BULL POINTS:
■ Huge potential market for new product
■ Technology offers big cost savings
■ Blue-chip partners
BEAR POINTS:
■ New product less energy-intensive
■ Industry conservatism
Quadrise Fuels International, whose shares have been quoted on the Alternative Investment Market for five years, is fast approaching the point where it can turn a new technology into a source of serious profits and may even transform the market for heavy fuel oils.
Quadrise, with Swedish chemicals giant AkzoNobel, has developed a process that converts heavy oil residue into a water suspended emulsion that can be used as a lower cost alternative to heavy fuel oil (HFO). The new fuel - known as MSAR, or multiphase superfine atomized residue - has been trialled successfully by big users of fuel oils, such as Maersk - the world's largest shipping conglomerate - and Mexico's state-owned petro-giant, Pemex. These companies, along with other heavy hitters in Singapore, the US and Saudi Arabia, have taken on all development costs with Quadrise, which suggests they take the technology seriously.
MSAR offers both oil refiners and heavy fuel oil users better profit margins. When refiners produce HFOs, they mix heavy crude residues - which are unusable - with expensive light distillates. But the resulting HFO still sells below the price of crude, which makes the light distillate a terribly expensive input. However, if a refiner uses MSAR, it replaces the distillate with 30 per cent water, which means that the input costs for MSAR are low and the refiner has surplus light distillates left over. Assuming a price of $80 a barrel, the company estimates that refiners would make an extra $5 for every barrel of MSAR processed.
Over 30 per cent of the 600m tonnes of HFOs produced annually is used in shipping. Maersk envisages that it will accrue significant cost savings by using MSAR in its fleet, despite the need to carry more fuel as its energy content is lower than HFOs. Earlier this year, Maersk signed a royalty agreement with Quadrise, and is carrying out sea trials of MSAR. If these are successful, MSAR is likely to be used in commercial quantities. And where Maersk leads, the maritime industry tends to follow.
QUADRISE FUELS INTERNATIONAL (QFI) | ||||
|---|---|---|---|---|
| ORD PRICE: | 5.25p | MARKET VALUE: | £ 37.9m | |
| TOUCH: | 4.75-5.25p | 12M HIGH / LOW: | 10p | 2p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE: | 4p | NET CASH: | £3.3m | |
| Year to 30 June | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | nil | -22.46 | -4.86 | nil |
| 2009 | 3.54 | -5.11 | -1.10 | nil |
| 2010 | nil | -3.82 | -0.86 | nil |
| 2011* | nil | -3.23 | -0.57 | nil |
| 2012* | 0.07 | -2.65 | -0.37 | nil |
| % change | – | – | – | – |
NMS:15,000 Market makers:9 BETA:1.1 * Westinghouse Securities forecasts | ||||
MSAR will initially be rolled out within licensing agreements. Manufacturing units will be built at a refinery (possibly at the refiner's expense), and Quadrise will receive a license fee together with production royalties. The units require a short lead time to production, are relatively cheap and do not require any costly close-downs. However, one obstacle, as Quadrise's chairman, Ian Williams, points out, is the "inherent conservatism" within the refining industry. New concepts and ideas can take time to reach critical mass, but the influence of Quadrise's A-list of clients should help.
The board that Mr Williams chairs is comprised of seasoned industry insiders. In fact, the company was set up by members of BP's team that developed an emulsion fuel - Orimulsion - with Petróleos de Venezuela during the 1990s. However, MSAR is more sophisticated, offering significant cost benefits, and pollutes less.
