Core Finance interview with Paul Welch




Very good interview and Malcy gets clarification on a few points

• Currently 5,700 boed working interest, South Disouq 4,600 boed net. Production by mid 2019 around 10,500 boed. PW sticking with H1 to avoid failing to meet another deadline but clearly it is expected Q1 as Malcy said.
• The alterations to the processing facility at South Disouq are to capture more liquid which increases potential revenue.
• BP deal not dead but parked. Might still happen in the future “if it is ready”.
• Tunisia mentioned again even though they have no assets there. Surely there has to be a potential acquisition they are looking at there, otherwise why keep mentioning it on every interview.
• Eventual target production 50,000 to 75,000 boed (3 to 4 years time).
• They intend living within cash flow, not taking on debt or raising cash through equity. Probably 8 months of cash generation before the exploration spending in H2 2019.
• 2019 Egypt – North West Gemsa maintain at 4,500 boed, Meseda increase production by around 1,000 boed, South Disouq 60MMscf/d. Three to six well programme. Young oil prospect to be drilled H2 2019 potential 100mb prospect.
• South Disouq initial capacity at 60MMscf/d but the pipeline can take 120/140MMscf/d. Pipeline capacity can be increased in 30MMscf/d increments, if required, at a cost of between US$5 to US$8m, so potential to double the initial capacity at South Disouq.
• 2019 Morocco – Currently 8MMscf/d to increase to between 9 and 12MMscf/d in 2019. The reason for that wide spread is that a current customer may move a factory from Casablanca to Rabat and if it happens it will be at the higher end of guidance.
• 12 well drilling programme in Morocco in 2019, some deep well drilling targeting potential oil.
• February 2019 conference in Marakesh which PW will be attending.

A bit more meat on the bone, particularly about the BP position and explaining how South Disouq can be expanded from the initial 60MMscf/d.

One thing I omitted earlier, PW actually mentioned the “D” word

The objective is to grow the company until they are producing between 50,000 to 75,000 boed, with a market cap in excess of US$1 billion.
At that point they become a different company, they become a dividend payer and morph into another direction, perhaps expanding beyond their North African base.

This is the first time I have heard PW acknowledge that SDX would actually pay a dividend and it bodes well for the future.


Thanks SH for this summary. I also noticed the reference at the end to a dividend, but there is loads of work still to do and discoveries to make before SDX reaches the 50-75K boed figure: we’re only just approaching 10.5K! I struggle to see how we are going to reach 50-75K in 3-4 years without a takeover, unless we get really lucky with the drill bit, and there will be very little happening there until September 2019.

Tunisia was probably mentioned because, despite the recent terrorism problems, it does have a relatively stable jurisdiction, certainly compared with “too hot” Libya.

The new 3D results from Morocco sounded promising. There seems to be a greater number of drills planned for Morocco in 2019 compared with Egypt, but I think that’s because they will be using relatively small and cheap rigs, looking for the small, shallow fields that were added incrementally earlier this year - though PW also mentioned (@12.00) some possible deep oil-bearing structures.

The Egyptian drills will be bigger and deeper, and will include searching for some deep oil, which is good news. PW sounded pretty enthused about the prospects at Meseda and SD in H2 2019, following up existing 3D at Kafr El Sheikh, and new 3D at Abu Madi: the updated December 2018 Corporate Presentation at has more information on these.


I couldn’t agree more that to reach their target production of between 50,000 and 75,000 boed, they will have to make acquisitions.

It was interesting on that point that Malcy gave PW the perfect opportunity to bury the BP deal once and for all but he didn’t take it.
He said something like, a deal tends to die three times before it happens and that the deal was parked but it is still something they are very interested in.
It still may come to nothing but it hasn’t been discounted yet.

I don’t know if anyone noticed but when asked about the future and potential M&A accretive deals, PW immediately said “deals aside” as he touched his ear lobe. Now this may mean that he had an itch in his ear but from a body language point of view it is seen as a defensive move, when someone has heard something they don’t like or makes them nervous. It might just be a topic PW is a little uncomfortable discussing, given he has to be so discreet.

He also said that at any one time there are about a dozen deals they are looking at, all at various stages. If they are looking at an acquisition, they obviously wouldn’t tell us anyway but I think it is something that could happen at any time.


Morocco 2019

The guidance for 2019 for Morocco is betwen 9MMscf/d and 12MMscf/d depending on whether an existing customer moves a factory from Casablanca to Rabat.

As I understand it SDX have a pipeline to the city of Kenitra but not to Rabat. If this customer moves the factory to Rabat, presumably SDX intend laying a pipeline the 50km from Kenitra to Rabat.

As Rabat is the capital of Morocco with a population of around 1.6m this would open up a huge new market for gas sales (Kenitra population 360,000).

Am I missing something?

It could be that they cannot justify the expense in laying a pipeline without a committed customer, should this one move location it would give them at least one initial customer.


Cheap as chips

With a valuation of under £85m now and increasing production, it has been a no-brainer to top up. When South Disouq is finally put on stream I cannot imagine these share prices lasting much longer; but what do I know this is AIM