SDX Energy Regulatory News (SDX)

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY SDX TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU) NO. 596/2014 AS IT FORMS PART OF UK DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 AS AMENDED ("MAR"). ON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE ("RIS"), THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

30 May 2022

SDX ENERGY PLC ("SDX", the "Company" or the "Group")

ANNOUNCES THREE MONTHS TO 31 MARCH 2022 FINANCIAL AND OPERATING RESULTS

SDX Energy Plc (AIM: SDX), the MENA-focused oil and gas company, is pleased to announce its unaudited financial and operating results for the three months ended 31 March 2022. All monetary values are expressed in United States dollars net to the Company unless otherwise stated.

SDX management will be hosting a conference call for analysts today at 3:00pm UK time, details of which can be found in the release below.

Mark Reid, CEO of SDX, commented:

"The first quarter has been a successful period for the Company. Overall, our average production was 17% higher than mid-point guidance, with both Morocco and South Disouq outperforming and our operated assets continuing to demonstrate a sector-leading carbon intensity of just 3.6kg of CO2e/boe. In addition, we have had three successful wells drilled, including the SD-5X exploration well in South Disouq which has now been tied in and is contributing to production a month ahead of plan. Cash generation from operating activities for the period was strong at US$6.6 million and the Company's cash position has grown 14% from US$10.6 million at year-end 2021 to US$12.1 million at the end of the quarter, and is expected to improve further during the year."

Three months to 31 March 2022 Operations Highlights

· Average entitlement production of 4,017 boe/d was 17% higher than mid-point 2022 market guidance of 3,425 boe/d.

· Q1 2022 production in Morocco and at South Disouq was above 2022 guidance, with West Gharib below guidance as production from the ongoing drilling campaign will contribute more significantly in the second half of 2022, and due to fewer wells being drilled in the period as a result of mechanical issues with the previous rig that is now being replaced.

· The Company's operated assets recorded a carbon intensity of 3.6kg CO2e/boe in Q1 2022 which is one of the lowest rates in the industry.

· In February 2022, the Company announced the disposal of 33% of the shares in the entity that holds its interests across its South Disouq concession for US$5.5 million.

· In South Disouq, the first well of a three-well campaign, the SD-5X well targeting the Warda prospect (SDX: 36.85% WI) spud on 4 March and reached TD at 7,855ft MD on 16 March. The primary basal Kafr El Sheikh target was encountered at 6,973ft MD and discovered 55.5ft of net pay gas sand with an average porosity of 26.3%, all of which were in line with pre-drill estimates. Post-period end the completion and tie-in of the well was completed, with first gas achieved on 27 April, approximately one month ahead of schedule.

· Also following the period end, the second well in the South Disouq campaign, SD-12_East targeting a separate compartment in the Sobhi Field (SDX: 67% WI), spud on 17 April. The well reached TD at 7,295ft MD on 26 April with the primary basal Kafr El Sheikh target encountered at 6,567ft MD with 70.2ft of net pay gas sand with an average porosity of 24.1%. A secondary target gas sand in the upper Kafr El Sheikh was also encountered at 4,838ft MD and discovered 9.1ft of net pay gas sand with 30.7% porosity. SD-12_East will now be completed, tested in the primary target area and tied-in to the CPF via the SD-12X flow-line and it is estimated that the well will be on production in July 2022.

· In West Gharib, it was announced in early January that production had commenced from MSD-21, the first well in a 13-well campaign. The second well in the campaign, MSD-25, was successfully drilled and completed in the quarter, and was put on production in mid-March. The third and fourth well, respectively MSD-20 and MSD-24, were spud post-period end.

· In Morocco, preparations continued to recommence the drilling campaign that was suspended in December 2021. The first well of five for 2022 is expected to spud in late Q2 2022.

· On 25 May 2022, it was announced that the boards of directors of Tenaz Energy Corp. ("Tenaz") and SDX had reached agreement on the terms of a recommended share-for-share combination between Tenaz and SDX (the "Combination"). The Combination is to be implemented by means of a court-sanctioned scheme of arrangement with the entire issued and to be issued ordinary share capital of SDX being acquired by Tenaz in a ratio of 0.075 New Tenaz shares for each 1 SDX share. The Combination is conditional upon, among other things, requisite approvals from the shareholders of Tenaz and SDX as well as certain regulatory approvals being obtained.

Three months to 31 March 2022 Financial Highlights

(1) Net revenues, Netback and EBITDAX for three months ended 31 March 2022 and 2021 both include US$1.2 million of non-cash revenue relating to the grossing up of Egyptian corporate tax on the South Disouq PSC which is paid by the Egyptian State on behalf of the Company.

(2) Refer to the "Non-IFRS Measures" section of this release below for details of Netback and EBITDAX.

(3) For the three months ended 31 March 2022 total comprehensive loss is stated before minority interest. Total comprehensive loss attributable to SDX shareholders for the three months ended 31 March 2022 is US$0.1 million.

· Q1 2022 Netback of US$9.2 million, 15% lower than the same period in 2021. Netback contribution from South Disouq was US$3.7 million (2021: US$3.5 million) due to lower gas and condensate production owing to natural decline being more than offset by higher realised price for condensate and lower opex. West Gharib Netback increased by US$0.6 million due to the increase in the realised oil service fee, partly offset by lower production. Morocco Netback was lower in 2022 by US$2.4 million due to lower production following the company's decision not to immediately renew an expired customer contract, as well as slightly lower realised pricing due to the weakening of the Moroccan Dirham against the US Dollar.

· Q1 2022 EBITDAX of US$8.2 million was 16% lower than the same period in 2021 of US$9.8 million due to lower Netback, as described above.

· Q1 2022 depletion, depreciation and amortisation ("DD&A") charge of US$5.3 million was lower than the US$7.4 million for the same period in 2021 due to lower production in Morocco and a lower depreciable asset base in South Disouq following the impairment recognised at year-end 2021.

· Q1 2022 operating cash flow (before capex) of US$6.6 million, was higher than the same period in 2021 of US$6.1 million, primarily due to improved receivables collections partly offset by the EBITDAX drivers discussed above and paydown of accounts payable.

· Capex of US$3.2 million, reflects:

o  US$1.8 million for the drilling of the SD-5X well in South Disouq and US$0.1 million of preparatory costs for the drilling of the SD12_East well;

o  US$0.4 million of pre-drilling and standby costs associated with the re-commencement of the Moroccan drilling campaign, as well as US$0.2 million of infrastructure works; and

o  US$0.7 million of West Gharib drilling costs across the MSD-21, MSD-25 and MSD-20 wells.

· Liquidity: Closing cash as at 31 March 2022 was US$12.1 million with the European Bank of Reconstruction and Development ("EBRD") credit facility remaining undrawn with US$4.8 million of availability. A post-period end redetermination revised availability to US$5.7 million.

· Together with cash generated from operations, management believes the Company is fully funded for all its stated objectives in 2022.

Q1 2022 performance vs 2022 Guidance

Production

· Q1 2022 entitlement production of 4,017 boe/d is 17% higher than mid-point guidance of 3,425 boe/d and 31% lower than Q1 2021, predominantly due to the sale of 33% of the South Disouq asset. An analysis of Q1 2022 production by asset vs guidance is as follows:

(1) After completion of the South Disouq disposal with effect from 1 February 2022

(2) Net of minority interest. Gross of minority interest, production guidance is expected to be 3,250 - 3,450 boe/d.

(3) 31 March 2021 South Disouq entitlement production is shown at pre-disposal working interest of 55%/100%

o  South Disouq: During Q1 2022, the existing wells continued to exhibit natural decline and expected sand and water production from two of the six wells, albeit this was partly offset by contribution from the IY-2X well, which was brought online in August 2021. Production guidance for 2022 reflects the disposal of 33% of SDX's interest in the asset, 2-3% CPF and compressor downtime due to planned maintenance, the successful drilling of SD-12_East and several well workovers. The SD-5X exploration well was previously assumed to be dry for guidance purposes but if the well testing programme confirms pre-drill estimates, SDX could increase gross production guidance to 38-40 MMscfe/d and SDX's total corporate entitlement guidance to 3,600-3,850 boe/d (net of minority interest) from the 3,300-3,550 boe/d currently presented above. Any change to guidance will be communicated once the test programme has been completed. The MA-1X (Mohsen) exploration well, if successful, will require to be tied in and therefore is not expected to contribute to production until mid-2023.

o  West Gharib: The existing wellstock at the asset continued to produce steadily, albeit exhibiting natural decline as expected, partly offset by contribution from the recently-drilled MSD-21 and MSD-25 wells. The development drilling campaign will arrest the asset's natural decline, with new wells beginning to grow production during the second half of the year and into 2023.

o  Morocco: Q1 2022 saw strong demand from the customer portfolio in Morocco and this is the reason that the Company is currently exceeding guidance. 2022 production guidance is lower than 2021 production as the Company decided not to immediately renew a five-year customer contract that expired on 31 December 2021 until the Company has better visibility on future gas supply and pricing to support the full term of a new contract. The Company is exploring several options for re-entering into discussions with this customer.

o  COVID-19: There were no COVID-19 disruptions to production in Q1 2022. The 2022 production guidance presented assumes no significant production curtailments due to COVID-19. If there are disruptions, then production guidance may be revised.

Capex

· 2022 capex guidance range of US$21.5-23.0 million is fully funded and predominantly relates to one appraisal and two exploration wells in South Disouq, up to eight new wells and facilities upgrades in West Gharib, and five new wells in Morocco.

(1) After South Disouq disposal

(2) Net of minority interest. Gross of minority interest, capex guidance is US$6.7 - 7.2 million.

(3) As the legal entity that holds the South Disouq asset is 100% consolidated in the financial statements of the Company, US$1.9 million is the capex gross of minority interest. Net of minority interest SDX's share of capex for Q1 2022 was US$1.3 million and this is the more relevant figure to compare against 2022 guidance.

· The anticipated timings of planned key capex activities are outlined below:

(1) Activity completed

o  South Disouq: One appraisal well, SD-12_East, and two exploration wells, SD-5X (Warda) and MA-1X (Mohsen), are being drilled consecutively, commencing in Q1 2022. The first well, SD-5X targeting the Warda prospect (SDX: 36.85% WI) and the second well SD-12 East (SDX: 67% WI), have been discussed above. The rig has now moved to the final well, MA-1X (SDX: 67% WI). MA-1X, which is targeting the Mohsen prospect in the Exploration Extension Area, spudded on 21 May 2022 and is expected to reach TD in approximately three weeks. Following the disposal transaction, all three wells are being drilled with partner participation. In addition to the drilling activity, several well workovers will be undertaken to maximise recovery from the fields.

o  West Gharib: In early January production commenced from MSD-21, the first well in a 13-well campaign that commenced in Q4 2021 and will complete in 2023. The second well in the campaign, MSD-25, was successfully drilled and completed in the quarter, and was put on production in mid-March. The third and fourth well, respectively MSD-20 and MSD-24, were spud post-period end. Up to eight infill development wells will be drilled in 2022 as part of the wider field development plan, with additional facilities installed, including greater fluid handling capacity.

o  Morocco: During Q1 2022, preparations continued for the five wells that will be drilled in two campaigns in Q2/Q3 and Q3/Q4 2022. As in 2021, conducting two campaigns allocates the capital investment over a longer period of time and therefore allows the cost of these wells to be comfortably covered by cash generated by the asset. All five wells will target shallow biogenic gas that can be tied into the Company's infrastructure quickly and at low cost, with one of the first two wells targeting a new area of the acreage which is, as yet untested, but covered by 3D seismic. If successful, this well could open up further drilling and exploitation opportunities, some of which could be tested in the second campaign. Several wells will be worked over, including re-perforation and sliding sleeve operations to exploit behind-pipe reserves and maximise production and recovery from the existing well stock.

Q1 2022 ESG metrics

· The Company's operated assets recorded a carbon intensity of 3.6kg CO2e/boe in 2021, which is one of the lowest rates in the industry

· Scope 1 greenhouse gas emissions at operated assets were 2,400 tons of CO2e. Scope 3 greenhouse gas emissions in Morocco were 24,400 tons of CO2e, which is approximately 12,400 tons of CO2e less than using alternative heavy fuel oil.

· There were no Lost Time Injuries at any of the Company's assets during Q1 2022.

· No produced water was discharged into the environment in Morocco (100% contained and evaporated) or at South Disouq (100% recycled).

· There were no hydrocarbon spills at operated assets.

· The Company continues to adopt high standards of Governance through its adherence to the QCA Code on Corporate Governance.

Three months to 31 March 2022 Financial Update

· Q1 2022 Netback was US$9.2 million, US$1.6 million (15%) lower than the Netback of US$10.8 million for Q1 2021, driven by:

o  Net revenue decrease of US$2.2 million due to:

o  US$2.3 million lower revenue in Morocco due to the non-renewal of an expired customer contract and slightly lower realised pricing due to adverse FX movement;

o  US$0.2 million lower South Disouq revenue, due to lower production partly offset by improved condensate pricing; and

o  US$0.4 million higher revenue at West Gharib due to higher realised service fees (2022: US$78.51/bbl, 2021: US$47.90/bbl), partly offset by lower production (2022: 388 bbl/d, 2021: 543 bbl/d).

o  Operating costs decreased by US$0.5 million from the prior year due to lower production at South Disouq and West Gharib.

· Q1 2022 EBITDAX was US$8.2 million, US$1.6 million (16%) lower than EBITDAX of US$9.8 million for Q1 2021, as a result of the decrease in Netback described above.

· The main components of SDX's comprehensive loss (before minority interest) of US$0.6 million for Q1 2022 are:

o  US$9.2 million Netback;

o  US$0.2 million of E&E expense which relates to ongoing new venture activity (predominantly internal management time);

o  US$5.3 million of DD&A expense reflects lower production across all assets and a lower depreciable asset base at South Disouq following the impairment recorded during Q4 2021;

o  US$1.0 million of ongoing G&A expense;

o  US$1.6 of FX loss following the devaluation of the Egyptian Pound during the quarter, which reduced the USD value of cash held in Egypt and the US$ equivalent value of the remaining receivable due from the purchaser of 33% of the company's interest in South Disouq; and

o  US$1.6 million of corporate tax, being Egyptian corporate income tax (South Disouq: US$1.1 million, West Gharib: US$0.4 million) and corporate social tax in Morocco (US$0.1 million).

Operating cash flow (before capex)

· Q1 2022 operating cash flow (before capex) of US$6.6 million, was higher than the same period in 2021 of US$6.1 million, primarily due to improved receivables collections partly offset by the EBITDAX drivers discussed above and paydown of accounts payable.

KEY FINANCIAL & OPERATING HIGHLIGHTS

(1) Refer to the "Non-IFRS Measures" section of this release below for details of Netback and EBITDAX.

(2) Sales volumes from the South Disouq concession have been presented gross of minority interest. For the period 1 February (transaction effective date) to 31March 2022, the share of volumes assigned to the Company's minority interest holder equals 804 boe/d and therefore the Company's share of South Disouq volumes (incl. other products) equals 2,989 boe/d. Net of minority interest total sales volumes are 4,017 boe/d.

About SDX

SDX is an international oil and gas exploration, production, and development company, headquartered in London, United Kingdom, with a principal focus on MENA. In Egypt, SDX has a working interest in two producing assets: a 36.9% operated interest in the South Disouq and Ibn Yunus gas fields and a 67.0% operated interest in the Ibn Yunus North gas field in the Nile Delta and a 50% non-operated interest in the West Gharib concession, which is located onshore in the Eastern Desert, adjacent to the Gulf of Suez. In Morocco, SDX has a 75% working interest in four development/production concessions, all situated in the Gharb Basin. The producing assets in Morocco are characterised by attractive gas prices and exceptionally low operating costs. SDX has a strong weighting of fixed price gas assets in its portfolio with low operating costs and attractive margins throughout, providing resilience in a low commodity price environment. SDX's portfolio also includes high impact exploration opportunities in both Egypt and Morocco.

For further information, please see the Company's website at www.sdxenergygroup.com or the Company's filed documents at www.sedar.com. 

Competent Persons Statement

In accordance with the guidelines of the AIM Market of the London Stock Exchange, the technical information contained in the announcement has been reviewed and approved by Rob Cook, VP Subsurface of SDX. Dr. Cook has 30 years of oil and gas industry experience and is the qualified person as defined in the London Stock Exchange's Guidance Note for Mining and Oil and Gas companies. Dr. Cook holds a BSc in Geochemistry and a PhD in Sedimentology from the University of Reading, UK. He is a Chartered Geologist with the Geological Society of London (Geol Soc) and a Certified Professional Geologist (CPG-11983) with the American Institute of Professional Geologists (AIPG).

For further information:

Glossary

Forward-looking information

Certain statements contained in this press release may constitute "forward-looking information" as such term is used in applicable Canadian securities laws. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or are not statements of historical fact should be viewed as forward-looking information. In particular, statements regarding: the future combination transaction between the Company and Tenaz, the Company's 2022 production and capex guidance; liquidity and sources of cash flows for the remainder of 2022; the impact of COVID-19 disruptions on the Company's future production; future drilling developments, costs and results; and management's beliefs with respect to the Company's overall economic position should all be regarded as forward-looking information.

The forward-looking information contained in this document is based on certain assumptions, and although management considers these assumptions to be reasonable based on information currently available to them, undue reliance should not be placed on the forward-looking information because SDX can give no assurances that they may prove to be correct. This includes, but is not limited to, assumptions related to, among other things, commodity prices and interest and foreign exchange rates; planned synergies, capital efficiencies and cost-savings; applicable tax laws; future production rates; receipt of necessary permits; the sufficiency of budgeted capital expenditures in carrying out planned activities, and the availability and cost of labour and services.

All timing given in this announcement, unless stated otherwise, is indicative, and while the Company endeavours to provide accurate timing to the market, it cautions that, due to the nature of its operations and reliance on third parties, this is subject to change, often at little or no notice. If there is a delay or change to any of the timings indicated in this announcement, the Company shall update the market without delay.

Forward-looking information is subject to certain risks and uncertainties (both general and specific) that could cause actual events or outcomes to differ materially from those anticipated or implied by such forward-looking statements. Such risks and other factors include, but are not limited to, political, social, and other risks inherent in daily operations for the Company, risks associated with the industries in which the Company operates, such as: operational risks; delays or changes in plans with respect to growth projects or capital expenditures; costs and expenses; health, safety and environmental risks; commodity price, interest rate and exchange rate fluctuations; environmental risks; competition; permitting risks; the ability to access sufficient capital from internal and external sources; and changes in legislation, including but not limited to tax laws and environmental regulations. Readers are cautioned that the foregoing list of risk factors is not exhaustive and are advised to refer to the Principal Risks & Uncertainties section of SDX's Annual Report for the year ended 31 December 2021, which can be found on SDX's SEDAR profile at www.sedar.com, for a description of additional risks and uncertainties associated with SDX's business.

The forward-looking information contained in this press release is as of the date hereof and SDX does not undertake any obligation to update publicly or to revise any of the included forward‐looking information, except as required by applicable law. The forward‐looking information contained herein is expressly qualified by this cautionary statement.

Non-IFRS Measures

This news release contains the terms "Netback," and "EBITDAX" which are not recognized measures under IFRS and may not be comparable to similar measures presented by other issuers. The Company uses these measures to help evaluate its performance.

Netback is a non-IFRS measure that represents sales net of all operating expenses and government royalties. Management believes that Netback is a useful supplemental measure to analyze operating performance and provide an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses. Management considers Netback an important measure as it demonstrates the Company's profitability relative to current commodity prices. Netback may not be comparable to similar measures used by other companies.

EBITDAX is a non-IFRS measure that represents earnings before interest, tax, depreciation, amortization, exploration expense and impairment. EBITDAX is calculated by taking operating income/(loss) and adjusting for the add-back of depreciation and amortization, exploration expense and impairment of property, plant, and equipment (if applicable). EBITDAX is presented in order for the users to understand the cash profitability of the Company, which excludes the impact of costs attributable to exploration activity, which tend to be one-off in nature, and the non-cash costs relating to depreciation, amortization and impairments. EBITDAX may not be comparable to similar measures used by other companies. 

Oil and Gas Advisory

Certain disclosures in this news release constitute "anticipated results" for the purposes of National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") of the Canadian Securities Administrators because the disclosure in question may, in the opinion of a reasonable person, indicate the potential value or quantities of resources in respect of the Company's resources or a portion of its resources. Without limitation, the anticipated results disclosed in this news release include estimates of volume, flow rate, production rates, porosity, and pay thickness attributable to the resources of the Company. Such estimates have been prepared by Company management and have not been prepared or reviewed by an independent qualified reserves evaluator or auditor. Anticipated results are subject to certain risks and uncertainties, including those described above and various geological, technical, operational, engineering, commercial, and technical risks. In addition, the geotechnical analysis and engineering to be conducted in respect of such resources is not complete. Such risks and uncertainties may cause the anticipated results disclosed herein to be inaccurate. Actual results may vary, perhaps materially.

Use of the term "boe" or the term "MMscf" may be misleading, particularly if used in isolation. A "boe" conversion ratio of 6 Mcf: 1 bbl and a "Mcf" conversion ratio of 1 bbl: 6 Mcf are based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Use of a Standard

Reserve and resource estimates disclosed or referenced herein have been prepared in accordance with the SPE's Canadian Oil and Gas Evaluation Handbook and in accordance with NI 51-101.

Prospective Resources Data

The prospective resources estimates disclosed or referenced herein have been prepared by Dr. Rob Cook, a qualified reserves evaluator, in accordance with the SPE's Canadian Oil and Gas Evaluation Handbook and in accordance with NI 51-101. The prospective resources disclosed herein have an effective date of 1 January 2022. Prospective resources are those quantities of gas, estimated as of the given date, to be potentially recoverable from undiscovered accumulations through future development projects. As prospective resources, there is no certainty that any portion of the resources will be discovered. The chance that an exploration project will result in a discovery is referred to as the "chance of discovery" as defined by the management of the Company.

There is no certainty that it will be commercially viable to produce any portion of the resources discussed herein; though any discovery that is commercially viable would be tied back to the Company's pipeline in Morocco and then connected to customers' facilities within 9 to 12 months of discovery. Based upon the economic analysis undertaken on any discovery, management has attributed an associated chance of development of 100%.

There are uncertainties associated with the volume estimates of the prospective resources disclosed herein, due to the level of information available on prospective resources, but ranges are defined based on data from the Company's nearby existing analogous wells. Some of the risks and uncertainties are outlined below:

· Petrophysical parameters of the sand/reservoir;

· Fluid composition, especially heavy end hydrocarbons;

· Accurate estimation of reservoir conditions (pressure and temperature);

· Reservoir drive mechanism;

· Potential well deliverability; and

· The thickness and lateral extent of the reservoir section, currently based on 3D seismic data.

"P50" means that there is at least a 50% probability that the quantities actually recovered will equal or exceed the best estimate.