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SDX Energy Inc
Symbol SDX
Shares Issued 37,642,067
Close 2016-04-29 C$ 0.43
Market Cap C$ 16,186,089
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SDX firms up earnings of $9.4-million (U.S.) for 2015

2016-04-29 23:00 ET - News Release

Mr. Paul Welch reports

SDX ENERGY INC. ANNOUNCES FOURTH QUARTER AND YEAR-END 2015 FINANCIAL AND OPERATING RESULTS AND PROVIDES GUIDANCE FOR 2016

SDX Energy Inc. has released its financial and operating results for the three months and year ended Dec. 31, 2015. (All dollar values are expressed in U.S. dollars net to the company unless otherwise stated.)

Highlights for 2015:

Corporate and financial and highlights:

  • Completed a business combination between Sea Dragon Energy Inc. and Madison PetroGas Ltd. on Oct. 1, 2015, to create SDX Energy Inc.;
  • Twelve months to Dec. 31, 2015, realized net revenues of $17.6-million and netback of $11.5-million (2014: $44.5-million and $32.8-million, respectively);
  • Twelve months to Dec. 31, 2015, realized average oil price of $41.55 per barrel (2014: $82.34 per bbl);
  • Exited 2015 with cash on hand of $8.2-million and zero debt after repaying a $1.65-million reserves-based loan and a $2.05-million debenture;
  • Invested $6.4-million of capital expenditure into business;
  • Two months to Dec. 31, 2015, total comprehensive income of $7.4-million compared with total comprehensive (loss) of ($1.0-million) for the 12 months to Dec. 31, 2014;
  • In SDX's 2015 financial statements, which, under international financial reporting standards, are required to reflect 12-month financial results of Madison and three-month financial results of Sea Dragon, total comprehensive income in 2015 will be $9.4-million compared with $7.9-million in 2014;
  • Total comprehensive income for the 12 months to Dec. 31, 2015, and under IFRS includes an $18.3-million gain on the business combination and a $6.8-million impairment charge.

Operational highlights:

  • Average daily oil sales in 2015 of 1,519 barrels of oil equivalent per day;
  • Average daily natural gas and natural gas liquids production in 2015 of 152 boe per day (to be invoiced in 2016);
  • As at Dec. 31, 2015, pursuant to the Degolyer and MacNaughton report (as defined below), proven and probable reserves, net to SDX, of 7.34 million boe (North West Gemsa and Meseda) and gross mean prospective resources of 490 billion cubic feet of gas and 16.33 million barrels of oil and liquids (269.5 billion cubic feet and 8.98 million barrels of oil and liquids, net to SDX) at South Disouq;
  • In North West Gemsa, completed seven successful workover wells and spudded Al Amir SE-23 development well, which was completed and tested at 4,080 boe per day in February, 2016;
  • In Meseda, the MSD-6 well logged 146 feet of net pay and was brought on production at 330 boe per day; two further wells were drilled during the year and will be used for water injection needs and to delineate the northern boundary of the field;
  • Contractor appointed to carry out 300-square-kilometre 3-D seismic survey at South Disouq; government approvals obtained and mobilization commenced;
  • Well planning and surveys completed for Manatee-1 exploration well at West Bakassi in Cameroon;
  • Completed technical review at South Ramadan development concession.

Subsequent to year-end:

  • Al Amir SE-23 brought onto production and Al Amir SE-24 development well spudded in February, 2016, with results expected in late April/early May, 2016;
  • South Disouq 300-square-kilometre 3-D seismic survey acquisition commenced March, 2016;
  • Manatee-1 spudded on March 2, 2016, and on March 27, 2016, reached a total depth of 1,447 metres after intersecting 26 metres of gas-bearing section of varying quality; results being assessed.

Guidance and outlook for 2016:

  • Complete drilling of AASE-24 development well at North West Gemsa and carry out nine-well workover program;
  • Progress 11-well workover program, infill drilling and a water flood program at Meseda;
  • Complete South Disouq 300-square-kilometre 3-D seismic survey and drill carried exploration well before year-end;
  • Assess result of Manatee-1 well in Cameroon and technical review at South Ramadan and decide on optimum way forward for these assets;
  • Continue to work to reduce general and administrative costs postbusiness combination.

Commenting, Paul Welch, president and chief executive officer of SDX, said: "SDX Energy has experienced a truly transformational year in 2015 with the company experiencing significant positive benefits from the merger in early October, 2015. The combination has created a stronger company with a stable financial base, which provides resilience in these challenging markets. We are fortunate to have a high-margin production business, with significant growth potential, that has allowed us to remain profitable throughout the period. However, we maintain a strict financial discipline to ensure we run the company and its assets as efficiently and effectively as possible. We have already reported on several significant operational developments this year, and that will be a running theme throughout the coming year as we execute our active work program, which will aim to increase production and discover new resources."

                        PRO FORMA COMBINED BUSINESS RESULTS

                                          Three months ended       Twelve months ended
                                                Dec. 31,                 Dec. 31,
                                           2015         2014         2015         2014
Financial
($000s except per-unit amounts)
Gross revenues                           $4,128      $12,946      $23,030      $71,331
Royalties                                  (686)      (4,760)      (5,467)     (26,879)
                                         ------       ------       ------       ------
Net revenues                              3,442        8,186       17,563       44,452
Operating costs                          (2,482)      (3,131)      (6,039)     (11,630)
                                         ------       ------       ------       ------
Netback                                     960        5,055       11,524       32,822
Net income/(loss)                         8,542       (2,784)       7,358       (1,024)
Per share                                  0.15        (0.02)        0.20        (0.02)
Funds from operations                      (934)       1,389          758       14,269
Per share                                 (0.02)        0.04         0.02         0.25

Operational
Oil sales (bbl/d)                           652        1,239          759        1,346
Gas sales (Mcf/d)                             -            -            -          705
NGL sales (bbl/d)                             -            -            -           16
Production service fee (bbl/d)              704          904          760          894
                                         ------       ------       ------       ------
Total boe/d                               1,356        2,143        1,519        2,373
                                                                                                  
                                                 Three months ended           Twelve months ended 
                                                      Dec. 31,                      Dec. 31,
                                                2015           2014           2015           2014

Brent oil price ($ per bbl)                   $43.56         $76.37         $52.30         $98.94
West Gharib oil price ($ per bbl)              34.35          69.82          42.81          90.16
Net realized price ($ per bbl)                 33.09          65.65          41.55          82.34
Royalties ($ per bbl)                           5.50          24.14           9.86          31.03
Operating costs ($ per bbl)                    19.90          15.88          10.89          13.42
Netback ($ per bbl)                             7.69          25.63          20.80          37.89

                              AUDITED FINANCIAL STATEMENTS

                                              Three months ended           Twelve months ended 
                                                   Dec. 31,                      Dec. 31,
                                             2015           2014           2015           2014
Financial
($000s except per-unit amounts)
Gross revenues                             $4,128         $4,831        $12,058        $24,533
Royalties                                    (686)             -           (686)             -
                                           ------         ------         ------         ------
Net revenues                                3,442          4,831         11,372         24,533
Operating costs                            (2,482)        (1,159)        (4,973)        (3,639)
                                           ------         ------         ------         ------
Netback                                       960          3,672          6,399         20,894
Total comprehensive income/(loss)           8,542           (993)         9,400          7,936
Per share                                    0.23          (0.02)          0.20           0.15
Funds from operations                        (934)         2,652          1,902         17,020
Per share                                   (0.02)          0.05           0.04           0.30

Operational
Oil sales (bbl/d)                             652              -            164              -
Gas sales (Mcf/d)                               -              -              -              -
NGL sales (bbl/d)                               -              -              -              -
Production service fee (bbl/d)                704            904            760            894
                                           ------         ------         ------         ------
Total boe/d                                 1,356            904            924            894

Brent oil price ($ per bbl)                $43.56         $76.37         $52.30         $98.94
West Gharib oil price ($ per bbl)           34.35          69.82          42.81          90.16
Net realized price ($ per bbl)              33.09          58.07          35.74          75.15
Royalties ($ per bbl)                        5.50              -           2.03              -
Operating costs ($ per bbl)                 19.90          13.94          14.74          11.15
Netback ($ per bbl)                          7.69          44.13          18.97          64.00

Chief executive officer's message

"SDX Energy has experienced a truly transformational year in 2015 with the company benefiting significantly from the merger between Toronto Stock Exchange-listed Sea Dragon Energy and privately held Madison PetroGas in early October, 2015. The rationale for the merger was to create materiality and scale through consolidation. Specifically, we sought to create a combined entity with an enhanced ability to grow shareholder value through production growth and exploration success and which also had the ability to access capital and provide greater liquidity for our shareholders. The merger significantly strengthened and diversified our portfolio, which contains four concessions in Egypt and one in Cameroon. The Egyptian concessions consist of two producing assets, North West Gemsa and Meseda, a development asset, South Ramadan, and an exploration asset, South Disouq, and in Cameroon, an exploration asset called West Bakassi.

"Throughout 2015, we have continued to refocus SDX's portfolio towards low-cost producing assets. Previously, Sea Dragon sold Kom Ombo (with opex of circa $60 per bbl) and relinquished Shukheir Marine (with opex of circa $100 per bbl). The October, 2015, merger saw SDX acquire Meseda, a high-margin producing asset in Egypt. Additionally, we have set up a task force with our partners NPIC and Circle Oil to reduce opex at our other producing asset in Egypt, North West Gemsa. In 2015, we achieved average opex of 10.89 per bbl, and our aim is reduce this further during 2016. This focus on reduction of opex is a key part of our strategy and has given us two resilient producing assets that will enable the company to remain profitable even in a sub-$30 oil price environment, whilst also providing leveraged upside to an eventual rebalancing of the oil price.

"We continue to focus on increasing production at both North West Gemsa and Meseda and have an active work plan for 2016. In North West Gemsa, two development wells will be drilled, and nine well workovers will be carried out. In Meseda, we will progress an 11-well workover program, infill drilling and a water flood program. The commencement of this work plan has already produced positive results on the North West Gemsa field with the successful Al Amir SE23 development well, which flowed on test light 42.2-degree API oil at a rate of 4,080 barrels of oil per day (1.3-per-cent water cut and 48-64th choke). The Al Amir SE-24 development well was spud in February, 2016, with results expected in late April/early May, 2016. Our already-low and falling cost of production ensures that we are uniquely placed amongst our industry peers to be able to generate positive free cash flow despite the low oil price environment.

"Another significant focus for the company in 2015 has been to reduce our general and administrative expenses. We have rebid all service company costs and also successfully cut in half the cost of the 3-D seismic program on South Disouq compared with previous estimates. It is our goal to further drive down SDX's G&A in 2016 by circa $750,000 or circa 15 per cent.

"Another key aspect of the merger was the financial stability that it brought to the combined entity. We have strengthened our balance sheet by entirely eliminating all company debt over the course of 2015. At the start of 2015, the company had over $10-million of debt, and this was completely eliminated by October, 2015. The rapid and sustained fall in oil prices has put a lot of strain on industry peers leveraged by debt, so we are fortunate to be in a position where this is not an issue for SDX. Our focus on cost-cutting combined with our now debt-free balance sheet puts the company on a solid footing going into 2016.

"Looking ahead, we have some very exciting exploration opportunities coming up in 2016, which, if successful, could transform the company in the near term. In our South Disouq concession, located onshore in the Nile delta area of Egypt, the company has commenced the acquisition of 300 square kilometres of 3-D seismic. The acquisition will complete midyear, and an exploration well is planned towards the end of 2016, where SDX's drilling costs are carried by our partner IPR. In Cameroon, the Manatee-1 well was spudd on March 2, 2016, and on March 27, 2016, reached a total depth of 1,447 metres after intersecting 26 metres of gas-bearing section of varying quality. The well results are currently being assessed, and a decision will be made in the near future on the optimum way forward for this asset. We look forward to updating our shareholders on our progress throughout the year.

"The combined strength of our low-cost producing assets, stable financial position and high-impact work program has created a company which is a solid platform for growth. We are well placed to remain resilient through a sustained low oil price environment with our high-value producing fields that require very modest levels of capital expenditure to maintain production levels. Furthermore, our exploration activities, which are already under way, are an exciting extension of our offering to shareholders and provide a number of firm catalysts with the potential to generate significant shareholder value over the next 12 months. Finally, we are uniquely positioned to capitalize on new opportunities that arise in Egypt through our extended network and influence there, and we will be leveraging our stable platform for growth to take advantage of the opportunities we see in the current environment.

"To conclude, I would like to personally thank SDX's shareholders, both new and old, for their continued support and belief in our story. I would also like to thank my board and all my SDX colleagues for their dedication, hard work, creativity and vision, which has enabled us to build up such positive momentum as we head into 2016. Despite the industry headwinds that result from the current oil price environment, the company is in a solid position, and the management team is focused on the main task at hand, which is generating value for all of our shareholders. I hope this overview helps convey the enthusiasm and excitement that SDX's management possesses for the future of this company. We anticipate that the year ahead will be as equally transformational as the previous year, and we look forward to utilizing the solid platform we have created to achieve our ambitious growth objectives going forward."

Reserves

The decrease in reserves year on year is primarily based on the amount produced from the existing assets. Technical and commercial (pricing) revisions in North West Gemsa and Meseda have largely offset each other.

              RECONCILIATION OF GROSS RESERVES AS AT DEC. 31, 2015, FORECAST PRICES AND COSTS 
                                     
                                Light and medium oil                                   Heavy oil     
                          Proven     Probable     Proven plus probable    Proven    Probable    Proven plus probable
                           (Mbbl)       (Mbbl)                   (Mbbl)    (Mbbl)      (Mbbl)                  (Mbbl)

Dec. 31, 2014              1,551          641                    2,192     3,233       2,453                   5,686
Technical revisions         (709)        (432)                  (1,141)      586         985                   1,571
Economic factors             (13)           -                      (12)        -           -                       -
Production                  (270)           -                     (270)     (859)          -                    (859)
                          ------       ------                   ------    ------      ------                  ------
Dec. 31, 2015                559          209                      769     2,960       3,438                   6,398

                                          Natural gas                           
                            Proven      Probable     Proven plus probable
                             (MMcf)        (MMcf)                   (MMcf)

Dec. 31, 2014                1,520         1,222                    2,742
Technical revisions           (590)         (988)                  (1,578)
Economic factors               (16)            -                      (17)
Production                    (282)            -                     (282)
                            ------        ------                   ------
Dec. 31, 2015                  632           234                      865          

                                    Natural gas liquids                                     Boe                  
                        Proven    Probable     Proven plus probable      Proven     Probable     Proven plus probable
                         (Mbbl)      (Mbbl)                   (Mbbl)      (Mbbl)       (Mbbl)                   (Mbbl)

Dec. 31, 2014               52          41                       93       5,098        3,346                    8,444
Technical revisions        (25)        (34)                     (59)       (250)         348                       99
Economic factors            (1)          -                       (1)        (17)           -                      (16)
Production                  (8)          -                       (8)     (1,186)           -                   (1,186)
                        ------      ------                   ------      ------       ------                   ------
Dec. 31, 2015               18           7                       25       3,645        3,694                    7,341

 
                      SUMMARY OF OIL AND GAS RESERVES AS OF DEC. 31, 2015 (1)                            
                                                                                               
                                               Light and medium heavy crude oil          NGLs             Natural gas  
                                            Gross       Net     Gross       Net     Gross       Net     Gross       Net
Category                                    (Mbbl)    (Mbbl)    (Mbbl)    (Mbbl)    (Mbbl)    (Mbbl)    (MMcf)    (MMcf)

Proven developed producing                    430       199     2,610       999        14         7       490       226
Proven developed non-producing                106        49         -         -         4         1       121        56
Proven undeveloped                             23        10       350       134         -         -        21        10
                                            -----     -----     -----     -----     -----     -----     -----     -----
Total proven                                  559       258     2,960     1,133        18         8       632       292
Probable                                      210        97     3,438     1,310         7         3       233       108
                                            -----     -----     -----     -----     -----     -----     -----     -----
Total proven plus probable                    769       355     6,398     2,443        25        11       865       400
Possible                                      204        89     2,022       770         7         3       235       102
                                            -----     -----     -----     -----     -----     -----     -----     -----
Total proven plus probable plus possible      973       444     8,420     3,213        32        14     1,100       502

(1) Proven reserves are those that can be estimated with a high degree of certainty to be recoverable. 
It is likely that the actual remaining quantities recovered will exceed the estimated proven reserves.

           SUMMARY OF NET PRESENT VALUES OF FUTURE NET REVENUES AS OF DEC. 31, 2015,
                               FORECAST PRICES AND COSTS    
                                     (in $ millions)     
                                                                 Before income tax  
                                                                    Discounted at   
Reserve category                                     0%          5%         10%         15%         20%          

Proven developed producing                     $37,092     $31,900     $28,119     $25,257     $23,018
Proven developed non-producing                   3,099       2,780       2,516       2,292       2,103
Proven undeveloped                               2,362       1,757       1,295         939         661
                                               -------     -------     -------     -------     -------
Total proven                                    42,553      36,437      31,930      28,488      25,782
Probable                                        59,572      46,135      36,935      30,354      25,473
                                               -------     -------     -------     -------     -------
Total proven plus probable                     102,125      82,572      68,865      58,842      51,255
Possible                                        43,054      31,593      24,211      19,212      15,677
                                               -------     -------     -------     -------     -------
Total proven plus probable plus possible       145,179     114,165      93,076      78,054      66,932

                                                                  After income tax      
                                                                    Discounted at       
Reserve category                                     0%          5%         10%         15%         20%

Proven developed producing                     $30,643     $26,501     $23,465     $21,153     $19,335
Proven developed non-producing                   3,098       2,780       2,515       2,292       2,103
Proven undeveloped                               1,878       1,344         938         626         383
                                               -------     -------     -------     -------     -------
Total proven                                    35,619      30,625      26,918      24,071      21,821
Probable                                        47,110      36,515      29,242      24,027      20,153
                                               -------     -------     -------     -------     -------
Total proven plus probable                      82,729      67,140      56,160      48,098      41,974
Possible                                        34,314      25,264      19,418      15,446      12,629
                                               -------     -------     -------     -------     -------
Total proven plus probable plus possible       117,043      92,404      75,578      63,544      54,603

The disclosures required in accordance with National Instrument 51-101 of the Canadian Securities Administrators are available on the company's annual information form to be filed on the SEDAR website.

We seek Safe Harbor.

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