There can be no doubt, 2020 is the key year for Quadrise in bringing their headline MSAR synthetic fuel product to the market. A confluence of events, including IMO2020, market pricing conditions, and a tightening regulatory environment seem to place MSAR in an advantageous position.

In this edition of Quorum, Quadrise Shareholders' Forum stalwart JPM undertook a detailed Q&A session with Quadrise Chairman Mike Kirk to understand how business development is progressing to take best advantage of the opportunities 2020 offers.

Please don’t rely upon this content for investment decisions. Opinions are only those of the individual contributing them, and not necessarily of any other individual or company.

Mike Kirk business development Q&A

Contributed by JPM, edited by DoN

I am delighted that JPM has agreed to contribute this excellent interview externally via Quorum; thanks also to Mike Kirk. It has been lightly edited and reformatted to make it work with the Quorum’s layout and editorial style; the content is unchanged (any errors in that regard are my fault!).

As an observation, the quality of the questions and responses demonstrates the QFI shareholder community’s depth of understanding of Quadrise’s technology and business development — and the community’s desire for long-form and in-depth insights into the progress of Quadrise’s MSAR technology towards commercial deployment.

Visit the original thread on the Quadrise Shareholders Forum to discuss this interview and see JPM’s original text. You will need to sign up, but it is worth your while for a sensibly moderated environment to share and discuss all things QFI.

Now, over to JPM…​

Preface

This Q&A was conducted via telephone and Mike Kirk began by explaining that he would not be providing any price sensitive information, and anything discussed would be further background on information already in the public domain. I can confirm this was the case.

KSA

JPM: It goes without saying, we all understand the importance of KSA to QFI; that’s a given.

So when things went wrong the last time, it was about getting back up onto our feet and getting walking again. And to your credit, the team did that last year, culminating in the KSA announcement with Aleph and Al-Khafrah, and the associated ambitious timelines outlining an MoU by end Sept and a trial project by end Dec.

It’s not surprising that a lot of us who’ve been bitten by KSA in the past thought this is really going to happen this time, look at the partners, we could have a project underway by H1 2020.

However, here we are in H1 2020 and as yet have not held a high-level meeting within KSA: So, you can appreciate how it now starts to feel like deja vu over there and slipping back into that horrible place.

MK: Absolutely, and I think with that background you know perhaps my initial comment that I said perhaps I should have tagged on to the end of the Proactive interview earlier this week and may have given some comfort on that.

We have been following up with Al-Khafrah, and there have been some issues with availability of the counterparty which they are seeking to resolve very rapidly and we will be following up with them as a matter of urgency to get this initial meeting to start the process ASAP.

Our intention is, and we have indicated that, we would like that to be this month and we know there’s not much left of it, and if it isn’t it needs to be really early in February. They have given us some very tight timelines in terms of when they are expecting things to be able to move forward, and we want to ensure that we can both deliver against that.

JPM: Okay, the first thing that jumps out at me there is, if you haven’t had the high-level conversations through Al-Khafrah, how on earth could Aleph have been so confident at signing up to a Sept MoU and a project by end December. Where was that coming from?

MK: The rationale for that, though I can’t give you details, is that the parties through which we are having and have had discussions through Aleph (and we had those discussions back in 2019), is a different counterparty (from Al-Khafrah’s). We are still looking to progress these opportunities, potentially in parallel. But it wasn’t the case that Aleph were relying on this initial process through Al-Khafrah to enable them to do what they were doing.

JPM: So would it be fair to say from what you’ve described that you have two separate agents in KSA?

MK: We’re looking at the opportunity to get to essentially the same end route through two different channels. The channel through Aleph though has a link that gives us a further opportunity with a related type of project that we’re looking at.

JPM: So to sum that up would it be fair to say that Aleph and Al-Khafrah are not working jointly, is there a connection between them at all or is it completely separate.

MK: We’ve had a joint meeting between the two parties but they are essentially working separately, each of them with us, looking at opportunities in the Kingdom which are not necessarily the same project. It could turn into that, but they’re not necessarily the same project.

JPM: Just to get a handle on the Al-Khafrah situation, we were really excited and they seemed on paper like an incredible partner and you signed them up quite a wee while back. Why didn’t they get something moving a bit quicker? Why did they not manage to get a meeting for example October/November time last year? Is there a particular reason why?

MK: I think there are a couple of things there. There’s a process that was gone through. The first discussions and meetings were with the CEO; and the meeting that Jason and I went out to in November 2019 was with the chairman. It’s a family owned business that’s run by the chairman, and the CEO isn’t a family member.

We’d gone through a process of ensuring that the CEO felt confident to properly brief the chairman about this opportunity, because it’s him that’s going to be (and is) setting up these meetings with very senior-level contacts.

It just took us a little bit longer to do that education with the CEO of the business than we’d originally anticipated, and it was at the time of that last meeting in November where the chairman got enthused and made it clear that it was him that would be absolutely driving this forward, and it’s through his direct personal and family contacts that he’d be doing this.

It is with someone that he knows well and has worked with, so that’s the background to it, that’s why it took a bit longer than we hoped; but the fact that we’re getting that direct input from the chairman who’s going to be doing these meeting with us gave us a high degree of comfort.

They came back to us indicating that, with the counterparty, there were just a couple of things that the chairman was engaged in commercially, and it might just take them a little bit longer [to progress things]. But, it was still on the basis of when we had the AGM that we would still all try to get that done within December 2019. It was only as we got right into the latter stages immediately before Christmas that it was clear it wasn’t going to happen, and we’ve been following up with them this year as to exactly what the position is and the need to make up some lost time.

JPM: The importance of KSA to shareholder confidence is obvious, not to say there aren’t other good opportunities, but the thing about KSA is the sheer scale of the opportunity.

If you get them enthused then they can probably make things happen, if they want to, a lot quicker than perhaps other areas.

From your knowledge of the situation, do you get the feeling that when Al-Khafrah opens that door and you get meeting with these people, do you get the feeling that you’re basically going to bring it home? I know you can’t say for certain but what is your gut feeling on the whole situation.

MK: Based on the discussions we’ve had with them to date, what we see as the opportunity and the engagements we’ve had previously, we’ve got a high degree of confidence that we can get to a level where they will actually see what this really means for the Kingdom and stop looking at it just in terms for a division of this entity or that entity.

Now, whether we can deliver that into something as a project remains to be seen, but we are confident that we have got the right counterparties, we’ve got the right agents working with us, and we’ve got the ability to properly influence those counterparties so that they can really understand what the opportunity is here with MSAR — and see that it can deliver some real benefits both environmentally and financially to the Kingdom.

If taken up at scale, we know and have already had discussions with Nouryon about how we supply and manufacture chemicals in-kingdom to both support security of supply issues, but also to meet the Saudis in-Kingdom total value add (IKTVA) requirement for substantive investment. So, what I wouldn’t want people to read is that this is a slam dunk; what I would want people to hear is that we are confident that with application we can drive this forward to a successful conclusion.

JPM: Correct me if I’m wrong. Al-Khafrah are well connected locally and are probably well respected and what they say would carry a degree of weight, so what I’m really asking is if Al-Khafrah becomes sold on this, he should be able to get 'yes or no' decisions from the powers that be quite quickly?

MK: One of the things we’ve been talking about as a board over the last 12 months or so is that fast failure is the second-best outcome for us. Overall, what we don’t want is to be spending two years effort, and then finding it’s not going anywhere. Ideally, we want to be doing something and it proving successful. But, that’s never going to happen on everything, but if things aren’t going to happen, we need to find out quickly and then do something about it. Either, is there something that’s blocking this we can overcome or is it not going to happen and we stop wasting our time and effort.

Please don’t read into this that we’re looking for fast failure here, it’s just that I think what you said is absolutely correct. As I said at the AGM, Rafid were a good partner of ours over the years, but what became clear over the last 12 to 18 months was that for whatever reason, they did not seem to be able to engage with the relevant parties when we found some significant roadblocks in the project.

Just to reiterate one thing and to slightly change what you said: it’s not when the chairman gets up to speed. The combination of the briefings that had been provided by the CEO and the meeting with me and Jason in November means that the chairman is now up to date and fired up on this; so we have got them engaged at the most senior level in Al-Khafrah now to enable us to open these doors get us in front of the right people, and get some swift action underway and move from talking about things to doing things.

JPM: The impression I have with the quality of Al-Khafrah is that if you don’t do it with them then you won’t do it with anyone else. Is that a fair comment?

MK: Yes, I think there are a number of routes available to us through them that weren’t there with Rafid, both in terms of their existing asset and business base in the Kingdom, plus the strong network that they’ve got both commercially and through their family to some really significant players in the Saudi Arabian market.

Morocco

JPM: What about fuel supply assuming trial goes well?

MK: Essentially, we need to work through the various stages and make decisions based on progress.

The client is in charge and they decide if we continue to the other stages, based on the established gating process. We’re confident we can demonstrate this makes commercial sense for them.

There are fuel oil logistic issues there, as it is predominantly by road tanker, but this is also the case for existing HFO. QFI will produce the fuel for first trial at QRF and send it out to Morocco; can probably do that for second stage trial as well.

Yes, we have absolutely looked at where we could supply from for the largest element of the trial and commercial supply. We haven’t spoken to refiners in detail, but have looked at where we can supply and have a number of options to supply for the largest element of a trial and future fuel supply.

Being able to carry out the first two elements of this trial using fuel supplied by QRF is something that’s strongly in our favour, because it means when we have to start having those sort of detailed conversations with a refiner, [for example] "we’ve got through the first two stages of this trial, the next stage is X we need X hundred tonnes of this fuel, and here’s what the opportunity is in terms of a long term fuel supply agreement".

So, it’s something quite different than having a discussion from scratch with a refiner, because we have already undertaken a lot of the leg-work and will have resolved any issues prior to going into that stage of the trial that we need to engage with the refiner. So, yes, we’ve had some initial thoughts about that and as we progress that project — as we hope to do through those successful go/no go gates — it will enable us to do more detailed work on the options for fuel supply for the final stage of the trial and ultimately for commercial contracts when we get to that stage.

European oil refiner (EOR)

JPM: What time period can MMU installation be compressed into and is H1 2020 still a plausible outcome?

MK: If you look at what our current position is, we’ve got 2 MMU in storage, 1 in Spain and 1 in Denmark now. It would really depend how closely the electrical requirements of where it’s going to be put compare with the electrical spec of the individual MMU.

But for example, and let’s make it very clear this is an example:

Assuming the refinery can actually put in the feed lines for the residue during a planned shut down or some other time. And putting that aside, assuming that we can utilise an existing MMU with very little modification, particularly in terms of its electrical requirements, I think in extremis we can get that to around 3 months.

JPM: I take it that requires quite a bit of give and take on the refiner’s part?

MK: Yes, assuming there’s a free place to put it we can get that done quite quickly.

If there’s more work to be done it’s going to take a little longer. But, for example, on some of the things we’re looking at in terms of commercial-scale trials, we can actually look at compressing as much of that as we can if we’ve got some really good insight into if, for example, it’s been built and delivered to European standards — then there’s probably a good chance it’s going to fit in a refinery in Europe with relatively little modification.

However, it depends though on the specifics of the permitting requirements, particularly as to whether they regard this as requiring electrical equipment which can go in areas where there are flammable vapours, and that’s usually a key determinant.

JPM: Has there been a decision yet by EOR reference their comparative studies?

MK: Process still continuing.

JPM: Would their decision require an RNS?

MK: Regardless as to whether there is a requirement for an RNS, when we get a decision, we will update the market on that, won’t find out months later.

Kuwait

JPM: How are we doing with the Kuwait refinery project.

MK: Jason and I had visited the client and were looking at an opportunity where they were sending some further data out to us. I can’t remember what the exact situation was at the AGM regarding the data and I’d have to go and listen back to the recording of the AGM Q&A.

We’ve got some data; we’ve done some interrogation on that and asked for some follow up data — so that process is continuing with that party. No decision has been reached one way or the other, but that exchange of information is continuing.

JPM: So it doesn’t really sound as though there’s an awful lot going on there, with respect; it doesn’t read to me like there’s an exciting imminent project there.

MK: All I would say on that, as I want to be careful and not say, "no there isn’t" or say, "yes there is", when we’re still at this exploratory stage.

When we had the meeting, they saw that there was — from their point of view — quite a significant opportunity there, depending how it fit in with their refinery configuration. On the basis of that, our initial thoughts were that we concurred with that. In the data that they sent back, there were some discrepancies which we’ve asked them to review.

If that demonstrates what we were led to believe originally, we still think there is a good opportunity for both them, and us, at that particular refinery. But we’ve not got to the stage of being able to absolutely clarify it.

Americas, Scandinavia, Mediterranean, Morocco

JPM: What’s this about?

[Ed: Question is in reference to Mike Kirk’s remark at the end of a recent Proactive Investors interview about recent visits of key team members to the Americas, Scandinavia, Mediterranean, & Morocco]

MK: That was something I popped on the end of the Proactive interview earlier this week. All I was trying to do there is say that for us 2020 has started positively, to show we’ve had a busy start to 2020: Morocco first phase going well, educating customer etc.

Other areas/meetings are in response to specific opportunities and are not general in nature, either projects or end user markets and OEMs; and the meetings in Scandinavia were not with Nouryon, as we had a good series of meetings with them in November 2019.

Promotion RNS

JPM: What was behind your very bullish comments in the recent RNS? From our perspective we’re not seeing it. Why are you so confident?

MK: The RNS related to the changes in the structure of the management team. The promotions reflect the new structure within the business.

With a broader base of projects, we need to ensure that we have the right team to deliver and that we are fired up, which is why I’m excited about the prospects for the business.

Everyone feels very positive, Jason and Mark are the right people with deep technical knowledge. I will be there to support and help with business development if there’s Chairman to Chairman contact required, and I will be at the high-level meeting in KSA:

But, it will mostly be Jason and Mark who will be spending more and more time out there on our projects than they are back here in the UK, so I will continue to take the lead on PR and IR.

JPM: The effort of staff is not in question, it’s the other side that is the concern for shareholders, it’s the outcomes that matter; time passes and progress is very slow.

We’re now into January 2020, where is the first contract/trial contract coming from? At this stage shareholders are struggling to see it, we hope it’s KSA; Morocco is modest. Conversations we are having keep pushing timelines further down the track. Bergen is becoming an issue as well as we look to H1 2020, are they going to start selling their shares because they are losing faith?

We are heading into an area already which I think is causing many holders concern over the lack of progress and clarity from business development. The pace of this is actually quite glacial by other standards.

MK: I understand that, and clearly in some areas progress has not been as quick as we’d hoped. All I can say, and not trying to gloss over this, but in some of the visits we’ve made this year, there are some potential opportunities which, at an early stage, we think have got some real prospects of being delivered relatively quickly.

We are focused as an executive team, and are not trying to kick the can down the road; very aware for us 2020 in terms of delivery has to be a hard backstop.

JPM: Nobody is saying you’re kicking the can down the road, the problem seems to be that nobody is biting hard enough

MK: What we’ve just seen even through the early part of this year (though some of this came up immediately before Christmas last year with one party we’re continuing to talk to), is that there are certain opportunities that have the ability to move forward quite quickly.

What I wouldn’t want to come out of this is that we’ve got something we’re due to announce quite shortly; that isn’t the case because clearly, I wouldn’t be talking about something we were due to announce.

All I’m saying is that whilst we’ve put forward some projects that we’ve made people aware of, we’re continuing to look at opportunities aligned to where we’re trying to take the business that have the potential — should they progress — to enable us to get where we’re looking to be along timelines that perhaps shareholders will find much more acceptable than we’ve been able to deliver in the past.

Marine/Maersk

JPM: Royalties. It has never made sense to me why you’d bother talking about royalties with Maersk given we’re not even producing the fuel.

MK: Whilst there have been discussions about the Royalty issue, and it is an area yet to be formally resolved, it has also provided us with an opportunity to discuss fuel supply and their change of strategy and about-xface on scrubbers. Wouldn’t want you to think we’re wasting our time on some vague legal thing on this, but they’re saying two different things here. (scrubbers/no scrubbers)

What they said at the end of last year was a bit more encouraging. They were just so swamped trying to deliver what they had to for 2020 that they didn’t have the bandwidth to engage with us. We got that feedback not just from Maersk, but a number of other companies.

So Q1 2020 is going to be a lot easier and that’s something we’re already finding, and is the case in 2020 now even at this early stage.

JPM: Why would another company take on an MSAR trial when Maersk have evaluated it and helped develop it, been offered it again, and said no. So, if it’s not economically viable for them why would it be for another? That’s the bigger argument I see against the Marine proposition.

MK: I understand that, and all I can say is we are looking at other companies in this sector and OEMs, and see how we can work together to make progress on this, and we’ve continued to do that as well.

JPM: You know this market to be cut-throat with tight margins. If Maersk truly believed they would save 5% in fuel costs, they’d be nuts not to adopt MSAR, would you agree?

MK: I do and I and honestly believe that they are [aware], because we have provided information of what we believe we can deliver for them, and got anecdotal feedback from within Maersk they regarded that as compelling, and we’re still where we are with them.

JPM: Could it not simply be that Maersk don’t want the hassle of converting their vessels? So as long as competitors don’t use it, then they still have a level playing field?

MK: No, they’ve been through it and know just how easy it is. It’s just that bandwidth problem I referred to earlier and probably some other significant issues within the business itself.

When you look at it logically, this is a solution for them, it’s not a problem. But we got some positive glimmers at the end of last year that indicate it will be easier for us to do this as we go through the first quarter, but let’s see where we get to.

But, we are not relying on that coming good. We hope it will because we’ve got someone there that’s gone through this process before, but on the other hand, because we’ve gone through it as well, we can tell the positive story of how the Maersk trial worked: the supportive comments we got from Maersk at the end, and from Wartsila.

JPM: So to sum up we’re waiting for the market to settle and likely be end of H1 before anyone really looks at MSAR?

MK: We are already looking at getting things moving as quickly as we can, how quickly those discussions move I can’t say, but we’re looking to have those discussions very early.

Japan

JPM: Why are we not making progress there? They’ve used Orimulsion in the past, currently use coal and are a big market?

MK: From our perspective it’s not a priority market for us as there are better opportunities elsewhere. Still looking at things over there, just not a priority for us at this time.

Bergen

JPM: Whether they sell their shares, which is the general worry about Bergen. You explained to us “why would they sell early” when they can sell into a “rising market”, that was the whole premise.

MK: …​ and we’re not there now.

JPM: We’re not there. Is that because things haven’t happened the way you expected or are you still seeing that as a reality in the near future, i.e. as described.

MK: You mean in terms of the rising market?

JPM: Yes in these terms.

MK: Yes, and we’re working to achieve that.

JPM: But when you made that initial “rising market” statement last year, what period were you talking about when this rising market might happen?

MK: My view at that time was through the rest of 2019 and into 2020. I’m not trying to pull back from that at all. What I hoped would be happening then, what I expected to be delivering, we had a sort of pause in news flow at the back end of last year, before the AGM onwards.

What I don’t want people to think is that we were trying to pump news into the market that isn’t news. That was one of the things I tried to re-enforce to other shareholders who contacted me like yourself, who didn’t want extra PR interviews. But we have decided that we do need to be doing more and not just relying on the RNSes, and have a broader spread of info getting out there.

Some examples would be social media, Proactive investors and short videos. It’s a cost-effective and timely way of getting info out to shareholders and is planned as supplemental to what is already out there. So, an example would be videos we can produce and shoot in-house, made to a reasonable quality and we think we are there now. 30 secs to minute and a half videos for things like fabricating the equipment that’s going to be used in Morocco, producing the fuel for Morocco, transportation and delivery to Morocco (assuming client agrees and we maintain anonymity) to demonstrate progress on projects.

JPM: This point was raised by Forum members and they would find it interesting and feel more involved.

My concern is the use of generalised info, saying we’ve been to this place or that, without any background info we can understand. We hear “Mike is confident” but we’ve been hearing that for years, being told things but in reality being told very little.

Many Forum members feel where they get the best value from contact with executive management is through the use of conference calls. Direct questioning of management is so important to holders.

MK: A comprehensive plan was put to board for IR through 2020 and includes conference calls and your feedback on that is very helpful. Will take this on board and look at increasing the number of them.

JPM: Don’t underestimate the value to us, and trust in you, of a negative update. Case in point, the KSA meeting not happening as hoped. You’d be thought more of if you’re up front and open.

MK: That was an error on my part, and I should have included this in the recent Proactive interview.

JPM: There are small details that to you are not important [to you] but to us are, sharing info is always good.

MK: That’s a good point, will help us as we put updates in place even if there is no substantive update i.e. RNS.

JPM: Many holders are interested in the processes within production, etc, so videos and info help keep them/us involved.

MK: We need to communicate more broadly and have a plan to do so. Also, good to show off QRF and the people there.

JPM: Do you think we will have something on paper trial wise or other at some point this year? Looking at what’s in front of you do you think it’s realistic?

MK: Yes



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