Plexus Holdings PLC (AIM:POS) said it has made “several pivotal decisions” to improve profitability, including re-entering the jack-up rigs exploration rental wellhead market as the oil & gas industry sees demand back with a bang, as it posted larger full-year losses.
Last month the maker of the POS-GRIP wellhead engineering technology raised £1.55mln through the issue of convertible loan notes to provide working capital and fund activities as it seeks to capitalise on what it said is an “increasing pipeline of opportunities within its target markets”.
For the year to 30 June 2022, the company reported revenues from continuing operations of £2.3mln, up 14% on the previous year, though underlying losses on an EBITDA basis widened to £2.8mln from £2.7mln last time and losses increased to £5.6mln from £4.4mln.
In the results statement, Plexus chief executive Ben Van Bilderbeek said: “The board is focussing (on) reversing this performance and several pivotal decisions have been taken.”
On the jack-up re-entry, he pointed out that this is a sector in which Plexus initially built its name and reputation, before electing to exit the market in 2018 following the collapse of oil prices in previous years.
However, the oil and gas market has changed once again, led this year by the repercussions of Russia’s war in Ukraine and the sanctions against the invader, with rising price and increasing profits for oil & gas operators seen in 2022.
Van Bilderbeek said it is anticipated that the oil services companies will similarly benefit, pointing to Rystad Energy forecasting global oil & gas investments will rise by 4% this year, Schlumberger's CEO outlining "one of the strongest outlooks for the energy services industry in recent times", Baker Hughes seeing an "accelerating multiyear upcycle" and Shell suggesting there will need to be significant investment just to keep production flat as existing wells decline.
“However, it is not all plain sailing for the industry as investors, governments, and regulators are no longer tolerating the oil and gas industry's previously accepted practices as far as emission levels are concerned, which are now recognised as being too high and unsustainable,” the Plexus boss noted.
With operators required to operate more sustainably, with the aim of achieving a 45% reduction in emissions by 2030 and NetZero targets by 2050, and oil companies now being forced to invest in and utilise new technology that can help to prevent rather than cure emissions, Van Bilderbeek sees promising signs for the company.
“I believe that as a result, companies like Plexus, which can offer leakproof wellheads with long-term integrity for the life of a well, are well positioned to benefit from these major green initiatives, whilst also helping to significantly reduce the amount of methane gas being released into the atmosphere as a result of fugitive emissions, the polite name for leaks," he said.
As part of US President Joe Biden’s Inflation Reduction Act, US$1.5bn in subsidies are available to help the companies affected invest in the technology to fix the leaks, as well as providing tax breaks for those that invest in green energy solutions, and Van Bilderbeek said it is hoped that, as suggested by Jonathan Banks at the Clean Air Task Force, a similar fee "could be repeated elsewhere in the world".
The CEO expressed his belief that Plexus can “make a meaningful contribution to such emission reduction demands, particularly in relation to supplying the industry with its HG metal-to-metal wellhead seals which can deliver leakproof performance for surface and subsea production wellheads, and specialist POS-GRIP applications such as P&A”.
As well as being recognised by the London Stock Exchange with a Green Economy Mark accreditation, he said Plexus was experiencing an increased level of interest in its Exact-EX 'through the BOP' exploration wellhead rental services, Centric-15 mudline hangers and POS-GRIP "HG" surface production wellhead technology, “for which we are positioning the company to benefit, by way of planned investment in additional rental inventory and increased customer, industry partner and licencee engagement”.
Last December a purchase order was signed for a POS-GRIP surface production wellhead system by a leading North Sea operator, and Van Bilderbeek said the company is “pursuing a number of other additional prospects” in line with its IP-led strategy to gain surface production wellheads market share in conjunction with a licence co-operation agreement signed with Schlumberger’s Cameron unit.
In June 2022, a purchase order was announced for P&A equipment and services from a division of subsea engineering firm Oceaneering International (NYSE:OII) Inc to support its vessel-based P&A services for a six-operator joint campaign in the Dutch Sector of the North Sea.
“Given the size and rapid growth prospects for the P&A market, we hope this project will lead to other similar work in the North Sea and internationally both with Oceaneering and other customers,” Van Bilderbeek added.
Before the fundraising, as of the end of June, Plexus had cash and equivalents of £5.8mln, with bank borrowing of just under £4mln and £0.1m invested in financial assets.