TIDMSDX
RNS Number : 9746I
SDX Energy PLC
07 April 2020
THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY
SDX TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET
ABUSE REGULATION (EU) NO. 596/2014 ("MAR"). ON THE PUBLICATION OF
THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE ("RIS"),
THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC
DOMAIN.
7 April 2020
SDX ENERGY PLC ("SDX" or the "Company")
ANNOUNCES YEAR 2019 FINANCIAL AND OPERATING RESULTS
SDX Energy Plc (AIM: SDX), the MENA-focused oil and gas company,
is pleased to announce its audited financial and operating results
for the year ended 31 December 2019. The Company's annual audited
financial statements (the "Annual Consolidated Financial
Statements") and annual report have been published on the Company
website at www.sdxenergy.com and on SEDAR at www.sedar.com . All
monetary values are expressed in United States dollars net to the
Company unless otherwise stated. SDX management will be hosting a
conference call today at 9:00am UK time, details of which can be
found in the release below.
2019 Operations highlights
-- 2019 entitlement production of 4,062 boe/d was 14% higher
than 2018, and by individual asset, production either exceeded or
was at the upper end of 2019 guidance. The 24% year on year
production increase in Morocco supported our customers' growth
using natural gas, a less carbon-intensive fuel source.
-- South Disouq field brought on production as planned in Q4
2019. The performance of the Central Processing Facility ("CPF")
and wells exceeded expectations and resulted in an accelerated ramp
up to plateau of gross 50 MMscfe/d in mid-December, which was three
months ahead of expectations. This performance has been sustained
to date in 2020.
-- Continuing the exploration drilling campaign in South Disouq,
the SD-12X well targeting gross 33 bcfe as estimated by management
was spud on 18 March 2020. The SD-6X well encountered sub-economic
quantities of gas, however this has no anticipated read across to
SD-12X.
-- The Moroccan drilling campaign, which commenced in Q4 2019,
has resulted in seven discoveries from nine wells drilled to date,
with the tenth well, LMS-2, completed and awaiting crew
mobilisation for testing. Significantly, the discoveries at OYF-2
and BMK-1 have confirmed that the prospectivity in SDX's existing
core production and development area extends to the north, and have
de-risked c.20 bcf of P50 prospective resources. Five commercial
discoveries close to existing infrastructure have increased gross
2P gas reserves to 6.0 bcf as at 31 December 2019, up from 5.1 bcf
as at 31 December 2019. All of the objectives of the drilling
campaign were achieved with 10 wells allowing the Company to
preserve capital and defer the final two wells to a later
campaign.
-- As at 31 December 2019, the Company's working interest share
of audited(1) 2P reserves was 12.0 mmboe and audited 2C contingent
resources was 2.6 mmboe(2) . Approximately 2.3 mmboe of the 2.6
mmboe of contingent resources relates to the Company's Meseda and
Rabul producing assets in its West Gharib concession in Egypt.
These contingent resources will be converted to 2P reserves upon
approval of the development plan for the wells required to produce
them.
(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.
(2) Using a conversion ratio of 6.0 Mcf:1 boe .
Q1 2020 Operational update
-- Q1'20 daily average production estimated to be at or above
upper end of 2020 guidance for all assets.
-- During the second half of March 2020, COVID-19 containment
restrictions in Morocco have temporarily impacted our customers'
operations. If the restrictions continue at current levels for the
remainder of Q2'20, customer consumption in Q2'20 could be 50%
lower than in Q1'20. Moroccan production/consumption guidance for
2020 will be reviewed when the Company has better visibility on the
likely duration of these containment restrictions. The Company's
Moroccan business however is extremely resilient and can breakeven
with customer consumption levels at 20% of Q1'20 levels.
Consumption is expected to revert to Q1'20 levels once the COVID-19
restrictions are lifted. Egyptian operations remain unaffected by
COVID-19 at present.
2020 Production Guidance
-- 2020 production guidance of 6,750 - 7,000 boe/d is 66-72%
higher than 2019 actual production.
-- Whilst the level of potential revision to FY 2020 Moroccan
guidance is as yet unknown, as an indication, it should be noted
that if the three customers remain closed down for three months,
then FY 2020 guidance of 6.7-6.9 MMscf/d is likely to be revised to
5.7-6.2 MMscf/d and if the close down extends to six months, then
the guidance would be revised to 5.0-5.5 MMscf/d.
2019 Financial highlights
Twelve months
ended 31 December
(audited)
US$ million except per unit 2019 2018
amounts
---------- ---------
Net revenues 53.2 53.7
---------- ---------
Netback(1) 39.3 41.7
---------- ---------
Net realised average oil price/service
fees - US$/barrel 55.93 62.43
---------- ---------
Net realised average Morocco
gas price - US$/mcf 10.39 10.33
---------- ---------
Net realised South Disouq gas 2.85 N/A
price - US$/mcf
---------- ---------
Netback - US$/boe 26.53 32.01
---------- ---------
EBITDAX(1) (2) 34.2 34.3
---------- ---------
Exploration & evaluation expense(3) (11.4) (5.7)
---------- ---------
Impairment expense(3) (8.3) (3.5)
---------- ---------
Depletion, depreciation and
amortisation (26.3) (17.3)
---------- ---------
Total comprehensive (loss)/income (18.2) 0.1
---------- ---------
Capital expenditure 43.0 44.0
---------- ---------
Net cash generated from operating
activities 25.1 36.2
---------- ---------
Cash and cash equivalents 11.1 17.4
---------- ---------
(1) Refer to the "Non-IFRS Measures" section of this release
below and the Company's Financial Review for the three and twelve
months ended 31 December 2019 for details of Netback and
EBITDAX.
(2) EBITDAX for Q4 2019 and 2018 and twelve months to 31
December 2019 and 2018 includes US$1.5 million, US$1.4 million,
US$4.3 million, and US$5.0 million respectively of non-cash revenue
relating to the grossing up of Egyptian corporate tax on the North
West Gemsa (all periods) and South Disouq (2019 only) PSCs which is
paid by the Egyptian State on behalf of the Company.
(3) US$17.1 million of non-cash Property, Plant & Equipment
("PP&E") and Exploration & Evaluation ("E&E") asset
impairments in total are included within these line items.
-- Realised prices: FY2019 realised Moroccan gas prices of
US$10.39/mcf (FY2018: US$10.33/mcf) and oil prices of US$55.93/bbl
(FY2018: US$62.43/bbl). Noting the recent significant fall in crude
oil prices, and assuming a US$35 Brent planning price, the Company
advises that, due to its gas businesses having fixed priced
contracts of US$2.65/MMbtu (c.US$2.85/mcf) in Egypt and
approximately US$10-US$12/mcf in Morocco, and assuming no prolonged
business interruptions as result of COVID-19, approximately 90% of
the Company's 2020 cash flows will be generated from these gas
business, increasing to over 95% in 2021.
-- Netback: FY2019 netback of US$39.3 million was driven by
strong production growth in Morocco and Meseda together with South
Disouq starting up. However, overall netback was 6% lower than FY
2018 due to production decline in NW Gemsa, lower realised oil
price and a US$2.0 million increase in opex due to the production
increase/start-up at South Disouq and a greater allocation of
employee costs to opex in FY2019 compared to FY2018 which had a
greater allocation to capex.
-- EBITDAX: FY2019 EBITDAX of US$34.2 million in line with
FY2018 of US$34.3 million due to lower netback being partly offset
by lower transaction costs and lower share-based payment
charges.
-- DD&A: FY2019 charge higher at US$26.3 million compared to
US$17.3 million in FY2018 due to South Disouq start up in year and
increased production in Meseda and Morocco. Depreciable assets also
higher in 2019 due to drilling and facilities investment in
2018.
-- Non-cash PP&E and E&E asset impairments: charges
totalling US$17.1 million recognised at the non-core NW Gemsa and
South Ramadan assets, and for 3D seismic data in the southern area
of the South Disouq concession that will not be drilled before
licence expiry.
-- Operating cash flow (before capex): FY2019 operating cash
flow (before capex) of US$25.1 million, lower than FY2018 of
US$36.2 million primarily due to FY2018 reflecting US$11.2 million
of cash inflows from the reduction of backdated Egyptian
receivables compared to cash inflows from receivables of US$2.0
million in FY2019. The Company has no aged Egyptian receivables as
at 31 December 2019.
-- Capex: FY2019 capex of US$43.0 million, reflecting:
o US$21.4 million (including a US$1.0 million decommissioning
provision) for the South Disouq development project and 3D seismic
acquisition costs;
o US$14.5 million (including a US$0.5 million decommissioning
provision) for the Moroccan drilling campaign;
o US$2.9 million for customer connections and compression
facilities in Morocco;
o US$1.9 million for drilling and development expenditure at
South Ramadan;
o US$1.1 million for drilling and well workovers in Meseda;
o US$1.0 million for well workovers in NW Gemsa; and
o US$0.2 million on office assets.
-- Liquidity: Cash balance as at 31 December 2019 of US$11.1
million with a US$7.5 million undrawn European Bank for
Reconstruction and Development ("EBRD") facility. Discussions are
underway with EBRD to extend the tenor and re-establish the US$10
million availability under the facility with the Company remaining
funded for all 2020 activities from existing liquidity. Cash
balance as at 31 March 2020 is approximately US$8.5 million
(unaudited) with US$7.5 million of undrawn EBRD facility remaining
available.
Mark Reid, CEO of SDX, commented:
"2019 was a year of significant operational progress for SDX.
Production increased by 14% in the year, and on an individual asset
basis it either exceeded or was at the upper end of our 2019
guidance. In the period, we announced first gas on time and on
budget from South Disouq in Egypt and a subsequent accelerated ramp
up to full production three months ahead of internal expectations.
This was a significant milestone for the Group and as well as
increasing production in a meaningful way, it also showed the
competencies of our Company in being able to bring a project of
this scale online in such an efficient manner. Elsewhere in Egypt,
we had a successful workover campaign at North West Gemsa which
helped add to our strong production performance in the period. In
Morocco the drilling campaign which commenced in Q4 2019, has
resulted in seven discoveries out of nine wells drilled to date, a
tenth well is to be tested, with two additional compressors and
well workovers in the second half of the year adding significant
gas deliverability to the existing well stock. I am also very
pleased that our 24% year on year production increase in Morocco
continues to support our customers' growth using lower carbon
natural gas.
Looking ahead, we see significant challenges in the industry,
not least in the downward revision in both oil prices and equity
valuations and the uncertainty caused by COVID-19. However, we feel
it important to note that, after the restart of operations at our
three Moroccan customers that are temporarily closed due to
COVID-19 issues, we expect that with a Brent planning price of
US$35/bbl approximately 90% of 2020 and over 95% of 2021 forecast
cash flows will come from our fixed price gas businesses,
insulating us from much of the impact of falling oil price. We also
remain fully funded for all of our 2020 activities from existing
cashflows, a cash balance of US$11.1 million at the year end and a
US$7.5 million undrawn EBRD credit facility.
To summarise, SDX is in an extremely robust position to face the
challenges ahead, and with our fixed priced gas weighting and our
healthy liquidity position, we remain committed to realising value
for our shareholders by capitalising on a strong year and growing
the Company further in 2020."
Operations update
2019 Production
-- 2019 actual entitlement production of 4,062 boe/d is 14%
higher than 2018, and by individual asset, has either exceeded or
is at the upper end of 2019 guidance. An analysis of 2019
production by asset is as follows:
Gross production SDX entitlement SDX entitlement
production production
boe/d boe/d
Asset Actual - 12 Guidance - 12 Actual Actual
months ended months ended 31 12 months 12 months
31 December December 2019 ended 31 ended
2019 December 31 December
2019 2018
--------------- ---------------------- ---------------- ----------------
Core assets
--------------- ---------------------- ---------------- ----------------
South Disouq - 6.9 MMscfe/d N/A 629 -
WI 55%
--------------- ---------------------- ---------------- ----------------
4,000 - 4,200
Meseda - WI 50% 4,171 bbl/d bbl/d 795 734
--------------- ---------------------- ---------------- ----------------
6.0 - 6.5 MMscf/d
2019 annual average
Morocco - WI 75% 6.4 MMscf/d rate 802 646
--------------- ---------------------- ---------------- ----------------
Non-core asset
--------------- ---------------------- ---------------- ----------------
NW Gemsa - WI 3,000 - 3,200
50% 3,672 boe/d boe/d 1,836 2,194
--------------- ---------------------- ---------------- ----------------
Total 4,062 3,574
---------------- ----------------
o South Disouq : During 2019, the South Disouq CPF was
fabricated, transported to site and commissioned, alongside the
construction of the 12" gas export line and four 6" well flowlines,
bringing the field on production as planned in Q4 2019. The
performance of the CPF and wells has exceeded expectations leading
to an accelerated ramp up to plateau of gross 50 MMscfe/d in
mid-December, which has continued to date in 2020.
o Meseda: Two new production wells, RB-7 and MSD-19, were
successfully drilled and completed in 2019. These wells, in
conjunction with the ongoing workover programme, supported strong
gross production in the first nine months of 2019 from new wells.
This ensured that, despite increasing water cut in the field in the
latter part of the year, annual production was at the upper end of
guidance.
o Morocco: In order to extend the life of currently producing
wells beyond their natural flow limits, the Company invested in two
compressors, which were purchased in Q2 2019. Well workovers were
also carried out during the second half of the year. Both of these
initiatives added significant gas deliverability to the existing
well stock, meaning that the connection of the new discovery wells
from the 2019/20 campaign has been deferred into 2020. On the
demand side, during the second half of 2019 all customers achieved
expected consumption rates resulting in annual gross production
being at the upper end of guidance.
o NW Gemsa: The 2019 well workover programme was carried out as
planned. Gross production was c.500 boe/d above guidance due to
stronger performance than forecast as a result of a slowdown in
pressure decline and water cut increases from a number of larger
producing wells.
2020 production guidance
2020 production guidance of 6,750 - 7,000 boe/d is 66-72% higher
than 2019 actual production. An analysis of our 2020 production
guidance compared to Q1'20 and 2019 actual production is set out
below.
Gross production SDX entitlement SDX entitlement
production production
boe/d boe/d
Asset Guidance - 12 Actual - 12 months Guidance Actual
Actual for Q1'20 months ended ended 31 December 12 months 12 months
31 December 2019 ended 31 ended
2020 December 31 December
2020 2019
-------------------- ------------------ -------------------- ---------------- ----------------
Core assets
-------------------- ------------------ -------------------- ---------------- ----------------
South Disouq - 4,300 -
WI 55% 50 - 52 MMscfe/d 47 - 49 MMscfe/d 6.9 MMscfe/d 4,460 629
-------------------- ------------------ -------------------- ---------------- ----------------
3,440 - 3,460 3,200 - 3,300
Meseda - WI 50% bbl/d bbl/d 4,180 bbl/d 610 - 630 795
-------------------- ------------------ -------------------- ---------------- ----------------
Morocco - WI 75% 6.8 - 6.9 MMscf/d 6.7- 6.9 MMscf/d 6.4 MMscf/d 840 - 860 802
-------------------- ------------------ -------------------- ---------------- ----------------
Non-core asset
-------------------- ------------------ -------------------- ---------------- ----------------
NW Gemsa - WI 3,100 - 3,150 2,000 - 2,100 1,000 -
50% boe/d boe/d 3,600 boe/d 1,050 1,836
-------------------- ------------------ -------------------- ---------------- ----------------
6,750 -
Total 7,000 4,062
---------------- ----------------
o South Disouq : production guidance reflects a continuation of
the 50 MMscfe/d current production rate adjusted for CPF expected
uptime/availability during the year. Q1'20 reflects a period of
better than expected uptime from the CPF.
o Meseda: although up to three wells are planned for 2020, the
lower production guidance reflects the assumption that the two
wells targeting meaningful incremental production may not be
drilled until Q3 2020 due to the expected time to complete
government and offset operator discussions on approvals/permitting.
Q1'20 reflects better than expected field performance as a result
of a number of successful operational improvement initiatives
jointly carried out by SDX and its partner Dublin Petroleum.
o Morocco: production guidance reflects an overall expected
increase in consumption from existing Morocco gas customers during
2020 based upon exit consumption levels noted at the end of 2019
and this is confirmed in actual Q1'20 production. At date of
writing however, three customers in Morocco have advised that they
are temporarily closing down operations due to COVID-19. These
three customers, which includes the Company's largest customer
Super Cerame, account for approximately 50% of the total Moroccan
revenues, with Super Cerame accounting for approximately 46% of
total Moroccan revenues. Take or Pay ("ToP") clauses are in place
with these customers for approximately 40% of their combined
average normal revenue levels, or approximately 20% of total
Moroccan revenues. We understand however that Force Majeure claims
will challenge the applicability of these ToP clauses. Whilst
consumption by the Company's other customers is unaffected by
COVID-19, such is the seriousness and unpredictability of the
situation, there is no certainty that further disruptions will be
avoided in the future. As Q1'20 actual production is at the top end
of guidance, a change to the full year 2020 guidance range is not
being proposed at this point. However, full year 2020 guidance may
require to be reduced if the temporary close downs at the above
three customers extend for a meaningful period into Q2 2020. Whilst
the level of potential revision to FY 2020 Moroccan guidance is as
yet unknown, as an indication, it should be noted that if the three
customers remain closed down for three months, then FY 2020
guidance is likely to be revised to 5.7-6.2 MMscf/d and if the
close down extends to six months, then the guidance would be
revised to 5.0-5.5 MMscf/d. We are confident that the Company's
production will return to its Q1'20 levels once the COVID-19
restrictions are lifted.
o NW Gemsa: as the asset is late life, production guidance
reflects the impact of increased water cut, falling reservoir
pressure and an assumption that no new infill wells will be drilled
in 2020. Whilst Q1'20 production reflects a slower than expected
decline in production, this is not expected to be sustained. As
such, the Company is likely to exit this concession during the year
if sufficient cost savings cannot be achieved by the operator.
o At this point, COVID-19 has not impacted production operations
in Egypt.
2019 Drilling and Operations
Morocco drilling campaign update (SDX 75% Working Interest)
-- Commencing in Q4 2019, seven 'close to infrastructure'
appraisal/development wells were drilled in the 2019/20 campaign,
resulting in five commercial discoveries. Five of these wells were
completed by 31 December 2019, four of which were discoveries.
These four discoveries have increased gross gas reserves to 6.0 bcf
as at 31 December 2019, up from 5.1 bcf as at 31 December 2019.
-- The subsequent two wells, OYF-2 and BMK-1, have confirmed
that the Company's core productive area extends to the north. The
OYF-2 well intersected both pre-drill targets in the Upper and
Lower Guebbas horizons, and has been successfully tested.
Management estimates that 1.3-1.9 bcf of gas is recoverable from
the horizons encountered at OYF-2. The BMK-1 well, further to the
north, also encountered gas in both the Upper and Lower Guebbas
horizons, albeit due to downhole issues only the former could be
logged and completed. Management estimates that 0.9 bcf of gas is
recoverable from both of these horizons. The BMK-1 well will be
tested in the coming months.
-- Significantly, the OYF-2 and BMK-1 wells have de-risked up to
20 bcf of close-by P50 prospective resources for future drilling,
of which approximately 10 bcf is located in and around BMK-1.
-- The LMS-2 well in the Lalla Mimouna concession encountered a
10.6 metre net gas reservoir with 30.9% porosity. The LMS-2 gas has
a different thermogenic composition from the gas in our core
productive area which suggests that it is from a new and likely
deeper source rock. The well has been cased and completed and it
will be perforated and tested to determine its potential when
changes to COVID-19 restrictions make it possible to bring a well
testing crew into the country.
-- Following the play-opening discoveries made during the
campaign, the Company is undertaking an analysis to optimize tie-in
costs and future drilling activity in this new area.
-- 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 has decided not to drill
the final two planned wells. As these last two wells would not have
been immediately tied into the Company's infrastructure or
contributed cash flows in the near term, the Company has chosen to
preserve its capital and postpone, at no incremental cost, these
last two wells for a future campaign.
-- The above developments will allow the Company to
significantly extend reserve life and continue to support lower
CO(2) emissions at our customers.
South Disouq Egypt exploration drilling campaign update (SDX 55%
working interest)
-- Having concluded well planning in late Q4 2019, the SD-6X
(Salah) well was drilled in Q1'20, to a total depth of 3,167
metres. The well encountered 1.7 metres of net gas bearing sand in
the Kafr El Sheikh Formation (average porosity 34%), 1.0 metre of
net gas bearing sand in the Abu -- Madi Formation which has 143
metres of high quality net reservoir (average porosity 24%) and 258
metres of high quality net reservoir in the Qawasim Formation
(average porosity 20%). The gas sands in both the Kafr El Sheikh
and Abu Madi were deemed to be sub-economic and the Qawasim has low
gas saturation. The thinner than expected gas columns encountered
in SD-6X is attributable to the absence of a sealing mechanism in
the stratigraphic traps being targeted by the well. The well
results are currently being analysed.
-- The rig then moved to the site of the next drilling location
on the South Disouq licence, the SD-12X (Sobhi) exploration well,
which is to the north and structurally updip of the Ibn Yunus
discovery, and was spud on 18 March 2020. The result of SD-6X is
not anticipated to have any technical read across to SD-12X which
is targeting a management estimate of 33 bcfe.
West Gharib Egypt exploration drilling campaign update (SDX 50%
working interest)
-- Post-period end, the Rabul-3 development well in the West
Gharib Concession in Egypt was drilled to a total depth of 1,710
metres and encountered approximately 39 metres of net heavy oil pay
across the Yusr and Bakr formations. The Yusr and Bakr formations
are of excellent reservoir quality with an average porosity of 21%.
The well will be completed as a producer in mid-April 2020,
connected to the central processing facilities at Meseda and is
expected to be brought on-line at an average stabilised rate of
approximately 300 bbl/d, which is at the upper end of pre-drill
expectations.
2020 Drilling and operations guidance
-- 2020 capex guidance has been revised down from US$25.5
million as per the Company's operations update provided on 22
January 2020, to c.US$24.7 million. The revision predominantly
relates to drilling two fewer wells in Morocco with this saving
being partially offset by electing to fund the Sobhi well in Egypt
on a 100% working interest basis. These points are explained
further in the following analysis of the revised US$24.7 million
2020 capex guidance.
o US$13.5 million for the remainder of the Morocco drilling
campaign which completed in March. The US$13.5 million reflects a
US$1.5 million reduction in guidance reflecting the previously
announced decision to reduce the number of wells to 10 (from 12),
having achieved the campaign's objectives;
o US$7.2 million for 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. This revised
guidance is US$0.7 million higher than previous guidance reflecting
the fact that SDX will be drilling the Sobhi well on a 100% working
interest basis given our partner's decision not to participate in
this well. The drilling campaign in South Disouq will end in April
upon completion of the Sobhi well.
o US$2.0 million for up to three appraisal/development wells in
Meseda; and
o US$2.0 million for up to 10 workovers in North West Gemsa. As
the Company is expecting to exit the concession during 2020, it is
unlikely to incur the full amount of this capex prior to exit.
Asset Guidance - 12
months ended
31 December
2020
Core assets
----------------
South Disouq US$7.2 million
- WI 55%
----------------
Meseda - WI 50% US$2.0 million
----------------
Morocco - WI US$13.5 million
75%
----------------
Non-core asset
----------------
NW Gemsa - WI US$2.0 million
50%
----------------
Total US$24.7 million
----------------
2019 Financial update
-- The main components of SDX's comprehensive loss of US$18.2
million for the twelve months ended 31 December 2019 are:
o US$39.3 million netback;
o US$11.4 million of E&E expense, of which:
-- US$5.1 million represents the write-down of capitalised
expenditure on the non-core South Ramadan asset;
-- US$3.7 million is the written-off costs of the 2018/19 3D
seismic survey in the southern area of the South Disouq concession
which cannot be drilled before concession expiry in 2020; and
-- US$1.5 million related to one sub-commercial well in
Morocco;
o US$26.3 million of Depletion, Depreciation & Amortisation
expense reflects increased charges due to South Disouq start up in
year and increased production in Meseda and Morocco. Depreciable
asset balance is also higher in 2019 due to drilling and facilities
investment in 2018;
o US$8.3 million impairment on North West Gemsa as a result of
the asset's continuing production decline and recent reduction in
Brent crude oil price forecasts reducing the asset's economic
life;
o US$5.0 million of ongoing General & Administrative
expense; and
o US$1.1 million of transaction costs covering the re-domicile
of the Company from Canada to the UK, the Company's capital
reduction and legacy M&A initiatives.
-- Netback for the twelve months to 31 December 2019 was US$39.3
million, 6% lower than the netback of US$41.7 million for the
twelve months to 31 December 2018, driven by:
o Net revenue being US$0.5 million lower due to:
o lower production at the NW Gemsa asset (2019: 1,836 boe/d,
2018: 2,194 boe/d); and
o lower realised oil prices at this asset and Meseda (2019:
US$55.93/bbl, 2018: $62.43/bbl);
o partly offset by higher production volumes in Morocco (2019:
802 boe/d, 2018: 646 boe/d) and Meseda (2019: 795 boe/d, 2018: 734
boe/d); and
o the start-up of production at South Disouq in Q4 2019.
o Operating costs increasing by US$2.0 million from prior year
due to production growth in Meseda and Morocco, a greater
allocation of employee costs to operating costs in NW Gemsa, and
the commencement of production at South Disouq.
-- EBITDAX for the twelve months to 31 December 2019 was US$34.2
million, US$0.1 million lower than EBITDAX of US$34.3 million for
the twelve months to 31 December 31 2018, due to lower netback
partly offset by lower transaction costs and a lower share-based
payment compensation charge following the reversal of costs
associated with employees who left during 2019.
Operating cash flow (before capex)
-- Operating cash flow (before capex): FY2019 operating cash
flow (before capex) of US$25.1 million, lower than FY2018 of
US$36.2 million primarily due to FY2018 reflecting US$11.2 million
of cash inflows from the reduction of backdated Egyptian
receivables compared to cash inflows from receivables of US$2.0
million in FY2019. The Company has no aged Egyptian receivables as
at 31 December 2019.
CAPEX
-- US$43.0 million of capital expenditure has been invested into
the business during the twelve months ended 31 December 2019:
o US$21.4 million for the South Disouq development project
(US$19.4 million, which includes the establishment of a US$1.0
million decommissioning provision) and 3D seismic acquisition costs
(US$2.0 million);
o US$17.4 million in Morocco for the 2019/20 drilling campaign
(US$14.5 million (which includes the establishment of a US$0.5
million decommissioning provision), and customer connections and
compression facilities (US$2.9 million)
o US$1.9 million for drilling of the SRM-3 well and project
development expenditure at South Ramadan;
o US$1.1 million for drilling of the RB-7 and MSD-19 development
wells, and workovers in Meseda;
o US$1.0 million for well workovers in NW Gemsa; and
o US$0.2 million on office assets.
Liquidity update
-- Closing cash as at 31 December 2019 was US$11.1 million with
the US$10 million 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. Cash balance as at 31 March 2020 is approximately US$8.5
million with US$7.5 million of undrawn EBRD facility remaining
available.
Impact of COVID-19 on ongoing production operations
-- As highlighted above, the Company has a strong liquidity
position and the majority of its cash flows in 2020 and 2021 are
expected to come from its fixed price gas customers in Morocco and
Egypt.
o In Egypt, SDX sells all of its gas directly to the Egyptian
state to be used primarily for electricity generation. The Company
does not expect that COVID-19 will cause any material disruption to
this offtake arrangement.
o In Morocco, SDX's gas is sold to eight industrial users, for
whom natural gas is integral to their energy supply and operations.
These customers operate across a number of sectors including
ceramics, packaging, food, and automotive.
o On 23 March 2020, Super Cerame, the Company's largest customer
in Morocco, together with Peugeot SA and Plastic Omnium, advised
the Company that they will be temporarily closing down operations
due to COVID 19. These three customers account for approximately
50% of total Moroccan revenues, with Super Cerame accounting for
approximately 46% of total Moroccan revenues. It is expected that
the three Moroccan customers, who have been gradually slowing
consumption from mid-March, will remain closed at least until 20
April 2020 being the date that the Moroccan government has ordered
that restrictions on social and economic activity will apply to,
although there can be no certainty that this date will not change.
No other Moroccan customers have so far indicated that they are
intending to reduce consumption. At this point, production
operations in Egypt have not been impacted however given the
seriousness of COVID-19, this situation may be subject to change in
the future.
o The Company is confident that production will return to its
Q1'20 levels once the COVID-19 restrictions are lifted.
Furthermore, the Company's Moroccan business is extremely resilient
and can breakeven with customer consumption levels at 20% of Q1'20
levels.
Corporate update
-- Mark Reid and Nick Box were appointed as Chief Executive
Officer and Chief Financial Officer respectively on 12 November
2019. Mr. Reid had been SDX's acting Chief Executive Officer since
May 2019 and Chief Financial Officer since November 2015.
-- Amr Al Menhali was appointed as Non-Executive Director on 20
November. Mr Al Menhali is the Chief Executive Office of Waha
Capital, SDX's largest shareholder with a 19.48% interest in the
Company.
-- As announced on 6 February 2020, Catherine Stalker was
appointed to the Board as an independent Non-Executive Director,
further enhancing SDX's governance structure.
-- SDX has determined that as of 1 January 2020 the Company is a
"designated foreign issuer" pursuant to National Instrument 71-102
- Continuous Disclosure and Other Exemptions Relating to Foreign
Issuers ("NI 71-102") and will satisfy its ongoing continuous
disclosure obligations under Canadian securities laws by complying
with the disclosure requirements that it is subject to in the
United Kingdom, as permitted by NI 71-102.
About SDX
SDX is an international oil and gas exploration, production and
development company, headquartered in London, United Kingdom, with
a principal focus on MENA. In Egypt, SDX has a working interest in
three producing assets: a 55% operated interest in the South Disouq
gas field in the Nile Delta and a 50% non-operated interest in each
of the North West Gemsa and Meseda concessions, which are located
onshore in the Eastern Desert, adjacent to the Gulf of Suez. In
Morocco, SDX has a 75% working interest in the Sebou concession,
situated in the Gharb Basin. The producing assets in Morocco are
characterised by exceptionally low operating costs, making them
particularly resilient in a low commodity price environment. SDX's
portfolio also includes high impact exploration opportunities in
both Egypt and Morocco.
For further information, please see the Company's website at
www.sdxenergy.com or the Company's filed documents at www.sedar.com
.
Competent Persons Statement
In accordance with the guidelines of the AIM Market of the
London Stock Exchange, the technical information contained in the
announcement has been reviewed and approved by Rob Cook, VP
Subsurface of SDX. Dr. Cook has over 25 years of oil and gas
industry experience and is the qualified person as defined in the
London Stock Exchange's Guidance Note for Mining and Oil and Gas
companies. Dr. Cook holds a BSc in Geochemistry and a PhD in
Sedimentology from the University of Reading, UK. He is a Chartered
Geologist with the Geological Society of London (Geol Soc) and a
Certified Professional Geologist (CPG-11983) with the American
Institute of Professional Geologists (AIPG).
For further information:
SDX Energy Plc
Mark Reid
Chief Executive Officer
Tel: +44 203 219 5640
Stifel Nicolaus Europe Limited (Nominated Adviser and Joint Broker)
Callum Stewart
Nicholas Rhodes
Ashton Clanfield
Tel: +44 (0) 20 7710 7600
Cantor Fitzgerald Europe (Joint Broker)
David Porter
Tel: +44 (0) 207 7894 7000
Peel Hunt LLP (Joint Broker)
Richard Crichton
David McKeown
Tel: +44 (0) 207 418 8900
Camarco (PR)
Billy Clegg/Owen Roberts/Violet Wilson
Tel: +44 (0) 203 757 4980
Conference Call details
Date: Tuesday 7 April 2020
Time: 09:00am GMT
Call details:
United Kingdom: +44 (0) 333 300 9263
For your personal PIN:
https://aerp.arkadin.com/e-01fc0dd1f2809447f95a33e6e50b68dbe67603eaf8a50b2e8510b821b6c9e427114e87708bc3eda3ba11e90b9d33697c9b3842a9dcdb661cad8e5f2e/sdx-energy-full-year-results-2019-anal
yst-conference-call
The presentation is available our website; https://www.sdxenergy.com/investors/results-centre/
Glossary
"bbl" stock tank barrel
"bbl/d" barrels of oil per day
-----------------------------------
"bcf" billion cubic feet
-----------------------------------
"bcfe" billion cubic feet equivalent
-----------------------------------
"boe/d" barrels of oil equivalent per
day
-----------------------------------
"Mcf" thousands of cubic feet
-----------------------------------
"MMscf/d" million standard cubic feet
per day
-----------------------------------
"MMscfe/d" million standard cubic feet
equivalent per day
-----------------------------------
"2C" best estimate contingent resources
-----------------------------------
"2P" proved plus probable reserves
-----------------------------------
Forward-looking information
Certain statements contained in this press release may
constitute "forward-looking information" as such term is used in
applicable Canadian securities laws. Any statements that express or
involve discussions with respect to predictions, expectations,
beliefs, plans, projections, objectives, assumptions or future
events or are not statements of historical fact should be viewed as
forward-looking information. In particular, statements regarding
the Company's 2020 production and capex guidance liquidity and
sources of cash flows in 2020 and 2021, the sufficiency of reserves
to fulfill existing customer contracts, the impact of COVID-19 on
customer consumption, future drilling developments and results, and
extending the tenor and re-establishing the full availability of
the US$10 million credit facility with the EBRD should all be
regarded as forward-looking information.
The forward-looking information contained in this document is
based on certain assumptions, and although management considers
these assumptions to be reasonable based on information currently
available to them, undue reliance should not be placed on the
forward-looking information because SDX can give no assurances that
they may prove to be correct. This includes, but is not limited to,
assumptions related to, among other things, commodity prices and
interest and foreign exchange rates; planned synergies, capital
efficiencies and cost - savings; applicable tax laws; future
production rates; receipt of necessary permits; the sufficiency of
budgeted capital expenditures in carrying out planned activities,
and the availability and cost of labour and services.
All timing given in this announcement, unless stated otherwise,
is indicative, and while the Company endeavours to provide accurate
timing to the market, it cautions that, due to the nature of its
operations and reliance on third parties, this is subject to
change, often at little or no notice. If there is a delay or change
to any of the timings indicated in this announcement, the Company
shall update the market without delay.
Forward-looking information is subject to certain risks and
uncertainties (both general and specific) that could cause actual
events or outcomes to differ materially from those anticipated or
implied by such forward - looking statements. Such risks and other
factors include, but are not limited to, political, social, and
other risks inherent in daily operations for the Company, risks
associated with the industries in which the Company operates, such
as: operational risks; delays or changes in plans with respect to
growth projects or capital expenditures; costs and expenses;
health, safety and environmental risks; commodity price, interest
rate and exchange rate fluctuations; environmental risks;
competition; permitting risks; the ability to access sufficient
capital from internal and external sources; and changes in
legislation, including but not limited to tax laws and
environmental regulations. Readers are cautioned that the foregoing
list of risk factors is not exhaustive and are advised to refer to
SDX's Financial Review for the year ended 31 December 2019, which
can be found on SDX's SEDAR profile at www.sedar.com , for a
description of additional risks and uncertainties associated with
SDX's business, including its exploration activities.
The forward-looking information contained in this press release
is as of the date hereof and SDX does not undertake any obligation
to update publicly or to revise any of the included forward --
looking information, except as required by applicable law. The
forward -- looking information contained herein is expressly
qualified by this cautionary statement.
Non-IFRS Measures
This news release contains the terms "Netback," and "EBITDAX"
which are not recognized measures under IFRS and may not be
comparable to similar measures presented by other issuers. The
Company uses these measures to help evaluate its performance.
Netback is a non-IFRS measure that represents sales net of all
operating expenses and government royalties. Management believes
that netback is a useful supplemental measure to analyze operating
performance and provide an indication of the results generated by
the Company's principal business activities prior to the
consideration of other income and expenses. Management considers
netback an important measure as it demonstrates the Company's
profitability relative to current commodity prices. Netback may not
be comparable to similar measures used by other companies. See
Netback reconciliation to operating income/(loss) in Note 21
Segmental reporting of the Notes to the Company's Consolidated
Financial Statements for the twelve months ended December 31,
2019.
EBITDAX is a non-IFRS measure that represents earnings before
interest, tax, depreciation, amortization, exploration expense and
impairment. EBITDAX is calculated by taking operating income/(loss)
and adjusted for the add-back of depreciation and amortization,
exploration expense and impairment of property, plant and equipment
(if applicable). EBITDAX is presented in order for the users of the
financial statements to understand the cash profitability of the
Company, which excludes the impact of costs attributable to
exploration activity, which tend to be one-off in nature, and the
non-cash costs relating to depreciation, amortization and
impairments. EBITDAX may not be comparable to similar measures used
by other companies. See EBITDAX reconciliation to operating
income/(loss) in Note 21 Segmental reporting of the Notes to the
Company's Consolidated Financial Statements for the twelve months
ended December 31, 2019.
Oil and Gas Advisory
Certain disclosures in this news release constitute "anticipated
results" for the purposes of National Instrument 51-101 - Standards
for Oil and Gas Activities of the Canadian Securities
Administrators because the disclosure in question may, in the
opinion of a reasonable person, indicate the potential value or
quantities of resources in respect of the Company's resources or a
portion of its resources. Without limitation, the anticipated
results disclosed in this news release include estimates of volume,
flow rate, production rates, porosity, and pay thickness
attributable to the resources of the Company. Such estimates have
been prepared by Company management and have not been prepared or
reviewed by an independent qualified reserves evaluator or auditor.
Anticipated results are subject to certain risks and uncertainties,
including those described above and various geological, technical,
operational, engineering, commercial, and technical risks. In
addition, the geotechnical analysis and engineering to be conducted
in respect of such resources is not complete. Such risks and
uncertainties may cause the anticipated results disclosed herein to
be inaccurate. Actual results may vary, perhaps materially.
Use of the term "boe" or the term "MMscf" may be misleading,
particularly if used in isolation. A "boe" conversion ratio of 6
Mcf: 1 bbl and a "Mcf" conversion ratio of 1 bbl: 6 Mcf are based
on an energy equivalency conversion method primarily applicable at
the burner tip and does not represent a value equivalency at the
wellhead.
Prospective and Contingent Resources Data
The prospective resources estimates disclosed or referenced
herein have been prepared by Dr. Rob Cook, a qualified reserves
evaluator, in accordance with the Canadian Oil and Gas Evaluation
Handbook and in accordance with National Instrument 51-101 -
Standards of Disclosure for Oil and Gas Activities. The contingent
resources estimates disclosed or referenced herein have been
prepared by an independent qualified reserves evaluator, Gaffney,
Cline & Associates, in accordance with the Canadian Oil and Gas
Evaluation Handbook and in accordance with National Instrument
51-101 - Standards of Disclosure for Oil and Gas Activities. The
prospective resources and contingent resources disclosed herein
have an effective date of 1 January 2020. Prospective resources are
those quantities of gas, estimated as of the given date, to be
potentially recoverable from undiscovered accumulations through
future development projects. As prospective resources, there is no
certainty that any portion of the resources will be discovered. The
chance that an exploration project will result in a discovery is
referred to as the "chance of discovery" as defined by the
management of the Company.
Contingent Resources are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable from
known accumulations using established technology or technology
under development
But which are not currently considered to be commercially
recoverable due to one or more contingencies. The specific
contingency which prevent the classification of contingent
resources as reserves is that the development plan for the drilling
of the wells required to convert contingent resources to 2P
reserves is yet to be approved.
There is no certainty that it will be commercially viable to
produce any portion of the resources discussed herein; though any
discovery that is commercially viable would be tied back to the
Company's pipeline in Morocco and then connected to customers'
facilities within 9 to 12 months of discovery. Based upon the
economic analysis undertaken on any discovery, management has
attributed an associated chance of development of 100%.
There are uncertainties associated with the volume estimates of
the prospective resources disclosed herein, due to the level of
information available on prospective resources, but ranges are
defined based on data from the Company's nearby existing analogous
wells. Some of the risks and uncertainties are outlined below:
-- Petrophysical parameters of the sand/reservoir;
-- Fluid composition, especially heavy end hydrocarbons;
-- Accurate estimation of reservoir conditions (pressure and temperature);
-- Reservoir drive mechanism;
-- Potential well deliverability; and
-- The thickness and lateral extent of the reservoir section,
currently based on 3D seismic data.
"P50" means that there is at least a 50% probability that the
quantities actually recovered will equal or exceed the best
estimate
Consolidated Balance
Sheet
(US$'000s) As at 31 December As at 31 December
2019 2018
------------------------ ----------------------------------------- ----------------------------------------
Assets
Cash and cash equivalents 11,054 17,345
Trade and other
receivables 21,774 24,324
Inventory 7,972 5,236
--------------------------- ----------------------------------------- ----------------------------------------
Current assets 40,800 46,905
Investments 3,916 3,394
Property, plant and
equipment 67,895 48,680
Exploration and evaluation
assets 18,720 39,128
Right-of-use 1,687 -
assets
------------------------- ----------------------------------------
Non-current assets 92,218 91,202
Total
assets 133,018 138,107
--------------------------- ----------------------------------------
Liabilities
Trade and other payables 25,724 14,418
Deferred income 258 495
Decommissioning liability 317 1,125
Current income
taxes 1,484 1,458
Lease liability 506 -
------------------------- ----------------------------------------- ----------------------------------------
Current liabilities 28,289 17,496
Deferred income - 240
Decommissioning liability 5,287 4,042
Deferred income
taxes 290 290
Lease liability 1,121 -
------------------------- ----------------------------------------
Non-current liabilities 6,698 4,572
Total liabilities 34,987 22,068
------------------------- ----------------------------------------
Equity
Share capital 2,593 88,899
Share-based payment
reserve 7,038 6,860
Accumulated other
comprehensive
loss (917) (917)
Merger reserve 37,034 -
Retained earnings 52,283 21,197
Total equity 98,031 116,039
------------------------- ----------------------------------------
Equity and liabilities 133,018 138,107
------------------------- ----------------------------------------
Consolidated Statement of Comprehensive Income
Year ended 31
December
(US$'000s) 2019 2018
----------------------------------------------- --------- ---------
Revenue, net of royalties 53,233 53,679
Direct operating expense (13,900) (11,934)
Gross profit 39,333 41,745
Exploration and evaluation expense (11,427) (5,744)
Depletion, depreciation and amortisation (26,295) (17,268)
Impairment expense (8,327) (3,520)
Stock-based compensation (178) (1,194)
Share of profit from joint venture 1,161 1,195
Bad debt expense - (123)
Release of historic operational tax provision - 300
Inventory write-off - (370)
Gain on sale of office asset - 23
General and administrative expenses
- Ongoing general and administrative expenses (4,993) (4,815)
- Transaction costs (1,079) (2,455)
------------------------------------------------- --------- ---------
Operating (loss)/income (11,805) 7,774
Finance costs (511) (542)
Foreign exchange (loss)/gain (94) 75
Loss on acquisition - (174)
(Loss)/income before income taxes (12,410) 7,133
Current income tax expense (5,776) (7,021)
-------------------------------------------------- --------- ---------
Total current and deferred income tax
expense (5,776) (7,021)
(Loss)/profit and total comprehensive
(loss)/income for the period (18,186) 112
-------------------------------------------------- --------- ---------
Net (loss)/income per share
Basic $(0.089) $0.001
Diluted $(0.089) $0.001
----------------------------------------------- ---------
Consolidated Statement of Changes
in Equity
Year ended 31 December
(US$'000s) 2019 2018
----------------------------------- ----------------------------- -----------------------------
Share capital
Balance, beginning of
period 88,899 88,785
Issuance of common shares - 114
Share-for-share exchange - (88,899) -
old
Share-for-share exchange - 51,865 -
new
Capital reduction (49,272) -
Balance, end of period 2,593 88,899
Share-based payment
reserve
Balance, beginning of
period 6,860 5,666
Share-based compensation for the
period 178 1,194
-------------------------------------- ----------------------------- -----------------------------
Balance, end of period 7,038 6,860
Accumulated other comprehensive
loss
Balance, beginning of
period (917) (917)
Balance, end of period (917) (917)
Merger reserve
Balance, beginning of - -
period
Share-for-share exchange 37,034 -
------------------------------------
Balance, end of period 37,034 -
Retained earnings
Balance, beginning of
period 21,197 21,085
Capital reduction 49,272 -
Total comprehensive (loss)/income
for the period (18,186) 112
-------------------------------------- ----------------------------- -----------------------------
Balance, end of period 52,283 21,197
Total equity 98,031 116,039
-----------------------------------
Consolidated Statement of Cash
Flows
Year ended 31 December
(US$'000s) 2019 2018
-------------------------------------- ----------------------------- ------------------------------
Cash flows generated from/(used in)
operating activities
(Loss)/income before income taxes (12,410) 7,133
Adjustments for:
Depletion, depreciation and
amortisation 26,295 17,268
Exploration and evaluation
expense 10,256 5,103
Impairment expense 8,327 3,520
Finance expense 511 542
Stock-based compensation 178 1,194
Loss on acquisition - 174
Foreign exchange (gain)/loss (382) 368
Gain on sale of office
asset - (23)
Bad debt expense - 123
Release of historic operational
tax provision - (300)
Inventory write-off - 370
Amortisation of deferred
income (477) (497)
Tax paid by state (4,262) (5,036)
Share of profit from
joint venture (1,161) (1,195)
---------------------------------------- ----------------------------- ------------------------------
Operating cash flow before working
capital movements 26,875 28,744
Decrease in trade and other
receivables 1,992 11,195
(Decrease)/Increase in trade and
other payables (1,785) 330
Payments for inventory (556) (2,801)
Payments for decommissioning (155) (140)
Cash generated from operating
activities 26,371 37,328
Income taxes
paid (1,306) (1,091)
--------------------------------------- ----------------------------- ------------------------------
Net cash generated from operating
activities 25,065 36,237
Cash flows generated from/(used in)
investing activities:
Property, plant and equipment
expenditures (25,739) (21,945)
Exploration and evaluation
expenditures (5,576) (22,865)
Dividends received 639 525
Net cash used in investing activities (30,676) (44,285)
Cash flows generated from/(used in)
financing activities:
Issuance of common shares - 114
Payments of lease liabilities (795) -
Finance costs
paid (267) (197)
--------------------------------------- ----------------------------- ------------------------------
Net cash used in financing activities (1,062) (83)
Decrease in cash and cash equivalents (6,673) (8,131)
Effect of foreign exchange on cash
and cash equivalents 382 (368)
Cash and cash equivalents, beginning
of period 17,345 25,844
------------------------------------------ ----------------------------- ------------------------------
Cash and cash equivalents,
end of period 11,054 17,345
----------------------------------------- ------------------------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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(END) Dow Jones Newswires
April 07, 2020 02:00 ET (06:00 GMT)
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