VLS.L Regulatory News (VLS)

News release

Velocys plc

("Velocys" or the "Company")

17th January 2017

Establishment of a strategic alliance with Morimatsu

Velocys plc (VLS.L), the company at the forefront of smaller scale gas-to-liquids (GTL), is pleased to announce that it has signed a memorandum of understanding (MOU) with Morimatsu (Jiangsu) Heavy Industry Co., Ltd., a subsidiary of Morimatsu Industry Co., Ltd. (Morimatsu) establishing a strategic alliance. Morimatsu will be Velocys' preferred supplier of module engineering and fabrication services for the plants. This will drive down costs for GTL and biomass-to-liquids (BTL) plants based on Velocys technology by optimising the design and fabrication of plant modules.

Morimatsu is a Japanese fabrication and engineering firm with over 70 years' experience and expertise in the design, engineering and fabrication of modular processing facilities for oil and gas, petrochemical, fine chemical, pharmaceutical, power and metallurgical industries. Its clients include the world's leading players in these industries. Its fabrication facilities include five plants in Japan and three in China with over 800,000 m2 of floor space. Its revenues totalled US$700 million in 2016.

Velocys and Morimatsu have been working together for the past eighteen months on the modular design of the Fischer-Tropsch (FT) section for a range of plant sizes; a design that will deliver targeted reductions in both capital cost and plant footprint.

The two companies have identified strategic synergies that underpin an alliance where the partners shall collaborate with other strategic partners to further drive down costs across all areas of the plant, through innovative modularisation. This collaboration will extend to both GTL and BTL plants. Morimatsu will continue to commit significant resources during this ongoing work programme.

The Company expects the terms of the MOU to be reflected in legally binding documentation within the next few months.

This is the first strategic partnership that has been formalised since a review of Velocys' strategy was completed in 4Q 2016. A core theme of Velocys' new strategy is to deliver, jointly with partners, a "one-stop-shop" offer to customers - a fully integrated and financed, cost effective and operations-ready plant solution.

David Pummell, CEO of Velocys, said:

"The potential benefits of further modularisation of smaller scale GTL plants are significant in terms of reduced plant build schedule, reduced risk of delays, lower capex and opex. Morimatsu has a world class team of engineers and impressive fabrication facilities in China. I am confident that together, Morimatsu and Velocys will continually improve the plant offer to our customers, underpinning both the economics and the delivery of an integrated solution in our renewable fuels and stranded gas markets. I look forward to providing further details of this deal and other strategic alliances that will support our new strategy, as we roll them out."

Koei Nishimatsu, CEO of Morimatsu, said:

"We think highly of Velocys' market leading technology and business strategy. We have already a track record of working in close collaboration preparing the ground work for an exciting range of modular low cost plants. I am delighted that our companies intend to finalise this strategic partnership. Morimatsu is at the forefront of innovation and technical excellence and we look forward to continuing to work with Velocys as a route to accessing new markets for our engineering and fabrication expertise."

- Ends -

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Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) prior to its release as part of this announcement.

Notes to editors

About Velocys

Velocys is the company at the forefront of smaller scale gas-to-liquids (GTL), providing the bridge connecting stranded and low value feedstocks such as natural gas, landfill gas or biomass with markets for premium products such as renewable diesel, jet fuel and waxes.

With its partners, Velocys aims to deliver the most economically compelling conversion solution; a fully integrated offer that can be deployed at scale into the growing, attractive markets on which it focuses. Velocys technology, protected by several hundred patents in over 30 countries, is specifically designed for smaller scales, combining super-active catalysts with intensified reactor systems. Standardised modular plants can be deployed readily in a wide range of locations, and Velocys' capabilities and extensive experience deliver a proven route to operation.

Velocys plc is admitted to trading on the AIM market of the London Stock Exchange (LSE: VLS). The Company has a strong, multi-disciplinary staff operating from its commercial centre in Houston, Texas, USA and technical facilities near Oxford, UK and Columbus, Ohio, USA. Its commercial reference plant, which is located adjacent to Waste Management's East Oak landfill site in Oklahoma City, is currently being commissioned.

www.velocys.com

About Morimatsu

Morimatsu is specialised in the design, engineering and fabrication of modular processing facilities for the oil and gas, petrochemical, fine chemical, pharmaceutical, power and metallurgical industries.

With its design and fabrication expertise, Morimatsu provides total solutions for its clients; from process equipment to packages and modular plants. Many international first-class companies have qualified Morimatsu and established long-term strategic cooperation relationships with the company.

The headquarters of Morimatsu is located in Gifu, Japan, while the process equipment and packages are mainly fabricated in three plants in China. Morimatsu offers a combination of competitive Chinese labour costs and Japanese quality and management systems.

www.morimatsu.jp/english/

www.morimatsu.com.cn/en