REG - SDX Energy PLC - 30 JUNE 2022 TRADING AND OPERATIONS UPDATE

SDX EnergyAnnouncement

01/08/2022 07:16

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RNS Number : 3520U  SDX Energy PLC  01 August 2022

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY SDX TO
CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION
(EU) NO. 596/2014 AS IT FORMS PART OF UK LAW BY VIRTUE OF THE EUROPEAN UNION
(WITHDRAWAL) ACT 2018 ("MAR"). ON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A
REGULATORY INFORMATION SERVICE ("RIS"), THIS INSIDE INFORMATION IS NOW
CONSIDERED TO BE IN THE PUBLIC DOMAIN.

 

1 August 2022

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

 

30 JUNE 2022 TRADING AND OPERATIONS UPDATE AND INCREASE TO 2022 GROUP
PRODUCTION AND CAPEX GUIDANCE

 

Highlights:

 

·      Increased production guidance: Group 2022 entitlement production
guidance is increased to 3,480 - 3,795 boe/d from 3,330 - 3,550 boe/d

·      US$1.8 million increase to 2022 mid-point capex guidance.

·      Net Cash position of US$12.8m (unaudited) as of 30 June 2022

·      With the introduction of Aleph Commodities Limited as a new
cornerstone shareholder, a strategic review and expansion plans are being
formulated with a focus on increased production, reserves and shareholder
returns.

 

 

SDX Energy Plc (AIM: SDX), the EMEA-focused energy company, provides an update
on production and capex guidance for 2022 following drilling success at South
Disouq and provides an update on its unaudited capex, cash, and liquidity
position for the six months ended 30 June 2022. All monetary values are
expressed in United States dollars net to the Company unless otherwise stated.

 

Mark Reid, CEO of SDX, commented:

 

"Following on from our previously announced drilling success at SD-5X in South
Disouq, which also includes a richer than expected condensate yield, I am
pleased to announce that our 2022 production guidance for this asset is being
increased by 15%. Although we have had to slightly reduce our West Gharib
production guidance due to mechanical issues with one of the rigs, our overall
2022 group mid-point guidance has increased to 3,480 - 3,795 boe/d from 3,330
- 3,550 boe/d. Given that both the SD-5X and MA-1X wells in South Disouq
encountered gas, we have also slightly increased our capex guidance by US$1.8
million, reflecting the costs of completing and testing these wells and tying
in SD-5X.  I am also pleased to report continued strong production of 3,742
boe/d in the first half of the year which is above our increased 3,638 boe/d
mid-point entitlement guidance, and a robust net cash position of US$12.8
million as at 30 June 2022. Finally, we are working with our new cornerstone
shareholder Aleph Commodities Limited on a refreshed and ambitious strategy
and we will be updating the market on the outcome of this in the weeks ahead."

 

 

 

2022 Production and Capex guidance revisions

 

·      Group 2022 entitlement production guidance is increased to 3,480
- 3,795 boe/d from 3,330 - 3,550 boe/d for the reasons outlined below.

 

·      Following the successful drilling and production testing of the
SD-5X well, gross 2022 production guidance for South Disouq has been revised
upward to 38-40 MMscfe/d from 33-35 MMscfe/d, a 15% mid-point guidance
increase. On a net entitlement basis, the new guidance is 2,500-2,700 boe/d,
increasing from 2,280-2,420 boe/d.

 

·      As disclosed previously, the SD-5X well is currently producing
greater amounts of condensate (gross 100-110 bbl/d) than were expected
pre-drill (gross 25-30 bbl/d). As South Disouq condensate is sold at 90% of
Brent price, this product is highly cash-generative in the current pricing
environment, with Netbacks of US$60.93/boe for the six months ending 30 June
2022.

 

·      Due to drilling delays resulting from mechanical issues
experienced with one of the rigs working on the 13-well West Gharib drilling
campaign, gross 2022 production guidance has been revised downwards to
2,000-2,450 bbl/d from 2,200-2,650 bbl/d, an 8% mid-point decrease. On a net
entitlement basis, the new guidance is 380-470 boe/d, decreasing from 420-505
boe/d.

 

·      Morocco production guidance remains unchanged at gross 4.8-5.0
MMscf/d, 600-625 boe/d net entitlement.

 

·      Following the successful drilling, completion testing and tie in
of SD-5X, and the drilling, completion and testing of the MA-1X exploration
well, both of which were previously assumed to be dry holes for capex guidance
purposes, South Disouq capex guidance has been revised upward from US$6.7-7.2
million to US$8.5-9.0 million.

 

·      West Gharib capex guidance range has been revised downward by
US$0.5 million reflecting drilling delays, with updated guidance of US$4.0-4.5
million. Morocco capex guidance is unchanged, meaning group capex guidance is
now US$25.5-27.0 million, versus previous guidance of US$23.7-25.2 million.

Trading and operations update six months to 30 June 2022

 

Production

 

·      Average entitlement production as at 30 June 2022 of 3,724 boe/d,
which was 2% higher than the increased mid-point 2022 market guidance of 3,638
boe/d.

 Gross production                                                                                                                     SDX entitlement production
 Asset                                     Revised guidance - 12 months ended 31 December 2022  Actual - 6 months ended 30 June 2022  Revised guidance -                         Actual                                Actual

                                                                                                                                      12 months ended 31 December 2022 (boe/d)   6 months ended 30 June 2022 (boe/d)   6 months ended 30 June 2021 (boe/d)
 South Disouq - WI 36.9% & 67.0%((1))      38 - 40 MMscfe/d                                     38.7 MMscfe/d                         2,500 - 2,700((2))                         2,710                                 4,422((3))
 West Gharib - WI 50%                      2,000 - 2,450 bbl/d                                  1,976 bbl/d                           380 - 470                                  376                                   516
 Morocco - WI 75%                          4.8 - 5.0 MMscf/d                                    5.1 MMscf/d                           600 - 625                                  638                                   993
 Total                                                                                                                                3,480 - 3,795                              3,724                                 5,931

(1)    After completion of the South Disouq disposal with effect from 1
February 2022.

(2)    Net of minority interest. Gross of minority interest, production
guidance is expected to be 3,500 - 3,700 boe/d.

(3)    30 June 2021 South Disouq entitlement production is shown at
pre-disposal working interest of 55%/100%.

 

·      Production of 3,724 boe/d for the first half of the year, which
is above our increased 3,638 boe/d mid-point entitlement guidance, was driven
by strong performances in Morocco and at South Disouq, with West Gharib's
production lower than expected due to the mechanical issues with a previous
rig that is in the process of being replaced. West Gharib production is
expected to increase in the second half of the year.

 

·      In South Disouq, the planned three-well drilling campaign has
been successfully completed. SD-5X and SD-12_East have been brought online
ahead of schedule and are now contributing to production and cash flow. The
MA-1X gas discovery well is in the process of being evaluated to determine a
commercialisation strategy for the discovery.

 

·      In West Gharib the MSD-21, -25 and -24 wells have been
successfully completed and are on production. The completion of operations of
the MSD-23 well was announced on 15 July and MSD-27 spudded on 21 July.
Operations at the MSD-20 well are expected to recommence in August 2022.

 

·      In Morocco, preparations continue for the recommencement of the
drilling campaign that was suspended in December 2021. The first of up to
seven wells to be drilled in the next year is expected to spud in late July
2022.

 

Capex

·    Capex for the six months to 30 June 2022 was within revised guidance,
as shown below:

 Asset                                     Revised guidance - 12 months ended 31 December 2022  Actual - 6 months ended 30 June 2022 (unaudited)
 South Disouq - WI 36.9% & 67.0%((1))      US$9.0-9.5 million((2))                              US$7.7 million((3))
 West Gharib - WI 50%                      US$4.0-4.5 million                                   US$1.5 million
 Morocco - WI 75%                          US$12.5-13.0 million                                  US$3.0 million
 Total                                     US$25.5-27.0 million                                 US$12.2 million

(1)    After completion of the South Disouq disposal with effect from 1
February 2022.

(2)    As the legal entity that holds the South Disouq asset is 100%
consolidated in the financial statements of the Company, capex guidance is
gross of minority interest. Net of minority interest, capex guidance is US$7.5
- 8.0 million.

(3)    Includes US$0.3 million of decommissioning provisions. Net of
minority interest, SDX's share of capex for the 6 months ended 30 June 2022
was US$6.3 million.

 

·      Capex as at 30 June 2022 of US$12.2 million, reflects:

 

o  US$7.4 million for the three-well drilling campaign at South Disouq split
between: US$2.0 million for the drilling, completion, testing and tie in of
the SD-5X well, US$3.0 million for the drilling, completion and tie in of the
SD-12_East well and US$2.4 million for the drilling, completion and testing of
the MA-1X well. US$0.3 million has been spent on a workover of SD-3X to
replace the production tubing.

o  US$2.4 million of pre-drilling and preparation costs associated with the
re-commencement of the Moroccan drilling campaign, US$0.3 million on the SAH-4
well recompletion and US$0.3 million of infrastructure works; and

o  US$1.5 million of West Gharib drilling costs across the MSD-20, -21, -23,
-24, and -25 wells.

 

Cash and liquidity

 

·      The Company's net cash position as at 30 June 2022 was US$12.8
million, with cash balances of US$15.3 million offset by US$2.5 million drawn
debt from the EBRD facility. As a result of various geopolitical factors, US
dollar transfers by the Central Bank of Egypt have been delayed. Under the
existing facility with the European Bank of Reconstruction and Development
("EBRD"), US$3.2 million of additional undrawn lines remain available to the
Company.

 

·      Together with cash generated from operations, the Company is
fully funded for all its stated objectives in 2022.

 

Corporate

In July 2022, Aleph Commodities Limited acquired 25.65% of the issued share
capital of the Company and are assisting the Company with a strategic review
and expansion plans with a focus on increasing production, reserves and
shareholder returns. Aleph Commodities Limited is a global trading and
investment company, founded in 2018 by former executives of Deutsche Bank,
Goldman Sachs, JP Morgan, Engelhart Commodities Trading Partners, and Credit
Suisse, supported by several large US and European family offices who are also
shareholders of Aleph.

 

 

About SDX

SDX is an international oil and gas exploration, production, and development
company, headquartered in London, United Kingdom, with a principal focus on
EMEA. In Egypt, SDX has a working interest in two producing assets: a 36.9%
operated interest in the South Disouq and Ibn Yunus gas fields and a 67.0%
operated interest in the Ibn Yunus North gas field in the Nile Delta and a 50%
non-operated interest in the West Gharib concession, which is located onshore
in the Eastern Desert, adjacent to the Gulf of Suez. In Morocco, SDX has a 75%
working interest in four development/production concessions, all situated in
the Gharb Basin. The producing assets in Morocco are characterised by
attractive gas prices and exceptionally low operating costs. SDX has a strong
weighting of fixed price gas assets in its portfolio with low operating costs
and attractive margins throughout, providing resilience in a low commodity
price environment. SDX's portfolio also includes high impact exploration
opportunities in both Egypt and Morocco.

 

For further information, please see the Company's website at
www.sdxenergygroup.com (http://www.sdxenergygroup.com) or the Company's filed
documents at www.sedar.com (http://www.sedar.com) .

 

Standard

 

Estimates of reserves and resources have been prepared in accordance with the
June 2018 Society of Petroleum Engineers ("SPE") Petroleum Resources
Management System ("PRMS") as the standard for classification and reporting
with an effective date of 31 December 2021 and in accordance with National
Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI
51-101") of the Canadian Securities Administrators.

 

Competent Persons Statement

In accordance with the guidelines of the AIM Market of the London Stock
Exchange, the technical information contained in the announcement has been
reviewed and approved by Dr Rob Cook, VP Subsurface of SDX. Dr. Cook has 30
years of oil and gas industry experience and is the qualified person as
defined in the London Stock Exchange's Guidance Note for Mining and Oil and
Gas companies. Dr. Cook holds a BSc in Geochemistry and a PhD in Sedimentology
from the University of Reading, UK. He is a Chartered Geologist with the
Geological Society of London (Geol Soc) and a Certified Professional Geologist
(CPG-11983) with the American Institute of Professional Geologists (AIPG).

 

For further information:

 

 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

Glossary

 

 "bbl"       stock tank barrel
 "bbl/d"     barrels of oil per day
 "boe/d"     barrels of oil equivalent per day
 "MMscf/d"   million standard cubic feet per day
 "MMscfe/d"  million standard cubic feet equivalent per day

 

Forward-looking information

 

Certain statements contained in this press release may constitute
"forward-looking information" as such term is used in applicable Canadian
securities laws. Any statements that express or involve discussions with
respect to predictions, expectations, beliefs, plans, projections, objectives,
assumptions, or future events or are not statements of historical fact should
be viewed as forward-looking information. In particular, statements regarding
the formulation of the Company's strategic review and expansion plans, and the
Company's future drilling developments and results, should be regarded as
forward-looking information.

 

The forward-looking information contained in this document is based on certain
assumptions, and although management considers these assumptions to be
reasonable based on information currently available to them, undue reliance
should not be placed on the forward-looking information because SDX can give
no assurances that they may prove to be correct. This includes, but is not
limited to, assumptions related to, among other things, commodity prices and
interest and foreign exchange rates; planned synergies, capital efficiencies
and cost-savings; applicable tax laws; future production rates; receipt of
necessary permits; the sufficiency of budgeted capital expenditures in
carrying out planned activities, and the availability and cost of labour and
services.

 

All timing given in this announcement, unless stated otherwise, is indicative,
and while the Company endeavours to provide accurate timing to the market, it
cautions that, due to the nature of its operations and reliance on third
parties, this is subject to change, often at little or no notice. If there is
a delay or change to any of the timings indicated in this announcement, the
Company shall update the market without delay.

 

Forward-looking information is subject to certain risks and uncertainties
(both general and specific) that could cause actual events or outcomes to
differ materially from those anticipated or implied by such forward-looking
statements. Such risks and other factors include, but are not limited to,
political, social, and other risks inherent in daily operations for the
Company, risks associated with the industries in which the Company operates,
such as: operational risks; delays or changes in plans with respect to growth
projects or capital expenditures; costs and expenses; health, safety and
environmental risks; commodity price, interest rate and exchange rate
fluctuations; environmental risks; competition; permitting risks; the ability
to access sufficient capital from internal and external sources; and changes
in legislation, including but not limited to tax laws and environmental
regulations. Readers are cautioned that the foregoing list of risk factors is
not exhaustive and are advised to refer to the Principal Risks &
Uncertainties section of SDX's Annual Report for the year ended 31 December
2021, which can be found on SDX's SEDAR profile at www.sedar.com
(http://www.sedar.com) , for a description of additional risks and
uncertainties associated with SDX's business.

 

The forward-looking information contained in this press release is as of the
date hereof and SDX does not undertake any obligation to update publicly or to
revise any of the included forward‐looking information, except as required
by applicable law. The forward‐looking information contained herein is
expressly qualified by this cautionary statement.

 

Non-IFRS Measures

This news release contains the term "Netback", which is not a recognized
measure under IFRS and may not be comparable to similar measures presented by
other issuers. The Company uses this measure to help evaluate its performance.

Netback is a non-IFRS measure that represents sales net of all operating
expenses and government royalties. Management believes that Netback is a
useful supplemental measure to analyze operating performance and provide an
indication of the results generated by the Company's principal business
activities prior to the consideration of other income and expenses. Management
considers Netback an important measure as it demonstrates the Company's
profitability relative to current commodity prices. Netback may not be
comparable to similar measures used by other companies.

Oil and Gas Advisory

Certain disclosures in this news release constitute "anticipated results" for
the purposes of National Instrument 51-101 - Standards of Disclosure for Oil
and Gas Activities ("NI 51-101") of the Canadian Securities Administrators
because the disclosure in question may, in the opinion of a reasonable person,
indicate the potential value or quantities of resources in respect of the
Company's resources or a portion of its resources. Without limitation, the
anticipated results disclosed in this news release include estimates of
volume, flow rate, production rates, porosity, and pay thickness attributable
to the resources of the Company. Such estimates have been prepared by Company
management and have not been prepared or reviewed by an independent qualified
reserves evaluator or auditor. Anticipated results are subject to certain
risks and uncertainties, including those described above and various
geological, technical, operational, engineering, commercial, and technical
risks. In addition, the geotechnical analysis and engineering to be conducted
in respect of such resources is not complete. Such risks and uncertainties may
cause the anticipated results disclosed herein to be inaccurate. Actual
results may vary, perhaps materially.

Use of the term "boe" or the term "MMscf" may be misleading, particularly if
used in isolation. A "boe" conversion ratio of 6 Mcf: 1 bbl and a "Mcf"
conversion ratio of 1 bbl: 6 Mcf are based on an energy equivalency conversion
method primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.

 

Prospective Resources Data

 

The prospective resources estimates disclosed or referenced herein have been
prepared by Dr. Rob Cook, a qualified reserves evaluator, in accordance with
the SPE's Canadian Oil and Gas Evaluation Handbook and in accordance with NI
51-101. The prospective resources disclosed herein have an effective date of 1
January 2022. Prospective resources are those quantities of gas, estimated as
of the given date, to be potentially recoverable from undiscovered
accumulations through future development projects. As prospective resources,
there is no certainty that any portion of the resources will be discovered.
The chance that an exploration project will result in a discovery is referred
to as the "chance of discovery" as defined by the management of the Company.

 

There is no certainty that it will be commercially viable to produce any
portion of the resources discussed herein; though any discovery that is
commercially viable would be tied back to the Company's pipeline in Morocco
and then connected to customers' facilities within 9 to 12 months of
discovery. Based upon the economic analysis undertaken on any discovery,
management has attributed an associated chance of development of 100%.

 

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

·      Petrophysical parameters of the sand/reservoir;

·      Fluid composition, especially heavy end hydrocarbons;

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

·      Reservoir drive mechanism;

·      Potential well deliverability; and

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

 

"P50" means that there is at least a 50% probability that the quantities
actually recovered will equal or exceed the best estimate.

 

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