Sdx Energy Share Discussion Threads

[tom111] 18/5/2017 18:54

It was muted over on lse that testing would be complete by the end of next week and before Ramadam

[tom111] 18/5/2017 18:53

I think he means his portfolio lol

[captain james t kirk] 18/5/2017 18:49

tournesol
Get to 10% and you'll be an insider. Although reading your notes, it appears you already are :)

[drattuts] 18/5/2017 18:41

Immensely useful and impressively detailed - many thanks Tournesol.

[captain james t kirk] 18/5/2017 18:39

Thanks for taking the time and effort to write up and publish such a detailed, informative account.
Well done.

[tournesol] 18/5/2017 18:16

For the record I've made further purchases this afternoon and have now gone substantially past my self imposed maximum weighting. I'm getting close to 10% which is double my standard limit.

[tournesol] 18/5/2017 18:10

Please note that the following has been edited 22/5 to correct an error. The figures originally reported for the size of SD-1X have now been determined to relate to the wider area around South Disouq. SD-1X itself will be significantly smaller than the figures for the whole area. I've changed the text accordingly.

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Please note the following has been edited so that all references tie back to the slides used at the AGM rather than using the slightly different page numbering of the Monday presentation in Edinboro as I did before the AGM presentation was published.

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The following notes from today's AGM are offered without any guarantees. There may be material errors and omissions so treat with caution.


SDX AGM

Excellent AGM. About 6 PI’s (including Haider Ali and me – both previously from the Motley Fool but now of this parish - and Tweedleclever (?) of LSE; plus 9 suits including the SDX Chairman, CEO and CFO – presumably the other 6 were from brokers or II’s or were supporting the SDX team (lawyers, nomads, PR etc.)

The meeting started with the formal business – three resolutions were passed which re-appointed the directors and the external auditors and also approved the LTIP. Then Paul Welch gave a presentation. This was almost, but not quite, identical to the presentation given in Edinboro on Monday – today's slides are on the SDX website at:

www.sdxenergy.com/~/media/Files/S/Seadragon-Corp/presentations/SDX%20Corporate%20Presentation%20May18%202017%20AGM%20Website.pdf

The presentation rattled along at considerable speed. I made a few notes as it progressed and will share them below. I do not pretend that my notes are complete or even accurate, but they are offered as a contemporaneous account which might help readers of the slides. They are my best endeavours but you rely on them at your own peril.

I suggest you look at the slides of the presentation on the website and read my notes in conjunction therewith.

Slide 2 – SDX Energy – High Margin Growth Opportunity
This slide says that current net production = 4705 boepd. (The latest quarterly report issued by the co contained figures around 4200.) I asked if the 4705 figure was correct at date of presentation or related to the position at end of 2016. PW answered that an update will be published tomorrow showing the situation as at end Q1 and suggested that I wait for it to come out. Seems fair enough.

Slide 3 – Experienced Mgt Team
In previous lives, PW and MR worked together at Chariot so already practised at working together.
LB worked for COP on Egyptian assets where SDX had a stake so was well known to the SDX team.

Slide 5 – Why Egypt? Why Morocco?
Why Egypt?
• excellent geology
• political outlook
• economic outlook
• IMF initiatives > major improvements
• local gas prices increasing
Why Morocco?
• commercial terms "best in industry"
• structural shortage of gas > country depends on v high cost imports
• SDX achieves v high gas prices – sales contracts transitioning from $8.10/mcf to $9.90 and beyond
• 10 year tax holiday at level of individual assets/fields
• most assets/fields have short life expectancy, ie <10 years, so are effectively tax free
• SDX owns pipeline which confers some element of monopoly pricing power
• prospecting for gas to fill up under-utilised pipeline
• very substantial unmet demand
• additional gas production will be very profitable

Slide 7 – Assets-Egypt
S Ramadan to be relinquished – decision brought forward from later in year.
NW Gemsa acquired from COP earlier in year.

Slide 8 – NW Gemsa Overview
Relatively short life expectancy.
Declining 10-15% per year each year over next ~5 or so then to be abandoned
Short term yields $9 million pa free cash flow

Slide 11 - Meseda - Hi margin Producing Asset
Significant field/asset workover in progress/imminent
ESP's to be replaced
Production to be doubled from 12-15k bopd to 20-25k
New separation/treatment plant has been fabricated and arrived in country yesterday.
Installation will take a month.
New plant required to handle increased production.

Slide 13 - Abu Madi Play Fairway - Top AM Structure Map
SD-1X was undertaken
a) to explore gas prospect
b) to investigate extension of Abu Madi play from western desert - where prolific discoveries have been made
This second objective has more strategic significance/importance than the first but has been majorly misunderstood by the market.

Slide 14 - AM - Primary Target Results
Drilling results matched pre-drill subsurface model to within a foot.

Slide 15 AM - Primary Target Volumetrics

*NB*NB*NB
Internal management interpretation of results suggests presence of an estimated 10 million bbls of condensate
*NB*NB*NB

This is not just for the discovery target but includes the surrounding area. (NB edited 22/5)

I think this is one of the most important points to emerge from the AGM.

Slide 16 AM Offset Structure Potential
Following the recent discovery a CPR (competent person's report) has been commissioned for the whole area - expected in a month or so
There are 8 potential targets in the block in addition to the one that was drilled
The results of the recent drill have improved the CoS for each of these targets
Potential size is 300-600 bcf for the whole SD area (NB edited 22/5)
Current thinking is tending towards the top of that range

The purpose of drilling the lower/oily targets at SD was not so much to strike oil (nice though that would have been) but rather to test the hypothesis that the oil bearing structures that have been prolific in the Western Desert extend all the way to SD. The answer is a resounding yes. Drilling confirmed the presence of the sands that have provided reservoirs elsewhere and also the presence of oil, albeit not in significant amounts at this location (but see note below).

This is regarded by management as a very significant success. Source rock is pervasive across the region so the chances are high that reservoir rock will be charged where traps occur. And there seems to be no shortage of potential traps.

SDX regards the CoS of oil exploration in the rest of the region to be significantly improved by the recent result. They consider this might prove to be the opening up of a new hydrocarbon province. They are now in a great position to chase the potential of the rest of the block.

In questions from the floor, it turned out that the lower 700ft of the recent drilling was not logged for reasons of operational constraints. It therefore remains possible that there is a charged reservoir at the site of SD-1X at the deeper levels. At some point further wells will be drilled to seek oil in more promising locations which will shed light on this. Remember that SD-1X was drilled primarily to explore the shallow gas target not the deeper oily one - that was just an opportunistic extension to the drilling for gas.


Slide 17 - South Disouq - Summary

Testing of the gas discovery will start next week
Results should be announced in 3-6 weeks time but might be delayed because of Ramadan.
Management expect the discovery to prove commercially viable but that is still to be proved.
If testing gives a positive result, then ultimately 5 additional wells will be needed to delineate/define the structure and provide for effective exploitation.

Slide 19 - Assets - Morocco
All assets acquired from COP
Since acquisition earlier this year:
• Exploration licences at L Mimouna N and S have both been extended to 3/18
• Production licence at Sebou has been extended
• Exploration licence at Sebou has been granted for 8 years period.
•
>These guys are not sitting on their hands!

An additional licence at RARB has been applied for and outcome is awaited.

Slide 20 - Morocco - Sebou permit Prodn Profile
Pipeline belongs to SDX
Currently not being used to capacity
Transporting 6 MMscfd
Capacity = 20 MMscfd
SDX has determined that there is very substantial demand for gas.
So there is an opportunity to utilise the pipeline for additional volume.

Gas is being sold under contracts established by COP before SDX acquisition.
Morocco imports most of its gas and consumers pay a high price. Buyers of SDX gas are getting it for about 50% of the cost of imported gas. Most of SDX gas is used by manufacturers (typically ceramics) and they obtain a significant price advantage over their competitors. These competitors have lobbied the government to mandate gas price increases to create a level playing field!

Consequently contracted prices are increasing from $8 to $10 whilst new customers are coming in at $12-$13.
This is v profitable business indeed.

SDX plans to drill 7 wells this year with the aim to find enough additional gas to fill the pipeline and satisfy some of the identified demand. If they succeed the cash generation and profits should increase fourfold because of better resource utilisation and a higher average sales price.

Slide 22 - Explo Potential
7 wells are to be drilled
Historical success rates in the area are 80%
So it seems likely that 5 or 6 of the 7 will succeed

Slide 24 - Egypt - The case for consolidation
The potential targets for further acquisitions are the 20+ small companies identified on the chart
11 of the 20 have effectively put themselves up for sale already and 2 have gone out of business

Slide 27 - Delivering on Objectives
The exit strategy is to bulk up to 25-30k boepd and a market cap of $1 billion and then sell to a bigger player. Time horizon = 3-5 years.

PW has done this before, and expects to do it again here.


*NB*NB*NB

SLIDE No 27 OF THE MONDAY PRESENTATION SHOWED THE CALCULATION OF NAV/RENAV

THIS WAS EXCLUDED FROM TODAY'S PRESENTATION AND HAS BEEN REMOVED FROM THE WEBSITE

Management consider that it needs significant revision in light of the recent discovery and the ongoing CPR. It will be reworked in due course (a month or so?)


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NOTES ARISING FROM Q AND A

Receivables due from Egyptian state oil co?
Payments are being received.
The IMF has injected significant funding into Egypt and made it conditional on amongst other things the state settling its debts. The state is committed to paying in full by end 2018. Debt is denominated in $. Payments are in a combination of $ and local currency. The latter is convertible and there are no constraints on remittance overseas.

Gas prices in Egypt?
Egypt is short of gas and is importing from abroad. Gas prices have been raised to provide incentive for production. SDX has raised prices to $2-65 and to $5 where supply is to 3rd parties rather than the national energy co. SDX target is $3-50 and this should not present difficulty.

Drilling at SD?
Not before 9/17 then perhaps additional 3D seismic followed by 2 appraisal/development wells for the gas discovery and perhaps an exploration well seeking oil.

Cash generation in 2018?
Is it expected to achieve $68 million?
No. Expect $42 million but not taking into account spend on SD

Well that's it guys, hope you find it useful

[captain james t kirk] 18/5/2017 18:08

brasso,
I don't think that's very fair on tournesol.
If people want to read an account from someone else who attended the AGM, they can see it on the board where it's posted.
Unless swindon, who has also posted it on iii's, is also tournesol, he doesn't normally post on this thread.

[brasso3] 18/5/2017 17:57

From Swindon41 on LSE:-

Just attended a very impressive AGM and an updated Presentation by the energetic and impressively youthful CEO Paul Welch......a useful opportunity for investors to 'kick the tires' on their investment and I was therefore surprised that less than a dozen of us here, but perhaps that was because of the very "North American" early start of 9.00 a.m.?

Wiping the sleep from our eyes we were greeted by a relaxed and welcoming Michael Doyle who Chaired the formalities with a breezy informal manner which all felt very different to far stuffier AGM events I have been lucky enough to attend over the years.....unlike AMER's 70 minute monologue last week, Paul W invited interruptions & questions and he certainly got them especially from a geologist investor poised behind me with some penetrating and incisive pencil-sharpening......

Let's get to the beef though as our N American cousins would say : well, while there was no new news there was plenty of flesh to be put on the strategy and progress since AIM listing this time last year, and for me the highlights are:

1 SDX has that bit of magic as both a producer and explorer.....it makes money, and lots of it at
anything over $21 a barrel of Brent....

2 Egypt, contrary to most westerners views, is a good place to be with an increasingly business-friendly environment and upwards pressure on energy prices.....Morocco likewise, with v good fiscal terms and "more demand for gas than we can ever meet....." ( including whatever multiple TCF's Sound will get out of the ground from the monster in E Morrocco )

3 production is ramping up and about to increase significantly , probably by double in Meseda by year end for example, where a new water treatment plant equipment arrived only yesterday to facilitate this.....

4 South Disouq discovery - " we were really surprised by the ( poor) market reaction especially to the deeper horizons testing.....almost opposite to ours.." Well, I second that Paul...it proved the incredibly useful accuracy of the 3D seismic, proved the source rocks, the sands, and indicated other traps of hydrocarbons to be drilled up in order to prove, and quite probably there is 300 to 600 BCF's of gas, rather than the v conservative 150 BCF figure initially announced from the shallower drilling.....testing of the shallower drill will confirm initial findings one way or another and imho will prove commerciality next week...with CPR to be published within a month....production is then going to start very quickly and government processes already in hand.....so I reckon first rvenues from S Disouq will be much sooner than most people realise.....ok, the last 700 foot of drilling was problematic, the sands didn't like the mud being used in the drill ( freshwater mud reacted with the shales, ) and no electronic logs could therefore be taken....and that's what caused the share price to fall by c twenty percent....but to quote Paul W and I don't put him in the rampi results, it was hugely positive and it proved the hydrocarbon system, the sands are there and it's effectively opened up a new hydrocarbon province for us to chase....we are going to go back into the deeper 2nd phase for oil....we have to weigh up first whether we shoot some more 3D to help locate where we drill... be drilling here into the lower horizons early next year but change the mud content......" in response to further technical questioning: "yes, the source rock at these important lower levels is pervasive and we think it's a great result ..." ( He actually said "yes, we think it's fantastic " but I don't think anyone would believe that he said that.....)

5 Sebou, Morocco ...talked a lot about the pipeline capacity and the aim of raising the throughput to its max by a factor of 4 .... local gas prices and the potential for price increases which suit the government as well as SDX (!) ....a very significant Moroccan drilling campaign this year of 7 wells and with a local success rate of over 80% Paul expects 6 of the 7 to succeed....( well, I did say he wasn't a ramper lol )

6 smoking acquisitions - or "roll up" opportunities as Paul calls them...he appears to have a very strategic approach to this; there are 11 target companies in the target area of Egypt, Egypt and Egypt ( add in Morocco and Tunisia but knock out Libya thank you ) vulnerable to a predatory approach due mainly to their debt burden , 2 have gone ( petroceltic and cop) and 9 are ongoing, with "hopefully another deal done by end of 2017".....striving toward the end goal of a $1B market cap and 25/30k boepd......

7 Egyptian receivables - the cheques in the post...current payments going well and government continuing to paying her down receivables backlog from COP, thanks in part to IMF loan...another big slug ( sorry Hurricane ) being paid to SDX soon, and all should be paid by end 2018 according to CFO...

With cash in the bank, no debt ( dirty word) and free cash flow 2017 of $42M ( pre South Disouq drilling campaign which will be funded out of positive cash flow) ...there's a lot to like, and to me a great risk reward balance.....not risk free , especially geo politics in N Africa ( but where is?) so DYOR but this will continue to be a big part of my portfolio......

[tom111] 18/5/2017 16:32

Well its been a very odd day I must say with no movement yet numerous buys overwhelming sells,see what tomorrow brings

[neo26] 18/5/2017 15:58

Thanks tournsol for keeping us posted...

[ifthecapfits] 18/5/2017 15:55

p.s. so all the apparent buying is being done by those at the AGM ;)

[deltrotter] 18/5/2017 15:52

Tx tournesol - appreciate your time doing this.

[tournesol] 18/5/2017 15:51

Just back from excellent AGM. Still writing up notes. Will post here asap. Minded to buy more shares despite this being my biggest position already. It's not the biggest potential return in my portfolio (eg compared with Hurricane) but the risks look pretty modest and the upside is much bigger than I had realised. More anon.

[ifthecapfits] 18/5/2017 15:35

Interesting volume and trades today with no movement whatsoever.

[saw89] 18/5/2017 15:14

C&C - well spotted....

[niceyman1] 18/5/2017 15:09

Tick up coming into close! I.m.o

[cashandcard] 18/5/2017 14:15

Re. NWG oilfield (50% wi, 4,971 boepd)


"Unitisation discussion underway with offset operator. Expect to conclude in Q2 2017. Additional development potential once unitisation finalized"



Not long for the outcome of that then.



Cash

[pauliewonder] 18/5/2017 14:08

Tom quite possibly. Look at how many delayed trades there are. Could be stake building and then it will fly.

[tom111] 18/5/2017 13:37

sp being held back imo

[ifthecapfits] 18/5/2017 13:28

New presentation available on WS.

[tidy 2] 18/5/2017 13:26

Whoever posted the meeting agenda here could you repost please??

[saw89] 18/5/2017 12:21

C&C - yes condensate production is prolific in these horizons and yes it trades at nearly crude oil prices. Could turn out to be the ace up the sleeve....