Half Yearly Report

FOR IMMEDIATE RELEASE 28 JULY 2014

JKX Oil & Gas plc

('JKX' or the 'Company')

HALF-YEARLY RESULTS

 FOR

THE SIX MONTHS ENDED 30 JUNE 2014

Key Financials

· Revenue: $74.3m (2013: $91.3m)

· Profit from operations before exceptional item: $5.8m (2013: $9.4m)

· Earnings per share: 4.95 cents (2013: 4.34 cents)

· Operating cash flow: $31.1m (2013: $43.2m)

· Capital expenditure: $21.4m (2013: $33.3m)

· Cash resources and undrawn bank facilities: $43.5m (31 December 2013: $40.9m)

Operational Highlights

· Average production up 12% to 10,126 boepd (2013: 9,040 boepd)

· Elizavetovskoye field in Ukraine commenced production and averaged more than 9 MMcfd in the period, significantly above expectations

· Russian production up 20% with an average of 31 MMcfd through the period (2013: 26 MMcfd) despite constrained production

Outlook

· Completion of first Elizavetovskoye deep sandstone appraisal well scheduled for third quarter

· Elizavetovskoye plant upgrade on schedule to double capacity to 30 MMcfd in third quarter

· Return to Rudenkovskoye field drilling in Ukraine planned for second half of 2014

· Russian plant capacity modifications on schedule to increase capacity to 60 MMcfd by year end

· The political situation in Ukraine remains uncertain.

JKX Chief Executive, Dr Paul Davies, commented:

"The first half of the year saw a continuing improvement in the Company's production levels, in line with our strategy in both Ukraine and Russia, with the contribution of the first two wells in our new Elizavetovskoye field demonstrating the potential of this asset to significantly raise the level of our Ukrainian production going forward.

Revenues in the period have been adversely affected by lower gas realisations and lower oil production in Ukraine. However, we continue to benefit from strong oil, condensate, gas and LPG realisations which are expected to remain firm through the rest of the year.

The work programmes in both Ukraine and Russia are fully funded. Production is anticipated to be maintained around 10,000 boepd through the second half of the year.

The difficult political situation in the east of Ukraine has continued into the second half of the year, but to date our operations have not been directly affected."

ENDS

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Chairman's Statement

Your Company continues to focus on the development of its oil and gas assets in eastern and central Europe. In Ukraine, we are broadening our portfolio with the new Elizavetovskoye field development alongside our core production and exploration licences within the Novo-Nikolaevskoye Complex. In southern Russia, we are seeking to grow our existing production base at Koshekhablskoye with corrosion resistant materials downhole and increased plant processing capacity.

Performance

In the first half of the year, increased production has been maintained at more than 10,000 boepd from approximately equal Ukrainian and Russian deliveries. First production from the Elizavetovskoye field in Ukraine at the beginning of the period was followed shortly thereafter by a doubling of production to near plant capacity with the completion of a second well. Work is currently well-advanced on increasing plant capacity to 30MMcfd. In parallel, we have continued development and appraisal drilling and well work-overs on our mature Ukrainian fields. In Russia, production has increased despite being constrained to approximately 80 per cent of plant capacity due to tubing failures on two of our five production wells. Replacement of tubing is scheduled to begin in the second half of the year following delivery of corrosion resistant tubing and mobilisation of a suitable rig. Work is also underway to increase the processing capacity of our Russian plant by 50 per cent to 60 MMcfd. Completion is scheduled for year-end, but is dependent on Russian regulatory approval.

Despite increased Group production, revenue and profit from operations for the period were adversely affected by the fall in gas realisations in Ukraine, which was exacerbated by the sharp devaluation of the Hryvnia/US Dollar exchange rate during the first quarter, and reduced Ukrainian oil and condensate production. This is addressed more fully in the Financial Review.

Dividend

The Board continues to review its dividend policy, taking account of the Group's capital commitments in Ukraine and Russia and the forecast cash flows. The Board has concluded that it is not appropriate at this time to award an interim dividend but will review its dividend policy in the circumstances prevailing at the year end.

Outlook

The Board and senior management are committed to increasing stabilised production rates in both Ukraine and Russia. We have well-developed work programmes on-going in both Ukraine and Russia which are fully funded from a combination of operating cash flow and proceeds from the US$40 million convertible bond that we placed at the beginning of 2013. Although our ability to access longer-term debt financing is severely limited due to the presence of certain shareholders on our register, I am pleased to report that earlier this month we have again been able to renew the 12-month US$15 million draw-down facility with Credit Agricole in Kiev.

In Ukraine, the second half of the year will see significant progress in the development of our Elizavetovskoye field with the completion of the first well to the deep sandstone targets, coupled with the results of the 3-D seismic survey which was shot over the licence area earlier in the year. Plant upgrade will be complete in time to process the anticipated increase in production. Further drilling is also scheduled on the deep Rudenkovskoye field and an additional development well will be drilled on the Novo-Nikolaevskoye Complex.

In Russia, we will continue to focus on maximising production from our three production wells whilst we await rig mobilisation and delivery of materials for the two tubing replacements. Meanwhile, the plant upgrade will proceed to increase the processing capacity to meet the anticipated throughput when all five production wells are back in operation.

We continue to seek opportunities for growth whether by acquisition or by organic development in our core central and eastern European areas. However, the Board recognises that the current political instability in eastern Ukraine is not conducive to increased investment activity. Our operations in both Ukraine and Russia have not been affected to date by the current unrest in Ukraine nor the deterioration in relations between Ukraine and Russia. I will keep shareholders informed if there is any change to our operating position.

I would like to express the Board's appreciation of the continued dedication of our staff to meeting the objectives set for growth of the Company. In particular, I want to pay tribute to our Ukrainian staff for their performance over the last six months under unusually trying circumstances.

Chief Executive's Statement

Performance highlights

The performance highlights for the period are:

· Average daily production increased by 12% to 10,126 boepd (2013:9,040 boepd)

· Elizavetovskoye field in Ukraine commenced production and averaged more than 9 MMcfd in the period

· First Elizavetovskoye deep sandstone appraisal well on schedule for completion in third quarter

· Elizavetovskoye plant upgrade on schedule to double capacity to 30 MMcfd in third quarter

· Russian production constrained to an average of 31 MMcfd through the period (2013: 26 MMcfd)

· Russian plant capacity modifications on schedule to increase capacity to 60 MMcfd by year end.

The first half of the year saw a continuing improvement in the Company's operations with daily production rising to average 10,126 boepd for the period. This is the result of gas production growth in both Ukraine and Russia, more than offsetting a reduction in Ukrainian oil and condensate production in the period. Oil realisations strengthened in the period averaging $92.39/bbl (2013: $89.45/bbl). Average gas realisations reduced to $5.64/Mcf (2013:$7.19/Mcf), mainly reflecting the reduction in Ukrainian gas prices which were further reduced by the devaluation of the Ukrainian Hryvnia in the first quarter of the year. LPG realisations in Ukraine remained strong at $808/tonne, but were lower than the previous period (2013: $846/tonne).

Improved production levels have not translated into increased revenues which fell to $74.3m as a direct result of the 25% devaluation of the Hryvnia/US Dollar exchange rate during the first quarter, and reduced Ukrainian oil and condensate production in the period. Profit from operations was also negatively affected.

Ukraine

The key event in the period was the start-up of the Elizavetovskoye field on-schedule and on-budget in early January. The two production wells to the A2 carbonates both came on-stream significantly above expectations, and have required an early expansion of the processing facility to 30 MMcfd. The 145 sq. km 3D seismic programme over the licence was completed in early March and processing and preliminary interpretation is due for completion in the third quarter. The Skytop rig returned to the Elizavetovskoye field in late May to spud the important 4,300m appraisal well to the G-sands, with results anticipated in the third quarter.

Development and appraisal drilling were also undertaken on the mature Novo-Nikolaevskoye and Molchanovskoye fields and, together with work-over activity, have contributed to the rise in Ukrainian gas production in the period.

The political unrest in the east of Ukraine has been carefully monitored throughout the period. Our operations in Poltava have not been affected, and both production and drilling operations have proceeded normally. The impact of the rapid devaluation of the Ukrainian Hryvnia has depressed the US$ value of our gas sales receipts for approximately half the period, but the US$ value of receipts in the latter part of the period have returned to pre-devaluation levels.

Russia

Work-over of the fifth production well-05 in the Koshekhablskoye field was completed at the beginning of the year, but subsequent tubing failures in both this well and well-27 have constrained production in the period to approximately 80% of nominal plant capacity. However, periodic acidisations of the remaining production wells have ensured that this level of production has been maintained, and there are encouraging signs that the requirement for such repetitive treatment is reducing. Orders have been placed for corrosion resistant tubing strings, with delivery scheduled for the third quarter. In parallel, an extensive review of rig availability for the tubing replacement operation in the second half of the year is well advanced.

Design and procurement activity continued through the period for expansion of the plant capacity to 60 MMcfd. Approval of the upgrade project will be required from the Russian authorities prior to implementation in the second half of the year.

The exploration programme on the Georgievskoye licence is progressing on-schedule with the completion of reprocessing of existing seismic data and interpretation in the period. Planning continues for further seismic acquisition in the fourth quarter.

Current and future activity

The work programmes in both Ukraine and Russia for the second half of the year are well defined and fully funded.

The main focus of development activity in the current period is in Ukraine with the completion of the deep well-303 in the Elizavetovskoye field and appraisal of the G-sandstone reservoirs. This appraisal will be aided by the results of the 3-D seismic programme which should enable us to assess the extent of the shallower A-carbonate and deeper G-sandstone reservoirs, select future drilling locations and upgrade our reserves. In addition, further development drilling is scheduled on both the deep Rudenkovskoye field, and the Ignatovskoye field.

In Russia, work will continue to maintain current production levels whilst awaiting rig mobilisation and delivery of new tubing strings. We expect to secure a suitable rig in the second half of the year to commence the first of the tubing replacements.

Production in the second half of the year is anticipated to be maintained around 10,000 boepd, although successful drilling results in Ukraine could improve on this. Plant upgrades are scheduled in both Ukraine and Russia in the second half of the year, and will be required to process any increased production levels. Gas realisations are anticipated to remain strong in Ukraine through the end of the year, with gas Rouble realisations in Russia also increasing by 4.2%.

The first half of the year has seen good progress on lifting production levels in both Ukraine and Russia. I thank all management and staff for their hard work, and our shareholders for their continued support.

Operational Review

Group production

The first half of 2014 saw start-up of production in the Elizavetovskoye gas field and steady production in the Novo-Nikolaevskoye group of fields in Ukraine, and constrained production from the Koshekhablskoye field in Russia.

Group average production in the first half of 2014 was 10,126 boepd, comprising 54.5 MMcfd of gas and 1,049 bpd of oil and condensate, a 12% increase on the average for the first half of 2013. Hungarian oil and gas production ceased in late 2013 and discussions are in progress with the operator on a new programme to restart the field.

Ukraine

Novo-Nikolaevskoye licences

Production

Average production from the Novo-Nikolaevskoye group of fields in the first half of 2014 was 3,353 boepd comprising 14.2 MMcfd of gas and 982 bpd of oil and condensate, a 25% decrease on the average for the first half of 2013.

Development drilling and other well activity

The Skytop N-75 rig moved to the Novo-Nikolaevskoye area to start drilling operations in mid-March while the TW-100 workover rig has been active from the beginning of the year, carrying out five re-completions, one well repair and six abandonments in the period.

· Appraisal well NN-80 was drilled to a depth of 1,794m and targeted the upper V-15 Visean sandstone in the Novo-Nikolaevskoye field. Initial results were considerably above expectations with a flow rate of 4.98 MMcfd and 51 bpd condensate. Production has since stabilised at around 1 MMcfd with 8 bcpd.

· Appraisal well IG-141 was drilled to a depth of 2,802m and targeted the Devonian sandstone in a downthrown fault block on the northern flank of the Ignatovskoye field. Initial flow rates exceeded expectations, but decline was rapid and the well is now producing around 30 bopd.

· The rig has re-located to the Elizavetovskoye field but is scheduled to return to the Novo-Nikolaevskoye area for further appraisal drilling later in the third quarter.

· Recompletions using the TW-100 rig in period included re-running the completion in wells M-170 and IG-129 to allow for additional perforations in the Devonian sandstone and the Tournaisian T2 sandstone respectively. In addition, well NN-09 was recompleted for gas lift.

· The TW-100 also carried out a tool string recovery operation in well M-170

· Wells M-163, M-164, M-168, M-170 and M-205 on the Molchanovskoye field were plugged and abandoned along with well NN-75 on the Novo-Nikolaevskoye field.

· A smaller diameter velocity string was installed within the production tubing of the multi-fracced well R-103 in the Rudenkovskoye field using a coiled tubing unit. The velocity string aids fluid recovery and minimises the risk of liquid loading which may inhibit gas production, particularly in the lower frac zones. This has proved moderately successful and is now being supplemented by a gas lift system.

· Wireline operations have focussed on the clearance of wax and salt build up in the production tubing of many wells. A more aggressive programme in the period has ensured that oil production in particular has exceeded expectations.

Production facilities

Operations at the main production facility and the LPG plant continued smoothly through the period. Work continues on plant optimisation, re-routing flowlines to reduce back pressure, and wax clearance of flowlines to enhance production from the available well stock.

Elizavetovskoye exploration licence

The Elizavetovskoye gas field commenced production in January 2014.

Production

Average production from the Elizavetovskoye field in the first half of 2014 was 1,547 boepd comprising 9.2 MMcfd of gas and 18 bpd of condensate. There was no production in 2013.

Drilling and development activity

The Skytop rig drilled well in E-301 at the end of 2013 and the well was completed in early 2014. The second well E-302 was completed in March.

· Both wells are producing from the Permian A2 carbonate reservoir at stabilised rates of around 5 MMcfd and 10 bpd condensate each.

· The third well on the field, targeting the deeper Carboniferous G7 to G12 sandstone reservoirs with a planned TD of 4,370m, was spudded in late May with completion expected in August.

· The 145 sq. km 3D seismic programme was completed in early March and processing is almost complete. Preliminary interpretation is due for completion by early August - in good time to select bottom-hole locations for further drilling in 2014.

· The early production facility (EPF) was completed at the end of 2013 and took first gas from the E-301 well in January 2014;

· The EPF is being upgraded to double its capacity from 15 MMcfd to 30 MMcfd and to cater for the recently revised hydrocarbon dew point specifications in the export pipeline. These modifications should be completed in the third quarter and compression will also be installed later in the year.

The exploration licence expires at the end of 2014 and preparations are in hand for its conversion to a 20-year production licence.

Zaplavskoye exploration licence activity

Following the earlier success of the two exploration wells Z-04 and Z-05 in the northwest of the licence, attention has been focussed on identifying new prospects in the area using data from the new 3D seismic acquisition programme and logs from the historic well stock. Amplitude analysis of the Visean sandstones has already contributed to good development drilling and recompletion results in the Novo-Nikolaevskoye field, and on-going amplitude studies indicate further potential for Visean V25/26 sandstone traps in addition to more conventional Devonian sandstone and Visean carbonate structural closures. Up to seven new prospects or leads have been identified with prospective resources ranging from 5 to 60 Bcf unrisked with the aim of working these up for drilling in 2015-2016. A second rig is already under consideration for our Ukraine licences and could accelerate this exploration programme.

The exploration licence expires at the end of 2014 and preparations are in hand for its extension for a further 5 years. The application will also include a proposal to relinquish some of the unprospective southern parts of the licence and to extend the licence to the more prospective northern area.

Russia

Koshekhablskoye licence

Production

Average production from the Koshekhablskoye field in the first half of 2014 was 5,226 boepd comprising 31.0 MMcfd of gas and 52 bpd of condensate, a 20% increase on the average for the first half of 2013. The production figures are below expectations due to the loss of production from well-27 and well-05 in the period.

Workover and well stimulation activity

Production from crestal well-20 in the period ranges from 15-20 MMcfd subject to routine acid treatment. The north flank well-25 has been producing 11-12 MMcfd without further acidising. The deep east flank well-15, originally thought to have been tight, now cycles from 0.9 - 1.5 MMcfd with fluid build-up being cleared periodically.

Drifting of the tubing in the newly completed well-05 indicated an obstacle at around 2,600m which appeared to be a joint of damaged tubing. The well has been suspended and the tubing will be replaced as soon as a rig can be mobilised.

Early in the period, it was observed that pressure had started to build in the annulus of well-27 and there appeared to be communication with the casing annuli. The well was diverted to the flare pit to minimise the pressure on the casing and a coiled tubing unit mobilised to kill the well. This operation was completed successfully and operations to restore the pressure integrity of the well and replace the tubing are expected to begin in the second half of the year.

Facilities

With average production over the period of 31 MMcfd, the Gas Processing Facility ('GPF') has been operating comfortably within its current design capacity of 40 MMcfd.

The plant performance has been reviewed and plans have been approved internally to increase the capacity to 60 MMcfd. This will entail changes to some of the vessels, replacement of some valves and pipework and improvements to the operating procedures. A design institute has been selected to assist in obtaining government approval and this process will run in parallel with preparations for the modifications with the object of completing the upgrade by the year-end.

Licence obligations

The obligation to re-enter and sidetrack well-09 to re-drill the full Callovian reservoir sequence and, if successful, test the Callovian V unit has been deferred until June 2019.

Georgievskoye exploration licence

Our wholly owned Russian subsidiary, Yuzhgazenergy LLC ('YGE'), was awarded the 170.7 sq. km Georgievskoye exploration licence in 2012. The largest part of the licence lies adjacent to, and immediately south, of the Koshekhablskoye production licence but a significant part of it also runs to the northwest of the Koshekhablskoye field as well as covering the western and eastern flanks of the field.

Recovery, reprocessing and interpretation of all the existing 2D seismic is complete, the original 3D cube is being reprocessed and preparations are now being made for further seismic acquisition late in 2014.

Hungary

Production

Hajdunanas field

Production from the Hajdunanas and Gorbehaza fields (JKX 50%) was suspended in 2013. Discussions are in progress with the operator on a new programme to restart the Hajdunanas field.

Exploration and appraisal

Hernad licences

JKX holds a 50% equity interest in the two Hernad licences in the northern Pannonian Basin. Two shallow prospects, Tisvaszvari-15 and Tisvaszvari-6B, have been identified for possible drilling in 2014/15.

Sarkad I Mining Plot

JKX retains its 25% interest in the 15.6 sq. km farm-in area around the Nyekpuszta-2 gas condensate discovery well, formerly part of the Vezsto exploration licence. Discussions are in progress with the operator on a programme to appraise the field.

Turkeve IV Mining Plot

The Turkeve IV Mining Plot (JKX 50%) of 10 sq. km has been approved for the productive area around the Ny-7 well. The operator continues to look for a solution to achieving production from the Ny-7 well where the high CO2 content has prevented direct access to the pipeline network

Slovakia

Exploration

JKX continues to hold a 25% equity interest in the Svidnik, Medzilaborce and Snina exploration licences in the Carpathian fold belt in north east Slovakia. Following a change in operator, the Cierne-1 exploration well has been deferred and a shallower prospect is being evaluated.

Bulgaria

Exploration

JKX's withdrawal from the Provadia licence became effective in January 2014 and the Company no longer has any licence interests in Bulgaria.

Financial performance

1Earnings before interest, tax, depreciation and amortisation ('EBITDA') is a non-IFRS measure and calculated using Profit from operations of $2.4m (2013: $9.4m) and adding back depreciation, depletion and amortisation and exceptional items of $23.3m (2013: $27.1m). EBITDA is an indicator of the Group's ability to generate operating cash flow that can fund its working capital needs, service debt obligations and fund capital expenditures.

2Total cash is Cash and cash equivalents plus Restricted Cash.

3Net cash/(debt) is Total cash less Borrowings.

4 Return on average capital employed is the annualised Profit for the period divided by average capital employed.

Financial Review

Our on-going investment programme and drilling campaign are under-pinned by the proceeds of the convertible bond placement in Q1 2013, and these are both on-track and have resulted in increased Group gas production in the first half of 2014.

Our re-focus on our Ukrainian projects and associated capital expenditure programmes is beginning to show results. Although gas production increased, oil production continued to decline as we seek to maintain our oil recovery rates from our mature fields.

Gas production in Russia increased in the period and made a meaningful contribution to Group production, although it remains constrained by well tubing failures in two wells in the first quarter of the year.

Revenue

Group revenues of $74.3m (2013: $91.3m) were down 18.6%, resulting mainly from lower gas realisations and reduced oil production in Ukraine; this was partially offset by an increase in gas production and realisations in Russia.

Gas realisations in Ukraine were reduced due to generally lower industrial prices compared with the same period in 2013 exacerbated by the sharp 25% devaluation of the Hryvnia/US Dollar exchange rate during the first quarter, which resulted in lower short-term industrial prices in February and March expressed in US Dollars.

The industrial price increased to UAH4,020 per Mcm ($10.34/Mcf) on 1 April 2014 to take account of both the current tariff and the Hryvnia/US Dollar exchange rate. In May and June, our realised gas price in Ukraine was approximately $11/Mcf.

Gas production volume in Ukraine in the period increased approximately 19.6% from 3,264 boepd to 3,903 boepd; however, sales volume dropped 7.4% from 3,732 boepd to 3,456 boepd. This was a result of placing gas into storage to return our inventory position to normalised levels.

Average Group oil realisations were 3.3% higher at $92.39/bbl (2013: $89.45/bbl), in line with trends in international oil prices; however, this was not sufficient to offset the 26% drop in production volumes.

Both gas volumes and prices increased in Russia in the period. Gas production increased approximately 20% and average gas realisations increased by 2.3% from $2.58/Mcf to $2.64/Mcf. Despite a 15% price increase from 1 July 2013, the realisation increase was substantially less due to the devaluation of the Russian Rouble. The Rouble devalued from an average of 31.0491 Roubles/US Dollar during 1H 2013 to 35.0824 Roubles/US Dollar during 1H 2014.

Average sales volume rose 1.7% to 9,364 boepd (2013: 9,202 boepd), with 48.6% (4,554 boepd) and 51.4% (4,810 boepd) sold in Ukraine and Russia, respectively. The combination of lower US Dollar realisations on both Ukrainian and Russian gas sales, and the increased proportion of Russian gas in Group sales resulted in an overall reduction in group gas realisations of 22% to $5.64/Mcf (2013: $7.19/Mcf).

The strong operational performance of the Ukrainian LPG plant, albeit affected by a lower volume of gas to process, in combination with continued attractive LPG prices contributed $4.8m (2013: $6.1m) to Group revenue.

Profit from operations

Profit from operations of $5.8m, before an exceptional item of $3.3m (2013: $9.4m), was primarily the result of the decrease in revenues in Ukraine and the following items detailed below:

Total cost of sales for the period (excluding an exceptional item of $3.3m) decreased by $16.7m to $53.2m (2013: $69.9m) due to decreases in:

· operating costs ($0.5m)

· oil and gas inventory movements ($6.9m)

· depreciation, depletion and amortisation ('DD&A') charge ($6.5m)

· production based taxes ($2.8m).

Ukrainian sales from inventory and product purchases during the period significantly decreased to $0.8m (2013: $7.7m), as a result of production rising in Ukraine, whereas in 2013 we maintained our sales levels despite reduced production during certain periods. This resulted (on a boe basis) in a 52% decrease in production costs to $6.85/boe from the $14.24/boe.

DD&A charge reduced by $6.5m as a result of the upward revision of reserves for Ignatovskoye, Molchanovskoye, Novo-Nikolaevskoye and Elizavetovskoye fields in Ukraine which led to lower DD&A rates in $/boe as the cost of amortizing our oil and gas assets is now spread over a larger base of reserves. The Group's rate reduced to $10.72/boe (2013: $15.98/boe).

Production based taxes reduced by $2.8m, mainly due to the actual average import price in Ukraine (which is the basis for calculating the production tax charge for gas) being lower than in 2013. This price is communicated by the Ministry of Economic Development and Trade of Ukraine on a monthly basis and it decreased from $418/Mcm in 1H 2013 to $294.1/Mcm in 1H 2014 as Russia adhered to its agreement to significantly reduce its price for gas in Q1 2014 as part of its rescue package offered to Ukraine in Q4 2013. However, this was offset by the introduction of an unexpected higher gas production tax rate from 25% to 28% on 1 April 2014. The oil tax rate remained constant at 39%.

The Group's administrative expenses remained stable and totalled $10.1m (2013: $10.1m). Foreign exchange loss increased by $3.5m to $5.3m, due to a balance sheet adjustment on the value of Hryvnia denominated current assets resulting from the significant devaluation of the Ukrainian Hryvnia.

The exceptional item of $3.3m (2013: nil) is a result of one-off costs incurred in Russia to kill well 27. We are planning to start the work on re-instating well 27 later this year. We will not bear the full cost of a new well operation as this expenditure will be partially covered by insurance proceeds.

Finance costs

Finance costs are represented by the convertible bond interest and remained constant at $1.6m (2013: $1.6m).

The $6.1m credit for the fair value movement on the derivative liability represents the change in fair value of the conversion option associated with the convertible bond since its completion on 19 February 2013. The bonds have a conversion option which becomes more valuable to the bond holder as the Company's share price nears or exceeds the fixed conversion strike price (76.29 pence). As the Company's share price has decreased from 71.50 pence at 31 December 2013 to 57.75 pence at 30 June 2014, a credit has been recognised that represents the decrease in fair value of the potential liability of the Company to settle any conversion options that may be exercised in future periods.

Taxation

The total tax credit for the year was $1.3m (2013: charge $2.2m), comprising a current tax charge of $3.0m (2013: $5.7m) and a deferred tax credit of $4.3m reflecting recognition of the Russian deferred tax asset in respect of local tax losses (2013: $3.5m). The effective current tax rate for the period of 41% of profit before tax is mainly due to non-deductibility of foreign exchange losses in Ukraine.

In 2014, the Ukrainian corporate tax rate reduced to 18% (2013: 19%).

Other taxation - general

The production based tax expense for the year was $17.6m (2013: $20.4m), representing a 13.7% reduction which has been recognised in cost of sales.

Other taxation - Ukraine

The royalties and rental costs regime in Ukraine changed to a single production tax system for oil and gas from 1 January 2013, making our position and future liability simpler and more predictable.

On 1 April 2014, the government increased the production tax rate for gas from 25% to 28%. This rate is applied to the actual average import price communicated by the Ministry of Economic Development and Trade of Ukraine. The oil tax rate remained constant at 39%.

Other taxation - Russia

The gas and condensate mineral extraction tax ('MET') rate applicable in 1H 2014 was 471 Roubles/Mcm (1H 2013: 376 Roubles/Mcm). A new MET formula approved in September 2013 was implemented from 1 July 2014 and is based on average market gas prices, gas production as a share of total hydrocarbon output and complexity of gas reservoirs (depletion rates, depth of the producing horizons and geographical location of producing fields). The rate applicable from 1 July 2014 is approximately 320 Roubles/Mcm, which is less than the maximum applicable rate (640 Roubles/Mcm) due to the depth of the producing horizons at our Russian field which is a 50% saving. The current legislation provides for a further increase in the maximum rate to approximately 660 Roubles/Mcm on 1 July 2015, with the resultant applicable MET for our production of 330 Roubles/Mcm.

In addition to production taxes, we are subject to a 2.2% property tax which is based on the net book value of our Russian assets calculated for property tax purposes. This amounted to $1.5m in 2014 (2013:$2.1m). The figure is included in other cost of sales in the consolidated income statement.

Profit for the period

Profit for the period, after an exceptional charge of $2.7m (net of tax), was $8.5m (2013: $7.5m). On a pre-exceptional basis, profit increased to $11.2m from $7.5m in 2013.

On a pre-exceptional basis, the $2.5m change is the combined result of:

· a $17.0m decrease in revenues mainly due to reduced Ukrainian gas realisations

· a decrease in operating charges of $16.7m to $53.2m (2013: $69.9m) as a result of reduced charges related to sales from inventory in Ukraine, a decrease in Ukrainian production taxes resulting from a lower price being the basis for calculation and a decrease in DD&A charges;

· an increase in foreign exchange losses of $3.5m;

· a net decrease in administrative and net finance charges of $0.4m;

· a $4.3m fair value gain on the derivative attached to the convertible bond, and

· a $2.8m reduction in the taxation charge.

Basic earnings per share after exceptional items were 4.95 cents (2013: 4.34 cents).

Cash flows

Cash generated from operations was $31.1m (2013: $43.2m). Whilst $12.1m less than the same period in 2013, this was substantially offset by the $10.4m reduced capital investment programme required in the first half of 2014, as described below:

Total net cash outflow from investing activities was down 34% to $20.7m (2013: $31.3m).

The $20.7m of capital investment is materially reduced from the amount invested during the same period in 2013 ($31.3m), which is largely due to a reduction in capital investment spend in Russia. Our Russian capex during the first half of this year has mainly comprised of coil tubing acid jobs and work-over activity. Our Ukrainian capital investments mainly comprised drilling and work-over activity at our Novo-Nikolaevskoye Complex and the development drilling of two new wells in the Elizavetovskoye field.

Income tax paid in the period decreased to $3.8m (2013: $8.4m), due to a reduction in the Ukrainian corporation tax rate and lower profitability. Interest paid during the period comprised $1.8m (2013: $0.3m), largely in respect of financing charges on the convertible bond.

Interest received in the period was $0.08m (2013: $0.03m), reflecting the low interest rate environment.

Net cash inflow from financing activities in the period solely relates to the movement in restricted cash balances. The difference of $19.2m versus the same period is 2013 is largely due to the inflow of cash through the bond proceeds (2013:$37.8m), repayment of the working capital facility provided by Credit Agricole (2013: outflow $14.9m) and $4.0m representing the acquisition of 5,000,000 shares in JKX Oil & Gas plc by the JKX Employee Benefit Trust.

No dividends were paid to shareholders in the period (2013: nil).

Cash

The resultant increase in cash and cash equivalents in the period before adjusting for foreign exchange effects was $4.8m (2013: $22.4m).

Total cash resources and undrawn bank facilities at the end of the period were $43.5m, including the undrawn Credit Agricole facility and restricted cash, compared to a total of $40.9m at 31 December 2013.

Liquidity

Following the completion of the 5-year convertible bond placing in February 2013 (see note 9 to the financial information) and the reducing cash requirements of our Russian project, the Group's liquidity position has strengthened markedly.

Our priority is to complete the investment programme outlined in Q1 2013 at the time of placement of the convertible bond. This is a two-year programme and we have successfully completed a number of important activities in 2013 and 1H 2014 which were integral to the goals of production increases of both oil and gas in our areas of operation.

The Group has the ability to fund its future operating and capital expenditures through existing working capital, cash flow from operations, and the remaining bond proceeds. Our low level of gearing and the Credit Agricole facility together provide us with the financial flexibility to support our operating and growth objectives.

Financial instruments

The Group employs a number of financial instruments to manage the liquidity associated with the Group's operations. These include cash and cash equivalents, together with receivables and payables that arise directly from our operations.

Separate from these, the main financial instrument of the Group is the $40 million guaranteed unsubordinated convertible bond which was placed in Q1 2013 with institutional investors and is due in 2018. The bonds have an annual coupon of 8 per cent per annum payable semi-annually in arrears. The bonds terms and conditions contain an annual put option each February until maturity. None of the bondholders exercised the option to put 10% of the outstanding principal of the bonds in February 2014. Further information on the terms and conditions of the bonds is included in notes 9 and 10.

The Group renewed the Credit Agricole working capital facility in Q2 2014 and continues to benefit from the flexibility that this financing provides our Ukrainian subsidiary, in particular to manage its working capital needs. The facility is available until 30 June 2015 with the maximum facility reducing to $10.0m and $5.0m on 30 April 2015 and 31 May 2015 respectively. There were no drawings outstanding on 30 June 2014.

Outlook

Given the current political circumstances between Russia and the Ukraine, we do not expect to see a reduction in the contractual gas price pursuant to the Supply Agreement in the near future. We expect our gas realisations to remain stable or increase. We anticipate our oil realisations to remain firm. We expect our investment programme to yield production increases in the coming periods.

In Russia, there was much speculation that the government decreed increase in gas price in mid-2014 would be either eliminated entirely or reduced to the rate of inflation. Despite no official increase being sanctioned by the government at mid-year for industrial users, we were successful in achieving an increase in price from our buyer of 4.2%, effective 1 July 2014. We have also benefited in the period from the revamping of the Russian production tax regime in 2013 where an allowance for deep wells (such as our Koshekhablskoye wells) has resulted in a reduction in tax on production from the field. We continue working to resolve current well issues to stabilise rates of production and then deliver maximum throughput for the expansion planned on the gas processing facility from 40MMcfd to 60MMcfd.

Risks and uncertainties

The Group continuously monitors the major strategic, operational, financial and external risks it faces and determines the appropriate course of action to manage these risks. The key risks and uncertainties which may impact the Group's performance have not changed from those stated on pages 82 to 93 of our 2013 Annual Report.

Financial Risk Management

The main financial risks faced by the Group relate to the availability of funds to meet business needs (liquidity risk) and the risk of fluctuations in foreign exchange rates and commodity prices (market risk). The single significant factor which is outside the control of management and which can have a significant impact on the business remains the volatility of Ukrainian gas prices.

This is the critical factor to consider when addressing the issue of whether the Group is a Going Concern.

The principal risks and uncertainties for the remaining six months of 2014 are identified as being:

Political uncertainty and regulatory risk

The Group's business is principally carried out in Ukraine and Russia. Over 95% of the Group's oil and gas assets are located in Ukraine and Russia and the gas that we produce is sold into their domestic markets. The Group's development expenditure continues to be underpinned by cash flows from Ukraine.

Increased political and social tensions, which started in 2013 in Ukraine, have continued in 2014 but have not impacted the Group's operations to date and we continue to closely monitor the situation.

Ukraine and Russia both display emerging market characteristics which mean that the legislation and business practices regarding commercial and banking operations, foreign currency transactions and taxation are constantly evolving as those governments attempt to manage their economies. Changes in law or the regulatory environment including fiscal interpretation and implementation could have a material adverse effect on the Group's operations and financial position.

Other 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.

JKX has reduced the risk by establishing its business as independent Russian and Ukrainian companies fully contributing to the local economy.

Liquidity

In Russia, we continue to make progress towards expanding throughput capacity at our Koshekhablskoye Gas Processing Facility from 50 MMcfd to 60 MMcfd, however wells 27 and 5 remain shut in due to tubing issues and therefore production there is constrained to around 80% of base capacity until a suitable rig is mobilised.

Revenues and cash inflow from our Russian operations is lower as a result, and the cash requirements to restore both wells to anticipated levels of production will affect the Group's liquidity.

The timing and nature of most of the Group's exploration and development activities are discretionary. The Group continues to carefully prioritise these activities by monitoring rolling forecasts of the Group's liquidity on the basis of expected cash flow to ensure that any remedial action can be taken with as much lead time as possible according to the available finance.

The Group finances current exploration and development activities using a combination of cash on hand, operating cash flow generated from the sale of gas, condensate, LPG and crude oil production and borrowings under its $15.0m credit facility with Credit Agricole which expires 30 June 2015.

The Group remains fully funded for its planned development programmes in Russia and Ukraine however our options for debt financing are limited by our Ukrainian focus and our current shareholder base.

Reservoir performance

In Ukraine, the continued development of the Elizavetovskoye field is on-going and may materially enhance the Group's production and reserves. In Russia, operations to restore the pressure integrity of well 27 and replace the tubing will commence in 2014.

The production and cash flow expected to be generated from these development projects and the Group's other hydrocarbon reservoirs underpin the Group's operations and growth. If these reservoirs do not perform as expected, the Group will be exposed to lower profits, challenges in funding future development and potential impairment of the Group's oil and gas assets.

Commodity prices - Russia and Ukraine

Our policy is not to hedge commodity price exposure on oil, gas, LPG or condensate and therefore any change in prices will have a direct effect on the Group's trading results. We are exposed to international oil and gas price movements which can be affected by political developments in Russia and Ukraine. In Russia and Ukraine, the respective governments set the gas prices at which we can sell our gas.

In Ukraine, the regulated gas price is based on its border price which in turn is driven by the price used in the long term gas purchase contract between Ukraine and Russia. The contract price was discounted for Q1 2014 but the discount was removed in Q2 2014, and political debate and negotiation by the Ukrainian government continues in order to secure a future reduction in the price.

In Russia during 2013, there was a 3% decrease in industrial gas prices in April and increases of 15% and 3% in July and August respectively. Despite the government's stated intention to increase gas sector tariffs to achieve European net-back price convergence, there was no official increase in the regulated maximum industrial price in 2014, however the Company was successful in achieving a 4.2% increase in the gas sales price from our buyer. This is equivalent to the increase in the price of gas to Russian consumers.

A prolonged period of low gas prices in Ukraine would impact the Group's ability to support its long-term capital investment programme and would reduce shareholder returns and the share price. In addition, a reduction in the future gas prices in Ukraine and/or lower than expected future gas price increases in Russia could lead to impairment of the Group's oil and gas assets.

Tax legislation

In Ukraine, our subsidiary, Poltava Petroleum Company ('PPC'), has at times since 1994 sought clarification of their status regarding a number of production related taxes and has been subject to a number of such taxes. PPC continues to seek clarification from professional advisers and the tax authorities concerning rules of calculation and payment of various production related taxes to 31 December 2010 (see note 15).

Management's interpretation of tax legislation in Ukraine as applied to the transactions and activities of the Group may at times not coincide with that of the tax authorities and therefore the tax authorities may challenge transactions and the Group may be assessed for additional taxes, penalties and fines. These uncertainties could have a material adverse effect on the Group's financial position, results of operations and liquidity.

The Group's condensed consolidated interim financial information does 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 tax uncertainties.

Health, Safety and Environment

As we continue with the development and monetisation of our oil and gas reserves, we are exposed to a wide range of significant health, safety, security and environmental risks influenced by the geographic range, operational diversity and technical complexity of our exploration and production activities.

There are risks of technical failure, natural disasters and other adverse conditions where we operate, which could lead to loss of containment of hydrocarbons and other hazardous material, as well as the risk of fires, explosions or other incidents.

 Statement of Directors' responsibilities

The Directors confirm that, to the best of their knowledge, this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.7R and 4.2.8R, namely:

· an indication of important events that have occurred in the first six months and their impact on the condensed set of financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related party transactions in the first six months and any material changes in related party transactions described in the last Annual Report.

A list of current Directors is maintained on the JKX Oil & Gas plc website www.jkx.co.uk.

On behalf of the Board

Dr Paul Davies Cynthia Dubin

Chief Executive Officer Finance Director

25 July 2014

Independent review report to JKX Oil & Gas plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed the condensed consolidated interim financial statements, defined below, in the half-yearly report of JKX Oil & Gas plc for the six months ended 30 June 2014. Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

This conclusion is to be read in the context of what we say in the remainder of this report.

What we have reviewed

The condensed consolidated interim financial statements, which are prepared by JKX Oil & Gas plc, comprise:

· the condensed consolidated statement of financial position as at 30 June 2014;

· the condensed consolidated income statement for the period then ended;

· the condensed consolidated statement of cash flows for the period then ended;

· the condensed consolidated statement of changes in equity for the period then ended; and

· the explanatory notes to the condensed consolidated interim financial statements.

As disclosed in note 2, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The condensed consolidated interim financial statements included in the half-yearly financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What a review of condensed consolidated financial information involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.

Responsibilities for the condensed consolidated interim financial statements and the review

Our responsibilities and those of the directors

The half-yearly financial report, including the condensed consolidated interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP

Chartered Accountants

London

25 July 2014

Condensed Consolidated Income Statement

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statement of Changes in Equity (unaudited)

1 Shares held by JKX Employee Benefit Trust.

Condensed Consolidated Statement of Cash Flows

Notes to the interim financial information

1. General information and accounting policies

JKX Oil & Gas plc (the ultimate parent of the Group) is a public limited company listed on the London Stock Exchange and incorporated in England. The registered office is 6 Cavendish Square, London, W1G 0PD and the principal activities of the Group are exploration, appraisal, development and production of oil and gas reserves. The registered number of the Company is 03050645.

The condensed consolidated interim financial information incorporate the results of JKX Oil & Gas plc and its subsidiary undertakings as at 30 June 2014 and was approved by the Directors for issue on 25 July 2014.

This condensed consolidated interim financial information does not constitute accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2013 were approved by the Board of Directors on 25 March 2014 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498(2)-(3) of the Companies Act 2006.

This condensed consolidated interim financial information has not been audited, but was the subject of an independent review carried out by the Company's auditors, PricewaterhouseCoopers LLP.

2. Basis of preparation

This condensed consolidated interim financial information for the six months ended 30 June 2014 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2013 which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union. A copy of the annual financial statements is available on the Company's corporate website (www.jkx.co.uk) or from the Company's registered office.

The Group's business activities, together with factors likely to affect its future development, performance and position are set out in the operational and financial review sections of this report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review section.

The Directors have reviewed the Group's forecast cash flows for the next twelve months and through to the end of 2015. Capital and operating costs are based on approved budgets and latest forecasts in the case of 2014 and current development plans in the case of 2015. In addition the Directors have made enquiries into and considered the Ukrainian and Russian business environments and future expectations regarding gas prices, and country and currency risks that the Group may encounter.

Having considered the sensitivities of future gas prices, the potential outcomes relating to these country and currency risks, the Group's ability to change the timing and scale of its discretionary capital expenditure if required, and the Group's ability to draw up to $15.0m on the credit facility in Ukraine which is currently available until 30 June 2015, the Directors consider that the Company and Group have adequate resources to continue for the foreseeable future. The going concern basis for the accounts has therefore continued to be adopted.

3. Accounting policies

The accounting policies adopted are consistent with those used in the annual financial statements for the year ended 31 December 2013 and those expected to be applied in the 31 December 2014 annual financial statements. Taxes on income in the interim period are accrued using the tax rate that would be applicable on expected total annual earnings. There were no new standards, interpretations or amendments to standards issued and effective for the period which materially impacted the Group.

Presentation changes

Where a change in presentation between the prior year and current year financial statements has been made during the period, comparative figures have been restated accordingly. For the current and prior periods, the Russian property tax charge is included in Other cost of sales. In the prior Half-yearly report to 30 June 2013, the property tax charge of $2.0m was included in Production based taxes.

For the comparative period ended 30 June 2013, Borrowings of $4.0m relating to the Bondholder Put Option on the Convertible bonds (see note 10) which could have been exercised on 19 February 2014, has been included in current liabilities. In the prior Half-yearly report this amount was included in non-current liabilities.

4. Segmental analysis

The Group has one single class of business, being the exploration for, appraisal, development and production of oil and gas reserves. Accordingly the reportable operating segments are determined by the geographical location of the assets.

There are four (2013: four) reportable operating segments which are based on the internal reports provided to the Chief Operating Decision Maker ('CODM'). Ukraine and Russia segments are involved with production and exploration; the 'Rest of World' are involved in exploration, development and production and the UK is the home of the head office and purchases material, capital assets and services on behalf of other segments. The 'Rest of World' segment comprises operations in Hungary and Slovakia.

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.

Segment results and assets include items directly attributable to the segment. Segment assets consist primarily of property, plant and equipment, inventories and receivables. Capital expenditures comprise additions to property, plant and equipment.

4. Segmental analysis (continued)

5. Exceptional item - well control operations

During the period, due to unexpected pressure building in the annulus of well-27 at our Koshekhablskoye field in Russia, the well was diverted to the flare pit and a coiled tubing unit was mobilised to kill the well. This operation was completed successfully. The cost of these well control operations was $3.3m which has been charged to the income statement during the period.

6. Property, plant and equipment and other intangible assets

During the period the Group acquired $21.4m additional assets (2013: $33.3m) in Ukraine, Russia and Hungary, with 99% (2013: 99%) in respect of Group's oil and gas producing and development assets and 1% (2013: 1%) being spent on intangible assets.

Yuzhgazenergie ('YGE')

For purposes of testing for impairment of YGE's non-current assets in 2014, the Company has adopted a similar process to that used in previous periods. Having taken account of developments since the last test for impairment, based on the assessment of fair value less costs to sell, the recoverable amount exceeds the carrying value and no impairment trigger has been noted. However it should be noted that the estimate of the recoverable amount uses a discounted cash flow methodology which is highly sensitive to changes in the key assumptions of future Russian gas prices and related production taxes, both of which are under the direct control of the Russian government.

The regulated maximum industrial gas price in Adygea, at which the Company can sell our gas and on which the Company's current gas sales agreement is based, has not increased in 2014 despite the government's stated intention to increase gas sector tariffs to achieve European net-back price convergence. However, from 1 July 2014, the Company was successful in achieving a 4.2% increase in the gas sales price from our buyer. This is equivalent to the increase in the price at which gas is sold to Russian consumers.

As in previous estimates, the Company has assumed net-back convergence with European gas prices occurring around 2023 after applying gas sector tariff increases of 10% annually from 1 July 2015, recognising that this is a lower growth rate than in any year since the goal of export net-back was defined by the Russian government in 2006.

7. Other receivable

The non-current receivable consists of VAT recoverable as a result of expenditures incurred in Russia. A portion of the receivables are now expected to be recovered within one year following production and sales of oil, gas and condensate from YGE's Koshekhablskoye gas field and have therefore been classified as Current assets. The Non-current portion of the receivables is expected to be recovered between two and five years (2013: two and five years).

8. Cash

Restricted cash

At 30 June 2014 $0.2m (31 December 2013: $0.2m) of the cash held in Hungary at K & H Bank Zrt was restricted as under the Hungarian Mining Act the Group is required to deposit cash to cover compensation for any land damage and the costs of recultivation, including environmental damage of the waste management facilities.

9. Borrowings

Convertible bonds due 2018

On 19 February 2013 the Company successfully completed the placing of $40m of guaranteed unsubordinated convertible bonds with institutional investors which are due 2018 raising cash of $37.2m net of issue costs.

The Bonds have an annual coupon of 8 per cent per annum payable semi annually in arrears. The Bonds are convertible into ordinary shares of the Company at any time up until seven days prior to their maturity on 19 February 2018 at a conversion price of 76.29 pence per Ordinary Share, unless the Company settles the conversion notice by paying the Bondholder the Cash Alternative Amount (see below).

Interest, after the deduction of issue costs and the inclusion of the redemption premium, will be charged to the profit or loss using an effective rate of 18.0% (2013: 18.0%).

Cash Alternative Amount

At the option of the Company, the conversion notice in respect of the Bonds can be settled in cash rather than shares, the Cash Alternative Amount payable is based on the Volume Weighted Average Price of the Company's shares prior to the conversion notice.

Credit Facility

On 31 March 2011, Poltava Petroleum Company ('PPC'), our subsidiary in Ukraine, entered into a reducing credit facility agreement with Crédit Agricole CIB (France) secured by indemnity provided by the parent company, JKX Oil & Gas plc. The credit facility is for a maximum of Ukrainian Hryvnia equivalent of $15.0m. The facility was renewed on 27 June 2014 and is available until 30 June 2015 (2013: 30 June 2014) with the maximum facility reducing to $10.0m and $5.0m on 30 April 2015 and 30 May 2015 respectively. All provisions contained in the credit facility documentation have been negotiated on normal commercial and customary terms for such finance arrangements. The interest is calculated at prevailing Crédit Agricole CIB (France) bank rate plus a margin.

At the reporting date none of the Credit Facility had been drawn down.

10. Derivatives

Convertible bonds due 2018 - embedded derivatives

Coupon Makewhole

Upon conversion of a Bond prior to 19 February 2015 the Company is required to pay an amount of interest equal to the aggregate interest which would have been payable on the principal amount of the Bond if such Bond had been outstanding until 19 February 2015.

Bondholder Put Option

Bondholders have the right to require the Company to redeem the following number of Bonds on the following future dates together with accrued and unpaid interest to (but excluding) such dates:

Current liabilities include $4.0m (2013: $4.0m) in respect of the put option available to bondholders on 19 February 2015 (2013:2014). None of the bondholders exercised their option to put 10% of the outstanding principal of the bonds on 19 February 2014.

Company Call Option

The Company can redeem the Bonds early in full but not in part at their principal amount together with accrued interest at any time on or after 19 February 2017 if the Volume Weighted Average Price of the Company's shares over a specified period equal or exceed 130 per cent of the principal amount of the Bonds; or if the aggregate principal amount of the bonds outstanding is less than 15% of the aggregate principal amount originally issued.

Fixed exchange rate

The Sterling-US Dollar exchange rate is fixed at £1/$1.5809 for the conversion and other features.

11. Financial instruments

Fair values of financial assets and financial liabilities - Group

Set out below is a comparison by category of carrying amounts and fair values of the Group's financial instruments.  Fair value is the amount at which a financial instrument could be exchanged in an arms length transaction. Where available, market values have been used (this excludes short term assets and liabilities).

Financial liabilities measured at amortised cost are carried at $41.3m (31 December 2013: $49.3m). The Group's borrowings at 30 June 2014 relate entirely to the convertible bond due 2018.

Fair value hierarchy

At the period end the Group's derivative financial instrument related to various embedded derivatives within the convertible bonds due in 2018 (note 10). The value of the derivative was calculated at inception and the reporting date using the Monte Carlo simulation methodology and Black-Scholes formula, respectively, and the Company historic share price and volatility, treasury rates and other estimations. As it was derived from inputs that are not from observable market data it was been grouped into level 3 within the fair value measurement hierarchy.

The main assumptions used in valuation of the derivative conversion option as at 30 June 2014 were:

· underlying share price of: £0.5775 (31 December 2013: £0.7150);

· £/US$ spot rate of 1.7102 (31 December 2013: £1/$1.6557);

· historic volatility of 30.5% (31 December 2013: 38.1%);

· risk free rate based on 3.64 year (31 December 2013: 4.14 year) US Treasury rate of 0.866% (31 December 2013: 0.879%).

A 10% increase/decrease in Company's historic share price volatility would have resulted in a reduction in the fair value gain for the period of $2.5m (31 December 2013: increase in fair value loss of $3.1m) and an increase in the fair value gain of $2.3m (31 December 2013: decrease in the fair value loss of $3.2m) respectively, assuming that all other variables remain constant.

Credit risk - Group

The Group has policies in place to ensure that sales of products are made to customers with appropriate credit worthiness. The Group limits credit risk by assessing creditworthiness of potential counterparties before entering into transactions with them and continuing to evaluate their creditworthiness after transaction have been initiated. Where appropriate, the use of prepayment for product sales limits the exposure to credit risk. There is no difference between the carrying amount of the trade and other receivables and the maximum credit risk exposure.

Capital management - Group

The Group's policy as to the level of equity capital and reserves is to ensure that it maintains a strong financial position and low gearing ratio which provides financial flexibility to continue as a going concern and to maximise shareholder value. The capital structure of the Group consists of shareholders' equity together with net debt. The Group's funding requirements are met through a combination of debt, equity and operational cash flow.

Net debt

Net debt comprises: borrowings disclosed in note 9 and total cash in note 8, and excludes derivatives. Equity attributable to the shareholders of the Company comprises issued capital, capital reserves and retained earnings, (see Condensed consolidated statement of changes in equity).

The capital structure of the Group is as follows:

Following the issue of $40m of convertible bonds in February 2013, the primary capital risk to the Group is the level of indebtedness. The convertible bond includes a financial covenant which limits the Group's indebtedness (excluding the bonds themselves and the $15.0m Credit Agricole facility) in respect of any new borrowings (in addition to the bond amount) to three times 12-month free cash flow based on the most recently published consolidated financial statements.

Liquidity risk - Group

The treasury function is responsible for liquidity, funding and settlement management under policies approved by the Board of Directors. Liquidity needs are monitored using regular forecasting of operational cash flows and financing commitments. The Group maintains a mixture of cash and cash equivalents and committed facilities in order to ensure sufficient funding for business requirements.

The following tables set out details of the expected contractual maturity of non-derivative financial liabilities. The tables include both interest and principal cash flows on an undiscounted basis. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the reporting date.

Interest rate risk profile of financial assets and liabilities - Group

The Group is exposed to interest rate risk principally in relation to the balance outstanding on the credit facility with Crédit Agricole CIB (France) where interest is calculated at prevailing Crédit Agricole CIB (France) bank rate plus a margin. Fixed rate interest is charged on the Group's convertible bond (see note 10). The interest rate profile of the financial assets and liabilities of the Group as at 30 June is as follows (excluding short-term assets and liabilities, non-interest bearing):

Floating rate financial assets comprise cash deposits placed on money markets at call, seven day and monthly rates.

12. JKX Employee Benefit Trust

In 2013, JKX Employee Benefit Trust was established and acquired 5,000,000 of shares in JKX Oil & Gas plc at a cost of $4.0m for the purpose of making awards under the Group's employee share schemes and these shares have been classified in the statement of financial position as treasury shares within equity.

None of these shares were used in 2014 (2013: nil) to settle share options therefore at the period end JKX Employee Benefit Trust held 5,000,000 shares in JKX Oil & Gas plc.

13. Share capital

Equity share capital, denominated in Sterling, was as follows:

The Company did not purchase any treasury shares during 2014 (2013: nil). There were no treasury shares used in 2014 (2013: nil) to settle share options. There are no shares reserved for issue under options or contracts.

14. Provisions

Contingent liabilities

As disclosed on page 115 of the 2013 Annual Report, the Company has been involved in Court proceedings since July 2013 with two dissident shareholders.

The shareholders have appealed to the Supreme Court contesting the Appeal Court ruling made in May 2014 in favour of the Company. If the Supreme Court upholds/overturns the Appeal Court ruling, the Company will potentially recover/ pay out approximately $3.0m of legal expenses incurred during the process.

The Company expects the Supreme Court's decision in 2015.

15. Taxation

No UK tax liability has arisen during the six months ended 30 June 2014 (2013: $nil) due to the availability of tax losses. The current tax charged in the period relates to Ukrainian corporation tax which has arisen in the Group's subsidiary, Poltava Petroleum Company. Taxes charged on production of hydrocarbons in Ukraine and Hungary are included in cost of sales.

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 incurred elsewhere in the Group. This could lead to a higher than expected effective tax rate for the Group.

The UK corporation tax rate changes announced in the 2012 Autumn Statement and March 2013 Budget were substantively enacted as part of the Finance Bill 2013 on 2 July 2013. These included reductions to the main rate of UK corporation tax to 21% for the financial year commencing 1 April 2014 and 20% for the financial year commencing 1 April 2015.

The impact of the rate reduction is not expected to have a material impact on provided and unprovided UK current or deferred taxation.

The corporation tax rate in Ukraine for 2013 was 19% and this rate has reduced to 18% for 2014.

Taxation in Ukraine - production taxes

The Group is subject to uncertainties relating to the determination of its tax liabilities. Ukrainian tax legislation and practice are in a state of continuous development, with new laws coming into effect at times which can conflict with others and, therefore, are subject to varying interpretations and changes which may be applied retrospectively. Management's interpretation of tax legislation as applied to the transactions and activities of the Group may at times not coincide with that of the tax authorities. As a result, the tax authorities may challenge transactions and the Group may be assessed for additional taxes, penalties and fines which could have a material adverse effect on the Group's financial position and results of operations.

Since PPC's inception in 1994 the Company has operated in a regime where conflicting laws have often existed, including in relation to effective taxes on oil and gas production. Various laws and regulations have existed and have implied a number of variable rates.

PPC has at times since 1994 sought clarification of their status regarding a number of production related taxes, and has been subject to a number of such taxes, at various rates, which have been paid and accounted for within Operating Costs within the Group Income Statement. In late 2009, coinciding with the lead up to the Presidential election in Ukraine, PPC was subjected to increased operational pressures in several areas, including broader taxation.

On 1 January 2010 yet another law came into force in Ukraine in the area of production related tax, the Law of Ukraine on "On Rent Charges for Oil, Natural Gas and Gas Condensate" which had been suspended since 2004. During 2010 conflicting laws were announced (most particularly the Law of Ukraine on "Amending Certain Legislative Acts of Ukraine") which may be a basis for the Ukrainian Tax Authorities to assert that further production related taxes are due from various oil and gas companies, including PPC, for periods through to 31 December 2010.

PPC continues to defend itself in court against action initiated by the tax authorities concerning rules of calculation and payment of various production related taxes for the periods from January to March 2007 and from August 2010 to December 2010. The statutory period of limitation in Ukraine for such matters is three years. If PPC was subject to maximum production related taxes for the periods from January to March 2007 and from June 2010 to December 2010, additional production related taxes could be approximately fifteen per cent of Ukraine gross revenues for those periods (net of corporate tax savings), plus interest and penalties. The Group considers that the likelihood of additional production related taxes for these periods is remote on the basis of tax audits completed, the related legal position and the three year statute of limitation. The Group would exhaustively challenge the payment of any further production related taxes (over and above those it has already paid) for the period through 31 December 2010. No provision has been made for any future liabilities that may result from these tax uncertainties.

A new tax code became effective in Ukraine on 1 January 2011 replacing most of the previous tax laws. The new tax code has removed uncertainty over the applicability of rental fee payment by PPC from 2011 and accordingly PPC has been liable to, and has paid, rental fees during the period. The fees are levied on production volumes in accordance with a rates schedule which may change from time to time. Such payments are recorded in cost of sales.

16. Earnings per share

The calculation of earnings per ordinary share for the six months ended 30 June 2014 is based on the weighted average number of shares in issue during the period of 172,125,916 (2013: 172,090,805; 31 December 2013: 172,163,992) and the profit for the relevant period. For the calculation of diluted earnings per share, earnings for the six months ended 30 June 2014 have been adjusted for the effect of the net finance charge of $1,385,075 (2013: $1,326,182) relating to the convertible bonds and the fair value gain on the embedded derivative of $6,077,887 (2013: $1,816,933) in respect of dilutive potential ordinary shares associated with the bond.

Earnings before exceptional item of $11,193,102 (2013: nil) is calculated from the profit of $8,515,351 (2013: nil) and adding back the exceptional item of $3,347,189 (2013: nil) less the related deferred tax on the exceptional item of $669,438 (2013: nil).

The diluted earnings per share for the six months ended 30 June 2014 is based on 212,394,225 (30 June 2013: 198,767,752; 31 December 2013: 174,519,492) ordinary shares calculated as follows:

At 31 December 2013, 28,792,122 potentially dilutive ordinary shares associated with the convertible bonds were excluded when calculating dilutive earnings per share for the year then ended as they were antidilutive.

17. Dividends

No interim dividend for the six months to 30 June 2014 is being paid or proposed (2013: nil).

18. Reconciliation of profit from operations to net cash generated from operations

19. Capital commitments

Under the work programmes for the Group's exploration and development licenses the Group had committed $6.3m to future capital expenditure on drilling rigs and facilities as at 30 June 2014 (30 June 2013: $3.3m; 31 December 2013: $5.2m).

20. Related-party transactions

Key management compensation amounted to $2.7m for the six months ended 30 June 2014 (2013: $2.8m).

Glossary Directors and advisers

2P reserves Proved plus probable Directors

3P reserves Proved, probable and possible Nigel Moore

P50 Reserves and/or resources estimates Dr Paul Davies

that have a 50 per cent probability of Cynthia Dubin

being met or exceeded Martin Miller

AFE Authorisation For Expenditure Peter Dixon

AIFR All Injury Frequency Rate Dipesh Shah OBE

Bcf Billion cubic feet Lord Oxford

Bcm Billion cubic metres Alastair Ferguson

bcpd Barrel of condensate per day Richard Murray

boe Barrel of oil equivalent

boepd Barrel of oil equivalent per day Company Secretary

bopd Barrel of oil per day Limor Gonen

bpd Barrel per day

bwpd Barrels of water per day Registered office

cfpd Cubic feet per day 6 Cavendish Square, London

EPF Early Production Facility W1G 0PD

GPF Gas Processing Facility Registered in England

HHN HHE North Kft Number: 3050645

Hryvnia The lawful currency of Ukraine

HSECQ Health, Safety, Environment, Registrars

Community and Quality Equiniti

KPI Key Performance Indicator Aspect House, Spencer Road

LIBOR London InterBank Offered Rate Lancing, West Sussex BN99 6DA

LPG Liquefied Petroleum Gas

LTI Lost Time Injuries Solicitors

Mbbl Thousand barrels Allen & Overy LLP

Mboe Thousand barrels of oil equivalent One Bishops Square, London E1 6AD

Mcf Thousand cubic feet

MMcfd Million cubic feet per day Principal bankers

MMbbl Million barrels Bank of Scotland plc

MMboe Million barrels of oil equivalent The Mound, Edinburgh EH1 1YZ

PPC Poltava Petroleum Company

Roubles The lawful currency of Russia Independent auditors

sq. km Square kilometre PricewaterhouseCoopers LLP

TD Total depth Chartered Accountants and Statutory Auditors

$ United States Dollars 1 Embankment Place, London WC2N 6RH

US United States

VAT Value Added Tax Financial advisers

YGE Yuzhgazenergie LLC Smith Square Partners LLP

21 St James's Square, London SW1Y 4JZ

Conversion factors 6,000 standard cubic feet

of gas = 1 boe Stockbrokers

Oriel Securities Limited

150 Cheapside, London EC2V 6ET

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Cautionary Statement about forward looking statements

The half yearly financial report contains certain forward looking statements with respect to the financial position, results of operations and business of the Group. Examples of forward looking statements include those regarding oil and gas reserves estimates, anticipated production or construction commencement dates, costs, outputs, demand, trends in commodity prices, growth opportunities and productive lives of assets or similar factors. The words "anticipate", "estimate", "plan", "believe", "expect", "may", "should", "will", "continue", or similar expressions, commonly identify such forward looking statements.

Forward looking statements involve known and unknown risks, uncertainties, assumptions and other factors that are beyond the Group's control. For example, future oil and gas reserves will be based in part on long-term price assumptions that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include the ability to produce and transport products profitably, demand for products, the effect of foreign currency exchange rates on market prices and operating costs, activities by governmental authorities, such as changes in taxation or regulation, and political uncertainty.

Given these risks, uncertainties and assumptions, actual results could be materially different from any future results expressed or implied by these forward looking statements which speak only as at the date of this report. Except as required by applicable regulations or by law, the Group does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward looking statements will not differ materially from actual results.