20th Mar 2007 07:01
JKX Oil & Gas PLC20 March 2007 JKX OIL & GAS 6 Cavendish Square, London W1G 0PD, England,UK Tel: +44 (0)20 7323 4464 Fax: +44 (0)20 7323 5258 Web site: http://www.jkx.co.uk FOR IMMEDIATE RELEASE 20 MARCH 2007 JKX Oil & Gas plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 Financial Highlights 2006 2005 % Increase Turnover $131.7m $82.9m 59% Profit before tax $109.2m $51.3m 113% Earnings per share (basic) 50.89 cents 25.15 cents 102% Net cash $81.1m $56.9m 43% Net cash from operating activities $75.6m $56.9m 33% Strategic Highlights - Strong operating and financial performance with record levels of production, oil and gas realisations, revenues and cash resources - High level of activity in Ukraine with two rigs operating - Soyuz tie-in approved and work commenced to tie-in JKX's production - Step up in exploration activity - 100 per cent increase in recommended full year dividend JKX Chief Executive, Dr Paul Davies, said: "We are pleased to have delivered astrong set of results which further underlines our operational expertise andstrong regional knowledge. We look forward to building upon our success,especially in Ukraine, and continuing to deliver strong shareholder returns." ENDS For further information please contact: Sofia Rehman / Anthony Cardew Cardew Group 020 7930 0777 CHAIRMAN'S STATEMENT I am pleased to report that the Company has continued to grow its oil and gasproduction in 2006 resulting in a substantial increase in both revenues andprofitability. Average daily production during the period rose by 20% to 11,146boepd (9,309 boepd), in spite of delivery constraints on our Ukrainian gasproduction. Oil and gas revenues rose by 59% in the period to $131.7 million ($82.9million).This reflects not only increases in production and the continued strength ofinternational oil prices but, significantly, a further 55% rise in domesticUkrainian gas prices over the period. Profit before tax more than doubled to$109.2million ($51.3million), with a healthy rise in operating cash flow to$75.6million ($56.9million). Profit after tax rose to $77.8million($37.2million). It should be noted that profit figures include the beneficialeffect of a $15.2m reversal of a portion of an impairment provision made in 1998against Ukrainian producing assets. Capital expenditure increased to$43.4million ($32.3million), with more than 85% expended in development of ourUkrainian assets. Cash resources at year end totalled $81.1million($56.9million). Our production base and focus of operations remain in Ukraine with a continuingcommitment to raise the level of our investment in the country by fullydeveloping the Company's current assets and broadening its licence portfolio. Ameasure of this commitment is the extent of the drilling programme completed in2006 where a total of 9 new wells were drilled and 5 well interventions/workovers completed on our four wholly owned production licences at Poltava. In addition to development wells, the Company drilled its first exploration wellin the third quarter on the Zaplavskoye exploration licence. The well did notencounter hydrocarbons but subsequent reprocessing of the data has indicated thewell may have been drilled off-structure. The Company was successful in theperiod in confirming its exclusive rights to existing wells on itsElizavetovskoye exploration licence and continues to seek agreement with thestate to acquire these production facilities. The Chervonoyarske Eastexploration license was formally awarded in a Ukrainian government auction inJanuary 2006 and existing seismic data was purchased and interpreted during theperiod. In Georgia, the Company retains its 4% net profit interest in its large BlackSea exploration licence, where Anadarko is operator and leader of theconsortium. We believe that the first well commitment is unlikely to be metbefore 2008. During the reporting period, the Company fulfilled its seismic commitment overtwo of the prospects identified in its B Golitza and B1 Golitza explorationlicences in eastern Bulgaria, and subsequently increased its interest to 50% tobecome operator. The Company has contracted a 2,000HP rig to spud a 4,900m wellon the B Golitza licence in the second quarter of 2007. The Company is participating in the three onshore exploration Karakiliselicenses in south eastern Turkey (JKX: 30%). During the period, the existing oildiscovery well was deepened, but failed to find oil in the lower horizons; a 2Dseismic shoot is planned for the second half of 2007 in the southern part of thelicence area. The Company added a third licence in the period to its existingtwo onshore exploration licences in Thrace (JKX: 25%); additional 2D seismicwill be shot in the second quarter of 2007 to firm up two promising leads with aview to identifying drilling targets for 2008. In Italy, the Company has continued during the period to develop its onshoreasset portfolio which includes the gas discovery at Aglavizza (JKX: 100%);exploration permits at Civita (JKX: 30%), Fiume Arrone (JKX: 10%), Montalbano(JKX: 40%); and an application for the Corropoli permit (JKX: 100%). We arecurrently considering options which would maximise value for our shareholdersfrom this modest, but attractive portfolio which contains assets in an area thatis considerable interest from a number of E&P companies. Dividend The Company paid an interim dividend of 1.0p per share on 6 November, 2006. I ampleased to report that the Board is recommending a final dividend of 1.2p whichwill be paid on 1 June to shareholders who are on the Company's Register ofMembers at the close of business on 10 April. This payment will bring the totaldividend for 2006 to 2.2p per share (1.1p per share), a 100% increase over 2005. Outlook For 2007, our operational priorities will continue to focus on the furtherdevelopment of all four production licenses at Poltava utilising our twocontracted drilling rigs. Drilling success coupled with the tie-in to the Soyuzgas trunkline should provide us with the capability to increase gas deliveriesin the fourth quarter of 2007. The second new Well R102 on the south of theRudenkovskoye Field is scheduled for completion in April 2007 and will provideus with an extensive data set from the logging and coring programme undertaken.Hydraulic fracture stimulation of our producing Well R101 in the north of thefield is scheduled for the second quarter of 2007 and will provide us with theinformation with which to formulate the best development plan for thistechnically challenging field. Spudding of our first exploration well on the B Golitza licence in Bulgaria isscheduled for April 2007 with a planned drilling duration of 120 days for the4,900m well. Further seismic reprocessing and/or acquisition work is alsoscheduled over both our Bulgarian and Turkish licences during the year. Our priorities for expansion of the Company's interests are acquisition ofdevelopment projects in Ukraine and Russia and farm-in to exploration projectsin eastern and central Europe. I trust that I will be able to announce progresson both of these fronts in the coming period. I would like to thank all members of staff for their contribution to the successof the Company and extend my appreciation to our shareholders for theircontinued interest and support. CHIEF EXECUTIVE'S STATEMENT The Company has delivered an encouraging increase in production with the drillbit through the period, and stepped up its efforts to add reserves andexploration prospects to its portfolio. Ukraine The Company's wholly owned subsidiary, Poltava Petroleum Company ("PPC"),continues as the largest domestic non-state producer of oil and gas, supplyingapproximately 5% of the Ukraine's oil and gas production during the period.Average daily oil production increased significantly by 37% to 4,889 bopd (3,561bopd). Average daily gas production rose by 9% to 38MMcfd (35MMcfd), in spite ofthe limitations imposed on the gas export capacity from our Poltava fields. Average realisations for oil in the period rose by 17% to $54.31 per barrel($46.43 per barrel). All oil was sold into the domestic market at a price whichtracks international prices but at an effective discount. We anticipate that ouroil will be sold into the domestic market throughout 2007. Average realisations for gas in the period rose by 55% to $2.83 per Mcf ($1.82per Mcf), with all gas being sold into the domestic market. Gas realisationsincreased to $4.00 per Mcf from the beginning of 2007, as a result of the yearend negotiations between Russia and Ukraine. We anticipate that gas prices willremain stable at this revised level through 2007, with a further rise at thebeginning of 2008. PPC concluded a one-year gas sales agreement with ShellEnergy Ukraine in August 2006 for supply of a minimum of 250 million cubicmetres (8.75 billion cubic feet) of gas for domestic delivery, with options toincrease the contracted volume and extend the contract term. The ongoing development drilling programme on our Poltava fields continued apacethroughout the reporting period. Ignatovskoye Field: Three new vertical wells (I124, I125, and I126) were drilledand successfully brought on-stream during the year. In addition, a re-entry andsidetrack was successfully completed on Well I101, a well originally drilled butnot brought on- stream in 1996 because of completion problems. Molchanovskoye Field: Five new wells (M153, M154, M155, M156 and M157) weredrilled in the northern area of the field during the year and successfullybrought on-stream. Production was achieved in both the targeted Tournaisian andDevonian sandstones and most encouragingly in the overlying Tournaisiancarbonates which are proving to be more productive than originally assessed. Novo-Nikolaevskoye Field: Well NN9 was re-entered during the period and a beampump installed to maintain production and maximise recovery. Rudenkovskoye Field: The first new Well R101 was drilled in the northern part ofthe field in 2005 and, as previously reported; drilling was halted at 4,579m dueto significantly higher than expected pressures. Two shallower intervals in theTournaisian sandstones were subsequently tested during the period with thesecond interval completed and placed on production in the fourth quarter. We nowplan to conduct a major hydraulic fracture stimulation treatment of thisinterval. The second new Well R102 was spudded at the end of the period in thesouthern area of the field, and is designed to gather an extensive data set fromthe logging and coring programme. Our production facilities at Poltava continued to be upgraded and expandedthroughout the period. Major items include the commissioning of a new 2,300hpcompressor, a 25,000 bbl expansion of our oil storage facilities andinstallation of more than 50 km of new flowlines. Gas export capacity from our Poltava licenses is constrained primarily by thecharacteristics of the state transmission line to which we connect and, to alesser extent, the capacity of our processing facilities. In the third quarter,PPC replaced the river crossing section of the state transmission linedownstream of our facilities with a 12inch line which increased PPC's maximumdelivery capacity to approximately 42 MMcfd. In the period, PPC received formalgovernment approval for tie-in of its production facilities to the 56inch Soyuzpipeline, one of the main gas trunkline systems delivering gas from Russia towestern Europe. The 5km spur to the PPC facilities is currently more than 80%complete with the hot tap into the Soyuz line scheduled for the first quarter of2007. The requisite metering skid, gas compressor and hydrocarbon dew pointcontrol plant are scheduled for delivery in mid 2007 to allow gas delivery viathe Soyuz line in the fourth quarter 2007. The success of the 2006 drillingprogramme has not fully translated into an equivalent increase in gas productionbecause pipeline delivery constraints have required PPC to shut-in a proportionof its gas production during the second half of the period. Completion of theSoyuz tie-in will effectively remove any capacity constraint to delivery of gasto market from our Poltava licences. The Company has continued to develop and expand its exploration and appraisallicence position in Ukraine. Zaplavskoye (JKX: 100%): The Company drilled its first exploration Well Z1 inthe third quarter on the 95.7 sq.km. Zaplavskoye exploration licence, which isadjacent to its four production licences at Poltava. The well did not encounterhydrocarbons but reprocessing and reinterpretation of the full set of 92km of 2Dseismic data over the licence using the data from Well Z1 has subsequentlyindicated that the well was drilled off-structure. A new drilling location forWell Z2 has been identified for 2007. Elizavetovskoye (JKX: 100%); The Company was successful in the period in haltingthe local state production company from producing gas from the 70 sq.km.Elizavetovskoye exploration licence. It continues to seek an agreement toacquire the existing infrastructure in order to re-commence production. Noexploration work will be undertaken on the licence until such an agreement hasbeen achieved. Chervonoyarske East (JKX: 100%): The Company was awarded this licence in thefirst quarter, following the first open auction of licences in Ukraine. TheCompany has purchased and interpreted the 110 km of 2D seismic and data from the6 wells drilled on the licence to date. The scope of further work will beestablished by the second half of 2007. Georgia Anadarko Petroleum has completed the processing and interpretation of the 1,100sq.km, 3D seismic survey over the southernmost block of the 8,900 sq kmexploration area of the Georgia Black Sea (JKX: 4% net profit interest). Apreferred location for the first exploration well has been identified. Timing ofthis well is dependent on the progress made to secure a suitable drillship in avery tight offshore rig market; we do not anticipate this to be earlier than2008. Anadarko is seeking additional farm-in partners to join the consortium. Bulgaria The Company farmed into two onshore exploration permits, B Golitza and B1Golitza, in the first quarter of 2005. The permits currently cover a total of4,171 sq. km. and contain two well defined prospects and a number of leads. TheCompany shot 200km of 2D seismic in the third quarter of 2005 to earn an initial25% interest in the permit and firm up the large prospect in the B Golitzapermit (with the potential to contain several hundred Bcf of gas), and thesmaller prospect in B1 Golitza (estimated to contain approximately 50 Bcf).Interpretation of the seismic data was completed during the period, and a welllocation chosen on the larger B Golitza prospect. The Company has exercised itsoption to increase its interest to 50% and become operator, and contracted a2,000HP rig from Romania to spud a 4,900m well in the second quarter of 2007. Turkey The Company farmed into three Karakilise onshore exploration licences, coveringa total of 1,230 sq km in south-eastern Turkey, in the second quarter of 2005(JKX: 30%). The licences contain an oil discovery well, Karakilise 1, and anumber of leads. During the reporting period, the oil discovery well, Karakilise1, was deepened by approximately 600m but failed to find oil in the deeperhorizons. Acquisition of 55km 2D seismic in the southern part of the licencearea is planned for the second half of 2007. The Company farmed into two onshore exploration licences in the Thrace region inthe fourth quarter of 2005. A third adjacent licence was added during the periodto bring the total licence area to 980 sq km. (JKX: 25%). The licences containtwo strong leads and additional seismic is planned for the second quarter of2007 to identify drilling targets for 2008. Italy In Italy, progress has been achieved in the development of our onshoreportfolio. The Company has applied for a production concession for its Aglavizzagas discovery (JKX: 100%), in cooperation with ENI with; first gas salesscheduled for early 2008. ENI retains its 70% interest and remains operator ofthe 277 sq.km. Civita exploration permit; we anticipate a decision by ENI on itsfuture plans/commitment to the block by mid-year 2007. The Company farmed downits interest in the 358 sq.km. Fiume Arrone exploration permit during thereporting period; the first exploration well is now planned for the secondquarter of 2007 (JKX: 10%). The operator of the 165sq.km. Montalbano permit(JKX: 40%), is undertaking the reprocessing of existing seismic data on theblock; we anticipate reprocessing and interpretation to be completed in thesecond quarter 2007. The Company is awaiting the award of an exploration permitfor the 176 sq.km. Corropoli block (JKX: 100%) in the eastern part of centralItaly. USA The performance of the three wells drilled to date on the Center Deep project ineast Texas (JKX: 34.4%) has been below expectations. There remain a number ofareas on the 11,290 acre Unit where it is believed that commercial producingwells could be drilled to the James Lime (the primary target in the Unit) or tothe underlying Travis Peak and Pettet formations. The Company has indicated tothe operator its preference for a 9,500 ft vertical well to be drilled this yearto test all three formations. The Company is continuing to examine its optionsfor this remaining interest in North America. Outlook Development drilling will continue throughout 2007 on all four productionlicences at Poltava, using the Skytop N75 and the Kremco 900 rigs. We expect gasproduction to increase in the fourth quarter with unrestricted gas delivery viathe Soyuz trunkline. The technical effort on our deep Rudenkovskoye Field willintensify with evaluation of the extensive logging and coring data beinggathered from Well R102 and the results of our first hydraulic fracturingprogramme on Well R101. We retain the option to mobilise the heavy duty rig(contracted for the Golitza well in Bulgaria) to Ukraine later in the year totest the very high pressure gas in the underlying Devonian formations on theRudenkovskoye Field. We are planning to continue the exploration programme in Ukraine with a secondwell on the Zaplavskoye licence and completion of the evaluation of theChervonoyarske East licence. We are actively evaluating other existing licencesand opportunities in the area and will seek to participate in any furtherUkrainian government auctions. The results from the first well on the B Golitza permit in Bulgaria arescheduled for the third quarter and will hopefully provide further encouragementfor our forward exploration programme in Bulgaria on several of the attractiveleads identified in our large licence area. We also anticipate that during thesecond half of the year the ongoing evaluation work in Turkey will establish thebasis for the 2008 drilling programme. Increasing our reserves and asset base remain our core objectives. We continueto be very active in evaluating potential onshore acquisitions in Ukraine andRussia with the goals of increasing our production and broadening our reservebase and expanding our exploration portfolio in eastern and central Europe. Iremain confident that we have the experience and knowledge with which to growthe Company in the coming year and to deliver value to our shareholders. Financial Review Production summary Second First Total half half Total 2006 2006 2006 2005 ProductionOil (Mbbl) 1,787 923 864 1,300Gas (Bcf) 13.7 7.3 6.4 12.6 Oil equivalent (Mboe) 4,068 2,138 1,930 3,398 Daily productionOil (bopd) 4,895 5,016 4,772 3,561Gas (MMcfd) 38 40 35 35 Oil equivalent (boepd) 11,146 11,620 10,664 9,309 Operating results Second First Total half half Total 2006 2006 2006 2005 $m $m $m $m RevenueOil 92.8 49.8 43.0 59.8Gas 37.7 20.8 16.9 22.4Other 1.2 0.5 0.7 0.7 131.7 71.1 60.6 82.9 Cost of salesOperating costs (17.4) (8.9) (8.5) (14.7)Depreciation, depletion and amortisation - oil and gas assets (14.3) (7.1) (7.2) (9.7)Production based taxes (2.7) (1.5) (1.2) (1.3) (34.4) (17.5) (16.9) (25.7) Reversal of impairment provision 15.2 - 15.2 -Total cost of sales (19.2) (17.5) (1.7) (25.7)Gross profit 112.5 53.6 58.9 57.2 Operating expensesGeneral and administrative expenses (6.7) (2.8) (3.9) (7.2) Operating profit 105.8 50.8 55.0 50.0 Earnings Second First Total half half Total 2006 2006 2006 2005 Net profit ($m) 77.8 34.5 43.3 37.3Net profit ($m) excluding reversal of impairment provision 62.6 34.5 28.1 37.3Basic weighted average number of shares in issue (m) 153 153 152 148Earnings per share (basic, cents) 50.89 22.51 28.38 25.15Earnings before interest, tax, depreciation and amortisation ($m) 106.2 58.6 47.6 60.4 Realisations Second First Total half half Total 2006 2006 2006 2005 Oil (per bbl) * $54.31 $56.43 $52.05 $46.43Gas (per Mcf) * $2.83 $2.95 $2.69 $1.82 *Oil and gas prices are net of all transportation, shrinkage and brokeragecharges. Cost of production ($/boe) Second First Total half half Total 2006 2006 2006 2005 Production costs $3.83 $3.35 $4.36 $4.34Depreciation, depletion and amortisation $3.52 $3.31 $3.74 $2.84Production based taxes $0.68 $0.72 $0.63 $0.38 Cash flow Second First Total half half Total 2006 2006 2006 2005 Cash generated from operations ($m) 98.7 53.4 45.3 69.3Operating cash flow per share (cents) 64.6 34.9 29.7 46.7 Balance sheet Second First Total half half Total 2006 2006 2006 2005 Net cash ($m) 81.1 81.1 66.9 56.9Net cash to equity (%) 37.1 37.1 35.5 38.4Return on average capital employed (%) 42.4 33.8 51.6 30.6Return on average capital employed (%) (excluding reversal of impairment provision) 35.6 35.1 35.0 30.6Capital expenditure ($m) 43.4 23.9 19.5 32.3 Un-Audited Group Income StatementFor the year ended 31 December Note 2006 2005 $000 $000 Revenue 3 131,692 82,883Cost of sales - excluding reversal of impairment provision (34,396) (25,686)Cost of sales - reversal of impairment provision 15,228 -Total cost of sales (19,168) (25,686)Gross profit 112,524 57,197General and administrative expenses (6,717) (7,166)Operating profit 105,807 50,031Finance income 3,380 2,036Finance cost - (772)Profit before tax 109,187 51,295Taxation 5 (31,431) (14,066)Profit for the year 77,756 37,229 Attributed to:JKX shareholders 77,756 37,301Minority interest - (72) 77,756 37,229Dividends (4,495) (2,162)Dividend (per share) 1.6 pence 0.8 pence Earnings per share - basic earnings per 10p ordinary 6 50.89 25.15 share (in cents) - diluted earnings per 10p ordinary share (in cents) 6 49.52 24.07 Un-Audited Statement of Recognised Income and ExpenseFor the year ended 31 December 2006 2005 $000 $000 Equity - foreign currency translation (3,089) (1,774) Net income/(expense) recognised directly in equity (3,089) (1,774)Profit for the year 77,756 37,229Total recognised income and expense for the year 74,667 35,455 Attributable to:JKX shareholders 74,667 35,527Minority interest - (72) 74,667 35,455 Un-Audited Group Balance SheetAs at 31 December Note 2006 2005 $000 $000AssetsNon-current assetsIntangible assets 23,432 19,869Property, plant and equipment 119,445 81,481Other receivables - 1,554Investments 5,000 - 147,877 102,904Current assetsInventories - finished goods 1,031 762Trade and other receivables 9,533 6,278Cash at bank and in hand 8 81,116 56,923 91,680 63,963LiabilitiesCurrent liabilitiesCurrent tax liabilities (2,001) (1,392)Trade and other payables (12,132) (13,795) (14,133) (15,187) Net current assets 77,547 48,776 Non-current liabilitiesProvisions (437) (590)Deferred tax (6,358) (2,784) (6,795) (3,374) Net assets 218,629 148,306 EquityShare capital 23,801 23,292Share premium 38,179 37,524Merger reserve 30,680 30,680Other reserves Capital redemption reserve 587 587 Equity - share options 2,132 400 Equity - foreign currency translation (4,364) (1,275)Retained earnings 127,614 57,098 Total shareholders' equity 218,629 148,306 These financial statements were approved by the Board of Directors on 20 March2007 and signed on its behalf by: Lord Fraser B J BurrowsDirector Director Un-Audited Group Cash Flow StatementFor the year ended 31 December Note 2006 2005 $000 $000Cash flows from operating activitiesCash generated from operations 7 98,693 69,335Interest received 2,706 1,588Interest paid - (865)Income tax paid (25,783) (13,180) Net cash from operating activities 75,616 56,878 Cash flows from investing activitiesProceeds from sale of property, plant and equipment 94 46Proceeds from sale of US assets 3,090 1,329Purchase of investment (5,000) -Short term loan advanced (200) -Purchase of property, plant and equipment and intangible assets (43,870) (34,208) Net cash used in investing activities (45,886) (32,833) Cash flows from financing activitiesProceeds from issue of shares 1,222 -Treasury shares purchased (2,784) (2,695)Share issue costs (18) (25)Dividends paid to shareholders (4,495) (2,162) Net cash used in financing activities (6,075) (4,882) Increase in cash and cash equivalents in the year 23,655 19,163Effect of exchange rates on cash and cash 538 (1,374)equivalentsCash and cash equivalents at 1 January 56,923 39,134 Cash and cash equivalents at 31 December 81,116 56,923 Accounting policies 1. Basis of preparation The financial information has been prepared on a basis consistent with thestructure of the Group at 31 December 2006. The Group's financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion. The unaudited financial information for the year ended 31 December 2006and the audited financial information for the year ended 31 December 2005contained in this document does not constitute statutory accounts as defined insection 240 of the Companies Act 1985. The financial information for the yearended 31 December 2006 and 31 December 2005 have been extracted from theunaudited financial statements of JKX Oil & Gas plc which will be delivered tothe Registrar of Companies in due course. 2. Ukrainian business environment Ukraine continues to display emerging market characteristics, and itslegislation and business practices regarding banking operations, foreigncurrency transactions and taxation is constantly evolving as the new governmentattempts to manage the economy. Risks inherent in conducting business in anemerging market economy include, but are not limited to, volatility in thefinancial markets and the general economy. Uncertainties over the development ofthe tax and legal environment, as well as difficulties associated with theconsistent interpretation and application of current laws and regulations, havecontinued. As at 31 December 2006, oil and gas assets based in Ukraine representapproximately 85% of the Group's oil and gas assets. The Group's operations and financial position may be affected by theseuncertainties. The Group's financial statements do not include any adjustmentsto reflect the possible future effects on the recoverability, and classificationof assets or the amounts or classifications of liabilities that may result fromthese uncertainties. 3. Revenue Revenue represents the fair value of the consideration received, excludingdiscounts, rebates, VAT and other sales taxes or duty for the Group's share ofoil and gas sales and related management services. Revenue related to sales of oil and gas products is recognised when thesignificant risks and rewards of ownership have passed to the buyer and revenuecan be reliably measured. Revenue relates to other services is recognised whenthe services have been performed. 4. Segmental analysis Segmental Information The primary segmental reporting format is determined to be the geographicalsegment according to the location of the asset. The directors consider the groupto have a single class of business, being the exploration for, development andproduction of oil and gas reserves. Accordingly no secondary segmentalinformation is presented. There are five geographic reporting segments. The Ukraine and USA are involvedwith production and exploration; Georgia and the 'Rest of World' are involved inexploration and the UK is the home of the head office. The 'Rest of the World'segment comprises operations in Italy, Bulgaria and Turkey. Transfer prices between segments are set on an arms length basis in a mannersimilar to transactions with third parties. Segment revenue, segment expense andsegment results include transfers between segments. Those transfers areeliminated on consolidation. 2006 UK Ukraine Georgia USA Rest Sub Eliminations Total $'000 $'000 $'000 $'000 of Total $'000 $'000 world $'000 $'000External revenue Turnover by location of assetOil - 92,725 - - 130 92,855 - 92,855Gas - 37,636 - 33 - 37,669 - 37,669Management services 352 816 - - - 1,168 - 1,168 352 131,177 - 33 130 131,692 - 131,692 Inter segmentrevenueOil - 58,125 - - - 58,125 (58,125) -Gas - - - - - - - -Management services 10,802 1,256 - - - 12,058 (12,058) -Equipment 20,672 - - - - 20,672 (20,672) - 31,474 59,381 - - - 90,855 (90,855) - Total revenueOil - 150,850 - - 130 150,980 (58,125) 92,855Gas - 37,636 - 33 - 37,669 - 37,669Management services 11,154 2,072 - - - 13,226 (12,058) 1,168Equipment 20,672 - - - - 20,672 (20,672) - 31,826 190,558 - 33 130 222,547 (90,855) 131,692 Reversal of impairmentprovision - 15,228 - - - 15,228 - 15,228 Operating profit/ (loss) (excludingreversal ofimpairmentprovision) (7,620) 95,704 - (195) (407) 87,482 3,097 90,579 Operating profit/ (loss) (7,620) 110,932 - (195) (407) 102,710 3,097 105,807Finance income 3,380 - 3,380Finance cost - - - Profit before tax 106,090 3,097 109,187 Assets andliabilitiesInvestments - 5,000 - - - 5,000 - 5,000Segment assets 3,573 127,175 5,878 5,374 11,441 153,441 - 153,441 Cash at bank and in hand 73,681 6,907 - 42 486 81,116 - 81,116 Total assets 77,254 139,082 5,878 5,416 11,927 239,557 - 239,557 Segment liabilities (6,555) (5,857) (2) (63) (92) (12,569) - (12,569) Current tax - (2,001) - - - (2,001) - (2,001)liabilities Deferred tax - (6,358) - - - (6,358) - (6,358) Total liabilities (6,555) (14,216) (2) (63) (92) (20,928) - (20,928) Non cash expense (other thandepreciation) 266 1,913 - - - 2,179 - 2,179Capital expenditure 231 40,255 108 145 2,644 43,383 - 43,383Depreciation, depletion &amortisation 153 15,428 - - - 15,581 - 15,581 2005 UK Ukraine Georgia USA Rest Sub Eliminations Total $'000 $'000 $'000 $'000 of Total $'000 $'000 world $'000 $'000External revenue Turnover by location of assetOil 10,022 49,806 - - - 59,828 - 59,828Gas - 22,335 - 79 - 22,414 - 22,414Management services 300 341 - - - 641 - 641 10,322 72,482 - 79 - 82,883 - 82,883 Inter segmentrevenueOil - 14,572 - - - 14,572 (14,572) -Gas - - - - - - - -Management services 8,827 1,089 - - - 9,916 (9,916) -Equipment 18,385 - - - - 18,385 (18,385) - 27,212 15,661 - - - 42,873 (42,873) - Total revenueOil 10,022 64,378 - - - 74,400 (14,572) 59,828Gas - 22,335 - 79 - 22,414 - 22,414Management services 9,127 1,430 - - - 10,557 (9,916) 641Equipment 18,385 - - - - 18,385 (18,385) - 37,534 88,143 - 79 - 125,756 (42,873) 82,883 Operating profit/ (loss) (7,847) 56,798 (94) (315) (409) 48,133 1,898 50,031Finance revenue 2,036 - 2,036 Finance cost (772) - (772) Profit before tax 49,397 1,898 51,295 Assets andliabilitiesSegment assets 5,555 86,512 5,771 5,236 3,763 106,837 - 106,837 Cash at bank and in hand 50,214 5,989 - 398 322 56,923 - 56,923 Loan notes - - - 3,107 - 3,107 - 3,107 Total assets 55,769 92,501 5,771 8,741 4,085 166,867 - 166,867 Segment liabilities (5,855) (8,373) (5) (70) (82) (14,385) - (14,385) Current tax liabilities - (1,392) - - - (1,392) - (1,392) Deferred tax - (2,784) - - - (2,784) - (2,784) Total liabilities (5,855) (12,549) (5) (70) (82) (18,561) - (18,561) Non cash expense (other thandepreciation) 273 - - - 37 310 - 310Capital expenditure 2,747 28,603 229 201 539 32,319 - 32,319Depreciation, depletion &amortisation 102 10,226 2 - - 10,330 - 10,330 Turnover by location of asset includes oil sales of $10.022m, which representsoil exported from Poltava Petroleum Company in Ukraine to the UK for sale tothird parties. 2006 USA Rest of UK Ukraine Georgia world Total $'000 $'000 $'000 $'000 $'000 $'000 Turnover by location of customerExternal revenueOil - 92,725 - - 130 92,855Gas - 37,636 - 33 - 37,669Management services - 816 352 - - 1,168 - 131,177 352 33 130 131,692 2005 USA Rest of UK Ukraine Georgia world Total $'000 $'000 $'000 $'000 $'000 $'000 Turnover by location of customerExternal revenueOil - 49,806 - - 10,022 59,828Gas - 22,335 - 79 - 22,414Management services - 341 300 - - 641 - 72,482 300 79 10,022 82,883 5. Taxation Taxes charged on production of hydrocarbons are included in the cost of sales. Analysis of tax on profit on ordinary activities. 2006 2005 $000 $000Current tax UK - prior year 1,468 - Overseas - current year 26,650 12,800 Overseas - prior year (260) -Deferred tax Overseas - current year 3,890 1,266 Overseas - prior year (317) - 31,431 14,066 Total tax reconciliation The total tax charge for the year of $31.4m (2005: $14.1m) is lower than thestandard rate of UK corporation tax of 30% (2005: 30%). The differences areexplained below: Total tax reconciliation 2006 2006 2005 2005 $000 % $000 % Profit on ordinary activities before tax 109,187 51,295Total tax calculated at 30% (2005: 30%) 32,756 30.0% 15,389 30.0%Fixed asset differences (136) -0.1% 31 0.1%Net increase in unrecognised losses carried forward 4,348 4.0% 1,967 3.8%Other temporary differences not recognised (3,275) -3.0% (2,225) -4.3%Permanent foreign exchange differences - 0.0% 16 0.0%Effect of tax rates in foreign jurisdictions (3,967) -3.6% (2,699) -5.3%Withholding tax suffered for which foreign tax credits notrecognised 2,165 2.0% - 0.0%Other non-deductible expenses (1,352) -1.2% 1,587 3.1%Adjustment relating to prior periods 892 0.8% - 0.0% Total tax charge 31,431 28.8% 14,066 27.4% Factors that may affect future tax charges A significant proportion of the group's income will be generated overseas.Profits made overseas will not be able to be offset by costs elsewhere in thegroup. This could lead to a higher than expected tax rate for the group. 6. Earnings per share The calculation of the basic and diluted earnings per share attributable to theordinary equity holders is based on the following data: Earnings 2006 2005 $000 $000Earnings for the purposes of basic earnings per share 77,756 37,301(profit for the year attributable to equityholders)Effect of dilutive potential ordinary shares:Interest on convertible loan notes (net of tax) - 506Earnings for the purposes of diluted earnings per share 77,756 37,807 Number of shares 2006 2005Basic weighted average number of shares 152,802,322 148,340,576Dilutive potential ordinary shares:Convertible loan notes - 3,314,693Share options 4,216,333 5,423,236 Weighted average number of shares for diluted earnings per share 157,018,655 157,078,505 There were 3,629,531 (2005: 6,246,531) outstanding share options at 31 December2006, of which all (2005: 5,423,236) have a dilutive effect. During the periodthere were no antidilutive instruments (2005: nil). 7. Reconciliation of operating profit to net cash inflow from operations 2006 2005 $000 $000 Operating profit 105,807 50,031Depreciation, depletion and amortisation 15,581 10,330Reversal of impairment provision (15,228) -Unwinding of discount on decommissioning (16) 47Disposal of property, plant and equipment/intangible assets 1,829 424Share-based payment costs 266 229Exchange differences (2,689) (695)(Increase)/ Decrease in operating debtors (5,277) 7,652(Decrease)/Increase in operating creditors (1,311) 1,885Increase in inventory (269) (568) Cash generated from operations 98,693 69,335 8. Cash and cash equivalents 2006 2005 $000 $000 Cash 981 2,772Short term deposits 80,135 54,151 Cash and cash equivalents 81,116 56,923 Glossary Mcf Thousand cubic feetMcfd Thousand cubic feet per dayBcf Billion cubic feetcfpd Cubic feet per dayMMcf Million cubic feetMMcfd Million cubic feet per dayMbbl Thousand barrelsMMbbl Million barrelsbbl Barrelbopd Barrel of oil per dayboe Barrel of oil equivalentMboe Thousand barrels of oil equivalentMMboe Million barrels of oil equivalentboepd Barrel of oil equivalent per daysq.km Square Kilometre$ United States DollarsLIBOR London InterBank Offered RateUS United StatesHryvna The lawful currency of Ukraine Conversion factors6,000 standard cubic feet of gas = 1 boe We welcome visits to our websitewww.jkx.co.uk This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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