Member Info for Southmead

Hi Richard1032
I completely agree with your last comments. SDX is a well run profitable business, with a strong Balance Sheet and a proven commitment to developing their business in Egypt. The management team, lead by PW, has also proven that they can successfully manage and extract extra value from ageing oil assets.
This is why SDX has been given a chance at the BP deal.
BP will only entertain selling their stake in GUPCO to a reputable, well run business that will take on transferred staff and infrastructure and manage them responsibly. BP have too great a stake in the future of Egypt and their various Joint Enterprises with the Egyptian government, to treat this disposal lightly. BP will ensure that SDX have a great deal which has every chance of being successful for SDX. The BP loan of $300m is a sure sign of this intent and the enduring responsibility that BP assumes for the GUPCO business.
Understanding this is key I believe, to seeing how the value in this BP deal will accrue to SDX over the coming months and effect the share price. The SP may bob up and down in the short term but the value of the business will rise and rise substantially over the next year as the GUPCO assets are assimilated.
Those patient investors that are in SDX for the medium term will win big.

Hi SambaMagic
Yes, very interesting and exciting times to have SDX shares and we are all keen to know the details.

Day 1 of dealing will be a challenge for us all. What to do, we are asking ourselves?

One thing is for sure IMO, that the true value of the BP deal will only evolve after SDX have began to exert their management influence over the mature assets that they purchase. This will take time and a year on from acquisition, I expect the SP to be much higher than on day 1.
Viewed from an accounting perspective, assets purchased will probably be brought into the books of SDX at the value that SDX pays for them and these values will have been well discounted. As SDX prove and verify the value of these assets, especially the oil reserves, they will be revised in value and profit taken.
The inherited infrastructure ( pipelines, wells and pumping stations ) will also represent another big challenge or opportunity to SDX. The assessment of its condition, age and efficiency is key and will determine what capital expenditure is required and rework programmes. This will all time time to work through.

Most investors will be aware of the above but the temptation to take some profits may be too great, especially those who feel that they are overweight in SDX. Those who have been tempted to buy shares because the SP was stalled and they saw value in an undervalued well managed company.
Balanced against this will be the 'herd' of PI's who feel that they have missed out and will buy early to try and gain a early cheap stake in SDX, knowing that the SP will probably rise over the coming weeks.
Make up your own mind and do what is right for you.
There is never a wrong time to take a profit.
Don't kick yourself too hard if you sell out too cheap. :)

In my opinion, the SDX deal with BP will be structured in a similar way to the Serica BP deal that was announced in November 2017.

The main features of that deal were:-
▪ Balance sheet strength maintained
▪ No fund raising required, no shareholder dilution
▪ No impact on existing cash resources
▪ No borrowings apart from prepayment facility provided by BP
▪ Expected to be immediately cash-flow and value accretive
▪ Tax efficient

This deal was obviously very attractive to shareholders as no share dilution was involved.

The detail of the financial arrangements was:-
▪ Transaction effective from 1 January 2018; completion targeted for mid-2018 subject to regulatory, government and partner consents
▪ Initial Consideration of £12.8m cash payable on completion
▪ Deferred consideration payable against performance of Rhum R3 well planned for workover in 2018
▪ Additional earn-out structure enables Serica and BP to share risk and benefit from future asset performance
▪ All cash considerations expected to be covered by net cash flows from the acquired assets
▪ Gas prepayment facility of up to £16m provides further cover for working capital at completion and for hedging costs
▪ Decommissioning cost of existing assets retained by BP
▪ Serica to pay BP additional consideration equal to 30% of such costs at time of decommissioning net of tax, capped at Serica’s net cash flows from Bruce, Keith and Rhum
▪ Reverse takeover under AIM rules; Serica’s shares suspended pending publication of Admission Document and General Meeting to approve transaction

The SDX deal to buy the assets of GUPCO looks as though it will be much bigger than the Serica deal to buy BKR.
GUPCO's total production is stated to be about 70,000 boepd and reserves of up to 175 mmboe net 2P. reserves. Much bigger than BKR. These figures include however some off shore oil assets and it is unclear whether the deal will include any of those shore oil assets.
It was leaked that the deal might be worth $500m with a $300m loan facility. The remainder $200m may I suggest be payable out of oil revenues, if the BP/BKR deal formula is followed.
So in short, I don't see that any shareholder dilution is necessary to finance this deal and that BP will be happy to finance the entire purchase consideration through a combination of BP loan and deferred revenue.

Hi Daft63
This is an excellent notion and of course, rather suggests that South Ramadan is already known by the operator and drill team, and SDX to be a success.
I can see why this occurs to you as we are well past the planned drill time for the well and barring any delays and problems, they should have a good idea. After all, it is an 'up dip' prospect from a known discovery. PW has tried to manage expectations by saying that it is a 'commitment well', and has a low COS, but the operators still believe that it is a shot worth spending millions on, so it must have a chance.
The weakness in the notion is that, if BP are discussing their deal with SDX because of the supposed success of South Ramadan, then they also know of the success of the well. Too many people know and that is the weakness in the notion. But it might be!!!

Posted: September 21, 2018 at 6:11 pm / by Energy Egypt / comments (0)
tags: BP, Egypt, Oil & Gas, SDX
UK player confirms media report that is it in discussions over ‘significant package of assets’.
North African-focused oil and gas company SDX Energy on Thursday confirmed that it was in discussions with BP Plc to buy a package of assets in Egypt.
London-listed SDX said the acquisition would constitute a reverse takeover.
SDX said its shares have been suspended from trading on London’s junior market, AIM, with immediate effect and will remain suspended until an admission document has been published or the company confirms that a deal is not proceeding.
A spokeswoman for BP declined to comment on the talks with SDX.
Reuters reported earlier in the year, citing banking sources, that BP is seeking buyers for its stake in a 50-year-old oil and gas business in Egypt, then estimated to be worth around $500 million.
It was not immediately clear which assets SDX was in talks with BP over.
Earlier in the day, oil and gas explorer and producer SOCO International said it signed a deal to buy privately-owned Merlon Petroleum El Fayum Company for about $215 million. Merlon holds the operated working interest onshore El Fayum in Egypt.
(Source: Reuters)
Background: Reuters reported in March that BP was already meeting with prospective buyers for its stake in its 50-year-old JV with the EGPC, the Gulf of Suez Oil Company (GUPCO), as part of a plan to sell USD 2-3 billion’s worth of maturing assets this year in an effort to shore up finances and shift focus to natural gas. Sources had then valued the GUPCO transaction at $500 million but others had said that BP was hoping to raise as much as $1 billion from the sale.

Gulf of Suez Petroleum Company (GUPCO) produces more than 70,000 barrel per day (b/d) of crude oil as well as 400 million standard cubic feet per day (mscf/d) of natural gas.
The company operates 9 offshore complexes, some 72 satellites, owns 300 pipelines covering over 3500 kms and GUPCO has 2 LPG gas plants producing 700 tons of LPG and 2200 bbls of condensate.
GUPCO operates 2 water flood plants which treat 200 mbwpd for water injection. They operate 603 wells, 455 of which are producers, and 148 are injectors. They also have 13 storage tanks with a capacity of 5.5million barrels.
The average age of GUPCO's infrastructure and equipment is 30 years.

It appears that BP are attempting to sell their mature onshore oil wells and infrastructure and retain their off shore assets and gas operations by transferring them to a second Joint Venture called Pharaonic Petroleum Company (PhPC). Presumably therefore the 9 offshore complexes and the 2 LPG plants are not up for sale to SDX.
That leaves the 455 producing oil wells and 300 pipelines.
These assets are presumably pretty old(average 13 years) and must be in need of management attention and investment, although I have to say that BP would have maintained the equipment better than most and exercised very cautious H&S procedures.. The business has an estimated value of $500million.

Thanks Dim260259 for the link.
The article refers to GUPCO reserves of :- 'Total reserves from GUPCO fields reach 345 million barrels of crude and 771 billion cf/d,' not 175 boe as you typed. Much bigger.

Anyone have any experience of valuing oil reserves?

Hi Dim260259
Where did you read about GUPCO's reserves?

I read earlier that GUPCO's reserves were around 175 boe plus substantial gas reserves too.

Hi Urraca

Try this link to the report or search on BP gupco oil Egypt.
egyptoil-gas.com/news/bp-to-sell-stakes-in-gupco/

Report says:-
BP intends to sell its stakes in the Gulf of Suez Oil Company (GUPCO), banking sources told Reuters news agency.
The sale of its stakes in GUPCO, a business with an estimated value of $500 million, comes as the British company looks to increase its investments in deepwater natural gas fields offshore in the Mediterranean Sea.
BP has sent pitches to potential buyers of its stakes in GUPCO, which is currently joint-owned with the Egyptian Petroleum Corporation.
Media groups approached the company but a spokeswoman refused to comment.
GUPCO produces more than 70,000 barrel per day (b/d) of crude oil as well as 400 million standard cubic feet per day (mscf/d) of natural gas.
In February, BP announced that Egypt’s Atoll field would begin to produce gas seven months ahead of schedule with at 33% lower than the initial estimated cost, Egypt Oil & Gas reported.
The Atoll field project is producing 350 million standard cubic feet per day (bcf/d) in addition to 10,000 barrels per day (b/d) of condensates. The Egyptian national gas grid is entitled to receive the field’s natural gas output.

Hi Shakeypremis,
As much as PW would like to, I doubt that SDX will be able to 'cherry pick' only the best assets to buy from GUPCO, leaving GUPCO with only poor assets and reduced infrastructure. I suspect that the purchaser will surely have to take the lot, good and bad, leaving GUPCO to wrap up the company and settle all creditors from the proceeds. I think that SDX will take over all the assets and hence get the entire production volume not just the 50% of operations that would equate to BP's share of GUPCO. This approach will be a massive opportunity for SDX to rework wells and improve productivity across the board. Only two years ago GUPCO produced in excess of 100,000 boe/d.

Back in March this year the news was that:-
'BP intends to sell its stake in the Gulf of Suez Oil Company (GUPCO)
The sale of its stakes in GUPCO, a business with an estimated value of $500 million,which is currently joint-owned with the Egyptian Petroleum Corporation.'

GUPCO produces more than 70,000 barrel per day (b/d) of crude oil as well as 400 million standard cubic feet per day (mscf/d) of natural gas.
GUPCO has managed to maintain oil production flat in the Gulf of Suez against its natural decline.

The question is whether BP wants to sell its shares in GUPCO, which is the cleanest and perhaps easiest option or whether BP has some agreement with the Egypt Petroleum Corp to sell some of the assets owned by GUPCO.
No doubt BP would prefer the former as the deal would automatically take care of all employees, creditors, tax and debtors.
BP has I suspect spent the last six months courting prospective buyers with precisely that objective in mind, to buy their entire stake in GUPCO. This has no doubt proven to be impossible and therefore BP has reluctantly changed tack and is now offering to sell key assets owned by GUPCO. PW must have been watching this process with interest and waiting for the right opportunity, which has now arrived.

SDX is the perfect candidate to purchase selected assets from GUPCO and take infrastructure in Egypt in the form of production facilities and employees to manage and maintain the operations. I suspect that BP want to dispose of all the mature oil assets and retain the gas operations and perhaps transfer these to its GASCO operation.
The value of each asset sold will depend on what it can produce and therefore the sale of assets is perfect for a 'pay as you go' sale arrangement similar to the deal that BP has done with North Sea assets with SQZ.

I am sure that PW will make a good deal with BP on this one, I hope fully funded by a mixture of capital loan and retrospective oil and gas sales receipts. The deal will be completed over a year to enable the transfer of staff and facilities. During that year SDX will have time to properly evaluate each asset and make improvements, adjustments to both operations and the final valuation. All IMHO of course.
If PW can pull this deal off, it will transform the business and add massively to the value of SDX. Oil production of about 80,000 boepd would value SDX at $1B. SP will probably go through the roof!

This deal I suspect will be very similar to the Serica deal.
Serica were a minnow North Sea E and P company prior to the BP deal with a few staff in a London HQ looking after the Erskine field. The BP deal has transformed the company. Why did BP choose such a small business to take on their BKR fields? The answer is ambition, expertise in managing mature oil assets, and the willingness to take on 250 BP production staff in Aberdeen. The deal with BP required no dilution in shareholder equity as BP provided loan facilities to Serica to enable the transaction to proceed and repayment of the loan will come from oil proceeds from the BKR production. The deal is massive for Serica, 250 staff will take some swallowing and the 5x revenue increase from increased production.

The analogies with SDX deal are several. Mature onshore oil fields that require micro management and the application of new extraction techniques. Transfer of Egyptian production staff into SDX. A capital loan equivalent to the purchase consideration, repayable out of future profits and revenue. Shared upside development potential and significant provisions against old wells. I would guess at around 30,000 bopd volume to come across, valued at $600m per annum.

This deal will be fantastic for SDX and it will get the blessing of all shareholders including ii's as it brings forward the liquidation event and exit strategy that PW has been following from the start.

It looks more and more like a copy of the Serica deal. Mature onshore oil fields that require micro management and the application of new extraction techniques. Transfer of Egyptian production staff into SDX. A capital loan equivalent to the purchase consideration, repayable out of future profits and revenue. Shared upside development potential and significant provisions against old wells. I would guess at around 30,000 bopd volume to come across, valued at $600m per annum. This deal, if it happens, will transform SDX over a period of about a year into a major player in Egypt, quadrupling 2018 year end production volume at a stroke and launching SDX into the mid cap valuation in excess of $1000m. All IMHO of course.
I found the following reports:-
'Reuters reported earlier in the year, citing banking sources, that BP is seeking buyers for its stake in a 50-year-old oil and gas business in Egypt, then estimated to be worth around $500 million.
It was not immediately clear which assets SDX was in talks with BP over.
The so-called Gulf of Suez assets have been on sale for a few months and BP is hoping a deal will raise about $1 billion. Divesting the Egyptian onshore fields could be sensitive as they employ thousands of local staff.'

Personally, I think that this will be fantastic news for shareholders.
The twitter 'leak' or speculation says that the BP deal is structured in a similar way to the BKR deal that BP did with Serica earlier on this year. BP have fully funded that deal by way of payment from the ongoing proceeds of oil and gas sales. The Serica shareholders suffered no dilution and the value of the business was increased hugely through a massive increase in Reserves and production volume.

Just wait and see, Well Done PW

All the research reports on SDX point towards the political risk of operating in Egypt and since the troubles were as recent as 2016, it is no wonder I suppose.
But it is heartening to see how far Egypt has come since that time and great to read such a positive article on a changing situation for Egypt.
The following article on the Energy Egypt website speaks volumes for the change in attitude and priorities that has thrust gas development into the forefront of economic development in Egypt in the future.
As SDX develop their existing gas finds in South Disouq and carry out the ambitious drilling programme in 2019 it promises to be encouraged by the Egyptian government with fiscal incentive and infrastructure.

https://energyegypt.net/ministry-agrees-with-partners-to-accelerate-development-of-new-gas-discoveries/

Edison report says 7.2%.
Here is an extract 'River & Mercantile Asset Management 7.2%'

See for yourselves at...
https://www.edisoninvestmentresearch.com/research/report/sdx-energy53192/full

On balance, I think that it is helpful to know that River and Mercantile's shareholding position has changed.
A substantial shareholder has either increased or reduced their shareholding over the last few months.

I would like some clarification as to which it is.

As you say SmallHolding, the SDX website says that R and M had a shareholding of 3.42% as at 29th March 2018. They now have a shareholding of 5.27% which is an increase of 3,787,060 shares or 1.8% of the book.
If the March figure is correct, that increase represents a substantial purchase of shares over 6 months, averaging about 600 thousand shares per month over the period.
This I would interpret as a very positive sign for SDX shareholders and a clear buying signal to the market. My doubt arises over the SP behavior during that same period. A steady drift downwards from a high of around 70p in April to 56p today. How could this be possible in the face of that buying pressure?

If the Edison figure is correct at 7.2% and their report is dated 3rd July 2018, then R and M held approx. 14.6m shares at that date and must have sold about 3.9m shares over the last 10 weeks. That would suggest that they have sold an average 400,000 shares every week. Looking at the daily share volumes over the period, it seems unlikely to me that the figures could contain such a concerted disposal. I therefore surmise that the Edison figure in their report dated 3rd July was probably incorrect.

So, in conclusion, still baffled as to which is correct. Is it good news that R and M have increased their holding and if so why hasn't it had a more positive affect on the SP. Or is it bad news that R and M have been disposing of shares and how do you explain the volume within the daily share volumes.
I guess that we should ask the Registrar, Capita Registrars, to explain?

Well it seems that we have a presentation by PW coming up next month.

London South East11th September 2018
Its time for #LondonSouthEast's next high quality Oil & Gas Investor Evening, 16 October in the City. We welcome Malcy @mgrahamwood, Fiona MacAulay @echoenergyplc, Andrew Knott @SavannahPetrol & Paul Welch @sdxenergy. Sign up free here: https://t.co/zNAfVCReNo

Well done Cosmoss that is a good find and I agree, it does look correct.

If Mr Monoyios sells down to below 3% of the share capital, he must make a declaration and notify SDX and AIM.
An RNS will then be issued publishing the new position. No reason needs to be given for the disposal, only that the 3% threshold has been crossed.

It may be that Mr Monoyios doesn't particularly want to publicise his disposal and wishes to keep it under the radar. Particularly if he is liquidating his SDX investment to reinvest in another project! In which case he may purposely stay above 3% to avoid publication. Or not!

Why else would he be selling? I cannot imagine that he cannot see how good an investment SDX is, after all, he made a huge investment in SDX in the first place.

Anyone know how he came to own the shares? Was it an acquisition maybe?

Sorry daft63, whats this about Axa buys?
Where have you got it from?

regards