SDX Energy revenues slip as it continues development strategy

Middle East and North Africa-focussed oil and gas company SDX Energy released its third quarter financial and operating results on Friday, reporting that production for the nine months ended 30 September increased to 3,501 barrels of oil equivalent per day net to SDX, compared with 3,455 barrels per day for the same period in 2018.

The AIM-traded firm put the increase down to an 18% increase at Meseda as a result of successful drilling, a 20% increase in Morocco due to increases in customers and customer consumption rates, offset by a 10% decrease at North West Gemsa primarily due to increased water cut across the field, as it had previously indicated.

On 7 November, first gas was achieved from the South Disouq gas field in Egypt, where SDX is the operator with a 55% working interest, with production increasing ahead of expectations from around 24 million standard cubic feet equivalent per day to around 35 million standard cubic feet equivalent in the first two weeks of operations.

The company said that at South Disouq it would continue to gradually ramp up production, targeting a gross plateau production rate of around 50 million standard cubic feet equivalent per day in the first quarter of 2020.

During 2020, and subject to final partner discussions, SDX said it was planning to drill up to three exploration wells in the South Disouq concession.

Also in Egypt, at Meseda where SDX has a 50% working interest, a 19.06% entitlement interest and is the joint operator, the company maintained its existing gross production guidance of between 4,000 and 4,200 barrels per day, following the successful drilling of the Rabul-7 and Meseda-19 development wells in the first nine months of 2019.

At North West Gemsa, where SDX has a 50% working interest and is a non-operator, the board said 2019 gross production guidance was maintained at between 3,000 and 3,200 barrels of oil equivalent per day, with well workovers slowing the rate of natural field decline.

In Morocco, the board noted that on 25 October, it announced the start of a 12-well drilling campaign, targeting a mean 15 billion cubic feet of gross unrisked prospective resources, in its operated Gharb Basin acreage, where it has a 75% working interest.

The firm said the drilling campaign, which was expected to complete in the first quarter of 2020, would target reserves sufficient to satisfy forecast demand based on existing customers, and test new play opening areas of prospectivity across the portfolio.

Morocco gas customers added in late 2018 and early 2019 were continuing to increase their consumption rates during the quarter, the company added.

Gross sales gas of 6.6 million standard cubic feet equivalent per day was achieved in the three months ended 30 September, with that increasing to seven million standard cubic feet per day for the month of October.

As a result, gross gas consumption for the nine months ended 30 September increased to 6.2 million standard cubic feet per day, underpinning the 2019 sales guidance of an annual average gross rate of between six million and 6.5 million standard cubic feet per day.

On the financial front, SDX noted that net revenues for the nine months ended 30 September totalled $38m, which was $2m - or 5% - lower than in the 2018 comparative period.

The board said that reduction in net revenues was due to lower net realised average oil and service fees of $56 per barrel of oil equivalent, compared to $64 per barrel in 2018, which was offset by a small increase in production in the nine month period.

In the nine months ended 30 September, the firm said it achieved a netback of $27m, which was $4m lower than the $31m achieved at the same time in 2018.

That reduction was due to the $2m revenue reduction, as well as increased operational expenditure in the period, resulting from increased production and workover activity and a greater allocation of costs to opex in the nine month period.

In the 2018 comparative period, those costs were allocated to capital expenditure and drilling campaigns in Morocco and North West Gemsa.

Operating cash flow before capex in the nine months remained “robust”, the board said, at $18m, down from $27m year-on-year, which the board put down to its “strong” netback and as a result of the continued reduction of Egyptian Petroleum Company receivables in the period.

That operating cash flow supported $23m of capital expenditure invested in the period, compared to $35m a year earlier.

Of that $23m, $14m related to the South Disouq central processing facility, pipeline and well tie-ins and 3D seismic, with $5m for drilling, customer connections, and 3D seismic in Morocco, $2m for workovers in Meseda and North West Gemsa, and $2m for drilling and completion costs at South Ramadan.

The company said its forecast drilling and development activities were fully funded by expected future cash flows, and its existing sources of liquidity.

Cash at 30 September totalled $13m, with the $10m European Bank for Reconstruction and Development credit facility remaining undrawn.

In line with its amortisation schedule, availability under that facility was reduced to $7.5m post-period end.

SDX said discussions were underway with the bank to extend the tenor and re-establish the $10m availability under the facility.

“Achieving first gas at South Disouq earlier this month was a major milestone for SDX and it is anticipated to have a material impact on the company's cash generation going forward,” said chief executive officer Mark Reid.

“Furthermore, we are pleased with the performance of the wells and the facility in the first two weeks of operation and this has resulted in a rate of production increase that has exceeded our expectations.

“Notwithstanding this accomplishment, we remain focused on the delivery of our other two medium-term strategic objectives of executing an efficient and successful 12-well drilling campaign in Morocco and progressing our planned exploration drilling campaign in South Disouq in 2020.”

Reid said the company was also “pleased” that production and capital expenditure from its operations continued to be within its guided ranges, and that its cash flow generation, liquidity position and balance sheet remained “strong” and continued to provide the firm with the necessary funding to pursue those remaining two medium-term strategic objectives.

“With the planned ramp-up of production in South Disouq to 50 million standard cubic feet equivalent per day in the first quarter of 2020, together with the drilling campaigns in Morocco and South Disouq, the remainder of 2019 and 2020 will be a very busy and exciting period for SDX and we look forward to providing the market with further updates in due course.”

At 0922 GMT, shares in SDX Energy were down 0.88% at 22.55p.