City analysts at Cantor Fitzgerald have upgraded SDX Energy Plc (LON:SDX) after the growing oil and gas group’s successful SD-1X exploration well in Egypt.
The well at the South Disouq project, in Egypt’s Nile Delta, uncovered a significant new gas discovery and also found evidence of an active petroleum system in a deeper target (albeit there was not enough oil down there to warrant a ‘discovery’).
Cantor today repeated a ‘buy’ recommendation and lifted its target price to 83p per share, from 78p - the new target sees some 56% upside to the current share price of 53p.
“SDX’s successful gas discovery at South Disouq, Egypt, represents another positive outcome in what has already been a fruitful year to date,” said Cantor analyst Sam Wahab.
“Whilst there being uneconomic volumes of oil in the deeper target, the company has encountered a material volume of gas, significantly de-risking an estimated 585 billion cubic feet in the Abu Madi section.”
Wahab highlights that the new gas discovery could be brought into production as soon as this year, given the proximity of gas infrastructure, though he notes that this would depend on what the gas processing requirements would be.
He also notes the SDX will now move to test the gas discovery, before updating investors on the size of the new find.
Elsewhere, he sees the operations in Morocco as a potential new highlight for the stock.
“The remainder of the year is set to be a period of high activity in Morocco, with a total of seven wells to be drilled.
“SDX is currently planning activities for the second half of this year and anticipates drilling three development wells and two appraisal wells, and two exploration wells across its Moroccan acreage.”
The analyst added: “In our view, SDX’s shares offer investors a low cost entry point to a growing producer with a high impact, fully funded exploration and appraisal programme.
“In the current climate, we continue to advocate companies that pursue low cost development / production strategies and SDX has certainly delivered on this criterion, with further running room in the share price to come in our view.”