SDX Energy higher as testing confirms Sobhi discovery in Egypt is commercial
SDX Energy PLC (LON:SDX) shares rose on Friday as the group confirmed successful well testing results at the recently drilled SD-12X (Sobhi) well, at the South Disouq project in Egypt.
Sobhi flowed at a maximum rate of 25mln cubic feet of gas per day (on a 54/64″ choke), in an initial one hour test, followed by stable rate of 15mln cubic feet per day over three hours (on a 28/64″ choke) and 10mln over four hours (on 16/64″).
The company said that following a review of data it anticipates the well will produce at an optimum stabilised rate of 10-12mln cubic feet per day.
“We are pleased with these initial well test results which confirm that we have a commercial discovery at the Sobhi well,” Mark Reid, SDX chief executive said in a statement.
“This discovery increases our South Disouq 2P reserves by approximately 50% given that we sole risked the well. Furthermore, Sobhi has the potential to extend the current South Disouq plateau production of 50 mmscfe/d through to 2023/24 with a low-cost tie in to our existing gas processing plant.”
Reid added: “To have a commercial gas discovery of this scale at South Disouq is especially pleasing in the current environment as our low cost, fixed price gas development will continue to be highly cash generative for longer.”
It is planned that the Sohbi well will undergo a longer rig-less test in the coming weeks, which will give further insight in regard to the discovery’s recoverable volumes. The timing of this test will be subject to the timing of equipment supply which may be impact by coronavirus restrictions.
SDX said it expects that Sobhi will be tied-in for production during 2021, via a 5.8 kilometre connection to the Ibn Yunus-1X location where infrastructure connects to the South Disouq central processing facility. The tie-back will cost around US$3.5mln.
Only one more new well will be needed to fully develop the Sobhi discovery, and SDX noted that such drilling will not be necessary for another 2-3 years.
Sohbi was drilled on a sole risk basis – ie. SDX funded 100% of the operation – and its partner at South Disouq now has the option to buy into the discovery by paying 45% of back well costs plus a 300% premium.
In a note to clients, analysts at Peel Hunt said they value Sobhi at $12mln, or 5p share unrisked.
They added: “Stepping back; this is another excellent operational announcement by SDX who we see as one of the top picks in the sector due its strong balance sheet, excellent FCF generation, and lack of exposure to Brent price”.
The analysts reiterated their 30p price target and ‘buy’ recommendation on SDX
In morning trading, SDX shares were 6.5% higher at 16.25p.
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