SDX Energy was created in October 2015 through the merger of TSX listed Sea Dragon Energy and privately owned Madison PetroGas. In 2016, the Company successfully listed on the Alternative Investment Market (AIM) of the London Stock Exchange, raising US$11 million in the process.
The corporate activity that has taken place since listing on AIM has resulted in a financially strong and stable business, with high margin producing assets and significant growth potential. Our low-cost base means SDX can generate positive cash flow down to US$10/bbl Brent and importantly leaves us well placed to benefit from any increase in the oil price.
In January 2017, SDX successfully acquired a portfolio of oil and gas production and exploration assets in Egypt and Morocco, which were formerly held by Circle Oil plc, for a cash sum of $30 million. Following the acquisition, SDX owns a 50% interest in the North West Gemsa concession, increased from 10%, and a 50% working interest in the Meseda licence, both of which are onshore and in the Eastern Desert of Egypt.
For Circle Oil
In Morocco, the Company has a 75% working interest in the Sebou concession, located in the Gharb basin, which has been subject to extensive 2D and 3D seismic testing and has current average production of 7.0 MMscf/day (1,166 boepd). SDX also owns a 75% interest in the pipeline and local gas distribution network, which has capacity to transport 24MMscf/day, that is used to deliver gas to its customers in the city of Kenitra.
The Company also possesses a number of exciting exploration and development assets. In Egypt, the Company made considerable progress at its South Disouq concession, located in the Nile Delta, during 2018. In April, a gas discovery was made at the Ibn Yunus-1X exploration well and in May it was successfully flow tested at 39 MMscfd. Since then, construction of the Central Processing Facility, the 10km export pipeline and the tie-ins for the four existing production wells are expected to be completed in H1 2019, with first gas expected to be achieved in Q4 2019, at a gross plateau production rate of between 55 MMscf/d. Looking futher ahead, the Company will drill two further exploration wells in 2019 and additional prospects for future drilling are expected to be identified once the interpretation of the newly acquired 170km2 of 3D seismic, in the southern section of the concession, has been interpreted.
In Morocco, the Company executed a highly successful nine well drilling programme late 2017 to mid-2018, which saw SDX announce seven discoveries with an 80% success rate. This is a highly profitable business for us, as we sell the gas directly to local industrial users for an average price of US$10.50/MCF. We have worked hard to increase our customer base and have recently signed gas sales agreements with the likes of, Peugeot, Setexam, Extralait, Citic Dicastal and Omnium Plastic and GPC Kenitra.
We have also recently expanded our acreage in Morocco. We were awarded the Moulay Bouchta Ouest licence and were re-awarded the Lalla Mimouna Sud concession in February 2019. Both of these permits offer significant underexplored hydrocarbon potential and are located adjacent to our existing operations and infrastructure, so any new discoveries can be tied into the existing facilities quickly. We plan to further grow our reserves and production base in Morocco with the addition of these assets.
We have ambitious plans for the region and see Morocco as a key growth area for the business. We are currently planning a 12 well drilling campaign, set to commence in late Q3/early Q4 2019 and complete during H1 2020, and we are looking to achieve an exit rate of 6.5 MMscfd in 2019.
Turning to the Company’s producing assets, our Meseda licence in Egypt continues to perform in line with expectations and we anticipate gross production of 4,000 – 4,200 boepd for 2019. Two development wells are planned on the licence this year, one in Rabul which will continue to develop the discovery area and one infill location in the Meseda field, and we are looking to replace up to five electrical submersible pumps in the wider Meseda area.
boepd for 2019
At North West Gemsa, 2019 gross production guidance is expected to be 3,000-3,200 boe/d. As the field is fully developed, future costs on the licence are expected to be minimal. Given our extensive work programme in Egypt this year we predict an increase to our gross overall production by 10,000 boepd (5,500 boepd net to SDX) before the end of the year.
We continue to believe that North Africa continues to one of the best operating environments in the oil and gas industry. Our strong and diverse portfolio of assets alongside a proven track record in the region mean we are well placed to increase our production profile over the coming years. Egypt is home to some of the best geological basins globally and remains a best in class region to operate. Morocco is home to one of the best E&P fiscal regimes in the world and the local supply shortfall for natural gas means the domestic market can be highly profitable for producers in the region.
In line with our corporate strategy of being as cost efficient as possible, we delisted from the TSXV and moved the corporate residence of the Group’s holding company to the UK from Canada. The process will result in meaningful annual savings.
As a Company, we continue to assess value accretive M&A opportunities in and around North Africa that have the potential to enhance the Company’s production scale and generate value for shareholders.