Corac Business Update

by: Phil Curtis 04/10/2011

Corac Group Plc Business Update

Corac Group plc is pleased to provide the following business update:

·     Good progress being made to develop and broaden the technology platform

·     Second generation DGC technology being implemented for North America partner project

·     Progressing with ENI to incorporate second generation technology

·     Development of modular in-pipe gas compressor technology with Aramco with broad commercial applications

·     New Technology Centre lease signed, expected to be operational by December 2011

·     Continued progress to strengthen IP portfolio

Downhole Gas Compressor ("DGC") Technology

Development of the DGC technology continues to advance across a number of projects in order to deliver applications for field trials in Europe and the United States.

From knowledge and experience gained in building Corac's first generation power electronics module, an updated design has been developed to address all the known deficiencies and reliability risks of the early systems.

This second generation technology is being implemented in our North American project and will be the basis for all future designs. We are confident that the new design will reliably meet a range of customer requirements.

The assembly phase of the project for our American partner is making significant progress, with first test runs of the compressor and preliminary phase testing of the power electronics scheduled to commence in October.  Project activity continues with the aim to be ready for testing at Spadeadam by the end of the year.

We have completed a feasibility study for OMV Austria Exploration & Production GmbH ("OMV"), who are currently reviewing the output which could lead to a detailed design and system build phase. This would be followed by a third field trial for Corac's DGC technology.

Throughout the year Corac have been working with ENI SpA ("ENI") to improve the reliability of the first generation power electronics module for their DGC.  Of the three subsystems specified, two meet our high level of expectation and have passed all the gateway performance criteria in laboratory testing.

For the third subsystem to perform at similar levels we have been working to improve the original component design which was open to contamination during assembly and working with our specialist global suppliers have addressed other potential sources of unreliability to create a more robust system.  Upgraded replacement components have been ordered and revised methods introduced to minimise the assembly risk.  These components are on a long lead time, affected by global constraints in the semiconductor sector resulting in delivery of the completed components not expected until January 2012.

Corac will continue with assembly and testing of the ENI two-compressor system at our facilities to further prove system function and establish performance data. This testing will produce performance data for this configuration of the DGC and we will review this with our partner against the intended operational performance.

On receipt of the upgraded components, the electronics module will be rebuilt in the new clean room facilities in the Technology Centre in Slough. As a contingency, Corac is investigating options to adapt the ENI DGC by migrating to a full second generation system should the reliability of the first generation components be an issue in any of the test sequences currently planned.

In-pipe Gas Compressor ("IGC") Technology

Corac have been actively working on developing solutions for in-pipe gas compression, applying our core technologies in this new application area.  A modular concept is being developed by Corac for the first IGC application with the Aramco Overseas Company B.V. ("AOC"), part of The Saudi Arabian Oil Company ("Saudi Aramco"). The modular approach will ultimately enable multiple units to be used collectively to create a system able to operate at higher flow rates and pressures than the DGC. The applications will operate in larger pipe diameters than a DGC, typically 16 to 20 inches, which enables significantly higher power machines to be installed.

Market feedback from gas field operators indicates that this approach significantly widens any potential application of this technology.  Modules are compact enough to be placed at multiple locations to boost and regulate gas network flows and are scalable for significantly higher power. Opportunities are also being investigated for rig to shore gas pressure boosting.

Early discussions in the market have confirmed that a generic, modular in-pipe application such as Corac's IGC has potentially widespread commercial applications. In North America alone, the estimated 500,000 active gas wells and their associated network pipelines provide Corac with an exciting opportunity for the IGC technology. In addition, there are more than 5,000 offshore gas platforms worldwide where this technology could also be applied.

The preliminary design specification for the Saudi Aramco IGC application is approaching completion and has led to broader specification requirements to satisfy our partners' well production rates over several years.

Corac is looking to launch other development projects in this area, which may be internally as well as externally financed.

Infrastructure

The lease agreement on the new Technology Centre located in Slough has now been signed. Investment in the Technology Centre will provide efficient and scaleable facilities and equipment to support the Company's long term growth plans. This will provide a platform to develop our technology in a way that was not possible at our facilities in Uxbridge.

The Technology Centre was selected to meet Corac's specific requirements for power, noise control and gas management. These high quality facilities in the M4 technology corridor will allow Corac to continue to attract the highest calibre personnel.

The Company will proceed with a phased occupation over the coming months in order to be fully operational in the new facilities by 31 December 2011.

Other Technology Development

Corac's skilled engineers are actively engaged in advancing our core technologies. We continue to strengthen our IP portfolio with design registrations and patent applications for key components and systems, including novel impeller developments, power electronics configurations and torque transmission devices and applications. We are developing novel concepts, ideas and applications for a range of sectors. It is anticipated that these may take the form of feasibility studies, prototype development or small batch pre-production demonstrators.

The advances made across our broadening technology platform have led to a wide range of discussions now taking place not only with our existing partners, but also with other new global operators. There are opportunities for Corac's technology to be applied for uses both onshore and offshore within the gas, industrial and oil industry sectors.

Phil Cartmell, Executive Chairman commented,

"I am very encouraged by the change in approach at Corac and the resulting developments in our technology. Combined with our move to the new Technology Centre and the growing interest from energy markets in Corac's technology, this will enable us to deliver long term value for our stakeholders."