Acquisition of Circle Oil assets
SDX Energy’s accretive $30m acquisition of the Egyptian and Moroccan assets from Circle Oil is a major step to increase the company’s footprint and is in line with its stated ambition to grow (in)organically. The Moroccan gas production in particular is a step-out from its existing base, but provides strong cash flow generation, quick effective payback and the possibility of future high-value development and exploration. The increased working interest in NW Gemsa should boost SDX’s share in FCF in Egypt, and further contribute to costs for the upcoming waterflood programme. We increase our core NAV from 39p/share to 42p/share (RENAV moves from 68p/share to 57p/share) even after some (unrelated) modelling adjustments. Despite a recent increase in the shares, this suggests further upside for investors in a larger company with greater ability to invest in high-value projects in North Africa.SDX Energy is engaged in the exploration, acquisition, development and production of oil and natural gas in Africa and Egypt. As of Dec 31 2010, total gross proved reserves for light and medium oil consisted of 3,593 thousand barrels ("mbbls"), natural gas liquids consisting of 211 mbbls and natural gas consisting of 2,575 million cubic feet.
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