FULL YEAR 2021 FINANCIAL AND OPERATING RESULTS
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.
18 March 2022
SDX ENERGY PLC ("SDX", the "Company" or the "Group")
ANNOUNCES FULL YEAR 2021 FINANCIAL AND OPERATING RESULTS
SDX Energy Plc (AIM: SDX), the MENA-focused oil and gas company, is pleased to announce its audited financial and operating results for the twelve months ended 31 December 2021. All monetary values are expressed in United States dollars net to the Company unless otherwise stated.
SDX management will be hosting a conference call for analysts today at 3:00pm UK time, details of which can be found in the release below.
Mark Reid, CEO of SDX, commented:
"2021 was a year of both challenges and successes. Our portfolio continued to perform well with production above mid-point guidance, and Netback and EBITDAX showing growth of 21% and 22%. Impairment charges relating to South Disouq and Lalla Mimouna Nord have resulted in a statutory loss for the year.
The Group had mixed drilling results. The disappointment was the unsuccessful Hanut well, however there were a lot of positives; the IY-2X development well was drilled successfully and production brought on quickly maximising value from the field. In Morocco all our three wells were drilled successfully and all were tied into production infrastructure soon after drilling. Our fourth Moroccan well has encountered some issues however we plan to recommence drilling the well in early Q2 2022.
At West Gharib in Egypt, the first well of our 13 well campaign was spud in October with the entire program looking to bring on additional barrels of oil and take advantage of the higher oil price environment. Post period end, we have been able to announce the successful drilling of the first and second wells and the testing and tie in of both.
SDX's board and management has always approached the business from the perspective of maximising value for all stakeholders. As such, we were pleased to announce in February 2022 that the Group disposed of 33% of the shares in the entity that holds its interests across its South Disouq concession for US$5.5 million which was at a significant premium to the asset's value within our market capitalisation. As a result, a share buyback program of up to US$3.0 million is planned to be initiated in the second half of the year.
I am very confident that the upcoming year will be a positive one for SDX and that with a healthy balance sheet and a fully-funded drilling campaign targeting some exciting value-accretive prospects, we will finish the year in an even stronger position. The share price performance has clearly been very disappointing and I and my board colleagues are focussed on reversing this trend. I would like to extend my thanks to our shareholders for their commitment throughout the period and to all of our wider stakeholders for the support they continue to give SDX."
Twelve months to 31 December 2021 Operations Highlights
· Average entitlement production of 5,886 boe/d was 2% higher than 2021 mid point market guidance of 5,770 boe/d and 1% lower than the same period in 2020, excluding disposed assets.
· 2021 production from core assets either exceeded or was within market guidance. Capex was within guidance, despite operational issues resulting in higher than anticipated costs being incurred during the Q4 2021 well campaign in Morocco.
· The Company's operated assets recorded a carbon intensity of 3.0kg CO2e/boe in 2021 which is one of the lowest rates in the industry.
· In February 2022, the Company announced the disposal of 33% of the shares in the entity that holds its interests across its South Disouq concession for US$5.5 million and its intention to initiate a share buyback program of up to US$3.0 million in H2 2022.
· In South Disouq, a two-well development/exploration campaign took place between June and August 2021. The first well, the IY-2X step-out development well, was brought into production during the last week of August and will ensure that the Group maximises its recovery from the Ibn Yunus Field. The second well, the Hanut-1X ("HA-1X") exploration well, spudded on 4 August and reached the target depth of 6,000ft on 17 August. The primary target for HA-1X was the Basal Kafr El Sheikh sand at approximately 5,200ft; however, the well found that the Basal Kafr El Sheikh sand had been eroded at this location. As a result, the Company recognised a US$1.3 million dry-hole cost in Q3 2021.
· The first phase of the Morocco drilling campaign, which consisted of three appraisal/development wells in SDX's operated Gharb Basin acreage in Morocco (SDX: 75% working interest), was successfully completed in June 2021. The OYF-3, KSR-17 and KSR-18 wells were all commercial successes and are producing into the Company's infrastructure. The second phase, which consists of two appraisal/development wells will resume in Q2 2022.
· In West Gharib, following the 10-year concession extension granted in 2021, the first well (MSD-21) in a 13-well campaign spud on 16 October 2021 and commenced oil production in January 2022. Post period end, MSD-25, the second well of the campaign was drilled and placed on production.
· As at 31 December 2021, the Company's working interest share of audited(1) 2P reserves was 7.0 MMboe.
(1) The Company's 2P reserves and 2C resources estimates have been audited in accordance with the COGE Handbook & PRMS by Gaffney, Cline & Associates, an independent qualified reserves evaluator and auditor.
Twelve months to 31 December 2021 Financial Highlights
The table below reflects the results of the Company for the years ended 31 December 2021 and 2020. The North West Gemsa and South Ramadan concessions, which were sold in Q3 and Q4 2020 respectively, are classified as discontinued operations (as required by International Financial Reporting Standards "IFRS"). All revenues, costs and taxation from these assets have been consolidated into a single line item "profit from discontinued operations" in the previous reported period. Per unit metrics do not include North West Gemsa or South Ramadan.
|
|
Twelve months ended 31 December |
|
|
US$ million except per unit amounts |
2021 |
2020 |
|
Net revenues |
53.9 |
46.1 |
|
Netback(1) |
44.1 |
36.5 |
|
Net realised average oil service fees - US$/barrel |
55.27 |
31.96 |
|
Net realised average Morocco gas price - US$/Mcf |
11.34 |
10.80 |
|
Net realised South Disouq gas price - US$/Mcf |
2.85 |
2.85 |
|
Netback - US$/boe |
20.54 |
16.72 |
|
EBITDAX(1) (2) |
40.0 |
32.9 |
|
Exploration & evaluation expense(3) |
(14.1) |
(5.8) |
|
Impairment expense |
(9.5) |
- |
|
Depletion, depreciation, and amortisation |
(32.6) |
(25.2) |
|
Profit from discontinued operations |
- |
1.8 |
|
Total comprehensive loss |
(24.0) |
(2.1) |
|
Capital expenditure |
27.8 |
24.7 |
|
Net cash generated from operating activities(4) |
28.7 |
21.3 |
|
Cash and cash equivalents |
10.6 |
10.1 |
(1) Refer to the "Non-IFRS Measures" section of this release below for details of Netback and EBITDAX.
(2) EBITDAX for twelve months ended 31 December 2021 and 2020 includes US$5.3 million and US$5.1 million respectively of non-cash revenue relating to the grossing up of Egyptian corporate tax on the South Disouq PSC which is paid by the Egyptian State on behalf of the Company.
(3) For the twelve months ended 31 December 2021 and 2020 US$12.3 million and US$4.5 million respectively of non-cash Exploration & Evaluation ("E&E") write offs in total are included within this line item.
(4) Excludes discontinued operations.
· 2021 Netback of US$44.1 million, 21% higher than the same period in 2020. Netback contribution from South Disouq was US$16.5 million (2020: US$16.2 million) due to lower gas and condensate production and increased water and sand production being more than offset by higher realised price for condensate. West Gharib Netback increased by US$2.5 million due to the increase in the realised oil service fee, partly offset by lower production. Morocco Netback was higher in 2021 by US$4.8 million due to significantly higher production and higher realised prices due to favourable FX. In 2020, Moroccan production was impacted by COVID-19 shutdowns.
· 2021 EBITDAX of US$40.0 million was 22% higher than the same period in 2020 of US$32.9 million due to higher Netback, partly offset by lower profitability from the Company's investment in the joint venture that operates the West Gharib asset and slightly greater recurring G&A expenses.
· 2021 depletion, depreciation and amortisation ("DD&A") charge of US$32.6 million was higher than the US$25.2 million for the same period in 2020 due to accelerated depreciation of the SD-12X borehole due to lower recoverable reserves from this well, and a downward revision of the reserves base at the start of 2021 for South Disouq and Morocco, partly offset by lower production.
· Non-cash E&E write offs totalled US$14.1 million following the non-cash impairment charge ahead of the relinquishment of the Lalla Mimouna Nord concession in Morocco (US$10.3 million), the write off the Hanut-1X dry well drilled in South Disouq (US$1.3 million), a write-off of decommissioning assets for the Moroccan operations (US$0.7 million), a provision for obsolete inventory (US$0.2 million), and ongoing new venture activity (US$1.6 million).
· Non-cash PP&E impairment of US$9.5 million was recognised for the South Disouq Cash Generating Unit ("CGU") as at 31 December 2021, following a downward revision in the anticipated recoverable reserves from the producing fields.
· Operating cash flow (before capex, excluding discontinued operations) of US$28.7 million, was higher than the same period in 2020 of US$21.3 million, primarily due to the EBITDAX drivers discussed above and lower tax payable for West Gharib due to lower 2020 profitability. These factors were partly offset by an increase in accounts receivable, driven by an increase in the ONHYM receivable for its share of completion and connection costs for wells drilled in 2021 and increased revenues from West Gharib during the period, and cash spent on inventory, the majority of which will be consumed in the next South Disouq drilling campaign.
· Capex of US$27.8 million, reflects:
o US$17.2 million (including US$0.3 million of decommissioning provisions) for the Moroccan drilling campaign and well tie-ins;
o US$3.1 million for other projects in Morocco including seven well workovers partly offset by a US$1.4 million reduction in the decommissioning estimate for the Moroccan operations (net effect: US$1.7 million);
o US$6.7 million for the completion of the SD-12X tie in at South Disouq, the drilling of the IY-2X and HA-1X wells (including a US$0.6 million exploration extension signature bonus), the SD-4X well workover, and other minor capex projects at South Disouq;
o US$2.1 million for drilling/workovers in West Gharib; and
o US$0.1 million for other assets.
· Liquidity: Closing cash as at 31 December 2021 was US$10.6 million with the European Bank of Reconstruction and Development ("EBRD") credit facility remaining undrawn with US$4.8 million of availability. This availability is likely to reduce on completion of the South Disouq disposal, with the next redetermination scheduled for Q2 2022.
· Together with cash generated from operations, management believes the Company is fully funded for all its stated objectives in 2022.
2022 Guidance
· 2022 production guidance of 3,300 - 3,550 boe/d is lower than 2021 production, predominantly due to the disposal of 33% of SDX's interests in the South Disouq asset, as well as the decision not to immediately renew an expired customer contract in Morocco. At West Gharib, the development drilling is expected to arrest the natural decline in production and then grow volumes as the new wells come online.
· An analysis of 2022 production guidance by asset is as follows:
|
Gross production |
SDX entitlement production boe/d |
SDX entitlement production boe/d |
||
|
Asset |
Guidance - 12 months ended 31 December 2022 |
Actual - 12 months ended 31 December 2021 |
Guidance 12 months ended 31 December 2022 |
Actual 12 months ended 31 December 2021 |
|
South Disouq - WI 55% & 100% (36.9% & 67.0%1) |
33 - 35 MMscfe/d |
45.5 MMscfe/d |
2,280 - 2,420 |
4,465 |
|
West Gharib - WI 50% |
2,200 - 2,650 bbl/d |
2,398 bbl/d |
420- 505 |
457 |
|
Morocco - WI 75% |
4.8 - 5.0 MMscf/d |
7.7 MMscf/d |
600 - 625 |
964 |
|
Total |
|
|
3,300 - 3,550 |
5,886 |
(1) After completion of the South Disouq disposal with effect from 1 February 2022, and net of minority interest. Gross of minority interest, production is expected to be 3,250 - 3,450 boe/d.
o South Disouq : Production guidance for 2022 reflects the disposal of 33% of SDX's interest in the asset, 2-3% CPF and compressor downtime due to planned maintenance, and several well workovers. The existing wellstock is expected to continue to exhibit natural decline, some of which will be offset by drilling the SD-12_East development well. The SD-5X/Warda exploration well is assumed to be dry for guidance purposes but if successful, could increase gross production to 38-40 MMscfe/d and SDX's total corporate entitlement guidance to 3,600-3,850 boe/d (net of minority interest) from the 3,300-3,550 boe/d currently presented. The Mohsen exploration well, if successful, will require to be tied in and therefore is not expected to contribute to production until mid-2023.
o West Gharib: The development drilling campaign will arrest the asset's natural decline, with new wells beginning to grow production during the second half of the year and into 2023.
o Morocco: 2022 production guidance is lower than 2021 production as the Company decided not to immediately renew a five-year customer contract that expired on 31 December 2021 until the Company has better visibility on future gas supply and pricing to support the full term of a new contract. This decision is the main factor for a reduction in Moroccan capex guidance in 2022 which is c.US$6.0 million (32%) lower than FY21 capex. The Company is exploring several options for re-entering into discussions with this customer.
o COVID-19: The 2022 production guidance presented assumes no significant production curtailments due to COVID-19. If there are disruptions, then production guidance may be revised.
2022 Capex Guidance
· 2022 capex guidance range of US$21.5-23.0 million is fully funded and predominantly relates to one appraisal and two exploration wells in South Disouq, up to eight new wells and facilities upgrades in West Gharib, and five new wells in Morocco.
|
Asset |
Guidance - 12 months ended 31 December 2022 |
Actual - 12 months ended 31 December 2021 |
|
South Disouq - WI 55% & 100% (36.9% & 67.0%(1)) |
US$4.5 - 5.0 million(2) |
US$6.6 million(3) |
|
West Gharib - WI 50% |
US$4.5 - 5.0 million |
US$2.2 million |
|
Morocco - WI 75% |
US$12.5 - 13.0 million |
US$18.9 million(4) |
|
Total |
US$21.5 - 23.0 million |
US$27.7 million |
(1) After South Disouq disposal
(2) Net of minority interest. Gross of minority interest, capex guidance is US$6.7 - 7.2 million.
(3) Includes US$0.6 million of expenditure that was pre-paid as a project milestone in 2020 but has now been reclassified to capex.
(4) Includes a net reduction of US$0.6 million in the decommissioning estimate for the Moroccan operation, following a review of assumptions.
· The anticipated timings of planned key capex activities are outlined below:
|
Asset |
Activity |
2022 Timing |
|
South Disouq |
SD-5X (Warda) exploration well |
Q1-Q2 |
|
SD-4X workover |
Q2 |
|
|
SD-12_East appraisal well |
Q2 |
|
|
SD-3X workover (AM-I) |
Q2 |
|
|
MA-1X (Mohsen) exploration well |
Q3 |
|
|
SD-3X workover (KES) |
Q4 |
|
|
Morocco |
Two well drilling campaign |
Q1-Q2 |
|
SAH-4 workover |
Q1 |
|
|
Three well drilling campaign |
Q3-Q4 |
|
|
West Gharib |
Eight development wells |
Q1-Q4 |
|
Water injection well and facilities upgrades |
Q2-Q4 |
o South Disouq : One appraisal well, SD-12_East, and two exploration wells, SD-5X (Warda) and MA-1X (Mohsen), will be drilled consecutively, commencing in Q1 2022. SD-5X (Warda), the first well in the campaign, is a basal Kafr El Sheikh prospect targeting unrisked P50 recoverable volumes of 11bcf with a 40% chance of success. The well location is close to the producing SD-4X well, again enabling low-cost and quick tie-in in the event of success. SD-12_East will target the eastern part of the Sobhi field and is expected to be completed and tied back rapidly once drilled. MA-1X (Mohsen) is targeting a prospect further to the south-east, c.5.5km from the CPF. It too is a basal Kafr El Sheikh prospect and is targeting unrisked P50 recoverable volumes of 21bcf with a 45% chance of success. Following the disposal announced on 1 February 2022, all three wells are being drilled with partner participation. In addition to the drilling activity, several well workovers will be undertaken to maximise recovery from the fields.
o West Gharib: Up to eight infill development wells will be drilled as part of the field development plan, with additional facilities installed, including greater fluid handling capacity.
o Morocco: Five wells will be drilled in two campaigns in Q2 and Q3/Q4 2022. As in 2021, conducting two campaigns allocates the capital investment over a longer period of time and therefore allows the cost of these wells to be comfortably covered by cash generated by the asset. All five wells will target shallow biogenic gas that can be tied into the Company's infrastructure quickly and at low cost, with one of the first two wells targeting a new area of the acreage which is as yet untested, but covered by 3D seismic. If successful, this well could open up further drilling and exploitation opportunities, some of which could be tested in the second campaign. Several wells will be worked over, including re-perforation and sliding sleeve operations to exploit behind-pipe reserves and maximise production and recovery from the existing well stock.
2021 ESG metrics
· The Company's operated assets recorded a carbon intensity of 3.0kg CO2e/boe in 2021, which is one of the lowest rates in the industry
· Scope 1 greenhouse gas emissions at operated assets were 9,900 tons of CO2e. Scope 3 greenhouse gas emissions in Morocco were 147,900 tons of CO2e, which is approximately 75,000 tons of CO2e less than using alternative heavy fuel oil.
· There was one Lost Time Injury in Morocco during 2021 in which a contractor sustained a minor injury in a road traffic accident, but after a short period of observation was able to return to work. There were no recordable injuries in South Disouq.
· No produced water was discharged into the environment in Morocco (100% contained and evaporated) or at South Disouq (100% recycled).
· There were no hydrocarbon spills at operated assets.
· During 2021, SDX was delighted to support two hospitals close to the South Disouq operation by donating 13 monitors and BPAP ventilators to help to alleviate the current COVID-19 crisis and equip the teams there for the longer-term health of our local communities. In Morocco, SDX made the decision to support the Dar Lekbira organisation, based in Kenitra. Dar Lekbira is an NGO with no political or religious affiliation. It aims to help children in distress in Kenitra and the surrounding area, which overlaps with SDX's operating footprint. SDX is providing Dar Lekbira with winter clothing, school supplies and non-perishable food items.
· The Company continues to adopt high standards of Governance through its adherence to the QCA Code on Corporate Governance.
Outlook
· Management believes that the Company is well-placed to weather the current macroeconomic uncertainties and continues to screen a number of business development opportunities.
· Cash generation is expected to continue strongly through 2022 and beyond as approximately 80% of the Company's cash flows are expected to be generated from fixed-price gas businesses, with the remaining 20% being generated from our West Gharib oil asset which is highly profitable in the current oil price environment.
· The current strong oil price and outlook means that the Group also plans to continue with its thirteen well drilling campaign and capitalise on its recent production service agreement extension at West Gharib.
· Anticipated 2022 and 2023 work programmes are fully funded.
· The Company continues to assess the optimum use of capital in the interests of all stakeholders, whether that be investment into new projects or returning cash to shareholders. As previously announced, following the disposal of 33% of the shares in the entity that holds its interests across it South Disouq concession , the Company has stated its intention to initiate a share buyback program in H2 2022 of up to US$3.0 million.
Detailed Operations Update
Twelve months to 31 December 2021 Production
· Twelve months to 31 December 2021 actual entitlement production of 5,886 boe/d, a decrease of 1% from the same period in 2020, at the high-end of 2021 guidance of 5,620-5,920 boe/d.
· Production from all core assets within or above guidance.
|
Gross production |
SDX entitlement production |
||||
|
Asset |
Guidance - 12 months ended 31 December 2021
|
Actual - 12 months ended 31 December 2021
|
Guidance - 12 months ended 31 December 2021
|
Actual 12 months ended 31 December 2021
|
Actual 12 months ended 31 December 2020
|
|
Core assets |
|
|
|
|
|
|
South Disouq - WI 55% &100% |
44 - 46 MMscfe/d |
45.5 MMscfe/d |
4,300 - 4,500 |
4,465 |
4,532 |
|
West Gharib - WI 50% |
2,350 - 2,650 bbl/d |
2,398 bbl/d |
446 - 505 |
457 |
626 |
|
Morocco - WI 75% |
7.0 - 7.3 MMscf/d |
7.7 MMscf/d |
874 - 915 |
964 |
812 |
|
Total |
|
|
5,620 - 5,920 |
5,886 |
5,970 |
|
Discontinued operations |
|
|
|
|
|
|
NW Gemsa - WI 50% |
N/A |
N/A |
N/A |
N/A |
382 |
|
South Ramadan - WI 12.75 % |
N/A |
N/A |
N/A |
N/A |
45 |
|
Total |
|
|
5,620 - 5,920 |
5,886 |
6,397 |
o South Disouq : During 2021, production from the SD-12X well, which was brought online in December 2020, and the IY-2X well, which was drilled and placed on production in Q3 partly offset natural decline and expected sand and water production from two of the four existing wells. The SD-1X and SD-4X wells were successfully worked over during the period and were put back on production at improved rates and with reduced sand and water production. Production for the year was above midpoint guidance.
o West Gharib: Existing wellstock at the asset continued to produce steadily, although exhibiting natural decline as expected. The first well (MSD-21) in a 13-well infill development campaign spud in October 2021 and was completed and brought online in early January 2022. Post period end, MSD-25, the second well of the campaign, was drilled and placed on production. As the campaign commencement was slightly delayed, production for the year was at the lower end of guidance.
o Morocco: 2021 saw strong demand from all customers, reflecting a sustained return to normal levels of consumption following COVID shutdowns which affected 2020 production. The period also reflects additional consumption from an existing customer's second factory which came online in December 2020. Production for the year exceeded guidance.
2021 Drilling and Operations
Morocco drilling campaign update (SDX 75% working interest)
· Seven workovers were conducted with the majority being recompletions into known gas bearing horizons in the wells to maximise recovery from our wells and to maintain supply to customers. Part of the strategy to maximise recovery is also the use and active management of the two compressors that SDX operates in Morocco.
· The first phase of the Morocco drilling campaign consisted of three appraisal/development wells in SDX's operated Gharb Basin acreage (SDX: 75% working interest) and was successfully completed in June 2021. The OYF-3, KSR-17 and KSR-18 wells were all commercial successes and are producing into the Company's infrastructure.
· Much of the work through the second half of the year focused on preparing for the second phase of the 2021 drilling campaign, which was to consist of two wells. The first well, KSR-19, was spud on 16 November. In December, SDX announced that due to operational issues affecting the drilling of the KSR-19 well and COVID-19 border restrictions impacting the mobilisation of equipment and personnel into Morocco, the two well campaign was temporarily suspended and is now expected to re-commence in early Q2 2022.
· The successful wells will allow the Company to significantly extend reserve life and continue to support lower CO2 emissions at our customers.
South Disouq Egypt exploration drilling campaign update (SDX 55%/100% working interest pre-farm out, SDX 36.9%/67% working interest post-farm out)
· The Company received final ministerial and parliamentary approval of the two-year extension to the South Disouq exploration area. The campaign kicked off with the drilling of the IY-2X development well in the Ibn Yunus field to accelerate production and cash flows. The well was tied in during the last week of August and the Company's expectations are that the IY-2X well will maximise recovery from the Ibn Yunus Field.
· In August 2021, the second well, the HA-1X exploration well, spudded on 4 August and reached the target depth of 6,000ft on 17 August. The primary target for HA-1X was the Basal Kafr El Sheikh sand at approximately 5,200ft; however, the well found that the Basal Kafr El Sheikh sand had been eroded at this location. Whilst drilling to target depth, good quality sands were found at the Qawasim level; however, they were not charged with gas.
· Following the results of SD-12X, IY-2X, HA-1X and further review of the 3D seismic, management has now identified c.52bcf of mean unrisked recoverable volumes, which are close to our existing infrastructure, located in horizons that are either productive in South Disouq or in adjacent blocks and have now been high-graded to drill-ready prospects.
· Management's estimate of the mean prospective resources and chance of success of the prospects identified in the South Disouq area are shown below.
|
Prospect Name
|
Working Interest % |
Interval |
Concession Detail |
Comment |
Unrisked Mean (bcf) |
Chance of Success (%) |
|
Mohsen |
67.0 |
KES |
2-year exploration extension expires March 2023 |
Single Target |
21 |
45 |
|
El Deeb |
36.9-67.0(1) |
Qawasim |
2-year exploration extension expires March 2023 |
Single Target |
7 |
31 |
|
Ibn Newton/Newton |
36.9-67.0(1) |
KES/Abu Madi |
2-year exploration extension |
Dual Target |
7 |
27-40 |
|
Shikabala prospects (two wells) |
67.0 |
KES/ Qawasim |
Up to 25-year Development Lease to 31 August 2045 |
Single Target & Dual Target |
6 |
35-40 |
|
Warda |
36.9 |
KES |
Up to 25-year Development Lease to 2 January 2044 |
Single Target |
11 |
40 |
|
Total |
|
|
|
|
52 |
|
(1) Working interest % dependent on Partner's decision to participate in the extension.
West Gharib Egypt exploration drilling campaign update (SDX 50% working interest)
· In March 2021, SDX obtained approval for a 10-year extension to the West Gharib Production Services Agreement.
· Following this agreement, SDX and its partner commenced planning for a 13-well development drilling campaign plus one water injector well. These wells are part of a wider three-year plan to arrest production decline in the asset and return gross production levels to 4,000 - 4,500 bbl/d, taking advantage of low-risk production growth and the improved oil pricing environment.
· Much of the activity in the West Gharib concession during 2021 was centred around the planning and preparation for the aforementioned infill drilling campaign. The first well of the campaign, MSD-21 producer, was spud in October and reached TD in mid-December. MSD-21 was then completed, tied-in and brought on-line. Post period end, MSD-25, the second well of the campaign, was drilled and placed on production.
· Eight well workovers across the concession were completed during 2021.
Twelve months to 31 December 2021 Financial Update
· Netback was US$44.1 million, 21% higher than the Netback of US$36.5 million for the twelve months to 31 December 2020, driven by:
o Net revenue increase of US$7.6 million due to:
o US$0.9 million higher South Disouq revenue, due to improved condensate pricing, partly offset by lower production;
o US$5.0 million higher revenue in Morocco due to strong demand from all customers, rebounding from COVID-19-related customer shutdowns in 2020 (2021: 964 boe/d, 2020: 812 boe/d) and higher prices due to the strengthening of the Moroccan dirham and contract mix; and
o US$1.9 million higher revenue at West Gharib due to higher realised service fees (2021: US$55.27/bbl, 2020: US$31.96/bbl), partly offset by lower production (2021: 457 bbl/d, 2019: 626 bbl/d).
o Operating costs increased by US$0.2 million from the prior year due to higher water and sand handling costs in the first half of 2021 at South Disouq, higher expenditure for the relocation and connection costs associated with the two compressors in Morocco, partly offset by lower production during the year.
· EBITDAX was US$40.0 million, US$7.1 million (22%) higher than EBITDAX of US$32.9 million for the twelve months to 31 December 2020. This increase is due to higher Netback partly offset by higher G&A expenses, primarily due to higher legal fees in Morocco, corporate D&O insurance, cost inflation on professional services and early termination charges on vehicle leases, partly offset by lower wages and employee costs, and lower profitability from the Company's investment in the joint venture that operates the West Gharib asset.
· The main components of SDX's comprehensive loss of US$24.0 million for the twelve months ended 31 December 2021 are:
o US$44.1 million Netback;
o US$14.1 million of E&E expense, of which:
§ US$10.3 million represents the non-cash impairment charge ahead of the relinquishment of the Lalla Mimouna Nord concession;
§ US$1.3 million is the write off the Hanut-1X dry well drilled in South Disouq in Q3 2021, including associated seismic costs (US$0.2 million) and its share of the concessions signature bonus (US$0.4 million);
§ US$0.7 million is the write-off of decommissioning assets for the Moroccan operations, following a review of assumptions;
§ US$0.2 million is the provision for obsolete inventory; and
§ US$1.6 million relates to ongoing new venture activity (predominantly internal management time).
o US$32.6 million of DD&A expense reflects accelerated depreciation of the SD-12X borehole and a downward revision of the reserves base at the start of 2021 for South Disouq and Morocco, partly offset by lower production;
o US$9.5 million of impairment of the South Disouq CGU;
o US$4.3 million of ongoing G&A expense; and
o US$6.9 million of Egyptian corporation tax predominantly for South Disouq and corporate social tax in Morocco.
Operating cash flow (before capex, excluding discontinued operations)
· Operating cash flow (before capex, excluding discontinued operations) of US$28.7 million, was higher than the same period in 2020 of US$21.3 million primarily due to the EBITDAX drivers discussed above and lower tax payable for West Gharib due to lower 2020 profitability. These factors were partly offset by an increase in accounts receivable, driven by an increase in the ONHYM receivable for its share of completion and connection costs for wells drilled in 2021 and increased revenues from West Gharib during the period, and cash spent on inventory, the majority of which will be consumed in the next South Disouq drilling campaign.
Corporate
· SDX announces that Peel Hunt LLP will no longer act as joint broker to the Company with immediate effect
KEY FINANCIAL & OPERATING HIGHLIGHTS
|
|
|
Twelve months ended 31 December |
|
||
|
$000s except per unit amounts |
|
2021
|
2020
|
||
|
FINANCIAL |
|
|
|
||
|
Net Revenues |
|
53,860 |
46,068 |
||
|
Operating costs |
|
(9,732) |
(9,535) |
||
|
Netback (1) |
|
44,128 |
36,533 |
||
|
EBITDAX (1) |
|
39,993 |
32,874 |
||
|
Total comprehensive loss |
|
(23,955) |
(2,058) |
||
|
Net loss per share - basic |
|
$(0.117) |
$(0.010) |
||
|
Cash, end of period |
|
10,562 |
10,056 |
||
|
Capital expenditures |
|
27,774 |
24,733 |
||
|
Total assets |
|
98,415 |
124,603 |
||
|
Shareholders' equity |
|
72,654 |
96,342 |
||
|
Common shares outstanding (000's) |
|
205,378 |
205,378 |
||
|
|
|
|
|
||
|
OPERATIONAL |
|
|
|
||
|
West Gharib production service fee (bbl/d) |
|
457 |
626 |
||
|
South Disouq gas sales (boe/d) |
|
4,245 |
4,286 |
||
|
Morocco gas sales (boe/d) |
|
964 |
812 |
||
|
Other products sales (boe/d) |
|
220 |
246 |
||
|
Total sales volumes (boe/d) |
|
5,886 |
5,970 |
||
|
|
|
|
|
||
|
Realised West Gharib service fee (US$/bbl) |
|
$55.27 |
$31.96 |
||
|
Realised South Disouq gas price (US$/Mcf) |
|
$2.85 |
$2.85 |
||
|
Realised Morocco gas price (US$/Mcf) |
|
$11.34 |
$10.80 |
||
|
|
|
|
|
||
|
Royalties ($/boe) |
|
$5.12 |
$4.94 |
||
|
Operating costs ($/boe) |
|
$4.53 |
$4.36 |
||
|
Netback ($/boe) (1) |
|
$20.54 |
$16.72 |
||
(1) Refer to the "Non-IFRS Measures" section of this release below for details of Netback and EBITDAX.
Consolidated Balance Sheet
(US$'000s) |
| As at 31 December 2021 | As at 31 December 2020 |
|
|
|
|
Assets |
|
|
|
Cash and cash equivalents |
| 10,562 | 10,056 |
Trade and other receivables |
| 19,942 | 18,608 |
Inventory |
| 6,747 | 8,414 |
Current assets |
| 37,251 | 37,078 |
|
|
|
|
Investments |
| 3,593 | 3,790 |
Property, plant and equipment |
| 34,593 | 57,880 |
Exploration and evaluation assets |
| 21,611 | 24,455 |
Right-of-use assets |
| 1,367 | 1,400 |
Non-current assets |
| 61,164 | 87,525 |
|
|
|
|
Total assets |
| 98,415 | 124,603 |
|
|
|
|
Liabilities |
|
|
|
Trade and other payables |
| 17,157 | 20,120 |
Decommissioning liability |
| 22 | 327 |
Current income taxes |
| 1,150 | 241 |
Lease liability |
| 439 | 461 |
Current liabilities |
| 18,768 | 21,149 |
|
|
|
|
Decommissioning liability |
| 5,747 | 5,862 |
Deferred income taxes |
| 290 | 290 |
Lease liability |
| 956 | 960 |
Non-current liabilities |
| 6,993 | 7,112 |
|
|
|
|
Total liabilities |
| 25,761 | 28,261 |
|
|
|
|
Equity |
|
|
|
Share capital |
| 2,601 | 2,601 |
Share premium |
| 130 | 130 |
Share-based payment reserve |
| 7,536 | 7,269 |
Accumulated other comprehensive loss |
| (917) | (917) |
Merger reserve |
| 37,034 | 37,034 |
Retained earnings |
| 26,270 | 50,225 |
|
|
|
|
Total equity |
| 72,654 | 96,342 |
|
|
|
|
Equity and liabilities |
| 98,415 | 124,603 |
Consolidated Statement of Comprehensive Income
| Year ended 31 December | |
(US$'000s) | 2021 | 2020 |
|
|
|
Revenue, net of royalties | 53,860 | 46,068 |
|
|
|
Direct operating expense | (9,732) | (9,535) |
Gross profit | 44,128 | 36,533 |
|
|
|
Exploration and evaluation expense | (14,085) | (5,809) |
Depletion, depreciation and amortisation | (32,624) | (25,192) |
Impairment expense | (9,528) | - |
Stock-based compensation | (267) | (231) |
Share of profit from joint venture | 383 | 696 |
General and administrative expenses |
|
|
- Ongoing general and administrative expenses | (4,251) | (3,972) |
- Transaction costs | - | (152) |
|
|
|
Operating (loss)/income | (16,244) | 1,873 |
|
|
|
Finance costs | (641) | (598) |
Foreign exchange (loss)/gain | (179) | 153 |
(Loss)/income before income taxes | (17,064) | 1,428 |
|
|
|
Current income tax expense | (6,891) | (5,254) |
|
|
|
Profit from discontinued operations | - | 1,768 |
|
|
|
Loss and total comprehensive loss for the period | (23,955) | (2,058) |
|
|
|
Net loss per share |
|
|
Basic | $(0.117) | $(0.010) |
Diluted | $(0.117) | $(0.010) |
Consolidated Statement of Changes in Equity
| Year ended 31 December | |
(US$'000s) | 2021 | 2020 |
|
|
|
Share capital |
|
|
Balance, beginning of period | 2,601 | 2,593 |
Issue of shares | - | 8 |
Balance, end of period | 2,601 | 2,601 |
|
|
|
Share premium |
|
|
Balance, beginning of period | 130 | - |
Issue of shares | - | 130 |
Balance, end of period | 130 | 130 |
|
|
|
Share-based payment reserve |
|
|
Balance, beginning of period | 7,269 | 7,038 |
Share-based compensation for the period | 267 | 231 |
Balance, end of period | 7,536 | 7,269 |
|
|
|
Accumulated other comprehensive loss |
|
|
Balance, beginning of period | (917) | (917) |
Balance, end of period | (917) | (917) |
|
|
|
Merger reserve |
|
|
Balance, beginning of period | 37,034 | 37,034 |
Balance, end of period | 37,034 | 37,034 |
|
|
|
Retained earnings |
|
|
Balance, beginning of period | 50,225 | 52,283 |
Total comprehensive loss for the year | (23,955) | (2,058) |
Balance, end of period | 26,270 | 50,225 |
|
|
|
Total equity | 72,654 | 96,342 |
Consolidated Statement of Cash Flows
| Year ended 31 December | |
(US$'000s) | 2021 | 2020 |
|
|
|
Cash flows generated from/(used in) operating activities |
|
|
Income/(loss) before income taxes | (17,064) | 1,428 |
|
|
|
Adjustments for: |
|
|
Depletion, depreciation and amortisation | 32,624 | 25,192 |
Exploration and evaluation expense | 12,327 | 4,457 |
Impairment expense | 9,528 | - |
Finance expense | 641 | 598 |
Stock-based compensation charge | 267 | 231 |
Foreign exchange loss/(gain) | 203 | (369) |
Tax paid by state | (5,295) | (5,107) |
Share of profit from joint venture | (383) | (696) |
Operating cash flow before working capital movements | 32,848 | 25,734 |
|
|
|
Increase in trade and other receivables | (1,373) | (1,243) |
(Decrease)/increase in trade and other payables | (1,902) | 3,041 |
Payments for inventory | (377) | (4,459) |
Payments for decommissioning | (205) | (611) |
Cash generated from operating activities | 28,991 | 22,462 |
|
|
|
Income taxes paid | (324) | (1,121) |
Net cash generated from operating activities | 28,667 | 21,341 |
|
|
|
Cash generated from discontinued operations | - | 2,445 |
|
|
|
Cash flows generated from/(used in) investing activities: |
|
|
Property, plant and equipment expenditures | (18,947) | (18,188) |
Exploration and evaluation expenditures | (8,675) | (10,333) |
Proceeds on disposal | - | 3,500 |
Dividends received | 522 | 773 |
Net cash used in investing activities | (27,100) | (24,248) |
|
|
|
Cash flows generated from/(used in) financing activities: |
|
|
Payments of lease liabilities | (664) | (636) |
Finance costs paid | (197) | (269) |
Net cash used in financing activities | (861) | (905) |
|
|
|
Increase/(decrease) in cash and cash equivalents | 706 | (1,367) |
|
|
|
Effect of foreign exchange on cash and cash equivalents | (200) | 369 |
|
|
|
Cash and cash equivalents, beginning of period | 10,056 | 11,054 |
|
|
|
Cash and cash equivalents, end of period | 10,562 | 10,056 |
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 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.
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 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:
SDX Energy Plc Mark Reid Chief Executive Officer Tel: +44 203 219 5640
|
| ||||||||||||
Stifel Nicolaus Europe Limited (Nominated Adviser and Broker) Callum Stewart Jason Grossman Ashton Clanfield Tel: +44 (0) 20 7710 7600
| |||||||||||||
Camarco (PR) Billy Clegg/Owen Roberts/Violet Wilson Tel: +44 (0) 203 757 4980
Conference call details
Date: 18 March 2022
Time: 3:00pm GMT
PIN: 43971510#
The presentation will be made available our website; https://www.sdxenergygroup.com/investors/results-centre/ | |||||||||||||
Glossary
"bbl" | stock tank barrel |
"bbl/d" | barrels of oil per day |
"bcf" | billion cubic feet |
"boe" | barrels of oil equivalent |
"boe/d" | barrels of oil equivalent per day |
"CO2e " | carbon dioxide equivalent |
"DD&A" | depletion, depreciation and amortisation |
"E&E" | exploration & evaluation |
"MMboe" | million barrels of oil equivalent |
"Mcf" | thousands of cubic feet |
"MMscf/d" | million standard cubic feet per day |
"MMscfe/d" | million standard cubic feet equivalent per day |
"WI" | working interest |
"2P" | proved plus probable reserves |
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 disposal of 33% of its interests across its South Disouq concession and the use of proceeds of same; the Company's intention to initiate a share buyback program; the Company's 2022 production and capex guidance; liquidity and sources of cash flows in 2022; the impact of COVID-19 on the Company's future production; future drilling developments, costs and results; the likely reduction in availability of the EBRD credit facility; and management's beliefs with respect to the Company's overall economic position 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 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 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.
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 adjusting 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 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.
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.
Use of a Standard
Reserve and resource estimates disclosed or referenced herein have been prepared in accordance with the SPE's Canadian Oil and Gas Evaluation Handbook and in accordance with NI 51-101.
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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