JKX.L Regulatory News (JKX)

15 November 2010

JKX Oil & Gas plc

INTERIM MANAGEMENT STATEMENT

INCLUDING DATA FOR

THE THIRD QUARTER ENDING 30 September 2010

Q3 Q3 Change

2010 2009

Production (boepd) 9,080 13,657 -34%

Gas Production (MMcfd) 39.5 50.5 -22%

Oil Production (bopd) 2,505 5,233 -52%

Realised gas price ($ per Mcf) $7.64 $7.44 +3%

Realised oil price ($ per barrel) $70.67 $62.54 +13%

 JKX Chief Executive, Dr Paul Davies, said: "The Company's efforts since the mid-year have been focused on the completion of the first of its major horizontal wells in the deep tight gas Rudenkovskoye field in Ukraine, and progress on the initial well workover, facility fabrication and construction programmes on the Koshekhablskoye project in southern Russia.

Fall back in third quarter production was anticipated due to the delayed arrival of the second drilling rig in Ukraine. Production is expected to recover at the end of the current quarter and continue to rise in the New Year. Current production is approximately 9,000 boepd and average production for the year is now expected to be between 10,000 and 10,500 boepd, depending on the timing and initial rates of the new wells coming on-stream. Further ahead, we remain on target to meet our key production objective of 20,000 boepd during 2011.

The Company has made progress on all its development and exploration assets in the period and anticipates announcing key well test results on both its deep Ukrainian and Russian fields in the coming weeks. However, some delays have been experienced in plant fabrication for the Russian project, with first gas sales now expected by mid-2011. Realised gas prices in Ukraine have continued to firm above $7 per Mcf and we anticipate the current levels of both gas and oil realisations to continue through the year end."

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Highlights

Group production was lower in the third quarter at 9,080 boepd, reflecting a significant delay in the mobilisation of a second rig to our Poltava development licences in Ukraine. The first of the horizontal wells to be drilled on the deep Rudenkovskoye tight gas field has successfully completed drilling and is being prepared for testing. Workovers continue on the Company's Russian re-development project with three rigs now working on both the Oxfordian and Callovian reservoirs. Site construction is well advanced, shipping of the production facilities has commenced and the export line has been successfully tied-in to the Gazprom trunkline system. Both gas and oil realisations in the period remained buoyant with the 10 per cent increase in the Ukrainian domestic gas price ceiling feeding through to improved realisations in the period.

Production

Ukraine: Average production in the third quarter was 8,689 boepd comprising 37.3 MMcfd of gas and 2,466 bpd of oil and condensate, a 34% decrease on the average for the third quarter 2009. Production is currently running at approximately the same level. As anticipated in our Interim Results announcement in August, production has been significantly affected by the delay in mobilisation of the second drilling rig to the field with a consequential four month delay in the Poltava development drilling schedule. The rig finally mobilised at the end of October and is now drilling. We anticipate production levels in Ukraine to recover towards the end of the year with the completion of the R-103 well in the Rudenkovskoye field and the NN-74 well in the Novo-Nikolaevskoye field.

Hungary: Grossproduction from the Hajdunanas and Gorbehaza fields in the third quarter was 782 boepd comprising 4.22 MMcfd of gas and 79 bpd of oil and condensate(JKX share: 50%). Production has been affected in the period by water breakthrough in the deepest horizon in the Hn-1 well and difficulties in shutting this off without rig intervention. The operator has now mobilised a workover rig to the well and restoration of dry gas production is anticipated within the next two weeks.

Outlook: We anticipate average production to begin to recover in the fourth quarter with the restoration of Hn-1 production this month and the initiation of production from wells R-103 and NN -74 in December. Average production for the year is now expected to be between 10,000 boepd and 10,500 boepd, depending on the timing and initial rates of the new wells coming on-stream. Further ahead, we remain on target to meet our key production objective of 20,000 boepd during 2011.

Ukraine

Development Activity:

Development Drilling: Third quarter drilling activity has been focused on the drilling by the Skytop rig of the important well R-103 well in the south of the Rudenkovskoye licence. The well has successfully reached TD with a total drilled length of 4,641m, including a 1,026m horizontal section in the Devonian reservoir. Drilling has been slow due to the harder than anticipated sediments and overpressure in the overlying Tournaisian sandstones which led to stuck pipe on two occasions. The well is currently being logged and will be tested in the next two weeks. Further drilling locations in both the southern and northern parts of the Rudenkovskoye licence have been identified.

The second ZJ-30 rig spudded the delayed NN-74 well in the Novo-Nikolaevskoye field at the beginning of November and is currently setting the first casing at 900m. The deviated well is targeting gas in the Visean sandstones at 1,970m and is scheduled to reach TD at the end of November.

Workover Activity: The TW-100 workover rig carried out 7 workovers and 2 well abandonments in the third quarter.

The workovers included the installation of a gas lift system to the previously very productive M-166 well. Water breakthrough in the horizontal section had halted oil production, and installation of the gas lift system has restored production to around 600 bopd, albeit with a significant water cut.

A successful re-completion of well I-110 from the depleted Tournaisian sandstone to the Tournaisian carbonate was performed with a resulting gas production of around 2 MMcfd.

A similar re-completion was undertaken on well I-158, but with less success to date with only a small amount of gas being produced.

Disappointingly, the attempt to recover and then mill out the fish in well I-137 failed. Operations were suspended and a short sidetrack is now under consideration.

An attempt to clean out fill over some of the perforations in Well N-73 was also unsuccessful and additional equipment has been ordered for a re-entry before the end of the year..

The workover rig successfully recompleted well I-133 from the Tournaisian sandstone to a Visean sandstone oil producer. Reservoir pressure was insufficient to maintain flow and a beam pump has been installed with the well now supporting intermittent, but regular, production.

Finally, work began in well I-106 at the very end of the quarter to carry out a water shut-off operation in the Devonian sandstone and recompletion as a Tournaisian sandstone producer.

Wells I-131 and I-156 were plugged and abandoned in the period.

Well Intervention Activity: The most significant intervention in the period was the propped acid frac of the Tournaisian carbonate in well M-206. The frac job appeared to be successful but the increase in production was insignificant. The post frac analysis is still in progress to see if the lack of success was due to mechanical reasons or reservoir performance.

More successful were the additional perforations in the Devonian sandstone performed in well R-102 in the Rudenkovskoye field which resulted in an increase in production to 1.6 MMcfd. An additional set of perforations is planned for the fourth quarter.

Facilities: Manufacturing of the LPG plant has commenced and delivery is expected before the end of the year. Foundations for the plant are under construction and work has also started on the separate site for the LPG storage and delivery system. This site has been levelled, pumps and storage tanks ordered and construction is expected to start in early 2011. Start up is planned for the end of the 2nd quarter 2011.

Flowlines are being laid to the Rudenkovskoye area to handle the expected production from the current drilling programme. Additional flowlines are also being laid to the Molchanovskoye area to match the number of wells still to be drilled and the increasing amount of gas lift capacity needed in the field.

Engineering studies have started to optimise the existing plant to maximise production and recovery from the large number of wells currently in production over the four licences. Modifications resulting from these studies will be implemented in 2011.

Elizavetovskoye Licence: Negotiations are in progress to acquire the necessary land plots for the process facilities and to undertake a hot tap to the nearby gas trunk line. Once these are secure, the development plan can be submitted and timing of drilling and construction can be finalised.

Russia

Development and Workover Activity: Well workover operations are ongoing in the Koshekhablskoye Field and progress continues with the fabrication of the new gas processing facility (GPF) and site preparation and construction.

Following the successful testing of well 20, the Kremco 900 rig moved to well 26 to begin recovery of the tubing in that well. Severe corrosion of the tubing led to slow progress, and the decision was made in October to suspend well 26 operations and move the rig to well 9 to test the underlying Callovian sandstone reservoir. Progress to date on the workover of well 9 is good, with approximately 4,200m of the 5,400m of tubing recovered. If progress on recovering the remainder of the tubing continues at the current rate, testing of well 9 will be underway before the end of the year. Work on well 26 will now recommence later in the workover programme.

A newly contracted second rig, the Geostream KES-536, began work in the period on Well 15 which lies deep on the east flank of the structure. The 5,400m of tubing was recovered with relatively little difficulty, the plugs drilled out and new cement plugs set in preparation for a sidetrack through the Oxfordian reservoir section to obtain the best possible hole condition for testing and production. Completion of the sidetrack is anticipated in December, with testing at the turn of the year.

A small third rig has been successfully utilised for the workover of two wells 21 and 30 for water disposal. This rig has now moved to exploration Well 22 where it will prepare the well for re-entry and deepening by the KES-536. Well 22 was originally suspended as an unsuccessful Oxfordian test in a tight part of the reservoir and has been identified as mechanically suitable for deepening to the Callovian reservoir. Deepening this well will fulfil the exploration obligation in the Koshekhablskoye licence at a substantially lower cost than drilling a new well.

Construction work on the GPF location has begun with the installation of a number of locally procured items nearly complete. Buildings and control rooms are also either ready or nearing completion and the four main power generators have been delivered and are being installed. Foundations for the GPF plant itself are almost complete and deliveries have commenced. A workforce of nearly 250 men is now at the site and progress is accelerating.

The plant under construction in Sharjah is 85% complete with 600 men currently working. Shipping has commenced, however delays in some fabricated items will mean that deliveries will continue into the first quarter of 2011.

Flowline installation is virtually complete and the export line has been laid and successfully tied-in to the Gazprom trunkline.

Hook up and commissioning is now scheduled to begin in the first quarter with first commercial gas sales expected by mid-year.

Hungary

Development Activity: The Hajdunanas field produces from two wells to a simple separator and then via a 14.5 km export line to an existing facility for input to the Hungarian gas pipeline system. Production from one well in the nearby Gorbehaza Field was tied in during the period.

Water influx has affected production in both the Hajdunanas wells and, despite the addition of production from the Gorbehaza-1 well, total production has fallen in the quarter. The Hajdunanas-2 well has been worked-over and the operator plans to work-over the Hajdunanas-1 well during the coming period with a consequential recovery in overall production.

A third well is also under consideration to improve gas production and free up the Hajdunanas-1 well for oil production, although this is not likely to take place until 2011. JKX holds a 50% equity interest in the field.

Exploration

Ukraine: Zaplavskoye Licence:  The 50% increase in the Zaplavskoye licence area, comprising 45 sq km, has been approved but is still awaiting final ratification. A 100 km 2-D seismic programme in the Shagarivske area was acquired in the period and is currently being processed.

Hungary:Hernad licences: JKX holds a 50% equity interest in the northern Pannonian Basin Hernad licences.

Interpretation of the 348 sq km of 3D seismic data acquired over the south eastern portion of Hernad I licence identified a number of additional prospects. A further 300 sq km 3D seismic survey was acquired and processed in 2009. The first prospect to be drilled on the new data area, Tiszavasvari-6, lies some 6.5 km north of Hajdunanas Field and was drilled to a depth of 2,893m encountering good gas shows in the Lower Pannonian target formation. The well is currently suspended pending mobilisation of a workover rig to test and, if necessary, stimulate the reservoir. Testing is expected to start in the fourth quarter. A second well is planned on the structure and this is expected to spud in either late 2010 or early 2011, depending on rig availability.

Nyírseg Licence: The Gorbehaza-1 well is now in production and the Gorbehaza-5 has been converted to a water disposal well for the Hajdunanas and Gorbehaza fields. A mining plot has been applied for to cover both Gorbehaza wells. JKX and the operator have acquired the minority partners' interests and will hold the mining plot on a 50/50 basis to match their interests in the Hajdunanas Field.

Veszto Licence: JKX holds a 25% equity interest in a 15.6 sq km part of the Veszto exploration licence in the east Hungarian Pannonian Basin. The Nyekpuszta -2 well reached a TD of 3,702m in the fourth quarter of 2009 and began testing late in the first quarter of 2010. The reservoir was stimulated with a propped frac and initial flow rates were steady at 2.0 MMcfd and 600 bpd oil/condensate with a FWHP of 4,500 psi. However, these rates have since declined following further clean-up and extended testing. Consideration is now being given to either deepening the well or drilling a third well to increase the length of the production interval in this low permeability but significant structure with its very high reservoir pressure.

Bulgaria: JKX holds a 40% interest in the B and B1 Golitza licenses and is operator. Interpretation of the 250 sq km 3D seismic survey across the east-central parts of the licences revealed a number of prospects and two of these were selected for the 2010 drilling programme. The first well, Staro Oryahovo South R-01, spudded on the 3rd September and reached a total depth of 1,875m. Although gas shows were encountered during drilling of the target Avren Formation submarine fan sandstones, subsequent log analysis demonstrated that the target was water wet. The well was plugged and abandoned.

The rig moved to the Shkorpilovtci South West R-01 location and drilled a well to a total depth of 837m.

Significant gas shows were observed during drilling of both the primary target Avren Formation channel sand complex and the underlying secondary target Dvoynitca Formation sandstones. However, wireline data in the Avren Formation indicated poor reservoir permeability, and consequently a well test was not performed. The well appeared to have encountered a channel margin in this location and the shallow depth to the primary target precluded a geological sidetrack. The highly laminated underlying secondary reservoir was determined to be water wet. The well was plugged and abandoned.

The lack of success of both recent Golitza wells is disappointing but the Company believes that it and its co-venturers can integrate the information from these wells with the 3D seismic to high-grade further exploration targets within the Avren Formation.

Slovakia:  JKX holds a 25% interest in the Svidnik, Medzilaborce and Snina exploration licences covering 2,278 sq km in the Carpathian fold belt in north east Slovakia. The full first phase regional 2D seismic was interpreted earlier in the year and numerous leads identified for in-fill acquisition. The next phase of data acquisition took place in the third quarter with the acquisition of an infill survey of 150 km of 2D seismic within the Svidnik licence. The data are now being processed and should enable the participants to high-grade a prospect for drilling in 2011. In addition the Operator has proposed a further seismic data acquisition project of up to 300 line km to complete a regional data grid across the Snina and Medzilaborce licences.

ENDS