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Rabat – The British company SDX Energy, an oil and gas exploration and development specialist, has bought Circle Oil’s assets in Morocco and Egypt for approximately $30m.
Due to the precarious situation Circle Oil is in, with debt amounting to $77b, SDX Energy was more than eager to put its hands on the Irish company’s assets, which promise to be very beneficial. These acquisitions are expected to increase the company’s production by 247% to approximately 4,705 barrels of oil per day. The company’s net reserves will increase by 64% to 12.03 million barrels of oil.
In an interview with TIP TV, Paul Welch, CEO of SDX Energy had a hard time containing his excitement as he talked about the company’s new acquisition of 75% Circle Oil’s shares in the concessions of Sebou and Lalla Mimouna. Aside from adding a new high margin asset in Morocco, these concessions could turn out to be a virtual gold mine.
The tremendous amount of expansion these pipelines offer is a cash machine. the pipelines can carry four times the amount of gas they are carrying now.
And while SDX Energy will spend US$1.00/MCF to produce gas, it’s being sold for US$9.99/MCF. During the TIP TV interview, Welch calls it a “fantastic cash generator.” The Circle Oil assets will generate $30 million of free cash flow in 2017.
While it is regarded as a somewhat small gas business, Morocco offers tremendous benefits with its fiscal regime. With a royalty rate of only 5%, and a 10-year tax holiday from start-up, SDX Energy won’t pay much when it comes to taxes.
The Moroccan gas market is mainly dominated by compressed natural gas suppliers, which are being sold at the price of $18.00/MCF. The fact that there are basically no local or national grids within the country means that SDX Energy has free reign to establish its own competitive prices.
One of the other many advantages Morocco can offer SDX Energy, is a gas market where demand significantly exceeds supply. There is more pressure on the government to locally raise gas prices to reduce the commercial advantage of COP (ConocoPhillips), the world’s largest independent crude oil and natural gas producing company.
In addition, the company has acquired a positive net working capital position of about $18.3m, comprising about $16.4m in receivables, less payables, and about $1.9m in cash. About $3.8m has been allocated for use in Morocco.
In conclusion, Welch said: “This announcement marks an important milestone in SDX’s corporate history. The successful fundraise and acquisition will enable us to substantially increase our production, and cash flow, over the course of 2017 and beyond as we seek to build a mid-tier E&P focused on North Africa. We remain excited about our upcoming drilling campaign in South Disouq.”
