SDX Energy had a solid Q1 bolstered by its Egyptian and Moroccan operations, according to its unaudited financial and operating results for the three months ended March 31, 2020. CEO Mark Reid said, “The first quarter of 2020 proved to be a positive period for SDX against the backdrop of a challenging global economic environment.”
Reid continued, saying that production had been above expectations. “I am pleased that our resilient business continued to generate cash from our oil and gas production as well as discovering new resource through the drill bit in both Morocco and Egypt. Although we are currently living in a dynamic and fast-changing environment, it gives me great reassurance that approximately 90% of the Company’s 2020 cash flows are expected to be generated from our fixed-price gas business,” Reid commented.
“Disruption to our business as a result of COVID-19 has so far been minimal, and we are pleased that our three Moroccan customers that were temporarily closed are beginning to take gas again. Our ongoing cash generation and cash position remains strong and we continue to have access to US$7.5 million of additional liquidity through our EBRD credit facility. That said, capital discipline remains our key priority as we continue to navigate the year with necessary caution to our surrounding environment but also with confidence in the ability of our business to produce significant returns in 2020 and to continue to grow thereafter,” he continued.
Q1 2020 Operations highlights
Q1 2020 entitlement production of 8,061 boe/d is 117% higher than Q1 2019 and is at, or exceeding, 2020 guidance. Strong production levels were driven by South Disouq, which performed ahead of expectations – gross production of 51.4 MMscf/d of dry gas and 511 bbl/d of condensate equating to 4,994 boe/d net to SDX.
South Disouq two-well drilling campaign commenced during the quarter. The first well, SD-6X, encountered sub-economic quantities of gas and was plugged and abandoned. The second well, SD-12X, spud on 18 March and post-period end was announced as a commercial discovery in the Kafr el Sheikh formation, with management estimating 24 bcf recoverable resources. Plans underway to connect SD-12X to the Company’s gas processing plant via a 5.8km flow line to the Ibn Yunus-1X well location.
Following the success of SD-12X, management is looking to high grade other adjacent, and now de-risked, prospects for drilling in the next two to three years.
Moroccan drilling campaign has resulted in seven discoveries from nine wells drilled to date, with the tenth well, LMS-2, completed and awaiting crew mobilization for testing. Discoveries at OYF-2 and BMK-1 confirm the prospectivity in SDX’s existing core production and development area extends to the north, and have de-risked c.20 bcf P50 prospective resources. All objectives of the drilling campaign were achieved with 10 wells with the final two wells deferred to preserve capital.
Following the drilling campaigns at South Disouq and Morocco, SDX has incurred the majority of its planned capex for 2020.
During the second half of March 2020 and into April 2020, COVID-19 containment restrictions in Morocco temporarily impacted our operations, with three customers being required to close their operations. In early May these same customers re-started production, albeit not at full capacity, and as at 19 May 2020 had returned to approximately 40% of their pre-closure consumption rates. The Company will continue to monitor this situation and provide an update on Moroccan production guidance after the three customers have returned to more steady state and predictable consumption levels. The Company’s Moroccan business remains extremely resilient and can breakeven with customer consumption levels at 20% of Q1 2020 levels. Egyptian operations remain unaffected by COVID-19 at present. The Company continues to follow applicable government guidance in each of its territories.
2020 production guidance of 6,750 – 7,000 boe/d is 66-72% higher than 2019 actual production.
2020 capex guidance has been revised up from US$24.7 million as per the Company’s annual results operations update provided on 7 April, to c.US$28.2 million. The revision reflects the 100% cost of tying in the successful SD-12X well in South Disouq.
Source: Petroleum Africa