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SDX Energy - NAV and forecast update - South Disouq delays

In this note, we update our short-term forecasts and NAV to reflect delays at South Disouq, with first gas postponed from mid-2019 to the end of 2019. Management is confident that first gas will be delivered in Q419, with the pipeline infrastructure largely installed. SDX retains the option to deliver first gas ahead of Q419 through a leased early production facility (EPF), but only a short window exists for this to be commercially viable ahead of the completion of the permanent central gas processing facility (CPF). Conservatively, we assume first gas at the end of 2019, a six-month delay to our previous forecasts. The impact of the South Disouq delay on NAV is small at -3%, as production is deferred, although there is a material impact on FY19 cash flow expectations (CFO -20%). However, the combined impact of the South Disouq delay and lower forecast Moroccan and NW Gemsa volumes reduce our RENAV by c 13% to 86.5p/share. We expect SDX Energy to end the year with $11m in cash and no debt ($10m undrawn). Delays are unlikely to have a knock-on effect on the company’s committed eight- to nine-well H219 exploration programme.