South Disouq first gas and H219 drilling

SDX Energy 8 January 2019 Update
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SDX Energy

South Disouq first gas and H219 drilling

2019 activity preview

Oil & gas

8 January 2019

Price

43.0p

Market cap

£88m

US$/£0.78

Net cash ($m) at end September 2018

18.7

Shares in issue

204.7m

Free float

86%

Code

SDX

Primary exchange

AIM

Secondary exchange

TSX Venture

Share price performance

%

1m

3m

12m

Abs

0.6

(25.7)

(20.8)

Rel (local)

0.1

(19.7)

(9.8)

52-week high/low

73.0p

34.1p

Business description

SDX Energy is a North African E&P listed in London and Toronto. It has oil and gas production in Egypt and Moroccan gas production.

Next events

FY18 results

February 2019

Analysts

Sanjeev Bahl

+44 (0)20 3077 5742

Carlos Gomes

+44 (0)20 3077 5722

Elaine Reynolds

+44 (0)20 3077 5713

SDX Energy is a research client of Edison Investment Research Limited

2019 will be an active year for SDX with H119 focused on delivery of first gas at South Disouq, ahead of a return to the drill bit in H219. An eight to nine well programme targets both oil and gas prospectivity in Egypt and appraisal/development locations in Morocco. Drilling activity is expected to be financed through cash flow, undrawn debt ($10m accessible under a reserve-based facility) and an estimated end-FY18 cash position of $15.9m. We expect first gas from South Disouq and increased gas production in Morocco to provide cash flow to support a FY19 capital programme of an estimated US$38m. Our updated risked valuation stands at 99.6p/share (up from 92.7p/share, driven by FX and roll forward of NAV), but we drop our sales and cash flow forecasts for FY19 – a key driver being deferred gas sales in Morocco and a later start-up at South Disouq. Morocco and South Disouq combined make up 67% of our core valuation with contracted sale volumes not levered to the oil price.

Year
end

Revenue
($m)

PBT*
($m)

Operating cash
flow ($m)

Net cash
($m)

Capex
($m)

12/16

12.9

(26.7)

(1.9)

4.7

(11.9)

12/17

39.2

32.8

21.6

25.8

(24.9)**

12/18e

53.1

12.1

31.5

15.9

(42.6)

12/19e

73.3

34.2

43.5

23.0

(38.3)

Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Excludes Circle acquisition ($28.1m).

South Disouq first gas in H119

SDX aims to deliver first gas at South Disouq in H119 on completion of construction activity, well tie-ins and a 10km export pipeline. We expect cash generated from South Disouq gas sales, priced at $2.85/mcf, to provide funds for incremental well inventory beyond the four existing producers across SD-1X and Ibn Yunus.

H219 – a return to exploration

Exploration drilling will focus on Ibn Yunus lookalikes in Egypt, with at least two wells planned for H219. In addition, an upcoming bid round in Egypt could provide SDX with an option to extend its acreage position to include further Kafr el Sheik targets. SDX’s upcoming Egypt work programme will also likely include a test of oil potential at South Disouq through the four-way dip, 50mmbo unrisked Young prospect in H219/2020. In Morocco, SDX has an 87% appraisal/development well success rate based on calibrated 3D seismic and is looking to leverage this success targeting 20bcf of gross unrisked resource in H219/2020. Of the total 12-well programme planned for Morocco, three to four are expected in H219. We include risked exploration/appraisal potential in our valuation.

Valuation: 99.6p/share, 7% increase driven by FX

SDX’s share price has fallen alongside the wider UK E&P sector, despite its gas bias. We believe SDX needs to deliver South Disouq and Morocco sales growth in order to provide comfort on short-term cash flow projections. The increase in our valuation is driven by updating FX and rolling forward the NAV to a January 2019 discount date.

2019 activity overview

A key catalyst for SDX shareholders in H119 will be the delivery of first gas at South Disouq, Egypt. This should provide visibility of a return on investment in processing and transportation infrastructure which management expects to total net US$26.5m over 2018 and H119. This spend will provide the basis for the monetisation of incremental gas resource as SDX targets lookalike prospective resource in H219.

After the recent pause in drilling activity, H219 looks to be another active drilling period for SDX with the potential to drive organic growth in both Egypt and Morocco. Drilling is targeting gas prospectivity in proven-basins close to existing discoveries and infrastructure in addition to a more speculative well targeting the Young prospect looking to prove up oil potential mapped on SDX’s Egyptian acreage.

South Disouq first gas in H119

The delivery of first gas at South Disouq in H119 is a key milestone for SDX energy, and a key driver of group production volume and cash flow growth. Gross plateau production at 50–60mmscfd gross (55% SDX working interest) will add c 5.5kboed to group production in H119 (production is estimated at c 4kboed for FY18), at a price of $2.85/mcf, which is low when compared to SDX’s realised prices in Morocco of $10.50/mcf. Our valuation of South Disouq is based on a 100bcf development, with incremental volumes beyond this to be de-risked through further exploration.

Exhibit 1: South Disouq production forecasts

Exhibit 2: South Disouq 100bcf development cash flow forecasts*

Source: Edison Investment Research

Source: Edison Investment Research. Note: *Cashflow prior to changes in working capital.

Exhibit 1: South Disouq production forecasts

Source: Edison Investment Research

Exhibit 2: South Disouq 100bcf development cash flow forecasts*

Source: Edison Investment Research. Note: *Cashflow prior to changes in working capital.

H219 exploration campaign – incremental volumes

The focus of SDX’s follow-on drilling campaign in Egypt will be Ibn Yunus lookalike prospects, stratigraphic features that are identifiable as amplitude highs on 3D seismic. The mean prospective resource attributable of four worked-up Kafr el Sheik (KES) prospects is estimated at 70bcf unrisked, with at least one prospect to be drilled in H219. As shown in Exhibit 3, amplitude highs indicative of reservoir pay in stratigraphic traps are readily visible on 3D seismic above the Kafr el Sheik, shown as a dark black line.

Exhibit 3: South Disouq Kafr el Sheik prospectivity

Source: SDX Energy

In addition to the Kafr el Sheik prospect planned for H219, the company has identified another SD-1X analogue: a four-way dip closure with estimated mean recoverable volume of 17bcf. Our valuation includes five drill-ready prospects (unchanged), which we expect to be drilled over the next 18-24 months, but does not include potential incremental upside, which management estimates at more than 1tcf. Further prospects are likely to be worked up as SDX is currently acquiring an additional 170km2 3D seismic survey on acreage to the south of SD-1X, which should provide detail on Abu Madi and KES potential in the southern end of the block.

South Disouq oil potential – contingent well for H219?

Encouragement for further oil potential can be found in the producing oil fields in the Western Desert, 100km to the west, together with oil shows in four offset wells close to South Disouq. The prolific Western Desert Bahariya and Kharita reservoir sands were encountered at the SD-1X well location; the unlogged Kharita sands showed elevated gas readings, potentially indicating a sign of thermogenic source. Vitrinite reflectance analysis suggests that the Jurassic source rock at South Disouq is present in the oil window and SDX has identified a four-way dip structure with multiple mapped reservoir intervals to test the basin for liquids potential. The 50mmbo mean unrisked (four reservoir intervals) Young prospect is a contingent well that may be drilled in late 2019 or 2020 – we include Young with a 25% geological chance of success in our valuation (risked value of 7.4p/share). The key risks to oil prospectivity at South Disouq are migration and charge.

H219 Morocco exploration campaign

More than 60 leads have been identified across the basin, targeting unrisked potential in excess of 60bcf. The majority of these leads have been derisked by existing or recently acquired 3D seismic data coverage. A 240km2 3D seismic survey (Guebbas 3D) was conducted across the Gharb basin in 2018, with first data expected to be delivered in early 2019.

Should this dataset highlight better targets, up to three wells from the 12-well 2019/20 drilling campaign could be drilled across the area covered by this upcoming survey (these wells will be drilled towards the end of the campaign to ensure sufficient time for seismic interpretation).

We include 12 drill-ready prospects in our valuation, targeting 20bcf of mid-case, unrisked resource (three to four of these wells are likely to be drilled in H219). We view the Sebou/Gharb Centre wells as appraisal/development wells, given the company’s ability to locate gas-bearing sands on calibrated 3D seismic with more than an 80% chance of success. We include this upcoming, 12-well programme and the yet to be tested Lalla Mimouna discoveries in our core value, albeit with an 80% chance of success to reflect the potential for the discovery of some sand packages that fall below the minimum economic threshold for commerciality.

The discovery of thermogenic gas at Lalla Mimouna provides further confidence that deeper oil or gas potential exists in the pre-Nappe. Existing oil discoveries in the onshore Rharb Basin are small and of poor quality in the carbonate/fractured basement reservoir, but SDX would be targeting larger prospects in the Jurassic/Miocene sandstones below the Nappe. Exploration of deeper potential remains at an early stage and we do not include it in our valuation at this point in time.

Gas market development and demand expectations

SDX’s current gas production in Morocco matches the requirements of its current customer base, with existing producing wells being choked back to match demand and ensure prudent reservoir management.

SDX’s current gas customer base is dominated by two large customers: Super Cerame and CMCP, which combined are forecast to consume approximately 6mmscfd of natural gas. Incremental demand is set to come from Peugeot, where test sales began in Q418 alongside a number of ancillary equipment manufacturers including Citic Dicastal (an alloy wheel manufacturer) and Omnium Plastic (a leader in automotive exterior plastics), along with existing local manufacturers such as GPC (paper manufacturer) and Setaxam (food processor) switching from fuel oil to natural gas to fire their burners.

We update our market demand estimates based on company analysis of identified natural gas customers and SDX’s connection goals for 2018. We see a slightly lower rate of gas sales ramp-up in 2019 as customer tie-ins are completed (as per our July 2018 outlook note, we were below company guidance for 2018 at a 6mmscfd sales gas exit rate relative to guidance of 8–10mmscfd), but the underlying demand picture remains robust with Edison forecasting 9.5mmscfd of gas sales in 2019. Demand analysis suggests that piped gas sales have the potential to increase materially over the next two to three years.

Our 2019 demand forecast is based on our analysis of risked projected market demand. Here we use a simplistic approach, applying a 90% chance of success for sales to existing customer Super Cerame’s second plant, a 50% chance of success for new thermal customers and a 10% chance of success for large-scale power plant consumers. Our risked demand profile is shown in Exhibit 5, which implies a 2018 average gas sales rate of just over 6mmscfd, growing to 15mmscfd over the medium term.

Gas sales for FY19 have been deferred relative to our prior forecasts, which are a key driver of our lower sales and cash flow forecasts for FY19 in addition to our lower oil price assumption of $61/bbl Brent (from 71$/bbl Brent). FY19 revenues fall from $86.7m to $73.3m as a result. The NAV impact of this deferment is clearly less material as unsold gas volumes are monetised at a later date in our DCF rather than lost, but continued growth in customer connections, gas sales and adding to behind-pipe reserve is key to supporting our NAV estimate.

We constrain our valuation of SDX’s Moroccan booked gas reserves and contingent resource based on our expectations of market demand, with inclusion of the risk factors mentioned above.

Exhibit 4: Morocco risked gas demand forecasts

Exhibit 5: Key consumers – risked demand

Source: Edison Investment Research, SDX Energy

Source: Edison Investment Research, SDX Energy

Exhibit 4: Morocco risked gas demand forecasts

Source: Edison Investment Research, SDX Energy

Exhibit 5: Key consumers – risked demand

Source: Edison Investment Research, SDX Energy

Valuation update

Key changes include a slower sales gas ramp-up in Morocco, aligning our capex forecasts with Q318 reported actuals, rolling forward the discount date to 2019, and a reduction in short-term oil price assumptions, which move to US$71.7/bbl and US$61.0/bbl for 2019. Our long-term oil price assumption remains at US$70.0/bbl Brent (2022).

We note that SDX is relatively insensitive to oil price assumptions, with the bulk of the valuation consisting of gas sales at 5-year fixed contracted prices in Morocco that average $10.5/mcf. Our FX assumption has also changed slightly to US$/£0.78, based on the average of the last six months of 2018.

As a result, we have slightly increased our RENAV from 92.7p/share to 99.6p/share (+7%), with our core value standing at 83.6p/share. We note that our valuation has a significant core value component at 84% of our RENAV.

Exhibit 6: Changes to our valuation

Old (p/share)

New (p/share)

Change (%)

Core NAV

78.8

83.6

6

Development NAV

3.4

4.7

30

Exploration risked upside

10.6

11.3

8

Group RENAV

92.7

99.6

7

Source: Edison Investment Research

A full breakdown of our risked valuation is provided in the table below. We split our valuation between core value, which includes booked 2P reserves, recent discoveries and low-risk development upside in Morocco. We include risked development upside at Meseda and Gemsa and risked exploration potential at South Disouq in our risked exploration NAV (RENAV).

Exhibit 7: SDX Energy detailed valuation

Recoverable reserves

Net risked value @12.5%

Asset

Country

Diluted WI

CoS

Gross

Net WI

Net

NPV

Absolute

GBp/
share

C$/
share

%

%

mmboe

mmboe

mmboe

$/boe

$m

Net (debt)/cash – December 2018e

100%

100%

15.9

6.1

0.1

SG&A – NPV12.5 of 3 years

100%

100%

(13.0)

(5.0)

(0.1)

E&A expense for exploration prospects

100%

100%

(14.2)

(5.4)

(0.1)

NPV of net receivable recovery

100%

100%

16.8

6.4

0.1

Sebou pipeline residual value (50% cost)

100%

100%

16.4

6.2

0.1

Production

Meseda Base + Workovers + Rabul

Egypt

50%

90%

8.4

4.2

1.6

7.3

27.7

10.5

0.2

Gemsa 2P

Egypt

50%

100%

4.2

2.1

2.1

11.0

22.9

8.7

0.1

Sebou 2P volume + discoveries to be booked

Morocco

75%

100%

0.8

0.6

0.6

37.7

23.2

8.8

0.2

Sebou 12-well 2019 programme

Morocco

75%

75%

5.3

4.0

4.0

31.8

94.5

35.9

0.6

South Disouq/Ibn Yunus

Egypt

55%

100%

17.7

9.7

9.7

3.0

29.6

11.2

0.2

Core NAV

36.4

20.6

18.0

9.6

219.8

83.6

1.4

Development upside

Meseda Waterflood Upside

Egypt

50%

50%

5.3

2.6

1.0

5.0

6.7

2.5

0.0

Gemsa - Edison modelling on full field

Egypt

50%

75%

1.6

0.8

0.8

9.5

5.6

2.1

0.0

Exploration (known)

Kafr el Sheik prospects x4

Egypt

55%

27%

33.6

18.5

18.5

1.6

8.0

3.0

0.1

Abu Madi prospect x2

Egypt

55%

23%

5.7

3.1

3.1

1.6

1.1

0.4

0.0

Young oil prospect

Egypt

55%

19%

50.0

27.5

27.5

4.0

20.6

7.8

0.1

Group RENAV

132.0

73.2

68.9

261.8

99.6

1.7

Source: Edison Investment Research. Note: Number of shares = 204.7m, FX = US$/£0.78.

The waterfall diagram below shows our valuation relative to the current share price. SDX currently trades at a material discount to our core valuation, and we see potential for a re-rating as the company delivers first gas at South Disouq and continued gas sales ramp up in Morocco, demonstrating the FCF generation potential of these key value components.

Exhibit 8: SDX Energy valuation waterfall

Source: Edison Investment Research

Given recent oil price volatility, we provide a valuation sensitivity to our long-term Brent price (from 2022) in the table below. SDX shows relatively low oil price gearing for a UK-listed E&P given that fixed-price gas contracts in Egypt (South Disouq) and Morocco (Sebou) make up c 67% of our core valuation.

Exhibit 9: RENAV sensitivity to long-term Brent crude

WACC (%)/Brent ($/bbl)

50

60

70

80

10.0%

99

103

107

111

12.5%

92

96

100

103

15.0%

86

89

93

96

Source: Edison Investment Research

Financial summary

SDX retains a robust balance sheet with cash and equivalents of $18.7m as of Q318 and no drawn debt. The company has access to up to $10m accessible of its RBL borrowing base, which can be drawn down if required. Forecast cash or net debt at the end of 2019 will be driven by a combination of production start-up at South Disouq, production growth in Morocco and oil prices, as well as phasing of the company’s planned drilling programme. On our base case, we expect SDX to end FY19 with $23.0m of cash, but with a significant range of uncertainty without firm dates for the start-up of South Disouq, timing of Morocco gas sales and management guidance on the FY19 budget.

Exhibit 10: Cashflow forecasts and committed capex

Exhibit 11: Group production expectations

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 10: Cashflow forecasts and committed capex

Source: Edison Investment Research

Exhibit 11: Group production expectations

Source: Edison Investment Research

Exhibit 12: Financial summary

Accounts: IFRS, Yr end: December, USD: Thousands

 

2014

2015

2016

2017

2018e

2019e

2020e

Total revenues

 

 

24,533

11,372

12,914

39,166

53,116

73,270

86,742

Cost of sales

 

 

(5,241)

(7,030)

(8,548)

(28,078)

(27,216)

(34,180)

(34,318)

Gross profit

 

 

19,292

4,342

4,366

11,088

25,900

39,090

52,425

SG&A (expenses)

 

 

(2,898)

(4,770)

(3,679)

(8,793)

(5,500)

(5,775)

(6,064)

Other income/(expense)

 

 

1,130

1,021

1,701

1,820

1,186

1,914

1,526

Exceptionals and adjustments

 

(3,831)

(7,676)

(29,089)

(725)

(9,500)

(1,000)

(1,000)

Depreciation and amortisation

 

 

(1,602)

(2,057)

(3,266)

(17,824)

(13,153)

(15,960)

(17,690)

Reported EBIT

 

 

13,693

(7,083)

(26,701)

3,390

12,086

34,229

46,888

Finance income/(expense)

 

 

(1,009)

(96)

4

(129)

0

0

0

Other income/(expense)

 

 

0

18,289

0

29,558

0

0

0

Exceptionals and adjustments

 

0

0

0

0

0

0

0

Reported PBT

 

 

12,684

11,110

(26,697)

32,819

12,086

34,229

46,888

Income tax expense (includes exceptionals)

 

 

(4,328)

(1,063)

(1,503)

(4,541)

(5,785)

(2,300)

(2,319)

Reported net income

 

 

8,356

10,047

(28,200)

28,278

6,302

31,929

44,569

Shares at end of period - basic

 

 

376

38

80

204

205

205

205

 

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

9,392

18,401

12,605

54,445

76,910

93,446

93,465

Goodwill

 

 

0

0

0

0

0

0

0

Intangible assets

 

 

16,460

23,473

10,623

15,231

13,700

19,521

22,693

Other non-current assets

 

 

1,999

2,106

2,503

2,724

2,724

2,724

2,724

Total non-current assets

 

 

27,851

43,980

25,731

72,400

93,334

115,691

118,881

Cash and equivalents

 

 

17,935

8,170

4,725

25,844

15,946

23,025

69,971

Inventories

 

 

0

1,188

1,698

5,157

4,999

6,278

6,303

Trade and other receivables

 

 

3,306

6,678

9,463

37,656

28,242

29,094

23,275

Other current assets

 

 

0

0

0

0

0

0

0

Total current assets

 

 

21,241

16,036

15,886

68,657

49,187

58,397

99,549

Non-current loans and borrowings

 

 

0

0

0

0

0

0

0

Other non-current liabilities

 

 

608

286

290

4,506

4,506

4,506

4,506

Total non-current liabilities

 

 

608

286

290

4,506

4,506

4,506

4,506

Trade and other payables

 

 

1,686

3,556

3,674

19,459

13,621

12,259

11,033

Current loans and borrowings

 

 

2,207

0

0

0

0

0

0

Other current liabilities

 

 

5,142

928

389

2,473

2,473

2,473

2,473

Total current liabilities

 

 

9,035

4,484

4,063

21,932

16,094

14,732

13,506

Equity attributable to company

 

 

39,449

55,246

37,264

114,619

121,921

154,849

200,418

Non-controlling interest

 

 

0

0

0

0

0

0

0

 

 

 

 

 

 

 

 

 

 

Cashflow statement

 

 

 

 

 

 

 

 

 

Profit before tax

 

 

12,684

11,110

(26,697)

32,819

12,086

34,229

46,888

Net finance expenses

 

 

0

0

0

0

0

0

0

Depreciation and amortisation

 

 

1,602

2,057

3,266

17,824

13,153

15,960

17,690

Share based payments

 

 

1,064

761

(47)

538

1,000

1,000

1,000

Other adjustments

 

 

1,670

(12,281)

25,742

(34,613)

7,314

(1,914)

(1,526)

Movements in working capital

 

 

12,941

(2,183)

(3,440)

5,412

3,735

(3,493)

4,568

Interest paid / received

 

 

0

0

0

0

0

0

0

Income taxes paid

 

 

(4,430)

(4,678)

(766)

(364)

(5,785)

(2,300)

(2,319)

Cash from operations (CFO)

 

 

25,531

(5,214)

(1,942)

21,616

31,503

43,482

66,300

Capex

 

 

(13,634)

(5,120)

(11,890)

(24,917)

(42,588)

(38,317)

(20,881)

Acquisitions & disposals net

 

 

0

0

0

(24,948)

0

0

0

Other investing activities

 

 

1,110

4,836

825

760

1,186

1,914

1,526

Cash used in investing activities (CFIA)

 

(12,524)

(284)

(11,065)

(49,105)

(41,401)

(36,403)

(19,354)

Net proceeds from issue of shares

 

 

0

0

10,127

48,510

0

0

0

Movements in debt

 

 

0

(3,702)

(96)

(43)

0

0

0

Other financing activities

 

 

0

0

0

0

0

0

0

Cash from financing activities (CFF)

 

 

0

(3,702)

10,031

48,467

0

0

0

Increase/(decrease) in cash and equivalents

 

 

13,007

(9,200)

(2,976)

20,978

(9,898)

7,079

46,946

Currency translation differences and other

 

 

(615)

(565)

(469)

141

0

0

0

Cash and equivalents at end of period

 

17,935

8,170

4,725

25,844

15,946

23,025

69,971

Net (debt) cash start of period

 

 

15,728

8,170

4,725

25,844

15,946

23,025

69,971

Movement in net (debt) cash over period

 

 

12,392

(7,558)

(3,445)

21,119

(9,898)

7,079

46,946

Source: Company accounts, Edison Investment Research

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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 Edison analyst 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.

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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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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