AGM Statement

RNS Number : 5863I
Plexus Holdings Plc
10 December 2015
 



 

Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil equipment & services

10 December 2015

Plexus Holdings PLC ('Plexus' or 'the Company')

AGM Statement

 

Plexus Holdings PLC, the AIM quoted oil and gas engineering services business and owner of the proprietary POS-GRIP® friction-grip method of wellhead engineering, known for its safety, time and cost saving capabilities, will hold its Annual General Meeting ('AGM') today.  At the AGM Jerome Jeffrey Thrall, Chairman, will make the following statement:

 

"The financial year ended 30 June 2015 saw us deliver a strong set of results for the period.  We reported an 18.8% year on year increase in profit after tax to £5.43m; 10.5% increase in profit before tax to £5.94m, a 5.6% increase in revenue to £28.53m, a 5.7% increase in EBITDA to £9.53m; and a 17.5% increase in earnings per share to 6.4p. This financial performance was of course delivered during a challenging year for the global oil and gas industry which saw the Brent Crude price fall from US$112 on 1 July 2014 to circa US$63 on 30 June 2015, to circa US$40 today. This is understandably having an impact on operator's capital spending levels and exploration activity, and the debate continues about when this cycle will come to an end, and also how severe the potential resulting shortage of the supply of hydrocarbons will be in the years ahead unless the current reduction in investment levels is reversed.

 

"Plexus has developed, commercialised and established its proprietary POS-GRIP® technology in the niche few hundred million dollar jack-up exploration rental market. We are only now seriously beginning to address the far larger subsea and volume surface production multi-billion dollar wellhead markets. It is important to note however that we enter the current cycle as the owners and developers of a superior, safer, and more cost effective method of engineering which sets us apart from our competitors, and we will exit this cycle with the same unique set of advantages at a time when such features are more important than ever before. Encouragingly industry regulation and testing standards, following the widely publicised VW scandal are coming under significant scrutiny and a recent BlackRock Investment Institute climate change note stated that they "expect regulators to pay closer attention to standards and enforcement".

 

"In contrast to the wider trading conditions and the current impact on our year on year organic activity levels, particularly in the UK Continental Shelf ('UKCS') Plexus has been able to deliver on a range of exciting strategic achievements and milestones during the past financial year and post period end. These reached a new level of activity and fall into two key categories, namely new product and technology led product developments, as well as the establishment of commercial relationships outside of our traditional North Sea heartland as we actively pursue our global ambitions. We see these initiatives as important building blocks for the longer term future and growth of our business.

 

"The range of new product and technology initiatives were most importantly led by the launch of our Python™ subsea wellhead as a new best in class and safest standard for subsea wellheads at SPE Offshore Europe Conference and Exhibition 2015 in September. Python has evolved from a Joint Industry Project started over four years ago and supported by a range of major international oil companies including BG, eni, Maersk, and Total to becoming a fully-fledged subsea product where we will be looking to run a prototype in the second half of 2016 calendar year. Python offers a unique range of features including instant casing hanger lockdown and metal-to-metal high integrity sealing whilst eliminating the need for many complex components that all of our competitors' designs require including lock rings, lockdown sleeves and wear bushings. Furthermore it is fully reversible for ease of workover, side-tracking or abandonment. The combination of these important advantages will result in greater reliability and fewer installation trips, and importantly independent analysis has shown that US$1-2m of time costs per trip can be saved by the operator depending on water depth, and which for deep-water would equate to time savings many times that of the cost of the wellhead.

 

"In addition to Python we secured an order from a new customer, Total, for what is believed to be the highest pressure well ever drilled in the North Sea offshore Norway;  received a first order for from Centrica for our POS-SET Connector™ which is designed to re-establish a connection onto rough conductor casing to facilitate tie-back or abandonment operations;  began marketing our unique up to 20,000 psi HPHT Tersus™ Tie-Back connector sponsored by Maersk which for the first time allows HPHT exploration and pre-drilled wells to be converted to either subsea or platform producing wells, and have begun to expand and develop our range of surface production wellheads where we see major opportunities in corrosive and HPHT gas environments in what is a multi-billion dollar market. The foundation for such progress is the unique ability of our annular metal-to-metal seals being able to be tested to and perform at the same standard required for premium casing couplings, rendering wellhead seals no longer the weak link in the well architecture chain.

 

"The most important commercial relationship that we were pleased to cement since the period end was the signing of our first major licencing agreement with Yantai Jereh Oilfield Services Group Co. Ltd in China to facilitate the rental, sale, and manufacture of our wellhead equipment to China, Brazil, Indian and Middle Eastern markets. It will of course take time for the necessary knowledge transfer process to complete but we are already seeing evidence of sales leads and interest as a result of the co-operation between our two companies. A second agreement that was established post period end was reached with Aquaterra to develop and jointly supply HPHT dual marine risers utilising POS-GRIP technology to provide a safer, technically superior and cost efficient solution for use on jack-up rigs. Finally, post period end we entered into a collaboration agreement with CNOOC Group and Red Sea Technologies Ltd to explore commercial opportunities for shallow water subsea and crossover wellhead production systems for oil and gas activities in China, and also successfully secured a Petronas licence to manufacture and supply Plexus' POS-GRIP wellhead equipment in Malaysia through Plexus Products (Asia) Sdn Bhd.

 

"Such positive developments have to be placed in context in relation to the current geopolitical and macro negatives that persist in relation to the current oil price and the resultant reduction in operators capex spend and drilling activity which inevitably impact directly on our organic business activities. Although there are significant ongoing opportunities for our wellhead equipment in the Asian, Russian and other global markets which we are actively pursuing, in the shorter term, as indicated in our Preliminary Results announcement, the UKCS which has historically been our most important market is currently experiencing a significant slowdown. Conversely the European Continental Shelf ('ECS') territories such as offshore Norway are still relatively active and we continue to see further sales opportunities in these regions. The UKCS as reported in September 2015 by Oil and Gas UK has seen exploration for new resources fall to its lowest level since the 1970s, whilst the UK Government recently announced in its Autumn Statement that UK North Sea oil tax revenues are forecast to fall by 94% in the 2015-16 year to £130m, from £2.2bn in 2014-15. As a market analyst recently and succinctly put it - "delays are becoming deferrals and deferrals cancellations".  Clearly we have seen activity and order levels fall and we are regularly assessing how much of this comprises delays as opposed to cancellations. What is interesting for the longer term is that although the North Sea is recognised as a relatively high per barrel cost region, there are many instances where prolific HPHT gas wells such as those in which Plexus specialise are able to produce at circa US$20 to US$30 per barrel making such fields economic to develop.

 

"Clearly a higher oil price is the key to industry investment levels recovering and there are two important drivers for this in relation to excess supply, and increasing demand. On the supply side it is well understood that a combination of the growing influence of shale, and production levels from Saudi Arabia, seemingly as a result of choosing to maintain and indeed increase its daily production levels, has had a significant impact on the oil price. There are a number of geopolitical dynamics involved which I do not have time to go into today, and of course there are other unknowns such as what role subject to sanctions Iran will play as a potential major producer. However what is interesting is that Opec does not seem to be functioning as its wider membership intended as clearly demonstrated by this month's Opec meeting where no consensus on production levels could be reached. Only last month Algeria's former energy minister, Nordine Ait-Laoussine said it was time to consider suspending Opec membership if it merely serves as a tool of a Saudi regime pursuing its own interests when he said "Why remain in an organisation that no longer serves any purpose?". There is however a growing awareness of the fact that a number of Opec members are struggling with large budget deficits and gulf states are reportedly withdrawing billions of pounds from investment funds to fill their spending gaps and clearly that situation cannot continue indefinitely. On the demand side there seems to be clear recognition by the industry and various government bodies that growing world population levels and ongoing industrialisation will require for the foreseeable future increased hydrocarbon consumption which will not be addressed by alternative energy sources such as wind farms and solar. The International Energy Agency has said that global energy demand will increase by 40% through to 2040, and even Saudi Arabia has issued a number of warnings about the dangers of supply shortages due to investment in new projects being cut so severely. The Saudi oil minister Ali al-Naimi only last month said that the world will need US$700bn in investment over the next decade to meet growing demand, whilst the Shell CEO Ben van Beurden earlier this year declared that the world faces an energy crisis unless investment is maintained. The preferred target price level consensus seems to be US$60 to US$80 per barrel which seems to be generally accepted as a realistic and workable target.

 

"Looking further into the future there are some interesting and powerful market and industry dynamics evolving which are increasingly driven by the global drive to reduce CO2 emissions as part of the ongoing climate change dialogue and debate as highlighted by this month's 2015 Paris Climate Conference ('COP21'). The reason why this is so relevant for our company is that Plexus' technology is uniquely suited to providing safer and more cost effective wellhead solutions for gas drilling which is why our equipment was selected by Total for the highest pressure well ever drilled in the North Sea, at a time when gas is being seen as a "clean" hydrocarbon in comparison to coal and oil. This could in the longer term be a very positive driver for our business.  The U.S. Energy Information Administration has analysed how much carbon is emitted per unit of energy output or heat content when different fuels are burned. Expressed as pounds of CO2 emitted per million British thermal units ('Btu') anthracite coal is 228.6, diesel fuel and heating oil is 161.3 and natural gas is 117, nearly half the level of coal. The relative cleanliness of gas is now recognised by Governments and industry bodies alike and an active push is on to move away from coal and coal fired power stations as soon as is practically possible. For example Scott Fraser the director of sustainable energy division at the UN Economic Commission for Europe believes that there is a vital role for gas and recently said that - "Governments need to put in place policies that recognise the benefits that natural gas can bring". One example of this momentum is Beijing where by 2020 it expects to derive 32 per cent of its energy from gas and just 6 per cent from coal, and this can be viewed alongside China planning to double the proportion of natural gas in its primary energy mix to 10 per cent by 2020. A second example is the US Clean Power Plan which aims for a 32 per cent reduction from 2005 levels in carbon pollution from power plants by 2030. Blackrock reported that whilst this would severely hurt the coal industry it "would be a boon for gas, wind and solar power in the long run". I find it encouraging that natural gas can now apparently be seen as sitting alongside wind and solar renewables.

 

"A final observation I would like to make in relation to the positive future for gas is in relation to the view that to meet long term climate change temperature targets, approximately two thirds of the world's known hydrocarbon reserves will have to be left in the ground as so called stranded assets in effect making them worthless. However when such reserves of coal, oil, and gas are analysed the assumed two thirds of stranded assets can be shown to correlate to coal's share with the remaining third being made up of 60 per cent oil, and 40 per cent gas. Furthermore gas can be extremely cost effective and I am aware of prolific HPHT land gas wells where the cost can be as low as US$2 per barrel. In simple terms therefore the world can finish using coal which is seen as a medium term goal, whilst enabling known reserves of cleaner gas and oil to be exploited and consumed whilst meeting COP21 climate change goals.

  

"Finally, as announced on 28 October 2015, I am pleased to confirm that the Board has recommended the payment of an increased final dividend of 1.75p per share for FY 2015 which includes a special dividend payment which is not expected to be repeated in 2016, an increase of 182% to the previous year, which will be submitted for formal approval at the AGM today."

 

**ENDS**

 

For further information please visit www.posgrip.com or contact:

Ben van Bilderbeek

Plexus Holdings PLC  

Tel: 020 7795 6890

Graham Stevens

Plexus Holdings PLC

Tel: 020 7795 6890

Nick Tulloch

Cenkos Securities PLC

Tel: 0131 220 9772

Derrick Lee

Cenkos Securities PLC

Tel: 0131 220 9100

Felicity Winkles

St Brides Partners Ltd

Tel: 020 7236 1177

Frank Buhagair

St Brides Partners Ltd

Tel: 020 7236 1177

 

NOTES:

Plexus Holdings PLC

 

Plexus Holdings PLC, which began trading on AIM in December 2005, is an oil and gas engineering and services business, which supplies wellhead and mudline suspension equipment together with associated equipment and services for exploration and production applications. Based in Aberdeen, with offices in London, Cairo, Kuala Lumpur, Singapore and a presence in Houston, Texas, it has developed and patented a friction-grip method of engineering for oil and gas field wellheads and connectors, POS-GRIP®, which involves deforming one tubular member against another to effect gripping and sealing.

 

The Company plans to accelerate the roll out of POS-GRIP wellhead equipment as a superior alternative to current technology and for it to become the future industry standard for wellhead design. In particular, the technology has advantages in High Pressure/High Temperature (HP/HT) and Extreme HP/HT (X-HP/HT) oil and gas environments, for which there is growing global demand and where Plexus is being increasingly recognised as the supplier of choice.

 

To date, POS-GRIP wellhead systems have been used or selected to be used in over 350 oil and gas wells by international companies including ADTI, AGR, Apache Energy Australia, BHP Billiton, BG International, BP, Brunei Shell Petroleum, Cairn Energy, Centrica, ConocoPhillips, Dana Petroleum, Dubai Petroleum, ENI, GDF SUEZ, Global Santa Fe, Maersk, Niko Resources, Petro-Canada Trinidad & Tobago, Premier Oil Norge, Red Sea Petroleum Operating Company, Repsol, RWE, Senergy Limited, Shell China, Shell Egypt, Statoil, Silverstone Energy, Talisman Energy, Total, Tullow Oil, and Wintershall.

 

Importantly, the Company is focussed on extending its proprietary POS-GRIP technology into an increasing number of subsea applications. In line with this, in March 2011 the Company launched a Joint Industry Project ('JIP') initiative to develop a new subsea wellhead design, the 'Python Subsea Wellhead' utilising its friction-grip technology in collaboration with key oil and gas operators and service companies. BG, Royal Dutch Shell, Wintershall, Maersk, TOTAL, Tullow Oil, ENI, Senergy, ADTI and Oil States Industries Inc. The JIP is nearing completion with final qualification testing of all key features of the product under way, and the resultant Python Subsea Wellhead design will include a combination of key features never before seen in a subsea wellhead which include being rated to 15,000 psi, 4,000,000 pounds of 'instant' casing lockdown capacity, and importantly rigid metal annular seal technology qualified to match the performance of premium connectors. The building of a single string Python Subsea Wellhead system prototype commenced in February, and was launched at the SPE Offshore Europe Exhibition and Conference in Aberdeen ('OE2015') in September 2015.

 

Plexus is an innovative technology company always looking for opportunities to apply its proprietary POS-GRIP friction grip method of engineering to new products both within and outside the oil and gas industry. For example Plexus have recently completed a JIP in conjunction with Maersk to develop a downhole HPHT Tieback connector which for the first time allows the reconnection of production casing to HPHT exploration and production wells. In addition the Company has developed and qualified a new product called "POS-SET Connector™ which is designed to re-establish a connection onto rough conductor casing previously cut above the seabed to facilitate tieback or abandonment operations. The market for permanent plugging and abandonment of wells is increasing in the North Sea and beyond, and could be an important new revenue stream for the Company.


This information is provided by RNS
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