SDX Energy provides a year end 31 December 2019 operations and financial update and sets out production and capex guidance for 2020. All monetary values are expressed in United States dollars net to the Company unless otherwise stated.  

Production and Capex: 2019 Year End Update and 2020 Guidance

• 2019 production at 4,020 boe/d was 12% higher than 2018, and by individual asset, has either exceeded or was at the upper end of 2019 guidance.
• 2020 production guidance of 6,750 - 7,000 boe/d is 68-74% higher than 2019 production. Guidance includes 1,000 - 1,050 boe/d for North West Gemsa which the Company may exit during the year if sufficient cost savings cannot be achieved by the operator.
• 2019 capex of approximately US$40.7 million (unaudited), US$4.5 million higher than 2019 guidance primarily due to two extra wells being drilled in Morocco with the campaign starting earlier in Q4'19 and rig move times between wells being shorter than expected.
• 2020 capex guidance of US$25.5 million predominantly relates to the completion of the Morocco 12 well drilling campaign, two exploration wells planned for South Disouq, Egypt, and up to three appraisal/development wells planned for the Meseda and Rabul fields in the West Gharb concession.

Morocco drilling campaign update (SDX 75% Working Interest)

Map source: KeyFacts Energy

• Seven 'close to infrastructure' appraisal/development wells have been drilled to date in the 12 well campaign resulting in five commercial discoveries.  The Company estimates that this has added 2.0 - 2.5 bcf (gross) to its estimate of existing gross gas reserves of 4.0 - 5.0 bcf in Morocco. Given low connection costs, and assuming continued well deliverability, the Company estimates that these reserves will be sufficient to fulfil existing customer contracts for the next 30 to 36 months.
• The Company expects to add incremental reserves and contingent resources from the remaining five wells in the campaign and through future development of its acreage. These five wells consist of: two play-opening appraisal wells to determine whether the prospectivity of the Company's core area extends to the north; two exploration wells in Lalla Mimouna targeting deeper prospectivity in a potential new play fairway; and one 'close to infrastructure' appraisal/development well.

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

Map source: KeyFacts Energy

• At South Disouq in Egypt, preparations continue for two exploration wells targeting the same horizons encountered in the Company's four discoveries to date. SDX's share of these well costs is estimated at US$4.0 million in total and this is fully funded from its existing cash resources.
• The first well, Salah, which is expected to spud in mid/late February and complete in April 2020, is targeting a gross unrisked P50 prospect of 71 bcfe (Company estimate).  The second well, Sobhi, which is expected to spud in late April/early May and complete in early June, is targeting a gross unrisked P50 prospect of 33 bcfe (Company estimate).
• If successful, these two wells would require short, 8.0 kilometre and 5.8 kilometre, tie-ins to the South Disouq Central Processing Facility ("CPF") with SDX's share of the tie-in cost estimated at US$2.5 million and US$1.9 million respectively.
• The Company is reviewing a number of development concepts depending on the size of any discovery that is made. To fully produce the gross unrisked P50 prospect of 71 bcfe targeted in the first well, two further development wells are likely to be required.  With the gross unrisked P50 prospect of 33 bcfe targeted in the second well, only one further development well would be required.
• Depending on partnering discussions, a third South Disouq well targeting deeper prospectivity in a potential new play fairway may be drilled later in 2020.

Cash and liquidity update

• Closing cash as at 31 December 2019 was approximately US$11 million (unaudited) with the US$10 million European Bank for Reconstruction and Development ("EBRD") credit facility remaining undrawn.  The facility amortised in November 2019 and it currently has US$7.5 million available for drawdown. 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.

Non-cash impairment of historic balance sheet capex of non-core assets

• A review of historic capitalised expenditure at the Company's non-core assets at North West Gemsa, South Ramadan and the southern exploration area of South Disouq, which will likely be relinquished during 2020, and, a comparison against remaining reserves, future capex and opex budgets, remaining time to expiry on concessions and future prospectivity, has resulted in the recognition of non-cash impairments which could amount to approximately US$18 million (unaudited). The final impairment charge will be reflected in the Company's Consolidated Statement of Comprehensive Income for the year ended 31 December 2019.
• The above impairments have no impact on the Company's future cash flows or growth potential.

Mark Reid, CEO of SDX, commented: 
"2019 was a successful year for SDX, with all key metrics being ahead of expectations, success with the drill bit and our key South Disouq development project completing on time and on budget.

We have entered 2020 in a strong position with production at record levels, good monthly cash generation, a strong balance sheet and a busy work programme of drilling ahead of us, which is all fully funded.

With eight wells planned for H1 2020, six of which are exploration/appraisal in nature, we are moving into a very exciting period of activity and I look forward to providing further updates in due course."

2019 production and 2020 guidance

• 2019 production at 4,020 boe/d is 12% higher than 2018, and by individual asset, has either exceeded or is at the upper end of 2019 guidance.
• 2020 production guidance of 6,750 - 7,000 boe/d is 68-74% higher than 2019 actual production. 

2019 capex

• 2019 capex of c.US$40.7 million (unaudited) is US$4.5 million higher than 2019 guidance of c.US$36.2 million. US$2.9 million of this increase is explained below in the table of 2019 capex by asset, with US$3.1 million as a result of six Moroccan wells being drilled in Q4'19 rather than the planned four. The remaining US$1.6 million of the increase relates to unbudgeted capex in South Ramadan due to an unbudgeted overspend on the final work commitment on this concession.

2020 capex 

• 2020 capex guidance of c.US$25.5 million predominantly relates to the completion of the Morocco 12 well drilling campaign, the drilling of the two exploration wells and well workovers planned for South Disouq, and a deposit on the booster compressor planned for South Disouq in 2021, up to three appraisal/development wells in Meseda and up to 10 workovers in North West Gemsa.

Link to SDX Energy Egypt country profile   l   Link to SDX Energy Morocco country profile