TRADING AND OPERATIONS UPDATE AND 2022 GUIDANCE
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.
1 February 2022
SDX ENERGY PLC ("SDX" or the "Company")
TRADING AND OPERATIONS UPDATE - 2021 PRODUCTION AT UPPER END OF GUIDANCE AND CAPEX WITHIN GUIDANCE - PRODUCTION AND CAPEX GUIDANCE PROVIDED FOR 2022
SDX Energy Plc (AIM: SDX), the MENA-focused oil and gas company, is pleased to provide an update on its unaudited operating results, capex, cash, and liquidity position for the twelve months ended 31 December 2021 and sets out production and capex guidance for 2022. All monetary values are expressed in United States dollars net to the Company unless otherwise stated.
Mark Reid, CEO of SDX, commented:
"I am pleased to announce that 2021 production was at the higher end of guidance and that capex was within guidance. Our cash management in the year has also been strong, with cash at the year-end growing to US$10.6 million from US$10.1 million last year.
Our full year 2022 production guidance is lower than 2021 actual production of 5,886 boe/d mainly due to the proposed South Disouq disposal announced today and natural depletion across wells at South Disouq. Production in Morocco in 2022 will be lower due to a decision not to immediately renew a five-year customer contract until we have better visibility on future gas supply and gas pricing to support the full term of a new contract. As a result of this decision, we are reducing 2022 Moroccan capex guidance by c.US$6.0 million compared to 2021. Notwithstanding this, we are still planning to drill up to sixteen wells this year but expect overall capex guidance to be lower in 2022 at US$21.5-US$23.0 million."
Trading and operations update twelve months to 31 December 2021
Production
· Average entitlement production, of core assets, for the year of c.5,900 boe/d, a core assets decrease of 1% from FY 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 (boe/d) |
|||
|
Asset |
Guidance - 12 months ended 31 December 2021
|
Actual - 12 months ended 30 December 20211
|
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 (incl. disc. ops.) |
|
|
5,620 - 5,920 |
5,886 |
6,397 |
(1) 2021 actual production subject to final invoicing
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. 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.
Capex
· Capex for the twelve months to 31 December 2021 was within guidance, as shown below:
|
Asset |
Guidance - 12 months ended 31 December 2021 |
Actual - 12 months ended 31 December 2021 (unaudited) |
|
South Disouq - WI 55% & 100% |
US$7.0-7.5 million |
US$6.6 million(1) |
|
West Gharib - WI 50% |
US$2.5-3.0 million |
US$2.2 million |
|
Morocco - WI 75% |
US$17.0-17.5 million |
US$18.9 million(2) |
|
Total |
US$26.5-28.0 million |
US$27.7 million |
(1) Includes US$0.6 million of expenditure that was pre-paid as a project milestone in 2020 but has now been reclassified to capex.
(2) Includes a net reduction of US$0.6 million in the decommissioning estimate for the Moroccan operation, following a review of assumptions.
· South Disouq was below guidance due to lower than forecast costs drilling the Hanut-1X and IY-2X wells. West Gharib was also below guidance due to a slightly delayed start to the development drilling campaign. Morocco was above guidance due to operational issues resulting in higher than anticipated costs being incurred during the Q4 2021 well campaign.
Cash and liquidity
· Cash and liquidity remain strong with cash of c.US$10.6 million (unaudited) as at 31 December 2021 and 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 proposed South Disouq disposal, with the next redetermination scheduled for Q2 2022.
· Together with cash generated from operations, the Company is fully funded for all its stated objectives in 2022.
Production and capex guidance for 2022
2022 Production Guidance
· 2022 production guidance of 3,300 - 3,550 boe/d is lower than 2021 production, predominantly due to the proposed 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 20211 |
Guidance 12 months ended 31 December 2022 |
Actual 12 months ended 31 December 20211 |
|
South Disouq - WI 55% & 100% SD-12X (36.7% and 66.7%2) |
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) 2021 actual production subject to final invoicing
(2) Assuming completion of the proposed 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 proposed 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-12X 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 (unaudited) |
|
South Disouq - WI 55% & 100% (36.7% and 66.7%(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 key capex activities are outlined below:
|
Asset |
Activity |
2022 Timing |
|
South Disouq |
SD-4X workover |
Q1 |
|
SD-5X (Warda) exploration well |
Q1-Q2 |
|
|
SD-12X East appraisal well |
Q2 |
|
|
SD-3X workover (AM-I) |
Q2 |
|
|
Mohsen exploration well |
Q3 |
|
|
SD-3X workover (KES) |
Q4 |
|
|
Morocco |
Two well drilling campaign |
Q1 & Q2 |
|
SAH-W1 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-12X East, and two exploration wells, SD-5X (Warda) and Mohsen, will be drilled consecutively, commencing in Q1 2022. SD-12X East will target the eastern part of the Sobhi field and is expected to be completed and tied back rapidly once drilled. SD-5X (Warda) 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. 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 proposed disposal announced today, 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 Q1/Q2 and Q3/Q4 2022. As in 2021, conducting two campaigns allocates the capital investment over a period of time which 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.
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 55% operated interest in the South Disouq gas field in the Nile Delta (prior to the proposed disposal referred to in today's earlier announcement) 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 Dr. 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:
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SDX Energy Plc Mark Reid Chief Executive Officer Tel: +44 203 219 5640
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Stifel Nicolaus Europe Limited (Nominated Adviser and Joint Broker) Callum Stewart Jason Grossman Ashton Clanfield Tel: +44 (0) 20 7710 7600
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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
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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 |
|
"MMscf/d" |
million standard cubic feet per day |
|
"MMscfe/d" |
million standard cubic feet equivalent per day |
Forward-looking information
Certain statements contained in this press release may constitute "forward-looking information" as such term is used in applicable Canadian securities laws. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or are not statements of historical fact should be viewed as forward-looking information. In particular, statements regarding: the Company's 2022 production and capex guidance; liquidity and sources of cash flows in 2022; the impact of COVID-19 on customer consumption; future drilling developments, results and costs; and the likely reduction in availability of the EBRD credit facility 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 2020, 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.
Oil and Gas Advisory
Certain disclosures in this news release constitute "anticipated results" for the purposes of National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") of the Canadian Securities Administrators because the disclosure in question may, in the opinion of a reasonable person, indicate the potential value or quantities of resources in respect of the Company's resources or a portion of its resources. Without limitation, the anticipated results disclosed in this news release include estimates of volume, flow rate, production rates, porosity, and pay thickness attributable to the resources of the Company. Such estimates have been prepared by Company management and have not been prepared or reviewed by an independent qualified reserves evaluator or auditor. Anticipated results are subject to certain risks and uncertainties, including those described above and various geological, technical, operational, engineering, commercial, and technical risks. In addition, the geotechnical analysis and engineering to be conducted in respect of such resources is not complete. Such risks and uncertainties may cause the anticipated results disclosed herein to be inaccurate. Actual results may vary, perhaps materially.
Use of the term "boe" or the term "MMscf" may be misleading, particularly if used in isolation. A "boe" conversion ratio of 6 Mcf: 1 bbl and a "Mcf" conversion ratio of 1 bbl: 6 Mcf are based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Prospective Resources Data
The prospective resources estimates disclosed or referenced herein have been prepared by Dr. Rob Cook, a qualified reserves evaluator, in accordance with the SPE's Canadian Oil and Gas Evaluation Handbook and in accordance with NI 51-101. The prospective resources disclosed herein have an effective date of 1 January 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.
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