Q1 2019 Financial and Operating Results

RNS Number : 3397Z

SDX Energy Inc.

17 May 2019

 

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY SDX TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU) NO. 596/2014 ("MAR"). ON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE ("RIS"), THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

17 May 2019

SDX ENERGY INC ("SDX" or the "Company")

SDX ENERGY INC. ANNOUNCES ITS FINANCIAL AND OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH, 31, 2019 AND A DIRECTORATE CHANGE

SDX Energy Inc. (TSXV, AIM: SDX), the North Africa-focused oil and gas company, announces its financial and operating results for the three months ended March 31, 2019 and a Directorate change. All monetary values are expressed in United States dollars net to the Company unless otherwise stated.

Summary

Operations

·      Q1 2019 production of 3,715 boe/d, an increase of 22% from Q1 2018, due to successful drilling in North West Gemsa and Meseda and increased gas sales in Morocco. Q1 2019 production was, however, 5% lower than Q4 2018 due to increased water cut in North West Gemsa.

·      Post period end, production at Meseda and in Morocco remained stable, however, production in North West Gemsa continued to decline. Workover programs continued at Meseda and North West Gemsa.

·      Construction of the South Disouq central processing facility ("CPF"), pipeline and well tie-ins continued in Q1 2019 with first gas now expected to be achieved in Q4 2019.

Financial

·      Q1 2019 net revenues and netback of US$13 million and US$9 million respectively are 15% and 3%, higher than Q1 2018, due to increased production and improved gas prices in Morocco, offset by lower Q1 2019 net realized average oil/service fees of US$55/boe, compared to US$59/boe in Q1 2018.

·      Operating cash flow before capex in Q1 2019 remained robust at US$7 million with US$13 million of capex being invested in the period, of which US$7 million was related to the South Disouq CPF, pipeline and well tie-ins.

·      Cash at March 31, 2019 was US$11 million with the US$10 million EBRD facility remaining undrawn.

Directorate Change

·      Paul Welch will be resigning as a director, and as President and Chief Executive Officer, of the Company with effect from May 31, 2019.  As part of an ongoing succession plan, Mark Reid, Chief Financial Officer will assume the role of Interim Chief Executive Officer with immediate effect.

·      A leading oil and gas executive search firm has commenced the process for the recruitment of a new Chief Executive Officer.

Outlook

·      A drilling campaign of up to twelve wells is planned for Morocco in Q4 2019/Q1 2020.  This will target sufficient reserves to satisfy existing customers' forecast demand and will test new play opening areas of prospectivity across the portfolio.

·      Due to a slower than anticipated run-rate of new customer additions and a scaling down of certain business lines at an existing customer, 2019 Morocco gas sales guidance is revised to an annual average gross rate of 6.0-6.5MMscf/d, being the estimated contracted volumes from existing customers. Previous guidance was for a 2019 gross exit rate of 9.0-11.0MMscf/d.

·      In South Disouq, first gas is now expected to be achieved in Q4 2019, with the Company aiming for a gross plateau production rate of c.50 MMscfe/d by Q1 2020 after an initial ramp up phase.

·      Subject to partner approval, a drilling campaign of up to five exploration wells is planned to commence at South Disouq in 2020.  These wells will target the same Abu Madi and Kafr el Sheik prospective horizons that have seen the Company make four discoveries from the five wells drilled to date.

·      In Meseda, the Company is maintaining its existing gross production guidance of 4,000-4,200 bbl/d and is looking forward to the upcoming drilling of two further development wells, one in each of the Rabul and Meseda discovery areas.

·      In North West Gemsa, 2019 gross production guidance is reduced to 3,000-3,200 boe/d from 3,400-3,600 boe/d due to increased water cut offsetting the impact of ongoing workovers.

·      The Company's drilling and development activities set out above are fully funded from expected future cash flows and its existing sources of liquidity.

Michael Doyle, Chairman of SDX Energy, commented: 

"The Board would like to thank Paul for his hard work in growing SDX Energy and we wish him well in his future endeavours.

We are also grateful to Mark for taking over as interim CEO.  Mark's focus will be to ensure the delivery of our key operational targets at the South Disouq development in Egypt and the upcoming Morocco drilling campaign through the use and optimization of the liquidity that we have available in the Company today.

It is important that the market now has an updated view of how our assets will contribute to the business in the coming months, and our restated guidance today does this.  Our focused well programme in Morocco and our commitment to ensure that South Disouq commences production in Q4 2019, before any further drilling takes place in this concession, emphasises our commitment to capital and fiscal discipline in the business going forward. That said, we are very much looking forward to recommencing drilling in Morocco and South Disouq during 2019/20, and we hope to continue with the successes we have had to date in both locations.

The Board remains very positive about SDX's future growth plans, both from our high quality existing asset portfolio, as well as from new opportunities, a number of which we continue to assess."

Corporate and financial

·     SDX's key financial metrics for the three months ended March 31, 2019 and 2018 are: 

	Three months ended March 31
US$ million except per unit amounts	2019	2018
Net Revenues	12.7	11.0
Netback(1)	9.3	9.0
Net realized average oil/service fees - US$/barrel	54.58	59.34
Net realized average Morocco gas price - US$/mcf	10.26	10.03
Netback - US$/boe	27.84	32.80
EBITDAX(1) (2)	7.8	7.4
Exploration & evaluation expense ("E&E")	(0.2)	(3.3)
Depletion, depreciation and amortization ("DD&A")	(5.9)	(2.5)
(Loss)/gain on acquisition	-	(0.2)
Total comprehensive income	0.1	0.3
Net cash generated from operating activities	7.0	11.0
Cash and cash equivalents	11.4	29.3

Note:

⁽¹⁾        Refer to "Non-IFRS Measures" section of this release below for details of Netback and EBITDAX.

⁽²⁾        EBITDAX for Q1 2019 and Q1 2018 includes US$1.0 million in each quarter of non-cash revenue relating to the grossing up of Egyptian Corporate Tax on the North West Gemsa PSC which is paid by the Egyptian State on behalf of the Company.

·      The main components of SDX's comprehensive income of US$0.1 million for the three months ended March 31, 2019 are:

o  US$9.3 million netback;

o  US$5.9 million of DD&A;

o  US$1.2 million of G&A; and

o  US$0.3 million of transaction costs covering business development activities and the proposed re-domicile of the Company from Canada to the UK.

·      Netback for the three months ended March 31, 2019 was US$9.3 million, up from US$9.0 million for the three months to March 31, 2018. This increase has been driven by Q1 2019 production increasing to 3,715 boe/d from 3,036 boe/d in Q1 2018, offset by a reduction in Q1 2019 realized average oil prices in Egypt to US$54.58/bbl from US$59.34/bbl in Q1 2018.  Average Moroccan natural gas prices were broadly flat with Q1 2019 realized price being US$10.26/mcf compared to US$10.03/mcf in Q1 2018.

·      The cash position of US$11.4 million as at March 31, 2019 is US$6.0 million lower than the US$17.4 million as at December 31, 2018 and US$17.9 million lower than the US$29.3 million as at March 2018.  This cash movement in Q1 2019 reflects operating cash flows of US$7.0 million from continuing strong netbacks and a US$0.6 million reduction in working capital predominantly due to the continued reduction in Egyptian receivables, which enabled the Company to fund the US$12.9 million capital investment program discussed below. In addition, the Company's three year, US$10.0 million credit facility established in July 2018 with the EBRD, remains undrawn.

·      US$12.9 million of capital expenditure has been invested into the business during the three months ended March 31, 2019. This comprised of:

o  US$9.4 million for the South Disouq development program and 3D seismic program, comprising US$7.0 million for the CPF, pipeline and well tie-ins and US$2.4 million for the 170km² 3D seismic program;

o  US$0.6 million in North West Gemsa for the ongoing well workover program;

o  US$0.6 million in Meseda for the ongoing electrical submersible pump ("ESP") and sucker rod pump replacement programs;

o  US$1.4 million in South Ramadan for the SRM-3 well, the results of which are currently being assessed; and

o  US$0.9 million in Morocco, comprising US$0.7m for customer connections, facilities and studies and US$0.2 million relating to the 240km² 3D seismic program in Gharb Centre;

·      Trade and other receivables have reduced to US$21.7 million as at March 31, 2019 down from US$24.3 million as at December 31, 2018. This reduction reflected US$7.9 million of trade receivables due from the Egyptian State offset against costs due to Egyptian State contractors used on the South Disouq development project. A further US$0.9 million of similar offsets have been achieved post period end.

Operational highlights

·      The Company's entitlement share of production from its operations for the three months ended March 31, 2019 was 3,715 boe/d (gross - 9,605 boe/d) split as follows:

o  North West Gemsa 2,128 boe/d (gross - 4,256 boe/d)

o  Meseda 826 bbl/d (gross - 4,334 bbl/d)

o  Morocco 761 boe/d (gross - 1,015 boe/d)

·      As a result of the 2019 drilling and workover program in Meseda commencing later than planned, post-period end production has declined slightly. In Morocco, production has remained broadly stable as new customers are going through a process of taking gas periodically, as they test their newly installed gas fired heating systems, before moving to more sustained offtake volumes.  Production in North West Gemsa is currently below expectation due to three wells being offline for pump replacements and other workovers and continued water cut increases across the concession.  As at May 16, 2019, actual average entitlement production for Egypt and Morocco for the period from April 1, 2019 amounted to 3,306 boe/d (gross - 8,565 boe/d) split as follows:

o  North West Gemsa 1,785 boe/d (gross - 3,570 boe/d)

o  Meseda 758 bbl/d (gross - 3,978 bbl/d)

o  Morocco 763 boe/d (gross - 1,017 boe/d)

Egypt

·      In North West Gemsa (SDX 50% working interest and non-operator), a workover of the water injection well AASE-8 was successfully carried out and work is continuing on the proposed recompletion of the AASE-5 well to the Rahmi from the Shagar reservoir. An update on this will be provided with the Q2 2019 results. 

·      In Meseda (SDX 50% working interest and joint operator), the Company participated in the workover of four wells in the Meseda Field; MSD-5, 6, and 15 all had ESPs replaced and MSD-9 had a sucker rod pump replaced.  All of these wells continue to produce strongly, with production ranging from c.200 to 600bbl/d across these wells.  In the remainder of 2019, the partners will be drilling two further development wells, one in each of the Meseda and Rabul fields. In addition, the partners are planning two water injection wells, one each in Rabul and Meseda.

·      In South Disouq (SDX 55% working interest and operator), the Company was awarded a 25 year development lease on January 2, 2019 covering the South Disouq development area which is  delineated by the SD-1X, SD-3X and SD-4X discoveries. A similar 25 year development lease is in the process of being granted over the Ibn Yunus development area as a result of the success of the Ibn Yunus exploration well.

·      Development of the South Disouq CPF, pipeline and well tie-ins continued during Q1 2019. Production is expected to commence in Q4 2019 and, after a ramp up phase, an initial gross plateau production rate of conventional natural gas of c.50 MMscfe/d is being targeted.

·      Field operations to acquire a 170 km² 3D seismic survey in South Disouq were safely and successfully completed in February 2019. The data is being processed and merged with the 300 km² 3D seismic data acquired in 2016. Preliminary interpretation is encouraging, confirming the continuation of the Abu Madi play fairway with several four-way dip closures identified. Final processed data is expected in Q2, and a revised prospectivity inventory available in Q3 2019.

·      At South Ramadan (SDX 12.75% working interest and non-operator), the SRM-3 appraisal well was spud on June 14, 2018 and reached a target depth of 15,635 feet. The operator reported encountering 75 feet of net conventional oil pay in the Matulla section (primary target), 20 feet of net conventional oil pay in the Brown Limestone formation, and a further 15 feet of net conventional oil pay in the Sudr section. The well was completed and operations continue on the flowline upgrade/replacement in order that the well can be flow-tested. Based on the results of the flow-test, the Company will decide on how best to optimize its position in the licence.

Morocco

·      The Company's Moroccan acreage (SDX 75% working interest and operator) consists of five concessions, all of which are located in the Gharb Basin in northern Morocco: Sebou, Lalla Mimouna Nord, Gharb Centre, Lalla Mimouna Sud, and Moulay Bouchta Ouest.  The Lalla Mimouna Sud and Moulay Bouchta Ouest concessions were acquired from the Government of Morocco on February 7, 2019.

·      During 2018, the Company began selling natural gas to the following new customers: Peugeot, Extralait, and GPC Kenitra. In addition, during Q1 2019, natural gas sales began to another new customer, Setexam, and natural gas sales agreements were signed with Citic Dicastal and Omnium Plastic.  Post period end Omnium Plastic and Citic Dicastal began taking natural gas.

·      After a period of testing during late Q4 2018, GPC and Extralait are increasing their gas consumption and this is reflected in the increase in gross production in Q1 2019 to 6.1mmscf/d from the annual gross production rate in 2018 of 5.2mmscf/d.

·      The Moulay Bouchta Ouest exploration concession has been awarded to SDX for a period of eight years with a commitment to reprocess 150 km of 2D seismic data, acquire 100 km² of new 3D seismic, and drill one exploration well within the first 3.5 year period. 

·      The Lalla Mimouna Sud exploration concession has been re-awarded to SDX for a period of eight years with a commitment to acquire 50 km² of 3D seismic and drill one exploration well within the first three-year period.

Outlook and update on 2019 production and capex guidance:

In light of recent corporate and operational developments, the Company has reassessed its 2019 production and capex guidance and reports as follows;

	Gross Production			Capex (net to SDX)
	Current Guidance	Previous Guidance		Current Guidance	Previous Guidance
NW Gemsa - WI 50%	3,000 - 3,200 boe/d	3,400 - 3,600 boe/d	NW Gemsa - WI 50%	US$2.0 million	US$2.0 million
Meseda - WI 50%	4,000 - 4,200 bbl/d	4,000 - 4,200 bbl/d	Meseda - WI 50%	US$2.7 million	US$4.0 million
South Disouq - WI  55%	First gas by Q4'19. c.50 MMscfe/d plateau by Q1'20	First gas by Q3'19. 50 - 60 MMscf/d plateau by Q4'19	South Disouq - WI  55%	US$19.5 million	US$22.0 million
Morocco - WI 75%	6.0 - 6.5 MMscf/d 2019 annual average rate	9 -11 MMscf/d 2019 exit rate	Morocco - WI 75%	US$12.0 million	US$8.0 million

Egypt

·      North West Gemsa (50% working interest)

o  Targeting 2019 annual average gross production of 3,000-3,200 boe/d, down from previous guidance of 3,400-3,600 boe/d, due to increased water cut offsetting the impact of the ongoing ten well workover program.

o  Gross capex guidance for 2019 is unchanged at US$4 million (US$2 million net to SDX) consisting of up to ten well workovers and infrastructure maintenance.

·      Meseda (50% working interest)

o  Targeting 2019 annual average gross production of 4,000-4,200 bbl/d, unchanged from previous guidance.

o  As a result of a less extensive facilities upgrade program now being necessary, 2019 capex guidance has been reduced to gross US$5.4 million (US$2.7 million net to SDX) down from gross US$8 million (US$4 million net to SDX).  Out of the US$2.7 million net to SDX, US$1.6 million relates to two planned wells and two water injection wells and US$1.1 million relates to ESP replacements and a facilities upgrade.

o  One well will be drilled in Rabul to continue the development of this discovery area, and the other at a development location in the Meseda field. Two water injection wells are also currently planned, one each in Rabul and Meseda.

o  The operator also plans to replace up to five ESPs in the wider Meseda area and upgrade water handling capabilities at the field facilities.

·      South Disouq (55% working interest)

o  During 2019, SDX will complete construction of the South Disouq CPF, the 10km export pipeline and the tie-ins for the four existing production wells.

o  First gas is now expected in Q4 2019, with the Company aiming for a gross plateau production rate of c.50 MMscfe/d by Q1 2020 after an initial ramp up phase. Natural gas will be sold to EGAS at a price of US$2.85/Mcf.

o  Remaining key activities to reach first gas are; i) a factory acceptance test on completion of the CPF fabrication process in Abu Dhabi at the end of June 2019; ii) transportation of CPF from Abu Dhabi, customs clearance in Egypt and transportation to site by mid-August 2019 and iii) completion of installation and commissioning to take first gas by mid-November 2019 (assumes an eight week general contingency allowance).

o  Prospect inventory for future drilling has increased with the interpretation of the recently acquired 170 km² of 3D seismic in the southern section of the concession.

o  Subject to partner approval, the Company is proposing to drill two further exploration wells in 2020 prior to the concession expiry on March 20, 2020.  These wells will be targeting conventional gas prospects identified on the Company's 3D seismic over the concession in the Abu Madi and Kafr el Sheik horizons where the Company has already made four discoveries from five wells drilled.

o  Depending on the results of these two wells, the partnership may decide to drill a further two/three exploration wells, again targeting Abu Madi and Kafr el Sheik prospectivity, and thus utilize the automatic six month extension to the concession expiry date to September 20, 2020 which is available if drilling operations are ongoing at the end of the prescribed concession expiry date.

o  Gross capex in 2019 is expected to be approximately US$35.5 million (US$19.5 million net to SDX) and is lower than previous guidance, of US$22.0 million net to SDX.  The reduction is due to the Company no longer proceeding with the early production facility as previously envisaged. Out of the US$19.5million net to SDX, approximately US$17.0 million relates to the South Disouq development activities and US$2.5 million relates to long lead items and drilling preparations for the two planned exploration wells in 2020.

o  To date in 2019, the Company has offset US$8.8 million of its accounts receivable due from the Egyptian Petroleum Company, ("EGPC") against costs incurred with Egyptian State contractors on the South Disouq development.  The Company is hoping that this efficient use of working capital can continue throughout the remainder of the South Disouq development project.

·              South Ramadan (12.75% working interest)

o  Drilling operations competed on January 13, 2019 with the operator reporting that the well had encountered 75 feet of net conventional oil pay in the Matulla section (primary target), 20 feet of net conventional oil pay in the Brown Limestone formation and a further 15 feet of net conventional oil pay in the Sudr section.

o  The well was completed and operations continue on the flowline upgrade/replacement in order that the well can be flow-tested. Based on the results of the flow-test, the Company will decide on how best to optimize its interest in the licence.

Morocco (75% working interest)

·      SDX is now targeting 2019 annual average gross production of 6.0 - 6.5 MMscf/d of conventional natural gas sales compared to previous guidance of achieving 9.0 -11.0 MMscf/d of conventional natural gas sales by the end of 2019.

·      Updated guidance is based on customers currently under contract and also reflects that, in Q1 2019, the Company's second largest customer reallocated a production line from Morocco to Spain and thus has reduced its volumes by 30% compared to 2018 levels.  Whilst the Company continues to work to develop new customer opportunities, given the slowdown in new companies setting up in the Atlantic Free Zone near the Company's infrastructure in Kenitra, there is no guarantee that this will lead to incremental production and revenues by December 31, 2019.

·      The Company's 240 km² 3D seismic acquisition program in Gharb Centre has now been processed and an initial interpretation is completed. The data quality is good and, as a result, multiple leads and prospects have been identified. An inversion of the dataset has taken place and prospects identified for a proposed drilling campaign of up to twelve wells to take place between Q4 2019 and Q2 2020.

·      Planning for the drilling campaign has now begun and these wells are targeting sufficient reserves to satisfy existing customers' forecast demand and to test new play opening areas of prospectivity across the portfolio. Additional wells maybe drilled in 2020 depending on the Company's assessment of the time between drilling these wells and selling gas to any new identified customers.

·      The 2019 total gross capex forecast is unchanged from previous guidance at approximately US$14.0 million with SDX's share being approximately US$12.0 million. Out of this US$12.0 million, US$3.4 million relates to long lead items for the twelve wells and US$6.0m relates to the drilling costs for up to four wells expected to be drilled by the end of 2019.  The remaining US$2.6 million relates to the Company's share of facilities and field maintenance capex.

Corporate

·      The Company expects  to receive shareholder approval of a plan of arrangement at the company's AGM today and, subject to final court approval on May 21, 2019, the Company plans to relocate its corporate residence from Canada to the UK, with a group reorganisation, to place a new UK plc as the holding company of the Group and delist from the TSX-V. It is expected that this process will be completed later in Q2 2019 and will result in meaningful annual savings in administrative costs, management time, and a more tax efficient corporate structure.

·      As part of the Company's strategy, it continues to review and explore opportunities to expand the asset base in the North Africa region, including new licencing rounds and acquisitions.

KEY FINANCIAL & OPERATING HIGHLIGHTS

Unaudited interim condensed consolidated financial statements with Management's Discussion and Analysis for the three months ended March 31, 2019 are now available on the Company's website at www.sdxenergy.com and on SEDAR at www.sedar.com.

	Prior Quarter	Three months ended March 31
$000s except per unit amounts		2019	2018
FINANCIAL
Gross revenues	18,725	16,690	14,763
Royalties	(4,885)	(4,009)	(3,803)
Net revenues	13,840	12,681	10,960
Operating costs	(3,392)	(3,374)	(1,994)
Netback (1)	10,448	9,307	8,966
EBITDAX (1)	7,103	7,808	7,389
Total comprehensive (loss)/income	(4,029)	132	331
Net (loss)/income per share - basic	(0.020)	0.001	0.002
Cash, end of period	17,345	11,354	29,277
Working capital (excluding cash)	12,064	10,069	13,814
Capital expenditures	8,316	13,040	9,948
Total assets	138,107	137,630	140,497
Shareholders' equity	116,039	116,491	115,282
Common shares outstanding (000's)	204,723	204,723	204,493
OPERATIONAL
NW Gemsa oil sales (bbl/d)	1,808	1,586	1,507
Block-H Meseda production service fee (bbl/d)	864	826	558
Morocco gas sales (boe/d)	648	761	664
Other products sales (boe/d)	604	542	307
Total sales volumes (boe/d)	3,924	3,715	3,036
Realized oil price (US$/bbl)	62.77	58.22	62.81
Realized service fee (US$/bbl)	51.34	47.58	50.00
Realized oil sales price and service fees ($/bbl)	59.07	54.58	59.34
Realized Morocco gas price (US$/mcf)	9.78	10.26	10.03
Royalties ($/bbl)	13.53	11.99	13.92
Operating costs ($/bbl)	9.40	10.09	7.30
Netback ($/bbl) (1)	28.94	27.84	32.80

(1)  Refer to the "Non-IFRS Measures" section of this release below and the Company's MD&A for the three months ended March 31, 2019 and 2018 for details of netback and EBITDAX.

About SDX

SDX is an international oil and gas exploration, production and development company, headquartered in London, England, UK, with a principal focus on North Africa. In Egypt, SDX has a working interest in two producing assets (50% North West Gemsa & 50% Meseda) located onshore in the Eastern Desert, adjacent to the Gulf of Suez. In Morocco, SDX has a 75% working interest in the Sebou concession, situated in the Gharb Basin. These producing assets are characterized by exceptionally low operating costs, making them particularly resilient in a low oil price environment. SDX's portfolio also includes high impact exploration opportunities in both Egypt and Morocco.

For further information, please see the Company's website at www.sdxenergy.com or the Company's filed documents at www.sedar.com. 

Competent Persons Statement

In accordance with the guidelines of the AIM Market of the London Stock Exchange the technical information contained in the announcement has been reviewed and approved by Paul Welch, Chief Executive Officer of SDX. Mr. Welch, who has over 30 years of experience, is the qualified person as defined in the London Stock Exchange's Guidance Note for Mining and Oil and Gas companies. Mr. Welch holds a BS and MS in Petroleum Engineering from the Colorado School of Mines in Golden, CO. USA and an MBA in Finance from SMU in Dallas, TX USA and is a member of the Society of Petroleum Engineers (SPE).

For further information:

SDX Energy Inc. Mark Reid Chief Financial Officer and Interim Chief Executive Officer Tel: [phone]
Stifel Nicolaus Europe Limited (Nominated Adviser and Joint Broker) Callum Stewart Nicholas Rhodes Ashton Clanfield Tel: [phone]
Cantor Fitzgerald Europe (Joint Broker) David Porter Tel: [phone]
GMP FirstEnergy (Joint Broker) Jonathan Wright Tel: [phone]
Celicourt (PR) Mark Antelme/Jimmy Lea/Ollie Mills Tel: [phone]

Neither the TSX Venture Exchange nor its Regulation Services Provider (as such term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Glossary

"bbl"	stock tank barrel
"boepd" & "boe/d"	barrels of oil equivalent per day
"bopd" & "bbl/d"	barrels of oil per day
"mcf"	thousands of cubic feet
"MMscf/d"	million standard cubic feet per day
"MMscfe/d"	million standard cubic feet equivalent per day

Forward‐Looking Information

Certain statements contained in this press release may constitute "forward‐looking information" as such term is used in applicable Canadian securities laws. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or are not statements of historical fact should be viewed as forward-looking information. In particular, the timing of Mr. Welch's resignation as a director and executive officer, the timing of Mr. Reid's assumption of the role of Interim Chief Executive Officer, statements regarding the Company's plans, the timing of completion of the South Disouq CPF, timing of completion of the export pipelines and well tie-ins, production targets, future drilling, seismic work, new gas sales customers, ESP replacement, field facility upgrades, well workovers, and the timing and costs thereof, as well as capital expenditures, operational expenditures, the reduction in Egyptian receivables, the Company's 2019 outlook, the timing of the receipt of a development lease over the Ibn Yunus development area, prospective opportunities and business development activity, the timing of the delisting of the Company's shares from the TSX-V, the Company's plans to re-domicile to the UK, the timing thereof and expected accretions to the Company and the reorganization of the corporate structure should all be regarded as forward-looking information.

The forward-looking information contained in this document is based on certain assumptions and although management considers these assumptions to be reasonable based on information currently available to them, undue reliance should not be placed on the forward-looking information because SDX can give no assurances that they may prove to be correct. This includes, but is not limited to, assumptions related to, among other things, commodity prices and interest and foreign exchange rates; planned synergies, capital efficiencies and cost‐savings; applicable tax laws; future production rates; receipt of necessary permits; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing of and the Company's ability to obtain regulatory and statutory approvals in connection with the Company's plans to re-domicile to the UK and the availability and cost of labor and services.

All timing given in this announcement, unless stated otherwise is indicative and while the Company endeavors to provide accurate timing to the market, it cautions that due to the nature of its operations and reliance on third parties this is subject to change often at little or no notice. If there is a delay or change to any of the timings indicated in this announcement, the Company shall update the market without delay.

Forward-looking information is subject to certain risks and uncertainties (both general and specific) that could cause actual events or outcomes to differ materially from those anticipated or implied by such forward‐looking statements. Such risks and other factors include, but are not limited to political, social and other risks inherent in daily operations for the Company, risks associated with the industries in which the Company operates, such as: operational risks; delays or changes in plans with respect to growth projects or capital expenditures; costs and expenses; health, safety and environmental risks; commodity price, interest rate and exchange rate fluctuations; environmental risks; competition; permitting risks; ability to access sufficient capital from internal and external sources; and changes in legislation, including but not limited to tax laws and environmental regulations. Readers are cautioned that the foregoing list of risk factors is not exhaustive and are advised to reference SDX's Management's Discussion & Analysis for the three months ended March 31, 2019, which can be found on SDX's SEDAR profile at www.sedar.com, for a description of additional risks and uncertainties associated with SDX's business, including its exploration activities.

The forward‐looking information contained in this press release is as of the date hereof and SDX does not undertake any obligation to update publicly or to revise any of the included forward‐looking information, except as required by applicable law. The forward‐looking information contained herein is expressly qualified by this cautionary statement.

Non-IFRS Measures

This news release contains the terms "Netback," and "EBITDAX" which are not recognized measures under IFRS and may not be comparable to similar measures presented by other issuers. The Company uses these measures to help evaluate its performance.

Netback is a non-IFRS measure that represents sales net of all operating expenses and government royalties. Management believes that netback is a useful supplemental measure to analyze operating performance and provide an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses. Management considers netback an important measure as it demonstrates the Company's profitability relative to current commodity prices. Netback may not be comparable to similar measures used by other companies. See Netback reconciliation to operating income/(loss) in the Company's Interim Consolidated Financial Statements for the three months ended March 31, 2019 and 2018.

EBITDAX is a non-IFRS measure that represents earnings before interest, tax, depreciation, amortization, exploration expense and impairment. EBITDAX is calculated by taking operating income/(loss) and adjusted for the add-back of depreciation and amortization, exploration expense and impairment of property, plant and equipment (if applicable).  EBITDAX is presented in order for the users of the financial statements to understand the cash profitability of the Company, which excludes the impact of costs attributable to exploration activity, which tend to be one-off in nature, and the non-cash costs relating to depreciation, amortization and impairments. EBITDAX may not be comparable to similar measures used by other companies.  See EBITDAX reconciliation to operating income/(loss) in the Company's Interim Consolidated Financial Statements for the three months ended March 31, 2019 and 2018.

Oil and Gas Advisory

Estimates of reserves been made assuming the development of each property in which the estimate is made will actually occur, without regard to the likely availability to the Company of funding required for development of such reserves.

Certain disclosure in this news release constitute "anticipated results" for the purposes of National Instrument 51-101 - Standards for Oil and Gas Activities of the Canadian Securities Administrators because the disclosure in question may, in the opinion of a reasonable person, indicate the potential value or quantities of resources in respect of the Company's resources or a portion of its resources. Without limitation, the anticipated results disclosed in this news release include estimates of volume, flow rate, production rates, porosity and pay thickness attributable to the resources of the Company. Such estimates have been prepared by management of the Company and have not been prepared or reviewed by an independent qualified reserves evaluator or auditor. Anticipated results are subject to certain risks and uncertainties, including those described above and various geological, technical, operational, engineering, commercial and technical risks. In addition, the geotechnical analysis and engineering to be conducted in respect of such resources is not complete. Such risks and uncertainties may cause the anticipated results disclosed herein to be inaccurate. Actual results may vary, perhaps materially.

Use of the term "boe" or the term "MMscf" may be misleading, particularly if used in isolation. A "boe" conversion ratio of 6 Mcf: 1 bbl and a "Mcf" conversion ratio of 1bbl: 6 Mcf are based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

 

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