TIDMJKX
RNS Number : 7451M
JKX Oil & Gas PLC
10 January 2019
10th January 2019
JKX Oil & Gas plc
("JKX", the "Company" or the "Group")
Quarterly Operations Update
Q4 Q3 Q on 12 months 12 Y on
Q % Change months Y % Change
2018 2018 2018 2017
Total production, boepd(1) 8,874 9,410 (5.7)% 8,937 8,657 3.2%
Ukraine, boepd 3,707 4,013 (7.6)% 3,677 3,507 4.8%
- Average gas production, 18.2 19.4
MMcfd(2) (515) (549) (6.1)% 17.6 16.7 4.9%
(Mm(3) d)(3) (497) (474)
- Average oil and condensate
production, boepd 676 785 (13.8)% 751 719 4.5%
Russia, boepd 5,083 5,302 (4.1)% 5,169 5,019 3.0%
- Average gas production,
MMcfd 30.2 31.5 (4.1)% 30.7 29.8 3.0%
(Mm(3) d) (854) (891) (868) (843)
- Average condensate production,
boepd 56 60 (6.1)% 58 55 4.2%
Hungary, boepd 84 95 (11.6)% 91 131 (30.5)%
- Average gas production,
MMcfd 0.5 0.5 - 0.5 0.7 (28.6)%
(Mm(3) d) (14) (14) (14) (20)
- Average condensate production,
boepd 6 8 (25.0)% 7 9 (22.2)%
Prices realised
Ukraine
- Average gas price, $/Mcf 9.71 8.58
($/Mm(3) ) (343) (303) 13.2% 8.72 6.74 29.4%
(308) (238)
- Average oil and condensate
price ($/bbl) 82 73 12.3% 74 64 15.6%
Russia
- Average gas price, $/Mcf
($/Mm(3) ) 1.56 1.59 (1.9)% 1.61 1.69 (4.7)%
(55) (56) (57) (60)
The Group's average daily production was 8,937 boepd in 2018,
3.2% greater than in 2017. Average Group production for the fourth
quarter of 2018 was 8,874 boepd, which represents a 5.7% decrease
compared to the third quarter of 2018.
The reduction in production quarter on quarter in Ukraine is
mainly the result of a reduction in workover and drilling activity
completed. As noted below a new drilling contractor has been
selected to improve performance in executing the approved
development plan. In addition WM215, a leased well, continued its
sharp decline through October before reaching a stable rate of only
1 MMcfd (28 Mm(3) d). This decline was accelerated through salt
precipitation in the well. Its underperformance will be addressed
in early 2019 (see below). R3, a leased well, also continued its
decline quarter on quarter from 3.1 MMcfd (88 Mm(3) d) to 0.8 MMcfd
(23 Mm(3) d).
The only completed drilling activity of Q4 was the sidetracking
of IG103 which resulted in an initial rate of 11.8 MMcfd (333 Mm(3)
d) of gas and 150 boepd of condensate with a wellhead pressure of
2,371 psig(4) on the 28(th) December 2018. Despite a drop in the
wellhead pressure of 410 psig as at the 8(th) January the well is
still producing 11.5 MMcfd (326 Mm(3) d) of gas and 155 boepd of
condensate. The encouraging result from this well has exceeded our
expectations with an initial rate four times higher than that
tested in IG103 historically.
Other activity carried out in Q4 2018 in Ukraine is as
follows:
-- WM3 was successfully spudded on the 21(st) December 2018 and drilling is ongoing.
-- A contract has been signed with a seismic contractor to shoot
a 3D survey over the West Mashivske field in the Elyzavetivske
license. The contractor is on site preparing to start conducting
the survey.
-- A lengthy rig tender was completed and a contractor has been
selected for the next wells in the rig schedule, R101 sidetrack and
NN81. R101 sidetrack is to be drilled to appraise the Visean to the
south of the original well in the Rudenkivske field. NN81 is a new
well planned to appraise the V16 to the south of the
Novomykolaivske field.
-- PPC's own workover rig is mobilising to WM215 to start a
workover to optimise the completion, to enable consistent fresh
water injection and to re-perforate the well in an effort to
increase production.
In Russia, production has reduced quarter-on-quarter. This is
due to only one acid job taking place in the quarter, on Well 27.
The two other key producing wells, Well 20 and Well 25, continued
their gradual decline through Q4. The contracted rig for the well
workover programme has arrived at the Koshekhablskoye field and is
currently rigging up on Well 5.
The process of divesting the Group's Hungary assets is currently
ongoing.
Liquidity
Balance sheet extracts at quarter ends were as follows:
In $m 31 Dec 30 Sep 30 June 31 Mar 31 Dec
2018 2018 2018 2018 2017
Total cash 19.3 4.9 7.6 6.5 6.9
Bond liability (principal
and interest accrued) (11.3) (10.9) (11.3) (10.9) (16.8)
Net cash/ (debt) 8.0 (6.0) (3.7) (4.4) (9.9)
Trade and other receivables 3.9 3.2 3.3 2.9 3.3
Trade and other payables (4.3) (0.6) (1.9) (5.6) (5.4)
Approximate sales value
of gas and oil inventory 3.7 9.9 3.1 3.3 3.0
The Group's liquidity improved during 2018 and total cash now
exceeds the bond liability, which relates to a convertible bond
with $10.7m principal outstanding. The bond pays an annual coupon
of 14% semi-annually in arrears and matures in 2020. The bond terms
are described in detail in the 2017 Annual Report.
Approximate sales value of gas and oil inventory is calculated
using the average prices in December 2018. At 31 December 2018
inventory consisted of 128 MMcf (3,627 Mm(3) ) of gas and 4,897 bbl
of oil held and available for immediate sale at our Ukrainian
subsidiary.
Rental Fee Claims
Claims issued by the Ukrainian tax authorities for additional
Rental Fees are being contested through the Ukrainian court
process. These arise from disputes over the amount of Rental Fees
paid by PPC for the periods August-December 2010 and
January-December 2015. An update on the status of each claim is
given below. Although all amounts are being claimed in Ukrainian
Hryvnia ('UAH'), they are referred to below at their US$-equivalent
amounts using the 2018 year end rate of $1:UAH27.69. Only amounts
of principal and fines claimed are noted below. The provisions
reported in the Group's financial statements also include
provisions for late payment interest that may be applicable. The
total provision in respect of both 2010 and 2015 claims was $42.7m
as at 30 June 2018.
The 2010 Rental Fee claim, which relates to principal and fine
amounts totalling $6.6m, is contested in case 816/4476/14. In April
2017 the Poltava Circuit Administrative Court ("PCAC") found in
favour of PPC and cancelled the tax notification decisions on the
grounds that due process had not been followed. In June 2017 the
Kharkiv Appellate Administrative Court upheld the judgement of the
PCAC. In July 2017 the Poltava Joint State Tax Inspectorate
("PJSTI") filed a cassation complaint against the previous court
judgements of lower courts in PPC's favour. This cassation hearing
at the Supreme Court of Ukraine is expected in the first half of
2019.
The 2015 Rental Fee claims are being contested in eight separate
cases, one of which has been subject to ruling by the PCAC, three
of which are now being considered by the PCAC, and four of which
are still suspended in connection with the finalisation of the
international arbitration award referred to further below:
-- Case 816/845/16 relates to principal and fine claims of
$0.3m. In December 2018 the PCAC ruled that the disputed tax
notification decisions in this case were illegal and cancelled
them. While this is the first 2015 case won on merits by PPC, it
should be noted that the ruling will be challenged in the higher
instance courts by the PJSTI.
-- Cases 816/688/16, 816/687/16 and 816/1191/16, which relate to
principal and fine claims of $2.1m, $1.8m and $1.2m respectively,
are now being considered by the PCAC in the same way as case
816/845/16 and rulings are expected in Q1 2019.
-- Case 816/685/16, which relates to principal and fine claims
of $2.0m has been suspended. The PJSTI has filed a cassation
complaint with the Supreme Court for the case to be unsuspended.
The hearing is expected to take place in early 2019. If the case is
unsuspended then it will be considered by the PCAC in the same way
as the cases noted above.
-- Cases 816/846/16, 816/844/16 and 816/686/16, which relate to
principal and fine claims of $2.0m, $2.5m and $7.5m respectively,
are currently suspended. The PJSTI previously filed cassation
complaints with the Supreme Court for these cases to be
unsuspended, but the complaints were rejected by the Supreme Court
and the cases therefore remain suspended. It is expected that these
suspensions will only be reconsidered following recognition of the
Arbitration Award (see below).
International Arbitration Award
In 2015 international arbitration proceedings were started
against Ukraine, seeking a repayment of Rental Fees paid on
production of oil and gas in Ukraine since 2011 and making
subsidiary claims. In February 2017, the international arbitration
tribunal in Stockholm ruled that Ukraine was found not to have
violated its treaty obligations in respect of the levying of Rental
Fees but ordered it to pay $11.8 million plus interest, and costs
of $0.3 million to JKX Oil & Gas Plc in relation to subsidiary
claims. Ukraine's appeal against this award in London was dismissed
in October 2017. Lawyers have been instructed to perform the
recognition of the award in Ukraine, which is expected to be
completed in 2019, to provide JKX Oil & Gas Plc the right to
enforce collection. No recognition will be made in the financial
statements of any possible future benefit that may result from this
award until there is further clarity on the process for, and likely
success of, enforcing collection.
(1) boepd - Barrels of oil equivalent per day (1 boe = 6000
cf)
(2) MMcfd - Million cubic feet per day
(3) Mm(3) d - Thousand cubic metres per day (1 m3 = 35.315
cf)
(4) psig - pounds per square inch gauge
This announcement contains inside information as defined in EU
Regulation No. 596/2014 and is in accordance with the Company's
obligations under Article 17 of that Regulation.
ENDS
JKX Oil & Gas plc +44 (0) 20 7323 4464
Ben Fraser, CFO
EM Communications +44 (0) 20 7002 7860
Stuart Leasor, Jeroen van de Crommenacker
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END
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