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SDX Energy sees water cut issues dilute otherwise positive performance; CEO Welch to leave

Group production and financials looked positive year-on-year though the performance of the NW Gemsa field was a drag on the results

Oil and gas operations
New drilling and field start-ups provide catalysts later this year

SDX Energy Inc’s (LON:SDX) quarterly results have confirmed strong year-on-year production growth and an improved financial performance.

Production in the first three months of the year amounted to 3,715 barrels of oil equivalent per day (boepd), up 22% compared to the same period in 2018, thanks to additional wells in Egypt and higher gas sales in Morocco.

Quarter-on-quarter comparatives, however, showed a 5% decline in output as a result of a higher water cut in wells at the North West Gemsa field.

READ: SDX Energy to shift to London as production grows

The company noted that production has remained stable at the Meseda operation and in Morocco since the end of the quarter though NW Gemsa continued to see a decline. Well work-over activities are ongoing at both Meseda and North West Gemsa.

Attentions are on the South Disouq start-up which is due to deliver material production growth later this year. Today, SDX noted that construction work continues and ‘first gas’ production is expected in the fourth quarter.

Robust financial performance

In terms of financial performance, SDX reported US$13mln of net revenues and US$9mln in netbacks, representing year-on-year improvements of 15% and 3% respectively. It reflected the higher volumes in 2019 but was offset by a lower realised oil price/service fee.

SDX said its cash flow was robust, as it generated US$7mln during the quarter, meanwhile, US$13mln of capex was invested during the three month period (with US$7mln of that committed to the South Disouq development).

The company ended March with a US$11mln cash balance and a US$10mln funding facility from the European Bank for Reconstruction and Development (EBRD) remains undrawn.

Paul Welch to leave company

The group said chief executive Paul Welch is stepping down from his role at the end of May and as part of an ongoing succession plan he will be replaced by Mark Reid, currently SDX's chief financial officer, on an interim basis.

"The board would like to thank Paul for his hard work in growing SDX Energy and we wish him well in his future endeavours,” said Michael Doyle, SDX chairman. “We are also grateful to Mark for taking over as interim CEO. 

“Mark's focus will be to ensure the delivery of our key operational targets at the South Disouq development in Egypt and the upcoming Morocco drilling campaign through the use and optimization of the liquidity that we have available in the company today.”

South Disouq a key highlight in the outlook, NW Gemsa downgraded

In its outlook statement, SDX highlighted ts active upcoming schedule which will see up to twelve wells drilled later this year and into 2020.

There’s a downward revision to gas sales forecasts in Morocco where there’s been a slower run-rate of new customer additions and a scaling down of certain customer business lines – consequently SDX now anticipates an average gross rate of 6 to 6.5mln cubic feet over the year, versus a predicted 2019 exit rate of 9mln to 11mln.

South Disouq is expected to be a source of growth with first gas due in the fourth quarter, a production ramp up through the first quarter of 2020, followed by a programme of five new wells later next year.

The company continues to expect the Meseda field to maintain output at 4,000 to 4,200 barrels per day, and its capacity will be supported by the addition of two new wells.

It now expects NW Gemsa to yield 3,000 to 3,200 boepd over the full year, down from prior guidance of 3,400 to 3,600 boepd.

Board remains “very positive” about SDX growth plans

SDX's chairman commented: “It is important that the market now has an updated view of how our assets will contribute to the business in the coming months, and our restated guidance today does this. 

“Our focused well programme in Morocco and our commitment to ensure that South Disouq commences production in Q4 2019, before any further drilling takes place in this concession, emphasises our commitment to capital and fiscal discipline in the business going forward."

“That said," he added, "we are very much looking forward to recommencing drilling in Morocco and South Disouq during 2019/20, and we hope to continue with the successes we have had to date in both locations.

“The board remains very positive about SDX's future growth plans, both from our high quality existing asset portfolio, as well as from new opportunities, a number of which we continue to assess."

Quick facts: SDX Energy Inc

Price: 16.75 GBX

Market: AIM
Market Cap: £34.4 m

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on 8/4/19

4 min read