TIDMJKX
RNS Number : 5878F
JKX Oil & Gas PLC
29 July 2016
FOR IMMEDIATE RELEASE
JKX Oil & Gas plc
('JKX' or the 'Company')
HALF-YEARLY RESULTS
FOR
THE SIX MONTHSED 30 JUNE 2016
Operational Highlights
-- Average production increased by 21% at 10,393 boepd (2015: 8,611 boepd)
-- Nearing finalisation of the updated Field Development Plans across the group
-- Monetization process of our Russian and Hungarian assets ongoing
-- Bond liabilities reduced by $2.2m through bond repurchase program
-- Significant efficiencies and costs savings implemented at London headquarters
-- Two highly experienced independent Non Executive Directors appointed
Key Financials
-- Loss from operations before tax and exceptional costs $2.8m (2015: $7.3m loss)
-- Exceptional costs $3.1m (2015: nil)
-- Revenue: $35.4m (2015: $44.4m)
-- Operating costs down 20% at $9.7m (2015: $12.1m)
-- Loss for the period: $10.1m (2015: $13.8m loss)
-- Loss per share: 5.86 cents (2015: loss 8.01 cents)
-- Operating cash flow: $7.8m (2015: $3.5m)
-- Capital expenditure: $2.2m (2015: $4.2m)
-- Total cash: $18.6m (31 December 2015: $25.9m)
Outlook
-- Implementation of the updated Field Development Plan in Ukraine
-- Potential resumption of development drilling in Ukraine in second half of 2016
-- Resolution of inherited legal battles
-- Two exploration wells scheduled in Slovakia in second half of 2016
JKX Chief Executive, Tom Reed, commented:
"In our first five months as a Board, we have made significant
progress on several fronts. Production is up 21% due to the
reinstatement of well-27 in Russia and an enhancement program in
Ukraine using existing well stock. Updated Field Development Plans
to use best-in-class development know-how, equipment and technology
are under final review. We have partially mitigated the legal risks
that we inherited in Ukraine and we have re-established a positive
working relationship with the Ukrainian Government. Significant
efficiencies and costs savings have been implemented, including at
our London headquarters, and the process of monetizing our Russian
and Hungarian assets is on track.
We continue to believe that JKX has great potential."
For further information please contact EM:
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
In the first five months as the new Board of JKX, we have made
significant progress with our plan to restore shareholder value to
JKX. Our overriding commitment to shareholders is to do this
through transparent communication, by increasing efficiency and
production and by reducing needless costs.
Performance
In the first half of the year, average production increased by
21% to 10,393 boepd, despite the suspension of all development
drilling in early 2015, which was put in place by the previous
Board. The Company has remained focused on maintaining cash
generative operations in both Ukraine and Russia with a reduced
capital expenditure program.
There has been some recovery in international oil and gas
prices, however they remain low. Despite the 21% increase in
production, there has been a 20% fall in half-year revenue to $35.4
million which is due to a sharp fall in both oil and gas
realisations resulting from a depreciation of local currencies
against the US Dollar compared with the prior period and the lower
international oil and gas prices. This is addressed more fully in
the Financial Review.
The Company's cash balances have also been significantly reduced
by the scheduled $12.3 million repayment to Bondholders in
February, $1.7 million used to repurchase 11 Bonds at a discount to
their par value and $3.1 million of exceptional costs settled in
the period mainly relating to the replacement of the previous
Board. The exceptional costs are detailed further in Note 13 to the
financial information and discussed in the Financial Review.
Despite the low oil and gas prices and the exceptional costs I
am pleased to report that your Company has maintained a positive
operating cash flow for the period.
Ukrainian legal cases
As reported in previous announcements, 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 14 to the financial information.
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 our Ukrainian
subsidiary, Poltava Petroleum Company ('PPC'), to a rate of 28%.
This Interim Award remains in effect until final judgement is
rendered on the main case or it is otherwise settled. The main
arbitration case, which relates to the overpayment of approximately
$180 million in Rental Fees plus damages to the business, was heard
in London in early July and we expect the tribunal's decision by
the end of 2016.
As reported at the 2015 year end, PPC recognised a provision and
had two near-term contingent liabilities arising from three
separate Ukrainian court proceedings over the amount of Rental Fees
paid in Ukraine for certain periods since 2007. At current Hryvnia
exchange rates these potential liabilities total approximately $40
million, including interest and penalties.
For claims relating to 2007 and amounting to $6 million, the
Supreme Court of Ukraine ruled in favour of the Company and this
case is now considered closed. For claims relating to 2010,
amounting to $10.5 million following revaluation at the period end,
PPC lost an appeal to the High Administrative Court of Ukraine and
the Supreme Court of Ukraine refused to consider the case. The
Company is in the process of filing a second appeal to the Supreme
Court. In the case of 2015 claims of approximately $23 million at
period end exchange rates, PPC is in the process of court hearings,
although the Company considers such claims to be in violation of
the interim award received from the arbitration tribunal as noted
above.
As previously announced the Ukrainian police visited the office
of PPC and the homes of two of our employees on 14 June 2016 and
have continued to request additional documentary information, most
recently on 11 July. The searches undertaken were the result of an
investigation of claims of alleged underpayment of taxes which have
been made against PPC by a local prosecutor. PPC continues to fully
cooperate with the authorities and believes that it is in full
legal compliance with the matters outlined in the police requests
and that this action is completely unjustified. We have referred
the matter to the British and US Embassies in Kyiv to ask for their
assistance in engaging with the relevant authorities to resolve the
situation.
Also as previously reported, following action initiated in late
2015, in January 2016, the State Geology and Mineral Resources
Survey of Ukraine suspended four of PPC's subsoil use permits,
initially with effect from 1 February 2016, but then with an
extension period until 1 March 2016. PPC has now renewed all four
of these licenses until 2024 and also received a ruling from the
Kharkiv Administration Court of Appeal which deemed the original
suspensions to have been illegal.
Your Board
Following the replacement of the entire Board on 28 January
2016, the composition of the Board did not comply with the UK
Corporate Governance Code in respect of the number of independent
Non Executive Directors. To address this, in April, two new
independent Non Executive Directors were appointed.
Alan Bigman and Bernie Sucher both bring extensive knowledge of
working at the highest levels in the region combined with directly
relevant experience both of which will be of great benefit to the
Company. As independent directors, Alan and Bernie have
strengthened the corporate governance credentials of the Company
which ensures that the interests of all shareholders are
protected.
At the Company's AGM on 28 June 2016, the resolutions to accept
the appointment of Alan and Bernie were rejected by a small number
of shareholders but with enough votes to reject the resolutions.
Given the very low turnout of voting shareholders, the fact that
the vast majority of voting shareholders were in favour of the
appointments and the need for value-adding independent directors,
the Board re-appointed both Alan and Bernie at a subsequent Board
Meeting and the shareholders will be asked to approve these
appointments at the next General Meeting.
Staff
Following a detailed review of London head office costs the
Board has made reductions to staff numbers and we are planning to
move the remaining staff on to one floor of the building where we
previously occupied four floors. Negotiations with the landlord to
extract the Company from the long-term lease agreements are
ongoing, although the impact of the referendum in which the United
Kingdom voted to leave the European Union has created uncertainty
in the UK commercial property market which has made finding new
tenants and negotiations with the landlord more difficult.
In May we appointed Daniel Valk as the new General Director of
PPC, our Ukrainian operating subsidiary. Daniel has over 20 years
of industrial management experience in Ukraine and Russia.
Outlook
There remain risks in respect of the $27.6 million bond payment
which may become due in February 2017, the contingent liabilities
in respect of Ukrainian production taxes 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 information. 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 Bond restructuring or
refinancing options, which are currently being assessed.
In Ukraine, the investment climate has improved following the
reduction of gas production tax rates to 29% for 2016 and the
easing of restrictions on payments of dividends to overseas
shareholders, which enables the Company to repatriate dividends
from PPC for the years 2014 and 2015.
We've also stabilized our legal risks in Ukraine, for now, and
re-established a positive working relationship with the Ukrainian
Government. We look forward to completing our inherited legal
battles as early as this summer, allowing the Company to resume its
focus on investing in oil and gas production through drilling
and/or acquisition.
The process of monetization of our Russian and Hungarian assets
is underway, which includes maximising cash generation and
cost-cutting in Russia and the repatriation of surplus funds. We
will update shareholders as soon as appropriate with specific
progress.
The Board continues to believe that the Company has great
potential given its current physical and human resource assets. I
wish to thank all the JKX staff for their support and for
continuing to perform professionally over this difficult period of
change, and thank our shareholders for their ongoing support.
Chief Executive's Statement
Performance highlights
The performance highlights for the period are:
-- Average production increased 21% 10,393 boepd (2015: 8,611 boepd)
-- Production increases achieved through an enhancement program
targeting the technical potential of existing well stock
-- Nearing finalisation of the updated Field Development Plans
-- Monetization process of our Russian and Hungarian assets ongoing
-- Significant efficiencies and costs savings implemented, including at London headquarters
For the six months to 30 June 2016, the Company increased
production by 21% from the same period as last year to 10,393
boepd.
Gas production in Russia was higher by 40% due to well-27 coming
on line in late 2015 and undergoing several successful acid
stimulations in the period.
Despite the cancellation of all development expenditure since
early 2015, gas production in Ukraine declined by only 4%
period-on-period and oil production has increased by 15%. Both
results are due to the implementation of an enhancement program
targeting the technical potential of existing well stock.
International oil and gas prices were considerably lower than
recent historical levels which has decreased our US$-based revenues
and which is analysed in more detail in the Financial Review.
Ukraine
Average production in Ukraine in the first half of 2016 was
stable period-on period at 4,137 boepd (2015: 4,140 boped). The
suspension of development drilling in Ukraine in 2015 required a
step-up of work-over activities on the existing well stock in order
to minimise the natural production decline.
Through the period, the Company has continued to systematically
calculate the technical potential of existing well stock and close
gaps between actual and potential production using best practices.
This approach stabilized gas production and increased oil
production during the period. The success of this enhancement
program for the first half of the year is detailed in the following
Operational Review.
Production optimization operations continue with the TW-100
workover rig and rigless interventions.
Russia
Average production from the Koshekhablskoye field in the first
half of 2016 was 6,256 boepd, a 40% increase on the average for the
first half of 2015 due mainly to the completion of repairs on
well-27. Periodic acid treatments have been performed during the
period to maintain production rates in the four producing
wells.
The production figures remain lower than plant capacity of 60
MMcfd as well-05 has remained suspended throughout the period as
plans to replace damaged tubing have been postponed pending the
outcome of a strategic review of our Russian assets by the new
Board.
Hungary
Following the sale of a 50% interest in a small, early stage gas
discovery in June, JKX operates six Mining Plots (production
licences) in Hungary covering 200 sq km in which it has a 100%
equity interest. JKX will seek to develop these licences, and is
currently seeking a farm-in partner, or partners, to participate in
their development.
Slovakia
In Slovakia, two exploration wells are scheduled to be drilled
on our exploration licences in the second half of the year.
Current and future activity
In the first five months as a Board, we have made progress on
several fronts, including production optimization in the field,
partial mitigation of inherited legal risks in Ukraine and the
re-establishment of a positive working relationship with the
Ukrainian Government.
The Field Development Plan for our Ukrainian assets is nearing
completion, and will provide a framework for future business and
capital planning, as well as a baseline for investment decisions.
Best in class development know-how, equipment and technology is
being sourced, primarily in the United States, to support the
execution of the Field Development Plan.
Group production in the second half of the year is anticipated
to be maintained. Gas realisations are anticipated to be slightly
lower in Ukraine in the second half of the year and oil
realisations are expected to remain at current levels. The
regulated maximum industrial gas price in Russia was increased by
1.95% from 1 July 2016 however, following a renegotiation of our
gas sales contract, we have agreed a temporary reduction of 9.5% to
the price at which we sell our gas in Russia in return for a
long-term "take or pay" agreement whereby the customer will pay for
gas even if they do not take delivery of it. The Company is seeking
to engage other buyers of its gas in southern Russia to improve gas
realisations there and broaden its customer base.
Dividend restrictions in Ukraine have been eased which improves
the Group's internal liquidity however there remain risks in
respect of the $27.6 million bond payment which may become due in
February 2017, the potential liabilities in respect of Ukrainian
production taxes and the continued low oil and gas prices, which,
if all realised, may impact the going concern status of the
Company. These risks are fully addressed in Note 2 to the financial
information.
Ukraine remains the engine of the Group. Once we have mitigated
the Group's short-term liquidity risks noted above and the Field
Development Plan is approved, development drilling in Ukraine will
recommence and we will seek sources of capital to expand the
drilling campaign.
I thank all management and staff for their hard work and our
stakeholders for their continued support.
Operational Review
Group production
For the six months to 30 June 2016, the Company produced 10,393
boepd, comprised of 56.4 MMcfd of gas and 993 bpd of oil and
condensate, an increase of 21% on the same period in 2015.
Ukraine
Novo-Nikolaevskoye licences
Production
Average production from the Novo-Nikolaevskoye group of fields
in the first half of 2016 was 2,574 boepd comprising 10.0 MMcfd of
gas and 903 bpd of oil and condensate, a 1% increase on the average
for the first half of 2015.
Development drilling and other well activity
No drilling took place in the first half of 2016 as the new
board focused on rebuilding Field Development Plans using global
best practices, including drilling and fracturing techniques from
North America. Drilling will commence when these plans are
completed, technology and equipment sourced, and financing secured.
Production optimisation operations continue with the TW-100
workover rig and rigless interventions.
-- Attempts to reduce the water production from IG-138, with a
cement plug were unsuccessful and the well is being reviewed for
further intervention work. Tubing replacement resulted in an
increase in gas production from IG-106. A cement plug over the T2
and Devonian Sands was drilled out in IG-132, which resulted in a
significant increase in production. Initial rates were over 1,100
bbls/d and production remains above 200 bbl/d. On the
Molchanovskoye North Field, M-163 was worked over to restore
production from the Devonian sandstone. Work is on-going to obtain
enhanced production from the Devonian.
-- Rigless interventions included velocity string installations
in M155, M157 and M159. These installations at M155 and M157
resulted in an increase in production and stabilisation. The
results at M159 are still being evaluated.
-- 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 of wax clearance has stabilised oil production.
Additional activities included wireline perforations in NN73 and
IG141, neither of which was successful.
-- An extensive production logging tool programme has been
ongoing during 2016 in order to optimize production from existing
intervals, where possible.
-- The Novo Nikolavskoye seismic inversion study is complete and
has provided a fresh insight for new well locations.
Production facilities
Routine operations at the main processing facility, the LPG
plant and the oil loading facility continued smoothly throughout
the period. At the main processing facility, modifications to the
water treatment unit were completed to improve the quality of
produced water prior to re-injection and minor flowline and piping
modifications continue to enhance production.
Improvements at the oil loading terminal included an upgrade of
the fire protection system and an additional loading point was
installed to enable loading of road tankers in addition to rail
cars.
Elizavetovskoye Production Licence
Production
Average production from the Elizavetovskoye field in the first
half of 2016 was 1,563 boepd comprising 9.2 MMcfd of gas and 25 bpd
of condensate, a 2% decrease on the average for the first half of
2015.
Drilling and development activity
There was no drilling activity on the Elizavetovskoye field
during the period although additional development drilling plans on
the Elizavetovskoye field and West Mashivske licence are currently
being reviewed.
Production facilities
The Elizavetovskoye production facility continues to operate
efficiently and there have been no further changes following the
upgrade at the end of 2014 and the addition of compression in 2015.
The plant now has sufficient capacity to accommodate future
production from additional wells that are currently being planned
and no further modifications are expected.
Russia
Koshekhablskoye licence
Production
Average production from the Koshekhablskoye field in the first
half of 2016 was 6,256 boepd comprising 37.1 MMcfd of gas and 66
bpd of condensate, a 40% increase on the average for the first half
of 2015.
Workover and well stimulation activity
After completion of the well-27 workover at the end of 2015,
there have been no additional workover activities in 2016. Routine
acid treatment has been carried out using coiled tubing on the main
producing wells. Production from crestal well-20 has ranged from
15-18 MMcfd during the period with a single acid treatment. The
north flank well-25 has been producing 9-12 MMcfd with two acid
treatments in the period. Well-27 has been producing 7-16 MMcfd
having required three acid treatments this period. The deep
east-flank well-15 continues to cycle between 0.9 MMcfd and 1.5
MMcfd, with fluid build-up being cleared periodically.
Facilities
Following the completion of plant modifications in Q3 2015, the
plant inlet capacity increased to 60 MMcfd. The annual plant shut
down, primarily for maintenance requirements, was performed in Q2
2016 and the introduction of a new maintenance system has further
increased operational efficiency.
Licence obligations
The obligation to assess the Callovian reservoir through
sidetracking well-09 has been deferred until 2017 however a new
well location is being reviewed to meet this obligation.
Hungary
Following applications made in 2015, JKX now operates the
following six new Mining Plots (production licences) in Hungary
covering 200 sq km and which are 100% owned by Riverside Energy
Kft, the Company's wholly-owned Hungarian subsidiary:
Hajdunanas 28 sq km
IV
Hajdunanas 7 sq km
V
Tiszavasvari 41 sq km
IV
Emod V 100 sq km
Pely I 18 sq km
Jaszkiser II 6 sq km
The licence terms will enable JKX to carry out appraisal and
development activity over a 30 year period and JKX is currently
seeking a farm-in partner, or partners, to participate in the
development of these assets.
Hajdunanas field
Production from the Hajdunanas and Gorbehaza Fields in north
east Hungary, which form the Hajdunanas IV Mining Plot, was
suspended by the previous operator in 2013.
JKX is currently reviewing plans for both well intervention and
sidetrack of the Hn-2 well and, following the award of the extended
Hajdunanas V Mining Plot in Q1 2016, is seeking a farm-in partner
to participate in the further development of the Hajdunanas field
and nearby prospective features.
Turkeve IV Mining Plot
During the period, JKX sold its 50% beneficial interest in the
Ny-7 discovery (within the Turkeve IV Mining Plot) to the
operator.
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. A programme of magneto-telluric geophysical
surveys combined with seismic re-interpretation has led to the
identification of a number of shallow prospects across the
licences.
The 128 sq km Pakostov licence was applied for and approved in
2015 as protection acreage around material prospects identified in
the Medzilaborce licence. The Operator (DiscoveryGeo) had planned
to drill two of these prospects in the fourth quarter of 2015 but a
combination of revised permitting procedures and local activist
opposition has delayed well location permitting and construction.
The Operator now hopes to spud the first well of a larger three
well programme in 2H 2016.
Financial performance
PRODUCTION SUMMARY First Second First
half half 2015 half
2016 2015
--------------------------------------- ------- ------------- -------
Production
Oil (Mbbl) 180 164 154
Gas (Bcf) 10.2 9.4 8.4
Oil equivalent (Mboe) 1,881 1,724 1,559
--------------------------------------- ------- ------------- -------
Daily production
Oil (bopd) 993 890 851
Gas (MMcfd) 56 51 47
Oil equivalent (boepd) 10,393 9,374 8,611
--------------------------------------- ------- ------------- -------
First Second First
OPERATING RESULTS half half 2015 half
2016 2015
$m $m $m
Revenue
Oil 6.2 7.3 7.3
Gas 27.9 34.5 34.2
Liquefied petroleum gas 1.3 2.4 2.2
Other - - 0.7
--------------------------------------- ------- ------------- -------
35.4 44.2 44.4
--------------------------------------- ------- ------------- -------
Cost of sales
Exceptional item - production
based taxes - (10.9) -
Exceptional item - provision
for impairment of oil and gas
assets - (51.1) -
Other operating costs (9.7) (12.3) (12.1)
Depreciation, depletion and
amortisation - oil and gas
assets (10.7) (13.5) (12.6)
Other production based taxes (8.6) (5.4) (20.8)
Total cost of sales (29.0) (93.2) (45.5)
--------------------------------------- ------- ------------- -------
Gross profit/(loss) before
exceptional items 6.4 13.0 (1.1)
--------------------------------------- ------- ------------- -------
Gross profit/(loss) after exceptional
items 6.4 (49.0) (1.1)
--------------------------------------- ------- ------------- -------
Operating expenses
Exceptional item - legal costs - (3.0) -
Exceptional item - remuneration
and severance costs (3.1) - -
Administrative expenses (9.6) (10.9) (6.6)
Gain/(loss) on foreign exchange 0.5 (5.4) 0.5
Loss from operations before
exceptional items (2.8) (3.4) (7.3)
--------------------------------------- ------- ------------- -------
Loss from operations after
exceptional items (5.8) (68.3) (7.3)
--------------------------------------- ------- ------------- -------
Earnings First First
half Second half
2016 half 2015 2015
--------------------------------------- ------- ----------- ---------------
Net loss ($m) (10.1) (67.7) (13.8)
Net loss before exceptional
items ($m) (7.0) (12.0) (13.8)
Basic weighted average number
of shares in issue (m) 172 172 172
Loss per share before exceptional
items (basic, cents) (4.09) (6.96) (8.01)
Loss per share after exceptional
items (basic, cents) (5.86) (39.31) (8.01)
Pre-exceptional earnings before
interest, corporation tax,
depreciation and amortisation(1)
($m) 8.4 10.8 6.1
--------------------------------------- ------- ----------- ---------------
First First
half Second half
Realisations 2016 half 2015 2015
--------------------------------------- ------- ----------- ---------------
Oil (per bbl) $39.92 $47.49 $49.87
Gas (per Mcf) $2.96 $3.97 $4.46
LPG (per tonne) $254 $437 $448
--------------------------------------- ------- ----------- ---------------
First First
half Second half
Cost of production ($/boe) 2016 half 2015 2015
--------------------------------------- ------- ----------- ---------------
Production costs (excluding
exceptional item) $5.18 $7.17 $7.75
Depreciation, depletion and
amortisation $5.67 $7.78 $8.11
Production based taxes $4.57 $3.15 $13.36
--------------------------------------- ------- ----------- ---------------
First First
half Second half
Cash flow 2016 half 2015 2015
--------------------------------------- ------- ----------- ---------------
Cash generated from operations
($m) 7.8 9.3 3.5
Operating cash flow per share
(cents) 4.5 5.4 2.0
--------------------------------------- ------- ----------- ---------------
First First
half Second half
Statement of Financial Position 2016 half 2015 2015
--------------------------------------- ------- ----------- ---------------
Total cash(2) ($m) 18.6 26.3 22.4
Borrowings ($m) 23.8 34.4 32.8
Net debt(3) ($m) (5.2) (8.1) (10.4)
Net debt to equity (%) (2.9) (4.6) (3.8)
Return on average capital employed(4)
(%) (11.4) (25.8) (10.0)
Increase in property, plant
and equipment/intangible assets
($m)
- Ukraine 1.5 1.1 1.7
- Russia 0.6 2.9 2.3
- Other 0.1 0.5 0.2
Total 2.2 4.5 4.2
--------------------------------------- ------- ----------- ---------------
(1) Pre-exceptional earnings before interest, tax, depreciation
and amortisation ('EBITDA') is a non-IFRS measure and calculated
using loss from operations of $5.8m (2015: $7.3m) and adding back
depreciation, depletion and amortisation and exceptional items of
$14.2m (2015: $13.4m). EBITDA is an indicator of the Group's
ability to generate operating cash flow that can fund its working
capital needs, service debt obligations and fund capital
expenditures.
(2) Total cash is Cash and cash equivalents plus Restricted
Cash.
(3) Net cash/(debt) is Total cash less Borrowings.
(4) Return on average capital employed is the annualised
profit/loss for the period divided by average capital employed.
Financial Review
Results for the period
The Group recorded a loss for the year of $10.1m (after
exceptional charges of $3.1m, mainly relating to the replacement of
the Board in January 2016) which is significantly lower than the
loss of $13.8m recorded for the same period last year. The
Company's financial performance for the first half of 2016 has been
impacted by the decline in oil and gas prices and the further
deterioration of local currencies where the Group operates.
Revenue
Despite the 21% production gains across the Group, the
significantly lower commodity prices and the weakening of local
currencies resulted in a 20.3% fall in half-year revenues to $35.4m
(2015: $44.4m).
2016 2015 Change % Change
Group revenues $m $m $m
---------------- ----- ----- -------- ----------
Ukraine 25.6 36.7 (11.1) (30.2)
---------------- ----- ----- -------- ----------
Russia 9.7 7.7 2.0 26.0
---------------- ----- ----- -------- ----------
Total 35.4 44.4 (9.0) (20.3)
---------------- ----- ----- -------- ----------
Realisations 2016 2015 % Change
--------------- ------ ------ ---------
Ukraine
--------------- ------ ------ ---------
Gas ($/Mcf) 5.77 8.25 (30.1)
--------------- ------ ------ ---------
Oil ($/bbl) 39.92 51.06 (21.8)
--------------- ------ ------ ---------
LPG ($/tonne) 254 448 (43.3)
--------------- ------ ------ ---------
Russia
--------------- ------ ------ ---------
Gas ($/Mcf) 1.47 1.68 (12.5)
--------------- ------ ------ ---------
Group
--------------- ------ ------ ---------
Gas ($/Mcf) 2.96 4.46 (33.6)
--------------- ------ ------ ---------
Oil ($/bbl) 39.92 49.87 (20.0)
--------------- ------ ------ ---------
LPG ($/tonne) 254 448 (43.3)
--------------- ------ ------ ---------
Average exchange
rates 2016 2015 Change % Change
------------------ ------ ------ --------- -----------
Russia (RUB/$) 71.32 58.38 (12.9) (22.1)
------------------ ------ ------ --------- -----------
Ukraine (UAH/$) 25.65 21.27 (4.38) (20.6)
------------------ ------ ------ --------- -----------
Ukrainian revenues
Gas sales volumes in Ukraine were only 1.3% lower at 3,703 boepd
(2015: 3,752 boepd) as a result of slightly reduced gas production
to 3,209 boepd (2015: 3,336 boepd), despite the suspension of all
drilling activity in Ukraine. The natural decline in production was
efficiently managed by well-intervention treatments.
Whilst the gas price decreased by 16% from an average of 6,218
UAH per Mcm in 2015 to 5,208 UAH per Mcm in 2016, US Dollar gas
realisations in Ukraine declined by 30.1% from $8.25/Mcf to
$5.77/Mcf in part due to the 21% devaluation of the Hryvnia. Before
the introduction of a new law affecting the Ukrainian gas market on
1 October 2015, the state regulator made periodic adjustments for
Hryvnia/$ exchange rate fluctuations which impacted gas
realisations. From 1 October 2015, these periodic adjustments
ceased and gas prices have followed market trends. The remaining
decline in realisations is explained by excessive quantities of
imported gas from Europe which has depressed prices, large
quantities of locally produced gas accumulated during 2016 and
generally reduced demand from industrial customers.
2016 2015 Change % Change
Ukrainian $m
revenues $m $m
-------------- ----- ----- -------- ----------
Gas 18.4 26.8 (8.4) (31.3)
-------------- ----- ----- -------- ----------
Oil 5.9 7.0 (1.1) (15.7)
-------------- ----- ----- -------- ----------
Liquefied
Petroleum
Gas ('LPG') 1.3 2.2 (0.9) (40.9)
-------------- ----- ----- -------- ----------
Other - 0.7 (0.7) N/A
-------------- ----- ----- -------- ----------
Total 25.6 36.7 (11.1) (30.2)
-------------- ----- ----- -------- ----------
Ukrainian revenues bridge
To see a chart illustrating this please download release from
JKX website
As the revenue bridge chart demonstrates, the single largest
factor affecting revenues from our Ukrainian business was the
devaluation of the Hryvnia. The increase in oil production was
particularly pronounced due to a successful workover of well
IG-132, which has high oil content and insignificant gas content.
However, oil realisations reduced from $51.06/bbl in 2015 to
$39.92/bbl in 2016 (a fall of 22%) due to the weakening of Brent
prices from an average of $57.80/bbl during the 1H 2015 to
$41.21/bbl during the 1H 2016 (a fall of 29%).
Russia revenues
Russian gas sales made up 56% of the Group's volumes sold (2015:
52%). However, this increased proportion of lower-priced Russian
gas, in addition to the weakening of the Ukrainian Hryvnia and
Russian Rouble against the US Dollar (when compared with the prior
period), resulted in an overall reduction in Group gas realisations
of 33.6% to $2.96/Mcf (2015: $4.46/Mcf).
Gas production in Russia was higher by 40% to 6,256 boepd (2015:
4,470 boepd) due to well-27 coming on line in late 2015. However
this was not sufficient to compensate for price reductions. Gas
prices in Russia dropped by 14% to $51/Mcm (2015: $59/Mcm) entirely
due to an 18% devaluation of the Russian Rouble partly compensated
by a 7.5% price increase in July 2015.
Despite an increase in the regulated maximum industrial prices
of 1.95% on 1 July 2016, our Russian subsidiary Yuzhgazenergie LLC
('YGE') received a request from its sole gas customer for a 14%
discount on all of their gas purchases due to the poor prevailing
economic environment in Russia. Following negotiation, YGE has
agreed a temporary 9.5% reduction to the gas sales price from 1
July 2016, in order to maintain cash flow in the short term. In
addition, alternative customers, including industrial end-users,
have been approached in an attempt to secure higher prices and to
broaden the customer base.
Loss from operations
Loss from operations before exceptional charges for the period
was $2.8m (2015: loss $7.3m) representing a $4.5m improvement. This
was the result of a decrease of $16.0m in cost of sales
compensating for a $9.0m decrease in Group revenues and a $2.5m
increase in the Group's administrative expenses and foreign
exchange effects.
Cost of sales
The $16.5m decrease in cost of sales (before exceptional
charges), to $29.0m (2014: $45.5m), comprises the following
savings:
-- Russian operating costs of $0.4m (a decrease of 6.9% from 2015)
-- Ukrainian operating costs of $0.6m (a decrease of 11.9% from 2015)
-- a reduction in the depreciation, depletion and amortisation ('DD&A') charge of $1.9m
-- production based taxes lower by $12.2m, predominantly related to Ukraine
-- a decrease in Rest of World costs of $1.4m.
The decrease in Russian operating costs of $0.4m is largely due
to the Rouble devaluation from an average of RR58.38/$ to an
average of RR71.32/$ reduced the US Dollar reported cost base for
Russia throughout the year. Russian property tax charges have
decreased by approximately $0.3m to $0.4m (2015: $0.7m) due to the
reduced value of the Russian assets subject to property tax. We
incurred one-off rig standby costs of $0.5m during the period.
Ukrainian operating costs decreased by $0.6m, again mainly due
to the effects of Hryvnia devaluation from an average of UAH21.27/$
to an average of UAH25.65/$ (a depreciation of 21%) partly offset
by an increase in many local salaries of up to 50% in January 2016
after two years of no pay rises within a high-inflation
environment. We have completed a review of staffing requirements in
Ukraine and have commenced some reductions in many technical
departments for which the financial benefits will be felt in the
second half of 2016.
Operating costs in Rest of World decreased by $1.4m mainly due
to staff reductions in technical team in London and a reduced
allocation of administrative staff costs to operating activities
(see below).
The DD&A charge reduced by $1.9m, largely as a result of a
lower asset carrying values resulting from impairments recognised
in Ukraine. For the purposes of testing for impairment of the
Group's non-current assets in 2016, the Company has taken account
of developments since the tests for impairment at the 2015 year end
and no impairment triggers were noted.
Production based taxes decreased by $12.2m, which are considered
further below.
Exceptional charges
Exceptional charges of $3.1million comprised the following:
-- $2.5 million of severance costs and additional remuneration
which the previous board approved and paid prior to the General
Meeting in January 2016;
-- $0.5 million of professional services incurred in relation to
the General Meeting and the replacement of the Board on 28 January
2016;
-- $0.1 million severance costs incurred as a result of staff
reduction at the Group's London headquarters.
There were no exceptional items in 1H 2015.
Administrative expenses
Excluding exceptional costs of $3.1 million explained above,
administrative expenses have increased by $3.0m to $9.6m (2015:
$6.6m) mainly due to:
-- An increase in legal and professional fees of $1.7 million
- An increase in arbitration legal fees of $1.0m is largely due
to the timing of services: most of the work for the Hague
arbitration took place in the 1H 2016. On annual run-rate basis we
expect lower legal fees compared with 2015. In the 1H2015 we
incurred the legal fees relating to the Stockholm arbitration
comprising legal fees of $0.9m and court of arbitration fees of
$0.7m. In 1H2016 we incurred legal fees associated with the Hague
arbitration comprising legal fees of $2.3m and court of arbitration
fees of $0.3m.
- Legal fees of $0.5m were incurred in connection with the
restrictions imposed on the exercise of voting and other rights of
two shareholders, Eclairs Group Limited ('Eclairs') and Glengary
Overseas Limited ('Glengary'), in January 2016;
- Legal fees of $0.5m related to the court cases in Ukraine in
respect of 2007, 2010 and 2015 rental fees;
- On an annual run-rate basis we expect lower legal fees going
forward as compared with 2015 and 2016;
- Professional services of $0.2m in respect of the updating of
the Field Development Plans, compensated by savings of $0.5m in
professional fees due to greater scrutiny over the hiring of new
advisors.
-- An increase in other costs of $1.3 million mainly due to a
reduced allocation of administrative staff costs to operating
activities (the reverse side of the $1.4 million decrease in
operating costs noted above).
We committed ourselves to perform a detailed review and
eliminate unnecessary expense at the London headquarters. We
continue to identify cost efficiency possibilities and a number of
steps have been implemented since appointment of the new Board to
significantly reduce the costs of the Company's London
headquarters. Head office headcount has been reduced by 45%.
Benefits resulting from these reductions will be more clearly seen
when we report on 2016 full year results. We estimate that the
annual run-rate for London staff cost savings will be approximately
$1.9m due to more appropriate Board composition and staff
reductions.
Net finance charges
Finance costs remained constant at $2.4m (2015: $2.4m)
comprising convertible bond interest.
The $1.3m charge (2015: $4.0m) of the fair value movement on the
derivative liability represents the change in fair value of the
conversion option associated with the convertible bond.
Finance income of $0.9m comprises income from bank deposits of
$0.4m (2015: $0.6m) and a gain on the repurchase of convertible
bonds of $0.5m.
Taxation
The total tax charge for the period was $1.5m (2015: $0.8m)
comprising a current tax charge of $1.4m (2015: $2.2m) and a
deferred tax charge of $0.1m (2015: credit $1.4m).
The fall in current tax charge to $1.4m reflects lower
profitability in Ukraine. In Ukraine, the corporate tax rate for
2015 and 2016 was 18%.
Production taxes
Production based tax expense for the period was $8.6m (2015:
$20.8m), representing a 58.7% decrease which has been recognised in
cost of sales.
As part of the JKX's international arbitration against Ukraine
in respect of overpaid production taxes (see Note 14 to the
financial information), 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 took place in the
beginning of July 2016. 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. Therefore, in the
period from January to June 2015 production taxes were recorded at
55% rate but for the full year 2015 the average rate will be 28% as
PPC have re-submitted their tax returns for 2015 using 28%. From
January 2016, the rate of 29% is used for calculating production
taxes.
In Russia, the gas and condensate mineral extraction tax ('MET')
rate applicable in 1H 2016 was 350 Roubles/Mcm (1H 2015: 292
Roubles/Mcm). The formula for MET 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, YGE, is entitled to a 50% discount based on the depth
of our 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
$0.4m in 2016 (2015: $0.7m) and is included in other cost of
sales.
Loss for the period
Loss for the period before exceptional charges was $7.0m (2015:
$13.8m). Basic loss per share before exceptional items was 4.09
cents (2015: 8.01 cents). Basic loss per share after exceptional
items was 5.86 cents (2015: 8.01 cents).
Cash flows
Cash generated from operations was $7.8m (2015: $3.5m). The
increase is as a result of the $0.5m reduction in loss from
operations for the reasons described above adjusted for a $2.2m
decrease in non-cash DD&A and other charges for the year and a
$5.9m cash inflow due to changes in working capital.
Income tax paid in the period decreased to $0.01m (2015: $0.6m),
due to lower profits earned by our Ukrainian subsidiary. Interest
paid during the period comprised $1.4m (2015: $1.6m), in respect of
financing charges on the convertible bond.
Following a full review of operations and capital projects by
the new Board and in anticipation of the Field Development Plan,
group capital spend for the first half-year remained low at $2.2m
(2015: $3.6m).
Net cash outflow from financing activities in the period mainly
relates to the $10.9m repayment of the bond in February 2016 in
addition to $1.7m used to repurchase 11 convertible bonds.
No dividends were paid to shareholders in the period (2015:
nil).
Cash and cash equivalents
The resultant decrease in cash and cash equivalents in the
period before adjusting for foreign exchange effects was $7.6m
(2015: $4.2m). Cash movements explained above allowed liquidity to
be maintained with only a small reduction in period-end cash
balances at $18.4m (31 December 2015: $25.9m). This is despite the
exceptional Board replacement costs of $3.1m, a Bond Put and
interest payment of $12.3m, bond repurchases of $1.7m (explained
below) and $0.7million of legal fees reimbursed to Eclairs and
Glengary and their nominees as a result of the judgement of the
Supreme Court.
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 $0.2m. In June 2016 bonds with a par value of $2.2m were
repurchased by the Company and subsequently cancelled. In addition
to being able to acquire these bonds at a discount, the Company has
also been able to avoid associated interest and redemption costs
amounting to $0.4m that would have been incurred over the next 8
months. As a result of this transaction, the liability facing the
Company in February 2017 has fallen from $30.1m to $27.6m. Further
information on the terms and conditions of the bonds is included in
Notes 8 and 9 to the financial information.
Outlook
Liquidity remains a key risk for the Group, as noted below in
the principal risks section below. As detailed in Note 2 to the
financial information, there remain a number of material
uncertainties that may cast significant doubt about the Group'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 new Board, which was appointed on 28 January 2016, has
assessed all possible options to optimise operations and financial
returns and reduce costs. We have identified non-core costs that
have been removed and we have re-allocated resources toward our
Ukrainian business where we see the most upside for
shareholders.
We have seen positive movements in the Ukrainian investment
climate, namely the reduction of gas production tax rates to 29%
and the lifting of restrictions on dividends payments for 2014 and
2015. The Company is in the process of restarting repatriation of
dividends for these periods.
We committed ourselves to resolve the inherited legal battles
and most of them are now nearing completion. We also started
building more positive relationships with our stakeholders in
Ukraine. 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 operations in Russia are cash flow positive in 2016 and we
will utilise these cash resources for allocation throughout the
Group. The new Board is evaluating further monetisation options of
the Russian assets including additional cost efficiencies to
increase cash flow.
When we announced our 2015 annual results, we said that our
priority would be the restoration shareholders value in JKX. We
continue working towards this goal. We focused on reducing costs
and implementing a robust capital allocation policy which will
ensure maximised cash flows from our assets and improvements to the
Company's profitability and liquidity. We will resume our focus on
investing in oil and gas projects in Ukraine which remains our main
asset.
Risks and uncertainties
The Group continuously monitors the major strategic,
operational, financial and external risks it faces and determines
the appropriate course of action to manage these risks. The key
risks and uncertainties which may impact the Group's performance
have not changed materially from those stated on pages 44 to 53 of
the Group's 2015 Annual Report.
Financial risk management
The main financial risk faced by the Group relate to the
availability of funds to meet business needs and debt servicing
requirements (liquidity risk). The significant factors which are
outside the control of management and which could adversely impact
cash flows, profits and liquidity of the Group remain the
international oil and gas prices and the risks associated with
operating in Ukraine as the near term economic outlook for the
country remains uncertain.
These are the critical factors to consider when addressing the
issue of whether the Group is a going concern (see Note 2).
The principal risks and uncertainties for the remaining six
months of 2016 are identified as being:
Liquidity
All of the Group's revenues and cash flow arise from its oil,
gas, condensate and LPG sales in Ukraine and Russia. Changes in
commodity prices have a direct effect on the Group's liquidity
position (see Commodity prices risk below).
In addition, the Board in place in 2015 suspended all capital
investment in Ukraine as a result of the actions of the Ukrainian
Government to restrict gas sales, increase production taxes and
implement currency restrictions. Suspending investment in appraisal
and development activities in Ukraine has had a significant adverse
impact on the Group's current and future oil and gas production and
therefore also on the Group's sales, profits, cash flow, liquidity
and cash balances.
The Group has a significant obligation of up to $27.6 million
which may become payable pursuant to its $40 million Convertible
Bond in February 2017 if all of the Bondholders exercise their put
option at that time (see Notes 8 and 9 to the condensed
consolidated interim financial information).
However the Directors believe that there is a reasonable basis
to mitigate the effects of such eventualities through a combination
of operational and cash management measures and bond restructuring
options which are currently being assessed.
Tax legislation
The Company's Ukrainian subsidiary, Poltava Petroleum Company
('PPC') has recognised a provision of $10.5 million and has a
contingent liability of approximately $24 million in relation to
court proceedings over the amount of production taxes ('Rental
Fees') paid in Ukraine for certain periods since 2010 (see Note 14
to the condensed consolidated interim financial information). The
Board believes that these claims are without merit under Ukrainian
law and will continue to contest them vigorously.
In addition, the Company continues to pursue a final award under
its arbitration claim against Ukraine, for the overpayment of $180
million of Rental Fees plus damages to the business (see Note 14 to
the condensed consolidated interim financial information). The
claim was heard by the international arbitration tribunal in July
2016 and the Board expect the tribunal's decision by the end of
2016.
Commodity prices - Russia and Ukraine
Our policy is not to hedge commodity price exposure on oil, gas,
LPG or condensate and therefore any change in prices will have a
direct effect on the Group's trading results. We are exposed to
international oil and gas price movements which can be affected by
political developments in Russia and Ukraine. In Russia the
government sets the gas prices at which the Company's Russian
subsidiary, Yuzhgazenergie LLC ('YGE') can sell its gas.
Ukraine has the ability to purchase gas from Europe, which has
more closely aligned Ukrainian gas prices with those across Europe,
which have almost halved since the beginning of 2015. A prolonged
period of low gas prices in Ukraine would impact the Group's
liquidity.
In Russia, from 1 July 2016 the regulated maximum industrial
price has increased by 1.95% however, following a renegotiation of
its gas sales contract, YGE has agreed a temporary reduction of
9.5% to the price at which it sells its gas to its sole buyer. The
Company continues to seek to engage other buyers of its gas in
southern Russia to improve its gas realisations.
Health, Safety and Environment
As we continue with the development and monetisation of our oil
and gas reserves, we are exposed to a wide range of significant
health, safety, security and environmental risks influenced by the
geographic range, operational diversity and technical complexity of
our exploration and production activities.
There are risks of technical failure, accidents, natural
disasters and other adverse conditions where we operate, which
could lead to injury, loss of life, damage to the environment, loss
of containment of hydrocarbons and other hazardous material, as
well as the risk of fires and explosions.
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge, this
condensed consolidated interim financial information has been
prepared in accordance with IAS 34 as adopted by the European
Union, and that the interim management report includes a fair
review of the information required by the Disclosure and
Transparency Rules 4.2.7R and 4.2.8R, namely:
-- an indication of important events that have occurred in the
first six months of 2016 and their impact on the condensed set of
financial information, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related party transactions in the first six months
of 2016 and any material changes in related party transactions
described in the last Annual Report.
A list of current Directors is maintained on the JKX Oil &
Gas plc website www.jkx.co.uk.
On behalf of the Board
Russell Hoare
Chief Financial Officer
28 July 2016
Independent review report to JKX Oil & Gas plc
Report on the condensed consolidated interim financial
information
Our conclusion
We have reviewed JKX Oil & Gas plc's condensed consolidated
interim financial information (the "interim financial statements")
in the half-yearly report of JKX Oil & Gas plc for the 6 month
period ended 30 June 2016. Based on our review, nothing has come to
our attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Emphasis of matter
Without modifying our conclusion on the interim financial
statements, we would like to draw your attention to the disclosure
made in note 2 to the condensed consolidated interim financial
information concerning the Group's ability to continue as a going
concern. A number of potential conditions exist that may impact
this assumption: (i) gas and/or oil net realisations remain at
current levels for the foreseeable future or deteriorate
materially, (ii) the full $27.6 million obligation pursuant to the
$40 million Convertible Bond becomes payable in February 2017, and
(iii) the Group becomes liable for additional Rental Fees in
Ukraine as a result of unfavourable outcomes in one or more of the
ongoing court proceedings. These conditions indicate the existence
of material uncertainties which may cast significant doubt about
the group's ability to continue as a going concern. The interim
financial information does not include the adjustments that would
result if the group was unable to continue as a going concern.
What we have reviewed
The interim financial statements comprise:
the Condensed Consolidated Statement of Financial Position as at
30 June 2016;
the Condensed Consolidated Income Statement and Condensed
Consolidated Statement of Comprehensive Income for the period then
ended;
the Condensed Consolidated Statement of Cash Flows for the
period then ended;
the Condensed Consolidated Statement of Changes in Equity
(unaudited) for the period then ended; and
the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly
report have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Rules and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The half-yearly report, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the
half-yearly report in accordance with the Disclosure Rules and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the half-yearly report based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by our
prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the half-yearly
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
28 July 2016
a) The maintenance and integrity of the JKX Oil & Gas plc
website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the interim financial statements
since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Condensed Consolidated Income Statement
Six months Six months
to to Year to
30 June 30 June 31 December
2016 2015 2015
Note (unaudited) (unaudited) (audited)
$000 $000 $000
----------------------------------------- ----- ------------- ------------- -------------
Revenue 4 35,361 44,380 88,535
----------------------------------------- ----- ------------- ------------- -------------
Cost of sales
----------------------------------------- ----- ------------- ------------- -------------
Exceptional item -production
based taxes 12 - - (10,854)
Exceptional item - provision
for impairment of oil and
gas assets - - (51,055)
Production based taxes (8,595) (20,826) (26,255)
Depreciation, depletion
and amortisation (10,669) (12,632) (26,068)
Other cost of sales (9,747) (12,086) (24,449)
----------------------------------------- ----- ------------- ------------- -------------
Total cost of sales (29,011) (45,544) (138,681)
----------------------------------------- ----- ------------- ------------- -------------
Gross profit/(loss) 6,350 (1,164) (50,146)
Exceptional item- legal
costs 13 - - (2,988)
Exceptional item- remuneration
and severance costs 13 (3,055) - -
Administrative expenses (9,566) (6,572) (17,525)
Gain/(loss) on foreign
exchange 451 471 (4,919)
----------------------------------------- ----- ------------- ------------- -------------
Loss from operations before
exceptional items (2,765) (7,265) (10,681)
----------------------------------------- ----- ------------- ------------- -------------
Loss from operations after
exceptional items (5,820) (7,265) (75,578)
----------------------------------------- ----- ------------- ------------- -------------
Finance income 898 644 1,289
Finance cost (2,376) (2,400) (6,500)
Fair value movement on
derivative liability 9 (1,289) (3,969) (1,921)
Loss before tax (8,587) (12,990) (82,710)
Taxation - current (1,385) (2,203) (4,827)
Taxation - deferred
- before the exceptional
items (117) 1,406 (3,132)
- on the exceptional items - - 9,206
----------------------------------------- ----- ------------- ------------- -------------
Total taxation (1,502) (797) 1,247
----------------------------------------- ----- ------------- ------------- -------------
Loss for the period/year
attributable to equity
shareholders of the parent
company (10,089) (13,787) (81,463)
----------------------------------------- ----- ------------- ------------- -------------
Basic loss per 10p ordinary
share (in cents)
-before exceptional items 15 (4.09) (8.01) (14.97)
-after exceptional items (5.86) (8.01) (47.32)
Diluted loss per 10p ordinary
share (in cents)
-before exceptional items 15 (4.09) (8.01) (14.97)
-after exceptional items (5.86) (8.01) (47.32)
Condensed Consolidated Statement of Comprehensive Income
Six months Six months
to to Year to
30 June 30 June 31 December
2016 2015 2015
(unaudited)) (unaudited) (audited)
$'000 $'000 $'000
----------------------------------- ---- -------------- ------------- -------------
Loss for the period/year (10,089) (13,787) (81,463)
Comprehensive income to
be reclassified to loss
or profit in subsequent
periods when specific conditions
are met
Currency translation differences 14,128 2,985 (26,277)
Other comprehensive income/(loss)
for the year, net of tax 14,128 2,985 (26,277)
----------------------------------------- -------------- ------------- -------------
Total comprehensive income/(loss)
for the period/year attributable
to equity shareholders
of the parent company 4,039 (10,802) (107,740)
----------------------------------------- -------------- ------------- -------------
Condensed Consolidated Statement of Financial Position
As at As at As at
30 June 30 June 31 December
2016 2015 2015
Note (unaudited) (unaudited) (audited)
$000 $000 $000
----------------------------- ----- ------------- ------------------- -------------
Assets
Non-current assets
Property, plant and
equipment 5 196,635 284,737 194,649
Intangible assets 5 7,918 7,436 7,812
Other receivable 6 3,471 4,241 3,534
Deferred tax assets 15,876 19,302 15,603
223,900 315,716 221,598
----------------------------- ----- ------------- ------------------- -------------
Current assets
Inventories 5,075 4,512 3,689
Trade and other receivables 6,761 9,312 11,695
Restricted cash 7 259 319 312
Cash and cash equivalents 7 18,365 22,091 25,943
----------------------------- ----- ------------- ------------------- -------------
30,460 36,234 41,639
----------------------------- ----- ------------- ------------------- -------------
Total assets 254,360 351,950 263,237
----------------------------- ----- ------------- ------------------- -------------
Liabilities
Current liabilities
Trade and other payables (17,288) (13,637) (18,977)
Borrowings 8 (23,816) (10,068) (10,856)
Provisions 12 (10,481) - (10,854)
Derivatives (1,995) - -
(53,580) (23,705) (40,687)
----------------------------- ----- ------------- ------------------- -------------
Non-current liabilities
Provisions 12 (4,310) (4,008) (4,135)
Other payable (3,471) (4,241) (3,534)
Borrowings 8 - (22,719) (23,494)
Derivatives 9 - (4,219) (2,171)
Deferred tax liabilities (14,671) (22,204) (14,950)
(22,452) (57,391) (48,284)
----------------------------- ----- ------------- ------------------- -------------
Total liabilities (76,032) (81,096) (88,971)
----------------------------- ----- ------------- ------------------- -------------
Net assets 178,328 270,854 174,266
----------------------------- ----- ------------- ------------------- -------------
Equity
Share capital 11 26,666 26,666 26,666
Share premium 97,476 97,476 97,476
Other reserves (165,417) (150,283) (179,545)
Retained earnings 219,603 296,995 229,669
Total equity 178,328 270,854 174,266
----------------------------- ----- ------------- ------------------- -------------
Condensed Consolidated Statement of Changes in Equity
(unaudited)
Attributable to equity shareholders of the parent
------------- -----------------------------------------------------------------------
Other reserves
Foreign
Capital currency
Share Share Retained Merger redemption translation
capital premium earnings reserve reserve reserve Total
$000 $000 $000 $000 $000 $000 $000
--------------- ------------- ------------- ------------ ------------- ------------ ------------- ---------
At 1 January
2015 26,666 97,476 310,474 30,680 587 (184,535) 281,348
Loss for the
period - - (13,787) - - - (13,787)
Exchange
differences
arising on
translation
of overseas
operations - - - - - 2,985 2,985
--------------- ------------- ------------- ------------ ------------- ------------ ------------- ---------
Total
comprehensive
(loss)/income
attributable
to equity
shareholders
of the parent - - (13,787) - - 2,985 (10,802)
--------------- ------------- ------------- ------------ ------------- ------------ ------------- ---------
Transactions
with equity
shareholders
of the parent
Share-based
payment
charge - - 308 - - - 308
Total
transactions
with equity
shareholders
of the parent - - 308 - - - 308
--------------- ------------- ------------- ------------ ------------- ------------ ------------- ---------
At 30 June
2015 26,666 97,476 296,995 30,680 587 (181,550) 270,854
--------------- ------------- ------------- ------------ ------------- ------------ ------------- ---------
At 1 January
2016 26,666 97,476 229,669 30,680 587 (210,812) 174,266
Loss for the
period - - (10,089) - - - (10,089)
Exchange
differences
arising on
translation
of overseas
operations - - - - - 14,128 14,128
--------------- ------------- ------------- ------------ ------------- ------------ ------------- ---------
Total
comprehensive
(loss)/income
attributable
to equity
shareholders
of the parent - - (10,089) - - 14,128 4,039
--------------- ------------- ------------- ------------ ------------- ------------ ------------- ---------
Transactions
with equity
shareholders
of the parent
Share-based
payment
charge - - 23 - - - 23
--------------- ------------- ------------- ------------ ------------- ------------ ------------- ---------
Total
transactions
with equity
shareholders
of the parent - - 23 - - - 23
--------------- ------------- ------------- ------------ ------------- ------------ ------------- ---------
At 30 June
2016 26,666 97,476 219,603 30,680 587 (196,684) 178,328
--------------- ------------- ------------- ------------ ------------- ------------ ------------- ---------
Condensed Consolidated Statement of Cash Flows
Six months Six months
to to Year to
30 June 30 June 31 December
2016 2015 2015
Note (unaudited) (unaudited) (audited)
$'000 $'000 $'000
--------------------------------- ----- -------------- -------------- --------------
Cash flows from operating
activities
Cash generated from operations 17 7,828 3,508 12,797
Interest paid (1,440) (1,600) (3,040)
Income tax paid (6) (631) (696)
Net cash generated from
operating activities 6,382 1,277 9,061
--------------------------------- ----- -------------- -------------- --------------
Cash flows from investing
activities
Decrease in held-to-maturity
investments - 2,700 2,700
Interest received 420 967 1,612
Proceeds from sale of property,
plant and equipment 220 - -
Purchase of property, plant
and equipment (2,152) (3,551) (5,630)
Purchase of intangible
assets - (95) (612)
--------------------------------- ----- -------------- -------------- --------------
Net cash (used in)/generated
from investing activities (1,512) 21 (1,930)
--------------------------------- ----- -------------- -------------- --------------
Cash flows from financing
activities
Restricted cash 53 240 247
Repayment of borrowings (10,856) (5,738) (5,738)
Repurchase of convertible
bonds (1,692) - -
--------------------------------- ----- -------------- -------------- --------------
Net cash used in financing
activities (12,495) (5,498) (5,491)
--------------------------------- ----- -------------- -------------- --------------
(Decrease)/increase in
cash and cash equivalents
in the period/year (7,625) (4,200) 1,640
Effect of exchange rates
on cash and cash equivalents 47 907 (1,081)
Cash and cash equivalents
at the beginning of the
period/year 25,943 25,384 25,384
Cash and cash equivalents
at the end of the period/year 7 18,365 22,091 25,943
--------------------------------- ----- -------------- -------------- --------------
Notes to the interim financial information
1. General information and accounting policies
JKX Oil & Gas plc (the ultimate parent of the Group) is a
public limited company listed on the London Stock Exchange and
incorporated in England. The registered office is 6 Cavendish
Square, London, W1G 0PD and the principal activities of the Group
are exploration, appraisal, development and production of oil and
gas reserves. The registered number of the Company is 03050645.
The condensed consolidated interim financial information
incorporate the results of JKX Oil & Gas plc and its subsidiary
undertakings as at 30 June 2016 and was approved by the Directors
for issue on 28 July 2016.
This condensed consolidated interim financial information does
not constitute accounts within the meaning of section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31
December 2015 were approved by the Board of Directors on 18 March
2016 and delivered to the Registrar of Companies. The report of the
auditors on those accounts while 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.
This condensed consolidated interim financial information has
not been audited, but was the subject of an independent review
carried out by the Company's auditors, PricewaterhouseCoopers
LLP.
2. Basis of preparation
This condensed consolidated interim financial information for
the six months ended 30 June 2016 has been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34, 'Interim financial reporting' as adopted
by the European Union. The condensed consolidated interim financial
information should be read in conjunction with the annual financial
statements for the year ended 31 December 2015 which were prepared
in accordance with International Financial Reporting Standards as
adopted by the European Union. A copy of the annual financial
statements is available on the Company's corporate website
(www.jkx.co.uk) or from the Company's registered office.
The Group's business activities, together with factors likely to
affect its future development, performance and position are set out
in the operational and financial review sections of this report.
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the financial
review section.
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.
The low international oil and gas prices seen in 2015 have
continued through the first half of 2016 with some recovery during
the second quarter. These low prices coupled with a devaluation of
the Ukrainian Hryvnia have reduced the oil and gas net realisations
from JKX's Ukrainian operations and adversely affected the
financial results of the Group, and will continue to do so if
prices and the currency do not recover.
The Group has a significant obligation of up to $27.6 million
which may become payable pursuant to its $40 million Convertible
Bond in February 2017 if all of the Bondholders exercise their put
option at that time (see Notes 8 and 9 to the condensed
consolidated interim financial information). 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 $28.5
million will become payable, the amount being dependent on the
number of remaining Bonds that were not put in February 2017 (see
Notes 8 and 9 to the condensed consolidated interim financial
information).
The Directors believe that there is a reasonable basis to
mitigate the effects of such eventualities through a combination of
operational and cash management measures and bond restructuring
options which are currently being assessed.
The Company's Ukrainian subsidiary, Poltava Petroleum Company
('PPC') has recognised a provision of $10.5 million and has a
contingent liability of approximately $24 million in relation to
court proceedings over the amount of production taxes ('Rental
Fees') paid in Ukraine for certain periods since 2010 (see Note 14
to the condensed consolidated interim financial information). The
Board believes that these claims are without merit under Ukrainian
law and will continue to contest them vigorously.
In addition, the Company continues to pursue a final award under
its arbitration claim against Ukraine, for the overpayment of $180
million of Rental Fees plus damages to the business (see Note 14 to
the condensed consolidated interim financial information). The
claim was heard by the international arbitration tribunal in early
July 2016 and the Board expect the tribunal's decision by the end
of 2016.
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 $27.6 million obligation
pursuant to the $40 million Convertible Bond becoming payable in
full in February 2017 and (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. 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 bond restructuring or
refinancing options which are currently being assessed, mean that
it is appropriate to continue to adopt the going concern basis of
accounting in preparing the condensed consolidated interim
financial information. The financial information does not include
the adjustments that would result if the Group was unable to
continue as a going concern.
3. Accounting policies
The accounting policies adopted are consistent with those used
in the annual financial statements for the year ended 31 December
2015 and those expected to be applied in the 31 December 2016
annual financial statements. Taxes on income in the interim period
are accrued using the tax rate that would be applicable on expected
total annual earnings. There were no new standards, interpretations
or amendments to standards issued and effective for the period
which materially impacted the Group. During the period the Group
adopted the following new accounting policy:
Upon redemption of convertible bonds by the Company in the
market, the difference between the repurchase cost and the total of
the carrying amount of the liability plus the repurchased embedded
option to convert is recorded in the income statement. The gain in
the period on the repurchase of convertible bonds (see Note 8) has
been recognised in the income statement under Finance income.
4. Segmental analysis
The Group has one single class of business, being the
exploration for, appraisal, 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 (2015: 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 arms 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.
First half 2016 UK Ukraine Russia Rest of World Sub total Eliminations Total
$000 $000 $000 $000 $000 $000 $000
----------------------------------- -------- -------- -------- -------------- ---------- ------------- --------
External revenue
Revenue by location of asset
- Oil - 5,920 289 - 6,209 - 6,209
- Gas - 18,424 9,440 - 27,864 - 27,864
- LPG - 1,288 - - 1,288 - 1,288
- 25,632 9,729 - 35,361 - 35,361
----------------------------------- -------- -------- -------- -------------- ---------- ------------- --------
Inter segment revenue
- Management services/other 4,094 - - - 4,094 (4,094) -
4,094 - - - 4,094 (4,094) -
----------------------------------- -------- -------- -------- -------------- ---------- ------------- --------
Total revenue 4,094 25,632 9,729 - 39,455 (4,094) 35,361
----------------------------------- -------- -------- -------- -------------- ---------- ------------- --------
(Loss)/profit before tax
(Loss)/profit from operations (5,719) 542 (59) (556) (5,792) (28) (5,820)
Finance income 898 - 898
Finance cost (2,376) - (2,376)
Fair value movement on derivative
liability (1,289) - (1,289)
----------------------------------- -------- -------- -------- -------------- ---------- ------------- --------
Loss before tax (8,559) (28) (8,587)
-------- -------- -------- --------------
Total assets 8,667 113,555 118,479 13,659 254,360 - 254,360
----------------------------------- -------- -------- -------- -------------- ---------- ------------- --------
First half 2015 UK Ukraine Russia Rest of World Sub total Eliminations Total
$000 $000 $000 $000 $000 $000 $000
---------------------------------- -------- -------- -------- -------------- ---------- ------------- ---------
External revenue
Revenue by location of asset
- Oil - 7,046 252 - 7,298 - 7,298
- Gas - 26,771 7,398 - 34,169 - 34,169
- LPG - 2,244 - - 2,244 - 2,244
-Management services/other - 669 - - 669 - 669
- 36,730 7,650 - 44,380 - 44,380
---------------------------------- -------- -------- -------- -------------- ---------- ------------- ---------
Inter segment revenue
- Management services/other 5,602 - - - 5,602 (5,602) -
5,602 - - - 5,602 (5,602) -
---------------------------------- -------- -------- -------- -------------- ---------- ------------- ---------
Total revenue 5,602 36,730 7,650 - 49,982 (5,602) 44,380
---------------------------------- -------- -------- -------- -------------- ---------- ------------- ---------
(Loss)/profit before tax
(Loss)/profit from operations (3,231) 1,553 (4,451) (1,116) (7,245) (20) (7,265)
Finance income 644 - 644
Finance cost (2,400) - (2,400)
Fair value movement on derivative
liability (3,969) - (3,969)
---------------------------------- -------- -------- -------- -------------- ---------- ------------- ---------
Loss before tax (12,970) (20) (12,990)
-------- -------- -------- --------------
Total assets 10,808 180,497 144,017 16,628 351,950 - 351,950
---------------------------------- -------- -------- -------- -------------- ---------- ------------- ---------
5. Property, plant and equipment and other intangible assets
During the period the Group acquired $2.2m additional assets
(2015: $4.2m) in Ukraine, Russia and Hungary, with 100% (2015: 97%)
in respect of Group's oil and gas producing and development assets
and nil (2015: 2%) being spent on intangible assets.
6. Other receivable
The non-current receivable consists of VAT recoverable as a
result of expenditures incurred in Russia. The receivable is
expected to be recovered between two and five years (2015: two and
five years).
7. Cash
1 January 30 June
2016 Net movement 2016
$000 $000 $000
--------------------------- ---------- -------------------- --------
Cash 20,244 (10,108) 10,136
Short term deposits 5,699 2,530 8,229
Cash and cash equivalents 25,943 (7,578) 18,365
Restricted cash 312 (53) 259
Total 26,255 (7,631) 18,624
--------------------------- ---------- -------------------- --------
Short term deposits comprise amounts which are held on deposit,
but are readily convertible to cash.
Restricted cash
At 30 June 2016 $0.3m (31 December 2015: $0.3m) of the cash held
in Hungary at K & H Bank Zrt was restricted as under the
Hungarian Mining Act the Group is required to deposit cash to cover
compensation for any land damage and the costs of recultivation,
including environmental damage of the waste management
facilities.
8. Borrowings
30 June 30 June 31 December
2016 2015 2015
$000 $000 $000
----------------------------- -------- -------- ------------
Current
Convertible bonds due 2018 23,816 10,068 10,856
Term-loans repayable within
one year 23,816 10,068 10,856
Non-current
Convertible bonds due 2018 - 22,719 23,494
----------------------------- -------- -------- ------------
Term-loans repayable after
more than one year - 22,719 23,494
----------------------------- -------- -------- ------------
Convertible bonds due 2018
On 19 February 2013 the Company successfully completed the
placing of $40m of guaranteed unsubordinated convertible bonds with
institutional investors which are due 2018 raising cash of $37.2m
net of issue costs.
The Bonds have an annual coupon of 8 per cent per annum payable
semi-annually in arrears. The Bonds are convertible into ordinary
shares of the Company at any time up until seven days prior to
their maturity on 19 February 2018 at a conversion price of 76.29
pence per Ordinary Share, unless the Company settles the conversion
notice by paying the Bondholder the Cash Alternative Amount (see
below).
Interest, after the deduction of issue costs and the inclusion
of the redemption premium, will be charged to the income statement
using an effective rate of 18.0%.
Cash Alternative Amount
At the option of the Company, the conversion notice in respect
of the Bonds can be settled in cash rather than shares, the Cash
Alternative Amount payable is based on the Volume Weighted Average
Price of the Company's shares prior to the conversion notice.
Convertible bonds repurchased
On 7 June 2016 Company repurchased and subsequently cancelled 11
Bonds with par value of $2.2m for consideration of $1.7m resulting
in $0.5m gain, which has been included in Finance income for the
period.
Credit Facility
On 31 March 2011, Poltava Petroleum Company ('PPC'), our
subsidiary in Ukraine, entered into a reducing credit facility
agreement with Crédit Agricole CIB (France) secured by indemnity
provided by the parent company, JKX Oil & Gas plc. The credit
facility was for a maximum of Ukrainian Hryvnia equivalent of
$15.0m. The facility was renewed on 27 June 2014 and was available
until 30 June 2015 with the maximum facility reducing to $10.0m and
$5.0m on 30 April 2015 and 30 May 2015 respectively. All provisions
contained in the credit facility documentation were negotiated on
normal commercial and customary terms for such finance
arrangements. The interest was calculated at prevailing Crédit
Agricole CIB (France) bank rate plus a margin.
The credit facility with Crédit Agricole CIB (France) lapsed on
30 June 2015.
9. Derivatives
30 June 30 June 31 December
2016 2015 2015
Current derivative financial
instruments $000 $000 $000
------------------------------------- -------- -------- --------------
Reclassification from non-current
derivative financial instruments 1,995 - -
------------------------------------- -------- -------- --------------
At the end of the period/year 1,995 - -
------------------------------------- -------- -------- --------------
Non-current derivative financial
instruments
------------------------------------- -------- -------- --------------
At the beginning of the period/year 2,171 1,037 1,037
Partial settlement of derivative
liability (1,465) (787) (787)
Fair value loss during the
period/year 1,289 3,969 1,921
Reclassification to current
derivative financial instruments (1,995) - -
------------------------------------- -------- -------- --------------
At the end of the period/year - 4,219 2,171
------------------------------------- -------- -------- --------------
Convertible bonds due 2018 - embedded derivatives
Bondholder Put Option
Bondholders have the right to require the Company to redeem the
following number of Bonds on the following future dates together
with accrued and unpaid interest to (but excluding) such dates:
Redemption Maximum number of Bonds to be redeemed
Date
------------ ---------------------------------------
19 February
2017 all outstanding Bonds
------------ ---------------------------------------
Current liabilities include $23.8m (31 December 2015: $10.1m) in
respect of the put option available to bondholders on 19 February
2017 (31 December 2015: 19 February 2016). Bonds with a principal
amount of $10.0m were redeemed on 19 February 2016 (19 February
2015: $4.0m) in addition the payment of an early redemption premium
of $0.9m (19 February 2015: $0.2m) in accordance with the terms and
conditions of the bond.
Company Call Option
The Company can redeem the Bonds early in full but not in part
at their principal amount together with accrued interest at any
time on or after 19 February 2017 if the Volume Weighted Average
Price of the Company's shares over a specified period equal or
exceed 130 per cent of the principal amount of the Bonds; or if the
aggregate principal amount of the bonds outstanding is less than
15% of the aggregate principal amount originally issued.
Fixed exchange rate
The Sterling-US Dollar exchange rate is fixed at GBP1/$1.5809
for the conversion and other features.
10. Financial instruments
Fair values of financial assets and financial liabilities -
Group
Set out below is a comparison by category of carrying amounts
and fair values of the Group's financial instruments. Fair value is
the amount at which a financial instrument could be exchanged in an
arms length transaction. Where available, market values have been
used (this excludes short term assets and liabilities).
Book Fair Book and
Value Value Fair Value
30 June 30 June 31 December
2016 2016 2015
$000 $000 $'000
Financial assets
Cash and cash equivalent and restricted
cash (Note 7) 18,624 18,624 26,255
Trade receivables - classified
as loans and receivables 3,361 3,361 3,168
Other receivables - classified
as loans and receivables 314 314 5,143
Financial liabilities
Trade payables - carried at amortised
cost 2,282 2,282 2,701
Other payables - carried at amortised
cost 3,300 3,300 2,692
Borrowings - convertible bond
due 2018 (Note 8) - at amortised
cost 23,816 17,624 34,350
Derivatives - fair value through
profit or loss (Note 9) 1,995 1,995 2,171
------------------------------------------ -------- -------- ----------------
Financial liabilities measured at amortised cost are carried at
$31.4m (31 December 2015: $39.7m). The Group's borrowings at 30
June 2016 relate entirely to the convertible bond due 2018.
Fair value hierarchy
Derivatives
At the period end the Group's derivative financial instrument
related to various embedded derivatives within the convertible
bonds due in 2018 (Note 9). The value of the derivative was
calculated at inception using the Monte Carlo simulation
methodology and subsequently using the Black-Scholes formula,
discounted cash flow methodology, and the Company's historic share
price and volatility, treasury rates and other estimations. As it
was derived from inputs that are not from observable market data it
was grouped into level 3 within the fair value measurement
hierarchy.
The main assumptions used in valuation of the derivative
conversion option as at 30 June 2016 were:
-- underlying share price of: GBP0.1625 (31 December 2015: GBP0.2725);
-- GBP/US$ spot rate of 1.3311 (31 December 2015: GBP1/$1.4736);
-- historic volatility of 30.7% (31 December 2015: 45.0%);
-- discount rate of 8.2% (31 December 2015: 8.2%);
-- risk free rate based on 1.64 year (31 December 2015: 2.14
year) US Treasury rate of 0.574% (31 December 2015: 0.932%).
A 10% increase/decrease in Company's historic share price
volatility would have no significant impact on the fair value loss
for the period (31 December 2015: increase in the fair value loss
for the year of $0.3m, decrease in the fair value loss of $0.1m,
respectively), assuming that all other variables remain
constant.
Credit risk - Group
The Group has policies in place to ensure that sales of products
are made to customers with appropriate credit worthiness. The Group
limits credit risk by assessing creditworthiness of potential
counterparties before entering into transactions with them and
continuing to evaluate their creditworthiness after transactions
have been initiated. Where appropriate, the use of prepayment for
product sales limits the exposure to credit risk. There is no
difference between the carrying amount of trade and other
receivables and the maximum credit risk exposure.
The maximum financial exposure due to credit risk on the Group's
financial assets, representing the sum of cash and cash
equivalents, trade receivables, held to maturity financial
investments and other current assets, as at 30 June 2016 was $22.3m
(31 December 2015: $34.6m).
Capital management - Group
The Directors determine the appropriate capital structure of the
Group specifically, how much is raised from shareholders (equity)
and how much is borrowed from financial institutions (debt) in
order to finance the Group's business strategy.
The Group's policy as to the level of equity capital and
reserves is to ensure that it maintains a strong financial position
and low gearing ratio which provides financial flexibility to
continue as a going concern and to maximise shareholder value. The
capital structure of the Group consists of shareholders' equity
together with net debt. The Group's funding requirements are met
through a combination of debt, equity and operational cash
flow.
Net debt
Net debt comprises: borrowings disclosed in Note 8 and total
cash in Note 7, and excludes derivatives. Equity attributable to
the shareholders of the Company comprises issued capital, capital
reserves and retained earnings, (see Condensed consolidated
statement of changes in equity).
The capital structure of the Group is as follows:
30 June 31 December
2016 2015
$000 $000
------------------------------------------ --------- ------------
Borrowings (Note 8) (23,816) (10,856)
Convertible bonds due 2018 - Non-current
liability (Note 8) - (23,494)
Total cash (Note 7) 18,624 26,255
------------------------------------------ --------- ------------
Net debt (5,192) (8,095)
------------------------------------------ --------- ------------
Total equity 178,328 174,266
------------------------------------------ --------- ------------
Following the issue of $40m of convertible bonds in February
2013, the primary capital risk to the Group is the level of
indebtedness. The convertible bond includes a financial covenant
which limits the Group's indebtedness (excluding the bonds
themselves and the $15.0m Credit Agricole facility) in respect of
any new borrowings (in addition to the bond amount) to three times
12-month free cash flow based on the most recently published
consolidated financial statements. During the period/year the Group
complied with this financial covenant.
Liquidity risk - Group
The treasury function is responsible for liquidity, funding and
settlement management under policies approved by the Board of
Directors. Liquidity needs are monitored using regular forecasting
of operational cash flows and financing commitments. The Group
maintains a mixture of cash and cash equivalents and committed
facilities in order to ensure sufficient funding for business
requirements.
Significant restrictions
Temporary capital controls were established by the National Bank
of Ukraine ('NBU') on 1 December 2014 in an attempt by the
Ukrainian government to safeguard the economy and protect foreign
exchange reserves in the short term.
On 4 March 2015 a number of new NBU Resolutions were implemented
with immediate effect (NBU No. 160 dated 3 March 2015; Resolution
of the NBU No. 161 dated 3 March 2015; Resolution of the NBU No.
154 dated 2 March 2015).
The Resolutions extended the currency control restrictions
implemented in Ukraine on 1 December 2014 and introduced additional
measures which have the impact of restricting the remittance of
funds to foreign investors under certain conditions and bans the
transfer of Hryvnia to purchase Ukrainian Government bonds.
The restrictions were effective until 8 June 2016 but have
subsequently been eased by the NBU resolution No. 342 on 9 June
2016. The resolution enables the repatriation of dividends from
JKX's Ukrainian subsidiary for the years 2014 and 2015.
Prior to the easing of restrictions, Cash and short-term
deposits held in Ukraine were subject to local exchange control
regulations which restricted exporting capital from Ukraine.
Following the easing of these restrictions on 9 June 2016, no cash
or short term deposits included within this consolidated financial
information is restricted (31 December 2015: $6.1m).
The following tables set out details of the expected contractual
maturity of non-derivative financial liabilities. The tables
include both interest and principal cash flows on an undiscounted
basis. To the extent that interest flows are floating rate, the
undiscounted amount is derived from interest rate curves at the
reporting date.
The maturity analysis for Convertible bonds due 2018 is based on
the earliest Put dates for the relevant portions of the Bonds (see
Note 8) of 19 February 2017.
Within 3 3months- 1-2
months 1year years
Group - 30 June 2016 $000 $000 $000
Maturity of financial liabilities
Trade payables 2,282 - -
Other payables 3,300 - -
Borrowings - Convertible
bonds due 2018 - 23,816 -
----------------------------------- --------- --------- -------
Within 3 3 months- 1-2
months 1year years
Group - 31 December 2015 $000 $000 $000
Maturity of financial liabilities
Trade payables 2,701 - -
Other payables 2,692 - -
Borrowings - Convertible
bonds due 2018 12,296 1,040 30,171
----------------------------------- --------- ---------- -------
Interest rate risk profile of financial assets and liabilities -
Group
In the comparative period the Group was exposed to interest rate
risk principally in relation to the balance outstanding on the
credit facility with Crédit Agricole CIB (France) where interest is
calculated at prevailing Crédit Agricole CIB (France) bank rate
plus a margin, however there were no balances outstanding on this
facility. The facility lapsed on 30 June 2015.
Fixed rate interest is charged on the Group's convertible bond
(see Note 8). The interest rate profile of the other financial
assets and liabilities of the Group as at 30 June is as follows
(excluding short-term assets and liabilities, non-interest
bearing):
2016 2015
Within Within
1 1
Year Year
Group - period ended 30 June $000 $000
------------------------------ -------- --------
Floating rate
Short term deposits (Note 7) 8,229 5,699
Other receivables 314 5,143
Other payables 3,300 2,692
------------------------------ -------- --------
Floating rate financial assets comprise cash deposits placed on
money markets at call, seven day and monthly rates.
11. Share capital
Equity share capital, denominated in Sterling, was as
follows:
2016 2016 2016 2015 2015 2015
Number GBP000 $000 Number GBP000 $000
------------------------ ------------ ------- ------- ------------ ------- -------
Allotted, called
up and fully paid
Balance at 1 January
and 30 June 172,125,916 17,212 26,666 172,125,916 17,212 26,666
Of which the following
are shares held
in treasury:
------------------------ ------------ ------- ------- ------------ ------- -------
Treasury shares
held at 1 January
and 30 June 402,771 40 77 402,771 40 77
------------------------ ------------ ------- ------- ------------ ------- -------
Treasury shares and Employee Benefit Trust
The Company did not purchase any treasury shares during 2016
(2015: nil). There were no treasury shares used in 2016 (2015: nil)
to settle share options.
JKX Employee Benefit Trust was established in 2013 and acquired
5,000,000 shares in JKX Oil & Gas plc for the purpose of making
awards under the Group's employee share schemes and these shares
have been classified in the statement of financial position as
treasury shares within equity.
None of these shares were used during the period (2015: nil) to
settle share options. At the period end JKX Employee Benefit Trust
held 5,000,000 shares in JKX Oil & Gas plc.
There are no shares reserved for issue under options or
contracts.
12. Provisions
30 June 30 June 31 December
Current provisions 2016 2015 2015
$000 $000 $000
------------------------ ---- ---- ---- ------------ -------- ----------------
Ukrainian production
based taxes ('Rental
Fees') 10,481 - 10,854
------------------------ ---- ---- ------- -------- -------- ----------------
Exceptional production based taxes
The provision, which was recognised as a charge to the
Consolidated income statement in 2015, is in respect of a claim
against PPC for additional Rental Fees for the period from August
to December 2010. The claim is being contested in the Ukrainian
courts (see Note 14). The amount is denominated in Ukrainian
Hryvnia ('UAH') and is stated above at its US$-equivalent amount
using the period end rate of UAH24.9/$ (2015: UAH 24.0/$). The
provision is based on the total value of the claim plus interest
and penalties. The Board believes that the claim is without merit
under Ukrainian law and the Company will continue to contest it
vigorously.
Contingent liabilities
Other contingent liabilities in respect of Ukrainian production
taxes are explained in Note 14.
Non-current provisions
30 June 30 June 31 December
2016 2015 2015
$000 $000 $000
-------------------------------- -------- -------- ------------
Provision for site restoration 4,310 4,008 4,135
-------------------------------- -------- -------- ------------
13. Exceptional items
Exceptional item - remuneration and severance costs
Exceptional charges of $3.1million comprise the following:
-- $2.5 million of severance costs and additional remuneration
which the previous Board approved and paid prior to the General
Meeting on 28 January 2016;
-- $0.5 million of professional advisory fees incurred in
relation to the General Meeting and the replacement of the Board on
28 January 2016;
-- $0.1 million severance costs incurred as a result of staff reductions at the Group's London headquarters.
Exceptional item - legal costs
The Company was involved in Court proceedings since July 2013
with two shareholders.
The shareholders appealed to the Supreme Court contesting the
Appeal Court ruling made in May 2014 in favour of the Company. In
December 2015 the Supreme Court overturned the Appeal Court ruling
and therefore the Company is required to settle the appropriate
portion of the legal expenses incurred by the two shareholders
during the process.
14. Taxation
No UK tax liability has arisen during the six months ended 30
June 2016 (2015: $nil) due to the availability of tax losses. The
current tax charged in the period relates to Ukrainian corporation
tax which has arisen in the Group's subsidiary, Poltava Petroleum
Company. Taxes charged on production of hydrocarbons in Ukraine,
Russia and Hungary are included in cost of sales.
Factors that may affect future tax charges
A significant proportion of the Group's income will be generated
overseas. Profits made overseas will not be able to be offset by
costs elsewhere in the Group. This could lead to a higher than
expected tax rate for the Group.
The UK corporation tax rate changes announced in the July 2015
Budget include reductions to the main rate of UK corporation tax to
19% in 2017 and 17% 2020. The impact of the rate reduction is not
expected to have a material impact on provided and unprovided UK
current or deferred taxation.
The corporation tax rate in Ukraine for 2016 is 18% (2015:
18%).
Taxation in Ukraine - production taxes
Since Poltava Petroleum Company's ('PPC's') inception in 1994
the Company has operated in a regime where conflicting laws have
existed, including in relation to effective taxes on oil and gas
production.
In order to avoid any confusion over the level of taxes due, in
1994, PPC entered into a licence agreement with the Ukrainian State
Committee on Geology and the Utilisation of Mineral Resources ('the
Licence Agreement') which set out expressly in the Licence
Agreement that PPC would pay royalties on production at a rate of
only 5.5% of sales value for the duration of the Licence
Agreement.
Pursuant to the Licence Agreement, PPC was granted an
exploration licence and four 20-year production licences, each in
respect of a particular field. In 2004, PPC's production licences
were renewed and extended until 2024, Subsoil Use Agreements were
signed and attached to the licences and operations continued as
before.
The Company and PPC have continued to invest in Ukraine on the
basis that PPC would pay a royalty on sales at a rate of 5.5%.
In December 1994, a new fee on the production of oil and gas
(known as a 'Rental Payment' or 'Rental Fee') was introduced
through Ukrainian regulations. On 30 December 1995, JKX, together
with its Ukrainian subsidiaries (including PPC), was issued with a
Joint Decision of the Ministry of Economy, the Ministry of Finance
and the State Committee for the Oil and Gas ('the Exemption
Letter'), which established a zero rent payment rate for oil and
natural gas produced in Ukraine by PPC for the duration of the
Licence Agreement for Exploration and Exploitation of the Fields.
Based on the Exemption Letter PPC did not expect to pay any Rental
Fees.
Rental Fees paid since 2011
In 2011, new laws were enacted which established new mechanisms
for the determination of the Rental Fee. Notwithstanding the
Exemption Letter, in January 2011 PPC began to pay the Rental Fee
in order to avoid further issues with the Ukrainian authorities but
without prejudice to its right to challenge the validity of the
demands.
Since 2011, the Rental Fees paid by PPC have amounted to more
than $180 million. These charges have been recorded in cost of
sales in each of the accounting periods to which they relate.
International arbitration proceedings
In 2015, the Company and its wholly-owned Ukrainian and Dutch
subsidiaries commenced arbitration proceedings against Ukraine
under the Energy Charter Treaty, the bilateral investment treaties
between Ukraine and the United Kingdom and the Netherlands,
respectively. In these proceedings, the Company is seeking a
repayment of more than $180 million in Rental Fees that PPC has
paid on production of oil and gas in Ukraine since 2011, in
addition to damages to the business.
During 2015 Rental Fees in Ukraine were increased to 55% and
capital control restrictions were introduced. On 14 January 2015,
an Emergency Arbitrator issued an Award ordering Ukraine not to
collect Rental Fees from PPC in excess of 28% on gas produced by
PPC, pending the outcome of the application to a full tribunal for
the Interim Award. 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 was to remain in effect until final judgement
is rendered on the main arbitration case, which was heard in early
July 2016. A decision from the tribunal is expected by the end of
2016.
Rental Fee demands
The Group currently has three claims (2015: three) for
additional Rental Fees being contested through the Ukrainian court
process. These arise from disputes over the amount of Rental Fees
paid by PPC for certain periods since 2007, which in total amount
to approximately $34 million (31 December 2015: $35 million)
(including interest and penalties), as detailed below. All amounts
are being claimed in Ukrainian Hryvnia ('UAH') and are stated below
at their US$-equivalent amounts using the period end rate of
UAH24.9/$ (31 December 2015: UAH24.0/$). The Board believes that
these claims are without merit under Ukrainian law and the Company
will continue to contest them vigorously.
-- August - December 2010: approximately $10.5 million (31
December 2015: $10.9 million) (including $5 million of interest and
penalties). On 11 March 2014 PPC won the case in the Poltava Court.
The tax office appealed and the Kharkov Court of Appeal reversed
the earlier decision. PPC then lost an appeal in the High
Administrative Court of Ukraine and the Supreme Court rejected
PPC's application for the appeal. PPC is exploring the possibility
of filing another appeal with the Supreme Court of Ukraine. The
Board intends to continue to pursue a successful decision in this
case.
-- January - December 2015: approximately $23 million (31
December 2015: $24 million) (including $9 million of interest and
penalties). Following the commencement of international arbitration
proceedings at the beginning of 2015 (see above), from July 2015
PPC reverted to paying a 28% Rental Fee for gas production (instead
of the revised official rate of 55%) as a result of the awards
granted under the arbitration. PPC also declared part of its Rental
Fee payments at 55% for the first 6 months of 2015 as overpayments
and consequently stopped paying the Rental Fee for gas in order to
align the total payments made in 2015 with the 28% rate awarded
made under the arbitration proceedings. The Ukrainian tax
authorities have issued PPC with claims for the difference between
28% and 55%. PPC is in the process of court hearings in respect of
the claim, although the Company considers such claims to be in
direct violation of the Interim Award received from the arbitration
tribunal, noted above. In addition, in April 2016, the tax
authorities issued PPC with a separate demand for $0.1 million of
penalties and interest on unpaid Rental Fees for the period of
August-October 2015.
In the prior period there was a claim of approximately $6
million (including $3 million of interest and penalties) relating
to the period January - March 2007. During the period the Supreme
Court of Ukraine ruled in favour of the Company in respect of this
claim and a second parallel case related to this claim was won by
PPC with the High Administration Court of Ukraine.
As part of these proceedings, property, plant and equipment that
cost UAH158m (approximately $6.3m at the period end rate of
UAH24.9/$) was required to be pledged as security against the
non-settlement of the 2010 Rental Fee claim that may arise in the
event that the Ukrainian authorities are successful. The net book
value of the property, plant and equipment is $22.0m based on the
historical exchange rates at the dates of acquisition which were
between UAH5/$1 and UAH8/$1.
A provision for $10.5m is recognised in respect of the claim for
the period from August-December 2010 (see Note 12). No provision
has been made for the possible future liabilities that may result
from the tax uncertainties in respect of the claims for the period
from January-December 2015.
No adjustment has been made to recognise any possible future
benefit to the Company that may result from the international
arbitration proceedings.
15. Loss per share
The calculation of loss per ordinary share for the six months
ended 30 June 2016 is based on the weighted average number of
shares in issue during the period of 172,125,916 (2015:
172,125,916; 31 December 2015: 172,125,916) and the loss for the
relevant period.
In accordance with IAS 33 (Earnings per share) the effects of
antidilutive potential have not been included when calculating
dilutive loss per share for the periods ended 30 June 2016 and 31
December 2015. 19,733,537 (31 December 2015: 29,849,048)
potentially dilutive ordinary shares associated with the
convertible bonds (Note 8) have been excluded as they are
antidilutive in 2016 however they could be dilutive in future
periods.
There were 3,101,400 outstanding share options at 30 June 2016
(31 December 2015:12,740,100), of which 976,300 (31 December 2015:
7,141,100) had a potentially dilutive effect. All of the Group's
equity derivatives were anti-dilutive for the period ended 30 June
2016.
The diluted loss per share for the six months ended 30 June 2016
is based on 172,125,916 (30 June 2015: 172,125,916; 31 December
2015: 172,125,916) ordinary shares calculated as follows:
30 June 30 June 31 December
2016 2015 2015
Loss $'000 $'000 $'000
---------------------------------- ------------ ------------ ------------
Loss for the purpose of basic
and diluted earnings per share
(loss for the year attributable
to the owners of the parent):
-Before exceptional item (7,034) (13,787) (25,772)
-After exceptional item (10,089) (13,787) (81,463)
---------------------------------- ------------ ------------ ------------
30 June 30 June 31 December
Number of shares 2016 2015 2015
---------------------------------- ------------ ------------ ------------
Basic weighted average number
of shares 172,125,916 172,125,916 172,125,916
Weighted average of dilutive
potential ordinary shares:
-Share options - - -
-Convertible bonds 2018 (see
Note 8) - - -
---------------------------------- ------------ ------------ ------------
172,125,916 172,125,916 172,125,916
---------------------------------- ------------ ------------ ------------
16. Dividends
No interim dividend for the six months to 30 June 2016 is being
paid or proposed (2015: nil).
17. Reconciliation of profit from operations to net cash generated from operations
Six months Six months
to to Year to
30 June 30 June 31 December
2016 2015 2015
$000 $000 $000
------------------------------------ ----------- ----------- -------------
Loss from operations (5,820) (7,265) (75,578)
Depreciation, depletion and
amortisation 11,168 13,562 27,591
Impairment of property, plant
and equipment/intangible assets - - 51,055
Loss on disposal of assets 24 102 122
Share-based payment charge 23 308 658
------------------------------------ ----------- ----------- -------------
Cash generated from operations
before changes in working
capital 5,395 6,707 3,848
Changes in working capital 2,433 (3,199) 8,949
------------------------------------ ----------- ----------- -------------
Net cash generated from operations 7,828 3,508 12,797
------------------------------------ ----------- ----------- -------------
18. Capital commitments
Under the work programmes for the Group's exploration and
development licenses the Group had committed $0.8m to future
capital expenditure on drilling rigs and facilities as at 30 June
2016 (30 June 2015: $4.0m; 31 December 2015: $1.3m).
19. Related-party transactions
Key management compensation amounted to $4.5m for the six months
ended 30 June 2016 (2015: $1.5m) which includes $2.5m of
remuneration and severance costs paid to the previous Board members
on 28 January 2016 (see Note 13) in addition to bonus payments made
to the previous Board of $1.4m (2015: nil) in respect of the year
ended 31 December 2015, also paid in January 2016.
Glossary Directors and advisers
2P reserves Proved plus probable Directors
3P reserves Proved, probable and Paul Ostling
possible Tom Reed
Russell Hoare
Bernie Sucher
Alan Bigman
Vladimir Rusinov
Vladimir Tatarchuk
Company Secretary
P50 Reserves and/or resources
estimates that have
a 50 per cent probability
of being met or exceeded
AFE Authorisation For
Expenditure
AIFR All Injury Frequency
Rate
Bcf Billion cubic feet
Bcm Billion cubic metres
Bcpd Barrel of condensate
per day
Boe Barrel of oil equivalent Nadia Cansun
Boepd Barrel of oil equivalent
per day
Bopd Barrel of oil per Registered office
day
Bpd Barrel per day 6 Cavendish Square, London
W1G 0PD
Bwpd Barrels of water per
day
Cfpd Cubic feet per day
EPF Early Production Facility Registered in England
GPF Gas Processing Facility Number: 3050645
HHN HHE North Kft
Hryvnia The lawful currency Registrars
of Ukraine
HSECQ Health, Safety, Environment, Equiniti
Community and Quality Aspect House, Spencer Road
KPI Key Performance Indicator Lancing, West Sussex BN99
6DA
LIBOR London InterBank Offered
Rate
LPG Liquefied Petroleum Solicitors
Gas
LTI Lost Time Injuries Herbert Smith Freehills
LLP
Mbbl Thousand barrels Exchange House
Mboe Thousand barrels of Primrose Street
oil equivalent
Mcf Thousand cubic feet London EC2A 2EG
MMcfd Million cubic feet
per day
MMbbl Million barrels Principal bankers
MMboe Million barrels of Bank of Scotland plc
oil equivalent
PPC Poltava Petroleum The Mound, Edinburgh EH1
Company 1YZ
Roubles The lawful currency
of Russia
sq. km Square kilometre Independent auditors
TD Total depth PricewaterhouseCoopers
LLP
$ United States Dollars Chartered Accountants and
Statutory Auditors
UAH Ukrainian Hryvnia 1 Embankment Place, London
WC2N 6RH
US United States
VAT Value Added Tax
YGE Yuzhgazenergie LLC
Conversion factors 6,000 standard
cubic feet of gas = 1 boe
We welcome visits to our website www.jkx.co.uk
Cautionary statement about forward looking statements
The half yearly financial report contains certain forward
looking statements with respect to the financial position, results
of operations and business of the Group. Examples of forward
looking statements include those regarding oil and gas reserves
estimates, anticipated production or construction commencement
dates, costs, outputs, demand, trends in commodity prices, growth
opportunities and productive lives of assets or similar factors.
The words "anticipate", "estimate", "plan", "believe", "expect",
"may", "should", "will", "continue", or similar expressions,
commonly identify such forward looking statements.
Forward looking statements involve known and unknown risks,
uncertainties, assumptions and other factors that are beyond the
Group's control. For example, future oil and gas reserves will be
based in part on long-term price assumptions that may vary
significantly from current levels. These may materially affect the
timing and feasibility of particular developments. Other factors
include the ability to produce and transport products profitably,
demand for products, the effect of foreign currency exchange rates
on market prices and operating costs, activities by governmental
authorities, such as changes in taxation or regulation, and
political uncertainty.
Given these risks, uncertainties and assumptions, actual results
could be materially different from any future results expressed or
implied by these forward looking statements which speak only as at
the date of this report. Except as required by applicable
regulations or by law, the Group does not undertake any obligation
to publicly update or revise any forward looking statements,
whether as a result of new information or future events. The Group
cannot guarantee that its forward looking statements will not
differ materially from actual results.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR AKFDPABKDKOB
(END) Dow Jones Newswires
July 29, 2016 02:00 ET (06:00 GMT)
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