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SDX Energy proves development credentials as production climbs

Snapshot

Production since the half year has risen to 4,400 barrels per day

Paul Welch

Quick facts: SDX Energy Inc

Price: 16.24 GBX

AIM:SDX
Market: AIM
Market Cap: £33.35 m
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Oil prices have notably picked up in recent months but the London junior oil space has been somewhat lacking big-bang exploration events for speculators.

That doesn’t mean there aren’t opportunities for investors, however.

WATCH: SDX Energy 'turning exploration success into revenue generating assets'

North Africa-focused SDX Energy Plc (LON:SDX) is fortunate enough to have exploration and development upside.

The group is already a substantial earner.

Interim results to June revealed a 35% rise in net revenues and an 83% improvement in cash generation.

The Egypt and Morocco-focused oil and gas producer yielded some 3,234 barrels of oil equivalent output per day in the six months and continues to bring online successful wells drilled during 2018.

Revenues were US$24.4mln, up from US$18mln in the same period a year ago, while netback amounted to US$32.91 per barrel compared to US$22.51.

Earnings excluding exploration (EBITDAX) came in at US$16.2mln, up from US$7.2mln.

Impressive cashflow

Net cash generated from operations was also impressive.

Inflows amounted to US$20.3mln compared to US$11.1mln with US$25.2mln in the bank at the period end.

Paul Welch, chief executive,  notes that the first half was exceptionally busy for exploration drilling, with the second quarter alone seeing 23 wells drilled of which 20 were successful.

That drilling pace will ease in the second half, which should further strengthen the balance sheet with cashflow running currently at US$3.5mln - 4mln per month.

Production since the half-year has risen to 4,400 barrels per day but Welch is forecasting 8,000 barrels per day attributable to SDX by the year-end.

SDX has also picked up French car giant Peugeot as a customer in Morocco on a ten-year gas contract, where prices have followed crude and also started to edge higher.

Indeed, the only thing not to have picked up recently is the SDX share price, which has left Welch scratching his head a little.

Trading conditions in Egypt particularly have improved markedly he says, with the issue of money owed easing materially in the first half.

SDX’s receivables outstanding halved over the first half and authorities in the country have pencilled in a complete clearance of all outstanding money owed by the end of next year.

But finding new acquisitions in Egypt is becoming more difficult as the country becomes a more attractive oil destination.

Position of strength

SDX, though, is now looking from a position of strength.

Edison expects year-end cash to be in the order US$28.7mln, but it is 2019 when the big numbers start to land.

The research house expects revenues and profit to climb by 55% and 175% to US$86.7mln and US$51.1mln.

Net cash, meanwhile, will have risen to US$56.5mln even after US$37mln of additional capital expenditure suggests Edison.

That’s a lot of firepower even in a tightening market.

Edison has a share price target of 92.7p per share compared to the market price of 59.5p that gives a market value of £123mln.

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on 04/08/2019

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