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 LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("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.

20 May 2021

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

ANNOUNCES THREE MONTHS TO 31 MARCH 2021 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 2021. 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 of 2021 has been a positive start to the year as we have continued our strong production and cash generation from our assets in Egypt and Morocco with all our key financial metrics improving from the same period last year and our current production and capex either beating or being in line with guidance. Consumption from our customers in Morocco was notably stronger this quarter compared to last year as demand has now fully recovered from the effects of the pandemic seen in the same period of 2020. We saw slightly reduced production at South Disouq due to natural decline, well workovers and expected sand and water production in two out of the five wells, however this was mostly offset by the new SD-12X well which came onstream in December, and we remain on track to meet our guidance.

As a business we remain in a financially strong position, fully funded for our 2021/2022 work programme with robust cashflows and now with the full US$10 million available in our credit facility to draw upon. In this regard, I would like to reiterate my thanks to the EBRD for their continued support in renewing the facility. We have now commenced our drilling in Morocco and have made significant progress with the planning of the Ibn Yunus-2X development well, and the transformational Hanut-1X exploration well in Egypt, which will be drilled consecutively, commencing in Q2 2021. I would finally like to thank the team for their continued high work rate throughout this period and I look forward to updating the market as we progress our work streams in the year."

Three months to 31 March 2021 Operations Highlights

· Q1 2021 entitlement production of 5,862 boe/d was 2% higher than 2021 mid point market guidance of 5,770 boe/d and 10% lower than Q1 2020 mainly due to natural decline, well workovers and expected sand and water production in two of the five wells at South Disouq.

· Capex of US$4.0 million was within guidance, with the majority of activity scheduled for the remaining nine months of the year. 2021 guidance for capex is US$25.0-US$26.5 million.

· The Company's operated assets recorded a carbon intensity of 2.7kg CO2e/boe in Q1 2021 which is one of the lowest rates in the industry.

· Planning for the two-well South Disouq drilling campaign continued, and subject to receipt of final Ministerial and Parliamentary approval for a two-year exploration concession extension, the Company plans to drill the Hanut prospect targeting 139bcf of P50, unrisked prospective resources with a chance of success of 33% in Q3 2021.

· Hanut will be preceded by the IY-2X well, a development well in the eastern part of the Ibn Yunus field, seeking to bring forward production and cash flow. The Company's partner has confirmed that it will participate in both wells.

· In March 2021, SDX obtained approval for a ten-year extension to the West Gharib Production Services Agreement increasing audited 2P reserves in this core oil asset as at 31 December 2020, by 60% year on year, or 119% taking account of 2020 production, to 3.52 million barrels. 

· Preparations were completed for the first three wells of a four to five-well programme in Morocco, with the first well, the OYF-3, spud at the end of April.

· Post-period end, the Company received the COVID-19 delayed laboratory analysis of the cuttings and side wall cores from the LMS-2 well. This information confirmed that LMS-2 had successfully encountered the targeted thermogenically-sourced gas in the Top Nappe horizon but that the reservoir in the Lalla Mimouna Nord concession has low permeability and the well is unlikely to flow conventionally. As such, the Company will not risk US$0.5 million testing this well, nor will it commit to further investment in the Lalla Mimouna Nord concession post the end of the concession date in July 2021 as a result of the low permeability in this concession and limited likelihood of it being commercially developed. Accordingly, the Company expects to recognise a US$10.2 million non-cash impairment charge in Q2 ahead of relinquishment, of which US$2.8 million relates to LMS-2.

· As the analysis of LMS-2 has confirmed that a working thermogenic petroleum system exists and feeds the Top Nappe horizon, which exists throughout the Company's acreage, work will continue to identify drillable prospects at this horizon, with the objective of potentially testing the Top Nappe in drilling planned for 2022/23.

Three months to 31 March 2021 Financial Highlights

The table below reflects the unaudited results of the Company for the three months ended 31 March 2021 and 2020. The North West Gemsa and South Ramadan concessions, which were sold in Q3 and Q4 2020 respectively, are classified as discontinued operations (as required by IFRS). All revenues, costs and taxation from these assets have been consolidated into a single line item "profit from discontinued operations" in both periods reported. Per unit metrics do not include North West Gemsa or South Ramadan.

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

(2) EBITDAX for three months ended 31 March 2021 and 2020 includes US$1.2 million and US$1.4 million respectively 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.

(3) For the three months ended 31 March 2020, US$4.4 million of non-cash Exploration & Evaluation ("E&E") write offs in total are included within this line item.

(4) Excludes discontinued operations.

· Netback of US$10.8 million, 5% higher than the same period in 2020 of US$10.3 million, was primarily driven by strong demand in Morocco, which at the end of Q1 2020 was impacted by COVID-19 shutdowns at three customers. West Gharib netback increased due to higher service fee realisations, which outweighed the impact of lower production due to natural decline. These factors were partly offset by a lower netback at South Disouq as a result of lower production due to natural decline and well management activity, and a well workover.

· EBITDAX of US$9.8 million was 4% higher than the same period in 2020 of US$9.4 million due to the netback factors described above.

· Depletion, depreciation and amortisation ("DD&A") charge of US$7.4 million was higher than the US$6.7 million for the same period in 2021 due to higher production and lower 2P reserves in Morocco, partly offset by lower production at South Disouq and West Gharib.

· There were no non-cash E&E write offs in Q1 2021. In Q1 2020 US$4.4 million was written off following the drilling of two sub-commercial wells, SD-6X in South Disouq and SAH-5 in Morocco.

· Operating cash flow (before capex, excluding discontinued operations) of US$6.1 million, was higher than the same period in 2020, US$4.9 million, primarily due to the netback drivers discussed above, as well as lower spend on inventory.

· Capex of US$4.0 million, reflects:

o US$1.9 million for well workovers in Morocco;

o US$0.9 million for the completion of the SD-12X tie in at South Disouq, the SD-4X well workover and other minor projects at South Disouq;

o US$0.4 million for workovers in West Gharib;

o US$0.6 million for pre-drill work ahead of the Morocco well campaign; and

o US$0.2 million for well drilling preparations at South Disouq.

· Liquidity: Closing cash as at 31 March 2021 was US$9.7 million. The Company has now satisfied the conditions precedent on the new, five-year EBRD credit facility, which is undrawn and has US$10 million availability.

· Together with cash generated from operations, management believes the Company is fully funded for all planned activities in 2021 - 2022.

COVID-19 update

· During the second half of March 2020 and into April 2020, COVID-19 containment restrictions in Morocco temporarily impacted our operations, with three customers being required to close their operations. However, in early May 2020 these same customers re-started production and have returned to their pre-closure consumption rates. Egyptian production has remained unaffected by COVID-19 . The Company continues to follow applicable government guidance in each of its territories.

Q1 Performance vs 2021 Guidance

Production

· Q1 2021 entitlement production of 5,862 boe/d is 2% higher than mid point guidance of 5,770 boe/d and 10% lower than Q1 2020. An analysis of Q1 2021 production by asset vs guidance is as follows:

o South Disouq: During Q1 2021, the existing wells continued to exhibit natural decline and expected sand and water production from two of the five wells, albeit this was partly offset by contribution from the SD-12X well which was brought online in December 2020. The SD-4X was successfully worked over during the quarter and was put back on production at a similar rate, as was the SD-1X well in Q2 2021. Production for the quarter was below midpoint guidance as the SD-12X well was taken offline for a pressure build up test in February. Production guidance continues to reflect planned 2-3% Central Processing Facility ("CPF") downtime due to scheduled maintenance, the installation of an inlet compressor and several further well workovers.

o West Gharib: The existing wellstock at the asset continued to produce steadily, albeit exhibiting natural decline as expected. Preparations are advanced for a development drilling campaign of three to four wells which will commence in late Q2/early Q3 and production will trend towards midpoint guidance until such time as the new wells are drilled and brought online.

o Morocco: Q1 2021 saw stronger demand from all customers in Morocco and this is the reason that the Company is currently exceeding midpoint guidance. In addition, Q1 2021 reflects additional consumption from an existing customer's second factory which came online in December 2020. Production guidance is 8-12% higher than 2020 production and reflects a sustained return to normal levels of consumption across the customer base, following COVID shutdowns which impacted 2020 production.

o COVID-19: The 2021 production guidance presented assumes no significant production curtailments due to COVID-19. Should there be COVID-19 related disruptions, then production guidance may be revised.

Capex

· 2021 capex guidance range of US$25.0 - 26.5 million predominantly relates to one exploration and one development well in South Disouq together with workovers and the installation of an inlet compressor. Up to five new wells and workovers are planned in Morocco and up to four new wells and facilities upgrades will be undertaken at West Gharib.

o South Disouq: One development well, Ibn Yunus-2X, and one exploration well, Hanut-1X, will be drilled consecutively, commencing in Q2 2021. The IY-2X well will access the eastern compartment of the Ibn Yunus field and is expected to be completed and tied back rapidly once drilled. The Hanut-1X well is targeting unrisked mean recoverable volumes of 139bcf with a 33% chance of success. The Company's partner has confirmed that it will participate in both wells. An inlet compressor will be installed at the CPF site to maximise recovery from the fields, and several well workovers are also planned. Once the exploration concession extension that includes the Hanut and Mohsen prospects has been ratified by Parliament, the Company will pay its share of signature and training bonuses. In Q1 2021, US$1.1 million of capex was invested to complete the SD-12X tie-in, undertake the SD-4X well workover, commence drilling preparations for the two-well campaign and on other minor projects at the asset.

o West Gharib: At least three infill development wells will be drilled with a fourth contingent upon field performance and the macroeconomic environment. One water injection well will be drilled, and additional facilities to support this project will be installed. In Q1 2021, US$0.4 million of capex was spent on a number of well workovers.

o Morocco: Four to five wells will be drilled in two campaigns in Q2 and Q4 2021. As the drilling rig was stacked in the Company's yard in Morocco, there has been no significant mobilisation cost and, in addition, splitting the campaign into two allocates the capital investment over approximately eight months which allows the cost of these wells to be comfortably covered by cash generated in that period. In Q1 2021, US$2.5 million of capex was spent predominantly on several well workovers, including re-perforations and sliding sleeve operations to exploit behind-pipe reserves and maximise production, as well as pre-drilling campaign preparatory activities.

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

(1) Activity completed

2021 Drilling and Operations Update

Morocco drilling campaign update (SDX 75% working interest)

· Preparations were completed for the first three wells of a four to five well programme in Morocco, with the first well, OYF-3, spud at the end of April.

· This first phase of the Morocco drilling campaign will consist of three appraisal/development wells, which management estimates will target a total of 1.3 bcf of P90/1.8 bcf of P50, gross unrisked prospective recoverable resources.

· The first well, OYF-3, is targeting the Guebbas reservoir at approximately 1,160m. The second well, KSR-17, will target the Hoot reservoir at approximately 1,720m and the third well, KSR-18, is a dual target well, with the first in the Guebbas reservoir at 1,600m and the second in the Hoot reservoir at around 1,790m. All three wells are looking to encounter shallow, biogenic gas accumulations near to the Company's existing infrastructure, thus enabling tie-ins to be completed quickly and at low cost.

· The second part of the campaign, to drill a further one or two wells, will commence in mid/late Q3.

· The above developments will allow the Company to continue to supply gas to our customers in line with our contractual commitments and continue to support lower CO2 emissions at our customers.

South Disouq Egypt exploration drilling campaign update (SDX 55%/100% working interest)

· Following the success of SD-12X and further review of the 3D seismic, management has now identified c.233bcf of mean unrisked recoverable volumes, which are close to our existing infrastructure, located in horizons that are either productive in South Disouq or in adjacent blocks and which have now been high-graded to drill-ready prospects.

· Subject to receipt of final Ministerial and Parliamentary approval of the two-year extension to the South Disouq exploration area, which has already been approved by EGAS, the Company plans to commence drilling in late June. The campaign will kick off with the drilling of the IY-2X development well in the Ibn Yunus field to accelerate production and cash flows. The Hanut prospect will be drilled immediately afterwards, targeting 139 bcf, with the Mohsen (26 bcf) and Warda (14bcf) wells planned for 2022/23. The Company's 45% partner will participate in the IY-2X development well and the Hanut exploration well and has still to confirm whether they will participate in the other proposed wells.

· Management's estimate of the mean prospective resources and chance of success of the prospects identified in the South Disouq area are shown below.

(1) Working interest % dependent on Partner's decision to participate in the extension. The Company's partner has confirmed its participation in the Hanut-1X well.

(2) Two-year extension period commences on date of Parliamentary approval

West Gharib Egypt development drilling campaign update (SDX 50% working interest)

· In March 2021, SDX obtained approval for a ten-year extension to the West Gharib Production Services Agreement increasing audited 2P reserves in this core oil asset as at 31 December 2020, by 60% year on year, or 119% taking account of 2020 production, to 3.52 million barrels.

· Following this agreement, SDX and its partner commenced planning for a four well development drilling campaign that is expected to start in late Q2/early Q3 2021, and is part of a wider three-year plan to arrest production decline in the asset and return production levels to c.3,000 bbl/d.  

Three months to 31 March 2021 Financial Update

· Netback was US$10.8 million, 5% higher than the Netback of US$10.3 million for the three months to 31 March 2020, driven by:

o Net revenue increase of US$0.7 million due to:

o US$1.4 million higher revenue in Morocco due to increased production following strong demand rebound following COVID-19 shutdowns and an additional factory being supplied (2021: 1,023 boe/d, 2020: 863 boe/d). Revenue was further boosted by higher prices due to the strengthening of the Moroccan dirham and the additional factory taking gas at a higher price than the contractual average; offset by

o US$0.8 million lower South Disouq revenue due to lower production (2021: 4,296 boe/d, 2020: 4,995 boe/d) as a result of natural decline at several wells and downtime for workover activity, partly offset by new production from the SD-12X well;

o Revenue at West Gharib was in line with the prior year as lower production (2021: 543 bbl/d, 2020: 666 bbl/d) was offset by higher realised service fees (2021: US$47.90/bbl, 2020: US$38.88/bbl).

o Operating costs increasing by US$0.2 million from prior period due to increased well management costs at South Disouq, partly offset by lower costs at West Gharib due to cost savings and lower workover activities.

· EBITDAX was US$9.8 million, US$0.4 million (4%) higher than EBITDAX of US$9.4 million for the three months to 31 March 2020, for the reasons described in the netback section above.

· The main components of SDX's comprehensive profit of US$0.6 million for the three months ended 31 March 2021 are:

o US$10.8 million Netback explained above;

o US$0.3 million of E&E expense which relates to ongoing new venture activity (predominantly internal management time);

o US$7.4 million of DD&A expense which reflects lower South Disouq and West Gharib production offset by increased production in Morocco;

o US$0.9 million of ongoing G&A expense; and

o US$1.2 million of Egyptian corporation tax predominantly for South Disouq.

Operating cash flow (before capex, excluding discontinued operations)

· Operating cash flow (before capex, excluding discontinued operations) of US$6.1 million, higher than the same period in 2020 of US$4.9 million primarily due to the netback drivers discussed above, as well as less cash spent on inventory.

Q1 2021 ESG metrics

· The Company's operated assets recorded a carbon intensity of 2.7kg CO2e/boe in Q1 2021, which is one of the lowest rates in the industry. This was higher than the 1.8 kg CO2e/boe reported for the twelve months ended 31 December 2020 as the booster compressor at South Disouq was online throughout Q1 2021, but only from Q2 2020, and in January 2021 a second production compressor was commissioned in Morocco. Combined production from the two assets was also marginally lower in Q1 2021.

· Scope 1 greenhouse gas emissions at operated assets were 2,231 tons of CO2e. Scope 3 greenhouse gas emissions in Morocco were 28,250 tons of CO2e, which is approximately 16,000 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 2021.

· No produced water was discharged into the environment in Morocco (100% contained and evaporated) or at South Disouq (100% recycled) during Q1 2021.

· There were no hydrocarbon spills at operated assets during Q1 2021.

· Whist social projects were severely impacted by COVID-19 restrictions in 2020 and Q1 2021, the Company is working on a number of initiatives to be launched in 2021 as soon as this can be done safely.

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

Outlook

· Management believes that the Company is well-placed to weather the current macroeconomic uncertainties and continues to screen a number of business development opportunities.

· Cash generation is expected to continue strongly through 2021 and beyond as approximately 90% of the Company's cash flows are expected to be generated from fixed-price gas businesses.

· The current strong oil price and outlook means that the Group also plans to capitalise on its recent production service agreement extension at West Gharib by investing in a 12-well development drilling programme over the next three years, including four wells in 2021.

· Anticipated 2021 and 2022 work programmes are fully funded.

· The Company continues to assess the optimum use of capital in the interests of all stakeholders, whether that be investment into new projects or returning cash to shareholders. At present the Company is focussed on continued investment of its portfolio and considers this the most appropriate use of the Company's capital. This will be assessed on an ongoing basis.

KEY FINANCIAL & OPERATING HIGHLIGHTS 

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

(2) Excludes discontinued operations

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 55% operated interest in the South Disouq 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 five 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.sdxenergy.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 over 25 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 Company's 2021 production and capex guidance, liquidity and sources of cash flows in 2021, the impact of COVID-19 on customer consumption, and future drilling developments and results 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 2020, 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 adjusted 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.

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 2021. 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.