TIDMQFI
RNS Number : 9364E
Quadrise Fuels International PLC
16 February 2015
16 February 2015
Quadrise Fuels International plc
("QFI", "Quadrise" or the "Company")
Notice of Interim Results and Business Update
Quadrise, the emerging supplier of MSAR, a low cost alternative
to heavy fuel oil in the shipping, refining and power generation
markets, will announce its unaudited interim results for the six
months ended 31 December 2014 on 30 March 2015 (the "Interim
Results").
The collapse in the oil price since Q4 2014, and related
uncertainty in the energy sector, has clearly affected investor
sentiment. While this has limited relevance for the leading
Quadrise projects and their prospects, the impact on the Quadrise
share price and market capitalisation has been substantial.
For this reason, and in response to shareholder representations,
the board believe it appropriate to issue a limited business update
ahead of the Interim Results.
General - Oil Price Implications
The economics of MSAR production in qualifying refineries remain
sound despite the oil price collapse.
The Quadrise MSAR process adds value in refining by replacing
high value distillates with water and chemicals to create a
substitute for conventional heavy fuel oil. The value-add is driven
primarily by the price difference (spread) between heavy fuel oil
and diesel. Whilst the price spread will tend to narrow when the
oil price falls, historically the rate of reduction has been
limited.
By way of example, very recent detailed assessments undertaken
by QFI with refining companies have confirmed that a 60% reduction
in the heavy fuel oil price has only led to a 20% reduction in the
MSAR value-add, and that the economics of converting to MSAR
production remain compelling even in such apparently adverse
circumstances.
Interestingly the same low MSAR value add impact does not apply
to the larger refinery upgrading programmes which typically involve
over US$1 billion capital spending with up to 4 years lead time.
Current oil price uncertainty has led to a large number of oil and
energy industry project cancellations and postponements as oil
companies re-calibrate their plans and programmes. These responses
can be expected to delay additions to global diesel production
capacity and constrain supply which, in turn, should widen the
future price 'spread' - especially if lower prices leads to
increased diesel demand. These factors, in combination, should
serve to make the economics of MSAR even more attractive to the
refining industry and to the marine and power markets in the medium
term.
Marine
The joint evaluations of several short listed refineries for
MSAR fuel supplies for the LONO programme and associated EU
'roll-out' requirements are proceeding.
Oil price uncertainties have impeded progress but the process is
now substantially advanced with several prospective refining
partners. No commitments have yet been made, and the programme, as
now set, remains dependent on securing the refining partner.
The first objective is to settle "Heads of Terms" - if possible
by end Q1. The associated contracts will be multi-party, multi-year
and without precedent. Without the benefit of a "proven template"
in a risk-averse climate, we expect that finalising final form
contracts may take some time.
As refineries operate in regulated environments consideration
has to be given to permitting of the installation of the MSAR
process by the authorities concerned. The time required for
approvals varies between jurisdictions with project lead time
implications.
Essentially, the direction and stages remain clear, but timing
has been affected by oil market events and other emerging factors
which make it more difficult to be definitive on intermediate
milestones prior to plant commissioning and supply.
To ensure that process plant availability will not be the cause
of any delays, the first of two MSAR manufacturing units ("MMUs")
are currently being fabricated to the Quadrise specification in
Denmark for delivery early Q2 2015.
Kingdom of Saudi Arabia (KSA)
As has been widely reported, a comprehensive review triggered by
the oil price collapse has led to notification that many large
scale KSA oil and energy projects will be downscaled, deferred or
in some cases cancelled.
Unlike many other projects, the MSAR programme requires limited
capital investment, has short lead times and is highly cash
generative. We would therefore expect that in the current climate
the programme would be advanced rather than deferred. QFI has
arranged to meet with senior management in KSA during February. The
intention is to confirm the programme in the current environment
with a view to setting a defined timetable for the "production to
combustion" pilot programme targeting completion during Q1 2016. As
the major power plant operator determines some of the requirements
for the pilot, it has become clear that the programme can only take
place during winter months where demand for power is lower and
excess boiler capacity can be utilised for fuel trials.
South America
The final form report of the Joint Feasibility Study undertaken
with Ecopetrol has been delayed pending advice on revised planning
factors to be applied. This has to do with economic and not
technical evaluation and impacts all Ecopetrol projects. Revised
data is expected before the end of Q1 2015. Once advised and
incorporated it is expected that the report and recommendations
will be presented to the board for consideration and decision.
Quadrise has prepared for the possibility that the project, if
agreed, would take the form of a joint venture requiring funding by
all partners. In the present climate, given the oil price impact on
integrated oil companies, this looks to be even more likely.
Treasury
The Quadrise group had GBP9.8 million in treasury at 31 December
2014 and management continue to operate the Company on a low cost
base. Recent evaluation of the current key programmes and the
associated funding requirements suggests that the Quadrise group
has sufficient cash reserves to meet all currently planned
requirements.
Other Developments
Quadrise has always considered the refining industry to be
itself a potential client for the MSAR process for fuel
substitution within their own operations - especially for on-site
integrated power generation.
While many refineries have substantial power capacity, often
only a portion is used for continuous operations. This often
creates an opportunity to operate the power plant at high load and
sell excess power to the national grid.
In cases where MSAR fuel can substitute for higher value fuels
this could be very advantageous for the refiners who are looking
more closely than ever for opportunities to support their profit
margins.
Indications are that this application could aggregate to a
significant business in it own right and the Company is presently
pursuing a number of opportunities with a view to securing an early
demonstration plant opportunity.
For further information, please refer to the Company's website
at www.quadrisefuels.com or contact:
Quadrise Fuels International Plc +44 (0)20 7031 7321
Ian Williams, Executive Chairman
Hemant Thanawala, Finance Director
Jason Miles, Chief Operating Officer
Nominated Adviser
Smith & Williamson Corporate Finance
Limited +44 (0)20 7131 4000
Dr Azhic Basirov
Ben Jeynes
Broker
Peel Hunt LLP +44 (0)20 7418 8900
Richard Crichton
Ross Allister
Alastair Rae
Public & Investor Relations
Pelham Bell Pottinger +44 (0)20 7861 3232
Philip Dennis
Rollo Crichton-Stuart
This information is provided by RNS
The company news service from the London Stock Exchange
END
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