Will Forbes
27 July 2016

SDX initiation

Egyptian producers with development and exploration upside

SDX Energy (SDX) is a London/Toronto-listed company with interests in two producing onshore fields in Egypt. Crucially for a small E&P, it will be cash flow positive in 2017 and is unlikely to return to the market for more equity to develop assets. The current work programme (of new wells, workovers and water flood) could see a more than doubling of recoverable volumes and is both cheap and relatively low risk. Once this work starts to bear fruit (later in 2016/17), the low-cost production will put SDX in the enviable position of being able to largely fund development of exploration prospects, while giving it resources and operational credibility to add further assets in Egypt. Our analysis indicates that the share price is more than supported by current operations, giving upside potential for the near-term production increases we see as likely and free exposure to exploration upside.