Thursday, March 28

INTERVIEW: UK’s SDX looks to scale up Egypt gas business, eyes Morocco growth

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SP Global

HIGHLIGHTS

Drilling plans, assets to ‘go after’ in Egypt: CEO

Morocco’s fiscal terms, gas prices ‘excellent’

Added prospectivity in South Disouq concession

London — UK-listed upstream junior SDX Energy — which is focused on mostly gas-producing assets in Egypt and Morocco — plans to scale up its business in Egypt through more drilling and possible asset acquisitions, its CEO Mark Reid said Aug. 20.

In an interview, Reid said SDX had identified a “significant amount” of additional prospectivity at its flagship South Disouq concession onshore Egypt, with new exploration drilling set for late-2021/early-2022.

SDX — which started production at South Disouq in November last year — said earlier Aug. 20 that gross production from the concession performed ahead of expectations in the first half at 50 MMcf/d (1.5 million cu m/d) of dry gas and 486 b/d of condensate.

That equates to 4,825 boe/d net to SDX.

The company’s total production in the first half, including other assets in Egypt and its gas output in Morocco, averaged 6,980 boe/d, up 97% year on year.

Reid said the start of production at South Disouq had made a “fundamental” difference to the business, with a 100%-owned fifth well at the field, Sobhi, due online in early Q1 2021.

“South Disouq is a good, stable asset and has been good for us in 2020,” Reid said. “And incrementally — because we have a 100% interest in the fifth well — all things being equal it should be more important for us in 2021.”

Operating environment

Reid said Egypt was a good place to operate. “It is well supported with field services, people understand how to navigate ministries, and it’s a very mature, solid environment to work in,” he said.

Reid said the Sobhi well had also allowed SDX to re-map and re-interpret South Disouq and as a result there is “a minimum” of 100 Bcf of de-risked prospectivity to go after.

“I would hope that later on in the year, we can give an update on that with — fingers crossed — an increase in that prospectivity,” he said.

Reid also said SDX could build its Egyptian business through acquisition. “It’s a very well understood, defined hydrocarbon province and there’s a lot of running room, a lot of assets available either from the government or local parties,” he said.

“It’s going to be easier to scale up in Egypt purely because there is more to go after, both organic and inorganic growth opportunities.”

Reid said the company could also expand the capacity of its gas processing plant at South Disouq to as much as 100 MMcf/d from its current rate of around 65 MMcf/d if it found more gas.

“We would want to make sure that the investment rationale is there — is it worth increasing it to 100 MMcf/d from the 65 MMcf/d that we can put through it now?” he said. “It depends on the size of new discoveries, whether drilling successes justify it.”

All of SDX’s Egyptian gas production is sold to the Egyptian national gas company, EGAS, at a fixed price of $2.85/Mcf, which shields SDX against price volatility. “It is completely insulated from commodity price risk which is good. And the government takes all that you can produce,” he said.

Morocco growth

Reid said SDX’s Egyptian business dovetailed well with its Moroccan onshore gas business, where volumes are modest but prices much higher.

SDX already produces some 6 MMcf/d of gas in Morocco, which is sold under five- and 10-year fixed priced contracts at an average gas price of around $11/Mcf to customers that include Peugeot, Extralait, and GPC Kenitra.

“Morocco is highly cash generative — you sell gas at $10-12/Mcf, giving you a high netback,” Reid said.

Reid said the fiscal terms and gas prices in Morocco were “excellent.”

“They are typically what you see when you’re looking at a developing hydrocarbon province with attractive entry triggers,” he said.

Morocco has limited gas production to date and imports gas from Algeria to meet demand.

“The challenge with Morocco is finding sufficient accumulations of gas to build a business around. We’re definitely looking at ways to grow our onshore business in Morocco,” Reid said.

Earlier in the year, SDX had new successes at its producing site in Morocco which showed the acreage extended further to the north, highlighting a further 20 Bcf or more of drilling opportunities.

SDX in March also made a gas discovery in Morocco in a new, yet-to-be commercialized block at Lalla Mimouna, which Reid said had the potential to be a “genuine play-opening well.”

However, its plans to test the well were frustrated by the Moroccan government introducing travel restrictions due to the coronavirus pandemic. “If we can get people in, we’re going to test that well before the year-end,” he said.

Low-cost operator

Reid said it was unlikely that SDX would pursue new opportunities outside of North Africa.

“We’re looking at inorganic growth opportunities in the region,” he said, adding that seeking new assets in a country without an existing operating platform meant increased risk.

“There won’t be any surprises,” he said. “We’re a low-cost, onshore operator. We like things that you can drill quickly and cheaply, that you can tie in cheaply and monetize quickly,” he said.

He also said that he would consider selling SDX should an “outstanding” takeover offer be made for the company. “Any CEO would look at that,” he said.

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