
• Enter bitumen sales contracts directly with the US refiners;
• In discussion with 3^rd parties for transloading business at both terminals
• Evaluate opportunities to transport condensate by rail from the U.S. Gulf Coast to Alberta;

Grizzly is excited at the range of benefits to be generated from its oil-by-rail bitumen marketing strategy. The Company believes its approach can achieve economics superior to using the Keystone XL pipeline, if built.