SDX Energy, the MENA-focused oil and gas company, is pleased to announce its unaudited financial and operating results for the three months ended 31 March 2021. All monetary values are expressed in United States dollars net to the Company unless otherwise stated.

Mark Reid, CEO of SDX, commented:
"The first quarter of 2021 has been a positive start to the year as we have continued our strong production and cash generation from our assets in Egypt and Morocco with all our key financial metrics improving from the same period last year and our current production and capex either beating or being in line with guidance. Consumption from our customers in Morocco was notably stronger this quarter compared to last year as demand has now fully recovered from the effects of the pandemic seen in the same period of 2020. We saw slightly reduced production at South Disouq due to natural decline, well workovers and expected sand and water production in two out of the five wells, however this was mostly offset by the new SD-12X well which came onstream in December, and we remain on track to meet our guidance.

As a business we remain in a financially strong position, fully funded for our 2021/2022 work programme with robust cashflows and now with the full US$10 million available in our credit facility to draw upon. In this regard, I would like to reiterate my thanks to the EBRD for their continued support in renewing the facility. We have now commenced our drilling in Morocco and have made significant progress with the planning of the Ibn Yunus-2X development well, and the transformational Hanut-1X exploration well in Egypt, which will be drilled consecutively, commencing in Q2 2021. I would finally like to thank the team for their continued high work rate throughout this period and I look forward to updating the market as we progress our work streams in the year."

Three months to 31 March 2021 Operations Highlights

• Q1 2021 entitlement production of 5,862 boe/d was 2% higher than 2021 mid point market guidance of 5,770 boe/d and 10% lower than Q1 2020 mainly due to natural decline, well workovers and expected sand and water production in two of the five wells at South Disouq.
• Capex of US$4.0 million was within guidance, with the majority of activity scheduled for the remaining nine months of the year. 2021 guidance for capex is US$25.0-US$26.5 million.
• The Company's operated assets recorded a carbon intensity of 2.7kg CO2e/boe in Q1 2021 which is one of the lowest rates in the industry.
• Planning for the two-well South Disouq drilling campaign continued, and 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 of P50, unrisked prospective resources with a chance of success of 33% in Q3 2021.
• Hanut will be preceded by the 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.
• In March 2021, SDX obtained approval for a ten-year extension to the West Gharib Production Services Agreement increasing audited 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. 
• Preparations were completed for the first three wells of a four to five-well programme in Morocco, with the first well, the OYF-3, spud at the end of April.
• Post-period end, the Company received the COVID-19 delayed laboratory analysis of the cuttings and side wall cores from the LMS-2 well.  This information confirmed that LMS-2 had successfully encountered the targeted thermogenically-sourced gas in the Top Nappe horizon but that the reservoir in the Lalla Mimouna Nord concession has low permeability and the well is unlikely to flow conventionally. As such, the Company will not risk US$0.5 million testing this well, nor will it commit to further investment in the Lalla Mimouna Nord concession post the end of the concession date in July 2021 as a result of the low permeability in this concession and limited likelihood of it being commercially developed. Accordingly, the Company expects to recognise a US$10.2 million non-cash impairment charge in Q2 ahead of relinquishment, of which US$2.8 million relates to LMS-2.
• As the analysis of LMS-2 has confirmed that a working thermogenic petroleum system exists and feeds the Top Nappe horizon, which exists throughout the Company's acreage, work will continue to identify drillable prospects at this horizon, with the objective of potentially testing the Top Nappe in drilling planned for 2022/23.

Q1 Performance

• Q1 2021 entitlement production of 5,862 boe/d is 2% higher than mid point guidance of 5,770 boe/d and 10% lower than Q1 2020.
• South Disouq: During Q1 2021, the existing wells continued to exhibit natural decline and expected sand and water production from two of the five wells, albeit this was partly offset by contribution from the SD-12X well which was brought online in December 2020. The SD-4X was successfully worked over during the quarter and was put back on production at a similar rate, as was the SD-1X well in Q2 2021. Production for the quarter was below midpoint guidance as the SD-12X well was taken offline for a pressure build up test in February. Production guidance continues to reflect planned 2-3% Central Processing Facility ("CPF") downtime due to scheduled maintenance, the installation of an inlet compressor and several further well workovers.
• West Gharib: The existing wellstock at the asset continued to produce steadily, albeit exhibiting natural decline as expected. Preparations are advanced for a development drilling campaign of three to four wells which will commence in late Q2/early Q3 and production will trend towards midpoint guidance until such time as the new wells are drilled and brought online.
• Morocco: Q1 2021 saw stronger demand from all customers in Morocco and this is the reason that the Company is currently exceeding midpoint guidance.  In addition, Q1 2021 reflects additional consumption from an existing customer's second factory which came online in December 2020. 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. 
• 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.

Capex

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 will be undertaken at West Gharib

Planned operations

• South Disouq: One development well, Ibn Yunus-2X, and one exploration well, Hanut-1X, will be drilled consecutively, commencing in Q2 2021. The IY-2X well will access the eastern compartment of the Ibn Yunus field and is expected to be completed and tied back rapidly once drilled. The Hanut-1X well is targeting unrisked mean recoverable volumes of 139bcf with a 33% chance of success. The Company's partner has confirmed that it will participate in both wells. An inlet compressor will be installed at the CPF site to maximise recovery from the fields, and several well workovers are also planned. Once the exploration concession extension that includes the Hanut and Mohsen prospects has been ratified by Parliament, the Company will pay its share of signature and training bonuses. In Q1 2021, US$1.1 million of capex was invested to complete the SD-12X tie-in, undertake the SD-4X well workover, commence drilling preparations for the two-well campaign and on other minor projects at the asset.     
• West Gharib: At least three infill development wells will be drilled with a fourth contingent upon field performance and the macroeconomic environment. One water injection well will be drilled, and additional facilities to support this project will be installed. In Q1 2021, US$0.4 million of capex was spent on a number of well workovers.
• Morocco: Four to five wells will be drilled in two campaigns in Q2 and Q4 2021. As the drilling rig was stacked in the Company's yard in Morocco, there has been no significant mobilisation cost and, in addition, splitting the campaign into two allocates the capital investment over approximately eight months which allows the cost of these wells to be comfortably covered by cash generated in that period. In Q1 2021, US$2.5 million of capex was spent predominantly on several well workovers, including re-perforations and sliding sleeve operations to exploit behind-pipe reserves and maximise production, as well as pre-drilling campaign preparatory activities.

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