SDX Sdx Energy Plc

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY SDX TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU) NO. 596/2014 ("MAR"). ON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE ("RIS"), THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

01 July 2024

SDX ENERGY PLC ("SDX" or the "Company")

FINAL RESULTS

SDX Energy plc announces its audited final results for the year ended 31 December 2023.

The Annual Report & Accounts of the Group for the year ended 31 December 2023, containing full financial statements that comply with IFRS, is now available on the Company's website and has been sent to shareholders.

Chairman's Review

2023 marked a period of transformation for SDX. We welcomed new cornerstone investors, forged innovative gas pre-payment agreements, and reinforced our board and senior management team.

Our strategic focus and the evolution of SDX away from a pure oil and gas business into an integrated, hybrid energy provider in Morocco gained momentum throughout the year. We laid the groundwork to deliver on this strategy well into 2024 and beyond.

Sale of Egyptian Assets

In March 2023, the Company announced the reconstitution of the South Disouq disposal transaction where Sea Dragon Energy (Nile) B.V. ("Nile B.V.") assigned a direct 18.15% interest in the South Disouq concession to EFGL by way of a Deed of Assignment. EFGL simultaneously returned its 33% stake in Nile B.V. to SDX for a nominal fee. There was no change to the economic substance of the original transaction.

The divestment of the Egyptian assets has been a focal point and has occupied much of the board's time, particularly during the last quarter of 2023 and into early 2024. The West Gharib asset sale terms were agreed in January 2024 and the binding sale and purchase agreement was executed in April 2024. Following completion adjustments, the total sales proceeds received was $7.2 million. The first instalment of $3.5 million was received in April 2024 and part of it was used to fully repay the outstanding secured EBRD reserves-based lending facility, amounting to $2.7 million.

The remaining $3.7 million was received, following the deposit of EGP 100 million (c. $2.1 million) into an escrow account to be used to settle any potential tax liabilities. The Company continues to negotiate the sale of its remaining Egyptian asset, South Disouq.

Morocco

With increasing energy demand from its offtakers, the Company directed its efforts towards expanding its base of production assets. In May 2023, the Company renegotiated its gas sales agreement with one of its key customers, which allowed it to move forward with a summer drilling campaign. In September 2023, the KSR-21 well was drilled and, earlier this year, was tied in and ready to supply offtakers. After receiving the necessary government approvals in April 2024, KSR-21 was brought into production to supply existing offtakers in the Atlantic Free Zone, near Kenitra. In April 2024, we drilled the BMK-2 well, encountering a 9-metre interval with strong gas shows up to c.100 times background readings. The well was drilled to its total depth of 1,412 metres, with a plug set to allow the well to be sidetracked to the target formation, once the required equipment has been mobilised.

Our partnership with CITIC Dicastal continued to strengthen through 2023 and early 2024 and 3-month gas prepayments were concluded for the three quarters, Q4-2023, Q1-2024 and Q2-2024, for approximately $2.0 million per quarter. We continue to work with CITIC Dicastal (a subsidiary of CITIC Group - a Chinese holding company with a corporate portfolio approaching $1 trillion) on a long-term prepayment agreement for future Moroccan gas deliveries as well as other longer-term projects aimed at increasing available energy resources to feed growing industrial demand.

Corporate and Funding

During 2023, we appointed William McAvock as CFO and member of the board and Daniel Gould as Managing Director and subsequently CEO with a board seat. Following these appointments, I reverted back from my role as Interim Executive Chairman to Non-Executive Chairman effective 1 January 2024.

In addition to the two gas prepayment agreements, the Company worked tirelessly through the year to reduce costs and fund itself efficiently. This included successful balance sheet optimisation replacing a cash-backed bank guarantee with a parent company guarantee and releasing $1 million of restricted cash.

As announced in July 2023, the Company entered into a syndicated unsecured convertible loan agreement with Aleph Finance Ltd for up to $3.25 million. Pursuant to this agreement, the company drew down $2.50 million during 2023. The period to draw the remainder expired, but the original agreement was amended in April 2024 to extend the draw-down period. This granted the Company access to further cash of $0.75 million, which was drawn down in April 2024 to pay service providers in relation to Moroccan drilling activities and general corporate purposes.

Looking ahead

As outlined in our strategy update in November 2023, SDX is committed to continuing its upstream activity while embracing new opportunities for growth. Our dedication to delivering a diverse energy portfolio aligns with our vision of serving Morocco and beyond with reliable and sustainable energy solutions.

Thank you to all our stakeholders for their support in 2023 and look forward on delivering on our milestones in 2024.

Review of operations

MOROCCO

The Company's Moroccan acreage (SDX 75% working interest and operator) consists of four petroleum agreements in the Rharb Basin in northern Morocco: Sebou Central, Rharb Occidental, Lalla Mimouna Sud, and Moulay Bouchta Ouest.

The Sebou Central petroleum agreement is a 105 km² exploration permit with several exploitation concessions contained within it. The exploitation concessions that remain active under the Sebou Central petroleum agreement are:

•     Ksiri Central, expiry January 2025

•     Sidi Al Harati Ouest, expiry October 2024

•     Sidi Al Harati Nord, expiry September 2025

•     Gaddari Nord, expiry October 2025

•     Oulad N'Zala Central, expiry May 2025

In September 2021, according to the regulations governing petroleum agreements, SDX relinquished 25% of the original Sebou Central acreage and entered into a 2.5 year extension period of the exploration permit. In March 2024, SDX relinquished an additional 10% of the permit area and entered into a Second Extension Period of 1.5 years with expiry in September 2025.

The Rharb Occidental petroleum agreement is an 806 km² exploration permit with numerous prospects and leads already identified on the existing 3D seismic. The exploitation concessions that remain active under the Rharb Occidental petroleum agreement are:

•     Beni Malek Sud-Est, expiry August 2026

•     Oulad Youssef Central, expiry August 2025

•     Gueddari Sud Ouest, expiry December 2024

•     Sidi Al Harati Sud, expiry December 2024

The Company has held the Lalla Mimouna Sud permit since February 2019. A one year force majeure extension to the "Initial Period" of 2.5 years was granted by the Ministry of Energy, which expired in September 2022. SDX has entered into the "First Extension Period" of 2.5 years, expiring in March 2025. The Lalla Mimouna Sud concession is now a 629.9 km² permit.

All of the Petroleum Agreements remain valid until expiration of the last exploitation concession granted under the relevant Petroleum Agreement.

The Company was awarded the Moulay Bouchta Ouest exploration permit in February 2019 for a total period of eight years. A one-year force majeure extension to the "Initial Period" of the permit was granted by the Ministry of Energy, which expired in September 2023. An extension of 6 months to this period was granted by the Ministry of Energy, which expired in March 2024. We have not sought a further extension and therefore the concession is in process of being relinquished.

2023 Activity

In Q3 2023, the DOB-1 well was brought into production, and we completed our economic feasibility studies on the completed SAK-1 well and applied to ONHYM for the exploitation concession on it.

In September 2023, a new well was drilled (KSR-21). In October 2023, testing and completion was completed on this well, and it was successfully connected to our existing infrastructure.

No workovers were conducted in 2023.

Morocco gross production averaged 2.6 MMscf/d for 2023.

2024 Outlook

Testing and completion was concluded on the new BMK-1 well in January 2024, combined with the successful connection of the ONHYM pipeline which is connecting this well and the surrounding area to our existing infrastructure. We are currently working with ONHYM to obtain approval to commence production on SAK-1 and KSR-21.

The plan for 2024 is to drill two new wells. In April 2024, BMK-2 well was drilled to its total depth of 1,412 metres, and has been left temporarily suspended with a plug set to allow the well to be sidetracked, to the target formation at 1,265 metres, once the required equipment has been mobilised. The second well drilling is planned to commence in 2H 2024. These wells have shallow targets. Gas from these wells will supply our existing customers to serve their expanding needs.

We are currently in discussion with ONHYM in relation to agreeing future permit requirements, which include undertaking new 3D seismic work either in late 2024 or early 2025. SDX is also reviewing proposals on how best to extend its infrastructure to reach other potential new prospects (beyond what has already been mentioned above) within our permit acreages.

EGYPT (HELD FOR SALE)

South Disouq

South Disouq is a 115km² concession located 65km north of Cairo in the Nile Delta region. It is on trend with several other prolific gas fields in the Abu Madi Formation.

Development leases have been granted for South Disouq (18 km²), Ibn Yunus (24 km²), and Ibn Yunus North (32 km²), and all development leases are operated by SDX. Production is currently from the Messinian-aged Abu Madi and Pliocene-aged Kafr El Sheikh formations. In addition, SDX operates the Amendment Concession Agreement Area, which is an exploration permit of 41km².

At the beginning of 2022, SDX held a 55% interest in the South Disouq and Ibn Yunus development leases and a 100% interest in the Ibn Yunus North development lease. Its partner, IPR, holds a 45% interest in the South Disouq and Ibn Yunus development leases. In February 2022, it was announced that SDX sold 33% of the shares in the entity that holds its interests across its South Disouq concession to Energy Flow Global ("EFG"), a private company with upstream and oilfield services activities in Egypt, the Middle East and Asia. In February 2023, SDX re-acquired these shares in exchange for a 33% direct share of the leases. After this transaction, SDX Energy still has an effective 36.9% working interest in the South Disouq and Ibn Yunus development leases and a 67.0% working interest in the Ibn Yunus North development lease.

2023 Activity

Analysis of the exploration MA-1X well on Mohsen has been completed, but future development has been paused in the light of our plans to sell our interest in South Disouq.

West Gharib

West Gharib is 22 km² in area and is producing from the Meseda and Rabul fields, both of which are included in the Block-H development lease. The concession is covered by a production service agreement, which allows for lower cost operations than the traditional joint venture structure. SDX had a 50% working interest in the operation, with Dublin International Petroleum, the operator, holding the remaining 50% working interest.

The Meseda field produces 18^o API oil from the high-quality Miocene-aged Asl sands of the Rudeis formation. The Rabul field produces 16^o API oil from the Miocene-aged Yusr and Bakr sands, which are also part of the Rudeis formation.

In 2021, a 10-year extension for both Meseda and Rabul was agreed with GPC, extending the licence to 9 November 2031. As part of the agreement, the contractors have a minimum commitment to drill six infill development wells (four in Meseda and two in Rabul) and one water-injection well in Rabul by 31 December 2022, and up to another six wells across the concession depending on the prevailing oil price. To take advantage of low drilling costs and the current oil price environment, however, the partnership planned to drill 13 infill development wells from 2022 onwards.

2023 Activity

The infill campaign has continued in 2023, with two infill development wells in the Rabul Field (Rabul-8 and 9) and an exploration well in the area to the south-east of Rabul (Rabul SE-1) drilled. The Rabul SE-1 was a dry-hole, but could potentially be converted to a water-injector for the Rabul Field.

Workovers of the existing wells have continued throughout 2023 to maximise production and recovery from the Meseda and Rabul Fields.

2024 Outlook (EGYPT)

Due to issues in relation to currency controls and ongoing devaluations of the Egyptian Pound, it was determined during 2023 that it would be better to focus our resources on our Morocco operations. Therefore, offers for our interests in South Disouq and West Gharib were entertained, and by 31 December 2023 we had entered into advanced negotiations on both assets.

On 19 April 2024, the sale of our interest in West Gharib had been finalised, and we expect the sale of our interest in South Disouq to be completed by the end of 2024. As part of the West Gharib sale, our investment in Brentford Oil Tools has also been sold. All revenues and costs in relation to these operations have been treated as discontinuing activities in the 2023 accounts - the impact will be a 65-70% reduction in Revenue and Group losses[1], the Balance Sheet impact is that 20% of Group Assets and 4% of Group liabilities have been reclassified as being Held for Sale.

Financial Statements

The financial information set out in this announcement does not constitute the Company's statutory financial statements and is derived from the financial statements for the year ended 31 December 2023. The auditors have reported on those accounts; their report was unqualified and did include a material uncertainty relating to going concern Whilst the financial statements from which this announcement has been derived are prepared in accordance with International Financial Reporting Standards ("IFRS") and applicable law, this announcement does not itself contain sufficient information to comply with IFRS.

Accounting standards in the UK require the directors to assess the Group's ability to continue to operate as a going concern for the foreseeable future, which covers a period of at least 12 months from the date of approval of the Consolidated Financial Statements.

The directors reviewed the cash flow projections prepared by management for the period ending 31 December 2025. The capital expenditure and operating costs used in these forecasted cash flows are based on the board's best estimate.

The principal assumptions underlying the cash flow forecast and the availability of finance to the Group are as follows:

·    The Group expects to be able to meet its licence commitments in Morocco and Egypt. This includes drilling several wells in Morocco to ensure continued gas supply to offtakers. The Group may need to negotiate with the Moroccan and Egyptian authorities to revise work programmes or licence commitments. Based on previous successful renegotiations of licence commitments, the directors believe that this is likely to be achieved, but it is not guaranteed.

·    CITIC Dicastal renews the 3-months prepayment for gas to be supplied in Morocco during Q3-2024 (amounting to approximately $2.0 million).

·    The Group completes the land reclamation work on three wells on a licence in Morocco that has been relinquished and thereby secures the release of $0.4 million of restricted cash held as security for a cash-backed guarantee.

·    The Group sells its remaining asset in Egypt (South Disouq) for sales proceeds of at least $3.0 million.

·    The Group agrees a farm-in deal over its assets in Morocco whereby a joint venture partner pays a contribution towards past costs and funds future capital expenditure in order to earn an interest in the assets.

·    The Group will continue to negotiate and reach agreements with creditors to spread the payment of liabilities over time.

·    The Group will continue to make payments to creditors in line with agreed payment plans.

·    The holders of the Convertible Loan will exercise their right to convert the loan amount into Ordinary Shares in the Company or the Convertible Loan will be restructured instead of the loan amount being repaid in cash when it matures in late July 2024.

In reviewing the cash flow forecast and the principal assumptions above, the Directors have also considered other alternative measures available to the Group, including the deferral of planned expenditure, the reduction of overhead costs and an alternative method of raising capital or debt. These alterative measures give the Directors a reasonable expectation that the Group will have sufficient funds to enable it to discharge its liabilities when they fall due.

However there exists a material uncertainty that may cast significant doubt over the ability of the Group to continue as a going concern. The Board believes it has options to raise external capital, but cannot guarantee the amount and timing of any proposed financing. The Board would also note that there are no guarantees that current discussions with the potential buyers of the South Disouq asset in Egypt and potential farm-in partners in Morocco will be favourably concluded and that arrangement with creditors will remain negotiable.

Notwithstanding the material uncertainty identified, the Directors have concluded that the Group will have sufficient resources to continue as a going concern for the period of assessment, that is for a period of not less than 12 months from the date of approval of the consolidated financial statements. Accordingly, the consolidated financial statements have been prepared in a going concern basis and do not reflect any adjustments that would be necessary if this basis were inappropriate.

Consolidated Balance Sheet

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

For further information:

About SDX

For further information, please see the Company's website at www.sdxenergygroup.com or the Company's filed documents at www.sedar.com.

Glossary

Forward-looking information

Certain statements contained in this press release may constitute "forward-looking information" as such term is used in applicable Canadian securities laws. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or are not statements of historical fact should be viewed as forward-looking information. In particular, statements regarding: liquidity and sources of cash flows in 2024, future drilling developments, costs and results; future raising of external capital and management's beliefs with respect to the Company's overall economic position should all be regarded as forward-looking information.

The forward-looking information contained in this document is based on certain assumptions, and although management considers these assumptions to be reasonable based on information currently available to them, undue reliance should not be placed on the forward-looking information because SDX can give no assurances that they may prove to be correct. This includes, but is not limited to, assumptions related to, among other things, commodity prices and interest and foreign exchange rates; planned synergies, capital efficiencies and cost-savings; applicable tax laws; future production rates; receipt of necessary permits; the sufficiency of budgeted capital expenditures in carrying out planned activities, and the availability and cost of labour and services.

All timing given in this announcement, unless stated otherwise, is indicative, and while the Company endeavours to provide accurate timing to the market, it cautions that, due to the nature of its operations and reliance on third parties, this is subject to change, often at little or no notice. If there is a delay or change to any of the timings indicated in this announcement, the Company shall update the market without delay.

Forward-looking information is subject to certain risks and uncertainties (both general and specific) that could cause actual events or outcomes to differ materially from those anticipated or implied by such forward-looking statements. Such risks and other factors include, but are not limited to, political, social, and other risks inherent in daily operations for the Company, risks associated with the industries in which the Company operates, such as: operational risks; delays or changes in plans with respect to growth projects or capital expenditures; costs and expenses; health, safety and environmental risks; commodity price, interest rate and exchange rate fluctuations; environmental risks; competition; permitting risks; the ability to access sufficient capital from internal and external sources; and changes in legislation, including but not limited to tax laws and environmental regulations. Readers are cautioned that the foregoing list of risk factors is not exhaustive and are advised to refer to the Principal Risks & Uncertainties section of SDX's Annual Report for the year ended 31 December 2023, which can be found on SDX's website and its SEDAR profile at www.sedar.com, for a description of additional risks and uncertainties associated with SDX's business.

The forward-looking information contained in this press release is as of the date hereof and SDX does not undertake any obligation to update publicly or to revise any of the included forward‐looking information, except as required by applicable law. The forward‐looking information contained herein is expressly qualified by this cautionary statement.

Non-IFRS Measures

This news release contains the terms "Netback," and "EBITDAX" which are not recognized measures under IFRS and may not be comparable to similar measures presented by other issuers. The Company uses these measures to help evaluate its performance.

Netback is a non-IFRS measure that represents sales net of all operating expenses and government royalties. Management believes that Netback is a useful supplemental measure to analyse operating performance and provide an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses. Management considers Netback an important measure as it demonstrates the Company's profitability relative to current commodity prices. Netback may not be comparable to similar measures used by other companies.

EBITDAX is a non-IFRS measure that represents earnings before interest, tax, depreciation, amortisation, exploration expense and impairment. EBITDAX is calculated by taking operating income/(loss) and adjusting for the add-back of depreciation and amortisation, exploration expense and impairment of property, plant, and equipment (if applicable).  EBITDAX is presented in order for the users to understand the cash profitability of the Company, which excludes the impact of costs attributable to exploration activity, which tend to be one-off in nature, and the non-cash costs relating to depreciation, amortization and impairments. EBITDAX may not be comparable to similar measures used by other companies. 

Oil and Gas Advisory

Certain disclosures in this news release constitute "anticipated results" for the purposes of National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") of the Canadian Securities Administrators because the disclosure in question may, in the opinion of a reasonable person, indicate the potential value or quantities of resources in respect of the Company's resources or a portion of its resources. Without limitation, the anticipated results disclosed in this news release include estimates of volume, flow rate, production rates, porosity, and pay thickness attributable to the resources of the Company. Such estimates have been prepared by Company management and have not been prepared or reviewed by an independent qualified reserves evaluator or auditor. Anticipated results are subject to certain risks and uncertainties, including those described above and various geological, technical, operational, engineering, commercial, and technical risks. In addition, the geotechnical analysis and engineering to be conducted in respect of such resources is not complete. Such risks and uncertainties may cause the anticipated results disclosed herein to be inaccurate. Actual results may vary, perhaps materially.

Use of the term "boe" or the term "MMscf" may be misleading, particularly if used in isolation. A "boe" conversion ratio of 6 Mcf: 1 bbl and a "Mcf" conversion ratio of 1 bbl: 6 Mcf are based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Use of a Standard

Reserve and resource estimates disclosed or referenced herein have been prepared in accordance with the SPE's Canadian Oil and Gas Evaluation Handbook and in accordance with NI 51-101.