Global business sets up partnership IRL In Hutt

Media Release from Industrial Research Limited and Quest Integrated Inc.

31 July 2006

Global business sets up partnership with Industrial Research in Lower Hutt

US-based company, Quest Integrated Inc., has entered into a long-term alliance with New Zealand’s Industrial Research to develop technologies for the worldwide energy, petrochemical and aerospace sectors.

As part of the agreement, Quest and its affiliates are establishing a research and technology base in Lower Hutt to support its global operations.

Quest’s global alliances include international industry leaders such as Koch Industries and Johnson Matthey that together offer access to over 85 percent of the world’s refining and chemical and gas processing companies.

Industrial Research’s deputy chairman, Craig Stobo, said the alliance represented an invaluable opportunity to further commercialise Industrial Research’s expertise, promising almost unprecedented market access for New Zealand technology.

“Through access to Quest’s international networks, this alliance will significantly enhance the ability of Industrial Research to create value for New Zealand,” Mr Stobo said.

As part of the alliance, Quest formed a new company, Quest Reliability, LLC, to acquire one of Industrial Research’s specialist consulting business units, MPT Solutions.

MPT Solutions has operated as a separately branded business unit for a number of years outside of Industrial Research’s nine core technology platforms. The business is centred on world-class corrosion and metallurgical and structural integrity capability for asset management of critical energy infrastructure.

Under the arrangement, MPT’s 25 staff in Lower Hutt will transfer to a new company set up in New Zealand by Quest Reliability. The Australian operation comprising eight staff will be acquired directly.

MPT Solutions’ New Zealand operations will remain in Lower Hutt with a long-term lease taken for its existing premises on Industrial Research’s Gracefield site.

Quest is now actively recruiting another five to seven mechanical and electrical engineers for the Lower Hutt-based business.

Mr Stobo said Industrial Research’s board realised a strategic investor was needed to really enable MPT Solutions to gain broader access to global market opportunities.

“MPT Solutions needs to adopt a strong growth and more geographically diversified strategy to be internationally viable into the future.

“This growth must be founded on the expansion of the product and service offering to the New Zealand and Australian markets in parallel with the development of new markets beyond our region.”

Quest would provide the significant investment in people, systems and equipment necessary to maximise the potential of the business, he said.

This arrangement also ensured New Zealand industries had enhanced access to the latest global technologies while continuing to build on local expertise.

Chief Executive of Quest, Milton Altenberg, said his company saw New Zealand as an ideal research base for both developing knowledge and converting that technology into services and products for global commercialisation.

“Quest currently has a highly specialised technology development operation which we want to expand to meet the broader market opportunities that we have identified.
We are committed to making the Lower Hutt office the regional head office for the expanded business, encompassing our southern hemisphere operations.”

In terms of the wider alliance, Quest identified that Industrial Research had a huge world-class research and development resource base to jointly develop other products and technologies, Mr Altenberg said.

“Industrial Research is unique in terms of the breadth and depth of disciplines across nine technology platforms all located on one site in Lower Hutt.”

“We’re buying into Kiwi ingenuity,” he said.

Quest is currently pursuing proposals for several joint projects with Industrial Research to develop a diversity of products for the energy, petrochemical and aerospace sectors.

These projects utilise Industrial Research’s expertise in intelligent devices, measurement, applied mathematics, distributed generation, high-temperature superconductivity, materials science, chemistry and wireless technologies.

It is expected that the alliance would provide Industrial Research with an expected minimum of $1 million per year of research income over the initial five year period of the agreement.
Background Notes

Benefits to New Zealand

• Expected high-tech job growth for MPT Solutions in the Wellington region and the flow-on benefits employment growth provides to the region’s infrastructure
• MPT Solutions Limited remaining in Lower Hutt with a long term lease (3x3x3 years) taken for its existing premises . The Lower Hutt based business will also be the regional head office for the expanded business. The region is expected to cover all Southern Hemisphere operations
• A commitment to make the Lower Hutt office the regional centre of excellence for all MPT Solutions sector research activities
• A commitment to recruit and train engineering graduates from New Zealand universities. Quest has already entered discussions with the University of Canterbury on a graduate recruitment programme
• Access to global market channels for New Zealand developed technological products. This applies equally to IRL activities as to those of MPT Solutions
• Enhancement to New Zealand’s capability in reliability services and engineering asset management in the energy and aerospace sectors
• An enlarged export-oriented technology business with a clear strategy for ongoing reinvestment of a percentage of those earnings in New Zealand based research activities.

MPT Solutions
MPT Solutions is a regional specialist consulting business providing engineering asset life assessment, metallurgy, corrosion and structural integrity management services to the energy, petrochemical, refinery and pipeline integrity sectors in New Zealand, Australia and South East Asia. MPT Solutions provides specialist services to most of the thermal power generators and petrochemical plants in New Zealand and Australia.

MPT Solutions currently operates as a branded business unit of Industrial Research Limited. The consolidated operation comprises a team of 25 Materials Technologists in Lower Hutt and eight Materials Engineers located in the Brisbane subsidiary, MPT Pty Limited.

The Quest group and networks
The Quest group business model is to create products that address high value problems and then build service offerings around addressing these problems. The group focuses on the energy and petrochemical markets. Quest has established strong business integration with global providers in Koch Chemical Technology group and Johnson Matthey. These market channels will now open to MPT Solutions. A brief comment on these global providers is provided:
- Koch Chemical Technology Group is a wholly owned subsidiary of Koch Industries the largest privately held corporation in America. Koch has beneficial, strategic interests that extend virtually throughout the energy spectrum.
- Johnson Matthey is the largest global supplier of catalysts to the syngas industry. This company will be a key conduit to market for the technology based services provided by MPT Solutions.
Quest group currently has a highly specialised technology development operation. To meet the growing market opportunities afforded by Quest’s market channels Quest has been looking to address its need for a bigger technology development platform. In the proposed transaction;
- Quest, while investing directly in MPT Solutions, is also establishing a long term relationship with IRL as a mechanism to address its technology development shortfall and provide a more rapid platform for growth.
- Quest sees New Zealand as an ideal research base for both developing knowledge and converting that knowledge into technology products for both the New Zealand and global markets and is prepared to invest significantly to achieve that.

Technology Development Alliance (TDA)

The strategic relationship between Industrial Research and Quest group has a focus on providing services and developing technology for the targeted sectors with respect to maximising the use of assets.
The Quest business model is to create products that solve critical high value problems and then build service offerings around them. The company then seeks to enter the market through or together with other well established companies such as Koch Chemical Technology Group or Johnson Matthey.
Quest sees MPT Solutions as a core capability for their service activities. Quest believes IRL is a key development partner for the applied development of a range of technologies.
At present the Quest group has initiated five different product development projects with IRL, each would require significant investments on behalf of Quest. Quest is building the key business relationships and establishing the funding path for these projects. The funding is likely to be a combination of investments from Quest and partners, the client industries, the US Government and when appropriate TBG funding in New Zealand. Industrial Research will be providing a meaningful contribution to these projects.
Quest has identified, below, a number of areas within IRL that could be involved on the various projects including:
• DeviceWorks (Business unit)
• Measurement for Industry platform
• Distributed Generation platform
• Applied Mathematics expertise
• HTS-110 and the HTS platform
• Materials Science and Chemistry expertise
• Wireless Technologies from IRL’s ICT skill base

Background on the Quest Group of Companies

Quest Reliability L.L.C. has been recently established to provide the global focus for the provision of corrosion and metallurgy management services together with engineering asset life assessment to the energy, petrochemical and refinery sectors. Quest Reliability will be the shareholder in MPT Solutions Limited in New Zealand and MPT Pty Limited in Australia. Quest Reliability is a wholly owned subsidiary of Energy Systems Integrity L.L.C.

Energy Systems Integrity LLC. Energy Systems Integrity is the general partner of an investment fund controlled by Milton J. Altenberg, Jeffrey L. Ott and Robert W. McCullough dedicated to the acquisition and development of companies and applied technology in the energy information technology (“IT”) sector. More specifically, ESI is actively pursuing investments in companies utilizing or developing IT to measure, assess and monitor the condition of critical energy infrastructure – typically in mid and downstream applications. ESI’s strategic objective underlying this investment focus is to acquire, build and selectively consolidate a solution set of services and specialized products that address globally pervasive management challenges facing the energy industry. ESI combines strategic, operational, technical, investment and financial expertise with the resources of both Quest Integrated (“QI”) and Koch Chemical Technology Group (“KCTG”). KCTG and an ESI affiliate jointly own Quest TruTec, L.P. (“QTT”), a platform investment for ESI with highly complementary interests to those of MPT Solutions.

Quest Integrated, Inc. (formerly Flow Research; see www.qi2.com for additional information) is a contract research, development and engineering firm that has specialized for over 35 years in developing measurement and analytical tools for a variety of industrial needs. QI’s present capabilities are largely centred on the development of advanced measurement systems for quality control, process control and non-destructive testing of energy (both plant and pipeline integrity), aerospace and transportation infrastructure. Located just south of Seattle, Washington, QI’s corporate facilities include research and development, engineering, manufacturing and a field service centre.

Two notable achievements by Quest Integrated include the creation and development of the technological basis for the high-pressure waterjet machine tool and horizontal trenchless boring industries. Today, these multi-billion dollar industries have worldwide footprints touching every major industry segment including aerospace, telecommunications, automotive and consumer products. It was QI’s more recent innovation in advanced measurements technology – applied to refining, chemical & gas processing and power generation infrastructure – that led to the formation of Quest TruTec through a joint venture with Koch Chemical Technology Group. The Quest TruTec joint venture effectively coupled an established service provider (leveraging the former TruTec channel) with superior Quest Integrated developed tools to measure, assess and monitor the condition of critical energy infrastructure (accelerating penetration of QI’s FTIS and LOTIS tools).

QI’s customer base includes government agencies such as the U.S. Army, Navy and Air Force; Departments of Energy and Transportation and the National Science Foundation; as well as industrial clients in the energy, aerospace, automotive and mining sectors. Under the sponsorship of these government agencies and private sources, QI has developed certain core technologies such as laser optic triangulation (e.g., LOTIS), thermal transient thermography (e.g., Infrared Thermography System (“ITS”)), magneto-optical imaging (“MOI”) and ultrasonics (e.g., FTIS). The ability to apply these technologies to the identification, characterization and quantification of flaws across a broad range of industrial applications is proprietary to Quest Integrated.

Quest TruTec, L.P. Quest TruTec (see www.questtrutec.com) is a leading provider of condition assessment and reliability management to the petroleum refining, chemical and gas processing and power generation markets. QTT and its affiliates’ customer lists include in excess of 90% of the refineries in North America, by virtue of its expertise and specialisation in process heaters, reformers, distillation towers, coke drums, hydrotreaters and fluidized catalytic cracking units. QTT’s service portfolio utilizes technologies including laser optics, gamma scanning, CAT scanning, tracers, infrared thermography and ultrasonics.

ENDS

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