Quadrise Plc (QED) Earnings Call Transcript & Summary

Quadrise, the supplier of innovative energy solutions for a cleaner plant has provided an update on its project with Valkor Technologies. Joining me today to discuss the update is Quadrise's CEO, Jason Miles. Jason, welcome back to DirectorsTalk.

Thanks very much. Thanks, Giles.

Quadrise recently provided the update on the Utah project with Valkor. It looks like good news. But could you just explain for us a little bit more about that?

Yes, sure. I mean we're obviously delighted that Steven Byle and the Valkor team has been slaving away in Utah during the last few months. I mean as you may -- as shareholders may recall anyway, early this year, Valkor received permission to commence pilot drilling on their leases so they could demonstrate to the Utah Division of Oil, Gas and Mines and the landowners, Cipla, 3 main points really. That is that the subsurface oil is heavy, which is classified as over 10,000 centipoise, centipoise is a measure of viscosity. So to give you an idea, so diesel's less than 10 centipoise, heavy fuel oil ranges from up to sort of 500 centipoise. So 10,000 centipoise is extremely viscous, it's really that sort of bitumen at the reservoir temperatures. So they also had to establish that there's a common pool of heavy oil underground that supports the commercial recovery. And then the third point that I needed to really cover was that the agency action was required by the division and the State Board in Utah to really change the standard well spacing from 40 acres, which is how it's legislated today to between sort of 1 to 2.5 acres to ensure that the heavy oil projects with Valkor and their partners is economically viable.

So assuming that the pilot drilling program at Utah it's been successful so far?

Yes, it has. For the following reasons, really, the subsurface oil, first of all, is classified. They basically did 2 pilot wells. They established an oil viscosity that range from -- anything from 600,000 up to 1 million centipoise which is really extra heavy natural bitumen -- a bit of our notion was actually coming up in terms of its viscosity. So that [indiscernible] bitumen is very viscous. The other thing that they established was that they basically have good deposits of bitumen saturated sandstone. And the seams are very thick. They sort of range between -- the test that we did would range between anything from 75 feet up to 180 feet of depth, which is great. And that also establishes a common pool as well of this type of material in a seam or several seams. So as a result, the economics of the project are very robust as long as closer well spacing is, of course, allowed and the recent decision by the Utah State Board provided for that on Wednesday. Yes, as with any new development, they've had a few challenges to overcome and just taking them a little bit longer to get up and running. But that experience they've recently gained has been very useful for the future wells.

Sounds very positive. What's next then?

So Valkor are now heating the wells using electrical elements that they've installed down the well site to increase the subsurface oil temperature to around 100 degrees centigrade and the reservoir temperature is around 26 so they're increasing up to 100C, sort of the oil flows and that means they can then extract it, so they can start getting oil to the surface. And then once over 100 barrels of oil are extracted and sold then that's sort of -- basically Valkor financing partners will then release another round of funding to the tune of I think about $14 million that basically gives them some more further funds to start developing the site and drill further wells to start generating cash flow and apply for the project finance tranche then. From our perspective as Quadrise the establishment of the oil flowing provides us with samples to testing QRF, first of all, both of the extracted heavy sweet oil, which is ultraheavy ultra-low in sulfur. But also of the heavier cut of bitumen as we're planning to install a few upgrading system to recover some of the diesel out of the heavy oil, which makes a bitumen even more viscous, but which is great for us. And then we'll start marketing the oil during the following months, once we've had the samples tested and then to U.S. clients, most likely initially for sort of diesel engine applications. And then the final point for us, which is certainly the most important is that once the project finance is raised of over $15 million, that really triggers our sort of license agreement that we have with Valkor to start for which we get paid $1 million upfront. We get a further $0.5 million once we deliver equipment to site and then you also get $75,000 a quarter for support services. So we have a -- we also have a profit share arrangement for MSAR and bioMSAR sales in the U.S. So obviously, we're very keen to assist them with the marketing program next.

Sure. That must be an extremely important milestone for the company?

Yes, it is. I mean these sales incomes are extremely important for us, but it's also our first technology license, frankly. And this really gives us -- establishes a baseline value for the IP and the know-how that we've developed over the years. But also important equally is the access to advantaged ultra low sulfur, low carbon -- basically the fuel itself has a lower carbon intensity as well because it's not going through a refining process. And that means that this could be a game changer for a range of energy applications, not least to decarbonize the existing marine fleet.

Moving on to your other key projects. How are things progressing there?

Yes. So in Morocco, the Quadrise engineering team are fully engaged with OCP who declined to deliver this month on trial the [ dual plus fire site ] this quarter. So there's a flurry of activity preparing for this, including sort of bringing all the equipment in and the additives, et cetera, again, and getting then through customs, which in the past has taken a little bit of time. So at the moment, we're very, very busy in making sure that everything gets through smoothly. And then on the other side of the coin is basically the commercial supply discussions, which have begun already with the potential MSAR suppliers in the Mediterranean as well. With MSC, we're getting closer to finalizing the freeway agreement that we have, which also includes cargo. That's taken a little bit longer than anticipated. We're getting to sort of the final points. So looking forward to progressing that and providing an update. And then in Southeast Asia, we're also looking to conclude an agreement for testing MSAR at a refinery there. And that's a precursor, the trial itself will be a precursor to then continued use of the fuel system in the refinery. And then in parallel, there's quite a bit of business development work ongoing with a number of other shipping companies and potential refinery suppliers as well, really to complement the commercial supply to MSC and OCP in the future from Marine hubs. And then I shouldn't forget that the bioMSAR development program continues between -- positively. That also involves partners such as Vertoro, BTG Bioliquids, we're involved in this as well. And we're planning some further engine testing at Aquafuel on some exciting new formulations incorporating some of these products and looking forward to sort of publishing that data in the near future as well.

Sounds like a busy period for Quadrise. With that what should investors be looking at for next?

Yes, it's still a busy summer. And aside from sort of the Valkor project activities, obviously, that we will keep shareholders up to date with the ongoing bioMSAR work over the summer. Our main focus is, frankly, on including the Morocco trial successfully, safely and making sure that the MSC agreements in the Southeast Asia project agreements are signed expeditiously as well. So that's really our main focus is delivery and making sure these things get done in the second half of the year.

Great news. Joining me today was Jason Miles, CEO at Quadrise Fuels. Jason, thanks for joining DirectorsTalk today.

Thank you, Giles. It's a pleasure.