SDX Energy today announced its audited financial and operating results for the twelve months ended 31 December 2020.

Mark Reid, CEO of SDX, commented:
"After what has been a very disruptive period for both businesses and people, I am extremely pleased to announce a set of results featuring record production, a strong balance sheet and successful drilling results.

Operationally, 2020 was a strong year for the Group and although the COVID-19 pandemic contributed to a low oil price environment, SDX's high fixed-price gas assets in both Egypt and Morocco demonstrated the cash-generative resilience that exists within our portfolio. While Morocco production saw demand fluctuations early in the period, we are now back to pre-lockdown levels of production with 2021 production expected to be 8-12% higher than in 2020.

Our exploration efforts in the period were also positive in both Egypt and Morocco, with our largest discovery, the SD-12X well in South Disouq, having been brought on stream before the end of the year. As well as adding reserves through the drill bit, the Group also continued to manage its portfolio with the sale of non-core assets in North West Gemsa and South Ramadan, adding further to the Group's cash and reducing its associated capex.

With a 39% increase in EBITDAX from continuing operations to US$32.9 million, our strong focus on capital discipline and our balance sheet stewardship, we have ended the year with a healthy cash balance and clarity over our work programme for the next two years, funded from our cash position. This work programme includes a transformational prospect with the Hanut well having the potential to significantly increase Company reserves.  Furthermore, the recently approved ten-year extension of our West Gharib oil concession increases our share of reserves in the asset by 60% year on year and 119% taking account of 2020 production. With a breakeven Brent price of approximately US$20/bbl this is an extremely positive development given current oil prices.  We have also made excellent progress with various ESG initiatives and I am particularly proud to announce that our carbon intensity in 2020 was only 1.8kgCO2e/boe for our operated assets, one of the best performances in the industry.

Finally, I would like to thank all of our team for their tireless work rate and commitment in what was tough period for all as we tackled challenges seldom seen before. The outlook for SDX is extremely bright and we look forward to delivering on our goals for the coming period and enhancing value for all stakeholders in the Company."

2020 Operations Highlights

• Average entitlement production of 6,397 boe/d, an increase of 57% year on year due to strong production levels mainly from South Disouq, at 49.5 MMscfe/d equating to 4,532 boe/d net to SDX.
• 2020 production from core assets either exceeded or was at the top end of market guidance, despite COVID-19 interruptions in Morocco. Capex was below guidance, primarily due to drilling at West Gharib being deferred due to the lower oil price environment in 2020.
• 2021 guidance for production is 5,620 - 5,920 boe/d and for capex is US$25.0-US$26.5 million.
• The Company's operated assets recorded a carbon intensity of 1.8kg CO2e/boe in 2020 which is one of the lowest rates in the industry.
• The South Disouq two-well drilling campaign finished with a discovery at, SD-12X (100% working interest to SDX). First gas was achieved in December 2020, 5-6 weeks ahead of schedule.
• Following further review of the 3D seismic after the SD-12X discovery, c.233bcf of close to infrastructure, mean unrisked recoverable volumes, located in productive horizons have been high-graded to drill-ready prospects.
• Subject to receipt of final Ministerial and Parliamentary approval for a two-year exploration concession extension, the Company plans to drill the Hanut prospect targeting 139bcf in Q3 2021.
• Hanut will be part of a two-well campaign with IY-2X well, a development well in the eastern part of the Ibn Yunus field, seeking to bring forward production and cash flow. The Company's partner has confirmed that it will participate in both wells.
• During the year, the Group sold its two non-core assets, North West Gemsa and South Ramadan in Egypt for US$2.1 million, a sum which exceeded management's expectation.
• Post-period end, SDX obtained approval for a ten-year extension to the West Gharib Production Services Agreement increasing audited(1) 2P reserves in this core oil asset as at 31 December 2020, by 60% year on year, or 119% taking account of 2020 production, to 3.52 million barrels. 
• The Moroccan drilling campaign in 2019/20 resulted in seven discoveries from nine wells, with the tenth well, LMS-2, completed and now expected to be tested as part of the 2021 drilling campaign.
• Further analysis of the LMS-2 well results has revealed that Top Nappe structures, similar to LMS-2, are present throughout the Company's acreage. Subject to a successful flow test of LMS-2, the intention is to target the Top Nappe as part of the planned 2021 Moroccan drilling campaign, to commence in H1 2021.
• Gas consumption in Morocco has returned to March 2020 pre-COVID-19 levels. In December 2020 an existing customer's second factory started up, contributing to higher guidance for FY2021.
• As at 31 December 2020, the Company's working interest share of audited(1) 2P reserves was 11.1 mmboe and audited 2C contingent resources was 0.9 mmboe. The 0.9 mmboe of 2C resources relates to the Meseda and Rabul producing assets in its West Gharib concession in Egypt and will be converted to 2P reserves upon approval of a development plan.

(1) The Company's 2P reserves and 2C resources estimates have been audited in accordance with the COGE Handbook & PRMS by Gaffney, Cline & Associates, an independent qualified reserves evaluator and auditor.

2021 Guidance

2021 production guidance of 5,620 - 5,920 boe/d is 1-6% lower than 2020 production, excluding the assets divested, predominantly due to scheduled maintenance at the Group's CPF at South Disouq. An analysis of 2021 production guidance by asset is as follows:

• South Disouq: Production guidance for 2021 reflects planned 2-3% Central Processing Facility ("CPF") downtime due to planned maintenance, the installation of an inlet compressor and several well workovers, none of which occurred in 2020. Where possible, these activities are expected to be synchronised to minimise their impact. The Company's share of gross production will increase due to its 100% working interest in the SD-12X well, which started up ahead of schedule in December 2020.  
• West Gharib: Production is expected to decline naturally during H1'21 until the planned three to four well campaign commences. Thereafter, the production decline is expected to be arrested, with further development wells planned for 2022 and 2023 with a view to growing production to approximately 3,000 bbl/d.
• Morocco: Production guidance is 8-12% higher than 2020 production and reflects a sustained return to normal levels of consumption across the customer base, following COVID shutdowns which impacted 2020 production, together with a full year's contribution from an existing customer's second factory, which came online in December 2020. 
• COVID-19: The 2021 production guidance presented assumes no significant production curtailments due to COVID-19. Should there be COVID-19 related disruptions, then production guidance may be revised.

2021 Capex Guidance

2021 capex guidance range of US$25.0 - 26.5 million predominantly relates to one exploration and one development well in South Disouq together with workovers and the installation of an inlet compressor. Up to five new wells and workovers are planned in Morocco and up to four new wells and facilities upgrades at West Gharib. 

2020 Drilling and Operations

Morocco drilling campaign update (SDX 75% working interest)

• Having fulfilled the objectives for the Morocco campaign, being: (i) to add 2P reserves in and around its existing infrastructure; (ii) to determine if its existing producing area extends to the north; and (iii) to test the prospectivity within the Lalla Mimouna concession, the Company decided not to drill the final two planned wells to preserve capital.
• 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 deeper than the Company's core production and development area and the areas previously targeted in Lalla Mimouna. Subject to a successful flow test of LMS-2, the 2021 drilling campaign may target a Top Nappe prospect within the core producing area.
• The above developments will allow the Company to significantly extend reserve life and continue to support lower CO2 emissions at our customers.

South Disouq Egypt exploration drilling campaign update (SDX 55% working interest)

• In Q4 2020, the SD-12X well (SDX 100% working interest) was tied in via a 5.8 kilometre connection to the Ibn Yunus-1X location where an existing flow-line connects down to the South Disouq CPF, achieving first gas in December, at an estimated tie in cost of US$3.1 million, US$0.4 million below initial estimates. The discovery will potentially only require one further development well to be drilled, which can be undertaken when necessary.
• Following the success of SD-12X and further review of the 3D seismic, management has now identified 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 drill-ready prospects.
• 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 commence drilling in June. The campaign will kick off with the drilling of the IY-2X development well in the Ibn Yunus field to accelerate production and cash flows. The Hanut prospect will be drilled immediately afterwards, targeting 139 bcf, with the Mohsen (26 bcf) and Warda (14bcf) wells to be expected to be drilled in 2022/23. The Company's 45% partner will participate in the IY-2X well and has still to confirm whether they will participate in the other proposed wells.

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