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Research: Energy & Resources
SDX Energy has released its first quarter 2017 results, the first period incorporating its recent acquisition of Egyptian and Moroccan assets. As expected, hydrocarbon sales rose significantly, totalling 2.991mboe/d and more than doubling year-on-year, while oil netbacks also increased markedly to $44.4/boe. During the period, the company successfully drilled the South Disouq well, proving a gas resource that could start production within 12 months. We leave our NAV unchanged at 76p/share, and await the results of testing the well in the coming weeks.
Written by
SDX Energy |
Aggressive drilling programme in second half |
Quarterly results |
Oil & gas |
22 May 2017 |
Share price performance
Business description
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SDX Energy has released its first quarter 2017 results, the first period incorporating its recent acquisition of Egyptian and Moroccan assets. As expected, hydrocarbon sales rose significantly, totalling 2.991mboe/d and more than doubling year-on-year, while oil netbacks also increased markedly to $44.4/boe. During the period, the company successfully drilled the South Disouq well, proving a gas resource that could start production within 12 months. We leave our NAV unchanged at 76p/share, and await the results of testing the well in the coming weeks.
Year |
Revenue |
PBT |
Cash from operations (US$m) |
Net (debt)/ |
Capex |
12/15 |
11.4 |
11.1 |
(5.2) |
8.2 |
(5.1) |
12/16 |
12.9 |
(26.7) |
(1.9) |
4.7 |
(11.9) |
12/17e |
45.5 |
9.9 |
29.9 |
20.9 |
(22.9) |
12/18e |
80.9 |
35.9 |
56.4 |
35.1 |
(44.6) |
Note: The financials above include the (unrisked) impact of South Disouq, which we estimate will require substantial capex in 2017 and 2018.
South Disouq discovery progresses
The South Disouq well intercepted 82ft of net pay with an average of 25% porosity and permeability above one Darcy. Condensate to gas ratios are estimated to be up to 70bbls/mmscf, above pre-drill estimates. The well will be tested in the coming month after the rig is moved off location. Furthermore, SDX Energy is already working on development planning and gas marketing to enable early gas production, which it hopes to commence in Q118. The company is preparing for a second exploration well, targeting deeper oil potential.
Production should increase during 2017
Production in Egypt was below end-year 2016 levels due to a delays to the start of the planned 12 well workover programme at NW Gemsa (we leave our full year estimates unchanged, but are watchful of NW Gemsa where production has declined to 5.3mb/d in the period vs 7.8mb/d in Q116). A work programme at Meseda is targeting a notable increase in oil production by the end of the year. Gross production at Sebou in Morocco was 646mboe/d, but SDX is drilling three development wells to increase this and two low-risk appraisal/exploration wells (one targeting a deviated step-out, one targeting an accumulation adjacent to existing production), as well as two exploration wells at Lalla Mimouna. We note well costs are low (<US$1m each), historical success rates are above 75% and that all targets are supported by bright spots calibrated over 3D seismic.
Valuation: Keeping NAV unchanged
We leave our estimates and valuation unchanged at 76p/share. The results of the testing at the significant discovery at South Disouq will give us a better idea of the extent and commercial value of the field. The aggressive drilling campaign in Egypt and Morocco means that SDX is well placed to use its position to materially increase production by year end and grow value over time. In total, the company plans to drill up to 11 wells in Egypt and Morocco.
Exhibit 1: Financial summary
Accounts: IFRS, Year-end: 31 December, US$000s |
|
2014 |
2015 |
2016 |
2017e |
2018e |
|
Total revenues |
|
|
24,533 |
11,372 |
12,914 |
45,513 |
80,874 |
Cost of sales |
|
|
(3,639) |
(4,973) |
(5,282) |
(13,746) |
(21,354) |
Gross profit |
|
|
20,894 |
6,399 |
7,632 |
31,766 |
59,520 |
SG&A (expenses) |
|
|
(1,768) |
(3,746) |
(2,457) |
(2,809) |
(1,665) |
Other income/(expense) |
|
|
0 |
(3) |
479 |
0 |
0 |
Exceptionals and adjustments |
|
(3,831) |
(7,676) |
(29,089) |
(1,000) |
(1,000) |
|
Depreciation and amortisation |
|
|
(1,602) |
(2,057) |
(3,266) |
(18,068) |
(20,929) |
Reported EBIT |
|
|
13,693 |
(7,083) |
(26,701) |
9,890 |
35,925 |
Finance income/(expense) |
|
|
(1,009) |
(96) |
4 |
0 |
0 |
Other income/(expense) |
|
|
0 |
18,289 |
0 |
0 |
0 |
Exceptionals and adjustments |
|
0 |
0 |
0 |
0 |
0 |
|
Reported PBT |
|
|
12,684 |
11,110 |
(26,697) |
9,890 |
35,925 |
Income tax expense (includes exceptionals) |
|
|
(4,328) |
(1,063) |
(1,503) |
(823) |
(2,085) |
Reported net income |
|
|
8,356 |
10,047 |
(28,200) |
9,066 |
33,840 |
Basic average number of shares, m |
|
|
376 |
52 |
72 |
178 |
187 |
Basic EPS |
|
|
0.1 |
0.2 |
(0.4) |
0.1 |
0.2 |
|
|
|
|
|
|
|
|
Balance sheet |
|
|
2014A |
2015A |
2016A |
2017E |
2018E |
Property, plant and equipment |
|
|
9,392 |
18,401 |
12,605 |
31,339 |
50,590 |
Goodwill |
|
|
0 |
0 |
0 |
0 |
0 |
Intangible assets |
|
|
16,460 |
23,473 |
10,623 |
8,712 |
13,177 |
Other non-current assets |
|
|
1,999 |
2,106 |
2,503 |
3,077 |
3,077 |
Total non-current assets |
|
|
27,851 |
43,980 |
25,731 |
43,128 |
66,844 |
Cash and equivalents |
|
|
17,935 |
8,170 |
4,725 |
20,895 |
35,137 |
Inventories |
|
|
0 |
1,188 |
1,698 |
1,698 |
2,638 |
Trade and other receivables |
|
|
3,306 |
6,678 |
9,463 |
38,463 |
30,770 |
Other current assets |
|
|
0 |
0 |
0 |
0 |
0 |
Total current assets |
|
|
21,241 |
16,036 |
15,886 |
61,056 |
68,546 |
Non-current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
0 |
Other non-current liabilities |
|
|
608 |
286 |
290 |
290 |
290 |
Total non-current liabilities |
|
|
608 |
286 |
290 |
290 |
290 |
Trade and other payables |
|
|
1,686 |
3,556 |
3,674 |
18,174 |
14,539 |
Current loans and borrowings |
|
|
2,207 |
0 |
0 |
0 |
0 |
Other current liabilities |
|
|
5,142 |
928 |
389 |
389 |
389 |
Total current liabilities |
|
|
9,035 |
4,484 |
4,063 |
18,563 |
14,928 |
Equity attributable to company |
|
|
39,449 |
55,246 |
37,264 |
85,330 |
120,171 |
|
|
|
|
|
|
|
|
Cash flow statement |
|
|
|||||
Profit before tax |
|
|
12,684 |
11,110 |
(26,697) |
9,890 |
35,925 |
Depreciation and amortisation |
|
|
1,602 |
2,057 |
3,266 |
18,068 |
20,929 |
Share based payments |
|
|
1,064 |
761 |
(47) |
1,000 |
1,000 |
Other adjustments |
|
|
1,670 |
(12,281) |
25,742 |
(1,766) |
(2,535) |
Movements in working capital |
|
|
12,941 |
(2,183) |
(3,440) |
3,500 |
3,118 |
Income taxes paid |
|
|
(4,430) |
(4,678) |
(766) |
(823) |
(2,085) |
Cash from operations (CFO) |
|
|
25,531 |
(5,214) |
(1,942) |
29,868 |
56,353 |
Capex |
|
|
(13,634) |
(5,120) |
(11,890) |
(22,891) |
(44,645) |
Acquisitions & disposals net |
|
|
0 |
0 |
0 |
(30,000) |
0 |
Other investing activities |
|
|
1,110 |
4,836 |
825 |
1,192 |
2,535 |
Cash used in investing activities (CFIA) |
|
(12,524) |
(284) |
(11,065) |
(51,699) |
(42,111) |
|
Net proceeds from issue of shares |
|
|
0 |
0 |
10,127 |
38,000 |
0 |
Movements in debt |
|
|
0 |
(3,702) |
(96) |
0 |
0 |
Other financing activities |
|
|
0 |
0 |
0 |
0 |
0 |
Cash from financing activities (CFF) |
|
|
0 |
(3,702) |
10,031 |
38,000 |
0 |
Currency translation differences and other |
|
|
0 |
0 |
0 |
0 |
0 |
Increase/(decrease) in cash and equivalents |
|
|
13,007 |
(9,200) |
(2,976) |
16,170 |
14,243 |
Currency translation differences and other |
|
|
(615) |
(565) |
(469) |
0 |
0 |
Cash and equivalents at end of period |
|
17,935 |
8,170 |
4,725 |
20,895 |
35,137 |
|
Net (debt) cash |
|
|
15,728 |
8,170 |
4,725 |
20,895 |
35,137 |
Movement in net (debt) cash over period |
|
|
12,392 |
(7,558) |
(3,445) |
16,170 |
14,243 |
Source: Edison Investment Research, company accounts. Note: Forecasts currently reflect development of 585bcf of gas at South Disouq – forecasts will be updated post testing once volumes that can be developed from the SD-1X well have been confirmed.
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