SDX Energy PLC – SDX – Trading and Operations Update

SDX Energy Plc (AIM: SDX), the MENA-focused oil and gas company, is pleased to provide an unaudited update on its operating results and cash and liquidity position for the nine months ended 30 September 2020. All monetary values are expressed in United States dollars net to the Company unless otherwise stated.

 

Mark Reid, CEO of SDX, commented:

 

“We have continued to perform strongly in the second half of 2020 despite challenging global conditions. Production is ahead of guidance; we have a healthy cash and liquidity position; and we now plan to accelerate an exciting and potentially transformational drilling campaign in South Disouq into Q2/Q3 2021.

 

In addition, as a result of the recent LMS-2 well in Morocco, and further work interpreting existing 3D seismic data, we are very encouraged by a new prospective horizon that we have identified and which we believe is present throughout our acreage.

Gas consumption from our Moroccan customers is now back to around 90% of pre-COVID-19 restriction levels and we go into the final quarter of 2020 with momentum, exciting and new prospectivity and strong cash generation.”

 

 

Nine months to 30 September 2020

 

Production

 

·      Average entitlement production for the period of between 6,488-6,598 boe/d, an increase of 85-89% from same period in 2019 and exceeding current guidance of 6,000-6,250 boe/d

Asset	Gross Production Actual – 9 months ended 30 September 2020	Gross Production Guidance – 12 months ended 31 December 2020	Entitlement Production Actual (boe/d) – 9 months ended 30 September 2020	Entitlement Production Guidance (boe/d) – 12 months ended 31 December 2020
Core assets
South Disouq – WI 55%	50.0 – 51.0 MMscfe/d	47 – 49 MMscfe/d	4,583 – 4,675	4,300 – 4,460
West Gharib – WI 50%	3,300 – 3,325 bbl/d	3,200 – 3,300 bbl/d	629 – 634	610 – 630
Morocco – WI 75%	5.7 – 5.8 MMscf/d	5.3 – 6.0 MMscf/d	713 – 725	663 – 750
Non-core asset
NW Gemsa – WI 50%	N/A – now disposed	N/A – now disposed	513	385
South Ramadan – WI 12.75%1	390 – 400 bbl/d1	Nil	50 – 51	42
Total			6,488 – 6,598	6,000 – 6,267

^{1.        South Ramadan has been producing since 13/5/20 with production now stabilized at c.600-700bbls/d.  Production in table is a daily average taken back to 1/1/20}  

·      Moroccan customers back to c.90% of their March 2020 pre-close down consumption levels.

 

Drilling and prospectivity

 

·      South Disouq two-well drilling campaign completed during the period, with the second well, SD-12X (100% W.I.), being a commercial discovery in the Kafr el Sheikh (“KES”) Formation, and management estimating 24 bcf of recoverable resources. Work is 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 with production start-up expected in Q1 2021. Based upon well-test data, it is anticipated that when connected the well will produce at a stabilised rate of 10-12 MMscf/d.

 

·      Following the success of SD-12X at South Disouq and further review of the 3D seismic, management has now high-graded c.233bcf 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 which have now been high-graded to ready-to-drill prospects. This increase of 137bcf from the Company’s previous estimates of c.96bcf is primarily attributable to the identification of the Hanut prospect which Company the estimates has an unrisked mean recoverable volumes of 139bcf.

 

·      Subject to receipt of final Ministerial and Parliamentary approval of the two-year extension to the South Disouq exploration area, which has already been approved by EGAS, the Company plans to accelerate its drilling campaign to Q2/Q3 2021 from late 2021/early 2022.  The campaign will commence with the drilling of the two commitment wells proposed for the extension which will target c.165bcf in the Hanut and Mohsen prospects. The Company’s 45% partner has still to confirm whether they will participate in the proposed extension.

 

·    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 (%)
Hanut	55-100(1)	KES	Proposed 2 Yr(2)exploration extension	Single Target	139	33
Mohsen	55-100(1)	KES	Proposed 2 Yr(2)exploration extension	Single Target	26	51
El Deeb	55-100(1)	Qawasim	Proposed 2 Yr(2)exploration extension	Single Target	22	29
Ibn Newton/Newton	55-100(1)	KES/Abu Madi	Proposed 2 Yr(2)exploration extension	Dual Target	16	40-45
Shikabala prospects (two wells)	100	KES/ Qawasim	Up to 25 Yr Development Lease to 31 August 2045	Single Target & Dual Target	16	25-40
Warda	55	KES	Up to 25 Yr Development Lease to 2 January 2044	Single Target	14	35
Total					233

^{(1)       Working interest % dependant on Partner’s decision to participate in the extension}

^{(2)       2 year extension period commences on date of Parliamentary approval}

 

·      The Company continues to identify exciting areas of prospectivity in South Disouq and expects to provide further updates as appropriate.

 

·      The 2019/20 Moroccan drilling campaign has resulted in seven commercial discoveries from nine wells drilled, with the tenth well, LMS-2, completed and awaiting crew mobilisation for testing once COVID-19 restrictions are lifted. 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 of P50 prospective resources.  

 

·      Further analysis of the LMS-2 well results and a re-interpretation of the 3D seismic across SDX’s concessions has revealed that structures similar to LMS-2 are present throughout the Company’s acreage.  This new prospectivity is located in horizons that are slightly deeper than the Company’s core production and development area and the areas previously targeted in Lalla Mimouna.   Work is ongoing to further define the scale of this prospectivity and, subject to a successful flow test of LMS-2, the intention is to target it as part of the planned 2021 Moroccan drilling campaign which we will also seek to accelerate into H1 2021.

 

Capex

 

·      Capex for the nine months to 30 September 2020 continues to track guidance as shown below and reconfirms that the majority of planned capex for 2020 has already been incurred;

Asset	Guidance – 12 months ended 31 December 2020	Actual –9 months ended 30 September 2020
Core assets
South Disouq – WI 55%	US$10.7 million	US$8.0 million(1)
West Gharib – WI 50%	US$2.0 million	US$0.7 million
Morocco – WI 75%	US$13.5 million	US$13.2 million(2)
Non-core asset
Total	US$26.2 million	US$21.9 million

⁽¹⁾         Includes US$0.2 million of non-cash decommissioning provisions

⁽²⁾         Includes US$0.5 million of non-cash decommissioning provisions

 

 

Cash and liquidity

 

·      Cash and liquidity remains strong with cash as at 30 September 2020 of c.US$9.2 million and the US$7.5 million EBRD credit facility remaining undrawn and available up to 1 November 2020 at which point it will amortise to US$2.5 million of availability.

 

·      Together with cash generated from operations, the Company is fully funded for all of its planned activities in 2020 and 2021.