JKX Oil & Gas Driving Ukraines Gas Potential Tom Ree eed CEO - - PowerPoint PPT Presentation

JKX Oil & Gas

Driving Ukraine’s Gas Potential

Tom Ree eed CEO EO Oil Oil Cap apit ital, Lo Lond ndon 11 11 May, ay, 20 2017

Disclaimer

The information contained in these presentation materials (the “Presentation”) has been prepared by JKX Oil & Gas plc (the “Company”). This Presentation is being made for information purposes only and does not constitute an offer or invitation for the sale or purchase of securities in the Company or any of the assets described in it nor shall they nor any part of them form the basis of or be relied on in connection with, or act as any inducement to enter into, any contract or commitment whatsoever or otherwise engage in any investment activity (including within the meaning specified in section 21 of the Financial Services and Markets Act 2000 as amended). The information in this Presentation does not purport to be comprehensive and has not been independently verified. While this information has been prepared in good faith, no representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by the Company or any of its officers, employees, agents or advisers as to, or in relation to, the accuracy or completeness of this Presentation, and any such liability is expressly disclaimed. In particular, but without prejudice to the generality of the foregoing, no representation or warranty is given as to the achievement or reasonableness of any management estimates or prospects contained in this Presentation. Such statements, estimates and forecasts reflect various assumptions made by the management of the Company and their current beliefs, which may or may not prove to be correct. A number of factors could cause actual results to differ materially from the potential results discussed in such forward-looking statements, estimates and forecasts including: changes in general economic and market conditions, changes in the regulatory environment, business and operational risks and other risk factors. Past performance is not a guide to future performance. Statements contained in this document regarding past trends or activities should not be taken as a representation

• r warranty, express or implied, that such trends or activities will continue in the future. No statement in this document is intended to be a

profit forecast. You should not place reliance on forward-looking statements, which speak only as of the date of this document. The Presentation is not a prospectus nor has it been approved by the London Stock Exchange plc or by any authority which could be a competent authority for the purposes of the Prospectus Directive (Directive 2003/71/EC). This Presentation has not been approved by an authorised person for the purposes of section 21 of the Financial Services and Markets Act 2000. The information contained in this Presentation is subject to change, completion or amendment without notice and is subject to verification. Recipients of this Presentation in jurisdictions outside the UK should inform themselves about and observe any applicable legal

• requirements. This Presentation does not constitute an offer to sell or an invitation to purchase securities in any jurisdiction.

You will be taken to have represented, warranted and undertaken to the Company that: (i) you have read and agree to comply with the contents and restrictions of this disclaimer; and (ii) you will conduct your own analysis or other verification of the data and information set

• ut in this Presentation and will bear the responsibility for all or any costs incurred in doing so.

2

JKX Oil & Gas (JKX LN)

E&P growth portfolio across Central/Eastern Europe and Russia

• Ukraine: large-scale field

development opportunity

• Russ

ussia ia: Stable cash-generating

• perations
• Hun

Hungary/Slov

• vakia: Significant

exploration potential

• Te

Team: New board and executive management focused on modern development approach

Country Lice censes Prod Prod Ex Expl Infr nfras astruc uctur ure 20 2016 16 Pro roduc uction Reserve rves mmboe Cont ntinge gent Resource urces mmboe Gas mmc mmcf/d Oi Oil mb mbbl/d Total al mb mboe/d /d 1P 1P 2P 2P 3C 3C Ukrai kraine Ignativske Elyzavetivske Rudenkivske Novomykolaivske Movchanivske Zaplavska ✓ ✓ ✓ ✓ ✓ ✓ 2 Processing Facilities 1 LPG Plant 18.6 0.9 4.0 15 29 457 Russia Koshekhablskoye ✓ 1 Gas Processing 36.1 0.1 6.1 43 80 108 Hung ngar ary 6 Licenses ✓ 1 Gas Processing

• 1

Slovakia 3 Licenses (25% WI) ✓

• Total

al 54 54.7 1. 1.0 10 10.1 58 58 109 109 565 565

*Source: Company data, Reserves and Contingent Resources are DeGolyer and MacNaughton estimates as of 31 December 2016

3

Progress & Priorities

Progress provides launch pad for growth

2016 Progress

• Completed detailed field development plans (FDPs) for all core assets, identified growth opportunities,

and started their implementation

• Increased production with minimum capital expenditure
• Reduced operating costs and overheads, resulting in an increase in cash flow and profitability
• Eliminated short-term financial liabilities (bond repurchase and restructuring)
• Completed international arbitration procedure, while actively engaging in dialogue with the Government
• f Ukraine.
• Built a technical team

2017 Priorities

Ukraine: Execute development plan Hungary/Slovakia: Appraisal and Exploration Resolve legal issues with Ukraine Russia: Maintain base and consider strategic monetization

1 2 3 4 5 6

4

Key Financials

($m) 2015 2016 Change % Production, boepd 8,996 10,083 12.1 Natural gas price ($ per Mcf) 4.20 2.95 (29.8) Oil price ($ per bbl) 49.75 45.94 (7.7) Group revenue 88.5 73.8 (16.6) EBITDA* 16.9 15.8 (6.5) Cash from operations 12.8 17.0 32.8 Adjusted cash from

• perations**

18.0 30.0 66.7 Capital expenditure 6.2 7.5 19.4 Total debt 34.4 16.8 (51.5) Total cash 26.3 14.3 (45.6) 5

* before exceptional items **before legal/professional/restructuring costs

• Op

Opera erating cas cash flo low Ef Efficie iency: Despite 30% decline in natural gas prices, operating cash flow (ex legal, professional, and restructuring fees) increased 67% to $30 million in 2016 vs $18 million in 2015.

• Com
• mpel

elli ling CAP APEX EX eff effic iciency: About 20 enhancement projects completed from beginning

• f 2016 to date added ~1,200 boepd to our

production as of April 2017. $2.8 million spent on completed enhancements has not only paid back already, but also generated estimated pre-tax cumulative free cash flow of $7.3 million by April 2017 and expected to generate a total of $15 million – more than five times the initial investment.

• Success

ssful l Deb ebt res restr tructuri ring: Besides achieving a successful bond restructuring, bond repurchases in 2016 generated additional cost savings of $2.6 million and return of 83% for the Company assuming the bonds were put in February 2017 ($5.7 million and 29%, respectively, if bonds were held until maturity in February 2020)

Achievements to date

Our strategy works – next step is to scale it

Why Ukraine?

Integrated developed European gas market with premium pricing

• 4th largest European producer after Norway,

Netherlands and the UK

• Premium pricing to Europe & US
• Developed pipeline and natural gas

infrastructure

• Import dependent EU and Ukraine supports

pricing and fiscal policies

• Ukraine imports 35% of its demand
• Ukrai

kraine Gover ernment strat trategic gic targ target for r en ener ergy inde depe pende dence by 20 2021

Source: IHS, BP, Naftogaz of Ukraine, Bloomberg

Import dependent Europe’s 4th largest gas producer Europe’s premium pricing underpins supply & imports Developed infrastructure supports market access Ukraine’s Attractive Natural Gas Market

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 2009 2010 2011 2012 2013 2014 2015 2016 Price, $/Mcf Henry Hub NBP Ukraine

0.0 10.0 20.0 30.0 40.0 50.0 60.0 BCF/D Other UnitedKingdom Netherlands Norway Ukraine Total ConsumptionEurope

DEMAND IMPORTS EURO PRODUCTION

6

Ukraine’s Natural Gas Resources Support Growth

4Th Largest European supplier with significant scope for growth

Ukraine production stable but down 70% since Soviet peak Reserves could support return to previous maximum production

500 1,000 1,500 2,000 2,500 3,000 Bcf

700 00 2,45 450 34,0 4,000 00 150 50,00 000+ 350 50,00 000+

1 10 100 1,000 10,000 100,000 1,000,000

Production 2016 Production based

• n EU R/P ratio

Official Reserves Conventional resources Unconventional resources

Bcf 7

• With official reserves of 1 tcm and gas

production of 20 bcma, Ukraine has a reserves life of up to 50 years, compared to 11 years in the US and 15 years in the EU

• Ukraine’s reservoir quality is 10-100 times

better than US shale plays, but its productivity is much lower

• However, due to poor execution

performance in Ukraine is up to 90 times worse vs. the United States

• Productivity of gas extraction technology

in the US increased by up to 33 times in the past decade – so dramatic improvement is possible within a relatively short time frame

• Investment in new production combined

with technology transfer can help significantly increase gas production in Ukraine

Opportunity to Grow Gas Production in Ukraine

By bridging the performance gap vs. the United States

New-well ll pr productio ion pe per r ri rig*, , boepd d and d pe performance vs. . Ukr Ukrain ine Increase in new-well l pr producti tion pe per r ri rig g si since 200 007

* As measured by average first-month production of a well in a particular play multiplied by number of wells one rig drills per month. Data for US as provided in the EIA Drilling Productivity Report. Data for Ukraine (UGV) is based on estimated average IP rate of 40 mcmpd, drilling speed of 300 meters per month and average well depth of 3,000 meters per well Source: EIA, Company estimates

2,268 2,216 2,037 1,466 1,314 1,243 847 25 500 1,000 1,500 2,000 2,500 Marcellus Eagle Ford Niobrara Utica Bakken Haynesville Permian Ukraine (UGV) 5.2x 7.6x 8.7x 8.8x 10.5x 28.0x 33.6x 0.0x 10.0x 20.0x 30.0x 40.0x Permian Haynesville Niobrara Eagle Ford Bakken Marcellus Utica

34x 34x 51x 51x 53x 53x 60x 60x 83x 83x 90x 90x 92x 92x

8

Fiel ield Dev evelo lopment Wel ell Con

• nstruction

Production Op Operations

geolo logic ical al & & pe petr tro-phys ysica ical l pr propertie ies inherent in the rock – permeability, oil viscosity, thickness of the oil bearing zone

𝑙ℎ 𝐻𝜈𝐶 ∆𝑞 𝐾𝐸

Comple letio tion– mathematically the radius of the well bore in relation to the oil bearing formation the he pr pressure re di differentia ial l between the reservoir & the well bore at the perforations

Science Driven Organizational Structure

Darcy’s Law incorporated into the E&P philosophy

𝑟 = 𝑙ℎ 𝐻𝜈𝐶 𝐾𝐸 ∆𝑞

Na Name Posi

• sition

Backgr ground An Andr drew ew Sp Spen encer er Head of Field Development Planning Ri Ritch chie Wayland Exploration Manager Ro Rober ert Glaser er Geologist Ama Amar Dosa

• sanjh

Geologist Ni Nick ck De’Ath Geologist Na Name Posi

• sition

Backgr ground Rom Roman Galchenko Completions Engineer Calvin Yao Reservoir Engineer Iskander er Diyashev ev Reservoir Engineer Na Name Posi

• sition

Backgr ground Mike Sto Stolte Operations Director Thom

• mas

Ru Rut Operations Director Paul Wood

• od

Group Operations Manager

9

JKX Ukraine Assets and Development Strategy

Protect base through enhancements, focus on Rudenkivske growth

Source: Company data, DeGolyer & MacNaughton

1.

• 1. Pr

Production Ba Base:

• Workovers at

‘Novo-Nik’

• Waterflood at

Ignativske

• Development of

Elyzavetivske 2.

• 2. Gro

rowth:

• Focus on

Rudenkivske license

201 016 6 Pro roducti tion Re Reserves and re resources, mm mmboe boepd 1P 1P 2P 2P 3C 3C Rudenkivske 120 9.5 22.2 381.8 Ignativske 1,364 2.8 3.9 50.1 Elyzavetivske 1,448 1.3 1.7 20.8 Movchanivske 651 0.5 0.6 2.8 Novomykolaivske 396 0.6 0.7 0.1 Zaplavska 1.4 Tota tal 3,9 ,979 14. 4.6 29. 9.1 457 57.0 .0

Elyzavetivske and West Mashivske Licenses ‘Novo-Nik’ Complex of Licenses 10

Sc Schemati tic dr drilli ling locat atio ions at t Ru Rudenkiv ivske field ld

• Concept: Modern drilling and

completions using North American-style manufacturing approach to production

• Resources: 2.8 Tcf in place, ~600

Bcf recoverable volumes

• 1-2% recovery (Ukraine est.)
• 25-50% recovery (US est.)
• Pro

roduction of ~18,000 boe/d (1 bcma) in 2020-2021

• Fie

Field Development Pla lan includes 135 wells with anticipated capex

• f ~$660mn

Rudenkivske Full Field Development (FFD)

Focus of our growth going forward

11

Rudenkivske Development Plan

De-risking by proving the concept using existing wells

• Pr

Preparation (20 2016-2017)

• New technical team and philosophy
• Field Development Plan (focus on Visean)
• Analysis of 32 mostly Soviet-era wells for re-

entry / workover

• 2 successful well workovers (NN16, NN47)
• Pr

Proof of f co conc ncept (20 2017)

• Re-enter and ‘Clean up’ up to 11 pre-selected
• ld wells
• Fracture stimulation of selected wells with

Schlumberger (Starting in May 2017)

• Use results to fine tune FFD
• Ful

Full Fie Field Dev evelopment

• Pad-based drilling of up to 135 wells to

decrease costs and minimize impact on environment

• Manufacture-style drilling, completion and

stimulation of vertical / deviated wells

Rudenkivske Novo Nik Ignatovskoye

12

Rudenkivske Analogues

Transferring success to Ukraine

• Williams Fork formation in Piceance Basin in

Colorado close analog for the Rudenkivske field

• The field was discovered in the 1970s but

abandoned due to economics until 1990s as application of multi-stage fracturing reduced costs

• Learning curve and advances in technology allowed

for 2x increases in recovery

• Cost reduction through adoption of manufacturing-

style approach to drilling and completion essential for economic development of the field

Parameter er Ru Rude denkivske, Dniep eper Donet

• nets basin

Williams-For

• rk, Pice

ceance e basin Utic tica, Ap Appa palach chian basin Deep epBossier er, Ea East Texas Basin Lance Poo

• ol,

Pined edale/ e/Jonah Fie Field, d, Gree een Ri River er Basin Gas saturation 55-80% 35-55% 40-65% 50-95% 65-75% Clay Content 10-20% 5-21% 20-40% 10-22% 10-15% Total Porosity 6-17% 6-8.5% 3-10% 5-14% 6-12% Permeability >0.1mD <0.1mD 0.0001mD <0.5mD <0.1mD Pressure (psi) 5600-8900 3000-7000 3100-8600 >10,000 3000-7800 Gross Thickness (metres) 300-800m 600-1000m 50-300m 300-760m 700-1000m+ Depth (metres) 3000-4500m 2000-3500m 600-4000m >5000m 2600-4400m Average IP rates 10 – 12MMscf/d 1 – 2MMscf/d 5 – 47MMscf/d 2 – 15MMscf/d 6 – 7.5MMscf/d Average EUR (per well) 4 – 5Bcf 1 – 2Bcf 2.5 – 5Bcf 5 – 7Bcf 4 – 9Bcf

Sources: Companies’ public data 13

• Full field development will start around well R104 (Mid-term)

and later graduate towards other areas (Full-field). R104 mid- case and type well mid-case production profiles and associated well economics are provided below

• Mid-term development wells are assumed to have higher

CAPEX ($5.7mn) which will be reduced to $4.5mn for full-field development wells with efficiency improvements

• Gas price of $5.7 / mmcf ($200 / mcm), 29% gas royalty rate,

and $2.5 / boe OPEX cost were used for economic evaluation

Rudenkivske Economics

Compelling returns with investment scale

Indicative monthly R 104 area well (Mid-term) and type well production profiles (log scale), boepd and cumulative, mboe Indicative pre-tax economics for mid-term and type well profiles

Mid-term rm Full-fi field Production unlocked, EUR15, mboe 687 716 30-day IP, boepd 2,496 551 1-year decline, %

• 85%
• 49%

Well cost, $mn 5.7 4.5 NPV10, $mn 6.1 5.2 IRR 234% 51% P/I 2.0 2.1 Simple payback, months 6 23 Discounted payback, months 7 26 Unit development cost, $ / boe of EUR 8.3 6.3 CAPEX per flowing barrel, $k / boepd 29.0 26.1 14

50 100 150 200 250 300 350 400 450 Base Case Rud Base Net tax liability G&A Net debt Rud Upside Russia Upside Unrisked NAV Current mkt cap $M $Mln

Hungary

EV EV Production $/ $/Flo lowing Barrel EV/2 V/2P+2C ($m) (kboe/d) (k$/kboe/d) ($/boe)

Eland Oil and Gas Nigeria

96.3 2.5 22.0 2.1

Exillon Energy Russia

198.8 13.7 16.8 0.4

Gulf Keystone Kurdistan

317.5 33.0 9.1 0.6

Petroneft Russia

27.5 1.4 16.2 0.5

Roxi Petroleum Kazakhstan

120.9 1.0 67.2 2.8

Urals Energy Russia

28.1 2.1 12.1 0.6

JKX KX Oi Oil l & & Gas as Ukraine/Russia

45.8 10.0 4. 4.1 0. 0.1

Av Average Av Average

23. 23.9 1. 1.2

Com

• mparing JKX to
• its Pe

Peers: Com

• mparing JKX Po

Potential to

• Curr

urrent Valu Valuation

• n:

JKX Valuation

One external view of absolute and relative potential

Source: Stockdale; Company research

Ukraine Russia

15

Appendix

Russia: Koshekhablskoye Field

Stable production provides cash flow with appraisal upside

• Producing gas field with 2P reserves of

490 Bcf of natural gas and 0.8 mn boe of

• il and condensate in Southern Russia.
• Current production of 37 mmcf/d (6,114

boepd) at ~60% of capacity utilization provides for lower incremental capital costs per well

• Callovian reservoirs in deeper horizons

provide significant long-term growth

• pportunities with gas recovery of 34-

43 bcf from a single well

Top

• p Oxfo

Oxfordian B Depth Structure Ma Map Callovi vian wel well loc location

17

Hajdúnánás IV MP 0.5-1.5 Bcf gas 1-2 MMboe oil Hajdúnánás V MP 5-7 Bcf prospect Tiszavasvári IV MP 20 Bcf appraisal 100-200 Bcf upside Emőd V MP (Mezo) 1-1.5 MMboe appraisal 5-10 MMboe expl upside Pély I MP 5-10 Bcf prospect Jászkisér II MP 4-7 Bcf prospect

• Six mining licenses (100% net) and processing facilities with 18 mmcf/d of capacity
• Production from Hn-2 well restarted after successful sidetrack at an initial rate of 1.8 MMcf/d

after a production and sales break of more than three years

• 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

Hungary: Sidetrack Result Highlights Opportunity

Recent Hn-2 well returns Hajdunanas field to production

18

• JKX owns 25% non operating working interest
• DiscoveryGeo (Operator) using Magneto

Telluric survey data to calibrate expensive but low resolution 2D seismic data

• The prospective resource sizes (up to 20

MMboe OOIP and 30 Bcf IGIP) are material

• Smilno -1 well

– Site under construction, Conductor driven, well spud expected in 2017 – 12 bcfe recoverable resource (mid case)

• Other wells Poruba -1 and Kriva Ol’ka -1 have

estimated EUR of 1.5 MMboe net to JKX

• Delays in permitting and activist

environmental protestors are delaying site construction

Slovakian Operations

Prospective resource enhancement through technology

19

New Board and Executive Management

Enhancing governance and driving an operational re-set

Name Pos

• sitio

ion Experience Paul Os Ostling Non-executive Chairman Independent Tom

• m

Ree eed CEO, Executive Director Russell Hoa Hoare CFO, Executive Director Ala Alan Bigm igman Non-executive Director Independent Ber ernie Sucher Non-executive Director Independent Vla Vladimir Tatarchuk Non-executive Director Vla Vladimir Rusinov Non-executive Director

RAVEN RUSSIA

20

Eclairs Group Ltd 27.5% Proxima Capital Group 19.9% Neptune Invest & Finance Corp 13.0% Keyhall Holding 11.4% Others 28.2%

Shareholder Structure

Sha hareholder Sha hare, % Bri Brief f info nformat ation Sha hareholding g since nce Eclairs Group Ltd 27.5% The beneficial owners of Eclairs are Ukrainian businessmen Igor Kolomoiskiy and Gennady Bogolyubov which have a wide range of business interests including, until recently, the Privatbank Group (one of Ukraine’s largest banking groups), ferrous and non-ferrous metals, media, aviation, petrochemicals etc. 2007 Proxima Capital Group 19.9% Proxima Capital Group is an independent investment firm focusing

• n investments in Russia, Ukraine and

the CIS. Proxima Capital Group offers M&A advice, fund raising and debt restructuring and also invests in assets and asset portfolios with a focus on Russia, Ukraine and CIS countries that are at an early stage of development and which will benefit from effective management and proven sector experience 2015 Neptune Invest & Finance Corp 13.0% Neptune, a Moscow-based investment fund, is beneficially-owned by Turkish businessman Burak Özdoğan 2015 Keyhall Holding 11.4% The sole beneficial owner of Keyhall is Mr Oleksandr Ratskevych who is a partner of Alexander Zhukov (who

• wned 11.4% of shares through

Glengary Overseas ltd since 2004) 2016 21