Member Info for tigris72poo

so where is the cash, where is the news, where is AK?

I expect we'll get 2Q results on Thursday and look for confirmation that IPR did not elect to pay the 300% penalty to back into Sobhi and we therefore own it 100%. Most analysts (to the extent that there are any doing real analysis) dismissed this 24 BCF discovery as only extending the reserve life of the field without adding any near term production or CF. However, SDX is proceeding to spend US $3.7 million (100% basis) to build the pipeline and connect the well by the end of the year.

WHY?

Well, the four producing wells will have been on line for over 12 months by then and will start requiring periodic shutdowns for workovers or maintenance. Let's assume, that each well does 12.5 MMCF/D for a total of 50 MMCF/D. Our 55% interest gives us a net of 27.5 MMCF/D.

But now let's also assume that each of the original four wells gets shut down for 4 to 6 weeks in 2021 for maintenance and is replaced by our 100% owned Sobhi well. So for 20 weeks next year (39%of the year) our net production will be 33.1 MMCF/D (3 wells doing 12.5 MMCF/D at 55% and one well doing 12.5 MMCF/D at 100%).

So, if for 32 weeks we average 27.5 NMMCF/D and for 20 weeks we average 33.1 MMCF/D, our annual average should be 29.7 MMCF/D or about 8% more than this year. Ballpark figures of course, but I don't think anyone is factoring ANY increase in gas production from South Disouq in 2021.

In addition I hope to see some partial recovery of gas demand in Morocco and some progress on plans to test the LMS-2 well. I don't expect any build in cash as we still had payables to work off from the first quarter drilling programs.

The constant whining about stock manipulation is pointless. The only thing that would make a difference is the initiation of a stock buyback program. When your market cap is down to US $44 million, you can buy 5% of all your reserves and infrastructure for the cost of drilling a new well.

I don't know much beyond what I read in the news:

DJ Sound Energy Enters Into Exclusive Talks to Provide Gas to Moroccan Client; Shares Rise
Monday, June 29, 2020 07:47:00 AM (GMT)


By Matteo Castia

Shares in Sound Energy PLC rose Monday after the company said it has entered
into exclusive discussions with a conglomerate with significant distribution and
marketing operations in Morocco for the provision of micro liquefied natural gas
from its Tendrara site.
The Moroccan-focused gas company said the proposed transaction will involve a
commitment to produce, process, liquefy and sell an annual 100 million standard
cubic meters of gas over a period of 10 years from first gas at Tendrara.
Sound Energy said the partner will commit to an annual minimum 'take or pay'
quantity of 90 million standard cubic meters of gas, priced within a range of $7
to $9 per million British thermal unit.
In order to accelerate the delivery of first gas, the partner has also agreed
to partially fund the development of Phase 1 at Tendrara, Sound Energy said.
The funding will occur under the form of a 2-million-pound ($2.5 million)
subscription for 159.7 million new ordinary shares in Sound Energy at 1.2521
pence each, and a $13.5 million secured commercial loan with a 11.5% coupon and
a 12-year term, the company said.
Shares at 0744 GMT were up 0.29 pence (0.36 cents), or 22%, at 1.60 pence.

Write to Matteo Castia at matteo.castia@dowjones.com

(END) Dow Jones Newswires
06-29-20 0347ET
Copyright (c) 2020 Dow Jones & Company, Inc.

This could possibly have implications for any efforts by SDX to expand / diversify beyond the Kenitra market for natural gas. The Sound deal discussed above is not very big. If my math is right, 100 million cubic meters of gas over 10 years works out to 10 million cubic meters a year = 353 million cubic feet a year = 1 MMCF/D. The price is decent at $7 to $9 /MMBTU. To satisfy such a contract a producer would need to show that they have 100 million cubic meters of reserves = 3.5 BCF over ten years. So a successful test at LMS-2 well and development of significant reserves in the Lalla Mimouna area could open up similar opportunities for SDX.

As always, I stand to be corrected if I screwed up the math. One of the problems with this LSE BB is one can't edit posts. So I apologize in advance if I erred.

Sound Energy operational update in relation to the micro liquified natural gas (mLNG) phase 1 development plan for the TE-5 Horst development at the Tendrara Production Concession (1.3100p, 0)
Monday, June 29, 2020 06:28:54 AM (GMT)

Operational update:
On 26-Jun-20 heads of terms (HOT) were entered into with a Moroccan conglomerate (the Partner) with significant liquified petroleum gas, butane and propane distribution and marketing operations in Morocco
Under the HOT, the parties have agreed to use their reasonable endeavours to negotiate and enter into a gas sales agreement
In order to accelerate the delivery of first gas under the Phase 1 Development Plan, the Partner has also agreed under the HOT to use reasonable endeavours to conclude definitive agreements in respect of a proposed partial financing for the development:
£2M subscription by the Partner for 159.7M new Sound Energy ordinary shares at a price of 1.2521p/share
secured commercial loan of $13.5M provided by the Partner to the company in respect of the Phase 1 Development
The company continues to progress negotiations with potential service providers in relation to the design, procurement, construction and operation of the gas processing and liquefaction unit required for the Phase 1 Development and with additional funding partners for the balance of the finance required for the Phase 1 Development
Despite COVID-19 outbreak restrictions, which have delayed progress of the Phase 1 Development Plan, the company aims to take a Final Investment Decision, subject to the approval of the Concession joint venture partners, during H2 2020.
Reference Links:
Sound Energy PLC - LNG Heads of Terms

Industries: Oil & Gas Exploration & Production
Primary Identifiers: SOU-GB
Related Identifiers: SOU-GB

Pipe dreams! Anyone who has looked at a map will see immediately that a Nigeria to Spain pipeline would have to go through Niger , maybe Mali and Algeria first before it ever gets to Morocco. And even if it happened, our reserves would probably not even feed it for a day. I have a better chance of golfing on the moon with Tiger Woods...

Sobhi was tested successfully in April at a maximum rate of 25 MMCF/D.

https://polaris.brighterir.com/public/sdx_energy/news/rns_tool/story/r7nv87w

The only untested well is the LMS-2 in Morocco which, if successful, would not add to near-term production but could add potential resources to pursue other market opporunities beyond Kenitra.

Near term catalysts as I see them are:
1. Updates on customer demand from resumption of normal activity of existing customers affected by Covid-19 shutdowns in Morocco
2. Resolution of partner issues in Egypt. Possibility that IPR declines to back in to Sohbi by paying 300% penalty and instead sells their SD interest to a well-financed operator that would allow us to develop the remaining SD prospects more aggressively
3. Testing of LMS-2
4. Unpredictable

Shakey, I like your questions 1 and 3. As for 2, I think one can surmise several good reasons:
1. The seismic was not very promising
2. We don't have infinite money for exploration
3. Prospects close to our existing infrastructure are much more interesting because they can be tied in quickly and at low cost

Please give us a report on the call contents. I don't understand why they set it so early in the day. Have they given up on all the North American retail investors? It's one thing to delist from the TSX to save listing costs but to totally alienate all their American and Canadian shareholders seems very short-sighted to me.

Shakey,

You may be right about the 30% limit, but in practice Institutional investors don't really want more than 20% anyway because of liquidity and regulatory considerations. My main point about buyback authorizations being an indispensable tool to have available is unchanged.

The Buyback is an option but it is important to have in a highly volatile market. With a small- cap illiquid stock all it takes is one seller in a panic to drive the SP down to ridiculous levels. The major shareholders here are maxed out. No matter how much they might like it, they can't go over 20%. We all know that market makers have no balls and no capital so they are not going to support it. Who is to say that in another panic the price doesn't drop to even more ridiculous levels?

One of the main advantages of being a public company is to arbitrage the stock market vs the property market. When your stock price is inflated, you issue stock and buy assets. When your stock price is depressed you sell assets and buy back your stock. A central function of management is the allocation of capital. Every time you make a capital spending decision you have to consider the alternative uses of those funds. Let's say your full cycle F&D costs are $15/ B. But your stock price values your reserves at $5/B. If you had $5 million to spend, you could buy 1 million Barrels of reserves by buying back your own stock or 333,333 Bs by drilling (with some risk that you might actually get nothing if you hit a dry hole). What would you do?

Of course, it's not as simple as that. It depends also on your balance sheet, reserve life, need to replace or grow reserves in a depleting asset base etc. But there is a point where the value discrepancy is so big that the answer is obvious. That's why I think every prudent Board of Directors should have a buyback authorization in place to give management that extra option when they consider capital allocation decisions. I know the objections to buybacks ( mgmts often buy their stock at inflated prices or with borrowed funds to increase the value of their options, or buy their stock instead of making capital investments or rewarding workers). That's a legitimate concern when a stock is overvalued or a company is leveraged and its business is unstable. Not a serious concern in the case of SDX, trading at a fraction of NAV, low multiple of CF, no debt and 90% of revenues from fixed price gas contracts. The only question is what is the best use of our FCF going forward?

https://polaris.brighterir.com/public/sdx_energy/news/rns_tool/story/ry1l79r

Two interesting observations:
1. Amir Al Menhali only got 90.4 % of the vote. Who voted against the representative of our largest shareholder?
2. Resolution 14 passed authorizing purchase of up to 10% of our stock. Why no announcement that we have a buyback authorization? It's a great tool to have in one's pocket in these extremely volatile times. Especially when you are debt-free, generating cash and your stock price is 1/3 of your NAV

yes I do but I don't like to post proprietary material. They raised their risked NAV and target from 50 to 52 p. How is that for precision?

• In Egypt, the South Disouq has been operating above expectations due to good uptime from the processing facility, delivering 54Mcfe/d in 1Q20 against FY20 guidance of 47-49Mcfe/d
The adjacent Sobhi gas discovery will be tied back into the processing facility in 2H20. This discovery has also derisked 4-5 nearby exploration prospects of over 70Bcf in total size, which we expect to be drilled in late 2021 or early 2022. As a reminder, we estimate the 24Bcf Sobhi discovery is worth c.$20M in our risked NAV for South Disouq (or a c.2x NPV/Investment ratio) because of the low cost of adding resource to existing infrastructure - therefore, we see an additional 70Bcf as potentially adding material value to SDX, if successful

My Bunny had a good nose....( if you don't get it you were not investing in 1990). Young is too risky and is not likely to be drilled unless we get a farmout on very favorable terms. Say for example that a well funded entity buys out IPRs 45% stake in SD and they are willing to pay 100% of the cost of drilling Young for a 75% interest. That would be a no lose deal that we should take. But SDX-12 derisked some lower risk lookalike prospects that we could drill 55%-45% with a new partner, or even 100% if we have accumulated enough cash and have no better opportunities in Morocco. The beauty of this is that while SDX-12 only extended the reserve life of our SD asset, further discoveries could justify increasing the capacity of the CPF and thus raising production and CF in the near future (meaning next couple of years).

I applaud MR's signs of capital discipline and risk management and await resolution of the SD partnership issues.

"Following the success of SD-12X, management is looking to high grade other adjacent, and now de-risked, prospects for drilling in the next two to three years."

I heard Tigris mention that the success had de-risked some other nearby prospects but I don't remember seeing anything on it from the company. Reserve life has been a little bit of a concern for me and with only Young be left to drill (that was publicly mentioned by the company) I was wondering whether further production life was going to come from. Hopefully these prospects will answer that question.

NO, NO, NO! No acquisition PLEASE!

Southmead, I disagree strongly that an acquisition would be good for us at this time. Being debt free is one of the main attractions for SDX. And the SP is way too low to use for an acquisition. Reduce capex, generate cash, evaluate organic growth opportunities in Morocco and get a stronger partner in Egypt to test the prospects derisked by Sobhi. That is what I would like to see for the next twelve months.

IPR other assets are mostly oil in the Western Desert. They have some interests in blocks operated by Apache or themselves:

https://www.iprenergygroup.com/exploration-and-production/

My guess is they are strapped for cash especially at current oil prices and will elect not to back in to Sobhi for $4.1 million. We should know in the next two to three months. I doubt that MR will attempt to buy them out because he is pretty conservative and would not want to overextend himself. It would also increase our concentration in one asset which is a factor in risk management. But he might welcome the sale of their 45% SD stake to a larger, financially strong company who would be better able to keep pace with our future development (calling APA?). Such a co, might even be interested in farming in to our larger, higher-risk prospects such as Young on a promoted basis. Finally, a transaction would put a minimum value on our 55% stake and validate our upside potential. Could be the most interesting development in the near future .

"My hope and expectation for SDX is to see shortly some form of corporate action to raise debt or equity for an acquisition."

Argh !!! I recall painfully that the SDX price started cratering in the Fall of 2018 when PW 's grandiose plan to go after the BP assets in Egypt was leaked to the press and the stock was halted for about a month. For those with a short memory, the price then was around 60 p ...on the way to 11 p for an 80% drop over the ensuing 18 months. A lot of factors contributed to the debacle of course but it all started with mgmt taking their eye off the ball and shattering investor confidence by considering a totally inappropriate and potentially disastrous acquisition ( imagine if we had loaded up with debt to buy a bunch of tired oil assets only to see crude crash from $80 to $20/B. Of course a lot of things are different now: we finally have stable gas production from SD and some significant new discoveries, we are still debt -free (Thank God) and assets should be cheaper. But our valuation is also depressed with the stock selling at 40% of NAV so any new acquisition would be dillutive or increase leverage.

The only prudent way forward, IMO of course, is to build cash and invest only to expand the existing end- markets in Morocco where netbacks are still exceptional or SD where the marginal cost of adding production is low because of the existing infrastructure. Any excess cash can always be used for buybacks, as long as the SP stays depressed of course.

Yada, yada, yada... Proactive is a paid parrot (like Malcy) just rehashing company press releases. no new information or insights. However, Stifel put out a thoughtful note yesterday raising their NAV and target to 50p :

Drilling success in Egypt adds significant value, now over
90% of NAV is fixed-price gas
Price (21 April 2020) 15p
Changes
Rating
Target Price
Previous
-
39p
Current
BUY
50p
Key data
Bloomberg/Reuters codes: SDX LN / SDX.L
Market cap (£m) 31
FTSE AIM A.S. (GB) 753
1mth perf (%) 20.0
3mth perf (%) (41.7)
12mth perf (%) (52.4)
12mth high-low (p) 34 - 12
Free float (%) 67
Key financials
Year to Dec 2019A 2020E 2021E
Production (kboed) 5.4 7.7 6.5
Sales ($m) 53.2 34.0 34.6
PBT adj ($m) (12.4) (6.6) 12.4
EPS adj (c) (8.9) (1.6) 2.4
DPS (c) 0.0 0.0 0.0
Div yield (%) 0.0 0.0 0.0
Sales growth (%) (0.8) (36.1) 1.6
EBITDAX 34.3 16.5 23.1
Prices are as of close 21 April 2020
All sources unless otherwise stated: Company
data, FactSet, Stifel estimates
Share price performance (indexed)
110
100
90
80
70
60
50
40
30M
ay-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20
Absolute Rel.FTSE AIM A.S. (GB) (AXX)
Summary
We think the market appreciates neither the substantial shift away from oil towards fixed-price gas
in the SDX portfolio, nor the value creation from the recent exploration success at South Disouq,
which has added c. 50% to SDX's gas reserves, with low incremental development costs. Our NAV
rises from 39p to 50p per share, as does our target price, now offering over 200% upside potential,
and we retain our Buy recommendation.
Key Points
We update our forecasts for the FY19 results and revised guidance, and the exploration success at
Sobhi on the South Disouq concession in Egypt.
• NAV going up- quite a lot- with drilling success in Egypt. The Sobhi gas discovery well adds
substantial value to SDX, with net gas reserves at South Disouq rising by c. 50% and extending
the plateau of gas production by two years, to 2024. Our NAV rises by 11p per share (c. 30%) to
50p- as shown below- and our target price rises to match. We should also emphasise that SDX’s
NAV is now 95% fixed-price gas, and only 5% oil.

Disagree. For the cost of one well in Morocco (which would not add anything to this year's CF as we are demand limited) they could buy back 5% of the shares outstanding and thus increase CF/sh, Reserves/sh for the remaining shareholders. In markets like this where sometimes there are no bidsat all, it is inexcusable not to have share buyback authorization at hand.

Outrageous delay IMO. Can they adjourn the AGM indefinitely. Doesn't the Datuk have to face the music at some point? HE LOST AND HE IS OUT.

Apparently elections only count if the Datuk wins. If he loses, he just stays on and continues to milk the company. Welcome to Democratic Republic of the Congo!