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SDX Energy set to acquire Circle Oil’s Egypt and Morocco assets

“Circle's assets present an attractive opportunity to add material production and reserves at an attractive price,” says SDX Energy boss Paul Welch.
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SDX has 30 days of exclusivity to finalise a deal

SDX Energy Inc (LON:SDX, CVE:SDX) revealed it has agreed to acquire the Egyptian and Moroccan assets of failed AIM firm Circle Oil.

A non-binding heads of terms agreement has been signed, and it gives SDX 30 days exclusivity to finalise a deal.

Circle Oil’s AIM quoted shares were suspended in June amid financial turmoil and its investors were warned a number of times through the second half of 2016 that there would be ‘little or no value left’ for equity holders.

Whilst Circle’s debt problems have long been publicised the group’s asset base appears to have remained attractive to Egypt based consolidator SDX Energy.

"We have made clear our firm intentions to create shareholder value by growing SDX into a profitable mid-tier E&P company,” said SDX chief executive Paul Welch.

“Circle's assets present an attractive opportunity to add material production and reserves at an attractive price.”

Welch added: “We remain excited about the near term activities from our existing portfolio, including the near term South Disouq exploration well, and look forward to keeping our shareholders appraised of all developments."

The proposed Circle Oil acquisition is subject to due diligence, SDX completing an equity funding, and other customary conditions.

SDX told investors that there can be no guarantee that the either an acquisition or equity fundraising will proceed.

Operationally, the group said it is entering into an exciting period with drilling slated at the high impact South Disouq exploration project in early 2017, and workover programmes due to further enhance the group’s existing production activities.

SDX Energy may be poised for its best ever year

In November, a quarterly results statement provided further evidence that the Egypt focussed petroleum firm has weathered the worst of the storm.

Thanks to a quality asset base comprising low-cost production it has been able to keep tight grip on its operations and, crucially, being debt free kept the group away from the perils that befell Egypt peers such as Petroceltic and Circle Oil in 2016.

“We couldn’t control oil prices but we could control costs,” chief executive Paul Welch told Proactive Investors.

“We could keep costs down, at less than US$10 a barrel, and so that meant even in the low, low price environment seen in February we were still cash-flow positive at asset level.

Welch added: “We were cashflow positive, we didn’t have any debt. We were much stronger into this downturn than perhaps some other companies were.”

At the moment the financials are a bit of a distraction for investors who are more readily anticipating new of upcoming drilling in the South Disouq exploration project which is located in an exciting area of the Nile Delta.

South Disouq is located at the southern fringe of what’s known as the Abu Madi-Baltim, a trend that is already host to major gas projects – estimated to have 6.3 trillion feet of gas and a 100mln barrels of liquids.

Perhaps unsurprisingly the primary target here is gas, indeed the concession is presently estimated to contain some 1.3 trillion cubic feet of resource potential.  New seismic work, which is still being interpreted, has however unearthed an unexpected ‘blue sky’ opportunity.

This year’s 3D seismic indicates deeper exploration prospects which, significantly, could hold oil rather than gas.

It adds a new dimension to South Disouq, and is suspected to be the reason the project has suddenly got the attention of high-calibre operators that are now interested in taking a stake in the project.

SDX has 55% of South Disouq, its share of drilling costs are already carried by its partner, and according to chief executive Paul Welch a second farm-out wasn’t part of the plan – nonetheless, the names that have been enquiring causes some pause for thought.

“We’ve been approached by some very serious companies,” Welch added.

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