Record production and material prospectivity

SDX Energy 15 October 2020 Update
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SDX Energy

Record production and material prospectivity

Financial and
operational update

Oil & gas

15 October 2020

Price

17.5p

Market cap

£36m

US$1.27/£

Net cash ($m) at 30 September 2020

9.2

Shares in issue

205.4m

Free float

83%

Code

SDX

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

16.7

(2.8)

(14.6)

Rel (local)

17.7

(0.5)

1.7

52-week high/low

27.0p

11.5p

Business description

SDX Energy is a North African E&P listed in London. SDX produces oil and gas in Egypt and gas in Morocco.

Next events

LMS-2 well test

Q420/Q121

Analysts

Carlos Gomes

+44 (0)20 3077 5700

Elaine Reynolds

+44 (0)20 3077 5713

SDX Energy is a research client of Edison Investment Research Limited

SDX Energy delivered a strong performance over the first nine months of 2020 as production increased predominantly due to South Disouq continuing to perform ahead of expectation since coming onstream in late 2019. Production in Egypt was unaffected by COVID-19, while a few customer shut-ins in Morocco had returned to c 90% capacity by September 2020. The drilling programmes in both Egypt and Morocco were also successfully concluded, with highlights including the Sobhi discovery in South Disouq and a potential 233bcf in a further six prospects, together with confirmation of the extension of prospectivity to the north of the company’s core area in Morocco. Our mid-case RENAV valuation has increased to 45.0p/share (+11%) as we adjust our short-term oil price assumptions and revise our production and capex estimates.

Year-end

Revenue
($m)

PBT*
($m)

Operating
cash flow ($m)

Net cash
($m)

Capex
($m)

Production
(kboed)

12/18

53.7

7.1

36.2

17.3

(44.8)

3.6

12/19

53.2

(12.3)

25.1

11.1

(31.3)

0.0

12/20e

37.9

7.2

25.0

11.8

(26.2)

5.8

12/21e

44.0

16.1

31.9

24.8**

(19.7)

6.4

Note: *PBT normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Accounts for the wells to be drilled and connected in Morocco but does not account for the exploration wells to be drilled at South Disouq given these are contingent on final approval for the extension of the exploration license.

Business continuity and resilience

Production averaged c 6,500boed in in the first nine months of the year, with South Disouq contributing c 4,600boed net to SDX. Production was broadly unaffected by COVID-19, with no disruption in Egypt and only some temporary shut-ins until early May in Morocco. The company remains insulated from lower oil prices with management estimating that over 90% of 2020 and 2021 cash flows (at a $35/bbl Brent planning price) will come from the gas businesses.

Discoveries de-risk prospects

The two-well drilling campaign in South Disouq delivered the SD-12X Sobhi discovery, estimated by management to hold c 24bcf of recoverable resources. In a subsequent review of prospectivity in the region, management has identified recoverable volumes of 233bcf across six prospects. In Morocco, there were seven discoveries from nine wells drilled, with the 10th, LMS-2, to be tested once COVID-19 travel restrictions allow. The OYF-2 and BMK-1 discoveries confirmed the prospectivity to the north of SDX’s core Moroccan production and development area, de-risking c 20bcf recoverable resources.

Valuation: RENAV at 45.0p/share

Our RENAV increases by 11% to 45.0p/share, driven by an increased short-term Brent price assumption based on EIA September 2020 estimates, and upgraded production and capital expenditure for FY20. We also take into account the net proceeds from North West Gemsa disposal in July 2020. The current share price appears to be heavily discounting SDX-sanctioned projects, which correspond to c 82% of our RENAV, as well as any future growth potential in Egypt and Morocco.

South Disouq delivers and prospectivity increases

SDX achieved record average entitlement production of 6,980boed in H120, up from 4,062boed for FY19, mainly due to the strong ongoing performance of South Disouq. The two well drilling campaign here was completed during the first half of 2020 and the SD-12X well discovered commercial gas in the Sobhi prospect, estimated at c 24bcf recoverable dry gas resource by management, while a further potential 233bcf across six prospects has been identified. In Morocco, the drilling campaign was completed by March 2020, having delivered seven discoveries from nine wells drilled, while the 10th well, LMS-2, is awaiting testing in order to establish commerciality. The campaign confirmed the prospectivity of SDX’s acreage to the north of its existing core production and development area, with discoveries at OYF-2 and BMK-1, de-risking c 20bcf of P50 recoverable resources.

Guidance updated to account for North West Gemsa disposal

The company is guiding that oil and gas production for FY20 will be 6,000–6,267boed, down from the June 2020 guidance of 6,750–7,000boed. This reflects the impact of the disposal of North West Gemsa in July 2020 together with the temporary production shut-ins experienced in Morocco. However, this is c 50% higher than actual 2019 production. Moroccan production guidance has been reduced from 6.7–6.9mmscfd to 5.3–6.0mmscfd (in line with our last estimates at 5.95mmscfd). 2020 capex guidance was also reduced by $2m to $26.2m due to the removal of the workover costs from North West Gemsa. The bulk of the capex ($21.9m, unaudited) has already been spent in the early part of the year on the drilling programmes.

Exhibit 1: SDX Energy updated production and capex guidance

Production (boed)

Capex ($m)

South Disouq

4,300–4,460

10.7

West Gharib

610–630

2.0

North West Gemsa

385*

-

South Ramadan

42

-

Morocco

663–750

13.5

Total

6,000–6,267

26.2

Source: SDX Energy. Note: *Equivalent production entitlement for FY20.

Potential 2021 high-impact drilling to target 165bcf

An extended well test of the SD-12X Sobhi well (see our May 2020 update for a discussion of the drill stem test results) established that Sobhi holds c 24bcf of recoverable resources. Management anticipates that the well will produce at an optimum stabilised rate of 10–12mmscfd, in line with the nearby producing Ibn Yunus-1X well. Sobhi is expected to be tied into the South Disouq central processing facility (CPF) via a 5.8km connection to Ibn Yunus-1X at an estimated cost of $3.5m, and to commence production in Q121.

Following on from the Sobhi discovery, SDX has undertaken a review of the remaining prospectivity in South Disouq to identify material, low-risk prospects, and has predominantly focused on the de-risked basal Kafr El Sheikh (KES) proven by the successful discoveries in Ibn Yunus and Sobhi. The company has identified 233bcf of recoverable volumes, estimated by management, across six prospects, and dominated by the 139bcf Hanut prospect that was recently identified. The company is planning to start drilling operations in Q2/Q321.

Exhibit 2: South Disouq prospects recoverable resources (management estimates)

Prospect

Estimated ultimate recovery (bcf)

Chance of success

Hanut

139

33%

Mohsen

26

51%

El Deeb

22

29%

Warda

14

35%

Ibn Newton/Newton

16

40–45%

Shikabala cluster (requires two wells)

16

25–40%

Total

233

Source: SDX Energy

On this basis, SDX is planning to accelerate its drilling campaign, originally expected late 2021/early 2022, into Q2/Q321. This will be subject to the final Ministerial and Parliamentary approval of the two-year extension to the South Disouq exploration area, which has already been approved by EGAS. SDX’s 45% partner, IPR Energy Group, has yet to confirm it would participate in the proposed extension.

Exhibit 3: South Disouq prospects map

Source: SDX Energy

If the extension is approved, the 2021 drilling campaign will consist of two commitment wells, Hanut and Mohsen, targeting 165bcf in the Basal KES. Both prospects sit to the south of South Disouq and close to the existing infrastructure. Both also carry management estimated high chances of success for exploration wells, with Hanut on 33% and Mohsen at 51%, because the KES has already been de-risked at Ibn Yunus and Sobhi. A further KES well, Warda, is scheduled for late 2022.

In West Gharib, in the Eastern Desert, the company is planning an infill drilling campaign to recover 2.3mmbbls of contingent resources. Between eight and 10 wells are planned over the next three years, with two to three wells due in 2021 and three to four wells per year thereafter. The operator, Dublin International Petroleum, is seeking a licence extension beyond 2021 to allow this activity to go ahead.

Exhibit 4: 2020–22 activities and value catalysts

Source: SDX Energy

Morocco drilling success: Extension of core area

The company’s Moroccan drilling campaign was successfully completed in March 2020, with 10 wells drilled and seven discoveries from nine wells. The testing of the 10th well, LMS-2, is expected to be carried out once a crew can be mobilised post the lifting of COVID-19 travel restrictions in Morocco. The final two wells of the original 12-well programme were deferred to preserve capital, given that the campaign objectives were met with the first 10 wells.

Two of the five close to infrastructure appraisal/development wells were drilled in Q120. The first of these, SAH-5, was sub-commercial and was plugged and abandoned. The second well, SAH-3 encountered 0.5bcf recoverable resources as estimated by management and will be tied into existing infrastructure later in 2020. The two moderate risk wells, OYF-2 and BMK-1, both encountered gas, confirming the extension of the core area to the north and de-risking up to 20bcf of adjacent P50 prospective resources. OYF-2 is assessed by management to hold recoverable resources of 1.3–1.9bcf, with 0.9bcf of gas recoverable from BMK-1. The LMS-2 well, in the Lalla Mimouna concession, was the highest-risk well drilled in the campaign and encountered 10.6m net gas with a porosity of 30.9%. The well needs to be tested to be properly assessed as gas samples from the well indicate a new and different source rock is generating gas of a different thermogenic composition to that seen in the company’s core area. Testing will be carried out as soon as COVID-19 restrictions allow

Exhibit 5: OYF/BMK de-risked prospectivity

Source: SDX Energy

Management estimates that over 18bcf of de-risked prospectivity sits across five clusters in the OYF/BMK area and is looking to accelerate a four-well drilling campaign in 2021 to confirm this potential. The programme could also include a well to assess the Top Nappe exploration potential, where gas was encountered while drilling LMS-2. This will hinge on a successful outcome for the LMS-2 well test, but the company would then evaluate options for a dual target well to penetrate the Top Nappe and a shallower biogenic target. A re-interpretation of existing 3D seismic has highlighted that the Top Nappe is present across the acreage, including in the core areas close to infrastructure, so confirmation of the Top Nappe concept could increase the resource volumes in the area.

Valuation

We value SDX using an asset-by-asset net asset value (NAV) derived from detailed discounted cash flow modelling. The core value includes production, development and contingent resources that could be developed, while exploration is valued only if wells are planned and funded in the next 12 months. We apply a 12.5% discount rate given the geographical distribution of the assets and the size of the company. We have updated our short-term commodity prices based on the latest EIA estimates. Our short-term Brent assumptions move from $33.0/bbl to $41.9/bbl in FY20 and from $45.6/bbl to $49.1/bbl in FY21, based on EIA forecasts published in September 2020. Our long-term price assumptions remain in line with the previous note where we presented three scenarios with Brent in 2020 at $40/bbl in our low case scenario, $50/bbl in our mid-case scenario and $60/bbl in our high case scenario, escalated at 2.5% per year resulting in 2022 prices of $42.0/bbl, $52.5/bbl and $63.0/bbl, respectively. We continue to assume Moroccan gas prices of $10.85/mcf in 2020 inflated at 2.5%. In addition to commodity prices, key changes to our updated valuation and estimates include the updated FY20/FY21 production and capex guidance and lower G&A costs.

Exhibit 6: Edison updated forecasts

New

May 2020 note

Change

2020

2021

2020

2021

2020

2021

Production (kboed)

5.8

6.4

6.8

6.0

-15%

7%

Revenue ($m)

37.9

44.0

40.7

42.0

-7%

5%

EBITDA ($m)

20.5

31.6

23.1

27.8

-11%

14%

 

 

Revenue/boe

6.5

6.9

6.0

7.1

9%

-2%

Opex/boe

1.5

1.3

1.8

1.4

-16%

-6%

G&A/boe

0.7

0.6

0.9

1.1

-26%

-41%

Cash costs/boe

2.2

2.0

2.7

2.5

-19%

-21%

Capex/boe

2.5

2.6

3.4

1.0

-27%

150%

 

 

Brent

41.90

49.07

33.04

45.62

27%

8%

SD gas price

2.85

2.85

2.85

2.85

0%

0%

Sebou gas price

10.85

11.12

10.85

11.12

0%

0%

Source: Edison Investment Research. Note: Fx updated from US$1.28/£ to US$1.27/£ based on the average of Q220 and Q320.

In Egypt, our updated valuation now excludes North West Gemsa as the company successfully disposed of the asset in July 2020 for net proceeds of $1.6m. At the same time, the updated valuation includes the Sobhi discovery, added to the core NAV since it is a simple tie-back to the CPF. In Morocco, we continue to include the reserves reported at 31 December as per the FY19 annual report as well as the SAH-3 and OYF-2 wells, which were already completed as commercial discoveries during Q120. For 2020 we maintain our estimates in Morocco with a gas production level of 5.95mmscfd for the year, in line with the new guidance of 5.3–6.0mmscfd. Risked exploration includes the BMK-1 discovery and the potential 10bcf located in close proximity to the BMK-1 well, and the LMS-2 discovery. The LMS-2 well indicates 10.6m of net gas reservoir with 30.9% porosity in the well; however, testing is required to determine its commercial potential once COVID-19 restrictions are eased and allow SDX to bring a testing crew into the country. We highlight that at this point we are not taking into consideration the 233bcf prospective resources of potential additional upside that is currently being evaluated by the company in the South Disouq area; however, as these projects develop and become firmer within the SDX budget, we will update our valuation accordingly. All in all, our mid case risked exploration net asset value (RENAV) moves from 40.7p/share to 45.0p/share (+11%), with our core value standing at 37.1p/share, equivalent to 82% of our RENAV, and materially different from the current share price of 17.5p/share. Overall, our core net risked valuation increases by c $11m versus our previous note, predominately reflecting lower SG&A estimates and the inclusion of net proceeds for the North West Gemsa disposal.

Exhibit 7: SDX Energy detailed valuation

Asset

Recoverable
reserves

Low
($40/bbl)

Mid
($50/bbl)

High
($60/bbl)

Country

Diluted WI

CoS

Gross

Net WI

Net

NPV

Net risked value

Net risked value
per share

%

%

mmboe

mmboe

mmboe

$/boe

$m

p/share

p/share

p/share

Net cash at 31 December 2019

11.1

4.3

4.3

4.3

SG&A - NPV12.5 of three years

(9.2)

(3.5)

(3.5)

(3.5)

FY20 E&A expense

(17.6)

(6.8)

(6.8)

(6.8)

NPV of net receivable recovery

9.7

3.7

3.7

3.7

Sebou pipeline residual value (30% cost)

9.8

3.8

3.8

3.8

NW Gemsa disposal net proceeds

1.6

0.6

0.6

0.6

Production

Meseda base + workovers + Rabul

Egypt

50%

90%

9.0

4.5

1.7

3.7

15.2

4.4

5.8

7.3

South Disouq + Sobhi

Egypt

70%

100%

18.7

12.1

12.1

3.2

38.9

14.8

15.0

15.1

Sebou 2P + volumes to be booked

Morocco

75%

100%

1.4

1.0

1.0

36.2

36.8

14.2

14.2

14.2

Core NAV

29.1

17.6

14.8

96.3

35.5

37.1

38.6

Exploration (discoveries)

BMK + LMS-2

Morocco

75%

63%

2.0

1.5

1.5

22.3

20.6

7.9

7.9

7.9

Total NAV

31.1

19.1

16.3

116.9

43.4

45.0

46.6

Source: Edison Investment Research. Note: Number of shares = 205.4m; FX = US$1.27/£.

Financials

H120 included the benefit of production from South Disouq, brought onstream in late 2019, which helped push H120 net revenues to $22m from $15.5m in H119. Meanwhile, with net investing cash outflows easing, and a $1m advance on the North Gemsa asset sale, SDX ended June 2020 with net cash of $9.3m. Unaudited net cash at end 30 September 2020 stood at $9.2m. We forecast year-end 2020 net cash of $11.8m and note that SDX’s European Bank for Reconstruction and Development (EBRD) loan facility of $7.5m remains undrawn. Management intends to extend the tenor and re-establish the full availability of the $10m credit facility. Based on the capex projections that underpin our production forecasts and SDX’s committed exploration programme, the company is fully funded for 2020 and 2021 and we forecast positive free cash flow (FCF) from H220. Given the current capital expenditure plan (based on Exhibit 4), we have brought forward some of the capex for wells to be drilled and connected in Morocco from 2022 to 2021, compared to our previous note. We are still not taking into consideration the capex for the South Disouq wells given that these are still contingent on final Ministerial and Parliamentary approval of the two-year extension to the South Disouq exploration area. We expect FCF in the coming years to be material giving the company headroom for additional investments. As over 85% of cash flows in the coming years will come from the fixed price contracts gas businesses, we currently do not foresee the need for further equity capital, unless incremental growth capex, over and above our forecasts, is dedicated to new projects or acquisitions. Management’s stated strategy is to grow the company both organically and inorganically.

Exhibit 8: Capex and cash flow forecasts

Source: SDX Energy, Edison Investment Research, Note: CFO – cash flow from operations.

Exhibit 9: Financial summary

Accounts: IFRS, Year-end: 31 December, US$000s

 

2017

2018

2019

2020e

2021e

INCOME STATEMENT

Total revenues

 

39,166

53,679

53,233

37,887

43,991

Cost of sales (direct expense)

 

(10,254)

(11,934)

(13,900)

(8,694)

(8,536)

Gross profit

 

28,912

41,745

39,333

29,193

35,455

SG&A (expenses)

 

(8,793)

(7,270)

(6,072)

(3,932)

(4,030)

Other income/(expense)

 

1,820

1,025

1,161

984

764

Exceptionals and adjustments

 

(725)

(10,458)

(19,932)

(5,725)

(626)

EBITDA

 

21,214

25,042

14,490

20,520

31,563

Depreciation and amortisation

 

(17,824)

(17,268)

(26,295)

(13,896)

(16,592)

Reported EBIT

 

3,390

7,774

(11,805)

6,623

14,971

Finance income/(expense)

 

(129)

(542)

(511)

(552)

0

Other income/(expense)

 

29,558

(174)

0

1,114

1,114

Exceptionals and adjustments

 

0

0

0

0

0

Reported PBT

 

32,819

7,058

(12,316)

7,185

16,085

Income tax expense (includes exceptionals)

 

(4,541)

(7,021)

(5,776)

(3,417)

(1,044)

FX gains (losses)

 

0

75

(94)

0

0

Reported net income

 

28,278

112

(18,186)

3,769

15,041

Shares at end of period - basic

 

204

205

205

205

205

BALANCE SHEET

 

 

 

 

 

 

Property, plant and equipment

 

54,445

48,680

67,895

60,162

60,239

Goodwill

 

0

0

0

0

0

Intangible assets

 

15,231

39,128

20,407

30,051

33,037

Other non-current assets

 

2,724

3,394

3,916

3,477

3,477

Total non-current assets

 

72,400

91,202

92,218

93,690

96,753

Cash and equivalents

 

25,844

17,345

11,054

11,815

24,817

Inventories

 

5,157

5,236

7,972

7,824

7,682

Trade and other receivables

 

37,656

24,324

21,774

17,690

15,076

Other current assets

 

0

0

0

0

0

Total current assets

 

68,657

46,905

40,800

37,329

47,575

Non-current loans and borrowings

 

0

0

0

0

0

Other non-current liabilities

 

4,506

4,572

6,698

7,521

7,521

Total non-current liabilities

 

4,506

4,572

6,698

7,521

7,521

Trade and other payables

 

19,459

14,418

25,724

23,592

21,233

Current loans and borrowings

 

0

0

0

0

0

Other current liabilities

 

2,473

3,078

2,565

1,122

1,122

Total current liabilities

 

21,932

17,496

28,289

24,714

22,355

Equity attributable to company

 

114,619

116,039

98,031

98,785

114,452

Non-controlling interest

 

0

0

0

0

0

CASH FLOW STATEMENT

 

 

 

 

 

 

Profit before tax

 

32,819

7,058

(12,316)

7,185

16,085

Net finance expenses

 

0

0

0

0

0

Depreciation and amortisation

 

17,824

17,268

26,295

13,896

16,592

Share based payments

 

538

1,194

178

626

626

Other adjustments

 

(34,613)

3,224

12,718

6,043

(764)

Movements in working capital

 

5,412

8,584

(504)

646

397

Interest paid / received

 

0

0

0

0

0

Income taxes paid

 

(364)

(1,091)

(1,306)

(3,417)

(1,044)

Cash from operations (CFO)

 

21,616

36,237

25,065

24,980

31,892

Capex

 

(24,917)

(44,810)

(31,315)

(26,203)

(19,654)

Acquisitions & disposals net

 

(24,948)

0

0

1,000

0

Other investing activities

 

760

525

639

984

764

Cash used in investing activities (CFIA)

 

(49,105)

(44,285)

(30,676)

(24,218)

(18,890)

Net proceeds from issue of shares

 

48,510

114

0

0

0

Movements in debt

 

(43)

(197)

(1,062)

0

0

Other financing activities

 

0

0

0

0

0

Cash from financing activities (CFF)

 

48,467

(83)

(1,062)

0

0

Increase/(decrease) in cash and equivalents

 

20,978

(8,131)

(6,673)

761

13,002

Currency translation differences and other

 

141

(368)

382

0

0

Cash and equivalents at end of period

 

25,844

17,345

11,054

11,815

24,817

Net (debt) cash end of period

 

25,844

17,345

11,054

11,815

24,817

Source: SDX Energy, Edison Investment Research


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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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by SDX Energy and prepared and issued by Edison, in consideration of a fee payable by SDX Energy. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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