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Russian Licence Agreement Signed with Two Oilfield Services Businesses
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 that on 25 January 2016 it entered into an exclusive licence agreement with LLC Gusar (OOO Gusar) Ltd, and CJSC Konar (ZAO Konar), two independent Russian oil and gas equipment manufacturers (together with Plexus, the ‘Parties’), to undertake the rental, manufacture and servicing of Plexus’ jack-up drilling wellhead exploration equipment into the Russian Federation and the other CIS states oil and gas markets.
This Licence Agreement is a significant strategic milestone for Plexus as it continues to expand its best in class POS-GRIP wellhead equipment into major global markets by partnering with established local manufacturers and oil service providers with existing commercial relationships with key local national and international oil companies. Following on from Plexus’ Trading Statement, the Licence Agreement provides Plexus with low cost access to the Territories without the requirement to make significant investment in capital intensive assets such as manufacturing.
The Licence Agreement is a further endorsement of Plexus POS-GRIP technology as it seeks to diversify its business, from the North Sea, into new international regions. Entry into the Russian Federation and other CIS states follows on from the licence agreement between Plexus and Yantai Jereh Oilfield Services Group Co., Ltd, signed in July 2015, to facilitate the rental, sale, and manufacture of Plexus’ wellhead equipment into the major Chinese, wider Asian, Brazilian, Indian and Middle Eastern oil and gas markets.
Licence Agreement
Under the Licence Agreement, which follows a Heads of Agreement entered into on 16 June 2015, Gusar has been granted an exclusive licence to manufacture, market and supply Plexus’ POS-GRIP® Jack-up Rental Wellhead Systems and associated and enabling products, and to utilise certain of Plexus’ trademarks, patents, technology, know-how and other intellectual property and technical services in the Territories. Gusar and Konar have also been granted a joint exclusive licence to manufacture, market, supply and service Plexus’ Connectors and to utilise certain of Plexus’ trademarks, patents, technology, know-how and other intellectual property and technical services in the Territories.
The Licence Agreement contains, inter alia, the following condition precedent clauses:
· Subject to the Parties obtaining any applicable withholding tax exemptions, Gusar shall within six months from the date of the Licence Agreement make an initial non-refundable, non-offsettable payment of US$5 million in return for Plexus granting the Licence Agreement. Plexus may elect to extend the Licence Fee payment date, subject to certain conditions being met.
· Gusar shall also pay to Plexus a further licence fee capital payment calculated as a multiple of EBITDA generated by Gusar’s POS-GRIP business activities during Year 4 after execution of the Licence Agreement. The Further Licence Fee will be paid by annual instalments equal to 15% of Gusar’s aggregate gross revenue from the supply of Plexus products and relevant services in Year 4 and if necessary each subsequent year until paid in full.
In order to facilitate Gusar’s entry in the Territory for POS-GRIP Wellhead Systems, and to enable Gusar to familiarise itself with the product, Plexus and Gusar will co-operate to fast track fulfilment of an initial order for a POS-GRIP Wellhead System.
When Gusar secures an initial order for a POS-GRIP Wellhead System, Gusar shall purchase three suitably configured POS-GRIP Wellhead Systems from Plexus at an agreed price, payable in stages, depending on specification.
Both Gusar and Konar shall make a quarterly royalty payment to Plexus based on the invoice value on all Plexus products sold, rented or supplied by Gusar and/or Konar.
Subject to future agreement and agreed terms to be agreed in writing between the Parties, Plexus shall grant a licence to Gusar and / or Konar a licence to use the Licensed Rights to enable them to manufacture and sell certain additional Plexus products in the Territories.
The Licence Agreement contains intellectual property and confidentiality provisions to protect Plexus’ POS-GRIP technology, products and know-how for the benefit of the Company, and stipulates certain minimum performance levels.
Plexus’ CEO Ben Van Bilderbeek said, “This important Licencing Agreement further progresses the expansion of Plexus’ best in class wellhead equipment into both the major Russian and the CIS oil and gas markets. This new venture forms part of our strategy to extend our POS-GRIP jack-up exploration wellhead product line and associated services beyond our dominant North Sea high pressure/high temperature market which is currently severely impacted by the low oil price and consequent reduction in drilling activity, into new, larger growth markets around the world.
“Russia, according to the EIA, was the third largest producer of petroleum and other liquids in 2014 and holds almost a quarter of the world’s proven natural gas reserves and 5% of global crude reserves. With gas forming the lion’s share of the Russian energy sector, and our equipment being ideally suited to the high pressures and high temperatures associated with gas wells, we are excited to be entering this key market through our partnership with Konar and Gusar, two established and highly reputable local suppliers. Any hydrocarbon leaks at sea potentially have no international borders, hence using the safest available equipment is paramount for the safety of the environment not only locally but further afield. We look forward to commencing work with Gusar and Konar and establishing a sizeable business in Russia and the CIS. Furthermore in addition to this initial Licencing Agreement we will be actively pursuing the extension of this agreement to include additional POS-GRIP equipment applications.
“Operators around the world currently have to deal with the twin forces of increased regulation and oil price volatility, as well as the need to control and reduce drilling costs which is now more important than ever. Thanks to the superior nature in terms of performance, reliability and safety of our POS-GRIP wellhead equipment, as well as the significant time and cost savings it offers, we believe we can help operators deliver on the safety and cost saving parameters that they are required to work to. Our model enables us, where appropriate, to licence out the manufacture and supply of our patent protected equipment in order to enter new markets such as Russia without taking on board undue risk and without significant capital investment on the part of Plexus. Together with our recent agreements to enter the Chinese market and the securing of a local licence with Petronas in Malaysia, we are, despite current challenges and the collapse of the North Sea exploration activity, continuing to work on delivering our objective to build Plexus into a leading global supplier of oil and gas equipment.”
Gusar and Konar, Plexus’ licencing agreement partners, said “We are delighted to announce this exciting new venture with Plexus, which will see both of our oil and gas equipment manufacturing facilities supplying Plexus’ best in class POS-GRIP wellhead technology to be made in Russia.
“As extracting hard-to-reach oil and gas goes deeper and becomes more complex, particularly in high pressure and high temperature (HP/HT) environments; innovative, safe and effective wellhead technology is becoming increasingly important. In this vein, we believe Plexus’ products are ideally suited for the Russian market both in terms of its existing needs and, in the future, for Artic exploration where there are ecological considerations as well as unique technical challenges. This is due to Plexus’ equipment offering superior safety and operational features, particularly with regard to metal-to-metal sealing capabilities and unique high testing standards capabilities matching those of premium couplings, which is so important for HP/HT drilling conditions.
“We look forward to working with Plexus and are confident that this partnership will expand our service and product offering for our oil and gas customers.”
