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Quadrise Share Price - QFI

Share Name Share Symbol Market Type Share ISIN Share Description
Quadrise Fuels International LSE:QFI London Ordinary Share GB00B11DDB67 ORD 1P
  Price Change Price Change % Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  +0.00 +0.00% 10.25 10.50 10.75 10.50 10.25 10.50 257,249 16:29:25
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m) RN NRN
Oil & Gas Producers 0.0 -6.0 -0.7 - 82.98

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DateSubject
13/8/2014
12:17
radarray: Thanks to Bogg1e for his QFI Document. 21st July 2014 Author: Richard Baldwin (rgbaldwin@tiscali.co.uk) Here is the latest (sixth) version of the Quadrise overview. This version includes: • Updates and timetables for the Maersk, Aramco and Ecopetrol projects • Any highlighted text requires further investigation and may require amendment At the time of writing the first version of this document in June/July 2013 the share price was 12.5p, subsequently the share price has risen sharply, reaching an all new high of 51p at the beginning of December 2013 and is currently trading between 30-40p. Latest Developments • The engine performance and emission requirements set out by Maersk for the 400 hour Proof of Concept (PoC) trials on the 2 unnamed Maersk container vessels has been satisifed and approved by Maersk. The PoC trial on the container vessel powered by the Wartsila engine was successfully concluded at the end of june, as such, the PoC trial on the container vessel powered by the Man Diesel engine , which is expected to be concluded by the end of july, is no longer required to prove that the fuel works as expected, rather the trial will continue to provide additional engine performance data. As a result Maersk have declared the intent to commence commercial scale MSAR production at the beginning of 2015, starting with the 4000 hour "Letter of No Objection" continuous live sea trials. The trials are no longer required for Maersk to test and develop the fuel as originally intended, instead the LONO phase will usher in the start of ongoing commercial operations. The reason why the LONO tests have been delayed until the new year is because the costs associated with small batch production of MSAR is higher per ton as compared to the costs incurred (per ton) with commercial scale, ongoing production. The LONO trials will still be required to provide Maersk with comprehensive engine performance data, but more importantly, as the LONO is a legal requirement that is issued by the engine manufacturer, LONO approval enables the engine manufacturer to issue warranties, which prove the fuels compliance with the requirements set out by regulatory authorities and insurers. The LONO trials will run concurrently, but independantly of one another. Now the POCs is confirmed, urgent preparations for commercial operations have begun, including the negotiation of contract terms between Quadrise, AkzoNobel, the refiner and Mærsk in order to produce the fuel required for the LONO phase. The refiner was thought to be Orlen Lietuva in Lithuania, however a refinery closer to the North European deep sea ports is being selected. The 4000 hours of continous testing required by the LONO trial still comes to approximately 6 months, which means that we have to push back the liklihood of the roll out to the wider fleet until mid 2015, which is some 9 months later than hoped. However the 4000 duration is an industry standard but not legally binding. Therefore, the engine manufacturers can issue a LONO earlier if the observable impact of the fuel on the engine is negligable to the degree, that when projected over 4000 hours, would fall within acceptable parameters. The BoD intend to have MSAR Manufacturing Units (MMUs) installed at the refinery by approximately October and once the LONOs are completed, will concentrate on rolling out the fuel to the container vessels that run the routes from Northern Europe before rolling out production to the rest of their global fleet and crucially, to Maersks competitors in 2016. The next step is the signing of contracts. Hopefully this will give us some crucial details; volume of fuel to be supplied, estimated net revenue per ton, the identity of the refiner and the Global Oil Major who operates it, as they are the likely partner for the global roll out. As the amount of fuel produced by a standard 1000 ton per day MMU is 3 times greater than the fuel consumed by the 2 target vessels, this intimates the possibility that the LONO phase will encompass more engine types and ships than the 2 current vessels. See the Overview of Key Projects section. • Saudi Aramco have created a project team to manage the MSAR rollout in the Kingdom of Saudi Arabia. Aramco has designated a Saudi refinery for the first application of MSAR. The refinery is directly linked to an integrated steam and power station which provides electricity to a major petrochemical complex and associated industries. The project will begin with a small scale "pilot" project producing 350,000 tonnes per year, to demonstrate production and combustion performance. If successful, production will be scaled up firstly to 2.7 million tons per year and thereafter to 5 million tonnes per year at the facility; the first planned incremental step towards the full 25 million ton per year roll out. In effect, the "pilot" project is the beginning of the commercial phase of the KSA project. Understated but very important. Quadrise, Rafid and Saudi Aramco met in January to review the requirements and the proposed timetable for the installation of the first manufacturing unit. Quadrise have provided all the technical information required by Saudi and submitted the proposal for budgetary approval. The approval will be published in the yearly budget review, which is usually in october. The agreed intention by all parties is to have the pilot project fuel system designed, installed and operational during Q4 2014. Pre-commercial contractual terms for the support and services to be provided by Quadrise are expected to be completed by mid-year. See the Overview of Key Projects section. • EcoPetrol in Columbia has signed a "Memorandum of Understanding" (MOU) to commence a feasibility study regarding a Joint Venture between Ecopetrol and Quadrise as manufacturers and sellers of MSAR(2) in Central and South America. The study includes target infrastructure and a roll out schedule as well as listing potential partners and clients. It was expected to be completed by the end of March 2014 but has been extended to 31st August. Crucially, refiners and potential clients have already been approached. I assume the extension is required to complete negotiations, rather than to find new partners. Refinery residues have been sent to Europe for analysis and confirmation of their suitablity for MSAR production is expected by about the same time. Identifying and contacting potential consumers of MSAR will be concluded by august 2014 as per the MOU and initiate the creation of a commercial implementation plan. Thereafter the roll out of the required infrastructure is expected to last throughout the remainder of 2014 and early 2015 with commercial production scheduled for mid 2015. See the Overview of Key Projects section. • Quadrise are seeking to employ 2 executives to develop the Marine and Power Generation divisions • In May 860,645 shares were issued to a member of the board, bringing the total number of shares in issue to 807,241,536. As this increases the number of shares in issue by only 0.1% I have not altered revenue calculations. Forward I realised that a lot of what the average investor would want to know about Quadrise are hidden by confidential Non-Disclosure Agreements (NDA's) between the parties involved and will not be released until the contracts have been formerly signed. It is therefore quite difficult as an investor to assess the potential value of the company in real terms or how long it will take for that value to be achieved. Despite the fact that the numbers are compelling, I wanted a better idea of likely real world figures to help manage expectations. I have therefore put together the best information I can find to provide reasonable insight into the following: 1) Revenues (initial projects are based on a royalty model) per metric ton/per barrel 2) Production targets (metric tons/barrels per year) 3) Project timescales 4) Scope for growth Company, Product and Value-Proposition Overview Quadrise Fuels International (QFI) jointly holds, with Akzo-Nobel, the patents to technology which enables heavy crude oil residues to be converted into a fluid and efficient fuel, called MSAR (Multi-Phase Superfine Atomized Residue). When a barrel of crude oil is processed by a refinery, 70% of the crude is converted into high value distillates, mostly transportation fuels (Diesel, Petrol, Aviation fuel). The remaining 30% of the crude is heavy residue, including heavier diesels through to bitumen. In order to render the residue marketable, high value distillates (mostly diesel) must be added to the residue to make it fluid enough to use. The resultant fuel is known as Heavy Fuel Oil (HFO). This reduces the amount of high value distillates the refiner is able to sell from each barrel of crude processed from 70% to only 50%. The MSAR process replaces this diesel with chemicals (known as surfactants) and 30% water, which is added to the residue to render an emulsion fuel (MSAR) which performs in all respects as well as HFO. The benefits of MSAR to the refiner are as follows: • Improves margins on high value distillates • Used by the refinery to power it's own needs (incl. heating processes) to lower costs The potential value the MSAR process generates for upstream operations is worth noting as it demonstrates the sheer scale of potential profitability. Refiners process a staggering 30,000,000,000 (30 billion) barrels of crude oil per year. From this volume, QFI's target market of 3,810,000,000 (3.8 billion) barrels or 600,000,000 tonnes p.a of Heavy Fuel Oil is derived. Note: The majority of this market is capturable within 5 years. Oil and Gas companies are thought to be slow in developing profitable new technologies or collborations, but will rapidly embrace them once proven. According to Quadrise a few years back when the price of oil was much cheaper and therefore the quoted profit margins are now approximately 50% higher: According to Quadrise "a 1,000-megawatt power plant would use 60,000 barrels per day of MSAR" (60 barrels of MSAR per megawatt per day). "The potential to run heavier and cheaper crudes is particularly significant to refiners. A saving of $5 per barrel on crude costs translates to a reduced operating cost of over $300 million per annum for a 200,000 barrel per day refinery." "It is estimated that a 200,000 barrel per day refinery with $80 per barrel crude feedstock containing an average spread of distillates and producing MSAR, would save approximately $100m pa for the refinery by not having to use diesel to "cut" the fuel oil." The benefits of MSAR to the customer are as follows: • MSAR retails at a considerable discount to normal HFO prices (10–20% cost savings per unit of energy) • Unlike HFO, which requires constant and costly heating to keep it at the right fluidity (50- 100 degrees c), MSAR is fluid and stable at ambient temperatures • It has a burning surface area of 5 microns as compared to HFO's 200 microns. It therefore burns much more efficiently and as a result; • Achieves nearly 100% carbon burn; lowering black soot emissions, maintenance and exhaust fume scrubbing costs (to be expanded upon in 2015 and enforced globally). MSAR therefore creates added value for both "upstream" operations; enabling crude oil refiners to produce more higher-margin distillates per barrel and "downstream" operations; enabling a cost effective and substantially "greener" HFO substitute to be marketed at a profitable, yet cheaper price than HFO. Note: MSAR consists of approximately 30% water and therefore has a lower calorific content then HFO, although this difference is mitigated to some degree by MSAR's higher efficiency. Therefore to generate the same amount of energy they will need to use approximately 22%- 27% more MSAR, however revenues are calculated on a like-for-like basis; the amount of HFO replaced by MSAR, not the actual volume of MSAR sold. In spite of this MSAR is still up to 20% cheaper than HFO. Note: Quadrise is without question the world leaders in the field of emulsion fuels, however the company is small, comprising only 7 staff, who are all experienced in the oil and gas industry, including project management, technical development and carbon fuel chemistry. Together with a Joint Venture partner, Quadrise's role is effectively to find approriate refiners and clients, create and review project proposals, co-ordinate the project partners and oversee the key steps required from testing fuel residues to integrating MSAR manufacturing units (MMUs) into the refinery infrastructure. Key personelle are installed at the refinery to oversee quality control throughout the entire manufacturing process and supply chain. Note: MSAR can also be used in crude oil and marine diesel engines. Revenue Overview In order to estimate the potential value of the company we first have to establish the key sources of revenue: • Revenue Unit: MSAR(2) sales per ton. • Unit Value: £20 per ton. The income received by Quadrise is based on the improved values derived from both upstream and downstream operations, with the combined value being divided amongst the partners; Quadrise, the Refiner and the Joint Venture partner. Peel Hunt has calculated this combined value to be approximately £60 per ton (including all costs/expenses incurred by all the partners), therefore each partner will receive approximately £20 per ton. Once revenue is established we have to deduct further costs to calculate net income, which include: • MSAR production costs (included in the £20 per ton revenue calculation): ◦ The cost of the Chemicals supplied by Akzo-Nobel ◦ The cost of technical and support services provided by Akzo-Nobel • Operating/running costs (OPEX); Salaries, rent, general overheads. • Capital Expenditures (CAPEX); MSAR Manufacturing Units and integration • Director Renumeration; 12.5% of gross profits • Taxation; The UK corporate tax rate is 23% MSAR production costs: According to Peel Hunt these are included in the £20 per ton profit margin. Operating costs: Are calculated at 20p per ton (1% of profit margin and so I have not included them in the revenue calculation for now). Capital Expenditures: According to the new agreement between Akzo-Nobel and Quadrise, Quadrise will be responsible for purchasing the MSAR Manufacturing Units which cost approximately 500,000 Euros each. These are then sold to the refiner at a small margin. I have not included these expenditures because the costs are recouped from the client and therefore rendered even in the accounts. Also until we have more detail regarding the contracts and roll out, we cannot be sure how many MMUs will be ordered per contract or the size of the MMUs. Note: A 1000 ton per day MMU costs approximately 500,000 Euros (£400,000) and a 6000 ton per day MMU costs about $1 million (£600,000). These larger MMUs have been designed but not yet constructed. Director Renumeration: 12.5% of the gross revenue goes to the key directors in effect as a thankyou for bringing the projects together almost single-handedly. Taxation: Thereafter UK Corporate taxation is applied to the remaining sum at 23%. Given that Quadrise are domiciled in the UK the 23% tax rate must be applied. However as the projects are not based in the UK I do not know if or how this will have an impact on this tax rate. And so together revenue calculations per ton are: £20 (incl costs) - 12.5% Director renumeration (£2.50) = £17.50 - UK Tax at 23% (approx. £4) = £13.50 per ton Net Revenue. Note: £13.50 is based on the revenues derived from the MSAR sold for the Maersk PoC trial. As this was a one-off, small batch order, the operating costs associated with it are higher than the unit costs incurred with continuous, commercial scale production. I therefore expect the net revenue per ton to be greater than £13.50. One other factor pertinent to margins is the business model chosen for the project. There are three models, each yielding progressively higher margins: • Licene Fee: The partner finances and owns the manufacturing facilities, the HFO feed stock and the resulting MSAR. Quadrise charge a royalty fee per barrel/ton processed. • Toll Processing: Quadrise (and JV) finance and own the manufacturing units at the refinery. The feed stock and MSAR belong to the refiner and Quadrise charge them a fee per barrel/ton processed. • Vendor: Quadrise (and JV) finance and own the manufacturing units. They buy residue from the refiner, pay the refiner for utilities and services, and sell the MSAR to clients (Ian Williams has cited numerous opportunuties in the Caribbean) Note: To keep value calculations simple only the Licence Fee model is used for all projects Note: The BoD have stated that they will not pursue Toll Processing or Vendor models until enough revenue has been accrued to cover the additional asssociated costs. Note: QFI use Brent Crude as their basis for value calculations because the heavier crudes are aligned with the Brent Crude price (rather than the US Crude Price) Peel Hunt revenue calculations for 2013: • Share price target 60p • SOTP (Sum of Total Parts) or Net Asset Value (NAV) 70p • 2013 revenues £600,000 (Maersk project) • 2013 MSAR volume 30,000 tonnes • Fixed OPEX = zero. • Variable OPEX is $300,000 per 1m tonnes or £0.03 per barrel/ £0.20 per ton £600,000/30,000 tonnes = £20 per ton, which Peel Hunt will use for future revenue calculations. Peel Hunt have also given figures for 2014 through to 2015, however the figures are essentially useless and too general to be of use. Peel Hunt admit that near future projections (2014 and beyond) are highly variable due to the possibility of delays, the speed at which projects will roll out and the rate of adoption by the wider market and so until such information becomes clearer I have not included their 2014 or later revenue projections. Cash Position The cash position of Quadrise as of 31 December 2013: • Cash utilised in previous years operations to date £2,700,000 • Cash reserves of £2.13 million at 31 December 31 2013 • Additional reserves of £10.7 million from share placing • No Debts • Approx £180,000 monthly operating costs • High percentage of pre-commercial costs recouperable from client • Since 2006 Quadrise has accrued losses of approximately £35.5m that can be offset against taxable profits This year the cash burn will be higher; the new rented offices are more expensive, they have hired 2 new staff and will be hiring further management, technical and support staff. They are developing their R&D facility and sent contractees to the Orlen refinery in Lithuania to manage the production and ensure the quality of the MSAR2 produced for the Maersk PoC trial. Some of these costs are recouperable from partners. Furthermore, in the second half of 2014, Quadrise will have to pay for the manufacturing units (MMUs) to be installed at Aramco and for the expanded Maersk trials (although these costs are recouped from the client). Furthermore, EcoPetrol will be a Joint Venture (JV) partner and therefore Quadrise will carry the costs of the MMUs, but will receive a higher percentage of the profits than would be received on a license only business model. Is Quadrise a Takeover Target? Im writing this here because I'm not sure where else to put it! Anyhow it concerns the possibility of Quadrise being bought out. Small, high value, high growth, "game changing" companies like Quadrise are rarely allowed to organically grow to their full potential. Although this is pure speculation at this point, it is becoming increasingly likely, to me almost obvious, that the Global Oil Major (See Overview of Key Projects) is the most likely candidate to make an offer for Quadrise. I personally do not expect Quadrise to be an independant company for long once the fuel has proven itself in the real world. I therefore see Quadrise as a likely takeover target from the latter half of 2015 onwards. I expect the offer price to be high, maybe even to lead to a possible bidding war, but I would not like to say what price the BoD or Insttitutional Investors would accept. Due to changes in the regulations covering takeovers on the AIM market, the buyer must match the highest share price they have paid in the previous 12 months. Additionally, all projects, whether complete or not, must be taken into account when evaluating the company. Given the size of the projects and that the distribution of share ownership (and regulations governing share accumulation) prevents a buyer from acquiring a controlling stake without the market being aware of the buyers intentions, I do not believe that a "cheap" takeover is possible. Target Markets and Potential Income The two target markets for MSAR are as follows: • To replace HFO consumed in Power Stations (MSAR) • To replace HFO used to power large sea going vessels (MSAR2) The size of these markets are as follows: • The global HFO market (power stations) consumes 400,000,000 tonnes or 2,540,000,000 (2.54 billion) barrels p.a. • The global HFO marine fuel market consumes 200,000,000 tonnes or 1,270,000,000 (1.27 billion) barrels p.a At £13.50 per ton QFI's potential Net Income per year = 600,000,000 (tonnes) x £13.50 = £8,100,000,000 (£8.1 billion). The previously accepted profit margin of $1.92 per barrel yielded an income of £4,876,800,000 p.a (approx. £5 billion). The new figures from Peel Hunt mean Quadrise will make almost 60% more revenue than was previously thought. To convert this revenue into a possible share price, we must first derive the Earnings per Share (eps) by dividing the revenue by the number of shares in issue: £8,100,000,000/807,241,536 (shares in issue) = approximately £10.05 per share (per year) Most FTSE 350 companies have an average p/e ratio based on 15 times yearly earnings, therefore: £10.05 x 15 = £150 per share. Note: The number of shares in issue is 807,241,536, but I round the number down for ease of calculations Now lets inject some reality. The above figures relate to the total global HFO output from all the worlds refineries combined and to say that QFI are not currently capable of that level of production would be an understatement. However they have intelligently pursued two main projects which give them a sure footing towards achieving that goal, which are near completion. The first project is a joint venture with Maersk to use MSAR2 to power their container shipping fleet. The second is a Joint Venture with Saudi Aramco and Rafid in the Kingdom of Saudi Arabia to use MSAR to fuel power stations. These and other projects are discussed in the following section. Firstly I would like to quickly review the key projects and their projected values: • Maersk: 10 million tons x £13.5 = £135,000,000 per year. Eps = £0.169. Share price on P/E of 15 = £2.53 • Saudi Aramco (KSA): 25 million tons x £13.5 = £337,500,000 per year. Eps = £0.42. Share price on P/E of 15 = £6.32 • Powerseraya (Singapore): 16 million tons (approx) x £13.5 = £216,000,000 per year. Eps = £0.2675. Share price on P/E of 15 = £ 4.0125 • PEMEX (Mexico): 45 million tons (approx) x £13.5 = £604, 941,750 per year. Eps = £0.75. Share price on P/E of 15 = £11.25 • EcoPetrol (Columbia): Unknown • Global Oil Major: Unknown Note: High growth companies such as Quadrise will inevitably trade on a much higher forward earnings ratio than 15. It is not uncommmon to see high growth companies trading at 50 to 400 times their current yearly earnings if the market percieves exceptional growth potential for many years ahead, which is the likely case with Quadrise. However, to help manage expectations and avoid disappointment, all share price estimates are based on a conservative, low to average p/e multiple. Overview of Key Projects Any large scale Oil and Gas project is a behemoth task, namely because of the need to satisfy the demands of regulatory authorities in different parts of the world, whilst having to develop joint venture partnerships and infrastructure projects in widely geographically dispersed locations simultaneously. Projects do take years to complete. The following provides a quick overview of key projects and the time frames expected before each projects' full target commercial roll out is achieved. Maersk Maersk run the world's largest fleet of container ships (about 600 or 15% of global container shipping vessels). It also consumes 10 million tons of HFO (bunker fuel as it is known in shipping) p.a, which is 5% of the global marine bunker fuel market. HFO consumption accounts for 21% of Maersks operating costs (the lowest in the industry) and the aim of reducing these costs was the reason why Maersk approached Quadrise to develop the fuel for them. The initial commercial target is to produce the fuel to run their largest 200 container ships, which consume on average 150 tons per day with an annual consumption of 10 million tons (63,500,000 barrels) MSAR2. Maersk calculate that replacing HFO with MSAR will save them "$1 million dollars per year per engine". As the near term declared target is 200 ships, Maersk will save $200 million dollars per year on fuel costs. Note: The price of HFO is 50% more expensive than when these estimates were first calculated, therefore the savings are likely to be closer to $300 million per year. Maersk however have over 600 large vessels (including those of subsidiaries) and can boast a fleet of over 1000 vessels. It is expected with time that the contract will cover more than the initial 200 vessels including the new Triple-E; the largest container vessel in the world. This project is based on the License Fee model. The Maersk project is the most advanced of all the current projects. On the 29th August 2013 the BoD informed the market that contracts had been signed between Quadrise and Maersk for the second phase of the MSAR2 live sea trial; the 400 hour Proof of Concept trial. This was successfully concluded at the end of june on the unnamed vessel powered by the Wärtsilä Long 2 Stroke engine. The second POC, on the unnamed vessel powered by the the MAN-Diesel 4 Stroke engine, is no longer necessary, but will continue in order to collect important engine performance and settings data. The POC is expected to be concluded by the end of july. These are the engines that the majority of Maersks largest container vessels use. The project will now move to the third and final testing stage; the 4000 hour (approximately 6 month) "Letter of No Objection" (LONO) seaborne trial. The "Letter of No Objection" is a legal necessity; it is an official approval issued by the engine manufacturer which states that the fuel is safe to use on their engine. To briefly explain; by far the greatest cause of damage fuel contributes to engine function and performance is the build up of black carbon deposits. As MSAR(2) achieves nearly 100% carbon burn out, it should not cause any problems to the engine, furthermore it should actually decrease the amount of maintenance the engine will require. Once the test is complete, the engine manufacturers (Wärtsilä and MAN-Diesel) will remove parts of the engine (cylinders, cylinder sleeves, piston heads, superchargers/turbos, gaskets, etc) and examine them at a microscopic level in the laboratory for adverse wear and if no problem with their respective engines is discovered, they will issue "Letters of No Objection" (LONO) certifications. Once this final approval is given, the conditions set out by regulatory authorities and "class societies", such as ship insurers, are fulfilled, enabling wide scale commercial usage to begin. Note: Although the issuance of a LONO is a legal requirement for commercial scale usage, the 4000 hour duration is not a legal requirement, rather it is a standard set by the industry itself. It is possible that the engines may be examined before the 4000 hours are completed and, based on the results to date, the manufacturers may calculate that the fuel would not cause any damage to the engine or parts over the full 4000 hour period and issue a LONO early. As the LONO trial is no longer considered necessary for the technical development of the fuel as originally intended, Maersk have stated that the LONO phase is now the first stage of incremental commercial scale production.The LONO phase was meant to continue seemlessly after the PoC trial, however Maersk have decided to postpone the LONO phase until the beginning of 2015. The reason given is that small batch production of MSAR is more expensive to make per ton than is the case for ongoing, commercial scale production. The next step is for the partners (Quadrise, Akzo Nobel, Maersk and a refiner) to sign commercial production contracts in readiness for the january 2015 deadline. I am expecting contracts to be signed sooner than later; Ian Williams stated that the MMUs are expected to be installed at the refinery by the end of october. As the MMUs take approximately 2 months to install, the contracts must be signed by the end of august at the latest. The selected refinery was meant to be Orlen Lietuva in Lithuania, however Maersk wish to use a refiner that is closer to the selected North European deep sea port where maersks container vessels will be supplied with fuel (probably Rotterdam and/or possibly Bremerhaven). The refinery in all probability, belongs to the Global Oil Major, who is seeking to partner with Quadrise and Maersk at all 5 targeted deep sea ports around the world. Once the LONOs are issued around mid 2015, Maersk intend to roll out the fuel to the vessels that operate out of Northern Europe. In 2016 fuel production will be rolled out to the rest of the world (the remaining 4 deep sea ports used by container vessels) and crucially, Maersk are content for their competition to use MSAR2 from this point onwards also. I therefore expect the 10 million ton per year production target to be met by approximately the end of 2016. Note: The LONOs cover an entire class of engine from a manufacturer. As the LONO trials expected later this year cover the two main engines used by Maersk, the number of LONOs required to cover other engine types will be few. Note: Maersk and Quadrise did not wish to proceed with the live sea trials until they were absolutely certain the fuel had achieved the technical requirements necessary in the laboratory and would therefore work as expected in the real world. Ian Williams stated at the 2013 AGM that he is 95% certain the PoC trials will be a success and if so, 99% sure that the fuel will pass the LONO tests. Note: MSAR2 has passed all the requisite regulatory milestones to go commercial, including land trials in the engine manufacturers labs (Wärtsilä and MAN Diesel) and in the first sea trial on the container vessel Soroe Maersk. The PoC has been satisfied. The beaurocratic and regulatory requirements by the Danish Maritime Authority and the insurers; class societies Lloyds Register and the American Bureau of Shipping, have all been satisfied. All that remains is for the engine manufacturers to issue the LONOs. Note: Quadrise are targeting 80% of the marine fuel market. 99% of the ships (approximately 3000-3500 ships) which consume this volume use Man Diesel or Wärtsilä engines. Note: The likely income for Quadrise from the PoC phase of the trial is $1.5 million/£1 millon Note: The Royalty Agreement with Maersk has been extended to 31 December 2022. The agreement covers the legal framework and the key terms and conditions to be applied when commercial volumes are supplied to Maersk and third parties (ie Maersks competitors) In order to have the infrastructure in place to meet the target output of 10 million metric tons p.a for Maersk, QFI are seeking partnerships/Joint Ventures to place refineries and MSAR refuelling infrastructure in 5 of the world's deep sea harbours; Singapore, Rotterdam, Fujairah (UAE), Houston (US Gulf) and a "mediterranean" port. These 5 refuelling hubs supply 80% of the worlds marine HFO (160 million tons p.a) directly to ships, of which Singapore is the largest distributor. Note: The unnamed Global Oil Major that recently successfully tested heavy residues for conversion to MSAR, is thought to be the partner which can handle fuel processing and logistics at all 5 ports. Note: Maersk may buy the MSAR directly from the refineries rather than through a third party bunkering company, although the GOMs suspected to be involved own both refinery and bunkering infrastructure in the target ports. Note: Marine HFO consumption is expected to rise to 500 million tons p.a by 2020, 80% of which is 400 million tons hxxp://www.epa.gov/nonroad/marine/ci/420r09009.pdf. I have read numerous reports from reliable sources (forward reviews from oil companies, regulatory authorities and financial instituions such as banks and insurers) who cite growth at 250-300 million tons per year upwards by 2020. Note: The Maersk P3 alliance (where Maersk and 2 major rivals; MSC and CMA CGM, intended to share cargo on shared routes to drive down costs) has been scuppered by the regulatory authorities in Hong Kong due to concerns that the alliance is anti-competitive. Instead Maersk will now proceed with an alliance with MSC called "2M". This smaller agreement comprises 185 vessels, with Mærsk contributing approximately 110 vessels including 20 of the new Triple E class vessels; the worlds largest container vessel or 55% of the total carrying capacity. This agreement will obviously effect revenues but we are not sure yet how. On one hand Maersk will be using less fuel, however it is likely the alliance will encourage MSC to adopt the use of MSAR2 before other rivals in 2016. Note: Due to recent regulations regarding low sulphur emissions in coastal Emission Control Areas, Maersk has adopted the use of Low Sulphur Marine Gas Oil in these waters, totalling about 650,000 tonnes per year (7% of Maersks annual bunker fuel requirement). As Maersk consume 10 million tonnes of HFO per year, this means the volume of standard HFO, which MSAR2 replaces, has dropped to approximately 9,350,000 tonnes per year. However, this is mitigated by the fact that Maersks competitors are likely to adopt the fuel as well as the fact that over time HFO usage is set to increase rather than decrease. Additionally, as low sulphur MGO is about 50% more expensive than standard HFO and even more expensive than MSAR (the additional costs for low sulphur MGO equals $250 million per year) Maersk may yet opt for the cheaper alternative, which is to use MSAR2 combined with emission scrubbers. As a result I have decided not to change the revenue calcvulations for the Maersk project. Scope for growth: Firstly, Maersk could widen the adoption of MSAR2 to the fleet as a whole, including the incredible Triple-E, the worlds largest container ship, of which Maersk has ordered 20. The Maersk fleet comprises over 1000 vessels (Maersk fleet, subsidiary fleets and leased fleets), which include a variety of ships; container fleet, oil tankers, refuelling ships, research vessels, etc. Most of these also run on HFO or marine diesel (which MSAR2 can also replace), but being somewhat smaller in size to the largest container vessels their consumption is also less. Although I am researching this further, it would seem the remainder of the Maersk fleet consumes approximately another 2 million tons of HFO per year. However, if this is the case, not all of these ships use engines or engine types covered by the Wartsila and Man-Diesel LONO tests, therefore further LONO tests would be required before all of these remaining ships could use the fuel. Secondly and most importantly, Maersk have 30 international competitors whose vessels use the same ship engines and fuel bunker hubs as Maersk. Once the refining and storage infrastructure is in place at the 5 target ports and Maersk have proven the cost effectiveness of the fuel, their competitors are expected to seek contracts with Quadrise. Furthermore, these comparative vessels between them consume 80% or 160 million of the 200 million ton marine HFO market each year and they only number 3000-3500 vessels. This is why the BoD are confident of capturing the majority of the marine market over a relatively short period by supplying the vessels via these 5 key target ports. Note: Fuel expenses account for at least 20% of shipping company costs at a difficult time; business is low, there is an over-capacity of ships (a legacy of ship orders made before the 2008 crash), which means many vessels are running far below full capacity and some companies and/or shipping routes are subsequently running at a loss. A 20% reduction in fuel costs by switching to MSAR2 is a huge and critical saving. Note: Maersk have not reserved rights to exclusivity, but will receive a modest royalty on MSAR2 sales to it's competitors, in recognition of their invaluable contribution to the fuel's development. The second and larger market Quadrise wish to sell MSAR to is the Power Station market. For a complete list of power stations around the world whose fuel (Crude oil, Heavy Fuel Oil or Diesel) can be replaced by MSAR, please see the following link: hxxp://globalenergyobservatory.org/list.php?db=PowerPlants&type=Oil Saudi Aramco Quadrise's primary power station project is a joint venture with Saudi Aramco and Rafid in the Kingdom of Saudi Arabia. Saudi Aramco, the world's largest oil producer and refiner, has declared the intent to produce the MSAR equivalent of 25 million tons (158,750,000 barrels) HFO p.a which will be used for power production within the KSA. This project is also based on the License Fee model. On August 22nd 2012, Quadrise and Saudi Aramco signed a Memorandum of Agreement (MOA), but a lot of it is confidential until contract negotiations are finalised. However the board recently revealed that Aramco wish to scale production up to 25 million tons (or HFO equivalent) as stated above. "The MOA commits the parties to an exclusive relationship within KSA. In addition, when contract terms are finalised for the first MSAR process installation in a major refinery in KSA, Quadrise and Rafid will form a joint venture company to undertake all further business in KSA in which Rafid will hold an interest of up to 30%". (30% = £20 per ton) There are compelling financial incentives for Saudi Aramco to proceed as quickly as possible. A Royal decree was issued stating that, due to high inefficiencies, crude oil fueled power plants must be converted to HFO fuelled plants. This however is currently met by large volumes of imported fuel costing $17 billion p.a, which in turn is subsidised by the KSA government by up to 80% (approx $14 billion) when sold at a discount to domestic customers. HSBC predicts that 248bn litres of diesel will be imported over the next 10 years, which is equivalent to $170bn at current prices. The substitution of MSAR for HFO would substantially reduce the volumes of Saudi diesel import and subsidy costs. Saudi Aramco specialists which reviewed MSAR production in Saudi Aramco refineries described the projects as "highly profitable". Once the negotiations are signed off, QFI together with their Joint Venture (JV) partner Rafid and Akzo Nobel, will install the necessary equipment in the power stations and refineries. Installing the Modular Manufacturing Units (MMU's) is relatively easy and can be done without any downtime for the refiner. It would appear that the Saudis like to take things slow, but as stated previously the only impediment would appear to be the rate at which the necessary paperwork is being handled. However, there have been a number of interesting developments: • Saudi Aramco signed off an internal contract (which involved the approval of over 20 internal departments) to create a team that will organise and roll out a phased implementation, including commercial contracts. • Saudi Aramco specialists have completed a thorough study identifying the technical and economic value of incorporating the MSAR process in their refining system • Saudi Aramco specialists have tested Saudi refinery residue samples at Quadrise R&D facilities and have successfully converted these residues to MSAR • Saudi Aramco has designated a Saudi refinery for the first application of MSAR. The refinery is directly linked to an integrated steam and power station which provides electricity to a major petrochemical complex and associated industries. The project will begin with a small scale "pilot" project producing 350,000 tonnes per year, to demonstrate production and combustion performance. If successful, production will be scaled up firstly to 2.7 million tons per year and therafter to 5 million tonnes per year at the facility; the first planned incremental step towards the full 25 million ton per year roll out. In effect, the "pilot" project is the beginning of the commercial phase of the KSA project. Understated but very important. Quadrise, Rafid and Saudi Aramco met in January to review the requirements and the proposed timetable for the installation of the first manufacturing unit. Quadrise provided all the technical information required by Saudi to submit the proposal for budgetary approval, which is expected to be approved in the yearly budget review in october. The agreed intention by all parties is to have the pilot project fuel system designed, installed and operational during Q4 2014. Pre-commercial contractual terms for the support and services to be provided by Quadrise are expected to be completed by mid-year. Note: The refinery supplies fuel oil to two other large power plants in the region. Also existing utilities are being expanded. Note: MSAR can replace all the crude, HFO and diesel used in thermal power generation in the KSA. The only constraint is the availability of heavy residue from Aramco and joint venture refineries in the country. The economy would continue to benefit irrespective of the origin of MSAR feed stock which may, eventually, have to be imported from other sources. Note: Saudi Aramco previously advised that the designated refinery would be their largest refinery; Ras Tanura. This has now changed. The likely option is now theYanbu refinery shared with ExxonMobil as it is the only partner which has refinery infrastructure at all the target ports. Exxon also has the most refining capacity at these ports and outside of the KSA is the worlds largest oil refiner. Note: According to the broker Westhouse, the MMUs have a small footprint and are easily integrated into refinery operations without the need for a refinery shut down or to be co- ordinated with the annual maintenance window, as was previously thought. This is important because it means refiners can be up and running very quickly. Additionally, Quadrise can order MMUs from multiple manufacturers, who are ready to go into increased production as well as constructing the much larger units that have been designed. Scope for growth in the KSA. Once the refinery has proved the effectiveness of the fuel manufacture process and the increased margins that result from it, further refineries owned by Saudi Aramco will be upgraded to produce MSAR. The scope widens beyond Saudi Aramco and covers all prospects in KSA including the "joint venture" refineries and other users of fuel oil for steam generation, cement kiln firing and desalination plants. Desalination plants are particularly important. The KSA Government plan to spend $66 bn on water projects over the coming 10 years. The main company responsible for desalination in the KSA is the Saline Water Conversion Corporation (SWCC). It's plants augment the supply of clean water in the KSA, and is also the KSA's second largest electric power producer. The SWCC's 30 plants produce 3.5 million cubic meters of water daily, and about 5,000 megawatts (MW) of electricity. They are located at 17 sites, 14 on the west coast and 3 on the east coast. This is valued as follows: 5 x 60,000 (barrels) = 300,000 (barrels) / 6.35 (barrels to tonnes) = 47,244 tonnes per day x £13.50 per ton net revenue = £641,250 per day. Additionally, ACWA Power International, a private sector company, has seven plants at four sites and on two barges that also produce desalinated water. ACWA Power generates 15,731 MW of power and 2.4 million cubic meters a day of desalinated water. This is valued as follows: 15.731 x 60,000 (barrels) = 943,860 (barrels) / 6.35 (barrels to tonnes) = 148,639 tonnes per day x £13.50 per ton net revenue = £2,006,631 per day. YTL PowerSeraya refuelling Partners – YTL PowerSeraya refuelling Location - Singapore Projects - Power plants and marine fuel opportunities Business Model – Likely to be Licence Fee PowerSeraya wish to upgrade their power plants to run on MSAR and efforts are ongoing to find a refiner to supply them. Once found, contracts will be signed. Saudi Aramco is a potential supplier of MSAR as they already ship HFO to Singapore. The Global Oil Major is targeting power stations to supply MSAR to and this could include PowerSeraya, in which case the contract could be commercial by the latter half of 2014. We do not know the exact figure for Singapore's yearly HFO output, however we can make an approximate calculation to derive the annual tonnage required. Singapore has 4,700 megawatts of oil powered power stations and as stated above: "A 1000 megawatt power plant would use 60,000 bpd (approx. 9,500 tons per day) of MSAR" 4,700 / 1000 x 60,000 x 365 = 102,930,000 barrels per year / 6.35 (barrels to tonnes) = 16,209,449 tonnes per year. As this is approximate I shall round down to 16 million tonnes. Now we can calculate the net revenue, earnings per share (eps) and share price. 16,000,000 x £13.5 = £216,000,000 net revenue p.a £216,000,000 / 807,241,536 (shares in issue) = £0.2675p (eps) £0.2675 p x 15 (p/e) = £4.0125 per share. Scope for growth Additional refineries in Singapore may be approached as Singapore hosts one of the 5 ports targeted to supply MSAR2 to Maersk. Pemex Customer – Pemex (Mexico's national oil company) Joint Venture Partner – NexIdea Location - Mexico Projects - Power plants and marine fuel opportunities Business Model – Toll Processing Scope for Growth - Central and South America, Caribbean We do not know the exact figure for Pemex's yearly HFO output, however we can make an approximate calculation to derive the annual tonnage required. Mexico has 12,993MW of oil power stations. 12,993 / 1,000 x 60,000 x 365 = 284,546,700 barrels per year / 6.35 (barrels to tonnes) = 44,810,503 tonnes per year. (Double check figures; crude oil usage and HFO usage – if HFO 8 mil tonnes, then crude must equal 34 mil tonnes???)) 44,810,503 x £13.50 = £604, 941,750 net revenue p.a £604, 941,750 / 807,241,536 (shares in issue) = approximately £0.75p (eps) £0.75p x 15 (p/e) = £11.25 per share. The business case for Pemex to go forward is compelling, Mexico has an oil based economy and consumes large volumes of HFO (approx 8 million tons p.a) in thermal power generation. Mexico cannot meet domestic demands for distillates and imports increasing quantities of diesel and other light fuels to meet local demand. Pemex refinery residues have already been successfully converted to MSAR in Sweden. Quadrise and Pemex are reviewing a draft agreement, which once ratified, gives Quadrise the go ahead to install a demonstration MMU in a large domestic refinery and if successful, full commercial rollout is expected within 12 months. Again agreements are in place for refining and power production but political issues are delaying the negotiations, namely a change of leadership in Government (That's Mexico for you!!!). However, Quadrise plans to bring in external partners to cover production if required. Negotiations with another refiner are on track. Nevertheless, a contract with Pemex to proceed with a pilot project is now not expected until 2015. Ecopetrol S.A Customer – Ecopetrol S.A Joint Venture Partner – NexIdea Location - Columbia Projects - Power plants and marine fuel opportunities Business Model – Likely to be Toll Processing Scope for Growth - Brazil, Peru and the Gulf of Mexico (US) Quadrise, thier JV NexIdea and Ecopetrol have signed a Memorandum of Understanding (MOU) to undertake a full project feasibility study and will seek out suitable refiners and powerplants until mid 2014. A suitable refinery was inspected during December 2013 to assess the installation requirements for a MMU. Residue samples from Colombia have been received and will be evaluated at Quadrise's R&D facility during Q2 2014, some three months later than anticipated. Thereafter we can expect contract time schedules and operational updates for the selected partnerships. The project will be based on a different business model to the license fee model and is likely to be Toll Processing; Quadrise will pay for the MMUs, ancillary equipment and tie-ins to refinery services and control systems. The plan is to manufacture MSAR in Colombia and sell this to regional power generation and marine fuels markets, where Ecopetrol is presently a supplier of fuel oil. Note: Ecopetrol is the largest petroleum company in Colombia accounting for 60% of Columbia's oil production. It is one of the four principal petroleum companies in Latin America, is ranked 303 in the Fortune Global 500 and is one of the 25 largest oil companies in the world. In 2012 its net income was US$ 8.3 billion. In 2012 Ecopetrol had 290,850 bbl/d of crude oil refining capacity at five refineries; the 205,000 bbl/d Barrancabermeja-Santander facility and the 80,000 bbl/d Cartagena refinery possess most of the country's crude distillation capacity. Although Colombia is a net oil exporter, it must import some refined products, especially diesel fuel, as domestic demand outstrips refining capacity. As a result, Ecopetrol has begun efforts to expand refining capacity. The $6.47-billion expansion of the Cartagena refinery, scheduled to be completed and operational by May 2015, will more than double its current capacity to 165,000 barrels per day. Ecopetrol is also expanding the Barrancabermeja plant, which will increase its capacity to 300,000 barrels per day and improve the refinery's ability to process heavier crude oils. The expansion, currently under construction, is expected to be completed in 2016. Global Oil Major (GOM) Quadrise are in talks with two of the big 5 O&G companies (Likely candidates are ExxonMobil or Shell) to produce MSAR commercially during 2014 in refineries around the world to supply both the marine fuel and power generation markets. A pilot project to produce MSAR from a heavy residue stream was successful and an operational update in regard to this trial production run was expected by the end of 2013, but has not yet been announced. We understand from the BoD that the GOM is also testing residues for power station projects. Note: Further developments are temporarily on hold pending developments with the Mærsk project. Once Mærsk confirms the success of the Proof of Concept trials for MSAR2, the Global Oil Major programme is expected to be resumed. Note: Quadrise have not declared the identity of this Oil Major, however as it wishes to supply marine fuel via multiple sites, it makes sense to see which of the top 5 Oil and Gas Major companies have a presence at the major refuelling hubs required by Maersk. The two likely candidates are ExxonMobil and Shell as both own refineries in Singapore, Holland, Texas and California. The port of Fujairah in the UAE is owned by the national oil company "Abu Dhabi National Oil Company" and is also a major stakeholder in local refineries owned by both Exxon and Shell. Due to it's greater size in terms of production, Exxon is the current favourite. Note: Additionally, Exxon have the 300,000 bpd Fawley plant at Southampton Water, next to Southampton docks which is being expanded and deepened to enable the docking of the worlds largest ships, the Triple E and will become a close rival to Hamburg and Rotterdam. This is definitely a future candidate, as it processes heavy brent crude. Global Oil Major (GOM) Two A second GOM approached Quadrise with assistance in solving a particular problem. Heavy oil residues were blocking the pipes in the refinery infrastructure. QFI solved this for them. Subsequently, the company is reviewing the applicability of the MSAR process to its own residues. Non - Managed Investments in Canada As has been advised in previous reports, the Canadian investments have been impacted by trends in the energy markets which have eliminated a number of potential business opportunities. An example is the growth in shale gas production which has driven down prices and eliminated the prospects for application of Quadrise technology in the production of steam and power for reservoir heating in oil production. Quadrise Canada Corporation (QCC), where the Company has a 20.4% shareholding, has two currently active programmes: 1. A fuel emulsion production project in Albania in association with Petrosonics, which is operating under license from QIL. 2. A crude oil emulsification programme, in association with a heavy oil producer, which aims to reduce the cost of heavy crude oil transportation from oil field to market/refining centres. Formulations have been developed and tested in laboratory conditions with favourable results. Albania Petrosonic and Quadrise Canada (A subsidiary in which Quadrise holds a 20% stake). MOU signed september 2012. The start up of the project was delayed due to difficult operating circumstances. At this stage it is likely to be some considerable time before the volumes become significant. Petrosonic de-asphalt heavy oil residues using high frequency sound waves, which renders them into a workable fluid at ambient temperatures. The fluidity of the treated residues is then augmented by processing into MSAR by QCC. A facility was expected to be constructed and operational by the end of 2013, which will process 1,000 bpd of heavy oil, moving into commercial revenues during 2014, however an update is now overdue. The fuel has been sold to an oil producer that is testing the fuel for 3 months using a 120 bbl/hour MMU lent by Quadrise Canada. Once proven, it will be integrated into the oil producers treatment facilities. Quadrise is in discussion with other clients. Scope for growth – Albania and Iraq Petrosoninc are responsible for providing the feedstock, the capital and operating costs associated with the operation of the manufacturing unit. The fee for manufacturing the emulsion fuel oil is based on the type of feedstock and water used, but the licence fee cost is estimated at $6.30 per barrel of MSAR at 500 bpd. $6.30/1.65 ($ to £) = £3.80 per barrel x 500 = £1900 per day x 365 = £693,500 gross revenue per year. As Quadrise owns 20% of QCC, the value attributable to Quadrise comes to £130,000 per year gross. Pocket money. Optimal Resources Inc. (8.6%) has been working in association with Chinese interests to test novel Enhanced Oil Recovery (EOR) technology in the ORI Lloydminster oil field. The programme has not proven successful possibly due to specific conditions in the oil field. There are positive indications that the Chinese technology may have more success selectively elsewhere in Canada. Should the Chinese interests wish to apply their proprietary EOR technology more widely in North America, ORI may have an opportunity to provide services to assist them in the acquisition of rights and the development of operations. In the meantime ORI will seek to dispose of the Lloydminster asset to fund its own continuity. There is no certainty that any of these possibilities will have any material impact on the value of QFI's holding in ORI Paxton Corporation (3.8 %) is understood to be actively promoting the use of its technology in oil field operations. Developments in the use of technologies licensed by Clean Energy Systems continue to show promise and could be material to PC. PC has a 30% interest in CES and there is growing interest in the 'steam gun' technology for low cost steam and power, and for oil recovery through CO(2) emissions sequestration directly into the reservoirs. The Company continues to hold all of the Canadian interests as 'investments available for sale'. MSAR Scope for Growth Once refineries see the extra margins Saudi Aramco are making by converting HFO to MSAR, other refineries are expected to form partnerships with Quadrise. The pre MSAR product "Orimulsion" bought by the current management team in 2006 (when politics forced the previous technology owners to abandon the project) was in successful commerical production and demand outstripped supply by 300%. Some of the ongoing partnerships are with former orimulsion refiners and consumers. As many of Quadrise's partners operate globally, there is the potential for many more projects to snowball as a result of the first successful and highly profitable production facilities going online, sometime between now and mid 2014. The fact that an Oil Major is seeking to partner with Quadrise for a range of international projects is testamony to the perceived benefits the technology can bring to the industry as a whole. Ian Williams, the CEO described MSAR as a 'game changer'. Note: A project usually starts with one partner in one power plant, with one or more MMUs installed. Scaling up to encompass all the oil fueled power generation plants in a country/region would take a few years The following Wikipedia page lists the majority of the worlds crude oil and HFO refineries http://en.wikipedia.org/wiki/List_of_oil_refineries Out of this list approximately 250 refineries process the heavy crude stock necessary to make commercial quantities of MSAR. Asia Partners – Unnamed Refiner(s), JV NexIdea Location - Asia (specifics not given) Projects - Targeting new and existing oil refineries for MSAR production An unnamed Refiner in Asia is also seeking to produce significant amounts of MSAR. Quadrise's JV NexIdea signed an MOU with them in July 2012. Hopefully, in the mean time, they have been able to make concrete progress towards trials and/or commercial contracts. "Nexidea and QIL have selected two initial prospects to be progressed jointly under the MOA. Both prospects are currently advised by NexIdea, and are evaluating options for project developments with potential to include MSAR production". We are currently waiting to hear about the results of laboratory studies and fuel tests, following that, an operational update on a small scale trial. According to the milestones set out by Quadrise, operational updates were expected by the end of 2013 but still have not been announced. Rest of World The current projects all have further opportunities within their respective regions, which are being explored by Quadrise and their Joint Venture partner in said region and detailed above. Quadrise has been approached by parties representing opportunities in Russia, the Caribbean, and South and East Africa. So far two projects have been approved as viable. Alternative MSAR Products The surfactants which bind the carbon fuel to water may be usable with other carbon fuel residues, including: • Diesel/Marine Diesel • Low Sulphur HFO • Coal fines (dust) I shall not go into too much detail here because the concepts are in their infancy. As HFO is derived from very heavy residues, it may not be possible to apply the MSAR chemistry to other carbon fuels without first requiring pre-processing. The required intellectual property exists, but would have to be bought or leased from the IP owners. The BoD have and are looking into these alternatives and based on what little is known, the numbers do suggest that the economies provided by standard MSAR can be achieved with these alternative MSAR products. The possibility of developing an emulsion fuel based on coal fines (dust) is particularly intriguing. Firstly, such an emulsion fuel is possible and would burn in standard coal fired engines. Secondly, coal dust has a similar burn surface area to MSAR and so would achieve similar levels of near 100% carbon burn. Thirdly, there are literally billions of tons of discarded coal dust around the world; 2.5 billion tonnes in the US and 2 billion tonnes in South Africa alone. Additionally, approximately 650 million tonnes of coal dust are discarded yearly around the world. Quadrise, Akzo-Nobel and Intellectual Property The previous Alliance Agreement with AkzoNobel has been replaced by two agreements; a Research and Technology Agreement and a Commercial Agreement. Key changes to the agreement are as follows: • Quadrise pays for the MSAR manufacturing plant equipment (MMUs) • Quadrise pays for the chemical additives supplied by Akzo • Quadrise pays Akzo to evaluate candidate refinery residues, as well as other technical and support services • In return Akzo does not receive a percentage of the added value shared between Quadrise, the JV and the refiner • Quadrise is the sole licensor of the Quadrise MSAR technology to refiners worldwide • Quadrise has exclusive global rights to Akzo's emulsion technology now and in the future (Akzo has only ever partnered with Quadrise in development of HFO replacement fuel) • Joint R&D will continue and ownership of Intellectual Property (Patents) is shared • Quadrise recently opened their own R & D facility in the UK to develop the manufacturing plant technology with refiners as well as improve logistics, fuel handling and fuel combustion • The contracts shall be reviewed in 3 years time Note: The costs of the MMUs and chemicals are recouped relatively quickly as they are sold to clients at a small profit if the project is using the licensing business model. If a different model is used the costs are recouped by taking a larger cut of the profits. Ian Williams referred to a potential reduction in the amount of additives QIL will need to purchase from Akzo in the future, thus improving profit margins; the current MSAR formula has the potential to be adapted without altering it's efficacy. The BoD is playing it safe with the existing product as it has met the technical criteria laid out at the projects' inception, but is somewhat "over-engineered" as a result. Subsequently, a number of applications/projects, which would not require MSAR to be stable for long periods of time, eg a power station next to a refinery which would use the product within hours, could instead use a simpler version of MSAR that has a shorter shelf life and does not require as much stabilizer. Competition ---- continued below.
14/8/2014
09:09
radarray: For updates 20th August 2014 Author: Richard Baldwin (rgbaldwin@tiscali.co.uk) Forum name: Bogg1e Here is the latest (7th) version of the Quadrise Investment overview. This version includes: • Updates on the Maersk project • Any highlighted text requires further investigation and/or amendment At the time of writing the first version of this document in June/July 2013 the share price was 12.5p, subsequently the share price has risen sharply, reaching an all new high of 51p at the beginning of December 2013 and is currently trading between 38-42p. Latest Developments • Insert here maersk and commercial contracts, global oil major when announced • The Proof of Concept (POC) trial on the Man-Diesel engine has passed the requirements laid out in the test. This is not going to be announced to the market in a separate because the Proof of Concept was proven on the Wartsila engine. We now await the signing of contracts with Maersk and the Global Oil Major refiner. • Director Renumeration has reduced from 12.5% to 6.25% of the gross profits, which, on paper, would increase net revenue from £13.50 to £14.45 per tonne of MSAR sold. However, I have not changed revenue calculations because the renumeration package is likely to be commensurate with the 6.25% gross revenue payment which has been relinquished. See the Revenue section for more details. • Maersk successfully tested the Belco (Du-Pont) sulphur scrubber on board the Maersk Tukang in May 2014. Representatives from the American Bureau of Shipping were onboard to observe the test and are expected to issue class certification at the end of 2014, once the last round of tests are completed sometime in Q3 2014. This will enable Maersk to equip their vessels with the sulphur scrubbers, thereby negating the need to use expensive low sulphur fuels in emission controlled coastal zones. Maersk has bought 650,000 tonnes of low sulphur HFO this year in preparation for compliance in such zones, which, were that to become standard practice, would reduce Maersk's MSAR consumption from 10 to 9.35 million tonnes per year. However, if the scrubbers gain approval and Maersk equip their fleet with them, which given the cost advantages over low sulphur HFO, is likely, then I would not expect Maersk to buy any significant quantities of low sulphur HFO in the future. I have therefore retained Maersks' target consumption of MSAR at 10 million tonnes per year. • The project with Pemex in Mexico was put on hold until mid 2015 due to political reforms, whose declared aim was to reverse the decade long decline in Mexico's oil and gas output by putting an end to state owned Pemex's monopoly and re-opening Mexico's energy sector to foreign investment. The reforms were signed into law by the President Enrique Pena Nieto earlier this month. I expect therefore that the dialogue between Quadrise and Pemex will be resumed sooner than mid 2015. • The broker Peel Hunt has issued an update wth a buy rating and 55-58p target price Forward I realised that a lot of the information the average investor would want to know about Quadrise are hidden by confidential Non-Disclosure Agreements (NDA's) between the parties involved and will not be released until the contracts have been formerly signed. It is therefore quite difficult as an investor to assess the potential value of the company in real terms or how long it will take for that value to be achieved. Despite the fact that the numbers are compelling, I wanted a better idea of likely real world figures to help manage expectations. I have therefore put together the best information I can find to provide reasonable insight into the following: 1) Revenues (initial projects are based on a royalty model) per metric ton/per barrel 2) Production targets (metric tons/barrels per year) 3) Project timescales 4) Scope for growth Company, Product and Value-Proposition Quadrise Fuels International (QFI) jointly holds, with Akzo-Nobel, the patents to technology which enables heavy crude oil residues to be converted into a fluid and efficient fuel, called MSAR (Multi-Phase Superfine Atomized Residue). When a barrel of crude oil is processed by a refinery, 70% of the crude is converted into high value distillates, mostly transportation fuels (Diesel, Petrol, Aviation fuel). The remaining 30% of the crude is heavy residue, including heavier diesels through to bitumen. In order to render the residue marketable, high value distillates (mostly diesel) must be added to the residue to make it fluid enough to use. The resultant fuel is known as Heavy Fuel Oil (HFO). This reduces the amount of high value distillates the refiner is able to sell from each barrel of crude processed from 70% to only 50%. The MSAR process replaces this diesel with chemicals (known as “surfactants”, which are produced by Akzo-Nobel) and 30% water, which is added to the residue to render an emulsion fuel (MSAR) which performs in all respects better than HFO. The benefits of MSAR to the refiner are as follows: • Improves margins on high value distillates • Used by the refinery to power it's own needs (incl. heating processes) to lower costs The potential value the MSAR process generates for upstream operations is worth noting as it demonstrates the sheer scale of potential profitability. Refiners process a staggering 30,000,000,000 (30 billion) barrels of crude oil per year. From this volume, QFI's target market of 3,810,000,000 (3.8 billion) barrels or 600,000,000 tonnes p.a of Heavy Fuel Oil is derived. Note: The majority of this market is capturable within 5 years. Oil and Gas companies are thought to be slow in developing profitable new technologies or collborations, but will rapidly embrace them once proven. According to Quadrise a few years back when the price of oil was much cheaper and therefore the quoted profit margins are now approximately 50% higher: "a 1,000-megawatt power plant would use 60,000 barrels per day of MSAR" (60 barrels of MSAR per megawatt per day). "The potential to run heavier and cheaper crudes is particularly significant to refiners. A saving of $5 per barrel on crude costs translates to a reduced operating cost of over $300 million per annum for a 200,000 barrel per day refinery." "It is estimated that a 200,000 barrel per day refinery with $80 per barrel crude feedstock containing an average spread of distillates and producing MSAR, would save approximately $100m pa for the refinery by not having to use diesel to “cut” the fuel oil." The benefits of MSAR to the customer are as follows: • MSAR retails at a considerable discount to normal HFO prices (10–20% cost savings per unit of energy) • Unlike HFO, which requires constant and costly heating to keep it at the right fluidity (50-100 degrees c), MSAR is fluid and stable at ambient temperatures • It has a burning surface area of 5 microns as compared to HFO's 200 microns. It therefore burns much more efficiently and as a result; • Achieves nearly 100% carbon burn; lowering black soot emissions, maintenance and exhaust fume scrubbing costs (to be expanded upon in 2015 and enforced globally). MSAR therefore creates added value for both "upstream" operations; enabling crude oil refiners to produce more higher-margin distillates per barrel and "downstream" operations; enabling a cost effective and substantially “greener” HFO substitute to be marketed at a profitable, yet cheaper price than HFO. Note: MSAR consists of approximately 30% water and therefore has a lower calorific content then HFO, although this difference is mitigated to some degree by MSAR's higher efficiency. Therefore to generate the same amount of energy they will need to use approximately 22%- 27% more MSAR, however revenues are calculated on a like-for-like basis; the amount of HFO replaced by MSAR, not the actual volume of MSAR sold. In spite of this MSAR is still up to 20% cheaper than HFO. Note: Quadrise is without question the world leaders in the field of emulsion fuels, however the company is small, comprising only 7 staff, who are all experienced in the oil and gas industry, including project management, technical development and carbon fuel chemistry. Together with a Joint Venture partner, Quadrise's role is effectively to find approriate refiners and clients, create and review project proposals, co-ordinate the project partners and oversee the key steps required from testing fuel residues to integrating MSAR Manufacturing Units (MMUs) into the refinery infrastructure. Key personelle are installed at the refinery to oversee quality control throughout the entire manufacturing process and supply chain. Note: MSAR can also be used in crude oil and marine diesel engines. Note: MSAR is incredibly stable and remains so up to 18,000 G's in a centrifuge. As such MSAR has a phenomenally long shelf life, in excess of a year. This stability is provided by the surfactants, which provide “electrostatic stabilisation”; they enable the water and the fuel in the emulsion to carry opposing electrical charges, which keeps them separate. Revenue In order to estimate the potential value of the company we first have to establish the key sources of revenue: • Revenue Unit: MSAR(2) sales per ton. • Unit Value: £20 per ton. The income received by Quadrise is based on the improved values derived from both upstream and downstream operations, with the combined value being divided amongst the partners; Quadrise, the Refiner and the Joint Venture partner. Peel Hunt has calculated this combined value to be approximately £60 per ton (including all costs/expenses incurred by all the partners), therefore each partner will receive approximately £20 per ton. Once revenue is established we have to deduct further costs to calculate net income, which include: • MSAR production costs (included in the £20 per ton revenue calculation): ◦ The cost of the Chemicals supplied by Akzo-Nobel ◦ The cost of technical and support services provided by Akzo-Nobel • Operating/running costs (OPEX); Salaries, rent, general overheads. • Capital Expenditures (CAPEX); MSAR Manufacturing Units and integration • Director Renumeration; 12.5% of gross profits (actually its 6.25% - see below) • Taxation; The UK corporate tax rate is 23% MSAR production costs: According to Peel Hunt these are included in the £20 per ton profit margin. Operating costs: Are calculated at 20p per ton (1% of profit margin and so I have not included them in the revenue calculation for now). Capital Expenditures: According to the new agreement between Akzo-Nobel and Quadrise, Quadrise will be responsible for purchasing the MSAR Manufacturing Units which cost approximately 500,000 Euros each. These are then sold to the refiner at a small margin. I have not included these expenditures because the costs are recouped from the client and therefore rendered even in the accounts. Also until we have more detail regarding the contracts and roll out, we cannot be sure how many MMUs will be ordered per contract or the size of the MMUs. Note: A 1000 ton per day MMU costs approximately 500,000 Euros (£400,000) and a 6000 ton per day MMU costs about $1 million (£600,000). These larger MMUs have been designed but not yet constructed. Director Renumeration: 12.5% of the gross revenue goes to two directors Note: In actuality, director renumeration has reduced from 12.5% to 6.25%. Director renumeration is related to the ownership of non managed assets, which Quadrise also have a stake in. The two directors in question; Jason Miles and Simon Craige, own 6.25% of these assets each and as such are each entitled to 6.25% of the gross profits. Jason Miles has relinquished his ownership of these assets to Quadrise, in exchange for 860,645 shares (approx. 0.1% of issued shares), a salary and a performance related bonus scheme, which are likely to be commensurate with the value he has relinquished. I have therefore not changed the revenue calculations. Tax: Thereafter UK Corporate taxation is applied to the remaining sum at 23%. Given that Quadrise are domiciled in the UK the 23% tax rate must be applied. However as the projects are not based in the UK I do not know if or how this will have an impact on tax to be applied. And so together revenue calculations per ton are: £20 (incl costs) - 12.5% Director renumeration (£2.50) = £17.50 - UK Tax at 23% (approx. £4) = £13.50 per ton Net Revenue. Note: £13.50 is based on the revenues derived from the MSAR sold for the Maersk PoC trial. As this was a one-off, small batch order, the operating costs associated with it are higher than the unit costs incurred with continuous, commercial scale production. I therefore expect the net revenue per ton to be greater than £13.50. However, each contract will be different; expenditure, costs, margins, responsibilities, volumes and logistics, etc will all vary. £13.50 is an idealised figure to demonstrate growth in value, nothing more. One other factor pertinent to margins is the business model chosen for the project. There are three models, each yielding progressively higher margins: • Licene Fee: The partner finances and owns the manufacturing facilities, the HFO feed stock and the resulting MSAR. Quadrise charge a royalty fee per barrel/ton processed. • Toll Processing: Quadrise (and JV) finance and own the manufacturing units at the refinery. The feed stock and MSAR belong to the refiner and Quadrise charge them a fee per barrel/ton processed. • Vendor: Quadrise (and JV) finance and own the manufacturing units. They buy residue from the refiner, pay the refiner for utilities and services, and sell the MSAR to clients (Ian Williams has cited numerous opportunuties in the Caribbean) Note: To keep value calculations simple only the Licence Fee model is used for all projects Note: The BoD have stated that they will not pursue Toll Processing or Vendor models until enough revenue has been accrued to cover the additional asssociated costs. Note: QFI use Brent Crude as their basis for value calculations because the heavier crudes are aligned with the Brent Crude price (rather than the US Crude Price) Peel Hunt revenue calculations for 2013: • Share price target 60p • SOTP (Sum of Total Parts) or Net Asset Value (NAV) 70p • 2013 revenues £600,000 (Maersk project) • 2013 MSAR volume 30,000 tonnes • Fixed OPEX = zero. • Variable OPEX is $300,000 per 1m tonnes or £0.03 per barrel/ £0.20 per ton £600,000/30,000 tonnes = £20 per ton, which Peel Hunt will use for future revenue calculations. Peel Hunt have also given figures for 2014 through to 2015, however the figures are too general to be of use. Peel Hunt admit that near future projections (2014 and beyond) are highly variable due to the possibility of delays, the speed at which projects will roll out and the rate of adoption by the wider market and so until such information becomes clearer I have not included their 2014 or later revenue projections. Cash Position The cash position of Quadrise as of 31 December 2013: • Cash utilised in previous years operations to date £2,700,000 • Cash reserves of £2.13 million at 31 December 31 2013 • Additional reserves of £10.7 million from share placing • No Debts • Approx £180,000 monthly operating costs • High percentage of pre-commercial costs recouperable from client • Since 2006 Quadrise has accrued losses of approximately £35.5m that can be offset against taxable profits This year the cash burn will be higher; the new rented offices are more expensive, they have hired 2 new staff and will be hiring further management, technical and support staff. They are developing their R&D facility and sent contractees to the Orlen refinery in Lithuania to manage the production and ensure the quality of the MSAR2 produced for the Maersk PoC trial. Some of these costs are recouperable from partners. Furthermore, in the second half of 2014, Quadrise will have to pay for the manufacturing units (MMUs) to be installed at Aramco and for the expanded Maersk trials (although these costs are recouped from the client). Furthermore, the EcoPetrol contract is likely to be based on the Toll-Processing model and therefore Quadrise will receive a higher percentage of the profits than would be received on a license only business model. Is Quadrise a Takeover Target? I am writing this here because I'm not sure where else to put it! Anyhow it concerns the possibility of Quadrise being bought out. Small, high value, high growth, “game changing” companies like Quadrise are rarely allowed to organically grow to their full potential. Although this is pure speculation at this point, it is becoming increasingly likely, to me almost obvious, that the Global Oil Major (See Overview of Key Projects) is the most likely candidate to make an offer for Quadrise. I personally do not expect Quadrise to be an independant company for long once the fuel has proven itself in the real world. I therefore see Quadrise as a likely takeover target from the latter half of 2015 onwards. I expect the offer price to be high, maybe even to lead to a possible bidding war, but I would not like to say what price the BoD or Institutional Investors would accept. Due to changes in the regulations covering takeovers on the AIM market, the buyer must match the highest share price they have paid in the previous 12 months. Additionally, all projects, whether complete or not, must be taken into account when evaluating the company. Given the size of the projects and that the distribution of share ownership (and regulations governing share accumulation) prevents a buyer from acquiring a controlling stake without the market being aware of the buyers intentions, I do not believe that a “cheap” takeover is possible. Target Markets and Potential Income The two target markets for MSAR are as follows: • To replace HFO consumed in Power Stations (MSAR) • To replace HFO used to power large sea going vessels (MSAR2) The size of these markets are as follows: • The global HFO market (power stations) consumes 400,000,000 tonnes or 2,540,000,000 (2.54 billion) barrels p.a. • The global HFO marine fuel market consumes 200,000,000 tonnes or 1,270,000,000 (1.27 billion) barrels p.a At £13.50 per ton QFI's potential Net Income per year = 600,000,000 (tonnes) x £13.50 = £8,100,000,000 (£8.1 billion). The previously accepted profit margin of $1.92 per barrel yielded a potential income of £4,876,800,000 p.a (approx. £5 billion). The new figures from Peel Hunt mean Quadrise will make almost 60% more revenue than was previously thought. To convert this revenue into a possible share price, we must first derive the Earnings per Share (eps) by dividing the revenue by the number of shares in issue: £8,100,000,000/807,241,536 (shares in issue) = approximately £10.05 per share (per year) Most FTSE 350 companies have an average p/e ratio based on 15 times yearly earnings, therefore: £10.05 x 15 = £150 per share. Note: The number of shares in issue is 807,241,536, but I round the number down for ease of calculations Now lets inject some reality. The above figures relate to the total global HFO output from all the worlds refineries combined and to say that QFI are not currently capable of that level of production would be an understatement. However they have intelligently pursued two main projects which give them a sure footing towards achieving that goal, which are near completion. The first project is a joint venture with Maersk to use MSAR2 to power their container shipping fleet. The second is a Joint Venture with Saudi Aramco and Rafid in the Kingdom of Saudi Arabia to use MSAR to fuel power stations. These and other projects are discussed in the following section. Firstly I would like to quickly review the key projects and their projected values: • Maersk: 10 million tons x £13.5 = £135,000,000 per year. Eps = £0.169. Share price on P/E of 15 = £2.53 • Saudi Aramco (KSA): 25 million tons x £13.5 = £337,500,000 per year. Eps = £0.42. Share price on P/E of 15 = £6.32 • Powerseraya (Singapore): 16 million tons (approx) x £13.5 = £216,000,000 per year. Eps = £0.2675. Share price on P/E of 15 = £ 4.0125 • PEMEX (Mexico): 45 million tons (approx) x £13.5 = £604, 941,750 per year. Eps = £0.75. Share price on P/E of 15 = £11.25 • EcoPetrol (Columbia): Unknown • Global Oil Major: Unknown Note: High growth companies such as Quadrise will inevitably trade on a much higher forward earnings ratio than 15. It is not uncommmon to see high growth companies trading at 50 to 400 times their current yearly earnings if the market percieves exceptional growth potential for many years ahead, which is the likely case with Quadrise. However, to help manage expectations and avoid disappointment, all share price estimates are based on a conservative, low to average p/e multiple. Overview of Key Projects Any large scale Oil and Gas project is a behemoth task, namely because of the need to satisfy the demands of regulatory authorities in different parts of the world, whilst having to develop joint venture partnerships and infrastructure projects in widely geographically dispersed locations simultaneously. Projects do take years to complete. The following provides a quick overview of key projects and the time frames expected before each projects' full target commercial roll out is achieved. Maersk Maersk run the world's largest fleet of container ships (about 600 or 15% of global container shipping vessels). It also consumes 10 million tons of HFO (bunker fuel as it is known in shipping) p.a, which is 5% of the global marine bunker fuel market. HFO consumption accounts for 21% of Maersks operating costs (the lowest in the industry) and the aim of reducing these costs was the reason why Maersk approached Quadrise to develop the fuel for them. The initial commercial target is to produce the fuel to run their largest 200 container ships, which consume on average 150 tons per day with an annual consumption of 10 million tons (63,500,000 barrels) MSAR2. Maersk calculate that replacing HFO with MSAR will save them “$1 million dollars per year per engine”. As the near term declared target is 200 ships, Maersk will save $200 million dollars per year on fuel costs. Note: The price of HFO is 50% more expensive than when these estimates were first calculated, therefore the savings are likely to be closer to $300 million per year. Maersk however have over 600 large vessels (including those of subsidiaries) and can boast a fleet of over 1000 vessels. It is expected with time that the contract will cover more than the initial 200 vessels including the new Triple-E; the largest container vessel in the world. This project is based on the License Fee model. The Maersk project is the most advanced of all the current projects. On the 29th August 2013 the BoD informed the market that contracts had been signed between Quadrise and Maersk for the second phase of the MSAR2 live sea trial; the 400 hour Proof of Concept trial. This was successfully concluded at the end of june on the unnamed vessel powered by the Wärtsilä Long 2 Stroke engine. The second POC, on the unnamed vessel powered by the the MAN-Diesel 4 Stroke engine, is no longer necessary to prove the concept, but has been successfully concluded. These are the engines that the majority of Maersks largest container vessels use. The project will now move to the third and final stage; the 4000 hour (approximately 6 month) “Letter of No Objection” (LONO) seaborne trial. The “Letter of No Objection” is a legal necessity; it is an official approval issued by the engine manufacturer which states that the fuel is safe to use on their engine. To briefly explain; by far the greatest cause of damage fuel contributes to engine function and performance is the build up of black carbon deposits. As MSAR(2) achieves nearly 100% carbon burn out, it should not cause any problems to the engine, furthermore it should actually decrease the amount of maintenance the engine will require. Once the test is complete, the engine manufacturers (Wärtsilä and MAN-Diesel) will remove parts of the engine (cylinders, cylinder sleeves, piston heads, superchargers/turbos, gaskets, etc) and examine them at a microscopic level in the laboratory for adverse wear and if no problem with their respective engines is discovered, they will issue “Letters of No Objection” (LONO) certifications. Once this final approval is given, the conditions set out by regulatory authorities and “class societies”, such as ship insurers, are fulfilled, enabling wide scale commercial usage to begin. Note: Although the issuance of a LONO is a legal requirement for commercial scale usage, the 4000 hour duration is not a legal requirement, rather it is a standard set by the industry itself. It is possible that the engines may be examined before the 4000 hours are completed and, if the observable impact of the fuel on the engine to date is negligable, the manufacturers may calculate that the fuel would not cause any damage to the engine or parts over the full 4000 hour period and issue a LONO early. As the LONO trial is no longer considered necessary for the technical development of the fuel as originally intended, Maersk have stated that the LONO phase is now the first stage of incremental commercial scale production, which is scheduled to commence at the beginning of 2015 ie Maersk have declared the intent to commence ongoing, commercial scale MSAR production. The LONO phase was meant to continue seemlessly after the PoC trial, however Maersk have decided to postpone the LONO due to economics; small batch production of MSAR is more expensive to make per ton than is the case for ongoing, commercial scale production. Note: The minimum production facility is a 1000 ton per day MMU, which produces up to 4 times the amount of fuel required by the two target vessels per day. This intimates the possibility that the LONO phase may encompass more engine types and ships than the 2 current vessels. Alternatively, Maersk may wish to bunker the fuel in readiness for an aggressive roll out to the fleet. The next step is for the partners (Quadrise, Akzo Nobel, Maersk and a refiner) to sign commercial production contracts in readiness for the january 2015 deadline. I am expecting contracts to be signed sooner than later; Ian Williams stated that the MMUs are expected to be installed at the refinery by the end of october. As the MMUs take approximately 2 months to install, the contracts must be signed by the end of august at the latest. The selected refinery was meant to be Orlen Lietuva in Lithuania, however Maersk wish to use a refiner that is closer to the selected North European deep sea port where Maersks' container vessels will be supplied with fuel (probably Rotterdam and/or possibly Bremerhaven). The refinery in all probability, belongs to the Global Oil Major, who is seeking to partner with Quadrise and Maersk at all 5 targeted deep sea ports around the world. Once the LONOs are issued (around mid 2015), Maersk intend to roll out the fuel to the vessels that operate out of Northern Europe through the remainder of 2015. In 2016 fuel production will be rolled out to the rest of Maersks' global fleet (the remaining 4 deep sea ports used by container vessels for refuelling) and crucially, Maersk are content for their competition to use MSAR2 from this point onwards also. I therefore expect the 10 million ton per year production target to be met by approximately the end of 2016. Note: The LONOs cover an entire class of engine from a manufacturer. As the LONO trials expected later this year cover the two main engines used by Maersk, the number of LONOs required to cover other engine types will be few. Note: Maersk and Quadrise did not wish to proceed with the live sea trials until they were absolutely certain the fuel had achieved the technical requirements necessary in the laboratory and would therefore work as expected in the real world. Ian Williams stated at the 2013 AGM that he is 95% certain the PoC trials will be a success and if so, 99% sure that the fuel will pass the LONO tests. Note: MSAR2 has passed all the requisite regulatory milestones to go commercial, including land trials in the engine manufacturers labs (Wärtsilä and MAN Diesel) and in the first sea trial on the container vessel Soroe Maersk. The PoC has been satisfied. The beaurocratic and regulatory requirements by the Danish Maritime Authority and the insurers; class societies Lloyds Register and the American Bureau of Shipping, have all been satisfied. All that remains is for the engine manufacturers to issue the LONOs. Note: Quadrise are targeting 80% of the marine fuel market. 99% of the ships (approximately 3000 ships) which consume this volume use Man Diesel or Wärtsilä engines. Note: The likely income for Quadrise from the PoC phase of the trial is $1.5 million/£1 millon Note: The Royalty Agreement with Maersk has been extended to 31 December 2022. The agreement covers the legal framework and the key terms and conditions to be applied when commercial volumes are supplied to Maersk and third parties (ie Maersks competitors) In order to have the infrastructure in place to meet the target output of 10 million metric tons p.a for Maersk, QFI are seeking partnerships/Joint Ventures to place refineries and MSAR refuelling infrastructure in 5 of the world's deep sea harbours; Singapore, Rotterdam, Fujairah (UAE), Houston (US Gulf) and Los Angeles (US Pacific). These 5 refuelling hubs supply 80% of the worlds marine HFO (160 million tons p.a) directly to ships, of which Singapore is the largest distributor. Note: The unnamed Global Oil Major that recently successfully tested heavy residues for conversion to MSAR, is thought to be the partner which can handle fuel processing and logistics at all 5 ports. Note: Maersk may buy the MSAR directly from the refineries rather than through a third party bunkering company, although the GOMs suspected to be involved own both refinery and bunkering infrastructure in the target ports. Note: Marine HFO consumption is expected to rise to 500 million tons p.a by 2020, 80% of which is 400 million tons hxxp://www.epa.gov/nonroad/marine/ci/420r09009.pdf. I have read numerous reports from reliable sources (forward reviews from oil companies, regulatory authorities and financial instituions such as banks and insurers) who cite growth at 250-300 million tons per year upwards by 2020. Note: The Maersk P3 alliance (where Maersk and 2 major rivals; MSC and CMA CGM, intended to share cargo on shared routes to drive down costs) has been scuppered by the regulatory authorities in Hong Kong due to concerns that the alliance is anti-competitive. Instead Maersk will now proceed with an alliance with MSC called “2M”. This smaller agreement comprises 185 vessels, with Mærsk contributing approximately 110 vessels including 20 of the new Triple E class vessels; the worlds largest container vessel or 55% of the total carrying capacity. This agreement will obviously effect revenues but we are not sure yet how. On one hand Maersk will be using less fuel, however it is likely the alliance will encourage MSC to adopt the use of MSAR2 before other rivals in 2016. Note: Due to recent regulations regarding low sulphur emissions in coastal Emission Control Areas (ECA's), Maersk has adopted the use of Low Sulphur Marine Gas Oil in these waters, totalling about 650,000 tonnes per year (7% of Maersks annual bunker fuel requirement). As Maersk consume 10 million tonnes of HFO per year, this means the volume of standard HFO, which MSAR2 replaces, has dropped to approximately 9,350,000 tonnes per year. However, this is mitigated by the fact that Maersks competitors are likely to adopt the fuel as well as the fact that over time HFO usage is set to increase rather than decrease. Additionally, as low sulphur MGO is about 50% more expensive than standard HFO and even more expensive than MSAR (the additional costs for low sulphur MGO equals $250 million per year) Maersk may yet opt for the cheaper alternative, which is to use MSAR2 combined with emission scrubbers. Maersk are currently testing a Belco (Dupont) scrubber on the Maersk Tukang. The first “open loop” tests were successfully conducted in May 2014 and the “closed loop” tests are expected to take place in early Q3 2014. As Belco have over 20 years commercial experience in closed loop scrubbing the trials are expected to be a success. An oberserver from the American Bureau of Shipping (ABS) has overseen the first test and will do so for the second. If the second test is successful the ABS will issue a class certification for the scrubbing technology by the end of 2014, paving the way for Maersk to roll out the technology to their fleet, thereby negating the need to aquire low sulphur fuel. As a result I have decided not to change the production or revenue calculations for the Maersk project. Scope for growth: Firstly, Maersk could widen the adoption of MSAR2 to the fleet as a whole, including the incredible Triple-E, the worlds largest container ship, of which Maersk has ordered 20. The Maersk fleet comprises over 1000 vessels; Maersk Line and subsidiaries Seago Line and Safmarine, as well as leased vessels), which include a variety of ships; container fleet, oil tankers, refuelling ships, research vessels, etc. Most of these also run on HFO or marine diesel (which MSAR2 can also replace), but being somewhat smaller in size when compared to the largest container vessels their consumption is considerably less. Not all of these ships use engines or engine types covered by the Wartsila and Man-Diesel LONO tests, therefore further LONO tests would be required before all of these remaining ships could use the fuel. Secondly and most importantly, Maersk have over 30 international competitors whose vessels use the same ship engines and fuel bunker hubs as Maersk. Once the refining and storage infrastructure is in place at the 5 target ports and Maersk have proven the cost effectiveness of the fuel, their competitors are expected to seek contracts with Quadrise. Furthermore, these 3000 comparative vessels consume 80% or 160 million of the 200 million ton marine HFO market each year. This is why the BoD are confident of capturing the majority of the marine market over a relatively short period. Note: The largest 20 container shipping companies consume 67.5% of the marine fuel market on 2,673 vessels. Note: Fuel expenses account for at least 20% of shipping company costs at a difficult time; business is low, there is an over-capacity of ships (a legacy of ship orders made before the 2008 crash), which means many vessels are running far below full capacity and some companies and/or shipping routes are subsequently running at a loss. A 20% reduction in fuel costs by switching to MSAR2 is a huge and critical saving. Note: Maersk have not reserved rights to exclusivity, but will receive a modest royalty on MSAR2 sales to it's competitors, in recognition of their invaluable contribution to the fuel's development. The second and larger market Quadrise wish to sell MSAR to is the Power Station market. For a comprehensive list of power stations around the world whose fuel (Crude oil, Heavy Fuel Oil or Diesel) can be replaced by MSAR, please see the following link: Http://globalenergyobservatory.org/list.php?db=PowerPlants&type=Oil
29/7/2014
12:12
nico9: With Thanks to f32. A rather splendid read!!Emulsion Fuels Pioneer ,Shares Due To Rise? Our friend at Seeking Alpha is at it again:[link] prioritiesWith Quadrise and its partners planning ahead to extend the availability of Marine MSAR® progressively to the rest of the world, Quadrise are already looking for suitable refineries that are close to the NWE bunkering hubs. Importantly they need to select a refinery that can offer a continued supply of residual fuel oil for MSAR production not just for the final LONO trials aboard two Maersk vessels but also to have the capacity to supply fuel for the initial commercial fuel roll out. Presumably the initial roll out will be aboard Maersk vessels or vessels under their control and then, from perhaps late 2015 early 2016 to fleet operators across the world. This will of course be dependent on bringing on stream additional MSAR manufacturing units around the globe.Share PriceDue to the revised forward plan where the LONO programme launches the commercial phase for MSAR there is increasing speculation on the prospective share price. Rather than look into the distant future and speculate on MSAR replacing HFO as a fuel globally in the marine and power generation sectors ( a situation that would indicate a share price of over £150 per share) it is better that we look at the definite projects that Quadrise are actively pursuing and consider these much smaller but not inconsiderable volumes as a starting point for a realistic share price forecast.Share price calculations are based on information available from the "Quadrise Shareholders Forum"Data UsedPeel Hunt Brokers calculate margin per ton MSAR £60Share of margin split between three partner companies so Quadrise receive £20 per ton.This gives a possible revenue of £13.50 per ton when operating costs etc are deducted.Number of share in issue roughly 807 million shares.P/E ratio of 15 ( a fairly conservative figure .)Calculations for share price.(Company Revenue ) divided by the ( Number of shares ) = EPS ( earnings per share )Share price = (NYSEARCA:EPS) multiplied by ( P/E ratio ) of 15Share Price per successful Project• Maersk: 10 million tons x £13.5 = £135,000,000 per year.Eps = £0.169.Share price on P/E of 15 = £2.53• Saudi Aramco (KSA): 25 million tons x £13.5 = £337,500,000 per year.Eps = £0.42.Share price on P/E of 15 = £6.32• Powerseraya (Singapore): 16 million tons (approx) x £13.5 = £216,000,000 per year.Eps = £0.2675.Share price on P/E of 15 = £ 4.0125• PEMEX (Mexico): 45 million tons (approx) x £13.5 = £604, 941,750 per year.Eps = £0.75.Share price on P/E of 15 = £11.25Future OutlookWhile looking at any of the individual share price calculations is very positive the situation is truly game changing when you start to add values together.With the current share price at around 37p ( up over 10% over the last three months) and the overall project significantly de-risked this share looks due to soar and is remarkably good value at the moment
26/3/2015
02:45
badger60: AE Your banging on sanctimoniously about how upset I'm going to be when QFI goes super nova isn't quite the same as putting your nuts in the mangle and giving us all the benefit of your undoubted guru-esque ability to predict a 2015 y/e QFI share price. It seems that you Cez and Bog, despite owning substantial QFI shareholdings, are clueless about what you feel your 5 star investment should be worth in 9 months time. Perhaps you should all consider taking up less complicated vocations which are more suited to your level of talents and qualifications........like kneading dough, ....because let's be brutally honest, if you were employed as trainee stamp lickers for example, you would all be out performed by, and reporting to a soggy sponge.
28/2/2015
13:42
argyll eagle: Kreature The share price is simply the market share price at a particular moment in time. The all important share price for investors will be the one when the company is either a great success or dismissal failure. What we have read from recent RNSs is that there are going to be delays. Long term investors in QFI believe that it will eventually be a great success, this is meaningless to traders who simply look at their charts and predict short term movements in share price So if you want to have a meaningful debate with long term investors you need to argue a well researched and documented case for QFIs eventual failure, not claim to be a wonderful share price predictor. If you want to engage in that level of discussion just refer to charts and have your discussions with other traders/shorters. I would recommend that all investors filter all traders and vice-versa.
13/2/2015
11:00
al h: Quadrise Fuels International PLC Stmnt re Share Price Movement Print Alert TIDMQFI RNS Number : 8730E Quadrise Fuels International PLC 13 February 2015 13 February 2015 Quadrise Fuels International plc ("QFI", "Quadrise" or the "Company") Statement re Share Price Movement The Company notes the fall in its share price today. 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 longer term relevance for the leading Quadrise projects and their prospects, this has understandably concerned shareholders. The continuing volatility of global crude oil prices has caused instability across the industry and consequential extensions to decision making processes. As previously noted, the Quadrise MSAR process adds value in refining by replacing high value distillates (principally diesel) with water and chemicals to create a substitute for conventional heavy fuel oil. The economics are therefore driven by the price difference (spread) between heavy fuel oil and diesel, not by the underlying price of crude oil. Whilst the spread between heavy fuel oil and diesel has narrowed, the economics of MSAR production in qualifying refineries remains sound. QFI is in advanced discussions with several refineries who see significant opportunity in producing MSAR despite the 60% fall in the price of crude oil. Pressure on refinery margins combined with the fall in oil prices have led to a large number of oil industry project cancellations and delays in capex related to diesel refining capacity. This could be beneficial to QFI as a reduction in future diesel supply capacity should lead to an increase the spread between heavy fuel oil and diesel and consequently improve the economics of MSAR production. A more comprehensive operational update will be provided to shareholders shortly.
13/7/2015
07:51
argyll eagle: Tigerbright is now on my Loathsome List, my list of despicable traders who try to talk down the share price when they are waiting to invest in a company, then try to talk it up after they are invested. Tigerbright has spent weeks talking down QFI when his intention all along was to invest in it. Pathetic! Just look at these two posts from him, on consecutive days: Tigerbright post 7July "Wouldn't be so bad if bad news were known but it seems to be the QFI way to pretend via IR that everything is rosy, let the share price slowly slip, slip, slip further down each day and then when you think it can't fall anymore the RNS with the word delay comes out and the share price tanks again. I feel for holders here. I hope for your sakes there really is light at the end of the tunnel and this isn't just a familiar AIM jam tomorrow story. The silence is deafening and I'm growing increasingly skeptical that it's all down to NDAs. If I were a shareholder if be asking Ian W and the board some pretty tough questions at the next AGM." Tigerbright post 8 July "Going to take a punt on these at this level. Risky if the 52 week low gets taken out but I think there's good risk reward at 10.25p as there isn't that much further to fall now. Worst case scenerio a bad RNS and I'll take a 30% hit. Compared to the guys trapped at 40p+ that's acceptable. Best case scenerio, good RNS and I've quadrupled my money. Wish me luck guys!"
31/12/2014
00:07
the oxford whale: I am fully aware of what the difference between a prediction and a calculation is; you have done both in your "report". "Firstly I would like to quickly review the key projects and their projected values: • Maersk: 10 million tons x £13.5 = £135,000,000 per year. Eps = £0.169. Share price on P/E of 15 = £2.53 • Saudi Aramco (KSA): 25 million tons x £13.5 = £337,500,000 per year. Eps = £0.42. Share price on P/E of 15 = £6.32 • Powerseraya (Singapore): 16 million tons (approx) x £13.5 = £216,000,000 per year. Eps = £0.2675. Share price on P/E of 15 = £ 4.0125 • PEMEX (Mexico): 45 million tons (approx) x £13.5 = £604, 941,750 per year. Eps = £0.75. Share price on P/E of 15 = £11.25 • EcoPetrol (Columbia): Unknown • Global Oil Major: Unknown" A "projected value" is a prediction of the share price based on the calculation you have made. Finally, I have just checked, and as of today, the FTSE100 was down about 2.9% from Jan 1st 2014, so no, the average ftse 100 share isn't "trading at considerable lows to a year ago". Surely someone with significant analytical experience (enough to write an investment report anyway) can think of a better excuse than that?
17/6/2015
21:29
tradeyodha: I trade what I see. I will get out at my predefined target(s), wait for the market to give me signal and then go long. The good thing about that is that I can be long without any previous drawdown and minimal risk even if a stock has gone really low. Issues with RNS based trading/investing are: 1. you do not know when it is expected 2. you do not know what it is or will be 3. you do not know at what price it will come 4. you do not know what is the max the share price will go up to. 5. you do not know whether and RNS is not something designed by Institutions. For example: Lets say a particular stock goes down to lets say 5p and then the long awaited RNS comes and I get a bullish signal and I enter the market at 7p. Lets assume that on this long awaited RNS the share price can go up to 100-200% up but what really matters is point 3 above i.e. at what price the RNS came in. Lets say it it came in at 5p and the stock goes up by 200% so the price will be 10p. At this point the person who bought at 10p will NOT be in profit. He will barely break even. A person who bought at 10p+ price will still be in loss. On the other hand, because I entered at 7p price I will be up by 40%+ at soon it hits 10p and if the market carries on further I will make more and more profits. In this example, in effect I have bought at low price and sold at high price. Whereas people who bought at 10p or 10p+ will still be either in break even or loss. It is simple logic. People who average down by adding at lower prices have following issues: 1. If their previous buys were at high prices then they will have to spend a lot more in money to be able to bring their average to a break even level 2. You do not know when the market has bottomed out. What if you bought more at a low price to average down but then market falls further. Now you will have to buy even more. There is no end to it. Every time market falls further, you will have to spend more and more money to bring your average to break even. 3. By buying too many shares in the rush to average down, you are increasing your market risk exposure. That means if the company goes bust, you will be seriously out of pocket; much more than you previously were before you started averaging down. It is all simple logic and maths. My best wishes
21/6/2015
20:06
tradeyodha: Tigerbright, RSI is not oversold yet. It is now 44. They are NOT bringing the price down to keep it above oversold levels. They are doing it by posting late trades. That is an easy way to manipulate End of day prices and charts. If it goes too down then market will become oversold. I suspect they will even bounce the price up for little while to make it look overbought. 13.25 is already there on their order book. They have done it few times in last few months if you see the history. Usually MMs bring the price up for false breakouts so that institutions can sell at higher price while PIs buy those stocks in a false hope. I use 80/20 levels instead of 70/30 for RSI simply because it is AIM and there can be violent moves on either side. As you can see 20 level has been hit in QFI too. This market will be in uptrend only when we see a Higher Low and Higher High. I already have closed half of my spread bet short position as per rules. The plan was to close it at the 52 week low. Now I have half of my position open for extended profits with stop well above 13.25. I am risking only 2-4p for a potential profit of 2-6p. I have already made over 60ps in QFI so I can easily bear 2-3p loss if it comes to worst and still be in profits. So check your rules and plan for such situations. I can not recommend anything on going short. However, I recommend to protect profits (if left any) and capital in any of possible events that I mentioned previously which again here are: Risks in Averaging Down: 1. If their previous buys were at high prices then they will have to spend a lot more in money to be able to bring their average to a break even level 2. You do not know when the market has bottomed out. What if you bought more at a low price to average down but then market falls further. Now you will have to buy even more. There is no end to it. Every time market falls further, you will have to spend more and more money to bring your average to break even. 3. By buying too many shares in the rush to average down, you are increasing your market risk exposure. That means if the company goes bust, you will be seriously out of pocket; much more than you previously were before you started averaging down. 4. Placing of new shares diluting the stock can cause the price to never return to previous highs. Example: QPP, COMS, NEW etc. Waiting for RNS is not an investment plan. It is a plan to pray and hope. It has issues: 1. you do not know when it is expected 2. you do not know what it is or will be 3. you do not know at what price it will come 4. you do not know what is the max the share price will go up to. 5. you do not know whether and RNS is not something designed by Institutions to get out. Possible example: QPP, SEE DYOR

Quadrise Most Recent Trade

Trade Type Trade Size Trade Price Trade Date Trade Time Currency
UT 13,621 10.25 04 Sep 2015 16:35:10 GBX


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