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SDX Energy continuing to expand with record production and strong cash flow

Snapshot

On April 8, SDX Energy announced a new discovery at the South Disouq project, with the SD-12X (Sobhi) well encountering 108 feet of net high-quality gas-bearing sands

Egypt

Quick facts: SDX Energy Inc

Price: 22 GBX

AIM:SDX
Market: AIM
Market Cap: £45.04 m
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  • North Africa-focused, exploration and production company
  • Development and exploration assets across Egypt and Morocco
  • Produced some 4,062 of barrels oil equivalent in 2019

What SDX Energy does:

SDX Energy Inc (LON:SDX) is a North Africa-focused, exploration and production company with a balanced portfolio of production, development and exploration assets across Egypt and Morocco.

The company was created in October 2015 through the merger of TSX-listed Sea Dragon Energy and privately owned Madison PetroGas. It listed in London on the Alternative Investment Market (AIM) of the London Stock Exchange in 2016, raising US$11mln in the process.

In January 2017, SDX successfully acquired a portfolio of oil and gas production and exploration assets in Egypt and Morocco, which were formerly held by Circle Oil PLC, for a cash sum of $30mln.

Following the acquisition, SDX owns a 50% interest in the North West Gemsa concession, increased from 10%, and a 50% working interest in the Meseda licence, both of which are onshore and in the Eastern Desert of Egypt.

In Morocco, the company has a 75% working interest in the Sebou concession, located in the Gharb basin, which has been subject to extensive 2D and 3D seismic testing and has current average production of 7.0 MMsc per day (1,166 barrels oil equivalent per day).

SDX also owns a 75% interest in the pipeline and local gas distribution network, which has capacity to transport 24MMscf/day, that is used to deliver gas to its customers in the city of Kenitra.

In Egypt, the company has made considerable progress at its South Disouq concession, located in the Nile Delta. In April 2018, a gas discovery was made at the Ibn Yunus-1X exploration well and in May it was successfully flow tested at 39 MMscfd.

How is it doing:

On April 8, SDX Energy announced a new discovery at the South Disouq project, with the SD-12X (Sobhi) well encountering 108 feet of net high-quality gas-bearing sands.

The well is expected to be tied-in to South Disouq’s production facilities in 2021, via a connection to the Ibn Yunus-1X location which is 5.8 kilometres away. This will cost around US$3.5mln, the company estimates.

Some 24bn cubic feet of gas was confirmed with the discovery well and the company expects it will need only one more development well to access all this resource, though it noted that such drilling may not be possible for another two to three years.

In March, SDX Energy also announced that its LMS-2 well in Morocco had encountered a gas reservoir “on prognosis”.

The well was drilled down to 1,190 metres and encountered a 10.6 metres of net gas reservoir at the base of the H9/Srafen formation, the company said. Early analysis of the thermogenic composition indicates that, unlike other discoveries in the area, the LMS-2 gas is from a new and likely deeper source rock.

The company said it planned to test the well but only once coronavirus travel restrictions allowed a testing crew to be deployed.

With its 2019 results, published at the start of April, SDX Energy told investors that its operations in Egypt remained unaffected by the coronavirus pandemic and said it also expected its Moroccan business to be resilient amidst containment restrictions.

However, SDX did note a temporary impact to customer consumption in Morocco during the second half of March which it forecast could drop to 50% below the levels recorded in the first quarter.

Nonetheless, the firm described its Moroccan business as “extremely resilient” and said that it could achieve “breakeven” even if consumption dropped to as low as 20% of prior volumes.

Production figures for 2019 saw SDX produce some 4,062 of barrels oil equivalent (boe), including a 24% rise within the Moroccan business.

SDX reported some US$53.2mln of net revenue for 2019, compared to US$53.7mln in 2018, as netback prices were lower (US$39.3mln versus US$41.7mln) and the realised price reduced (US$55.93 versus US$62.43mln).

The group's underlying earnings (EBITDAX) amounted to US$34.2mln, in line with the year before which was marked at US$34.3mln. Cash generation totalled US$25.1mln, down from US$36.2mln.

The company reported a US$18.2mln loss for the twelve months. SDX ended December with US$11.1mln of cash and equivalents.

Inflection points:

  • South Disouq ramp-up 
  • Drill programmes and well results 
  • Partnering possibilities
  • Acquisition potential

What the boss says:

In April, SDX's chief executive Mark Reid said: “South Disouq represents our flagship asset and in the current economic climate this fixed price, low-cost gas development is highly-cash generative for the group.

“The Sobhi discovery has the potential to extend the current South Disouq plateau production of 50 MMscfe/d through to 2023/24 with a low-cost tie in, utilising the existing gas processing plant.”

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