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SDX Energy has seen quick fire success but there’s plenty more to come

New discoveries and more upcoming drilling will drive production growth.
onshore drilling operation
SDX has hit two new discoveries in October

October has already proven to be quite a month for SDX Energy Inc (LON:SDX) with two new discoveries unearthed in the first two weeks of the month, but, as those following the growing petroleum group know there’s plenty more to come.

SDX last week unearthed an oil discovery in the Rabul-2 well, in Egypt, before Wednesday’s news of the gas finds in the KSR-14 well in Morocco.

The Morocco project was among the assets acquired out of Circle Oil last year, and the better-than-expected KSR-14 well is due to be followed by a further seven wells over an ongoing campaign –comprising five development wells and two exploration wells.

SDX’s present campaign is supported by a recent funding deal, raising US$10mln in September, and significantly these programmes are all set to deliver new production in short order following the drill.

At KSR-14, for example, the plan is to connect the discovery to infrastructure and start producing in around 30 days.

Prior to this month’s successes, SDX landed a significant new discovery at the South Disouq project back in May and it is targeting a field start-up before in the coming months.

The latest discovery

On Wednesday, SDX announced the details of the better-than-expected KSR-14 well which encountered a total of 20 metres of conventional gas pay, in the Guebbas and Hoot formations, and analysis is underway to determine an accurate estimate of recoverable gas volumes.

"This positive result follows the company's recent oil discovery at our West Gharib concession in Egypt and demonstrates the real momentum developing across our portfolio,” said Paul Welch, SDX chief executive.

“This outcome in Morocco is an excellent start to our nine well programme, where we are targeting an increase in our local gas sales volumes in Morocco by up to 50%.

“I look forward to reporting on the flow rates from today's KSR-14 discovery and last week's Rabul 2 discovery in the near term along with updating our shareholders on further progress on our South Disouq Development activities in due course."

In a note to clients, Numis Securities analysts Justin Chan said: "This was a development well so the fact gas was encountered is not surprising, but the company states the initial results have exceeded pre-drill expectations."

Egypt oil discovery

SDX last week revealed that the Rabul-2 well, in the West Gharib concession, Egypt, had made a new heavy oil discovery.

Rabul-2 hit some 101.5 feet of net oil pay across the Yusr and Bakr formations, and the company expects the well will be completed as a new producer connected to processing facilities at the Meseda field.

“The well came in ahead of expectations, based upon the results of the offset Rabul 1 location. The ultimate potential in this new Bakr structure is currently under review and will be better understood once the well is completed and tested,” Welch said last week.

South Disouq discovery

In July, SDX confirmed the size of the new South Disouq gas discovery, in line with its expectations, with an independent consultant assigning just over 47bn cubic feet of contingent resources.

A new resource update was provided by Gaffney, Cline & Associates (GCA), outlining gross contingent resources of 47.1bn cubic feet of gas and 2.29mln barrels of gas condensate, as well as a ‘best case’ prospective gas resource of 180bn cubic feet and 8.73mln barrels.

SDX described the new resource statement as “an important step” towards the validation of the full potential of the 55% owned field.

It added that the prospective resources have been “significantly de-risked” by the SD-1X discovery, reported in May.

The company also noted that it is currently in “constructive discussions” with the Egyptian authorities about potentially bringing the new discovery online via an early production system, whereby an initial development would hook into a nearby domestic gas distribution system.

This would open up early cash flow and also allow subsequent wells to be connected in short order, the company added.

In terms of technical progress following the SD-1X discovery, the company noted that its understanding of the potential reserves and resources for South Disouq will continue to evolve over time as more data becomes available and further exploration activities are undertaken.

It added that it intends to carry out a further test of the deeper oil prone Cretaceous horizon, where a working petroleum system was confirmed by the SD-1X well. This additional test is expected to be incorporated into the future development programme at South Disouq.

Funding accelerating SDX plans

Last month, SDX confirmed the completion of its US$10mln equity placing which aims to fund an acceleration of new drilling plans in Egypt and Morocco.

New shares were issued at 43.75p, which was the mid-market price immediately before the placing was announced.

The funds are earmarked for the acceleration of the group’s exploration and appraisal of the South Disouq asset in Egypt, where a well last year confirmed a new gas discovery, in addition to the development drilling programmes in Morocco.

Specifically, SDX said it will now be fully funded to take South Disouq to first gas, targeted for the first quarter of 2018.

In Morocco, it will be able to pay for two additional development wells and it will also fund a potential 3D seismic programme which could unearth new Morocco drill targets for 2019.

These programmes are expected to deliver new cash resources, via the subsequent start-up of gas sales from South Disouq and growth in the Morocco operations.

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