London, UK, 12 December 2019

Edison issues outlook on SDX Energy (SDX)

SDX Energy announced early in November 2019 the commencement of production of natural gas in South Disouq, in Egypt. We expect this achievement to have a material effect on SDX's cash generation in the coming years. The field has already achieved a plateau production of 50mmscfed, three months ahead of management expectations. Along with its Q319 results, SDX also outlined its exploration and appraisal drilling programme for end-FY19 and FY20, with up to five wells to be drilled in Egypt and 12 wells to be drilled in Morocco. In this note, we update our 2019 production to account for South Disouq contribution, and for 2020 at production plateau. We also update our exploration target resources. Our valuation moves from a RENAV of 49.8p/share to 50.3p/share (+1%), while our core NAV increases from 45.0p/share to 45.7p/share (+2%).

Our core NAV increases by 2%, driven by South Disouq progress in 2019 being ahead of our previous estimates. We also update SDX's exploration and appraisal target resources for 2020, which, in combination with the core NAV, results in a RENAV of 50.3p/share, 1% higher than our previous valuation. The current share price appears to be heavily discounting SDX sanctioned projects, which correspond to 91% of our RENAV, as well as any future growth potential in Egypt and Morocco.

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