SDX Energy Inc. Acquisition of Producing Egyptian and Moroccan Assets
January 2017
SDX LN / SDX CN
SDX Energy – High Margin Growth Opportunity • High margin onshore production and development assets with transformational exploration upside • AIM and TSX-V listed (TSXV: SDX/ AIM:SDX) • Successful secondary listing and capital raise on AIM in May 2016 • Attracted new institutional backers and strong after market
• High margin production: • Cash flow positive to US$15/bbl Brent (at the asset level) • Current net production of 1,355 boe/d, 7.34 MMBOE of 2P reserves (31/12/15) • Development potential to double production and triple reserves
• High impact and funded exploration program underway • Solid balance sheet as of 30 September 2016: • US$ 9.6MM of Working Capital (US$ 5.0MM in Cash) • No debt
• Well placed to capitalise on distressed asset opportunities in North Africa Page 2
The Transaction
Acquisition of Circle Oil Plc Assets in Egypt & Morocco • Buying Circle Oil’s subsidiaries in Egypt and Morocco debt free, from ‘distressed’ Strategic Review process • Debt holders owed: c.US$77.5MM • Price: US$30MM (39 cents/US$ on group debt)
• Assets: • Egypt: • • • •
40% of North West Gemsa Concession Net Production: 2600 boepd 2P Reserves: 3.77 Mmboe Net back: US$17.24/boe (Brent price US$58.40/bbl)
• Morocco: • • • •
1 2
75% of Sebou1 Production & Lalla Mimouna2 Exp. Concessions Net Production: 4.5 MMscfd (750 boepd) 2P Reserves: 0.92 Mmboe1 Net back: US$52.25/boe (Brent price of US$58.40/bbl)
• Working Capital: US$18MM • Totals: • • • • 1,2 -See footnotes on page 21
Production: 3350 boepd 2P Reserves: 4.69 Mmboe Avg. Net back: US$24.11/boe Acquisition Price: US$6.40/boe (US$2.56/boe excl. W Cap) : US$8,955 per flowing boe (US$3,582 per flowing boe excl. W Cap)
Page 4
Benefits of the Transaction • Adds new High Margin asset in Morocco and consolidates existing High Margin asset in Egypt • Expected to increase daily production by 247%, 2P Reserves by 64% & Cash flow by cUS$21MM/yr. in both 2017 and 2018. Acquires US$18MM of Working Capital (US$2.0MM cash and cUS$16.0m net receivables) • Very Attractive Expected Acquisition Metrics : • Payback: 1.4 years (at current Brent Strip prices) • IRR: 61% • Highly Accretive: • EV/2P BOE (Net): 15% • EV/2016 Boed: 44% • 2016 Production/Share: 26% • NAV/Share: 34%
• Excellent strategic fit with current business: Egypt • Circle acquisition adds 40% of asset where SDX already holds 10% • Increasing exposure with no additional increase in staffing or overhead • Can substantially improve upon Circle’s payment record • Improves the ability to influence operator Morocco • Provides diversification and an additional revenue source • Growth potential in a high margin gas market • Undercapitalized Circle could not capture low hanging upside • Expands the exploration portfolio* * Subject to permit extension approval
Page 5
The team
Experienced Management Team Paul Welch, CEO (London) CEO of two public exploration and production companies, 15 years with Shell. Developed Pioneer’s Tunisian portfolio from 500 boepd to a peak of over 25,000 boepd
Mark Reid, CFO (London) Finance Director at AIM listed Aurelian and Chariot Oil and Gas Limited (2009-2015) Former Head of Oil and Gas in London for BNP-Paribas Fortis
Ahmed Moazz, Egypt Country Manager (Cairo) Chairman of El Wastani company, JV between EGAS and Centurion Energy Former EGPC Vice Chairman for production in Egypt Cameron Snow, VP Subsurface (London) Spent 10 years with Apache Oil Corp, four years of which were resident in Egypt Geologist with a PhD from Stanford University
Page 7
Why North Africa?
Why Egypt? Geology & Operating Environment
Multiple world class hydrocarbon basins • • •
3 Basins in the Top 10 (MENA) W. Desert 3rd best value creator over the last 10 years Zohr discovery 22+TCF (4 Billion bbl equivalent) largest discovery globally in 2015
Excellent operating environment • •
Competitive fiscal terms combined with low opex Operating Costs are still dropping • Egyptian currency depreciated 50%+ vs $USD
Historic pay-out backlog clearing •
Government pledged to clear balance by end 2017
Economy stabilising •
•
Government has removed currency controls and “floated” the Egyptian pound in the market IMF US$12 Billion loan terms agreed, first US$2.7 Billion dispersed •
Improved the availability of the USD$ in the economy
Local gas prices increasing •
•
Domestic gas market significantly underserved (importing LNG @$6-$10/Mmbtu) Long term demand not satisfied by Zohr alone due to demand growth and natural declines in existing fields
Why Morocco? Commercial terms & Gas Market One of the best E&P Fiscal Regimes • Royalty Rate – 5% • Corporate Income Tax Rate – 30% • 10 year tax holiday from start-up Moroccan Gas Market – High Prices • •
• •
Gas market is dominated by compressed natural gas suppliers or “Bottled Gas” Bottled gas prices, for largest industrial customers, average $18.00/MCF No local or national gas grids exist within Morocco Gas supplied by Circle sells for $8.10 - $9.90/MCF
Gas Demand Significantly Exceeds Supply • • •
Currently more customers than COP can supply Industrial customers using COP gas have significant price advantage in energy supply when compared to bottled gas customers Pressure on government to locally raise gas prices to reduce commercial advantage of COP customers
Dominant Commercial Position • • •
COP owns 75% of the only private owned pipeline Connects producing basins to the industrial market Any future discoveries will likely have to pass through COP’s line to be commercialized.
Page 9
High Margin Producing Assets
Assets - Egypt
Exploration SDX – 55% WI & Operator
SDX – 12.75% WI Development
Production & Development SDX – 50% WI & Joint Operator
Production SDX – 10% WI, Rising to 50% post transaction
Page 11
North West Gemsa - Overview 10% / (50%)
Working Interest – Current / (Post acquisition)
6,510 boepd
Avg. production (gross), Q3 2016
9.43 Mmboe
2P Reserves (gross), 31 Dec. 2015
22.3 Mmboe
Cumulative production to Dec. 2015
5x Production 2x Reserves
Performance since acquisition in 2010
3 Producing Fields
Al Amir SE, Geyad, Al Ola
83km2 onshore concession 300km from Cairo Partners: North Petroleum (50%, Operator) Circle Oil (40%) NPIC will remain operator post acquisition No pre-emption rights 2017 WORK PLAN
12 work-overs
Maintain production at 6000 boepd
Page 12
North West Gemsa - High Margin Producing Asset • Waterflood development completed in 2 horizons.
• Unitisation discussion underway with offset operator. Expect to conclude in Q1 2017. Additional development potential once unitisation is finalized. • Low operating costs ~ $US7/bbl. Very low future Capex requirements. Significantly cash generative going forward •
Produces light (40˚ API) oil that is sold at a 10% discount to Brent
• Attractive Netbacks: NWG Fiscal Terms
53.9%
24.62
16.1%
7.38
30.0%
17.24
% Cost Oil
NWG Netback at 2017 Brent FWD Curve - $58.40
Netback vs. Brent Oil Price
$/boe Profit Oil
State
Netback
Opex
Revenues
Page 13
Meseda - Significant Development & Exploration Potential 50%
Working Interest – Joint Operator
3,657 boepd
Avg. production (gross), Q3 2016
12.8 Mmboe
2P Reserves (gross), 31 Dec. 2015
5.5 Mmboe
Cumulative production to Dec. 2015
6.3%
Recovery to Date
June 2011
Discovery Date
November 2011
Production Start Up
• 118 MMBO STOOIP (total structure) •
86 MMBO STOOIP (net to Meseda)
• 16 wells drilled to date, 13 currently producing
2017 WORK PLAN Upgrade Treating Capacity to 20,000 bfpd
Complete 5 well work-over program (ESP changes) Drill 2 infill producers and 2 Exploration wells
Page 14
Meseda – High margin Producing Asset • • • •
Subsurface geologic modelling completed Well performance review and modelling completed Subsurface simulation completed Facilities’ study nearing completion
• Potential to 2X current production with workovers from Q1 ‘17 • Potential to improve recoverable volumes by 3X with waterflood and infill program by end Q1 2017 • Improves Recovery Efficiency from 13% to 32% • Very Attractive Netback: Meseda Revenue Sharing
Meseda Netback at 2017 Brent FWD Curve - $58.40
39.13
61.50%
Netback vs. Brent Oil Price 8.44 6.90
19.25%
23.78
19.25%
$/boe
% Dublin WI
SDX WI
State
Netback
Tax
Opex
Revenues
Page 15
Meseda – Plan to More than Double Production Field is currently produced with high shear electrical submersible pumps (ESP’s) A complete field review was undertaken by GCA/Baker Hughes in November 2015. Identified opportunity to correct numerous pump issues and double production SDX engaged an ESP pump specialist to understand the root cause of pump problems and provide updated designs Two primary pump problems: 1) Size - Same basic pump deployed in all wells - Pumps were not individually tailored to wells 2) Style - Used a low profile high velocity pump - High energy design created strong oil/water emulsion - Changed viscosity of fluid mixture, making it difficult to pump
Current Pump
Solution: -
Change pump type to lower velocity/lower shear model Individually design each pump based upon reservoir conditions in each well
Conclusion: -
Replacement of some (7) pumps should yield an incremental oil gain of nearly 7000 bbl/day over current production
New Pump Page 16
Meseda - Exploration Potential Prospect Summaries • Both prospects have similar risk profiles and would be testing similar concepts • The main risk for both prospects is the location of the bounding fault • Yusr-1X appears to have more favourable volumetric assessment • Two exploration wells are planned for 2017 • Dry Hole cost of wells is $750k each • Wells will be tied back to existing facility • Production start up within 30 days of exploration well completion
Page 17
Moroccan Producing assets
Circle Oil- Morocco Assets Sebou Permits - Production • • • • •
Working interest: 75% & Operator (Partner: ONHYM 25%) Located in Rharb Basin 134 km2 area covered by 3D seismic2 Currently producing 6.2 MMscf/day (1,033 boepd)1 Connected to sales by new 8” pipeline
2 1
Lalla Mimouna Permit - Exploration2 • • • •
Working interest: 75% & Operator (Partner: ONHYM 25%) Located in Rharb Basin 2,112 km2 concession area,154 km2 covered by 3D seismic Adjacent to Sebou permit with existing gas sales line
Source: Circle Oil Page 19 1,2 -See footnotes on page 21
Subsurface Summary •
Currently producing from Miocene-aged Hoot and Guebbas Formations • •
High-quality reservoir intervals with favourable properties Consistent, low-impurity gas composition Methane (CH4) across fields and units
•
Extensive pre-existing 2D database provides solid foundation for future exploration programs2
•
Successful developments in Kisiri and CGD demonstrate value of seismic acquisition programs
Reserves1
Sebou Gross • 4.805 BCF proved • 7.125 BCF proved + probable • 10.227 BCF proved + probable + possible •
Additional upside in Lalla Mimouna2
•
Potential to expand to adjacent, unleased exploration acreage
Morocco 2P & 2C Net Oil & Gas Reserves & Resources
Morocco Subsurface & Reserves
0.92 1.19
Morocco - Sebou Gas Reserves (Bscf) Total Reserves (Mmboe) Contingent Resources Gas Resources (Bscf) Total Resources (Mmboe)
2P Gas Reserves (mmboe)
2P Gas Resources (mmboe)
LR Senergy CPR ( 1 July 2016)
Proved
4.805 0.828 Low 3.643 0.628
Gross on License1 Proved and Probable 7.125 1.228 Best 9.200 1.586
1- An extension of the Gaddari South exploitation permit beyond 8/1/17 is being negotiated. A concession application for Gaddari SW has been submitted. 2- Subject to extension of the Sebou and Lalla Mimouna exploration permits. The extension Amendment for Lalla Mimouna permit from 21/3/16 to 21/3/17 has been approved by ONHYM and is awaiting Ministry approval.
Proved, Probable, and Possible 10.227 1.763 High 19.262 3.321
Page 20
Morocco - Sebou Permit Production Profile Moroccan Gas Sales
1
-
Currently selling 6.2 MMscfd (gross) at an average price of US$9.00/MCF
-
Local gas price is based upon alternative supply which is imported compressed natural gas or “bottled gas” at US$18.00/MCF
-
Gas is sold directly to local industrial users (mainly ceramic manufacturers)
-
Local gas demand significantly outstrips supply
-
Significant pressure by industry to find more gas to connect additional users to reduce manufacturing cost advantage current customers are realizing
-
Future gas price contracts are anticipated to increase to as much as based upon MOU signed by Porcher for $12.00/MCF
1
Future Forecast
Historic Production
Gas Contracts Customer SUPERCERAME SUPERCERAME (New contract) CMCP CMCP (Future contract) PORCHER (Potential) PORCHER 3rd Party ((Potential) PEUGEOT(Potential) 1,2 -See footnotes on page 21
PRICE MAD/M3 2.85 3.50 2.80 2.85 4.25 4.25 4.50
PRICE US$/MCF 8.1 9.9 7.9 8.1 12.0 12.0 12.7
FROM
UNTIL
19/12/2011 01/01/2017 01/01/2016 01/04/2017 5 Year 5 Year 10 Year
18/12/2016 31/12/2021 31/03/2017 31/03/2018 -------
Page 21
Exploration
Egypt - South Disouq 55%
Working Interest (Operator)
1,275 km2
Concession area
585 BCF
(P Mean) Gross Prospective Resources
6.4 TCF & 100 Mmboe
Rec. Volumes within Abu Madi Baltim Trend (IHS)
Abu-Madi – Baltim Trend
65 km north of Cairo within prolific Abu Madi – Baltim trend Located within existing oil and gas transport infrastructure Main gas, condensate and oil Lines transect block
Prospects are 5 & 11 kms from connection points First period work commitment: 300km2 seismic & 1 Exploration well
Successful farm out to IPR for 45% – carries Exploration Well cost (subject to a cap of $3MM, expected well cost is $3.54MM)
2017 WORK PLAN Complete interpretation of 300 km2 3D seismic data Drill Exploration Well – Q1 2017 Initiate fast track development program (assuming successful exploration) into local infrastructure Page 23
South Disouq Top Abu Madi Structure Map
South Disouq Survey Area
•
SD Deep-1X Abu Roash/AEB Prospect
Seismic data confirms Abu Madi play fairway extends into SDX Acreage
SD-1X Abu Madi Prospect
Map area shown in inset
Page 24
SD-1X Abu Madi Prospect Increasing Reservoir Quality
• Robust ~1000 acre four-way dip closure mapped on seismic data • 175’ of structural closure at Abu Madi level • Positive AVO response reduces risk of not encountering reservoir
• Deeper potential identified in Abu Roash and AEB zones which are prolific Western Desert oil producers SW
NE
Extent of SD-1X closure
SD-1X
Page 25
South Disouq - Summary Onshore Nile Delta Egypt • • • • •
Transformational Exploration potential - 320 BCF (Pmean) net to SDX’s 55% interest Deeper oil potential identified within the Abu Roash & AEB horizons (prolific producers in the Western Desert) Exploration well expected to spud in Q1 2017, well cost carried by partner (IPR) Domestic gas demand outstripping supply, importing LNG to satisfy demand. Anticipate local gas prices to increase Concession located within existing gas infrastructure, main gas transmission lines transects the block with substantial spare capacity – potential for fast track monetisation.
• Three major trunk lines run through concession • Transport options available for gas, oil, and condensate • 5km from SD Deep-1X location; 11km from SD-1X • TD to first production in months
SDX has material exploration upside with moderate risk exposure
Page 26
Morocco - Rharb Basin: Regional Exploration potential2 Seismic Anomaly 2D Seismic Line 3D Seismic Survey
Concession Boundary
Lalla Mimouna Nord
• Regional basin architecture well understood from extensive 2D seismic framework • Prospectivity established in multiple horizons throughout Miocene-aged strata • Potential for material upside discoveries through 3D seismic acquisition • Potential to expand acreage footprint to adjacent open acreage
Lalla Mimouna Sud
Page 27
Exploration Potential: Seismic Anomalies Amplitude analysis suggest the presence of several gas-filled sand bodies across the area •
Similar response to Sebou Permit
Five amplitude-supported prospects mapped in 3D seismic area •
13.2 BCF* of unrisked recoverable gas
Multiple target horizons creates potential for stacked pay Amplitude-supported Prospects 2
2
Page 28 *Circle Oil internal estimate of middle-range recoverable volumes
“Roll-Up” Opportunity
EGYPT – THE CASE FOR CONSOLIDATION Company NPV10, NPV10/boe and net reserves 9,000
Remaining PV (10%) US$ (million)*
8,000
7,000
= 500 mmboe Gas
Eni
Liquids
6,000
Several large players focused on gas (primarily offshore)
BP
5,000 4,000
Apache
Many (20+) small and medium sized companies that are focused on oil (primarily on shore)
3,000 2,000 1,000 0 0.00
Shell DEA
2.00
Source: Wood Mackenzie *Discounted to 1st January 2016
Sinopec Edison
Dana Gas
Merlon
Kuwait Energy Company
4.00 6.00 8.00 10.00 Remaining PV/boe (US$/million)*
Too small to prosper in the current environment These are the targets (see next page) 12.00
Page 30
Egypt - the consolidation opportunity set Top 11 to 30 companies by remaining value and reserves
Many of the companies identified above looking to exit or reduce exposure Numerous public and private sales processes on going Financial markets mostly shut for smaller companies to raise equity or debt Many companies caught by a potentially “toxic” combination of: - Egyptian receivables - USD denominated debts - US Dollar shortage in country Two companies have already failed, several others are teetering Buyer’s market Page 31
Summary
Expected Activity Timetable – 2017 Field
Activity
2017 1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
NW Gemsa 8 Well Workover (Producers) 4 Well Workover (Injectors)
Meseda Facilities Upgrade 5 Well Workover Program Infill Producer -1 Infill Producer -2 Exploration Well - 1 Exploration Well - 2
EGYPT S. Disouq
Interpretation Exploration Well (SD-1X)
S. Ramadan Development Option Review FarmOut/Relinquish Development Well 1
Lala Mimouna
Morocco
Exploration Well - 1 Exploration Well - 2
Explo
Prod
Injector
Facilites
Workover
Active Program in 2017 Forecast - High Impact Exploration well in South Disouq (well cost carried) - Significant Development & Exploration Potential in Meseda - Low Capex Program in NW Gemsa – Maintain Production Levels - Exploration Tests in Morocco (Lala Mimouna)2
Studies
Contingent
Page 33
Base
Current NAV – Using Brent Forward Curve Net Asset Value @ 12.5% (US$MM)
$200
South Disouq $41.9
Net Asset Value @ 12.5% (US$MM)
Operations Value:
$180
6 Concessions, 3 Operated
4,705 boepd production (net)
$160
High impact prospects in Egypt Working Capital $27.8
$140
Core NAV $135.4
Upside $44.9
RENAV $180.3
South Ramadan $3.0
Morocco $26.1
$120 $100
Brent Fwd. Curve Year US$/BBL 2017 $58.40 2018 $58.25 2019 $57.85 2020 $58.05 2021 $58.61 2022 $59.17 2023 $59.85
@ Jan 3, 2017
Meseda $52.3
$80 Base +, Workovers, Waterflood
$60 $40
NW Gemsa $29.2
Base
$20 $0 Core NAV
Exp Upside
RENAV
Page 34
Delivering on Objectives • Grow a profitable mid-tier E&P company in North Africa via an aggressive organic and inorganic growth strategy that delivers superior returns to shareholders • Near Term: Achieved – 7 Months from AIM listing • Development of existing high margin production base: Underway • Increase margins by further opex reductions: Increased by 9.3% • Initial target of net 3,000 boepd: Increased to 4,705 boepd (pro forma) • Medium Term: 94% Complete • Execute high impact Exploration: 3D Complete, Drilling in Jan 17 • Capture new opportunities either asset or corporate: Circle Oil Deal • Target of net 5,000 to 7,000 boepd: 4,705 boepd and growing • Long Term: Making Significant Progress • Material growth in Egyptian & Moroccan gas businesses • Execute “Roll –Up” strategy within MENA • Target of net 25-30,000 boepd Page 35
Investment Summary • SDX Energy is a growing E&P company with a diverse portfolio of assets consisting of: • High margin producing assets • High margin development opportunities • Exploration assets with high impact potential • Circle Oil Businesses are an excellent strategic fit • • • • • •
Add material production and reserves at an attractive price Improves the Company’s already high margins Low cost entry into an underserved gas market in Morocco with tremendous growth potential Egyptian business can be added with no increase in G&A Combination lowers Corporate break-even oil price to $21/bbl Brent and average Opex to US$7.43/bbl (from $8.12/bbl) Diversifies the company’s portfolio into Morocco where SDX has strong relationships
SDX Energy: • High margin producing assets; resilient in low a commodity price environment
• Debt free balance sheet with positive free cash flow and US$9.6MM of Working Capital ($5.0MM in Cash) as of 30/9/2016, pre-transaction • Active work programme providing multiple potential catalysts for investors in 2017 and beyond • Is executing on its strategy; which is to grow profitably in its areas of focus • Is well placed to capitalise on distressed opportunities in North Africa
SDX Energy: High-Margin production High-Impact exploration
Page 36
High Margin Growth Page 37
Appendix
Pro forma post-acquisition Balance Sheet
Page 39
Post-acquisition Illustrative Capex and Cashflow summary The Circle cashflow below does not reflect the impact of having to pay down Circle’s historic Payables that will be inherited as part of the transaction
Assumptions
Operating cashflow uses Brent Fwd Curve US$58.40 & US$58.25 in 2017 & 2018 and no cash inflow from W. Capital reduction Circle Oil Morocco 2017 & 2018 Operating cashflow modelled at current run rate Circle Oil Egypt 2017 & 2018 Operating cashflow uses Operator’s proposed 2017 budget as basis SDX 2017 & 2018 Operating cashflow uses Operator’s proposed 2017 budgets as basis 2017 capex: 2 Dev & 2 Exp wells in Circle Oil Morocco & 2 Exp & 2 Dev wells plus facility expansion & w/flood in Meseda Egypt 2018 capex: 2 Dev wells in Circle Oil Morocco and 2 Dev wells in NW Gemsa (Circle Oil 40%/SDX 10%) Egypt Page 40
Page 41
Advisory
Reserves Data
Forward-looking Statements
The determination of oil and natural gas reserves involves the preparation of estimates that have an inherent degree of associated uncertainty. Categories of proved, probable and possible reserves have been established to reflect the level of these uncertainties and to provide an indication of the probability of recovery. The estimation and classification of reserves requires the application of professional judgment combined with geological and engineering knowledge to assess whether or not specific reserves classification criteria have been satisfied. Knowledge of concepts including uncertainty and risk, probability and statistics, and deterministic and probabilistic estimation methods is required to properly use and apply reserves definitions. The recovery and reserve estimates of oil reserves provided herein are estimates only. Actual reserves may be greater than or less than the estimates provided herein. Terms related to reserves classifications referred to herein are based on definitions and guidelines in the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and are in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.
This presentation and any additional documents handed out at the meeting (together the “Presentation Materials”) contain certain statements or disclosures relating to, among other things, SDX Energy Inc. (“SDX”), its proposed private placement (“Private Placement”) and its proposed acquisition (the “Acquisition” and, together with the Private Placement, the “Transactions”) of certain subsidiaries of Circle Oil Plc (“Circle Oil”) which constitute “forward-looking statements” as such term is used in applicable Canadian securities laws. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or are not statements of historical fact should be viewed as forward-looking statements. In particular, statements concerning SDX, the Transactions, the anticipated benefits that will result from the Transactions and the key characteristics of SDX or of the assets to be acquired in the Acquisition should be viewed as forward-looking statements.
In relation to SDX’s assets, “Proved reserves” are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves. “Probable reserves” are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves. The qualitative certainty levels referred to in the definitions above are applicable to “individual reserves entities”, which refers to the lowest level at which reserves calculations are performed, and to “reported reserves”, which refers to the highest level sum of individual entity estimates for which reserves estimates are presented. Reported reserves should target the following levels of certainty under a specific set of economic conditions: •
at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated proved reserves. This category of reserves can also be denoted as 1P;
•
at least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated proved plus probable reserves. This category of reserves can also be denoted as 2P; and
•
at least a 10 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated proved plus probable reserves. This category of reserves can also be denoted as 3P.
Additional clarification of certainty levels associated with reserves estimates and the effect of aggregation is provided in the COGE Handbook. The estimates of reserves for individual properties may not reflect the same confidence level as estimates of reserves for all properties, due to the effects of aggregation. Use of the term “boe” may be misleading, particularly if used in isolation. A “boe” conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Certain volumes provided in this presentation represent a pro forma arithmetic sum of multiple estimates of proved plus probable reserves, or proved plus probable plus possible reserves, which statistical principles indicate may be misleading as to volumes that may actually be recovered. Readers should give attention to the estimates of individual classes of reserves and appreciate the differing probabilities of recovery associated with each class as explained in the annual oil and gas disclosure filings of SDX (available on www.sedar.com) and the effects of arithmetic aggregation. Factors that could affect the accuracy of the reported pro forma aggregated reserves estimates include company level differences in evaluation effective dates, reservoir characteristics and pricing assumptions. Reserves information in this presentation relating to SDX’s assets are based on the independent reserves evaluation of the Preliminary Competent Person’s Report as of December 31,2015 on certain properties owned by SDX Energy Inc. in Egypt prepared by DeGolyer and MacNaughton Canada Limited . Reserves information in this presentation relating to Circle’s assets in Morocco are based on a draft independent reserves evaluation of the Competent Person’s Report as of July 1, 2016 on certain properties owned by Circle Oil in Morocco which is being prepared by Senergy (GB) Limited and which is being prepared in accordance with the 2007 Petroleum Resources Management System prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers and reviewed and jointly sponsored by the World Petroleum Council, the American Association of Petroleum Geologists and the Society of Petroleum Evaluation Engineers. The draft numbers are subject to updating and the final report to be published in connection with the acquisition. Information about the Circle Oil Group, its assets in Morocco and the business environment in Morocco has, except where stated, been taken from publicly available information and information supplied by Circle Oil and is based on the expectation of Circle’s management.
The forward-looking statements contained in this document are based on certain assumptions and although management of SDX consider these assumptions to be reasonable based on information currently available to them, undue reliance should not be placed on the forwardlooking statements because SDX can give no assurances that they may prove to be correct. This includes, but is not limited to, assumptions related to the ability of SDX to receive, in a timely manner, the necessary regulatory, stock exchange and other third party approvals, the ability of SDX to satisfy, in a timely manner, the other conditions to the closing of each of the Private Placement and the Acquisition and expectations and assumptions concerning, among other things commodity prices and interest and foreign exchange rates; planned capital efficiencies and cost-savings; applicable tax laws; future production rates; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labour and services; the production capacity of SDX’s current and future assets and those to be acquired pursuant to the Acquisition; the reserves and resources potential of SDX’s current and future assets and those to be acquired pursuant to the Acquisition; future cash flow projections; the exploration potential of SDX’s current and future assets and those to be acquired pursuant to the Acquisition; expectations for being paid in full and on time in the future; future operating expenditures; nearterm, medium-term and long-term projections for SDX; the benefits of the Transactions; future cost reductions; the economic and political environment in Egypt and Morocco; oil and gas commodity prices; SDX’s development and exploration potential, including the success of workover, infill drilling and waterflood extraction techniques and the costs and benefits related to same; risk and success potential related to future drilling locations; Egyptian and Moroccan demand for oil, gas and LNG products; timing of capital expenditures including the drilling of wells and costs associated with same; results of seismic programs; the relative price of assets and the financial status of buyers and sellers in the Egyptian and Moroccan markets; opportunities related to legacy payment issues; the timing of the Transactions; and completion of the Transactions. The anticipated dates provided may change for a number of reasons, including unforeseen delays in preparing materials, investor demand, inability to secure necessary regulatory, stock exchange or other third party approvals in the time assumed or the need for additional time to satisfy the other conditions to the completion of either the Private Placement or the Acquisition. By their very nature, forward-looking statements are subject to certain risks and uncertainties (both general and specific) that could cause actual events or outcomes to differ materially from those anticipated or implied by such forward-looking statements. Such risks and other factors include, but are not limited to the timing of the Transactions, requisite approvals of the TSX Venture Exchange and the London Stock Exchange, political, social and other risks inherent in daily operations of SDX, risks associated with the industries in which SDX operates in general, such as: operational risks; delays or changes in plans with respect to growth projects or capital expenditures; costs and expenses; health, safety and environmental risks; commodity price, interest rate and exchange rate fluctuations; environmental risks; competition; failure to realize the anticipated benefits of the Acquisition; ability to access sufficient capital from internal and external sources; and changes in legislation, including but not limited to tax laws and environmental regulations. There is a risk that SDX fails to satisfy the conditions to either the Private Placement or the Acquisition which may result in such Transaction not being completed on the proposed terms, or at all. Readers are cautioned that the foregoing list of risk factors is not exhaustive and are advised to reference SDX’s Annual Information Form for the year ended December 31, 2015, which can be found on SDX’s SEDAR profile at www.sedar.com, for a description of additional risks and uncertainties associated with SDX’s business, including its exploration activities. No representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by SDX or by any of its respective officers, servants or agents or by Cantor Fitzgerald Europe Limited (“Cantor Fitzgerald”) FirstEnergy Capital Limited (“FirstEnergy”) or Stifel Nicolaus Europe Limited (“Stifel” and together with Cantor Fitzgerald, and FirstEnergy, the “Bookrunners”) any other person as to or in relation to the accuracy or completeness of the Presentation Materials or the information or opinions contained herein or supplied herewith or any other written or oral information made available to any interested party or its advisers and, to the fullest extent permitted by law, no responsibility or liability is accepted for the accuracy or sufficiency of any of the information or opinions, for any errors, omissions or mis-statements, negligent or otherwise, or for any other communication, written or otherwise, made to anyone in, or supplied with, the Presentation Materials or otherwise in connection with the proposed sale of the Investor Interest. In particular, no representation or warranty is given as to the achievement or reasonableness of any future projections, management estimates, prospects or returns. The forward-looking statements contained in this presentation are made as of the date hereof and SDX does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, except as required by applicable law. The forward-looking statements contained herein are expressly qualified by this cautionary statement.
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Advisory
• THIS PRESENTATION IS CONFIDENTIAL AND IS BEING SUPPLIED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED, FURTHER DISTRIBUTED TO ANY OTHER PERSON OR PUBLISHED, IN WHOLE OR PART, FOR ANY PURPOSE, WITHOUT THE EXPRESS WRITTEN CONSENT OF SDX. • This presentation does not contain or constitute an offer to sell or a solicitation of an offer to purchase securities in the United States or any other jurisdiction. The securities of SDX have not been and will not be registered under the US Securities Act of 1933, as amended (the “Securities Act”), or qualified for sale under the law of any state or other jurisdiction of the United States and may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Company does not intend to register any securities under the Securities Act, and no public offering of securities in the United States will be made. In the United States, this presentation is directed only at, and may be communicated only to, persons that are “qualified institutional buyers” as defined in Rule 144A under the Securities Act (such persons hereinafter referred to as “QIBs”). • Neither this document, nor any copy of it, may be taken or transmitted into the United States (other than to a limited number of QIBs), Australia, South Africa or Japan or into any jurisdiction where it would be unlawful to do so. Any failure to comply with this restriction may constitute a violation of relevant local securities laws. By receiving a copy of this presentation, you will be deemed to have represented to SDX, Cantor Fitzgerald and Stifel that you are a QIB. • The information set out in these Presentation Materials will not form the basis of any contract. Any successful purchaser of an Investor Interest will be required to acknowledge in writing that it has not relied on or been induced to enter such agreement by any representation or warranty, save as expressly set out in such agreement. • The Presentation Materials have been delivered to interested parties for information only and upon the express understanding that such parties will use it only for the purpose set out above. SDX undertakes no obligation to provide the recipient with access to any additional information or to correct any inaccuracies herein which may become apparent, and it reserves the right, without advance notice, to change the procedure for the acquisition of an Investor Interest or to terminate negotiations at any time prior to the completion of such acquisition. The issue of the Presentation Materials shall not be taken as any form of commitment on the part of SDX to proceed with any transaction. • The contents of this document have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA") for the purposes of section 21 of FSMA. The Presentation Materials are only being made available to the following: • persons having professional experience in matters relating to investments and who are investment professionals as specified i n Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Financial Promotion Order”); and • persons to whom Article 49(2) of the Financial Promotion Order applies, being high net worth companies, unincorporated associ ations, partnerships or trusts or their respective directors, officers or employees as described in Article 49 of the Financial Promotion Order. It is a condition of your receiving the Presentation Materials that you fall within, and you warrant to SDX and to the Bookrunners that you fall within, one of the categories of person described above. • The Presentation Materials may contain unpublished price sensitive information or undisclosed material information with regard to SDX and/or its securiti es and Circle Oil and/or its securities. Recipients of the Presentation Materials should not deal or encourage any other any other person to deal in the securities of SDX or Circle Oil whilst they remain in possession of such unpublished price sensi tive information or undisclosed material information and until the transactions described in the Presentation Materials are announced. Dealing in securities of the Company or Circle Oil when in possession of unpublished price sensitive information or undisclosed material information could result in liability under the insider dealing restrictions set out in the Criminal Justice Act 1993 or the insider trading and/or tipping provisions of Canadian securities laws. This document may contain information which is not generally available, but which, if available, would or would be likely to be regarded as relevant when deciding the terms on which transactions in the shares of SDX or Circle Oil should be effected. Unreasonable behaviour based on such information could result in liability under the market abuse provisions of FSMA. • Any prospective purchaser interested in acquiring an Investor Interest in SDX is recommended to seek independent financial advice. Law in certain jurisdictions may restrict the distribution of this document or of the giving of the Presentation Materials and any subsequent offer for sale or sale of the Investor Interest. Persons into whose possession this document or the information from the Presentation Materials comes are required to inform themselves as to and observe any such restrictions. • If the recipient does not fall within one of the categories above the recipient should either return, destroy or ignore the i nformation in the Presentation Materials. • Cantor Fitzgerald which is authorised in the United Kingdom by the FCA for the conduct of investment business is acting for SDX in relation to matters described in this document and will not be responsible in respect of such matters to any other person for providing protections afforded to customers of Cantor Fitzgerald or for providing advice in relation to those matters. • FirstEnergy which is authorised in the United Kingdom by the FCA for the conduct of investment business is acting for SDX in relation to matters described in this document and will not be responsible in respect of such matters to any other person for providing protections afforded to customers of First Energy or for providing advice in relation to those matters. • Stifel which is authorised in the United Kingdom by the FCA for the conduct of investment business is acting for SDX in relation to matters described in this document and will not be responsible in respect of such matters to any other person for providing protections afforded to customers of Stifel or for providing advice in relation to those matters. • If you are in any doubt about the investment to which the Presentation Materials relate, you should consult a person authorised by the Financial Conduct Authority who specialises in advising on securities of the kind described in this document. • The following is a summary of the statutory rights of rescission or damages, or both, under securities legislation in Ontario, where such summary is required to be disclosed under relevant securities legislation and, as such, is subject to the express provisions of the legislation and any related regulations and rules. The rights described below are in addition to, and without derogation from, any other right or remedy available at law to purchasers of the securities, subject to any applicable defences. • Under Ontario securities legislation, certain purchasers resident in Ontario who purchase a security described in this document during the period of distribution will have a statutory right of action for damages, or while still the owner of the securiti es, for rescission against the issuer if this document contains a misrepresentation without regard to whether the purchasers relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date of the transaction that gave rise to the cause of action. The right of action for rescission is exercisable not later than 180 days from the date of the transaction that gave rise to the cause of action. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against the issuer. In no case will the amount recoverable in any action exceed the price at which the securities were offered to the purchaser and if the purchaser i s shown to have purchased the securities with knowledge of the misrepresentation, the issuer will have no liability. In the case of an action for damages, the issuer will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of the securities as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser under Ontario securities legislation. These rights are not available for a purchaser that is: (a) a Canadian financial institution, meaning either: (i) an association governed by the Cooperative Credit Associations Act (Canada) or a central cooperative credit society for which an order has been made under section 473(1) of that Act; or (ii) a bank, loan corporation, trust company, trust corporation, insurance company, treasury branch, credit union, caisse populaire, financial services cooperative, or league that, in each case, is authorized by an enactment of Canada or a province or territory of Canada to carry on business in Canada or a province or territory of Canada; (b) a Schedule III bank, meaning an authorized foreign bank named in Schedule III of the Bank Act (Canada); (c) "the Business Devel opment Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada); or (d) a subsidiary of any person referred to in clauses (a), (b) or (c), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary. The foregoing is a summary of the rights available to an Ontario purchaser. Not all defences upon which the issuer or others may rely are described herein. Ontario purchasers should refer to the complete text of the relevant statutory provisions.
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Board of Directors Individual
Position
Experience
Chairman
Former CEO of PetrelRoberston Ltd; responsible for advisory & project management Principle and Director of several private and public companies
Paul Welch
CEO & Director
CEO of two public exploration and production companies, 15 years with Shell Developed Pioneer’s Tunisian portfolio from 500 to a peak of over 25,000 boepd
David Mitchell
Director
CEO of Madison, extensive Int. experience with BP and as a Director of Nexen Int. Captured and built projects in the Mid East, W. Africa, S. America and the North Sea
David Richards
Director
Managing Director, Network Capital Inc, a Calgary based investment company
Mark Reid
CFO & Director
Finance Director at AIM listed Aurelian and Chariot Oil and Gas Limited (2009-2015) Former Head of Oil and Gas in London for BNP-Paribas Fortis
Michael Raynes
Director
Former COO of Waha Capital, Abu Dhabi Held Senior Executive roles with other large investment firms
Directors
Michael Doyle
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High Margin Growth Page 44
