30 JUNE 2022 TRADING AND OPERATIONS UPDATE
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 AS IT FORMS PART OF UK LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("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.
1 August 2022
SDX ENERGY PLC ("SDX" or the "Company")
30 JUNE 2022 TRADING AND OPERATIONS UPDATE AND INCREASE TO 2022 GROUP PRODUCTION AND CAPEX GUIDANCE
Highlights:
· Increased production guidance: Group 2022 entitlement production guidance is increased to 3,480 - 3,795 boe/d from 3,330 - 3,550 boe/d
· US$1.8 million increase to 2022 mid-point capex guidance.
· Net Cash position of US$12.8m (unaudited) as of 30 June 2022
· With the introduction of Aleph Commodities Limited as a new cornerstone shareholder, a strategic review and expansion plans are being formulated with a focus on increased production, reserves and shareholder returns.
SDX Energy Plc (AIM: SDX), the EMEA-focused energy company, provides an update on production and capex guidance for 2022 following drilling success at South Disouq and provides an update on its unaudited capex, cash, and liquidity position for the six months ended 30 June 2022. All monetary values are expressed in United States dollars net to the Company unless otherwise stated.
Mark Reid, CEO of SDX, commented:
"Following on from our previously announced drilling success at SD-5X in South Disouq, which also includes a richer than expected condensate yield, I am pleased to announce that our 2022 production guidance for this asset is being increased by 15%. Although we have had to slightly reduce our West Gharib production guidance due to mechanical issues with one of the rigs, our overall 2022 group mid-point guidance has increased to 3,480 - 3,795 boe/d from 3,330 - 3,550 boe/d . Given that both the SD-5X and MA-1X wells in South Disouq encountered gas, we have also slightly increased our capex guidance by US$1.8 million, reflecting the costs of completing and testing these wells and tying in SD-5X. I am also pleased to report continued strong production of 3,742 boe/d in the first half of the year which is above our increased 3,638 boe/d mid-point entitlement guidance, and a robust net cash position of US$12.8 million as at 30 June 2022. Finally, we are working with our new cornerstone shareholder Aleph Commodities Limited on a refreshed and ambitious strategy and we will be updating the market on the outcome of this in the weeks ahead."
2022 Production and Capex guidance revisions
· Group 2022 entitlement production guidance is increased to 3,480 - 3,795 boe/d from 3,330 - 3,550 boe/d for the reasons outlined below.
· Following the successful drilling and production testing of the SD-5X well, gross 2022 production guidance for South Disouq has been revised upward to 38-40 MMscfe/d from 33-35 MMscfe/d, a 15% mid-point guidance increase. On a net entitlement basis, the new guidance is 2,500-2,700 boe/d, increasing from 2,280-2,420 boe/d.
· As disclosed previously, the SD-5X well is currently producing greater amounts of condensate (gross 100-110 bbl/d) than were expected pre-drill (gross 25-30 bbl/d). As South Disouq condensate is sold at 90% of Brent price, this product is highly cash-generative in the current pricing environment, with Netbacks of US$60.93/boe for the six months ending 30 June 2022.
· Due to drilling delays resulting from mechanical issues experienced with one of the rigs working on the 13-well West Gharib drilling campaign, gross 2022 production guidance has been revised downwards to 2,000-2,450 bbl/d from 2,200-2,650 bbl/d, an 8% mid-point decrease. On a net entitlement basis, the new guidance is 380-470 boe/d, decreasing from 420-505 boe/d.
· Morocco production guidance remains unchanged at gross 4.8-5.0 MMscf/d, 600-625 boe/d net entitlement.
· Following the successful drilling, completion testing and tie in of SD-5X, and the drilling, completion and testing of the MA-1X exploration well, both of which were previously assumed to be dry holes for capex guidance purposes, South Disouq capex guidance has been revised upward from US$6.7-7.2 million to US$8.5-9.0 million.
· West Gharib capex guidance range has been revised downward by US$0.5 million reflecting drilling delays, with updated guidance of US$4.0-4.5 million. Morocco capex guidance is unchanged, meaning group capex guidance is now US$25.5-27.0 million, versus previous guidance of US$23.7-25.2 million.
Trading and operations update six months to 30 June 2022
Production
· Average entitlement production as at 30 June 2022 of 3,724 boe/d, which was 2% higher than the increased mid-point 2022 market guidance of 3,638 boe/d.
|
Gross production |
SDX entitlement production |
||||
|
Asset |
Revised guidance - 12 months ended 31 December 2022 |
Actual - 6 months ended 30 June 2022 |
Revised guidance - 12 months ended 31 December 2022 (boe/d) |
Actual 6 months ended 30 June 2022 (boe/d) |
Actual 6 months ended 30 June 2021 (boe/d) |
|
South Disouq - WI 36.9% & 67.0%(1) |
38 - 40 MMscfe/d |
38.7 MMscfe/d |
2,500 - 2,700(2) |
2,710 |
4,422(3) |
|
West Gharib - WI 50% |
2,000 - 2,450 bbl/d |
1,976 bbl/d |
380 - 470 |
376 |
516 |
|
Morocco - WI 75% |
4.8 - 5.0 MMscf/d |
5.1 MMscf/d |
600 - 625 |
638 |
993 |
|
Total |
|
|
3,480 - 3,795 |
3,724 |
5,931 |
(1) After completion of the South Disouq disposal with effect from 1 February 2022.
(2) Net of minority interest. Gross of minority interest, production guidance is expected to be 3,500 - 3,700 boe/d.
(3) 30 June 2021 South Disouq entitlement production is shown at pre-disposal working interest of 55%/100%.
· Production of 3,724 boe/d for the first half of the year, which is above our increased 3,638 boe/d mid-point entitlement guidance, was driven by strong performances in Morocco and at South Disouq, with West Gharib's production lower than expected due to the mechanical issues with a previous rig that is in the process of being replaced. West Gharib production is expected to increase in the second half of the year.
· In South Disouq, the planned three-well drilling campaign has been successfully completed. SD-5X and SD-12_East have been brought online ahead of schedule and are now contributing to production and cash flow. The MA-1X gas discovery well is in the process of being evaluated to determine a commercialisation strategy for the discovery.
· In West Gharib the MSD-21, -25 and -24 wells have been successfully completed and are on production. The completion of operations of the MSD-23 well was announced on 15 July and MSD-27 spudded on 21 July. Operations at the MSD-20 well are expected to recommence in August 2022.
· In Morocco, preparations continue for the recommencement of the drilling campaign that was suspended in December 2021. The first of up to seven wells to be drilled in the next year is expected to spud in late July 2022.
Capex
· Capex for the six months to 30 June 2022 was within revised guidance, as shown below:
|
Asset |
Revised guidance - 12 months ended 31 December 2022 |
Actual - 6 months ended 30 June 2022 (unaudited) |
|
South Disouq - WI 36.9% & 67.0%(1) |
US$9.0-9.5 million(2) |
US$7.7 million (3) |
|
West Gharib - WI 50% |
US$4.0-4.5 million |
US$1.5 million |
|
Morocco - WI 75% |
US$12.5-13.0 million |
US$3.0 million |
|
Total |
US$25.5-27.0 million |
US$12.2 million |
(1) After completion of the South Disouq disposal with effect from 1 February 2022.
(2) As the legal entity that holds the South Disouq asset is 100% consolidated in the financial statements of the Company, capex guidance is gross of minority interest. Net of minority interest, capex guidance is US$7.5 - 8.0 million.
(3) Includes US$0.3 million of decommissioning provisions. Net of minority interest, SDX's share of capex for the 6 months ended 30 June 2022 was US$6.3 million.
· Capex as at 30 June 2022 of US$12.2 million, reflects:
o US$7.4 million for the three-well drilling campaign at South Disouq split between: US$2.0 million for the drilling, completion, testing and tie in of the SD-5X well, US$3.0 million for the drilling, completion and tie in of the SD-12_East well and US$2.4 million for the drilling, completion and testing of the MA-1X well. US$0.3 million has been spent on a workover of SD-3X to replace the production tubing.
o US$2.4 million of pre-drilling and preparation costs associated with the re-commencement of the Moroccan drilling campaign, US$0.3 million on the SAH-4 well recompletion and US$0.3 million of infrastructure works; and
o US$1.5 million of West Gharib drilling costs across the MSD-20, -21, -23, -24, and -25 wells.
Cash and liquidity
· The Company's net cash position as at 30 June 2022 was US$12.8 million, with cash balances of US$15.3 million offset by US$2.5 million drawn debt from the EBRD facility. As a result of various geopolitical factors, US dollar transfers by the Central Bank of Egypt have been delayed. Under the existing facility with the European Bank of Reconstruction and Development ("EBRD"), US$3.2 million of additional undrawn lines remain available to the Company.
· Together with cash generated from operations, the Company is fully funded for all its stated objectives in 2022.
Corporate
In July 2022, Aleph Commodities Limited acquired 25.65% of the issued share capital of the Company and are assisting the Company with a strategic review and expansion plans with a focus on increasing production, reserves and shareholder returns. Aleph Commodities Limited is a global trading and investment company, founded in 2018 by former executives of Deutsche Bank, Goldman Sachs, JP Morgan, Engelhart Commodities Trading Partners, and Credit Suisse, supported by several large US and European family offices who are also shareholders of Aleph.
About SDX
SDX is an international oil and gas exploration, production, and development company, headquartered in London, United Kingdom, with a principal focus on EMEA. In Egypt, SDX has a working interest in two producing assets: a 36.9% operated interest in the South Disouq and Ibn Yunus gas fields and a 67.0% operated interest in the Ibn Yunus North gas field in the Nile Delta and a 50% non-operated interest in the West Gharib concession, which is located onshore in the Eastern Desert, adjacent to the Gulf of Suez. In Morocco, SDX has a 75% working interest in four development/production concessions, all situated in the Gharb Basin. The producing assets in Morocco are characterised by attractive gas prices and exceptionally low operating costs. SDX has a strong weighting of fixed price gas assets in its portfolio with low operating costs and attractive margins throughout, providing resilience 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.sdxenergygroup.com or the Company's filed documents at www.sedar.com .
Standard
Estimates of reserves and resources have been prepared in accordance with the June 2018 Society of Petroleum Engineers ("SPE") Petroleum Resources Management System ("PRMS") as the standard for classification and reporting with an effective date of 31 December 2021 and in accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") of the Canadian Securities Administrators.
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 Dr Rob Cook, VP Subsurface of SDX. Dr. Cook has 30 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:
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SDX Energy Plc Mark Reid Chief Executive Officer Tel: +44 203 219 5640
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Stifel Nicolaus Europe Limited (Nominated Adviser and Broker) Callum Stewart Jason Grossman Ashton Clanfield Tel: +44 (0) 20 7710 7600
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Camarco (PR) Billy Clegg/Owen Roberts/Violet Wilson Tel: +44 (0) 203 757 4980
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Glossary
|
"bbl" |
stock tank barrel |
|
"bbl/d" |
barrels of oil per day |
|
"boe/d" |
barrels of oil 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 formulation of the Company's strategic review and expansion plans, and the Company's future drilling developments and results, should 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 the Principal Risks & Uncertainties section of SDX's Annual Report for the year ended 31 December 2021, 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.
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 term "Netback", which is not a recognized measure under IFRS and may not be comparable to similar measures presented by other issuers. The Company uses this measure 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.
Oil and Gas Advisory
Certain disclosures in this news release constitute "anticipated results" for the purposes of National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") 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 1 bbl: 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 Data
The prospective resources estimates disclosed or referenced herein have been prepared by Dr. Rob Cook, a qualified reserves evaluator, in accordance with the SPE's Canadian Oil and Gas Evaluation Handbook and in accordance with NI 51-101. The prospective resources disclosed herein have an effective date of 1 January 2022. 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%.
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.
"P50" means that there is at least a 50% probability that the quantities actually recovered will equal or exceed the best estimate.
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