Interim Results 2014 Maintaining a stable business platform in - - PowerPoint PPT Presentation

Interim Results 2014

Maintaining a stable business platform in volatile emerging markets

28 July 2014

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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 of 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

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

Agenda

Operations Review & Outlook – Paul Davies, Chief Executive Financial Review - Cynthia Dubin, Finance Director

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Introduction - Paul Davies, Chief Executive

• Solid performance given challenging
• perating environment
• Average oil and gas production up 12%

to 10,126 boepd

• Ukraine: 4,900 boepd (2013: 4,649

boepd)

• Russia: 5,226 boepd (2013: 4,356

boepd)

• Production commenced at

Elizavetovskoye field in Ukraine, significantly above expectations

• Russian production increased by 20%

despite operating at only 80% of plant capacity whilst two tubing failures are rectified

• Lower revenue at $74.3m and profit from
• perations at $5.8m
• Work programmes are fully funded

Summary

Continued increase in production

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Agenda

Introduction - Paul Davies, Chief Executive Operations Review & Outlook – Paul Davies, Chief Executive

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Financial Review - Cynthia Dubin, Finance Director

Financial summary

Impacted by lower gas realisations in Ukraine

• Revenue down at $74.3m resulting from

lower gas realisations in Ukraine and modest increase in Russian revenues:

• Ukraine: $9.77/Mcf (2013: $12.04/Mcf)
• Russia: $2.64/Mcf (2013: $2.58/Mcf)
• Profit from operations of $5.8m (before

exceptional item) due to lower Ukrainian revenues

• Exceptional item of $3.3m reflects cost of

well kill operation in Russia

• Capex spend in line with expectations
• Solid operating cash flow of $31.1m

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Key Financials

($m) H1 2013 H1 2014 Change % Group revenue 91.3 74.3 (18.6) Profit from operations before exceptional item 9.4 5.8 (38.3) Exceptional item (pre-tax)

• 3.3

N/A Profit from operations after exceptional item 9.4 2.4 (73.6) Cash from operations 43.2 31.1 (28.0) Capital expenditure 33.3 21.4 (35.7) Realised gas price ($ per Mcf) 7.19 5.64 (21.6) Realised oil price ($ per bbl) 89.45 92.39 3.3

• Group revenue declined by 18.6% to $74.3m mainly due to lower gas realisations in

Ukraine

• Oil production from mature fields continued to decline as we seek to maintain oil

recovery rates

• Russian production and resulting sales volumes from our Koshekhablskoye field

contributed to increased revenues in 2014

Group revenue

Reduction in revenue in Ukraine offset by Russian revenue

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91.3 (12.2) (4.8) (1.4) (1.3) 2.7 74.3 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 1HY2013 Ukraine gas price and volume effect Ukraine oil price and volume effect Ukraine LPG price and volume effect Hungary and other sales Russia sales 1HY2014

Group revenue ($m)

• Profit affected by $17.0m decrease in revenues mainly due to lower gas realisations and oil

production in Ukraine, partially offset by an increase in production and realisations in Russia

• Group operating costs decreased mainly due to reduced Ukrainian sales from inventory and

gas purchases

• DD&A charge reduced by $6.5m mainly as a result of the upward revision in reserves in

Ukraine

• Production based taxes reduced by 13.7% to $17.6m
• Foreign exchange loss increased by $3.5m due to revaluation of balance sheet items as a

result of weakening of Ukrainian Hryvnia by approximately 50%. Administrative expenses remained constant

• The $3.3m exceptional item is a result of one-off costs incurred in Russia to kill well 27

Profit from operations

Impacted by lower realisations in Ukraine

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9.4 (17.0) 7.5 6.5 2.8 (3.4) 5.8 (3.3) 2.4

• 20.0
• 15.0
• 10.0
• 5.0

0.0 5.0 10.0 15.0 Profit from

• perations

1HY2013 Sales Operating costs DD&A Production based taxes Administrative expenses and foreign exchange Profit from

• perations (before

exceptional item) 1HY2014 Exceptional item - well control

• perations

Profit from

• perations (after

exceptional item) 1HY2014

Profit from operations ($m)

* * due to rounding

• $4.3m change in fair value movement on derivative liability is associated with the

convertible bond since its placement on 19 February 2013

• Pre-exceptional total tax credit of $0.6m (2013: charge $2.2m) comprising
• current tax charge of $3.0m (2013: $5.7m)
• deferred tax credit of $3.6m in respect of Russian tax losses carry-forwards

(2013: $3.5m)

Profit for the period

Impacted by operations and reduced taxation

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7.5 (3.6) 4.3 0.3 2.8 11.2 (2.7) 8.5

• 6.0
• 4.0
• 2.0

0.0 2.0 4.0 6.0 8.0 10.0 12.0 Profit after tax 1HY2013 Movement in profit from operations 1HY2014 Fair value gain on derivative liability Net finance charges Reduction in taxation Profit after tax (before exceptional item) 1HY2014 Exceptional item - well control

• perations, net of

tax Profit after tax (after exceptional item) 1HY2014

Profit for the period ($m)

* * due to rounding

• Investment in Ukraine accounted for

77.1% ($16.5m) of the total capex in the first half of 2014 in line with strategy of focusing on Ukraine and Elizavetovskoye development

• Capex programme fully covered by
• perating cash flow
• Capex spend of $21.4m in line with

expectations both in Ukraine and Russia

• Expansion programme to double

Elizavetovskoye plant capacity to 30 MMcfd expected to complete in Q3 2014

Capital expenditure

Majority of investment in Ukraine

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18.2 13.5 1.6

Russia Ukraine Rest of the World

First half 2013 Capex: $33.3m First half 2014 Capex: $21.4m

16.5 4.2 0.7

Movement in cash and undrawn credit facilities

Strong liquidity position

• Cash generated from operations of $31.1m
• Total cash resources and undrawn bank facilities at end of the period were

$43.5m, including Crédit Agricole facility of $15m successfully renewed until 30 June 2015

• Fully funded capex programme for 2014/15

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40.9 31.1 (20.7) (3.8) (2.2) (1.8) 43.5

• 30.0
• 20.0
• 10.0

0.0 10.0 20.0 30.0 40.0 50.0 31 December 2013 Cash from operations Purchase of property, plant and equipment and intangible assets Income tax paid Effect of exchange on cash and cash equivalents Interest paid 30 June 2014

Movement in cash and undrawn credit facilities ($m)

* * cash element of total CAPEX of $21.4m

Agenda

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

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Ukraine

Ongoing development, appraisal and exploration

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Ukraine: Key developments in H1

Ongoing development, appraisal and exploration

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Elizavetovskoye

• Field commenced production in January

2014, on schedule and on budget, with average production in the period exceeding expectations at 1,547 boepd (9.2 MMcfd of gas and 18 bpd of condensate) Novo-Nikolaevskoye Complex

• Continued development and appraisal

drilling

• Steady production in period averaging

3,353 boepd (14.2 MMcfd of gas and 982 bpd oil and condensate) Zaplavskoye

• Good progress made on identifying

additional prospects in licence from recent 3D seismic acquisition programme

Elizavetovskoye Field

Ukraine: Current and future activity

Enhancing production and extending field life

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Elizavetovskoye Field

• Completion of first deep sandstone

appraisal well scheduled for Q3

• Plant upgrade on schedule to double

capacity to 30 MMcfd in Q3 Novo-Nikolaevskoye Complex Rudenkovskoye

• Return to Rudenkovskoye field drilling in

Ukraine planned for second half of 2014 Molchanovskoye/Ignatovskoye

• Appraisal drilling on north and west flanks

Novo-Nikolaevskoye Field

• Seismic attribute analysis aiding drilling

and recompletions Zaplavskoye

• Visean stratigraphic traps and Devonian

structural traps emerging from recent 3D

• seismic. Licence expected to be

extended before year end

Novo-Nikolaevskoye Complex

Russia

Fully funded development programme

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Russia: Key developments in H1

Fully funded development programme

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Koshekhablskoye

• Work-over of well-05 in the

Koshekhablskoye field completed at beginning of year, but subsequent tubing failures in both well-05 and well-27 have constrained production in the period to

• approx. 80% of plant capacity
• Average production increased by 20% to

5,226 boepd although below expectations Georgievskoye exploration licence

• Recovery, reprocessing and interpretation
• f all existing 2D seismic was completed

Koshekhablskoye Field

• Plant capacity modifications on schedule

to increase capacity by 50% to 60 MMcfd by year end

• Well-05 has been suspended and the

tubing will be replaced as soon as a rig can be mobilised

• Well-27 tubing replacement expected to

begin in H2 Georgievskoye exploration licence

• Preparations are now being made for

further seismic acquisition late in 2014

Russia: Current and future activity

Expanding production capacity

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Koshekhablskoye-Georgievskoye Licences Oxfordian reservoir and lead outlines

• Steady progress made in H1 towards

growing production

• Production in H2 anticipated to be

maintained around 10,000 boepd

• Plant capacity upgrades in both Ukraine

and Russia scheduled for completion in H2

• Completion of first Elizavetovskoye deep

sandstone appraisal well scheduled for Q3

• Return to Rudenkovskoye field drilling in

Ukraine planned for H2

• Expect to secure rig for Russian tubing

replacements in second half

• Gas realisations in Ukraine are expected to

remain strong in H2

• Gas Rouble realisations in Russia expected

to increase

• Fully funded work programmes

Outlook

Development programmes on schedule

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Appendices

28 July 2014

Programme overview

Looking for growth

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Project Period Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 Ukraine E-301 (Elizavetovskoye A2 carb development) Elizavetovskoye 3D seismic acquisition Exploration Drilling E-302 (Elizavetovskoye A2 carb development) Appraisal Drilling NN-80 (NovoNik V15 sst development) Development Drilling Ig-141 (North Ignatovskoye Devonian appraisal) Well Stimulation (frac/acid) E-303 (Elizavetovskoye G sandstone appraisal) Geophysics (seismic acquisition) IG-140 (West Ignatovskoye Visean carb appraisal) Secondary Recovery (waterflood) R-101ST (N Rudenkovskoye V-22/26 development) Facilities E-304 (Elizavetovskoye A2 carb development) Rudenkovskoye high res 3D seismic acquisition E-305 (Elizavetovskoye G sandstone development) E-306 (Elizavetovskoye G sandstone development) R-105 (Rudenkovskoye Devonian (R-103 follow-up) R-104 (N Rudenkovskoye V-22/26 development) R-106 (Rudenkovskoye Devonian) M17a (Devonian Wedge Zone appraisal) E-307 (Elizavetovskoye A2 carb development) E-308 (Elizavetovskoye A2 carb development) Zaplavskoye-06 (V-25/26 sandstone appraisal) Zaplavskoye-07 (undesignated exploration well) R107 - Rudenkovskoye Devonian NN-81 (NovoNik V15 sst development) Zaplavskoye-08 (undesignated exploration well) IG-10X (Ignatovskoye Visean carb development) Elizavetovskoye Processing Facility Upgrade Molchanovskoye North Waterflood Russia HCI acid treatment (Well 25) Well-27 workover Well-05 tubing replacement HCI acid treatment (Well 20) Workovers for stainless tubing replacement Well-11 workover & sidetrack Georgievskoye seismic GPF plant enhancement Eastern Europe Hadjunanas development Hn-9 Tiszvaszvari-15 exploration - Hernad Unspecified exploration - Hernad Slovakia - Cierne-1 exploration well