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SDX Energy's year to forget

The North African explorer-producer ended 2018 with little financial gain to show
March 22, 2019

After shelling out for royalty payments and well-head costs, SDX Energy (SDX) made $41.7m (£31m) in so-called netbacks in 2018, equal to $32.01 per barrel of oil equivalent. How the North African explorer-producer turned that into net income of just $112,000 is a tale of operational setbacks and overreach, halting a strong run of cash preservation, adept dealmaking and sound cost control.

IC TIP: Sell at 39.6p

The roll call of financial hits begins not with a depreciation charge – which declined versus 2017 – but with an exploration and evaluation expense of $5.7m, most of which was incurred in two sub-commercial wells in Morocco and Egypt. But even after a $3.5m impairment to reflect lower oil price assumptions, and $4.8m of general and administrative costs, shareholders would still be looking at a handsome profit.

However, the second half of the year brought $2.5m of transaction costs, suggesting SDX bit off more than it could chew when it tried and failed to acquire a "significant package of assets in Egypt" from BP (BP.) in September. A tax bill equivalent to 98 per cent of current income did the rest of the damage.

The flipside to this has been a jump in the value of SDX’s exploration and evaluation assets from $15.2m to $39.1m, although cash and cash equivalents have dropped in each of the past three-quarters and shareholder equity has barely moved.

Analysts at Edison expect pre-tax profits of $34.2m and fully diluted earnings of 16¢ a share in 2019.

SDX ENERGY (SDX)   
ORD PRICE:39.6pMARKET VALUE:£81m
TOUCH:39-40p12-MONTH HIGH:75pLOW: 32.3p
DIVIDEND YIELD:NILPE RATIO:N/A
NET ASSET VALUE:56.7¢NET CASH:$17.3m
Year to 31 DecTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
201424.512.72.0nil
201511.411.120.0nil
201612.9-26.7-39.4nil
201739.232.815.3nil
201853.77.130.1nil
% change+37-78-99-
Ex-div:n/a   
Payment:n/a   
£1=$1.32.