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Interim Results for the six months ended 31 December 2014
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 announces its interim results for the six months to 31 December 2014.
Financial Results:
· 7% increase in sales revenue to £13.51m (2013: £12.64m)
· 14% increase in EBITDA to £4.16m (2013: £3.66m)
· 28% increase in profit after tax to £1.97m (2013: £1.54m)
· 25% increase in basic earnings per share to 2.32p (2013: 1.85p)
· 6% increase in interim dividend to 0.51p per share approved for payment on 22 April 2015 to all shareholders appearing on the register of members on the record date 7 April 2015
Highlights
· Strong financial performance for POS-GRIP friction-grip rental wellhead equipment as a result of a combination of new and on-going contracts with a range of major international oil and gas operators particularly for High Pressure/High Temperature (‘HP/HT’) applications
· Two purchase orders for HP/HT rental wellhead systems secured from Det Norske Oljeselskap ASA (‘Det Norske’) for two wells in Norwegian sector of the North Sea with a value of circa £1.9m
· Contract received from a major oil and gas operator for the supply of HP/HT 15,000 psi wellhead equipment for the UK Continental Shelf (‘UKCS’) for circa £1.9m – the operator who is a long standing customer was the first operator to use Plexus HP/HT equipment on the Norwegian Continental Shelf
· Additional order secured from Centrica Energy Exploration and Production (‘Centrica’) for the Southern North Sea, offshore UK for standard pressure equipment with a value of circa £0.6m
· Contract received from BG Group (UK) for the supply of HP/HT exploration wellhead equipment in the UKCS with a value of circa £1.9m
· Post period end additional purchase orders received for three standard pressure and HP/HT exploration wells with a total value of circa £1.5m from long standing customer Brunei Shell Petroleum Sdn Bhd (‘Shell Brunei’) under an existing four year contract which runs to 2016
· Shell China Exploration and Production Company Limited (‘Shell China’) HP/HT gas exploration well announced in May 2014 offshore Hainan Island has commenced operations, and Plexus hopes that this will lead to further opportunities in this increasingly important Asian region where Plexus has also supplied wellhead equipment to Australia, Brunei and Malaysia
· The new subsea wellhead design HGSS™ Joint Industry Project (‘JIP’) continues to make excellent progress with the two remaining key test interfaces, to verify performance, entering their final stages with target completion by July this year – the building of a prototype single string system commenced in February 2015 and is expected to be completed in readiness for display at the SPE Offshore Europe Exhibition and Conference in Aberdeen (‘OE2015’) in September. Following launch, we hope that in conjunction with our JIP partners to deploy the prototype in the field in 2016
· Industry support for the HGSS JIP continues to be strong as demonstrated by the addition of BG International Ltd as a new consulting partner to the JIP in September alongside Eni S.p.A., Maersk, Senergy Holdings Limited (‘Senergy’), Shell International Exploration and Production B.V. (‘Shell’), Total E&P Recherche Developpement SAS (‘Total’), Tullow Oil plc, Wintershall and Oil States Industries Inc.
· HP/HT Tie-Back JIP connector product is now ready for customisation and manufacture to suit specific requirements associated with an individual customer’s HP/HT project – the unique advantages of this POS-GRIP product will now begin to be marketed to the industry
· New POS-GRIP product – POS-SET Connector™ – which is designed to enable operators to re-establish a connection onto rough conductor casing that has been previously cut above the seabed to facilitate abandonment operations, offers uniquely superior features and moves Plexus into the growing abandonment market
· Significant increase in research and development (‘R&D’) spend, excluding costs of building test fixtures, increased by 94% to £1.36m reflecting the innovative and proprietary technology driven nature of Plexus at a time when increased effort is being made to expand the portfolio of Plexus POS-GRIP based products
Corporate:
· Asian business hub strategy made further important progress with the establishment of Plexus Products (Asia) Sdn Bhd (‘PPA’), a new Malaysian Joint Venture (‘JV’) company between Plexus Ocean Systems (Singapore) Pte Ltd (‘Plexus Singapore’) and a local oil and gas services business partner, Integrated Petroleum Services Sdn Bhd (‘IPS’) – PPA is currently working towards securing the necessary local licences for the supply of Plexus wellhead equipment
· Growing global awareness of both Plexus and the safety and operational benefits of POS-GRIP technology not only in relation to organic exploration drilling activities, but also in relation to production and subsea applications
· Plexus invited to present on POS-GRIP metal sealing in September 2014 at the “World Oil HP/HT Drilling and Completions Conference” in Houston, Texas, and also to make a similar presentation in London at the Oil and Gas iQ “HP/HT Wells Summit 2014” regarding pioneering techniques and technology in HP/HT drilling and completions
· Doubled the size of operational headquarters in Dyce, Aberdeen following the acquisition in September of a circa 36,000 sq. ft. work shop and office facility from leading oilfield services company Baker Hughes for £2.4m – the new building is importantly situated immediately adjacent to the existing main facility which will deliver efficiency gains and facilitate future growth plans
· Plexus wins the “Commitment to Innovative Use of Research and Development” award at the 11th annual Northern Star Business Awards 2014, the flagship event for the Aberdeen & Grampian Chamber of Commerce in recognition of Plexus’ long standing commitment to R&D
· Following the publication of Sir Ian Wood’s “UKCS Maximising Recovery Review: Final Report” in February 2014 which emphasised the importance of making more of HP/HT resource potential, deploying the best and most cost effective technology, and leveraging the capabilities of the UK’s own oil and gas supply chain, the UK Government finally announced in the Budget last week a series of measures and tax cuts aimed at reviving the UKCS and encouraging more investment – such initiatives, if effective will be beneficial for Plexus as exploration activity is predicted to increase
· Appointment of additional non-executive director to the Board – Charles Jones has over 30 years of senior management and board experience in the US energy sector and is advising and assisting the Board in building relationships in the US with potential commercial and licencing partners
· Bank facilities renewed and increased with the Bank of Scotland in September, comprising a £5m revolving credit facility on a three year term and a £2m overdraft on a yearly term – in addition a five year £1.5m term loan was put in place to part fund the purchase of the additional Aberdeen facility
Plexus’ Chief Executive Ben van Bilderbeek said,
“This has been a further period of growth for Plexus, one in which we have continued to deliver on our strategy to build Plexus into a leading international oil and gas wellhead engineering company, supplying the best in class and safest wellhead equipment for exploration, production and subsea applications.
“We are delighted to report another set of record results for the six months to the end of December 2014. This excellent financial performance is the result of new business generation supplying our proprietary POS-GRIP wellhead systems, primarily into the exploration jack-up drilling market. Our wellhead equipment continues to gain traction with leading international oil and gas majors as it meets the critical safety and performance demands required of wellhead technology across all pressure spectrums. As the exploration for, and production of, oil and gas goes deeper and becomes more complex, particularly in HP/HT environments, the need for such innovative, safe and effective wellhead technology is being increasingly recognised. In the North Sea we enjoy a dominant position within the increasingly important HP/HT arena, which we believe we can replicate in other key regions around the world. During the period we secured multiple contract wins in the North Sea, particularly offshore Norway, including wins with Centrica, Maersk, Det Norske Oljeselskap ASA Norway, and BG Group (UK). In addition we gained a further important contract win in Asia with Shell Brunei for an additional three exploration wells under an existing four year contract which bodes well for further business in the future. These contract wins highlight the strength of our core POS-GRIP rental exploration business model in terms of revenue generation and market penetration.
“Importantly in the UKCS, as originally recommended by the 2014 Wood Report the UK Government confirmed in the Budget last week a series of tax cuts and incentives. The supplementary charge tax (‘SCT’) will be cut to 20% from 30%, the petroleum revenue tax (‘PRT’) charged on so called “super-profits” will be reduced to 35% from 50% (reducing the effective tax rate on these fields from 81% to 52.5%), and a new ‘Investment Allowance’ is being introduced to replace all existing allowances and which will allow for the offsetting of 62.5% of all qualifying capex against profits (subject to SCT) for a field. Of particular relevance to Plexus is the introduction of legislation to create a new cluster allowance to support the development of HP/HT projects and encourage exploration and appraisal activity in the surrounding area or ‘cluster’. These welcome and long awaited measures will help drive further investment in exploration and production, and Plexus expects to benefit over the coming years.
“As the inventor of POS-GRIP technology, I feel that it is my duty to continue to articulate the core principles that lie behind our success, and why I am confident that POS-GRIP wellheads will become a new global standard. In essence POS-GRIP friction-grip method of engineering enables us to attach casing to the wellhead and form metal-to-metal interface seals, in a simple and cost effective way, to match the integrity of the other connections in the system. Throughout history design efforts have focused on the integrity of the wellhead body and its connection to the blowout preventers (‘BOP’) that sit on top. In addition hundreds of millions of dollars have been spent on the development of dependable casing couplings of which hundreds are used in a casing string, and which cannot be tested until the whole string is cemented in the well. Conversely however, the connection between the wellhead and the casing strings, in terms of qualification standards, has ‘fallen between two stools’ and presents a clear weak link in the system. Uniquely POS-GRIP technology is able to deliver a scientific approach to deal with this anomaly, which remains poorly understood in our industry because Plexus wellheads provide a convenient releasable engagement of the casing hanger to the wellhead bore, instantly providing a metal interface seal, which is based on the same principles as those employed in premium casing couplings design.
“As a result our wellheads not only deliver significant cost savings for operators, which can total millions of pounds, but uniquely and critically deliver a controlled and reversible gripping force, which holds casing hangers and metal seals rigid. This remotely delivered and calibrated force eradicates destructive seal movement, and protects seal integrity to ensure long-term safety over the lifetime of a production well and beyond. Although the American Petroleum Institute (‘API’) is beginning to recognise the need to address this challenge in some of its new and on-going API standard developments, I do not see how conventional engineering solutions can address casing hanger design in a way that can match premium coupling standards. This is because the casing hanger and annular seal are the last critical connection to be assembled inside the wellhead bore, and unlike couplings are manipulated remotely. This ‘out of sight’ procedure makes it ever so more important that the system is designed to be assembled in a controlled manner, in accordance with a calibrated procedure, to be verified and recorded (which POS-GRIP wellheads are able to do). Proof must be delivered that ‘face to face’ seals are stressed within Hertzian contact stress limits, otherwise metal to metal sealing which is critical to HP/HT operations cannot be claimed. The ability to deliver true metal sealing means that particularly in subsea applications Plexus offers unique capability. We can guarantee metal sealing up to 20,000 psi at high temperature, because we measure the force delivered remotely to the seal interface, through the application of hydraulics. The system is fully reversible, which means many wells can be drilled in various directions from a single location, saving millions of dollars in exploration costs – a true industry first.
“Such unique technical features underpin not only the growing value of our Intellectual Property (‘IP’) suite, but also the keen interest shown by the industry in taking our wellhead equipment from the surface to subsea which resulted in our HGSS subsea wellhead design JIP. This JIP is nearing completion in terms of both testing, and the building of the prototype which will be launched at OE2015 in September where there will be a focus on the latest drilling, completion, intervention, and production technologies for subsea developments. Once the prototype is completed an opportunity will be pursued with our JIP consulting partners to run the HGSS prototype in the field in 2016.
“Whilst we are making significant progress in terms of our existing and new product opportunities, it should be noted that during the period, and continuing post period end, the oil price has fallen over 50% creating a turbulent environment for operators and service companies. Importantly for Plexus, evidence suggests that the two main sectors that are taking the brunt of the impact of lower oil prices are tight gas (fracking) where wells deplete very quickly, and long term multi-billion dollar projects in challenging areas of the world such as the Arctic. Conversely, we are fortunately currently focused on supplying equipment for shallow water offshore drilling from jack-up rigs, (often for prolific long term gas wells which have a relatively lower life time capital cost per barrel) and these activities have proven to be more resilient to the industry’s current challenging trading conditions. Despite this we are not at all complacent and are making every effort to communicate to our increasingly cost conscious customers, the time and operational efficiency savings that our wellhead equipment delivers, which often can be cost negative to the operator, whilst at the same time offering uniquely superior metal-to-metal sealing capabilities and safety features.
“I would like to take this opportunity to thank my fellow Board, Plexus management team and engineers for without them today’s positive statement would not be possible. Plexus prides itself on its operational and engineering excellence, and this is evidenced by our workforce which includes some of the most talented oil and gas engineers in the industry today, without whom new and exciting new product developments such as our POS-SET Connector designed to facilitate abandonment operations would not be possible. For these reasons I am delighted to welcome Charles Jones as an additional non-executive director onto the Board, and who brings over 30 years of senior management and board experience in the US drilling equipment sector which will be extremely valuable as we begin to look at pursuing opportunities in the US. I look forward to updating our valued shareholders on our latest organic and strategic developments throughout 2015.
“Finally I am delighted to announce that as a demonstration of the Board’s confidence in the future, the directors of the Group have approved a 6.3% increase in the interim dividend of 0.51p per share which will be paid on 22 April 2015.”
