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SDX Energy

HaiderAli
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Joined: November 7th, 2016, 6:47 am
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SDX Energy

#147478

Postby HaiderAli » June 23rd, 2018, 9:40 am

I've been in this for a while and thought now might be a good time to flag it up. They've made some progress, SP is off its one year lows and the reason for posting is that based off a presentation they made earlier this week there could be quite a lot more to come - over the next several months, with the main price drivers likely occurring in 2019.

The business is centred around Morocco and Egypt, so if that is too Bongo then read no further.

Originally I bought into this because although it may not have the multibagging potential of UKOG and BPC, for example, there seemed to be reasonable downside protection, with the promise of an attractive return.

In summary they have a good business in Morocco selling gas direct to their customers at high profit margins and low taxes, but the issue so far has been a relatively low level of reserves. These revenues are based on medium term contracts and are not susceptible to oil price movements. PI's have been serially disappointed by the lack of SP reaction to Morrocan positive drill results, of which there have been many in the past several months, but the game in Morocco seems to be to drill lots of fairly cheap wells which are very profitable, but limited shelf life.

The results from a recent driling campaign and the potential for their efforts in 2019 suggest that this problem could be reversed. The northern part of their licence may yield discoveries which are substantially larger than the usual. The reason for the coulds and maybes is that while the the size of the disovery seemed promising the flow rates were non-commercial, but the company believe this was due to the chemicals they used and will have another go in Q1 2019.

In Egypt where the bulk of the business is gas, but also some oil (with a pricing formula linked to Brent) the problem is that the taxes etc. are fairly high - but they could be on track to add to their discoveries in 2017/2018 and transform the SP with the potential for oil discoveries as well.

They're highly cash generative and even taking into account a fairly full drilling campaign that is due to come up, they should not need to raise any funds in order to do so.

Occasionally in the recent past they have made noises about acquisitions, for which they made need to raise money. But the last one was very profitable indeed. That was in the backdrop of poor oil prices and late payments by the Egyptians. The same macro climate no longer applies, the Egyptians have become much better at paying their debts so fewer distressed purchases around. Anything they go for in the near future would be on the basis of benefits from consolidation and proximity to their existing assets etc. The distressed Circle Oil assets they picked had a lot of receivables attached, but they have been progressively cleared and should be eliminated by next year.

Personally I think they have enough on their plate from organic growth potential.

The slides from the recent AGM do a good job of showing you where the business is at the moment:
http://www.sdxenergy.com/~/media/Files/ ... 202018.pdf

The most recent presentation gives a detailed account for their optimism going forward:
http://www.sdxenergy.com/~/media/Files/ ... update.pdf

HaiderAli
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Joined: November 7th, 2016, 6:47 am
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Re: SDX Energy

#153340

Postby HaiderAli » July 19th, 2018, 10:49 am

Fairly detailed note, though I find the Edison notes more helpful in terms of the breakdown they give for the individual assets and the risking they apply to them.

https://bdadvanced.ipreo.com/OpenFileLi ... =507769760

HaiderAli
Posts: 25
Joined: November 7th, 2016, 6:47 am
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Re: SDX Energy

#172628

Postby HaiderAli » October 9th, 2018, 7:47 pm

SDX is currently suspended because there has been press speculation about their possible acquisition of BP's assets in Egypt.

Amongst PIs there has been some comparison with the deal SQZ struck with BP and saw its share price multi-bag as a result.

But IMHP the key difference is that SDX is getting assets in a country whose record for settling bills is not perfect. SDX itself acquired Circle's assets on the cheap because Circle's bondholders needed paying and the Egyptians were tardy settling their bills.

If BP is willing to be partly paid from revenues (SDX can't pay for this in cash), either they're willing to accept delays if the Egyptians don't settle their bills with SDX or SDX have a cashflow problem.

If a deal goes ahead, I'd be really surprised if it is not accompanied by a cash call. IMHO smart managers call for cash when the mood music is good, and if this deal is good for shareholders then giving up a % of the gain for dilution won't seem too bad.


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