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JKX Oil & Gas plc Annual Report 2015
A fresh perspective
UA-404
Fin
an
cia
l s
tate
me
nts
104-
169
Go
ve
rn
an
ce
68-1
03
57
56
JKX
Oil
& G
as p
lc A
nnua
l Rep
ort 2
015
JKX
Oil
& G
as p
lc A
nnua
l Rep
ort 2
015
Str
ate
gic
re
po
rt
2-67
Ta
rg
ets
20
15
Ac
hie
ve
me
nts
20
15
Ta
rg
ets
20
16
Furt
her
impr
ove
Em
erge
ncy
Res
pons
e (‘E
R’)
arra
ngem
ents
an
d pl
ans
with
sim
ulat
ed
exer
cise
s, d
rill
s an
d tr
aini
ng in
ea
ch o
f our
ope
ratio
nal a
reas
Ac
hie
ve
d
Dur
ing
2015
JK
X im
prov
ed E
R in
Ukr
aine
and
Rus
sia
and
cont
inue
d w
ith r
egul
ar E
R d
rill
s an
d ob
serv
atio
ns o
f the
pro
cess
. Pla
ns h
ave
been
est
ablis
hed
whi
ch in
clud
e re
scue
of p
erso
nnel
and
act
ions
to
min
imis
e da
mag
e an
d bu
sine
ss d
isru
ptio
n.
Furt
her
impr
ove
ER
ar
rang
emen
ts a
nd p
lans
with
si
mul
ated
exe
rcis
es, d
rill
s an
d tr
aini
ng in
eac
h of
our
op
erat
iona
l are
as d
urin
g 20
16
Upd
ate
the
Car
bon
Man
agem
ent
Pla
n an
d re
port
s E
nsur
e th
e ne
xt a
sses
smen
t of o
ur C
arbo
n M
anag
emen
t Su
bmis
sion
by
the
Car
bon
Dis
clos
ure
Pro
ject
is s
ubm
itte
d in
Q3
2016
.
The
perf
orm
ance
rep
ort i
s in
clud
ed in
this
Ann
ual R
epor
t w
ith im
prov
emen
ts p
lann
ed
for
2016
Com
ply
with
the
Gre
enho
use
G
as (‘
GH
G’)
Emis
sion
s (D
irec
tors
’ R
epor
ts) R
egul
atio
ns 2
015
Ac
hie
ve
d
An
inde
pend
ent c
ompa
ny, T
ru-C
ost,
was
eng
aged
to a
naly
se a
nd
repo
rt o
ur G
HG
’s.
All
emis
sion
s so
urce
s ow
ned,
ope
rate
d or
con
trol
led
by th
e G
roup
ar
e in
clud
ed in
our
rep
ort.
The
base
line
mea
sure
men
t is
incl
uded
in th
is A
nnua
l Rep
ort
with
impr
ovem
ents
pla
nned
fo
r 20
16
Car
ry o
ut a
Man
agem
ent
Trai
ning
Nee
ds A
naly
sis
Iden
tify
curr
ent c
ompe
tenc
ies
with
in th
e JK
X S
enio
r
Man
agem
ent T
eam
incl
udin
g D
irec
tors
and
pro
pose
a p
rogr
am o
f C
ontin
uing
Pro
fess
iona
l Dev
elop
men
t inc
ludi
ng C
orpo
rate
G
over
nanc
e an
d E
nvir
onm
enta
l mat
ters
. With
the
chan
ge in
the
JKX
Boa
rd o
n 28
Jan
uary
201
6, th
e m
anag
emen
t tra
inin
g pl
an is
be
ing
revi
sed
for
2016
.
Rev
ise
curr
ent a
rran
gem
ents
w
ith im
prov
emen
ts p
lann
ed
for
2016
Cor
pora
te a
nd s
ocia
l res
pons
ibil
ity
(‘CSR
’) r
evie
w
CS
R t
ar
ge
ts a
nd
ac
hie
ve
me
nts
JK
X’s
str
ate
gy
for
2015
ha
s b
ee
n t
o c
on
tin
ue
to
im
pro
ve its
exi
sti
ng
sys
tem
s f
or
ma
na
gin
g its
HS
EC
Q a
ims a
nd
ob
jec
tive
s.
Ta
rg
ets
20
15
Ac
hie
ve
me
nts
20
15
Ta
rg
ets
20
16
Kee
p ou
r A
IFR
to 0
.40
or b
elow
Con
tinue
to b
eat t
he
perf
orm
ance
ben
chm
ark
set b
y th
e In
tern
atio
nal A
ssoc
iatio
n of
O
il an
d G
as P
rodu
cers
(‘IO
GP
’)
JKX
achi
eved
an
AIF
R o
f 0.1
5 (2
014:
0.9
9) p
er 2
00,0
00 h
ours
w
orke
d.
JKX
achi
eved
0.7
5 in
juri
es p
er m
illio
n ho
urs
wor
ked
in 2
015
(2
014:
4.9
5), t
he 2
015
IOG
P p
erfo
rman
ce b
ench
mar
k w
as 1
.6 p
er
mill
ion
hour
s fo
r 20
15.
Kee
p ou
r A
IFR
to 0
.35
or b
elow
an
d ex
ceed
the
IOG
P
perf
orm
ance
ben
chm
ark
LTI o
f 0.2
5 or
low
er p
er 2
00,0
00
hour
s w
orke
dA
ch
iev
ed
Zer
o LT
I per
200
,000
hou
rs w
orke
dLT
I of 0
.35
or b
elow
EIF
R o
f 0.7
0 pe
r 20
0,00
0 ho
urs
wor
ked
Ex
ce
ed
ed
ta
rg
et
EIF
R o
f 0.3
0 ac
hiev
edE
IFR
at 0
.60
or b
elow
Mai
ntai
n IS
O 9
001
accr
edit
atio
nA
ch
iev
ed
Mai
ntai
n IS
O 9
001
accr
edit
atio
n
Mai
ntai
n IS
O 1
4001
acc
redi
tatio
n fo
r JK
X O
il &
Gas
plc
Ac
hie
ve
dM
aint
ain
ISO
140
01 a
ccre
dita
tion
Mai
ntai
n O
HS
AS
1800
1 ac
cred
itat
ion
for
JKX
Oil
&
Gas
plc
Ac
hie
ve
dM
aint
ain
OH
SA
S 18
001
accr
edit
atio
n
Com
plet
e O
HS
AS
1800
1 ac
cred
itat
ion
for
PP
CA
ch
iev
ed
M
aint
ain
OH
SA
S 18
001
accr
edit
atio
n fo
r P
PC
ISO
900
1 ac
cred
itat
ion
for
PP
CA
ch
iev
ed
Eva
luat
e as
sess
ors
reco
mm
enda
tions
and
app
ly to
th
e P
PC
Man
agem
ent S
yste
m
Con
tinue
to im
prov
e ou
r St
akeh
olde
r en
gage
men
t and
C
omm
unit
y Li
aiso
n P
lan
Pro
gres
s m
ade,
impr
ovin
g le
vels
of c
omm
unic
atio
n w
ith lo
cal
stak
ehol
ders
, the
ir in
tere
sts
form
ing
part
of t
he d
ecis
ion-
mak
ing
proc
ess
for
all o
ur s
igni
fican
t ope
ratio
ns.
Con
tinue
to u
pdat
e an
d im
prov
e ou
r St
akeh
olde
r en
gage
men
t and
C
omm
unit
y Li
aiso
n P
lan
in a
ll lo
catio
ns
Con
tinue
to im
prov
e lo
cal
enga
gem
ent i
n ou
r G
roup
Ris
k M
anag
emen
t Sys
tem
s an
d re
port
ing
into
our
Gro
up R
isk
Reg
iste
r
Ac
hie
ve
d
Ris
k m
anag
emen
t str
ateg
y w
as u
pdat
ed a
nd lo
cal R
isk
Com
mit
tees
con
tinue
d to
ope
rate
in U
krai
ne a
nd R
ussi
a su
ppor
ted
by s
taff
trai
ning
in r
isk
iden
tific
atio
n an
d m
itiga
tion.
Impr
ove
our
Ris
k M
anag
emen
t an
d A
sses
smen
t act
iviti
es
acro
ss th
e G
roup
Con
tinue
to im
prov
e in
cide
nt
repo
rtin
g, u
sing
saf
ety
mom
ents
, w
orks
hops
, site
cam
paig
ns,
trai
ning
ses
sion
s, to
olbo
x ta
lks
and
brie
fings
Ac
hie
ve
d
56 in
cide
nts
wer
e re
port
ed in
201
5 (2
014:
47)
whi
ch in
clud
ed
near
-mis
s re
port
s, u
nsaf
e ac
ts a
nd h
azar
ds.
Con
tinue
to im
prov
e in
cide
nt
repo
rtin
g, u
sing
saf
ety
mom
ents
, w
orks
hops
, site
cam
paig
ns,
trai
ning
ses
sion
s, to
ol-b
ox ta
lks
and
brie
fings
UA-404
Fin
an
cia
l s
tate
me
nts
104-
169
Go
ve
rn
an
ce
68-1
03
59
58
JKX
Oil
& G
as p
lc A
nnua
l Rep
ort 2
015
JKX
Oil
& G
as p
lc A
nnua
l Rep
ort 2
015
Str
ate
gic
re
po
rt
2-67
HSE
CQ
sta
tist
ical
ana
lysi
s fo
r 20
15
su
pp
ort
ed
by
exp
atr
iate
su
pe
rvis
ors
to
pro
vid
e a
dd
itio
na
l
exp
ert
ise
an
d o
vers
igh
t. T
his
en
ab
les u
s t
o d
efi
ne
an
d
ma
na
ge
ris
k m
ore
cle
arl
y u
sin
g W
es
tern
me
tho
do
log
ies
.
JK
X d
rill
ing
an
d w
ork
ove
r e
mp
loye
es a
nd
co
ntr
ac
tors
ha
ve
the
ne
ce
ss
ary
tra
inin
g a
nd
ce
rtif
ica
tio
n in
we
ll s
afe
ty a
nd
we
ll
co
ntr
ol,
an
d a
ll p
ers
on
ne
l h
ave
th
e a
uth
ori
ty t
o s
top
an
y jo
b
tha
t th
ey
de
em
un
sa
fe.
Su
pe
rvis
ors
are
se
lec
ted
fo
r th
eir
exp
ert
ise
as w
ell
as f
or
the
ir f
am
ilia
rity
wit
h t
he
re
gio
ns w
he
re J
KX
op
era
tes
. T
he
y
un
de
rsta
nd
an
d a
re s
en
sit
ive
to
lo
ca
l w
ork
ing
pra
cti
ce
s a
nd
cu
ltu
re, a
nd
wo
rk t
o e
nh
an
ce
th
e e
du
ca
tio
n a
nd
tra
inin
g o
f
loc
al
sta
ff a
nd
co
ntr
ac
tors
ali
ke
.
JK
X m
ak
es t
he
be
st
use
of
its r
eso
urc
es b
y sh
ari
ng
exp
ert
ise
be
twe
en
op
era
tin
g c
om
pa
nie
s u
sin
g a
str
on
g c
oll
ab
ora
tive
en
viro
nm
en
t w
he
re e
very
bo
dy
co
ntr
ibu
tes t
o a
na
lyse
th
e r
isk
s
an
d d
eve
lop
mit
iga
tin
g s
tra
teg
ies in
ord
er
to m
inim
ise
it.
A L
ea
d D
rill
ing
an
d W
ork
ove
r E
ng
ine
er
is b
ase
d a
t th
e L
on
do
n
off
ice
wh
o r
ep
ort
s d
ire
ctl
y to
th
e B
oa
rd a
nd
is r
esp
on
sib
le
for
the
pla
nn
ing
, re
vie
win
g a
nd
au
tho
risin
g o
f G
rou
p d
rill
ing
an
d w
ork
ove
r o
pe
rati
on
s;
this
sig
nif
ica
ntl
y s
tre
ng
the
ns t
he
ca
pa
bil
ity
to id
en
tify
an
d m
an
ag
e d
rill
ing
ris
k. A
da
ily
dri
llin
g
up
da
te is p
rovi
de
d t
o t
he
Bo
ard
fo
r a
ll J
KX
op
era
tio
ns w
hic
h
de
scri
be
s d
rill
ing
pro
gre
ss, is
su
es a
nd
exp
ec
tati
on
s f
or
the
foll
ow
ing
24 h
ou
rs.
He
alt
h a
nd
sa
fety
ris
k m
an
ag
em
en
t
JK
X is p
rou
d t
o h
ave
ma
inta
ine
d a
ccre
dit
ati
on
s f
or
co
mp
l ia
nce
wit
h:
•
OH
SA
S 1
80
01 H
ea
lth
& S
afe
ty
•
ISO
14
001 E
nvi
ron
me
nta
l a
nd
•
ISO
90
01 Q
ua
lity
Ma
na
ge
me
nt.
Th
ese
are
in
tern
ati
on
all
y-re
co
gn
ise
d s
pe
cif
ica
tio
ns f
or
occu
pa
tio
na
l h
ea
lth
an
d s
afe
ty e
nvi
ron
me
nta
l a
nd
qu
ali
ty
ma
na
ge
me
nt
sys
tem
s m
on
ito
red
by
exp
eri
en
ce
d a
ud
ito
rs
bi-
an
nu
all
y to
en
su
re c
om
pli
an
ce
to
th
e s
tan
da
rds T
he
lis
t
be
low
is a
sa
mp
le o
f 3
rd p
art
y in
sp
ec
tio
n a
cti
viti
es in
2015
.
A f
ull
re
po
rt o
f a
ll in
sp
ec
tio
ns is a
vail
ab
le o
n r
eq
ue
st.
3r
d P
ar
ty I
ns
pe
cti
on
s d
ur
ing
20
15
PP
C, U
krai
ne
•
Ma
in B
oa
rd o
f th
e S
tate
Em
erg
en
cy
Sit
ua
tio
n S
erv
ice
of
Uk
rain
e in
Po
lta
va r
eg
ion
•
Exp
ert
org
an
iza
tio
n N
VF
Pro
mse
rvis
dia
gn
os
tik
a
•
Exp
ert
org
an
iza
tio
n P
P E
ne
rgo
ma
sh
•
Sta
te L
ab
ou
r B
oa
rd, P
olt
ava
re
gio
n
•
Off
ice
of
the
Fe
de
ral
Se
rvic
e f
or
Eco
log
ica
l, T
ech
no
log
ica
l
an
d A
tom
ic S
up
erv
isio
n (R
os
tek
hn
ad
zor)
•
As
so
cia
tio
n o
f in
de
pe
nd
en
t e
xpe
rts o
f U
kra
ine
Uk
rexp
ert
•
Fe
de
ral
Se
rvic
e f
or
the
Su
pe
rvis
ion
of
Na
tura
l R
eso
urc
es
YGE
, Rus
sia
•
No
rth
Ca
uc
asu
s O
ffic
e o
f th
e F
ed
era
l S
erv
ice
fo
r
Eco
log
ica
l, T
ech
no
log
ica
l a
nd
Ato
mic
Su
pe
rvis
ion
(Ro
ste
kh
na
dzo
r)
•
Sta
te L
ab
ou
r In
sp
ec
tora
te in
Ad
yge
a R
ep
ub
lic
•
Fe
de
ral
Se
rvic
e f
or
the
Su
pe
rvis
ion
of
Na
tura
l R
eso
urc
es in
Kra
sn
od
ar
Re
gio
n
•
Fe
de
ral
Ag
en
cy
on
Te
ch
nic
al
Re
gu
lati
ng
an
d M
etr
olo
gy,
So
uth
ern
In
terr
eg
ion
al
Terr
ito
ria
l O
ffic
e
•
He
ad
Off
ice
of
the
Min
istr
y o
f th
e R
us
sia
n F
ed
era
tio
n
for
Civ
il D
efe
nce
, E
me
rge
nc
y S
itu
ati
on
an
d M
itig
ati
on
of
Na
tura
l D
isa
ste
r C
on
se
qu
en
ce
s in
Ad
yge
a R
ep
ub
lic
Fata
l acc
iden
t cas
e
Lost
tim
e in
juri
es
Med
ical
trea
tmen
t / R
estr
icte
d w
ork
case
s
Nea
r m
iss
/ Los
s ha
zard
s / P
rope
rty
dam
age
/ Uns
afe
act o
r co
nditi
ons
1 0 0 56
Ou
r s
afe
ty s
tati
sti
cs
fo
r 2
01
52
All
Inju
ry F
requ
ency
Rat
e (‘A
IFR
’) 20
15
Cor
pora
te a
nd s
ocia
l res
pons
ibil
ity
(‘CSR
’) r
evie
w
Ou
r a
pp
ro
ac
h
JK
X’s
He
alt
h, S
afe
ty, E
nvi
ron
me
nt,
Co
mm
un
ity
an
d Q
ua
lity
(‘H
SE
CQ
’) p
hil
oso
ph
ies a
re e
mb
od
ied
in
its
Po
lic
y S
tate
me
nts
,
wh
ich
are
en
do
rse
d b
y th
e B
oa
rd a
nd
ma
de
kn
ow
n t
o a
ll
em
plo
yee
s a
nd
bu
sin
es
s p
art
ne
rs. T
he
sta
tem
en
ts r
ep
rese
nt
the
Co
mp
an
y’s c
om
mit
me
nt
to a
sa
fe a
nd
he
alt
hy,
in
cid
en
t
fre
e, w
ork
ing
en
viro
nm
en
t a
nd
its
re
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UA-404
JKX Oil & Gas plcA N N U A L R E P O R T 2 0 1 6
P R OD U C T ION
Technological revolutionThe past 10 years sees tight oil plays production increase by 15 times. P5
P O L I T IC S
29% gas tax rate blocks progress12% would open the gas market to global energy investors and operators. P5
L E G A L
Tribunal awardAn opportunity to resolve historical legal issues. P2
TA R G E T S
135 wells and total investment of $660 millionJKX will bring the capital and technology to start our own gas revolution, but Ukraine also needs to do its part. P9
M I N D S E T
“What’s possible?” unleashes latent talentTom updates the philosophy of the new JKX and sets the mindset. P8
OverviewHighlights inside coverOur business 1Chairman’s statement 2
New FDP targets 600 billion cubic feet• Updated field development
plans focus on the Rudenkivske field in Poltava
• Technically recoverable reserves of 600 billion cubic feet (17 billion cubic metres)
• Plateau production of 18,300 boepd P9
S T R AT E G Y
All seeing the same picture Extreme transparency, the way forward. P14
www.jkx.co.ukA new ambitious plan, a great team, and exciting prospects
Strategy Strategic context 4Our business model 7Chief Executive’s statement 8Our objective 11Strategic priorities 12
PerformanceRegional operations update 16Performance in 2016 18Financial review 19Safe and responsible operations 22Principal risks and how we manage them 29
For full governance and financial statements refer to the document above (enclosed with this report) and also available online: www.jkx.co.uk
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JKX Oil & Gas plc Annual Report 20163
enquiry and believe that PPC is in full legal compliance with all relevant Ukrainian law and regulation. These searches have been a significant distraction for the Board and JKX staff, and damaging to Ukraine’s investment climate. We have engaged with both the US and UK embassies in Kiev in order to register our complaints in this matter.
We have commenced the settlement process with the Government in Ukraine to settle the arbitration award and the local tax issues so that the Company can return its focus to key operational matters.
UKRAINE
Production licenses securedIn January 2016, the State Geology and Mineral Resources Survey of Ukraine suspended four of PPC’s subsoil use permits. The authority gave a list of actions that were required in order to cancel the suspension (including a change to the minimum production requirements under the licenses) and would normally have given the operator sufficient time to remedy the failings. Instead PPC was given only one month to do so.
Following successful legal action, PPC has now renewed all four of these licenses until 2024 and also received a ruling from the Kharkiv Administration Court of Appeal which deemed the original suspensions to have been illegal.
Rebuilding of Field Development Plans (‘FDPs’) Our reconstructed Field Development Plans have revealed that applying modern technology and techniques in well construction and field development design, our Rudenkivske gas field has much greater potential than was previously considered
economic. Further details of the FDPs are provided in The Chief Executive’s statement on pages 8 to 10.
FINANCIAL
Bond repayment and restructuringThrough 2016, we reduced the principal amount of outstanding bonds from $36 million to $16 million. This was achieved through a $10 million scheduled repayment in February and various market purchases of bonds of a total principal amount $10 million at various discounts to face value.
On January 3 2017 the Bondholders approved a restructuring of the remaining $16 million of Bonds, the detail of which is provided in the Financial Review on pages 19 to 21. The repayment of the Bonds is now well within the operating cash flow capabilities of the Company enabling the business to move forward with its development plans.
Reducing operating costs and overheads Measures were taken immediately following the appointment of the new Board in January 2016 to significantly reduce the cost burden of the Company’s London headquarters, reducing headcount and moving all remaining staff onto one floor of the building, where we previously occupied four floors. We have been able to extract ourselves from the long-term lease on one of the unoccupied floors and continue negotiations with the landlord to extract the Company from the long-term lease agreements on the other two floors.
During 2016, headcount reductions have been made in Ukraine and Russia of 18% and 14%, respectively. The benefits of our cost reduction actions during 2016 will be seen in 2017 and we continue to identify further cost-saving opportunities.
GROUP
Your Board Following the replacement of the entire Board on 28 January 2016, the composition of the Board did not comply with the UK Corporate Governance Code in respect of the number of independent Non Executive Directors. To address this, in April, two new independent Non Executive Directors were appointed.
Alan Bigman and Bernie Sucher both bring extensive knowledge of working at the highest levels in the region combined with directly relevant experience which will be of great benefit to the Company. As independent directors, Alan and Bernie have strengthened the corporate governance credentials of the Company which ensures that the interests of all shareholders are protected.
At the Company’s AGM on 28 June 2016, the resolutions to accept the appointment of Alan and Bernie were rejected by a small number of shareholders but with enough votes to prevent the resolutions being passed. Given the very low turnout of voting shareholders, the fact that the vast majority of voting shareholders were in favour of the appointments and the need for value-adding independent directors, the Board re-appointed both Alan and Bernie at a subsequent Board Meeting. The shareholders will be asked to approve these appointments at the next Annual General Meeting. The result of last year’s AGM underlines that if shareholders want to ensure a high-quality board and good governance, they must exercise their right to vote at General Meetings.
MINDSET
People The Board continues to be impressed and often humbled by the level of dedication, talent, and perseverance shown by staff throughout the Group,
especially during a year in which we were trying to drive such significant change. We believe that our teams are capable of accomplishing market leadership in our field, and much more.
POTENTIAL
The road ahead We are working with the Ukrainian Government to amicably settle all claims and secure support in creating an environment in which JKX can execute its Field Development Plans, invest in gas production and assist Ukraine to achieve energy independence.
2016 began with some major changes at the board level, and uncertainty with regards to our future. Yet we endured that uncertainty, increased production, improved relationships with our stakeholders and have more focused teams with a clearer understanding of our organisational and technical challenges. We achieved some significant gains during 2016 but have also suffered some setbacks. With a renewed purpose, strategic focus and the right people in the right places, we enter 2017 with optimism.
Finally, I wish to thank all our shareholders and staff for their support of the Company and the new Board through this year of challenging transformation. We have achieved a significant amount in our first 12 months, but relish the challenges and opportunities that 2017 presents.
Paul OstlingChairman
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JKX Oil & Gas plc Annual Report 201616
GROUP PRODUCTION
In 2016 Group average production was 10,083 boepd (2015: 8,996 boepd), comprising 54.7 MMcfd of gas (2015: 48.7 MMcfd) and 967 bpd of oil and condensate (2015: 871 bpd), an overall increase in production of 12%.
UKRAINE
Novomykolaivske licencesProductionAverage production from the Novomykolaivske group of fields in 2016 was 2,553 boepd (2015: 2,611 boepd) comprising 10.0 MMcfd of gas (2015: 10.9 MMcfd) and 879 bpd of oil and condensate (2015: 794 bpd). Despite the cancellation of all development expenditure since early 2015, oil production increased by 11% in 2016 while gas production decreased by 8%, although the decline in gas production has to be viewed in the context of a declining field and lack of an effective development plan in the first half of the year. We have implemented an enhancement program targeting the technical potential of existing well stock which has resulted in the increase in oil production and enabled a smaller reduction in gas production than would otherwise have been the case. The decline in gas is mainly attributed to a year on year natural decline of 1.5 MMcfd observed in the Ignativske field.
Development and drillingNo drilling took place in 2016 as the new board focused on rebuilding Field Development Plans (‘FDPs’) using global best practices, including drilling, fracturing and completion techniques from North America. Several technical advisors with a broad range of global and regional expertise were engaged.
The FDP for Ukraine identifies a technical solution to potentially unlock approximately 600 billion cubic feet of recoverable gas reserves previously considered uneconomic at the Rudenkivske gas field in addition to significant enhanced oil recovery opportunities in existing fields.
Work commenced on the initial stages of the FDP, including the acquisition and preparation of existing wellbores for stimulation, and the re-start of water injection into Ignativske. Production optimisation operations continued with the TW-100 and the recently leased Cooper LTO-550 and ZJ-20 workover rigs and rigless interventions.
• As part of the re-start of the Ignativske pilot waterflood project in the first half of last year, re-pressurisation of IG138 occurred in July. This led to the opening of the well in August and production of 5.5 Mstb of oil in the following two months. An electrical submersible pump was sourced for IG110 which will enable injection to be increased to 10,000 bbls/d as part of the FDP.
• A cement plug over the T2 and Devonian Sands was drilled out in IG-132, which resulted in a significant increase in production. Initial rates were over 1,100 bbls/d and total incremental production was 96 Mstb of oil and 129 MMcf of gas.
• In the Movchanivske North Field M171 was worked over to deepen the gas lift, followed by M153 where additional perforations were also added. Both of these projects were as a result of the newly generated enhancement list and both added to oil production quickly and with minimal investment.
• Rigless interventions included velocity string installations in M155, M157, M159, M162, M167, and IG106. In addition, a plunger lift system was installed in M160. All of these installations increased gas and condensate production quickly and with minimal investment.
• Successful re-entry of two old leased wells, NN16 and NN47, was completed in the Rudenkivske field. NN16 recovered a total of 100 MMcf of gas and 1.9 Mstb of condensate from the Devonian horizon in the southern part of the field. At the year end, NN47 had recovered a total of 37 MMcf of gas and 1.7 Mstb of condensate from the Visean horizon in the Northern part of the field. The success of both of these projects was due to the use of modern perforating technologies.
• Work started on 19R to prepare the well for fracturing in 2017 as outlined in the FDP.
• Wireline operations have focussed on the clearance of wax and salt build up in the production tubing of a number of wells. A sustained programme of wax clearance has stabilised oil production.
Production facilities Operations at the main processing facility, the LPG plant and the oil loading facility continued smoothly throughout the year. A new water treatment vessel was installed at the main processing facility. Minor piping modifications continue to enhance production. A routine annual plant shutdown of 2 days for maintenance was successfully completed in September.
Improvements at the oil loading terminal included an upgrade of the fire protection system and the installation of an additional loading point to enable loading of road tankers in addition to rail cars.
Elyzavetivske production licenceProductionAverage production from the Elyzavetivske field in 2016 was 1,448 boepd (2015: 1,715 boepd) comprising 8.6 MMcfd of gas (2015: 10.1 MMcfd) and 23 bpd of condensate (2015: 29 bpd), an overall 16% decrease in production.
Development and drillingThere was no drilling activity on the Elyzavetivske field during the year although new field development plans on the Elyzavetivske field and West Mashivska licence were completed.
Production facilities The Elyzavetivske production facility continues to operate efficiently and there have been no further changes.
RUSSIA
Koshekhablskoye licenceProductionAverage production from the Koshekhablskoye field in 2016 was 6,082 boepd (2105: 4,670 boepd) comprising 36.1 MMcfd of gas (2015: 27.7 MMcfd) and 65 bpd (2015: 48 bpd) of condensate, a 30% increase on the average for 2015. This increase is due mainly to full year of production from well-27 which came back on line in late 2015.
Licence obligationsThe Group’s Russian operating subsidiary Yuzhgazenergie (‘YGE’) maintains a regular dialogue with Rosnedra, the licencing authority, to ensure that the authorities are kept abreast with progress on the field development and the associated exploration and reserves determination commitments.
Rosnedra, is fully aware that there are certain licence commitments under YGE’s Koshekhablskoye licence which have not been met and have issued YGE with notices to this effect. YGE is addressing these issues and expects to resolve them in 2017.
Development and drillingAfter completion of the well-27 workover at the end of 2015, there were no additional workover activities in 2016. Routine acid treatment has been carried out using coiled tubing on the main producing wells.
Production from well-20 has declined from 17.5 MMcfd to 14.1 MMcfd through the year without any additional acid stimulation. During a routine wireline operation in the middle of the year a fish was lost in the hole which has prevented further acid stimulation taking place, but despite this production has remained relatively stable.
The north flank well-25 has been producing gas at rates between 5.5-12.4 MMcfd with three acid treatments in the year. Well-27 has been producing gas at rates between 8.3–12.2 MMcfd on a monthly average basis, having required eight acid treatments through the year. The deep east-flank well-15 continues to produce approximately 0.6 MMcfd on a monthly average basis.
Production facilities There were no changes to the facilities in 2016. An unscheduled shutdown of the plant in May was prolonged in order to complete the annual maintenance which had originally been planned for later in the year.
Reserves audit A reserves audit was carried out by Degoyler and MacNaughton in 2016 which increased total
STRATEGIC REPORT
Regional operations update
2P reserves for the field to 80.3 MMboe (2015: 66.1 MMboe). Proved reserves have been slightly reduced, due to higher resolution geological modeling showing slightly less drainage area. Probable reserve categories have increased due to the addition of reserves attributable to a new Callovian well, which is planned for 2018, and net pay maps revealing volumes previously not accounted for by material balance.
HUNGARYJKX now operates the following six new Mining Plots (production licences) in Hungary covering 200 sq km and which are 100% owned by Riverside Energy Kft, the Company’s wholly-owned Hungarian subsidiary:
Hajdunanas IV 28 sq kmHajdunanas V 7 sq kmTiszavasvari IV 41 sq kmEmod V 100 sq kmPely I 18 sq kmJaszkiser II 6 sq km
The licence terms enable JKX to carry out appraisal and development activity over a 30 year period.
Hajdunanas fieldProduction from the Hajdunanas and Gorbehaza Fields in north east Hungary, which form the Hajdunanas IV Mining Plot, was suspended by the previous operator in 2013.
In December, a sidetrack of the Hn-2 well was started to access the remaining Pannonian reservoir gas and to test the oil potential of the underlying Miocene volcanoclastic sequence, which was previously productive in the Hn-1 well. This was the first drilling operation completed since JKX assumed operatorship in November 2014.
The Hn-2ST well tested 1.5 MMcfd from the Pannonian Pegasus sands and 2.8 MMcfd from a lower Pannonian sand interval. The latter is a newly discovered productive horizon in the field.
Gas sales commenced on 2 February 2017 at an initial rate of 1.8 MMcfd, after a production and sales break of more than three years. Production forecasting and development planning is underway and future work may include a workover of the existing Hn-1 well to add production from the Lower Pannonian reservoir interval.
JKX continues to seek a farm-in partner to participate in the further development of the Hajdunanas field and the Group’s other Hungarian licence interests.
Turkeve IV Mining PlotDuring the year, JKX sold its 50% beneficial interest in the Ny-7 discovery (within the Turkeve IV Mining Plot) to the operator.
SLOVAKIAExplorationJKX holds a 25% equity interest in the Svidnik, Medzilaborce, Snina and Pakostov exploration licences in the Carpathian fold belt in north east Slovakia. A programme of magneto-telluric geophysical surveys combined with seismic re-interpretation has led to the identification of a number of shallow prospects across the licences.
The 128 sq km Pakostov licence was applied for and approved in 2015 as protection acreage around material prospects identified in the Medzilaborce licence. The Operator (DiscoveryGeo) had planned to drill two of these prospects in 2016 but a combination of revised permitting procedures and local activist opposition has delayed well location permitting and construction. The Operator now hopes to spud the first well of a larger three well programme in 2017.
A winters day at the Poltava production plant
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1 JKX Oil & Gas plc Half-Yearly Report 2017
JKX OIL & GAS PLC (‘JKX’ OR THE ‘COMPANY’)
Half-Yearly Results For the six months ended 30 June 2017
Highlights Executed Phase 1 of the appraisal program at Rudenkivske field and completed several enhancement projects in Ukraine
Completed workover of well 25 in Russia
Restarted production in Hungary after a break of more than 3 years
Average production decreased by 17.3% at 8,598 boepd (2016: 10,393 boepd)
Restructured and extended the short-term bond liabilities
Commenced negotiations to resolve legal disputes with the Ukrainian Government
Significant changes at the Board level following the Annual General Meeting
Key Financials Revenue: $38.0m (2016: $35.4m)
Other cost of sales: $12.6m (2016: $9.7m)
Loss from operations before tax and exceptional costs $2.2m (2016: $2.8m loss)
Exceptional costs $3.1m (2016: $3.1m)
Loss for the period: $7.7m (2016: $10.1m loss)
Loss per share: 4.46 cents (2016: loss 5.86 cents)
Operating cash flow: $4.0m (2016: $7.8m)
Capital expenditure: $10.4m (2016: $2.2m)
Total cash balance: $4.2m (31 December 2016: $14.3m)
Outlook Analysis of results of Phase 1 of Rudenkivske appraisal program and preparation for Phase 2 in Ukraine
Progress of field development using best working and technical practices from North America adapted to Ukraine
Successful completion of well 5 workover to increase gas production in Russia
Workover of well Hn-1 in Hungary and search for farm-in partner
Amicable settlement of the legal disputes with the Ukrainian Government
Review of different options to raise external financing to enable execution of our strategy
Acting CEO, Victor Gladun commented:
“During the first half of the year, we have started implementing the Field Development Plans, completed Phase 1 of the appraisal
program in the Rudenkivske field in Ukraine, completed well 25 workover in Russia and restructured the significant short-term bond
liabilities.
On the Board level, continued disputes between major shareholders and the Board resulted in a change of the Executive Directors for
the second time in 18 months. The Board is actively looking for new Executive and Non Executive Directors. I have taken on the role of
Acting CEO to secure a smooth transition. Tom Reed acted as Advisor to the Board and Advisor to the Acting CEO and Russell Hoare served as Acting CFO from the date of the Annual General Meeting (“AGM”) on 30 June 2017 until 31 July 2017 to help with the
transition. Irrespective of changes in the management team, the Company will continue to seek to mitigate its litigation risks and
potential liabilities with the Ukrainian Government, execute on Field Development Plans, and establish opportunities for long-term growth”.
For further information please contact EM Communications:
Stuart Leasor [email protected]
T: +44 20 3709 5711
M: +44 7703 537721
Jeroen van de Crommenacker
T: +44 20 3709 5713 M: +44 7887 946719
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10 JKX Oil & Gas plc Half-Yearly Report 2017
Financial performance
Earnings First half
2017
Second half
2016
First half
2016
Net loss ($m) (7.7) (27.0) (10.1)
Net loss before exceptional items ($m) (5.0) (0.5) (7.0)
Basic weighted average number of shares in issue (m) 172 172 172
Loss per share before exceptional items (basic, cents) (2.89) (0.25) (4.09)
Loss per share after exceptional items (basic, cents) (4.46) (15.70) (5.86)
Pre-exceptional earnings before interest, corporation tax,
depreciation and amortisation1 ($m)
8.3 7.4 8.4
Realisations First half
2017
Second half
2016
First half
2016
Oil (per bbl) $57.45 $49.65 $39.92
Gas (per Mcf) $3.67 $2.94 $2.96
LPG (per tonne) $497.53 $496 $254
Cost of production ($/boe) First half
2017
Second half
2016
First half
2016
Production costs (excluding exceptional item) $7.84 $5.33 $5.43
Depreciation, depletion and amortisation $6.46 $5.90 $5.67
Production based taxes $5.76 $5.21 $4.57
Cash flow First half
2017
Second half
2016
First half
2016
Cash generated from operations ($m) 4.0 9.2 7.8
Operating cash flow per share (cents) 2.3 5.4 4.5
Statement of Financial Position First half
2017
Second half
2016
First half
2016
Total cash2 ($m) 4.2 14.3 18.6
Borrowings ($m) 16.3 16.8 23.8
Net debt3 ($m) (12.1) (2.5) (5.2)
Net debt to equity (%) (7.9) (1.6) (2.9)
Return on average capital employed4 (%) (9.3) (11.0) (11.4)
Additions to property, plant and equipment/intangible assets ($m)
- Ukraine 8.3 2.6 1.5
- Russia 1.7 (0.3) 0.6
- Other 0.4 1.2 0.1
Total 10.4 3.5 2.2
1. Pre-exceptional earnings before interest, tax, depreciation and amortisation (‘EBITDA’) is a non-IFRS measure and calculated using loss from operations of $5.3m (2016: $5.8m) and adding back depreciation, depletion and amortisation and exceptional items of $13.6m (2016: $14.2m). EBITDA is an indicator of the Group’s ability to generate operating cash flow that can fund its working capital needs, service debt obligations and fund capital expenditures.
2. Total cash is Cash and cash equivalents plus Restricted Cash. 3. Net cash/(debt) is Total cash less Borrowings (excluding derivatives). 4. Return on average capital employed is the annualised loss for the period divided by average capital employed.
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12 JKX Oil & Gas plc Half-Yearly Report 2017
Financial review
Realisations 2017 2016 Change % Change
Ukraine
Gas ($/Mcf) 6.57 5.77 0.80 13.9
Oil ($/bbl) 57.45 39.92 17.53 43.9
LPG ($/tonne) 497.53 254.70 242.83 95.3
Russia
Gas ($/Mcf) 1.66 1.50 0.16 10.7
Hungary
Gas ($/Mcf) 6.06 - 6.06 100
Group
Gas ($/Mcf) 3.67 2.94 0.73 24.8
Oil ($/bbl) 57.45 39.92 17.53 43.9
LPG ($/tonne) 497.53 254.70 242.83 95.3
Average exchange rates 2017 2016 Change % Change
Russia (RUB/$) 57.84 70.23 12.39 17.6
Ukraine (UAH/$) 26.78 25.65 (1.13) (4.4)
Ukrainian revenues 2017
$m
2016
$m
Change
$m
% Change
Gas 20.0 18.4 1.6 8.7
Oil 6.7 5.9 0.8 13.6
Liquefied Petroleum Gas
(‘LPG’) 2.2 1.3 0.9 69.2
Total 28.9 25.6 3.3 12.9
Ukraine revenues As the revenue bridge chart demonstrates, one factor affecting revenues from our Ukrainian business was the decreased production due to the suspension of enhancement activity in Ukraine in 2017 due to planning and preparation for the stimulation programme on
the Rudenkivske field. Gas sales volumes in Ukraine were 7.6% lower at 3,453 boepd (2016: 3,737 boepd) as a result of reduced gas
production to 3,766 boepd (2016: 4,114 boepd).
Whilst the realised gas price increased by 16% from an average of 5,208 UAH per Mcm in 2016 to 6,052 UAH per Mcm in 2017, US
Dollar gas realisations in Ukraine improved only by 13.9% from $5.77/Mcf to $6.57/Mcf due to the 4.4% devaluation of the Hryvnia.
Since the introduction of a new law affecting the Ukrainian gas market in 2015, gas prices are more closely following global market trends. The increase in gas realisations is explained by higher prices of imported gas from Europe compared to 2016.
Oil realisations also improved from $39.92/bbl in 2016 to $57.45/bbl in 2017 which is in line with Brent movement from an average of
$41.21/bbl during the 1H 2016 to $52.28/bbl during the 1H 2017. Ukrainian realisations are now higher than Brent, with an average
premium of $5/bbl in 2017, due to the removal of illegal cheap products from the Ukrainian market and robust local demand for oil exceeding local supply.
LPG sales were affected by both volume declines, associated with a reduced volume of gas produced, and an improvement in the market
price achievable in Ukraine. The average price increased to $497.53/tonne (2016: $254.70/tonne) due to tight controls over customs clearance imposed by certain market players which resulted in a limited access of cheaper LPG products. However, the strong
operational performance of the LPG plant enabled it to contribute $2.2m (2016: $1.3m) to Group revenue.
Russia revenues Russian gas sales made up 54% of the Group’s volumes sold (2016: 56%). Gas production in Russia was lower by 25% to 4,654 boepd
(2016: 6,222 boepd) largely due to the workover of well 25 in Russia and as the revenue bridge chart shows, this was the largest
negative factor affecting Group revenues in the period.
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Annual Report and Financial Statements for the year ended 31 December 2015
Regal Petroleum plc
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OPERATIONS REVIEW
STRATEGIC REPORT
Health, Safety, Environment and Security
(“HSES”)
The Group is committed to maintaining the highest HSES
standards and the effective management of these areas is an
intrinsic element of the overall business ethos. Through strict
enforcement of the Group’s HSES Management System,
together with regular management meetings, training and the
appointment of dedicated safety professionals, the Group
strives to ensure that the impact of its business activities
on its staff, contractors and the environment is as low as
is reasonably practicable. The Group reports safety and
environmental performance in accordance with industry
practice and guidelines.
Ukraine Operations
Asset Overview
Regal Petroleum Corporation Limited (a wholly owned
subsidiary in the Group) holds a 100% working interest and is
the operator of the MEX-GOL and SV fields. The licences are
the Group’s sole project and extend over a combined area of
269 km2, approximately 200 km east of Kiev. The two licences
are adjacent and the interests are operated and managed as
one field. The licences were granted in July 2004 and have a
duration of 20 years.
The fields are located, geologically, towards the middle of the
Dnieper-Donets sedimentary basin which extends across the
majority of north-east Ukraine. The vast majority of Ukrainian
gas and condensate production comes from this basin. The
reservoir comprises a series of gently dipping Carboniferous
sandstones of Visean age (“B-Sands”) inter-bedded with
shales that form stratigraphic traps at around 4,700 metres
below the surface, with a gross thickness between 800 metres
and 1,000 metres. Analysis suggests that these deposits
range from fluvial to deltaic in origin. Below these reservoirs is
a thick sequence of shale above deeper, similar, sandstones
which are encountered at a depth of around 5,800 metres.
These sands are of Tournasian age (“T-Sands”). Deeper
sandstones of Devonian age (“D-Sands”) have also been
penetrated in the fields.
Production
The Group’s average production from the MEX-GOL and SV
fields over the year ended 31 December 2015 was 144,783
m3/d of gas, 44 m3/d of condensate and 21 m3/d of LPG,
which equates to a combined total oil equivalent of 1,274
boepd (2014: 152,744 m3/d of gas, 52 m3/d of condensate
and 21 m3/d of LPG (1,370 boepd in aggregate).
Production was boosted by the commencement of production
from the SV-6 well at the end of November 2015, with average
gas, condensate and LPG production for December 2015 at
191,098 m3/d of gas, 46 m3/d of condensate and 21 m3/d of
LPG (1,574 boepd in aggregate).
The Group’s average production for the period from 1 January
2016 to 30 May 2016 was 169,649 m3/d of gas, 42 m3/d
of condensate and 20 m3/d of LPG, which equates to a
combined total oil equivalent of 1,406 boepd.
Since the Group commenced the treatment of “wet” gas
from the adjacent Lutsenky field at the beginning of July 2015,
the Group has purchased 4,723,010 m3 of “wet” gas and
following treatment of this gas, produced 2,945,021 m3 of
gas, 778 m3 of condensate and 5,957 m3 of LPG (49,473 boe
in aggregate).
Operations
The geopolitical upheaval, the volatility in the gas price,
the devaluation of the Ukrainian Hryvnia, and the fiscal and
economic uncertainty in Ukraine during 2015, meant that the
Group considered it necessary to reduce its planned capital
investment programme.
The revised programme during the year was limited to
installation of the Lutsenky “wet” gas treatment infrastructure,
undertaking workover operations on the SV-6 well,
improvements to the Group’s gas processing facilities and
pipeline network, and performing remedial work on existing
wells.
The Lutsenky “wet” gas treatment project arose from an
agreement with Pryrodni Resursy, the operator of the adjacent
Lutsenky field, under which the Group has agreed to purchase
“wet” gas and treat it through the Group’s gas processing
facilities to strip out and sell the liquids. This has not only
created an additional revenue stream for the Group, but also
improved environmental emissions from the Lutsenky field.
The workover of the SV-6 well was undertaken after the Group
entered into an agreement with NJSC Nadra, the State-
owned gas producer, for the lease of the SV-6 well, which is
a suspended well owned by NJSC Nadra, located within the
Group’s SV licence area. Successful workover operations were
performed during the year, and the well was brought onto
production at the end of November 2015.
REGAL PETROLEUM PLC Annual Report and Financial Statements 2015
04
UA-404
Annual Report and Financial Statements for the year ended 31 December 2016
Regal Petroleum plc
UA-404
Operations
The geopolitical situation, the volatility in the gas price,
the weakness of the Ukrainian Hryvnia, and the fiscal and
economic uncertainty in Ukraine over recent years, meant
that the Group considered it necessary to reduce its capital
investment programme at the MEX-GOL and SV fields
during 2016. The programme during the year was limited
to the commencement of the drilling of the MEX-109 well,
improvements to the Group’s gas processing facilities
and pipeline network, and performing remedial work
on existing wells.
However, during the year, the Group engaged P.D.F. Limited
to undertake a comprehensive review and re-evaluation study
of the geology, geophysics, petroleum engineering and well
performance at the MEX-GOL and SV fields. The results of
the study are now being utilised in the planning of the further
development of the fields, both in relation to an improved
understanding of the geological aspects of the fields and
reservoir engineering, drilling and completion techniques.
Reprocessing of existing seismic data, using the latest
processing technology, is being undertaken to try to improve
the definition in such data, and thereafter further interpretation
work is planned.
The MEX-109 well was spudded at the end of July 2016,
targeting the Visean reservoirs (“B-Sands”) in the MEX-GOL
field. The well has been drilled to a depth of 4,873 metres,
which is shallower than its original target depth of 5,250
metres following some technical issues during the drilling
operations. As a result, it was decided to curtail the well
at this depth as access to the main reservoir target had
been achieved. The well may be deepened later to access
deeper horizons. Completion operations are scheduled
to be concluded in May 2017, after which well testing will
commence, and subject to successful testing, it hoped that
the well will be hooked-up for production by the end of the
second quarter of 2017.
Reserves
MEX-GOL and SV fields
The Group’s estimates of the remaining Reserves and
Resources at the MEX-GOL and SV licence areas are
derived from an assessment undertaken by independent
petroleum consultants, ERC Equipoise Limited (“ERCE”),
as at 31 December 2013 (the “ERCE Report”), which was
announced on 25 March 2014. During the period from
1 January 2014 to 31 December 2016, the Group has
produced 1.45 MMboe from these fields.
www.regalpetroleum.com
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