18 Oct 2010 07:00
Quadrise Fuels International Plc (the "Company", "QFI" or the "Group")
Corporate Restructuring, Board Change and Operational Update
18 October 2010
Corporate Restructuring
The Company announced on 14 July 2010 that the Company would be undertaking a review of the QFI corporate structure following changes in board responsibilities and the acquisition of substantial shareholdings in two newly formed Canadian ventures, Sparky Energy Corporation ("Sparky") and Porient Fuel Corporation ("Porient").
The review and associated changes to the corporate structure have been finalised and implemented (with the exception of updating the respective company share registers which is in progress). The basic changes are the clear separation of managed and non-managed interests resulting in QFI becoming a holding company and the repositioning of the existing actively managed projects under an existing 100% owned subsidiary of QFI, Quadrise International Limited ("QIL").
While QFI continues to employ certain executive directors and coordinates administrative and accounting services, employment of the senior specialist technical, engineering and operations management has been transferred to QIL, now the key operating service company for the Group and all group interests are held in specialised subsidiaries.
QFI directly holds all 'non-managed' interests in the Canadian affiliates, namely:
·; Quadrise Canada Corporation ("QCC") - the Company holds 3,682,500 shares representing 20.44% of the issued share capital of QCC
·; Sparky Energy Corporation - the Company holds 5,682,500 shares representing 17.85% of the issued share capital of Sparky
·; Porient Fuels Corporation - the Company holds 3,682,500 shares representing 16.86% of the issued share capital of Porient; and
·; Paxton Corporation - the Company holds 652,874 shares representing 3.75% of the issued share capital of Paxton.
All 'managed' interests are now held by QIL which has a 75% controlling interest in the specialised subsidiaries. Senior management responsible for development of the 'managed activities' will be employed by QIL which will also be responsible for all consultants and contractors providing operating and technical services to the Group. Operating subsidiaries have been formed to progress active projects presently under development with joint venture partners as follows:
·; Quadrise Marine Limited - marine fuels business development;
·; Quadrise KSA Limited - Saudi business development; and
·; Quadrise Americas Limited - Mexican business development.
These companies will contract with joint venture partners to progress their respective business programmes. QIL will provide operating subsidiaries with a range of services for which the subsidiaries will pay market related fees. QIL will also procure that operating subsidiaries secure licenses for technology applications in their respective project portfolios and will provide technical and commercial support. Operating subsidiaries will also pay a 15% net income royalty to QIL on a quarterly basis when operations become profitable.
Senior management's remuneration policy was also reviewed in this process. This resulted in the introduction of management equity participation at the operating subsidiary level. QIL holds a 75% interest in each of the project company subsidiaries with an aggregate of 25% held by management. It is anticipated that both QFI and management equity participations will be diluted by any new investor entry at the QIL and/or project company levels. Additionally, the previous executive bonus system has been replaced on a selective basis by profit participation directly geared to revenue realisation and shareholder value growth.
The key objectives achieved by the review of and resultant changes to the corporate structure are:
·; QFI holds direct shareholdings in Sparky, Porient, QCC and Paxton as set out above
·; Quadrise Marine Limited, Quadrise KSA Limited and Quadrise Americas Limited are 75% owned by QIL
·; Introduction of 25% management equity participation in project level subsidiary companies as a component of revised performance driven compensation policy.
In addition, the revised structure offers a range of potential options to prospective investors who may have certain sector preferences. They could consider investment at the specialised operating company level (e.g. Quadrise Marine Limited), at the QIL level (for exposure to all managed interests) or at the QFI level (for exposure to the full portfolio of interests and activities).
A revised corporate structure chart will be available shortly on the Company's website at www.quadrisefuels.com.
Board Change
Jason Miles, an Executive Director of QFI, has, with effect from 18 October 2010, become a Non-Executive Director of QFI and a director on the board of its wholly owned subsidiary, QIL.
Operational Update
The strategy of concentration on a limited number of feasible projects in selected product and geographic markets has continued to guide activities. In all cases, progress has been made and the outlook remains positive.
Quadrise Marine Limited
The Company has been working with Maersk, one of the largest global container shipping companies and AkzoNobel, its emulsion technology provider, in a programme aimed at the development of an emulsion based fuel for the international marine market. The programme is guided by a Joint Development Agreement ("JDA") and entails a combination of product development and supply related activities intended to culminate in Quadrise MSAR marine fuel suitability approvals and 'seaborne service trials' planned for the first half of 2011.
The programme coordinates the respective contributions of Maersk, AkzoNobel and QFI, together with major marine engine manufacturers and selective major oil companies. The major technical challenges appear to have been successfully addressed and it is expected that the trial phase will proceed on time as planned early in 2011. The transition to the early 'commercial phase' is expected to follow directly on successful completion of the development programme mid 2011 i.e. commencing during second half 2011.
The global marine bunker fuel oil market is approximately 40% of the heavy fuel oil market which, itself, consumes some 500 million tons per annum. The JDA programme is aimed at substituting lower cost Quadrise MSAR marine fuels for existing bunker fuel oil. The associated saving in the cost of fuel will contribute to affordable compliance by ship operators with future emissions standards which will apply in international waters. Without a reduction in fuel costs to offset the cost on on-board emissions scrubbing, the increase in vessel operating costs will have a major impact on the economics of the marine industry.
Maersk purchases over 10 million tons of bunker fuel annually on an international basis and are a major bunker fuel terminal operator. This should facilitate rapid development of MSAR fuel logistics and supply in the commercial phase of the intended joint venture programme.
Quadrise KSA Limited
The Kingdom of Saudi Arabia was identified as a key future market for QFI as national energy projections include continued combustion of fuel oil across a variety of applications including power generation, desalination and industrial steam raising.
QFI has been working closely over the past year with a local partner organisation which has a well established relationship as a major contractor to the refining and process engineering service industries. A programme to identify the potential for application of the Quadrise MSAR technology in Saudi refineries was completed with the local partner and the refinery owners during 2009. A number of 'case studies' which confirmed the prospects for profitable application of Quadrise technology were presented, with associated recommendations, to the refinery owners and their group advisers.
Review and negotiation during 2010 has led to an in principle confirmation to proceed with a programme at the largest refinery which the studies showed to be the most suitable with the largest value add potential. Samples of refinery residues are currently under test in the AkzoNobel laboratories for confirmation of suitability. Work is proceeding to formalise the arrangements in the near term. Current projections suggest that the pilot 'demonstration' plant could be operational during the second half of 2011. A successful trial operation should lead directly to commercial operations commencing.
Quadrise Americas Limited
Mexico was identified as a prime market in 2007. QFI has identified several potential projects associated with Pemex (the Mexican national oil company) refineries and linked power generation plants. Preliminary feasibility studies were completed for a project at the Salamanca refinery in 2009, and samples of refinery residues have since been tested and approved by AkzoNobel.
The Company was requested earlier in 2010 to submit a proposal to Pemex for the demonstration of the application of Quadrise MSAR technology as a low cost solution to reduce pressure on refining capacity and shortages of middle distillate products, such as diesel fuel. The proposal requires QFI to demonstrate on a pilot plant scale, the benefits of replacing heavy fuel oil currently supplied to associated power generation, with Quadrise MSAR fuel.
It is notable that other parties invited to respond to the same enquiry failed to qualify for consideration as they were unable to offer proven technologies which would meet the requirements. The successful QFI commercial demonstration in Lithuania, where all relevant performance parameters were independently verified, provided the Company with a clear competitive edge in securing this opportunity. This provides confirmation that Quadrise currently has no comparable competitor in the industrial scale 'oil in water' emulsion fuels business.
Following extensive preliminary negotiations, in principle agreement has been reached to proceed with a demonstration plant at a major Pemex refinery in 2011. Pemex has agreed to cover all costs associated with the demonstration plant project. On success, it is intended that the project will convert from demonstration to continuing commercial operation, with capacity expansion and growth potential.
Canadian Developments
The Company announced on 14 June 2010 that it had acquired a 16.4% interest in each of two new Canadian energy sector companies, Sparky and Porient, in which the Company is the largest shareholder. Further to a subsequent financing by Sparky, QFI increased its interest in Sparky through the purchase of 2,000,000 to 17.85% of the current issued share capital of Sparky.
QCC itself has shifted its principal focus towards technology development, licensing its proprietary technologies and providing associated services to specialised venture associates and third party licensees. Until such time as the price of natural gas increases and restores the advantage of using Quadrise MSAR fuels for oil field based steam generation, QCC will minimise resources applied directly to emulsion fuels business development in its region.
The single well injection test programme on Block 18 of the Optimal property previously advised for Sparky is underway. Oil field preparation for proving application of the enhanced oil recovery is well advanced and the trial itself should be completed by the end of the calendar year with results anticipated early in 2011.
Commenting on these developments, Ian Williams, Executive Chairman of QFI, said;
"Recent progress across all of the projects is very encouraging and bodes well for the future. The Quadrise team is working on a daily basis with several large and reputable companies towards joint realisation of key projects. The commitment of these partners evidences recognition of the merits of our MSAR technology and its capacity to add value. The changes to the corporate structure and introduction of management equity participation will serve to simplify, focus and motivate in the interests of adding shareholder value."
Enquiries:
Quadrise Fuels International plc
Tel: +44 (0)20 7550 4931
Ian Williams, Executive Chairman
Hemant Thanawala, Finance Director
Fairfax I.S. PLC
Tel: +44 (0)20 7598 5368
Simon Bennett/Katy Birkin