Sky Quarry Inc.

Overview

We are an oil production, refining, and development-stage environmental remediation company formed to deploy technologies to facilitate the recycling of waste asphalt shingles and remediation of oil-saturated sands and soils, providing sustainable refined crude products. We expect the recycling and production of oil from asphalt shingles to reduce the dependence on landfills for the disposal of waste and to also reduce dependence on foreign and domestic virgin crude oil extraction for industrial uses.

We have developed a process for separating oil from oily sands and other oil-bearing solids utilizing a proprietary solvent, which we refer to as our ECOSolv technology or the ECOSolv process. The solvent is used in a closed-loop distillation and evaporation circuit which results in over 99% of the solvent being recoverable for continuous reuse and requires no water. The solvent has demonstrated oil separation rates of over 95% in bench testing using samples of both mined crushed ore and ground asphalt shingles. Bench testing was conducted in house, and through unaffiliated third parties which were completed August 30, 2022 and May 3, 2022.

We intend to finish retrofitting the PR Spring Facility in fiscal of 2025 to recycle waste asphalt shingles using our ECOSolv technology to produce and sell oil as well as asphalt paving aggregate mined from our bitumen deposit.

We expect to complete the build-out of our Asphalt Shingle Recycling (“ASR “) Facility in fiscal 2025, which can be deployed in areas with high concentrations of waste asphalt shingles and near asphalt shingle manufacturing centers. Our design contemplates a modular, scalable, purpose-built facility capable of remediating waste asphalt shingles and separation into their base components of bitumen / asphalt cement, shingle granules, sand aggregate, limestone and fiberglass.

Corporate History and Structure

We were incorporated in Delaware on June 4, 2019 as “Recoteq, Inc.” On April 22, 2020, we changed our name to “Sky Quarry Inc.” We have three (3) wholly-owned subsidiaries: 2020 Resources, 2020 Canada and Foreland.

On September 16, 2020, we acquired 2020 Resources (formerly, US Oil Sands (Utah) LLC and USO (Utah) LLC), which was incorporated on November 2, 2017. The assets of 2020 Resources include the PR Spring Facility and a 100% interest in asphalt bitumen leases covering approximately 5,930 acres in the PR Spring region in Utah. On September 16, 2020, we also acquired 2020 Canada (formerly, USO (Canada) Ltd.), which was incorporated on April 26, 2018 and is currently inactive.

On September 30, 2022, we acquired Foreland (formerly, Petro Source Resources), which was incorporated on May 29, 1998. Foreland is engaged in the refining of heavy crude oil into diesel and other petroleum products (naphtha, vacuum gas oil, and paving asphalt liquids) at its Eagle Springs Refinery located near Ely, Nevada.

The following chart depicts our organizational structure:

Industry

Waste Asphalt Shingle Market

According to a report by the United States Environmental Protection Agency titled “Advancing Sustainable Materials Management: Assessing Trends in Materials Generation and Management in the United States” dated December 2020, about 15.1 million tons of waste shingles are generated annually. Waste asphalt shingles amount to about 2.5% of the total building-related waste in the U.S. Over 96% of these waste shingles end up in landfills, occupying over 23 million cubic yards of space.

This waste stream is expected to increase considering that, according to the Asphalt Roofing Manufacturers Association, four-out-of-five homes in the U.S. are roofed with asphalt shingles. According to Grand View Research, the U.S. residential and commercial roofing materials market size was estimated at $15.72 billion in 2023 and is anticipated to grow at a compound annual growth rate of 4.5% from 2024 to 2030.

According to an industry survey by National Asphalt Pavement Association (“NAPA”), the use of reclaimed asphalt pavement (“ RAP”) has risen by 75.2% since NAPA began collecting data in 2009, while total asphalt mixture tonnage has grown by 23.3% during the same period. RAP usage during the 2022 paving season reduced the need for an estimated 26.9 million barrels of asphalt binder and more than 93 million tons of aggregate. RAP storage for future use also reduced the needed landfill space by 68.2 million cubic yards.

According to NAPA, manufacturers also kept 641,000 tons of unprocessed, recycled asphalt shingle (“RAS”) out of landfills nationwide, as RAS usage in 2022 increased by 7% over 2021 totals, reducing the need for 740,000 barrels of asphalt binder.

NAPA also reported that the usage of warm-mix asphalt (“WMA”) technologies in 2022 decreased by 1.6% from 2021, with the decreased WMA tonnage in the commercial and residential sector leading the decline. NAPA further reported that the usage of 175 million tons of WMA mix, representing slightly less than 40% of the estimated market, resulted in reduced greenhouse gas emissions on a scale equal to the annual emissions of approximately 40,000 passenger vehicles.

States and local agencies around the U.S. are beginning to see the advantage of using RAS in road infrastructure projects on county, city and state roads. They are using RAS in aggregate base courses and for granular base stabilization on local roads. Paving contractors in many states are using RAS for parking lots, private driveways and in hot mix asphalt (“HMA”) for varied purposes such as patching and temporary roads. The most promising future market may be local governments. Over the last ten years, the Minnesota Department of Transportation has been doing laboratory and field tests with RAS on hiking and biking trails and on town and county road sections, with positive results. The Georgia Department of Transportation has also experienced good results using RAS on local roads to the extent that they have modified their HMA specifications to allow for 5% waste shingles in the total mix.

The Oil Sands Market

As an unconventional hydrocarbon resource, oil sands (or bitumen) hold hundreds of billions of barrels of oil on a worldwide basis. Although Canada is the only country that is currently extracting large quantities of oil from its oil sands deposits, the United States also has large oil sands resources that can be developed, according to the U.S. Department of Interior Bureau of Land Management. In a 2007 Report entitled “A Technical, Economic, and Legal Assessment of North American Oil Shale, Oil Sands, and Heavy Oil Resources In Response to Energy Policy Act of 2005 Section 369(p)” (September 2007), prepared by the Utah Heavy Oil Program, Institute For Clean and Secure Energy and The University of Utah for the U.S. Department of Energy, the authors reported the following estimates, which estimates were based upon source material published in 1979, 1987 and 1993:

·The United States has an estimated 76 billion barrels of oil-in-place (“OIP”) from bitumen and heavy oil contained in oil sands resources (OIP are not estimates of reserves or recoverable resources).

·In the United States, Utah is known to have the largest oil sands deposits, with total resource estimates ranging from 23 to 32 billion barrels of OIP from bitumen and heavy oil contained in oil sands formations and deposits.

A substantial part of the oil sands deposits in our oil sands leases described below are accessible through outcroppings or in shallow depths with limited or no overburden. In our view, the location and accessibility of oil sands deposits at the PR Spring Facility creates an opportunity for commercial development, supported by positive economics, using surface mining techniques and our extraction technology.

The worldwide growing demand for heavy crude oil and the recent decline in crude oil production in countries such as Venezuela, Russia and the Ukraine makes the high quality, low sulfur, heavy oil found in oil sands deposits in the United States a valuable resource that has been underdeveloped to date. The development of oil sands domestically has the potential to turn the United States into a major supplier of heavy oil to world markets. To date, oil sands development has been limited by the absence of viable technology that can extract heavy oil and bitumen from the oil sands deposits in an economical and environmentally responsible manner. To that end, we aim to develop our oil sands leases in an economically and environmentally responsible manner.

Asphalt Paving Sales Market

Asphalt is a key infrastructure construction material noted for its durability, flexibility, and ability to withstand adverse weather conditions. Asphalt is widely used for resurfacing projects to extend the lifespan of existing infrastructure and to repair cracks, potholes, and deterioration. The asphalt market is driven by the demand for road infrastructure development, maintenance, and repair.

The paving infrastructure industry is seeing progress in the adoption of asphalt technologies aimed at elevating performance, durability, and sustainability, including the use of polymer-modified asphalt and warm mix asphalt, and the use of asphalt shingles and reclaimed asphalt pavement. For example, the Missouri Department of Transportation reports that blending asphalt shingles to its hot mix asphalt results in a very durable, more-rut resistant asphalt at a much lower price, and that by using RAS, the department reduces the amount of liquid asphalt in a mix design by 20% to 25%. Together, these innovations strive to extend the longevity, environmental impact, and durability of paving asphalt and to reduce the demand for virgin materials and promoting circular economy principles.

Recent favorable economic developments are expected to further boost overall activity and revenue in the construction industry where Federal and State government departments are investing in infrastructure projects such as highway or roadway repair, bridge and road construction and rehabilitation.

On November 15, 2021, President Biden signed into law a $1.2 trillion bipartisan package for new federal investments in America’s infrastructure over five years, including money for roads, bridges, mass transit, rail, airports, ports and waterways. Over $110 billion of new funds is allocated toward improving the nation’s roads and bridges, and investments in other major transportation programs.

Under the infrastructure package, $2.6 billion will be invested in roads and bridges in Utah over the next five years. Projects scheduled to start or already under construction include a brand-new highway, new interchanges, widened freeways and highways, new paths for pedestrians and cyclists, maintenance to keep roads and bridges in good condition and improved access to a new state park. Under that same infrastructure package, California will receive $28.2 billion to build and repair more than 14,220 miles of highways and 1,536 bridges over five years.

Oil Refining and Sales Market

The process of converting crude oil into usable products is called refining. Refining is part of the midstream sector, one of the three main components of the oil and gas industry. The most commonly made product from one barrel of crude oil is motor fuel, particularly gasoline and diesel. Processed crude oil has a wide array of uses. Apart from being turned into transportation fuels, it is also a major feedstock in the petrochemical industry and the building block for plastics as well as products associated with infrastructure markets. According to Statista, in 2023, global oil production reached an all-time high of 96.4 million barrels per day.

Additionally, the U.S. Energy Information Administration reported that U.S. oil production established a new record in August 2024 with an average of 13.4 million barrels per day (b/d). More crude oil was produced in the United States during August 2024 than during December 2023, when the previous monthly record of 13.3 million b/d was set. In 2025, U.S. crude oil production is projected to average 13.5 million barrels per day (b/d).

According to a 2022 report produced by the International Energy Agency, global oil consumption, given current government policies, will rise from 94 million barrels per day in 2021 to an estimated 103 million barrels per day by 2030 and then remain at or near that level until 2050.

The U.S. continues to be an important global supplier of crude oil and natural gas and has seen increased demand in local crude and refined oil products due to the national infrastructure projects that have been approved and initiated.

The PR Spring Facility

Construction of the PR Spring Facility was completed in 2019 and originally utilized a hybrid water/biosolvent recovery system for the separation of oil from oily sands and asphalt sludge. This process has since been shown to be uneconomical in the current environment and to use significant amounts of water.

We are in the process of retrofitting the PR Spring Facility to utilize our ECOSolv process to recycle waste asphalt shingles into crude oil and clean solids, and to produce oil and asphalt paving aggregate from its bitumen deposits, which will require very little or no water. This same solvent process has been demonstrated in bench tests to be effective in the separation of waste asphalt shingles into its base components of oil, sand and fiberglass. Although there are no proven oil reserves at the PR Spring facility, we believe that we will be able to economically operate the facility solely with the use of waste asphalt shingles.

We have invested approximately $4.7 million since September 16, 2020 at the PR Spring facility, all of which is related to the retrofit of the facility. We estimate the remaining capital costs for the completion of the retrofit will be approximately $4.0 million. We intend to finish retrofitting the PR Spring Facility in fiscal 2025. We also plan to develop a modular asphalt shingle recycling facility design to grind and mill the shingle feedstock, which can be deployed in areas with high concentrations of waste asphalt shingles and near asphalt shingle manufacturers.

The ECOSolv Process

Under the ECOSolv process, mined oil sands or waste asphalt shingle (“WAS”) pellets are crushed and then mixed with a proprietary hydrocarbon-based waterless solvent and heated and agitated in a mixing vessel into a slurry. The solvent “washes” the sand clean and separates the sand from the pre-oil liquid asphalt. The freed ‘pre-oil’ is then processed during the separation stage and various products can be produced - WTI market bitumen, heavy oil or heavy crude oil. The solvent is extracted by separation, distillation and evaporation processes and is captured for re-use in the closed loop system, leaving clean heavy oil behind ready for sale. Separation of the sand is done by mechanical drying units, which evaporate and capture the solvent for reuse, leaving behind clean sand.

Bench testing for oil recovery from waste asphalt shingles was performed using samples containing 22% to 25% weight saturation asphalt bitumen content. The samples were processed using our ECOSolv process and resulted in an end product containing, on average, 20.8% bitumen and less than 1% solvent, implying a hydrocarbon recovery factor of up to 95% and solvent recovery of up to 99%.

PR Spring Asphalt Bitumen Leases

2020 Resources holds a 100% undivided interest in three contiguous asphalt bitumen leases covering approximately 5,930 acres in the PR Spring region of Uintah County, Utah. The leases were issued by the State of Utah’s School and Institutional Trust Land Administration and requires payment of annual rent of $6,380 per year and minimum royalties of $63,800 per year. Once production from the bitumen deposit begins production royalties will be paid at 6.5% of gross sales per year.

The PR Spring oil sands deposit is located along the southeast flank of the Uinta Basin, formed during the late Cretaceous and Early Tertiary period. The deposit is within the Eocene-aged Green River Formation of the Douglas Creek Member. In general, the sands thicken to the southeast, closer to their source, becoming increasingly finer-grained and carbonate rich to the north and northwest.

The location of the project is amongst rugged topography, meaning the overburden thickness of the oil-saturated sands is highly variable. This variability directly affects the total volume to bitumen in-place calculations across the property. The target deposit is topographically high, which has resulted in erosion of much of the non-reservoir overburden. The mine pits have been proposed in an ideal location where the target resource is very shallow and thick with minimal overburden and outcropping at the surface in some locations. Well data in the mine pits is very dense and high quality, with 70 core holes in the Phase 1 mine pit locations and over 180 cored wells across PR Spring acreage. A detailed understanding of the reservoir can be achieved by analysis of this data. To that end, we aim to develop our oil sands leases in an economically and environmentally responsible manner.

Eagle Springs Refinery

On September 30, 2022, we acquired Foreland, which is engaged in the refining of heavy crude oil into diesel and other petroleum products (naphtha, vacuum gas oil, and paving asphalt liquids) at its Eagle Springs Refinery located near Ely, Nevada. The refinery has a “name plate” production capacity of 4,500 barrels per day, but over the past 2 - 3 years has produced an average of 1,500 barrels per day due to local constrained supply of heavy and light oil and past issues with logistics due to COVID-19 related work restrictions. In addition to securing additional crude oil from local producers, management anticipates that the heavy oil produced at the PR Spring Facility will be refined at the Eagle Springs Refinery, resulting in increased production and revenues and higher efficiencies across the production chain.

The refinery’s major processing units include crude oil distillation, catalytic cracker, naphtha hydrotreating, and reforming units, which produce diesel, vacuum gas oil, naphtha, asphalt paving oil and other associated refined products.

Feedstock crude oil, consisting largely of heavy sulfur-heavy oil, is sourced from local producers in Nevada and Utah as well as other North American sources. All of the crude oil is delivered to the refinery by truck. Refined products are transported by third parties to wholesale, bulk, and retail customers primarily across Nevada, Utah and California and other North American jurisdictions.

Crude oil is received into the refinery tank farm and crude oil terminals, which include over 29,500 barrels of oil storage. The crude oil is processed through various refining units into products and where they are stored in the refinery’s approximately 73,800 barrels of refined product specific tankage.

Revenue Streams

Foreland produces diesel, vacuum gas oil, naphtha and asphalt paving liquids, which is then sold through short-term and long-term contracts to our established long-term customers and on the spot market.

The PR Spring Facility, once operational, is expected to produce asphalt paving aggregate, a low-sulfur heavy oil product from remediated asphalt shingles and in the future from mined bitumen sands, to be sold to and refined by the Eagle Springs Refinery, and cleaned sand.

We anticipate that the products to be derived from the recycling of waste asphalt shingles will include liquid asphalt cement, shingle granules and sand aggregate, limestone and fiberglass, which can be sold back to asphalt paving companies or shingle manufacturers.

ASR Facilities

We expect to complete the buildout of the first complete ASR Facility in fiscal 2025 and we intend to operate this first ASR facility in partnership with or at a standalone owned and operated construction and demolition waste management facility. We believe that this will provide us with a steady supply of waste shingle feedstock, allow for quality control and collection of tipping fees. Discussions with other suitable facilities with existing waste shingle stockpiles are underway.

We have completed the design of the ASR Facility “front end” module, which are used to grind and mills the shingle feedstock and in the process extracts and separates the granules and sand, and presses the remaining bitumen and solids into pellets for ease of transportation. We have fabricated and intend to deploy and commission the first ASR Facility front end module in the first half of 2025 and two more front end modules in the second half of 2025. Processed WAS pellets from the front-end modules will initially be shipped to the PR Spring Facility for secondary remediation while “back end” modules are used for the distillation process to separate the solvents from the pre-oil, to allow for the separation of petroleum BS&W from the oil utilizing the ECOSolv process ,and for complete on-site remediation while providing clean sales crude which can be further refined at the Foreland Refinery.

We believe that the ASR Facility design will be capable of remediating waste asphalt shingles into their basic components - asphalt cement, shingle granules, sand aggregate, limestone and fiberglass - utilizing the ECOSolv separation process. These components will be sold for use as binding material and tar coat to the asphalt paving industry or to roofing shingle manufacturers. Our business plans call for the construction and operation of five or more ASR Facilities during the next five years.

We have identified target markets across the United States, with the potential to scale regionally to Virginia, Vermont, Alabama, Florida, and Maryland before addressing larger markets such as California, Oregon, and Washington State.

Reserves

We do not have any proven reserves on our bitumen leases at the PR Spring Facility, primarily due to the fact that our ECOSolv process, which we will use to produce oil from the bitumen leases, has not been used in a commercial setting.

Raw Materials and Suppliers

The primary raw materials used in the manufacture of our current products are crude oil and other petroleum fuel operational inputs. The cost of these raw materials is a key factor in pricing our products.

We source raw materials from multiple regional and national suppliers, and we continue to explore partnership or supplier opportunities to optimize our costs.

We have historically purchased certain key raw materials from a limited number of suppliers. For the year ended December 31, 2024, three vendors accounted for 20%, 13%, and 11% respectively, of our supply of crude oil and other petroleum fuel operational inputs, and for the year ended December 31, 2023, five vendors accounted for 18%, 15%, 13%, 12% and 10%, respectively, of our supply of crude oil and other petroleum fuel operational inputs. We purchase raw materials on the basis of purchase orders. While we believe that there is an ample supply of most of the rawmaterials that we need, in the absence of firm and long-term contracts, we may not be able to obtain a sufficient supply of these raw materials from our existing suppliers or alternates in a timely fashion or at a reasonable cost. If we fail to secure a sufficient supply of key raw materials in a timely fashion, it would result in a significant delay in delivering our products. Furthermore, failure to obtain a sufficient supply of these raw materials at a reasonable cost could also harm our revenue and gross profit margins. Please see “Risk Factors—General Risks Related to Our Business—We depend on several principal suppliers for the majority of our crude oil. A disruption in supply or a change in our relationship with any one of them could adversely affect our business, financial condition and results of operations” for a description of the risks related to our supplier relationships.

Sales and Marketing

Our comprehensive sales and marketing strategy will be utilized to drive growth, establish brand recognition, and expand our market reach and client base. This will involve attending industry conferences and events in the green tech, energy, and waste management sectors, leveraging our website, email marketing, and social media platforms, and regularly distributing press releases to share important Company updates and milestones. We will also pursue both earned and paid placements in newsletters and media outlets at local and national levels to further enhance visibility to amplify our message.

Customers

Our customers generally include refineries that use our products for feedstock to process into finished petroleum products.

For the year ended December 31, 2024, three customers accounted for approximately 35%, 23% and 22%, respectively, of our total net sales, and for the year ended December 31, 2023, these customers accounted for approximately 33%, 17% and 14%, respectively, of our total net sales. These customers do not have any ongoing commitment to purchase our products. While additional customers continue to be sourced, customer concentration risk still exists. The loss of or a sustained decrease in demand by any one of these customers could result in a substantial loss of revenues and could have a material adverse effect on our results of operations. See “Risk Factors—General Risks Related to Our Business—We depend on several significant customers, and a loss of one or more significant customers could adversely affect our results of operations.”

Competition

We compete with a multitude of foreign, regional, and local competitors that vary by market. If our existing or future competitors seek to gain or retain market share by reducing prices, we may be required to lower our prices, which would adversely affect our operating results. Similarly, if customers or potential customers perceive the products or services offered by our existing or future competitors to be of higher quality than ours or part of a broader product mix, our revenues may decline, which would adversely affect our operating results.

Competitive Strengths

We have identified several competitive strengths that we believe will support our position in the emerging waste asphalt shingle recycling industry. These include our ability to optimize margins through diversified revenue streams, establishing long-term contracts, and our ability to rapidly scale our operations.

We believe that our adaptable business model, focused on collecting tipping fees ranging from $45 to $150 per ton for waste asphalt shingles with a processing cost of approximately $25 per ton, will enable us to produce bitumen and other materials at minimal cost based on our internal analysis. According to a Statista reported dated August 28, 2024, tipping fees in the US 2022 and 2023 ranged from $43 to $83 per ton, however based on our internal research we believe that tipping fees can be as high as $145-$160 per ton, in certain locations.

We believe that this approach will generate revenue from shingle collection while eliminating the high upfront costs associated with traditional oil extraction methods such as drilling. We also believe that this will allow us to rapidly expand operations, strengthen access to feedstock supply chains, and leverage both national and regional sales opportunities to drive sustained growth.

While we believe we are well-positioned to lead in the waste asphalt shingle recycling sector due to our ability to recycle this material into multiple high value products, we recognize the challenges that come with the rapid growth of this emerging industry. However, we believe our fully integrated process, capable of producing and refining, will offer a distinct advantage by streamlining every step from extraction to refining, ensuring greater efficiency and control over production. By combining refining capabilities with cost-effective operations, we believe that we can produce high-quality materials with significant cost savings and minimal environmental impact.

Growth Strategies

Our growth strategy will focus on rapid scalability, strategic partnerships, and the development of our modular ASR facilities. Our goal is to establish at least five ASR facilities over the next five years, in an effort to strengthen our operational capacity while establishing a firm position within our target markets. These modular facilities, designed for scalability and cost efficiency, can break down shingles into base components such as sand, granules, and bitumen, and setting up these facilities will provide a consistent supply of waste asphalt shingle feedstock while producing valuable by-products like sand and granules, which we believe will potentially generate regional revenue with projected revenues of $5-$12 million per facility.

Management has identified waste streams of hundreds of thousands of tons of waste asphalt shingles that align with our immediate needs and is working to establish key partnerships which will be a vital element of our growth strategy, enabling us to maximize revenue potential while reducing logistical challenges related to material transportation. We are working to form partnerships with waste management companies, roofing contractors and asphalt shingle manufacturing plants. By working closely with these partners, we intend to streamline the collection, recycling, and repurposing of the waste asphalt material.

Additionally, we intend to establish our presence in regions with tightened landfill diversion regulations, which we believe will position us as one of the few effective solutions for managing this material. We believe that this capability will enable us to secure higher tipping fees, and as our national footprint expands, we anticipate that increasingly stringent regulations will further support our growth.

Intellectual Property

We hold the following patents and patent applications:

(1)Patent applications are currently under review and may not be renewed if they have no practical application under the new solvent-based recovery system being contemplated.

Our ECOSolv process is protected as a trade secret.