QFI.L Regulatory News (QFI)

 03 July 2014

Quadrise Fuels International Plc

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

Half Year Update on Active Programmes

Quadrise, the emerging supplier of MSAR®, a low-cost alternative to fuel oil in the shipping, refining and power generation markets, is pleased to issue this Half Year 2014 update on its principal project programmes.

Highlights

Marine

· The series of Wärtsilä full-engine seaborne service tests were completed early in June, confirming good engine and emissions performance on Quadrise Marine MSAR® fuel

· The MAN engine seaborne performance to date on Marine MSAR® reflects the very positive land test results, and formal completion is expected by end July

· Consequently, Mærsk have advised Quadrise that the "Proof Of Concept" requirements have been satisfied

· The forward plan has been revised such that the "Letter of No Objection" LONO programme will launch the commercial phase in preparation for 'roll-out', rather than concluding the development phase

· This may delay the LONO timing in the short term, but should be more than compensated by the capability to accelerate future fuel conversion on an assured supply basis

· Quadrise plans to secure agreements in principle with qualifying oil refiners by end 2014 to support future term supply of Marine MSAR® fuel, working closely with the Mærsk MSAR® fuel programme managers in all of these activities

Saudi Arabia

· Formal proposal submitted to install "commercial demonstration plant" in a designated refinery

· Timing subject to internal budget review processes at client

South America

· MOU with Ecopetrol extended to 31 August 2014 to allow completion of the logistics and marketing aspects of the Joint Feasibility Review

· Laboratory analysis of Ecopetrol refinery residue underway to confirm suitability for MSAR® manufacture - completion expected mid Q3 2014

Corporate

· Process underway to recruit executives to lead the business development of the Marine and Power Generation divisions

· Marine appointment expected in Q4 2014, with Power Generation appointment expected early 2015

Commenting on these developments, Ian Williams, Chairman of QFI said:

"The Marine programme has again led the way in 2014, and we are very pleased to have received confirmation from Mærsk that their 'Proof of Concept' requirements have been met, and that we will be moving forward to the commercial phase together.

Quadrise is very grateful for the support and enthusiasm of our partners in the Marine MSAR® programme which has gone from strength to strength.

Having passed several major milestones by mid 2014, the company is well positioned for the next phase."

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

Marine MSAR®

The focus during the first half of 2014 has been to complete the remaining elements of the development phase to satisfy the Proof of Concept (POC) requirements as set by the A.P. Møller - Mærsk A/S (Mærsk) programme steering committee. These activities have also been coordinated with the marine engine manufacturers, Wärtsilä and MAN Diesel & Turbo (MAN) in two largely independent programmes involving both their respective land based fuel testing facilities and in seaborne service in vessels using modern two stroke propulsion engines.

The last of the series of Wärtsilä full-engine seaborne service tests were completed early in June following which Mærsk have advised QFI that the POC requirements have been satisfied. This has cleared the way for Mærsk to proceed with the next stage. This involves extended use of Marine MSAR® fuel in a selected vessel powered by the most modern Wärtsilä RT Flex two stroke propulsion engine with sufficient seaborne service operating hours to provide performance data to enable Wärtsilä to issue a Letter of no Objection (LONO) for the use of the fuel in this engine type. The LONO is the last remaining pre-condition before starting the early commercial phase and the progressive 'roll-out' to the first set of selected vessels.

The MAN seaborne performance to date on Marine MSAR® fuel reflects the very positive land test results. Formal completion of the MAN seaborne programme is now expected by end July as it has been planned to fit with the vessel's operating service schedule. Timing of the LONO programme for the MAN engine will be determined when fuel availability is assured and a suitable vessel has been designated.

The key results of the programme to date may be summarised as follows:

- Fuel stability and optimum handling considerations have been confirmed

- Comprehensive tests have confirmed good engine and emissions performance on Quadrise 'Marine MSAR® ' fuel

- Seaborne operational tests have been successful on both Wärtsilä and MAN two stroke propulsion engines.

- Experience during trials included manoeuvring tests and start/stop of engines according to class requirements.

Having confirmation of the POC phase, and given the quality of results, it is in the interests of the joint development partners (Mærsk, Quadrise and AkzoNobel) to move on to the commercial phase as soon as practicable to generate an early return on the investment made over the past three years.

Assurance of continuing bulk supply and efficient logistics systems in the 'post-LONO' phase is now regarded as being more important than early fuel availability at higher unit cost simply to deliver early LONO certification. As a result the forward plan has been revised such that the LONO programme will launch the commercial phase preparatory to 'roll-out', rather than concluding the development phase. The principal advantages are that larger contractual volumes and longer term contracts should materially benefit manufacturing and supply arrangements. This, together with efficient bulk logistics systems will assist seamless progressive roll-out at lower unit cost.

In the medium term this is expected to result in earlier assured availability of larger commercial volumes of Marine MSAR® fuel. While the LONO timing may be delayed in the short term, this should be more than compensated by the ability to accelerate the pace of fuel conversion on an assured supply basis in the medium term. In addition, a considerable saving will accrue through elimination of the relatively high cost 'batch production' approach used to date.

Moving forward Quadrise plans to:

- Review and identify candidate refineries close to major bunker hubs - focusing first on North West Europe (NWE).

- Secure agreement in principle for Quadrise MSAR® Technology licensing and services contracts with qualifying oil refiners by end 2014 to support future term supply of Marine MSAR® fuel.

- Ensure that selected refiners have capacity to meet the quantities indicated for the 2015 early commercial phase focusing first on NWE and starting with the LONO requirements.

- Extend the availability of Marine MSAR® and selective fleet fuelling progressively to the Rest of the World (ROW) on success from 2016.

Quadrise will be working closely with the Mærsk MSAR® fuel programme managers in all of these activities.

Saudi Arabia

The business opportunity in the Kingdom of Saudi Arabia (KSA) involves the domestic production of Quadrise MSAR® fuel by Saudi refineries to replace fuel oil and crude oil currently used to fuel thermal power generation. As over 30 million tons of oil is consumed annually in this application, the scale of the opportunity is substantial. It is estimated that currently at least one third of this requirement could be met by MSAR® fuel produced in KSA.

By converting from fuel oil to Quadrise MSAR® production in 'qualifying' refineries, large volumes of distillates would be released, which adds significant value to refinery yields while reducing high value distillate (e.g. diesel) imports to meet domestic market requirements. KSA presently imports large quantities of distillate fuels at world prices. In 2010 these imports were reported by HSBC to have reached a level of U$17 billion per annum.

The Company has been working closely with client specialists on a detailed proposal for the first 'commercial demonstration plant' to be installed at their designated refinery. This has been formally submitted by the department concerned for approval in the client's annual budget review . The review process will consider both the merits of the project and the proposed timing of implementation. The terms on which Quadrise will provide services for the pre-production phase are an integral element of the proposal.

Formal advice of the outcome of the budget review is awaited. While Quadrise has been engaged in promoting this programme for several years, the client is a large organization which manages complex operations and very large multi-project capital budgets. For these reasons it has not previously been possible to judge with any certainty the likely timing of the first MSAR® process installation.

As the proposed MSAR® project will now, for the first time, have been evaluated as a recommended qualifying proposal within the formal budget process, the implementation timetable and allocation of resources are expected to also be more closely defined.

Implementation of the Quadrise power and utility MSAR® re-fuelling 'solution' does have a strategic dimension to it at the KSA level from a commercial perspective. This, together with other confidentiality considerations, may be expected to result in more stringent contractual terms governing permitted release of information in the future as the programme develops.

South America

Following the review of a 'high level business case' during 2013 the management of Ecopetrol authorised execution of an MOU with Quadrise and Nexidea. This provides for completion of a Joint Feasibility Study of a project to produce Quadrise MSAR® fuels in selected Ecopetrol refineries in Colombia for supply into the South American market.

The detailed manufacturing feasibility review started during Q1 2014 and has now been substantially completed, confirming assumptions anticipated in the earlier 'high level' business case.

The MOU expiry has been extended by 3 months to 31 August 2014 to provide time for the completion of the logistics and distribution studies. The market review is also underway and has involved establishing contact with, for example, power generating companies and other bulk fuel oil users in the region. The marine market will also be reviewed to assess the merits of Marine MSAR® supply.

Confirmation of the suitability of Ecopetrol refinery residues for MSAR® fuel production is underway in Europe and should be completed during Q3 2014.

Subject to confirmation of feasibility, the programme should move forward during the second half of 2014 to discussions on the preferred business model to be applied (Joint Venture or License etc) and the steps, timing and coordination of an implementation plan.

Management Resources

In anticipation of the planned progression to commercial operations in 2015, recruitment advisers were engaged late 2013 to identify suitable candidates for additional executive roles within the QFI group, to assume responsibility for business development in the Marine and Power Generation markets. The Marine appointment is expected to be confirmed in Q4 2014, with Power Generation to follow early in 2015.

The additional capacity provided should also enable the company to identify selective additional project opportunities with the potential to widen the portfolio and accelerate revenue growth in the medium term.

-ENDS-