SDX Energy Plc (SDX), the MENA-focused oil and gas company, is pleased to announce its unaudited financial and operating results for the three and nine months ended 30 September 2021. All monetary values are expressed in United States dollars net to the Company unless otherwise stated.
Mark Reid, CEO of SDX, commented:
"The first nine months of 2021 delivered strong growth in revenue, Netback and EBITDAX and resulted in a 50% increase in operating cash flows versus the same period in 2020, predominantly due to increased gas demand in Morocco and improved commodity pricing. The Company ended the period with a strong liquidity position and a significant net cash position of just under $10 million, which fully funds our work programmes for 2021 and 2022. Our producing assets in Egypt and Morocco continued to perform well in the period meaning that we remain above our mid-point guidance for the year with significant development opportunities in the next eighteen months to increase production further. We look forward to the imminent start of our second drilling campaign of the year in Morocco, drilling two wells before the year-end and obtaining the results of the first development well in a 13-well campaign at West Gharib in Egypt, which will give the Group the opportunity to instantly increase its exposure to the current high oil prices."
Three and nine months to 30 September 2021 Operations Highlights
- Entitlement production, for the nine months ended 30 September 2021, of 5,901 boe/d was 2% higher than 2021 mid point market guidance of 5,770 boe/d and 3% lower than the same period in 2020, excluding disposed assets, mainly due to natural decline, well workovers and expected sand and water production in two of the six wells in the nine months of 2021 at South Disouq.
- The Company's operated assets recorded a carbon intensity of 3.0kg CO2e/boe during the first nine months of 2021, which is one of the lowest rates in the industry. Scope 1 greenhouse gas emissions at operated assets were 7,300 tons of CO2e. Scope 3 greenhouse gas emissions in Morocco were 109,000 tons of CO2e, which is approximately 55,000 tons of CO2e less than using alternative heavy fuel oil.
- In South Disouq, a two-well development/exploration campaign took place between June and August 2021. The first well, the IY-2X step-out development well, was brought into production during the last week of August and will ensure that the Group maximises its recovery from the Ibn Yunus Field and maintains current gross production levels of c.45MMscfe/d at the South Disouq Central Processing Facility (the "CPF"). The second well, the Hanut-1X ("HA-1X") exploration well, spudded on 4 August and reached the target depth of 6,000ft on 17 August. The primary target for HA-1X was the Basal Kafr El Sheikh sand at approximately 5,200ft; however, the well found that the Basal Kafr El Sheikh sand had been eroded at this location. Whilst drilling to target depth, good quality sands were found at the Qawasim level; however, they were not charged with gas. As a result, the Company has recognised a US$1.3 million dry-hole cost in Q3 2021, comprising drilling costs (US$0.7 million), associated seismic costs (US$0.2 million) and the well's share of the exploration extension signature bonus (US$0.4 million).
- In West Gharib, following the 10-year concession extension granted earlier in 2021, the first well (MSD-21) in a 13-well campaign spud on 16 October 2021. It is estimated that the well will take around five weeks to drill and complete with tie-in to the existing infrastructure expected by mid-December 2021. With an expected gross cost to drill and tie in of US$0.9-US$1.0 million, MSD-21 is anticipated to come on-line and produce at around gross 300bbl/d, which would have an immediate effect on Group cashflow and result in a payback period of less than one year at current oil prices.
- The first phase of the Morocco drilling campaign, which consisted of three appraisal/development wells in SDX's operated Gharb Basin acreage in Morocco (SDX: 75% working interest), was successfully completed in June 2021. The OYF-3, KSR-17 and KSR-18 wells were all commercial successes and are producing into the Company's infrastructure. The second phase, which consists of two appraisal/development wells, will commence in the second half of November.
Nine months to 30 September 2021 Financial Highlights
The North West Gemsa and South Ramadan concessions, which were sold in Q3 and Q4 2020, respectively, are classified as discontinued operations (as required by IFRS). All revenues, costs and taxation from these assets have been consolidated into a single line item "profit from discontinued operations" in both periods reported. Per unit metrics do not include North West Gemsa or South Ramadan.
- Netback was US$32.6 million, 22% higher than the Netback of US$26.8 million for the nine months to 30 September 2020, driven by:
- Net revenue increase of US$6.5 million due to:
- US$1.3 million higher revenue at West Gharib as lower production (2021: 473 bbl/d, 2020: 639 bbl/d) was more than offset by higher realised service fees (2021: US$52.98/bbl, 2020: US$31.25/bbl);
- US$5.0 million higher revenue in Morocco due to increased production following strong demand rebound after COVID-19 shutdowns in early 2020 and an additional factory being supplied (2021: 951 boe/d, 2020: 735 boe/d). Revenue was further boosted by higher prices due to the strengthening of the Moroccan dirham and the additional factory taking gas at a higher price than the portfolio average;
- US$0.1 million higher South Disouq revenue due to new production from the SD-12X well (2021: 717 boe/d, 2020: 0 boe/d) and a higher realised price for condensate, partly offset by lower production from the other wells (2021: 3,760 boe/d, 2020: 4,710 boe/d) as a result of natural decline at several wells and downtime for workover activity.
- Operating costs increased by US$0.7 million from the prior period due to increased well management costs at South Disouq and higher training fees in Morocco, partly offset by lower costs at West Gharib due to cost savings and fewer workover activities.
- EBITDAX of US$29.7 million was 23% higher than US$24.1 million in the same period in 2020 due to the Netback factors described above.
- The main components of SDX's comprehensive loss of US$12.1 million for the nine months ended 30 September 2021 are:
- US$32.6 million Netback explained above;
- US$12.7 million of E&E expense which relates to the US$10.3 million non-cash impairment of the Lalla Mimouna Nord concession in Morocco, US$1.3 million dry-hole costs for HA-1X (including US$0.2 million of associated 3D seismic cost and US$0.4 million of allocated signature bonus) and ongoing new venture activity of US$1.1 million (predominantly internal management time). In the same period in 2020, US$4.5 million was written off following the drilling of two sub-commercial wells, SD-6X in South Disouq and SAH-5 in Morocco;
- US$23.3 million of DD&A expense, which was 31% higher than the US$17.8 million for the same period in 2020 as the result of higher production and lower 2P reserves in Morocco, which were partly offset by lower production at West Gharib;
- US$3.0 million of ongoing G&A expense; and
- US$5.3 million of corporation tax, predominantly for South Disouq.
- Operating cash flow (before capex, excluding discontinued operations) of US$22.6 million, was 50% higher than US$15.1 million for the same period in 2020, primarily as a result of Netback drivers discussed above, less cash spent on inventory and no payments made for income tax in 2020.
- Capex of US$19.6 million reflects:
- US$8.7 million (including US$0.5 million decommissioning provisions) on three wells in Morocco;
- US$2.9 million for well workovers and other projects in Morocco;
- US$6.6 million for the completion of the SD-12X tie in at South Disouq, well drilling preparations for IY-2X and HA-1X (including a US$0.6 million exploration extension signature bonus), the SD-4X well workover, and other minor capex projects at South Disouq;
- US$1.4 million for workovers and development drilling preparations in West Gharib;
- Liquidity: Closing cash as at 30 September 2021 was US$9.8 million. The Company has satisfied the conditions precedent on the five-year EBRD credit facility, which remains undrawn and has US$10.0 million availability.
- Together with cash generated from operations, the Company is fully funded for all planned activities in 2021 - 2022.
- The Company has had no COVID-19 business interruptions since Q2 2020, when three customers in Morocco resumed taking gas following a short period of mandatory shutdown. Egyptian production has remained unaffected by COVID-19. The Company continues to follow applicable government guidance in each of its territories.
Nine months 2021 Performance vs 2021 Guidance
- Entitlement production for the nine months ended 30 September 2021 of 5,901 boe/d was 2% higher than midpoint guidance of 5,770 boe/d and 3% lower than the comparative period in 2020.
- South Disouq: During the first nine months of 2021, the existing wells continued to exhibit natural decline and expected sand and water production from two of the four wells. This decline was partly offset by the contribution from the SD-12X well which was brought online in December 2020. The SD-1X and SD-4X wells were successfully worked over during the period and were put back on production at improved gas production rates and with reduced sand and water production. Production for the nine months was above midpoint guidance, with production for the remainder of the year expected to remain close to this as the impact of natural decline should broadly be offset by contribution from the IY-2X well.
- West Gharib: The existing wellstock at the asset continued to produce steadily, although exhibiting natural decline as expected. The first well (MSD-21) in a 13-well infill development campaign spud on 16 October 2021 and it will allow the Company to benefit from low-risk production growth into a higher commodity price environment. Production will trend towards lowpoint guidance until such time as the new wells are drilled and brought online.
- Morocco: The first nine months of 2021 saw stronger demand from all customers and this demand is the reason the Company is currently exceeding guidance. The period also reflects additional consumption from an existing customer's second factory which came online in December 2020. Production guidance is 8-12% higher than 2020 production and reflects a sustained return to normal levels of consumption across the customer base following COVID shutdowns which affected 2020 production.
- COVID-19: The 2021 production guidance presented assumes no significant production curtailments due to COVID-19. Should there be COVID-19 related disruptions, production guidance may be revised.
- Capex for the nine months to 30 September 2021 is shown below and is compared to the annual guidance figure of US$26.5-28.0 million which includes: one exploration and one development well in South Disouq together with workovers and the installation of an inlet compressor; five new wells and workovers are planned in Morocco; and two new wells will be undertaken at West Gharib with long lead items for the 13-well drilling campaign also to be purchased.
- South Disouq: In the first nine months of 2021, US$6.6 million of capex was invested for the compressor project (US$2.0 million), the IY-2X development well (US$2.0 million), the completion of the SD-12X tie in (US$0.7 million), the HA-1X exploration well (US$0.7 million), the concession extension signature bonus (US$0.5 million), the workovers of SD-4X and SD-1X (US$0.3 million) and other CPF projects.
- West Gharib: Two infill development wells will be drilled in Q4 2021 of which the first well, MSD-21, spud on 16 October 2021. In the first nine months of 2021, US$1.4 million of capex was spent on several well workovers and development drilling preparations.
- Morocco: In the first nine months of 2021, US$11.6 million of capex was spent on three development wells (US$8.7 million which includes US$0.5 million of decommissioning provisions) and other projects (US$2.9 million) including a well workover campaign. A further two development wells will be drilled in the next campaign in Q4 2021.