EGYPT/ MOROCCO: SDX Energy Provides Full Year 2020 Financial & Operating Results
Mark Reid, CEO of SDX, commented: “After what has been a very disruptive period for both businesses and people, I am extremely pleased to announce a set of results featuring record production, a strong balance sheet and successful drilling results.
Operationally, 2020 was a strong year for the Group and although the COVID-19 pandemic contributed to a low oil price environment, SDX’s high fixed-price gas assets in both Egypt and Morocco demonstrated the cash-generative resilience that exists within our portfolio. While Morocco production saw demand fluctuations early in the period, we are now back to pre-lockdown levels of production with 2021 production expected to be 8-12% higher than in 2020.
Our exploration efforts in the period were also positive in both Egypt and Morocco, with our largest discovery, the SD-12X well in South Disouq, having been brought on stream before the end of the year. As well as adding reserves through the drill bit, the Group also continued to manage its portfolio with the sale of non-core assets in North West Gemsa and South Ramadan, adding further to the Group’s cash and reducing its associated capex.
With a 39% increase in EBITDAX from continuing operations to US$32.9 million, our strong focus on capital discipline and our balance sheet stewardship, we have ended the year with a healthy cash balance and clarity over our work programme for the next two years, funded from our cash position. This work programme includes a transformational prospect with the Hanut well having the potential to significantly increase Company reserves. Furthermore, the recently approved ten-year extension of our West Gharib oil concession increases our share of reserves in the asset by 60% year on year and 119% taking account of 2020 production. With a breakeven Brent price of approximately US$20/bbl this is an extremely positive development given current oil prices. We have also made excellent progress with various ESG initiatives and I am particularly proud to announce that our carbon intensity in 2020 was only 1.8kgCO2e/boe for our operated assets, one of the best performances in the industry.
Finally, I would like to thank all of our team for their tireless work rate and commitment in what was tough period for all as we tackled challenges seldom seen before. The outlook for SDX is extremely bright and we look forward to delivering on our goals for the coming period and enhancing value for all stakeholders in the Company.”
Year to 31 December 2020 Operations Highlights
· Average entitlement production of 6,397 boe/d, an increase of 57% year on year due to strong production levels mainly from South Disouq, at 49.5 MMscfe/d equating to 4,532 boe/d net to SDX.
· 2020 production from core assets either exceeded or was at the top end of market guidance, despite COVID-19 interruptions in Morocco. Capex was below guidance, primarily due to drilling at West Gharib being deferred due to the lower oil price environment in 2020.
· 2021 guidance for production is 5,620 – 5,920 boe/d and for capex is US$25.0-US$26.5 million.
· The Company’s operated assets recorded a carbon intensity of 1.8kg CO2e/boe in 2020 which is one of the lowest rates in the industry.
· The South Disouq two-well drilling campaign finished with a discovery at, SD-12X (100% working interest to SDX). First gas was achieved in December 2020, 5-6 weeks ahead of schedule.
· Following further review of the 3D seismic after the SD-12X discovery, c.233bcf of close to infrastructure, mean unrisked recoverable volumes, located in productive horizons have been high-graded to drill-ready prospects.
· Subject to receipt of final Ministerial and Parliamentary approval for a two-year exploration concession extension, the Company plans to drill the Hanut prospect targeting 139bcf in Q3 2021.
· Hanut will be part of a two-well campaign with IY-2X well, a development well in the eastern part of the Ibn Yunus field, seeking to bring forward production and cash flow. The Company’s partner has confirmed that it will participate in both wells.
· During the year, the Group sold its two non-core assets, North West Gemsa and South Ramadan in Egypt for US$2.1 million, a sum which exceeded management’s expectation.
· Post-period end, SDX obtained approval for a ten-year extension to the West Gharib Production Services Agreement increasing audited(1) 2P reserves in this core oil asset as at 31 December 2020, by 60% year on year, or 119% taking account of 2020 production, to 3.52 million barrels.
· The Moroccan drilling campaign in 2019/20 resulted in seven discoveries from nine wells, with the tenth well, LMS-2, completed and now expected to be tested as part of the 2021 drilling campaign.
· Further analysis of the LMS-2 well results has revealed that Top Nappe structures, similar to LMS-2, are present throughout the Company’s acreage. Subject to a successful flow test of LMS-2, the intention is to target the Top Nappe as part of the planned 2021 Moroccan drilling campaign, to commence in H1 2021.
· Gas consumption in Morocco has returned to March 2020 pre-COVID-19 levels. In December 2020 an existing customer’s second factory started up, contributing to higher guidance for FY2021.
· As at 31 December 2020, the Company’s working interest share of audited(1) 2P reserves was 11.1 mmboe and audited 2C contingent resources was 0.9 mmboe. The 0.9 mmboe of 2C resources relates to the Meseda and Rabul producing assets in its West Gharib concession in Egypt and will be converted to 2P reserves upon approval of a development plan.
Twelve months to 31 December 2020 Financial Highlights
The table below reflects the results of the Company for the years ended 31 December 2020 and 2019. The North West Gemsa and South Ramadan concessions, which were sold in Q3 and Q4 2020 respectively, are classified as discontinued operations (as required by IFRS). All revenues, costs and taxation from these assets have been consolidated into a single line item “profit/(loss) from discontinued operations” in both periods reported. Per unit metrics do not include North West Gemsa or South Ramadan.
|
|
Twelve months ended 31 December |
|
|
US$ million except per unit amounts |
2020 |
2019 |
|
Net revenues |
46.1 |
34.8 |
|
Netback(1) |
36.5 |
28.2 |
|
Net realised average oil service fees – US$/barrel |
31.96 |
49.61 |
|
Net realised average Morocco gas price – US$/Mcf |
10.80 |
10.39 |
|
Net realised South Disouq gas price – US$/Mcf |
2.85 |
2.85 |
|
Netback – US$/boe |
16.73 |
34.75 |
|
EBITDAX(1) (2) |
32.9 |
23.6 |
|
Exploration & evaluation expense(3) |
(5.8) |
(11.4) |
|
Impairment expense |
– |
(8.3) |
|
Depletion, depreciation, and amortisation |
(25.2) |
(18.7) |
|
Profit/(loss) from discontinued operations |
1.8 |
(0.4) |
|
Total comprehensive loss |
(2.1) |
(18.2) |
|
Capital expenditure |
24.7 |
43.0 |
|
Net cash generated from operating activities(4) |
21.3 |
12.1 |
|
Cash and cash equivalents |
10.1 |
11.1 |
Netback of US$36.5 million, 29% higher than the same period in 2019, was driven by a full year of production from South Disouq. Morocco Netback was higher reflecting a strong recovery from COVID-19 shutdowns, however West Gharib experienced lower production due to increased water cut and lower oil service fee realisations due to lower oil prices in 2020. Operating expenses were US$2.9 million higher predominantly due to a full year of South Disouq operations, partly offset by cost savings and lower workover activity at West Gharib. The lower per unit Netback of US$16.73/boe in 2020 (2019: US$34.75/boe) results from the increased contribution of South Disouq in 2020 which has high volume, lower Netback production, versus 2019 which only included South Disouq from the start of production in November and therefore reflected a higher proportion of volumes from Morocco, which achieves high Netbacks.
· EBITDAX of US$32.9 million was 39% higher than the same period in 2019 of US$23.6 million due to higher Netback, lower recurring G&A expenses and lower transaction costs in 2020, partly offset by lower profitability from the Company’s investment in the joint venture that operates the West Gharib asset due to the lower oil price environment.
· Depletion, depreciation and amortisation (“DD&A”) charge of US$25.2 million was higher than the US$18.7 million for the same period in 2019 due to a full year of South Disouq DD&A charge, partly offset by a reduced charge in Morocco following 2P reserves additions from the drilling campaign in Q4 2019/Q1 2020.
· Non-cash E&E write offs totalled US$4.5 million following the drilling of two sub-commercial wells, SD-6X in South Disouq and SAH-5 in Morocco. In 2019 the US$5.1 million South Ramadan E&E asset was written off, as was the 2018/19 South Disouq 3D seismic survey (US$3.7 million) and the CGD-15 dry hole in Morocco (US$1.5 million).
· Operating cash flow (before capex, excluding discontinued operations) of US$21.3 million, was higher than the same period in 2019, US$12.1 million, primarily due to the EBITDAX drivers discussed above, offset by an increase in accounts receivable from continuing operations mainly due to increased revenues from South Disouq and Morocco during the period, and higher inventory spend.
· Capex of US$24.7 million, reflects:
o US$13.3 million (including US$0.5 million of decommissioning provisions) for the Moroccan drilling campaign and well tie-ins;
o US$7.3 million for the drilling, completion, testing and tie-in of the SD-12X well in South Disouq (SDX: 100% working interest), including a US$0.3 million development lease bonus and a US$0.2 million decommissioning provision;
o US$1.2 million for the dry-hole drilling cost of the SD-6X (SDX: 55% working interest) well in South Disouq;
o US$1.5 million for additional work and insurance spares at the South Disouq Central Processing Facility (“CPF”);
o US$0.4 million for drilling/workovers in West Gharib;
o US$0.9 million for Morocco facilities and customer connections; and
o US$0.1 million for other assets.
o The key difference between the US$24.7 million spend in 2020 and the US$43.0 million in 2019 is the fact that the South Disouq CPF, the flowlines and main export line were constructed in 2019, at a cost US$19.4 million (including a US$1.0 million decommissioning provision).