Q1 2020 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.
20 May 2020
SDX ENERGY PLC ("SDX" or the "Company")
ANNOUNCES Q1 2020 FINANCIAL AND OPERATING RESULTS
SDX Energy Plc (AIM: SDX), the MENA-focused oil and gas company, is pleased to announce its unaudited financial and operating results for the three months ended 31 March 2020. All monetary values are expressed in United States dollars net to the Company unless otherwise stated. SDX management will be hosting a conference call today at 9.30am UK time, details of which can be found in the release below.
Mark Reid, CEO of SDX, commented:
"The first quarter of 2020 proved to be a positive period for SDX against the backdrop of a challenging global economic environment. Production has been above expectations and I am pleased that our resilient business continued to generate cash from our oil and gas production as well as discovering new resource through the drill bit in both Morocco and Egypt. Although we are currently living in a dynamic and fast-changing environment, it gives me great reassurance that approximately 90% of the Company's 2020 cash flows are expected to be generated from our fixed-price gas business. Disruption to our business as a result of COVID-19 has so far been minimal, and we are pleased that our three Moroccan customers that were temporarily closed are beginning to take gas again. Our ongoing cash generation and cash position remains strong and we continue to have access to US$7.5 million of additional liquidity through our EBRD credit facility. That said, capital discipline remains our key priority as we continue to navigate the year with necessary caution to our surrounding environment but also with confidence in the ability of our business to produce significant returns in 2020 and to continue to grow thereafter."
Q1 2020 Operations highlights
· Q1 2020 entitlement production of 8,061 boe/d is 117% higher than Q1 2019 and is at, or exceeding, 2020 guidance. Strong production levels were driven by South Disouq, which performed ahead of expectations - gross production of 51.4 MMscf/d of dry gas and 511 bbl/d of condensate equating to 4,994 boe/d net to SDX.
· South Disouq two-well drilling campaign commenced during the quarter. The first well, SD-6X, encountered sub-economic quantities of gas and was plugged and abandoned. The second well, SD-12X, spud on 18 March and post-period end was announced as a commercial discovery in the Kafr el Sheikh formation, with management estimating 24 bcf recoverable resources. Plans underway to connect SD-12X to the Company's gas processing plant via a 5.8km flow line to the Ibn Yunus-1X well location.
· Following the success of SD-12X, management is looking to high grade other adjacent, and now de-risked, prospects for drilling in the next two to three years.
· Moroccan drilling campaign has resulted in seven discoveries from nine wells drilled to date, with the tenth well, LMS-2, completed and awaiting crew mobilisation for testing. Discoveries at OYF-2 and BMK-1 confirm the prospectivity in SDX's existing core production and development area extends to the north, and have de-risked c.20 bcf P50 prospective resources. All objectives of the drilling campaign were achieved with 10 wells with the final two wells deferred to preserve capital.
· Following the drilling campaigns at South Disouq and Morocco, SDX has incurred the majority of its planned capex for 2020.
COVID-19 update
· During the second half of March 2020 and into April 2020, COVID-19 containment restrictions in Morocco temporarily impacted our operations, with three customers being required to close their operations. In early May these same customers re-started production, albeit not at full capacity, and as at 19 May 2020 had returned to approximately 40% of their pre-closure consumption rates. The Company will continue to monitor this situation and provide an update on Moroccan production guidance after the three customers have returned to more steady state and predictable consumption levels. The Company's Moroccan business remains extremely resilient and can breakeven with customer consumption levels at 20% of Q1 2020 levels. Egyptian operations remain unaffected by COVID-19 at present. The Company continues to follow applicable government guidance in each of its territories.
2020 Guidance
· 2020 production guidance of 6,750 - 7,000 boe/d is 66-72% higher than 2019 actual production.
· 2020 capex guidance has been revised up from US$24.7 million as per the Company's annual results operations update provided on 7 April, to c.US$28.2 million. The revision reflects the 100% cost of tying in the successful SD-12X well in South Disouq.
Q1 2020 Financial Highlights
|
|
Three months ended 31 March (unaudited) |
|
|
US$ million except per unit amounts |
2020 |
2019 |
|
Net revenues |
16.0 |
12.7 |
|
Netback(1) |
12.1 |
9.3 |
|
Net realised average oil price/service fees - US$/barrel |
43.03 |
54.58 |
|
Net realised average Morocco gas price - US$/mcf |
10.33 |
10.26 |
|
Net realised South Disouq gas price - US$/mcf |
2.85 |
- |
|
Netback - US$/boe |
16.47 |
27.84 |
|
EBITDAX(1) (2) |
11.1 |
7.8 |
|
Exploration & evaluation expense(3) |
(4.8) |
(0.2) |
|
Depletion, depreciation and amortisation |
(6.7) |
(5.9) |
|
Total comprehensive (loss)/income |
(3.2) |
0.1 |
|
Capital expenditure |
15.5 |
13.0 |
|
Net cash generated from operating activities |
6.3 |
7.0 |
|
Cash and cash equivalents |
8.8 |
11.4 |
(1) Refer to the "Non-IFRS Measures" section of this release below for details of Netback and EBITDAX.
(2) EBITDAX for Q1 2020 and 2019 includes US$2.1 million and US$1.0 million respectively of non-cash revenue relating to the grossing up of Egyptian corporate tax on the North West Gemsa (both periods) and South Disouq (2020 only) PSCs which is paid by the Egyptian State on behalf of the Company.
(3) US$4.5 million of non-cash Exploration & Evaluation ("E&E") write offs in total are included within this line items.
· Realised prices: Q1 2020 realised Moroccan gas prices of US$10.33/mcf (Q1 2019: US$10.26/mcf) and oil prices of US$43.03/bbl (Q1 2019: US$54.58/bbl). Noting the continued significant volatility in crude oil prices, and assuming a US$35 Brent planning price, the Company reemphasises that, due to its gas businesses having fixed priced contracts of US$2.65/MMbtu (US$2.85/mcf) in Egypt and approximately US$10-US$12/mcf in Morocco and assuming no further prolonged business interruptions as a result of COVID-19, approximately 90% of the Company's 2020 cash flows will be generated from these gas business, increasing to over 95% in 2021.
· Netback: Q1 2020 netback of US$12.1 million, 30% higher than Q1 2019, was driven by a full quarter of production above expectations from South Disouq and high consumption levels in Morocco until COVID-19 shutdowns occurred in mid-March. These were partly offset by lower production in West Gharib and North West Gemsa due to increased water cut and lower oil price realisations. Operating expenses were higher due to South Disouq starting up in November 2019.
· EBITDAX: Q1 2020 EBITDAX of US$11.1 million was 42% higher than Q1 2019 of US$7.8 million due to higher netback, lower recurring G&A and no transaction costs in 2020.
· DD&A: Q1 2020 charge higher at US$6.7 million compared to US$5.9 million in Q1 2019 due to South Disouq start up in Q4 2019, partly offset by no DD&A charge for NW Gemsa in 2020 as the asset is fully impaired. Morocco also had a reduced charge following 2P reserves additions from the recent drilling campaign in Q4 2019.
· Non-cash E&E write offs: charges totalling US$4.5 million following the drilling of two sub-commercial wells, SD-6X in South Disouq and SAH-5 in Morocco.
· Operating cash flow (before capex): Q1 2020 operating cash flow (before capex) of US$6.3 million, lower than Q1 2019 of US$7.0 million primarily due to Q1 2019 reflecting US$2.4 million of cash inflows from the reduction of backdated Egyptian receivables compared to cash outflows from receivables of US$1.6 million in Q1 2020 as the South Disouq invoices were processed by EGAS who typically take longer to pay compared to EGPC and GPC being the State entities that settle oil receivables. The Company has no long-dated Egyptian receivables as at 31 March 2020.
· Capex: Q1 2020 capex of US$15.5 million, reflecting:
o US$10.7 million (including $0.5 million of decommissioning provisions) for the Moroccan drilling campaign;
o US$3.6 million for the drilling of the SD-6X (SDX: 55% interest) and SD-12X (SDX: 100% interest) wells in South Disouq;
o US$0.7 million for additional work and insurance spares at the South Disouq Central Processing Facility ("CPF"); and
o US$0.5 million for drilling/workovers in West Gharib.
· Liquidity: Closing cash as at 31 March 2020 was US$8.8 million with the US$7.5 million EBRD credit facility remaining undrawn. In April, the Company and EBRD agreed a waiver from the scheduled amortisation of the facility which was due on 1 May 2020. The waiver resulted in availability remaining at US$7.5 million rather than reducing to US$5.0 million. 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.
Operations Update
Q1 2020 Production
· Q1 2020 actual entitlement production of 8,061 boe/d is 117% higher than 2019, and by individual asset, has either exceeded or is at the upper end of 2020 guidance. An analysis of production by asset is as follows:
|
Gross production |
SDX entitlement production boe/d |
SDX entitlement production boe/d |
||
|
Asset |
Actual - 3 months ended 31 March 2020 |
Guidance - 12 months ended 31 December 2020 |
Actual 3 months ended 31 March 2020 |
Actual 3 months ended 31 March 2019 |
|
Core assets |
|
|
|
|
|
South Disouq - WI 55% |
54.5 MMscfe/d |
47 - 49 MMscfe/d |
4,994 |
- |
|
West Gharib - WI 50% |
3,494 bbl/d |
3,200 - 3,300 bbl/d |
666 |
826 |
|
Morocco - WI 75% |
6.9 MMscf/d |
6.7- 6.9 MMscf/d |
863 |
761 |
|
Non-core asset |
|
|
|
|
|
NW Gemsa - WI 50% |
3,076 boe/d |
2,000 - 2,100 boe/d |
1,538 |
2,128 |
|
Total |
|
|
8,061 |
3,715 |
o South Disouq (W.I. 55%) : The South Disouq asset has performed above expectations during Q1 2020, with all four wells flowing ahead of expected rates and the CPF achieving higher than planned levels of uptime. Scheduled CPF maintenance is planned for Q2 2020.
o West Gharib (W.I. 50%): A new production well, Rabul-3, was successfully drilled and completed in Q1 2020, and was tied into the field production system in April. The existing well stock experienced increasing water cut during the quarter, meaning that overall production was lower than the same period in 2019, albeit above guidance for 2020.
o Morocco (W.I. 75%): Production was robust throughout much of the period, with all customers taking at least their contracted consumption levels. However, during the second half of March the Company received notice from three of its customers, collectively accounting for 50% of normal daily consumption, that due to COVID-19 restrictions imposed by the Government of Morocco they would be closing their plants until further notice. These restrictions have remained in place post-period end albeit during the week commencing 4 May the three customers re-started their operations and began to take gas again. The Company will continue to monitor this situation and provide an update on Moroccan production guidance after the three customers have returned to more steady and predictable consumption levels.
o NW Gemsa (W.I. 50%): The field has exceeded expectations, primarily due to a slower rate of pressure depletion and water cut increase.
o South Ramadan (W.I. 12.75%): Post period end, South Ramadan, situated offshore in the Gulf of Suez, commenced production at approximately gross 350 bbl/d. Post completion of an acid stimulation operation in June, the operator expects production to increase to approximately 1,200 bbl/d.
2020 Production Guidance
o South Disouq : Gross production guidance is maintained at 47- 49 MMscfe/d reflecting CPF expected uptime/availability during the year. Q1 2020 reflects a period of better than expected uptime from the CPF and strong well performance.
o West Gharib: Although up to two more wells are planned for 2020, in the current price environment the Company and its partner may elect to defer this activity in order to preserve capital. Q1 2020 reflects better than expected field performance as a result of a number of successful operational improvement initiatives jointly carried out by SDX and its partner Dublin Petroleum. As such, and notwithstanding the potential deferral of the two planned wells into 2021, the Company is maintaining production guidance at 3,200-3,300 bbl/d (gross) .
o Morocco: Production guidance is maintained at 6.7-6.9 MMscf/d (gross) at present. The asset's production in March and April was impacted by the shutdown of three customers' operations due to COVID-19 restrictions. At the date of writing, all three customers have re-opened, albeit at consumption rates below full capacity. An update on Moroccan production guidance will be provided after the three customers have returned to more steady state and predictable consumption levels. Whilst the level of potential revision to FY 2020 Moroccan guidance is as yet unknown, as an indication, it should be noted that if the three customers were closed down in full for three months over the year, then FY 2020 guidance of 6.7-6.9 MMscf/d would be revised to 5.7-6.2 MMscf/d and if their close down was to extend to six months, then the guidance would be revised to 5.0-5.5 MMscf/d.
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. Whilst Q1 2020 production reflects a slower than expected decline in production, this is not expected to be sustained. As such, the Company is likely to exit this concession during the year if sufficient cost savings cannot be achieved by the operator.
o To date, COVID-19 has not impacted production operations in Egypt.
2020 Drilling and Operations
Morocco drilling campaign update (SDX 75% working interest)
· Two close to infrastructure appraisal/development wells were drilled in Q1 2020. The first well, SAH-5, encountered sub-commercial volumes of gas and was plugged and abandoned. The second well, SAH-3, was drilled to a measured depth of 1,129 metres and encountered 5.5 metres of gas sands across two intervals. Management estimates that approximately 0.5 bcf is recoverable from this well, which is expected to be tied into production infrastructure later in 2020 to support customer demand.
· Two subsequent step-out exploration wells, OYF-2 and BMK-1, have confirmed that the Company's core productive area extends to the north. The OYF-2 well intersected both pre-drill targets in the Upper and Lower Guebbas horizons, and has been successfully tested. Management estimates that 1.3-1.9 bcf of gas is recoverable from the horizons encountered at OYF-2. The BMK-1 well, further to the north, also encountered gas in both the Upper and Lower Guebbas horizons, albeit due to downhole issues only the former could be logged and completed. Management estimates that 0.9 bcf of gas is recoverable from both of these horizons. The BMK-1 well will be tested in the coming months once COVID-19 restrictions have been lifted.
· Significantly, the OYF-2 and BMK-1 wells have de-risked up to 20 bcf of close-by P50 prospective resources for future drilling, of which approximately 10 bcf is located in and around BMK-1.
· The final well of the campaign, LMS-2 well in the Lalla Mimouna concession, encountered a 10.6 metre net gas reservoir with 30.9% porosity. The LMS-2 gas has a different thermogenic composition from the gas in our core productive area which suggests that it is from a new, and likely deeper, source rock. The well has been cased and completed and it will be perforated and tested to determine its potential when changes to COVID-19 restrictions make it possible to bring a well testing crew into the country.
· Following the play-opening discoveries made during the campaign, the Company is undertaking an analysis to optimise tie-in costs and future drilling activity in this new area.
· Having fulfilled the objectives for the Morocco campaign, being: (i) to add 2P reserves in and around its existing infrastructure; (ii) to determine if its existing producing area extends to the north; and (iii) to test the prospectivity within the Lalla Mimouna concession, the Company decided not to drill the final two planned wells. As these last two wells would not have been immediately tied into the Company's infrastructure or contributed cash flows in the near term, the Company has chosen to preserve its capital and postpone, at no incremental cost, these last two wells for a future campaign.
· The above developments 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% working interest)
· Having concluded well planning in late Q4 2019, the SD-6X (Salah) well was drilled in Q1 2020, to a total depth of 3,167 metres. The well encountered 1.7 metres of net gas bearing sand in the Kafr El Sheikh Formation (average porosity 34%), 1.0 metre of net gas bearing sand in the Abu ‐ Madi Formation which has 143 metres of high quality net reservoir (average porosity 24%) and 258 metres of high quality net reservoir in the Qawasim Formation (average porosity 20%). The gas sands in both the Kafr El Sheikh and Abu Madi were deemed to be sub-economic and the Qawasim had low gas saturation. The thinner than expected gas columns encountered in SD-6X were attributable to the absence of a sealing mechanism in the stratigraphic traps being targeted by the well. The well results are currently being analysed.
· The rig then moved to the site of the next drilling location, the SD-12X (Sobhi) exploration well, and was spud on 18 March 2020. The well was drilled to a measured depth of 2,415 metres, encountering 36 metres net of high-quality gas-bearing sands, with an average porosity of 20%, near the base of the Kafr El Sheikh ("KES") formation. The top of the KES sand was encountered at a measured depth of 2,169 metres. Management's best estimate is that the well has encountered approximately 24 bcf of recoverable gas resources which is significantly in excess of the minimum commercial volume of approximately 8 bcf.
· Subsequently, the Company conducted a drill stem test, which began with a step-rate test of one hour achieving a maximum rate of 25 MMscf/d on a 54/64" choke. This initial flow test was followed by a three hour period flowing at a stable rate of 15 MMscf/d on a 28/64" choke and then a further four hours flowing at a stable rate of 10 MMscf/d on a 16/64" choke. The well was then shut in for a 12-hour build-up period during which pressure continued to increase back to pre-test levels. From an initial review of the well-test data, it is anticipated that when connected, the well will produce at an optimum stabilised rate of 10-12 MMscf/d which is in line with the nearby Ibn Yunus-1X producing well. The well is expected to produce mostly dry gas and will be subject to a longer rig-less test in the coming weeks which will provide more data to help determine the recoverable volume in the discovery. It is expected that the results of the rig-less test will be available in late Q2/early Q3.
· Management expects that the Sobhi well will be tied in during 2020/21 via a 5.8 kilometre connection to the Ibn Yunus-1X location where an existing flow-line connects down to the South Disouq CPF. On a gross basis, the tie-in cost is estimated at US$3.5 million. The discovery will potentially only require one further development well to be drilled, which will not be necessary for another two to three years. SDX drilled the Sobhi well at a 100% working interest and the total cost of the well, including the cost to complete, is estimated at US$3.7 million. Under Clause 8.5 of the Joint Operating Agreement 'Premium to Participate in Exclusive Operations', if the Company's partner elects to participate in the well now that a discovery has been made, it is required to pay its full 45% share of the well cost, plus a premium of a further 300% of this amount.
West Gharib Egypt exploration drilling campaign update (SDX 50% working interest)
· During Q1 2020, the Rabul-3 development well in the West Gharib Concession in Egypt was drilled to a total depth of 1,710 metres and encountered approximately 39 metres of net heavy oil pay across the Yusr and Bakr formations. The Yusr and Bakr formations are of excellent reservoir quality with an average porosity of 21%. The well was completed as a producer in mid-April 2020, with both formations being perforated. After connection to the central processing facilities at West Gharib and clean-up, the well is expected to produce at an average stabilised rate of approximately 300 bbl/d.
2020 Drilling and Operations Guidance
· 2020 capex guidance has been revised up from US$24.7 million as per the Company's annual results operations update provided on 7 April, to c.US$28.2 million. The revision reflects the 100% cost of tying in the successful SD-12X well in South Disouq. Guidance for all other assets is maintained, however the Company will continue to exercise prudent capital discipline when evaluating expenditure for the remainder of this year, particularly given current macroeconomic circumstances.
· These points are explained further in the following analysis of the revised US$28.2 million 2020 capex guidance.
o US$10.7 million at South Disouq which is for the drilling of two exploration wells (SD-6X: SDX 55% interest and SD-12X SDX 100% interest), the tie in costs for the successful SD-12X well to the CPF (SDX 100% interest), well workovers, CPF equipment spares and a deposit on the booster compressor planned for South Disouq in 2021. Capex incurred as at 31 March 2020 represents the full costs of the non-commercial SD-6X well, partial costs of the SD-12X well which was drilling over the period end and some equipment spares for the CPF;
o US$2.0 million for up to three appraisal/development wells in West Gharib;
o US$13.5 million for the Morocco drilling campaign, which completed in March, and new well connections and customer infrastructure which are expected to be incurred from Q2'20 onwards; and
o US$2.0 million for up to 10 workovers in North West Gemsa. As the Company is expecting to exit the concession during 2020, it does not expect to incur the full amount of this capex prior to exit.
|
Asset |
Guidance - 12 months ended 31 December 2020 |
Actual - 3 months ended 31 March 2020 |
|
Core assets |
|
|
|
South Disouq - WI 55% |
US$10.7 million |
US$4.3 million |
|
West Gharib - WI 50% |
US$2.0 million |
US$0.5 million |
|
Morocco - WI 75% |
US$13.5 million |
US$10.7 million |
|
Non-core asset |
|
|
|
NW Gemsa - WI 50% |
US$2.0 million |
US$nil million |
|
Total |
US$28.2 million |
US$15.5 million |
Q1 2020 Financial Update
· The main components of SDX's comprehensive loss of US$3.2 million for the three months ended 31 March 2020 are:
o US$12.1 million netback;
o US$4.8 million of E&E expense, of which:
§ US$2.3 million represents the write-off of the sub-commercial SD-6X well in South Disouq, including associated 3D seismic costs; and
§ US$2.2 million is the write off of the sub-commercial SAH-5 well in Morocco, including associated 3D seismic costs;
o US$6.7 million of Depletion, Depreciation & Amortisation expense reflects increased charges due to South Disouq start up in Q4 2019, partly offset by a lower charge in Morocco following 2P reserve additions from Q4 2019 drilling;
o US$1.0 million of ongoing General & Administrative expense; and
o US$2.3 million of Egyptian corporation tax, of which South Disouq accounted for US$1.4 million.
· Netback for the three months to 31 March 2020 was US$12.1 million, 30% higher than the netback of US$9.3 million for the three months to 31 March 2019, driven by:
o Net revenue increase of US$3.3 million is due to:
o US$4.8 million of South Disouq revenue, following production start up in Q4 2019; and
o US$0.7 million higher revenue in Morocco due to increased production (Q1 2020: 863 boe/d, Q1 2019: 761 boe/d);
o partly offset by lower realised prices at NW Gemsa (Q1 2020: US$45.09/bbl, Q1 2019: US$58.22) and West Gharib (Q1 2020: US$38.88/bbl, Q1 2019: US$47.58/bbl); and
o lower production at NW Gemsa (Q1 2020: 1,538 boe/d, Q1 2019: 2,128 boe/d) and West Gharib (Q1 2020: 666 boe/d, Q1 2019: 826 boe/d).
o Operating costs increasing by US$0.5 million from prior period due to the commencement of production at South Disouq, partly offset by lower costs at each of the other assets.
· EBITDAX for the three months to 31 March 2020 was US$11.1 million, US$3.3 million higher than EBITDAX of US$7.8 million for the three months to 31 March 2019, due to higher netback, lower G&A due to allocations to Q1 2020 drilling activity and the absence in 2020 of transaction costs associated with the Company's redomicile to the UK in 2019.
Operating cash flow (before capex)
· Operating cash flow (before capex): Q1 2020 operating cash flow (before capex) of US$6.3 million, is lower than Q1 2019 of US$7.0 million primarily due to Q1 2019 reflecting US$2.4 million of cash inflows from the reduction of backdated Egyptian receivables compared to cash outflows from receivables of US$1.6 million in Q1 2020 as the South Disouq invoices were processed by EGAS. who typically take longer to pay compared to EGPC and GPC being the State entities that settle oil related receivables The Company has no long-dated Egyptian receivables as at 31 March 2020.
CAPEX
· US$15.5 million of capital expenditure has been invested into the business during the three months ended 31 March 2020:
o US$10.7 million (including $0.5 million of decommissioning provisions) for the Moroccan drilling campaign;
o US$3.6 million for the drilling of the SD-6X (SDX: 55% interest) and SD-12X (SDX: 100% interest) wells in South Disouq;
o US$0.7 million for additional work and insurance spares at the South Disouq CPF; and
o US$0.5 million for drilling and workovers in West Gharib.
Liquidity update
· Closing cash as at 31 March 2020 was US$8.8 million with the US$7.5 million EBRD credit facility remaining undrawn. In April, the Company and EBRD agreed a waiver from the scheduled amortisation of the facility which was due on 1 May 2020. The waiver resulted in availability remaining at US$7.5 million rather than reducing to US$5.0 million.
· 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.
Impact of COVID-19 on ongoing production operations
· As highlighted above, the Company has a strong liquidity position and the majority of its cash flows in 2020 and 2021 are expected to come from its fixed price gas customers in Morocco and Egypt.
o In Egypt, SDX sells all of its gas directly to the Egyptian state to be used primarily for electricity generation. The Company does not expect that COVID-19 will cause any material disruption to this offtake arrangement.
o In Morocco, SDX's gas is sold to eight industrial users, for whom natural gas is integral to their energy supply and operations. These customers operate across a number of sectors including ceramics, packaging, food, and automotive.
o On 23 March 2020, Super Cerame, the Company's largest customer in Morocco, together with Peugeot SA and Plastic Omnium advised the Company that they will be temporarily closing down operations due to COVID-19. These three customers account for approximately 50% of total Moroccan revenues, with Super Cerame accounting for approximately 46% of total Moroccan revenues. These customers remained closed until the week commencing 4 May 2020, at which point each re-started their plants, albeit at consumption levels below full capacity, and as at 19 May 2020 had returned to approximately 40% of their pre-closure consumption rates. It is expected that over time consumption will ramp back up to pre-COVID-19 levels, however there is no certainty as to when this will happen, or that there will not be additional forced closures.
o The Company's Moroccan business is extremely resilient and can breakeven with customer consumption levels at 20% of Q1 2020 levels.
o At this point, production operations in Egypt have not been impacted however given the seriousness of COVID-19, this situation may be subject to change in the future.
o Following completion of the drilling campaigns in South Disouq and Morocco, the majority of planned CAPEX for 2020 has been incurred, and discretion will be exercised when considering future capital allocation.
Corporate update
· The Company is well-placed to weather the current macroeconomic uncertainties and continues to screen a number of business development opportunities.
· In the period SDX announced the appointment of Catherine Stalker as independent non-executive Director effective 6 February 2020
· The Annual General Meeting ("AGM") of the Company will take place on 22 May 2020 at 10:00am UK time. The Company reminds shareholders that the Board of Directors fully supports the current UK Government requirements for people to avoid both gatherings of more than two people who do not live together and all non-essential travel and social contact. As such, shareholders should not attempt to attend the AGM in person.
KEY FINANCIAL & OPERATING HIGHLIGHTS
|
|
|
Three months ended 31 March 31 |
|
||
|
$000s except per unit amounts |
|
2020 (unaudited) |
2019 (unaudited) |
||
|
FINANCIAL |
|
|
|
||
|
Gross revenues |
|
21,420 |
16,690 |
||
|
Royalties |
|
(5,464) |
(4,009) |
||
|
Net Revenues |
|
15,956 |
12,681 |
||
|
Operating costs |
|
(3,875) |
(3,374) |
||
|
Netback (1) |
|
12,081 |
9,307 |
||
|
EBITDAX (1) |
|
11,133 |
7,808 |
||
|
Total comprehensive (loss)/income |
|
(3,153) |
132 |
||
|
Net income/(loss) per share - basic |
|
(0.015) |
0.001 |
||
|
Cash, end of period |
|
8,807 |
11,354 |
||
|
Capital expenditures |
|
15,535 |
13,040 |
||
|
Total assets |
|
135,648 |
137,630 |
||
|
Shareholders' equity |
|
95,123 |
116,491 |
||
|
Common shares outstanding (000's) |
|
204,723 |
204,723 |
||
|
|
|
|
|
||
|
OPERATIONAL |
|
|
|
||
|
NW Gemsa oil sales (bbl/d) |
|
1,335 |
1,586 |
||
|
West Gharib production service fee (bbl/d) |
|
666 |
826 |
||
|
South Disouq gas sales (boe/d) |
|
4,713 |
- |
||
|
Morocco gas sales (boe/d) |
|
863 |
761 |
||
|
Other products sales (boe/d) |
|
484 |
542 |
||
|
Total sales volumes (boe/d) |
|
8,061 |
3,715 |
||
|
|
|
|
|
||
|
Realised oil price (US$/bbl) |
|
45.09 |
58.22 |
||
|
Realised service fee (US$/bbl) |
|
38.88 |
47.58 |
||
|
Realised oil sales price and service fees ($/bbl) |
|
43.03 |
54.58 |
||
|
Realised Morocco gas price (US$/mcf) |
|
10.33 |
10.26 |
||
|
Royalties ($/boe) |
|
7.45 |
11.99 |
||
|
Operating costs ($/boe) |
|
5.28 |
10.09 |
||
|
Netback ($/boe) (1) |
|
16.47 |
27.84 |
||
|
|
|
|
|
||
(1) Refer to the "Non-IFRS Measures" section of this release below for details of Netback and EBITDAX.
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 four producing assets: a 55% operated interest in the South Disouq gas field in the Nile Delta, a 50% non-operated interest in each of the North West Gemsa and West Gharib concessions, which are located onshore in the Eastern Desert, adjacent to the Gulf of Suez and a 12.75% non-operated interest in the South Ramadan concession offshore 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 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.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: +44 203 219 5640
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|
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Stifel Nicolaus Europe Limited (Nominated Adviser and Joint Broker) Callum Stewart Simon Mensley Ashton Clanfield Tel: +44 (0) 20 7710 7600
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|
|
Cantor Fitzgerald Europe (Joint Broker) David Porter Tel: +44 (0) 207 7894 7000
Peel Hunt LLP (Joint Broker) Richard Crichton David McKeown Tel: +44 (0) 207 418 8900 |
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|
|
|
|
Camarco (PR) Billy Clegg/Owen Roberts/Violet Wilson Tel: +44 (0) 203 757 4980
Conference Call details
Date: 20 May 2020
Time: 9:30am GMT
Call details:
United Kingdom Toll: +44 3333000804 PIN: 44783267# The presentation is available our website; https://www.sdxenergy.com/investors/results-centre/ |
|
Glossary
|
"bbl" |
stock tank barrel |
|
"bbl/d" |
barrels of oil per day |
|
"bcf" |
billion cubic feet |
|
"boe/d" |
barrels of oil equivalent per day |
|
"Mcf" |
thousands of cubic feet |
|
"MMbtu" |
millions of British thermal units |
|
"MMscf/d" |
million standard cubic feet per day |
|
"MMscfe/d" |
million standard cubic feet equivalent per day |
|
"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 2020 production and capex guidance, liquidity and sources of cash flows in 2020 and 2021, the success of the acid stimulation operations in South Ramadan, the sufficiency of reserves to fulfill existing customer contracts, the impact of COVID-19 on customer consumption, future drilling developments and results, and extending the tenor and re-establishing the full 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 the Principal Risks & Uncertainties section of SDX's Annual Report for the year ended 31 December 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.
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 adjusted for the add-back of depreciation and amortization, exploration expense and impairment of property, plant and equipment (if applicable). EBITDAX is presented in order for the users 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.
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 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 2020. 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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