Copied from UK thread. Interesting information about SDX A useful summary article cross-posted by gmr64 at ADVFN, for which thanks:
"Newsbase article on SDX:
AfrOil
25 September 2018
SDX spins up in Egypt The junior has lined up a transformative deal in Egypt, writes Ed Reed
SDX Energy came out swinging for the big leagues last week when it confirmed it was in the process of working on a substantial deal in Egypt. On September 20, SDX – in response to rumours circulating in the press – said it was in talks on acquiring a “significant package of assets” in Egypt, from BP. The form of the deal would constitute a reverse takeover under AIM rules, it said, and would require shareholder approval. As such, it was suspended from trading until more clarity was available – either in the form of a new admission document or a decision that the deal was not going ahead. The announcement brings SDX back into the limelight. After a strong showing in the first half of 2018, driven by drilling successes, the company had been having a more low key time of it lately. “The second half of the year has been a bit under the radar for SDX. We’ve been working on moving assets into production and shooting seismic,” SDX’s CEO, Paul Welch, told NewsBase Intelligence (NBI) in an interview in the week before the deal was announced.
BP asset
A Bloomberg report that day, quoting people knowledgeable with the matter, said BP hoped to raise about US$1 billion from the sale of some of its Egyptian assets. This was intended to help finance a deal it was pursuing in North America, where it is buying BHP Billiton’s shale business. In order to help move the SDX sale to completion, the report said BP was offering a loan of about US$300 million, which would be secured against oil produced from the assets. Talking to NBI , Welch explained that SDX had shied away from taking on debt previously because “in a downturn it’s not easy to control one’s destiny”. The company acquired Circle Oil in January 2017. Circle had fallen prey to a squeeze stemming from low oil prices and difficulties in collecting its receivables from the Egyptian government. While Welch still sounded hesitant about taking on debt, he did seem to have warmed to the idea since his last discussion with NBI, in March of this year. The company took a first step in this direction in July, when it secured a modest facility to support infrastructure development in Morocco. The SDX official also warned that banks had been wary of lending to companies working in Egypt’s upstream, because of the receivable problem. At one point, the government is said to have owed around US$7 billion to producers. However, Cairo has made progress in paying this amount down and intends to cut it to zero by the end of 2019. A potential model for the deal is a sale made by BP in November 2017. The super-major agreed to sell some of its North Sea assets to Serica Energy. The deal was innovative in that Serica only put up GBP12.8 million (US$16.7 million) of cash. The price of the assets was set at GBP300 million (US$393 million).
The remainder of the consideration would come from cash flows over four years, a commitment to cover 30% of decommissioning costs and various contingent payments, dependent on production and pricing. SDX did not provide details on what the asset package might be. One possibility is BP’s stake in the Gulf of Suez Oil Co. (GUPCO) joint venture, which Reuters reported in March was being shopped around. The unit produces 70,000 bpd of oil and 400 mmcf (11.3 mcm) per day of gas. At the time, Reuters’ sources said the venture was worth around US$500 million. BP has made it clear its interest in GUPCO is focused on maintaining production – a business in which SDX has experience. The super-major is focused on bigger ticket plans, such as the major gas discoveries offshore.
Managing plans
SDX already has experience in managing mature production in Egypt, where its North West Gemsa licence has peaked, in terms of output. The block is “fully developed, we’re just doing routine maintenance … it throws off cash and has low capex requirements”, Welch told NBI.
SDX expects the Meseda concession to provide growth in Egypt this year, in addition to bringing on the South Disouq concession by the end of 2018. “The Disouq facility will have 60 mmcf [1.7 mcm] per day, although we’ve guided to 50 mmcf [1.42 mcm] per day, to provide a bit of space while starting up.” Work on Meseda has focused on upgrading capacity, bringing in larger submersible pumps and adding another central processing facility (CPF) – in a demonstration of the company’s ability to work on mature assets. Given these increases, and the peaking of production from NW Gemsa, “there’s a significant increase year on year”, Welch said. The company has been focused on completing drilling at South Ramadan and Meseda, he continued, while working on a CPF and pipeline at Disouq. Furthermore, the company is working on seismic in Morocco and Egypt, Welch explained.
SDX’s drilling work at South Disouq had an 80% success rate, he continued, with the disappointment of Kelvin. “Our work has focused on structural traps and this was a stratigraphic trap. We thought the seismic was well calibrated but it has become clear we need to do additional processing,” he said, while noting that the seismic calibration in Morocco was “bang on”.
Moroccan move
SDX has an attractive and growing gas business in Morocco, where it has consumers – with rising demand – a pipeline with spare capacity and a range of available wells. Speaking earlier this year to NBI , Welch said these wells could each provide around 1.5-2 bcf (42.5-56.6 mcm), with low costs. As such, a number of wells need to be drilled to meet requirements – or at least they did, until the completion of the last two wells of SDX’s campaign. These two wells were drilled on the Lalla Mimouna permit, which had previously been explored by Circle. One of these holds around 5 bcf (142 mcm), while the other contains around 10 bcf (283 mcm). Given the low cost of the work, and the resource available, in addition to follow-up prospects, this suggests a breakthrough for SDX. The Moroccan pipeline has 24 mmcf (680,000 cubic metres) per day of capacity. Currently, this is flowing at 6 mmcf (170,000 cubic metres) and it should have reached 8-10 mmcf (226,000283,000 cubic metres) by the end of this year, rising to 16 mmcf (453,000 cubic metres) by the end of 2019 and filled by the end of 2020. Part of the appeal of SDX’s Moroccan assets is that the company can drill the wells to order – as new demand lines up new contracts, it can drill the necessary holes. Demand is expected to grow in the second quarter of 2019. In July this year, the European Bank for Reconstruction and Development (EBRD) announced a loan of up to US$10 million to support SDX’s plans in Morocco, particularly through supporting infrastructure to help consumers shift from fuel oil consumption to gas. “It’s lower risk than upstream work, although a lower return, so it’s a perfect fit for debt,” Welch said. When Welch and NBI spoke earlier this year, the theme that emerged from the discussion was one of balance. SDX was working on assets in Morocco and Egypt, with these two projects balancing one another out, to provide some degree of stability. The proposed deal with BP – if it moves ahead – will throw this out. The move is a big vote of confidence in the improved outlook for Egypt and a signal that the caution driven by the downturn is no longer needed. It is a gamble, but a potentially transformative and lucrative one."