In this note, we revisit SDX’s 2017/2018 gas discoveries in Morocco and Egypt and look ahead at the company’s plans to leverage this success to deepen its resource base. In 2019, drilling in Egypt will focus on several Ibn Yunus lookalikes with combined unrisked recoverable volume of c 70bcf and a 17bcf Abu Madi structural trap. In addition, SDX will target a 50mmbo unrisked oil prospect in 2019. In Morocco, SDX has a commendable 87% success rate of discovering gas at Sebou based on calibrated 3D seismic; 2019 targets include 20bcf of gross unrisked resource adding gas-behind-pipe in order to meet anticipated demand growth. Our updated valuation includes planned exploration, appraisal and development activity for 2019 and higher short-term oil price expectations, with valuation rising from 65.6p/share to 92.5p/share (+41%).
Planned 3D seismic shoots in both Egypt and Morocco aim to leverage recent exploration success and mature an inventory of low-risk, drill-ready gas exploration/appraisal prospects that can be promptly monetised. Planned 2019 wells target 87bcf of unrisked gas resource (70bcf Kefr El Sheik and 17bcf Abu Madi prospects), a 50mmbo unrisked oil prospect at South Disouq and 20bcf in Morocco. Low well costs and historical success rates imply high risked IRRs, in particular for Sebou where success rates on calibrated 3D seismic exceed 87%, well costs are c $2m and unit net-backs surpass $10/mcf
SDX believes there is oil potential at South Disouq in Egypt, which is to be tested through drilling the four-way dip, 50mmbo unrisked Young prospect in 2019. Three offset wells have encountered oil shows in Jurassic reservoir that is a prolific oil producer in the Western Desert. Similarly, in the Rharb Basin in Morocco, a thermogenic gas suggests the presence of a liquid-rich source, which could fill mapped sands below the Pre-Rif Nappe that act as a regional seal. Imaging below the Nappe is problematic and potential leads are likely to be identified on SDX’s new 3D data across the Gharb Centre.
Our updated valuation reflects the movement of prospective resource to core value to reflect recent discoveries and the inclusion of SDX’s 2019 drilling programme. Our RENAV rises from 65.6p/share to 92.5p/share (+41%) and core value from 58.3p/share to 79.8p/share (+36%).