SDX Energy, the MENA-focused oil and gas company, today announced its unaudited financial and operating results for the nine months ended 30 September 2020.

Mark Reid, CEO of SDX, commented:
"I am pleased to report another strong period of production and cash generation from our portfolio in what remains a challenging period for businesses globally. Despite this, we reiterate our production guidance for 2020 and feel that we are in a very strong position to continue our excellent cash generation with approximately 90% of revenues being derived from our fixed price gas contracts. Our discovery at the SD-12X well in Egypt towards the beginning of the year is quickly being developed with initial production expected in Q1 2021.

Growth remains a key focus for the Management team at SDX and we were pleased to announce the identification of c.233bcf of close to infrastructure resource in drill-ready prospects at our South Disouq concession.  In Q2/Q3 2021, the Company will drill the Ibn Yunus-2 development well to accelerate production from our existing discovered reserve base.  Immediately following this, the Hanut prospect will target 139bcf of the 233bcf of newly identified resource and in 2022, two further wells will target another 40 bcf. In line with our ongoing focus on shareholder value creation, we continue to assess the optimum allocation of capital, whether that be investment into organic or inorganic growth projects, or returning capital to shareholders.  Our final decision on this will always be taken with the best interests of shareholders in mind.

We remain confident in the Group's outlook and its potential to grow significantly in the months ahead."

Operations Highlights

• Average entitlement production of 6,646 boe/d, an increase of 90% from the nine months to 30 September 2019 (3,501 boe/d) and 64% higher than average production during FY 2019 (4,062 boe/d) due to strong production levels mainly from South Disouq, which delivered gross production of 48.6 MMscf/d of dry gas and 467 bbl/d of condensate (51.4 MMscfe/d) equating to 4,710 boe/d net to SDX.
• Existing full year production guidance is maintained across all assets at 6,000 - 6,250 boe/d, which is 48-54% higher than 2019 actual production and existing full year capex guidance is also maintained at US$26.2 million, the majority of which has already been incurred.
• The South Disouq two-well drilling campaign was completed during the period, with the second well, SD-12X (100% working interest to SDX), being a commercial discovery in the Kafr el Sheikh formation, and management estimating 24 bcf of recoverable resources. Construction 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 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 further review of the 3D seismic at SD-12X, c.233bcf of close to infrastructure, mean unrisked recoverable volumes, located in productive horizons have been high-graded to ready-to-drill prospects.
• Subject to receipt of final Ministerial and Parliamentary approval, the Company plans to accelerate its drilling campaign to Q2/Q3 2021 from H1 2022 with the drilling of the Hanut prospect targeting 139bcf. The Company's partner has still to advise whether it will participate in the well. The campaign will commence with the Company and its partner drilling the IY-2X well, a development well accessing reserves in the eastern portion of the Ibn Yunus field, to bring forward production and cash flow from this asset. The Company expects to drill the Mohsen and Warda prospects, targeting 26bcf and 14bcf respectively, in 2022.
• The period saw the sale of the Group's non-core North West Gemsa asset in Egypt with the net US$1.6 million proceeds exceeding management's expectations as well as showing the ongoing focus and commitment to capital discipline and careful management of the Group's portfolio whilst also providing additional cash to further strengthen its balance sheet.
• 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, which is now expected in 2021 due to continued COVID-19 restrictions on moving people and equipment in and out of Morocco.
• 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.
• Gas consumption levels at SDX's Morocco customers have returned to c.90% of pre-COVID-19 levels.

2020 Guidance

• The Company's 2020 full year guidance is maintained at 6,000 - 6,250 boe/d, which is 48-54% higher than 2019 actual production.
• 2020 capex guidance is maintained at US$26.2 million (US$21.8 million has been spent to date including the costs of the SD-12X pipeline project which remains on budget).

Outlook

• The Company is well-placed to weather the current macroeconomic uncertainties and continues to screen a number of business development opportunities.
• Cash generation is expected to continue strongly through the rest of 2020 and beyond as approximately 90% of the Company's cash flows are expected to be generated from fixed-price gas businesses.
• 2020, 2021 and 2022 work programmes are fully funded.
• The Company continues to assess the optimum use of capital in the interests of all stakeholders, whether that be investment into new projects or returning cash to shareholders. At present the Company is focussed on continued investment into new projects and considers this the most appropriate use of the Company's capital. This will be assessed on an ongoing basis.
• Post period end, the Company agreed to the disposal of its non-core 12.75% working interest in the South Ramadan concession, located offshore in the Gulf of Suez, Egypt. The purchaser, International Oil Services, a private Egyptian oil and gas company, has already paid the US$0.5 million consideration for the Company's interest, which is in excess of management's internal valuation of the asset. 

KeyFacts Energy: SDX Energy Morocco country profile   l   SDX Energy Egypt country profile