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SDX Energy reports increase in production

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Oilfield Technology,

SDX Energy has announced its unaudited financial and operating results for the three months ended 31 March 2020.

1Q20 operations highlights

  • 1Q20 entitlement production of 8061 boe/d is 117% higher than 1Q19 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 million ft3/d of dry gas and 511 bpd of condensate equating to 4994 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 billion ft3 recoverable resources. Plans underway to connect SD-12X to the company's gas processing plant via a 5.8 km 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 billion ft3 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 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 1Q20 levels. Egyptian operations remain unaffected by Covid-19 at present.

2020 guidance

  • 2020 production guidance of 6750 - 7000 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.

1Q20 financial highlights

  • Realised prices: 1Q20 realised Moroccan gas prices of US$10.33/mcf (1Q19: US$10.26/mcf) and oil prices of US$43.03/bbl (1Q19: 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: 1Q20 netback of US$12.1 million, 30% higher than 1Q19, 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: 1Q20 EBITDAX of US$11.1 million was 42% higher than 1Q19 of US$7.8 million due to higher netback, lower recurring G&A and no transaction costs in 2020.
  • DD&A: 1Q20 charge higher at US$6.7 million compared to US$5.9 million in 1Q19 due to South Disouq start up in 4Q19, 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 4Q19.
  • 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): 1Q20 operating cash flow (before CAPEX) of US$6.3 million, lower than 1Q19 of US$7 million primarily due to 1Q19 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 1Q20 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: 1Q20 CAPEX of US$15.5 million, reflecting:
  • - US$10.7 million (including $0.5 million of decommissioning provisions) for the Moroccan drilling campaign;
    - US$3.6 million for the drilling of the SD-6X (SDX: 55% interest) and SD-12X (SDX: 100% interest) wells in South Disouq;
    - US$0.7 million for additional work and insurance spares at the South Disouq Central Processing Facility ("CPF"); and
    - 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 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.

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."

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