JKX.L Regulatory News (JKX)

JKX Oil & Gas plc

INTERIM MANAGEMENT STATEMENT

FOR THE FIRST QUARTER ENDING 31 MARCH 2014

Highlights

· Production from new Elizavetovskoye field in Ukraine commenced in January with flow rates from the first two carbonate reservoir wells exceeding expectations. First well targeting underlying sandstone reservoir is scheduled to spud this month.

· Expansion programme initiated to double Elizavetovskoye plant capacity to 30 MMcfd with completion planned third quarter.

· Successful drilling and completion of development well NN-80 well in the Novo-Nikolaevskoye field in Ukraine.

· Production from Koshekhablskoye field in Russia constrained to 5,000 boepd due to tubing issues in two wells.

· Work on-going to increase the Koshekhablskoye plant capacity to 60 MMcfd by year-end.

JKX Chief Executive, Dr Paul Davies, said:

"The first quarter of the year has seen the start-up of production on the Elizavetovskoye field in Ukraine with excellent results from the first two carbonate wells. We are about to spud the first Elizavetovskoye sandstone well and are seeking to mobilise a second rig to accelerate the drilling programme on the field. In parallel, we are proceeding with the next stage of plant expansion to process the predicted increase in production. The on-going development and appraisal programme on the core Novo-Nikolaevskoye complex is proceeding on schedule with a good production result from the NN-80 well last month and the recently completed well IG-141 currently under test.

"In Russia, production is constrained to around 80% of base capacity by tubing issues in two wells which will be rectified as soon as a suitable rig is mobilised.

"Oil, gas and LPG prices in Ukraine remain strong, although gas realisations have been affected by devaluation of the Ukrainian hrivnya in the period. We anticipate gas realisations in Russia to move slightly higher after the mid-year. Despite the difficult political situation in the east of the country, our operations and commercial activity in Ukraine continue to be unaffected."

For further information please contact:

Anthony Cardew / Nadja Vetter / Lauren Foster, Cardew Group T: 020 7930 0777

Operations

Production

Ukraine: Average production in the first quarter was 4,653 boepd comprising 22.0 MMcfd of gas and 986 bpd of oil and condensate, with LPG sales averaging 33.0 tonnes per day. Production was enhanced by the start-up of the Elizavetovskoye field in January and its second well coming on-stream in March.

Russia: Production at the Koshekhablskoye field was lower in the first quarter as tubing leaks in wells 27 and 05 forced their shut-in until repairs can be effected. Average production was 5,582 boepd comprising 33.2 MMcfd of gas and 45 bpd of condensate.

Hungary: There was no production from the Hajdunanas Field in the first quarter as a result of 2013 water breakthrough to the existing perforations.

Outlook: We anticipate average production in the second quarter to be approximately 10,000 boepd.

Ukraine

Elizavetovskoye Field Start-up and Upgrade:

The Elizavetovskoye early production facility was completed at the end of 2013 and took first gas from the E-301 well in January 2014; the second well E-302 was completed in March. Both wells produce from the Permian A2 carbonate reservoir with initial rates of around 6 MMcfd and 14 bpd condensate. The Skytop N-75 rig has now returned to the field and the third well, targeting the deeper Carboniferous G7-12 sandstone reservoirs, will spud imminently.

The 145 sq. km 3D seismic programme was completed in early March. Processing and preliminary interpretation are due for completion by early July - in good time to select bottom hole locations for further drilling in 2014.

In parallel, the EPF is being upgraded to double its capacity from 15 MMcfd to 30 MMcfd and to cater for the recently revised hydrocarbon dew point specifications in the export pipe line. These modifications should be completed in the third quarter and compression will also be installed later in the year.

Novo-Nikolaevskoye Fields Development and Workover Activity:

The Skytop rig moved to the Novo-Nikolaevskoye area to start drilling operations in mid-March while the TW-100 workover rig carried out two re-completions, one well repair and three abandonments in the period.

The first well drilled was the 1,794m NN-80 targeting the upper V-15 Visean sandstone. Results were better than expected and the initial flow rate was 4.98 MMcfd with 51 bpd condensate. The Skytop rig has recently completed drilling the IG-141 appraisal well targeting the Devonian sandstone in a downthrown fault block on the northern flank of the Ignatovskoye field and the well is currently under test. The rig has now re-located to the Elizavetovskoye field but is scheduled to return to the Novo-Nikolaevskoye area for further appraisal drilling later in the year.

Workovers using the TW-100 rig in the early part of the period included re-running the completion in wells M-170 and IG-129 to allow for additional perforations in the Devonian sandstone and the Tournaisian T2 sandstone respectively. The rig also carried out an earlier tool string recovery operation in well M-170 and plugged and abandoned wells M-163, M-164 and M-168 on the Molchanovskoye field.

Facilities: Operations at the main production facility and the LPG plant continued smoothly through the period. Work continues on plant optimisation, re-routing flow lines to reduce back pressure, and wax clearance to enhance production from the available well stock.

Exploration: Preliminary interpretation of the new Zaplavskoye 3D data is complete and a number of targets are under consideration for drilling in 2015. The application process to extend the licence for an additional 5 year term has commenced.

Elizavetovskoye Licence: The application process to convert the existing exploration licence to a 20 year production licence has commenced.

Russia

Production and Workover Activity:

Production operations at the Gas Processing Facility ('GPF') have been incident-free throughout the first quarter with the lower than expected gas production.

As reported previously, drifting of the tubing in well-05 indicated an obstacle at around 2,600m which appears to be a damaged tubing connection. The well has been suspended and the tubing will be replaced as soon as a rig can be mobilised.

We also reported that pressure had started to build in the annulus of well-27 and there appeared to be communication with the casing annuli. The well had been diverted to the flare pit and a coiled tubing unit mobilised to kill the well. This operation was completed successfully and operations to restore the pressure integrity of the well and replace the tubing are expected to begin in the third quarter.

Facilities: The GPF reached its design throughput of 40 MMcfd in 2013 and since then throughput has peaked at just over 50 MMcfd. The plant performance has been reviewed and plans have been approved internally to increase the capacity to 60 MMcfd. The next step is to obtain government approval and this process will run in parallel with the materials orders with the object of completing and commissioning the plant modifications by the year-end.

Exploration: YGE was awarded the 170.7 sq. km Georgievskoye exploration licence in 2012. The largest part of the licence lies immediately to south of the Koshekhablskoye production licence but it also covers the western and eastern flanks of the field. Recovery, reprocessing and interpretation of all the existing 2D seismic are complete, the original 3D cube is being reprocessed and preparations are now being made for further seismic acquisition late in 2014.

Hungary

Development Activity

Hadjunanas and Gorbehaza fields (JKX 50%): Water breakthrough finally shut in both the Hn-1 and Hn-2 production wells. Plans are under consideration to recomplete Hn-2 and drill an additional well to recover the remaining gas, and oil, in the field.

Sarkad I Mining Plot (JKX 25%): JKX retains its 25% interest in the 15.6 sq. km farm-in area around the Nyekpuszta-2 gas condensate discovery well.

Turkeve IV Mining Plot (JKX 50%): The operator continues to look for a solution to achieving production from the Ny-7 well where the high CO2 content has prevented direct access to the pipeline network.

Exploration: Hernad licences (JKX 50%): A shallow prospect, Tisvaszvari-15, was identified in 2013 and remains a possibility for drilling in 2014. 

Slovakia

Exploration

Svidnik, Medzilaborce and Snina exploration licences (JKX 25%): Following a change in operator, the Cierne-1 exploration well has been deferred and a shallower prospect is being evaluated.

Bulgaria

Exploration

Provadia licence (JKX 18%): JKX's withdrawal from the licence became effective in January 2014 and the Company no longer has any interests in Bulgaria.

ENDS