EGYPT: SDX Energy Provides Operating Results for the 12 months ended 31 December 2022
Full year 2022 key results:
· Net Production, 3,723 boe/d (507 bbls/d and 19.3mmscf/d), marginally ahead of mid-point full year guidance of 3,480 – 3,795 boe/d.
· EBITDAX of US$24.6 million and operating cash flow (before capex) of US$16.9 million.
· Out of 14 wells completed across SDX’s portfolio in the year to date, twelve were put on production during 2022.
· Capex US$27.6 million compared to revised full year guidance of US$26.5 – 28.0 million.
· Net Cash of US$4.9 million as at 31 December 2022.
· As at 31 December 2022, the Company’s working interest share of audited 2P reserves was 4.9 MMboe.
Jay Bhattacherjee, Interim Executive Chairman of SDX, commented:
“2022 was a busy year for the Company operationally and corporately. During the summer of 2022 the shareholders rejected a takeover attempt and the Company welcomed new shareholders to support the Company’s growth. Additionally, during the period there was significant personnel change at both a Board and Executive Management level and I joined the company as the non-Executive Chairman at the end of October and assumed the role as Interim Executive Chairman in December. SDX enters 2023 with a renewed focus on delivering long term sustainable returns to shareholders by pursuing opportunities both within and outside our current portfolio across the wider energy space.
In Egypt, the planned three well drilling campaign was completed during the year, as well as a necessary workover programme on several existing wells. While our Egyptian assets continue to produce, at present Egypt is a challenging operating environment for energy companies with sharp devaluation in the value of the currency, which has impacted the dollar value of the cash we hold there, and severe limitations on our ability to transfer funds out of the country due to capital controls. These are both outside our control. Historically our producing Egyptian assets have funded the Company’s growth initiatives and we are having to find other solutions, and minimising the risk associated with this has been a key focus in recent months. This is a dynamic situation and we will provide further updates in due course.
In Morocco, SDX drilled two new wells which were put into production during the year and the Company is currently maximising recovery from our existing wells to maintain customer supply. It is our intention to have an expanded drilling programme later in 2023 to continue to meet existing demand and to produce to meet any increase or additional customer demand. Morocco remains a core piece of the portfolio and as the country’s only gas producer, we maintain an opportunity to grow into a market that is hungry for every molecule of gas we can produce.
While the Company faces a number of challenges, the changes made in 2022 and the ongoing modifications we make as part of our strategic review are positioning SDX with a foundation from which to grow. We are revaluating our standing in the wider energy sector and will consider all reasonable avenues, including transition fuels and alternative energies, to deliver long term sustainable returns to shareholders. The Company has great strengths, and I’m confident that we can rise to and overcome the challenges faced and return to growth, and I thank all shareholders and colleagues for their support during 2022.”
Twelve months to 31 December 2022 Operations Highlights
· Entitlement production for the twelve months ended 31 December 2022 of 3,723 boe/d was marginally ahead of 2022 mid-point guidance of 3,638 boe/d, driven by strong performances in Morocco and at South Disouq, with West Gharib’s production lower than expected due to drilling delays and higher water and sand production from some wells drilled on the flanks of the Meseda field.
· In South Disouq, the planned three-well drilling campaign has been successfully completed. The SD-5X and SD-12_East discoveries have been brought online ahead of schedule, delivering production and revenues. The MA-1X gas discovery well has been evaluated post year-end and the Company will progress with developing the area after it has finalised the area’s commercialisation strategy.
· In West Gharib, eight wells have been successfully completed and are on production. One exploration well was a dry-hole and is waiting on a workover to convert it to a water-injector for the Rabul Field. Eighteen well workovers across the concession were completed during 2022.
· In Morocco, both wells (SAK-1 and KSR-20) in the two-well drilling campaign discovered gas and have been tied into the Company infrastructure and were contributing to production at the end of 2022. During the year, several workovers were performed to access behind-pipe reserves.
· As at 31 December 2022, the Company’s working interest share of audited 2P reserves was 4.9 MMboe. 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.
· The Company’s operated assets recorded a carbon intensity of 3.6kg CO2e/boe
Twelve months to 31 December 2022 Corporate Highlights
· During the year a number of Board changes were announced. The Board is now led by Jay Bhattacherjee as Executive Chairmen, with his fellow directors being Tim Linacre and Krzysztof Zielicki.
· New shareholders were introduced to the register and have provided a clear mandate to the Board for growth.
Twelve months to 31 December 2022 Financial Highlights
| Twelve months ended 31 December | ||
| US$ million except per unit amounts | 2022 | 2021 |
| Net revenues | 43.8 | 53.9 |
| Netback(1) | 33.2 | 44.1 |
| Net realised average oil service fees – US$/barrel | 76.67 | 55.27 |
| Net realised average Morocco gas price – US$/Mcf | 10.39 | 11.34 |
| Net realised South Disouq gas price – US$/Mcf | 2.85 | 2.85 |
| Netback – US$/boe | 18.59 | 20.54 |
| EBITDAX(1) (2) | 24.6 | 40.0 |
| Exploration & evaluation expense(3) | (25.6) | (14.1) |
| Impairment expense | (4.8) | (9.5) |
| Depletion, depreciation, and amortisation | (19.3) | (32.6) |
| Total comprehensive loss attributable to SDX shareholders | (35.1) | (24.0) |
| Capital expenditure | 27.6 | 27.8 |
| Net cash generated from operating activities | 16.9 | 28.7 |
| Cash and cash equivalents | 10.6 | 10.6 |
, 25% lower than during 2021. Netback contribution from South Disouq was US$15.2 million
(YTD’21: US$16.5 million
) due to lower gas and condensate production owing to natural decline being partly offset by higher realised price for condensate and lower opex. West Gharib Netback increased by US$1.5 million
compared to 2021 due to the increase in the realised oil service fee, partly offset by lower production. Morocco Netback was US$11.1 million, which was lower compared to 2021 due to lower production as a result of the non-renewal of a customer contract, coupled with lower realised pricing due to the weakening of the Moroccan Dirham against the US Dollar.
· EBITDAX for the year of US$24.6 million
was 39% lower year-on-year due to lower Netback, as described above.
· The 2022 depletion, depreciation and amortisation (“DD&A”) charge of US$19.3 million
was lower than the US$32.6 million
in the prior year due to lower production in Morocco
and a lower depreciable asset base in South Disouq, following the accelerated depreciation of the SD-12X borehole costs in 2021 and impairment recognised at year-end 2021.
· E&E expenditure and non-cash write offs totalled US$25.6 million
, predominantly related to the non-cash impairment charge relating to four exploration wells in Morocco
(US$21.5 million
) and the write off seismic costs at South Disouq (US$1.3 million).
· A non-cash PP&E impairment of US$4.8 million was recognised for the Gharb Basin (Morocco) Cash Generating Unit as at 31 December 2022, following a downward revision in the anticipated recoverable reserves from the producing wells.
· 2022 operating cash flow (before capex) of US$16.9 million
, was 41% lower compared to prior year (US$28.7 million), mainly due to lower EBITDAX as explained above.
· Capex of US$27.6 million, reflects:
o US$7.1 million
for the three-well drilling campaign at South Disouq split between: US$1.8 million
for the drilling, completion, testing and tie in of the SD-5X well, US$2.6 million
for the drilling, completion and tie in of the SD-12_East well and US$2.8 million
for the drilling, completion, and testing of the MA-1X well. In addition, US$0.9 million
has been spent on several workovers and US$0.7 million
on other exploration costs;
o US$15.4 million
in Morocco
covering; pre-drilling and standby expenditure for the recommencement of the Morocco
drilling campaign, the drilling and completion costs for SAK-1 and KSR-20, additional expenditure on the KSR-19 well and on various workovers and infrastructure works; and
o US$3.5 million
of West Gharib drilling costs across the eight wells drilled.
· Liquidity: The Company’s net cash position as at 30 September 2022
was US$4.9 million
, with cash balances of US$10.6 million
offset by US$5.7 million
drawn debt (incl. interest) from the European Bank of Reconstruction
and Development (“EBRD”) credit facility. Given the ongoing liquidity needs for corporate G&A and to develop the Moroccan assets, the Company is exploring options to maintain and strengthen its liquidity.
· The Directors have reviewed the cash flow projections prepared by management for the period ending 31 December 2024
and believe that a material uncertainty exists that may cast significant doubt over the ability of the Group to continue as a going concern. As a result of various geopolitical factors, US dollar transfers by the Central Bank of Egypt
have been restricted and the Company is currently unable to expatriate any funds currently in Egypt
and there can be no guarantee of timing on when funds will become available. These factors have also impacted the Egyptian pound which has been devalued several times since March 2022
and is currently trading at less than half of its value compared with the USD since that date. Whilst the company’s receivables are not impacted by this devaluation, the company’s cash balance in country is fully exposed to any additional currency fluctuations. In addition, the Board believes it has options to raise external capital, the Board however cannot guarantee on the final quantum and timings of any proposed financing. The Board would also note that there are no guarantees that current discussions with the EBRD will be favourably concluded and that arrangement with creditors will remain negotiable. Notwithstanding the material uncertainty identified, the Directors have concluded that the Group will have sufficient resources to continue as a going concern for the period of assessment, that is for a period of not less than 12 months from the date of approval of the consolidated financial statements. Accordingly, the consolidated financial statements have been prepared in a going concern basis and do not reflect any adjustments that would be necessary if this basis were inappropriate.
o South Disouq: During 2022, the existing wells continued to exhibit natural decline and expected sand and water production, albeit this was partly offset by contribution from the two wells (SD-5X and SD-12_East) that came into production during 2022. Production guidance for 2022 reflects the disposal of 33% of SDX’s interest in the asset, 2-3% CPF and compressor downtime due to planned maintenance, the successful drilling of SD-12_East and SD-5X and several well workovers. At the year-end, the MA-1X gas discovery well was still in the process of being evaluated to determine a commercialisation strategy.
o West Gharib: The existing well stock at the asset continued to produce steadily, albeit exhibiting natural decline as expected, partly offset by contribution from the recently drilled eight wells, all of which were on production during 2022, and successful well workovers. Some of the new wells that were drilled on the flanks of the Meseda field have exhibited higher water and sand production than previously expected. The goal of the development campaign is to fully exploit the volumes in the West Gharib fields.
o Morocco: 2022 production guidance was lower than 2021 production as the Company evaluates its ability to deliver to new and existing consumers based on its current reserves base and pricing environment. 2022 saw strong demand from the customer portfolio.
2022 Drilling and Operations
Morocco drilling campaign update (SDX 75% working interest)
o The Company concentrated on maximising recovery from its existing well stock, utilising its two compressors.
o The 2022 drilling campaign commenced with the spudding of the SAK-1 well on 6 August 2022
. The SAK-1 well reached TD of 1,196m MD on 24 August 2022
and encountered a gas sand at the primary target interval at 1,107m MD finding 3.7m of net pay with an average porosity of 31%. A secondary gas sand was found at 1,079.6m MD, with a net pay thickness of 1.1m and an average porosity of 28%. The well was subsequently tied into the Company’s infrastructure and was contributing to production at the year-end. The second well in the campaign, KSR-20, spud 12 September 2022
and reached TD of 1,410m MD post period-end on 1 October 2022, finding the primary target gas sands at 1,265m MD. The well was brought on production during the last quarter of 2022.
o In addition to the drilling campaign, workovers were performed to access behind-pipe reserves in a number of wells.
South Disouq Egypt exploration drilling campaign update (SDX 55%/100% working interest pre-farm out, SDX 36.9%/67% working interest post-farm out)
o One appraisal well, SD-12_East, and two exploration wells, SD-5X (Warda) and MA-1X (Mohsen), have been drilled during 2022.
o The SD-5X well discovered gas in the basal Kafr El Sheikh sand, with EUR similar to the pre-drill expectation. SD-5X was tied-in and started production 13 May 2022
and is currently producing at around 10 MMscf/d of dry gas and c.100 bbl/d of condensate.
o The second well in the campaign, SD-12_East (Ibn Yunus North
development lease) was successfully drilled and brought onto production on 1 July 2022
and is currently producing at around 7 MMscf/d, with no condensate.
o The third and final well of the 2022 South Disouq drilling campaign, MA-1X on the Mohsen prospect in the Exploration Extension Area, is a gas discovery in the primary Kafr El Sheikh Fm reservoir target finding 56.3ft of high-quality net gas pay. A well-test was conducted on MA-1X and has post year-end been evaluated. The Company will progress with developing the area after it has finalised the area’s commercialisation strategy.
o Following the disposal transaction, all three wells have been drilled with partner participation. In addition to the drilling activity, several well workovers will be undertaken to maximise recovery from the fields.
West Gharib Egypt exploration drilling campaign update (SDX 50% working interest)
o Much of the activity in the West Gharib concession during 2022 was centred around the aforementioned infill drilling campaign.
o During 2022, eight infill wells and one exploration well (Rabul Deep-1) were drilled. The Rabul Deep-1 well was a dry-hole but is waiting on workover to convert it to a water-injector for the Rabul Field.
o Eighteen well workovers across the concession were completed during 2022.
2022 ESG metrics
· The Company’s operated assets recorded a carbon intensity of 3.6kg CO2e/boe in 2022.
· Scope 1 greenhouse gas emissions at operated assets were 9,600 tons of CO2e. Scope 3 greenhouse gas emissions in Morocco
were 93,900 tons of CO2e, which is approximately 47,600 tons of CO2e less than using alternative heavy fuel oil.
· 2022 was an incident and injury-free year for South Disouq, with the last Lost Time Injury (“LTI”) being in October 2020
. There were no LTIs in our Morocco
operations during 2022. A Health and Safety Management system was rolled out by the Morocco
asset team, including safety training of all field and office-based personnel.
· No produced water was discharged into the environment in Morocco
(100% contained and evaporated) or at South Disouq (100% recycled).
· There were no hydrocarbon spills at operated assets.
· Continuing our engagement with local communities who are affected by our operations, in 2022 SDX was delighted to provide three hospitals near our South Disouq operation with a ventilator each to support the medical needs of the local population in Gharbia State. In Morocco, SDX supported the Dar Lekbira organisation, an NGO with no political or religious affiliation that aims to help children in distress in Kenitra and the surrounding region (within SDX’s operating footprint) with winter clothing, school supplies and non-perishable food items.
· The Company continues to adopt high standards of Governance through its adherence to the QCA Code on Corporate Governance.
Twelve months to 31 December 2022
Financial Update
· Netback was US$33.2 million , 25% lower than the Netback of US$44.1 million for the twelve months to 31 December 2021, driven by:
o Net revenue decrease of US$10.1 million due to:
o US$9.8 million lower revenue in Morocco compared to 2021 due to the non-renewal of an expired customer contract and lower realised pricing due to adverse FX movement;
o US$2.0 million lower South Disouq revenue compared to 2021, due to lower production partly offset by improved condensate pricing; and
o US$1.7 million higher revenue at West Gharib compared to 2021 due to higher realised service fees, partly offset by lower production.
o Operating costs increased by US$0.8 million from the prior year due to significant one-off costs incurred for handling production and drilling water produced at one of the worked over wells in Morocco.
· EBITDAX was US$24.6 million , (down 39%) compared with US$40.0 million
for the twelve months to 31 December 2021, mainly as a result of the decrease in Netback described above.
· The main components of SDX’s comprehensive loss (before minority interest) of US$35.1 million
for the twelve months ended 31 December 2022
are:
o US$33.2 million Netback;
o US$25.1 million of E&E expense, of which:
§ US$21.5 million represents non-cash write off of exploration expenditure incurred in Morocco
relating to the KSR-19, KSR-20, SAK-1 and BMK-1 wells, representing the total of their book value exceeding their recoverable amount;
§ a US$1.3 million non-cash write off of seismic cost incurred in South Disouq as the result of the relinquishment of the Young area;
§ a US$0.6 million bonus payment to the Egyptian Natural Gas Holding Company as a result of the indirect assignment of part of the South Disouq concession;
§ a write off of US$0.5 million for an unsuccessful exploration well drilled in the Rabul area in West Gharib; and
§ other expenditure of US$1.7 million mainly for non-trade receivable write off (US$0.7 million), new business evaluation activities (US$0.6 million ) and a provision for obsolete drilling inventory in Morocco (US$0.4 million).
o US$19.3 million of DD&A expense;
o US$4.8 million of impairment of the Gharb Basin (Morocco) CGU;
o US$5.2 million of ongoing G&A expense;
o US$3.7 million of transaction costs;
o US$4.6 million of FX loss mainly due to the devaluation of the Egyptian Pound during the first nine months of the year; and
o US$5.8 million of corporate tax.