TIDMJKX
RNS Number : 3843K
JKX Oil & Gas PLC
21 September 2016
21 September 2016
JKX Oil & Gas plc ("JKX", the "Company" or the "Group")
Operational Update
-- Completion of updated Field Development Plans ('FDPs') for
Ukraine and Russia and related independent evaluation of the
Company's gas and condensate reserves at its Koshekhablskoye Field
in Russia.
-- The FDP for Ukraine identifies a technical solution to
potentially unlock approximately 600 billion cubic feet of
recoverable gas reserves previously considered uneconomic at the
Rudenkivske gas field.
-- Group production for the year to 31 August up 17.5% compared
to January-August 2015, while revenue was 19.5% down primarily due
to Hryvnia and Rouble devaluation as well as oil and gas price
declines.
-- JKX continues its efforts to optimize operating costs,
including overhead reductions at the head office and at subsidiary
level.
New Field Development Plans
As previously reported, new management undertook a comprehensive
review of all fields in the Company's portfolio beginning in
February of this year. Field development plans have been rebuilt by
reviewing and correlating primary technical data with current
production and by applying modern development and completion
techniques such as those used in North America. Several technical
advisors with a broad range of global and regional expertise were
engaged. We have now completed revised FDPs for Ukraine and Russia,
and a reserves audit for Russia.
In Ukraine, in addition to identifying several new drilling
locations and significant enhanced oil recovery opportunities in
existing fields, this work has focused on unlocking the potential
of a gas field in our current portfolio previously considered
uneconomic.
According to the FDP, the Rudenkivske field is estimated to
contain 2.8 trillion cubic feet of gas in place (2C). Utilizing
modern development and completion techniques could result in the
production of as much as 600 billion cubic feet of gas over the
field's lifetime. Analogous fields to Rudenkivske's structure and
depositional environment in North America were identified and their
experience and empirical data were used in the Company's planning.
These North American fields were also previously considered
uneconomic, and have recently been successfully developed using
advanced well construction and field development design.
The full field development model for the Rudenkivske field
includes 135 wells over ten years and results in plateau production
of approximately 110 million standard cubic feet per day (18,300
barrels of oil equivalent per day). Total capital investment over
the same period is currently estimated at US$660 million.
Despite Rudenkivske's significant potential, the project is
technically challenging. This is due to the complex stratigraphic
architecture of the sands and inconsistent well drainage volume.
Full field development will require the use of modern equipment and
services that are not currently available in Ukraine. Further
reform of Ukraine's upstream investment environment, in particular
royalty tax rates, would significantly reduce the financial risk of
full field development. We are working closely with the Government
of Ukraine to implement an investment environment supportive of
innovation and risk-taking.
Russian Reserves Update
The FDP in Russia covers the Koshekhablskoye gas field operated
by Yuzhgazenergy ('YGE'), a 100% subsidiary of JKX. The focus is on
the drilling of a new well that will initiate the development of
the deeper Callovian reservoir, compared to working over old wells
envisioned in previous development plans.
An independent reserves assessment was completed by DeGolyer and
MacNaughton in support of the asset monetization process using the
new FDP. As a result, compared to the last independent reserves
assessment results from 2014, proved reserves have been slightly
reduced, due to higher resolution geological modeling showing
slightly less drainage area. Probable and possible reserve
categories have increased significantly due to the addition of
probable reserves attributed to the new Callovian well and net pay
maps revealing volumes previously not accounted for by material
balance. Contingent resources have reduced slightly due to their
conversion to probable reserves. Migrating remaining contingent
resources to reserves is dependent on drilling results, which could
roughly double the size of our Russian reserves if successful.
Results are summarized in the table below and the full report is
available on the JKX website:
Net reserves to JKX
----------------------------
30 June 31 December
2016 2014
Total Total
Reserves Category MMboe MMboe
Proved 46.5 53.4
Probable 39.0 10.6
Total Proved plus Probable 85.5 64.0
Possible 32.0 15.4
Proved, Probable and
Possible 117.5 79.4
Contingent Resources
(3C) 107.6 111.8
Production
For the period from January to August 2016, the Company produced
10,271 barrels of oil equivalent per day, an increase of 17.5% on
the same period in 2015. Gas production in Russia was higher by
37.9% due to well-27 coming on line in late 2015 and ongoing
successful acid stimulations. Despite the cancellation of all
development expenditure since early 2015, total production in
Ukraine was relatively stable period-on-period with oil production
being higher by 16.2% compared to the same period in 2015. These
results were achieved due to the implementation of an enhancement
program targeting the technical potential of existing well
stock.
Technical Update
Production enhancements in Ukraine have continued through the
period as follows:
o-- M171 production was re-started by working over the well to
deepen the tubing and introduce gas lift above the top
perforations. This increased production by 96 bopd and 0.3
MMscf/d.
--o IG137-Bis was acidized which increased the oil production by 34 bopd.
--o IG106 was acidized, followed by the installation of a
velocity string, resulting in an increase in gas production of 1
MMscf/d and 7 bopd after clean-up.
--o Pressure increases, as a result of the re-start of water
injection into IG126 in April, lead to the re-opening of IG138
delivering an initial oil rate of 268 bopd.
--o Perforations were added in IG123 prior to investigating the
upside potential of installing a velocity string in this well.
In Russia during a routine wireline drifting operation in
well-20 the wire parted leaving a fish in the well. Stable
production has been maintained at 13 MMscf/d however future acid
stimulations on this well will not be possible until the well is
worked over. Efforts are being made to offset the reduction in gas
production from well-20 with more regular acid stimulations on
well-27 and an acid stimulation has been carried out on well-25
together with larger chokes on both of these wells.
Revenue
Preliminary unaudited results show YTD revenues at the end of
August down 19.5% on the same period for the previous year.
Increased production was offset by weakening of local currencies
and the decline in oil and gas prices, in line with international
and local market trends.
Overheads and Operating Costs
Following a detailed review of London head office costs the
Board has made reductions to staff numbers and has moved the
remaining staff on to one floor of the building where JKX
previously occupied four floors. The Company is searching for new
tenants for the vacated floors in order to mitigate the rent being
paid on the long-term lease agreements that the Company is tied
into.
In Ukraine, headcount reductions totaling 125 have been made,
representing a 29% lowering of staffing levels which will lower
costs in the final quarter of 2016. In Russia, a staff reduction
program is under way that will result in a 20% decrease in
headcount by early 2017.
Ukrainian Dividends
Following the lifting of restrictions on dividends payments for
Ukrainian companies for 2014 and 2015, the Company has restarted
the repatriation of dividends from PPC for these periods, which has
improved the Group's liquidity.
International Arbitration
As reported in previous announcements, in 2014 the Company
commenced arbitration proceedings against Ukraine on the basis of
overpayment of production taxes ('Rental Fees'). The main
arbitration case, which relates to the overpayment of approximately
$180 million in Rental Fees plus damages to the business, was heard
in London in early July and we expect the tribunal's decision by
the end of 2016.
Ukrainian Legal Cases
As previously reported, PPC has several near-term contingent
liabilities arising from two separate court proceedings over the
amount of rental fees paid in Ukraine for certain periods since
2010, which in total amount to a potential liability of
approximately $34 million, including interest and penalties.
For claims relating to 2010, amounting to approximately $10.5
million, PPC lost an appeal to the High Administrative Court of
Ukraine and the Supreme Court of Ukraine refused to consider the
case. The Company filed a second appeal on 23 August 2016 to the
Supreme Court and is awaiting confirmation as to whether or not the
Supreme Court will rule in favor of PPC or order the case to be
reheard.
As previously reported, PPC is in the process of court hearings
in respect of claims relating to 2015 valued at $23 million. The
Company has considered such claims to be in violation of the
interim award received under the main arbitration case referred to
above. The proceedings in all but two of these cases have recently
been suspended pending the outcome of the main arbitration
case.
Police Investigation in Poltava
As previously disclosed, the Ukrainian police visited the office
of PPC and the homes of two of our employees on 14 June. The
searches undertaken were the result of an investigation of claims
of alleged underpayment of taxes which have been made against PPC
by a local prosecutor. Since then we have received a number of
information requests from the police, many of which were unrelated
to the original warrants. As stated in our earlier release, we
cooperated fully with the searches but vigorously contest the
validity of the claims. The Company notified both British and US
embassies in Kiev and is considering further legal action in this
respect.
Convertible debt
As set out in the previous operational update, bonds with a face
value of $2.2 million were repurchased by the Company on 7 June
2016 and subsequently cancelled. As a result, liability facing the
Company in February 2017 has fallen from $30.1 million to $27.6
million. The Company continues to pursue strategies that will
mitigate this liability.
Looking ahead
The completion of new Field Development Plans since the
Company's June operational update, and the technical plan for
Rudenkivske, set the stage for refocusing the Company on the
production of oil and gas. The Group continues to make progress on
litigation and financing challenges, but now does so with a
substantial development plan for the future.
ENDS
For further information please contact EM:
Stuart Leasor
leasor@em-comms.com
T: +44 20 3709 5711
M: +44 7703 537721
Jeroen van de Crommenacker
crommenacker@em-comms.com
T: +44 20 3709 5713
M: +44 7887 946719
This announcement may contain statements that are, or may be
deemed to be, forward-looking statements. Any such forward-looking
statements are based on the Company's current expectations and are,
by their nature, subject to a number of risks and uncertainties
that could cause the Company's actual results and performance to
differ materially from any expected future results or performance
expressed or implied by such forward-looking statements. Forward
looking statements should, therefore, be construed in light of such
risk factors and undue reliance should not be placed on them. Some
of the most important risks in this regard are described in the
2014 JKX Annual Report. Forward-looking statements speak only as of
the date of this announcement and, save where required by
applicable law or regulation, the Company undertakes no obligation
to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise.
Certain information included in this announcement is based on
management estimates. Such estimates have been made in good faith
and represent the current beliefs of the Company's management. The
Company's management believes that such estimates are founded on
reasonable grounds. However, by their nature, estimates may not be
correct or complete. Accordingly, no representation or warranty
(express or implied) is given that such estimates are correct or
complete.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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