Plexus Regulatory News (POS)

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

11 December 2014

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 twelve months ended 30 June 2014 saw us deliver record results for the year. We were delighted to report a 65.1% year on year increase in profit after tax to £5.05m; 25.9% increase in profit before tax to £5.38m, a 5.7% increase in revenue to £27.02m, an 18.7% increase in EBITDA to £9.02m; and a 62.9% increase in earnings per share to 6.01p. This excellent financial performance is the result of another year of significant progress in terms of supplying our best in class POS-GRIP wellhead systems to leading international oil and gas companies worldwide for exploration jack-up drilling operations, particularly in the "Rest of the World" where sales outside of the UK and European North Sea grew by 17%. This progress demonstrates the strength of our rental exploration business model and the increasing recognition of our proprietary POS-GRIP technology for not only its safety and technical capabilities but for its capex saving capabilities too. We also have been encouraged by the announcement by the Government in the Autumn statement in relation to the Wood Report, which confirmed that a new North Sea cluster area tax break allowance will be introduced to support investment in more challenging high pressure high pressure ('HPHT') field projects. Contract wins post our year end include Centrica plc in the Southern North Sea, Det Norske Oljeselskap ASA offshore Norway, and BG Group (UK) in the North Sea.

"As we continue to grow our core rental exploration drilling business it is essential that we make the necessary investment in infrastructure to support operations, and planned future expansion. In September 2014 we successfully acquired an additional 36,000 sq. ft. work shop and office facility in Aberdeen from Baker Hughes for £2.4m, effectively doubling the size of our main operational headquarters and enabling some efficiency gains as we consolidate our ancillary sites in Aberdeen. Whilst we have traditionally enjoyed a strong market position in the North Sea for supplying HPHT POS-GRIP wellhead equipment, we have continued to expand our geographic reach into regions such as West Africa, Asia and Australia. This, coupled with the creation of an Asian hub in Singapore, which has already provided the equipment for our first well in China with Shell China, ongoing business activities in Malaysia with the formation post year end of Plexus Products (Asia) Sdn Bhd, and further activity in Brunei, supports the Directors confidence in the future.

"We are actively pursuing new and potentially sizeable revenue generating opportunities outside of our core organic jackup drilling exploration rental market sector. Such strategic initiatives include our Joint Industry Partnership ('JIP') initiative to design and develop a safer new generation subsea wellhead ('HGSS') to address a number of key technical and safety concerns that have arisen following the Macondo offshore well incident in the Gulf of Mexico in 2010, and which importantly can be tested for the first time to standards that match those of premium connectors so that the wellhead is no longer the weak link in the well architecture chain. To date we have nine consulting partners signed up to the JIP including seven oil and gas majors in BG Group, Eni S.p.A, Maersk, Shell, Total, Tullow Oil and Wintershall. Significant progress has been made with the design process now completed, and testing due to be completed imminently. The next milestone will be to agree the running of a prototype, for which a commitment will be sought for the second half of the 2015 calendar year. With this in mind we look forward to 2015 and the developments that this may bring in terms of moving nearer to our first entry into the multi-billion dollar subsea global market. 

"Furthermore, we have a second JIP in place with oil and gas major, Maersk, to develop an up to 20,000 psi HPHT Tie-Back Connector, that will for the first time allow HPHT exploration and pre-drilled production wells to be converted to either subsea or platform producing wells. The connector will deliver significant savings in terms of capital expenditure and accelerate the process of bringing a well into production. Full product testing has commenced, and is planned to be completed by the end of 2014 calendar year. Discussions are ongoing in relation to identifying a suitable well for a field trial.

"It is important that I take this opportunity to comment on the significant decline in the oil price which has gathered apace since our year end, and where at the end of June it approached US $115 per barrel and today stands at nearer to US $60 dollars per barrel. Such a steep decline has inevitably resulted in much speculation about what this means for the oil industry and future capital expenditure programmes. However it is important to consider what lies behind this situation and how long it is likely to last, and which sectors of the oil and gas industry are most likely to be effected. Clearly there are a number of geopolitical dynamics at play which are far too complex to go into detail today, and that what is important is how long the fall in the oil price is likely to continue; which sectors are most likely to be affected; and what it means for exploration activity.

"Encouragingly for Plexus a number of oil companies and institutions see the current price levels as something that could recover quite quickly. For example only this week Bank of America's energy expert was quoted as saying that once the excess oil has been whittled away they "expect a pretty sharp rebound to the high US $80's or even US $90 in the second half of next year". Furthermore although it was widely reported that ConocoPhillips announced plans to reduce its capital spending by 20% in 2015 versus 2014, exploration drilling would only be "down slightly" year on year, and that as we anticipated shale drilling would be one of the main areas for reduced activity, which of course Plexus is not currently involved in at all. In addition BP only recently updated the City with its exploration and production plans until 2020, and said that the price drop was not likely to affect its long-term plans.

"Whatever the short term effects are from this current price volatility, what must not be forgotten is that the medium to long term demand prospects for oil and gas are undiminished and will of course increase with population growth and increasing industrialisation around the world. Even if it is unpopular to say so in some quarters, it is a widespread view that wind farms, tidal energy, and solar panels will not replace hydrocarbons in the foreseeable future. ExxonMobil said in its 2014 "The Outlook for Energy: A View to 2040" report that global population growth will result in a 35% greater demand for energy, and that 60% of the demand increase will be supplied by oil and natural gas. Such market dynamics would inevitably lead to increased exploration and production expenditure, and it is not surprising therefore that Douglas-Westwood recently reported that it expected "sustained and substantial growth" in the global oilfield services market which it forecasted to grow from US $354bn in 2014 to US $521bn in 2018.

"In terms of the nature of Plexus' organic business which funds our longer term strategic goals it must not be forgotten that we specialise in supplying equipment for wells that in many cases are involved in prolific long term HPHT gas fields where the operating costs per barrel equivalent are significantly below the levels that are currently being experienced, and where some fields have up to twenty five years to recover their capital costs. Conversely onshore shale and tight oil & gas formations are highly capital intensive to develop and typically have very steep production decline profiles. Therefore although we are of course taking these global dynamics very seriously, I must stress that we currently remain confident for this year and beyond, and that it must not be forgotten that our goal has always been for the POS-GRIP method of engineering to become a new global standard for wellhead equipment not only for jackup drilling but also for exploration and production applications for land, platform and subsea. We as a company, and your board, have never been as convinced as we are today that we offer unique superior solutions and deliver critical safety and performance standards, particularly in relation to the provision of instant casing hanger lock down and superior long term metal-to-metal sealing which the industry is calling out for, particularly for HPHT and subsea applications where we believe we lead the market in terms of wellhead design. The scale of this opportunity is huge, and can only be helped by the fact that Plexus uniquely is able to offer significant time savings to operators which is now more important than ever in this age of careful cost control, and that such benefits are anticipated to be even more significant for our new HGSS subsea wellhead design.

"Having successfully positioned Plexus as the supplier of choice in the HPHT exploration market in the North Sea, we intend to use this as a springboard to become a leading supplier of critical wellhead equipment to the global oil and gas industry, which is estimated as being a US $4.5bn market, versus the much smaller circa US $400m jackup drilling market that we currently operate in. To this end we are only now just beginning to look at ways of capitalising on our reputation for superior safety and operational excellence and time and cost saving benefits with suitable partners, and to explore how to access the significant commercial opportunities that exist in markets that include China, Russia and the US.

"Finally, as announced on 29 October 2014, I am pleased to confirm that the Board has recommended the payment of an increased final dividend of 0.62p per share for FY 2014, an increase of 12.7% to the previous year, which will be submitted for formal approval at the AGM today."

**ENDS**

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

Notes to Editors:

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 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. Importantly, the Company is focussed on extending its proprietary 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, HGSS™, 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, Oil States Industries Inc., and the UK entity of the world's largest offshore drilling company have joined the initiative to date as Consulting Partners. The JIP is nearing completion and the resultant HGSS 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 JIP will also be designing solutions for annulus pressure monitoring and access for 'bleed off' capability to address sustained casing pressure ('SCP') issues which for many years have been recognised by the industry as a serious industry problem. The design process has now been completed, with testing is due for completion end 2014, and the running of a prototype in the field targeted for the second half of 2015.

To date, POS-GRIP wellhead systems have been used or selected to be used in over 300 oil and gas wells by international companies including AGR, Apache Energy Australia, BHP Billiton, BG International, Bowleven plc, BP, Brunei Shell Petroleum, Cairn Energy, Centrica, ConocoPhillips, Dana Petroleum, Dubai Petroleum, GDF SUEZ, Global Santa Fe, Maersk, Niko Resources, Petro-Canada Trinidad & Tobago, Red Sea Petroleum Operating Company, Repsol, RWE, Senergy Limited, Shell China, Shell Egypt, StatoilHydro, Silverstone Energy, Talisman Energy, Tullow Oil, and Wintershall.