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Plexus has huge opportunity in Russia

The share price has risen 43% in the last three months, meaning there is even a modest profit for new investor LLC Gusar
Pictured a giant oil drilling rig
Plexus is poised to benefit from an upturn in exploration activity that is expected to follow a sustained upsurge in the oil price

Are we seeing the green shoots of recovery at Plexus Holdings PLC (LON:POS), maker of well-head technology used around the world?

It has unveiled a £3.5mln strategic investment fundraiser, which has strengthened its finances and opens up a massive opportunity for its technology in the Russian oil and gas sector.

The share price has risen 43% in the last three months, meaning there is even a modest profit for new investor LLC Gusar, the Russian manufacturer that provided the Plexus funding.

So, yes it looks like the tide is turning for the group, which has also been aided by an improvement in market sentiment that has come with an upturn in the crude oil price.

That said, if you take a look at the two-year share price graph, you’ll realise the stock has a lot of ground to recover.

Notwithstanding the rise registered over the last 30 days, it is down 63% in the year to date. At 75p it is well off its summer 2014 high of 320p, which valued the company at almost £300mln.

As a provider of rental wellheads from a ready inventory, Plexus is poised to benefit from an upturn in exploration activity that is expected to follow a sustained upsurge in the oil price.

And the business will be “humming again” if it cracks the Russian market, said chief executive Ben Van Bilderbeek.

It has a licence agreement with Gusar, which is a Russian oil and gas equipment maker, and CJSC Konar, the country’s biggest supplier of pipe line valves to the industry.

The £3.5mln of funding will allow Plexus to fast track the development of its unique POS-GRIP well-head equipment for the Russian market.

“The reason for the investment is our partners will benefit from Plexus remaining strong and being ready to execute research and development to develop POS-GRIP technology for use in Russia,” said chief executive Van Bilderbeek.

It is a potentially huge opportunity.  Rosneft, for instance, will have to drill 2,500 new wells just to keep output running at current levels.

At this point it is worth addressing the issue of sanctions. Yes, they are in place and yes they do affect the oil industry.

Specifically, they prevent companies such as Plexus being involved in the production of equipment for drilling within the Arctic Circle, in deep water locations, or participating in fracking operations.

That still gives Plexus and its partners a clear run at the gas sector on land and in shallower waters, which supplies some of Europe’s leading economies, including the UK.

“Sanctions prevent us from doing certain types of business, but it still leaves a lot for us to pursue,” said Van Bilderbeek.

Invented and developed by CEO van Bilderbeek and his team, POS-GRIP is designed to reduce the chance of leakage and the danger of blow-outs, where oil or gas bursts out of pipes, following an unexpected rise in pressure.

Because of installation time savings it confers, the technology might shave as many as 100 hours from the drilling programme.

On deep water applications and some high pressure, high temperature operations daily operating costs can run to US$800,000 to US$1mln a day.

“It has tremendous payback as well as being safer,” said Van Bilderbeek.

“We are the only company that can claim to have a seal in the well-head that is as good as all the other connections that go into the ground.”

In the aftermath of the BP (LON:BP.) Deepwater Horizon spill in the Gulf of Mexico, Plexus developed, with the support of the oil majors, a new subsea wellhead design standard adaptation of POS-GRIP that could help avoid a repeat of that environmental disaster.

Unhappily the completion of this £5mln project coincided with the start of the industry downturn.

Such is the state of the market, Plexus, which rents out its technology out rather than sells it for exploration applications, is sitting on assets capable of producing rental revenues of £40mln if it was fully used.

So, it is a case of waiting and be patient for the market to come back.

Van Bilderbeek is optimistic we will see a rebound.

And he reckons Plexus is in the “perfect position” when the upturn comes.

“Of course we are suffering,” he said. “But we have devised a future for the company that we think will bridge this very tricky period and we don’t need much to be back to 2015 levels.

“Plexus is like a child’s hand, it doesn’t take much to fill.”

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