Half-yearly review 2015 29 July 2015 Disclaimer This presentation - - PowerPoint PPT Presentation

Half-yearly review 2015

29 July 2015

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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

In this review

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Summary Financial review Operations review and outlook

• Focus on sustainability, cash conservation

and asset protection

• Average production of 8,611 boepd

(2014: 10,126 boepd)

• Development drilling suspended in

Ukraine due to negative investment climate

• Award of extension to Elizavetovskoye

licence in Ukraine to include West Mashivske prospect

• Tubing replacement programme under

way in Russia

• Russian plant capacity modifications

approved by Russian authorities

• Hungary production permitting on-going

Summary

Resilience in the face of continuing uncertainty

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In this review

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Summary Financial review Operations review and outlook

Financial summary 2015

Focus on maintaining liquidity

• Revenue down at $44.4m resulting from

lower oil and gas production and realisations in both Ukraine and Russia:

• Ukraine: $8.25/Mcf (2014: $9.77/Mcf)
• Russia: $1.68/Mcf (2014: $2.64/Mcf)
• Loss from operations of $7.3m due to

lower Ukrainian and Russian revenues

• Capex spend cut significantly to offset

the reduced cash generated from

• perating activities

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Key Financials

($m) H1 2014 H1 2015 Change % Group revenue 74.3 44.4 (40.2) Loss from operations before exceptional items 5.8 (7.3) >(100) Cash from operations 31.1 3.5 (88.7) Capital expenditure 21.4 4.2 (80.4) Realised gas price ($ per Mcf) 5.64 4.46 (20.9) Realised oil price ($ per bbl) 92.39 49.87 (46.0)

Group revenue

Reduction in revenues due to lower Ukrainian and Russian

• il and gas sales

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• Group revenue declined by 40.2% to $44.4m mainly due to lower oil and gas production and

realisations in both Ukraine and Russia

• Group oil realisations were 46% lower at $49.87/bbl in line with international oil prices
• Group gas realisations were 20.9% lower at $4.46/Mcf largely due to the weakening of the

Ukrainian Hryvnia and Russian Rouble

74.3 (9.9) (11.7) (2.5) (6.3) 0.5 44.4 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 1HY2014 Ukraine gas price (50%) and volume (50%) effect Ukraine oil price (51%) and volume (49%) effect Ukraine LPG price (72%) and volume (28%) effect Russia price (68%) and volume (32%) effect Hungary and other sales 1HY2015

Group revenue ($m)

Loss from operations

Impacted by lower realisations and production in Ukraine and Russia

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• Profit affected by $29.9m decrease in revenues mainly due to lower oil and gas production and

realisations in both Ukraine and Russia

• Group operating costs down primarily due to reduced manpower costs and field operating costs
• DD&A charge reduced by $7m largely as a result of lower production in Ukraine and Russia
• Whilst production decreased, production taxes increased by $3.2m due to the large increase in oil and

gas tax rates in Ukraine

• Administrative expenses reduced by $3.5m largely due to reduced manpower costs
• $5.8m gain in foreign exchange movement due to lower volatility in the Rouble/US$ and Hryvnia/US$

rate

5.8 (29.9) 3.8 7.0 (3.2) 9.3 (7.3)*

• 35.0
• 30.0
• 25.0
• 20.0
• 15.0
• 10.0
• 5.0

0.0 5.0 10.0 15.0 Profit from operations 1HY2014 (before exceptionals) Sales Operating costs DD&A Production based taxes Administrative expenses and foreign exchange Loss from operations (before exceptional item) 1HY2015

Profit from operations ($m)

* Difference due to rounding

Profit for the period

Impacted by operations and fair value loss

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• $10.0m decrease in fair value movement on derivative liability is associated with the convertible

bond since its placement on 19 February 2013. As the Company’s share price has increased from 12.00 pence at 31 December 2014 to 27.50 pence at 30 June 2015, a charge of $4.0m versus a credit of $6.0m in 2014 has been recognised

• $1.4m increase in taxation mainly due to the change in deferred tax charges recognised in both

Ukraine and Russia

* Difference due to rounding 11.2 (13.0)* (10.0) (0.5) (1.4) (13.8)*

• 20.0
• 15.0
• 10.0
• 5.0

0.0 5.0 10.0 15.0 Profit after tax 1HY2014 (before exceptional item) Movement in profit from

• perations 1HY2014

Fair value loss on derivative liability Net finance charges Increase in taxation Loss after tax (before exceptional item) 1HY2015

Profit after tax for the period ($m)

• Minimised capex until investment climate

improves

• Investment in Ukraine decreased by

89.7% to $1.7m

• Investment in Russia decreased by 45.2%

to $2.3m

Capital expenditure

Reduced investment in order to maintain liquidity

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First half 2015 Capex: $4.2m First half 2014 Capex: $21.4m

16.5 4.2 0.7 Ukraine Russia Rest of the World 1.7 2.3 0.2

Movement in cash

Maintaining strong liquidity position

• Cash generated from operations of $3.5m
• Total cash resources at the end of the period were $22.4m, only slightly below the cash balance at

the beginning of the period

• Capex programme reduced to offset lower cash generation from operations
• Maturity of $2.7m of the treasury bills purchased in 2014
• Bond repayment made of $5.7m in February 2015
• Credit Agricole facility matured on the 30 June 2015. Discussions are currently underway to renew

this facility

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* Difference due to rounding

25.9 3.5 (3.6) (0.6) 0.9 (1.6) 1.0 2.7 (5.7) 22.4*

• 20.0
• 10.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 31 December 2014 Cash from

• perations

Purchase of property, plant and equipment and intangible assets Income tax paid Effect of exchange on cash and cash equivalents Interest paid Interest received Treasury Bills Bond repayment 30 June 2015

Movement in cash ($m)

In this review

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Summary Financial review Operations review and outlook

Ukraine

Capital investment on hold until conditions improve

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• The negative investment climate persisted in

Ukraine and all capital investment in Ukraine remains on hold until conditions improve Novo-Nikolaevskoye complex

• Average production in H1 down at 2,546

boepd (10.6 MMcfd of gas and 777 bpd of

• il and condensate) (H1 2014: 3,353 boepd)
• Operations at main production facility and

LPG plant continued smoothly with routine work on-going on plant optimisation, re- routing flowlines, and wax clearance of flowlines to enhance production

Ukraine: Key developments

Capital investment on hold until conditions improve

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Novo-Nikolaevskoye Complex

Elizavetovskoye Field

• Average production of 1,594 boepd (9.4

MMcfd of gas and 28 bpd of condensate) (H1 2014: 1,547 boepd)

• Award of a westward extension to the

Elizavetovskoye production licence to include the West Mashivske prospect in Q2 2015

• No drilling activity during the period, but

activities and development will resume should investment climate improve Zaplavskoye Exploration Licence

• Work continuing on the evaluation of the

Visean V25/26 sandstone traps and the Devonian sandstone and Visean carbonate structural closures with the aim

• f working these up for future drilling

should the economic climate improve

Ukraine: Key developments (cont.)

Capital investment on hold until conditions improve

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Russia

Tubing replacements under way and plant expansion approved

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• Production remained constrained due to

the previously reported tubing failures

• Average production at the

Koshekhablskoye field in H1 down at 4,470 boepd (26.5 MMcfd of gas and 45.6 bpd of condensate) due to continuing loss

• f production from well-27 and well-05

(H1 2014: 5,226 boepd)

• Periodic acid treatments have been

performed during the period to maintain production rates in the three producing wells

• First tubing replacement programme (cost

covered by insurance) is now underway and making good progress

Russia: Key developments

Tubing replacements under way and plant expansion approved

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• Government approval received to increase

the plant capacity to 60 MMcfd. Upgrade scheduled for H2

• The second tubing replacement

programme is planned to begin in Q3

• The obligation to re-enter and sidetrack

well-09 to re-drill the full Callovian reservoir sequence has been deferred until 2017

• Russian gas realisations in Roubles have

increased by 7.5% from 1 July 2015

Russia: Key developments (cont.)

Tubing replacements under way and plant expansion approved

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Group reserves

2P group reserves rose from 94.2 MMboe in 2013 to 97.7 MMboe in 2014

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Total remaining reserves as at 30 June 2015

• H2 production anticipated to be in excess of 8,000 boepd
• Gas realisations in Ukraine anticipated to be lower in H2 in line with

expectations

• Possible resumption of development drilling in Ukraine in H2
• Russian plant capacity modifications to increase capacity to 60 MMcfd by

year-end

• Completion of first tubing replacement programme in Russia scheduled for H2
• Completion of Hungarian production permitting in H2
• Two exploration wells scheduled in Slovakia in Q4
• International arbitration proceedings against Ukraine have commenced. JKX

is seeking compensation for losses suffered due to Ukraine’s treaty violations

• The tribunal issued an Interim Award on 23 July 2015 requiring the Ukrainian

Government to limit the collection of rental fees on gas produced by JKX's Ukrainian subsidiary to a rate of 28% (the rate currently applicable is 55%)

• Board has confidence that JKX will return to profitability when conditions

improve

Outlook for 2015

Focus on liquidity, sustainability and asset protection until investment climate improves

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