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" If Hanut doesn't come in and/or the Top Nappe etc doesn't play out in Morocco we are probably in for a world of hurt."

Shakey, you put your finger on it. The main issue with SDX is the high F&D costs and poor recycle ratios that have prevented us from generating FCF in the past three years. A discovery in Hanut would go a long way towards fixing that problem in Egypt since the target is big and the infrastructure is already in place. But the COS is only 30% . A success in the Top Nappe in Morocco would fix only part of the problem there. The targets would get bigger but you still have the lack of infrastructure and limited market to deal with. However, a bigger resource would give us some options that have not been practical to date.

Failure in both would raise serious questions about the sustainability of the current approach. To get a good return on spending $25 million a year we need to be adding 30 to 50 BCF annually net to our interest. If we can't do that consistently, we should reduce spending and return cash to shareholders through a stock buyback (as long as shares trade at a substantial discount to NAV) or dividends. Alternatively, we should sell out to a company that has better prospects for reinvesting our cash flow. The next twelve months will be critical in deciding the future.

We should expect year end results and an operations update by next Monday at the latest.

Maestro,

SDX gets 55% of the gas from 4 wells at South Disouq and 100% of the SD-12X well (Sobhi) in which their partner did not participate. As the four initial wells gets shut in one by one for workovers which might last anywhere from 3 to 5 weeks, Sobhi fills in the gap in production so on average this year our share of gross production will be greater than 55%. Then the Egyptian government gets about 51% of the value of our production in the form of royalties and taxes so on average we get around 30 % of the gross.

Funny thing about NPVs Shakey is you can pretty much come up with any number you want depending on your assumptions. Most critical of course is the discount rate. When the 10 yr US government rate is 1.55% it suggests the time value of money is not great and it makes no sense to spend money now to accelerate production. But when your stock trades at 2x CF you can earn a 50% cash ROR with no risk by buying in stock. So what is the right discount rate to use for NPV calculations? My guess is somewhere in the middle (maybe 15-25%)

In Egypt, there is no price upside. The gas price is fixed for the life of the concession. So the only way to increase value is to grow volumes and take the cash now and reinvest it in higher return projects or buy back stock while it trades at very low multiples.

I can understand that the frustration is building as other energy stocks have started to move higher with the price of crude. We are a gas company with fixed price contracts so our story is all about volume growth and recycle ratios. If we can grow volumes and achieve recycle costs of 2 to 1 ( ratio of after-tax netbacks to full cycle F&D costs) we will prosper. The problem with SDX is not only the unrealistic expectations created by PW but also the high F&D costs of the past 3 years. Granted that a lot of seismic and infrastructure spending to connect the SD discoveries contributed to the high F& D costs. Also, the Morocco targets have been very skinny. All that is reflected in the current valuation. MR deserves a chance to show that the future will be better. If we are going to spend $26.5 million this year, we need to show very attractive F&D costs to stay the present course. The way I look at it (back of the envelope) a BCF in Egypt is worth about 1/4 of a BCF in Morocco. The price in Morocco is 3.5 x higher and taxes are lower. On the other hand, the market is smaller and connection costs are higher. But let's say a BCF in Egypt is worth 50c in the ground and in Morocco $2.00. So we would need to find 53 BCF net (96 BCF gross) in Egypt OR 13.25 BCF net (17.7 gross) in Morocco or some combination of the two to say we had a good year. If not, the pressure will build to sell out, or start returning cash to shareholders via stock buybacks or dividends. Success at Hanut or the Top Nappe alone would probably do it. Failure in both would raise a lot of questions. The next nine months will show the way forward. Just my personal opinion - not investment advice or recommendation which I am not qualified to offer.

I don't see any upside to the gas price in Egypt. It's fixed at $2.85 /MCF but we do get paid something for the liquids too where we might get some small benefit from rising crude prices.
In Morocco, we have mostly 5 yr fixed price contracts at very good prices ($9 to 11 /MCF?). As they roll over or we sign new customers we might get a slight increase in the average price but not material. In both countries, SDX is a VOLUME story. If we find more gas with this year's drilling, we can sign more customers or extend our reserve life at relatively low cost since the infrastructure is largely in place. It all depends on the drill bit.

So Egypt is importing gas from Israel while paying domestic producers only $2.85/mcf......

Israeli Companies Plan a New Natural Gas Pipeline to Egypt
Energy Monitor Worldwide


Israeli Companies Plan a New Natural Gas Pipeline to Egypt


The partners in the Leviathan and Tamar gas fields offshore Israel have agreed to invest ILS 765m (US$235m) to build a new 5.5 bcm/year gas pipeline between the Leviathan and Tamar reservoirs to EMGs terminal in Ashkelon (southern Israel) that would be operated by Israel Natural Gas Lines (INGL), in order to export natural gas to Egypt. In January 2020, Israel started to export gas from the Tamar and Leviathan offshore reservoirs to Egypt through the 90 km subsea East Mediterranean Gas (EMG) gas pipeline between Ashkelon (Israel) and El Arish (Egypt). In addition, partners plan to build a new gas pipeline between Ashkelon and Ashdod in Israel.

The Leviathan project is owned by Delek Drilling (45.34%), Noble Energy (39.66%) and Ratio Oil Exploration (15%), while the Tamar project is owned by Isramco Negev 2 (28.75%), Noble Energy (25%), Delek Drilling (22%), Tamar Petroleum (16.75%), Dor Gas Exploration (4%) and Everest Infrastructures (3.5%). 2021 Global Data Point.

What needs clarification? I thought Mark and Nick did an excellent job describing the prospects and plans for next year. They also made it very clear that they are focused on returns when allocating capital and that their number one priority now is to drill the new gas prospects in Egypt and investigate the Top Nappe formation in Morocco with an eye towards reducing F&D costs and expanding the market. Easily the best presentation they've given since taking over the reins.

In addition to the Retail Investor call on October 22, they are holding a Capital Markets Day (I assume for analysts) on November 19. That shows they care about telling the story and promoting the stock. I think they should be applauded for the effort.

Business is about PRICE. When your stock is fairly valued or overvalued you sell stock and buy assets. That's the point of being a public company. When your stock is dramatically undervalued, you sell assets (or cut spending on assets) and buy in your own stock. I have no problem with inorganic growth per se. The problem I have is doing it when the stock is so depressed.

Even a modest stock buyback ( you could buy back 10% of your shares now for the cost of drilling a well or two) would boost the SP and then make it much more valuable as currency for an acquisition. That is my point and I will rest rather than engage in endless chatter.

Love the accelerated drilling schedule! The only fly in the ointment is the mention of the dreaded "inorganic growth opportunities". I contend that is the main drag on the SP as any acquisition would be highly dilutive or require leverage. If I were Chairman of the Board, I would put out a press release along these lines:

"We think our stock price is substantially undervalued at less than 50% of current NAV and giving no value for any of our growth opportunities. As long as this discrepancy exists, we are committed to a three step strategy:
1. We will not entertain any acquisitions or mergers that are dilutive to our NAV or leverage our balance sheet.
2. We will spend 80% of our cash flow from operations on exploration and development of our best internally generated prospects near infrastructure that have an expected recycle ratios of greater than 2x (expected after tax netback / expected F&D costs)
3. We will spent the remaining 20 % cash from operations to buy back and retire our stock as long as it trades at a substantial discount to NAV. "

I bet the stock would be up 25% by the close of the day of such an announcement and would double within a year if they really stuck with the plan.

Good report by Auctus. Only thing they missed is that we now own 100% of the two large prospects in SD (Shikabala and Shikabala North) as a result of IPR's decision to pass on SD-12X. Their main conclusion and target:

Value build-up
SDX shares trade at EV/DACF multiples of ~1.3x in 2020. Our 2P NAV is £0.27
per share, representing 70% upside. The prospective resources already
identified have an unrisked NAV of £0.12 per share for Egypt (+75%) and
£1.03 per share for Morocco (+600%). The main exploration drilling
programme is restarting in 2021 but the company should test the LMS-2
well in Morocco in 4Q20, should COVID-19 restrictions be lifted. A success
would derisk ~5 bcf WI resources at LMS-2 (+£0.13 per share) and a further
~20 bcf WI resources in the wider La Mimouna area (+£0.50 per share). Our
target price of £0.40 per share (~ our ReNAV) represents ~150% upside.

Shakey,

I don't expect much buildup of cash in the 2H and I don't see how we get to your $15 million. We had $9.3 mill at June 30 and got an extra $1.6 from the sale on NWG so that makes $10.9. Capex for the 2H is $6.8 and G&A another $2 mill. Cash Flow from operations in the 1H was $10 mill and should be about the same in 2H so that only gets us to about $12 mill. But Accounts Payable on June 30 were $26.2 and Accounts Receivable were $16.3 so if we have to pay down some of those bills and any taxes we might still end the year with "only" about $10 million or so.

As for acquisitions , I restate my opinion that :
(a) they are inadvisable and impractical given our share price
(b) they are one reason the stock is so depressed as nobody wants to buy a pig in a poke

The main investment thesis for SDX is that was that we are debt free, have cash, generate stable CF and have attractive reinvestment opportunities for organic growth. An acquisition would either load us with debt or dilute the upside potential from further discoveries in SD (where we have the infrastructure in place) or an expanding market in Morroco (which so far has proved elusive and is the second reason for the depressed SP). Patience is the only option. We need to test the LMS-2 well and see if there is enough gas there to justify supplying a market outside Kenitra and we need to accelerate the drilling of the new prospects at SD (some of which we now own 100%) to see if we can justify expanding the CPF.

If neither of those options work, we should just sell the company to someone who has better prospects and can use the CF to finance them. JMHO of course.

no connection to SDX ....but a sign that there is still speculative interest in some depressed North African E&P stocks.
Perhaps a successful test of LMS-2 might awaken some folks out of their lethargy (if it ever happens)

Chariot Oil & Gas completes reprocessing of 3D seismic data across the Lixus Offshore Licence, resulting in +148% remaining recoverable resources increase on Anchois, Morocco (1.6200p, 0)
Monday, September 07, 2020 06:18:50 AM (GMT)

Following the reprocessing of the data on a c.50km2 area, covering the Anchois gas discovery on the Lixus licence, which has led to a significant resource upgrade for the proposed Anchois Gas Field Development to in excess of 1 Tcf for Anchois, representing a 148% increase (comprising 361 Bcf 2C contingent resources and 690 2U prospective resources)
The reprocessing also shows ability for the low-risk prospective targets (C, M and O sands) to be drilled at low cost as part of any appraisal or development drilling activity on the Anchois Discovery (A and B sands); the development of which brings the potential for material free cash flow
Reference Links:
Chariot Oil & Gas Ld - Significant Resource Upgrade on Anchois, Morocco

Industries: Oil & Gas Exploration & Production
Primary Identifiers: CHAR-GB
Related Identifiers: CHAR-GB
Subjects: All Earnings

Stop wasting your time (and ours) thinking about how some stupid algorithm classifies transactions. Every transaction is a BUY and a SELL, otherwise it wouldn't have taken place.

and let's not forget that the big and painful slide from 60p started in the Fall of 2018 with the news leak and trading halt regarding the ill conceived fantasy by PW to buy the BP assets in Egypt.

In one word : UNCERTAINTY

Investors hate uncertainty, especially in times like this. So as long as SDX talks about "inorganic " growth opportunities (read acquisitions) nobody is going to touch it. Large investors don't want to buy a pig in a poke. They are going to wait until they see what SDX wants to but and how they are going to finance it.

True, but now SDX can reduce the risk by farming it out to someone who might pay 100% of the cost for a 50% interest (or other arrangement depending on the attractiveness of the prospect). We still don't have a size estimate for Shikabala Deep. It will certainly be an interesting discussion with IPR when it comes to deciding which wells to drill next. I would hope MR will drive a hard bargain to let them back in as they have not been the easiest partner to work with.

Most significant news from the call (IMHO) is that not only Sobhi, but Shikabala and Shicabala North prospects are now owned 100% by SDX. Makes the marginal economics of drilling those prospects most interesting.