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Interim Results for the six months ended 31 December 2013
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, has announced its interim results for the six months to 31 December 2013.
Highlights:
Financial
· 12% increase in sales revenue to £12.64m (2012: £11.31m)
· 8%increase in EBITDA to £3.66m (2012: £3.38m)
· 13% increase in profit after tax to £1.54m (2012: £1.36m)
· 21% increase in Research and Development (‘R&D’) to £0.71m (2012: £0.59m)
Operating
· Strong sales performance for POS-GRIP rental wellhead equipment – number of new supply contracts from both existing and first time international oil and gas operators, particularly for high pressure high temperature (‘HP/HT’) applications
· Norwegian sector of the North Sea generated contract wins for two HP/HT rental wellhead systems from Statoil Petroleum AS (‘Statoil’) with a value of circa £2.5m, and an additional HP/HT wellhead system for an appraisal well for Centrica Energi Norway
· Securing of third Australian customer with new customer Eni Australia Limited (‘Eni Aus’) (adding to existing customers Apache Energy Australia and Santos Ltd) contracting for the supply of standard pressure rental equipment for an exploration well offshore Australia
· Post period end a further new customer Maersk Oil Denmark contracted for an exploration well in the Danish North Sea, and AGR Well Management Limited (‘AGR’) agreed a new three year contract which generated a first contract for a new user Svenska Petroleum Exploration AB (‘Svenska’) in a new territory Guinea Bissau, our second in West Africa
· Wintershall Noordzee B.V. post period end renewed for a further three years a contract to supply surface wellhead and mudline equipment services for exploration activities in the North Sea offshore Netherlands
· Further diversification away from the UK Continental Shelf (‘UKCS’) was demonstrated by an additional two wells for Glencore Exploration Cameroon Ltd (‘Glencore’) which we hope together with the Svenska new user win will help underpin additional opportunities in the West African region
· HP/HT Tie-Back product saw the full ‘internals’ testing cycle successfully completed, and the ‘externals’ testing requirements will be completed over the next few months after which time sales initiatives will commence to run alongside the installation of a to be identified prototype opportunity
· Joint Industry Project (‘JIP’) to develop and commercialise a new and safer POS-GRIP subsea wellhead (‘HGSS®’) is progressing well, and post period end secured further industry recognition with Senergy Holdings Limited (‘Senergy’) in February joining existing JIP consulting partners Eni S.p.A., Maersk, Shell International Exploration and Production B.V. (‘Shell’), Total E&P Recherche Developpement SAS (‘Total’), Tullow Oil plc, Wintershall, and Oil States Industries Inc.
Corporate
· Strategy to create an Asian business hub underway to service markets including Australia, Brunei, Indonesia, Malaysia, Thailand, and Singapore – premises secured in Singapore and negotiations underway with a potential Malaysian partner in relation to securing a Petronas licence for the supply of wellhead equipment
· Acquisition of a 25% interest in a private manufacturer of specialist oil and gas equipment for a consideration of £0.73m
· £2.50m raised from the issue of new ordinary shares before expenses to support growth strategy focused on international expansion and extending the range of POS-GRIP applications, as well as increasing liquidity and broadening the institutional shareholder base
· Significant increase in R&D spend, excluding costs of building test fixtures, increased by 21% to £0.71m, and intellectual property (‘IP’) spend on legal costs for patent filings increased 109% to £0.07m
· Sir Ian Wood’s “UKCS Maximising Recovery Review: Final Report” published 24 February 2014 – emphasises 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
· Bank facilities renewed in October 2013 comprising a £5m credit facility on a three year revolving basis with an additional £1m overdraft on a yearly term
· 12% increase in basic earnings per share to 1.85p (2012: 1.65p)
· 9% increase in interim dividend to 0.48p per share approved for payment on 25 April 2014 to all shareholders appearing on the register of members on the record date 4 April 2014
Plexus’ Chief Executive Ben van Bilderbeek said,
“I am delighted to report another set of strong results for the first six months of our financial year, a period where we have continued to drive forward our important new HGSS subsea wellhead JIP, as well as developing sales initiatives designed to increase our POS-GRIP presence outside of the North Sea where a significant decline in exploration activity has been widely reported. One such initiative is the establishment of an Asian hub which I believe will in the future play an important role in the growth of our business.
“Our organic rental wellhead exploration business activities continue to make good progress with the addition of further new customers in new territories. I am confident that additional opportunities beyond our traditional core markets will present themselves as the reputation of POS-GRIP technology and the benefits it delivers in terms of safety and operational time and cost savings continues to grow. Looking longer term I am particularly pleased with the progress we are making with various strategic initiatives including our important new HGSS subsea wellhead design JIP which Senergy has recently joined as an additional consulting partner, as well as the early stage activities in relation to our Plexus Singapore and Plexus Malaysia subsidiaries. In addition, an in-depth independent technology study that we commissioned some months ago to analyse and compare our POS-GRIP friction-grip technology against conventional wellhead systems is close to conclusion. I believe this report will empirically demonstrate that POS-GRIP is genuinely the best available and safest technology (‘BAST’), and indeed a new and superior wellhead standard that can address many of the concerns that regulators and operators around the world are raising in relation to certain technical challenges. These include instant casing hanger lock down and long term metal-to-metal sealing requirements. Such initiatives will further help us communicate the significant commercial opportunity that exists for both Plexus and potential future joint venture or licensing partners, and which would accelerate the “available” element of BAST requirements.
“It is important not to lose sight of the foundations of our current and future success and why I believe our POS-GRIP wellhead equipment can eventually compete globally with our large established multi-national competitors. Wellheads are the weak link in respect of qualification standards, but now can be designed to be qualified as the strong link in the well chain, even exceeding the integrity of premium couplings. Our unique ability to do this is the result of being able to deliver sufficient ‘force’ to the casing hanger interface to keep the assembly rigid under all operating conditions, whether surface or subsea, and eliminating the systemic design deficiencies of conventional systems.
“Our ability to deliver such benefits is becoming ever more relevant and important to the industry. Indeed whilst the oil price remains stable at around the USD$100 range and operating costs increase in relation to the technical difficulties of new projects such as offshore fields in deep water, the need to contain and control costs is growing in importance as was recently highlighted at the IHS Cera Week conference in Houston. The chief executive of Total, Christophe de Margerie was recently quoted as saying that Total is introducing a new process for designing projects to build in cost control right from the start and reshape relationships with service companies. He said that you need to create a new culture with safety and the environment first, but that “at the same time, cost is important” and “to achieve a project with lower cost is good”. As Plexus wellheads are proven to deliver significant cost savings on surface applications to the extent that our service is often cost negative to the operator, we are confident that in subsea applications our POS-GRIP method of engineering can do even better by eliminating many installation trips which in some areas of the world can cost as much as USD$2m each, depending on water depth. In addition to these very important operational cost benefits, I would like to re-emphasise that our subsea wellhead design will also address significant systemic design deficiencies thereby improving long term safety to operations and the environment. For these reasons we are increasingly confident in our future prospects and the value of our unique combination of safety and cost benefits, including long term seal integrity that we can offer existing and future customers.
“Looking closer to home, I was delighted to note in the Budget last week that the Chancellor further endorsed the Sir Ian Wood report published in February 2014 aimed at maximising recovery of the UK’s remaining oil and gas reserves when he said that he would “take forward all recommendations”. In particular the Chancellor announced incentives to develop HP/HT fields which demand higher spending and where for exploration our technology has been proven to be particularly beneficial. Mr Osborne also promised a review of “the whole tax regime to make sure it is fit for purpose of extracting every drop of oil we can”. Already the industry body Oil and Gas UK has according to Malcolm Webb the chief executive, predicted that the widening of allowances could encourage a further £5bn – £6bn investment in new North Sea projects, which would reverse the current decline and potentially increase our UKCS activity level considerably. As Ed Daniels the chairman of Shell UK Ltd recently wrote, talk of the need for the UK to find the next North Sea is premature and “the real North Sea still has a bright future”.
“Finally, due to the positive trading over the last six month period and strong outlook, I am delighted to announce that the directors of the Group have approved the payment of an increased interim dividend of 0.48p per share which will be paid on 25 April 2014.”
