SDX Energy lowers production guidance in first quarter update

North Africa-focused oil and gas company SDX Energy issued its financial and operating results for the three months ended 31 March on Friday, reporting first quarter production of 3,715 barrels of oil per day (boepd), which was an increase of 22% year-on-year.

The AIM-traded firm put that improvement down to successful drilling in North West Gemsa and Meseda, and increased gas sales in Morocco.

First quarter production was, however, 5% lower than the fourth quarter of 2018, due to increased water cut in North West Gemsa.

Post period end, the company said production at Meseda and in Morocco remained stable, although production in North West Gemsa continued to decline.

Workover programmes continued at Meseda and North West Gemsa.

Construction of the South Disouq central processing facility, pipeline and well tie-ins continued in the period, with first gas now expected to be achieved in the fourth quarter.

On the financial front, net revenues and netback in the first quarter totalled $13m and $9m respectively, which were are 15% and 3% higher year-on-year, due to increased production and improved gas prices in Morocco.

That was offset by lower first quarter net realised average oil and service fees of $55 per barrel of oil equivalent, compared to $59 a year ago.

Operating cash flow before capital expenditure in the first quarter remained “robust” at $7m, with $13m of capital expenditure being invested in the period, of which $7m was related to the South Disouq CPF, pipeline and well tie-ins.

Cash at 31 March was $11m, with the $10m EBRD facility remaining undrawn.

SDX also announced changes to its management team, confirming Paul Welch would be resigning as a director, and as president and chief executive officer of the company with effect from 31 May.

As part of an ongoing succession plan, chief financial officer Mark Reid would assume the role of interim chief executive officer with immediate effect.

A “leading” oil and gas executive search firm had commenced the process for the recruitment of a new CEO, the board confirmed.

Looking ahead, SDX said a drilling campaign of up to 12 wells was planned for Morocco in the fourth quarter of the current year, through to the first quarter of 2020.

The board said that would target sufficient reserves to satisfy existing customers' forecast demand, and would test new play opening areas of prospectivity across the portfolio.

Due to a slower than anticipated run-rate of new customer additions and a scaling down of certain business lines at an existing customer, 2019 Morocco gas sales guidance was revised to an annual average gross rate of between six million and 6.5 million cubic feet per day, being the estimated contracted volumes from existing customers.

Previous guidance was for a 2019 gross exit rate of between nine million and 11 million cubic feet per day.

In South Disouq, first gas was now expected to be achieved in the fourth quarter, with the company aiming for a gross plateau production rate of around 50 million cubic feet equivalent per day by the first quarter of 2020, after an initial ramp up phase.

Subject to partner approval, a drilling campaign of up to five exploration wells was planned to commence at South Disouq in 2020.

The board aid the wells would target the same Abu Madi and Kafr el Sheik prospective horizons that had seen the company make four discoveries from the five wells drilled to date.

In Meseda, the firm said it was maintaining its existing gross production guidance of between 4,000 and 4,200 barrels per day, and was “looking forward” to the upcoming drilling of two further development wells, one in each of the Rabul and Meseda discovery areas.

At North West Gemsa, 2019 gross production guidance was reduced to between 3,000 and 3,200 barrels of oil equivalent per day, from between 3,400 and 3,600 barrels, due to increased water cut offsetting the impact of ongoing workovers.

The company's drilling and development activities were fully funded from expected future cash flows and its existing sources of liquidity, the board confirmed.

“The board would like to thank Paul for his hard work in growing SDX Energy and we wish him well in his future endeavours,” said chairman Michael Doyle.

“We are also grateful to Mark for taking over as interim CEO.

“Mark's focus will be to ensure the delivery of our key operational targets at the South Disouq development in Egypt and the upcoming Morocco drilling campaign through the use and optimisation of the liquidity that we have available in the company today.”

Doyle said it was important that the market now had an updated view of how the company’s assets would contribute to the business in the coming months, with its restated guidance achieving that.

“Our focused well programme in Morocco and our commitment to ensure that South Disouq commences production in Q4 2019, before any further drilling takes place in this concession, emphasises our commitment to capital and fiscal discipline in the business going forward.

“That said, we are very much looking forward to recommencing drilling in Morocco and South Disouq during 2019/20, and we hope to continue with the successes we have had to date in both locations.

“The board remains very positive about SDX's future growth plans, both from our high quality existing asset portfolio, as well as from new opportunities, a number of which we continue to assess.”