19th Mar 2008 07:00
JKX Oil & Gas PLC19 March 2008 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 19 MARCH 2008 JKX Oil & Gas plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 Results Highlights __________________ 2007 2006 % Change Production boepd 12,579 11,146 +13% Realised oil price (per barrel) $60.37 $54.31 +11% Realised gas price (per Mcf) $3.95 $2.83 +40% Turnover $184.5m $131.7m +40% Profit before tax $113.3m $109.2m +4% Earnings per share (basic) 47.97 cents 50.89 cents -6% Net cash from operating activities $119.9m $75.6m +59% Strategic Highlights ____________________ - Strong operating and financial performance with increased levels of production, oil and gas realisations and revenues - High level of activity in Ukraine with 13 new wells drilled and / or completed for production - Acquisition of first gas development asset in Russia resulting in a 72% increase in proven plus probable oil and gas reserves - 100 per cent increase in recommended full year dividend JKX Chief Executive, Dr Paul Davies, said: "We are delighted to report anotheryear of commercial and operating success. In addition to delivering a strong setof financial results, this year has seen significant progress in the broadeningof our development portfolio with our timely entry into the Russian gas market.We anticipate significant operational developments in each of our core areas:Ukraine, Russia and our expanding central European exploration portfolio, withparticular emphasis on initiating commercial gas production in Russia andcompleting the Soyuz tie-in in Ukraine. We look forward to building upon oursuccess and continuing to deliver long term growth to our shareholders." ENDS For further information please contact: Sofia Rehman / Anthony Cardew Cardew Group 020 7930 0777 CHAIRMAN'S STATEMENT I am pleased to report on another successful year for your Company. Oil and gasrevenues and profits have continued to grow in 2007 with average dailyproduction from our core Ukrainian production licences rising by 13% to 12,579boepd (11,137 boepd). The Company acquired its first development asset in Russiain the fourth quarter of the period and is scheduled to recommence gasproduction from the field this year. Oil and gas revenues rose by 39% in the period to $181.9 million ($130.5million), reflecting: production increases, an 11% rise in average oilrealisations and a 40% rise in domestic Ukrainian gas prices over the period.Profit before tax of $113.3 million ($109.2 million) represents a modestincrease of 4%. However, this figure for 2007 includes $17.7 million of impairedand written off exploration costs, whilst the 2006 comparative figure includesthe net $13.5 million beneficial effect relating to impairment ($15.2m reversaland $1.7m charge). Excluding the effect of the 2007 net impairment charge andthe 2006 reversal, the underlying profit before tax for the period is $131.0million ($95.7 million) an increase of 37% and is consistent with the rise inrevenue. Gross fixed assets increased by $147.9 million ($43.4 million), with$64.8 million expended in development of our Ukrainian assets and $67.8millionattributed to acquisition of our Russian production company, Yuzhgazenergie, andinitiation of redevelopment. Cash resources at year end totalled $68.1 million($81.1million). The pace of development on our existing production licences in Ukraine increasedduring the period with 13 new wells drilled and/or completed for production. TheCompany remains committed to broadening its portfolio of both development andexploration licences in Ukraine and is actively seeking attractive assets toacquire. I am pleased to report that the business environment in Ukrainecontinues to improve with little if any impact on our operations from theconsiderable level of political activity over the period. I remain confidentthat our stable working environment will continue through 2008. I am delighted that the Company has successfully identified and acquired itsfirst gas development asset in Russia during the period. The Company iscurrently in the process of upgrading the field facilities and mobilising adrilling rig into Russia in order to commence well workover operations. Firstgas from the Koshehalbskoye Field is scheduled for mid 2008. The Company isseeking further acquisitions of gas assets in southern Russia, subject to acontinuation of the current domestic investment climate. The Company's exploration activities in the period comprised seismic acquisitionin Ukraine and Turkey, and drilling a deep well on its Golitza licence inBulgaria (JKX: 50%). Although our first Bulgarian well was dry, we areproceeding with our partner to identify shallower prospects on our extensiveexploration acreage in 2008. The Company is broadening its exploration portfolio in central and easternEurope, and Turkey. The Company announced in December that it had: farmed intothe two Hernad exploration licences in Hungary (JKX: 50%) and, immediatelyfollowing the end of the reporting period, the farm-in to the two South EastBismil licences in south east Turkey (JKX: 20%). I anticipate furtherexploration farm-ins by the Company in central and eastern Europe during 2008. Since the end of the reporting period, the Company has disposed of its non-coreItalian exploration portfolio (including the Aglavizza gas discovery) toMediterranean Oil and Gas, and is continuing to seek an exit from its remainingNorth America exploration asset. HSEC The Company is expanding its programmes on Health, Safety, EnvironmentalProtection and Community Liaison (HSEC) in all group companies, and is committedto achieving OHSAS 18001 accreditation for the HSEC management system, and ISO14001 accreditation for the Environmental Management System. The Company hasalso introduced Benchmarking Initiatives to provide assurance and to ensurecontinuous improvement in its operations. Jack Lee was appointed in the firstquarter of the reporting period as Group HSEC Manager, reporting to the ChiefExecutive, and I am conscious of the benefit the Company is deriving from his 25years of experience in the field. During the period, we have also set in place a Carbon Management Plan which hasbeen lodged and approved by the Carbon Trust. Board Changes The Company announced the appointment of Nigel Moore as Non-executive Director,and Peter Dixon and Martin Miller as Executive Directors in the middle of theperiod. I am delighted that we have been able to strengthen our Board at a timeof rapid growth in our business and we intend to make further non-executiveappointments in the current period. Dividend The Company paid an interim dividend of 2.0p per share on 5 November, 2007. I ampleased to report that the Board is recommending a final dividend of 2.4p whichwill be paid on 30th May to shareholders who are on the Company's Register ofMembers at the close of business on 11th April. This payment will bring thetotal dividend for 2007 to 4.4p per share (2.2p per share), a 100% increase over2006. Outlook The Company's priorities for 2008 are the accelerated development of itsproduction licences in Ukraine, and the initiation of gas production from itsnew production licence in Russia. The broadening of our exploration portfolio isfocussed on replacement of produced reserves. Notwithstanding the ongoing reserve review of our Ukrainian production licences,I anticipate further material increase of reserves to result from continuingacquisitions, utilising the Company's healthy balance sheet and strong cashflow. I trust that I will be able to announce progress on these fronts over inthe coming year. The Company's performance owes much to the dedication of its professional staffwhose commitment to the Company's goals drive the implementation of ourcorporate strategy. The vast majority of our workforce is located overseas,mainly in Ukraine but also now in Russia. I would like to thank all members ofstaff for their contribution to the success of the Company. Finally, I extend myappreciation to the shareholders of the Company for their continued interest andsupport. CHIEF EXECUTIVE'S STATEMENT 2007 marked a year of significant strategic and operational progress for JKX.This year's achievements have served to underline the specialist knowledge,focus and expertise that JKX has successfully acquired during its years ofactivity in its core region. The Company has increased production from its coreUkrainian production licences, acquired a second operational hub in southernRussia, and broadened its exploration portfolio in eastern/central Europe andTurkey. The Russian acquisition resulted in 36.5 million barrels of oilequivalent of proven plus probable reserves being added to the Group reserves,representing approximately 50% of the Group reserves as at 31 December 2007. Ukraine The Company's wholly owned subsidiary, Poltava Petroleum Company ("PPC"),continues as the largest domestic non-state producer of oil and gas, supplyingapproximately 3% of the Ukraine's oil and gas production during the period.Average daily oil production increased by 13% to 5,539 bopd (4,889 bopd).Average daily gas production rose by 13% to 42.3 MMcfd (37.5 MMcfd), the maximumlevel possible under the limitations of the current gas export capacity from ourPoltava fields. Average realisations for oil in the period rose by 11% to $60.37 per barrel($54.31 per barrel). All oil was sold into the domestic market at a price whichtracks international prices but at an effective discount. Average realisations for gas in the period rose by 40% to $3.95 per Mcf ($2.83per Mcf), with all gas being sold into the domestic market. Gas realisationshave again increased from the beginning of 2008 to in excess of $5.00 per Mcf,as a result of the year end negotiations between Russia and Ukraine. We believethat gas prices could rise again during 2008, with a further increaseanticipated at the beginning of 2009. PPC continued to sell approximately 60% ofits gas production to Shell throughout the period. The ongoing drilling programme on our Poltava fields comprised both developmentand appraisal in and around our four production licences throughout thereporting period. Most encouragingly, fifty per cent of our new wells in theperiod were completed successfully, targeting new productive structures to thewest and east of the Ignatovskoye and Molchanovskoye Fields respectively. Ignatovskoye Field: During the period, three new deviated development wells(I127, I128, and I129) were drilled and successfully brought on-stream. Inaddition, two new vertical appraisal wells (I130, I131) were drilled as part ofthe programme of evaluation of the extent of the Tournasian carbonate extensionto the north of the Molchanovskoye Field; both of these wells are awaiting acidstimulation. A third deviated appraisal well (I133) was completed shortly afterthe end of the period and brought on-stream. Molchanovskoye Field: During the period, two new vertical development wells(M157, M158) and one new vertical development well (M205) were drilled and/orcompleted in the northern and southern areas of the field respectively andsuccessfully brought on-stream. In addition, two vertical and one deviatedappraisal wells (M160, M161 and M162) confirmed production in the Tournasiancarbonate extension in an additional fault block to the north of theMolchanovskoye Field and were successfully brought on-stream. Novo-Nikolaevskoye Field: No additional drilling or workover activity wasundertaken on the field during the period, although negotiations continue withthe state oil and gas company on acquiring a shut-in well drilled in the 1980'son our licence area. The main focus of activity in 2008 will be more detailedexamination of the Visean sandstone channel sands along with a study of thepotential in both the underlying Tournasian and Devonian reservoirs. Rudenkovskoye Field: The second new Well R102 was drilled in the southern areaof the field and successfully tied back to the central production facilities inthe second quarter of the period. An extensive data set from the logging andcoring programme was gathered and is being used in the ongoing evaluation ofwell stimulation techniques to be utilised for the full field development. Inthe third quarter of the period, an initial hydraulic fracture stimulation testwas undertaken on one of the gas bearing sandstone intervals of Well R101, thefirst new well drilled in the northern part of the field in 2005. Although theresults were inconclusive, extended pressure tests on the well are feeding intothe ongoing fracture studies. It is intended to apply a range of fracturingtechniques to all three of the Rudenkovskoye wells (R12, R101and R102) duringthe third quarter of this year. Production facilities at Poltava have been upgraded and expanded during theperiod; major items include a new low pressure manifold, a new inlet separatorand upgraded flare controls. Delivery of additional facilities and constructionassociated with the tie-in to the 56 inch Soyuz pipeline has been ongoingthroughout the reporting period including: execution of the hot tap into theSoyuz line; construction of the spur line to the PPC facilities; and deliveryand installation of both the additional dew point control plant and theadditional 2,220 hp compressor. Delays have been experienced with the deliveryof the bespoke metering skid, due in part to the extended approval cycle of itsfinal specification by the regulatory authorities and the lead times beingexperienced for sophisticated oilfield control equipment. Delivery of themetering skid is currently scheduled for the second quarter of the year, withtie-in and commissioning due for completion in the third quarter. Delivery ofgas via the Soyuz tie-in will remove any capacity constraint to gas productionfrom our Poltava licences. The Company is committed to developing and expanding its exploration andappraisal licence portfolio in Ukraine. Zaplavskoye (JKX: 100%): The first exploration Well Z1 on the 95.7sq.kmZaplavskoye exploration licence was drilled in 2006 and reprocessing andreinterpretation of the 92km of 2D seismic data, incorporating the well data,showed the well was drilled off-structure. An additional two lines totalling16km of 2D seismic were shot in the first quarter of the period, and theprocessed data have been assimilated into the data set to determine the locationfor the second exploration well which is planned to spud in the second quarterof 2008. In addition, a second lead, has been identified in the western part ofthe exploration licence and, depending on further seismic reprocessing andevaluation, could lead to an exploration well later this year. Elizavetovskoye (JKX: 100%); The Company continues to seek an agreement with thestate oil and gas company to acquire the existing infrastructure in order tore-commence production. No exploration work will be undertaken on the 70 sq kmlicence until such an agreement has been achieved. Chervonoyarske East (JKX: 100%): The Company was awarded this 5.5 sq km licencein 2006, following the first open auction of licences in Ukraine. The Companypurchased and interpreted 110 km of 2D seismic and data from the 6 wells drilledon the licence to date, and has shot and processed 12 km of additional 2Dseismic during the period. The Company is currently acquiring 42 sq km of 3Dseismic data to aid identification of prospects for possible drilling in 2009. Russia In the fourth quarter of the period, the Company completed its $50 millionacquisition of the Koshekhablskoye Gas Field, located in the southern Russianrepublic of Adygea. The Company has added approximately 36 million boe to itsbooked 2P reserves, based on the estimates of the independent consultants,Miller and Lents. Since acquisition, the Company has been undertaking thenecessary work required to bring the Field back on-stream. Major activitiescompleted to date include: initiation of a 105 sq km seismic programme;specification and award of required field refurbishment contracts; award of therig contract for up to ten workovers of shut-in wells; specification andsourcing of replacement gas treatment facilities; and implementation of acorporate development plan for our wholly owned Russian subsidiary,Yuzhgazenergie ("YGE"). I anticipate our Russian staff to grow from 20 personneltoday to approximately 90 personnel by the end of the year. YGE remains onschedule to return the field to production in 2008. Georgia Anadarko is the operator of the consortium holding the 8,900 sq.km explorationlicence, offshore Georgia (JKX: 4% net profit interest). Following extensiveseismic and geological data acquisition, a preferred location for the firstexploration well has been identified. This commitment well is dependent onAnadarko attracting additional farm-in partners, following the recent withdrawalof BP and Chevron from the consortium, and securing a suitable drilling rig. Weremain committed to this frontier project but, recognising the passage of time,we have decided to provide fully for all our capitalised costs of the project todate. Bulgaria The Company operates the onshore exploration permits, B Golitza and B1 Golitza(JKX: 50%) covering a total of 3,499 sq.km. During the reporting period, Well R1was drilled to a depth of 4,522m on the B Golitza permit and subsequentlyplugged and abandoned as a dry hole. Evaluation of the licences continues withexploration now focusing on gas bearing structures in the coastal Tertiary Basinand the definition of prospects north west of the Well R1 location. Additional3D seismic acquisition is scheduled for the third quarter of 2008 to supplementthe existing 2D seismic data over the Tertiary Basin area. Turkey The Company is participating in the three Karakilise onshore explorationlicences, covering a total of 1,230 sq km in south-eastern Turkey (JKX: 30%).During the period, 60 km of 2D seismic was acquired and processed over two leadsin the southern part of the licence area. An exploration well on one of theprospects is scheduled for the second quarter of 2008. The Company is participating in three onshore exploration licences in Thrace(JKX: 25%) comprising an area of 980 sq km. During the period, an additional 110km of 2D seismic was acquired over a lead previously identified by theOperator. Following processing and interpretation, the Company concluded thatthe prospect has limited potential and has decided to relinquish its interest inthe licences. The Company announced on the 10 January 2008 that it had farmed into twoexploration licences comprising 590 sq km in the South East Bismil area of SouthEast Turkey (JKX: 20%). The licences are situated immediately south of thelargest oilfield in Turkey, Bati Raman. Currently, an additional 120 km of 2Dseismic is being acquired over the licences and drilling has commenced on WellKoyunlu 2, an appraisal to the oil discovery Well Koyunlu 1 drilled in 2006. Hungary The Company announced at the end of the reporting period that it had farmed intotwo exploration licences, Hernad I and Hernad II, covering a total of 5,420 sqkm in the north Pannonian Basin (JKX: 50%). A 350 sq km 3D seismic acquisitionprogramme has recently been completed over the licences, and is currently beingprocessed and interpreted to identify the first drilling prospect for spuddingin the third quarter of this year. Italy In line with our stated strategy of disposing of non-core assets the Companyagreed the sale of its Italian portfolio of exploration assets, including theAglavizza gas discovery, to Mediterranean Oil & Gas plc on 22 February 2008. Theagreed consideration of 2 million euros was received at contract completion on27 February 2008. USA The Company has been investigating options for disposing of its interest in the11,290 acre Center Deep project in east Texas (JKX: 34.4%), its only remainingasset in the USA. However, the Company was informed at the end of the reportingperiod that Newfield Exploration has acquired the interests of the previousoperator, Rosetta Energy, and is considering an exploration well through theJames Lime (the primary target in the Unit) to the underlying Travis Peak andPettet formations. The Company has for some time indicated its preference for avertical well to be drilled to test all of these three formations. The Companyis evaluating the merits of the new operator's proposals before moving forwardwith disposal options. Outlook The Company is embarking on its busiest year to date with significantdevelopment drilling programmes scheduled for Ukraine and Russia plusexploration programmes in Ukraine, Hungary, Bulgaria and Turkey. The continuing development of our four Poltava production licences will includefurther appraisal and exploitation of the encouraging Tournasian Carbonate fieldextensions we are delineating over our licence areas. We expect gas productionto increase in the second half of the year with unrestricted gas delivery viathe Soyuz trunkline. The fracturing programme scheduled for the third quarter onour deep Rudenkovskoye Field is targeted at identifying a well stimulationtechnique which can facilitate a full and cost effective development of thefield. I am also hopeful that the wells planned in the second half of the yearon our Zaplavskoye exploration licence will enhance further the productivity weenjoy at our core production hub. The recommencement of gas production at our recently acquired RussianKoshekhablskoye Field will establish a second production hub for the Company andis a key milestone for 2008. Plant replacement and well workovers are the majorfield activities throughout the year, with a new deeper well to appraise theunderlying productive horizon scheduled for the turn of the year. I anticipatethat gas realisations in Russia will follow the trend set in Ukraine with gasprices increasing annually at a rate of 15% to 25% until a European netbackprice is reached in 2011/2012. Most encouragingly, we are continuing to receiveexpression of interest from additional industrial gas users in the region topurchase our forthcoming production. Acquisition of additional development assets to increase our reserve baseremains our priority with Ukraine and European Russia being the two main areasof evaluation. Exploration activity is increasing in the current period as webroaden our portfolio, and I am hopeful that we will be able to add furtherfarm-ins in eastern/central Europe during the coming months. The focus and commitment of the staff of the Company remain the key factor inachieving our goals and delivering value to our shareholders, and I am confidentthat this will continue through 2008. Financial Review Production summary Second First Total half half Total 2007 2007 2007 2006 _______________________________________________________________________________________ProductionOil (Mbbl) 2,022 971 1,051 1,787Gas (Bcf) 15.4 7.6 7.8 13.7_______________________________________________________________________________________Oil equivalent (Mboe) 4,591 2,236 2,355 4,068_______________________________________________________________________________________Daily productionOil (bopd) 5,539 5,277 5,807 4,895Gas (MMcfd) 42 41 43 38_______________________________________________________________________________________Oil equivalent (boepd) 12,579 12,152 13,008 11,146_______________________________________________________________________________________ Second First Total half half TotalOperating results 2007 2007 2007 2006 $m $m $m $m_______________________________________________________________________________________ RevenueOil 122.5 68.1 54.4 92.8Gas 59.4 29.8 29.6 37.7Other 2.6 1.9 0.7 1.2_______________________________________________________________________________________ 184.5 99.8 84.7 131.7_______________________________________________________________________________________Cost of salesOperating costs (18.4) (8.4) (10.0) (15.6)Depreciation, depletion and amortisation - (19.1) (10.5) (8.6) (14.3)oil and gas assetsProduction based taxes (3.3) (1.6) (1.7) (2.7)_______________________________________________________________________________________ (40.8) (20.5) (20.3) (32.6)Provision for impairment/write off of exploration costs (17.7) (17.5) (0.2) (1.8)Reversal of impairment provision - - - 15.2_______________________________________________________________________________________Total cost of sales (58.5) (38.0) (20.5) (19.2)_______________________________________________________________________________________Gross profit 126.0 61.8 64.2 112.5_______________________________________________________________________________________Operating expensesGeneral and administrative expenses (12.4) (6.7) (5.7) (6.7)Impairment of investment (5.0) - (5.0) -_______________________________________________________________________________________Operating profit 108.6 55.1 53.5 105.8_______________________________________________________________________________________ Earnings Second First Total half half Total 2007 2007 2007 2006 ______________________________________________________________________________________ Net profit ($m) 74.4 36.7 37.7 77.8Net profit ($m) excluding reversal of 74.4 36.7 37.7 62.6impairment provisionBasic weighted average number of shares in issue (m) 155 155 154 153Earnings per share (basic, cents) 47.97 23.57 24.40 50.89Earnings before interest, tax, depreciation and amortisation ($m) 129.4 66.5 62.9 106.2______________________________________________________________________________________ Realisations Second First Total half half Total 2007 2007 2007 2006 ______________________________________________________________________________________Oil (per bbl) * $60.37 $70.40 $51.22 $54.31Gas (per Mcf) * $3.95 $4.00 $3.90 $2.83______________________________________________________________________________________ *Oil and gas prices are net of all transportation, shrinkage and brokeragecharges. Cost of production ($/boe) Second First Total half half Total 2007 2007 2007 2006 ______________________________________________________________________________________Production costs $4.01 $3.76 $4.26 $3.83Depreciation, depletion and amortisation $4.16 $4.69 $3.66 $3.52Production based taxes $0.72 $0.73 $0.72 $0.68______________________________________________________________________________________ Cash flow Second First Total half half Total 2007 2007 2007 2006______________________________________________________________________________________Cash generated from operations ($m) 153.5 83.0 70.5 98.7Operating cash flow per share (cents) 98.9 53.5 45.7 64.6______________________________________________________________________________________ Balance sheet Second First Total half half Total 2007 2007 2007 2006 ______________________________________________________________________________________ Net cash ($m) 68.1 68.1 100.3 81.1Net cash to equity (%) 23.8 23.8 39.7 37.1Return on average capital employed (%) 29.5 27.3 31.9 42.4Return on average capital employed (%) (excluding reversal of impairment provision) N/A N/A N/A 35.6 Increase in property, plant and equipment/intangible assets ($m)Ukraine 64.8 34.0 30.8 40.3Russia 67.8 67.8 - -Other 15.3 10.2 5.1 3.1______________________________________________________________________________________ Total 147.9 112.0 35.9 43.4______________________________________________________________________________________ Un-Audited Group Income StatementFor the year ended 31 December Note 2007 2006 $000 $000______________________________________________________________________________________Revenue 3 184,509 131,692Cost of salesOperating costs - excluding impairment/write off of exploration costs 5 (40,839) (32,633)Provision for impairment/write off of exploration costs 5 (17,694) (1,763)Reversal of impairment provision 5 - 15,228______________________________________________________________________________________Total cost of sales 5 (58,533) (19,168)______________________________________________________________________________________ Gross profit 125,976 112,524General and administrative expenses (12,386) (6,717)Impairment of investment (5,000) -______________________________________________________________________________________Operating profit 108,590 105,807Finance income 4,761 3,380Finance cost (50) -______________________________________________________________________________________Profit before tax 113,301 109,187Taxation 6 (38,892) (31,431)______________________________________________________________________________________Profit for the year 74,409 77,756______________________________________________________________________________________ Earnings per share - basic earnings per 10p ordinary share (in cents) 7 47.97 50.89- diluted earnings per 10p ordinary share (in cents) 7 46.79 49.52______________________________________________________________________________________Dividends (10,032) (4,495)Dividend (per share) 3.2 pence 1.6 pence______________________________________________________________________________________ Un-Audited Statement of Recognised Income and ExpenseFor the year ended 31 December 2007 2006 $000 $000______________________________________________________________________________________Equity - foreign currency translation 517 (3,089)______________________________________________________________________________________Net income/(expense) recognised directly in equity 517 (3,089)Profit for the year 74,409 77,756______________________________________________________________________________________Total recognised income and expense for the year 74,926 74,667______________________________________________________________________________________ Un-Audited Group Balance SheetAs at 31 December Note 2007 2006 $000 $000______________________________________________________________________________________AssetsNon-current assetsProperty, plant and equipment 232,241 119,445Intangible assets 18,423 23,432Goodwill 2,716 -Investments - 5,000______________________________________________________________________________________ 253,380 147,877______________________________________________________________________________________Current assetsInventories - finished goods 1,391 1,031Trade and other receivables 10,380 9,533Cash at bank and in hand 9 68,126 81,116______________________________________________________________________________________ 79,897 91,680Assets classified as held for sale 3,051 -______________________________________________________________________________________ 82,948 91,680______________________________________________________________________________________Total assets 336,328 239,557______________________________________________________________________________________ LiabilitiesCurrent liabilitiesCurrent tax liabilities (1,912) (2,001)Trade and other payables (22,911) (12,132)______________________________________________________________________________________ (24,823) (14,133)______________________________________________________________________________________Liabilities directly associated with the assets classified as held for sale (127) -______________________________________________________________________________________ (24,950) (14,133)______________________________________________________________________________________Non-current liabilitiesProvisions (3,575) (437)Deferred tax (21,579) (6,358)______________________________________________________________________________________ (25,154) (6,795)______________________________________________________________________________________Total liabilities (50,104) (20,928)______________________________________________________________________________________Net assets 286,224 218,629______________________________________________________________________________________ EquityShare capital 24,148 23,801Share premium 40,217 38,179Merger reserve 30,680 30,680Amounts recognised directly in equity related to assets held for sale 803 -Other reserves Capital redemption reserve 587 587 Equity - share options 2,448 2,132 Equity - foreign currency translation (4,650) (4,364)Retained earnings 191,991 127,614______________________________________________________________________________________ Total shareholders' equity 286,224 218,629______________________________________________________________________________________ Un-Audited Group Cash Flow StatementFor the year ended 31 December Note 2007 2006 $000 $000_______________________________________________________________________________________Cash flows from operating activitiesCash generated from operations 8 153,480 98,693Interest received 5,161 2,706Interest paid (6) -Income tax paid (38,707) (25,783)_______________________________________________________________________________________Net cash from operating activities 119,928 75,616_______________________________________________________________________________________Cash flows from investing activitiesAcquisition of subsidiary, net of cash acquired (44,428) -Proceeds from sale of property, plant and equipment 38 94Proceeds from sale of US assets - 3,090Purchase of investment - (5,000)Short term loan advanced (70) (200)Purchase of property, plant and equipment and intangible assets (80,744) (43,870)_______________________________________________________________________________________Net cash used in investing activities (125,204) (45,886)_______________________________________________________________________________________Cash flows from financing activitiesProceeds from issue of shares 2,330 1,222Treasury shares purchased - (2,784)Proceeds from borrowing 33 -Share issue costs - (18)Dividends paid to shareholders (10,032) (4,495)_______________________________________________________________________________________Net cash used in financing activities (7,669) (6,075)_______________________________________________________________________________________(Decrease)/Increase in cash and cash equivalents in the year (12,945) 23,655Effect of exchange rates on cash and cash equivalents 45 538Cash and cash equivalents at 1 January 81,116 56,923_______________________________________________________________________________________ 68,216 81,116_______________________________________________________________________________________Included in assets classified as held for sale (90) -_______________________________________________________________________________________Included in cash and cash equivalents as per balance sheet 68,126 81,116_______________________________________________________________________________________ Accounting policies 1. Basis of preparation The financial information in this statement is not audited and does notconstitute statutory accounts within the meaning of Section 240 of the CompaniesAct 1985 (as amended). Full accounts for JKX Oil and Gas plc for the year ended31 December 2006 have been delivered to the Registrar of Companies. Theauditors' report on these accounts was unqualified and did not contain astatement under Section 237(2) or Section 237(3) of the UK Companies Act 1985. The financial information in this statement contains extracts from the 2007Annual Report, which will be issued in May 2008 and prepared in accordance withInternational Financial Reporting Standards ("IFRS") as adopted for use in theEuropean Union. The accounting policies (that comply for IFRS) used by JKX Oiland Gas plc (the "group") are consistent with those set out in the 2006 AnnualReport except that IFRS 7, "Financial Instruments: Disclosures" has beenimplemented in 2007. The group has not early adopted IFRS 8, "OperatingSegments" in 2007. A full list of policies will be presented in the 2007 AnnualReport. 2. Business environment Ukraine and Russia display emerging market characteristics, and the legislationand business practices regarding banking operations, foreign currencytransactions and taxation are constantly evolving as the governments attempt tomanage the economies. Risks inherent in conducting business in an emergingmarket economy include, but are not limited to, volatility in the financialmarkets and the general economy. Uncertainties over the development of the taxand legal environment, as well as difficulties associated with the consistentinterpretation and application of current laws and regulations, have continued.As at 31 December 2007, oil and gas assets based in Ukraine and Russia representapproximately 66% and 28% respectively 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 related 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. Ukraine, Russia and USA areinvolved with production/development and exploration; 'Rest of World' areinvolved in exploration and the UK is the home of the head office. The 'Rest ofthe World' segment comprises operations in Hungary, 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. Rest of Sub 2007 UK Ukraine Russia USA world Total Eliminations Total $000 $000 $000 $000 $000 $000 $000 $000_______________________________________________________________________________________________External revenue Turnover by location of assetOil - 122,530 - - - 122,530 - 122,530Gas - 59,344 - 15 - 59,359 - 59,359Management services/ other 210 2,410 - - - 2,620 - 2,620_______________________________________________________________________________________________ 210 184,284 - 15 - 184,509 - 184,509_______________________________________________________________________________________________Inter segment revenueManagement services/ other 8,176 - - - - 8,176 (8,176) -Equipment 37,864 - - - - 37,864 (37,864) -_______________________________________________________________________________________________ 46,040 - - - - 46,040 (46,040) -_______________________________________________________________________________________________Total revenueOil - 122,530 - - - 122,530 - 122,530Gas - 59,344 - 15 - 59,359 - 59,359Management services/ other 8,386 2,410 - - - 10,796 (8,176) 2,620Equipment 37,864 - - - - 37,864 (37,864) -_______________________________________________________________________________________________ 46,250 184,284 - 15 - 230,549 (46,040) 184,509______________________________________________________________________________________________________________________________________________________________________________________________Operating profit/ (loss) (4,370) 135,743 (250) (144) (18,107) 112,872 (4,282) 108,590Finance income 4,761 - 4,761Finance cost (50) - (50)_______________________________________________________________________________________________Profit before tax 117,583 (4,282) 113,301_______________________________________________________________________________________________ Assets and liabilitiesSegment assets 3,638 173,083 68,447 5,489 11,778 262,435 - 262,435Goodwill - - 2,716 - - 2,716 - 2,716Assets held for sale - assets - - - - 3,051 3,051 - 3,051Cash at bank and in hand 53,843 7,670 1,368 38 5,207 68,126 - 68,126_______________________________________________________________________________________________Total assets 57,481 180,753 72,531 5,527 20,036 336,328 - 336,328_______________________________________________________________________________________________ Segment liabilities (7,928) (6,246) (1,426) (20) (10,866) (26,486) - (26,486)Assets held for sale - liabilities - - - - (127) (127) - (127)Current tax liabilities - (1,912) - - - (1,912) - (1,912)Deferred tax - (6,648) (14,931) - - (21,579) - (21,579)_______________________________________________________________________________________________Total liabilities (7,928) (14,806) (16,357) (20) (10,993) (50,104) - (50,104)_______________________________________________________________________________________________ Non cash expense (other thandepreciation) 690 967 - - 16,727 18,384 - 18,384Increase in property, plant andequipment andintangible assets 687 64,850 67,844 119 14,402 147,902 - 147,902Depreciation, depletion &amortisation 173 20,658 - - - 20,831 - 20,831_______________________________________________________________________________________________ Rest of Sub 2006 UK Ukraine Russia USA world Total Eliminations Total $000 $000 $000 $000 $000 $000 $000 $000_______________________________________________________________________________________________External revenueTurnover by location of assetOil - 92,725 - - 130 92,855 - 92,855Gas - 37,636 - 33 - 37,669 - 37,669Management services/ other 352 816 - - - 1,168 - 1,168_______________________________________________________________________________________________ 352 131,177 - 33 130 131,692 - 131,692_______________________________________________________________________________________________Inter segment revenueManagement services/ other 5,811 - - - - 5,811 (5,811) -Equipment 20,672 - - - - 20,672 (20,672) -_______________________________________________________________________________________________ 26,483 - - - - 26,483 (26,483) -_______________________________________________________________________________________________Total revenueOil - 92,725 - - 130 92,855 - 92,855Gas - 37,636 - 33 - 37,669 - 37,669Management services/ other 6,163 816 - - - 6,979 (5,811) 1,168Equipment 20,672 - - - - 20,672 (20,672) -_______________________________________________________________________________________________ 26,835 131,177 - 33 130 158,175 (26,483) 131,692_______________________________________________________________________________________________Reversal of impairment provision - 15,228 - - - 15,228 - 15,228Operating profit/ (loss) (excludingreversal of impairment provision) (7,620) 95,704 - (195) (407) 87,482 3,097 90,579Operating profit/ (loss) (7,620) 110,932 - (195) (407) 102,710 3,097 105,807Finance revenue 3,380 - 3,380Finance cost - - -_______________________________________________________________________________________________Profit before tax 106,090 3,097 109,187_______________________________________________________________________________________________ Assets and liabilitiesInvestments - 5,000 - - - 5,000 - 5,000Segment assets 3,573 127,175 - 5,374 17,319 153,441 - 153,441 Cash at bank and in hand 73,681 6,907 - 42 486 81,116 - 81,116_______________________________________________________________________________________________Total assets 77,254 139,082 - 5,416 17,805 239,557 - 239,557_______________________________________________________________________________________________ Segment liabilities (6,555) (5,857) - (63) (94) (12,569) - (12,569)Current tax liabilities - (2,001) - - - (2,001) - (2,001)Deferred tax - (6,358) - - - (6,358) - (6,358)_______________________________________________________________________________________________Total liabilities (6,555) (14,216) - (63) (94) (20,928) - (20,928)_______________________________________________________________________________________________ Non cash expense (other thandepreciation) 266 1,913 - - - 2,179 - 2,179Increase in property, plant andequipment andintangible assets 231 40,255 - 145 2,752 43,383 - 43,383Depreciation, depletion &amortisation 153 15,428 - - - 15,581 - 15,581_______________________________________________________________________________________________ Rest of2007 UK Ukraine Russia USA world Total $000 $000 $000 $000 $000 $000_______________________________________________________________________________________ Turnover by location of customerExternal revenueOil - 122,530 - - - 122,530Gas - 59,344 - 15 - 59,359Management services/other - 2,410 - - 210 2,620_______________________________________________________________________________________ - 184,284 - 15 210 184,509_______________________________________________________________________________________ Rest of2006 UK Ukraine Russia USA 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/other - 816 - - 352 1,168_______________________________________________________________________________________ - 131,177 - 33 482 131,692_______________________________________________________________________________________ 5. Cost of sales 2007 2006 $000 $000 Operating costs 18,430 15,580Depreciation, depletion and amortisation 19,097 14,303Production based taxes 3,312 2,750______________________________________________________________________________________ 40,839 32,633 Provision for impairment/write off of exploration costs 17,694 1,763Reversal of impairment provision - (15,228)______________________________________________________________________________________Total cost of sales 58,533 19,168______________________________________________________________________________________ Provision for impairment/write off of exploration costs; includes impairment ofthe Group's Italian asset portfolio $3.3m; west Georgia offshore licence $5.9m;Turkish Thrace licence $0.5m; and $0.9m relating to exploration expenditure inUkraine. Additionally the Group wrote off $7.1m relating to the Golitza B1 wellin Bulgarian which was dry. The Group previously recognised an impairment charge in respect of certainproducing assets in Ukraine. The impairment reflected uncertainty regarding thepolitical and regulatory environment in Ukraine together with the relatively lowUkrainian oil and gas prices. In 2006, following a step change in Ukrainian gas prices and easing of politicaland regulatory uncertainty, it was determined that the factors giving rise tothe impairment have reversed and the impairment was reversed in 2006. The amountof the reversal was determined by reference to the recoverable amount of theassociated assets. Recoverable amount was calculated based on expected futurecash flows of the cash generating unit discounted at a rate of 10%. The cashgenerating unit is the Group's Novo-Nikolaevskoye complex in Ukraine. Consideration was given to the amount of depreciation that would have beensuffered in the period since the impairment charge was taken. The carrying valuewas reinstated in 2006 at a value not higher than the carrying value had theimpairment not been made. 6. Taxation Taxes charged on production of hydrocarbons are included in cost of sales. Analysis of tax on profit on ordinary activities. 2007 2006 $000 $000Current tax UK - prior year - 1,468 Overseas - current year 38,602 26,650 Overseas - prior year - (260)Deferred tax Overseas - current year 290 3,890 Overseas - prior year - (317)_____________________________________________________________________________________ 38,892 31,431_____________________________________________________________________________________ The total tax charge for the year of $38.9m (2006: $31.4m) is higher (2006:lower) than the standard rate of UK corporation tax of 30% (2006: 30%). Thedifferences are explained below: Total tax reconciliation 2007 2007 2006 2006 $000 % $000 %______________________________________________________________________________________Profit on ordinary activities before tax 113,301 109,187______________________________________________________________________________________Total tax calculated at 30% (2006: 30%) 33,990 30.0% 32,756 30.0%Impairment/write off of fixed assets 6,859 6.1% - 0.0%Other fixed asset differences 44 0.0% (136) -0.1%Net increase in unrecognised losses carried forward 3,127 2.8% 4,348 4.0%Other temporary differences not recognised (2,863) -2.5% (3,275) -3.0%Effect of tax rates in foreign jurisdictions (7,100) -6.3% (3,967) -3.6%Withholding tax suffered 3,320 2.9% 2,165 2.0%Other non-taxable items 1,515 1.3% (1,352) -1.2%Adjustment relating to prior periods - 0.0% 892 0.8%______________________________________________________________________________________Total tax charge 38,892 34.3% 31,431 28.8%______________________________________________________________________________________ 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. 7. Earnings per share The calculation of the basic and diluted earnings per share attributable to theordinary equity holders is based on the following: Earnings 2007 2006 $000 $000______________________________________________________________________________________Earnings for the purposes of basic earnings per share (profit for the year attributable to equity holders) 74,409 77,756Effect of dilutive potential ordinary shares: - -______________________________________________________________________________________Earnings for the purposes of diluted earnings per share 74,409 77,756____________________________________________________________________________________________________________________________________________________________________________Number of shares 2007 2006______________________________________________________________________________________Basic weighted average number of shares 155,127,794 152,802,322Dilutive potential ordinary shares:Share options 3,892,224 4,216,333______________________________________________________________________________________Weighted average number of shares for diluted earnings per share 159,020,018 157,018,655______________________________________________________________________________________ There were 2,271,500 (2006: 3,629,531) outstanding share options at 31 December2007, of which all (2006: 3,629,531) have a dilutive effect. 8. Reconciliation of operating profit to net cash inflow from operations 2007 2006 $000 $000______________________________________________________________________________________Operating profit 108,590 105,807Depreciation, depletion and amortisation 20,831 15,581Reversal of impairment provision - (15,228)Impairment/write off of exploration costs/intangible assets 17,660 1,829Impairment of investment 5,000 -Share-based payment costs 316 266Exchange differences 250 (2,689)(Increase)/ Decrease in operating debtors (1,435) (5,277)(Decrease)/Increase in operating creditors 2,628 (1,327)Increase in inventory (360) (269)______________________________________________________________________________________Cash generated from operations 153,480 98,693______________________________________________________________________________________ 9. Cash and cash equivalents 2007 2006 $000 $000______________________________________________________________________________________Cash 1,313 981Short term deposits 66,813 80,135______________________________________________________________________________________Cash and cash equivalents 68,126 81,116______________________________________________________________________________________ 10. Business combination On 22 November 2007, the group acquired 100% of the share capital ofYuzhgazenerie LLC, an oil and gas exploration and development company based inRussia. Yuzhgazenergie LLC was owned by Mostotal Investments Limited("Mostotal"). Mostotal and Glengary Overseas Limited ("Glengary") are controlledby Mr Alexander Zhukov. Glengary, held a 25.15% shareholding in JKX Oil and Gasplc at the date of acquisition. As a related party transaction the acquisitionwas approved by the shareholders of JKX Oil and Gas plc at an ExtraordinaryGeneral Meeting. The acquired business is in a development stage and therefore contributed norevenue and a net loss of $0.3m, representing administrative expenses, to thegroup for the period from 22 November 2007 to 31 December 2007. If theacquisition had occurred on 1 January 2007, the net loss would have been $2.7mrepresenting administrative expenses. These amounts have been calculated usingthe group's accounting policies. Details of net assets acquired and goodwill are as follows: $000______________________________________________________________________________________Purchase consideration:- Cash paid 41,610- Deferred consideration 9,044- Direct costs relating to the acquisition 2,974 ____________Total purchase consideration 53,628 ____________Fair value of the net assets acquired 50,912 ____________Goodwill 2,716 ____________ The goodwill arises after the application of IAS 12 "Income taxes" and is attributableprincipally to expanded growth opportunities in Russia. The assets and liabilities as at 22 November 2007 arising from the acquisitionare as follows: Acquiree's Provisional fair carrying amount value $000 $000______________________________________________________________________________________Cash and cash equivalents 156 156Property, plant and equipment 4,661 66,565Inventories 1 1Trade and other receivables 675 675Trade and other payables (265) (265)Borrowings (6,622) -Long term liabilities (1,274) (1,274)Deferred tax liabilities (80) (14,946)______________________________________________________________________________________Net assets acquired (2,748) 50,912______________________________________________________________________________________ The outflow of cash and cash equivalents on the acquisition can be calculated asfollows: ______________________________________________________________________________________ Purchase consideration settled in cash 44,584Cash and cash equivalents in subsidiary acquired (156)______________________________________________________________________________________Cash outflow on acquisition 44,428______________________________________________________________________________________ Glossary Mcf Thousand cubic feetMcfd Thousand cubic feet per dayBcf Billion cubic feetcfpd Cubic feet per dayMMcf Million cubic feetMMcfd Million cubic feet per dayMbbl Thousand barrelsMMbbl Million barrelsbbl Barrelbopd Barrel of oil per dayboe Barrel of oil equivalentMboe Thousand barrels of oil equivalentMMboe Million barrels of oil equivalentboepd Barrel of oil equivalent per daysq.km Square Kilometre$ 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:
JKX.L