TIDMJKX
RNS Number : 0839W
JKX Oil & Gas PLC
30 July 2018
JKX Oil & Gas plc ('JKX' or the 'Company')
Half-Yearly Results
For the six months ended 30 June 2018
Key Financials
Revenue: $42.4m (2017: $36.8m)
Other cost of sales: $9.9m (2017: $11.6m)
Profit from operations before exceptional items: $7.4m (2017:
$2.3m loss)
Exceptional costs: $3.0m (2017: $3.1m)
Profit for the period: $1.9m (2017: $7.7m loss)
Profit per share: 1.10 cents (2017: 4.46 cents loss)
Operating cash flow: $15.3m (2017: $4.0m)
Capital expenditure: $4.6m (2017: $10.4m)
Total unrestricted cash balance: $7.5m (31 December 2017:
$6.9m)
For further information please contact EM Communications:
Stuart Leasor
leasor@em-comms.com
T: +44 20 7002 7860
M: +44 7703 537721
Chairman's statement
Dear Shareholder,
I am pleased to present the results for the six month period
ended 30th June 2018 and I would like to take this opportunity to
thank our shareholders for their support shown towards the Board at
the EGM in March 2018 and at the AGM held on 25th June 2018. A
stable and effective board is a cornerstone in delivery of the
strategic aims which I set out clearly in my Chairman's Statement
contained in the 2017 Annual Report. I believe that we have the
right mix of experience and background diversity around the board
table to enable us to restore growth and enhance shareholder
value.
I am pleased to be able to report a net profit of $1.9m in the
six months ended 30 June 2018 (H1 2017 net loss of $7.7m) and I
believe that this demonstrates that the strategic focus of the
Board is showing signs of progress although much remains to be
done.
We have now engaged in the issue of quarterly trading updates in
order to seek better engagement with all our shareholders.
Operational and financial alignment continues to be thoroughly
overhauled along with a continuing review of our internal controls.
An improving cash position coupled with strong cost control
initiatives will help to reduce our debt position and restore the
balance sheet. Steps are being taken towards the "right sizing" of
the Group, although this inevitably involves further reductions in
staff numbers.
We have relinquished our Slovakian licence and we are also
making progress towards the disposal of our interests in Hungary
and as a consequence we are now focussed purely on our interests in
Ukraine and Russia as our main areas of operation.
Production of both oil and gas has increased across the Group
and enhancement and workover activity is at a high level in Ukraine
with full details contained in the Operational Review.
In recent years, YGE experienced some problems with workovers of
wells on the Koshekhablskoye field. To address these, YGE has
carried out a comprehensive tender exercise, resulting in a
contract for a new, fit-for-purpose rig at commercially attractive
rates. YGE will carry out a thorough inspection of the rig by an
independent expert at start-up and is strengthening its technical
supervisory expertise. The new rig is expected to be mobilised in
4Q 2018 and will start with a workover of well 5, with the aim of
re-instating this important producer. If the contractor performs
well, the same rig and crew will be used to carry out further
workovers, leading to a significant increase of YGE's gas
production, which can be accommodated by the existing gas
plant.
We continue to build and develop the executive team and, in the
meantime, the Board continues to play an active role in the
management and leadership of the Group. I wish to thank the staff
of JKX for their hard work and loyalty which hopefully will help to
deliver a better future for the business and all its stakeholders.
Good governance remains at the heart of all that we do and the
Board will continue to enhance our governance procedures wherever
possible.
Stability of the Group is the key to building a better future
for our shareholders. I believe that the Board has initiated the
right strategy to deliver future growth but there remains much hard
work to achieve and deliver our strategic goals.
Hans Jochum Horn
Chairman
27 July 2018
Poltava Petroleum Company General Director's statement
The second half of 2017 saw PPC start a work programme of
enhancement activities, fully financed using its own operating cash
flow without the use of external financing. This work continues and
includes side-tracks, ESP installation, deepening, perforation of
new targets, re-entering old wells and also the drilling of one new
well. The focus is on lower risk projects that use proven
technology on well understood reservoirs that have proved their
ability to produce oil and gas, and that require moderate capital
investment. In order to diversify risk, the projects are carried
out across all of PPC's fields instead of being focused in one
particular area. Enhancement activities are also carried out, not
just on our own wells, but also on wells of third parties, which we
operate under service agreements with UkrGasVidobuvannya
(hereinafter "UGV") and under lease agreements with NAK Nadra
Ukrayini and Ukrnafta.
We have successfully completed the workovers of wells NN43,
M158, I105, R15, NN 76, R22 and R3 during the first half of the
year and also started the drilling of well E308, our first new well
for four years. In addition to our own rig we have been using two
contractors' rigs for workovers and another for drilling, meaning
that we have been using four rigs simultaneously for the first time
in our history.
The results of this work, combined with more favourable
commodity prices, are having a positive effect on our revenue,
profitability and cash flow. We continue to be a high profile
seller in our market, with most of our sales being through the
Ukrainian Energy Exchange.
Tragically there was a fatality during the half year when an
operator monitoring testing of a well suffered a fall from which he
did not recover. This incident has been thoroughly investigated by
us and by the Ukrainian authorities and appropriate measures have
been taken to prevent a recurrence of this type of incident. An
initiative has been started to improve HSE standards across the
organizational structure, covering different areas: building up the
corporate culture so that health and safety is embedded at all
levels with quality control over contractors, provision of
appropriate equipment for all activities undertaken, personnel
training and others.
Work is underway to improve our performance. A new scheme of
staff motivation has been implemented, based on specific KPIs for
each department and each particular employee and changes are being
made to the organizational structure, making it more fit for
purpose and cost effective. A new ERP system has been introduced to
assist in better management of our costs and more effective use of
our assets and we are buying raw materials from third parties to
use spare capacity of our LPG plant to generate additional
income.
Victor Gladun
PPC General Director
27 July 2018
Yuzhgazenergie General Director's statement
All four producing wells of the Koshekhablskoye field were in
production throughout the first half of 2018, which contributed to
higher production compared to the same period of the previous year
(2018: 5,088 boepd, 2017: 4,654 boepd). Periodic acid treatments
have been performed on Well 27 and Well 25 to maintain production
rates and production for the half year was as expected.
No workover operations were performed during the first half of
2018. A three well workover programme has been developed for 2018
and 2019 in order to increase production and mitigate field
development risks, and a drilling contractor has been selected to
carry it out. The programme includes workovers of Wells 5 and 18,
which are currently not producing, and Well 20 which is one of the
current producers. High-quality chrome tubing has already been
purchased to be run in Well 20, which will significantly extend
uninterrupted production from this well. Development of the
programme has included careful assessment of the technical and
geological risks involved and profitability and payback analysis,
as well as the conducting of a thorough tender process to select a
suitable contractor. While the programme is planned to be financed
from our own operational cash flow, we have been in communication
with banks and external financing is expected to be available if
required. Workover of Well 5 is scheduled to start in November
2018.
We have not experienced any significant technical issues with
either the producing wells or the gas plant during the half year
and have successfully passed all regulatory inspections during the
period. There have not been any injury related incidents.
YGE remains fully in compliance with all licence obligations and
I am pleased to report that we have obtained approval from the
Ministry of Natural Resources and Environment of the Russian
Federation (ROSNEDRA) to amend YGE's subsoil licence in order to
defer Callovian obligations until 2025.
Alexander Bogdanov
YGE General Director
27 July 2018
Operational review
Group production
In 1H 2018 group average production was 8,728 boepd (1H 2017:
8,598 boepd), comprising 47.3 MMcfd of gas (1H 2017: 46.9 MMcfd)
and 837 bopd of oil and condensate (1H 2017: 780 bopd), an overall
increase in production of 1.5%. The fact that JKX overall
production increased, beating the natural decline of its mature
fields, is a first result of the revised strategy of focusing on
enhancement activities in core assets.
Ukraine
Progress with achieving access to third party wells has
continued in 1H 2018. These wells were R22, R3 and R11 all located
in the North of the Rudenkivske licence and giving us a low cost
opportunity to evaluate the Visean reservoirs in this part of the
field. R22 and R3 have both been successfully worked over giving
valuable gas production (see the Rudenkivske section). R11 is
currently being worked over.
Novomykolaivske licences, production statistics and development
activities
Production overview
Average production from the Novomykolaivske group of fields in
1H 2018 was 2,327 boepd (1H 2017: 2,509 boepd) comprising 9.4 MMcfd
of gas (1H 2017: 10.9 MMcfd) and 756 bopd of oil and condensate (1H
2017: 699 bopd). The gas production is 13% lower in 1H 2018
compared to 1H 2017 as the enhancement programme has only partially
offset natural decline. The oil production was 8% higher in 1H 2018
compared to 1H 2017 mainly due to the successful electrical
submersible pump (ESP) installation in IG105.
Ignativske Field
Average production from the Ignativske field in 1H 2018 was
1,055 boepd (1H 2017: 914 boepd) comprising 4.1 MMcfd (1H 2017: 3.5
MMcfd) and 377 bopd (1H 2017: 337 bopd). Production increases are
the result of the enhancement programme which commenced near the
end of 2017. The following enhancement activities were carried out
on wells in the Ignativske licence during 1H 2018:
An ESP was installed in IG105 in late January which increased
the oil rate from 53 bopd to 122 bopd. The well is currently
producing 75 bopd.
NN43, a leased well, was worked over in January to test the
Tournaisian clastics in Ignativske. The well is currently producing
0.2 MMcfd on gas lift.
NN10, a leased well testing the Devonian close to the boundary
of the Ignativske and Rudenkivske licences, requires a repeat
workover due to water influx, before the gas zone can be
perforated.
Movchanivske Fields
Average production from the Movchanivske field in 1H 2018 was
689 boepd (1H 2017: 661 boepd) comprising 2.8 MMcfd (1H 2017: 3.0
MMcfd) and 228 bopd (1H 2017: 168 bopd). Natural decline was offset
by the one enhancement carried out in these fields in the first
half of 2018.
The M158 sidetrack was successfully drilled in 58 days.
Encouraging hydrocarbon shows were encountered in the shallow
Devonian but only minor gas shows in the deep Devonian. 5m of
perforations were shot in the shallow Devonian, which gave an
initial oil rate of 106 bpd and an initial gas rate of 0.5 MMcfd.
The production rate has since dropped to 77 bopd of oil and 0.1
MMcfd and the well requires regular wax cutting. The pressure in
the shallow Devonian was at the upper range of expectations, 3200
psi. Work is ongoing to find a follow-up sidetrack to target
remaining oil in this field.
Novomykolaivske Field
Average production from the Novomykolaivske field in 1H 2018 was
326 boepd (1H 2017: 425 boepd) comprising 1.3 MMcfd (1H 2017: 1.8
MMcfd) and 112 bopd (1H 2017: 131 bopd). The majority of this
decline is due to an increase in water cut from 48% in 1H 2017 to
85% in H2 2018 in NN80. The following enhancement activities were
carried out on wells in the Novomykolaivske field during 1H
2018:
The tubing was pulled in NN76 and rerun due to a blockage. Prior
to the workover there had been no production from this well since
September 2017. Following the workover in March production has
resumed at an average of 12 bopd and 0.14 MMcfd.
NN78 was abandoned.
NN74 was recompleted from the V15 to the V16, using a dual
packer system to isolate the water producing V15. The well was
producing 0.3 MMcfd with the aid of gas lift but is currently
shut-in due to high water production.
Rudenkivske Field
Average production from the Rudenkivske field in 1H 2018 was 256
boepd (1H 2017: 490 boepd) comprising 1.3 MMcfd (1H 2017: 2.6
MMcfd) and 39 bopd (1H 2017: 62 bopd). The significant reduction in
production between 1H 2017 and 1H 2018 is a result of natural
decline. However, due to the enhancement activities on wells in the
Rudenkivske licence during 1H 2018 outlined below, average daily
production for June amounted to 489 boepd.
Workover of the state owned well R3 in the Rudenkivske licence
was successfully completed in June and the well is currently
producing at 4.1 MMcfd with a wellhead pressure of 943 psi on a
40/64th" choke. Natural decline of production from this well has
started in July. As part of the workover, old parted tubing was
recovered together with a fish in the form of an old perforating
gun. Initially the V26 was perforated over 8.5m, however due to
lack of pressure response a further four metres of perforations
were added in the V24 with a further three metres of perforations
in V24 planned in the near future.
R22, a UGV well, was successfully worked over in March and April
and achieved an initial oil and gas rate of 30 bopd and 1.0 MMcfd.
Production of gas and oil has since declined to 0.6 MMcfd of gas
and 3 bopd. This well was the first of a three well campaign to
test the Visean reservoirs in the North of the field.
A workover of R15, a leased well, was successful. The initial
oil and gas rate from this well were 52 bopd and 0.2 MMcfd
respectively, before declining to 33 bopd and 0.1 MMcfd at end of
June. Currently the well is not producing as it shares a flowline
with the high pressure R3 well.
NN22 and NN47 were abandoned.
Currently R11, a UGV well in the Rudenkivske field, is being
worked over to further evaluate the Visean sands in the Northern
part of Rudenkivske.
Production facilities
Operations at the main processing facility, the LPG plant and
the oil loading facility continued smoothly throughout the
year.
Elyzavetivske Production Licence
Production
Average production from the Elyzavetivske field in 1H 2018 was
1,164 boepd (1H 2017: 1,257 boepd) comprising 6.9 MMcfd of gas (1H
2017: 7.4 MMcfd) and 16 bopd of condensate (1H 2017: 19 bopd), an
overall 7% decrease in production between 1H 2017 and 1H 2018. The
decrease is a result of the pressure decline in the field, only
partially offset by the following enhancement during 2018:
EM52 was worked over to set a plug across the deeper G-sands
reservoirs and re-perforate the Permian carbonate. The current
producing rate is 0.7 MMcfd,
Development and drilling
Operational problems led to significant delays in drilling and
completing well E308. This well is targeting the Permian carbonate
and will accelerate production from this reservoir.
Production facilities
The Elyzavetivske production facility continues to operate
efficiently. Preparation for the development of the West Mashivske
asset will continue in 2H 2018 with the laying of an 8km flowline
from this field to the PPC owned Elyzavetivske plant. The purchase
of 8.1km of flowline for the first part of the flowline connecting
the West Mashivske asset with the Elyzavtivske plant has been
completed and the majority of the land allotment and approvals for
the laying of the flowline has been completed in 1H 2018.
Russia
Koshekhablskoye licence
Production
Average production from the Koshekhablskoye field in 1H 2018 was
5,146 boepd (1H 2017: 4654 boepd) comprising 30.5 MMcfd of gas (1H
2017: 27.6 MMcfd) and 50 bopd (1H 2017: 50 bopd) of condensate, an
11% increase on the average for 1H 2017. This increase in
production is due to Well 25 being offline for four months in 1H
2017.
Acid jobs were conducted on Well 27 in February and May and an
acid job was carried out on Well 25 in February. Both Well 25 and
Well 27 have been successfully acidized at the beginning of July.
Well 20 experienced a sharp decline in production during April and
May when the production declined by 0.5 MMcfd, but production has
since stabilised at 10.2 MMcfd.
Development and drilling
No workovers were carried out during 1H 2018. In June 2018, the
JKX board approved a multi-well workover programme (re-instating
well 5, repair well 20 and re-activating well 18) and mobilisation
of a suitable rig has commenced. Well operations are planned to
commence in 4Q 2018. If successful, workover of wells 5 and 18
would increase the producing well stock from 4 to 6 wells.
Production facilities
There were no changes to the facilities in 1H 2018.
Hungary
The process of divesting the Company's assets in Hungary is
ongoing.
Production
Average production from the Hadjunanas field in Hungary in 1H
2018 was 91 boepd (1H 2017: 178 boepd). The 49% decline in
production is a result of continuing decline of Hn-1 through the
first half of the year.
Health and Safety (HSE)
1H 2018 saw one serious incident occur on the PPC operated
assets. An operator, while monitoring the testing of R15 suffered a
fall which unfortunately he did not recover from. This tragic event
was investigated thoroughly by PPC as well as the Ukrainian
authorities, and appropriate measures were taken to prevent a
recurrence of this type of accident. There were no other reported
incidents in the first half of 2018.
Financial performance
Second
First half half First half
Production summary 2018 2017 2017
Production
Oil (Mbbl) 151 145 141
Gas (Bcf) 8.6 8.7 8.5
----------------------- ---------- ------ ------------
Oil equivalent (Mboe) 1,580 1,604 1,556
----------------------- ---------- ------ ----------
Daily production
Oil (bopd) 837 788 779
Gas (MMcfd) 47.35 48 46.91
----------------------- ---------- ------ ----------
Oil equivalent (boepd) 8,728 8,717 8,598
----------------------- ---------- ------ ----------
First Second First
half half half
2018 2017 2017
Operating results $m $m $m
Revenue
Oil 9.2 10.1 7.0
Gas 30.0 25.1 27.7
Liquefied petroleum gas 2.6 2.4 2.2
Other 0.5 0.1 -
42.4 37.8 36.8
------------------------------------------------------ --------------- ------ ------------------
Cost of sales
Exceptional item - movement in provision for
disputed rental fees (2.9) (2.5) (1.8)
Exceptional item - reversal of provision for
impairment of
Ukrainian oil and gas assets - 5.6 -
Exceptional item - provision for impairment
of Hungary and Slovakia - (7.9) -
Exceptional item - write off of appraisal expenditure
in Ukraine - (9.4) -
Other cost of sales (9.9) (6.4) (11.6)
Depreciation, depletion and amortisation -
oil and gas assets (6.9) (6.7) (10.1)
Other production based taxes (10.1) (7.9) (8.8)
Total cost of sales (29.7) (35.2) (32.3)
------------------------------------------------------ --------------- ------ ------------------
Gross profit before exceptional items 15.6 16.8 6.3
------------------------------------------------------ --------------- ------ ------------------
Gross profit after exceptional items 12.7 2.7 4.5
------------------------------------------------------ --------------- ------ ------------------
Operating expenses
Disposal of property, plant and equipment - - (0.6)
Exceptional items (0.1) (0.2) (1.3)
Other administrative expenses (6.0) (9.1) (6.5)
(Loss)/gain on foreign exchange (2.2) 2.8 (1.6)
------------------------------------------------------ --------------- ------ ------------------
Profit/(loss) from operations before exceptional
items 7.4 10.5 (2.3)
------------------------------------------------------ --------------- ------ ------------------
Profit/(loss) from operations after exceptional
items 4.4 (3.9) (5.4)
------------------------------------------------------ --------------- ------ ------------------
Second
First half half First half
Earnings 2018 2017 2017
Net profit/(loss) ($m) 1.9 (10.0) (7.7)
Net profit/(loss) before exceptional items
($m) 4.4 4.3 (5.0)
Basic weighted average number of shares in
issue (m) 172 172 172
Profit/(loss) per share before exceptional
items (basic, cents) 2.56 2.48 (2.89)
Profit/(loss) per share after exceptional items
(basic, cents) 1.10 (5.80) (4.46)
Pre-exceptional earnings before interest, corporation
tax,
depreciation and amortisation1 ($m) 14.5 17.5 8.2
------------------------------------------------------ --------------- ------ ----------------------
Second
First half half First half
Sales prices 2018 2017 2017
Oil (per bbl) $70.53 $72.21 $57.45
Gas (per Mcf) $3.94 $3.32 $3.67
LPG (per tonne) $503.10 $510 $497.53
---------------- ---------- ------ ----------
Second
First half half First half
Cost of production ($/boe) 2018 2017 2017
Production costs (excluding exceptional item) $6.31 $4.03 $7.62
Depreciation, depletion and amortisation $4.40 $4.22 $6.59
Production based taxes $6.44 $4.96 $5.80
---------------------------------------------- ---------- ------ ----------
First Second
half half First half
Cash flow 2018 2017 2017
Cash generated from operations ($m) 15.3 11.7 4.0
Operating cash flow per share (cents) 8.9 6.8 2.3
-------------------------------------- ----- ------ -----------------
As at As at As at 31
30 June 30 June December
Statement of Financial Position 2018 2017 2017
Cash and cash equivalents2 ($m) 7.5 4.0 6.9
Borrowings ($m) 10.8 16.3 16.6
Net debt3 ($m) (3.3) (12.3) (9.7)
Net debt to equity (%) (2.4) (8.1) (6.6)
Return on average capital employed4 (%) 2.7 (10.1) (12.1)
Second
First half half First half
2018 2017 2017
Additions to property, plant and equipment/intangible
assets ($m)
- Ukraine 4.0 4.4 8.3
- Russia 0.5 4.1 1.7
- Other 0.1 0.4 0.4
------------------------------------------------------ ---------- -------- ----------
Total 4.6 8.9 10.4
------------------------------------------------------ ---------- -------- ----------
Pre-exceptional earnings before interest, tax, depreciation and
amortisation ('EBITDA') is a non-IFRS measure and calculated using
profit from continuing operations of $4.4m (2017: $5.3m loss) and
adding back depreciation, depletion and amortisation and
exceptional items of $10.1m (2017: $13.6m). 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.
Cash and cash equivalents do not include Restricted Cash.
Net cash/(debt) is cash and cash equivalents less Borrowings
(excluding derivatives).
Return on average capital employed is the annualised
profit/(loss) for the period divided by average capital
employed.
Financial review
Results for the period
A marginal profit is being reported for the half year for the
first time since 2014. The profit of $1.9m for the first half of
2018 compares favourably to the loss of $7.7m for the first half of
2017. Results for both periods include significant exceptional
charges in relation to movements in the provision for disputed
rental fees for 2010 and 2015 in Ukraine ($2.9m in the first half
of 2018 and $1.8m in the first half of 2017).
Revenue
6 months 6 months
2018 2017 Change %
Group revenues* $m $m $m Change
Ukraine 33.2 28.9 4.3 14.9
Gas 21.2 20.0 1.2 6
Oil 8.9 6.7 2.2 32.8
Liquefied Petroleum
Gas ('LPG') 2.6 2.2 0.4 18.2
Other 0.5 0 0.5
-------------------- --------- -------- ------ --------
Russia 9.1 7.9 1.2 15.2
Gas 8.8 7.7 1.1 14.3
Condensate 0.3 0.2 0.1 50.0
-------------------- --------- -------- ------ --------
Hungary 0.8 1.1 (0.3) (27.3)
Gas 0.7 1.0 (0.3) (30)
Condensate 0.1 0.1 - -
==================== ========= ======== ====== ========
Total 43.2 38.0 5.2 13.7
-------------------- --------- -------- ------ --------
*Note that Hungary as a segment is presented as assets held for
sale.
6 months 6 months Change
Sales prices 2018 2017 % Change
Ukraine
Gas ($/Mcf) 7.89 6.57 1.32 20.1
Oil ($/bbl) 70.53 57.45 13.08 22.8
LPG ($/tonne) 503.10 497.53 5.57 1.1
Russia
Gas ($/Mcf) 1.72 1.66 0.06 3.6
Hungary
Gas ($/Mcf) 7.19 6.06 1.13 18.6
Group
Gas ($/Mcf) 3.94 3.67 0.27 7.4
Oil ($/bbl) 70.53 57.45 13.08 22.8
LPG ($/tonne) 503.10 497.53 5.57 1.1
-------------- -------- -------- ------ --------
Average exchange 6 months 6 months
rates 2018 2017 Change % Change
Russia (RUB/$) 59.41 57.84 (1.57) (2.7)
Ukraine (UAH/$) 26.98 26.78 (0.2) (0.7)
Total revenue for the first half of 2018 is $43.2m, 13.7% higher
than the $38.0m reported for the first half of 2017. The increase
is primarily due to the higher commodity prices in both Ukraine and
Russia, as well as the 1.5% increase in total Group production from
1,556 Mboe in the first half of 2017 to 1,579 Mboe in the first
half of 2018. Gas sales prices and netbacks are still significantly
higher in Ukraine than in Russia.
Ukraine revenues
The $4.3m increase in total revenues was due to higher sales
prices, as shown in the table, and higher oil sales volumes. These
positive factors were offset by the decrease in gas sales
volumes.
The average gas sales price in the first half of 2018 as
compared to that in the first half of 2017 was 20.1% higher in
dollar terms (2018: $7.89/Mcf, 2017: $6.57/Mcf) and 22.6% higher in
Hryvnia terms (2018: 7,419 UAH/Mcm, 2017: 6,052 UAH/Mcm). This is
in line with international market trends.
Total gas sales volumes decreased 11.5% from 86,154 Mcm in the
first half of 2017 to 76,261 Mcm in the first half of 2018,
primarily due to the gas production volume having decreased 10.8%
from 93,728 Mcm in 2017 to 83,628 Mcm in 2018. The two main factors
for the lower production were the natural declines of the
Elyzavetivske field and Novomykolaivske complex which were only
partially offset by the enhancement activities that were
recommenced in late 2017. For more detail please refer to the
Operational review.
The increase in average oil sales price from $57.45/bbl in the
first half of 2017 to $70.53/bbl in the first half of 2018 also
reflects international market trends. Total oil sales volumes
increased 7.0% from 117,541 barrels in the first half of 2017 to
125,822 barrels in the first half of 2018. This is in line with oil
production volume having increased 7.4% from 130,037 barrels in the
first half of 2017 to 139,696 barrels in the first half of 2018.
Our Ukrainian subsidiary still held 43,775 barrels of oil inventory
at the end of the reporting period, available for sale in the
second half of 2018.
LPG sales volumes were 5,189 tonnes in the first half of 2018
compared to 5,149 tonnes in the first half of 2017, with sales
prices being similar in the two periods.
A portion of production comes from wells owned by third parties,
operated under service agreements with UkrGasVidobuvannya and under
lease agreements with NAK Nadra Ukrayini and Ukrnafta. This
production is subject to sale in the normal way, with payments
being made to the well owners in accordance with the service and
lease agreements.
Russia revenues
The $1.2m increase in total revenues from $7.9m in the first
half of 2017 to $9.1m in the first half of 2018 is mainly due to
higher gas production volumes (2017:141,592 Mcm, 2018:156,475 Mcm).
This increase was supplemented by a slight increase of the average
sales price in dollar terms from $1.66/Mcf in the first half of
2017 to $1.72/Mcf in the first half of 2018 due to a 3.9% rise in
the average rouble gas sales price on 1 July 2017. On 1 July 2018
the average rouble gas sales price increased by 3.8% in line with
expectations.
Hungary revenues
Hungarian gas and condensate sales, which recommenced in
February 2017 and made up 1% of the Group's volumes sold in 2018,
are expected to continue until the disposal process is
complete.
Cost of sales
Exceptional items
The provision for disputed rental fees, in respect of claims for
additional rental fees for the years 2010 and 2015, was increased
by $2.9m in the first half of 2018 as set out in Note 13. The total
provision as at 30 June 2018 was $42.7m, as set out in further
detail in Note 15.
A final hearing in relation to rental fee demands for 2010 is
expected before the end of 2018. Hearings in relation to the
majority of rental fee demands for 2015 are expected in the
remainder of 2018 and 2019.
Cost of sales before exceptional items
Cost of sales before exceptional items for the first half of
2018 totalled $26.8m (2017:$30.5m). This includes:
$9.9m of operating costs, which is lower than $11.6m recorded in
the first half of 2017 partly because of staff reductions.
$10.1m of production taxes, which is $1.2m higher than in the
first half of 2017. In Ukraine, production tax expense (before
exceptional charges) increased by $1.1m from $8.0m to $9.1m mainly
due to an increase in the average border gas price which is the
basis for calculating gas production taxes (UAH7,372 per Mcm in
2018 compared to UAH6,115 per Mcm in 2017). Only $0.9m of the total
production taxes relate to Russia where the mineral extraction tax
rate for wells deeper than 5,000m has remained at 328
Roubles/Mcm.
$6.9m of depreciation, depletion and amortisation ('DD&A')
charge.
The lower cost of sales reported in the second half of 2017
compared to the first half of 2018 reflect that the enhancement
activities currently being undertaken were not recommenced until
late in 2017.
Administrative expenses
Administrative expenses before exceptional items
Administrative expenses before exceptional items of $6.0m in the
first half of 2018 compare favourably to those of $6.5m for the
same period of 2017 and $15.5m for the full year of 2017. This
reflects increased efforts to control costs. Cost benefits of
reductions of staff and other administrative costs as part of a
right sizing exercise to ensure that resources are appropriate to
the needs of the Group will be more visible when the full year
results are reported for 2018. 2018 administrative expenses include
$0.5m of professional fees in relation to the forensic
investigation of payment of legal expenses in Ukraine, which may be
considered non-recurring.
Net finance charges
Finance costs, mainly comprising convertible bond interest,
decreased from $1.5m to $1.4m due to the reduction in principal
outstanding in February 2018.
Finance income of $0.3m comprises income from bank deposits
(2017: $0.2m).
Taxation
The total tax charge for the half year is $0.8m (2017: $1.0m)
comprising a current tax charge of $1.9m (2017: $1.9m) which
relates to Ukraine and a deferred tax credit of $1.1m (2017: credit
$0.9m).
Cash flows
The unrestricted cash balance has increased slightly from $6.9m
at the start of the year to $7.5m at 30 June 2018, even after the
bond principal, accretion and interest payment of $6.9m made in
February 2018.
Cash generated from operations in the first half of the year was
$15.3m, including cash from operating activities from discontinued
operations (2017: $4.0m). Interest paid during the period comprised
$1.1m bond interest (2017: $0.6m). Income tax paid in the period
amounted to $1.7m (2017: $1.9m) and related to profits earned by
our Ukrainian subsidiary.
Of the $6.5m total cash spent on investment projects during the
first half of 2018 (2017: $10.3m), $3.7m was spent on enhancement
projects and new drilling in Ukraine and $1.2m relates to purchase
of Marubeni chrome tubing by YGE.
Net cash outflow from financing activities in the period mainly
relates to the $5.8m of amortisation and accretion payment to the
bondholders in February 2018. No dividends were paid to
shareholders in the period (2017: nil).
The resultant increase in cash and cash equivalents in the half
year before adjusting for foreign exchange effects was $0.4m (2017:
decrease $10.2m).
Liquidity
The financing of the remaining bond payments is within the
operating cash flow capabilities of the Company. The remaining
payments are as follows: $0.8m in August 2018, $6.0m in February
2019, $0.4m in August 2019 and $5.8m in February 2020.
Our operating subsidiary in Ukraine still maintains a 12 month
revolving credit line from Tascombank for UAH150 million,
equivalent to $5.7m as at 30 June 2018, which remains undrawn. As
noted above, our Ukrainian subsidiary also held 43,775 barrels of
oil inventory available for sale at the end of the half year.
Going concern
Both the Ukrainian and the Russian assets have positive cash
flow and the Group's liquidity is forecast to improve through the
second half of 2018 and 2019. As noted above, at current market
prices and planned production levels, operating cash flow is
sufficient to cover the bond repayment schedule. There are
sensitivities related to issues such as sales prices, and technical
and geological risks, and material uncertainties regarding disputed
rental fees with the Ukrainian Government. In case of unfavourable
conclusion of disputed rental fees in respect of both 2010 and 2015
and potential demands for immediate settlement, if they were to
occur, the Group does not currently have sufficient cash resources
to settle the claims (see Note 2 to the consolidated interim
financial statements).
Ben Fraser
Chief Financial Officer
27 July 2018
Risks and uncertainties
The Group continuously monitors major strategic, operational,
financial and external risks it faces and determines the
appropriate course of action to manage these risks. Key risks and
uncertainties which may impact the Group's performance have not
changed materially from those stated on pages 32 to 40 of the
Group's 2017 Annual Report.
Financial risk management
The main financial risk faced by the Group is non-availability
of funds to meet business needs and debt servicing requirements
(liquidity risk). The significant factors outside of management
control that could adversely impact cash flows, profits and
liquidity of the Group remain the ongoing legal disputes concerning
Rental Fees in Ukraine, along with international oil and gas prices
and risks associated with operating in Ukraine and Russia given the
short-term economic outlook for these countries remains
uncertain.
These are critical factors to consider when addressing an issue
of whether the Group is a going concern (see Note 2 to the
condensed consolidated interim financial information).
Tax legislation
The taxation systems in emerging markets where Group companies
operate are relatively new and are characterised by frequently
changing legislation, which might be subject to interpretation.
Taxes are subject to review and investigation by local authorities,
who are enabled by law to impose substantial fines, penalties and
interest charges. In Ukraine and the Russian Federation a tax year
remains open for review by the tax authorities during subsequent
three calendar years.
Management believes that it has adequately met and provided for
tax liabilities based on its interpretation of existing tax
legislation. However, the relevant tax authorities may have
differing interpretations and the effects on these consolidated
financial statements, if the authorities were successful in
enforcing their interpretations, could be significant.
The Company has persistently defended its position in Ukrainian
courts regarding the Rental Fee charges levied for 2010 and 2015.
The Company's Ukrainian subsidiary, PPC, has recognised total
provisions of $42.7 million (including interest and penalties, see
Note 15).
Reservoir performance
The hydrocarbon reservoirs that we operate in Ukraine and Russia
generate the cash flow that underpins the Group's growth. These
reservoirs may not perform as expected, exposing the Group to lower
profits and less cash to fund planned development.
Existing production from our mature fields at the
Novomykolaivske Complex in Ukraine requires a high level of
maintenance and intervention to minimise natural production
decline. In Russia, acidization of producing wells and other well
maintenance procedures are required from time to time to maintain
stable production levels.
Our investment in development projects or workovers of old wells
is subject to uncertainty inherent in exploring and developing
hydrocarbon reserves and resources. Accurate reservoir performance
forecasts are critical in achieving the desired economic returns
and to determine the availability and allocation of funds. In
modelling reservoir performance, we rely on multiple sources of
data, some of which are decades old (reflecting the time when
certain wells were originally drilled) and therefore could be not
accurate.
Commodity prices - Russia and Ukraine
Company policy is not to hedge commodity price exposure on oil,
gas, LPG or condensate and therefore any change in prices would
have a direct effect on the Group's trading results. We are subject
to risk of unfavourable international oil and gas price movements
that can be affected by political developments in Russia and
Ukraine. In Russia, the government sets certain gas tariffs to
which the Company's Russian subsidiary, Yuzhgazenergie LLC ('YGE')
has pegged its gas sales price. The tariff has increased by 3.8%
starting from July 2018.
Ukrainian gas prices have recently been aligned with those
across Europe that exhibit significant volatility and seasonality.
Since Ukraine stopped purchasing gas from Russia directly, domestic
gas prices were at a premium to those in Europe. Change in gas
import flows may have impact on gas prices in Ukraine, and a
prolonged period of low gas prices would impact the Group's
liquidity.
Environmental, asset integrity, and safety incidents
As we continue with the development of our oil and gas reserves,
we are exposed to a wide range of significant health, safety,
security and environmental risks that arise as a result of the
geographic spread, operational diversity, regulatory environment
and technical complexity of our exploration and production
activities.
Technical failure, non-compliance with existing standards and
procedures, accidents, natural disasters and other adverse
conditions in our operational locations, 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. Failure to manage these risks effectively
could result in loss of certain facilities, with the associated
loss of production, or costs associated with mitigation, recovery,
compensation and fines, or loss of operating licence.
Health, safety and the environment is a priority of the Board
who are involved in the planning and implementation of continuous
improvement initiatives. Operations in Ukraine, Russia and Hungary
all have dedicated HSECQ teams and HSE Management Systems modelled
on the ISO 9000 series, OHSAS 18001 and ISO 14001. Appropriate
insurances by reputable insurers are maintained to manage the
financial exposure to any unexpected adverse events that would
affect normal operations.
Corporate governance
The Group has major operations in Ukraine, Russia and the United
Kingdom. Such a complex structure requires rigorous governance and
control procedures to be in place to ensure an appropriate level of
financial discipline and controls, as well as delegation of
authority along the corporate and management structure.
Over the past few years, the Group has gone through several
major Board and management changes, changes of advisors and
contractors, and a significant reduction of staff across its
operations. These changes require additional efforts to ensure
proper implementation of governance, controls, and financial
discipline procedures.
The Board and the executive team are in the process of revising
and approving governance and control procedures. In the meantime,
existing controls have been strengthened significantly with
executives and the Board reviewing and approving all significant
contracts, payments, and investment decisions.
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 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 2018 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
2018 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
Hans Jochum Horn
Chairman
27 July 2018
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 2018. 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 Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
Emphasis of matter
Without modifying our conclusion on the interim financial
statements, we have considered the adequacy of the disclosure made
in note 2 to the interim financial statements concerning the
group's ability to continue as a going concern. At 30 June 2018,
the Group has recorded a provision of $43 million in relation to
additional Rental Fees which may become immediately due and payable
in Ukraine as a result of unfavourable outcomes in one or more of
the ongoing court proceedings. This condition, along with the other
matters explained in note 2 to the financial statements, indicates
the existence of a material uncertainty 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 2018;
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 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 Guidance and Transparency
Rules sourcebook 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 Guidance and
Transparency Rules sourcebook 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 Guidance and Transparency Rules sourcebook 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,
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
27 July 2018
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.
GROUP FINANCIAL STATEMENTS
Condensed consolidated income statement
Six months
to
30 June Year to
31 December
2018 2017
Six months
(unaudited) to 30 June (audited)1
2017 (unaudited)
Note $000 1 $000 $000
Revenue 4 42,390 36,842 74,631
------------------------------------------------- ---- -------------------- --------------------- -------------
Cost of sales
------------------------------------------------- ---- -------------------- --------------------- -------------
Exceptional item - movement in provision
for disputed rental fees 13 (2,873) (1,824) (4,357)
Exceptional item - reversal of provision
for impairment of Ukrainian oil and gas
assets - - 5,636
Exceptional item - provision for impairment
of Hungary and Slovakia - - (7,881)
Exceptional item - write off of appraisal
expenditure in Ukraine - - (9,391)
Production based taxes (10,072) (8,841) (16,715)
Depreciation, depletion and amortisation (6,880) (10,051) (16,756)
Other cost of sales (9,869) (11,620) (18,017)
------------------------------------------------- ---- -------------------- --------------------- -------------
Total cost of sales (29,694) (32,336) (67,481)
------------------------------------------------- ---- -------------------- --------------------- -------------
Gross profit 12,696 4,506 7,150
------------------------------------------------- ---- -------------------- --------------------- -------------
Disposal of property, plant and equipment 5 - (578) (548)
Exceptional items 14 (115) (1,256) (1,513)
Other administrative expenses (6,027) (6,464) (15,549)
------------------------------------------------- ---- -------------------- --------------------- -------------
Total administrative expenses (6,142) (8,298) (17,610)
(Loss)/gain on foreign exchange (2,178) (1,636) 1,179
------------------------------------------------- ---- -------------------- --------------------- -------------
Profit/(loss) from operations before exceptional
items 7,364 (2,348) 8,225
------------------------------------------------- ---- -------------------- --------------------- -------------
Profit/(loss) from operations after exceptional
items 4,376 (5,428) (9,281)
------------------------------------------------- ---- -------------------- --------------------- -------------
Finance income 346 233 348
Finance cost (1,376) (1,535) (3,164)
Fair value movement on derivative liability 9 - (68) (3)
Profit/(loss) before tax 3,346 (6,798) (12,100)
Taxation - current (1,925) (1,865) (2,964)
Taxation - deferred
- before the exceptional items 676 486 (356)
- on the exceptional items 470 364 4,113
------------------------------------------------- ---- -------------------- --------------------- -------------
Total taxation (779) (1,015) 793
------------------------------------------------- ---- -------------------- --------------------- -------------
Profit/(loss) from continuing operations 2,567 (7,813) (11,307)
------------------------------------------------- ---- -------------------- --------------------- -------------
(Loss)/profit from discontinued operation
(attributable to equity holders of the
parent company) 11 (678) 130 (6,356)
------------------------------------------------- ---- -------------------- --------------------- -------------
Profit/(loss) for the period/year attributable
to equity shareholders of the parent company 1,889 (7,683) (17,663)
------------------------------------------------- ---- -------------------- --------------------- -------------
1 Prior period/year numbers were restated as a result of
application of IFRS 5 "Non-current Assets Held for Sale and
Discontinued Operations" to Group's operations in Hungary. Please
refer to Note 11 for details.
Condensed consolidated
statement of comprehensive income
Earnings per share for profit/(loss) from
continuing operations attributable to
the ordinary equity holders of the parent
company:
Basic profit/(loss) per 10p ordinary share
(in cents)
-before exceptional items 16 2.95 (2.96) 1.21
-after exceptional items 1.49 (4.54) (6.57)
Diluted profit/(loss) per 10p ordinary
share (in cents)
-before exceptional items 16 2.77 (2.96) 1.12
-after exceptional items 1.40 (4.54) (6.57)
Earnings per share for profit/(loss) attributable
to the ordinary equity holders of the
parent company:
-------------------------------------------------- ---- ------ -------
Basic profit/(loss) per 10p ordinary share
(in cents)
-before exceptional items 16 2.56 (2.89) (0.41)
-after exceptional items 1.10 (4.46) (10.26)
Diluted profit/(loss) per 10p ordinary
share (in cents)
-before exceptional items 16 2.40 (2.89) (0.41)
-after exceptional items 1.03 (4.46) (10.26)
GROUP FINANCIAL STATEMENTS
Condensed consolidated
statement of comprehensive income
Six months
to
30 June Year to
31 December
2018 2017
Six months (audited)
(unaudited) to 30 June 1
2017 (unaudited)
$000 1 $000 $000
Profit/(loss) for the period/year 1,889 (7,683) (17,663)
Other comprehensive income to be reclassified
to loss or profit in subsequent periods
when specific conditions are met
Currency translation differences (9,963) 3,502 7,118
Other comprehensive income that will not
be reclassified to profit or loss in subsequent
periods
Remeasurements of post-employment benefit
obligations - - (333)
------------------------------------------------------ ------------- ------------------ -------------
Other comprehensive income for the period/year,
net of tax (9,963) 3,502 6,785
------------------------------------------------------ ------------- ------------------ -------------
Total comprehensive income for the period/year
attributable to equity shareholders of
the parent company
Continuing operations (7,396) (4,311) (4,522)
Discontinued operations (678) 130 (6,356)
------------------------------------------------------ ------------- ------------------ -------------
(8,074) (4,181) (10,878)
----------------------------------------------------- ------------- ------------------ -------------
GROUP FINANCIAL STATEMENTS
Condensed consolidated
statement of financial position
As at As at
30 June 30 June As at
31 December
2018 2017 2017
(unaudited) (unaudited) (audited)
Note $000 $000 $000
Assets
Non-current assets
Property, plant and equipment 5 183,053 196,037 194,031
Intangible assets 5 - 8,319 -
Other receivable 6 3,250 3,206 3,136
Deferred tax assets 19,263 18,311 20,840
----------------------------------------- ---- ------------- ------------- -------------
205,566 225,873 218,007
----------------------------------------- ---- ------------- ------------- -------------
Current assets
Inventories 5,407 4,948 5,824
Trade and other receivables 4,816 4,517 4,969
Restricted cash 7 533 218 497
Cash and cash equivalents 7 7,494 4,011 6,929
----------------------------------------- ---- ------------- ------------- -------------
18,250 13,694 18,219
----------------------------------------- ---- ------------- ------------- -------------
Assets classified as held for sale 11 721 - -
----------------------------------------- ---- ------------- ------------- -------------
Total current assets 18,971 13,694 18,219
----------------------------------------- ---- ------------- ------------- -------------
Total assets 224,537 239,567 236,226
----------------------------------------- ---- ------------- ------------- -------------
Liabilities
Current liabilities
Current tax liabilities (912) (572) (645)
Trade and other payables (8,990) (9,779) (11,878)
Borrowings 8 (6,781) (5,280) (7,630)
Provisions 13 (43,029) (39,071) (37,269)
(59,712) (54,702) (57,422)
----------------------------------------- ---- ------------- ------------- -------------
Liabilities of disposal group classified
as held for sale 11 (3,959) - -
----------------------------------------- ---- ------------- ------------- -------------
Total current liabilities (63,671) (54,702) (57,422)
----------------------------------------- ---- ------------- ------------- -------------
Non-current liabilities
Provisions 13 (5,039) (4,601) (5,341)
Other payable (3,250) (3,206) (3,136)
Borrowings 8 (4,030) (11,033) (9,003)
Derivatives 9 (3) (68) (3)
Defined pension benefit plan (478) (301) (490)
Deferred tax liabilities (10,218) (13,067) (14,922)
----------------------------------------- ---- ------------- ------------- -------------
(23,018) (32,276) (32,895)
----------------------------------------- ---- ------------- ------------- -------------
Total liabilities (86,689) (86,978) (90,317)
----------------------------------------- ---- ------------- ------------- -------------
Net assets 137,848 152,589 145,909
----------------------------------------- ---- ------------- ------------- -------------
Equity
Share capital 12 26,666 26,666 26,666
Share premium 97,476 97,476 97,476
Other reserves (163,089) (156,409) (153,126)
Retained earnings 176,795 184,856 174,893
----------------------------------------- ---- ------------- ------------- -------------
Total equity 137,848 152,589 145,909
----------------------------------------- ---- ------------- ------------- -------------
GROUP FINANCIAL STATEMENTS
Condensed consolidated
statement of changes in equity (unaudited)
Attributable to equity shareholders
of the parent
---------------------------------------------------------------------------- ---------------
Other
reserves
--------------------------------------------- ---------------
Foreign Post-employment
Capital currency benefit
Share Share Retained Merger redemption translation obligation
capital premium earnings reserve reserve reserve reserve Total
$000 $000 $000 $000 $000 $000 $000
-------------- -------- -------- --------- ----------- -------------- ---------------- --------------- -------
At 1 January
2017 26,666 97,476 192,602 30,680 587 (191,178) - 156,833
Loss for the
period - - (7,683) - - - - (7,683)
Exchange
differences
arising on
translation
of overseas
operations - - - - - 3,502 - 3,502
-------------- -------- -------- --------- ----------- -------------- ---------------- --------------- -------
Total
comprehensive
(loss)/income
attributable
to equity
shareholders
of the parent - - (7,683) - - 3,502 - (4,181)
-------------- -------- -------- --------- ----------- -------------- ---------------- --------------- -------
Transactions -
with
equity
shareholders
of the parent
Share-based
payment
charge - - (63) - - - - (63)
-------------- -------- -------- --------- ----------- -------------- ---------------- --------------- -------
Total
transactions
with equity
shareholders
of the parent - - (63) - - - - (63)
-------------- -------- -------- --------- ----------- -------------- ---------------- --------------- -------
At 30 June
2017 26,666 97,476 184,856 30,680 587 (187,676) - 152,589
-------------- -------- -------- --------- ----------- -------------- ---------------- --------------- -------
At 1 January
2018 26,666 97,476 174,893 30,680 587 (184,060) (333) 145,909
Profit for the
period - - 1,889 - - - 1,889
Exchange
differences
arising on
translation
of overseas
operations - - - - - (9,963) - (9,963)
Total
comprehensive
(loss)/income
attributable
to equity
shareholders
of the parent - - 1,889 - - (9,963) - (8,074)
-------------- -------- -------- --------- ----------- -------------- ---------------- --------------- -------
Transactions
with
equity
shareholders
of the parent
Share-based
payment
charge - - 13 - - - - 13
-------------- -------- -------- --------- ----------- -------------- ---------------- --------------- -------
Total
transactions
with equity
shareholders
of the parent - - 13 - - - - 13
-------------- -------- -------- --------- ----------- -------------- ---------------- --------------- -------
At 30 June
2018 26,666 97,476 176,795 30,680 587 (194,023) (333) 137,848
-------------- -------- -------- --------- ----------- -------------- ---------------- --------------- ---------
GROUP FINANCIAL STATEMENTS
Condensed consolidated
statement of cash flows
Six months
to
30 June Year to
31 December
2018 2017
Six months
(unaudited) to 30 June (audited)
2017 (unaudited)
Note $000 $000 $000
Cash flows from operating activities
Cash generated from continuing operations 18 15,674 2,493 14,247
Cash (used)/generated from discontinued
operations 11 (340) 1,534 1,476
Interest paid (1,120) (640) (1,760)
Income tax paid (1,654) (1,864) (2,933)
------------------------------------------------- ---- ------------- ------------------ -------------
Net cash generated from operating activities 12,560 1,523 11,030
------------------------------------------------- ---- ------------- ------------------ -------------
Cash flows from investing activities
Interest received 346 233 348
Dividend received - 80 114
Proceeds from sale of property, plant
and equipment 15 266 291
Purchase of property, plant and equipment
- continuing operations (6,491) (10,325) (7,131)
Purchase of intangible assets - (60) (9,581)
------------------------------------------------- ---- ------------- ------------------ -------------
Net cash used in investing activities (6,130) (9,806) (15,959)
------------------------------------------------- ---- ------------- ------------------ -------------
Cash flows from financing activities
Restricted cash (246) (17) (296)
Repayment of borrowings (5,760) (1,920) (1,920)
Net cash used in financing activities (6,006) (1,937) (2,216)
------------------------------------------------- ---- ------------- ------------------ -------------
Increase/(decrease) in cash and cash equivalents
in the period/year 424 (10,220) (7,145)
Effect of exchange rates on cash and cash
equivalents 212 164 7
Cash and cash equivalents at the beginning
of the period/year 6,929 14,067 14,067
------------------------------------------------- ---- ------------- ------------------ -------------
Cash and cash equivalents from continuing
operations at the end of the period/year 7 7,494 3,240 6,516
------------------------------------------------- ---- ------------- ------------------ -------------
Cash and cash equivalents from discontinued
operations at the end of the period/year 7 71 771 413
------------------------------------------------- ---- ------------- ------------------ -------------
GROUP FINANCIAL STATEMENTS
Notes to the interim financial information
1. General information and accounting policies
JKX Oil & Gas plc (the ultimate parent of the Group
hereafter, 'the Company') is a public limited company listed on the
London Stock Exchange which is domiciled and incorporated in
England and Wales under the UK Companies Act. 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 2018 and was approved by the Directors
for issue on 27 July 2018.
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 2017 were approved by the Board of Directors on 27 April
2018 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 2018 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 2017 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 Company's Ukrainian subsidiary, Poltava Petroleum Company
('PPC') has made provision for potential liabilities arising from
separate court proceedings regarding the amount of production taxes
('Rental Fees') paid in Ukraine for certain periods since 2010,
which total approximately $42.7 million (including interest and
penalties, see Note 15 to the interim consolidated financial
information). PPC continues to contest these claims through the
Ukrainian legal system.
In addition, in 2015 and as detailed in Note 15, the Company and
its wholly-owned Ukrainian and Dutch subsidiaries commenced
international arbitration proceedings against Ukraine under the
Energy Charter Treaty and BIT seeking a repayment of Rental Fees
that PPC has paid on production of oil and gas in Ukraine since
2011, in addition to damages to the business.
In February 2017, the international arbitration tribunal ruled
that Ukraine was found not to have violated its treaty obligations
in respect of the levying of Rental Fees but awarded the Company
damages of $11.8 million plus interest, and costs of $0.3 million
in relation to subsidiary claims. No adjustment has been made in
these financial statements to recognise any possible future benefit
to the Company that may result from the tribunal award in the
Company's favour, with the tribunal ruling subject to an appeal
hearing scheduled for in the High Court later in 2017 and
ultimately to enforcement proceedings in Ukrainian courts.
Taking into account the damages awarded to the Company and the
Ukrainian court proceedings against PPC in respect of production
taxes, there is a net shortfall of $30.6 million owed by the Group
to Ukraine. Should PPC lose the claims against it in respect of
production taxes due for 2010 and 2015, and the Ukrainian
Authorities demand immediate settlement, the Group does not
currently have sufficient cash resources to settle the claims and
this would affect its ability to meet its obligations to creditors
and bondholders.
Accordingly, the Group's going concern assessment is sensitive
to the outcome of the production-related tax disputes with the
Ukrainian Government.
The Directors have concluded that it is necessary to draw
attention to the potential impact of the Group becoming liable for
additional Rental Fees in Ukraine as a result of unfavourable
outcomes in one or both of the ongoing court proceedings. It is
unclear whether either or both of these claims against PPC will be
realised and settlement enforced 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, as
well as the availability of additional courses of action with
respect to financing and/or negotiation with Ukraine for the
settlement of any successful production tax claim, mean that it is
appropriate to continue to adopt the going concern basis of
accounting in preparing the interim consolidated 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
2017 and those expected to be applied in the 31 December 2018
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.
Management have commenced an assessment of the impact of IFRS 16
"Leases", which is mandatory from 1 January 2019 and expect to
conclude the impact assessment in the second half of 2018.
During the period the Group adopted the following new accounting
policies:
Non-current assets held for sale and discontinued operations
A discontinued operation is a component of the entity that has
been disposed of or is classified as held for sale and that
represents a separate major line of business or geographical area
of operations, is part of a single co-ordinated plan to dispose of
such a line of business or area of operations, or is a subsidiary
acquired exclusively with a view to resale.
Non-current assets (or disposal groups) are classified as held
for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use and a
sale is considered highly probable. They are measured at the lower
of their carrying amount and fair value less costs to sell, except
for assets such as deferred tax assets, financial assets within the
scope of IFRS 9, which are specifically exempt from this
requirement.
Non-current assets classified as held for sale and the assets of
a disposal group classified as held for sale are presented
separately from the other assets in the balance sheet. The
liabilities of a disposal group classified as held for sale are
presented separately from other liabilities in the balance
sheet.
Any gain or loss from disposal, together with the results of
these operations until the date of disposal, is reported separately
as discontinued operations. The financial information of
discontinued operations is excluded from the respective captions in
the Consolidated financial statements and related notes for all
periods presented. Comparatives in the balance sheet are not
represented when a non-current asset or disposal group is
classified as held for sale. Comparatives are represented for
presentation of discontinued operations in the Statement of cash
flow and Statement of income. Further information on discontinued
operations and non-current assets held for sale can be found in
note 11 "Discontinued operations and assets classified as held for
sale".
The following new standards became applicable for the current
reporting period:
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
There were no retrospective adjustments as a result of adopting
these standards. The Group amended accounting policies applied from
1 January 2018 are disclosed below.
IFRS 9 Financial Instruments
Classification
From 1 January 2018, the Group classifies its financial assets
in the following measurement categories:
those to be measured subsequently at fair value (either through
OCI, or through profit or loss), and
those to be measured at amortised cost
Trade receivables are held to collect contractual cash flows and
are expected to give rise to cash flows representing solely
payments of principal and interest. The Company analysed the
contractual cash flow characteristics of those instruments and
concluded that they meet the criteria for amortized cost
measurement under IFRS 9. Therefore, reclassification for these
instruments is not required. For assets measured at fair value,
gains and losses will either be recorded in profit or loss or
OCI.
The Group reclassifies debt investments when and only when its
business model for managing those assets changes.
Trade and other receivables
Trade and other receivables are recognised initially at their
transaction price in accordance with IFRS 15 and are subsequently
measured at amortised cost, reduced by any provision for
impairment. Any impairment is recognised in the income statement
within 'Administrative expenses'. The Group applies the simplified
approach to providing for expected credit losses prescribed by IFRS
9, which permits the use of the lifetime expected loss provision
for all trade receivables. Expected credit losses are assessed on a
forward looking basis. The loss allowance is measured at initial
recognition and throughout its life at an amount equal to lifetime
ECL.
Based on the review of the historic occurrence of credit losses
and given the short-term nature of trade and other receivables and
the Group's active management of credit risk, the Group did not
recognise credit losses in the current period. The outlook for the
oil and gas industry is not expected to result in a significant
change in the Group's exposure to credit losses.
IFRS 15 Revenue from contracts with customers
Revenue recognition
Revenue from contracts with customers is recognized when or as
the Group satisfies a performance obligation by transferring a
promised good or service to a customer. A good or service is
transferred when the customer obtains control of that good or
service. The transfer of control of oil, natural gas, LPG, and
other items sold by the Group usually coincides with title passing
to the customer and the customer taking physical possession. The
Group principally satisfies its performance obligations at a point
in time and the amounts of revenue recognized relating to
performance obligations satisfied over time are not significant.
The accounting for revenue under IFRS 15 does not, therefore,
represent a substantive change from the Group's current practice
for recognizing revenue from sales to customers.
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 (2017: 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.
Transfer prices between segments are set on an arm's length
basis in a manner similar to transactions with third parties.
Segment revenue, segment expense and segment results include
transfers between segments. Those transfers are eliminated on
consolidation.
Segment results and assets include items directly attributable
to the segment. Segment assets consist primarily of property, plant
and equipment, inventories and receivables. Capital expenditures
comprise additions to property, plant and equipment.
Rest of
UK Ukraine Russia World Sub total Eliminations Total
First half 2018 $000 $000 $000 $000 $000 $000 $000
External revenue
Revenue by location
of asset
- Oil - 8,873 334 - 9,207 - 9,207
- Gas - 21,240 8,793 - 30,033 - 30,033
- LPG - 2,610 - - 2,610 - 2,610
- Other 51 489 - - 540 - 540
---------------------------- -------- -------- ------- ------- --------- ------------ --------
51 33,212 9,127 - 42,390 - 42,390
---------------------------- -------- -------- ------- ------- --------- ------------ --------
Inter segment revenue
- Management services/other 2,904 - - - 2,904 (2,904) -
---------------------------- -------- -------- ------- ------- --------- ------------ --------
2,904 - - - 2,904 (2,904) -
-------- -------- ------- ------- --------- ------------ --------
Total revenue 2,955 33,212 9,127 - 45,294 (2,904) 42,390
---------------------------- -------- -------- ------- ------- --------- ------------ --------
Profit before tax
Profit/(loss) from
operations (757) 4,826 511 (204) 4,376 - 4,376
Finance income 346 - 346
Finance cost (1,376) - (1,376)
Fair value movement - - -
on derivative liability
---------------------------- -------- -------- ------- ------- --------- ------------ --------
Profit before tax 3,346 - 3,346
---------------------------- -------- -------- ------- ------- --------- ------------ --------
Total assets1 2,555 107,857 112,120 1,284 223,816 - 223,816
---------------------------- -------- -------- ------- ------- --------- ------------ --------
Total liabilities1 (12,453) (62,577) (7,510) (190) (82,730) - (82,730)
---------------------------- -------- -------- ------- ------- --------- ------------ --------
1 Total assets and liabilities exclude assets and liabilities of
disposal group classified as held for sale. Please refer to Note 11
for details.
First half 2017 UK Ukraine Russia Rest of Sub total Eliminations Total
$000 $000 $000 World $000 $000 $000
$000
External revenue
Revenue by location
of asset
- Oil - 6,748 267 - 7,015 - 7,015
- Gas - 20,000 7,652 - 27,652 - 27,652
- LPG - 2,159 - - 2,159 - 2,159
- Other - 9 7 - 16 - 16
---------------------------- -------- -------- -------- ------- --------- ------------ --------
- 28,916 7,926 - 36,842 36,842
---------------------------- -------- -------- -------- ------- --------- ------------ --------
Inter segment revenue
- Management services/other 5,842 - - - 5,842 (5,842) -
5,842 - - - 5,842 (5,842) -
Total revenue 5,842 28,916 7,926 - 42,684 (5,842) 36,842
---------------------------- -------- -------- -------- ------- --------- ------------ --------
(Loss)/profit before
tax
(Loss)/profit from
operations (1,440) (1,737) (1,963) (195) (5,335) (93) (5,428)
Finance income 233 - 233
Finance cost (1,535) - (1,535)
Fair value movement
on derivative liability (68) - (68)
---------------------------- -------- -------- -------- ------- --------- ------------ --------
Loss before tax (6,705) (93) (6,798)
---------------------------- -------- -------- -------- ------- --------- ------------ --------
Total assets 1,526 100,309 121,323 16,409 239,567 239,567
---------------------------- -------- -------- -------- ------- --------- ------------ --------
Total liabilities (19,182) (56,233) (7,554) (4,009) (86,978) (86,978)
---------------------------- -------- -------- -------- ------- --------- ------------ --------
5. Property, plant and equipment and other intangible assets
During the period the Group acquired $4.6 additional assets in
Ukraine and Russia (2017: $19.3m in Ukraine, Russia and Hungary) ,
with 100% in respect of Group's oil and gas producing and
development assets (2017: 51% in respect of Group's oil and gas
producing and development assets and 49% spent on intangible
assets).
At the reporting date a review of the carrying amounts of
property, plant and equipment was undertaken to determine whether
there was any indication of a trigger that may have led to these
assets suffering an impairment loss. Following this review, no
impairment triggers were identified in relation to the Group's
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 (2017: two and
five years).
7. Cash
1 January Net 30 June
2018 movement 2018
$000 $000 $000
Cash 4,958 189 5,147
Short term deposits 1,971 376 2,347
-------------------------- --------- ---------- -------
Cash and cash equivalents 6,929 565 7,494
Restricted cash 497 36 533
-------------------------- --------- ---------- -------
Total 7,426 601 8,027
-------------------------- --------- ---------- -------
Short term deposits comprise amounts which are held on deposit,
but are readily convertible to cash.
Restricted cash
At 30 June 2018 $0.5m (31 December 2017: $0.3m) relates to funds
received by the Trustees of the JKX Death in Services scheme
pending distribution to the beneficiaries. At 30 June 2018
restricted cash does not include restricted cash held in Hungary,
it is included under "assets held for sale" in the Statement of
financial position. At 31 December 2017 $0.2m 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
2018 2017 2017
$000 $000 $000
Current
Convertible bonds due 20201 6,781 5,280 7,630
---------------------------------------------- ------- ------- -----------
Term-loans repayable within one year 6,781 5,280 7,630
---------------------------------------------- ------- ------- -----------
Non-current
Convertible bonds due 2020 4,030 11,033 9,003
---------------------------------------------- ------- ------- -----------
Term-loans repayable after more than one year 4,030 11,033 9,003
---------------------------------------------- ------- ------- -----------
1At 30 June 2018 current liabilities included $6.7m out of which
$0.8m is due to bondholders on 19 August 2018.
Convertible bonds due 2020
On 19 February 2013 the Company successfully completed the
placing of $40m of guaranteed unsubordinated convertible bonds with
institutional investors which were due 2018 (prior to
restructuring) raising cash of $37.2m net of issue costs.
Prior to restructuring the Bonds had 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 from 1 April 2013 up until seven days prior to their
maturity on 19 February 2018 (prior to restructuring) 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).
Convertible bonds restructured on 3 January 2017
On 3 January 2017 a special resolution was approved by
Bondholders to change the terms and conditions of the Bonds. The
main amendments to the terms and conditions of the Bonds were as
follows:
the Bondholder's option to require redemption of all of the
outstanding Bonds on 19 February 2017 was deleted;
the final maturity date of the Bonds was extended to 19 February
2020, with the outstanding principal amount of the Bonds being
repaid in three instalments; 33% on 19 February 2018; 33 % on 19
February 2019; and 34% on the 19 February 2020;
the coupon rate of the Bonds was increased from 8% to 14%;
the covenant which limited new borrowings by the Company has
been removed; and
the Company were to make two payments to Bondholders in respect
of prior accretion amounts, on 19 February 2017 and on 19 February
2018 of 12.0% and 3.0%, respectively, of the principal amount of
the Bonds.
19 February 2017 the Company made the first payment to
Bondholders of $1.9m, 12.0% of the principal amount of the Bonds,
in respect of prior accretion amounts and in accordance with the
terms and conditions of the Bond. On 19 February 2018 the Company
made a payment of the first instalment to Bondholders of $5.3m (33%
of the principal amount of the Bonds), together with final
accretion payment of $0.5m (3.0% of the principal amount of the
Bonds) and $1.1m interest payment in accordance with the terms and
conditions of the Bond.
The revised terms and conditions of the Bond was considered to
be a modification and therefore the difference in the amortised
cost carrying amount at the modification date was recognised
through a change in the effective interest rate at the modification
date through to the end of the revised estimated term of the Bond.
Interest, after the deduction of issue costs is charged to the
income statement using an effective rate of 17.3% (18.0% prior to
restructuring).
There was therefore no impact of the restructuring of the Bond
on the Consolidated Income Statement in 2017.
The impact of the amendments to the Bond on the Consolidated
Statement of Financial Position was to decrease the carrying amount
of the total Bond liability of $18.1m (at 31 December 2016,
includes the associated derivative) by $0.7m, which is amortised
over the estimated remaining life of the modified Bond.
In accordance with IFRS 9, following a modification or
renegotiation of a financial liability that does not result in
de-recognition, the Group is required to recognise any modification
gain or loss immediately in profit or loss. Any gain or loss is
determined by recalculating the gross carrying amount of the
financial liability by discounting the new contractual cash flows
using the original effective interest rate. The difference between
the original contractual cash flows of the Bond and the modified
cash flows discounted at the original effective interest rate is
trivial and hence there was no impact on adoption of IFRS 9 on 1
January 2018.
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.
Credit facility
On 15 December 2017, PPC, our subsidiary in Ukraine, has secured
a 12 month revolving credit line from Tascombank for UAH150
million. At 30 June 2018 the total short-term line of credit
amounted to $5.7m at an exchange rate of $1: 26.19 Hryvnia (31
December 2017: $5.3m at an exchange rate of $1: 28.07 Hryvnia). The
amount outstanding at 30 June 2018 and 31December 2017 was nil, so
the undrawn portion totaled $5.7m (31 December 2017: $5.3m). The
facility will be available through 14 December 2018.
The main terms and conditions of the revolving credit line are
as follows:
drawdowns can be made either in USD or UAH;
interest rate cost for USD drawn down is 10%;
interest rate cost for UAH drawn down: 17.5% to 30 days, 18.0%
31 to 90 days, 20.75% 91 to 180 days, 22.5% 181 to 365 days;
borrowing above UAH90m, equivalent to $3.4m at 30 June 2018 will
require a corporate guarantee from JKX Oil & Gas Plc;
assets with a market value of UAH355m, equivalent to $13.6m at
30 June 2018 (31 December 2017: $12.6m) have been identified for
use as a collateral, collateral is to be provided only on
drawdown;
amount borrowed will be repaid during the last 4 months, by
equal-sized monthly payments, to be effected on the last day of the
month/the last day of the credit limit period.
The credit facility of $5.7m (31 December 2017: $5.3m) includes
two financial covenants:
to keep gross margin at no less than 50% during the period of
the credit facility agreement, based on PPC's financial reporting
results;
starting from the first quarter of 2018 and during the period of
the credit facility agreement, PPC is to maintain the following
ratio as per the financial reporting: ratio between financial
(interest) debt and EBITDA (adjusted to the annual value) at no
more than 3.0.
9. Derivatives
30 June 30 June
31 December
2018 2017 2017
$000 $000 $000
Current derivative financial instruments
At the beginning of the year - 1,341 1,341
Reclassification to non-current derivative
financial instruments - (1,341) (1,341)
--------------------------------------------------- ------- ------- -----------
At the end of the period/ year - - -
--------------------------------------------------- ------- ------- -----------
Non-current derivative financial instruments
At the beginning of the year 3 - -
Reclassification from current derivative financial
instruments - 1,341 1,341
Full/partial settlement of derivative liability - (1,341) (1,341)
Fair value loss movement during the period/year - 68 3
At the end of the period/ year 3 68 3
--------------------------------------------------- ------- ------- -----------
Convertible bonds due 2020 - embedded derivatives
Bondholder Put Option - cancelled 3 January 2017
Bondholders had the right to require the Company to redeem the
following number of Bonds on the following date together with
accrued and unpaid interest to (but excluding) such date:
Redemption Date Maximum number of Bonds to be redeemed
---------------- --------------------------------------
19 February 2017 all outstanding Bonds
---------------- --------------------------------------
At 31 December 2016 current liabilities included $16.8m in
respect of the put option available to bondholders on 19 February
2017. On 3 January 2017, this put option was cancelled as part of
the Bond restructuring as detailed in Note 8.
Company Call Option
The Company can redeem the Bonds at any time in full but not in
part at their principal amount plus one semi-annual coupon plus any
accrued interest. If the Bonds are called prior to 19 February
2020, the redemption price will also include an additional U.S.
$6,000 per Bond.
The Company can redeem the Bonds any time in full but not in
part at their principal amount plus any accrued interest 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
arm's length transaction. Where available, market values have been
used (this excludes short term assets and liabilities).
Book Value Fair Value Fair Value
30 June 30 June Book Value 31 December
31 December
2018 2018 2017 2017
$000 $000 $000 $'000
Financial assets
Cash and cash equivalent and restricted
cash (Note 7) 8,027 8,027 7,426 7,426
Trade receivables - classified as loans
and receivables 2,665 2,665 2,843 2,843
Other receivables - classified as loans
and receivables 640 640 508 508
Financial liabilities
Trade payables - carried at amortised
cost 1,323 1,323 2,828 2,828
Other payables - carried at amortised
cost 526 526 278 278
Accruals 101 101 2,262 2,262
Borrowings - convertible bond due 2020
(Note 8) - at amortised cost (current) 6,781 5,513 7,630 6,486
Borrowings - convertible bond due 2020
(Note 8) - at amortised cost (non-current) 4,030 3,276 9,003 7,653
Derivatives - fair value through profit
or loss (Note 9) 3 3 3 3
-------------------------------------------- ---------- ---------- ------------- --------------
Financial liabilities measured at amortised cost are carried at
$12.8m (31 December 2017: $22.0m). The Group's borrowings at 30
June 2018 relate entirely to the convertible bond due 2020.
Fair value hierarchy
Derivatives
At the period end the Group's derivative financial instrument
related to various embedded derivatives within the convertible
bonds due 2020 (Note 9). The value of the derivative was calculated
at inception using the Monte Carlo simulation methodology and
subsequently using the Black-Scholes formula, discounted cash flow
methodology, and the Company's historic share price and volatility,
treasury rates and other estimations. As it was derived from inputs
that are not from observable market data it was grouped into level
3 within the fair value measurement hierarchy.
The main assumptions used in valuation of the derivative
conversion option as at 31 December 2017 were:
underlying share price of: GBP0.11;
GBP/US$ spot rate of 1.3513;
historic volatility of 56.29%;
risk free rate based on the maturity which is 2.14 year US
Treasury rate of 1.874%, 1.14 year US Treasury rate of 1.831% and
0.14 year US Treasury rate of 1.302% ).
A 10% increase/decrease in Company's historic share price
volatility would have resulted in an increase in the fair value
loss for the year to 31 December 2017 of $0.01m and a decrease in
the fair value loss that would bring derivative's fair value to
nil, 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 and other current assets, as at 30
June 2018 was $ 11.3m (31 December 2017: $10.8m).
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
2018 2017
$000 $000
Convertible bonds due 2020 (current and non-current,
Note 8) (10,811) (16,633)
Cash and cash equivalents (Note 7) 7,494 6,929
Net debt (3,317) (9,704)
----------------------------------------------------- -------- -----------
Total equity 137,848 145,909
----------------------------------------------------- -------- -----------
Following the issue of $40m of convertible bonds in February
2013, the primary capital risk to the Group was the level of
indebtedness. The convertible bond included a financial covenant
which limited the Group's indebtedness (excluding the bonds
themselves) 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. On 3
January 2017 this indebtedness covenant was cancelled as part of
the Bond restructuring as detailed in Note 8.
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 enabled the repatriation of dividends from
JKX's Ukrainian subsidiary for the years 2014 and 2015. NBU issued
the Resolution No.33 on 13 April 2017 which enabled the
repatriation of dividends for 2016.
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, no cash or short term
deposits included within this consolidated financial information is
restricted.
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 financial liabilities was as
follows:
3 months
Within -
3 months 1 year 1-2 years
Group - 30 June 2018 $000 $000 $000
---------------------------------------- --------- -------- ---------
Trade payables 1,323 - -
Other payables 526 - -
Borrowings - Convertible bonds due 2020 750 6,030 6,202
Accruals 101 - -
---------------------------------------- --------- -------- ---------
Within 3 months 1-2 years 2-3 years
3 - $000 $000
months 1 year
Group - 31 December 2017 $000 $000
Trade payables 2,828 - - -
Other payables 278 - - -
Accruals 2,262 - - -
Borrowings - Convertible bonds due 2020 6,880 750 6,411 5,821
---------------------------------------- ------- -------- --------- ---------
Interest rate risk profile of financial assets and liabilities -
Group
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):
2018 2017
Within Within
1 Year 1 Year
Group - period ended 30 June $000 $000
Floating rate
Short term deposits (Note 7) 2,347 433
Other receivables 640 430
Other payables 526 1,672
----------------------------- ------- -------
Floating rate financial assets comprise cash deposits placed on
money markets at call, seven day and monthly rates.
11. Discontinued operations and assets classified as held for
sale
In early February 2018 the Group announced its intention to exit
its oil and gas operations in Hungary and initiated an active
programme to locate a buyer for its subsidiary JKX Hungary BV which
100% owns Riverside Energy Kft, based in Hungary. Preparation of
marketing materials and target investor list was complete in Q1
2018, and the marketing process was commenced in Q2 2018. It is
anticipated that binding bids are received in Q3 2018 and sale may
complete within the next 12 months.
The associated assets and liabilities are consequently presented
as held for sale in the financial statements at 30 June 2018.
The financial performance and cash flow information presented
are for periods ended 30 June 2018 and 30 June 2017.
30 June 30 June
2018 2017
$000 $000
Revenue 804 1,143
Cost of sales
Royalties (117) (116)
Other cost of sales (858) (1,022)
-------------------------------------------- ------- -------
Total cost of sales (975) (1,138)
Administrative expenses (213) (169)
(Loss)/gain on foreign exchange (294) 294
-------------------------------------------- ------- -------
(Loss)/profit from operations and after tax (678) 130
-------------------------------------------- ------- -------
Net cash (outflow)/inflow from operating activities (340) 1,534
Net cash outflow from investing activities - (1,238)
Effect of exchange rates on cash and cash equivalents (2) 29
-------------------------------------------------------------- ------ -------
Net (decrease)/increase in cash (used)/generated by
the subsidiary (342) 325
Basic and diluted (loss)/earnings per share from discontinued
operations (0.39) 0.08
The following assets and liabilities were reclassified as held
for sale in relation to the discontinued operation as at 30 June
2018
Assets and liabilities of disposal group classified as held 30 June
for sale 2018
$000
Assets classified as held for sale
Trade and other receivables 441
Cash 71
Restricted cash 209
-------------------------------------------------------------- -------
Total assets of disposal group held for sale 721
-------------------------------------------------------------- -------
Liabilities of the disposal group classified as held for sale
Deferred tax liability (2,564)
Trade and other payables (805)
Abandonment provision (590)
-------------------------------------------------------------- -------
Total liabilities of disposal group held for sale (3,959)
-------------------------------------------------------------- -------
Net liabilities (3,238)
-------------------------------------------------------------- -------
12. Share capital
Equity share capital, denominated in Sterling, was as
follows:
30 June 30 June 30 June 31 December 31 December 31 December
2018 2018 2018 2017 2017 2017
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 the
period (2017: nil). There were no treasury shares used in the
period (2017: 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 (2017: 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.
13. Provisions
Onerous
Disputed lease Slovakia
rental provision closure
fees (1) (2) costs (3) Total
Current provisions $000 $000 $000 $000
------------------------------ --------- ---------- ---------- --------------------
At 1 January 2018 37,065 204 - 37,269
Foreign currency translation 2,690 (3) - 2,687
Amount utilised in the period - (96) - (96)
Amount provided in the period 2,873 115 181 3,169
------------------------------ --------- ---------- ---------- --------------------
At 30 June 2018 42,628 220 181 43,029
------------------------------ --------- ---------- ---------- --------------------
The provision for disputed rental fees, is in respect of a claim
against PPC for additional rental fee for the period August to
December 2010 and January to December 2015. $2.9m was recognised as
a charge in the half-year 2018 consolidated income statement and
relates to interest accrued during 2018, out of which $1.2m relates
to August to December 2010 liability and $1.7m to January to
December 2015. Both claims are being contested in the Ukrainian
courts (see Note 15). The amount is denominated in Ukrainian
Hryvnia ('UAH') and is stated above at its US$-equivalent amount
using the rate at 30 June 2018 of UAH26.19/$ (2017: UAH 28.07/$).
The provision at 30 June 2018 includes the total value of the
claims plus interest and penalties. The Board believes that the
claims are without merit under Ukrainian law and the Company will
continue to contest it vigorously. No contingent liabilities exist
in respect of Ukrainian production taxes.
2018 onerous lease provision concerns the Group's liability for
onerous lease contracts relating to its London office. Following a
reduction in London office staff in 2016, three out of the four
floors of the occupied building became surplus to requirements.
Subsequently, two out of three floors have been assigned to new
tenants. The provision has been determined as the present value of
the unavoidable costs relating to rents and rates to the end of the
lease terms, net of the expected sub-lease income, discounted at
6.5% (2017: 6.5%). The remaining life of the leases at 30 June 2018
was 3.5 years (2017: 4 years).
In early February 2018 the Board approved a decision to withdraw
from Slovakia. On 16 March 2018 the Company gave a formal notice of
relinquishment of Svidnik, Medzilaborce and Snina exploration
licences to the other parties in the joint venture. The provision
for closure costs, represents the amount set aside to cover the
costs to be received in the final joint venture statement in 3rd
quarter of 2018.
Non-current provisions
30 June 30 June
31 December
2018 2017 2017
$000 $000 $000
Provision for site restoration 5,039 4,601 5,341
------------------------------- ------- ------- -----------
14. Exceptional items
During the period exceptional items as detailed below have been
included in cost of sales and administrative expenses in the income
statement:
Cost of Administrative
sales (1) expenses
(1)
$000 $000
------------------------------------------------- ----------------------- --------------
Movement in provision for disputed rental fees -
amount provided in the period 2,873 -
Onerous lease provision - amount provided in the
period - 115
2,873 115
------------------------------------------------- ----------------------- --------------
1 Please see Note 13 for details
Exceptional items -information at 30 June 2017
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 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.
15. Taxation
No UK tax liability has arisen during the six months ended 30
June 2018 (2017: $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.
Changes to the UK corporation tax rates were substantively
enacted as part of Finance Bill 2015 and Finance Bill 2016. These
include reductions to the main rate to reduce the rate to 19% from
1 April 2017 and to 17% from 1 April 2020. The impact of the rate
reduction is not expected to have a material impact on UK current
taxation.
The corporation tax rate in Ukraine for 2018 is 18% (2017:
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.
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 sought repayment of
more than $180 million in Rental Fees that PPC 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 was awarded on 6 February
2017.
The tribunal ruled that Ukraine was found not to have violated
its treaty obligations in respect of the levying of Rental Fees but
awarded the Company damages of $11.8 million plus interest, and
costs of $0.3 million in relation to subsidiary claims.
In March 2017, Ukraine's Ministry of Justice filed a claim with
the High Court of the United Kingdom naming JKX as a defendant in
an application seeking to set aside the arbitration award for
damages against Ukraine and in favour of JKX.
In October 2017 the High Court of the United Kingdom, ordered
that the application brought by Ukraine seeking to set aside the
recent Uncitral arbitration award against Ukraine and in favour of
JKX be dismissed. The Government of Ukraine is therefore still
liable to pay to JKX the sum of USD11.8 million plus interest and
costs of USD0.3 million in relation to subsidiary claims, as
previously ordered. The Judge also ordered that Ukraine should pay
JKX's costs of $83,638.
Rental Fee demands
The Group currently has two claims (2017: two) 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 2010, which in total amount to
approximately $42.7 million (31 December 2017: $37.1 million)
(including interest and penalties), as detailed below. All amounts
are being claimed in Ukrainian Hryvnia ('UAH') and are stated below
at their US$-equivalent amounts using the year end rate of
$1:UAH26.19 (2017: $1: UAH 28.1).
August - December 2010: approximately $13.4 million (31 December
2017: $11.3 million) (including $8.7 million (31 December 2017:
$6.8 million) of interest and penalties). On 11 March 2014 PPC won
the case in the Poltava Court. The tax office appealed and the
Kharkiv Appellate Administrative Court 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 has discovered that there were in fact certain
procedures that were not followed regarding the tax notifications
that formed the basis of the original claims against PPC. Certain
documentation was found to be missing from the files of the tax
authorities. In April 2017 the Poltava Circuit Administrative Court
found in favour of PPC and cancelled the tax notification decisions
on the grounds that due process had not been followed. On 1 June
2017 the Kharkiv Appellate Administrative Court upheld the judgment
of the Poltava Circuit Administrative Court. The tax authorities
filed a cassation complaint. On 5 February 2018 the tax
authorities' appeal against the decision was dismissed. A final
hearing in relation to these rental fee demands is expected before
the end of 2018.
January - December 2015: approximately $29.3 million (31
December 2017: $25.8 million) (including $13.0 million (31 December
2017: $11.2 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 claims, 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. PPC also
filed lawsuits against the tax authorities to cancel the
application of such additional penalties and interest. On 25 July
2018 a hearing at the Poltava Circuit Administrative Court in
respect of one of the claims was adjourned until 15 August 2018. It
is expected that hearings in respect of the majority of these
claims will be held in the remainder of 2018 and 2019.
An exceptional charge of $2.9 million has been charged to the
Consolidated income statement in the half year (2017: $1.8 million)
relating to interest accrued on the August - December 2010 and
January - December 2015 claims.
No adjustment has been made to recognise any possible future
benefit to the Company that may result from the tribunal award in
the Company's favour for damages of $11.8 million plus interest,
and costs of $0.3 million since the award is still subject to
enforcement proceedings in the Ukrainian courts.
16. Earnings/(loss) per share
The calculation of earnings/(loss) per ordinary share for the
six months ended 30 June 2018 is based on the weighted average
number of shares in issue during the period of 172,125,916 (31
December 2017: 172,125,916) and the profit/(loss) for the relevant
period.
In accordance with IAS 33 (Earnings per share) the effects of
dilutive potential have been included when calculating dilutive
earnings per share for the period ended 30 June 2018 (31 December
2017 loss per share, hence antidilutive). 10,080,134 (31 December
2017: 13,266,244) potentially dilutive ordinary shares associated
with the convertible bonds (Note 8) have been included as they are
dilutive at 30 June 2018 (31 December 2017: antidilutive, hence
excluded).
There were 1,059,650 outstanding share options at 30 June 2018
(31 December 2017: 1,059,650), of which 1,059,650 (31 December
2017: 1,059,650) had a potentially dilutive effect. All of the
Group's equity derivatives were dilutive for the period ended 30
June 2018.
The diluted earnings per share for the six months ended 30 June
2018 is based on 183,265,700 (30 June 2017: 172,125,916; 31
December 2017: 172,125,916) ordinary shares calculated as
follows:
30 June 30 June
31 December
2018 2017 2017
Profit/(loss) $'000 $'000 $'000
Profit/(loss) for the purpose of basic and
diluted earnings per share (loss for the period/year
attributable to the owners of the parent):
-Before exceptional item 4,407 (4,967) (701)
-After exceptional item 1,889 (7,683) (17,663)
------------------------------------------------------ ------- ------------------ -----------
30 June 30 June 31 December
Number of shares 2018 2017 2017
Basic weighted average number of shares 172,125,916 172,125,916 172,125,916
Weighted average of dilutive potential ordinary
shares:
-Share options 1,059,650 - -
-Convertible bonds 2020 (see Note 8) 10,080,134 - -
------------------------------------------------ ----------- ----------- -----------
Weighted average number of shares for diluted
earnings per share 183,265,700 172,125,916 172,125,916
------------------------------------------------ ----------- ----------- -----------
17. Dividends
No interim dividend for the six months to 30 June 2018 is being
paid or proposed (2017: nil).
18. Reconciliation of profit/ (loss) from operations to net cash
generated from operations
Six months Six months
to 30 June to 30 June Year to
31 December
2018 2017 2017
$000 $000 $000
Profit/(loss) from continuing operations 4,376 (5,428) (9,281)
(Loss)/profit from discontinued operations (678) 130 (3,947)
Depreciation, depletion and amortisation 7,116 10,520 17,428
Exceptional item - reversal of provision for
impairment of Ukrainian oil and gas assets - - (5,636)
Exceptional item - provision for impairment
of Hungary and Slovakia - - 11,450
Exceptional item - write off of appraisal
expenditure in Ukraine - - 9,391
Exceptional item - increase in provision for
disputed rental fees 5,564 3,277 3,144
Exceptional item - increase in remuneration
and severance costs provision - 1,440 -
Exceptional item - increase /(decrease) in
onerous lease provision 112 (156) 83
Increase in closure costs provision for Slovakia 180 - -
(Profit)/loss on disposal of fixed assets (5) 578 557
Share-based payment charge/(credit) 13 (63) (46)
------------------------------------------------- ----------- ----------- -------------
Cash generated from operations before changes
in working capital 16,678 10,298 23,143
Changes in working capital (1,344) (6,271) (7,420)
------------------------------------------------- ----------- ----------- -------------
Net cash generated from continuing operations 15,674 2,493 14,247
Net cash (used)/generated in discontinued
operations (340) 1,534 1,476
------------------------------------------------- ----------- ----------- -------------
19. Capital commitments
Under the work programmes for the Group's exploration and
development licences the Group had no commitments to future capital
expenditure on drilling rigs and facilities at 30 June 2018 (30
June 2017: $1.0m; 31 December 2017: nil).
20. Related-party transactions
Key management compensation amounted to $0.5m for the six months
ended 30 June 2018 (2017: $0.9m).
Vladimir Tatarchuk and Vladimir Rusinov were appointed to the
Board on 28 January 2016 and were thought to have a beneficial
interest in Convertible Bonds with principal amount of $2.3m at 30
June 2018 (31 December 2017: $3.4m), which are held by Proxima.
In February 2018, the following redemptions were made in
relation to Proxima's bond holding and in accordance with the terms
and conditions of the restructured Bonds (see Notes 8 and 9):
$1.1m in respect of first instalment of the principal;
$0.1m in respect of prior accretion amounts (2017: $0.4m);
$0.2m Bond interest payment (2017: $0.4m).
Glossary
2P reserves Proved plus probable
3P reserves Proved, probable and possible
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
Boepd Barrel of oil equivalent per day
Bopd Barrel of oil per day
Bpd Barrel per day
Bwpd Barrels of water per day
Cfpd Cubic feet per day
EPF Early Production Facility
GPF Gas Processing Facility
HHN Riverside Energy Kft
Hryvnia The lawful currency of Ukraine
HSECQ Health, Safety, Environment, Community and Quality
KPI Key Performance Indicator
LIBOR London InterBank Offered Rate
LPG Liquefied Petroleum Gas
LTI Lost Time Injuries
Mbbl Thousand barrels
Mboe Thousand barrels of oil equivalent
Mcf Thousand cubic feet
MMcfd Million cubic feet per day
MMbbl Million barrels
MMboe Million barrels of oil equivalent
PPC Poltava Petroleum Company
Roubles The lawful currency of Russia
Sq. km Square kilometre
TD Total depth
$ United States Dollars
UAH Ukrainian Hryvnia
US United States
VAT Value Added Tax
YGE Yuzhgazenergie LLC
Conversion factors 6,000 standard cubic feet of gas = 1 boe
Directors and advisors
Directors
Hans Jochum Horn
Adrian Coates
Michael Bakunenko
Christian Bukovics
Vladimir Rusinov
Andrey Shtyrba
Vladimir Tatarchuk
Company Secretary
Jeremy Rhodes
Registered office
6 Cavendish Square
London
W1G 0PD
Registered in England Number: 03050645
Registrars
Equiniti
Aspect House, Spencer Road
Lancing, West Sussex
BN99 6DA
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
1 Embankment Place
London
WC2N 6RH
Advisors
SPARK Advisory Partners Limited
5 St. John's Lane
London
EC1M 4BH
Public relations
EM Communications
6 Snow Hill
London
EC1A 2AY
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 news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR SELFWUFASEDW
(END) Dow Jones Newswires
July 30, 2018 02:03 ET (06:03 GMT)
Jkx Oil & Gas (LSE:JKX)
Historical Stock Chart
From Mar 2024 to Apr 2024
Jkx Oil & Gas (LSE:JKX)
Historical Stock Chart
From Apr 2023 to Apr 2024
