SDX Energy announces fourth quarter and year-end 2017 financial and operating results and provides guidance for 2018

Reserves

• As at 31 December, 2017 the Company's working interest share of audited 2P reserves was 13.5 million boe.  This represents a 45% increase on the combined 2P reserves of the Company and the Egyptian and Moroccan businesses of Circle Oil PLC (Circle Oil) as at 31 December, 2016.  The Company's audited 2P reserves estimate has been audited in accordance with the COGE Handbook by ERC Equipoise Limited an independent qualified reserves evaluator and auditor.

Corporate and Financial

• The main components of SDX's comprehensive income of US$28.3 million for twelve months ended 31 December, 2017 are:
  • US$28.9 million netback for the period.
  • US$29.6 million gain on acquisition of the Egyptian and Moroccan businesses of Circle Oil.
  • US$17.8 million of DD&A – (increased as a result of the Circle Acquisition from US$3.3 million in twelve months ended 31 December, 2016).
  • US$2.4 million of transaction and restructuring costs relating to the above acquisition. 
• Netback for the twelve months 31 December, 2017 was US$28.9 million, up from US$7.6 million for the twelve months to 31 December, 2016, as the Company benefited from the high margin Moroccan business acquired from Circle Oil and a recovery in oil prices over the year.
• Cash position of US$25.8 million as at 31 December, 2017 reflects strong netbacks and a reduction in receivables of US$4.9 million, which primarily came from Egyptian receivables inherited with the Circle Acquisition.
• Since 31 December, 2017, a further US$6.0 million has been received from backdated receivables which has helped the cash position to grow to US$30.6 million as at February 28, 2018. As economic conditions continue to improve in Egypt, the Company is hopeful that further meaningful reductions will be made to the Egyptian receivables position during 2018.  
• US$21.1 million of capital expenditure has been invested into the business during the 12 months ended 31 December, 2017.
  • US$13.9 million in Morocco, US$12.8 million of which related to the ongoing nine well drilling programme and customer connection projects.
  • US$3.2 million on the SD-1X discovery well and the 3D seismic programme at South Disouq.
  • US$2.0 million in Meseda on the two successful Rabul exploration wells and a nine well workover programme covering pump and tubing maintenance and the Meseda facility upgrade.
  • US$2.0 million on the twelve well workover programme at North West Gemsa.

Operational Highlights

• The Company's share of production from its operations for the twelve months ended 31 December, 2017 was 3237 boepd analysed as follows, and which includes production from the Circle Acquisition with effect from 27 January, 2017;
  • North West Gemsa 2046 boepd
  • Meseda 595 boepd
  • Morocco 596 boepd
• On a pro forma basis, assuming that the Circle Oil Acquisition had completed on 1 January, 2017, the Company's share of production from its operations for the twelve months ended 31 December, 2017 would have been 3457 boepd analysed as follows;
  • North West Gemsa 2220 boepd
  • Meseda 595 boepd
  • Morocco 642 boepd

Egypt

• In North West Gemsa, 12 successful well workovers were completed and the impact of these is now being realised as gross production in the concession is stabilising at approximately 4400 boepd.  Drilling has recommenced in 2018 with a two well programme. The first of these wells is expected to complete in early Q2 with operations on the second well commencing immediately thereafter. The aim of these wells is to stabilise H2 2018 production at current rates.
• In Meseda, two successful exploration wells, Rabul-1 and Rabul-2, were drilled in 2017 and this has been followed in Q1 2018 with the successful appraisal well, Rabul-5.  Rabul-1 encountered 14.5 ft of net heavy oil pay with an average porosity of 21.2% in the Yusr sand. Rabul-2 encountered 101.5 ft of net heavy oil pay, with an average porosity of 20%, across the Yusr and Bakr sands. Rabul-5 encountered 151 feet of net heavy oil pay, with an average porosity of 18% across the Yusr and Bakr formations. One further appraisal/development well will be drilled in 2018 to develop the Rabul discovery.  During the year nine workovers, consisting of tubing and pump maintenance in existing wells aimed at ensuring future production uptime, were completed.  Finally, the Company installed a new two-phase separator at the central processing facility, upgrading processing capacity from 10 000 bfpd to 20 000 bfpd.   Additional pump capacity was also added to the facility to ensure that sufficient water volumes could be injected into the waterflood project.
• In South Disouq, the Company successfully drilled the SD-1X exploration well which found gas-bearing sands in the Abu Madi horizons, the well's primary target.  The well flow tested at a surface constrained rate of 25.8 million ft³/d of conventional natural gas and was subsequently completed.  After the successful test, the Company and its partners completed a development plan for the area which was submitted to the Egyptian State Gas authority, EGAS, for approval. The plan consists of the drilling of two additional appraisal wells, the installation of a rented central processing facility and the laying of a 10 km pipeline to the main export line. The Company plans to commence production, from the SD-1X discovery, at a gross plateau production rate of approximately 50 million ft³/d of conventional natural gas. 
• The SD-1X well also drilled into deeper, potentially oil-bearing intervals beneath the main objective where it encountered hydrocarbon shows.  This deeper interval could not be logged and an additional well, currently planned for 2019, will be required to test this interval.
• At South Ramadan during the year, and in relation to the last remaining commitment on this concession, the final sub-surface technical work was completed in conjunction with a commercial evaluation of development options. The result of this work was the selection of an option that involves the drilling of a development well which is up-dip of one of the previous producing wells in the field.  Depending on rig availability, the well will be drilled either early in Q2 2018 or late in Q3 2018.  Upon the results of this well, the Company will determine how best to optimise its position in this concession.

Morocco

• The Company's Moroccan acreage consists of three concessions; Sebou, Lalla Mimouna and Gharb Centre, all of which are located in the Gharb Basin in northern Morocco.  Sebou and Lalla Mimouna were obtained as part of the acquisition of Circle Oil and Gharb Centre was acquired directly from the Moroccan State on 1 June, 2017.
• In September 2017, the Company commenced a nine well drilling programme covering six appraisal/development wells in Sebou, one appraisal/development well in Gharb Centre and two exploration wells in Lalla Mimouna.
• The results of the well programme to date are as follows with the Company achieving five successful wells from the seven that have been drilled, a better than 71% success rate.

Disclosure clarification

• Reference is made to the SDX 31 December, 2017 Year End Reserves and Resources Audit Report prepared and audited in accordance with the COGE Handbook by ERC Equipoise Limited an independent, qualified reserves auditor, which shows that 38.7 billion ft³ of gas and 0.201 million barrels of condensate have been classed as gross 2P Reserves in SDX's South Disouq Concession (SDX 55% Working Interest: 21.3 billion ft³ of gas and 0.111 million barrels of condensate).   Reference is also made to the SDX Press Release dated July 5, 2017 whereby, amongst other things, it was announced that SDX's South Disouq Concession had Gross Contingent Resources of 47.1 billion ft³ of gas and 2.2 million barrels of condensate (SDX 55% Working Interest: 25.9 billion ft³ of gas and 1.21 million barrels of condensate).
• Notwithstanding that the 2017 Reserves and Resources Audit Report is now re-classifying the originally reported Contingent Resources as 2P Reserves, albeit with a lower recoverable volume, the Press Release of July 5, 2017 should have included some additional disclosure describing possible uncertainties as at that date that may have resulted in the Contingent Resources ultimately not being recovered/classed as 2P reserves.   As at July 5, 2017, these uncertainties would have been focused on potential recoverable volumes, gas price, the cost to develop the required infrastructure (evacuation pipeline and gas processing facility) and operating costs.   These issues have subsequently been considered and addressed in the 2017 Reserves and Resources Audit Report as part of the process of reclassifying the South Disouq Contingent Resources to 2P Reserves.

Outlook:

Egypt

• North West Gemsa (50% Working Interest)
  • Targeting gross 2018 production of c.4400 boepd, broadly similar to 2017. To achieve this, two wells will be drilled and seven worked over.
  • The expected gross cost of the two wells, including processing facility tie-ins is US$6.6 million with the seven workovers expected to cost gross US$1.7 million.
• Meseda (50% Working Interest)
  • Targeting gross production of 3800 bopd, a c.700 bopd increase on 2017's level. The increase will come from drilling four new wells in 2018, two of which will develop the Rabul discovery and two infill producers in the wider Meseda area.
  • The Company also aims to replace up to five ESPs in the wider Meseda area.
  • Gross Meseda capex in 2018 is expected to be approximately US$6.0 million.
• South Disouq (55% Working Interest)
  • Up to four wells planned in 2018, two exploration wells (Ibn Yunus-1X and Kelvin-1X) and two development wells (SD-4X and SD-3X). These wells have an estimated gross capex cost of approximately US$12.0 million. Upon success of SD-4X and SD-3X, SDX expects to construct the SD-1X processing facility together with a 10 km pipeline connecting the processing facilities to the main export line. Gross capex is estimated at approximately US$15.0 million, subject to completion of final tenders and contracts.
  • Ibn Yunus-1X and Kelvin-1X are targeting up to 150 billion ft³ of conventional natural gas in separate structures from the SD-1X discovery.  If successful, volumes will be tied back to the SD-1X processing facility.
  • Assuming all necessary approvals are obtained, first gas is targeted in the second half of 2018, at an initial gross plateau production rate of approximately 50 Million f³/d of conventional natural gas expected from the three development wells in the SD-1X discovery structure. The gas price is still under negotiation.
  • Annual Opex, including processing facility rental cost, is predominantly fixed and estimated at approximately US$6.0 million gross, subject to completion of final tenders and contracts.
• South Ramadan (12.75% Working Interest)
  • At South Ramadan, a development well which is up-dip from one of the previous producing wells in the field, will be drilled either early in Q2 2018 or late Q3 2018. The actual spud date of the well is dependent on rig availability.  Total cost for the South Ramadan work programme in 2018 will be approximately US$23.5 million, which includes some platform remediation work and a well work over, both of which are dependent on the success of the development well.

Morocco (75% Working Interest)

• Given the recent drilling success, 2018 gross production is targeted to increase in line with new customer tie-ins. Depending on timing of tie-ins, SDX is targeting gross production of 8 - 10 Million f³/d of conventional natural gas by the end of 2018.
• SDX's nine well Moroccan drilling programme continues in 2018, with the tie-in of the most recent discovery, SAH-2 and the drilling of two exploration wells: LNB-1, which commenced drilling operations on March 20, 2018 and LMS-1 which will be drilled early in Q2 2018.
• Including SAH-2, the gross cost for the 2018 wells (six total), inclusive of customer tie-ins, and the payment of 2017 outstanding drilling payables is expected to be approximately US$13.0 million.
• In addition, SDX plans to shoot 240km² of 3D seismic in its Rharb Centre concession at an estimated cost of US$6.5 million.

Corporate

• Continue to minimise costs and crystallise synergies from the Circle Oil Acquisition.
• As part of the Company's strategy it continues to review and explore opportunities to expand the asset base in the North Africa region, including through new licencing rounds and acquisitions.

Paul Welch, President & CEO of SDX Energy, commented: 

"2017 was an exceptional year for SDX, with the acquisition of Circle Oil's assets, enabling us to substantially increase production, and cash flow, over the course of the year.

We continued to see strong operational performance throughout the year across our portfolio. In North West Gemsa we are seeing the results of our twelve successful workovers, and in Meseda we successfully drilled two exploration wells in 2017 followed by the successful Rabul-5 appraisal well earlier this month.  The remainder of 2018 will see a second appraisal well, Rabul-4, followed by two development wells on the Meseda area of the concession.  Our nine well drilling programme in Morocco has seen five discoveries from seven wells drilled to date and we look forward to continuing this drilling success throughout the rest of 2018.

As a company, we continue to focus on low cost, high margin production, thereby creating further value for our shareholders. Our strong funding position means we are well placed to capitalise on any suitable, value enhancing asset opportunities that may arise going forward." 

Read the article online at: https://www.oilfieldtechnology.com/special-reports/26032018/sdx-energy-announces-fourth-quarter-and-year-end-2017-financial-and-operating-results-and-provides-guidance-for-2018/