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SDX Energy update highlights its large resource potential in North Africa, say brokers

Earlier, SDX had said Sobhi will generate around US$25mln of cash flow undiscounted, post-tax, after capex.

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Investors should be encouraged by SDX Energy PLC’s (LON:SDX) update today on its Morocco and Egypt acreage, according to analysts at Peel Hunt and SP Angel.

Shares rose 4% to 19.75p on the news, which overall was a good update that outlines the large resource potential across the AIM-listed firm’s portfolio, they said.

Peel Hunt, which has a 'buy' rating and 35p target price, noted that following the integration of the Sobhi discovery in Egypt management estimates that there is an additional 100b billion cubic feet (Bcf) cf of unrisked prospective resource across the South Disouq concession (SDX operator with 55%).

This is split amongst five prospects, with 25% of this in a new ‘buried hill’ type play that is productive in a neighbouring field.

SP Angel added that SDX plans to extend the Sobhi prospect in South Disouq’s gross 50million cubic feet per day (MMscfe/d) plateau production by 18-24 months to 2023 and, with some follow-on drilling success, this could be extended further into 2026.

In Morocco, a successful test in LMS-2 could create 1.5 billion cubic feet (Bcf) of 2P reserves and simultaneously de-risk 6.0Bcf of potential reserves in the same structure plus  a further 3.4Bcf nearby, added the broker.

Earlier, SDX had said Sobhi will generate around US$25mln of cash flow undiscounted, post-tax, after capex.

SDX estimates that five nearby prospects will have similar costs and cash flow profiles to Sobhi.

The company added 8-10 wells are planned for the 50% owned West Gharib project between 2021 and 2023, for a gross cost of US$8-10mln.

It believes that incremental production growth can generate US$5-6mln of additional low-risk cash flow.

SDX said that in In Morocco, it is waiting for a test programme for the LMS-2 well, in the Lalla Mimouna, following the lifting of coronavirus restrictions.

It is expected that this programme may take place late in the third quarter or early in the fourth quarter.

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Price: 16.24 GBX

AIM:SDX
Market: AIM
Market Cap: £33.35 m
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