Oil and gas engineering services business Plexus Holdings PLC (LON:POS) is confident it has the balance sheet strength to outlast the sector’s cyclical downturn.
At Thursday’s annual general meeting (AGM), chairman Jerome Thrall will tell shareholders that although today's subdued levels of exploration activity and lack of revenue visibility will likely persist, a consensus seems to be forming that 2017/18 will begin to see a reversal of historically low drilling activity levels and extremely tight capital expenditure constraints by operators.
“Although all cyclical upswings have their fair share of false dawns, and the current cycle is no exception, the recent OPEC meeting at the end of November offered some much needed encouragement,” Thrall’s AGM speech said.
“Whether or not the production cut agreed by members is strictly adhered to, the major positive coming out from the group in recent months is, in our view, the noticeable change in tone and rhetoric compared to the previous two years,” according to Thrall.
"Ironically, whilst OPEC finally agrees to cut production the International Energy Agency ('IEA') in its annual World Energy Outlook report sees ‘no peak yet in sight’ for demand for oil. Furthermore for the longer term the IEA also goes on to predict demand will continue to grow until at least 2040 thanks to continued growth in plastics manufacturing and the increasing use of fuel for critical modes of transport such as shipping, aviation, and trucks where greener technologies have yet to make inroads,” Thrall continued.
Thrall’s message to shareholders was that the company is doing more than just hunkering down waiting for the wind to change. One of the options it is mulling over is adopting a pure licensing model, thereby exploiting its POS-GRIP drilling technology without the requirement to spend chunks of money buying its own equipment.
“Such a strategy would enable us to continue to diversify our revenues away from our traditional stronghold in the North Sea to other hydrocarbon jurisdictions,” Thrall noted.
Plexus has no significant investment requirements on the horizon, and “with a strengthened balance sheet, a large wellhead inventory, an expanded suite of Plexus products, partners in strategically important territories, and a successful track record with a who's who of blue chip operators,” Plexus is in a strong position to take advantage of, and benefit from, the next cyclical upswing, Thrall believes.
Shares in Plexus were up 11.3% in mid-afternoon trading on the day of the AGM.