SDX Energy PLC

LSE:SDX

Earnings Call Transcript 2022-Q1

[Operator]

Hello, and welcome to the SDX Energy Q1 2022 Analyst Conference Call. [Operator Instructions]

Today, I'm pleased to present Nick Box Chief Financial Officer; and Mark Reid, CEO. Please go ahead with your meeting.

[Mark Reid, executive]

Thank you very much. So on behalf of Nick and I, good afternoon, everyone. We're going to go through our Q1 '22 results presentation. But before I start, just a lot about housekeeping.

As you all know, on the 25th of May last week, has announced that the Board of Directors of Tenaz Energy and SDX have reached an agreement on the terms of a recommended share-for-share combination between companies. The combination is to be implemented by means of a court-sanctioned scheme of arrangement with the entire issued and to be issued ordinary share cap of SDX being acquired by Tenaz in a ratio of 0.075 new Tenaz shares for each SDX shares. Now the SDX is in an offer period and for the process of compliance with [ the takeover code ] SDX is prohibited from commenting on the combination beyond what is already stated in the announcement of the combination last week. Please refer to the investor section of our website for a copy of the 2.7 announcement that was issued last week and to find out more about the combination. Now [ to get to the start ], the purpose of this call aim to discuss that combination and our focus will solely be on our financial and operating results for the 3 months to 31st of March '22.

So with that out of the way, the format for this will be as normal. Nick and I will take you through various sections of the -- as was explained, there'll be the normal Q&A in the end. So the presentation is on our website. For those who have presentation, we will refer to the page numbers as we're talking about as we go through the deck itself.

So first of all on Page 3. And again, for those who are joining the call here who are less familiar with SDX. We're an enlisted E&P with operated gas-weighted assets onshore in Morocco and in Egypt. We have 2 producing concessions in Egypt, and we've got forward development production and exploration concessions over in Morocco.

The business is undertaking quite a significant drilling campaign and a few jurisdictions at the moment. We announced we started a well last week, the Mohsen well, which will continue to go for in the coming days. The business operating model is carried [ around ] with a very low cost base, which allows us to be very resilient against commodity prices, coupled with the fact that we have a significant element of the portfolio tied down with West Gharib gas contract. As I touched on the 16 wells we drilled in 2022 across the [indiscernible], they are all relatively low turnaround in terms of spudding right through to connecting. And the objective of our businesses has always been is to continue that there's low-cost model of drill and discover tie in and monetize as quickly as we can, and that tends to be the case.

The business operating platform is underpinned by a very strong balance sheet. We've got CASA of just over $12 million at 31st of March, and it's an ongoing EBRD facility which come availability of just under $6 million. The market capitalization as of course, the business in trading. The 27th was $21 million. As a first on the start, there was a recommended share-for-share combination between Tenaz Energy Group and SDX announced last week. The terms of which I have already explained in the calls.

On Page 4, before we hand it to Nick to talk through the results. The characteristics of the business should be familiar to most of you now, and we have described the asset base. They are the expected characteristics of the stock with their site geological and geographic footprint. We do as a by virtue there are interactive gas business and very resilient [ directable ] operating cash flows and generate a very nice operating cash flow this year -- or this quarter, rather.

You saw on the announcement that our operating cash flow for the period just over $6.5 million. That allows us to recycle cash back into the business to [indiscernible] the organic drilling opportunities, expansion opportunities. The assets of the [indiscernible] are now, I would say, very well understood in terms of the amount of well control we've got across these assets.

We're also excited in our Moroccan business to continue to progress the strategic initiatives with the Moroccan government primarily supporting a very large gas market growth potential within Morocco. And hopefully, we'll be able to see more [ of those as the months ] progress.

As Nick will touched on and as you would expect on the gas weighted business, we have a very low carbon output of about 3.6 kilograms of CO2 equivalent/ from barrel of oil equivalent, which we're very proud as one of the lowest in the industry.

We continue to be very active in community-based initiatives in both countries, and the Board have genuinely does take ESG extremely seriously. It's -- people talk about ESG and [indiscernible] business is really, really important that we can look ourselves in the mirror and feel confident that it is something that we take extremely seriously. It's our absolutely undebatable point in terms of the importance of ESG in our business.

In terms of the local government relations, those of you who understand their business will realize that both the Moroccan and Egyptian governments are effectively departed partners in these assets, which face natural alignment, and Morocco own in the state company has a 25% equity interest in everything we do, from our upstream development assets to our pipeline.

And then Egypt, by virtue of the 2 contracts that we've got, we've got the production sharing contracts in South Pacific and the petroleum services arrangement and we started the government part of equity partners as well as their contractual entitlement and those 2 arrangements. So very aligned with local government in terms of their operations and also helps and especially Egypt in sales of product sold to the government. And as [ a matter of incentive for the business ]. And in terms of the management team, I think we recognize well enough now. We've got very good experience management team. As I mentioned the last time, we were talking -- we were delighted to hire a new Country Manager for our Moroccan business, Yvon Quillien. Yvon's a 31-year vet at Shell. He's got outstanding experience across the whole gamut of the E&P space, and he's done an excellent job for [ them ] in Morocco. And hopefully, we can get him on one of these conference calls in the near future.

So let's start with our sort of customary introduction in remainder of [ the business ]. And really part of course noting that for the key messages and this announcement from Page 5 onwards.

[Nicholas Box, executive]

Thanks, Mark, and good afternoon, everybody. So as Mark said, so turning to Page 5, we've got our 2022 Q1 financial operating highlights. So first of those that we are pleased to report that our entitlement production is ahead of midpoint guidance, 17% ahead just in the quarter there today, and that's really driven by continued strong demand in Morocco and also slightly higher production at the start of the year from South Disouq asset declines over the course of the year. You'll probably see that trend that close to guidance.

Revenues were just over $11 million, and that was based on realized Moroccan gas prices $11 per mcf, $2.85 per mcf in Egypt, and we realized about [ $70 ] a barrel in West Gharib and Egypt. We've got some strong oil prices in the quarter.

We have a netback of just over $9 million. That was down 15% versus Q1 last year. The primary reason for that is -- and again, those of you who know the story well understand we made the decision not to renew our largest customer contract in Morocco, which expired at 31st of December 2021. We're still exploring options here, and Mark will explain that in a bit more detail later on.

But it was offset -- the loss of that contract and the netback perspective was offset by the very strong realized oil prices, both at West Gharib and also the condensate at South Disouq. EBITDAX is just over $8 million. And again, it was down by 16% versus the previous period, and it's for the same reasons I just described to the netback.

In terms of the CapEx for the first quarter, we spent just over $3 million. The majority of that was on the SD-5X well at South Disouq which we're pleased to report as a discovery. And we also had some preparatory drilling costs at 12 East, which has also recovered. We then incurred about $600,000 of predrilling standby costs associated with the recommencement of Moroccan drilling campaign. And then we have, as you'd expect, $700,000-or-so of West Gharib drilling costs from the 3 wells that were either completed and drilled or drilling at the end of the quarter.

[ Moving to ] total comprehensive loss of $0.6 million, of which $0.1 million was attributable to SDX, and the rest is attributable to the [indiscernible] shareholders in South Disouq. And we finished the quarter, as Mark has mentioned, with a strong liquidity position, just over $12 million of cash and post the period, and we're delighted to have the determination with the EBRD come back with availability of just under $6 million, which remains undrawn.

Moving to Pages 6 and 7, this is the statistics and the descriptions around how the individual assets performed from a production perspective. So starting with South Disouq, it did perform in line with expectations. We continue to see the existing well inhibiting their natural declines and with some [ downwards ] production from a couple of the wells, albeit that was partly offset by a contribution from the revenues to well, which came on in August 2021.

As a reminder, the guidance number that you see there does reflect the disposal of the 33% of SDX's interest in the asset, which was announced on the 1st of February this year and also around about between 2 to 3% CPF and compressor downtime due to planned maintenance.

Again, a reminder, when we announced SD-5X as a success and to come on to production. We have assumed for guidance purposes that well is dry with the testing program and subsequent production data confirms our pre-drill estimates then we may revise that to [indiscernible] revision of guidance from currently between 33 million and 35 million tonne of cubic feet equivalent. You may see that come up but we need the data to support that assessment.

And then finally, as Mark mentioned, we were drilling the Mohsen well at the moment. If that well is a success, it won't be -- it will -- it's unlikely to be tied in during the course of 2023. It's quite a lengthy time. So that was not currently expected to contribute to production if it is successful and it's therefore not reflected in guidance.

At West Gharib, we continue to have steady production from the existing wellstock, albeit, again, exhibiting anticipated natural decline partly offset by production from the MSD-21 and 25 which came on during the quarter.

And then in Morocco, as I mentioned already, we did see some strong demands from across the portfolio now serving remaining customers, and that's the reason why we're above guidance for the first quarter of the year.

Moving to Slide 8. We'll see the CapEx guidance and performance. So, so far in 2022, again, I think I probably touched on the key elements there. Just to say that we still do expect to be within guidance for CapEx throughout the rest of the year.

On Slide 9, we've got ESG approach. And as Mike has already mentioned, it's something we take very seriously. Over 85% of our production [ is able ] natural gas. We do have a very low carbon intensity. In Morocco, we continue to contribute towards covenant to that CO2 emission savings around about 12,500 tonnes in the first quarter versus fuel oil, because that's a very simple operation, we have a very low carbon intensity of 3.3 kilos as CO2 equivalent per BOE.

South Disouq, again, a reminder, CPF is powered by produced gas, very modern facility, and that continues to describe a very low carbon footprint. Still making good use of renewable energy where we can. And again, we quite likely achieved a good environmental performance in the first quarter. We didn't have any produced water that wasn't evaporated or treated offsite and no hydrocarbon spills and no [ LCI guided ], which we're very pleased to report.

So that's the ESG component. And with that, I'll hand back to Mark to take us through South Disouq.

[Mark Reid, executive]

Thanks, Nick. So what we want to talk about is used to remind you what our South Disouq asset looks like, which is on Page 10, and then I will also dip into the performance of the drilling campaign performance so far this year and give you an update on the Mohsen well.

So on Page 10, if you look at the map on the right-hand side, you'll see this in the map that you've delineated the sort of 3 key areas of interest for us. And if you look at the middle of the map, and you can see that we've got the South Disouq and Ibn Yunus Development Lease, which we've allocated as #1. But you see the core producing asset in the CPF as at the moment. We owned [ a ] 37% working interest in the [ cost of discoveries ].

And our most recent discovery in that area is the Warda well, which we had just under 36 feet of net gas field good porosity of 26%. As Nick's mentioned the -- we run that quite hard [indiscernible] is now contributing to production, which were delighted about.

The other 2 areas that are shown on the map to the north for that's our second Ibn Yunus development, I think Ibn Yunus North development lease and you can see, that houses the -- sorry, the Sobhi East discoveries with a 37% of that. And again, we were pleased to announce last month that we had a discovery that Sobhi East did 70 feet of average -- of net average porosity of 24%. That is being [ worked hard ] just now, and we are hoping to have that tied down in probably July the latest. We're really, really trying to squeeze it into June, but we'll wait and see. The team did a great job. We're starting actually, and we hope to get to Sobhi East producing in the coming weeks, which will be great. And then finally as the exploration license expansion, which you can see allocating the map is Area 3. And in that area at the moment, we are drilling the Mohsen well, which I'll update you on as far as we can as of today. So moving to Page 11. What we've got on Page 11 is a little bit more popular information on the prospects drilled and still to be drilled in the South Disouq area. And if you sort of focus on the table at the bottom of the page, the first 3 prospects that I've highlighted in bold Sobhi East, Warda and Mohsen, that is a 2022 drilling campaign.

As we touched on Sobhi East and Warda have been discovering so far, which are key, continue to give us confidence that our ability to identify direct hydrocarbon indicators and also the use across the AVO anomalies ins Sobhi East and Warda. The comment on prognosis and we're excited about the potential in Mohsen as well have been able to continue that.

With regards to each of the discoveries, pages 12 and 13 really the go over what we've seen so far in Warda and then to Sobhi East, SD-12X as we call it. With regards to Warda as I've said, it's been tested. It's low on production. We're looking to see what sort of production rate and go forward stabilized rates Warda might be able to deliver for us and then we'll take a view on whether or not we need to update our guidance.

Sobhi East, as I say, we're still at the stage of [ tying end ]. So that hasn't been tested. It will be tested directly into the infrastructure, when it's tied down. But both as you can see on Pages 12 and 13, we were looking for and we have identified this [ ideal ] response, which we saw in Ibn Yunus and frankly, with [indiscernible] and in Warda and Sobhi East. So 2 areas [ so far ].

Moving on to Page 14, the Mohsen well, which is currently drilling. And as you can see here, the geological approach that we're taking is identical [ to sales as well ] so far in Sobhi East and in Warda. And we're looking for this Ibn Yunus response. Mohsen is -- we've got a 45% chance of success. It started last week, and we hope to be able to have an indication of what would go sometime in the back end of next week.

It's a bit large I think in terms of the prospects size compared to what we've drilled so far. And it's also quite interesting and might tell us a little bit more about the LD prospect, which you could see in the map on the top right-hand side is relatively close to Mohsen. So we're hoping to get some information on LD as a result of whatever we find at Mohsen.

And the remaining prospects in the exploration area, which I won't go through in too much detail, but the LD and the muted on prospects could be identified depending on the results at Mohsen and the expectation on the transfer success of the [ move again ]. As you can see on these slides in Pages 15, 16, 17, before the exact methodology as we put to you so far in terms of the identification of AVO responses.

So, so far, well safe to say the first half of the year has been increasing results. We've had 2 successes as to what is drilling ahead, and we'll hopefully be able to update the market on -- at the end of next week.

So we got to Page 18 and I'm going to hand back now to Nick, who's going to talk through West Gharib onshore oil business in Egypt.

[Nicholas Box, executive]

So turning to Slide 18. And as Mark mentioned, this is our West Gharib oil asset. Currently drilling at half -- half of this is maybe across [ a third ] of the way through a 13-well drilling campaign. So this is a drilling campaign that is seeking to arrest the existing field decline I mentioned and start growing production for slightly rest of 2022 and into 2023.

It's a very well-understood pair of fields and covered by 3D in which reflects as a 50% working interest. We secured the license extension in 2021, [ and about ] which enabled us to commit to the 13-well drilling campaign. And it's also a very low-cost license to get side of that is it's a very high-margin assets in the current oil price environment.

Moving to Slide 19. This slide just sets out in a little bit more detail what we think the production profile resulting from these 13 wells will look like. We're hoping to grow it to somewhere around 4,000 BOEs a day over the course of the next 18 months. We've kicked off in October 2021. We've drilled a number of wells so far looking potentially at bringing in additional [ rigs ] to support that, particularly because of the high oil price environment.

So as it says on the slide, we're initially looking to stabilize the decline and then start to grow the production. We will be bringing in some water injection to ensure the pressure management of the reservoir. And then we'll also be investing in some facilities CapEx due to the fluid handling capacity needing to be expanded.

Wells are very low cost, and they cost around about $500,000 net to SDX and have very, very short payback periods and that [ structured ] payback periods of less than a year, and I think the current oil prices are looking at more like 5 and 6 months. And so very, very rapid paybacks.

We also have potentially got some follow-ons to some of those at the end of this 13-well campaign to be in 17. Again, it depends on what the oil profits prevailing at the time, and we may also choose to [ add some -- probably ] water injection.

Slide 20 just shows really a map of what I've described, and then Slide 21 highlights that there are actually a couple of exploration prospects within the license area. And the encouraging thing is that several of them can be looked at -- the deeper targets can be looked at through the deepening of an existing planned development model I've talked about. So we may seek to target that deep later on in 2022 and see if we can test some of the deeper horizons in this asset.

And with that, I'll hand back to Mark to cover Morocco.

[Mark Reid, executive]

Thanks, Nick. So we've got Page 22 in the presentation, and Moroccan business, as you can see in the map and we talked right-hand side of Page 22, consists of 4 contiguous onshore licenses in the very northwest of the country.

Production to date in 2022 as of [indiscernible] just over 5 million tonnes of cubic feet per day. And that value on last year, 7.7 by virtue of the fact that we had -- we decided not to renew one of the customers' contracts, which is on a 5-year basis. I'm sure we had better visibility on the reserves on the ground and our ability to sell that which amount to a 5-year contract.

We are in constant dialogue with this customer trying to find ways of gaining this customer back on stream, even if it's not on a 5-year basis. And we'll update the analysts in the market more on [indiscernible] progress with it. The reason we like Morocco, is really -- I'm excited about Morocco down to the relative impact that SDX can make in Morocco.

We're the only international company that [ are producing ] gas and own the infrastructure in the country. Take note, it doesn't have the sort of mature hydrocarbon province cash as Egypt does. But what it does have, as you can see, in the gas placing, we talk about in the bottom of Page 22 an excellent gas [indiscernible] our average contractual gas price across the southern customers at the moment is about $11, just over $11.

And with these contracts beginning to roll off in 2023 and '24, there's a real possibility that we can give [ new ] gas price contracts into an even higher gas price regime, just given where we are with global gas pricing commodity prices.

And the other thing that makes Morocco a very attractive location for us in terms of sort of cash generation and cash margin is a very favorable fiscal regime. So the gas price is just over $11 is the fact of the OpEx in Morocco is also very attractive, it's about $1 in MCS and especially the regime as result of Morocco which are not being mature and well what hydrocarbon province and Moroccan government offer very attractive fiscal regimes. So for the corporation tax regime in Morocco, the operators are paying you a tax holiday around each well. So the area around the well of the -- the village area around the well being the a [ sort of ] stand-alone corporation tax platform.

As the well manages to produce all the gas reserves in less than 10 years, you need to take off [ some tax ] on that. So it's a very attractive combination of high gas prices, low OpEx and no tax.

And the fact that we got especially an advantage, I can't emphasize the importance of that in terms of the opportunities that [indiscernible] as I touched on earlier is a 25% partner [indiscernible] look to as, I'm going to say, a number of interesting opportunities whether it's looking at investing [indiscernible] wells and how we might reactivate them to also getting us some opportunities in the broader midstream development in country.

So on Page 23, it's just a high-level overview of the Moroccan gas market. And we -- there's quite a lot on the slide, and I really just want to focus on the consumption graph on the right-hand side which shows you the sort of split of how gas is consumed in Morocco over the last 20-odd years.

You can see the blue bars, which relate to the gas consumption from the industrial market. So that's the market that we sell into, the ceramics manufacturers, the [indiscernible] manufacturers, cosmetics, et cetera. And that's got a fairly stable sort of 40 Bcfe a year demand.

There's also the power segment of the Moroccan market which has really taken off since 2005 onwards. But it's the blue demand -- part of that, that benefit the industrial consumers that's really driven clean energy philosophy that has been pushed in Morocco. The demand for natural gas as opposed to heavy fuel oil or LPG which is the alternative fuels our customers consume puts us in an excellent position. So long as you can continue to develop and drill an asset down in Morocco to be well placed at the -- and become [ runoff ] of their contracting portfolio to look at the [indiscernible] at more attractive prices. And as you can see on the bottom right-hand side of Page 18, I sort of gave you a flavor of degree of LPG pricing and [indiscernible] which is really our main alternative [ competitive ] fuel.

So on a range of Brent prices, we can see that LPG prices of between $15 and $25 an MMBtu and also a Brent price range of up to $80, $81.

Fuel oil is a little bit more competitive, but fuel oil is obviously handicapped by significant negative emissions that come with it. So Morocco for us -- will continue to be a very interesting location in terms of allocating investment here because of those very attractive cash return dynamics between gas price, low OpEx, strong fiscal regime and the ability to move into a higher gas price environment in the coming years and as the contract portfolio develops.

On pages 24 and 25, I really just want to round off on Morocco just to give you an update on the plan really on Morocco. So as just touched on, we've got 7 customers. We are currently considering about 5 million [indiscernible] per day. And we are looking to commence a campaign next month where we'll be drilling up to 5 wells in 2022, and then going into broadly a somewhat [indiscernible] drilling campaign for 2023, but also working with [indiscernible] to lower our overall drilling cost by using one of the [ events ] which we've been looking at for the last few months, but optimistic that we'll be able to use our [ brand ] and reduce our drilling cost to some degree.

There will be the normal [indiscernible] effect and that's where we have to, for the first couple of wells anyway, probably drill a little bit slower until we get a true and strong understanding of how the well performs, but again, another strategic benefit of working so closely with [indiscernible]. Didn't get the rig as we hoped on attractive [indiscernible] be it an equity interest in the wells as well as providing the rigs the huge synergy here in terms of our ability to continue to drill wells successfully and more efficiently in Morocco.

During 2023, we [indiscernible] to test some of the deeper prospect surfaces and porphyry which we call the top nappe play which you can see in the [indiscernible] where we show the sort of [indiscernible] depth, the sort of 1,500-meter depth, so the well that we drill into, the shallow biogenic gas. But what you can see is the top nappe rises and becomes shallower the further east you go so we may be able to target some of these shallower top nappe parameters in 2023 campaign.

And that's important because they're larger, they're bigger in size. They are typical shallow biogenic gas prospect and maybe 0.5 Bcf, which the gas goes [indiscernible] and Morocco [indiscernible] a 0.5 Bcf discovery is [ north of ] $7.5 million of revenue [ so we don't know how ] significant. But the top nappe prospects are probably double the size of the shallow biogenic gas prospects. So we could be going into a period where we're drilling on larger prospects [indiscernible] translating contracts into new higher-value gas price arrangements for the customers.

The final thing I want to say on Morocco, on Page 25, I want to talk about the -- probably the one true exploration concession we've got in our basin essentially the Lalla Mimouna Sud concession which sits flush up against the course, on Page 24, that area, that sort of blue animal shape here you can see there up against the course.

But what we [ achieved ] about the Lalla Mimouna Sud is we already got some 2D over the Lalla Mimouna Sud area. And the responses that we've got on the 2D do indicate that there are larger features here to the west of the acreage. And we believe that the basin analogs also substantiate that.

At the bottom of Page 25, we show the [ full ] example of the [indiscernible] Anchois discovery which is 300 Bcf, which is offshore adjacent to the Lalla Mimouna Sud. The basin [indiscernible] to the north of those is the Guadalquivir Basin in Southern Spain where you can see -- you see the [indiscernible] dynamic where prospects sizes [indiscernible], and that's confirmed by the Poseidon discovery offshore Southern Spain of 150 Bcf. And that is a really interesting proposition for us in terms of what, for instance, a 2 to 3 Bcf discovery could generate for us as you can see given in revenues a day at the current gas prices, and that's at the higher gas prices, a 2 to 3 Bcf discovery could [ give us ] $22 million to $33 million.

And again, if you're looking at gas prices increasing by 50%, potentially 40% to 50% on renewal, you're going to see [ commensurate entries ] and the valuables. So there's still some [indiscernible] on the Lalla Mimouna Sud area. But it is an area that we got to find a way of investing in because we do feel that the prospectivity here, it will [indiscernible] drilled out in the way that we're seeing some of the prospects nor an existing infrastructure getting to the top of the [indiscernible] curve and drilling smaller prospects. This is a real area of excitement, of [indiscernible] potential and with some very interesting analogs, [indiscernible] get us confidence that we should share our CD here and look to potentially drill, start drilling some of these wells in 2024 onwards.

So with that, I'm going to hand back to Nick just to go to Page 27 to give you a summary of the activities that we already went through in 2022, but more importantly, what's ahead of the business for the rest of the year.

[Nicholas Box, executive]

On Page 26, what you can see is we've got a lot going on and have a lot going on. We've drilled, as we've already discussed, the first 2 of 3 wells in South Disouq [indiscernible] drilling. And West Gharib, we continue to progress with the 13-well campaign and starting to put in place the facilities upgrades. And then in Morocco, as Mark mentioned, due to start up the drilling again shortly. It could be that the campaign will merge, it depends on the scheduling. As Mark said, the performance potential of this one in which [indiscernible]. I think what you can see there is, right now, there's just a lot that's going on and hopefully a lot more going on [indiscernible] success with it completely and tie that in the course of the rest of the year and get on production as soon we could. But we now have a significantly positive oil price environment. We've also got a lot of value being added by the West Gharib drilling as well. So that is really what we've got to look forward to in 2022.

And with that, I'll turn it back to Mark to sum up.

[Mark Reid, executive]

Thanks, Nick. I hope what you've seen today is another consistent and solid quarter of operational delivery in terms of the wells drilled, the successes that we've had, the production above guidance, the cash generation, the cash [indiscernible] on the balance sheet. We were pleased with the results of the quarter, excited about quarter 2 and the Mohsen well. And we're starting the Moroccan campaign as well. So again, we're moving forward with this sort of consistent delivery in the business and from this [indiscernible], we will continue to do that for the rest of the year.

So with that, that's Nick and I finished in terms of probably what's to say in the presentation, but we're very happy to take any questions now.

[Operator]

[Operator Instructions] Coming from Stephane Guy Foucaud at Auctus Advisors.

[Stephane Guy Foucaud, analyst]

I have a few. So if I start with West Gharib, you're talking of potentially bringing an additional rig. So some companies are struggling to find rigs in Egypt. Is it an issue for you? And if you find a second rig, could we expect [indiscernible] the big production, I think if I look at the graph, we talk about [indiscernible] revenue a day sort of July '23? Could that be moved forward? So that's my first question.

And second, at South Disouq, if it happens that El Deeb and Mohsen are connected, would we be talking about the P10 resources for both assets? Or could there be more volume than that?

[Mark Reid, executive]

Okay. Thanks, Stephane. On the start-up, yes, you're correct. We will be commissioning a second rig to 1 concurrent rig. We're in the process of testing the second rig approved by GPC, and we would talk that, that will be in operation within the next 2 to 3 weeks.

I think it's fair to say, however, we'd be somewhat disappointed at the rig's performance to date in West Gharib. And that we've had -- certainly with one of the rigs which has now been completely changed, though we've had performance has been clearer than we thought. And as Nick touched on, that has had an impact on the ability to get wells drilled and connected. So those delays that we got that's actually addressed, it may take a bit more time to get to the sort of peak production rate what we're aiming for because the plus 5 or 6 months has no [indiscernible] effect which has now been changed, though has not performed the way we've wanted, so I don't think we'll be to accelerate the timing of that peak production, Stephane. We will see how the next 2 to 3 months goes from the 2 wells working concurrently, see if we can claw back some of the time. But no, I don't think we'll be able to accelerate that.

In terms of South Disouq and Mohsen, it's a difficult one to answer at the moment, Stephane, because we're not done yet. We haven't got to TD in Mohsen. So we don't know any event that Mohsen and BFX connected at all to El Deeb. The normal way that we will find out is, as Mohsen [ has a success ] and we start testing it, and we just get better production and pressure readings than we would expect at Mohsen but not connected to El Deeb. So that's really the only way that we'll know that. So there isn't any sort of quick fix and [indiscernible].

And to be honest, we're focused on Mohsen at the moment, right? We're keen to get results of the Mohsen well back end of next week to assess what we've got there. And then that would take about a time before we really understand whether there's any connection to El Deeb.

[Operator]

The next question has come from Thomas Martin Exane BNP Paribas.

[Thomas Martin, analyst]

Just on Morocco, just wanted to clarify. Are all your current reserves effectively entirely sold under the existing gas contracts, even when you're looking forward for the upcoming drilling program in terms of being able to realize higher gas prices? Do you need to discover some gas portfolio with the existing contract or with all of the new discoveries likely [ shoot ] into new contracts?

[Mark Reid, executive]

Thomas, it's the former. And we will continue to drill wells to ensure that we fulfill the existing contracts we have. But we got prospect inventory of 70 or 80 prospects in Morocco and they're all shallow biogenic gas that show up nicely on CD. So we will continue to drill in Morocco though just to follow existing contracts but also to look to bring new contracts and new customers on as well.

[Operator]

[Operator Instructions] We again have a question from Stephane Foucaud.

[Stephane Guy Foucaud, analyst]

Yes, some follow-on on, actually, Morocco. So the Q1 performance has been better than expected because of more demand. Would that suggest -- assuming that the rest of the year has been equal, would you expect, therefore, the scenario is that we could have actually a strong production overflow in '22? Or would you see some limitation because of reserves? That was my first question.

And second question, you talk about the top nappe shallow, what would you see as a chance of success for those prospects?

[Mark Reid, executive]

Thomas, I'll let -- sorry, I'll let Nick answer the first question on what do we expect or, I guess, a full year guidance in Morocco and then I'll answer the second one and a third one -- next one.

[Nicholas Box, executive]

Sure. I think the guidance in Morocco is -- we maintain guidance for the rest of the year because we've got a number of the religious holiday to take place in Morocco. And we've also -- we didn't see a great deal of -- that are coming in the remaining 3 quarters of the year. We also didn't see a great deal of plant maintenance either on our side or our customer's side in the first quarter. So it could be that we are towards the upper end of guidance in the sort of final analysis. But I don't think necessarily that we feel confident that it would be necessarily sustained at these high -- the levels we saw for Q1.

In terms of being constrained by reserves, we -- as Mark said, we will drill the wells that we need to drill to satisfy the demand. So we don't expect that to be a constraint.

[Mark Reid, executive]

Thanks, Nick. Stephane, in terms of your question about the chance of success for the top nappe, the top nappe has porphyry exploration. If you recall, the wells that we drilled in the shallow biogenic horizon have got -- there's a very high historic success rate. And I think we are at something like 81% or 82%. The top nappe is untested, and therefore, what we look -- what we will be looking to do is to drill wells for the [indiscernible]. But as our -- there's a shallow biogenic gas target that we will drill and hopefully good reserves, and then we will continue going to test the top nappe. But that top nappe prospectivity has sort of 17% to 22% chance of success, it's porphyry exploration.

[Operator]

Next question is coming from [ Escobal ].

[Unknown Analyst]

Yes, I wanted to ask, was the liquidation of the company considered considering that the South Disouq divestiture total mark-to-market on SDX's share of [ $0.061 ]. And was this corporate activity and merger with Tenaz driven by management or by its shareholders?

[Mark Reid, executive]

Yes. I'm afraid I'm not allowed to answer that question. The purpose of today's call is solely on the Q1 results.

[Operator]

There are no further questions at the moment. For closing remarks, I'll hand back to you speakers.

[Mark Reid, executive]

Okay. Thank you. Well, look, thanks, everyone, for your questions and for your continued interest in SDX. And as I said, I hope Q1 has demonstrated the sort of continued theme of good operation and performance in delivery. We are genuinely excited about the drilling in Q2 and what will go ahead of us with Mohsen and restarting drilling in Morocco and West Gharib. And hopefully there'll be some production [indiscernible] coming out in the coming weeks to update you all on progress. But thanks again for your continued interest. If anyone else has any follow-up questions you want to speak to Nick and I on, please don't hesitate to reach out. Other than that, thanks and have a good day.

[Operator]

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.