Quadrise Fuels International PLC Half Year Update on Major Active Programmes (1622Z)

TIDMQFI

RNS Number : 1622Z

Quadrise Fuels International PLC

16 September 2015

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."

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