WTI $88.15 +$1.33, Brent $89.26 +74c, Diff -$1.11 -$2.1, NG $4.87 +24c, UKNG 194.52p -25.3p

Oil price

I’m not quite sure what Opec + are going to talk about at their meetings this week, maybe how the partners all contribute their own increases or whether there are any signs of demand cooling. Otherwise it’s still all about The Ukraine and what happens there, last time the Russians invaded somewhere there was a winter Olympics going on….

A very Happy Lunar New Year to those in Asia.

Rockhopper Exploration & Production

Rockhopper Exploration plc, the oil and gas exploration and production company with key interests in the North Falkland Basin, is pleased to announce that Rockhopper, Harbour Energy plc  and Navitas Petroleum LP  have extended the provisions of the previously signed heads of terms (announced on 8 December 2021) from 31 January 2022 to 31 March 2022, with a view to signing definitive documentation on the transaction by this date.

Nothing to add, good news and Sea Lion must be a banker at $90 which for some reason Harbour have ducked. 

SDX Energy

SDX has provided an update on its unaudited operating results, capex, cash, and liquidity position for the twelve months ended 31 December 2021 and sets out production and capex guidance for 2022.

Trading and operations update twelve months to 31 December 2021

Production

·      Average entitlement production, of core assets, for the year of c.5,900 boe/d, a core assets decrease of 1% from FY 2020, at the high-end of 2021 guidance of 5,620-5,920 boe/d.

 South Disouq: During 2021, production from the SD-12X well, which was brought online in December 2020 and the IY-2X well, which was drilled and placed on production in Q3 partly offset natural decline and expected sand and water production from two of the four existing wells. The SD-1X and SD-4X wells were successfully worked over during the period and were put back on production at improved rates and with reduced sand and water production. Production for the year was above midpoint guidance.

o  West Gharib: Existing well stock at the asset continued to produce steadily, although exhibiting natural decline as expected. The first well (MSD-21) in a 13-well infill development campaign spud in October 2021 and was completed and brought online in early January 2022. As the campaign commencement was slightly delayed, production for the year was at the lower end of guidance.

o  Morocco: 2021 saw strong demand from all customers, reflecting a sustained return to normal levels of consumption following COVID shutdowns which affected 2020 production. The period also reflects additional consumption from an existing customer’s second factory which came online in December 2020. Production for the year exceeded guidance.

Cash and liquidity remain strong with cash of c.US$10.6 million  as at 31 December 2021 and the European Bank of Reconstruction and Development credit facility remaining undrawn with US$4.8 million of availability. This availability is likely to reduce on completion of the proposed South Disouq disposal, with the next redetermination scheduled for Q2 2022.

·      Together with cash generated from operations, the Company is fully funded for all its stated objectives in 2022.

Production and capex guidance for 2022

2022 Production Guidance

·    2022 production guidance of 3,300 – 3,550 boe/d is lower than 2021 production, predominantly due to the proposed disposal of 33% of SDX’s interests in the South Disouq asset, as well as the decision not to immediately renew an expired customer contract in Morocco. At West Gharib, the development drilling is expected to arrest the natural decline in production and then grow volumes as the new wells come online.

South Disouq: Production guidance for 2022 reflects the proposed disposal of 33% of SDX’s interest in the asset, 2-3% CPF and compressor downtime due to planned maintenance, and several well workovers. The existing well stock is expected to continue to exhibit natural decline, some of which will be offset by drilling the SD-12X East development well. The SD-5X/Warda exploration well is assumed to be dry for guidance purposes but if successful, could increase gross production to 38-40 MMscfe/d and SDX’s total corporate entitlement guidance to 3,600-3,850 boe/d (net of minority interest) from the 3,300-3,550 boe/d currently presented. The Mohsen exploration well, if successful, will require to be tied in and therefore is not expected to contribute to production until mid-2023.

o  West Gharib: The development drilling campaign will arrest the asset’s natural decline, with new wells beginning to grow production during the second half of the year and into 2023.

o  Morocco: 2022 production guidance is lower than 2021 production as the Company decided not to immediately renew a five-year customer contract that expired on 31 December 2021 until the Company has better visibility on future gas supply and pricing to support the full term of a new contract. This decision is the main factor for a reduction in Moroccan capex guidance in 2022 which is c.US$6.0 million (32%) lower than FY21 capex.  The Company is exploring several options for re-entering into discussions with this customer.

Mark Reid, CEO of SDX, commented:

 “I am pleased to announce that 2021 production was at the higher end of guidance and that capex was within guidance.  Our cash management in the year has also been strong, with cash at the year-end growing to US$10.6 million from US$10.1 million last year.

Our full year 2022 production guidance is lower than 2021 actual production of 5,886 boe/d mainly due to the proposed South Disouq disposal announced today and natural depletion across wells at South Disouq.  Production in Morocco in 2022 will be lower due to a decision not to immediately renew a five-year customer contract until we have better visibility on future gas supply and gas pricing to support the full term of a new contract. As a result of this decision, we are reducing 2022 Moroccan capex guidance by c.US$6.0 million compared to 2021. Notwithstanding this, we are still planning to drill up to sixteen wells this year but expect overall capex guidance to be lower in 2022 at US$21.5-US$23.0 million.”

Plenty of information from SDX this morning, looking firstly at the production the overall number was top of guided range with modest discrepancies as expected although the loss of the contract in Morocco for this year needs to be kept an eye on. I would go with the higher guidance from South Disouq as the well should come in. 

Proposed disposal of 33% of the shares in the entity that holds SDX’s interests in South Disouq for US$5.5 million and decision to initiate a share buyback program of up to US$3.0 million in H2 2022

 ·      Share Purchase Agreement signed with Energy Flow Global Limited, a private company with upstream and oilfield services activities in Egypt, the Middle East and Asia, to dispose of 33% of the equity in Sea Dragon Energy (Nile) B.V. ((“Nile) B.V.”), the entity that holds SDX’s gas producing, development and exploration assets in the South Disouq concession, located in the Nile Delta.

·      Transaction effective date of 1 February 2022, with US$5.5 million cash consideration to be received throughout Q2 and Q3 2022 by way of contributions to SDX’s remaining capital and operational expenditure in South Disouq.

·      FY 2020 profit before tax relating to the 33% equity being disposed equated to US$0.24 million.

·      Disposal proceeds allow the Company to plan for a share buyback program returning up to US$3.0 million to shareholders in H2 2022 once the consideration has been fully received, and investing the remainder into growth initiatives across the portfolio.

·      Completion of the transaction is subject to the release of the share pledge held by the European Bank for Reconstruction and Development on the shares in (Nile) B.V. that are being transferred to Energy Flow Global Limited. Energy Flow Global will have the right to appoint a representative to the Board of Directors of (Nile) B.V..

Mark Reid, CEO of SDX, commented:

“I am very pleased to announce that we have entered into an agreement to dispose of 33% of our interests in the South Disouq concession for a consideration of US$5.5 million, which is a significant premium to the asset’s value within our market capitalisation.

We intend to use the proceeds to initiate a share buyback program of up to US$3.0 million in H2 2022 with the remainder to be used for investment into innovative, portfolio growth opportunities which I look forward to updating the market on in due course.

In summary, this transaction allows us to achieve a number of our strategic objectives.

·      Firstly, it permits us to return capital to our shareholders which has been a long-term goal;

·      Secondly, it provides capital to support growth projects across the portfolio; and

·      Thirdly, it provides a clear value read across of 6.1 pence per share for the full value of South Disouq

We will retain 67% of our pre-transaction interests in the South Disouq concession, remaining as operator, continuing to benefit from the cash-generation of the fields, while reducing our risk exposure on the two South Disouq exploration wells to be drilled this year.”

 As for disposal of the stake in South Disouq it sort of makes sense in that SDX can take a bit of the asset off the table at what is a good price and I wouldnt have saw them getting a deal like this. There hasn’t been a conference call but I guess that there would have been some questions about strategy going forward. 

I would be keen to find out how the buy-back programme will work, most importantly whether Waca and the other two 10% shareholders plan to sell in the market and to whether the buying will be democratic and what other parts of the portfolio will benefit from the added investment.

I have been more optimistic about SDX recently, today’s 10% fall has put the brake on that as the market appears to dislike the uncertainty, probably too much but a call might have helped as they present well and have left the market hanging somewhat. 

Guest commentary- NNPC – Afrexim