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Low risk, high margin SDX Energy continues to find favour

Published: 09:31 08 Jun 2016 EDT

onshore drilling operation
SDX aims to double production, and it could be acquisitive.

SDX Energy Plc (LON:SDX, CVE:SDX), the latest addition to AIM’s E&P sector, was far from a stranger to many London investors, nevertheless, the Egypt focussed producer has received a warm welcome.

The shares, which also trade in Toronto, have risen some 30% since joining the London market.

Given that SDX had managed to continue making money in a very tough oil market, has growth aspirations and (thanks to a recent placing) has ample cash it is probably not that surprising the company’s proposition found favour.

The capital injection was earmarked for a new work programme.

SDX currently produces some 1,511 barrels oil equivalent per day. It aims to ramp up average around 1,730 boepd for this year and 2,345 boepd by the end of next year.

On top of that the company itself highlights that it is now well placed to capitalise on opportunities to pick up distressed assets in Egypt.

Low risk, high margin operations in Egypt

SDX has two key assets in Egypt, the North West Gemsa and Meseda fields.

Together these fields host some 7.34mln boe of proved and probable reserves net to SDX, though with more development work there’s the potential to unlock a further 585 bcf of gross prospective resources at the 55% owned South Disouq.

The company has 10% of North West Gemsa, which produces around 7,936 boepd gross, meanwhile, it owns 50% of Meseda which has been flowing at 3,726 bopd.

At South Disouq, in the Nile delta, a 3D seismic programme got underway this spring, and an exploration well is due to be drilled in December.

Expansion plans promise to unlock production growth

Last month’s funding pays for drilling and development, work that is designed to more or less double net production.

In all, work is planned for eleven wells. And the bulk of the work will take place through the third and fourth quarter of 2016.

The active programme will include workover and development drilling, as well as a carried exploration well.

Separately there are plans for a waterflood and infill programmes which promise to potentially treble reserve volumes. 

SDX chief executive Paul Welch on US$100mln value goal

At the time of last month’s oversubscribed share placing SDX boss Paul Welch highlighted in a Proactive Investors interview that he is that the group’s market capitalisation will match its current NAV which is over US$100 million.

 

Cantor sees huge upside with a 66p price target

With a price target of 66p City broker Cantor sees some 175% upside to the current price (around 24p), as analyst Sam Wahab reckons SDX offers a “unique investment proposition” against a backdrop of challenging sector sentiment.

“We remain of the view that the current price still undervalues the company and with a low risk, production-led strategy accelerating, we expect the share price to continue its upward trajectory,” Wahab said in a note.

The analyst also highlighted that the successful recent placing suggests appetite among institutional investors for low risk opportunities in the junior oil sector.

The Egyptian oil operation’s ability to generate cash is the key attraction for Wahab.

“Despite a subdued oil price environment, SDX’s production base generates positive cash flow down to US$15/bbl, underlining its cash generative resilience versus its peer group,” Wahab said.

He added: “We believe that a focus on low-risk cash generation to underpin further high impact drilling is a sensible strategy in the current climate, and acts as a differentiating factor for investors.”

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