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SDX Energy continuing to expand with record production and strong cash flow

Snapshot

This year, SDX Energy announced a new discovery at the South Disouq project, with the SD-12X (Sobhi) well encountering 108 feet of net high-quality gas-bearing sands

Egypt

Quick facts: SDX Energy Inc

Price: 17 GBX

AIM:SDX
Market: AIM
Market Cap: £34.8 m
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  • North Africa-focused, exploration and production company
  • Development and exploration assets across Egypt and Morocco
  • Plenty of upside on its acreage says brokers

How is it doing:

In April, SDX Energy announced a new discovery at the South Disouq project, with the SD-12X (Sobhi) well encountering 108 feet of net high-quality gas-bearing sands.

The well is expected to be tied-in to South Disouq’s production facilities in 2021, via a connection to the Ibn Yunus-1X location which is 5.8 kilometres away. This will cost around US$3.5mln, the company estimates.

Some 24bn cubic feet of gas was confirmed with the discovery well and the company expects it will need only one more development well to access all this resource, though it noted that such drilling may not be possible for another two to three years.

Earlier, SDX Energy also announced that its LMS-2 well in Morocco had encountered a gas reservoir “on prognosis”.

The well was drilled down to 1,190 metres and encountered 10.6 metres of net gas reservoir at the base of the H9/Srafen formation, the company said. Early analysis of the thermogenic composition indicates that, unlike other discoveries in the area, the LMS-2 gas is from new and likely deeper source rock.

Testing on Sobhi has prompted SDX to maintain plateau production of 50mln cubic feet per day for a further 18 to 24 months, it said in June, taking it to mid-2023, and, noted the potential for further extension to mid-2026 subject to further drilling.

SDX expects Sobhi will generate around US$25mln of cash flow undiscounted, post-tax, after capex.

In Morocco, the company is awaiting a test programme for the LMS-2 well, in the Lalla Mimouna, following the lifting of coronavirus restrictions.

What the boss says: Mark Reid, chief executive 

"After analysing the results of the recent drilling successes in Egypt and Morocco, we are very excited about the future prospectivity identified from the Sobhi well in Egypt and from LMS-2 in Morocco.

"We are also looking forward to commencing our drilling campaign in West Gharib next year where we will be aiming to increase production in the Meseda and Rabul fields to approximately gross 4,000 bbls/d by 2022."

Inflexion points

  • South Disouq ramp-up 
  • Drill programmes and well results 
  • Partnering possibilities

What the brokers say

Peel Hunt, which has a 'buy' rating and 35p target price, noted that following the integration of the Sobhi discovery in Egypt management estimates that there is an additional 100b billion cubic feet (Bcf) cf of unrisked prospective resource across the South Disouq concession (SDX operator with 55%).

This is split amongst five prospects, with 25% of this in a new ‘buried hill’ type play that is productive in a neighbouring field.

In Morocco, a successful test in LMS-2 could create 1.5 billion cubic feet (Bcf) of 2P reserves and simultaneously de-risk 6.0Bcf of potential reserves in the same structure plus a further 3.4Bcf nearby, added SP Angel.

 

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