Plexus Holdings PLC: Interim Results for the 6 Months to 31 December 2019

Plexus Holdings plc, the AIM quoted oil and gas engineering services business and owner of the proprietary POS-GRIP® method of wellhead engineering, announces its interim results for the six months to 31 December 2019.

Financial Results 

• Following the sale of the wellhead Jack-up exploration application business (the “Jack-up Business”) to FMC Technologies Limited (‘TFMC’), a subsidiary of major oil services provider TechnipFMC (Paris:FTI)(NYSE:FTI), on 1 February 2018, the interim results and prior periods are reported as required on a continuing and a discontinued operations basis.
• Continuing operations sales revenue £49k (2018: £1,312k)
• Continuing operations EBITDA loss (£1,809k) (2018: £1,504k loss)
• Continuing operations loss before tax (£2,763k) (2018: Loss £2,337k)
• Basic loss per share from continuing activities (2.75p) (2018: 2.22p loss)
• Net cash of £4.5m (2018: £9.5m).
• The Group in addition has £2.96m in financial assets (2018: £2.85m)
• The Group has no debt following the final repayment (£75k) of a term loan in September 2019.

Overview

Focus on IP led strategy to establish proprietary POS-GRIP technology in new markets and replicate success achieved in North Sea jack-up exploration where Plexus equipment raised standards, generated substantial cost savings for operators and enjoyed a dominant market position

Surface production wellhead and tree market

• Strategy centred on offering full-service package following formation of majority owned Plexus Pressure Control Ltd (‘PPC’), a JV with UK based BEL Valves Ltd, in June 2019
  • Enables Plexus for the first time to offer operators of large-scale production projects POS-GRIP wellheads alongside valves and Xmas-trees
• Growing sales pipeline of bidding activity
  • Actively participating in the tender process for a range of projects across the world
  • Increased interest being expressed by operators in Plexus tendering for projects
  • Long lead times associated with large surface production projects
• Large target market – the award of just one contract in the surface production market, which is estimated to be worth an estimated US$2.5 billion over the five-year period 2021-2025, has the potential to be transformational for Plexus
  • Rystad Energy estimates a total of 691 wells are planned to be drilled between 2021 – 2025 with an average capex spend of nearly US$50 billion implying a potential production wellhead and tree market opportunity of c. US$2.5 billion
  • If Plexus was able to secure just a 5% share of this market from its growing sales pipeline, this could translate into revenue of US$125 million with an estimated average gross margin of around 30%

Russia and the CIS states

• Strategy centred on supporting licensing partner Gusar’s efforts to secure contracts for POS-GRIP wellheads in the Russian and CIS markets, a top three hydrocarbon producer in the world with significant gas reserves
• Breakthrough first jack-up exploration wellhead successfully installed as part of the inaugural contract for POS-GRIP rental wellhead equipment secured by Gusar with global energy giant Gazprom
  • Marks commencement of Gusar’s contracted work with Gazprom for the first year of an up to five-year jack-up gas exploration drilling programme on the Kara Sea Shelf
  • Set to initiate a licence royalty revenue stream for Plexus under existing Gusar Licence Agreement
  • Post period end, sale of additional POS-GRIP® wellhead equipment to Gusar following encouraging discussions with Russian operators

Outlook

• The Board anticipates Group revenues for the 12 months to 30 June 2020 (“FY20”) to be in line with market expectations.
• It is important to acknowledge the ongoing disruption to the general global economy and resultant uncertainty for companies and workforces caused by the COVID-19 virus and the impact this may have on Plexus. Like many companies the full extent of the impact of the COVID-19 pandemic is not yet known, and it is difficult to evaluate all of the potential implications on the company’s trade, customers, suppliers and the wider economy.
• The Company also notes the actions of Saudi Arabia and Russia in terms of increasing production of crude oil to record levels which has, in conjunction with the impact of coronavirus on demand for oil, had a material impact on the oil price.

Chief Executive Ben van Bilderbeek said:

“In previous results announcements I have extolled the virtues of POS-GRIP, Plexus’ proprietary wellhead technology: how it delivers a gas-proof solution and substantial cost savings; how its superior sealing technology reduces harmful carbon emissions from the well-site; how it has been successfully deployed on over 400 wells worldwide by over 70 operators; and how our technology can raise standards wherever metal to metal sealing is required.  New set of interims, same old message?  Not quite. Our technology, which is proven to raise performance, reliability and safety standards, remains the same.  So too do the substantial cost savings generated by reduced installation and maintenance time.  What is different and what gives us considerable encouragement as we look to establish POS-GRIP as the go-to technology for gas-proof solutions, is that debate over the need to move to a carbon neutral world and the oil and gas industry’s place within it has moved from the fringes to the mainstream.  I therefore believe that a major opportunity is opening up for Plexus, and our POS-GRIP leak-proof technology.

“Over the last 12 months, debate appears to have shifted decisively away from ‘if’ to ‘when’ the world goes carbon neutral. Indeed, such a goal has now become part of the mainstream strategy of many major international corporations around the world, and not just in the oil and gas industry. It therefore follows that to safeguard its future in a world that is moving towards net-zero carbon emissions, the oil and gas industry will have to clean-up its act. As reported in an article in the Daily Telegraph on 24 January 2020, Michael Liebreich, founder of Bloomberg New Energy Finance and head of Liebreich Associates, said, ‘My advice to companies is that you had better have a 2050 net-zero strategy or you risk losing your societal licence to operate’.  Speaking to North Sea operators in Scotland in the same month, Oil & Gas Authority (OGA) chairman, Tim Eggar, stressed the need to act fast, ‘We have to act much, much faster and go farther in reducing the carbon footprint. Our energy systems must keep improving at pace, to become cleaner and more efficient and this requires ambitious thinking, capital investment and bold leadership. Action not just talk or more analysis.’

“Encouragingly, easy wins for the industry are at hand.  Specifically, prioritising cleaner natural gas at the expense of dirtier oil and coal and eliminating harmful leaks from the supply chain can make a real difference.  As Ben Ratner powerfully pointed out on the Environmental Defense Fund website in January 2020, ‘The opportunity presented is significant: if the global oil and gas industry reduced methane emissions by 45% by 2025, it would deliver the same near-term benefit to the climate as closing 1,300 coal-fired power plants — one-third of all the coal plants in the world.’  Crucially, natural gas and eliminating methane emissions from the well-site are both areas where POS-GRIP can excel.

“I have often described POS-GRIP wellhead systems as being ‘leak-proof’ and ‘superior’ in terms of performance, reliability and safety.  These are tangible, measurable benefits that have been proven many times over out in the field and in extensive testing to levels that for the first time can fully match those of premium couplings.  In terms of ‘leak-proof’, which is defined as life-cycle integrity for metal wellhead seals, POS-GRIP wellheads have been used to drill exploration wells in highly challenging operating environments around the world. This includes the Total Solaris well, which is believed to be the highest pressure, highest temperature well ever to be drilled in the North Sea.  In terms of testing, POS-GRIP wellheads are the only ones to have exceeded, let alone passed without exception, new tougher standards set by a major operator for wellheads.  What lies behind this ‘superior’ performance is the method by which POS-GRIP holds and seals component parts.  By harnessing the force of friction from the outside of a wellhead, POS-GRIP enables a significantly higher force to be applied over a large contact area to pre-load the wellhead.  This contrasts with the limitations of conventional wellheads, which require torque to be applied from within to activate an annular point seal.  The result is POS-GRIP delivers a superior metal to metal seal that prevents gas leakage, even when dealing with liquids and gases from ultra-high pressure/high temperature (‘U-HP/HT’) reservoirs.

“Having raised the bar to such an extent that wellhead equipment can safely withstand extraordinary pressures and temperatures, our technology can now offer operators a solution that prevents harmful methane leaking into the atmosphere, just when the industry is desperately in need of one as it seeks to eliminate fugitive emissions throughout the supply chain.  The backdrop in which we operate has therefore changed decisively in a short space of time, and I believe that our technology will gain wider acceptance as a result. Together with key R&D testing and corporate developments over the last 12 months, including a first POS-GRIP wellhead order from Gazprom in Russia, the sale of a third wellhead set to our Russian partner in anticipation of further orders in the country, and the formation of a JV to offer full package solutions for large production projects, we believe we have never been better placed to establish POS-GRIP as a superior enabling technology for the energy sector.

“On a more sober note, it is of course both necessary and disappointing that I have to temper this report by making reference to the perfect storm that the oil and gas industry is currently being subjected to, specifically in terms of pressures associated with the world’s focus on Net Zero and the lowering of the consumption of hydrocarbons; the material slowdown in economic activity and therefore energy demand in relation to the impact of COVID-19; and the breakdown of production level targets between Saudi Arabia and Russia, linked to the United States ongoing elevated oil and gas production levels. According to the International Energy Agency in March 2020, these factors are expected to lead to a fall in world oil demand this year for the first time since 2009.  However, we have to look beyond what will hopefully be relatively short-term drivers and recognise that the world will still need oil and gas for many years to come. With this in mind, we fully expect to play our part in supplying superior leakproof equipment, whether organically or through trading partners and licensees.

“The half year numbers, including revenues of £49k, are in line with internal budgets and the Group’s revenues are projected to be higher in the second half of the current financial year. Trading for the full year is expected to be in line with market expectations. Taking into account the confidence expressed above, the Group’s financial results should be set against the context of the move into the surface production wellhead market being a new initiative, and the long lead times associated with the contracts we are looking to secure organically and via the JV with Bel Valves.  Although the JV was only established in June 2019, we are already seeing an increased level of interest from operators for our equipment.  In the event Plexus was awarded a production wellhead contract, which can be significant in value, it would transform the Group’s financial performance and broaden our credentials as a supplier of gas-proof solutions for the surface production market and the wider energy industry.  In addition, we will continue to support our licensing partner’s efforts to secure further orders in Russia, a top three hydrocarbon region.  We are working hard to grow and diversify our portfolio of revenue streams and Plexus products, and I look forward to providing further updates on our progress.”

For further information please visit www.posgrip.com