Final Results 2013 Maintaining a stable business platform in - - PowerPoint PPT Presentation

Final Results 2013

Maintaining a stable business platform in volatile emerging markets

27 March 2014

2

Disclaimer

This presentation contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst JKX believes the expectations reflected herein to be reasonable in light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Group’s control or within the Group’s control where, for example, the Group decides on a change

• f plan or strategy.

The Group undertakes no obligation to revise any such forward-looking statements to reflect any changes in the Group’s expectations or any change in circumstances, events or the Group’s plans and strategy. Accordingly no reliance may be placed on the figures contained in such forward looking statements

Agenda

Introduction - Paul Davies, Chief Executive Operations Review - Martin Miller, Operations Director Our Markets - Peter Dixon, Commercial Director Financial Review - Cynthia Dubin, Finance Director Summary & Outlook - Paul Davies, Chief Executive

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Agenda

Introduction - Paul Davies, Chief Executive Operations Review - Martin Miller, Operations Director Financial Review - Cynthia Dubin, Finance Director Our Markets - Peter Dixon, Commercial Director Summary & Outlook - Paul Davies, Chief Executive

4

• Average oil and gas production increased

by 18% to 9,731 boepd

• Recommencement of development drilling

in Ukraine in April 2013 following Q1 bond placement

• Successful completion of 10-stage multi-

frac in Rudenkovskoye field

• Elizavetovskoye field development start-up
• n schedule and on budget
• Increased gas production in Russia to

plant capacity

• Revenue down 10.9% to $180.7m due to

interruption in Ukraine drilling programme

• Operating profit after exceptionals

increased to $9.2m

• Earnings per share of 3.78 cents (2012:

loss per share 6.59 cents)

• Group reserves increased to 94.2 MMboe

with a reserves replacement ratio of 112%

Summary of 2013

Delivering targeted production and building reserves

5

Agenda

Introduction - Paul Davies, Chief Executive Operations Review - Martin Miller, Operations Director Financial Review - Cynthia Dubin, Finance Director Summary & Outlook - Paul Davies, Chief Executive

6

Our Markets - Peter Dixon, Commercial Director

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• Improved liquidity and financial stability

from operating cash flow and placement of convertible bond

• Revenues driven by Ukrainian gas

prices which are expected to rise

• Investment programme focused on

Ukraine with recommencement of drilling

• Fully funded 2014/2015 investment

programme

Financial highlights 2013

Improved liquidity and fully funded investment programme

Financial summary 2013

Ukraine impacted by interruption of development drilling

• Revenue down to $180.7m due to lower

production in Ukraine, however partially

• ffset by a significant increase in

revenues from Russia

• Profit from operations of $9.2m due to

lower revenues and higher operating

• costs. No DD&A adjustment or significant

exploration write-off

• Strong operating cash flow of $74.8m
• Capex spend in line with expectations
• Anticipated overall group reduction in

realisations as Russia increases its contribution to revenue:

• Russia: $2.77/Mcf (2012: $2.60/Mcf)
• Ukraine $11.96/Mcf (2012: $12.12/Mcf)

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Key Financials

($m) Y2012 Y2013 Change % Group revenue 202.9 180.7 (10.9) Profit from operations before exceptional items 51.6 9.2 (82.2) Exceptional items (pre-tax) 45.8

• N/A

Profit from operations after exceptional items 5.8 9.2 58.6 Cash from operations 109.3 74.8 (31.6) Capital expenditure 67.3 64.4 (4.3) Realised gas price ($ per Mcf) 10.55 6.73 (36.2) Realised oil price ($ per bbl) 93.55 92.12 (1.5)

• Group revenue declined by 10.9% to $180.7m mainly due to lower production in

Ukraine across all three products (oil, gas and LPG) and slightly lower realisations of gas, oil and LPG

• However Russian production and resulting sales volumes from our Russian field

dominated our product mix in 2013 and meaningfully contributed to revenues

• Management of capex in 2012 resulted in a hiatus in our continuous drilling

programme required to maintain our production levels in Ukraine. However, now we have funds to advance our investment programme and opportunity to improve production

Group revenue

Reduction in Ukrainian revenue offset by increase in Russian revenue

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202.9 (14.8) (20.6) (4.7) (5.8) 23.7 180.7 0.0 50.0 100.0 150.0 200.0 250.0 Y2012 Ukraine oil price and volume effect Ukraine gas price and volume effect Ukraine LPG price and volume effect Hungary oil/gas price and volume effect Russia sales Y2013

Group revenue ($m)

• Profit affected by $22.2m decrease in revenues mainly due to reduced production in Ukraine

however this was partially offset by an increase in revenues in Russia

• In 2012 exceptional DD&A charge of $30.7m relating to accelerated depreciation on

Ukrainian assets; no exceptional DD&A occurred in 2013

• In 2012 impairment provision for oil and gas assets in Hungary of $15.1m; no impairment

charge in 2013

• Group operating costs increased due to inclusion of full period Russian plant operating costs

and Ukrainian sales from inventory and gas purchases

• Production based taxes reduced by 11.7% to $41.8m

Profit from operations

Impacted by production volumes and Russian plant becoming

• perational

10

51.6 (30.7) (15.1) 5.8 (22.2) (23.8) (3.4) (2.0) 5.6 3.4 9.2

• 40.0
• 30.0
• 20.0
• 10.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 Profit from

• perations

(before exceptional items) Y2012 Exceptional item

• DD&A in

Ukraine Exceptional item

• impairment in

Hungary Profit from

• perations (after

exceptional items) Y2012 Sales Operating costs DD&A Administrative expenses and foreign exchange Production based taxes Write off's Y2013

Profit from operations ($m)

2013 2012

• Full year administration expenses in Russia offset by lower foreign exchange loss
• $2m charge for the fair value movement on derivative liability is associated with the

convertible bond since its completion on 19 February 2013

• Finance costs reduced by 23.4% to $3.6m (2012: $4.7m) which was partially offset

by lower finance income resulting in net improvement of $1m

• Taxation charge reduced by $25.2m, excluding the tax effects on the exceptional

items, due to lower profitability, a reduced rate of corporation tax applicable in Ukraine and a deferred tax credit of $15m as a result of an increase in our Russian deferred tax asset

Profit for the year

Impacted by operations and reduced taxation charge

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2012 2013

24.7 (36.0) (11.3) (22.2) (18.2) (2.0) (2.0) 1.0 25.2 6.5

• 40.0
• 30.0
• 20.0
• 10.0

0.0 10.0 20.0 30.0 Profit after tax (before exceptional items) Y2012 Exceptional items, net of tax Loss after tax (after exceptional items) Y2012 Sales Operating costs, DD&A, production based taxes and writeoffs Administrative expenses and foreign exchange Fair value loss

• n the derivative

Net finance charges Reduction in the taxation charge Profit after tax Y2013

Profit after tax for the year ($m)

• Focus returned to Ukraine
• Capex programme fully covered by
• perating cashflow
• Capex spend of $64.4m in line with

expectations both in Ukraine and Russia

• Investment in Ukraine accounted for

64.8% ($41.7m) of the total capex in 2013 in line with strategy of focusing

• n Ukraine
• Ukrainian capital investments

included:

• Completion of multi-stage frac
• Drilling of Elizavetovskoye well and

completion of processing facilities

• Capex of $20.2m in Russia to

increase plant capacity

Capital expenditure

Majority of investment in Ukraine

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Movement in cash and undrawn credit facilities

Stronger liquidity position

• Cash generated from operations is $74.8m
• Net cash financing inflow of the $37.8m from proceeds of bond placement
• Significant improvement in cash and undrawn credit facilities of $40.7m at

31 December 2013

• Fully funded capex programme for 2014/15
• Russian production expected to be affected by tubing replacement in short-

term although financial impact is limited

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12.0 74.8 (15.9) (61.5) (15.0) 15.0 37.8 (4.0) (2.5) 40.7

• 80.0
• 60.0
• 40.0
• 20.0

0.0 20.0 40.0 60.0 80.0 100.0 31 December 2012 Cash from

• perations

Income tax paid Purchase of property, plant and equipment Repayment of borrowings Credit Agricole faciltiy extension Funds received from borrowings (net of costs) Purchase of employee trust shares Other 31 December 2013

Movement in cash and undrawn credit facilities ($m)

Agenda

Introduction - Paul Davies, Chief Executive Operations Review - Martin Miller, Operations Director Financial Review - Cynthia Dubin, Finance Director Summary & Outlook - Paul Davies, Chief Executive

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Our Markets - Peter Dixon, Commercial Director

Operational review 2013

Ongoing development, appraisal and exploration

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Operational summary 2013

Key developments

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Ukraine

• Elizavetovskoye - Elizavetovskoye Processing Facility (‘EPF’) completed;

A2 carbonate development wells E-301 & E-302 have both outperformed expectations

• Rudenkovskoye - Completed 10-stage multi-frac of well R-103 frac in Devonian

sandstone with stabilised production rates at lower end of expectations

• Zaplavskoye - Z-05 flows a rich gas condensate from Visean sandstone

reservoirs and defines stratigraphic trap limits

• Novo-Nikolaevskoye - New seismic amplitude studies prompt further activity

Russia

• Koshekhablskoye - Production from wells, 5, 15, 20, 25 and 27 has peaked at

54 MMcfd - substantially in excess of nominal 40 MMcfd capacity

• Completed workover and sidetrack of Oxfordian well-05
• Deferred workover and sidetrack of well-09 Callovian to conserve resources
• Re-processed & interpreted legacy seismic on Georgievskoye exploration

licence; identified leads

Hungary

• Water breakthrough in Hajdunanas field finally halted production in late 2013
• Hn-9 appraisal well and Tz-15 exploration deferred to 2014

Reserves & Production

• Group reserves increase to 94.2 MMboe, replacing 112% of production
• Production increase to average 9,731 boepd, up 18% from 8,281 boepd in 2012

Ukraine

Ongoing development, appraisal and exploration

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• Production from A2 carbonate already

approaching EPF capacity of 15 MMcfd

• G-sands appraisal E-304 will be next well
• Fast tracking scheme to double capacity

using equipment from the Novo-Nik EPF

• Newly acquired 3D seismic will aid

location of further A2 and G-sand wells

• Reserves revision will follow wells and

seismic; initial indications are for an upward revision

Ukraine

Elizavetovskoye: More to come

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Elizavetovskoye Field: A2 Reservoir Depth Map Schematic Section showing A Carbonate and G-sands Elizavetovskoye Mashivske Top A2 Base A2 Top G Base G

Rudenkovskoye

• Development plan reconfigured following

R-103 frac results

• Planning high resolution 3D seismic and

further drilling & fraccing of R-105 in late 2014 Molchanovskoye/Ignatovskoye

• Continued appraisal drilling around core

fields; at least 2 wells planned for 2014

• Implementation of water flood projects to

enhance recovery of remaining oil to commence in late 2014 Novo-Nikolaevskoye Field

• Analysis of 2012 3D seismic (blue outline)

stimulated further appraisal

• Well NN-80 first of new programme

Ukraine

Novo-Nik area: Further development

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Novo-Nikolaevskoye Complex

• Z-05 flows a rich gas condensate from

Visean sandstone reservoirs and defines stratigraphic trap limits

• New seismic amplitude analysis helps

definition of planned Z-06 well location for drilling in 2015

• More Visean reservoir potential identified

in West Novo-Nikolaevskoye area through seismic amplitude analysis

• Mapping extent of Visean reservoirs in

Rudenkovskoye north area to high-grade drilling targets

• Mapping also defines new Devonian leads

at +/- 4000m. Likely to be tight reservoir similar to Rudenkovskoye

• Extending licence term for a further 5

years

Ukraine

Zaplavskoye: Tapping the potential

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Map of Zaplavskoye 4/5/6 area Schematic Map showing WNN leads and licences

Russia

Fully funded development programme

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• Expansion project to increase plant

capacity by around 50% from 40 MMcfd to 60 MMcfd will be implemented in late 2014

• Tubing issues constraining production to

around 80% of base capacity

• Programme to recomplete with chrome

alloy pipe to begin in late 2014

• Preparing 2D and 3D seismic exploration

programmes in Georgievskoye licence

• Focus on Oxfordian potential

Russia

Koshekhablskoye field: Ready to increase production

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Koshekhablskoye-Georgievskoye Licences Oxfordian reservoir and lead outlines

Quarter 1

• Start-up of Elizavetovskoye wells

Quarter 2

• NN-80 Novo-Nikolaevskoye

development well Quarter 3

• Core field appraisal drilling E-303 G

sands result Quarter 4

• Koshekhablskoye tubing replacement

programme

• Plant upgrade
• Drilling Rudenkovskoye R-105
• Restart in Hungary

Indicative production

• 1Q2014

>10,000 boepd

• 1H2014

10,000 – 12,000 boepd

Group production

Setting scene for expansion

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Agenda

Introduction - Paul Davies, Chief Executive Operations Review - Martin Miller, Operations Director Our Markets - Peter Dixon, Commercial Director Financial Review - Cynthia Dubin, Finance Director Summary & Outlook - Paul Davies, Chief Executive

24

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Commercial highlights

Strong realisations in Ukraine, improving realisations in Russia

Ukraine

• Prices remained at or above European

levels

• Gas sales make up more than 60% of
• ur Ukraine revenue
• Produce mix of oil and condensate

product used for blending which is good quality and in high demand

• Supply shortage of LPG resulting in

strong demand and high prices

• Stable long-term off take contract with

Shell Russia

• Gas sold to industrial sector in

Krasnodar which has highest gas price in Russia

• Demand is growing, in part benefitting

from increased construction in Sochi

• Prices continue to grow

Revenue $m Realisation $ Ukraine Gas 91.2 11.96/Mcf Oil 44.0 92/bbl LPG 13.9 898/t Total 149.1 Russia Gas 28.8 2.77/Mcf Hungary Gas 0.8 11.74/Mcf Group Total 180.7

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Ukraine

Gas market fundamentals – short of gas, high prices

• Annual consumption 50 Bcm per year
• Domestic production 20 Bcm per year
• Historically heavily dependent on

Russian imports but new imports from Europe – could grow to 10 Bcm per year

• Gazprom dominant supplier to and

import price, based on oil and oil products, is calculated monthly

• Internal regulated price also set monthly

at level slightly above import price

• Agreement with Russia to discount

import price for Q1 2014 but discount not passed on to industry by regulator

• Deterioration of $/UAH exchange rate by

25% in Q1 2014, but one-off impact

• Discount to be removed on 1 April
• New industrial price set by Regulator
• Prices in $ to return to 2013 levels

50 100 150 200 250 300 350 400 450 500 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec 2013

Regulated Industrial Price

Import Industrial price 2014 Q1 20 Bcm 28 Bcm 2 Bcm

Domestic Production Russian Imports European Imports

Gas production and imports

$/Mcm

• Two key drivers of gas price in Russia
• Significant increase in production

cost will drive commercial gas price rises

– Existing Gazprom fields (cheap to

produce) are all in decline

– New Gazprom fields (Yamal)

relatively expensive to produce

• In 2006 Putin signed into Law a

goal of price parity with European net-back

• Initial schedule of convergence
• riginally 2011 – now deferred
• Average annual price rises of 18%

since 2007

• Price rise of 15% implemented in 2013
• Current prices still less than half of

European net-back price

• Convergence anticipated in 2022/23

Russia

Gas market fundamentals – prices up average 18% p.a. for six years

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Agenda

Introduction - Paul Davies, Chief Executive Operations Review - Martin Miller, Operations Director Summary & Outlook - Paul Davies, Chief Executive

28

Our Markets - Peter Dixon, Commercial Director Financial Review - Cynthia Dubin, Finance Director

• Rising oil and gas production targeted

and achieved

• Ukraine investment programme

restarted with positive results

• Elizavetovskoye development brought
• n-stream and growth potential of field

identified

• Successful large multi-frac of

Rudenkovskoye well and modification

• f technique for next well identified
• Phase 1 of Russian project complete

and capability to expand plant capacity demonstrated

• Continued growth of Group reserves

with positive reserves replacement ratio

Summary

Significant progress from funded developments

29

• Production growth has continued into

2014 with an increasing Ukrainian contribution.

• Fully funded development programmes

in Ukraine and Russia through 2014 target further improvements in production levels.

• New prospects bring increased potential

to our existing licence portfolio

• Expect gas realisations in Ukraine to

remain stable and realisations in Russia to rise

• Maintain focus on eastern and central

European gas markets and take advantage of growth opportunities

• Continued growth in Group reserves and

resources expected in 2014

• Improvement of shareholder value

remains our core goal

Outlook

Rising production and increased reserves

30

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Appendices

27 March 2014

Programme overview

Looking for growth

32

Group reserves

Replacing reserves

33

MMboe Dec-12 Production Revisions Dec-13

Ignatovskoye 3.2

• 1.0

1.2 3.4 Molchanovskoye 0.7

• 0.3

0.4 0.7 Novo-Nikolaevskoye 0.2

• 0.2

0.5 0.5 Rudenkovskoye 21.6

• 0.1
• 0.1

21.4 Elizavetovskoye 3.7

• 0.1

3.2 6.9 Zaplavskoye 0.1 0.0 0.1 0.2 Koshekhablskoye 63.9

• 1.8
• 1.3

60.7 Hernad 0.2

• 0.1

0.0 0.1 Turkeve 0.3 0.0 0.0 0.3

Total 93.8

• 3.6

4.0 94.2