SDX Energy Inc (LON:SDX) is an Egyptian-focused international oil exploration and production company.
The Egypt focussed group raised US$11mln as it floated on AIM back in May, following on from last year’s merger between TSX-listed Sea Dragon Energy and private Madison PetroGas.
The cash was used to accelerate its growth programme at Meseda and South Disouq.
"Having successfully raised new funds and completed our dual listing on AIM, we are now well placed to maximise the potential across our portfolio of Egyptian assets,” said chief executive Paul Welch.
Resilient amid falling oil prices
The group’s low cost base means it can generate positive cash flow down to US$15/bbl Brent and makes it well leveraged to any increase in the oil price.
The group has said its focus for this year will be to increase output from its producing assets, particularly at Meseda where independent studies identified the potential to double rates through an eleven well ESP workover programme.
The workover programme will be followed by an infill drilling and a waterflood programme to increase the recovery efficiency in the field by up to three times current capacity.
It is also looking forward to a material growth catalyst later this year, with the drilling of a high impact exploration well at South Disouq. Significantly, the well costs will be fully carried by the group’s partner in the venture.
Workovers boost output to 1,550 barrels per day
In its interim results statement, it revealed that work on the workover programme at North West Gemsa was progressing and the redevelopment and waterflood programme at Meseda continued.
3D seismic work at South Disouq went ahead of drilling a well later on in the year.
The company invested some US$6.5mln of capital during the period. It ended June with US$6.9mln of cash and had zero debt.
It exited the half year producing at a rate of 1,550 barrels of oil equivalent per day.
Bakassi West disposal
SDX is now in a strong financial position thanks to improvements at Meseda, as well as the high margin barrels at Gemsa and carried exploration at South Disouq, not to mention positive free cash flow down to US$15 oil.
In June, the group relinquished its interest in Bakassi West in Cameroon.
Acquired back in October 2015 as a result of the merger, it was fundamentally non-core strategically.
Nevertheless, first half results showed a US$26mln loss from the write down on the Cameroon withdrawal.
The exit allows the group to focus its efforts on growing the high margin production business in its other core assets across Egypt.
Welch looking ahead confidently
“The last few months have been a transformational period for SDX Energy and I expect that as we move forward, the remainder of 2016 will be one of significant production growth and financial stability,” said Welch.
“We have a solid financial position, which is underpinned by high-margin production that enables us to generate positive free cash flow down to US$15 oil. This, combined with an active, and potentially transformational work programme, gives us a high degree of confidence about the future."
SDX floated at 20.80p in May, shares reached highs of 26.5p at the start of August. It currently stands at around 23.80p per share.
What the broker says
Analysts at Cantor Fitzgerald issued a target price of 66p. In a note released following the interims, reiterating its BUY rating.
“In our view, SDX’s shares offer investors a low cost entry point into a growing producer with a high impact, fully funded exploration programme,” said the broker.
Cantor said the focus on low-risk cash generation to underpin further high impact drilling was a sensible strategy in the current climate, and acted as a differentiating factor for investors.
“We also expect the company to grow through acquisitions where asset values are trading at a significant discount to NAV. In the current climate, we continue to advocate companies that pursue low cost development / production strategies and SDX has certainly delivered on this criterion."