16 September 2015
Quadrise Fuels International plc
("QFI", "Quadrise" or the "Company")
Half Year Update on Major Active Programmes
Quadrise, the emerging supplier of MSAR, a low cost alternative to heavy fuel oil in the shipping, oil refining and power generation markets, is pleased to provide the following update on its principal active programmes.
Highlights
· Contracts executed with Maersk Line A/S ("Maersk") and Compania Espanola De Petroleos S.A.U. ("CEPSA") for the Operational Trial Programme to provide the basis for the issue of Letters of No Objection ("LONOs") by participating marine engine manufacturers;
· Operational Trial to include the supply, installation and commissioning of a Quadrise MSAR Manufacturing Unit ("MMU") at the CEPSA San Roque refinery near Gibraltar;
· Refinery and power generation plant designated for proposed 2016 'production to combustion' pilot programme in Saudi Arabia;
· Approval for detailed feasibility assessment for a Refinery Power and Steam Refuelling project; and
· Appointment of General Manager - Refining Business Development completes the senior executive resourcing programme.
Marine - Contracts signed for the Operational Trial Programme
Agreements have been executed between Maersk, CEPSA, and the Company's 100% subsidiary, Quadrise International Limited ("QIL"), together the "Parties", for inter alia, the supply, installation and commissioning of an MSAR Manufacturing Unit ("MMU") at the CEPSA San Roque refinery near Gibraltar ("San Roque") and the production of Quadrise Marine MSAR fuel to be used in the planned seaborne operational trial (the "Operational Trial Programme") due to commence in Q1 2016.
Engine performance data from the associated extended continuous Operational Trial Programme is required to provide a basis for the issue of a LONO by the engine manufacturer. The programme will also provide an opportunity for evaluation of possible further refinements to on-board fuel handling systems and procedures.
The "Tripartite Agreement" provides for:
- The supply, installation and commissioning of an MMU at the CEPSA San Roque refinery near Gibraltar adjoining the Algeciras bunker fuel supply hub;
- The production of Quadrise Marine MSAR fuel, and the terms of supply to any Maersk vessel participating in the Operational Trial Programme;
- Contractual terms for the supply of process chemicals, technical advice and support services by Quadrise to CEPSA for the period of the Operational Trial Programme; and
- The rights and obligations of all Parties on completion of the Operational Trial Programme.
The Parties have also entered into an agreement for the envisaged production and future supply of Marine MSAR fuel beyond the Operational Trial Programme (the "Collaboration Agreement"). CEPSA and Quadrise have further entered into a bilateral agreement which clarifies the basis on which costs and benefits of MSAR production will be shared during the Operational Trial programme (the "Margin Sharing Agreement").
To meet the requirements of the Operational Trial Programme, the last pre-requisite before the commercial roll-out of Marine MSAR, the focus is now on finalising detailed engineering design for the installation and 'tie-ins' of the MMU and ancillary equipment at CEPSA's San Roque refinery, and for permitting of the plant and process by the regulatory authorities. This will be followed by installation and commissioning to enable Marine MSAR production and supply to participating Maersk vessels as early as possible. Since these vessels will be operating a regular commercial service, the MSAR fuel loading will be determined by their operating schedules. It is anticipated that LONO approvals will require around 4,000 hours of engine operations equating to a trial duration of approximately 9 to 11 months from MSAR fuel availability.
The process of finalising the Tripartite Agreement and the Collaboration Agreement, together with the joint assessment of future commercial activities, identified the need for certain amendments to the provisions of the Royalty Agreement between QIL and A.P. Moller-Maersk ("APMM") which was last updated on 20 February 2014. This has led to a number of changes to the terms of the Royalty Agreement and the execution on 15 September 2015 of a Novation and Amendment Agreement which assigns the rights of APMM to Maersk Line (the largest operating company in the APMM group). The amendments serve to clarify and better define certain provisions. As was the case previously, the revised Royalty Agreement provides the legal framework and key terms for future commercial supplies of Marine MSAR fuel to Maersk and to third parties when the current programme transitions to longer term commercial production and fuel supplies. The terms of the Royalty Agreement are confidential to both parties, and the recent amendments are not expected to materially affect the commercial terms for either party. The term of the Royalty Agreement has been extended from the previous expiry date of 31 December 2022 to the tenth anniversary of the date of first commercial Marine MSAR production following the Operational Trial.
Saudi Arabia
The programme as now envisaged involves a pilot/demonstration project spanning production, transportation and combustion of Quadrise MSAR fuel within Saudi Arabia.
A substantial coastal refinery has been designated as the MSAR production site and the fuel will be consumed at a nominated major thermal power station - where one large 400 MWe generation unit will be converted from heavy fuel oil to MSAR fuel for an extended trial period. Quadrise executives and specialists have become progressively more closely engaged with client technical, engineering and planning management to develop and finalise the detailed definition of project requirements and implementation stages.
The timetable remains broadly as advised in the QFI 2015 Interim report with production capacity targeted to be installed in late 2015, to ensure fuel availability for an extended combustion demonstration during H1 2016.
Once all relevant aspects and budgets have been confirmed and authorised by the respective management teams, it is expected that the contracts recording the terms on which Quadrise will supply its technology and services will be executed. Contracts are also expected to define the project scope and timetable. This will provide the basis on which orders may then be placed for longer lead-time plant and component requirements such as MMU's and service equipment in the near future.
Refinery Power and Steam Re-fuelling
As previously advised, the Company is evaluating selective opportunities for substituting MSAR for conventional heavy fuels where used for steam and power generation within refineries. In certain cases this can also assist with cost effective emissions compliance as more stringent standards are progressively phased in.
One such opportunity for a MSAR pilot plant demonstration (production to combustion) has progressed with a mid-sized refining company. Written approval has been received for Quadrise to conduct, with client support, a detailed design feasibility study in accordance with a defined timetable. The four phases of the study should be completed by year end 2015, and will include proposed commercial terms for implementation and future operations. There are a number of 'fuel users' within the refinery and it is expected that, following successful demonstration, the use of MSAR will be progressively extended to fuel all of these requirements. The client requires that its name be held confidential until the feasibility report is reviewed and commitment is confirmed on commercial terms and implementation timing.
Quadrise is looking to identify and progress further similar opportunities. These projects may be of modest scale individually, but with attractive economics for both parties and very low cost logistics, the projects could aggregate to a very worthwhile additional business sector for the group.
Personnel Appointment
The Company is pleased to advise that Mark Whittle joined the Quadrise group in July 2015 in a senior executive role, as General Manager - Refining Business Development. This appointment completes QFI's near term resourcing programme and ensures that the Company is fully equipped to meet the demands of our expanding business programmes.
Mark holds a Chemical Engineering qualification and has extensive experience in oil refining and related business activities since 1994, having worked for Esso, Shell and more recently ConocoPhillips and the Louis Dreyfus Group. Mark has expert knowledge in the field of refinery configuration, operations, and process and oil economics.
Commenting on these developments, Ian Williams, Executive Chairman of QFI, said:
"The Marine programme developments are very encouraging. The Operational Trial Programme is the final stage before the commercial roll out of the Marine MSAR product into one of the world's largest fuel markets. MSAR provides potentially significant economic and environmental advantages for end users over conventional heavy fuel oil. The economic case for MSAR remains solid despite the decrease in oil prices - and the cost of complying with ever more stringent environmental regulations is at the forefront of the industry.
The signing of the Tripartite, Collaboration and Margin Sharing Agreements represents a significant milestone in both the development of the marine product and for Quadrise as a whole. It also further vindicates the commitment and contribution made by the Quadrise team and partners during the product development".
It is reassuring to see closer collaboration on planning for the KSA project, especially given the scale of the opportunity and potential benefits for all parties."
For further information, please refer to the Company's website at www.quadrisefuels.com or contact:
Quadrise Fuels International Plc |
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Ian Williams, Executive Chairman |
+44 (0)20 7031 7321 |
Hemant Thanawala, Finance Director |
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Jason Miles, Chief Operating Officer |
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Nominated Adviser |
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Smith & Williamson Corporate Finance Limited |
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Dr Azhic Basirov |
+44 (0)20 7131 4000 |
Ben Jeynes |
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Broker |
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Peel Hunt LLP |
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Richard Crichton |
+44 (0)20 7418 8900 |
Ross Allister |
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Alastair Rae |
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Public & Investor Relations |
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Bell Pottinger |
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Rollo Crichton-Stuart |
+44 (0)20 7861 3232 |
Background to the Quadrise Marine MSAR Fuel Programme
The marine programme started in 2010 as a joint initiative between Quadrise, A.P. Moller-Maersk and AkzoNobel and has since met all agreed deliverables. Following the completion of an extensive series of land and seaborne service trials, Quadrise advised shareholders on 3 July 2014 that Marine MSAR fuel had satisfied the Proof of Concept ("POC") requirements defined by Maersk, for acceptance as a substitute for marine bunker fuel oil.
As previously reported, the two leading marine engine manufacturers, Wärtsilä and MAN Diesel & Turbo, have participated in the development programme to date and have tested the fuel in their modern two stroke propulsion engines used extensively across the fleets of leading shipping companies.
The focus of the Company since mid-2014 has centred on the issue of LONOs by the engine manufacturers and preparations have concentrated on the Europe/Mediterranean markets. Several prospective refining partners were identified as having suitable process configurations and proximity to bunker supply ports. The steps of refinery engagement, evaluation and assessment have taken longer than initially timetabled, but the process has been instructive and identified related future MSAR fuels business opportunities.
During Q2 2015, the CEPSA refinery at San Roque emerged as the favoured supply base for the LONO programme requirements. A series of meetings led to agreement on key terms and the execution of related contracts on 15 September 2015. Maersk Line A/S, the largest operating company and marine fuel consumer, is now the Maersk Group contracting party for the Operational Trial Programme and the Collaboration Agreement.
The Operational Trial Programme is essentially an 'extended service' evaluation enabling comparison with, and confirmation of, results achieved in the earlier land and seaborne service trials that have served to progressively de-risk the project. While all stakeholders have confidence in a successful outcome, the Operational Trial Programme may reveal further opportunities for improvement and/or technical issues. To address these, the Parties have agreed certain risk sharing aspects in the initial supply contract, whilst the terms of the Collaboration Agreement deal principally with revisions and variations which will be finalised in the "post LONO" phase.
The timetable is now set for the Operational Trial Programme with the aim of completion by end 2016/early 2017. This has been based on an assumption of 4,000 hours of operating data for the evaluation and LONO approvals. Advice is that intermediate assessments will be made and will inform the decision on the final service time requirements as the programme proceeds. The scope of testing and assessment will include all relevant aspects of engine operations and performance.
When LONOs are issued by the engine manufacturers they apply to specified ranges of engine designs which are expected to represent a substantial share of the modern fleets of larger container, tanker and dry cargo vessels in service for the major global shipping companies.
