Final Results

27th Mar 2009 07:00



FOR IMMEDIATE RELEASE 27 MARCH 2009

JKX Oil & Gas plc

PRELIMINARY RESULTS

 FOR 

THE YEAR ENDED 31 DECEMBER 2008

Results Highlights

2008 2007 % Change

Revenue $207.0m $184.5m +12%

Profit before tax $127.6m $113.3m +13%

 

Production boepd 11,012 12,579 -12%

Realised oil price (per barrel) $84.34 $60.37 +40%

Realised gas price (per Mcf) $5.47 $3.95 +38%

 

Earnings per share (basic) 49.85 cents 47.97 cents +4%

Net cash from operating activities $126.5m $119.9m +6%

Strategic Highlights

Strong operating and financial performance

Increased 2P oil and gas reserves by 17 million boe

Successful tie-in and gas delivery to Soyuz gas trunkline in Ukraine

11 new wells drilled and / or completed in Ukraine

Commercial gas discovery in Hungary

9% increase in dividend for period 

JKX Chief Executive, Dr Paul Davies, commented: "We are pleased to present another solid operational and financial performance in spite of the worsening market conditions. We continue to focus on our key production and development regions of Ukraine and Russia, whilst broadening our exploration portfolio in eastern and central Europe. We anticipate achieving first gas sales from our Hungarian project in 2009. We have a positive outlook for 2009, and believe that we will continue to deliver long term value for shareholders."  

ENDS

For further information please contact: 

Sofia Rehman / Catherine Maitland / Anthony Cardew

Cardew Group

020 7930 0777

 

CHAIRMAN'S STATEMENT

I am pleased to report on another successful year for the Company, reflected in both the development of our assets and our financial performance. I believe we are prudently placed to further develop the Company in 2009 despite the challenging operating environment.

Both revenues and operating profits increased in 2008, despite total production being down 12%, and a significant drop in international oil prices in the fourth quarter. Oil and gas revenues rose by 13% to $204.9m. Average realisations for gas in the period rose by 38 per cent to $5.47 per Mcf, and average realisations for oil rose by 40 per cent to $84.34 per barrel. Significant movements in foreign exchange rates had an impact on profits with a $7.0m foreign exchange loss recorded. Despite this, profit before tax rose by 13% to $127.6m. 

Performance Overview

Whilst trading conditions are undoubtedly more difficult, we are committed to an active exploration, development and acquisition programme delivering long-term value to shareholders.

Our operations in Ukraine remain a core focus for the Company. We drilled and/or completed eleven new wells in our Poltava licences in the period and successfully connected to the Soyuz trunkline. We continue with our strategy of seeking to expand our operations in Ukraine through selective acquisition.

We see excellent long-term potential in the Russian domestic gas market, despite the current contraction of the domestic economy. Our first gas development project in southern Russia is progressing steadily, with first gas now expected in the fourth quarter of 2010. 

In both Ukraine and Russia we believe the operating and working environments for our business are likely to be relatively stable.

The Company continues actively to explore opportunities in eastern Europe. We have made a commercial discovery in Hungary and completed seismic acquisition programmes in our Bulgarian and Slovakian licences.

Reserves

The Company increased its booked proven plus probable (P+P) oil and gas reserves during the period by 17% to 89 million barrels of oil equivalent. This represents a reserve replacement of in excess of 400% in the period.

Our HSEC commitment

We are committed to building on our current performance in health, safety, environmental protection and community liaison (HSEC). To that end, the Company has set targets in the period to achieve OHSAS accreditation for its HSEC management system and ISO accreditation for its Environmental Management System.

Your Board

In June 2008, we further strengthened the Board with the appointment of Dipesh Shah OBE and Michel-Marc Delcommune as non-executive directors. Their wide experience in our industry is providing tangible benefits to the performance of the Company.

Dividend

The Board is pleased to recommend a 9% increase in the dividend for 2008. The Company paid an interim dividend of 2.2 pence per share on 17 October 2008, and the Board is now recommending a final dividend of 2.6 pence which will bring the total dividend for 2008 to 4.8 pence per share (2007: 4.4 pence per share). The dividend will be paid on 5th June 2009 to shareholders who are on the Company's Register of Members at the close of business on 17th April 2009.

Outlook

Our priorities for 2009 are the continued development of our production licences in Ukraine; the completion of the initial programme of well workovers and testing in our production licence in Russia; and the initiation of production from our Hungarian gas discovery. The broadening of our exploration portfolio in eastern Europe is focused on replacement of reserves with the potential for creation of a third production hub for the Company. 

I would like to take this opportunity to thank our staff, whose enthusiasm and dedication is crucial to the continued success of the Company. I pay tribute to them and also extend my thanks to you as shareholders for your support now and in the future.

CHIEF EXECUTIVE'S STATEMENT

 

In 2008 we delivered a rise in pre-tax profit of 13%; increased proven and probable oil and gas reserves by 17 million boe; initiated the well workover programme on the Koshekhablskoye field in Russia; made a commercial gas find in Hungary; and broadened our exploration portfolio in eastern and central Europe. We have demonstrated our ability to use our specialist knowledge, experience and expertise to expand our reserves base both by exploration and appraisal drilling, whilst maintaining our strong cash flow through efficient development of our producing assets. 

Financial performance

Our revenues rose by 12% to $207.0m, up from $184.5m in 2007 primarily due to higher oil and gas prices in the period. Capital expenditure increased to $110.2m, compared to $94.3m in 2007 (excluding the acquisition cost of our Russian subsidiary) and includes the $56.2m investment in developing our Ukrainian assets, $32.5m in the redevelopment of our Russian production company, and $21.5m on our exploration licences in Hungary, Bulgaria and Slovakia. Year-end cash was $64.8m (2007: $68.1m). 

Average realisations for gas produced in Ukraine in the period rose by 38 per cent to $5.47 per Mcf (2007: $3.95 per Mcf). Gas realisations have also increased from the beginning of 2009 to approximately $7.00 per Mcf, as a result of the year-end negotiations between Russia and Ukraine. Average realisations for oil in the period rose by 40 per cent to $84.34 per barrel (2007: $60.37 per barrel).

Our 15 years of operating in Ukraine have given us a solid platform for growth, a healthy balance sheet and a strong cash flow. More importantly, we have developed the experience and knowledge necessary to expand our reserves, not just through rigorous field appraisal and development, but also by selective exploration and strategic acquisitions in markets that we know well, such as our 2007 Russian acquisition.

Whilst market conditions have changed dramatically in the last 6 months, our strategy has not. Although we recognise fully the current financial and economic challenges, our focus in 2009 is to continue to enhance our Ukrainian producing operations, to progress the workover and engineering programmes required to bring our Russian assets on-stream in the fourth quarter of 2010, and to bring on-stream our first producing field in Hungary this year.

Our markets

Our Company was founded more than 15 years ago to develop oil and gas assets in the states of the former Soviet Union. Since then we have both successfully operated in this area and expanded into eastern Europe. Initially, these areas were considered as frontier areas for western companies, despite their long history of oil and gas development. We recognised early on the potential for the application of modern oilfield techniques in developing prospective fields, and the latent technical, financial and administrative capabilities of the well-educated indigenous workforce. Equally importantly, we saw the potential future value of gas reserves which we believed to be significantly undervalued at the time. Despite the great changes over the intervening 15 years, the area still provides opportunities for companies wishing to establish a sustainable corporate presence within what is a continually changing political and economic environment.

In our view, local knowledge and expertise is essential to operating successfully and sustainably in Ukraine, Russia, and elsewhere in eastern Europe. We have a staff of more than 500 with 95% of them being operationally focused and based in Ukraine and Russia. Employment of locally based staff with the best operational skills is central to our strategy of being a valued partner in local communities. 

We remain committed to developing and expanding our exploration and appraisal licence portfolio in Ukraine where we see substantial long-term opportunities, as demonstrated by our active exploration programme in 2008. The commissioning of the Soyuz tie-in in November has removed the constraint on gas delivery from our producing Poltava fields.

Our Russian acquisition added approximately 36 million boe to our booked 2P reserves, based on independent estimates. Since acquisition, we have completed the 3D seismic programme over the field and this has added a further 5 million boe to our 2P reserves. The decision to replace the field facilities has made it necessary to revise our target for first gas delivery to the fourth quarter of 2010, and this revised programme has been agreed with the Russian authorities. 

We are actively seeking new opportunities in eastern Europe. Hungary, Bulgaria and Slovakia saw exploration activity from us in 2008, which will continue in 2009. Most encouragingly, we made a commercial gas discovery in our Hungarian Hernad licence in 2008, and anticipate achieving first gas delivery in the third quarter of this year.

Outlook

We believe that we can continue to deliver growth and positive cash flow in what will undoubtedly be a busy and challenging year. The continued monitoring and strict control of budgets and cash flow will be of key importance given the significant development drilling and workover programmes scheduled for Ukraine and Russia respectively; the start-up of commercial gas production in Hungary; and exploration programmes in Bulgaria, Hungary and Slovakia.

The continuing development of our four Ukrainian production licences in Poltava will include further appraisal of our licence areas, including fracture stimulation testing of the deep Rudenkovskoye field, which will be significant for establishing its near-term production profile. Positive drilling results will allow us to increase gas production during the year with unrestricted gas delivery via the Soyuz trunk line.

 The rehabilitation programme for the Koshekhablskoye Field in southern Russia has been rescheduled to accommodate the design and delivery of new production facilities. Focus this year will be on plant design and procurement. The results of the workover and testing of 3 wells this year will also dictate the shape and pace of development going forward. 

 

The acquisition of additional development assets to increase our reserve base remains a priority, with Ukraine remaining the main area of interest. Exploration activity in the current period continues to be focused in eastern/central Europe with particular attention being given to growing our new asset base in Hungary.

 

There remain high levels of competition for talented staff in our industry, despite the slowdown in certain sectors. I want to ensure that the terms and conditions we offer our staff remain competitive and that we continue to be an attractive destination for key staff. 

Challenges

The recession and global credit crisis is affecting both the oil and gas sector and the economies of the countries in which we operate. 

We are accustomed to dealing with challenges and our record of continuous growth and profitability in the area over difficult economic periods demonstrates that we have the ability to continue to return value to shareholders in tough conditions, and we will seek to maintain this into and beyond 2009.

Operations Review - Ukraine

Poltava Petroleum Company ('PPC'), a wholly owned subsidiary of JKX, holds four production licences covering 271 sq km in the Poltava region of Ukraine. Each production licence contains one or more distinct fields which together form the Novo-Nikolaevskoye Complex. 

PPC has three exploration permits in the area: Zaplavskoye, Elizavetovskoye and Chervonoyarske East, representing a total licensed exploration area of 171.2 sq km.

The results of the 2008 work programme were very successful in some areas but we have also had some inconclusive and disappointing outcomes:

Drilling, testing and/or completing a total of 9 appraisal and development wells

Drilling of 2 exploration wells; both awaiting testing equipment

Further appraisal of the Tournaisian carbonate and sandstone in Molchanovskoye North with mixed results

Continued development of the Devonian sandstone in Molchanovskoye North

Re-evaluation of the potential for fracture stimulation of the tight and technically challenging sandstone reservoir in Rudenkovskoye and preparation of the 2009 programme

Evaluation of the potential for acid fracture stimulation of the Tournasian carbonates which are present across all licences and preparation of the 2009 programme

Further appraisal of the Tournasian carbonate reservoir in the structures to the west of the Ignatovskoye Field

Completion of the tie-in to the Soyuz gas trunkline 

Continued re-interpretation of the 3-D and 2-D seismic datasets to generate additional targets in and around the producing areas

Update of reserves in Ignatovskoye, Molchanovskoye North and Novo-Nikolaevskoye.

The Ignatovskoye production licence is located in the centre of the Novo-Nikolaevskoye Complex and contains the first field to be developed by PPC. Two additional structural trends are now being evaluated, one to the southwest, and one to the west of the main field.

The main field is an uplifted fault block containing Devonian sandstone and overlying Carboniferous Tournasian sandstone and limestone. On top of that is a carbonate reef build up of Visean age. There is also a series of thin sandstone channels on the flank of the structure, also of Visean age. Black oil is found in the Devonian sandstone and the lower parts of the Tournasian and Visean reservoirs; the oil is overlain by a rich condensate bearing gas cap and, therefore, the Visean channels can be oil or gas bearing. Reservoir quality in the Devonian sandstone and Visean reef is generally good whilst the Tournaisian sandstone and limestone both are variable and often dependent on local depositional and tectonic influences. Reservoir stimulation in these reservoirs is often necessary and, although this can give high initial flow rates, the rates often decline to a more modest plateau production. 

The main focus of activity was in drilling in-fill wells in the main structure and appraising additional structures to the west: 

Development well I136 was drilled on the north flank of the Ignatovskoye Field; it failed to produce oil from the depleted lowermost carbonate section and plans are now underway to design and install an electric submersible pump

Development well I137 was drilled as a Visean carbonate oil producer on the southeast of the main Ignatovskoye Field but was suspended with a fish in the hole below the 7" casing. A sidetrack will be drilled in 2009

Development well I138 was drilled as a Tournasian carbonate producer, also on the southeast flank of the main Ignatovskoye Field, and had an initial flow rate of 1.97 MMcfd of gas and 448 bpd of condensate with a wellhead pressure of 930 psi

Appraisal Well I133 was drilled at the northern end of a structure to the west of the Ignatovskoye Field and brought on-stream in the first quarter of the period at a flow rate of 3.7 MMcfd of gas and 560 bpd of condensate from the Tournasian sandstone. This flow declined and additional perforations in the overlying Tournasian carbonate failed to flow. The well is a candidate for acid fracturing or recompletion in the Visean sandstone

Appraisal Well I134 was drilled to the west of the Ignatovskoye Field and tested water from the lowermost Tournasian sandstone. It also failed to flow from the overlying gas-bearing, low porosity, Tournasian carbonate. The well is now being abandoned

Materials and equipment are being mobilised for acid fracture stimulation tests on Wells I131 and M162 in the second quarter of 2009. These results of these tests will indicate the production potential of our tighter carbonate reservoirs.

Drilling activity planned for 2009 will include the side tracking of Well I137 and a further Visean carbonate infill well.

The Molchanovskoye production licence is located approximately 8km from the Ignatovskoye Field and contains the southernmost producing field within the complex. The licence now contains two distinct field areas:

Molchanovskoye North is a black oil reservoir with a gas cap in the Devonian sandstone with an overlying Tournasian sandstone gas condensate reservoir. There are also newly appraised overlying Tournasian carbonate and sandstone gas condensate reservoirs that extend over the Ignatovskoye licence boundary,

Work in 2008 continued to focus on the Tournasian carbonate reservoir: 

 

Development Well M159 flowed at an initial rate of 1.4 MMcfd and 100 bpd of condensate. Subsequent acid treatment increased this rate to 7.0 MMcfd and 400 bpd of condensate

Infill development Well M163 was drilled and brought on-stream in July at a flow rate of 11.5 MMcfd of gas and 1,200 bpd of condensate from the Tournasian sandstone and carbonate

Disappointingly, Well M165, a high angle development well to the Tournasian carbonate on the eastern flank of Molchanovskoye North, produced gas at less than 0.5 MMcfd with minimal condensate and a flowing wellhead pressure of 249 psi. The nature of the apparently poor reservoir quality found in this well is being examined before deciding on remedial action

Well M164 was drilled as a horizontal development well to the Devonian sandstone and flowed gas at 7.4 MMcfd with 1,200 bpd of condensate

Activity planned for 2009 will include an acid fracture stimulation of Well M162, which may lead to further such stimulations, and a further horizontal well to the Devonian sandstone.

Molchanovskoye Main produces gas condensate in the Devonian sandstone and is now being evaluated for additional reserves in the overlying Tournasian carbonate and Visean sandstone reservoirs. There was no new drilling activity during the period. However, there are workovers planned in 2009 for wells M202, M204 and M205, together with two new wells, one targeting the Tournasian carbonate and the second targeting the Devonian sandstone. Where possible, the wells will also appraise the Visean sandstones which have a variable distribution over the field.

The Novo-Nikolaevskoye production licence lies 3km to the west of the Ignatovskoye Field. 

Well N9 continues to produce oil and gas from the shallower Visean sandstone, and a number of potential targets were identified from further seismic processing and re-interpretation in the period.

Well N71 was drilled and logged hydrocarbons in two Visean sandstone layers. The well has started producing from the lowermost reservoir at a rate of 1.9 MMcfd with 118 bpd condensate, but its current decline rate indicates that the well will be recompleted later in the year in the upper reservoir.

A further well is planned in 2009 with its primary objective in the shallower Visean sandstones and, if this is successful, further shallow targets may be selected for drilling.

The Rudenkovskoye production licence is the most northern of the four production licences. The principle reservoirs in the licence are the Tournaisian and Devonian sandstones at depths of between 3,000m and 5,000m. Productive areas have been identified in the northern and southern areas of the licence:

Well R101, drilled in 2006 and the first new well in the northern area, encountered 200m net of gas-bearing Tournasian sandstone, the deeper zones at such high pressure that they had to be plugged back for safety reasons. The shallower section was tested and a 110m interval put into production at an initial flow rate of 2 MMcfd. Following an unsuccessful hydraulic fracture stimulation of this section, the well is being plugged back in preparation for a further fracture stimulation test this year.

Well R102, was drilled in early 2007 in the southern area. It found two main gas-bearing zones in the Devonian sandstone and the lower 45m interval was tested at an average rate of 7.7 million cubic feet of gas, 90 barrels of condensate and 230 barrels of water per day. The presence of water precluded any fracture stimulation testing in this interval and the well has been plugged back to a higher interval which has tested gas at 1.9 MMcfd and 12 bpd condensate. 

Equipment is being mobilised for fracture stimulation of both wells R101 and R102 in the second quarter of this year. 

Poltava Production facilities: 2008 saw the culmination of a significant upgrade to the Central Production Facility on the Poltava fields, including:

Connection to the Soyuz gas pipeline which carries gas from Russia through Ukraine to Western Europe. This access enables PPC to increase its gas production beyond the constraints of the existing facility. 

Linked to the Soyuz connection is the addition of a sophisticated gas metering system to monitor production and composition of the gas entering the system. 

In parallel, work began on the installation of an oil metering system to improve monitoring of the oil going into storage at the field, being transferred to the production loading facility and being loaded onto railcars for distribution to customers. This is now being tested.

Environmental related activities in the period included: 

the implementation of a new produced water treatment facility; 

improved fire protection systems; and 

progressive installation of an oil metering system to aid in the detection and prevention of theft from the oil export line and the related damage that this can cause.

Work planned for 2009 includes: 

the replacement of one of the compressors and the upgrade of a second to give greater reliability and flexibility; 

further work on the fire protection systems; and

updating of all operating and safety procedures manuals to match the increased sophistication of the plant and implementation of higher standards of health, safety and environmental practice.

Ongoing work to streamline operations will include the commissioning of the additional well testing facility which will enable PPC to maintain its regulatory reporting and provide better reservoir monitoring and management as the number of producing wells increases.

The Zaplavskoye exploration licence is adjacent to the Molchanovskoye production licence and comprises an area of 95.7 sq km. The permit is valid until 2010.

During 2008 two exploration wells were drilled on the licence:

Exploration Well Z3 was drilled from a location 2km to the west of the Molchanovskoye Main field. Logs indicate an 80m gross gas bearing T2 carbonate interval at a pressure in excess of 5,000 psi. High pressure wellhead equipment has been installed but delays in mobilising other testing equipment has deferred testing to the second quarter of 2009.

Exploration Well Z2 was drilled from a location approximately 4 km to the southeast of the Molchanovskoye Main field and 1.5 km up-dip from the earlier exploration Well Z1 which was drilled off structure. Well Z2 encountered thicker than expected T2 carbonate with the primary sandstone objective being deeper than expected. Logs again indicate an 80m gross gas column in the carbonate and testing will commence on this more remote location on completion of testing of Well Z3.

Additional 2D seismic was acquired in 2008 which extended from the licence area to potentially prospective areas between the licence and the western part of the Ignatovskoye licence. Other possible extensions to the east of the licence area are also being examined and could lead to additional seismic acquisition in 2009 and drilling in 2010.

The Elizavetovskoye exploration licence is located in the central part of the Dnieper-Donets basin and covers an area of 70 sq km. It is approximately 45km from PPC's existing production licences.

Three shut-in production wells on the licence are owned by Ukrgasvydobuvannya, a subsidiary of Naftogaz of Ukraine, the state oil and gas company, and are tied into its production facility. Negotiations with Ukrgasvydobuvannya to resolve the issues related to these wells, and to establish conditions under which PPC can initiate production from this licence, continue, with limited success so far.

The Chervonoyarske East exploration licence was acquired in December 2005. The licence covers a total area of 5.5sq km and is located about 75km from the PPC production licences on the northern margin of the Dnieper-Donets basin.

Evaluation of the 42 sq km 3D seismic survey acquired in 2008 supports the interpretation of potential hydrocarbons trapped against the flanks of a major salt wall. Two prospects have been identified and are being assessed for possible drilling in 2010.

Ukrainian Reserves: Independent reservoir consultants, PGL, have been re-evaluating the reserves on the Company's Poltava licences. Revised reserve estimates are now available for three of the five field areas, Ignatovskoye, Novo-Nikolaevskoye and Molchanovskoye North. 

These revised estimates give an increase of 11 million boe to earlier P+P reserve estimates.

Work is ongoing in the Molchanovskoye Main field area where the results of workovers and re-completions in the first half of 2009 will be critical in determining the level of reserves. Revised reserve estimates for this area are expected to be available in 2009.

The current remaining P+P booked reserves in the Rudenkovskoye Field are 21.6 MMboe. Revised reserve estimates for this area are not likely to be available before 2010.

Operations Review - Russia

Koshekhablskoye Field Redevelopment: JKX completed the purchase of Yuzhgazenergie LLC ('YGE') in November 2007. YGE holds the licence for the redevelopment of the Koshekhablskoye gas field which is located in the southern Russian autonomous Republic of Adygea. The licence covers an area of 34.7 sq km.

The field was discovered in 1972 and produced a total 89 Bcf of gas before operations were suspended in January 2006. In June 2006, YGE was granted a new 20 year licence to rehabilitate and further appraise and develop the field. 

Following the acquisition, the detailed technical and environmental re-evaluation by JKX concluded that the existing production facility would have to be completely replaced because it could meet neither the new gas specification required for entry to the Gazprom transit system nor the environmental standard for emissions to the immediate environment.

YGE submitted a revised production schedule to the Russian authorities in the third quarter of the period with start-up deferred by 2 years until October 2010. Formal authorisation for the revised schedule was received immediately prior to the close of the period. 

During the period, YGE has:

Completed the entire 105 sq km 3D seismic survey of the licence and surrounding areas 

Completed the data interpretation, and determined the reservoir distribution in both the primary Oxfordian carbonate reservoir and the secondary, deeper, Callovian sandstone reservoir 

Prepared an outline design for field redevelopment and commissioned a Russian design institute to perform the detailed engineering work in accordance with Russian regulatory standards, and to co-ordinate the procurement and construction of the new facilities

Mobilised the Krenco-900 rig from Ukraine to Koshekhablskoye to initiate the eleven well workover programme. Workover operations began on the first well in February 2009.

The well programme for 2009 comprises workover and testing of two wells in the upper Oxfordian reservoir and one well in the deeper Callovian reservoir. Workover of the remaining nine wells to the Oxfordian reservoir are now scheduled for 2010 to meet the revised production start-up of the fourth quarter 2010.

Koshekhablskoye Field Exploration and Appraisal: JKX inherited a YGE obligation to initiate drilling an exploration well to appraise the production potential of the underlying Callovian sandstone reservoir in mid 2009.

The Russian authorities have recognised the significant amount of exploration and appraisal activity that YGE is undertaking on the Callovian reservoir including: 

 

In light of the above, the State Geological Institute responsible for the YGE ongoing exploration and appraisal programme is now recommending that the first appraisal well should be deferred to 2011,and possibly later.

Russian Reserves: An independent assessment by PGL of the reserves and resources in the Koshekhablskoye field has been carried out subsequent to completion of the 3D seismic survey.

The revised Proven plus Probable (P+P) reserves are 41 MMboe, an increase of 14% on the reserves estimated by the independent reservoir consultants at the date of acquisition.

Operations Review - Hungary

Hernád Licences: JKX holds 50% equity in the northern Pannonian Basin Hernád licences in a joint venture with the operator, Hungarian Horizon Energy ('HHE'). The Hernád I licence covers 2,903 sq km and the Hernád II licence covers 2,507 sq km. The Pannonian Basin comprises numerous sub-basins developed across Hungary, Slovenia and Romania. It is prospective for gas and oil, and exploration risk can be reduced by the use of seismic data attributes (amplitude versus offset or AVO) and calibrated well log data.

Hajdúnánás Discovery: During 2007, 348 sq km of 3D seismic data was acquired over the south eastern portion of Hernád I and identified the Hajdúnánás prospect. The first exploration well was spudded in May 2008 and successfully tested gas from three levels: two Pannonian sand intervals and a Miocene fractured volcanoclastic sequence. The combined flow rates exceeded 13 MMcfd. 

An appraisal well was spudded in November 2008 and encountered a thicker sequence of Pannonian sands. Two drillstem tests (DSTs) were completed and tested a combined flow rate of 15 MMcfd. Gas quality is excellent and requires minimal processing before export. 

A Development Plan has been submitted to the Hungarian authorities for connection of the Hajdúnánás Field facilities to the extensive and readily accessible Hungarian gas distribution system. First gas is expected by the third quarter of 2009.

Hajdúnánás Reserves: Currently, approximately 1.0 MMboe of 2P reserves in the Pannonian intervals have been ascribed to JKX's interest. Further exploration is required to define the size of the underlying volcanoclastic sequence.

Further Hernad Exploration Activity: The Tiszatarján -1 exploration well was spudded in December 2008. The prospect is situated 13km to the south west of the Hajdúnánás Field and has a Miocene volcanoclastic reservoir target in a four way dip closed structure, sealed by Pannonian age marls and shales. Offset well data indicated a reservoir section with good porosity but limited primary permeability. The well reached a TD of 2,794m and encountered significant gas shows in Lower Pannonian siltstones and in the Miocene volcanoclastics. An open hole DST was run with only limited amounts of oil and gas recovered but with no formation water produced. The well has now been completed and reservoir pressure build-up is being monitored.

The remainder of the Hernád licences cover 4,600 sq km and are generally lightly explored. The regional exploration opportunity afforded by this position is considerable. JKX is developing plans to explore other "look alike" basins in the area, acquire further 3D seismic data and drill further low risk exploration wells.

Nyírség Licence: In November 2008, JKX farmed in for a 33.3% interest in 120 sq km of the adjacent Nyírség licence operated by PetroHungaria. This area is immediately south of the Hajdúnánás trend and is expected to show similar prospectivity at both the Pannonian and Miocene volcanoclastic intervals. 3D seismic is being acquired over the area with exploration drilling scheduled for later in 2009.

Operations Review - Bulgaria

In March 2005, JKX farmed into two onshore exploration permits, B Golitza and B1 Golitza, covering a total of 4,800 sq km in eastern Bulgaria. Since that time, JKX and its partner Aurelian Oil & Gas have acquired 200km 2D seismic data and drilled the Golitza B-1 exploration dry hole in 2007.

During 2008, the focus for exploration turned to the Tertiary age sand reservoirs, south of the town of Varna. Legacy well data demonstrated a working petroleum system and commercial flow rates of high quality gas from Eocene sandstone reservoir intervals.

The area includes several leads which could each contain 50 BCF of gas at a depth of less than 2,000m. A 250 sq km 3D seismic survey was initiated in the third quarter of the period. 

Exploration activity in 2009 is geared to processing the 3D data for seismic data attributes (amplitude versus offset or AVO) anomalies and producing a drill ready prospect by the third quarter of 2009.

Operations Review - Slovakia

In the first half of 2008, JKX farmed-in to three exploration licences in the Carpathian Fold Belt in Slovakia. The licences cover a total area of 2,278 sq km. JKX acquired a 25% interest in the Svidnik, Medzilaborce and Snina licences from Aurelian Oil & Gas plc by funding the first €1.6 million of a 238 km, 2D seismic programme which was largely acquired in the third quarter of 2008. 

 

The Carpathian Fold Belt has been an active area for oil and gas exploration and production for many years. Advances in seismic imaging technology have resulted in recent discoveries in analogous structural settings in Poland. Similar exploration efforts in Slovakia, a high-risk high-reward province with existing oil seeps and wells with gas shows, could prove up an economic petroleum system in an area with potential for dip-closed thrust traps of significant size. 

Operations Review - Georgia

JKX holds a 4% net profit interest in the Georgian Black Sea Production Sharing contract. The contract covers an area of 8,900sq km offshore Georgia and is operated by Anadarko Petroleum Corporation.

Anadarko has been unsuccessful in its search for additional partners to continue exploration in the PSC and has indicated its desire to withdraw from the licence. Under the terms of the farm-out agreement, JKX has the right to regain the licence if Anadarko withdraws (JKX's past costs with respect to the licence were written off in 2007). The other partner in the consortium, TPAO, has expressed an interest to remain in the licence. 

Negotiations are currently in progress between JKX and the Georgian authorities to agree an appropriate work programme which would be attractive to JKX, TPAO and potential partners in the current economic climate.

Operations Review - Turkey

Karakilise Licences: JKX was a participant during 2008 in the three Karakalise onshore exploration licences (JKX: 30%), covering a total of 1,230 sq km in south-eastern Turkey close to the town of Diyarbakir. In May 2008 an exploration well, Hakan Yilmaz -1, was drilled to test a Cretaceous age Mardin Limestone target in the north of the licence. The well encountered oil shows but was plugged and abandoned as a dry hole after failing to flow hydrocarbons on a drill-stem test.

South East Bismil Licences: In January 2008, the Company farmed into two onshore exploration licences in the South East Bismil area of south east Turkey (JKX: 20%). The two licences cover a total of 590 sq km south of the giant Bati Raman oilfield. An exploration well, Koyunlu -2, was drilled up-dip from the Koyunlu-1 discovery well in February 2008 and encountered oil shows in the target horizon but flowed only water on a drill-stem test.

JKX considers the exploration results in both licences to be disappointing to date. Consequently, JKX has withdrawn from all its Turkish licences in 2009.

Operations Review - USA

JKX held a 34.4% working interest in the 11,290 acres of the West Huxley Deep Federal Unit in Shelby County, east Texas. This Unit is presently being reformed as a new unit, Phoenix, with largely the same participatory interests. The operator is Newfield Energy, a major US independent who farmed-in during late 2007. JKX recognizes the potential of the Haynesville shale as a resource gas play in this part of east Texas. but continues to seek to dispose of its interest.

 

Financial Review

Production summary	Total 2008	Second half 2008	First half 2008	Total 2007
Production
Oil (Mbbl)	1,445	615	830	2,022
Gas (Bcf)	15.5	7.8	7.7	15.4
Oil equivalent (Mboe)	4,030	1,917	2,113	4,591
Daily production
Oil (bopd)	3,948	3,339	4,563	5,539
Gas (MMcfd)	42	42	42	42
Oil equivalent (boepd)	11,012	10,423	11,607	12,579

Operating results	Total 2008 $m	Second half 2008 $m	First half 2008 $m	Total 2007 $m
Revenue
Oil	121.8	46.7	75.1	122.5
Gas	83.1	42.3	40.8	59.4
Other	2.1	1.2	0.9	2.6
	207.0	90.2	116.8	184.5
Cost of sales
Operating costs	(23.9)	(12.2)	(11.7)	(18.4)
Depreciation, depletion and amortisation - oil and gas assets	(27.2)	(13.1)	(14.1)	(19.1)
Production based taxes	(4.0)	(1.7)	(2.3)	(3.3)
	(55.1)	(27.0)	(28.1)	(40.8)
Provision for impairment/write off of exploration costs	(6.9)	(6.9)	-	(17.7)
Total cost of sales	(62.0)	(33.9)	(28.1)	(58.5)
Gross profit	145.0	56.3	88.7	126.0
Operating expenses
General and administrative expenses	(12.7)	(7.5)	(5.2)	(12.2)
Loss on foreign exchange	(6.9)	(5.6)	(1.3)	(0.2)
Impairment of investment	-	-	-	(5.0)
Operating profit	125.4	43.2	82.2	108.6

 

Earnings	Total 2008	Second half 2008	First half 2008	Total 2007
Net profit ($m)	78.2	16.4	61.8	74.4
Basic weighted average number of shares in issue (m)	157	157	157	155
Earnings per share (basic, cents)	49.85	10.42	39.43	47.97
Earnings before interest, tax, depreciation and amortisation ($m)	154.9	57.6	97.3	129.4

Realisations	Total 2008	Second half 2008	First half 2008	Total 2007
Oil (per bbl) *	$84.34	$76.08	$90.45	$60.37
Gas (per Mcf) *	$5.47	$5.53	$5.40	$3.95

*Oil and gas prices are net of all transportation, shrinkage and brokerage charges.

Cost of production ($/boe)	Total 2008	Second half 2008	First half 2008	Total 2007
Production costs	$5.97	$6.37	$5.60	$4.01
Depreciation, depletion and amortisation	$6.75	$6.86	$6.66	$4.16
Production based taxes	$0.99	$0.87	$1.10	$0.72

Cash flow	Total 2008	Second half 2008	First half 2008	Total 2007
Cash generated from operations ($m)	161.8	74.9	86.9	153.5
Operating cash flow per share (cents)	103.2	47.7	55.5	98.9

Balance sheet	Total 2008	Second half 2008	First half 2008	Total 2007
Net cash ($m)	64.8	64.8	85.4	68.1
Net cash to equity (%)	19.3	19.3	24.8	23.8
Return on average capital employed (%)	25.2	10.6	39.2	29.5
Increase in property, plant and equipment/intangible assets ($m)
Ukraine	56.2	27.2	29.0	64.8
Russia	32.5	11.2	21.3	67.8
Other	21.5	14.1	7.4	15.3
Total	110.2	52.5	57.7	147.9

Un-Audited Group Income Statement

For the year ended 31 December

	Note	2008 $000	2007 $000
Revenue	3	207,047	184,509
Cost of sales
Operating costs - excluding impairment/write off of exploration costs	5	(55,077)	(40,839)
Provision for impairment/write off of exploration costs	5	(6,883)	(17,694)
Total cost of sales	5	(61,960)	(58,533)
Gross profit		145,087	125,976
General and administrative expenses		(12,700)	(12,181)
Loss on foreign exchange		(6,994)	(205)
Impairment of investment		-	(5,000)
Operating profit		125,393	108,590
Finance income		3,172	4,761
Finance cost		(1,004)	(50)
Profit before tax		127,561	113,301
Taxation - current		(39,374)	(38,603)
Taxation - deferred		(10,033)	(289)
Total taxation	6	(49,407)	(38,892)
Profit for the year		78,154	74,409
Earnings per share
- basic earnings per 10p ordinary share (in cents)	7	49.85	47.97
- diluted earnings per 10p ordinary share (in cents)	7	49.44	46.79
Dividends		(13,610)	(10,032)
Dividend (per share)		4.6 pence	3.2 pence

Un-Audited Statement of Recognised Income and Expense

For the year ended 31 December

	2008 $000	2007 $000
Equity - foreign currency translation	(16,985)	517
Net (expense)/income recognised directly in equity	(16,985)	517
Profit for the year	78,154	74,409
Total recognised income and expense for the year	61,169	74,926

  Un-Audited Group Balance Sheet

As at 31 December

	Note	2008 $000	2007 $000
Assets
Non-current assets
Property, plant and equipment		278,902	232,241
Other intangible assets		22,359	18,423
Goodwill		2,165	2,716
		303,426	253,380
Current assets
Inventories - finished goods		1,758	1,391
Trade and other receivables		15,002	10,380
Cash and cash equivalents	9	64,805	68,126
		81,565	79,897
Assets classified as held for sale	4	7,347	3,051
		88,912	82,948
Total assets		392,338	336,328
Liabilities
Current liabilities
Current tax liabilities		(10)	(1,912)
Trade and other payables		(26,670)	(22,911)
		(26,680)	(24,823)
Liabilities directly associated with the assets classified as held for sale	4	(8)	(127)
		(26,688)	(24,950)
Non-current liabilities
Provisions		(2,396)	(3,575)
Deferred tax		(29,097)	(21,579)
		(31,493)	(25,154)
Total liabilities		(58,181)	(50,104)
Net assets		334,157	286,224
Equity
Share capital		24,256	24,148
Share premium		41,015	40,217
Merger reserve		30,680	30,680
Amounts recognised directly in equity related to assets held for sale		-	803
Other reserves Capital redemption reserve		587	587
Equity - share options		2,719	2,448
Equity - foreign currency translation		(21,635)	(4,650)
Retained earnings		256,535	191,991
Total shareholders' equity		334,157	286,224

 

Un-Audited Group Cash Flow Statement

For the year ended 31 December

	Note	2008 $000	2007 $000
Cash flows from operating activities
Cash generated from operations	8	161,762	153,480
Interest received		3,045	5,161
Interest paid		(2)	(6)
Income tax paid		(38,300)	(38,707)
Net cash from operating activities		126,505	119,928
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired		(5,119)	(44,428)
Disposal of subsidiary		2,911	-
Proceeds from sale of property, plant and equipment		-	38
Short term loan advanced		(130)	(70)
Purchase of property, plant and equipment and intangible assets		(102,594)	(80,744)
Net cash used in investing activities		(104,932)	(125,204)
Cash flows from financing activities
Proceeds from issue of shares		906	2,330
(Repayment)/proceeds from borrowing		(6)	33
Dividends paid to shareholders		(13,610)	(10,032)
Net cash used in financing activities		(12,710)	(7,669)
Increase/(decrease) in cash and cash equivalents in the year		8,863	(12,945)
Effect of exchange rates on cash and cash equivalents		(12,184)	45
Cash and cash equivalents at 1 January		68,126	81,116
		64,805	68,216
Included in assets classified as held for sale		-	(90)
Included in cash and cash equivalents as per balance sheet		64,805	68,126

At year end $5.8m of the cash held in Ukraine at Prominvest Bank was on term deposit and categorised as restricted. Subsequent to year end the deposit has matured and the funds are no longer restricted.

Accounting policies

1. Basis of preparation

The financial information in this statement is not audited and does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985 (as amended). Full accounts for JKX Oil and Gas plc for the year ended 31 December 2007 have been delivered to the Registrar of Companies. The auditors' report on these accounts was unqualified and did not contain a statement under Section 237(2) or Section 237(3) of the UK Companies Act 1985.

The financial information in this statement contains extracts from the 2008 Annual Report, which will be issued in May 2009 and prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use in the European Union. The accounting policies used by JKX Oil and Gas plc (the "group") are consistent with those set out in the 2007 Annual Report. A full list of policies will be presented in the 2008 Annual Report.

This financial information has been prepared on a going concern basis following a review by the Directors of forecast cash flows for the next 12 months, including consideration of the ability of the Group to change the timing and scale of capital expenditure, if required.

2. Business environment

Ukraine and Russia display emerging market characteristics, and the legislation and business practices regarding banking operations, foreign currency transactions and taxation are constantly evolving as the governments attempt to manage the economies. Risks inherent in conducting business in an emerging market economy include, but are not limited to, volatility in the financial markets and the general economy. Uncertainties over the development of the tax and legal environment, as well as difficulties associated with the consistent interpretation and application of current laws and regulations, have continued. As at 31 December 2008, oil and gas assets based in Ukraine and Russia represent approximately 63% (2007: 66%) and 29% (2007: 28%) respectively of the Group's oil and gas assets.

The Group's operations and financial position may be affected by these uncertainties. The Group's financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts or classifications of liabilities that may result from these uncertainties.

3. Revenue

Revenue represents the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes or duty for the Group's share of oil and gas sales and related management services.

Revenue related to sales of oil and gas products is recognised when the significant risks and rewards of ownership have passed to the buyer and revenue can be reliably measured. Revenue related to other services is recognised when the services have been performed. 

4. Segmental analysis

Segmental Information

The primary segmental reporting format is determined to be the geographical segment according to the location of the asset. The directors consider the group to have a single class of business, being the exploration for, development and production of oil and gas reserves. Accordingly no secondary segmental information is presented.

There are five geographic reporting segments. Ukraine and USA are involved with production and exploration; Russia and 'Rest of World' are involved in exploration and development and the UK is the home of the head office. The 'Rest of the World' segment comprises operations in Hungary, Bulgaria, Georgia, Slovakia and Turkey.

Transfer prices between segments are set on an arms length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment results include transfers between segments. Those transfers are eliminated on consolidation.

  

2008	UK $000	Ukraine $000	Russia $000	USA $000	Rest of world $000	Sub Total $000	Eliminations $000	Total $000
External revenue Revenue by location of asset
Oil	-	121,823	-	-	-	121,823	-	121,823
Gas	-	83,059	-	35	-	83,094	-	83,094
Management services/other	-	2,130	-	-	-	2,130	-	2,130
	-	207,012	-	35	-	207,047	-	207,047
Inter segment revenue
Management services/other	20,357	-	-	-	-	20,357	(20,357)	-
Equipment	25,917	-	-	-	-	25,917	(25,917)	-
	46,274	-	-	-	-	46,274	(46,274)	-
Total revenue
Oil	-	121,823	-	-	-	121,823	-	121,823
Gas	-	83,059	-	35	-	83,094	-	83,094
Management services/other	20,357	2,130	-	-	-	22,487	(20,357)	2,130
Equipment	25,917	-	-	-	-	25,917	(25,917)	-
	46,274	207,012	-	35	-	253,321	(46,274)	207,047
Operating profit/(loss)	(6,597)	140,041	(538)	(80)	(3,953)	128,873	(3,480)	125,393
Finance income						3,172	-	3,172
Finance cost						(1,004)	-	(1,004)
Profit before tax						131,041	(3,480)	127,561
Assets and liabilities
Segment assets	2,607	199,951	87,789	-	27,674	318,021	-	318,021
Goodwill	-	-	2,165	-	-	2,165	-	2,165
Assets held for sale - assets	-	-	-	7,347	-	7,347	-	7,347
Cash at bank and in hand	42,099	13,587	8,044	74	1,001	64,805	-	64,805
Total assets	44,706	213,538	97,998	7,421	28,675	392,338	-	392,338
Segment liabilities	(7,793)	(5,219)	(6,008)	(645)	(9,401)	(29,066)	-	(29,066)
Current tax liabilities	-	(10)	-	-	-	(10)	-	(10)
Assets held for sale - liabilities	-	-	-	(8)	-	(8)	-	(8)
Deferred tax	-	(19,260)	(9,837)	-	-	(29,097)	-	(29,097)
Total liabilities	(7,793)	(24,489)	(15,845)	(653)	(9,401)	(58,181)	-	(58,181)
Non cash expense (other than depreciation)	1,281	7,889	-	-	7,497	16,667	-	16,667
Increase in property, plant and equipment and intangible assets	576	56,180	32,524	1,859	19,097	110,236	-	110,236
Depreciation, depletion & amortisation	362	29,088	65	1	-	29,516	-	29,516

 

 

2007	UK $000	Ukraine $000	Russia $000	USA $000	Rest of world $000	Sub Total $000	Eliminations $000	Total $000
External revenue Revenue by location of asset
Oil	-	122,530	-	-	-	122,530	-	122,530
Gas	-	59,344	-	15	-	59,359	-	59,359
Management services/other	210	2,410	-	-	-	2,620	-	2,620
	210	184,284	-	15	-	184,509	-	184,509
Inter segment revenue
Management services/other	8,176	-	-	-	-	8,176	(8,176)	-
Equipment	37,864	-	-	-	-	37,864	(37,864)	-
	46,040	-	-	-	-	46,040	(46,040)	-
Total revenue
Oil	-	122,530	-	-	-	122,530	-	122,530
Gas	-	59,344	-	15	-	59,359	-	59,359
Management services/other	8,386	2,410	-	-	-	10,796	(8,176)	2,620
Equipment	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)	108,590
Finance income						4,761	-	4,761
Finance cost						(50)	-	(50)
Profit before tax						117,583	(4,282)	113,301
Assets and liabilities
Segment assets	3,638	173,083	68,447	5,489	11,778	262,435	-	262,435
Goodwill	-	-	2,716	-	-	2,716	-	2,716
Assets held for sale - assets	-	-	-	-	3,051	3,051	-	3,051
Cash 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 Assets	-	-	-	-	(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 than depreciation)	690	967	-	-	16,727	18,384	-	18,384
Increase in property, plant and equipment and intangible assets	687	64,850	67,844	119	14,402	147,902	-	147,902
Depreciation, depletion & amortisation	173	20,661	-	-	-	20,834	-	20,834

 

2008	UK $000	Ukraine $000	Russia $000	USA $000	Rest of world  $000	Total $000
Revenue by location of customer
External revenue
Oil	-	121,823	-	-	-	121,823
Gas	-	83,059	-	35	-	83,094
Management services/other	-	2,130	-	-	-	2,130
	-	207,012	-	35	-	207,047

2007	UK $000	Ukraine $000	Russia $000	USA $000	Rest of world  $000	Total $000
Revenue by location of customer
External revenue
Oil	-	122,530	-	-	-	122,530
Gas	-	59,344	-	15	-	59,359
Management services/other	-	2,410	-	-	210	2,620
	-	184,284	-	15	210	184,509

5. Cost of sales

	2008 $000	2007  $000
Operating costs	23,874	18,430
Depreciation, depletion and amortisation	27,222	19,097
Production based taxes	3,981	3,312
	55,077	40,839
Provision for impairment/write off of exploration costs	6,883	17,694
Total cost of sales	61,960	58,533

The 2008 provision for impairment/write off of exploration costs includes impairment of the Group's Turkish licence South East Bismil and the write off of the Karakilise well which was dry ($6.7m) and $0.1m relating to exploration expenditure in Ukraine. 

The provision in 2007 for impairment/write off of exploration costs, includes impairment of the Group's Italian asset portfolio of $3.3m (based on the agreed disposal proceeds); West Georgia offshore licence $5.9m (recognising the passage of time that the assets have been held); Turkish licence Thrace $0.5m; and $0.9m relating to exploration expenditure in Ukraine. Additionally, the Group wrote off $7.1m relating to the Golitza B1 well in Bulgaria which was dry.

The cost of inventories (calculated by reference to production costs) expensed in 2008 was $55.1m (2007: $40.5m).

 

6. Taxation

Taxes charged on production of hydrocarbons are included in cost of sales.

Analysis of tax on profit on ordinary activities.	2008 $000	2007  $000
Current tax
Overseas - current year	39,384	38,603
Overseas - prior year	(10)	-
Current tax total	39,374	38,603
Deferred tax
Overseas - current year	10,033	289
	49,407	38,892

Total tax reconciliation

The total tax charge for the year of $49.4m (2007: $38.9m) is higher (2007: higher) than the standard rate of UK corporation tax of 28.5% (2007: 30%). The differences are explained below: 

 

Total tax reconciliation	2008 $000	2008  %	2007  $000	2007  %
Profit on ordinary activities before tax	127,561		113,301
Total tax calculated at 28.5% (2007: 30%)	36,352	28.5%	33,990	30.0%
Impairment/write off of fixed assets	(192)	-0.2%	6,859	6.1%
Other fixed asset differences	115	0.1%	44	0.0%
Net increase in unrecognised losses carried forward	1,003	0.8%	3,127	2.8%
Other temporary differences not recognised	(96)	-0.1%	(2,863)	-2.5%
Effect of tax rates in foreign jurisdictions	(6,921)	-5.4%	(7,100)	-6.3%
Withholding tax suffered	2,537	2.0%	3,320	2.9%
Other non-taxable items	3,337	2.6%	1,515	1.3%
Adjustment relating to prior periods	(10)	0.0%	-	-
Effect of changes in tax rates	(2,699)	-2.1%	-	-
Sub total	33,426	26.2%	38,892	34.3%
Foreign exchange movement on tax balances	15,981	12.5%	-	-
Total tax charge	49,407	38.7%	38,892	34.3%

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 the group. 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 the ordinary equity holders is based on the following: 

Earnings	2008  $000	2007 $000
Earnings for the purposes of basic earnings per share	78,154	74,409
(profit for the year attributable to equity holders)
Effect of dilutive potential ordinary shares:	-	-
Earnings for the purposes of diluted earnings per share	78,154	74,409
Number of shares	2008	2007
Basic weighted average number of shares	156,769,466	155,127,794
Dilutive potential ordinary shares:
Share options	1,293,920	3,892,224
Weighted average number of shares for diluted earnings per share	158,063,386	159,020,018

There were 2,022,251 (2007: 2,271,500) outstanding share options at 31 December 2008, of which 981,037 (2007: 2,271,500) have a dilutive effect.

8. Reconciliation of operating profit to net cash inflow from operations

	2008 $000	2007  $000
Operating profit	125,393	108,590
Depreciation, depletion and amortisation	29,503	20,831
Impairment/write off of exploration costs/intangible assets	6,883	17,660
Gain on disposal of subsidiary/asset disposal	(915)	-
Impairment of investment	-	5,000
Share-based payment costs	271	315
Exchange differences	6,435	250
Cash generated from operations before changes in working capital	167,570	152,646
(Increase)/ Decrease in operating debtors	(4,780)	(1,435)
(Decrease)/Increase in operating creditors	(661)	2,629
Increase in inventory	(367)	(360)
Cash generated from operations	161,762	153,480

9. Cash and cash equivalents

	2008 $000	2007 $000
Cash	962	1,313
Short term deposits	63,843	66,813
Cash and cash equivalents	64,805	68,126

Glossary

Bcf	Billion cubic feet
bcpd	Barrel of condensate per day
boe	Barrel of oil equivalent
boepd	Barrel of oil equivalent per day
bopd	Barrel of oil per day
bpd	Barrel per day
cfpd	Cubic feet per day
Hryvna	The lawful currency of Ukraine
LIBOR	London InterBank Offered Rate
Mbbl	Thousand barrels
Mboe	Thousand barrels of oil equivalent
Mcf	Thousand cubic feet
MMbbl	Million barrels
MMboe	Million barrels of oil equivalent
MMcfd	Million cubic feet per day
Roubles	The lawful currency of Russia
sq.km	Square Kilometre
US	United States
$	United States Dollars

Conversion factors

6,000 standard cubic feet of gas = 1 boe

We welcome visits to our website

www.jkx.co.uk

ENDFR JFMBTMMITTJL

---

Related Shares:

JKX.L