JKX.L Regulatory News (JKX)

FOR IMMEDIATE RELEASE

21 March 2016

JKX Oil & Gas plc

('JKX' or the 'Company')

FINAL RESULTS

FOR THE YEAR ENDED 31 DECEMBER 2015

Key financials

· Revenue: $88.5m (2014: $146.2m)

· Loss from operations before exceptional charges: $10.7m (2014: $11.6m profit)

· Exceptional charges: $64.9m (2014: $72.5m)

· Loss for the year $81.5m (2014: $79.5m)

· Loss per share: 47.32 cents (2014: 46.21 cents)

· Net cash generated from operating activities: $9.1m (2014: $47.5m)

· Capital expenditure: $8.7m (2014: $42.3m)

Operational highlights

· Board of Directors replaced by shareholders at a General Meeting on 28 January 2016

· Average production of 8,996 boepd (2014: 9,919 boepd)

· No development drilling in 2015 due to cash constraints

· Well-27 restored at the Koshekhablskoye field in Russia

· Six 35-year production licences awarded in Hungary (JKX 100%)

Outlook

· New Board reviewing all development projects and enhancement opportunities as part of a wider review of future strategy

Tom Reed, JKX's new CEO, said, "Since the appointment of the new Board on 28 January 2016, we have visited all the main assets of the Group and identified significant scope for operational improvements and cost savings across JKX.

Areas of legacy risk exist primarily related to production tax litigation in Ukraine, which we are confident that we can continue to manage.

We are encouraged by the physical characteristics of our reservoirs in Russia and Ukraine, the quality of the staff across JKX, the opportunity for operational and capital spending improvements, and remain committed to improving value per share to all shareholders.

There are many challenges facing the Company, and the new Board is committed to a new and transparent approach and to actively engage all shareholders and other stakeholders of the Company in order to turn it around."

For further information please contact:

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

CHAIRMAN'S STATEMENT

A fresh perspective

I am pleased to present this report on behalf of the new Board of Directors that was appointed by shareholders on 28 January 2016, charged with bringing a new vision and approach to restore shareholder value at JKX. This change in the Board resulted from proposals made by one of the Company's largest shareholders, who saw that the Company needed a new direction and requisitioned a General Meeting to allow all shareholders to vote on this idea. It is a rare example of genuinely successful shareholder activism in the long history of the London Stock Exchange.

At the time of writing I am nearing completion of my second month as Chairman of your Company and so this report details activities that occurred before any of the new Board took office. None of the directors who were in office in 2015 are now with JKX. When combined with the fact that 2015 was a year of continuing low international oil and gas prices combined with volatility and uncertainty in the regions in which JKX operates, the factors behind your Company's results were beyond our control. However I can make two promises: from this point forward your new Board will be completely transparent in how we communicate to shareholders regarding the challenges we face in such an environment and the steps we are taking to restore the Company's fortunes; and we will be resolutely committed to increasing efficiency and reducing needless costs.

Performance in 2015

The low oil and gas prices and the lack of capital investment led to the Company's production, profits and operating cash flow falling significantly in 2015. Despite this, the Company has remained cash generative from its operations.

The disappointing financial performance and decline in production was exacerbated by the suspension of all but essential capital investment across the Group, the delays in bringing well-27 in Russia back on line, and the intense focus of the Company on various legal proceedings.

Ukraine

In Ukraine, the introduction of the 55% rate of production tax, foreign exchange controls and government-imposed restrictions on the sale of gas during the three months to 28 February 2015 led to cash constraints and no capital investment programme during 2015.

The investment climate has improved following the reduction of gas production tax rates to 29% for 2016 and the lifting of restrictions on the sale of gas in February 2015. However the Ukrainian economy remains fragile and foreign exchange controls remain in place, making the repatriation of cash extremely difficult.

You will no doubt recall that in 2014, the Company commenced arbitration proceedings against Ukraine on the basis of overpayment of production taxes ('Rental Fees'), as explained more fully in Note 27 to the financial statements. During 2015 an international arbitration tribunal issued an Interim Award requiring the Government of Ukraine to limit the collection of Rental Fees on gas produced by PPC to a rate of 28%. This Interim Award remains in effect until final judgement is rendered on the main case, which relates to the overpayment of approximately $180 million in Rental Fees, plus damages to the business. The arbitration hearing is expected to take place in July 2016, which will include witness statements from certain members of the old Board and will result in additional legal costs for JKX.

In Ukraine, the Company's subsidiary, Poltava Petroleum Company ('PPC'), continues to experience a combination of aggressive production tax demands for periods up to the end of 2015 and also challenges to its compliance with the terms of its production licences (see Notes 2 and 27 to the financial statements). We have met with representatives of the Ukrainian Government in recent weeks to attempt to find a solution to all our production tax and licencing issues in-country and we are confident that an acceptable solution can be found. I will update shareholders when we have clarity on these issues.

Russia

The fall in international oil prices and continued sanctions are having a negative impact on Russia's domestic economy.

A combination of continuing low gas prices, which are set by the Russian Government, and the devaluation of the Russian Rouble in 2015 from RR56:$1 to RR72:$1 adversely affected the Group's profit and cash generated from its Russian project in US Dollar terms.

The combination of the recent Russian Rouble devaluation and only a minimal gas tariff increase in the near term has had a negative effect on our plans to expand our current licence portfolio there.

Hungary and Slovakia

Despite the recent fall in international oil prices, our exploration and appraisal prospects in Hungary and Slovakia remain attractive. Both economies are relatively stable and the Board is currently reviewing the investment options for these licences in 2016.

Cash

The Group's cash balance at the year end of $25.9 million has been significantly reduced in the first two months of 2016 by the $12.3 million redemption payment due under the terms of the convertible bond and the $2.2 million of severance costs and additional remuneration which the previous board approved and paid prior to the General Meeting on 28 January 2016.

Cash balances will be further reduced in the coming months due to $3 million of legal costs incurred by Eclairs and Glengary, following the finding against the Company by the Supreme Court of the United Kingdom in respect of the imposed shareholder restrictions. In addition, the Company will also have to pay its own legal costs for the continuation of any international arbitration proceedings (as already noted above).

Debt

In accordance with the terms of the Company's $40 million Convertible Bond, $7.2 million of bond payments were made during 2015, and in February 2016 the Company made scheduled early redemption repayments to bondholders of $12.3 million.

If all bondholders exercise their option to early redemption in February 2017, as they are entitled to under the terms of the bonds, the Company will owe bondholders a further $30.1 million at that time.

Board

Following the replacement of the entire Board on 28 January 2016, the composition of the Board has not complied with the UK Corporate Governance Code in respect of the number of independent Non Executive Directors.

The Company has engaged an independent consultant to conduct due diligence on a short-list of candidates and is now in the final phase of appointing two new independent Non Executive Directors. As soon as this has been completed we will be re-establishing board committees to oversee audit, remuneration and nominations, to ensure that JKX has the first class corporate governance that it needs. As a temporary measure, and to ensure appropriate review and process in the release of this report, an Interim Audit Committee consisting of myself and Russell Hoare, your new Chief Financial Officer, was appointed.

Outlook

There remain risks noted above in respect of the $30.1 million bond payment which may become due in February 2017, the contingent liabilities in respect of Ukrainian production taxes, the Ukrainian production licence compliance issues and the continued low oil and gas prices, which, if realised, may impact the going concern status of the Company. These risks are fully addressed in Note 2 to the financial statements. However the Directors believe that there is a reasonable basis to mitigate the effects of such eventualities through negotiation with the Ukrainian Government, further operational and cash management measures and other restructuring or refinancing options, which are currently being assessed.

During our short period in office we have conducted an initial review of the Group's assets, and the Board believes that JKX assets and staff provide a good platform to consolidate and improve on its existing oil and gas opportunities in central and eastern Europe.

It is true that the Board inherited many difficult challenges, but this is why we believed that change was so desperately needed. We remain committed to a transparent approach that actively engages all shareholders and other stakeholders of the Company and you will have already seen the first of what will be regular operational updates. We are confident that we will be able to turn JKX around.

Finally, I wish to thank all our shareholders and staff for their support of the Company and the new Board in this period of change. I look forward to working with all stakeholders to restore the value of the Company over the coming months.

Paul Ostling

Chairman

CHIEF EXECUTIVE'S STATEMENT

A fresh perspective

Late in 2015, JKX became the target of shareholder activism on the London Stock Exchange. We saw what appeared to be a company stuck in a rut rather than having a clear strategy to resolve the myriad external challenges it faced in today's political and market environment. The Board that shareholders appointed on 28 January 2016 will actively address these challenges and return your company's focus to oil and gas development.

The new Board and I plan to make JKX an example of successful shareholder activism on the London Stock Exchange. We are true believers in shareholder rights and believe shareholder voices must be heard.

Over the last 10 years, your company has invested in excess of $925 million in oil and gas field developments and generated cumulative operating cash flows of approximately $1.1 billion, with $12.8 million generated in 2015.

This has been achieved without drilling a new well in Russia and without utilising latest generation drilling and completion techniques at our Ukrainian fields. This implies exciting geological potential for both. Hungary has also become more strategic to the Group in 2015 with the addition of six new production licenses.

Performance

We were not participants in the Company's performance in 2015, but we are responsible for reporting the financial results to you. As such, we will stick to some simple facts.

Average oil and gas production for the year decreased by 9% to 8,996 boepd (2014: 9,919 boepd), primarily due to the suspension of all non-essential capital investment in Ukraine, and no production from well-27 in Russia until December, due to repairs.

Group revenue for the year was 39% lower at $88.5m (2014: $146.2m) as a result of lower oil, gas and condensate prices in Ukraine and Russia, which followed international pricing trends, exacerbated by the decline in production.

Operating loss before exceptional charges was $10.7m (2014: profit $11.6m) and loss for the year was $81.5m (2014: $79.5m).

Ukraine

In Ukraine, we exited 2015 with production at 4,210 boepd and averaged 4,325 boepd for the year, down 10% from 2014. No wells were drilled as capital expenditure was suspended, however the natural decline in production was slowed by workover and well-intervention operations.

Russia

At our Koshekahblskoye field in southern Russia, we exited 2015 at 7,271 boepd, and averaged 4,671 boped for the year, down 9% from 2014 due to well-27 not contributing for most of the year.

The two-year project to restore production to well-27 was completed in December 2015, improving the 2015 exit production as a result. To date, insurance recoveries related to these restoration costs have been approximately $6.1m.

Russian operations are today stable and we will assess the economics of further development opportunities in Russia in comparison to the rest of the company's portfolio of capital investment opportunities.

Rest of World

Hungary and Slovakia saw expansion of acreage under licence in 2015. JKX now has a 100% interest in six production licences in Hungary covering an area of 200 sq km, and a 25% interest in four exploration licences in Slovakia covering 1,376 sq km. We will assess the economics of further development opportunities in Hungary and Slovakia in comparison to the rest of the company's portfolio of capital investment opportunities.

Reporting and exceptional charges

Within the rules of International Financial Reporting Standards ('IFRS'), we will try to give the most open explanation of risks and potential liabilities as we can, and report performance, failures and major risks as they arise. We will also tell you what we can about our plans to overcome the Company's many challenges.

Through our regular frank and open communications we hope to rebuild investor confidence and trust in JKX with both current and future shareholders.

In 2015, we have recognised an impairment charge of $51.1m on the carrying value of our oil and gas assets; $49.6m of which relates to our Novo-Nikolaevskoye Complex of fields in Ukraine. The charge arises mainly due to the impact of lower international oil and gas prices on our asset valuations and also due to the increase in the discount rate used for our Ukrainian projects, reflecting heightened economic uncertainty there.

We have identified several potential liabilities relating to production taxes in Ukraine for certain periods since 2007, which we believe could have been more clearly communicated to shareholders. Including amounts arising in the second half of 2015, these potential liabilities total $41m and are being actively contested by the company, as described in more detail in Note 27 to the financial statements.

Due to a recent judgement against our Ukrainian subsidiary, Poltava Petroleum Company ('PPC'), in the High Administrative Court of Ukraine in respect of one of these cases, a $10.9m provision has been recognised to reflect our estimate of the potential liability. The Board believes that these claims are without merit under Ukrainian law and we will continue to contest them vigorously.

An exceptional charge of $3.0m has also been recognised for the legal costs of our two major shareholders, Eclairs and Glengary, which the Company will have to pay as a result of the finding against the Company by the Supreme Court of the United Kingdom that the restrictions placed on these shareholders in 2013 were invalid.

Outlook

As long as the current board and I are managing your company, we will stick to a few basic management and communication principles:

A. Transparent reporting of financial performance, as well as challenges and major risks to our business. We will treat the market as our partner, 'Mr. Market'. We will tell our partner what we are thinking as well as our IFRS reporting, and let the share price take care of itself over time.

B. Rational capital allocation based on predicted economic return. No investments which are dependent on multiple expansion, market perception, or an unknown future buyer for positive return.

C. We will manage our operations and field development based on 'what's possible' in the world of petroleum engineering, physics, and execution. Not based on what happened last year or what the drilling equipment that we acquired years ago can do. By targeting maximum engineering performance, and dealing with the local and technical shortcomings as they arise, we create a world-class performance organisation.

Ukraine

In Ukraine, our immediate focus is to re-evaluate the Field Development Plan with global best practices in mind and particularly those practices that have successfully driven the unconventional oil and gas revolution in North America, where production gains were made in geology more challenging than our own.

Once we have identified what's possible, we will work quickly to find the combination of talent, technology, and engineering that's right for our fields. The team at PPC is talented and motivated; the staffs are fully committed to establishing themselves as the clear technical, operational and development leader in Ukraine.

Russia

In Russia, we will maximise the cash generation from the asset, while reviewing strategic options, including additional development and monetisation options. We are conducting this exercise while challenging ourselves and the local service industry to target international norms for deep, HTHP gas well construction and completion in southern Russia. Our historic well workover costs are many times higher than similar wells in North America and we will understand why that is the case and what we can do about it before spending significant additional capital in the field.

Rest of World

In Hungary and Slovakia, we will rebuild the Field Development Plan using best global practices and then adapt that goal for local execution. Attracting world-class services and reasonably priced capital requires scale, which is what we will have in mind while reviewing strategic opportunities in eastern Europe as well.

Finally, I wish to thank our staff for their dedication and support of the new Board and I look forward to updating all shareholders in more detail in the coming weeks on our strategy to restore shareholder value at JKX.

Tom Reed

Chief Executive Officer

FINANCIAL REVIEW

Echoing the sentiments of your new Chairman and Chief Executive Officer, I would like to add that it is an honour to have been appointed by shareholders at the General Meeting on 28 January 2016 and I look forward to working with the new Board and the rest of the Company's employees to enhance performance and restore value to JKX.

Results for the year

The Company's financial performance for 2015 has been severely impacted by the deteriorating economic conditions and geopolitical situation in Ukraine compounded by decline in oil and gas prices and the deterioration of local currencies where the Group operates.

The Group recorded a loss for the year of $81.5m (2014: loss $79.5m) after exceptional charges of $64.9m which comprised:

· a non-cash impairment charge of $51.1m (2014: $69.1m) for the Group's oil and gas assets;

· a provision of $10.9m recognised as a result of a recent judgement against our Ukrainian subsidiary in respect of one of the rental fees cases (see Note 27 to the consolidated financial statements); and

· a provision for legal costs of $3.0m (including interest) (2014: nil) to be reimbursed as a result of the judgement of the Supreme Court which allowed an appeal by Eclairs Group Limited ("Eclairs") and Glengary Overseas Limited ("Glengary") and their nominees against the Court of Appeal's judgment that the voting restrictions placed on them on 31 May 2013 by the Company were valid. 

In 2014, an exceptional charge of $3.5m as a result of one-off costs incurred in Russia to kill well-27 was recognised in addition to non-cash impairment of $69.1m.

Loss for the year before exceptional charges was $25.8m (2014: loss $22.0m).

Revenue

Group revenues in 2015 from Ukraine and Russia were down 39% and 41% respectively (see table) versus the previous year, a fall of $57.7m in total.

Gas sales

Gas sales volumes in Ukraine were 8.9% lower at 3,171 boepd (2014: 3,481 boepd) as a result of reduced gas production to 3,503 boepd (2014: 3,854 boepd), an inability to sell normal levels of gas in January and February 2015 (due to restrictions imposed by the Ukrainian Government), and the suspension of all drilling activity in Ukraine until the investment climate improves (a company policy which is currently under review).

Whilst the gas price increased by 62% from an average of 4,271 UAH per Mcm in 2014 to 6,924 UAH per Mcm in 2015, US Dollar gas realisations in Ukraine declined 23.0% from $9.93/Mcf to $7.65/Mcf due the devaluation of the Hryvnia from an average of UAH12.0/$ during 2014 to an average of UAH22.3/$ during 2015. Before introduction of a new law on the Ukrainian gas market on 1 October 2015, the state regulator made periodic adjustments for Hryvnia/$ exchange rate fluctuations which impacted gas realisations. From 1 October 2015, these periodic adjustments ceased and gas prices have followed market trends.

Gas sales volumes in Russia were 8.6% lower at 4,301 boepd (2014: 4,706 boepd). Average gas realisations dropped by 35.4% from $2.60/Mcf to $1.68/Mcf mainly due to the devaluation of the Russian Rouble from an average of RR38.6/$ in 2014 to an average of RR62.0/$ in 2015. The effects of the Rouble devaluation partially offset the 7.5% increase in Rouble-denominated gas realisations in Russia from 1 July 2015.

The combination of lower realisations in Russia and Ukraine resulted in an overall average reduction in gas realisations of 26.8% to $4.20/Mcf (2014: $5.74/Mcf).

Oil sales

Oil sales volumes were 22.3% lower at 777 boepd (2014: 1,000 boepd) as a result of the lack of capital investment in 2015 and the expected decline in production volumes from the mature Novo-Nikolaevskoye group of fields in Ukraine. More recently commenced production from the Elizavetovskoye field development in Ukraine is predominantly gas.

Average Group oil realisations were 45.2% lower at $49.75/bbl (2014: $90.79/bbl), in line with the significant drop in international oil prices.

Liquefied Petroleum Gas ('LPG') sales

The $4.9m decline in LPG revenues was due to lower production volumes combined with a reduction in the domestic market price of 45.1% to $442.6/tonne (2014: $807/tonne), resulting from increased competition through both imports and other domestically produced supplies.

Loss from operations

The loss from operations was $75.6m which included exceptional charges of $64.9m.

Loss from operations before these exceptional charges was $10.7m (2014: profit $11.6m) which was the result of the $57.7m decrease in revenues being only partially offset by a decrease in cost of sales of $32.6m, a decrease in administrative expenses of $2.0m and a decrease in loss on foreign exchange of $0.8m.

The $32.6m decrease in cost of sales (before exceptional charges), to $76.8m (2014: $109.4m), is mainly due to decreases in:

· Russian operating costs of $3.4m (a decrease of 22.4% from 2014)

· Ukrainian operating costs of $2.3m (a decrease of 18.7% from 2014)

· Ukrainian oil and gas inventory movements and product purchases of $1.5m

· a reduction in the depreciation, depletion and amortisation ('DD&A') charge of $6.3m

· production based taxes of $19.3m, predominantly related to Ukraine

· offset by an increase in Rest of World costs of $0.2m.

The decrease in Russian operating costs of $3.4m is largely due to lower field support activities and related costs, and lower property tax payments due to the reduced value of the Russian assets used for property tax purposes. Additionally, the Rouble devaluation from an average of RR38.6/$ to an average of RR62.0/$ reduced the US Dollar reported cost base for Russia throughout the year.

Ukrainian operating costs decreased by $2.3m, mainly due to suspended drilling activity, reduction in staff and the effects of Hryvnia devaluation from an average of UAH12.0/$ to an average of UAH22.3/$.

Ukrainian sales from inventory and product purchases decreased by $1.5m to a gain of $0.4m (2013: charge $1.1m), as a result of production meeting sales demand throughout the year, thus reducing the need to purchase additional gas to meet sales commitments.

The DD&A charge reduced by $6.3m, largely as a result of lower production. The Group's depletion rate reduced to $7.94/boe (2014: $8.93/boe) following lower asset carrying values resulting from impairments recognised in Ukraine and Russia in 2014. 

Production taxes

Excluding the $10.9m exceptional charge for Ukrainian production based taxes from 2010 (see below), other production based taxes for the Group decreased by $19.3m (or 42.4%) to $26.2m (2014: $45.5m), mainly as a result of lower gas production tax rates applied due to the Interim Award of the Arbitration Case (see "Other Taxation - Ukraine"), lower production in Ukraine and the devaluation of the Hryvnia (see "Other Taxation - Ukraine" section for details).

Average gas production tax in Ukraine decreased from $124.4/Mcm to $83.4/Mcm and average oil production tax decreased from $34.9/bbl to $21.6/bbl.

In Russia, average gas production tax decreased from $11.4/Mcm to $5.3/Mcm in 2015 due to implementation of a new Mineral Extraction Tax regime from 1 July 2014 (see "Other Taxation - Russia").

The various factors listed above contributed to the Group's effective gas production tax decrease from $12.57/boe to $8.00/boe.

Other taxation - Ukraine

On 1 April 2014, the Ukrainian government increased production tax rates for gas from 25% to 28%. This rate was then applied to the actual average import price for gas as communicated by the Ministry of Economic Development and Trade of Ukraine. The oil tax rate at this time remained constant at 39%.

On 1 August 2014, the Ukrainian government passed emergency budget legislation to increase the gas production tax rate from 28% to 55% of the maximum gas price published monthly by the Ministry of Economy. Oil tax rates also increased from 39% to 45% from 1 August 2014.

In December 2015 the Ukrainian Government passed legislation to reduce the gas production tax in Ukraine from 55% to 29% with effect from 1 January 2016. 

As part of the JKX's international arbitration against Ukraine in respect of overpaid production taxes (see Note 27 to the consolidated financial statements), the Group applied for interim measures under the bilateral investment treaties that exist between Ukraine and the United Kingdom and the Netherlands, respectively, to reduce the rate of production tax applicable to our Ukrainian subsidiary, Poltava Petroleum Company ('PPC'). On 23 July 2015, an international arbitration tribunal issued an Interim Award requiring the Government of Ukraine to limit the collection of rental fees on gas produced by PPC, to a rate of 28%. The Interim Award, which is binding on Ukraine as a matter of international law, will remain in effect until the final ruling which will be issued following the arbitration hearing which is expected to take place in July 2016.  

Other taxation - Russia

A new mineral extraction tax ('MET') formula was implemented from 1 July 2014. The gas and condensate MET rate applicable in 2015 was 305 Roubles/Mcm (2014: 409 Roubles/Mcm). The formula is based on gas prices, gas production as a share of total hydrocarbon output and complexity of gas reservoirs (depletion rates, depth of the producing horizons and geographical location of producing fields). Our Russian subsidiary, Yuzhgazenergie LLC ('YGE'), is entitled to a 50% discount based on the depth of gas reservoirs.

In addition to production taxes, YGE is subject to a 2.2% property tax which is based on the net book value of its Russian assets as calculated for property tax purposes. This amounted to $1.5m in 2015 (2014: $2.5m). This amount is included in other cost of sales in the consolidated income statement.

Administrative expenses and foreign exchange

The Group's administrative costs decreased by $2.0m to $17.5m (2014: $19.5m) during the year largely due to:

· a decrease in group staff costs of $2.2m and other costs of $2.1m mainly as a result of significant devaluation of local currencies (Hryvnia and Rouble) against the US Dollar;

· offset by a $2.3m increase in legal and professional fees incurred as a result of the international arbitration (see Note 27 to the consolidated financial statements).

Foreign exchange losses were recognised at $4.9m (2014: $5.7m loss) due to the Rouble and Hryvnia devaluations previously noted. Included in foreign exchange loss is the cost of $1.5m associated with the conversion and repatriation of dividends of $10.0m from Ukraine to the UK. During 2014 the National Bank of Ukraine ('NBU') issued a decree which imposed currency convertibility and repatriation restrictions, initially until 1 December 2014, later extended to 2 March 2015, 3 June 2015, 3 September 2015, 4 March 2016 and subsequently to 8 June 2016. The currency controls severely restrict the group's ability to make cash transfers out of Ukraine. JKX received an award from the Tribunal ordering Ukraine to convert and repatriate dividends to the UK however the NBU declined to process the application.

Net finance charges

Finance costs have increased by $3.3m to $6.5m (2014:$3.2m) comprising convertible bond interest of $6.5m. In 2014 interest of $3.0m was capitalised in respect of borrowings used to construct property, plant and equipment which was completed in 2014.

The $1.9m charge (2014: $9.1m credit) for the fair value movement on the derivative liability represents the change in fair value of the conversion option associated with the convertible bond. The bonds have a conversion option which becomes more valuable to the bond holder as the Company's share price nears or exceeds the fixed conversion strike price (76.29 pence). As the Company's share price has increased from 12.00 pence at 31 December 2014 to 27.25 pence at 31 December 2015 and the probability of the conversion option has increased, a charge has been recognised that represents the increase in fair value of the potential liability of the Company to settle any conversion options that may be exercised in future periods.

Finance income comprising income from bank deposits increased by $0.2m to $1.3m (2014: $1.1m).

Earnings per share

Basic loss per share before exceptional items were 14.97 cents (2014: loss 12.76 cents) in line with the pre-exceptional loss. Basic loss per share after exceptional items was 47.32 cents (2014: loss 46.21 cents) reflecting the Group loss after exceptional items net of their related tax effects of $55.7m (2014: $57.6m).

Taxation

The total tax credit for the year was $1.2m (2014: $25.8m charge) comprising a current tax charge of $4.8m (2014: $9.5m) in respect of Ukraine, a deferred tax charge before exceptional items of $3.1m (2014: $31.2m) and a deferred tax credit of $9.2m in respect of exceptional items (2014: $15.0m).

The fall in current tax charge to $4.8m reflects lower profitability in Ukraine. In Ukraine, the corporate tax rate for 2015 was 18% and remains at this level for 2016.

 The total deferred tax credit of $6.1m (2014: $16.3m charge) comprises:

· a $2.1m credit reflecting the recognition of deferred tax assets in respect of Russian tax losses carried forward to future periods; and

· a net $4.0m credit (2014: $15.0m) relating to an impairment in Ukraine and other tax timing differences on our oil and gas assets in Russia and Ukraine.

Loss for the year after tax

The result for the year, after exceptional charges of $55.7m (net of deferred tax effects), was a loss of $81.5m (2014: loss of $79.5m). On a pre-exceptional basis, loss for the year was $25.8m (2014: $22.0m).

On a pre-exceptional basis, the $3.8m change is the combined result of:

· a $57.7m decrease in revenues (as noted above);

· a decrease in pre-exceptional cost of sales of $32.6m to $76.8m (2014: $109.4m) as a result of reduced operating costs, production taxes and a decrease in DD&A charges;

· a decrease in administrative expenses by $2.0m;

· a decrease in foreign exchange losses of $0.8m;

· an increase in net finance charges of $3.1m;

· a decrease in the result from business combinations of $0.2m to nil (2014: $0.2m);

· a $11.0m decrease in the fair value of the derivative attached to the convertible bond; and

· a $32.8m decrease in the taxation charge (before exceptional items).

Exceptional charges

Exceptional charges of $64.9m in the year consist of:

· a $51.1m impairment charge against our oil and gas assets;

· a provision of $10.9m to cover potential liabilities of production based taxes following the recent court hearing in Ukraine, and

· $3.0m charge relating to reimbursement of legal costs to Eclairs and Glengary as a result of the Supreme Court decision.

The impairment charge for the year of $51.1m comprises:

· $49.6m in respect of Novo-Nikolaevskoye Complex in Ukraine (see Note 5 (d) to the consolidated financial statements) mainly as a result of the sharp decline in international oil and gas prices and an increase in the discount rate applicable to JKX's Ukrainian projects;

· $1.5m in respect of our Hungarian oil and gas assets due to the sharp decline in international oil and gas prices and the reduction in assessed contingent resources (see Note 5 (f) to the consolidated financial statements).

Cash flows

Cash generated from operations was lower at $12.8m (2014: $58.4m). This is a result of a $14.7m increase in the loss from operations, despite decreases of $6.8m and $18.0m in non-cash DD&A and impairment charges, respectively, an increase in other non-cash charges of $0.5m combined with $6.6m increase in cash outflow from changes in working capital (although this is largely a timing difference and compares with a working capital inflow of $15.6m in 2014).

Interest paid during the year comprised $3.0m (2013: $3.3m), mainly relating to financing charges on the convertible bond. Income tax paid in the year decreased to $0.7m (2014: $7.6m), due to lower profits earned by the Ukrainian subsidiary and the utilisation of prepaid tax in Ukraine at the end of last year.

Net cash generated from operating activities was lower at $9.1m (2014: $47.5m) as a result of the $45.6m reduction in cash from operations offset by a reduction of $6.9m in Ukrainian corporation tax payments and a $0.3m decrease in interest payments.

Net cash used in investing activities has significantly decreased to $1.9m (2014: $41.9m) mainly due to the reduced capital investment programme in both Russia and Ukraine. Investment in property plant and equipment, the largest component in investing activity cash flow, was $34.4m lower than the prior year at $5.6m (2014: $40.0m).

Cash inflow from held-to-maturity investments of $2.7m (2014: outflow $2.7m) comprises proceeds from Ukrainian government US$ treasury bills which matured in January and February 2015.

Net cash outflow from financing activities in the year mainly relates to redemption of bonds with a principal amount of $4.0m in addition to an early redemption premium of $0.2m on 19 February 2015 and a $1.5m repayment of the Credit Agricole working capital facility at PPC, which expired during the year.

No dividends were paid to shareholders in the year (2014: nil).

Cash

Cash at the end of the year (excluding restricted cash) was $25.9m (2014: $25.4m). The increase is as a result of an overall increase in cash and cash equivalents generated in the year of $1.6m (2014: $7.0m increase) driven by the reduced capital expenditure program, offset by the negative effects of foreign exchange on cash balances of $1.1m (2014: decrease $7.3m).

Liquidity

The Group employs a number of financial instruments to manage the liquidity associated with the Group's operations. These include cash and cash equivalents, together with receivables and payables that arise directly from our operations.

Separate from these, the main financial instrument of the Group is the $40 million guaranteed unsubordinated convertible bond which was placed in Q1 2013 with institutional investors which matures in 2018. The bonds have an annual coupon of 8 per cent per annum payable semi-annually in arrears. The bonds terms and conditions contain an annual put option each February until maturity. Bonds with a principal amount of $10m were redeemed on 19 February 2016 in addition to an early redemption premium of $0.9m, in accordance with the terms and conditions of the bond. This followed redemption of $4m in February 2015, together with an early redemption premium of $0.2 million. Further information on the terms and conditions of the bonds is included in Notes 13 and 14 to the consolidated financial statements.

Dividends

No dividends have been paid or proposed during the year, and the Board will not be recommending the payment of a dividend at the forthcoming AGM.

Outlook

As detailed in Note 2 to the financial statements, there remains a number of material uncertainties that may cast significant doubt about the Group's and Company's ability to continue as a going concern.

The financial position of the Company continues to suffer from the adverse economic conditions in Russia and Ukraine and the generally low oil and gas prices affecting similar companies around the world. The 2015 results have also been adversely affected by weakening local currencies.

The new Board, which was appointed on 28 January 2016 is assessing all possible avenues to optimise operations and financial returns and reduce costs wherever this can be done without risking the long-term viability of our assets or our health and safety obligations. We will identify non-core costs that can be reduced, operating efficiencies that can be implemented and focus our capital on revenue-generating assets.

In Ukraine, the restrictions on exchanging and repatriating dividends, the difficulties in attracting foreign investment and credit, the threats to a stable and transparent gas market and specific pressures on independent oil and gas producers will all continue to make decisions for investment difficult for JKX and other companies in the sector. However, the Company is firmly committed to Ukraine having been present there for more than 20 years with a highly experienced and committed workforce and we will endeavour to increase the cash generation capabilities of our resources in the country.

The returns on our Russian assets have been severely reduced due to the adverse economic conditions and the low gas tariffs. During 2015 the investment plans for Russia were halted and the new Board is considering whether to continue with this strategy. The operations, however, will be cash-flow positive in 2016 and we will utilise these cash resources for allocation throughout the Group.

This focus on reducing costs and implementing a robust capital allocation policy will ensure maximised cash flows from our assets and improvements to the Company's profitability and liquidity. I look forward to working with all the Group's employees to deliver on these promises.

Russell Hoare

Chief Financial Officer

OPERATIONAL REVIEW

Group production

In 2015, group production was adversely affected by Ukrainian government imposed restrictions on gas sales to industrial customers through to 28 February, which also disrupted the Ukrainian gas sales market in the months thereafter, and production constrained in the Koshekhablskoye field in Russia with wells 27 and 5 off-line for tubing replacement. Production increased from Q3 through to Q4 with sales restrictions lifted in Ukraine, a successful rigless intervention campaign and well-27 commencing production, as planned, late in 2015.

Group average production for 2015 was 8,996 boepd, comprising 48.7 MMcfd of gas and 872 bpd of oil and condensate, a 9% decrease on the average from 2014. Oil and gas production from our facility in Hungary remains suspended whilst development plans are reviewed and a farm-in partner is sought to participate in the further development of the Hajdunanas field.

Ukraine

Novo-Nikolaevskoye licences

Production

Average production from the Novo-Nikolaevskoye group of fields for 2015 was 2,611 boepd comprising 10.9 MMcfd of gas and 794 bpd of oil and condensate, a 20% decrease on the average for 2014.

Development drilling and other well activity

2015 saw no improvement in the investment climate in Ukraine and a decision was taken to cease all capital investment in the country, other than production optimization operations.

The Skytop N-75 rig is stacked in Ukraine on the Elizavetovskoye field pending new work. The TW-100 workover rig continued operations through 2015 with four abandonments and three workovers.

· Well recompletions in the period comprised re-running the completion in well IG-140 to facilitate entry of coil tubing to the horizontal section; resetting the completion in well IG-106 to permit additional perforations to be made; abandoning the horizontal section of M-169 and adding perforations at the top of the Devonian.

· Z-04 in the Zaplavskoye license, IG-79 and IG-140 in the Ignatovskoye license and M-31 in the Molchanvoskoye license were plugged and abandoned. Plans were in place to abandon R-12Z in the Rudenkovskoye field, however, the well was put on test prior to abandonment and had significant production. Consequently, the well has not been abandoned and will become a batch producer.

· Wireline operations have focussed on the clearance of wax and salt build up in the production tubing of a number of wells. A sustained programme in the period, particularly during the winter months, has ensured that oil production in particular has exceeded expectations. Additional wireline intervention included perforations in M-153 in Molchanovskoye and IG-138, IG-106, IG-137bis, IG-105 and IG-123 in Ignatovskoye.

· IG-140, IG-138 and IG-124Z on the Ignatovskoye field were acidized to increase production.

· A seismic rock physics, inversion and reservoir characterization study has started on the Novo Nikolavskoye group fields. The work is aiming to characterize the fluid types within the sands identified on seismic. The results aim to de-risk additional drilling locations.

Production facilities

Operations at the main production facility and the LPG plant continued smoothly throughout the year with routine work continuing on plant optimisation, re-routing flowlines to reduce back pressure, and wax clearance of flowlines to enhance production from the available well stock. The annual plant shut down was completed during May 2015.

Elizavetovskoye Production Licence

Production Licence extension

A westward licence extension to the Elizavetovskoye production licence to include the West Mashivske prospect was awarded in the second quarter of 2015. The licence is valid until 2034 and the additional area of 33.9 square kilometres brings the total area of the licence up to 104.7 square kilometres.

Production

Average production from the Elizavetovskoye field in 2015 was 1,715 boepd comprising 10.1 MMcfd of gas and 29 bpd of condensate, a 13.5% increase on the average in 2014. The relatively dry Elizavetovskoye wells E-301 and E-302 were used as swing producers throughout Q1 2015 to adjust gas export volumes to the market demand.

Drilling and development activity

There was no drilling activity on the Elizavetovskoye field during the year. However there are plans in place for additional development drilling on both the Elizavetovskoye and West Mashivske fields should the investment climate improve. The Skytop rig is stacked at the proposed E-305 drilling location.

Production facilities

The Elizavetovskoye production facility was upgraded at the end of 2014 to expand capacity and meet the recently revised hydrocarbon dew point specifications in the export pipeline. The K-3000 compressor was commissioned in early 2015 and is being used to ensure maximum possible input to the export line.

Zaplavskoye exploration licence activity

Work is continuing on the evaluation of the Visean V25/26 sandstone traps and the Devonian sandstone and Visean carbonate structural closures with the aim of working these up for future drilling should the economic climate change.

Russia

Koshekhablskoye licence

Production

Average production from the Koshekhablskoye field in 2015 was 4,670 boepd comprising 27.7 MMcfd of gas and 48 bpd of condensate, a 8.6% decrease on the average for 2014. The production figures remain lower than plant capacity due to the suspension of production from well-27 and well-05. Well-27 came back on line in December 2015.

Workover and well stimulation activity

Production from crestal well-20 in the period ranges from 14-18 MMcfd subject to three routine acid treatments using coiled tubing during the year. The north flank well-25 has been producing 8-12 MMcfd, with two routine acid treatments. The deep east-flank well-15 cycles between 0.9 MMcfd and 1.5 MMcfd, with fluid build-up being cleared periodically.

The well-27 tubing replacement was completed, as planned, in Q4 2015. Production has been restored and acid treatments are planned for 2016.

Production Facilities

Average production over the period of 27.7 MMcfd allowed the Gas Processing Facility ('GPF') to operate comfortably within its current design capacity of 40 MMcfd.

The plant was shut down for ten days in September 2015 to complete the modifications required to increase the plant capacity to 60 MMcfd. This involved changes to a number of the vessels, replacement of some valves and pipework and improvements to the operating procedures.

Licence obligations

The obligation to re-enter and sidetrack well-09 to re-drill the full Callovian reservoir sequence and, if successful, test the Callovian V unit, has been deferred until 2019.

Hungary

Licences

JKX now operates six production licences (Mining Plots) covering a total of 200 sq km in North Eastern Hungary. This follows the exploration licence exchange which HHE completed in 2014. JKX operates these areas with 100% equity.

Hajdunanas field

Production from the Hajdunanas and Gorbehaza fields  was suspended in 2013 by the operator at that time. JKX has since taken 100% interest in the fields and is currently reviewing plans to sidetrack the watered out Hn-2 well and continues to seek a farm-in partner to participate in the further development of the field.

Exploration and appraisal

Hernad licences

The Hernad I & II Exploration Licences expired in April 2015 and JKX (100%) submitted six mining plot applications to cover known hydrocarbon accumulations in the licences. By year end JKX had received approval for five of the Mining Plots; Tiszavasvari IV, Hajdunanas IV (extension), Hajdunanas V, Emod V and Jaszkiser II. The sixth Mining plot, Pely I was approved on 4 January 2016.

These mining plots will enable JKX to carry out appraisal and development activity over a 35 year period.

JKX is currently seeking a farm-in partner, or partners, to participate in this activity.

Turkeve IV Mining Plot

JKX holds a 50% beneficial interest in part of the Turkeve IV Mining Plot that includes the productive area around the Ny-7 well. However, the high CO2 content has prevented direct access to the pipeline network and the operator is developing a mechanism to lower the CO2 content to an acceptable level.

Slovakia

Exploration

JKX holds a 25% equity interest in the Svidnik, Medzilaborce, Snina and Pakostov exploration licences in the Carpathian fold belt in north east Slovakia. The Pakostov Licence was acquired in 2016, as protection acreage following encouraging prospect mapping, and covers 128 sq km. The total area of the four licences is 1,376 sq km.

Several prospects were matured by the Operator, DiscoveryGeo, and the Joint Venture approved a three well exploration programme in November. Location construction work started in December at all three well sites (Smilno, Poruba and Kriva Ol'ka).  The first well, Smilno-1, is expected to spud in the first quarter of 2016 and the other two wells will be drilled as part of the same drilling programme.

JKX Reserves & Resources

Consultants DeGolyer & MacNaughton ('D&M') completed their evaluation of the 2014 JKX reserves and resources position. This was used as the basis of the 2015 reserves evaluation carried out by JKX. The reserves and resources disclosed below in respect of 31 December 2015 have not been independently audited.

P+P (2P) Reserves 

Proved and Probable (2P) group reserves reduced from 97.7 MMboe at year end 2014 to 95.7 MMboe at year-end 2015. The changes are shown on a field by field basis in the table below:

JKX P+P+P (3P) Reserves 

D&M also carried out a full assessment of the upside potential in each field, the "Possible" reserves. The possible reserves have been updated by subtracting production from last year's 3P number and re-calculating the Possible reserves. The one exception is Novo-Nikolaevskoye field where the 2P reserves this year now exceed the 3P reserves evaluated by D&M. These possible reserves are shown below together with the total 2P reserves for each field:

JKX Contingent Resources 

Except for some minor revisions to Hernad, no changes have been made to the contingent resources since 2014 year end. These contingent resources are those volumes of hydrocarbons which are potentially recoverable from known accumulations but which are not currently considered to be commercially recoverable. The categories of 1C, 2C or 3C are used to reflect the range of uncertainty. These contingent resources are tabulated below.

JKX Prospective Resources 

D&M evaluated JKX's exploration potential at the end of 2014 and categorised the potential resources of the undrilled prospects in the Company's portfolio. There are no changes to the D&M work in Ukraine, however, an additional prospect, SW V25 Amplitude, can be added as D&M's work was completed prior to the Zaplavskoye license extension thus excluding this prospect. JKX has also identified a further opportunity to the north east of the Molchanovskoye license, NE Mol V25 Stratigraphic Sand. The three wells planned in Slovakia are also now included in the Prospective Resources category. Undrilled prospects inevitably carry an element of technical risk and it is usual to summarise them under unrisked potential and risked potential resources. It should be noted that less well defined leads and prospects with little expectation of being drilled are excluded from such a list.

1Probability of economic success

PRINCIPAL RISKS AND UNCERTAINTIES

The Board has completed a robust assessment of the most significant risks and uncertainties which could impact the business model, long-term performance, solvency or liquidity, and the results are summarised below.

The principal risks set out below are not set out in any order of priority, are likely to change and do not comprise all the risks and uncertainties that the Group faces.

DIRECTORS' RESPONSIBILITY STATEMENT ON THE ANNUAL REPORT

The responsibility statement below has been prepared in connection with the Company's full annual report for the year ended 31 December 2015. Certain parts thereof are not included within this announcement.

Each of the Directors confirm that, to the best of their knowledge:

· the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

· the Directors' report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces;

· the Annual Report and financial statements, taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's performance, business model and strategy;

· so far as the Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and

· he or she has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

The responsibility statement was approved by the Board of directors on 18 March 2016 and is signed on its behalf by:

Tom Reed Russell Hoare

Chief Executive Officer Chief Financial Officer

Consolidated income statement

for the year ended 31 December

Consolidated statement of comprehensive income

for the year ended 31 December

Consolidated statement of financial position

as at 31 December

Consolidated statement of changes in equity

Consolidated statement of cash flows

for the year ended 31 December

1. General information

The consolidated financial information for JKX Oil & Gas plc (the 'Company') and its subsidiaries (together 'the Group') set out in this preliminary announcement has been derived from the audited consolidated financial statements of the Group for the year ended 31 December 2015 (the 'financial statements'). The auditors have reported on the 2015 financial statements and their reports were unqualified and did not contain statements under s498(2) or (3) Companies Act 2006. The auditors' report on the 2015 financial statements, whilst unqualified, contained an emphasis of matter which drew attention to the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern, for further details see Note 2. The auditors' report on the 2014 accounts also contained an emphasis of matter which drew attention to the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern.

The 2015 Annual Report was approved by the Board of Directors on 18 March 2016, and will be mailed to shareholders in April 2016. The financial information in this statement is audited but does not have the status of statutory accounts within the meaning of Section 434 of the Companies Act 2006.

Full accounts for JKX Oil and Gas plc for the year ended 31 December 2014 have been delivered to the Registrar of Companies. The auditors' report on the full financial statements for the year to 31 December 2014 was unqualified and did not contain statements under Section 498 (1) (regarding adequacy of accounting records and returns), or under Section 498 (3) (regarding provision of necessary information and explanations) of the United Kingdom Companies Act 2006.

2. Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted for use in the European Union. The accounting policies used by JKX Oil and Gas plc (the 'Group',) are consistent with those set out in the 2014 Annual Report. A full list of accounting policies will be presented in the 2015 Annual Report.

Going concern

The majority of the Group's revenues, profits and cash flow from operations are currently derived from its oil and gas production in Ukraine, rather than Russia.

Throughout 2015 the decline in international oil and gas prices has significantly lowered oil and gas net realisations from JKX's Ukrainian operations. The prolonged period of low international oil and gas prices has continued in 2016, further adversely affecting the financial results of the Group, and will continue to do so if prices do not recover.

If all of the Bondholders exercise their put option in February 2017, the Company will have an obligation of $30.1 million (consisting of $26 million principal, $1 million interest and a redemption premium of $3.1 million), which will become payable at that time. If some or all of the Bondholders do not exercise this option and the Bonds expire at their full term in February 2018, an obligation of up to $31.1 million will become payable, the amount being dependent on the number of remaining Bonds that were not put in February 2017.

The Company's Ukrainian subsidiary, Poltava Petroleum Company ('PPC') has three contingent liabilities arising from separate court proceedings over the amount of production taxes ('Rental Fees') paid in Ukraine for certain periods since 2007, which in total amount to approximately $41 million (including interest and penalties, see Note 27 to the consolidated financial statements). The Board believes that these claims are without merit under Ukrainian law and will continue to contest them vigorously.

Also in relation to Rental Fees, the Company continues to pursue a final award under its arbitration claim against Ukraine for the overpayment of more than $180 million of Rental Fees, in addition to damages to the business. This international arbitration is expected to be heard in July 2016.

Following action initiated in late 2015, in January 2016, the State Geology and Mineral Resources Survey of Ukraine suspended four subsoil use permits owned by PPC, initially with effect from 1 February 2016, but then with an extension period until 1 March 2016. The authority gave a list of actions that were required in order to avoid suspension (including a change to the minimum production requirements under the licences) and would normally have given the operator sufficient time to remedy the failings. Instead PPC were given only one month to do so. Through further discussion with the relevant authority, PPC has been given more time to comply and hearings regarding the status of the licenses are planned for March 2016, at which the Board and PPC is confident of a positive outcome.

The Directors have concluded that it is necessary to draw attention to the potential impact of (i) gas and/or oil net realisations remaining at current levels for the foreseeable future or deteriorating materially (ii) the full $30.1 million obligation pursuant to the $40 million Convertible Bond becoming payable in full in February 2017 (iii) the Group becoming liable for additional Rental Fees in Ukraine as a result of unfavourable outcomes in one or more of the ongoing court proceedings and (iv) the Group's Ukrainian subsoil permits being suspended by the State Geology and Mineral Resources Survey of Ukraine. It is unclear whether any or all of these risks will be realised but they are material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern.

However, based on the Group's cash flow forecasts, the Directors believe that the combination of its current cash balances, expected future production and resulting net cash flows from operations, the implemented cost reductions as well as the availability of additional courses of action with respect to financing, mean that it is appropriate to continue to adopt the going concern basis of accounting in preparing these financial statements. These financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

3. Segmental analysis

The Group has one single class of business, being the exploration for, evaluation, development and production of oil and gas reserves. Accordingly the reportable operating segments are determined by the geographical location of the assets.

There are four (2014: four) reportable operating segments which are based on the internal reports provided to the Chief Operating Decision Maker ('CODM'). Ukraine and Russia segments are involved with production and exploration; the 'Rest of World' are involved in exploration, development and production and the UK is the home of the head office and purchases material, capital assets and services on behalf of other segments. The 'Rest of World' segment comprises operations in Hungary and Slovakia.

Transfer prices between segments are set on an arm's length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment results include transfers between segments. Those transfers are eliminated on consolidation.

Segment results and assets include items directly attributable to the segment. Segment assets consist primarily of property, plant and equipment, inventories and receivables. Capital expenditures comprise additions to property, plant and equipment and intangible assets.

There are 2 (2014: 1) customers that exceed 10% of the Group's total revenues, one in Ukraine and one in Russia.

4. (a) Property, plant and equipment

*No finance costs have been capitalised within oil and gas properties during the year (2014: $3.0m), weighted average interest rate for 2014 was 18.0 per cent.

Oil and gas fields in Russia include $3.5m relating to items under construction (2014: nil). 

Exceptional item - well control operations

During 2014, due to unexpected pressure building in the annulus of well-27 at our Koshekhablskoye field in Russia, the well was diverted to the flare pit and a coiled tubing unit was mobilised to kill the well. This operation was completed successfully. The cost of these well control operations was $3.5m which has been charged to the income statement in 2014.

Exceptional item - provision for impairment of oil and gas assets

During both 2014 and 2015 impairment triggers were noted in respect of our oil and gas assets in Ukraine, Russia and Hungary. Impairment tests were completed resulting in impairments of $51.1m (2014: $69.1m) comprised of $49.6m (2014: $12.8m) in respect of our Ukrainian oil and gas fields, nil (2014: $46.3m) in respect of our Russian gas field, $1.5m (2014: $3.7m) in respect of our Hungarian oil and gas fields and nil (2014: $6.3m) in respect of our Hungarian exploration and evaluation costs (see Note 4 (b)).

Full impairment disclosures for each of the impairment tests are made in Notes 4 (c), (d), (e) and (f).

4. (b) Intangible assets: exploration and evaluation expenditure

4. (c) Impairment test for property, plant and equipment

A review was undertaken at the reporting date of the carrying amounts of property, plant and equipment to determine whether there was any indication of a trigger that may have led to these assets suffering an impairment loss. Following this review impairment triggers were noted in relation to the Ukrainian assets (see Note 4 (d)) and the Hungarian assets (see Note 4 (f)). In respect of Yuzhgazenergie LLC ('YGE') in Russia, impairment triggers were noted in 2014 and a full impairment review was completed, however no impairment triggers were noted in 2015 (see Note 4 (e)).

As there is no readily available market for the Group's oil and gas properties, fair value is derived as the net present value of the estimated future cash flows arising from the continued use of the assets, incorporating assumptions that a typical market participant would take into account.