OPERATIONS & FINANCIAL UPDATE & GUIDANCE FOR 2020

RNS Number : 5068A

SDX Energy PLC

22 January 2020

 

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.

22 January 2020

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

PROVIDES AN OPERATIONS AND FINANCIAL UPDATE AND GUIDANCE FOR 2020

SDX Energy Plc (AIM: SDX), the MENA-focused oil and gas company provides a year end 31 December 2019 operations and financial update and sets out production and capex guidance for 2020. All monetary values are expressed in United States dollars net to the Company unless otherwise stated.   

Production and Capex: 2019 Year End Update and 2020 Guidance

·      2019 production at 4,020 boe/d was 12% higher than 2018, and by individual asset, has either exceeded or was at the upper end of 2019 guidance.

·      2020 production guidance of 6,750 - 7,000 boe/d is 68-74% higher than 2019 production. Guidance includes 1,000 - 1,050 boe/d for North West Gemsa which the Company may exit during the year if sufficient cost savings cannot be achieved by the operator.

·      2019 capex of approximately US$40.7 million (unaudited), US$4.5 million higher than 2019 guidance primarily due to two extra wells being drilled in Morocco with the campaign starting earlier in Q4'19 and rig move times between wells being shorter than expected.

·      2020 capex guidance of US$25.5 million predominantly relates to the completion of the Morocco 12 well drilling campaign, two exploration wells planned for South Disouq, Egypt, and up to three appraisal/development wells planned for the Meseda and Rabul fields in the West Gharb concession.

Morocco drilling campaign update (SDX 75% Working Interest)

·      Seven 'close to infrastructure' appraisal/development wells have been drilled to date in the 12 well campaign resulting in five commercial discoveries.  The Company estimates that this has added 2.0 - 2.5 bcf (gross) to its estimate of existing gross gas reserves of 4.0 - 5.0 bcf in Morocco. Given low connection costs, and assuming continued well deliverability, the Company estimates that these reserves will be sufficient to fulfil existing customer contracts for the next 30 to 36 months.

·      The Company expects to add incremental reserves and contingent resources from the remaining five wells in the campaign and through future development of its acreage. These five wells consist of: two play-opening appraisal wells to determine whether the prospectivity of the Company's core area extends to the north; two exploration wells in Lalla Mimouna targeting deeper prospectivity in a potential new play fairway; and one 'close to infrastructure' appraisal/development well.

South Disouq Egypt exploration drilling campaign update (SDX 55% working interest)

·      At South Disouq in Egypt, preparations continue for two exploration wells targeting the same horizons encountered in the Company's four discoveries to date. SDX's share of these well costs is estimated at US$4.0 million in total and this is fully funded from its existing cash resources.

·      The first well, Salah, which is expected to spud in mid/late February and complete in April 2020, is targeting a gross unrisked P50 prospect of 71 bcfe (Company estimate).  The second well, Sobhi, which is expected to spud in late April/early May and complete in early June, is targeting a gross unrisked P50 prospect of 33 bcfe (Company estimate).

·      If successful, these two wells would require short, 8.0 kilometre and 5.8 kilometre, tie-ins to the South Disouq Central Processing Facility ("CPF") with SDX's share of the tie-in cost estimated at US$2.5 million and US$1.9 million respectively.

·      The Company is reviewing a number of development concepts depending on the size of any discovery that is made. To fully produce the gross unrisked P50 prospect of 71 bcfe targeted in the first well, two further development wells are likely to be required.  With the gross unrisked P50 prospect of 33 bcfe targeted in the second well, only one further development well would be required.

·      Depending on partnering discussions, a third South Disouq well targeting deeper prospectivity in a potential new play fairway may be drilled later in 2020.

Cash and liquidity update

·      Closing cash as at 31 December 2019 was approximately US$11 million (unaudited) with the US$10 million European Bank for Reconstruction and Development ("EBRD") credit facility remaining undrawn.  The facility amortised in November 2019 and it currently has US$7.5 million available for drawdown. Discussions are underway with EBRD to extend the tenor and re-establish the US$10 million availability under the facility. Together with cash generated from operations, the Company is fully funded for all of its planned activities in 2020.

Non-cash impairment of historic balance sheet capex of non-core assets

·      A review of historic capitalised expenditure at the Company's non-core assets at North West Gemsa, South Ramadan and the southern exploration area of South Disouq, which will likely be relinquished during 2020, and, a comparison against remaining reserves, future capex and opex budgets, remaining time to expiry on concessions and future prospectivity, has resulted in the recognition of non-cash impairments which could amount to approximately US$18 million (unaudited). The final impairment charge will be reflected in the Company's Consolidated Statement of Comprehensive Income for the year ended 31 December 2019.

·      The above impairments have no impact on the Company's future cash flows or growth potential.

Mark Reid, CEO of SDX, commented: 

"2019 was a successful year for SDX, with all key metrics being ahead of expectations, success with the drill bit and our key South Disouq development project completing on time and on budget.

We have entered 2020 in a strong position with production at record levels, good monthly cash generation, a strong balance sheet and a busy work programme of drilling ahead of us, which is all fully funded.

With eight wells planned for H1 2020, six of which are exploration/appraisal in nature, we are moving into a very exciting period of activity and I look forward to providing further updates in due course."

2019 actual production

·      2019 actual production at 4,020 boe/d is 12% higher than 2018, and by individual asset, has either exceeded or is at the upper end of 2019 guidance.  An analysis of 2019 production by asset is as follows:

Gross production			SDX entitlement production boe/d	SDX entitlement production boe/d
Asset	Actual - 12 months ended 31 December 20191	Guidance - 12 months ended 31 December 2019	Actual 12 months ended 31 December 20191	Actual 12 months ended 31 December 2018
Core assets
South Disouq - WI 55%	6.9 MMscfe/d	N/A	630	-
Meseda - WI 50%	4,180 bbl/d	4,000 - 4,200 bbl/d	790	734
Morocco - WI 75%	6.4 MMscf/d	6.0 - 6.5 MMscf/d 2019 annual average rate	800	646
Non-core asset
NW Gemsa - WI 50%	3,600 boe/d	3,000 - 3,200 boe/d	1,800	2,194
Total			4,020	3,574

1 - 2019 actual production subject to final invoicing

o  South Disouq: the field was brought on production as planned in Q4 2019, however the performance of the CPF and wells has exceeded expectations leading to an accelerated ramp up to plateau of gross 50 MMcfe/d in mid-December.

o  Meseda: strong gross production in the first nine months of 2019 from new wells and the well workover programme ensured that, despite increasing water cut in the field in the latter part of the year, annual production was at the upper end of guidance.

o  Morocco: during the second half of 2019 all customers achieved expected consumption rates, with average gross production in Q4'19 of 7.1 MMscf/d, resulting in annual gross production being at the upper end of guidance.

o  NW Gemsa: gross production was c.400 boe/d above guidance due to stronger performance than forecast as a result of slower rate of pressure decline and a slowdown in water cut increases from a number of larger producing wells.

2020 production guidance

·      2020 production guidance of 6,750 - 7,000 boe/d is 68-74% higher than 2019 actual production. An analysis of our 2020 production guidance compared to 2019 actual production by asset is as follows:

Gross production			SDX entitlement production boe/d	SDX entitlement production boe/d
Asset	Guidance - 12 months ended 31 December 2020	Actual - 12 months ended 31 December 20191	Guidance 12 months ended 31 December 2020	Actual 12 months ended 31 December 20191
Core assets
South Disouq - WI 55%	47 - 49 MMscfe/d	6.9 MMscfe/d	4,300 - 4,460	630
Meseda - WI 50%	3,200 - 3,300 bbl/d	4,180 bbl/d	610 - 630	790
Morocco - WI 75%	6.7- 6.9 MMscf/d	6.4 MMscf/d	840 - 860	800
Non-core asset
NW Gemsa - WI 50%	2,000 - 2,100 boe/d	3,600 boe/d	1,000 - 1,050	1,800
Total			6,750 - 7,000	4,020

1 - 2019 actual production subject to final invoicing

o  South Disouq: production guidance reflects a continuation of the 50MMscfe/d current production rate adjusted for CPF expected uptime/availability during the year.

o  Meseda:  although up to three wells are planned for 2020, the lower production guidance reflects the assumption that the two wells targeting meaningful incremental production may not be drilled until Q3 2020 due to the expected time to complete government and offset operator discussions on approvals/permitting.

o  Morocco: production guidance reflects an assumed increase in consumption from existing Morocco gas customers during 2020.

o  NW Gemsa: as the asset is late life, production guidance reflects the impact of increased water cut, falling reservoir pressure and an assumption that no new infill wells will be drilled in 2020. The Company may exit this concession during the year if sufficient cost savings cannot be achieved by the operator.

2019 actual capex

·      2019 capex of c.US$40.7 million (unaudited) is US$4.5 million higher than 2019 guidance of c.US$36.2 million. US$2.9 million of this increase is explained below in the table of 2019 capex by asset, with US$3.1 million as a result of six Moroccan wells being drilled in Q4'19 rather than the planned four.   The remaining US$1.6 million of the increase relates to unbudgeted capex in South Ramadan due to an unbudgeted overspend on the final work commitment on this concession.  An analysis of 2019 capex by asset is as follows:

Asset	Actual - 12 months ended 31 December 2019	Guidance - 12 months ended 31 December 2019
Core assets
South Disouq - WI 55%	US$20.2 million	US$19.5 million
Meseda - WI 50%	US$1.5 million	US$2.7 million
Morocco - WI 75%	US$16.1 million	US$12.0 million
Non-core assets
NW Gemsa - WI 50%	US$1.3 million	US$2.0 million
South Ramadan - WI 12.75%	US$1.6 million	Nil
Total	US$40.7 million	US$36.2 million

o  South Disouq: capex at US$20.2 million was US$0.7 million above guidance as it was decided to add a second Ibn Yunus flowline for the planned Ibn Yunus-2 development well (scheduled for drilling in 2021) during the laying of the Ibn Yunus-1 line as laying these lines concurrently avoids paying a second tranche of land use rental and farmers' compensation when Ibn Yunus-2 is brought on stream.

o  Meseda: capex at US$1.5 million was US$1.2 million below guidance as only two of the planned three development wells were drilled in 2019 as a result of delays in obtaining government and offset operator approval for the third well. Furthermore, neither of the planned two water injection wells were drilled and no electrical submersible pump replacements were required as previously anticipated.

o  Morocco: capex at US$16.1 million was US$4.1 million above guidance mainly as a result of six, rather than four, wells being drilled in Q4'19 due to the campaign starting early and rig move times between wells being shorter than expected.  This resulted in capex being US$3.1 million higher than guidance. Additionally, the Company acquired two compressors in Q4'19 to maximise recovery from existing well sites.  The cost of these compressors was c.US$1 million, which has already been paid back from additional gas volumes produced.   

o  NW Gemsa: capex at US$1.3 million was US$0.7 million below guidance as only five workovers were required against 10 planned due to overall field performance being better than anticipated.

 

2020 capex guidance

·      2020 capex guidance of c.US$25.5 million predominantly relates to the completion of the Morocco 12 well drilling campaign, the drilling of the two exploration wells and well workovers planned for South Disouq, and a deposit on the booster compressor planned for South Disouq in 2021, up to three appraisal/development wells in Meseda and up to 10 workovers in North West Gemsa.

Asset	Guidance - 12 months ended 31 December 2020
Core assets
South Disouq - WI 55%	US$6.5 million
Meseda - WI 50%	US$2.0 million
Morocco - WI 75%	US$15.0 million
Non-core asset
NW Gemsa - WI 50%	US$2.0 million
Total	US$25.5 million

Non-cash impairment of historic balance sheet capex of non-core assets

·      Having conducted a preliminary impairment indicator review, the Company advises that it is likely that up to US$18 million (unaudited) of impairments will be recognised across certain non-core assets in the upcoming financial statements for the year to 31 December 2019.  This impairment, which is analysed below, has no impact on the Company's future cash flows or growth potential and will be reflected in the Consolidated Statement of Comprehensive for the year ended 31 December 2019:

o  NW Gemsa: lower oil price assumptions, increased water breakthrough reducing oil production in late 2019 and continuing high opex may lead to the concession becoming uncommercial and a subsequent relinquishment may occur. As such an impairment of between US$7-9 million is likely to be recognised.

o  South Ramadan: an updated assessment of discovered volumes and likely future capex/opex requirements indicates that the Company's historic capitalised expenditure will not be fully recovered. As such an impairment of up to US$5 million is likely to be recognised.

o  South Disouq (southern exploration area of the concession): as there is insufficient time before the concession expires to drill the prospects in the southern exploration area of the concession identified by the 2018/19 3D seismic survey, an impairment of up to US$4 million in relation to this 3D seismic is likely to be recognised. The exploration wells to be drilled in Q1 and Q2 2020 are in the northern part of the concession close to the Company's core producing area which is held under a 25-year development lease.

 

About SDX

SDX is an international oil and gas exploration, production and development company, headquartered in London, United Kingdom, with a principal focus on MENA. In Egypt, SDX has a working interest in three producing assets: a 55% operated interest in the South Disouq gas field in the Nile Delta and a 50% non-operated interest in each of the North West Gemsa and Meseda concessions, which are 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. The producing assets in Morocco are characterised by exceptionally low operating costs, making them particularly resilient in a low commodity 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 Rob Cook, VP Subsurface of SDX. Dr. Cook has over 25 years of oil and gas industry experience and is the qualified person as defined in the London Stock Exchange's Guidance Note for Mining and Oil and Gas companies. Dr. Cook holds a BSc in Geochemistry and a PhD in Sedimentology from the University of Reading, UK. He is a Chartered Geologist with the Geological Society of London (Geol Soc) and a Certified Professional Geologist (CPG-11983) with the American Institute of Professional Geologists (AIPG).

For further information:

SDX Energy Plc Mark Reid 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]
Camarco (PR) Billy Clegg/Owen Roberts/Violet Wilson Tel: [phone]

Glossary

"bbl"	stock tank barrel
"bbl/d"	barrels of oil per day
"bcf"	billion cubic feet
"bcfe"	billion cubic feet equivalent
"boe/d"	barrels of oil equivalent per day
"Mcf"	thousands of cubic feet
"MMcf/d"	million cubic feet per day
"MMcfe/d"	million cubic feet equivalent per day
"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, statements regarding the Company's 2020 production and capex guidance, the sufficiency of reserves to fulfill existing customer contracts, future drilling developments and results, and extending the tenor and availability of the US$10 million credit facility with the EBRD 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, and the availability and cost of labour and services.

All timing given in this announcement, unless stated otherwise, is indicative, and while the Company endeavours 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; the 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 refer to SDX's Management's Discussion & Analysis for the three and nine months ended 30 September 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.

Oil and Gas Advisory

Certain disclosures 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 Company management 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.

Prospective Resources

The prospective resource estimates disclosed or referenced herein have been prepared by an independent qualified reserves evaluator, ERC Equipoise Limited, in accordance with the Canadian Oil and Gas Evaluation Handbook. The prospective resources disclosed herein have an effective date of 1 January 2019. Prospective resources are those quantities of gas, estimated as of the given date, to be potentially recoverable from undiscovered accumulations through future development projects. As prospective resources, there is no certainty that any portion of the resources will be discovered. The chance that an exploration project will result in a discovery is referred to as the "chance of discovery" as defined by the management of the Company. There is no certainty that it will be commercially viable to produce any portion of the resources discussed herein; though any discovery that is commercially viable would be tied back to the Company's pipeline in Morocco and then connected to customers' facilities within 9 to 12 months of discovery. Based upon the economic analysis undertaken on any discovery, management has attributed an associated chance of development of 100%. Anticipated results are subject to certain risks and uncertainties, including 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.

There are uncertainties associated with the volume estimates of the prospective resources disclosed herein, due to the level of information available on prospective resources, but ranges are defined based on data from the Company's nearby existing analogous wells. Some of the risks and uncertainties are outlined below:

·      Petrophysical parameters of the sand/reservoir;

·      Fluid composition, especially heavy end hydrocarbons;

·      Accurate estimation of reservoir conditions (pressure and temperature);

·      Reservoir drive mechanism;

·      Potential well deliverability; and

·      The thickness and lateral extent of the reservoir section, currently based on 3D seismic data.

 

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