Acquisition of Circle Oil assets

SDX Energy 27 January 2017 Update

SDX Energy

Acquisition of Circle Oil assets

Acquisition

Oil & gas

27 January 2017

Price

34p

Market cap

£64m

US$:£0.8

Estimated net cash ($m) at December 2016

7.2

Shares in issue (post deal)

187m

Free float (pre-equity raise)

59%

Code

SDX

Primary exchange

AIM

Secondary exchange

TSX Venture

Share price performance

%

1m

3m

12m

Abs

22.3

42.7

N/A

Rel (local)

20.7

38.6

N/A

52-week high/low

43.2p

18.0p

Business description

SDX Energy is a North African onshore player listed in Toronto and London. It has plans to increase net production in Egypt (primarily through workovers and waterflood) while 2017 should see a carried exploration well. It has recently added high-value gas production in Morocco.

Next events

Acquisition close/equity raise

Q117

Meseda production increase

H117

Analysts

Will Forbes

+44 (0)20 3077 5749

Elaine Reynolds

+44 (0)20 3077 5713

SDX Energy is a research client of Edison Investment Research Limited

SDX Energy’s accretive $30m acquisition of the Egyptian and Moroccan assets from Circle Oil is a major step to increase the company’s footprint and is in line with its stated ambition to grow (in)organically. The Moroccan gas production in particular is a step-out from its existing base, but provides strong cash flow generation, quick effective payback and the possibility of future high-value development and exploration. The increased working interest in NW Gemsa should boost SDX’s share in FCF in Egypt, and further contribute to costs for the upcoming waterflood programme. We increase our core NAV from 39p/share to 42p/share (RENAV moves from 68p/share to 57p/share) even after some (unrelated) modelling adjustments. Despite a recent increase in the shares, this suggests further upside for investors in a larger company with greater ability to invest in high-value projects in North Africa.

Year
end

Revenue
($m)

PBT*
($m)

Operating
cash flow
($m)

Net (debt)/
cash ($m)

Capex
($m)

12/14

24.5

16.5

25.5

15.7

(13.6)

12/15

11.4

18.8

(5.2)

8.2

(1.2)

12/16e

10.1

(4.4)

2.2

7.2

(14.2)

12/17e

44.7

10.6

29.2

33.4

(12.5)

Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Excludes South Disouq revenues and capex which give distortionary effect on current operations.

Accretive acquisition

The acquisition should be accretive to shareholder value, despite the share dilution connected with the announced $40m capital raising. The associated working capital connected to the acquisition (as well as not taking on any of Circle’s debt) reduces the effective (core) metrics to $3.5/boe (compared to SDX’s pre-deal metric of $4.6/boe pre-acquisition at 30p/share). We value the acquired assets at $70m (on a core basis), implying that SDX obtained them at a c 60% discount.

Acquisition increases SDX footprint

SDX has always been actively looking to grow inorganically and the US$30m purchase of a 40% stake in NW Gemsa (Egypt) and 75% in Sebou (Morocco) production (including approximately US$18m in working capital) is a strong first move. The new assets are strongly cash generative and could add around $20m of cash flow in 2017 and 2018 (each year, including working capital movements) and with an effective IRR of over 50% and a 1.5 year payback on the acquisition price.

Valuation: Accretive deal increases core NAV to 42p

We have folded the new assets into the existing portfolio, which increases our indicative core NAV to 42p/share (from 39p), while our indicative full NAV (including a risked 7p valuation for the South Disouq exploration well and possible upside from Meseda waterflood) is now 57p/share. SDX is now a larger company with strongly positive cash flows in the near term, and can use these to further explore in Morocco, develop a discovery at South Disouq or to grow further inorganically. It retains the ambition to grow in North Africa towards a production rate of 25-30mboed.

Deal structure and metrics

Summary

SDX Energy is acquiring Circle Oil’s interest in the NW Gemsa block in Egypt (40% WI), the 75%-owned Moroccan licences (Sebou and Lalla Mimouna) and working capital connected with both assets (approximately $18m). For these assets, SDX will be paying $30m in cash, funded by equity. SDX is also taking the opportunity to raise a further $10m ($5m to drill two wells in Morocco, $2m to cover fees and the remainder for bank guarantees, severance costs and miscellaneous expenses), which means that SDX will have raised a total of $40m.

Exhibit 1: Summary of assets purchased

Assets acquired

WI

Net barrels, mmboe

Estimated 2017 gross production, mboe/d

Net 2017 production

Working capital $m

NW Gemsa, Egypt

40%

2.6

5.9

2.4

14.5

Sebou, Morocco

75%

0.8

1.0

0.8

3.8

Working capital

18.3

Source: SDX, Edison Investment Research

Metrics

The assets are being bought at a discount to SDX’s metrics on an EV/boe and $/boe basis. A summary of the deal and metrics is below.

Exhibit 2: Summary of metrics

SDX pre-deal

Circle Oil assets

Combined

Market value of entity (SDX valued at 30p/share)

$m

29.70

30

59.70

Working capital and ST assets

$m

7.20

18

25.50

Enterprise value of entity

$m

22.50

11.70

34.20

Edison estimate of fair value of entity (full basis)

$m

98

78.58

132.74

Market price / Edison estimate of value

55%

38%

45%

-

EV/net WI boe (core basis)

$/boe

4.6

3.5

4.2

EV/net WI boe (full NAV basis)

$/boe

2.3

2.3

2.3

EV/net attributable boe (core basis)

$/boe

10.0

3.5

6.1

EV/net attributable boe (full NAV basis)

$/boe

5.2

2.3

3.6

Edison estimate of value per barrel (net WI basis, core)

$/boe

6.4

15.8

10.2

Edison estimate of value per barrel (net WI basis, full)

$/boe

1.3

11.9

2.3

Discount of market value to fair value estimate

%

27%

78%

59%

EV/flowing bbl

$/boed

13.72

4.26

7.79

SDX pre-deal

Circle Oil assets

Post-deal

Net WI barrels (core)

boe

4.9

3.3

8.2

Net WI barrels (full basis)

boe

9.8

5.2

15.0

Net attributable barrels (core)

boe

2.3

3.3

5.6

Net attributable barrels (full basis)

boe

4.3

5.2

9.5

Source: Edison Investment Research, SDX, Circle Oil. Note: Here we assume that working capital is valued at the full $18m. We note that our core valuations do not directly correlate to the 2P numbers from SDX due to lower volume estimates overall at Gemsa (as explained later in the note). This has the effect of increasing the EV/boe metrics we show vs those implied by the CPR numbers.

While the acquisition is being made at a steep discount to our estimate of the underlying discounted value of the assets on an NPV basis, SDX’s existing portfolio is also trading at a discount. As a result, to fund the acquisition of the assets, SDX is issuing paper at a discount to this value, in effect diluting the value of its existing portfolio for current investors to acquire the Circle assets.

Moroccan assets

SDX is acquiring the Moroccan assets of Circle, which comprise the Sebou and Lalla Mimouna areas. The Sebou permit (split into the Sebou Exploration Permit and four approved exploitation concessions) has existing gas production to a local industrial area (and exploration potential), while the Lalla Mimouna is still in the exploration and appraisal phase. Both are located in the Rharb Basin, onshore Morocco.

The assets are producing strong free cash flows and have contracts out to 2021 at high gas prices (relatively to global peers). Post-acquisition, SDX’s opportunity is to initially recycle these cash flows and explore/develop to grow reserve to supply the contracts after 2018-21 and then to explore to provide reserves to additional, longer-term contracts beyond the 2021 end date.

History

Exhibit 3: Sebou and Lalla Mimouna permits

Source: Circle Oil 2010 annual report

Sebou: Circle Oil signed a 10-year Exploration and Exploitation Agreement with ONHYM (Moroccan Government Energy Agency) for the Sebou permit (Rharb basin) in June 2006, holding 75% working interest (ONHYM holds the remaining 25%) and covering 296km2 – this has since fallen to 134km2 after relinquishments. There is an automatic right of conversion to an Exploitation Concession of up to 30 years duration for any commercial discovery; this can be extended if production continues at the end of the initial period. All necessary commitment wells have been drilled in these permits, with a high overall success rate. It is anticipated that the ongoing negotiations to renew this permit will soon be successful.

2D and 3D seismic surveys cover the majority of Sebou and 13 discovery wells resulted from 16 exploration wells (a success rate of 81%). Production operations continue on the majority of these wells. Current production is around 6.5-6.8mmcf/d gross and this is routed through a 75%-owned pipeline to the Kenitra industrial zone (we provide more details on the customers below). The capacity of the pipeline is 23.5mmcf/d (of which 7mmcf/d is currently utilised), giving the company significant headroom in adding to this if enough resources are discovered/developed and sold.

Lalla Mimouna is therefore much larger than Sebou (2,211km2 vs 134km2) and relatively poorly covered by 3D seismic, with only c 10% of the licence area covered by 3D seismic. However, the eight-year initial exploration term is due to end in January 2018, so SDX has relatively limited time to explore the area unless an extension can be agreed. The latest interim report (H116) from Circle indicated its intention to drill two wells on the Lalla Mimouna permit in 2017.

Circle was awarded the Lalla Mimouna permit in January 2010 (covering 2,211km2), which was subject to an initial eight-year life that could be extended to a maximum (but extendable) 25-year exploitation period for any commercial discoveries. Circle carried out an initial 80km2 3D survey in 2010, with a further 135km2 of 3D in 2011. These data are believed to be high quality.

A drilling campaign of three wells was planned in late 2012, but this was pushed into 2013, 2014 and then 2015. In 2015, three wells were drilled. The first (LAM-1) targeted Miocene gas-bearing sands (as seen in Sebou). The primary target flowed gas at a stabilised rate of 1.9mmcf/d, while the secondary target flowed at a stabilised rate of 1.1mmcf/d. Two other wells (ANS-2 and NFA-1) were drilled but neither yielded encouraging results (ANS-2 has reservoir but pressure tests were not sufficiently conclusive, while NFA-1 was dry). No drilling has occurred on the licence since then (understandably, Circle has concentrated on Sebou). SDX plans a two well exploration campaign if the licence is extended.

Exhibit 4: Sebou and Lalla Mimouna areas, Morocco

Source: Circle Oil 2016 AGM presentation

Gas pricing

As can be seen in Exhibit 5, gas prices realised by sales thus far have been high by global standards and have averaged US$8.7/mcf since 2009. The prices are driven by the limited substitutability of the gas by the customers, which produce ceramics and paper in the Atlantic Free Trade Zone (in Kenitra) on the Moroccan coast. Many of the companies in the Kenitra area are using bottled gas at prices ($18/mcf) well above the contract prices, so we would expect any volumes that are lost would (almost) immediately be replaced by another customer (and that any additional volumes that the company can produce could be sold). We are therefore comfortable that gas prices will remain close to current prices given the existing contracts (which we imagine vary slightly on a customer-by-customer basis) and the macro pressures driving any renegotiation in future.

Sebou currently supplies three companies: Supercerame (ceramics), CMCP (paper) and SBS Porcher (ceramics). As an example of pricing, SBS Porcher may be taking 0.35mmcf/d at a price of around $12/mcf (according to Circle’s last AGM presentation) in 2017. Kenitra lies 50km north of Rabat and close to the southern border of the Lalla Mimouna licence. The project is well connected by highway to Tangiers and Rabat and offers tax and customs benefits for companies setting up in the area.

Together, these contracts lead to minimum gas take of 5-5.5mcf/d, although this will fall to around 3.8mcf/d in 2018 as contracts tail off. Production history indicates that the customers regularly take more than the minimum (2015 production was 5.9mcf/d), but still below the maximum (over 8mcf/d until 2018, falling to 6mcf/d thereafter until 2022. Even with four customers, concentration risk could superficially be seen as relatively high, leading to downside risk if one goes offline or out of business (Supercerame is the largest of these and the longest dated), however the demand from other business in Kenitra currently buying bottled gas for $18/mcf reduces the impact substantially.

Exhibit 5: Sebou production history and forecast

Source: Circle Oil, Edison Investment Research. Note: Dark green denotes historical data, light green is the Edison forecast of 2P +1C. 2016 data point is for H116 only. Dotted line denotes estimated gas price realisation.

Existing reserves – deal frees up planned capital investment

Exhibit 6: Possible upside in our production estimates if more reserves are discovered and customers take more than the minimum volumes

Source: Edison Investment Research

Sebou 2P reserves were estimated to be 7.9bcf at the end of 2015, of which 5.6bcf were classified as proven. After 2016 production (and not allowing any reclassification, additions or other adjustments), we estimate year-end 2016 2P reserves of 5.7bcf (and 3.4bcf of 1P). This means that the company will have to convert some of its existing 3P or contingent resource/ reserves to supply the contracts as they currently stand. Current production cannot be sustained with the current well inventory indefinitely, so drilling will have to follow the deal to fulfil the contracts and/or provide for any extensions/additions after the contracts end in 2021.

For the moment we model that SDX will mirror Circle’s capital investment plan over 2017-21 to work over existing wells, drill new development wells to bolster reserves and improve facilities and pipeline capacity (and drill exploration wells where appropriate). Indeed, in our accelerated investment plan modelling we see over $30m invested in Morocco in the next five years. This is well within the cash flow generation of the asset, we which estimate to be over $60m in this period. In addition, the cost of drilling and service work has fallen materially, so capital efficiency will be far higher for SDX’s investment than it may have been a few years ago, while we expect SDX to introduce modern techniques that have not been implemented in Sebou previously.

Although the results of any given well cannot be guaranteed, Circle had a good success rate in drilling wells historically, so we are not overly concerned about the risk that future wells will not be able to fulfil the reserve estimates/contracts at this time, although this possibility always exists. We note that the 2015 change of auditor (to Senergy) re-categorised 2P reserves to contingent, reducing the 2P number significantly. If we include even a portion of these contingent reserves (given the extensive drilling plans), the 2P would likely rise to above our modelled reserve requirement (see below).

We model a budget of 10 wells, seven of which may be successful. This is below the historic success rate at Sebou of 80%. We do not explicitly include any value beyond this (either at Sebou or at Lalla Mimouna), but note that discoveries would likely be easily monetised. At $2-2.5m per well, these cash flows will fund many wells.

Exhibit 7: Reserves at Sebou

Source: Circle Oil. Note: In 2012, Circle did not report 1P reserves (although they did exist). In 2015, the fall in reserves is primarily due to production during the year and the reclassification of 2P reserves to contingent. 2016 data shown relate to mid 2016.

Existing assets

NW Gemsa

The acquisition gives SDX an additional 40% working interest in the NW Gemsa field (on top of its existing 10% stake). The other 50% will continue to be owned by ZhenHua Oil, which will remain operator. The field needs little additional capital to be invested and we expect the field to continue to decline over time, although the company will now receive half the cash flows (previously 10%).

The production of the field has been below our expectations in 2016, and we take the opportunity to reduce the forecast production for NW Gemsa. In particular, we had expected a levelling off of the production decline for a number of quarters following the workover programme in 2016, but the field has fallen from 7.8mb/d in Q116 to 6.5mb/d in Q3 (an annualised decline of 20%). We therefore move our modelling towards the 2P production profile, as our previous more optimistic case (above or around the 3P case) has not been realised. We note the company plans a 12 well workover programme starting in 2017 (eight producers and four injectors), so we expect an effect on production this year, hence the phasing of production profile vs the CPR numbers.

This does not detract from the cash generation and value of the asset, given its low opex and capex requirements. We expect these to be recycled into Meseda to fund the workover/waterflood programme over the next few years.

Exhibit 8: NW Gemsa production modelling

Source: Edison Investment Research, SDX Energy

Meseda

The acquisition has no impact on SDX’s Meseda stake, other than providing cash flows from NW Gemsa to fund investment in the workovers/waterflood. However, we have reduced our expectations on production from Meseda vs our previous modelling as work has been delayed on the workover/waterflood. We expect to update this as the waterflood programme commences and results start to come through this year (the work, including a facilities upgrade, well workover programme, infill well drilling and two exploration wells is due to start in Q117).

Our 2017 estimates require a notable increase from Q316 production rates of 3,657b/d to reach our modelled average rate of 5,500bbls/d. As a result, we will be watchful of the improvements that can be made in the early stages of 2017, but highlight that the prize at Meseda remains significant if the waterflood proves successful.

Exhibit 9: Production profile for Meseda

Source: Edison Investment Research, SDX Energy. Note: Q316 average production was 3,657b/d at Meseda.

Valuation

Independent of the acquisition, we have made a number of changes to our modelling and valuation (many of which have been mentioned earlier in the report). The primary changes are:

1.

The re-phasing of the Meseda production expectations. We had previously modelled a larger production impact early in 2017 – this will take longer. We have also reduced the production peak and profile, reducing the recoverable barrels in the waterflood upside case, while also requiring a re-phasing of capex.

2.

Given the continued fall of production rates seen in 2016 (vs our expectation of a steadying plateau), we have reduced our production estimates at NW Gemsa.

3.

Increasing the discount received for Meseda oil (nudging this discount up to 40%).

4.

Tweaking our 2017 oil price assumption from $51.8/bbl to $51.7/bbl. Our longer-term oil assumptions are unchanged.

As a result, without the impact of the acquisition, our core valuation would have fallen from 39p/share to 29p/share (and from 68p/share to 55p/share for the RENAV).

Impact of the acquisition

After the deal, the revised valuation for the larger entity benefits from the additional working interest at Gemsa, but the cash flows from Sebou (Morocco) are the foundation of the bulk of the value, although a large working capital balance of $18m at acquisition contributes strongly; for the purposes of the valuation, we model that this $18m is released over four years (we assume the bulk of it is in Egypt, where Circle has experienced difficulties in receiving payment in US$). This situation should be eased by SDX as it is happier to receive payment in Egyptian pounds and recycle this within country.

Until well targets at Lalla Mimouna are announced and their impact on the company can be more properly assessed (including any costs and time to build extra pipeline), we exclude them. However, we would expect SDX to update the market in the relatively short term on its exact exploration plans in Morocco.

The additional absolute value is balanced by the new equity raised to fund the acquisition – the recent rise in the share price means that fewer shares should need to be issued, reducing share dilution. This leaves the larger entity with a notably higher valuation, as seen below.

Exhibit 10: NAV summary

Asset

Number of shares: 187m

Recoverable Reserves

 

Net risked value

Country

Diluted WI

CoS

Gross

Net WI

Net attributable

NPV

Absolute

GBp/ share

C$/share

 

%

%

mmboe

$/boe

$m

12.5%

 

Net (Debt) Cash - Dec 2016e

100%

100%

7.2

3.1

0.05

Cash raised minus acqn minus costs

100%

100%

7.3

3.1

0.05

SG&A - NPV10 of 4yrs

100%

100%

(13)

(5.7)

(0.09)

2017 Exploration

100%

100%

(3)

(1.3)

(0.02)

Receivable for gas and NGLs at Gemsa (as yet not invoiced)

100%

100%

1.5

0.6

0.01

Production

Meseda Base case - Edison

Egypt

50%

100%

4.0

2.0

0.8

6.2

12

5.3

0.09

Meseda Base + Workovers - Edison

Egypt

50%

90%

4.5

2.2

0.9

6.0

12

5.2

0.09

Gemsa 1P

Egypt

50%

100%

4.1

2.1

2.1

9.1

19

8.1

0.13

Gemsa 2P

Egypt

50%

100%

2.3

1.1

1.1

12.2

14

6.0

0.10

Sebou 2P

Morocco

75%

100%

1.0

0.8

0.8

34.6

26

11.4

0.19

Acquired working capital (NPV of 4 yr release)

Morocco

100%

100%

15

6.2

0.10

Core NAV

 

 

 

15.9

8.2

5.6

10.2

98

42.1

0.69

Development upside

Meseda Base + Workovers + Waterflood - Edison

Egypt

50%

40%

9.3

4.6

1.8

4.6

8

3.7

0.06

Gemsa - Edison modelling on full field

Egypt

50%

75%

3.0

1.5

1.5

7.8

9

3.8

0.06

Sebou - Accelerated programme

Morocco

75%

40%

0.9

0.7

0.7

7.6

2

0.9

0.01

Exploration (known)

SouthDisouq- Ex Egypt

Egypt

55%

13%

64.8

35.6

35.6

3.4

16

6.8

0.11

Development and exploration NAV

 

 

 

78.0

42.4

39.6

0.8

35

15.1

0.25

Full NAV

 

 

 

93.9

50.6

45.2

2.3

133

57.1

0.94

Source: Edison Investment Research

Financials

The new asset additions have the potential to utterly change the cash flow profiles of SDX. The additional 40% interest in Meseda gives the company useful additional cash flows from the field that will have little capex requirements, but it is the interest in the Sebou field that provides for the step change in cash flow generation for the company.

Our modelling indicates that cash flows from Sebou alone would pay back the acquisition price in less than three years (excluding optional exploration wells after 2017). This free cash flow from Morocco will provide the company with enough resources to fund the material exploration and development activities. The acquisition, as can be seen below, is likely to have a material effect on company cash flows over the next few years.

Exhibit 11: SDX cash flows – pre- and post-acquisition comparison

Source: Edison Investment Research. Note: Cash flows above are the operating cash flows from the assets and exclude the equity raise for acquisition. We also use the accelerated Sebou case in this illustration (with more capex and higher production).

Exhibit 12: Financial summary

 

 

$'000s

2014

2015

2016e

2017e

Dec

 

 

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

24,533

11,372

10,090

44,698

Cost of Sales

(3,639)

(4,973)

(6,124)

(13,559)

Gross Profit

20,894

6,399

3,966

31,139

EBITDA

 

 

19,126

2,650

129

28,154

Operating Profit (before amort. and except.)

17,524

593

(4,442)

10,602

Intangible Amortisation

0

0

0

0

Exceptionals

(2,767)

(6,915)

(27,700)

0

Share based payments

(1,064)

(761)

(1,000)

(1,000)

Other

0

0

0

0

Operating Profit

13,693

(7,083)

(33,142)

9,602

Net Interest

(1,009)

18,193

16

14

Profit Before Tax (norm)

 

16,515

18,786

(4,425)

10,617

Profit Before Tax (FRS 3)

 

12,684

11,110

(33,125)

9,617

Tax

(4,328)

(1,063)

(7)

(840)

Profit After Tax (norm)

12,187

17,723

(4,432)

9,777

Profit After Tax (FRS 3)

8,356

10,047

(33,132)

8,777

Average Number of Shares Outstanding (m)

376.5

37.6

79.8

187.4

EPS - normalised (p)

 

 

3.2

47.1

(5.6)

5.2

EPS - normalised and fully diluted (p)

3.2

47.1

(5.6)

5.2

EPS - (IFRS) (p)

 

 

2.2

26.7

(41.5)

4.7

Dividend per share (p)

0.0

0.0

0.0

0.0

Gross Margin (%)

85.2

56.3

39.3

69.7

EBITDA Margin (%)

78.0

23.3

1.3

63.0

Operating Margin (before GW and except.) (%)

71.4

5.2

-44.0

23.7

BALANCE SHEET

Fixed Assets

 

 

27,851

43,980

26,021

33,114

Intangible Assets

16,460

23,473

8,973

10,222

Tangible Assets

9,392

18,401

14,843

20,529

Investments

1,999

2,106

2,205

2,364

Current Assets

 

 

21,241

16,036

12,063

67,247

Stocks

0

1,188

1,188

1,188

Debtors

3,306

6,678

3,678

32,678

Cash

17,935

8,170

7,197

33,381

Other

0

0

0

0

Current Liabilities

 

 

(9,035)

(4,484)

(4,484)

(18,984)

Creditors

(6,828)

(4,484)

(4,484)

(18,984)

Short term borrowings

(2,207)

0

0

0

Long Term Liabilities

 

 

(608)

(286)

(286)

(286)

Long term borrowings

0

0

0

0

Other long term liabilities

(608)

(286)

(286)

(286)

Net Assets

 

 

39,449

55,246

33,314

81,091

CASH FLOW

Operating Cash Flow

 

 

25,531

(5,214)

2,151

29,239

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(13,634)

(1,201)

(14,212)

(12,486)

Acquisitions/disposals

0

0

0

(30,000)

Financing

495

352

11,088

39,431

Dividends

0

0

0

0

Net Cash Flow

12,392

(6,063)

(973)

26,184

Opening net debt/(cash)

 

(3,336)

(15,728)

(8,170)

(7,197)

HP finance leases initiated

0

0

0

0

Other

0

(1,495)

0

(0)

Closing net debt/(cash)

 

(15,728)

(8,170)

(7,197)

(33,381)

Source: Edison Investment Research, company accounts. Note: We exclude South Disouq from the financials given its large effect on the numbers if exploration is successful. We also use the accelerated case for Sebou in this illustration.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by SDX Energy and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by SDX Energy and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

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