SDX Energy’s strategy is simple: “Create value through high margin production growth”. The company is underpinned by a portfolio of high margin producing assets combined with exciting near-term development and exploration prospects in Egypt and Morocco.
The Company intends to organically increase production and cash flow generation through an active work programme, consisting of improvements made to existing fields and high impact exploration and development wells being drilled to increase production at other assets in the portfolio.
SDX Energy also intends to leverage its strong balance sheet, benefit from early mover advantage and its strong regional networks to grow through the acquisition of suitable high value asset opportunities in North Africa.
SDX Energy maintains a strict financial discipline to ensure an efficient use of funds. The medium-term objective is to achieve production of circa 10kboe/d through the implementation of this strategy whilst the long-term objective is to become a full cycle E&P Company with production in excess of 75kboe/d.
Well Drilling Campaign in Morocco Late Q3 / Early Q4
Targeting Gross Plateau Production Rate in South Disouq
New Development Wells At Meseda permit in Egypt
2018 saw SDX continue to deliver operational success across its asset base in both Morocco and Egypt. The work program throughout the year, and post-period end, saw material developments throughout the portfolio, which have already resulted in increased cash flow. These developments, combined with our disciplined approach to cost control, ensured that our balance sheet remains healthy. We continue to focus on delivering operationally so that we can build the value in SDX for the benefit of all stakeholders, particularly our shareholders.
In 2018 we achieved an average production rate of 3,574 boe/d. In Egypt we completed our drilling program at South Disouq, resulting in an industry-leading 75% success rate. The highly successful campaign at South Disouq was followed in January 2019 by the project receiving approval of its development lease with SDX committing to deliver first gas by the middle of 2019.
Additionally, we completed important infill drilling and work-over programs at Meseda, allowing us to maintain production levels at this key asset. In Morocco, we successfully concluded our initial drilling campaign with seven discoveries from nine wells. Toward the end of the year and into 2019, we undertook a 3D seismic program at the Gharb Centre licence. This program was undertaken to determine additional drilling targets for our 12-well campaign, scheduled to begin later this year.
The market for gas in the Kenitra area of Northern Morocco remains strong, with new customers moving into the area as a result of the Peugeot car plant start-up. This demand allowed us to sign further industrial gas sales agreements with a range of important new customers, several of which are expected to grow significantly in the coming years.
Targeting gross production of conventional natural gas sales in 2019
Increase in Net Revenue Over The Previous Year
Become a Full Cycle E&P with Production in Excess of 75kboe/d
SDX delivered a solid financial performance during 2018. Net revenue for the year increased by 37% over the previous year, a result of our ongoing focus on high-margin, low-cost production. As at December 31, our cash position stood at US$17.4 million with no debt. The cash generating nature of our assets has been key in enabling us to fund our development and exploration activities internally across the portfolio. We were also pleased to sign a three-year US$10 million credit facility with the European Bank for Reconstruction and Development (EBRD). This was a firm endorsement of the quality of our business and its processes. Having the EBRD as an ongoing financing partner increases the potential scope of our future development opportunities.
In summary, 2018 was another year of strong operational performance, resulting in a robust set of financial results. We maintained low operating costs and saw greater revenue resulting from an increase in production and realized prices across the portfolio. During the year, the board also made the decision to relocate our corporate residence to the UK and de-list from TSX-V. We feel this change will result in significant savings for SDX in future periods and is consistent with our corporate growth strategy. As part of this strategy, and in addition to our significant organic growth potential, we continue to assess M&A opportunities that could add value to SDX. The right acquisitions would serve to act as a catalyst to SDX’s production rate, and in turn, free cash flow generation and ultimately support our ambition to be a North Africa-focused E&P of scale.
Finally, I would like to extend my thanks to our shareholders, our host governments in both Egypt and Morocco, SDX employees and contractors, and the board and senior leadership team for their unswerving support during another exciting period for the Company. We look forward to keeping everyone up to speed on our continuing developments during 2019 and beyond.