Investing in Egypt’s Growing Production: An Interview with Paul Welch, SDX President And CEO

Investing in Egypt’s Growing Production: An Interview with Paul Welch, SDX President And CEO


SDX Energy is a petroleum company focused on exploration and production (E&P) activities in North Africa with 10 years of operations in Egypt. As the oil and gas sector opens new doors for international oil companies (IOCs) in the country, we have talked to Paul Welch, SDX President and CEO, about the company’s history and plans in the Egyptian market.

Could you tell us about SDX’s history and establishment in Egypt?

The company began its activities in Egypt in 2008, when it acquired several exploration concessions offshore in the Gulf of Suez. Concurrently, the company acquired Premier Oil’s 10% equity in the North West Gemsa block and then farmed into the Kom Ombo block in Upper Egypt. We then acquired the Shukhier Marine block from NPC, followed by the acquisition of the South Disouq block in 2014 as part of an EGAS bid round application. SDX Energy itself was established in October 2015 when Sea Dragon Energy merged with Madison Petrogas, picking up a 50% equity interest in the Meseda block in the Eastern Desert as part of the transaction.

In January 2017, we further expanded our Egyptian portfolio through the acquisition of Circle Oil’s assets, acquiring an additional 40% equity interest in the North West Gemsa block, taking our equity position to 50%. At present, we have two producing assets located onshore in the Eastern Desert, which are North West Gemsa (50%) and Meseda (50%), and a very exciting exploration and now development opportunity in the Nile Delta, South Disouq, (SDX 55% working interest and operator), where we have made several discoveries and are in the process of bringing them into production.

What makes Egypt an interesting place for SDX to operate?

In our view, Egypt is one of the best oil and gas countries to operate in globally. The country has an excellent business environment and is home to multiple world class hydrocarbon basins. As a business, we see considerable opportunities for us to grow within Egypt by developing our existing assets, through exploration bid rounds, and potentially through additional acquisitions.

How does the company expect to expand its presence in Egypt and North Africa?

In recent years, we have had considerable success with increasing production in our existing licences in Egypt through the drill bit. As a result, we are currently developing our South Disouq asset, where we expect to achieve an initial gross plateau production rate of 50 million standard cubic feet per day (mmscf/d) of natural gas when it comes online.

Given the company’s strong cash position and track record of concluding accretive transactions, we feel that SDX is well placed to make more acquisitions, in addition to participating in future licensing rounds.

What do you believe to be SDX’s main asset?

Given our recent success in Egypt, we no longer have one main asset but essentially an asset portfolio. That portfolio consists of two oil producing assets in the Eastern Desert, Meseda and North West Gemsa, and then our exploration and development opportunity in the Nile Delta, South Disouq, which will be primarily a gas producing asset but with deeper oil potential. We have started development operations on the SD-1X processing facility, the well tie-ins and a 10 kilometer pipeline connecting the processing facilities to the main export line, which will enable us to commence production from the licence in the near future.

How can the company help Egypt achieve its ambitious plans for the oil and gas sector?

We believe we are a good ambassador for the country’s oil and gas sector, given our commitment to investing heavily in the region and our clear ambition to increase our presence in the country. However, none of our success would be possible were it not for the support of the government and our partners.

Given Egypt’s growing economy and increasing demand for domestic oil and gas production, we feel that as an ambitious business keen to grow its output in the country, we are well placed to assist Egypt achieve its energy goals. Specifically, we see the development of our South Disouq asset, which will produce from start up 50 mmscf/d (or 8,333 barrels of oil equivalent per day) as a direct contributor to Egypt’s plans. However, production at all our assets has increased this year so we are doing our part across the portfolio to contribute to Egypt’s growth plans.

What is the company’s policy to ensure low cost production?

We pride ourselves on our strict financial discipline and always try to ensure that our funds are used as efficiently as possible. This is underpinned by a portfolio of low cost onshore producing assets and exploration prospects. This focus on capital discipline, and asset location and type, means that we are one of the lowest cost producers in the region and can remain cash flow positive down to around $10 per barrel of Brent at the corporate level.

Having financial discipline means that we focus on controlling our costs both from an operating and capital investment perspective. We focus on costs because it is something that we can control, knowing that we cannot control the oil price. We then develop and invest in assets that allow us to maintain this focus to ensure that we can prosper throughout the exploration and production cycle.  When prices are low, we are resilient, but when prices increase, we become highly cash generative.  Egypt’s asset base has many opportunities that fall within this framework, which is why we have been so keen on expanding here.

Could you describe SDX’s partnership with government officials and industry players? How does this partnership enhance operations and attract investment?

We need to have strong in-country relationships and to ensure that all our stakeholders, whether they be local employees or the government, benefit from our business success. We are very grateful to the relevant authorities for their continued support and, whilst we always look to increase our network, we believe we have the right business relationships in place to execute our plan of increasing the company’s presence in Egypt.

What are the company’s investment plans in Egypt?

SDX has made significant investments into Egypt to date and we plan to continue deploying capital into the region, providing employment and supporting the communities in the areas where we operate. We have invested approximately $45 million in drilling capex in the 12 months to June 30, 2018 across our North African portfolio, with a significant portion of this going towards our South Disouq development in the Nile Delta.

As a company, we firmly believe in Egypt as a country to invest in. The country is one of the most stable operating locations for producers in the world and combined with its competitive fiscal terms and the low-cost operating environment, we think the area will remain a mainstay for the oil and gas industry for decades to come.


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