Notice of Interim Results and Business Update

RNS Number : 9364E

Quadrise Fuels International PLC

16 February 2015

 



16 February 2015

Quadrise Fuels International plc

("QFI", "Quadrise" or the "Company")

Notice of Interim Results and Business Update

Quadrise, the emerging supplier of MSAR, a low cost alternative to heavy fuel oil in the shipping, refining and power generation markets, will announce its unaudited interim results for the six months ended 31 December 2014 on 30 March 2015 (the "Interim Results").

The collapse in the oil price since Q4 2014, and related uncertainty in the energy sector, has clearly affected investor sentiment. While this has limited relevance for the leading Quadrise projects and their prospects, the impact on the Quadrise share price and market capitalisation has been substantial.

For this reason, and in response to shareholder representations, the board believe it appropriate to issue a limited business update ahead of the Interim Results.

General - Oil Price Implications

The economics of MSAR production in qualifying refineries remain sound despite the oil price collapse.

The Quadrise MSAR process adds value in refining by replacing high value distillates with water and chemicals to create a substitute for conventional heavy fuel oil. The value-add is driven primarily by the price difference (spread) between heavy fuel oil and diesel. Whilst the price spread will tend to narrow when the oil price falls, historically the rate of reduction has been limited.

By way of example, very recent detailed assessments undertaken by QFI with refining companies have confirmed that a 60% reduction in the heavy fuel oil price has only led to a 20% reduction in the MSAR value-add, and that the economics of converting to MSAR production remain compelling even in such apparently adverse circumstances.

Interestingly the same low MSAR value add impact does not apply to the larger refinery upgrading programmes which typically involve over US$1 billion capital spending with up to 4 years lead time. Current oil price uncertainty has led to a large number of oil and energy industry project cancellations and postponements as oil companies re-calibrate their plans and programmes. These responses can be expected to delay additions to global diesel production capacity and constrain supply which, in turn, should widen the future price 'spread' - especially if lower prices leads to increased diesel demand. These factors, in combination, should serve to make the economics of MSAR even more attractive to the refining industry and to the marine and power markets in the medium term.

Marine

The joint evaluations of several short listed refineries for MSAR fuel supplies for the LONO programme and associated EU 'roll-out' requirements are proceeding.

Oil price uncertainties have impeded progress but the process is now substantially advanced with several prospective refining partners. No commitments have yet been made, and the programme, as now set, remains dependent on securing the refining partner.

The first objective is to settle "Heads of Terms" - if possible by end Q1. The associated contracts will be multi-party, multi-year and without precedent. Without the benefit of a "proven template" in a risk-averse climate, we expect that finalising final form contracts may take some time.

As refineries operate in regulated environments consideration has to be given to permitting of the installation of the MSAR process by the authorities concerned. The time required for approvals varies between jurisdictions with project lead time implications.

Essentially, the direction and stages remain clear, but timing has been affected by oil market events and other emerging factors which make it more difficult to be definitive on intermediate milestones prior to plant commissioning and supply.

To ensure that process plant availability will not be the cause of any delays, the first of two MSAR manufacturing units ("MMUs") are currently being fabricated to the Quadrise specification in Denmark for delivery early Q2 2015.

Kingdom of Saudi Arabia (KSA)

As has been widely reported, a comprehensive review triggered by the oil price collapse has led to notification that many large scale KSA oil and energy projects will be downscaled, deferred or in some cases cancelled.

Unlike many other projects, the MSAR programme requires limited capital investment, has short lead times and is highly cash generative. We would therefore expect that in the current climate the programme would be advanced rather than deferred. QFI has arranged to meet with senior management in KSA during February. The intention is to confirm the programme in the current environment with a view to setting a defined timetable for the "production to combustion" pilot programme targeting completion during Q1 2016. As the major power plant operator determines some of the requirements for the pilot, it has become clear that the  programme can only take place during winter months where demand for power is lower and excess boiler capacity can be utilised for fuel trials.

South America

The final form report of the Joint Feasibility Study undertaken with Ecopetrol has been delayed pending advice on revised planning factors to be applied. This has to do with economic and not technical evaluation and impacts all Ecopetrol projects. Revised data is expected before the end of Q1 2015.  Once advised and incorporated it is expected that the report and recommendations will be presented to the board for consideration and decision.

Quadrise has prepared for the possibility that the project, if agreed, would take the form of a joint venture requiring funding by all partners. In the present climate, given the oil price  impact on integrated oil companies, this looks to be even more likely.

Treasury

The Quadrise group had £9.8 million in treasury at 31 December 2014 and management continue to operate the Company on a low cost base. Recent evaluation of the current key programmes and the associated funding requirements suggests that the Quadrise group has sufficient cash reserves to meet all currently planned requirements.

Other Developments

Quadrise has always considered the refining industry to be itself a potential client for the MSAR process for fuel substitution within their own operations - especially for on-site integrated power generation.

While many refineries have substantial power capacity, often only a portion is used for continuous operations. This often creates an opportunity to operate the power plant at high load and sell excess power to the national grid.

In cases where MSAR fuel can substitute for higher value fuels this could be very advantageous for the refiners who are looking more closely than ever for opportunities to support their profit margins.

Indications are that this application could aggregate to a significant business in it own right and the Company is presently pursuing a number of opportunities with a view to securing an early demonstration plant opportunity.

For further information, please refer to the Company's website at www.quadrisefuels.com or contact:

Quadrise Fuels International Plc	[phone]
Ian Williams, Executive Chairman
Hemant Thanawala, Finance Director
Jason Miles, Chief Operating Officer
Nominated Adviser
Smith & Williamson Corporate Finance Limited	[phone]
Dr Azhic Basirov
Ben Jeynes
Broker
Peel Hunt LLP	[phone]
Richard Crichton
Ross Allister
Alastair Rae
Public & Investor Relations
Pelham Bell Pottinger	[phone]
Philip Dennis
Rollo Crichton-Stuart

 

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