2016 Q3 Interim Report - SDX Energy Plc · 3 SDX Energy Inc. 2016 Q3 Interim Report Our Highlights Third Quarter 2016 Contents 01 Financial and Operating Highlights ... • Completed

2016 Q3Interim Report

3 SDX Energy Inc. 2016 Q3 Interim Report

Our HighlightsThird Quarter 2016

Contents01 Financial and Operating Highlights04 Review of Operations12 Management’s Discussion & Analysis40 Financial Statements44 Notes to the Consolidated Financial StatementsIBC Corporate Information

Corporate and Financial • Key financial metrics for the 3 and 9 months ended September 30, 2016 and 2015 are:

Three months ended September 30 Nine months ended September 30US$ million except per unit amounts 2016 2015 2016 2015Net Revenues 2.9 2.2 7.6 7.9 Netback 1.7 1.4 4.0 5.4 Net realized average oil price - US$/barrel 33.58 33.30 29.89 37.29 Net cash (used in)/generated from operating activities (1.7) 0.8 (2.6) (1.3)Total comprehensive income/(loss) 0.1 (1.0) (25.9) 0.9

• Comprehensive income of US$0.1 MM in 3 months ended September 30, 2016;• Comprehensive loss of US$(25.9) MM for 9 months ended September 30, 2016 due predominantly to write down of US$(24.4) MM in the

Bakassi West, Cameroon exploration asset resulting from the decision to withdraw from concession;• Invested US$0.2 MM of capital expenditure into business during Q3 2016; and• As at September 30, 2016 cash on hand of US$5.0MM and zero debt.

Operational Highlights• Average daily oil sales and production service fees equated to 1,214 barrels of oil per day (“BOP/D”) and average daily natural gas and

natural gas liquids production equated to 141 barrels of oil equivalent per day for Q3 2016 (“BOEP/D”) • During the 9 months ended September 30, 2016 average daily oil sales and production service fees equated to 1,213 BOP/D and average

daily natural gas and natural gas liquids production equated to 141 BOEP/D (to be invoiced at a future date to optimize revenue recovery);• In North West Gemsa, completed six successful well workovers in the 9 months ended September 30, 2016, one of which was completed

during Q3 2016;• In Meseda, following the successful completion of an eight well workover program and strategic initiative focussed on development

optimization and increasing production, the partners completed a fluid handling review during Q3 2016 and have now launched a tenderingprocess to secure the equipment necessary to increase facility treating capacity;

• During H1 2016 the 3D seismic acquisition was completed in South Disouq ahead of schedule and under budget. Seismic data processingcontinues, with interpretation to date having identified potential for both oil and gas bearing prospects with strong Class III amplitude versusoffset responses observed in several prospects. Enquiries have also been received from a number of operators regarding farming in to thelicence; and

• Completed technical review of prospectivity at South Ramadan development concession and an evaluation of project economics is currentlyunderway which may lead to an exit of the concession.

Outlook:• Continue with well workover program at North West Gemsa;• Continue with redevelopment, waterflood program and facility capacity upgrade at Meseda; • Complete 3D seismic processing and interpretation in South Disouq and drill a carried exploration well early 2017;• Continue to minimise costs post business combination; and• Continue to explore opportunities to expand the asset base in the North Africa region.

Paul Welch, President & CEO of SDX Energy, commented: “Today’s Q3 report marks the end of an extremely busy and productive period for the company. We now possess a comprehensive dataset onSouth Disouq and have furthered our understanding of the geology, enabling us to identify the location of our 1st exploration well in theconcession. We are also completing our final technical review and undertaking a tendering exercise on Meseda, after which we can start on theground operations to increase production on the licence during the course of 2017.

Our high margin producing assets and an exciting exploration programme, combined with a strong balance sheet leave us well placed to capitaliseon value accretive asset opportunities in the region. ”

Financial & Operating HighlightsUnaudited Interim Financial Statements

SDX Energy Inc. 2016 Q3 Interim Report 01

Three months ended September 30 Nine months ended September 30$000’s except per unit amounts Prior quarter 2016 2015 2016 2015FinancialGross revenues 3,384 3,752 2,215 9,926 7,930 Royalties (863) (823) - (2,366) - Net revenues 2,521 2,929 2,215 7,560 7,930 Operating costs (1,290) (1,241) (816) (3,530) (2,490)Netback 1,231 1,688 1,399 4,030 5,440 Total comprehensive income/(loss) (25,164) 140 (1,029) (25,907) 858

per share (0.45) 0.00 (0.01) (0.45) 0.02 Funds from operations 593 (9) (297) (7) 3,074

per share 0.01 (0.00) (0.01) (0.00) 0.05 Cash, end of period 6,949 4,961 11,990 4,961 11,990 Working capital (excl. cash) 1,283 4,632 (47) 4,632 (47) Capital expenditures 6,475 188 797 12,482 2,715 Total assets 47,231 43,901 42,912 43,901 42,912 Shareholders’ equity 38,560 39,161 40,769 39,161 40,769 Common shares outstanding (000’s) 75,934 79,844 56,348 79,844 56,348

OperationalOil sales (bbl/d) 554 510 - 557 - Production Service Fee (bbl/d) 616 704 723 656 779 Total boe/d 1,170 1,214 723 1,213 779 Brent oil price ($/bbl) 45.54 45.78 50.26 41.70 55.25 West Gharib oil price ($/bbl) 30.38 34.86 40.71 30.44 45.39 Net realized price ($/bbl) 31.80 33.58 33.30 29.89 37.29 Royalties ($/bbl) 8.11 7.37 - 7.12 - Operating costs ($/bbl) 12.12 11.11 12.27 10.63 11.71 Netback ($/bbl) 11.57 15.11 21.03 12.13 25.58

Financial & Operating HighlightsProforma Combined Business


Three months ended September 30 Nine months ended September 30$000’s except per unit amounts Prior quarter 2016 2015 2016 2015FinancialGross revenues 3,384 3,752 5,063 9,926 18,902 Royalties (863) (823) (1,058) (2,366) (4,781)Net revenues 2,521 2,929 4,005 7,560 14,121 Operating costs (1,290) (1,241) (1,467) (3,530) (3,556)Netback 1,231 1,688 2,538 4,030 10,565 Total comprehensive income / (loss) 25,164 140 (2,784) (25,907) (1,185)

per share (0.45) 0.00 (0.05) (0.45) (0.00) Funds from operations 593 (9) (297) (7) 3,074

per share 0.01 (0.00) (0.01) (0.00) 0.05 Cash, end of period 6,949 4,961 12,480 4,961 12,480 Working capital (excl. cash) 1,283 4,632 3,374 4,632 3,374 Capital expenditures 6,475 188 1,578 12,482 3,955 Total assets 47,231 43,901 71,170 43,901 71,170 Shareholders' equity 38,560 39,161 40,769 39,161 40,769 Common shares outstanding (000's) 75,934 79,844 56,348 79,844 56,348

OperationalOil sales (bbl/d) 554 510 674 557 794 Production Service Fee (bbl/d) 616 704 723 656 779 Total boe/d 1,170 1,214 1,397 1,213 1,573 Brent oil Price ($/bbl) 45.54 45.78 50.26 41.70 55.25 West Gharib oil Price ($/bbl) 30.38 34.86 40.71 30.44 45.39 Net realized price ($/bbl) 31.80 33.58 33.30 29.89 37.29 Royalties ($/bbl) 8.11 7.37 8.23 7.12 11.13 Operating costs ($/bbl) 12.12 11.11 11.41 10.63 8.28 Netback ($/bbl) 11.57 15.11 19.75 12.13 24.60

Review

of Operations

Completed 3D seismic acquisition in South Disouqahead of schedule and under budget. Given explorationdrilling success, we would expect to see a rapid increasein high margin production.

Onshore expertise

10,409 boe/d

Combined Egyptian daily average gross productionfor the nine months to September 30, 2016

19.4 mmboe

Asset reserves - North West Gemsa and Meseda(gross) at September 30, 2016


Key highlights

• Quisque dui arcu, ultrices id accumsan tempor semper vel dolor. • Donec arcu sem, sodales id varius non, varius quis dolor donec vitae metus mi, ut tincidunt massa.• Maecenas eget dui augue, eu rutrum nibh. • Phasellus porta enim quis lectus.• Donec arcu sem, sodales id varius non, varius quis dolor donec vitae metus mi, ut tincidunt massa.

Where We OperateEgypt


South Disouq

Block-H Meseda

North West Gemsa

South Ramadan

Cairo

AlexandriaPort Said

Suez

EGYPT

Gulf of Suez

Gul

f of

Aqa

ba

Red Sea

200 KM

Nile

1,405.7km2

Combined asset area

4 concessions

10%, 50%, 12.75% and 55%working interests

Our assets

SDX Energy is actively involved inproduction, development, and explorationactivities in three of Egypt’s premier oiland gas provinces – the Eastern Desert,Gulf of Suez, and Nile Delta.

SDX Energy’s assets in the Eastern Desert provide a stable base of oil production, while its South Disouq concession in the Nile Deltaprovides access to exploration upside in a proven hydrocarbon province with multiple productive horizons.

Key highlights

• Quisque dui arcu, ultrices id accumsan tempor semper vel dolor. • Donec arcu sem, sodales id varius non, varius quis dolor donec vitae metus mi, ut tincidunt massa.• Maecenas eget dui augue, eu rutrum nibh. • Phasellus porta enim quis lectus.• Donec arcu sem, sodales id varius non, varius quis dolor donec vitae metus mi, ut tincidunt massa.

Where We OperateCameroon


Review

of Operations

Gulf of Guinea

NIGERIA

AMER

Block. assi WakB

C

100 KM

Douala

IslandoBiok

tourct HarorP

OONR

aoundéYYa

M

aoundéYYa

388km2

Combined asset area

1concession

35%working interest

Our assets

The Bakassi West concession (SDX Energy,35%; Dana Petroleum, 55%, operator;SoftRock Oil and Gas, 10%) is located in the Rio Del Rey Basin, adjacent to the Cameroon-Nigeria border.

The concession is 388 km2 in area and covers an area that comprises shallow open-water, channels and mangroves.

Review of OperationsEgypt

North West Gemsa Concession


Gulf of Suez

AL S

AAL OLA

est Gemsath WNor

SAAMIR

t

ADGEYYA

DeserernEast

Suez

Gulf of Suez

Gulf of Suez

Gulf of Suez

Sinai

tDeserernEast

eaRed S a

10KM

The North West Gemsa concession islocated in the Eastern Desert, 300 kmsoutheast of Cairo.

Overview

For more information please visit our website:www.sdxenergy.com

The concession is 82.7 km2 in area and includes three fields; Geyad, Al Amir SE, and Al Ola (the southern extension of Al Amir SE). All of the fields are covered by development leases.

The fields are operated by PetroAmir, a joint operating company betweenthe partners (SDX Energy, 10%; Circle Oil, 40%; and Zenhua Oil, 50%) andGanoub El Wadi (a subsidiary of the Egyptian General PetroleumCorporation). The Al Amir SE and Geyad fields produce light oil (40-42o

API oil; priced at Brent less 5%) from two reservoir intervals; the Miocene-aged Shagar and Rahmi sandstones of the Kareem Formation.

Daily production for the third quarter of 2016 averaged 6,510 BOEPD (651 BOEPD net to SDX). Cumulative production for the quarter was 599 MBOE, bringing year to date cumulative production to 1,919 MBOE.

Workover Campaign: As part of the joint venture’s field maintenanceprogram six workovers have been completed in the Al Amir SE and Geyadfields in 2016 (one workover completed in the third quarter). This workwas focused on routine wellbore maintenance to ensure asset integrity and to maximize long-term asset value.

Unitization: Unitization talks with the offset operator are ongoing and resolution is expected in the coming months.


Block-H Meseda


Review

of Operations

t

est GharibW

ern DeserEast

5KM

HOSHIA

A

M

K

H

ADIFFA

MESEDDA

South Hania

ans Globe

Gulf

Sue

tDeserernEast

Meseda

rT

ans GloberTTr

ans GloberTTr

ans GloberT

ans GloberTTrans GloberT

open

open

open

open

AA

HANA

open

ez

open

Gulf of Suez

Gulf of Suez

Gulf of Suez

Sinai

be5KM

ans GlobrTopeneaRed S

Block-H is located in the Eastern Desert,230 km southeast of Cairo.

Overview


The block is 22 km2 in area and is currently producing from the Mesedafield (which is covered by the Meseda-H development lease). The field iscovered by a production service agreement, which allows for lower costoperations than the traditional joint venture structure. SDX Energy has a50% working interest, while Dublin International Petroleum (the operator)holds the remaining 50% working interest.

Daily production for the third quarter of 2016 averaged 3,657 BOPD (704 BOPD net to SDX) of 16-18o API oil. Cumulative production for thequarter was 336 Mbbls of oil with cumulative production for the yearthrough the end of the third quarter at 933 Mbbls.

Workover Campaign: During the first half of 2016 an eight well workoverprogram was conducted in the Meseda field. The program consisted oftubing replacements, well bore cleanouts, ESP pump operational changesand adding perforations with the objective of optimizing production andensuring asset productivity.

Strategic Initiatives: During the first half of 2016 the partners completeda well-level review of production rates and potential for increasing flowrates through a pump replacement program. In conjunction with this astudy was undertaken to determine the potential benefits of a waterinjection program. Results indicated that both field production rates andrecoverable reserves can be increased.

During the third quarter the partners have shifted focus to optimizing, andexpanding fluid handling capabilities at the Meseda field. A facilities reviewhas been completed and a redesign aimed at increasing capacity is ongoing.


South Ramadan Concession


AN

ern

SOUTH

South Ramadan

RAMAD

YJULLY

B

GMOR

Gulf of Suez

MARINEANRAMAD

East

DeEa

Suez

Sinai

ea

Gulf of Suez

Gulf of Suez

Red S

Gulf of Suez

Sinai

teserernst

ADRIB

GAN

SIMNES

5KMtDeser

The 26 km2 South Ramadan developmentconcession is located in the offshore Gulfof Suez, between the prolific Ramadanand Morgan fields.

Overview


SDX Energy holds a 12.75% working interest, with Pico holding 37.25%,and GPC holding the remaining 50%. The concession is consideredprospective for the Lower Cretaceous-aged Nubia sandstone and hashistorical production from the Eocene-aged Thebes and UpperCretaceous-aged Matulla formations.

In Q1 2016 seismic reprocessing activities were completed and the finalPSTM and PSDM 3D seismic volumes were received. Subsequentinterpretations of the data have delineated potential appraisal locations. A technical review of prospect volumetrics was completed early in the secondquarter and an evaluation of project economics is currently underway, whichmay lead to an exit of the concession.


South Disouq Concession


Review

of Operations

ea

tW

anean SerrraMedite

Alexandria

DeserernestW

South Disouq

EGYPT

t Said

100KM

tDeserernEast

anal Suez C

orP

eaRed SNCNileil

oCair

South Disouq is a 1,275 km2 concessionlocated 65 km north of Cairo in the NileDelta region.

Overview


The concession is along trend with numerous, prolific gas fields in the Abu Madi Formation. SDX Energy is the operator with a 55% equityinterest (with IPR holding the remaining 45% interest).

During the first half of 2016, 300 km2 of 3D seismic data was acquiredacross the concession. The survey was completed on schedule and underbudget, with no reportable HSE incidents. Seismic processing was initiatedin June 2016, and the pre-stack time migration (PSTM) seismic volumewas received on September 22, 2016. Processing for the pre-stack depthmigration (PSDM) seismic volume is ongoing, with delivery expected in the second half of December, 2016.

Early interpretations of the PSTM volume are encouraging and confirmthat the Abu Madi trend extends into the South Disouq block. A numberof leads (both structural and stratigraphic traps) have been identified inboth the Abu Madi and overlying Kafr El Sheikh formations. Out of these,one large four-way dip closure has been progressed to the prospect phase(the SD-1X Prospect) and is in the early stages of well permitting andplanning. SDX Energy anticipates exploration drilling will commence duringthe first quarter of 2017. SDX Energy’s share of the costs for this well willbe carried by its partner, subject to a $3MM cap on well cost, as specifiedby the farm-in agreement between the companies.

In addition to the known producing Abu Madi and Kafr El Sheikh horizons,SDX Energy has advanced a number of leads that are present in the deeperAbu Roash, Alam El Bueib (AEB), and Safa formations; although theseunits are productive across much of Egypt’s Western Desert they have notbeen traditionally targeted in the Nile Delta due to their depth of burial.However, in the South Disouq concession these formations are present atdepths ranging from 8000-14000 feet TVD, and are expected to beprospective for both oil and gas. As such, one prospect (the SD Deep-1XProspect) has been substantially advanced and is in the early stages of wellpermitting and planning. SDX Energy anticipates potentially drilling thisprospect in late 2017 as part of the second exploration period if extended.

Review of OperationsCameroon

Bakassi West Concession


SDX Energy exited the Bakassi Westconcession effective July 31, 2016.

Overview


All license obligations were satisfied, and operations were successfullyconcluded. Nearly all ongoing obligations were concluded by September30, 2016 and SDX anticipates no further material expenses associated with country exit.

Managem

ent Discussion &

Analysis


A world class hydrocarbon basin, with an excellentoperating environment, rising local gas prices and a stabilised economy and government.

Focused on Egypt

10,409 boe/d


19.4 mmboe


Management’s Discussion & Analysisfor the three and nine months ended September 30, 2016(prepared in US$)


Basis of presentationThe following Management’s Discussion and Analysis (the “MD&A”) dated November 25, 2016 is a review of results of operations and the liquidity andcapital resources of SDX Energy Inc. (the “Company” or “SDX”), for the three and nine months ended September 30, 2016. This MD&A should be read inconjunction with the accompanying interim unaudited consolidated financial statements for the three and nine months ended September 30, 2016 andthe audited consolidated financial statements for the year ended December 31, 2015. In order to provide the reader with a better understanding of theunderlying operational performance of the combined business (of Sea Dragon and Madison) for the three and nine months ended September 30, 2016and 2015, this MD&A also includes various sections headed ‘Proforma’. These proforma sections include details of the performance of the combinedbusiness on a three and nine months to September 30, 2016 basis versus a three and nine months to September 30, 2015 basis. The proforma sectionscommence after the completion of the sections of the MD&A based on the interim unaudited consolidated financial statements for the period endedSeptember 30, 2016 which have been prepared under IFRS 3-Business Combinations.

Certain information contained herein is forward-looking and based upon assumptions and anticipated results that are subject to risks, uncertainties andother factors. Should one or more of these uncertainties materialize or should the underlying assumptions prove incorrect, actual results may varymaterially from those expected. See “Forward Looking Statements”, below.

All financial references in this MD&A are in thousands of United States Dollars unless otherwise noted.

Additional information related to the Company can be found on SEDAR at www.sedar.com.

Forward-looking statementsCertain statements included or incorporated by reference in this MD&A constitute forward-looking statements or forward-looking information underapplicable securities legislation. Such forward-looking statements or information are for the purpose of providing information about Management’s currentexpectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes, such asmaking investment decisions. Forward-looking statements or information typically contain statements with words such as “anticipate”, “believe”, “expect”,“plan”, “intend”, “estimate”, “propose”, “project” or similar words suggesting future outcomes or statements regarding an outlook. Forward-lookingstatements or information in this MD&A include, but are not limited to, statements or information with respect to: business strategy and objectives;development plans; exploration plans; acquisition and disposition plans and the timing thereof; reserve quantities and the discounted present value offuture net cash flows from such reserves; future production levels; capital expenditures; net revenue; operating and other costs; royalty rates and taxes.

Forward-looking statements or information are based on a number of factors and assumptions that have been used to develop such statements and information but may prove to be incorrect. Although the Company believes that the expectations reflected in such forward-looking statements orinformation are reasonable, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that suchexpectations will prove to be correct. In addition to other factors and assumptions that may be identified in this MD&A, assumptions have been maderegarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which theCompany operates; the timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and services ina timely and cost-efficient manner; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficientand effective manner; the ability of the Company to obtain financing on acceptable terms; field production rates and decline rates; the ability to replaceand expand oil and natural gas reserves through acquisition, development or exploration; the timing and costs of pipeline, storage and facility constructionand expansion and the ability of the Company to secure adequate product transportation; future oil and natural gas prices; currency, exchange andinterest rates; the regulatory framework regarding royalties, taxes and environmental matters in the countries in which the Company operates; and theability of the Company to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list is not exhaustive of all factorsand assumptions that may have been used.

Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertaintiesthat could cause actual results to differ materially from those anticipated by the Company and described in the forward-looking statements or information.The risks and uncertainties that may cause actual results to differ materially from the forward-looking statements or information include, among otherthings: the ability of Management to execute its business plan; general economic and business conditions; the risk of war or instability affecting countriesor states in which the Company operates; the risks of the oil and natural gas industry, such as operational risks in exploring for, developing and producingcrude oil and natural gas; market demand; the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; risks and uncertainties involving geology of oil and natural gas deposits; the uncertainty of reserves estimates and reserves life; the ability of the Company to add production and reserves through acquisition, development and exploration activities; the Company’s ability to enter into or renewproduction sharing concession; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; theuncertainty of estimates and projections relating to production (including decline rates), costs and expenses; fluctuations in oil and natural gas prices,foreign currency exchange, and interest rates; risks inherent in the Company’s marketing operations, including credit risk; uncertainty in amounts andtiming of oil revenue payments; health, safety and environmental risks; risks associated with existing and potential future law suits and regulatory actionsagainst the Company; uncertainties as to the availability and cost of financing; and financial risks affecting the value of the Company’s investments.Readers are cautioned that the foregoing list is not exhaustive of all possible risks and uncertainties


Managem

ent Discussion &

Analysis

Use of estimatesThe preparation of interim unaudited consolidated financial statements in conformity with IFRS requires management to make estimates and assumptionsbased on information available at the time. These estimates and assumptions affect the reported amounts of assets, particularly the recoverability ofaccounts receivable and acquisition costs of property and equipment. Estimates and assumptions also affect the recording of liabilities and contingentliabilities at the date of the interim unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reportingperiod. Due to various factors affecting future costs and operations, actual results could differ from management’s best estimates.

Business combinationOn August 18, 2015 Sea Dragon Energy Inc. (“Sea Dragon”) and Madison Petrogas Ltd (“Madison”) entered into an Arrangement Agreement wherebySea Dragon acquired all the issued and outstanding Madison shares. Prior to the closing of the transaction Sea Dragon effected a 35:1 share consolidationand as a result of this share consolidation the exchange ratio equated to 0.477143 Sea Dragon share for each Madison share.

The business combination and closing of the transaction was effected on October 1, 2015 at which date the former Madison shareholders heldapproximately 71% of the combined entity known as SDX Energy Inc.

In preparing the interim unaudited consolidated financial statements the Company must conform with IFRS 3 – Business Combinations. Given that the former Madison shareholders hold 71% of the combined entity Madison is treated as the acquirer. This means that in the interim unaudited Financial Statements to September 30, 2016, whilst the 2016 figures in the Statement of Comprehensive (Loss)/Income relates to the combined entity, the 2015 comparatives contain nine months of revenue and costs for Madison only.

Non-IFRS measuresThe MD&A contains the terms “funds from operations”, and “netbacks” which are not recognized measures under IFRS. The Company uses thesemeasures to help evaluate its performance.

As mentioned above, in order to provide the reader with a better understanding of the underlying operational performance of the combined business (ofSea Dragon and Madison) for the periods ended September 30, 2016 and 2015, this MD&A also includes various sections headed ‘Proforma’. Theseproforma sections include details of the performance of the combined business on a three and nine months to September 30, 2016 basis versus three andnine months to September 30, 2015 basis for the combined entity (former Sea Dragon Energy Inc. and Madison Petrogas Ltd).

Funds from operationsFunds from operations is a non-IFRS measure that represents funds generated from operating activities before changes in non-cash working capital.Funds from operations should not be considered an alternative to, or more meaningful than, cash flow from operating activities. Management uses fundsfrom operations to analyze performance and considers it an indication of the Company’s ability to generate the cash necessary to fund future capitalinvestments. The Company’s determination of funds from operations may not be comparable to that reported by other companies nor should it be viewedas an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS.

Reconciliation of cash flow from operations and funds from operations:

Three months ended September 30 Nine months ended September 30$000’s 2016 2015 2016 2015Cash from operating activities (1,652) 797 (2,618) (1,294)Add back: changes in non-cash working capital 1,260 (1,931) 1,845 (565)Add back: income taxes paid 383 837 766 4,933Funds (used in)/generated by operations - (FFO) (9) (297) (7) 3,074

NetbackNetback is a non-IFRS measure that represents sales net of all operating expenses and government royalties. Management believes that netback is auseful supplemental measure to analyze operating performance and provide an indication of the results generated by the Company’s principal businessactivities prior to the consideration of other income and expenses. Management considers netback an important measure as it demonstrates the Company’sprofitability relative to current commodity prices. Netback may not be comparable to similar measures used by other companies. See netback reconciliationschedule under the outlook section below.



SDX Energy’s business strategy and work program

SDX Energy’s businessSDX is engaged in the exploration, development and production of oil and gas. Current activities are concentrated in Egypt, where the Company has interests in four concessions with short and long-term potential. The Company exited its operation in Cameroon on July 31, 2016 (see below). The Company’s strategy is to develop the potential of its existing concessions while seeking growth opportunities within its region of focus, being theMiddle East and North Africa. The Company intends to create shareholder value by enhancing the value of its assets and through significant growth in production volumes, cash flow and earnings.

Strategy The Company’s strategy is to create value through low cost production growth and low cost high impact exploration success. The Company is underpinnedby a portfolio of low cost onshore producing assets combined with onshore exploration prospects in Egypt.

SDX intends to organically increase production and cash flow generation through an active work program consisting of workover and development wells inits existing portfolio in Egypt, combined with high impact exploration drilling in Egypt. After analyzing its Bakassi West gas discovery in Cameroon, anddue to challenging gas market economics, the Company decided to exit the concession and the country. In pursuing this strategy, SDX also intends toleverage its balance sheet, which has been strengthened as a result of its successful US$11 million Placing (less expenses of c. US$1 million) which closedduring Q2 2016, its early mover advantage and its regional network to grow through the acquisition of undervalued and/or underperforming producingassets principally in onshore Egypt, while maintaining a strict financial discipline to ensure an efficient use of funds.

The Company currently holds working interests (“W.I.”) in three development and one exploration concession in Egypt: • The NW Gemsa Concession (“NW Gemsa”) – (10% W.I.); • The South Ramadan Concession (“South Ramadan”) – (12.75% W.I.);• The South Disouq Concession (“South Disouq”) – (55% W.I.);• The Block-H Meseda production service agreement (“Meseda”) – (50% W.I.).

The Company assigned its interest in the Bakassi West Concession (“Bakassi West”) – (35% W.I.). to one of the partners in the concession effective July 31, 2016 and withdrew from the concession.

2016 Work program The Company’s expected gross capital expenditure program for 2016 is approximately US$19.9 million.

The Company’s capital expenditure program for NW Gemsa in 2016 is c. US$1.3 million and includes the drilling of two production wells, one of which was spud in 2015, and the undertaking of nine well workovers.

In Meseda the Company is undertaking an extensive well workover program to replace/repair Electrical Submersible Pumps and improve production ratesin up to 11 wells. Thereafter the Company will carry-out an infill drilling and water flood program to extend plateau production in these wells. The overallcost to SDX of this program is estimated at US$5.2 million.

The Company’s capital expenditure program for South Disouq in 2016 is estimated at US$7.0 million and primarily comprises of the cost to complete the 3D seismic program (acquisition and processing) and the annual training fees for the concession. As the Company has now incurred this expenditure,the State will be releasing its work program security of US$3.0 million of withheld receivables starting in Q4 2016.

In Cameroon the total cost of the Bakassi well and associated post-well analysis was c. US$6.4 million.


Managem

ent Discussion &

Analysis

Operational and financial highlights

In accordance with Canadian industry practice, production volumes and revenues are reported on a Company interest basis, before deduction of royalties.

Operational and Financial information contained below represents the unaudited interim IFRS 3 information extracted from the Financial Statements forthe three and nine months ended September 30, 2016 and 2015.

Three months ended September 30 Nine months ended September 30$000’s unless stated Prior quarter (1) 2016 2015 2016 2015OperationalOil revenue 2,011 1,917 - 5,512 -Royalties (863) (823) - (2,366) -Net oil revenue 1,148 1,094 - 3,146 -

Production service fee revenue 1,373 1,835 2,215 4,414 7,930

Total net revenue 2,521 2,929 2,215 7,560 7,930

Operating costs (1,290) (1,241) (816) (3,530) (2,490)

Netback (pre tax) 1,231 1,688 1,399 4,030 5,440

Oil Sales (bbl/d) 554 510 - 557 -Production service fee (bbl/d) 616 704 723 656 779Total boe/d 1,170 1,214 723 1,213 779

Oil sales volumes (bbls) 50,407 46,935 - 152,501 -Production service fee volumes (bbls) 56,026 64,792 66,517 179,638 212,657Total sales volumes (boe) 106,433 111,727 66,517 332,139 212,657

Brent oil price (US$/bbl) $45.54 $45.78 $50.26 $41.70 $55.25West Gharib oil price (US$/bbl) $30.38 $34.86 $40.71 $30.44 $45.39

Realized oil price (US$/bbl) $39.90 $40.84 - $36.14 -Realized service fee (US$/bbl) $24.51 $28.32 $33.30 $24.57 $37.29Net realized price (US$/boe) $31.80 $33.58 $33.30 $29.89 $37.29

Total royalties (US$/boe) $8.11 $7.37 - $7.12 -Operating costs (US$/boe) $12.12 $11.11 $12.27 $10.63 $11.71Netback - (US$/boe) $11.57 $15.11 $21.03 $12.13 $25.58Capital expenditures 6,475 188 797 12,482 2,715

(1) Three months ended June 30, 2016



Operational and financial highlights (continued)

Oil sales and production service fee revenues Three months ended September 30 Nine months ended September 30

$000’s Prior quarter 2016 2015 2016 2015Oil sales revenue 2,011 1,917 - 5,512 -Production fee revenues 1,373 1,835 2,215 4,414 7,930Oil sales and production fee revenues 3,384 3,752 2,215 9,926 7,930

Total revenues for the three and nine months ended September 30, 2016 were US$3.8 million and US$9.9 million compared to US$2.2 million and US$7.9 million for the comparative periods of the prior year.

Oil sales revenue relates to the NW Gemsa field and the decrease in oil sales revenues, compared to the prior quarter, of US$0.1 million, 5%, to US$1.9 million is due to an increase in realized sales price (US$0.05 million), or 2%, and a decrease in sales volumes (US$0.14 million), or 7%.

For the three months ended September 30, 2016 (compared to the prior quarter ending June 30, 2016) the increase in production service fees of US$0.5 million, 34%, to US$1.8 million is due to an increase in realized price (US$0.25 million) or, 18%, and an increase in volumes (US$0.22 million), or 16%.

For the nine months ended September 30, 2016 (compared to the nine months ended September 30, 2015) the decrease in production service fees of US$3.5 million, 44%, to US$4.4 million is due to a decrease in realized price (US$2.3 million), or 29%, and a decrease in volumes (US$1.2 million), or 16%.

Direct operating costs Three months ended September 30 Nine months ended September 30

$000’s Prior quarter 2016 2015 2016 2015NW Gemsa 440 377 - 1,157 -Block-H Meseda 835 863 816 2,349 2,490Other 15 1 - 24 -Direct operating costs 1,290 1,241 816 3,530 2,490

Direct operating costs for the three and nine months ended September 30, 2016 were US$1.2 million and US$3.5 million respectively compared to US$0.8 million and US$2.5 million for the comparative periods of the prior year. Prior quarter direct operating costs are US$0.1 million higher at US$1.3 million compared to US$1.2 million for the three months to September 30, 2016.

Direct operating costs for the nine months to September 30, 2016 for Block-H Meseda were US$0.1 million lower than the comparative nine month periodof the prior year and in line with the prior quarter.

General and administrative expenses Three months ended September 30 Nine months ended September 30

$000’s Prior quarter 2016 2015 2016 2015Wages and employee costs 641 735 1,328 1,929 1,775 Consultants - inc. PR/IR 226 99 42 370 233 Legal fees 72 76 - 182 10 Audit, tax and accounting services 69 53 33 182 240 Public company fees 81 158 - 293 -Travel 39 21 17 104 164 Office expenses 173 235 84 555 237 IT expenses 64 109 20 219 38 Transaction costs - - 496 - 496Service recharges (453) (261) - (837) -Total - net G&A 912 1,225 2,020 2,997 3,193

General and administrative (“G&A”) expenses for the three and nine months ended September 30, 2016 were US$1.2 million and US$3.0 millionrespectively compared to US$2.0 million and US$3.2 million for the comparative periods of the prior year.


Managem

ent Discussion &

Analysis

G&A expenses for the nine months ended September 30, 2016 was lower than 2015 by US$0.2 million or 6%. The three and nine months ended September 30, 2015 represent Madison Petrogas Ltd only. The decrease in the nine months to September 30, 2016 compared to the same period in 2015 is due to the following:

• higher wages and employee costs of US$0.2 million as a result of the business combination and the SDX group having a corporate office in Londonand a local office in Cairo (US$1.2 million), partly offset by non-recurring severance costs of US$1.0 million incurred by Madison during the businesscombination in 2015;

• higher consultant fees of US$0.1 million due to increased 2016 Reserves Reporting fees as a result of the larger combined group, increased PR costsand increased Business Development and Technical consultancy costs;

• higher legal fees of US$0.2 million as a result of the group restructuring and legal assistance with public company requirements.• public company fees of US$0.3 million as a result of the TSXV and AIM listings and non-executive directors fees. As a private company

Madison Petrogas Ltd did not have this category of costs in 2015;• higher office expenses due to SDX Energy’s corporate office in London, local office and yard in Cairo and the lease costs for the office

in Calgary which has been sublet but does not recover 100% of the cost;• higher IT expenses due to software service agreements for technical licenses, offset by;• the absence of transaction costs of US$0.5 million incurred by Madison in 2015; and• service recharges (US$0.8 million) related to the cross charging of technical and administrative time spent by the Company

on its exploration assets and the recovery of indirect overhead recharges from a concession partner.

Current taxes Three months ended September 30 Nine months ended September 30

$000’s Prior quarter 2016 2015 2016 2015Current taxes 287 363 55 856 822

Current taxes for the three and nine months ended September 30, 2016 were US$0.4 million and US$0.9 million respectively compared to US$0.1 millionand US$0.8 million for the comparative period of the prior year. Current taxes increased by US$0.3 million for the three months ended September 30,2016 when compared to 2015 due the absence in 2016 of a tax benefit arising from changes in tax rates and the deduction of previously disallowedexpenses that occurred in Q3 2015.

Capital expendituresThe following table shows the capital expenditure for the Company in accordance with IFRS3 – Business Combinations and this agrees to the Notes 6 and7 of the interim unaudited consolidated Financial Statements for the period ended September 30, 2016.

Three months ended September 30 Nine months ended September 30$000’s Prior quarter 2016 2015 2016 2015Property, plant and equipment expenditures (“PP&E”) 542 136 473 1,113 1,429Exploration and evaluation expenditures (“E&E”) 5,918 52 350 11,354 1,309Office furniture and equipment 15 - (4) 15 (1)Capital expenditures 6,475 188 819 12,482 2,737

During the nine months ended September 30, 2016, the Company incurred capital expenditures of US$1.1 million on PP&E and US$11.4 million on E&E.The PP&E additions of US$1.1 million related to the NW Gemsa concession and were for the drilling of Al Amir SE-23 (US$0.2 million) and Al Amir SE-24(US$0.3 million), well work over program (US$0.2 million) and the recharge by the operator of indirect costs incurred on PP&E projects (US$0.4 million).The E&E additions of US$11.4 million consists of US$5.9 million in relation to the Bakassi West block in Cameroon (“Bakassi West”) and US$5.5 million inrelation to the South Disouq concession.

Property plant and equipmentThe following table shows the cumulative costs and associated depletion, depreciation and impairment for property and equipment on all of theCompany’s oil and gas properties. Please see Note 6 of the Financial Statements for further details:

September 30 December 31$000’s 2016 2015Oil and gas properties, at cost 31,776 30,663Accumulated depletion and impairment (14,760) (12,334)Net book value 17,016 18,329

Furniture and fixtures, at cost 135 120Accumulated depreciation (84) (48)Net book value 51 72Property, plant and equipment assets, end of period 17,067 18,401

At September 30, 2016 for the purposes of the depletion calculation, US$2.3 million (December 31, 2015 – US$4.1 million) of future development costsare included in the calculation of cost in determining the depletion rate.




Intangible exploration and evaluation assetsThe following table shows the cumulative costs for the intangible exploration and evaluation assets on all the Company’s oil and gas properties:

September 30 December 31$000’s 2016 2015Exploration and evaluation assets, beginning of period 23,473 16,460Additions 11,354 3,728Acquisitions (business combination) - 3,267Transfer to exploration expense (24,435) 18Exploration and evaluation assets, end of period 10,392 23,473

The E&E additions of US$11.4 million consist of US$5.9 million in relation to the Bakassi West block in Cameroon (“Bakassi West”) and US$5.5 million inrelation to the South Disouq concession. The US$5.9 million additions for Bakassi West consisted of well planning (US$0.2 million), drilling costs for theManatee-1 exploration well (US$5.2 million), other direct costs including G&G (US$0.2 million), training and CSR costs (US$0.1 million) and generaloverheads (US$0.2 million). On June 16, 2016 the Company issued a press release announcing its intention to withdraw from the Bakassi West, Cameroonconcession (which became effective July 31, 2016).

As the Bakassi West drilling operations had been completed by June 30, 2016, the Company made a full provision against the capitalised exploration cost of US$24.4 million and reflected the relevant impairment in the Statement of Comprehensive Income Statement for the period to June 30, 2016.There has been no material change to this position as at September 30, 2016.

The US$5.5 million additions for South Disouq related to the 3D seismic program and consisted of the crew and equipment mobilization costs (US$0.2 million), 3D seismic costs (US$4.7 million), farmer’s compensation for crop damage (US$0.1 million), 3rd party quality control (US$0.2 million),timewriting and associated operator costs (US$0.2 million) and the EGas annual training bonus (US$0.1 million).

Liquidity and capital resources

Share capitalThe Company’s authorized share capital consists of an unlimited number of common shares and an unlimited number of preferred shares, issuable in one or more series. The common shares of SDX trade on the TSX Venture Exchange and the AIM market of the London Stock Exchange under the symbol SDX.

Three months Six months ended ended September 30 September 30

Trading statistics Prior quarter 2016 2016High (CDN) $0.51 $0.47 $0.70Low (CDN) $0.26 $0.33 $0.26Average volume 28,261 29,642 30,072

The following table summarizes the outstanding common shares, options and warrants as at November 18, 2016, September 30, 2016 and December 31, 2015 for SDX Energy Inc.

November 24 September 30 December 31Outstanding as at: 2016 2016 2015Common shares 79,843,902 79,843,902 37,642,067Warrants - - 610,743Options 2,650,000 2,650,000 2,650,000

The increase in Common shares as at September 30, 2016 relates to the unconditional new Common shares issued on May 20, 2016 on completion ofSDX’s Placing and dual listing on AIM plus a further 3,910,000 conditional Common shares issued to an investor on July 25, 2016 upon receipt of TSXapproval as an Insider.

The 610,743 warrants expired on July 27, 2016.


Managem

ent Discussion &

Analysis

The following table summarizes the outstanding options as at September 30, 2016:

Outstanding options Vested options Number of Remaining Number of Remaining

Exercise price range options contractual life options contractual life$0.63 2,650,000 4.3 years 883,325 4.3 years

Stock based compensationThe Company has an option program that entitles officers, directors, employees and certain consultants to purchase shares in the Company.

Stock-based compensation expense is the amortization over the vesting period of the fair value of stock options granted to employees, directors and keyconsultants of the Company. The fair value of all options granted is estimated using the Black-Scholes option pricing model. Each tranche in an award isconsidered a separate award with its own vesting period and grant date fair value. Compensation cost is expensed over the vesting period with acorresponding increase in contributed surplus. When stock options are exercised, the cash proceeds along with the amount previously recorded ascontributed surplus are recorded as share capital.

During the three months ended September 30, 2016, it was determined that one of the inputs to the Black-Scholes option pricing model, specifically volatility of returns, required to be updated following the business combination between Sea Dragon and Madison. As a result, non-cash stock basedcompensation credits of US$0.3m and US$0.1m have been recognized for the three and nine months ended September 30, 2016, respectively. For the three and nine months ended September 30, 2015 the Company recorded non-cash stock based compensation charges of US$0.1 million andUS$0.5 million respectively.

Capital resourcesAs at September 30, 2016 the Company had working capital of approximately US$9.6 million. The Company expects to fund its 2016 capital programthrough funds generated from operations and cash on hand.

As at September 30, 2016, the Company had cash and cash equivalents of US$5.0 million compared to US$8.2 million as at December 31, 2015. The company had net cash outflows of US$3.2 million (including the effects of foreign exchange on cash and cash equivalents) during the nine monthsended September 30, 2016. For further detail, please see sources and uses table below.

As at September 30, 2016, the Company had US$7.9 million in trade and other receivables compared to US$6.7 million as at December 31, 2015.Approximately US$6.5 million is due from a government of Egypt controlled corporation (EGPC) for oil sales and production service fees; US$3.5 million is expected to be received in the normal course of operations; the remaining US$3.0 million is with-held as a rolling guarantee towards the work programfor the South Disouq concession. The Company also had a receivable of US$0.4 million related to joint venture partner current accounts for the BakassiWest concession.

Subsequent to September 30, 2016, the Company collected US$1.85 million of trade receivables from that were outstanding at September 30, 2016;US$0.3 million for NW Gemsa representing July and August 2016 crude oil sales invoices, US$0.8 million for Meseda representing July and August 2016production service fees and US$0.75 million of the rolling South Disouq production guarantee referred to above.

The following table outlines the Company’s working capital. Working capital is defined as current assets less current liabilities, and includes drillinginventory materials which may not be immediately monetized.

September 30 December 31$000’s 2016 2015Current assetsCash and cash equivalents 4,961 8,170Trade and other receivables 7,896 6,678 Inventory 1,190 1,188Total current assets 14,047 16,036

Current liabilitiesTrade and other payables 4,042 3,556Current income taxes 412 928Total current liabilities 4,454 4,484

Working capital 9,593 11,552

The decrease in working capital of US$2.0 million since December 31, 2015 for SDX Energy Inc. is as a result of i) net cash reduction of US$3.2 million, ii)an increase in trade payables of US$0.5 million, offset by iii) an increase in trade receivables of US$1.2 million and iv) a reduction in current income taxliability of US$0.5 million.




The following table outlines the Company’s sources and uses of cash for the three and nine months ended September 30, 2016 and 2015:

Three months ended September 30 Nine months ended September 30$000’s Prior quarter 2016 2015 2016 2015Sources:Funds from operations 593 (9) (297) (7) 3,074Private placement on London Stock Exchange AIM 9,167 858 - 10,025 -Dividends received - 824 (48) 824 917Changes in non-cash working capital (1,166) (1,260) 1,931 (1,845) 565

8,594 413 1,586 8,997 4,556Uses:Property, plant and equipment expenditures (15) - (447) (15) (1,406)Exploration and evaluation expenditures (10,019) (2,047) (350) (11,356) (1,309)Repayment of debentures - - - - (2,052)Finance costs paid (8) (46) (322) 103 (386)Income taxes paid (383) (383) (837) (766) (4,933)Effect of foreign exchange on cash and cash equivalents 109 75 (101) (172) (415)

(10,316) (2,401) (2,057) (12,206) (10,501)Increase/(decrease) in cash (1,722) (1,988) (471) (3,209) (5,945)Cash and cash equivalents at beginning of period 8,671 6,949 12,461 8,170 17,935Cash and cash equivalents at end of period 6,949 4,961 11,990 4,961 11,990

The Company’s funds from operations for the nine months ended September 30, 2016 compared to the prior period ended September 30, 2015 hasdecreased by US$3.0 million due to:i) a decrease of US$0.4 million in net revenues as a result of lower production and pricing at Meseda (US$3.5 million) partly offset by the inclusion

of NW Gemsa net revenues US$3.1 million in 2016;ii) an increase in operating costs of US$1.0 million as a result of the inclusion of the operating expenses incurred by the NW Gemsa concession

during the nine months to September 30, 2016;iii) a net decrease of US$0.2 million in general and administrative costs in 2016 as a result of the absence in 2016 of Madison severance and transaction-

related costs (US$1.5 million) partly offset by the increased costs of the combined entity post-business combination (US$1.3 million);iv) an increase in finance costs of US$0.6 million as a result of realized foreign exchange gains in 2015 that did not recur in 2016. In 2015 Madison had

realized foreign exchange gains on the revaluation of EGP and CAD$ denominated balances.

Financial instrumentsThe Company is exposed to financial risks due to the nature of its business and the financial assets and liabilities that it holds. The following discussionreviews material financial risks, quantifies the associated exposures, and explains how these risks, and the Company’s capital are managed.

Market riskMarket risk is the risk that changes in market prices, such as commodity prices, foreign exchange rates and interest rates could affect the Company’sincome or the value of the financial instruments. The objective of market risk management is to manage and control market risk exposures withinacceptable parameters, while optimizing the return.

Commodity price riskCommodity price risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for oiland natural gas are impacted by not only the relationship between the United States dollar and other currencies but also world economic events thatimpact the perceived levels of supply and demand. The Company may hedge some oil and natural gas sales through the use of various financial derivativeforward sales contracts and physical sales contracts. The Company’s production is sold on the daily average price. The Company, however, may giveconsideration in certain circumstances to the appropriateness of entering into long term, fixed price marketing contracts. The Company will not enter intocommodity contracts other than to meet the Company’s expected sale requirements.

At September 30, 2016 the Company did not have any outstanding derivatives in place.

Foreign currency riskCurrency risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates. The reporting and functionalcurrency of the Company is United States dollars (US$). Substantially all of the Company’s operations are in foreign jurisdictions and as a result, the Companyis exposed to foreign currency exchange rate risk on some of its activities primarily on exchange fluctuations between the Egyptian Pound (EGP) and the US$and Sterling (GBP) and the US$. The majority of capital expenditures are incurred in US$ and EGP and oil and service fee revenues are received in both US$and EGP. The Company is able to utilize EGP to fund its Egyptian office general and administrative expenses and to part-pay cash calls for both capital andoperating expenditure therefore reducing the Company’s exposure to foreign exchange risk during the period.

The table below shows the Company’s exposure to foreign currencies for its financial instruments:

Total per FS(1) US$ EGP GBP OtherAs at September 30, 2016 US$ EquivalentCash and cash equivalents 4,961 2,332 1,412 1,099 118Trade and other receivables 7,896 7,281 35 559 21Trade and other payables (4,042) (2,232) (1,276) (362) (172)Current income taxes (412) - (412) - -Balance sheet exposure 8,403 7,381 (241) 1,296 (33)

(1) denotes Financial Statements

The average exchange rates during the three months ended September 30, 2016 and 2015 were 1 US$ equals:

Average: July 1, 2016 to September 30, 2016 Average: July 1, 2015 to September 30, 2015 USD/EGP USD/GBP USD/EGP USD/GBP

Period average 8.8796 0.7617 Period average 7.7966 0.6540

The average exchange rates during the nine months ended September 30, 2016 and 2015 were 1 US$ equals:

Average: January 1, 2016 to September 30, 2016 Period end: January 1, 2015 to September 30, 2015 USD/EGP USD/GBP USD/EGP USD/GBP


The exchange rates as at September 30, 2016 and 2015 were 1 US$ equals:

Period end: September 30, 2016 Period end: September 30, 2015 USD/EGP USD/GBP USD/EGP USD/GBP

September 30, 2016 8.8801 0.7710 September 30, 2015 7.8078 0.6593

Trade and other payablesThe foreign currency risk from a trade and other payables perspective arises due to the fact that the Company’s operations are conducted in Egypt and its corporate offices are in London and Canada with listing and regulatory costs in both jurisdictions.

As at September 30, 2016 the Company’s trade and other payables are as follows:

Carrying amountSeptember 30 December 31

$000’s 2016 2015CurrentTrade payables 108 198Accruals 722 1,284 Other payables 3,212 2,074 Total trade and other payables 4,042 3,556

Accruals comprise general and administrative costs related to restructuring, audit, tax and reserve reporting fees.

Other payables of US$3.2 million comprise an estimated liability of US$1.1 million related to the relinquishment of the Shukheir Marine concession,partner current accounts of US$1.9 million for NW Gemsa (US$1.6 million), Block-H Meseda (US$0.3 million) concessions, UK payroll taxes and deferredpayroll of US$0.2 million.

The joint venture partner current accounts present the net of monthly cash calls paid less billings received.


Managem

ent Discussion &

Analysis




Financial instruments (continued)Credit riskCredit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, andarises principally from the Company’s receivables from joint operations partners, oil and natural gas marketers, and cash held with banks. The maximumexposure to credit risk at the end of the period is as follows:


$000’s 2016 2015Cash and cash equivalents 4,961 8,170 Trade and other receivables 7,896 6,678 Total 12,857 14,848

Trade and other receivables:All of the Company’s operations are conducted in Egypt and Cameroon. The Company’s exposure to credit risk is influenced mainly by the individualcharacteristics of each counter party. The Company does not anticipate any default as it expects continued payment from customers.

The maximum exposure to credit risk for trade and other receivables at the reporting date by type of customer was:


$000’s 2016 2015CurrentGovernment of Egypt controlled corporations 6,511 5,018 Joint venture partners 372 862 Other 1,013 798 Total trade and other receivables 7,896 6,678

Current receivables of US$6.5 million related to oil sales and production service fees which are due from EGPC (December 31, 2015: US$5.0 million), a Government of Egypt controlled corporations. Receivables in respect of oil sales and service fees are normally collected in one to two months followingproduction. The Company expects to collect outstanding receivables of US$1.4 million for NW Gemsa and US$2.1 million for Block – H Meseda, in thenormal course of operation. The US$3.0 million of Shukheir Marine oil invoices, which are pledged against the Company’s obligations under its SouthDisouq work program, are expected to be collected during Q4 2016/Q1 2017 as the South Disouq work programme is now complete.

The joint venture partner current accounts represent the net of monthly cash calls paid less billings received. Joint venture partner receivables of US$0.4 million (2015 - US$0.9 million) relate to the Bakassi West Cameroon concession (2015: South Disouq US$0.8 million and Block – H MesedaUS$0.1 million).

The other receivables of US$1.0 million consist of US$0.2 million for accrued gas and liquids revenue yet to be invoiced, US$0.4 million related toprepayments, US$0.2 million for Goods and Services Tax (“GST”)/ Value Added Tax (“VAT”) and US$0.2 million for other items.

As at September 30, 2016 and December 31, 2015, the Company’s trade and other receivables are aged as follows:


$000’s 2016 2015CurrentCurrent (less than 90 days) 3,903 3,364 Past due (more than 90 days) 3,993 3,314 Total trade and other receivables 7,896 6,678

The balances which are past due are not considered impaired.

Current trade and other receivables past due (more than 90 days old) have increased by US$0.7 million when compared to December 31, 2015.This increase is due to more restricted USD availability in Egypt during Q3 2016 which is expected to improve in Q4 2016.

Subsequent to September 30, 2016, the Company collected US$1.85 million of trade receivables from that were outstanding at September 30, 2016;US$0.3 million for NW Gemsa representing July and August 2016 crude oil sales invoices, US$0.8 million for Meseda representing July and August 2016production service fees and US$0.5 million of the rolling South Disouq production guarantee referred to above.


Managem

ent Discussion &

Analysis

Cash and cash equivalentsThe Company limits its exposure to credit risk by only investing in liquid securities and only with highly rated counterparties. The Company’s cash and cashequivalents are currently held, where practical in is countries of operation, by banks with A or AA ratings. Given these credit ratings, management does notexpect any counterparty to fail to meet its obligations.

The Company defines and computes its capital as follows:


$000’s 2016 2015Equity 39,161 55,246 Working capital (1) (9,593) (11,552)Total capital 29,568 43,694

(1) Working capital is defined as current assets less current libilities.

The Company’s objective when managing its capital is to ensure it has sufficient capital to maintain its ongoing operations, pursue the acquisition ofinterests in producing or near to production oil and gas properties and to maintain a flexible capital structure which optimizes the cost of capital at anacceptable risk. The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the exploration and development of its interests in its existing properties and to pursue other opportunities.

Accounting policies and estimates

The Company is required to make judgments, assumptions and estimates in the application of accounting policies that could have a significant impact on our financial results. Actual results may differ from those estimates, and those differences may be material. The estimates and assumptions used aresubject to updates based on experience and the application of new information. The accounting policies and estimates are reviewed annually by the AuditCommittee of the Board. Further information on the basis of presentation and our significant accounting policies can be found in the notes to theConsolidated Financial Statements and Annual MD&A for the year ended December 31, 2015.

Accounting policiesThe accounting policies adopted are consistent with those of the previous financial year. The policies applied are based on IFRS issued and outstanding at the date that the Audit Committee approved the interim unaudited consolidated financial statements for the three and nine months ended September 30, 2016.

Further information on the accounting policies and estimates can be found in the notes to the Consolidated Financial Statements and Annual MD&A for the year ended December 31, 2015.

Future changes in accounting policiesThere are no updates to future changes in accounting policies in the first nine months of 2016. Further information on future changes in accountingpolicies can be found in the notes to the Consolidated Financial Statements and Annual MD&A for the year ended December 31, 2015.



Business risk assesment

There are a number of inherent business risks associated with oil and gas operations and development. Many of these risks are beyond the control of management. The following outlines some of the principal risks and their potential impact to the Company.

Political riskSDX operates in Egypt which has different political, economic and social systems compared to North America and which subject the Company to a numberof risks not within the control of the Company. Exploration or development activities in such countries may require protracted negotiations with hostgovernments, national oil companies and third parties and are frequently subject to economic and political considerations such as taxation, nationalization,expropriation, inflation, currency fluctuations, increased regulation and approval requirements, corruption and the risk of actions by terrorist or insurgentgroups, changes in laws and policies governing operations of foreign-based companies, economic and legal sanctions and other uncertainties arising fromforeign governments, any of which could adversely affect the economics of exploration or development projects.

Financial resourcesThe Company’s cash flow from operations may not be sufficient to fund its ongoing activities and implement its business plans. From time to time theCompany may enter into transactions to acquire assets or the shares of other companies. Depending on the future exploration and development plans, the Company may require additional financing, which may not be available or, if available, may not be available on favorable terms. Failure to obtain suchfinancing on a timely basis could cause the Company to forfeit its interest in certain properties, miss certain acquisition opportunities and reduce orterminate operations. If the revenues from the Company’s reserves decrease as a result of lower oil prices or otherwise, it will impact its ability to expendthe necessary capital to replace its reserves or to maintain its production. If cash flow from operations are not sufficient to satisfy capital expenditurerequirements, there can be no assurance that additional debt, equity, or asset dispositions will be available to meet these requirements or available onacceptable terms. In addition, cash flow is influenced by factors which the Company cannot control, such as commodity prices, exchange rates, interestrates and changes to existing government regulations and tax and royalty policies.

Exploration, development and productionThe long-term success of SDX will depend on its ability to find, acquire, develop and commercially produce oil and natural gas reserves. These risks aremitigated by SDX through the use of skilled staff, focusing exploration efforts in areas in which the Company has existing knowledge and expertise oraccess to such expertise, using up-to-date technology to enhance methods, and controlling costs to maximize returns. Despite these efforts, oil andnatural gas exploration involves a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able toovercome. There is no assurance that SDX will be able to locate satisfactory properties for acquisition or participation or that the Company’s expenditureson future exploration will result in new discoveries of oil or natural gas in commercial quantities. It is difficult to accurately project the costs ofimplementing an exploratory drilling program due to the inherent uncertainties of drilling in unknown formations, the costs associated with encounteringvarious drilling conditions such as over-pressured zones, tools lost in the hole and changes in drilling plans and locations as a result of prior exploratorywells or additional seismic data and interpretations thereof.

Future oil and gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient netrevenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment or recovery of drilling,completion, infrastructure and operating costs. In addition, drilling hazards and/or environmental damage could greatly increase the costs of operations andvarious field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmentalapprovals or consents, shut-in of wells resulting from extreme weather conditions or natural disasters, insufficient transportation capacity or other geologicaland mechanical conditions. As well, approved activities may be subject to limited access windows or deadlines which may cause delays or additional costs. While diligent well supervision and effective maintenance operations can contribute to maximizing production rates over time, production delays and declinesfrom normal field operating conditions cannot be eliminated and can be expected to adversely affect revenue and cash flow levels to varying degrees.

The nature of oil and gas operations exposes SDX to risks normally incident to the operation and development of oil and natural gas properties, including encountering unexpected formations or pressures, blow-outs, and fires, all of which could result in personal injuries, loss of life and damage tothe property of the Company and others. The Company has both safety and environmental policies in place to protect its operators and employees, as wellas to meet the regulatory requirements in those areas where it operates. In addition, the Company has liability insurance policies in place, in such amountsas it considers adequate. The Company will not be fully insured against all of these risks, nor are all such risks insurable.

Oil and natural gas pricesThe price of oil and natural gas will fluctuate based on factors beyond the Company’s control. These factors include demand for oil and natural gas, market fluctuations, the ability of regional state-owned monopolies to control prices, the proximity and capacity of oil and natural gas pipelines andprocessing equipment and government regulations, including regulations relating to environmental protection, royalties, allowable production, pricing,importing and exporting of oil and natural gas. Fluctuations in price will have a positive or negative effect on the revenue to be received by the Company.


Managem

ent Discussion &

Analysis

Reserve estimatesThere are numerous uncertainties inherent in estimating quantities of oil, natural gas and natural gas liquids, reserves and cash flows to be derived therefrom, including many factors beyond the Company’s control. In general, estimates of economically recoverable oil and natural gas reserves and the futurenet cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, productionrates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and natural gas, royalty rates, the assumed effects ofregulation by governmental agencies and future operating costs, all of which may vary from actual results. For those reasons, estimates of theeconomically recoverable oil and natural gas reserves attributable to any particular group of properties, classification of such reserves based on risk ofrecovery and estimates of future net revenues expected there from prepared by different engineers, or by the same engineers at different times, may vary. The Company’s actual production, revenues and development and operating expenditures with respect to its reserves will vary from estimates thereof and such variations could be material.

Estimates of proved reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similartypes of reserves rather than actual production history. Estimates based on these methods are generally less reliable than those based on actual productionhistory. Subsequent evaluation of the same reserves based upon production history and production practices will result in variations in the estimatedreserves and such variations could be material.

The Company’s actual future net cash flows as estimated by independent reserve engineers will be affected by many factors which include, but are notlimited to: actual production levels; supply and demand for oil and natural gas; curtailments or increases in consumption by oil and natural gas purchasers;changes in governmental regulation; taxation changes; the value of the Canadian dollar, Egyptian pound and US$; and the impact of inflation on costs.

Actual production and cash flows derived there from will vary from the estimates contained in the applicable engineering reports. The reserve reports are basedin part on the assumed success of activities the Company intends to undertake in future years. The reserves and estimated cash flows to be derived there fromcontained in the engineering reports will be reduced to the extent that such activities do not achieve the level of success assumed in the calculations.

Reliance on operators and key employeesTo the extent the Company is not the operator of its oil and natural gas properties, the Company will be dependent on such operators for the timing ofactivities related to such properties and largely is unable to direct or control the activities of the operators. In addition, the success of the Company will be largely dependent upon the performance of its management and key employees. The Company has no key-man insurance policies, and therefore there is a risk that the death or departure of any member of management or any key employee could have a material adverse effect on the Company.

Government regulationsThe Company may be subject to various laws, regulations, regulatory actions and court decisions that can have negative effects on the Company. Changes in the regulatory environment imposed upon the Company could adversely affect the ability of the Company to attain its corporate objectives.The current exploration, development and production activities of the Company require certain permits and licenses from governmental agencies and such operations are, and will be, governed by laws and regulations governing exploration, development and production, labor laws, waste disposal, land use, safety, and other matters. There can be no assurance that all licenses and permits that the Company may require to carry out exploration anddevelopment of its projects will be obtainable on reasonable terms or on a timely basis, or that such laws and regulation would not have an adverse effect on any project that the Company may undertake.

Environmental factors All phases of the Company’s operations are subject to environmental regulation in Egypt. Environmental legislation is evolving in a manner which requiresstricter standards and enforcement, increased fines, and penalties for non-compliance, more stringent environmental assessments of proposed projectsand a heightened degree of responsibility for companies and their officers, directors and employees.

InsuranceThe Company’s involvement in the exploration for and development of oil and natural gas properties may result in the Company or its subsidiaries, as the case may be, becoming subject to liability for pollution, blow-outs, property damage, personal injury or other hazards. Prior to drilling, the Companyor the operator will obtain insurance in accordance with industry standards to address certain of these risks. However, such insurance has limitations onliability that may not be sufficient to cover the full extent of such liabilities. In addition, such risks may not in all circumstances be insurable or, in certaincircumstances, the Company or its subsidiaries, as the case may be, may elect not to obtain insurance to deal with specific risks due to the high premiumsassociated with such insurance or other reasons. The occurrence of a significant event that the Company may not be fully insured against, or theinsolvency of the insurer of such event, could have a material adverse effect on the Company’s financial position.

Regulatory mattersThe Company’s operations will be subject to a variety of federal and provincial or state laws and regulations, including income tax laws and laws andregulations relating to the protection of the environment. The Company’s operations may require licenses from various governmental authorities and therecan be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out planned exploration anddevelopment projects.



Business risk assesment (continued)

Operating hazards and risksExploration for natural resources involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome.Operations in which the Company has a direct or indirect interest will be subject to all the hazards and risks normally incidental to exploration, development andproduction of resources, any of which could result in work stoppages, damages to persons or property and possible environmental damage.

Although the Company has obtained liability insurance in an amount it considers adequate, the nature of these risks is such that liabilities might exceedpolicy limits, the liabilities and hazards might not be insurable, or the Company might not elect to insure itself against such liabilities due to high premiumcosts or other reasons, in which event the Company could incur significant costs that could have a material adverse effect upon its financial condition.

Repatriation of earningsAll of the Company’s production and earnings are generated in Egypt. Currently there are no restrictions on foreign entities repatriating earnings from Egypt. However, there can be no assurance that restrictions on repatriation of earnings from Egypt will not be imposed in the future.

Disruptions in productionOther factors affecting the production and sale of oil and gas that could result in decreases in profitability include: (i) expiration or termination of permitsor licenses, or sales price redeterminations or suspension of deliveries; (ii) future litigation; (iii) the timing and amount of insurance recoveries; (iv) workstoppages or other labor difficulties; (v) changes in the market and general economic conditions, equipment replacement or repair, fires, civil unrest orother unexpected geological conditions that can have a significant impact on operating results.

Foreign investmentsAll of the Company’s oil and gas investments are located outside of Canada. These investments are subject to the risks associated with foreign investmentincluding tax increases, royalty increases, re-negotiation of contracts, currency exchange fluctuations and political uncertainty. The jurisdictions in whichthe Company operates, Egypt and Cameroon, have well-established fiscal regimes.

As operations are primarily carried out in US dollars, the main exposure to currency exchange fluctuations is the conversion to equivalent Canadian funds,EGP, EURO and GBP.

CompetitionThe Company operates in the highly competitive areas of oil and gas exploration, development and acquisition with a substantial number of othercompanies, including U.S.-based and foreign companies doing business in Egypt. The Company faces intense competition from independent, technology-driven companies as well as from both major and other independent oil and gas companies in seeking oil and gas exploration licences and productionlicences in Egypt; and acquiring desirable producing properties or new leases for future exploration.

The Company believes it has significant in-country relationships within the business community and government authorities needed to obtain cooperation to execute projects.

Disclosure controls and proceduresAs the Company is classified as a Venture Issuer under applicable Canadian securities legislation, it is required to file basic Chief Executive Officer and ChiefFinancial Officer Certificates, which it has done for the period ended September 30, 2016. The Company makes no assessment relating to establishmentand maintenance of disclosure controls and procedures and internal controls over financial reporting as defined under Multilateral Instrument 52-109 as at September 30, 2016.


Managem

ent Discussion &

Analysis

Management’s Discussion & Analysisfor the three and six months ended June 30, 2016(prepared in US$)

Proforma interim financial information

As mentioned in the introduction to this MD&A, in order to provide the reader with a better understanding of the underlying operational performance of the combined SDX business for the three and nine months to September 30, 2016, the following pages will discuss the actual performance of thecombined business for the three and nine months ended September 30, 2016 comparing it to a proforma combined business performance for the threeand nine months ended September 30, 2015. The table below sets out how the proforma comprehensive income for the combined business has beencreated for the three and nine months ended September 30, 2015.

Income statement reconciliationThe table below is a reconciliation of the interim unaudited consolidated Statement of Comprehensive Income and associated operating data for the three and nine months ended September 30, 2015 to the full three and nine months ended September 30, 2015 proforma interim operating data which is discussed within the remainder of this MD&A.

Three months ended September 30 Nine months ended September 30 2015 2015 2015 2015 2015 2015 SDX Energy Inc as per interim unaudited Full nine months consolidated Sea Dragon Combined SDX Energy Inc Sea Dragon of combined Financial Energy Inc SDX Group as per Financial Energy Inc SDX Group - Pro

$000’s Statements(1) (pre-combination) - Pro Forma Statements (1) (pre-combination) Forma unauditedFinancialOil revenue - 2,848 2,848 - 10,972 10,972Royalties - (1,058) (1,058) - (4,781) (4,781)Net oil revenue - 1,790 1,790 - 6,191 6,191

Production service fee revenue 2,215 - 2,215 7,930 - 7,930

Total net revenue 2,215 1,790 4,005 7,930 6,191 14,121

Operating costs (816) (651) (1,467) (2,490) (1,066) (3,556)

Netback (pre tax) 1,399 1,139 2,538 5,440 5,125 10,565

Exploration and evaluation expense - - - - - -Depletion, depreciation and amortization (333) (470) (803) (1,220) (1,718) (2,938)Stock based compensation (138) (38) (176) (461) (140) (601)Equity in income of associate 286 - 286 922 - 922Business development expense - (482) (482) - (557) (557)Gain on disposal of materials inventory - - - - 235 235General and administrative expenses (2,020) (1,399) (3,419) (3,193) (3,155) (6,348)Other - (16) (16) - (75) (75)

Operating (loss)/income (806) (1,266) (2,072) 1,488 (285) 1,203

Net finance income/(expense) 149 (114) 35 586 (508) 78Current Income tax expense (55) (375) (430) (822) (1,250) (2,072)Deferred Income tax expense 6 - 6 95 - 95

Net (loss)/income (706) (1,755) (2,461) 1,347 (2,043) (696)

Other comprehensive lossForeign exchange (323) - (323) (489) - (489)

Total comprehensive income/(loss) for the period (1,029) (1,755) (2,784) 858 (2,043) (1,185)

(1) SDX Energy Inc contains financial information from the interim unaudited consolidated Statement of Comprehensive Income; see Financial Statements.

It represents three and nine months of Madison Petrogas Ltd only in accordance with IFRS 3 - Business Combinations.


Proforma interim financial information (continued)


Income statement reconciliation (continued)

Three months ended September 30 Nine months ended September 30 2015 2015 2015 2015 2015 2015 SDX Energy Inc as per interim unaudited Full nine months consolidated Sea Dragon Combined SDX Energy Inc Sea Dragon of combined Financial Energy Inc SDX Group as per Financial Energy Inc SDX Group - Pro

per unit amounts Statements(1) (pre-combination) - Pro Forma Statements (1) (pre-combination) Forma unauditedOperationalOil sales (bbl/d) - 674 674 - 794 794Production service fee (bbl/d) 723 - 723 779 - 779Total boe/d 723 674 1,397 779 794 1,573

Oil sales volumes (bbls) - 62,031 62,031 - 216,868 216,868Production service fee volumes (bbls) 66,517 - 66,517 212,657 - 212.657Total sales volumes (boe) 66,517 62,031 128,548 212,657 216,868 429,525

Brent oil price (US$/bbl) $50.26 $50.26 $50.26 $55.25 $55.25 $55.25West Gharib oil price (US$/bbl) $40.71 - $40.71 $45.39 - $45.39

Realized oil price (US$/bbl) - $45.91 $45.91 - $50.59 $50.59Realized service fee (US$/bbl) $33.30 - $33.30 $37.29 - $37.29Net realized price (US$/boe) $33.30 $45.91 $39.39 $37.29 $50.59 $44.01

Total royalties (US$/boe) - $17.06 $8.23 - $22.04 $11.13Operating costs (US$/boe) $12.27 $10.49 $11.41 $11.71 $4.92 $8.28Netback - (US$/boe) $21.03 $18.36 $19.74 $25.58 $23.63 $24.60Capital expenditures 797 781 1,578 2,715 1,239 3,955

(1) SDX Energy Inc contains financial information from the interim unaudited consolidated Statement of Comprehensive Income; see Financial Statements.

It represents a three and nine months of Madison Petrogas Ltd only in accordance with IFRS 3 - Business Combinations.


Managem

ent Discussion &

Analysis

As per the interim unaudited consolidated Financial Statements for the three and nine months ended September 30, 2016, the Company recorded a totalcomprehensive loss of US$(25.9) million for the nine months ended September 30, 2016, compared to a total comprehensive loss of US$1.2 million forthe nine months ended September 30, 2015.

The following table, however, shows the Total Comprehensive Income/(Loss) for the three and nine months ended September 30, 2016 and 2015 on aproforma basis i.e. as if the business combination had been in effect for 2015 comparators. The constituent parts for the September 30, 2015 componentsof this table are shown in more detail on pages 27 to 31 of this MD&A.

Three months ended September 30 Nine months ended September 30 2016 2015 2016 2015

Revenue, net of royalties 2,929 4,005 7,560 14,121

Operating costs (1,241) (1,467) (3,530) (3,556)

Netback (pre tax) 1,688 2,538 4,030 10,565

Exploration and evaluation expense 14 - (24,870) -Depletion, depreciation and amortization (800) (803) (2,462) (2,938)Stock based compensation 298 (176) 104 (601)Equity in income of associate 401 286 1,113 922Business development costs - (482) - (557)Gain on disposal of materials inventory - - - 235General and administrative expenses (1,225) (3,419) (2,997) (6,348)Other - (16) - (75)

Operating income/(loss) 376 (2,072) (25,082) 1,203

Net finance income/(expense) 127 35 31 78

Income/(loss) before income taxes 503 (2,037) (25,051) 1,281

Current income tax expense (363) (430) (856) (2,072)Deferred income tax credit/(expense) - 6 - 95

Net income/(loss) 140 (2,461) (25,907) (696)

Other comprehensive loss Foreign exchange - (323) - (489)

Total comprehensive income/(loss) for the period 140 (2,784) (25,907) (1,185)




Operational and financial highlights

Three months ended September 30 Nine months ended September 30$000’s unless stated Prior quarter (1) 2016 2015 2016 2015OperationalOil revenue 2,011 1,917 2,848 5,512 10,972Royalties (863) (823) (1,058) (2,366) (4,781)

Net oil revenue 1,148 1,094 1,790 3,146 6,191

Production service fee revenue 1,373 1,835 2,215 4,414 7,930

Total net revenue 2,521 2,929 4,005 7,560 14,121

Operating costs (1,290) (1,241) (1,467) (3,530) (3,556)

Netback (pre tax) 1,231 1,688 2,538 4,030 10,565

Oil Sales (bbl/d) 554 510 674 557 794Production service fee (bbl/d) 616 704 723 656 779Total boe/d 1,170 1,214 1,397 1,213 1,573

Oil sales volumes (bbls) 50,407 46,935 62,031 152,501 216,868Production service fee volumes (bbls) 56,026 64,792 66,517 179,638 212,657Total sales volumes (boe) 106,433 111,727 128,548 332,139 429,525

Brent oil price (US$/bbl) $45.54 $45.78 $50.26 $41.70 $55.25West Gharib oil price (US$/bbl) $30.38 $34.86 $40.71 $30.44 $45.39

Realized oil price (US$/bbl) $39.90 $40.84 $45.91 $36.14 $50.59Realized service fee (US$/bbl) $24.51 $28.32 $33.30 $24.57 $37.29Net realized price (US$/boe) $31.80 $33.58 $39.39 $29.89 $44.01

Total royalties (US$/boe) $8.11 $7.37 $8.23 $7.12 $11.13Operating costs (US$/boe) $12.12 $11.11 $11.41 $10.63 $8.28Netback - (US$/boe) $11.57 $15.11 $19.75 $12.13 $24.60Capital expenditures 6,475 188 1,578 17,482 3,955

(1) Three months ended June 30, 2016

SDX Energy Inc. 2016 Q1 Interim Reportx 31

Managem

ent Discussion &

Analysis

Oil sales volumes (relates to NW Gemsa and Shukheir Marine only)Total oil sales volumes for the three and nine months ended September 30, 2016 averaged 510 bbl/d and 557 bbl/d (based on 274 days) respectivelycompared to 674 bbl/d and 794 bbl/d (based on 273 days) for the comparative periods of the prior year.

Total sales volumes fell by 15,096 barrels, 24%, to 46,935 barrels in the three months ended September 30 2016 compared to 62,031 in the comparativeperiod of 2015. For the nine months ended September 30, 2016 sales volumes fell by 64,367 barrels, 30%, to 152,501 from the comparative period of2015. 10,093 barrels of this decline relates to the relinquishment of the Shukheir Marine concession, effective January 31, 2015 which contributed a netreduction of 36.84 bbl/d.

The North West Gemsa concession reached peak production rate in Q4 2014 and volumes have now started to decline with volumes showing a 54,274 barrel, 26%, decline to 152,501 for the period to September 30, 2016 compared to the 2015 comparatives. This natural decline contributed a net reduction of 198 bbl/d in 2016 compared to 2015.

The crude oil sales volumes by concession are shown in the table below:

Three months ended September 30 Nine months ended September 30 Prior quarter 2016 2015 2016 2015

N W Gemsa 50,407 46,935 62,031 152,501 206,775Shukheir Marine - - - - 10,093Total crude oil sales 50,407 46,935 62,031 152,501 216,868

Production service fee volumes (relates to Meseda only)The Company began oil production from the Meseda area of Block H in late 2011, and records service fee revenue relating to the oil production that is delivered tothe State Oil Company (“GPC”). The Company is entitled to a service fee of between 19.0% and 19.25% of the delivered volumes, and has a 50% working/payinginterest. The service fee revenue is based on the current market price of West Gharib crude oil, adjusted for a quality differential.

Total production service fee volumes decreased by 1,725 barrels, 3%, to 64,792 barrels compared to the three months ended September 30 2015. This was as a resultof natural reservoir declines. This contributed to a net reduction of 19 bbl/d in 2016 compared to 2015.

For the nine months ended September 30, 2016 production service fee volumes decreased by 33,019 barrels, 16%, to 179,638 barrels, a net reduction of 121 bbl/dcompared to the prior year.

The production service fee volumes are shown in the table below:

Three months ended September 30 Nine months ended September 30 Prior quarter 2016 2015 2016 2015

Meseda - Block H 56,026 64,792 66,517 179,638 212,657Total production service fee volumes 56,026 64,792 66,517 179,638 212,657

PricingThe Company is exposed to the volatility in commodity price markets for all of its oil sales and service fee volumes and changes in the foreign exchange rate between theEgyptian pound and the US dollar for oil revenues and capital and operational expenditure. The Operational and Financial Highlights table on the previous page outlinesthe changes in various benchmark commodity prices and economic parameters which affect the prices received for the Company’s oil sales and service fee volumes.

For the three and nine months ended September 30, 2016 the Company received an average price per barrel of oil of US$40.84 and US$36.14 respectively compared tothe average Brent oil price (“Brent”) of US$45.78 and US$41.70; a discount of US$4.94, 11% and US$5.56, 13%, per barrel. The Company receives a discount to Brentdue to the quality of the oil produced and a contracted discounted price levied by EGPC.

For the three and nine months ended September 30, 2016 the Company received an average service fee per barrel of oil of US$28.32 and US$24.57 respectivelycompared to the average West Gharib price of US$34.86; a discount of US$6.54, 19%, per barrel and US$30.44; a discount of US$5.87, 19%, per barrel. The Companyreceives a discount to West Gharib due to the quality of the oil produced.

During the three and nine months ended September 30, 2016 the Brent price ranged from a low of US$26.01 per barrel on January 20, 2016 to a high of US$50.73 perbarrel on June 8, 2016. The current low oil price environment is due to over-supply in the market particularly from OPEC countries and US shale producers, the lifting oftrade sanctions on Iran and the subsequent ability for the country to market and sell crude oil, and lower demand as a result of lower growth in countries such as China.At this time, the Company does not hedge any of its production.

The Company commenced sales of gas and Natural Gas Liquids (“NGL”) in February 2013 from the NW Gemsa concession. The operator continues to be in the process of addressing contractual invoicing with EGPC. No revenue or sales volumes have been recognized for the three and nine months ended September 30, 2016 and 2015;pending the issuance of invoices.




Crude oil sales Three months ended September 30 Nine months ended September 30

$000’s except per unit amounts Prior quarter 2016 2015 2016 2015Crude oil sales 2,011 1,917 2,848 5,512 10,972Per bbl 39.90 40.84 45.91 36.14 50.59

Crude oil sales for the three and nine months ended September 30, 2016 were US$1.9 million and US$5.5 million respectively compared to US$2.8 millionand US$11.0 million for the three and nine months ended September 30, 2015.

The crude oil sales per concession were:

Three months ended September 30 Nine months ended September 30$000’s Prior quarter 2016 2015 2016 2015N W Gemsa 2,011 1,917 2,848 5,512 10,557Shukheir Marine - - - - 415Total crude oil sales 2,011 1,917 2,848 5,512 10,972

Variance from prior quarterFor the three months ended September 30, 2016 (compared to the prior quarter ending June 30, 2016) the decrease in revenue of US$0.1 million, 5%, to US$1.9 million is due to an increase in realized sales price (US$0.05 Million) or 2%, offset by a decrease in sales volume (US$0.14 million), or 7%.

The decrease in sales volume is due to NW Gemsa reaching plateau production during the fourth quarter of 2014.

$000’sThree months ended June 30, 2016 2,011 Price variance 45Production variance (139)Three months ended September 30, 2016 1,917

Variance from prior yearFor the nine months ended September 30, 2016 (compared to the nine months ending September 30, 2015) the decrease in revenue of US$5.5 million,50%, to US$5.5 million is due to a decrease in realized sales price (US$2.2 million) or 20%, and a decrease in sales volume (US$3.3 million), or 30%.

As explained above the decrease in the sales volume compared to the prior year is due to the relinquishment of the Shukheir Marine concession effective January 31, 2015 and the decline of the NW Gemsa concession after reaching plateau production during the fourth quarter of 2014.

$000’sNine months ended September 30, 2015 10,972Price variance (2,204)Production variance (3,256)Nine months ended September 30, 2016 5,512

Production service fees Three months ended September 30 Nine months ended September 30

$000’s except per unit amounts Prior quarter 2016 2015 2016 2015Production service fees 1,373 1,835 2,215 4,414 7,930Per bbl 24.51 28.32 33.30 24.57 37.29

Production services fees from Meseda for the three and nine months ended September 30, 2016 were US$1.8 million and US$4.4 million respectively,compared to US$2.2 million and US$7.9 million for the three and nine months ended September 30, 2015.


Managem

ent Discussion &

Analysis

Variance from prior quarterFor the three months ended September 30, 2016 (compared to the prior quarter ending June 30, 2016) the increase in production service fees of US$0.5million, 34%, to US$1.8 million in 2016 is due to an increase in realized price of US$0.2 million, 18%, and an increase in volumes of US$0.2 million, or 16%.

$000’sThree months ended June 30, 2016 1,373Price variance 247Production variance 215 Three months ended September 30, 2016 1,835

Variance from prior yearFor the nine months ended September 30, 2016 (compared to the nine months year ending September 30, 2015) the decrease in production service fees ofUS$3.5 million, 44%, to US$4.4 million in 2016 is due to a decrease in realized price of US$2.3 million, 29%, and a decrease in volumes of US$1.2 million, 16%.

$000’sNine months ended September 30, 2015 7,930Price variance (2,285)Production variance (1,231)Nine months ended September 30, 2016 4,414

Gas and natural gas liquids (“NGL”) SalesThe operator continues to be in the process of addressing contractual invoicing with EGPC. No revenue or sales volumes have been recognized for the three and nine months ended September 30, 2016; pending issuance of invoices.

RoyaltiesRoyalties fluctuate in Egypt from quarter to quarter due to changes in production and commodity prices impacting the amount of cost oil allocated to the contractors and thereby impacting the calculation of profit oil from which royalties are calculated.

Royalties per concession are as follows:

Three months ended September 30 Nine months ended September 30$000’s Prior quarter 2016 2015 2016 2015N W Gemsa 863 823 1,058 2,366 4,605Shukheir Marine - - - - 176Total royalties by concession 863 823 1,058 2,366 4,781

Royalties per boe by concession are as follows:

Three months ended September 30 Nine months ended September 30per unit amounts Prior quarter 2016 2015 2016 2015N W Gemsa 17.12 17.54 17.06 15.51 22.27Shukheir Marine - - - - 17.45Total royalties by concession 17.12 17.54 17.06 15.51 22.04




Royalties (continued)The Concession agreements allow for the recovery of operating and capital costs through a cost oil allocation which has an impact on the governmentshare of production as highlighted below:

SDX Energy Cost oil to Capital cost Operating cost Excess oil to Profit oil toConcession WI (1) contractors (2) recovered (2) recovered (2) contractor (3) contractor (4)

NW Gemsa (up to 10,000 BOPD Gross) 10% 30% 5 years Immediate Nil 16.1%NW Gemsa (10,000 BOPD to 25,000 BOPD Gross) 10% 30% 5 years Immediate Nil 15.4%NW Gemsa – Gas and LPG 10% 30% 5 years Immediate Nil 18.2%

(1) WI denotes the Company’s Working interest

(2) Cost oil is the amount of oil revenue that is attributable to SDX and its joint venture partners (the “Contractor”) subject to the limitation of the cost recovery pool. Oil revenue up to a specified percentage is available for recovery

by the Contractor for costs incurred in exploring and developing the concession. Operating costs and capital costs are added to a cost recovery pool (the “Cost Pool”). Capital costs for exploration and development expenditures

are amortized into the Cost Pool over a specified number of years with operating costs being added to the Cost Pool as incurred.

(3) If the costs in the Cost Pool are less than the cost oil attributable to the Contractor, the shortfall, referred to as excess cost oil (“Excess Oil”), reverts 100 percent to the State in NW Gemsa.

(4) Profit oil is the amount of oil revenue that is attributable to the Contractor.

Direct operating costs Three months ended September 30 Nine months ended September 30

$000’s except per unit amounts Prior quarter 2016 2015 2016 2015Direct operating costs 1,290 1,241 1,467 3,530 3,556Per boe 12.12 11.11 11.41 10.63 8.28

Direct operating costs for the three and nine months ended September 30, 2016 were US$1.2 million (US$11.11 per bbl) and US$3.5 million (US$10.63 per bbl) respectively, compared to US$1.5 million (US$11.41 per bbl) and US$3.5 million (US$8.28) in the comparative periods of the prior year.

The direct operating costs for the three months ended September 30, 2016 have decreased by US$0.2 million compared to the 2015 comparatives; a 15% decrease.

The direct operating costs per concession were:

Three months ended September 30 Nine months ended September 30$000’s Prior quarter 2016 2015 2016 2015N W Gemsa 440 377 595 1,157 1,545Shukheir Marine - - - - (535)Meseda - Block H 835 863 816 2,349 2,490Other 15 1 56 24 56Total direct operating costs by concession 1,290 1,241 1,467 3,530 3,556

The direct operating costs per boe per concession were:

Three months ended September 30 Nine months ended September 30per unit amounts Prior quarter 2016 2015 2016 2015N W Gemsa 8.74 8.02 9.59 7.59 7.47Shukheir Marine - - - - (53.05)Meseda - Block H 14.90 13.32 12.27 13.08 11.71Total direct operating costs (US$/boe) by concession 12.12 11.11 11.41 10.63 8.28

As a result of both the NW Gemsa and Meseda concessions undergoing meaningful workover programs in the three months to June 30, 2016 and, as aresult of the operator of NW Gemsa charging the partners for some backdated overheads, the direct operating costs per concession, and per boe, werehigher in the 3 months to June 30,2016 compared to the 3 months to September 30, 2016.


Managem

ent Discussion &

Analysis

Current taxes Three months ended September 30 Nine months ended September 30

$000’s Prior quarter 2016 2015 2016 2015Current taxes 287 363 430 856 2,072

Pursuant to the terms of the Company’s concession agreements for NW Gemsa and Shukheir Marine, the 40.4% corporate tax liability of the joint venturepartners is paid by the government of Egypt-controlled corporations (“Corporations”) out of the profit oil attributable to the Corporations, and not by theCompany. For accounting purposes the corporate taxes paid by the Corporations are presented gross and included in net oil revenues and in income taxexpense thereby having a net neutral impact on Net Income.

The Company has a corporate tax liability in relation to its service agreement for Block H- Meseda. The Company’s Egyptian subsidiary, Madison Egypt Limited, is subject to corporate tax on its profits at an income tax rate of 22.5%.

The current taxes per concession were:

Three months ended September 30 Nine months ended September 30$000’s Prior quarter 2016 2015 2016 2015N W Gemsa 221 210 314 605 1,159Shukheir Marine - - - - 30Meseda - Block H 66 153 55 251 822Other - - 61 - 61Total current taxes by concession 287 363 430 856 2,072

General and administrative costs Three months ended September 30 Nine months ended September 30

$000’s Prior quarter 2016 2015 2016 2015Wages and employee costs 641 735 2,241 1,929 3,776 Consultants - inc. PR/IR 226 99 59 370 329 Legal fees 72 76 65 182 155 Audit, tax and accounting services 69 53 168 182 580 Public company fees 81 158 48 293 155 Travel 39 21 93 104 320 Office expenses 173 235 211 555 603IT expenses 64 109 38 219 99Transaction costs - - 496 - 496Service recharges (453) (261) - (837) (165)Total - net G&A 912 1,225 3,419 2,997 6,348

General and administrative (“G&A”) costs for the nine months ended September 30, 2016 were US$3.0 million compared to US$6.3 million for the comparative period of the prior year; a decrease of US$3.3 million, or 52%.

G&A costs in the above table represent a full nine months ended September 30, 2015 for the combined Sea Dragon Energy Inc. and Madison Petrogas Ltd now SDX Energy Inc.

The decrease of US$3.3 million is due to the following:• lower wages and employee costs due to the absence of $1.0 million of transaction-related expenses (including severance) and a further

(US$0.8 million) as a result of internal restructuring following the business combination;• lower audit, tax and accounting services (US$0.4 million) due to the re-negotiation of the audit contract and only one audit for the

SDX group whereas the comparatives include audit fees for both groups prior to the combination;• an increase in public company fees of US$0.1 million;• the absence of transactions costs incurred by Madison during the business combination (US$0.5 million);• lower travel costs (US$0.2 million) due to a decrease in the frequency of flights;• service recharges (US$0.7 million) related to the increase in cross charging of technical and administrative time spent by the Company

on its exploration assets and the recovery of indirect overhead recharges from a concession partner.




Depletion, depreciation and amortization (“DD&A”) Three months ended September 30 Nine months ended September 30

$000’s except per unit amounts Prior quarter 2016 2015 2016 2015Depletion, depreciation and amortization 845 800 803 2,462 2,938Per bbl 7.94 7.16 6.24 7.41 6.84

For the three and nine months ended September 30, 2016, depletion, depreciation and amortization (“DD&A”) was US$0.8 million and US$2.5 millionrespectively, compared to US$0.8 million and US$2.9 million in the comparative periods of the prior year.

The DD&A per concession was:

Three months ended September 30 Nine months ended September 30$000’s Prior quarter 2016 2015 2016 2015NW Gemsa 603 527 439 1,673 1,440Shukheir Marine - - - - 184Meseda - Block H 229 264 320 753 1,206Corporate - office assets 13 9 44 36 108Total DD&A 845 800 803 2,462 2,938

Net earnings As per the Financial Statements for the nine months ended September 30, 2016, the Company recorded a Total Comprehensive Loss of US$(25.9) million,compared to a pro-forma Total Comprehensive Loss of US$(1.2) million for the nine months ended September 30, 2015 (page 29 of this MD&A); a difference of US$(24.7) million.

The main components of the difference (US$(24.7) million) are:• a fall in net revenues of US$6.6 million as a result of lower oil prices, reduced production and the relinquishment of the Shukheir Marine

concession (“SHM”) effective January 31, 2015,• higher exploration and evaluation expense of US$24.9 million as a result of the withdrawal from the Bakassi West concession and the write

down of the asset, offset by;• increased income in Brentford Oil Tools of US$0.2 million;• lower DD&A of US$0.5 million which relates to Block-H Meseda and the relinquishment of SHM;• lower stock based compensation of US$0.7 million; 2015 comparatives showed both the Sea Dragon and Madison schemes whereas for 2016

there is only one scheme;• lower G&A of US$3.3 million as a result on the business combination and consequent restructuring of the group;• lower business development expenditure of US$0.6 million; and• lower current income tax expense of US$1.2 million as a result of lower revenues due to the falling oil price and lower production

and the relinquishment of SHM.


Managem

ent Discussion &

Analysis

Summary of quarterly results

The fiscal and operational quarterly results shown below include full quarterly information for SDX Energy Inc., formerly Sea Dragon Energy Inc. andMadison Petrogas Ltd prior to the business combination (pre-combination), effective October 1, 2015. The quarterly results for Q3, Q2 and Q1, 2016 andQ4, 2015 represent the quarters for the newly combined group, SDX Energy Inc. post-combination.

SDX Energy Inc., formerly Sea Dragon Energy Inc. produces and sells via its concession agreement, oil, gas and NGL. Madison has a production serviceagreement and obtains a per barrel service fee.

Fiscal year 2016 2015 2014Financial $000’s Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4Cash, beginning of periodSDX Energy Inc. post combination 6,949 8,671 8,170 12,482 - - - -Sea Dragon Energy Inc. - pre combination 494 3,105 2,966 1,789Madison Petrogas Ltd - pre combination 12,463 19,056 17,936 14,874

Cash, end of periodSDX Energy Inc. post combination 4,961 6,949 8,671 8,170 - - - -Sea Dragon Energy Inc. - pre combination 490 494 3,105 2,966Madison Petrogas Ltd - pre combination 11,990 12,463 19,056 17,936

Working capitalSDX Energy Inc. post combination 9,593 8,232 5,414 11,552 - - - -Sea Dragon Energy Inc. - pre combination 3,911 2,838 2,243 5,055Madison Petrogas Ltd - pre combination 11,943 13,634 15,028 12,206

Funds from operationsSDX Energy Inc. post combination 496 593 (37) (934) - - - -Sea Dragon Energy Inc. - pre combination (1,152) 767 282 (1,261)Madison Petrogas Ltd - pre combination (744) 1,502 1,868 2,650

Funds from operations per shareSDX Energy Inc. post combination 0.01 0.01 (0.00) (0.02) - - - -Sea Dragon Energy Inc. - pre combination (0.003) 0.002 0.001 (0.003)Madison Petrogas Ltd - pre combination (0.013) 0.027 0.033 0.047

Income/(loss) and comprehensive income/(loss)SDX Energy Inc. post combination 140 (25,164) (883) 8,542 - - - -Sea Dragon Energy Inc. - pre combination (1,755) 230 (516) (6,471)Madison Petrogas Ltd - pre combination (1,029) 1,110 777 (993)

Net Income/(Loss) per share - basicSDX Energy Inc. post combination 0.002 (0.455) (0.023) 0.227 - - - -Sea Dragon Energy Inc. - pre combination (0.005) 0.001 (0.001) (0.017)Madison Petrogas Ltd - pre combination (0.013) 0.019 0.018 (0.012)

Capital expenditures SDX Energy Inc. post combination 188 6,475 5,819 2,404 - - - -Sea Dragon Energy Inc. - pre combination 781 270 188 (1,204)Madison Petrogas Ltd - pre combination 797 1,605 313 685

Total assetsSDX Energy Inc. post combination 43,901 47,231 64,907 60,016 - - - -Sea Dragon Energy Inc. - pre combination 28,258 29,145 38,011 40,283Madison Petrogas Ltd - pre combination 42,912 44,333 49,425 49,091

Shareholders’ equitySDX Energy Inc. post combination 39,161 38,560 54,457 55,246 - - - -Sea Dragon Energy Inc. - pre combination 23,925 25,644 25,355 25,828Madison Petrogas Ltd - pre combination 40,769 41,660 40,403 39,449

Common shares outstanding (000’s)SDX Energy Inc. post combination 79,844 75,934 37,642 37,642 - - - -Sea Dragon Energy Inc. - pre combination 376,459 376,459 376,459 376,459Madison Petrogas Ltd - pre combination 56,348 56,348 56,348 56,348

Warrants outstanding (000’s)SDX Energy Inc. post combination - 611 611 611 - - - -Madison Petrogas Ltd - pre combination 1,280 1,280 1,280 1,280




Summary of quarterly results (continued)

Fiscal year 2016 2015 2014Operational Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4Oil sales (bbl/d) 510 554 606 652 674 719 993 1,239Gas sales (mcf/d) - - - - - - - -NGL sales (bbl/d) - - - - - - - -Production service fee (bbl/d) 704 616 646 704 723 783 832 904

Total boe/d 1,214 1,170 1,252 1,356 1,397 1,502 1,825 2,143

Oil sales volumes (bbls) 46,935 50,407 55,159 59,988 62,031 65,434 89,403 113,999Gas sales volumes (mcf) - - - - - - - - NGL sales volumes (bbls) - - - - - - - - Production service fee volumes (bbls) 64,792 56,026 58,823 64,751 66,517 71,216 74,923 83,189

Total sales and service fee volumes (boe) 111,727 106,433 113,982 124,739 128,548 136,650 164,326 197,188

Brent oil price (US$/bbl) 45.78 45.54 33.73 43.56 50.26 61.72 53.78 76.37

Realized oil price (US$/bbl) 40.84 39.90 28.69 38.70 45.91 57.44 48.83 71.18Realized gas price (US$/mcf) - - - - - - - -Realized NGL price (US$/bbl) - - - - - - - 68.45Realized service fee (US$/bbl) 28.32 24.51 20.49 27.90 33.31 40.72 37.57 58.07

Net realized price (US$/boe) 33.58 31.80 24.46 33.09 39.39 48.73 43.69 65.65

Royalties (US$/boe) 7.37 8.11 5.96 5.50 8.23 14.46 10.62 34.81Sea Dragon Energy Inc. - pre combination 17.06 30.19 19.53 41.75

Operating costs (US$/boe) 11.11 12.12 8.77 19.90 11.41 4.89 8.65 15.88Sea Dragon Energy Inc. - pre combination 10.49 (5.13) 8.40 17.30Madison Petrogas Ltd - pre combination 12.27 14.09 8.95 13.94

Netback - (US$/boe) 15.11 11.57 9.73 7.69 19.75 29.38 24.42 14.96Sea Dragon Energy Inc. - pre combination 18.36 32.38 20.90 12.13Madison Petrogas Ltd - pre combination 21.04 26.63 28.61 44.13

Financial Statements


The stable and sustainable low cost of operationsensures SDX Energy will be a significant beneficiary ofthe eventual increase in commodity pricing.

Low cost, high marigin production

10,409 boe/d


19.4 mmboe


Interim Consolidated Balance Sheet (Unaudited)


As at As at September 30 December 31

(thousands of United States dollars) Note 2016 2015

AssetsCash and cash equivalents 4,961 8,170 Trade and other receivables 5 7,896 6,678 Inventory 1,190 1,188 Current assets 14,047 16,036

Investments 8 2,395 2,106 Property, plant and equipment 6 17,067 18,401 Intangible exploration and evaluation assets 7 10,392 23,473 Non-current assets 29,854 43,980

Total assets 43,901 60,016

LiabilitiesTrade and other payables 9 4,042 3,556 Current income taxes 15 412 928 Current liabilities 4,454 4,484

Deferred income taxes 286 286 Non-current liabilities 286 286

Total liabilities 4,740 4,770

EquityShare capital 10 40,173 30,148 Warrants 10 - 99 Contributed surplus 5,071 5,175 Other comprehensive loss (1,154) (1,154)Retained earnings (4,929) 20,978Equity 39,161 55,246

Equity and liabilities 43,901 60,016

The notes are an integral part of these interim unaudited consolidated financial statements.

Approved on behalf of the Board of Directors

Paul Welch Mark ReidChief Executive Officer Chief Financial Officer

Interim Consolidated Statement of Comprehensive Income/(Loss) (Unaudited)



Three months ended September 30 Nine months ended September 30(thousands of United States dollars, except per share data) Note 2016 2015 2016 2015

Revenue, net of royalties 12 2,929 2,215 7,560 7,930Revenue 2,929 2,215 7,560 7,930

Direct operating expense 13 1,241 816 3,530 2,490Exploration and evaluation expense 7 (14) - 24,870 -Depletion, depreciation and amortization 6 800 333 2,462 1,220Stock based compensation 11 (298) 138 (104) 461Equity in income of associate 8 (401) (286) (1,113) (922)General and administrative expenses 14 1,225 2,020 2,997 3,193Operating income/(loss) 376 (806) (25,082) 1,488

Net finance (income)/expense (127) (149) (31) (586)

Income/(loss) before income taxes 503 (657) (25,051) 2,074

Current income tax expense 15 363 55 856 822Deferred income tax (credit)/expense - (6) - (95)Total current and deferred income tax expense 363 49 856 727

Net income/(loss) 140 (706) (25,907) 1,347

Other comprehensive lossForeign exchange - (323) - (489)

Total comprehensive income/(loss) for the period 140 (1,029) (25,907) 858

Net income/(loss) per shareBasic 16 $0.002 ($0.013) $(0.452) $0.024Diluted 16 $0.002 ($0.013) $(0.452) $0.021


Interim Consolidated Statement of Changes in Equity (Unaudited)


Nine months ended September 30(thousands of United States dollars) 2016 2015

Share capitalBalance, beginning of period 30,148 24,512Private placement - secondary listing on the London Stock Exchange AIM 10,988 -Share issue costs (963) -Balance, end of period 40,173 24,512

WarrantsBalance, beginning of period 99 99Expiry of warrants (99) -Balance, end of period - 99

Contributed surplusBalance, beginning of period 5,175 4,414Share based payments for the period (104) 461Balance, end of period 5,071 4,875

Accumulated other comprehensive lossBalance, beginning of period (1,154) (507)Foreign currency translation adjustment for the period - (489)Balance, end of period (1,154) (996)

Retained earningsBalance, beginning of period 20,978 10,931Net (loss)/income for the period (25,907) 1,347Balance, end of period (4,929) 12,278

Total equity 39,161 40,768


Interim Consolidated Statement of Cash Flows (Unaudited)



Three months ended September 30 Nine months ended September 30(thousands of United States dollars) Note 2016 2015 2016 2015

Cash flows (used in)/from operating activities Income before income taxes 503 (657) (25,051) 2,074

Adjustments for: Depletion, depreciation and amortization 6 800 333 2,462 1,220Exploration and evaluation expense (275) - 24,435 -Finance costs (127) 175 (31) 241Stock-based compensation 11 (298) 138 (104) 461Tax paid by state (211) - (605) -Equity in income of associate 8 (401) (286) (1,113) (922)Operating cash flow before working capital movements (9) (297) (7) 3,074(Increase)/decrease in trade and other receivables (1,046) 1,628 (1,218) 1,758Increase/(decrease) in trade and other payables (214) 303 (627) (1,193)Cash (used in)/from operating activities (1,269) 1,634 (1,852) 4,933

Income taxes paid (383) (837) (766) (4,933)Net cash (used in)/from operating activities (1,652) 797 (2,618) (1,294)

Cash flows used in investing activities: Property, plant and equipment expenditures 6 - (447) (15) (1,406)Exploration and evaluation expenditures 7 (2,047) (350) (11,356) (1,309)Dividends received 8 824 (48) 824 917Net cash used in investing activities (1,223) (845) (10,547) (1,798)

Cash flows from/(used in) financing activities: Repayment of debentures - - - (2,052)Private placement on London Stock Exchange AIM 858 - 10,025 -Finance costs paid (46) (322) 103 (386)Net cash from/(used in) financing activities 812 (322) 10,128 (2,438)

Change in cash and cash equivalents (2,063) (370) (3,037) (5,530)

Effect of foreign exchange on cash and cash equivalents 75 (101) (172) (415)

Cash and cash equivalents, beginning of period 6,949 12,461 8,170 17,935

Cash and cash equivalents, end of period 4,961 11,990 4,961 11,990


Notes to the Interim Consolidated Financial Statements (Unaudited)For the three and nine months ended September 30, 2016 and 2015(tabular amounts are in thousands of United States dollars except where stated)


Note 1. Reporting entitySDX Energy Inc. (“SDX” or “the Company”), is a company domiciled in Canada. The address of the Company’s registered office is 1900, 520 – 3rd Avenue SW, Centennial Place, East Tower, Calgary, Alberta T2P 0R3. The interim unaudited consolidated financial statements of the Company as at and for the three and nine months ended September 30, 2016 and 2015 comprise the Company and its wholly owned subsidiaries and associates. The Company is engaged in the exploration for and development and production of oil and natural gas and conducts many of its activities jointly with others. These interim unaudited consolidated financial statements reflect only the Company’s proportionate interest in such activities. The Company’s principal properties are located in the Arab Republic of Egypt.

The Company is listed on the Toronto Venture Stock Exchange (TSX-V) and on the AIM market of the London Stock Exchange and trades under the symbol SDX.

Note 2. Basis of preparation and accounting policiesStatement of complianceThese condensed interim unaudited consolidated financial statements for the three and nine months ended September 30, 2016 have been prepared in accordance with IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”). These condensed interimunaudited consolidated financial statements should be read in conjunction with the annual financial statements for the year ended December 31, 2015, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB.

These condensed interim unaudited Consolidated Financial Statements of SDX Energy Inc. were approved by the Audit Committee on November 21, 2016.

Accounting policiesThe accounting policies adopted are consistent with those of the previous financial year. The policies applied are based on IFRS that are issued andoutstanding as of the date that the Audit Committee approved these financial statements.

Going concernThe Directors have reviewed the Company’s forecast cash flows for the next twelve months from the date of publication of these interim unauditedConsolidated Financial Statements and through until December 31, 2017. The capital expenditure and operating costs used in these forecast cash flowsare based on the Company’s Board approved 2016 corporate budget which reflects approved operating budgets for each of its Joint Ventures and anestimate of 2016 SDX corporate general and administrative expenses. The Company’s forecast cash flows also reflect its best estimate of operational andcorporate expenditure, including corporate general and administrative costs, for the year to December 31, 2017. The Directors have made enquiries intoand considered the Egyptian business environment, future expectations regarding commodity price risk and, in particular, oil price risk given the currentlow price of Brent and WTI crude oil prices.

On the basis of the budgeted cash flows, and the additional Placing proceeds of US$11m less c. US$1m of expenses received on May 20 and July 25, 2016, the directors are of the opinion that the Company is well funded for the period under review. As such, these interim unaudited Consolidated Financial Statements continue to be prepared under the going concern basis of accounting, using the historical cost convention, except for financial instruments which are measured at fair value.

Note 3. Determination of fair valuesA number of the Company’s accounting policies and disclosures require the determination of fair value for financial and non-financial assets and liabilities.Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further informationabout the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

The different levels of financial instrument valuation methods have been defined as follows:Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The carrying value of cash and cash equivalents, trade and other receivables, trade and other payables, and loans and borrowings included in the interim unaudited consolidated balance sheet approximate their fair value due to the short term nature of those instruments.

Stock optionsThe fair value of employee stock options is measured using a Black-Scholes option pricing model. Measurement inputs include share price onmeasurement date, exercise price of the instrument, expected volatility based on weighted average historic volatility adjusted for changes expected due to publicly available information, weighted average expected life of the instruments based on historical experience and general option holder behavior, expected dividends, and the risk-free interest rate.



Note 4. Financial risk management(a) Credit risk

Trade and other receivablesAll of the Company’s operations are conducted in Egypt. The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each counter party.

The Company does not anticipate any default as it expects continued payment from customers. As such no provision for doubtful accounts has beenrecorded as at September 30, 2016 and December 31, 2015.

The maximum exposure to credit risk for loans and receivables at the reporting date by type of customer was:

Carrying amount September 30 December 31

$000’s 2016 2015CurrentGovernment of Egypt controlled corporations 6,511 5,018Joint venture partners 372 862Other 1,013 798Total trade and other receivables 7,896 6,678

Current receivables of US$6.5 million relate to oil sales and production service fees which are due from EGPC (December 31, 2015: US$5.0 million), aGovernment of Egypt controlled corporation. Receivables in respect of oil sales and service fees are normally collected in one to two months followingproduction. The Company expects to collect outstanding receivables of US$1.4 million for NW Gemsa and US$2.1 million for Block – H Meseda, in thenormal course of operation. The remaining US$3.0 million trade receivables relate to invoices from a previously held concession, Shukheir Marine,which have been withheld from payment to act as a rolling production guarantee for the work program of the South Disouq concession. As this workprogram is now complete the receivables are expected to be received during Q4 2016/Q1 2017.

The joint venture partner current accounts represent the net of monthly cash calls paid less billings received. Joint venture partner receivables ofUS$0.4 million (2015 - US$0.9 million) relate to the Bakassi West Cameroon concession (2015: South Disouq US$0.8 million and Block – H MesedaUS$0.1 million).

The other receivables of US$1.0 million consist of US$0.2 million for accrued gas and liquids revenue yet to be invoiced, US$0.4 million related to prepayments, US$0.2 million for Goods and Services Tax (“GST”)/ Value Added Tax (“VAT”) and US$0.2 million for other items.

As at September 30, 2016 and December 31, 2015, the Company’s trade and other receivables, is aged as follows:

Carrying amount September 30 December 31

$000’s 2016 2015CurrentCurrent (less than 90 days) 3,903 3,364Past due (more than 90 days) 3,993 3,314Total - current 7,896 6,678

The balances which are past due are not considered impaired.

Current trade and other receivables past due (more than 90 days old) have increased by US$0.7 million when compared to December 31, 2015. This increase is due to more restricted USD availability in Egypt during Q3 2016 which is expected to improve in Q4 2016.

Subsequent to September 30, 2016 the Company collected US$1.85 million of trade receivables from a government of Egypt controlled corporation for NW Gemsa (US$0.3 million) and Meseda (US$0.8 million) and US$0.75 million of the rolling South Disouq production guarantee referred to above.

(b) Foreign currency riskCurrency risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates. The reporting andfunctional currency of the Company is the United States dollars (US$). Substantially all of the Company’s operations are in foreign jurisdictions and asa result, the Company is exposed to foreign currency exchange rate risk on some of its activities primarily on exchange fluctuations between EGP andUS$ and GBP and US$. The majority of capital expenditures are incurred in US$ and EGP and oil and service fee revenues are received in both US$and EGP. The Company is able to utilize EGP to fund its Egyptian office general and administrative expenses and to part-pay cash calls for both capitaland operating expenditure, therefore reducing the Company’s exposure to foreign exchange risk during the period.

The table below shows the Company’s exposure to foreign currencies for its financial instruments:

$000’s Total per FS (1) US$ EGP GBP OtherAs at September 30, 2016 US$ equivalentCash and cash equivalents 4,961 2,332 1,412 1,099 118Trade and other receivables 7,896 7,281 35 559 21Trade and other payables (4,042) (2,232) (1,276) (362) (172)Current income taxes (412) - (412) - -Balance sheet exposure 8,403 7,381 (241) 1,296 (33)

(1) denotes Financial Statements

The average exchange rates during the three months ended September 30, 2016 and 2015 were 1 US$ equals:

Average: July 1, 2016 to September 30, 2016 Average: July 1, 2015 to September 30, 2015 USD/EGP USD/GBP USD/EGP USD/GBP


The average exchange rates during the nine months ended September 30, 2016 and 2015 were 1 US$ equals:

Average: January 1, 2016 to September 30, 2016 Period end: January 1, 2015 to September 30, 2015 USD/EGP USD/GBP USD/EGP USD/GBP


The period end exchange rates as at September 30, 2016 and 2015 were 1 US$ equals:

Period end: September 30, 2016 Period end: September 30, 2015 USD/EGP USD/GBP USD/EGP USD/GBP

September 30, 2016 8.8801 0.7710 September 30, 2015 7.8078 0.6593





Note 5. Trade and other receivablesCarrying amount

September 30 December 31$000’s 2016 2015Trade receivables 6,511 5,018Other receivables 1,385 1,660Total 7,896 6,678

Current trade and other receivables are unsecured and non-interest bearing. The normal collection pattern for trade receivables is 30 to 60 days.

Note 6. Property, plant and equipment Furniture

$000’s Oil interests and fixtures TotalCost:Balance at December 31, 2014 12,824 174 12,998 Additions 1,375 17 1,392 Acquisitions 16,679 68 16,747 Foreign currency revaluation - (32) (32)Decommissioning provision release (208) - (208)Disposals - (8) (8)Assets scrapped (7) (99) (106)Balance at December 31, 2015 30,663 120 30,783

Additions 1,113 15 1,128Balance at September 30, 2016 31,776 135 31,911

Accumulated depletion, depreciation and amortization:Balance at December 31, 2014 (3,478) (128) (3,606)

Depletion, depreciation and amortization for the year (2,014) (43) (2,057)Foreign currency revaluation - 28 28 Impairment charge (6,842) - (6,842)Assets scrapped - 95 95 Balance at December 31, 2015 (12,334) (48) (12,382)

Depletion, depreciation and amortization for the period to September 30, 2016 (2,426) (36) (2,462)Balance at September 30, 2016 (14,760) (84) (14,844)

NBV Property, plant and equipment as at December 31, 2015 18,329 72 18,401

NBV Property, plant and equipment as at September 30, 2016 17,016 51 17,067

During the period ended September 30, 2016 the Company had PP&E additions of US$1.1 million; which related to the NW Gemsa concession.

The NW Gemsa additions were for the drilling of Al Amir SE-23 (US$0.2 million) and Al Amir SE-24 (US$0.3 million), well work over program (US$0.2 million) and the recharge by the operator of indirect costs incurred on PP&E projects (US$0.4 million).

At September 30, 2016 for the purposes of the depletion calculation, US$2.3 million (December 31, 2015 – US$4.1 million) of future development costs are included in the calculation of cost in determining the depletion rate.



Note 7. Intangible exploration and evaluation assets

$000’sBalance at December 31, 2014 16,460 Additions 3,728Acquisitions 3,267Exploration and evaluation expense 18Balance at December 31, 2015 23,473

Additions 11,354Exploration and evaluation expense (24,435)Balance at September 30, 2016 10,392

Intangible exploration and evaluation (“E&E”) additions of US$11.4 million consist of US$5.9 million in relation to the Bakassi West block in Cameroon (“Bakassi West”) and US$5.5 million in relation to the South Disouq concession.

The US$5.9 million additions for Bakassi West consisted of well planning (US$0.2 million), drilling costs for the Manatee-1 exploration well (US$5.2 million),other direct costs including G&G (US$0.2 million), training and CSR costs (US$0.1 million) and general overheads (US$0.2 million).

On June 16, 2016 the Company issued a press release announcing its intention to withdraw from the Bakassi West, Cameroon concession (which becameeffective July 31, 2016). As the Bakassi West drilling operations had been completed by June 30, 2016, the Company made a full provision against thecapitalised exploration cost of US$24.4 million and reflected the relevant impairment in the Statement of Comprehensive Income for the period to June30, 2016. There has been no material change to this position as at September 30, 2016.

The US$5.5 million additions for South Disouq related to the 3D seismic program and consisted of the crew and equipment mobilization costs (US$0.2 million), 3D seismic costs (US$4.7 million), farmer’s compensation for crop damage (US$0.1 million), 3rd party quality control (US$0.2 million),timewriting and associated operator costs (US$0.2 million) and the EGas annual training bonus (US$0.1 million).

The Company also had business development costs in the three and nine months ended September 30, 2016 of US$0.4 million. These costs arerecognized in the income statement as incurred and form part of the exploration and evaluation expense line shown on the face of the Statement of Comprehensive Income/(Loss) for the period.

Note 8. InvestmentsThe Company owns a 50% equity interest in Brentford Oil Tools LLC (“Brentford”), a company that provides oilfield services and equipment rental andwhich is incorporated in Egypt. The Company is accounting for this investment using the equity method in accordance with IAS28 – “Investments inAssociates”. The investment is reviewed regularly for indicators of impairment and no impairment was identified for the period ended September 30, 2016and the year ended December 31, 2015.

The following table summarizes the changes in investments for the period ended September 30, 2016 and the year ended December 31, 2015:

September 30 December 31$000’s 2016 2015Investments, beginning of year 2,106 1,999Dividends received (824) (917)Share of operating income 1,113 1,024Investments, end of year 2,395 2,106

The following table summarizes the Company’s 50% interest in the assets, liabilities, revenue and operating income of Brentford as at and for the periodended September 30, 2016 and the year ended December 31, 2015:

September 30 December 31SDX Energy share (50%) of Brentford: 2016 2015Total assets 2,329 2,469Total liabilities 2 316Revenue 1,223 1,816Net income 1,113 1,024

During the period ended September 30, 2016 50% (December 31, 2015 – 50%) of Brentford’s revenue was earned from fees charged to the Company.



Note 9. Trade and other payablesCarrying amount

September 30 December 31$000’s 2016 2015CurrentTrade payables 108 198Accruals 722 1,284Other payables 3,212 2,074Total 4,042 3,556

Trade payables are non-interest bearing and are normally settled on 30 day terms or, where this differs, in accordance with supplier payment terms oragreed payment plans.

Accruals of US$0.7 million comprise general and administrative costs related to restructuring, audit, tax and reserve reporting fees.

Other payables of US$3.2 million comprise an estimated liability of US$1.1 million related to the relinquishment of the Shukheir Marine concession,partner current accounts of US$1.9 million for NW Gemsa (US$1.6 million) and Block-H Meseda (US$0.3 million) concessions and UK payroll taxes and deferred payroll of US$0.2 million.

The joint venture partner current accounts present the net of monthly cash calls paid less billings received.

Note 10. Share capital(a) The Company is authorized to issue unlimited common shares with no-par value and unlimited preferred shares with no-par value.

(b) Common Shares issuedThe Company issued a press release on May 20, 2016 announcing its admission to trade ordinary shares on the AIM market of the London StockExchange (“AIM”) and the successful placement and subscription of 42,201,835 shares, which included 3,910,000 conditional shares. On July 25, 2016 the 3,910,000 conditional placement shares were issued to an investor upon its approval as an insider by the TSX. Trading on AIM of these conditional shares commenced on July 28, 2016.

September 30, 2016 December 31, 2015 Number of Stated value Number of Stated value shares (000’s) ($000’s) shares (000’s) ($000’s)

Balance, beginning of year 37,642 30,148 56,348 24,512 Business combination - - (29,462) -Share for share exchange - - 10,756 5,636 Private placing of shares on the London Stock Exchange (AIM) 42,202 10,025 - -Balance, end of the period 79,844 40,173 37,642 30,148 Weighted average shares outstanding 57,339 51,633

(c) Common share warrants issued * September 30, 2016 December 31, 2015 Number of Stated value Number of Stated value shares (000’s) ($000’s) shares (000’s) ($000’s)

Balance, beginning of year 611 99 1,280 99Business combination - - (669) -Expiry of warrants (611) (99) - -Balance, end of year - - 611 99

* The warrants expired on July 27, 2016.



Note 11. Stock-based compensationThe Company has an option program that entitles officers, directors, employees and certain consultants to purchase shares in the Company.

Stock-based compensation expense is the amortization over the vesting period of the fair value of stock options granted to employees, directors and key consultants of the Company. The fair value of all options granted is estimated using the Black-Scholes option pricing model. Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. Compensation cost is expensed over the vesting period with a corresponding increase in contributed surplus. When stock options are exercised, the cash proceeds along with the amount previously recorded as contributed surplus are recorded as share capital.

During the 3 months ended September 30, 2016, it was determined that one of the inputs to the Black-Scholes option pricing model, specifically volatility of returns, required to be updated following the business combination between Sea Dragon and Madison. As a result, non-cash stock basedcompensation credits of US$0.3m and US$0.1m have been recognized for the three and nine months ended September 30, 2016, respectively. For the three and nine months ended September 30, 2015 the Company recorded non-cash stock based compensation charges of US$0.1 million andUS$0.4 million respectively.

The number and weighted average exercise prices of share options for the Company’s option program is as follows: Weighted Number average of options exercise price (000’s) (CDN$)

Outstanding January 1, 2015 4,950 0.92Cancelled during the year (4,950) 0.92Issued during the year 2,650 0.63Outstanding December 31, 2015 2,650 0.63Exercisable December 31, 2015 883 0.63

Outstanding September 30, 2016 2,650 0.63Exercisable September 30, 2016 883 0.63

The exercise price of the outstanding options is as follows:

Outstanding options Vested optionsExercise price range Number of Remaining Number of Remaining

options contractual life options contractual life$0.63 2,650,000 4.3 years 883,325 4.3 years

Note 12. Revenue, net of royalties Three months ended September 30 Nine months ended September 30

$000’s 2016 2015 2016 2015Oil revenue 1,917 - 5,512 -Royalties (823) - (2,366) -Oil revenue, net of royalties 1,094 - 3,146 -

Production service fees 1,835 2,215 4,414 7,930Total net revenue before tax 2,929 2,215 7,560 7,930

The oil revenue and royalties relate to the NW Gemsa concession; which is governed by a Production Sharing Contract (“PSC”) and the royalties are those attributable to the government take in accordance with the fiscal terms of the PSC.

The production service fees relate to Block-H Meseda, which is governed by a Production Services Agreement (“PSA”).

The operator continues to be in the process of addressing contractual invoicing with EGPC in relation to gas and liquids at NW Gemsa. No revenue or sales volumes relating to gas and liquids have been recognized for the three and nine months ended September 30, 2016; pending issuance of invoices.



13. Direct operating expenses Three months ended September 30 Nine months ended September 30

$000’s 2016 2015 2016 2015NW Gemsa 377 - 1,157 -Block-H Meseda 863 816 2,349 2,490Other 1 - 24 -Total direct operating expenses 1,241 816 3,530 2,490

Note 14. General and administration expenses Three months ended September 30 Nine months ended September 30

$000’s Prior quarter 2016 2015 2016 2015Wages and employee costs 641 735 1,328 1,929 1,775 Consultants - inc. PR/IR 226 99 42 370 233 Legal fees 72 76 - 182 10 Audit, tax and accounting services 69 53 33 182 240Public company fees 81 158 - 293 -Travel 39 21 17 104 164 Office expenses 173 235 84 555 237 IT expenses 64 109 20 219 38 Transaction costs - - 496 - 496Service recharges (453) (261) - (837) -Total - net G&A 912 1,225 2,020 2,997 3,193

Note 15. Income taxPursuant to the terms of the Company’s PSCs, the corporate tax liability of the joint venture partners is paid by the government controlled corporations(“Corporations”) who participate in these PSCs, out of the profit oil attributable to the Corporations, and not by the Company. For accounting purposeshowever, the corporate taxes paid by the Corporations are treated as a benefit earned by the Company, with the amount being included in net oil revenuesand also being deducted as part of the income tax expense of the Company.

The Company also has a PSA related to Block-H Meseda with legal title residing with Madison Egypt Limited (“Madison Egypt”), an Egyptian incorporated entity. The Company is governed by the laws and tax regulations of the Arab Republic of Egypt and pays corporate taxes on the adjusted profit of Madison Egypt.

The current income tax expense in the Statement of Comprehensive Income for the three and nine months ended September 30, 2016 relates to incometax on North West Gemsa’s PSC which is paid by a government controlled corporation and income tax relating to the Company’s PSA in Block-H Mesedawhich it is liable to pay itself. With regards to the three and nine months ended September 30, 2015 the income tax expense only relates to the Company’sPSA in Block-H Meseda.

The current income taxes liability in the Consolidated Balance Sheet relates to the Company’s PSA in Block-H Meseda.

Note 16. Income per share Three months ended September 30 Nine months ended September 30

$000’s 2016 2015 2016 2015Net income/(loss) before other comprehensive income for the year 140 (706) (25,907) 1,347

Weighted average number of shares (000’s)Basic 78,824 56,348 57,339 56,348 Diluted 78,824 63,258 57,339 63,258

Per share amountBasic $0.002 $(0.013) $(0.452) $0.024 Diluted $0.002 $(0.013) $(0.452) $0.021

Basic income per share is calculated by dividing the income attributable to shareholders of the Company by the weighted average number of ordinary shares in issue during the period. Diluted per share information is calculated by adjusting the weighted average number of ordinary shares outstanding to assumeconversion of all dilutive potential ordinary shares. The Company computes the dilutive impact of common shares assuming the proceeds received from the pro-forma exercise of in-the-money stock options or warrants used to purchase common shares at average market prices. At September 30, 2016 the strikeprice of such instruments was above the average market share price, therefore they became anti-dilutive which resulted in a diluted EPS equal to the basic EPS.



Note 17. Segmental reportingThe Company is engaged in the business of exploration for and production of oil and gas only, which represents a single operating segment. The executivedirectors are the Company’s chief operating decision maker within the meaning of IFRS 8.

Non-current assets other than financial instruments by country are as follows:Carrying amount

September 30 December 31$000’s 2016 2015Cameroon - 18,795Egypt 29,844 25,145United Kingdom 10 40Total 29,854 43,980

Note 18. CommitmentsPursuant to the concession and production service agreements in Egypt, the Company is required to perform certain minimum exploration anddevelopment activities that include a 3D seismic campaign and the drilling of exploration and development wells. Certain of these obligations have not yetbeen fulfilled and have not been provided for in the consolidated financial statements.

The unfulfilled commitments for the South Disouq license relate to the completion of 3D seismic processing (US$0.1 million) and the drilling of oneexploration well, the cost of which is currently estimated at US$3.5 million. The Company’s costs for the well are carried by its partner up to a gross cost of US$3.0 million, after which costs will be split by equity holding. Other unfulfilled commitments are for the drilling of one development well and facilitiesupgrade for South Ramadan (US$2.9 million) and the drilling of one development well for Block-H Meseda (US$0.1 million). The 3D seismic acquisitioncampaign was completed on September 12, 2016 and the 3D seismic processing and interpretation is expected to be completed during Q4 2016. The drilling of the exploration well is anticipated to commence in Q1 2017. The development well for Block-H Meseda, is secured by a deposit of US$0.1 million withheld from the Company’s service fee revenue.

Currently the commitments as part of the concession agreements are as follows:

September 30 December 31$000’s 2016 2015Less than one year 356 13,677Between one and five years 2,933 2,933Total 3,289 16,610

Non-cancellable office leasesThe Company has lease commitments for its office premises in Calgary and London under non-cancellable operating leases expiring within two to five years.

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:

September 30 December 31$000’s 2016 2015Less than one year 361 302Between one and five years 582 813Total 943 1,115



Corporate informationC

orporate Information

Designed and produced by effektiv +44 (0)20 7251 7720 / www.effektiv.co.uk

Executive OfficersPaul WelchPresident & Chief Executive Officer & Chief Operating Officer

Mark ReidChief Financial Officer

Ahmed Farid MoaazCountry Manager

Independent DirectorsMichael DoyleNon-Executive Chairman

David MitchellDavid RichardsMichael Raynes

Stock Exchange ListingTSX Venture ExchangeLondon Stock Exchange AIMSymbol: SDX

Registrar and Transfer Agent (Canada)TSX Trust Company200 University Avenue, 3rd FloorToronto, ONM5H 4H1 CanadaT: +1 (416) 361 0152F: +1 (416) 361 0470

Registrar (United Kingdom)Capita Registrars (Guernsey) LimitedMont Crevalt House, Bulwer AvenueSt Sampson, Guernsey, GY2 4LHChannel IslandsT: +44 (0)37 1664 0300

Nominated Advisor and Joint BrokerCantor Fitzgerald EuropeSarah Wharry/Craig FrancisOne Churchill Place, Canary WharfLondon, E14 5RB, United KingdomT: +44 (0)20 7894 7000

Joint BrokerGMP FirstEnergyJonathan Wright/David van Erp85 London Wall, London, EC2M 7AD United KingdomT: +44 (0)20 7448 0200

Independent EngineersDeGolyer and MacNaughton Canada LimitedCalgary, Alberta, Canada

AuditorsPricewaterhouseCoopers LLP32 Albyn Place, Aberdeen, AB10 1YLUnited Kingdom

Public RelationsCelicourt CommunicationsMark Antelme/Joanna Boon7-10 Adam House, The StrandLondon, WC2N 6AA, United KingdomTelephone: +44 (0)20 7520 9261

SDX Energy Office LocationsCanadaCentennial Place, East Tower, 1900, 5203rd Avenue SWCalgary, Alberta, Canada T2P 0R3T: +1 (403) 457 5035F: +1 (403) 457 5420

EgyptBuilding #12, Al Nahda Street, El-Maadi, Kornish El Nile, Cairo, EgyptT: +20 2 2358 2172F: +20 2 2750 8534

United Kingdom38 Welbeck Street, London W1G 8DPUnited KingdomT: +44 (0)20 3219 5640F: +44 (0)20 3219 5655

High Margin Growthwww.sdxenergy.com

Documents

2016 Q3 Interim Report - SDX Energy Plc · 3 SDX Energy Inc. 2016 Q3 Interim Report Our Highlights Third Quarter 2016 Contents 01 Financial and Operating Highlights ... • Completed