SDX Energy - April 2017

38 Wedbeck Street, W1G 8DP, London – United Kingdom
Phone 44 (0) 203 219 5640 •  Website:
Content updated periodically  •  Dated April 24, 2017

Ticker Symbol: SDX-V

View All Posts Tagged SDX-V


Shares Outstanding


Market Capitalization


Q1/17 Production Estimate

4,300 boe/d

Enterprise Value


Junior Cap Company

Current Price (04/21/17)


Attractive Purchase

Under $0.85

Table-Pounding BUY

Under $0.75

12 Month Target


Bull Market Peak



SDX Energy (SDX) formerly Sea Dragon Energy Inc. was incorporated in March 2006. The focus of SDX is on existing and acquiring near-term production assets in Egypt and other parts of Africa and the Middle East. One of their first mergers was with Calgary based, private company, MadisonPetrogas which was producing 815 boe/d net. SDX and Madison merged in October 2015 with SDX issuing 26.9M shares valued at $0.70 for a total of $18.8M. The key assets obtained in the merger were the development leases in the Meseda field in Egypt. In January 2017, they completed the acquisition of Circle Oil PLC, which added another 40% to the NW Gemsa ownership (prior 10%), producing assets in Morocco and added cash to the balance sheet. This deal raised corporate production to over 4,200 boe/d. The purchase price of the net assets was US$59.6M, which was financed by a stock raise of US$40M.

SDX Assets in Egypt

SDX Energy - April 2017



In April 2015 Paul Welch joined the company as President and CEO.  During September 2015, Paul was elected to the Board of Directors. Major Institutional Shareholders include MEA Energy Investment Company Ltd. (26.9M), Ingalls & Snyder (27.1M).

TitleManagementShares Owned
ChairmanMichael Doyle6.6M
CEOPaul Welch574K
CFOMark Reid248K
TitleManagementShares Owned
DirectorDavid Richards3.56M
DirectorDavid Mitchell1.64M
Egypt Country ManagerAhmed Moazz47K

Source: April 2017


South Disouq

South Disouq (55% owned and operated by SDX) is a very large concession of 1,275 sq. km. SDX farmed out 45% to a private company, which paid for part of the 3-D seismic program and will pay the majority of the 1st Phase commitment well currently drilling. The SD-1X Abu Madi well could be completed early in Q2/17 (up to 45 days of drilling). If successful, it could be on stream in 60 days. On April 17th, they announced a success at the 7,777-foot level for the natural gas target. It is a significant discovery with 65 feet of net pay and a very high sandstone porosity of 25%. Wells with these characteristics can produce up to 10Mmcf/d and full field development could require up to six wells.

>Natural gas prices are in the $4.00 – $4.50/mcf area now in Egypt. The large land area structure has a large number of additional prospects, providing years of drilling ahead. If successful, this could be a company maker for SDX. The natural gas target may be worth C$1/share and the oil target, depending on the size, could be worth much more. Our valuation target of $2.00 per share takes into account the recent natural gas discovery but does not include any of the oil exploration potential.

South Disouq Top Abu Madi Structure Map

SDX Energy - April 2017


SDX Expected 2017 Activity Timeline

SDX Energy - April 2017



At Meseda, SDX has a 50% working interest with partner, Dublin Petroleum. They have updated the technical performance of the field discovered in 2011 and are planning recompletions and a water flood to improve performance. The field was producing 3,726 boe/d gross in March 2016 and with successful recompletions, treating facilities improvements and a water flood, production could rise to 8K boe/d gross in Q2 or Q3/17.  An exploration well should be drilled in 2H/17 at Yusr-1 on the Meseda block. If they drill down to the Nubia level at 8,000 feet, (at a total cost of $1.2M) they see a target on seismic with 60Mb of potential recoverable oil. We hope this deeper target is chosen.  In 2017 a 5-well workover program, a 2-well infill program and a 2-well exploration program are planned. None of these plays have been factored into our forecast either.


In Morocco, SDX plans on drilling up to five wells in 2H/17 looking to add new supplies of natural gas for current and new customers at Sebou. At Lalla Mimouna they will also drill two prospects. Current prices for natural gas in Morocco are US$9.00/mcf and new deals are being signed at US$12.00/mcf. There is a shortage of natural gas in the country and the main source is imported bottled gas, which sells for US$18/mcf. SDX gross sales volumes now are 6.2Mmcf a day and could double over the next 12 months with drilling success. They have the infrastructure in place to bring any new productive capacity on fairly quickly.


  • SDX was producing 4,233 boe/d (March 23, 2017) and with the upside activity at Meseda production should rise to 6,000 boe/d by the end of Q3/17. Cash Flow Per Share (CFPS) in Q4/17 annualized, could be over US$0.20/share. SDX currently has US$18.3M (C$0.13 cents per share) and no debt. Capex in 2017 is estimated by SDX at US$15.5M and 30+ wells (workover, infills, water injectors and exploration) will be drilled.
  • Our 12 Month Price Target of $2.00 a share is based upon a 7.1x our Q4/17 annualized CFPS estimate of C$0.28 per share (US$0.21 per share). The stock is an Attractive Purchase at under $0.85 a share, and a Table Pounding BUY under $0.75. Book Value is US$0.47 per share, or C$0.63.
  • Our 3-5 year Bull Market Peak target of $5.00 a share is based upon the company growing by the drill bit and by acquisition to over 25,000 boe/d by 2020. We see the game plan of management is to follow the playbook of Centurion Energy (CUX) which was a darling of the street and one of our favourite recommendations in the 2002 to 2006 period. We started following Centurion when it was a $0.66 stock and was producing just over 1,000 boe a day. In 2006 when they were taken over by Dana Gas, for $12.00 per share, the company was producing over 30,000 boe per day as they had great success in Egypt at the El Wastani Field in the Nile Delta.

Balance of Evidence


  • Continued development activity will see production ramping up in 2017. Most of the 2017 volume increase will be from the oil development program at Meseda and the natural gas drilling in Morocco.
  • A strong balance sheet, with cash of US$18.3M (C$0.13/share) and no debt. We look for SDX to continue to be on the acquisition trail in 2017. There are a lot of companies in Egypt with a lack of funding and drilling commitments that need to find a partner to fund or they may be forced to sell out or return the properties to the government.
  • SDX is looking at other opportunities in Egypt as well as in Africa, and Middle East countries. The SDX team has extensive contacts in these areas and if the right deal comes forward they will add another leg to the business model.
  • A significant natural gas discovery at S. Disouq will mean many years of exploration and development drilling.


  • Getting good and reliable equipment in Egypt and Morocco could delay potential timelines.
  • A high impact well in Cameroon was not successful, costing the company US$24.4M in a write-down in 2016. They have since withdrawn from this concession.
  • NW Gemsa has a four year reserve life remaining, so SDX will need to find success in other areas to replace this production.
  • Partners’ abilities to fund growth as quickly as SDX might want, could be a problem if the partner does not have the financial wherewithal that SDX has. We think this issue has delayed activity in the past and may be of concern going forward.


SDX Energy - April 2017


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