A year since we suggested buying shares in Quadrise Fuels International (QFI), the Aim-traded company has taken vital steps to getting its water-suspended fuel emulsion known as MSAR into commercial production.
- Deal with Saudi oil giant
- Enhanced version of MSAR fuel
- Effect of EU shipping restrictions
- MSAR offers quick return on capital spending
- Maersk trial partly inconclusive
- Profits still far off
Quadrise has been engaged in developing MSAR, which converts heavy oil residues into cheap fuel, with three global heavyweights: Mexico's state-owned energy giant PEMEX; the leading global container shipping company, Maersk; and now the world's biggest oil producer, Saudi Aramco.
The identity of Saudi Aramco only became public knowledge, at least officially, in late August when Quadrise confirmed that the state-owned oil giant had approved trials of MSAR bolt-on production units at selected refineries under an agreement it signed with Quadrise's Saudi-based partner Rafid Group.
The deal could transform Quadrise, and could change the way in which power is generated in Saudi Arabia. The kingdom currently produces over half its energy by burning heavy fuel oils that are a mix of high-sulphur tarry residue left over from oil refining and high-value diesel. The MSAR process eliminates the need to add diesel. This could save the Saudis billions of dollars annually. Quadrise expects to generate commercial revenues from Saudi Arabia by the end of 2014.
| QUADRISE FUELS INTERNATIONAL (QFI) | ||||
|---|---|---|---|---|
| ORD PRICE: | 10.75p | MARKET VALUE: | £78m | |
| TOUCH: | 10.5-10.75p | 12-MONTH HIGH: | 12.6p | LOW: 4.25p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 2.4p | NET CASH: | £2.44m | |
| Year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 4.73 | -5.11 | -1.10 | nil |
| 2010 | 0.07 | -3.82 | -0.86 | nil |
| 2011 | 0.04 | -6.64 | -1.19 | nil |
| 2012* | nil | -2.98 | -0.40 | nil |
| 2013* | 1.45 | -1.40 | -0.20 | nil |
| % change | – | – | – | – |
Normal market size: 20,000 Market makers: 9 Beta: 0.2 *Edison Investment Research forecasts | ||||
Investors might have been frustrated by Quadrise's slow progress towards profits, and the company is still some years from being profitable, but news of the Saudi deal sent the share price soaring. Now a catalyst for a further re-rating has been provided through maritime trials of MSAR with Danish shipping giant Maersk.
These sea trials, though successful, did not optimise engine performance. As a result, Quadrise fine-tuned the MSAR formula with Swedish/Dutch chemicals giant AkzoNobel, resulting in an enhanced maritime version - MSAR 2. This fuel will now be tested in additional land and sea-borne trials that should be completed by the year-end. Subject to the performance of MSAR 2, Quadrise's bosses reckon the cheaper fuel will be rolled out across the Maersk fleet next year.
The results of these trials took on wider significance midway through last month when the EU placed new restrictions on the shipping industry that will force companies either to fit exhaust filters to their vessels or switch to a different type of fuel when sailing within national waters. Large commercial vessels could conceivably switch to burning marine diesel within the restricted areas, but this would be prohibitively expensive, while current filter technology is still largely unproven.
As MSAR produces low levels of emissions, it promises a low-cost option for both shipping companies and refiners. For example, installing a bolt-on MSAR unit at a refinery only costs around $50m (£31.6m). At that price, the cost savings generated by producing 200,000 barrels of MSAR a day could re-coup the capital costs in as little as six months.
