Plexus Holdings wins another Brunei contract and shrugs off oil price concerns

By Our Oilbarrel  Staff

Specialist wellhead provider Plexus Holdings has started 2015 with another contract win, securing a £1.5 million add-on order from Brunei Shell Petroleum for three exploration wells.

The new contracts covers both high pressure/high temperature and standard pressured wellhead systems and services as an addition to the company’s existing four-year contract with BSP, which runs until 2016, at which point it will have been working with the Shell company for the best part of a decade.

Indeed, BSP was a fairly early adopter of the AIM-quoted company’s proprietary friction-grip technology, known as POS-GRIP, which delivers superior performance, reliability and health and safety as well as significant cost savings over conventional wellhead systems.

The company is also working on a Joint Industry Project to develop a subsea POS-GRIP wellhead, designed to solve many of the safety issues that were identified by the American authorities in the wake of BP’s devastating Macondo blow-out in the Gulf of Mexico in 2010.

The latest contract win is another sign of the company bedding down in the Asian region, where it has now established hubs in Malaysia, Singapore and Brunei and recently won its first contract in China.  Plexus is keen to build market share in the Far East to complement its North Sea business.

It is the dominant equipment supplier in the North Sea HP/HT market but oil price woes, which have led many to forecast the accelerated demise of this mature basin, have made it increasingly important to have a diverse customer base.  The company is also exploring new business opportunities in the Americas and Russia.

This hasn’t been an oil price driven strategy – the company has been seeking to grow its “rest of the world” business for some time and in the year ended June 30 2014 saw ROTW sales grow 17 per cent. But it’s clear that the slide in the oil price – down more than 40 per cent since June, and still falling – adds new impetus to this diversity drive, with the shares mirroring the commodity price slide, down 42 per cent at 185.75 pence compared to the June highs of 321 pence per share.

Plexus certainly isn’t pessimistic about its North Sea backyard: the Chancellor’s Autumn statement confirmed a new North Sea cluster area tax break allowance to support investment in more challenging HPHT field projects, the kind where POS-GRIP offers real advantages.  And recent months have seen a flurry of contract wins in the UK and Norwegian sectors of the North Sea, with awards from Centrica, Det Norske Oljeselskap and BG Group.

While the oil price is a concern for all service companies, Plexus believes it is cushioned not only by the inherent time and cost savings of POS-GRIP, which will become increasingly important to budget-conscious companies, and by the fact its main business involves exploration jack-ups rather than capital intensive shale projects.

And, like many others, the company believes the long-term fundamentals are positive for the industry. At December’s AGM chair Jerome Jeffrey Thrall noted that population growth and increasing industrialisation will continue drive demand for oil and gas, citing ExxonMobil’s recent 2014 Outlook for Energy report which predicts that global population growth will result in a 35 per cent greater demand for energy, and that 60 per cent of the demand increase will be supplied by oil and natural gas.

“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,” said Thrall.  Against this backdrop, analysts at Douglas-Westwood forecast the global oilfield services market will grow from US$354 billion in 2014 to US$521 billion in 2018.

And Plexus is positioning itself to tap into more of that market. The company is continuing work on its new generation subsea wellhead (HGSS), a JIP that has brought together BG Group, Eni,  Maersk, Shell, Total, Tullow Oil and Wintershall. The design process is now complete and testing due to be completed imminently, with the company looking to run a prototype in the second half of the 2015 calendar year, a move that could be the starting gun for its entry into the multi-billion dollar subsea global market.

With a record set of results for the year ended June 30 2014, with a 65 per cent surge in post-tax profits to £5 million and a 5.7 per cent increase in revenues to £27 million, Plexus didn’t stint in rewarding shareholders, with a 12.7 per cent increase in the dividend.