Oil price slump hits Plexus, but need for seals to make wells safer will only grow
DRILLING for oil is a risky business, as the disaster in the Gulf of Mexico brutally highlighted. However, Aberdeen-based Plexus Holdings has devised a way to make oil wells safer, using ground-breaking technology to create wellhead products that are much more secure than conventional kit.
Midas recommended the shares in January 2011 when the stock was 55p. By October 2013, when we looked at the company again, the price had soared to 265p. Today, it is 164½p, having suffered as the price of oil has slumped to below $50.
At this level, the stock offers new buyers real longterm potential.
Plexus has pioneered a way of sealing wellheads, so that they grip the pipes to which they are connected more securely. Wellheads come under enormous pressure when explorers are drilling for oil so it is critical that they are properly sealed at all times.
Plexus’s technology, known as Pos-Grip, is designed to offer a stronger seal, reducing the chance of leakage and the danger of blow-outs, where oil bursts out of pipes, following an unexpected rise in pressure.
The group derives 90 per cent of its turnover from renting its wellheads for use during exploration. These have been used on more than 400 wells worldwide and customers include oil and gas majors such as Shell, Centrica, BG and Total.
Last week, Plexus revealed record results for the year to June 30, with pre-tax profits up 10.5 per cent to £6million and a more than doubling of the dividend to 2.23p.
This included an element of ‘special’ payment, reflecting the company’s commitment to return surplus cash to shareholders where possible.
The results were particularly impressive given the tumble in oil prices since 2014, but brokers believe that profits will decline in the current year, as companies scale back exploration activities.
Against that, however, Plexus has several new strings to its bow. The company recently signed a licensing agreement with a $4billion (£2.6billion) Chinese oil and gas equipment group.
It has also set up a joint venture in Malaysia to cover the Asian and Australian markets and is actively pursuing business in Russia and the Baltics.
In September, the group launched its long-awaited Python subsea wellhead, developed in conjunction with partners including Shell, Tullow Oil and BG and designed specifically to make deep-sea oil production more secure.
Midas verdict: Plexus shares have been badly affected by the slump in the oil price, but the company is very confident about its long- term future. The technology is unique and the subsea wellhead alone is expected to deliver significant growth over the next few years. Existing investors should bear with the business. New investors could find value at the 164½p price.