19May 2017

SDX Energy Inc. (TSXV,AIM:SDX) Q1 2017 Financial and Operating Results

SDX Energy Inc. (TSXV, AIM: SDX), the North Africa focused oil and gas company, is pleased to announce its financial and operating results for the three months ended March 31, 2017. All dollar values are expressed in United States dollars net to the Company unless otherwise stated.

Highlights – three months ended March 31, 2017

Corporate and Financial

· SDX’s key financial metrics for the 3 months ended March 31, 2017 and 2016 are as follows;

Three months ended March 31

US$ million except per unit amounts

 

Note:

(1) Refer to “Non-IFRS Measures” section of this release below for details of Netback.

(2) Net realised average gas price in Morocco was US$9.29/mcf and Egypt was US$1.00/mcf

· Completed acquisition of the Egyptian and Moroccan businesses of Circle Oil PLC from January 27, 2017 for a consideration of US$28.1 MM. The above financial metrics for the 3 months ended March 31, 2017 reflect the impact of the acquisition of the Egyptian and Moroccan businesses of Circle Oil PLC from January 27, 2017.

· The Fair Value of the net assets acquired as at January 27, 2017 amounted to US$57.6 MM, of which US$3.1 MM related to cash and US$16.4 MM related to non-cash Working Capital excluding deferred income and decommissioning.

· The main components of SDX’s comprehensive income of US$26.9 MM for 3 months ended March 31, 2017 are;

o US$6.1 MM Netback for the period

o US$29.5 MM gain on acquisition of the Egyptian and Moroccan businesses of Circle Oil PLC;

o US$3.5 MM of DD&A and US$2.2 MM of transaction and restructuring costs relating to the above acquisition.

Operational Highlights

· The Company’s share of production from its operations for the three months ended March 31, 2017 was 2,991 BOE/D analysed as follows;

o North West Gemsa 1,904 BOE/D

o Meseda 646 BBL/D

o Morocco 441 BOE/D

· On a pro forma basis, assuming the acquisition of the Egyptian and Moroccan businesses of Circle Oil PLC had completed on January 1, 2017, the Company’s share of production from its operations for the three months ended March 31, 2017 would have been 3,935 BOE/D analysed as follows;

o North West Gemsa 2,662 BOE/D

o Meseda 646 BBL/D

o Morocco 627 BOE/D

Egypt

· In North West Gemsa, the Company and the operator commenced a technical review to determine how best to extend economic field life through optimising field operations and potentially drilling additional wells post-unitization discussions.

· In Meseda, the Company completed a six well workover program covering tubing and pump maintenance aimed at improving future production uptime. The Company also progressed the Meseda facility capacity upgrade by securing a two phase separator, the key piece of equipment for this project. This is now being shipped from the UAE to Egypt for installation. Finally, a tender was launched to acquire six optimised Electrical Submersible Pumps (“ESPs”) which will substantially increase production when installed. The production increase relating to the ESPs and facility capacity upgrade is expected to materialize in Q3 2017.

· In South Disouq the Company completed site construction work, installed conductor pipe and mobilized the rig, culminating in the spud of the SD-1X exploration well on March 23, 2017.

o The SD-1X well logged 82 feet of net pay in the Abu-Madi formation, which was divided among three separate reservoir packages. Average porosity in the net pay section was 25%. A series of pressure measurements was taken and showed the reservoir to have initial pressures of approximately 3,100-3,200 psi, with measured mobilities in excess of one Darcy. Preliminary work shows that the system may have condensate to gas ratios up to 70 bbls/mmscf, which is above pre-drill estimates;

o The well was subsequently drilled to a final total depth of 11,068 feet with hydrocarbons being encountered in the deeper intervals indicating a working petroleum system within this section. The well also confirmed the presence of the deeper prognosed reservoir intervals but due to difficult wellbore conditions a decision was made not to complete this interval at the current location.

o The well will now be completed as a gas discovery in the Abu-Madi formation and a detailed testing program will be undertaken after the rig has been moved off location.

· At the South Ramadan development concession, a technical review of prospectivity has been completed and an evaluation of project economics is underway. An extension to complete the drilling commitment has been requested from the government with any drilling now being planned in 2018.

Morocco

· In Sebou, the Company undertook preliminary site assessments and basic engineering work for the three development and two exploration wells planned for H2 2017.

· In Q2 2017, SDX received confirmation of the renewal of the Sebou exploration permit for eight years after committing to drill three exploration wells in the first four years. Two of these exploration wells are included in the H2 2017 drilling program. SDX also received confirmation of extensions to the following producing concessions in Sebou;

o Gueddari NW to 2 February 2019;

o Gueddari Sud to 18 January 2020;

o Sidi Al Harati SW to 20 September 2023; and

o Ksiri Central to 18 January 2025

· In Lalla Mimouna, SDX completed preliminary site assessments and basic engineering work for two exploration wells to be drilled in H2 2017. In early Q2 2017, SDX received confirmation that the Lalla Mimouna permit was extended until March 2018.

Outlook:

Egypt

· North West Gemsa

o Complete 12 well workover program focused on ESP installation/maintenance and tubing maintenance to ensure production uptime; and

o Complete unitization arrangement with offset operator and prepare for any additional development activities.

· Meseda

o Drill two development wells (pending government approval) and two exploration wells;

o Replace up to six ESPs; and

o Continue with waterflood program and facility capacity upgrade.

· South Disouq

o Complete testing of SD-1X discovery well;

o Commence development planning and gas marketing with a view to achieving commercial production by Q1 2018; and

o Prepare for entering into the second exploration phase to continue the targeting of the deeper oil potential confirmed in SD-1X.

Morocco

· Sebou

o Drill up to five wells in H2 2017 – three development and two exploration; and

o Increase gas volumes to existing customers and agree contracts with, and start supplying volumes to, new customers.

· Lalla Mimouna

o Drill two exploration prospects in H2 2017.

Corporate

· Continue to explore opportunities to expand asset base in the North Africa region; and

· Continue to minimise costs and crystallise synergies post-completion of the acquisition of Circle Oil PLC’s businesses in Egypt and Morocco.

Paul Welch, President & CEO of SDX Energy, commented:

“The start of 2017 has been a busy period for the Company and we have made great strides in further developing our asset base across the portfolio. We were pleased to announce a successful drilling result at South Disouq, making a gas discovery in the first target and encountering reservoir horizons and evidence of a working petroleum system at the second target. We have also made strong operational progress in Morocco and given the attractive local gas market are on track to drill seven additional wells this year to further grow our high margin production in the region.

“We are also pleased to report that our other high margin producing assets in Egypt, North West Gemsa and Meseda, continue to perform in line with expectations. We have started the year with good momentum and we look forward to capitalising on the opportunities ahead and updating our stakeholders on developments at the Company’s key projects over the coming months.”

KEY FINANCIAL & OPERATING HIGHLIGHTS

Unaudited interim consolidated financial statements with Management’s Discussion and Analysis for Q1 2017 are now available on the Company’s website at www.sdxenergy.com and on SEDAR at www.sedar.com

Financial statements

 

Notes:

(1) Net Revenues for the 3 months ended 31 December 2016 includes US$2.3 MM relating to gas and natural gas liquids revenue relating to the period October 1, 2013 to December 31, 2016. This revenue had previously not been recognised due to uncertainties relating to entitlement and pricing which have now been resolved.

(2) Average daily natural gas and natural gas liquids sales relating to the period October 1, 2013 to December 31, 2016 and recognised in the 3 months to December 31, 2016 equated to 3,718 barrels of oil equivalent (“BOE/D”) for the 3 months to December 31, 2016.

SDX is an international oil and gas exploration, production and development company, headquartered in London, England, UK, with a principal focus on North Africa. In Egypt, SDX Energy has a working interest in two producing assets (50% North West Gemsa & 50% Meseda) located onshore in the Eastern Desert, adjacent to the Gulf of Suez. In Morocco, SDX has a 75% working interest in the Sebou concession situated in the Rharb Basin. These producing assets are characterised by exceptionally low operating costs making them particularly resilient in a low oil price environment. SDX Energy’s portfolio also includes two high impact exploration opportunities, South Disouq in Egypt and Lalla Mimouna in Morocco.

For further information, please see the website of the Company at www.sdxenergy.com or the Company’s filed documents at www.sedar.com

Unless otherwise defined, capitalised terms used in this announcement have the same meaning as set out in the Acquisition Announcements.

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