10 Jan 2019 09:23
10th January 2019
JKX Oil & Gas plc
("JKX", the "Company" or the "Group")
Quarterly Operations Update
Q4 | Q3 | Q on Q % Change | 12 months | 12 months | Y on Y % Change | |
2018 | 2018 | 2018 | 2017 | |||
Total production, boepd1 | 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, MMcfd2 (Mm3d)3 | 18.2 (515) | 19.4 (549) | (6.1)% | 17.6 (497) | 16.7 (474) | 4.9% |
- 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 (Mm3d) | 30.2 (854) | 31.5 (891) | (4.1)% | 30.7 (868) | 29.8 (843) | 3.0% |
- 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 (Mm3d) | 0.5 (14) | 0.5 (14) | - | 0.5 (14) | 0.7 (20) | (28.6)% |
- Average condensate production, boepd | 6 | 8 | (25.0)% | 7 | 9 | (22.2)% |
Prices realised | ||||||
Ukraine | ||||||
- Average gas price, $/Mcf ($/Mm3) | 9.71 (343) | 8.58 (303) | 13.2% | 8.72 (308) | 6.74 (238) | 29.4% |
- Average oil and condensate price ($/bbl) | 82 | 73 | 12.3% | 74 | 64 | 15.6% |
Russia | ||||||
- Average gas price, $/Mcf ($/Mm3) | 1.56 (55) | 1.59 (56) | (1.9)% | 1.61 (57) | 1.69 (60) | (4.7)% |
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 Mm3d). 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 Mm3d) to 0.8 MMcfd (23 Mm3d).
The only completed drilling activity of Q4 was the sidetracking of IG103 which resulted in an initial rate of 11.8 MMcfd (333 Mm3d) of gas and 150 boepd of condensate with a wellhead pressure of 2,371 psig4 on the 28th December 2018. Despite a drop in the wellhead pressure of 410 psig as at the 8th January the well is still producing 11.5 MMcfd (326 Mm3d) 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 21st 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 2018 | 30 Sep 2018 | 30 June 2018 | 31 Mar 2018 | 31 Dec 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 $10.7m principal outstanding. The bond pays an annual coupon of 14% semi-annually in arrears and matures in 2020. The bond terms are described in detail in the 2017 Annual Report.
Approximate sales value of gas and oil inventory is calculated using the average prices in December 2018. At 31 December 2018 inventory consisted of 128 MMcf (3,627 Mm3) of gas and 4,897 bbl of oil held and available for immediate sale at our Ukrainian subsidiary.
Rental Fee Claims
Claims issued by the Ukrainian tax authorities for additional Rental Fees are being contested through the Ukrainian court process. These arise from disputes over the amount of Rental Fees paid by PPC for the periods August-December 2010 and January-December 2015. An update on the status of each claim is given below. Although all amounts are being claimed in Ukrainian Hryvnia ('UAH'), they are referred to below at their US$-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.
1boepd - Barrels of oil equivalent per day (1 boe = 6000 cf)
2MMcfd - Million cubic feet per day
3Mm3d - Thousand cubic metres per day (1 m3 = 35.315 cf)
4psig - 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