Half Yearly Report

28th Aug 2009 07:00



6 Cavendish Square, London W1G 0PD, England, UK Tel: +44 (0)20 7323 4464 Fax: +44 (0)20 7323 5258 Web site: http://www.jkx.co.uk

 

JKX Oil & Gas plc

HALF-YEARLY RESULTS

 FOR 

THE SIX MONTHS ENDED 30 JUNE 2009

Financial Highlights

Gas revenues $53.6m (2008: $40.8m) 

Oil revenues $24.2m (2008: $75.1m)

Operating cash flow $59.9m (2008: $86.9m)

Operating profit $44.5m (2008: $82.2m) 

Earnings per share 20.2 cents (2008: 39.4 cents)

Capital expenditure $51.6m (2008: $57.7m)

5% increase in the interim dividend declared to 2.3p per share (2008: 2.2p per share)

Operational Highlights

Progress made on the Company's exploration programmes

Recovery of Ukrainian oil and gas production levels in latter part of the period continued into third quarter of the year

Current production exceeds 13,000 boepd, an increase of approx. 30% above the average for the period (10,191 boepd)

First gas production in Hungary commenced in August,  with production currently approx. 750 boepd

Overall performance in the second half of the year expected to be in line with expectations

JKX Chief Executive, Dr Paul Davies, commented: "In spite of the difficult market conditions, we are pleased to have been able to maintain the planned investment programmes on our Ukrainian, Russian and Hungarian producing and development projects through the first half of the year. We are making solid progress in expanding our production base whilst continuing with our active exploration portfolio. As anticipated we achieved first gas production from our Hungarian project in August. 

We expect our performance in the second half of the year to be in line with market expectations, and believe that we will keep delivering long term value for shareholders."  

ENDS

For further information please contact: 

Catherine Maitland / Matthew Law

Cardew Group

020 7930 0777

 

 

CHAIRMAN'S STATEMENT

I am pleased to report that the Company's healthy cash flow and cash resources have allowed it to maintain its planned investment programmes on its Ukrainian, Russian and Hungarian producing and development projects through the first half of the year. The lower production and fall in revenues from substantially lower international oil prices in the period was partially offset by the increase in Ukrainian gas realisations. As disclosed previously, delays in completion and testing of new development wells at Poltava, Ukraine impacted overall production for the period. However, recovery of Ukrainian oil and gas production levels in the latter part of the period has continued into the third quarter of the year. Good progress has also been made on the Company's exploration programmes. 

Major financial highlights for the period include:

Gas revenues of $53.6m (2008: $40.8m)

Operating profit of $44.5m (2008: $82.2m)

Operating cash flow of $59.9m (2008: $86.9m) 

Earnings per share of 20.2 cents (2008: 39.4 cents)

Capital expenditure of $51.6m (2008: $57.7m)

Interim dividend of 2.3p per share declared (2008: 2.2p per share)

Production and Realisations

Average production from our wholly owned Ukrainian subsidiary, Poltava Petroleum Company ("PPC"), reduced in the first half of the year by approximately 12% to 10,191 boepd (11,607 boepd) due to: natural decline in oil and gas production in the period; variable liquids production from new and recompleted wells; a backlog of new wells awaiting testing.

However, some of our most recent wells and re-completions have produced at rates above expectation. Additional compression capacity has also been brought on-stream, further system efficiencies have been implemented and the backlog of wells awaiting testing significantly reduced. Current production is in excess of 13,000 boepd, an increase of approximately 30% above the average for the period.

In August, PPC signed a new sales contract with the Ukrainian subsidiary of Royal Dutch Shell to supply 21 million cubic metres of gas per month (approximately 50% of current PPC production). The contract runs until March 2012 and provides for potential increases in delivery volumes.

We anticipate the average gas realisation achieved in the first half to be maintained through the second half of the year with oil realisations continuing to track international oil prices. 

Dividend

The Board is pleased to declare a five per cent increase in the interim dividend to 2.3p per share (2008: 2.2p per share) which reflects the Company's continued liquidity and your Board's confidence in the outlook for the Company. The dividend will be paid on 16th October to shareholders who are on the Company's Register of Members at the close of business on 11th September. 

Change of Adviser

I am pleased to announce that Hawkpoint Partners have been appointed as Financial Adviser to the Company, effective immediately.

Outlook

The Company is making solid progress towards its primary goal of expanding its production base whilst nurturing an active exploration portfolio. Cash flow and liquidity remain key parameters in management of this broadening of the Company's sphere of activity. Improved production in Ukraine and initiation of gas delivery in Hungary are expected to raise the average production in the second half of the year above 11,500 boepd.

 

We are active in evaluation of new development and exploration opportunities in our central and east European core area, whilst being mindful of the acquisition opportunities afforded by the relative strength of our balance sheet and cash resources.

I anticipate the Company's overall performance in the second half of the year to be in line with expectations.

 

 

 

CHIEF EXECUTIVE'S STATEMENT

Operational Highlights

Ukraine

In the first half of the year, PPC drilled and/or completed three development wells and two appraisal wells in the Poltava licences:

 

 

The Skytop rig is currently drilling development Well M167 as a high angle Tournasian carbonate infill well across the main natural fracture system in the Molchanovskoye North field. The rig will then undergo a short period of maintenance and rehabilitation before drilling a Devonian sandstone offset to the successful M166 horizontal well. The rig has a full drilling schedule through the remainder of 2009 and 2010. 

PPC's work-over rig carried out re-completions in Molchanovskoye Main wells M204 and M205, and Ignatovskoye Well I79 during the period. It also performed preparatory work on Rudenkovskoye wells R101 and R102 ahead of the planned proppant fracture stimulation test programme. The rig has now returned to exploration Well Z3 on the Zaplavskoye licence to replace damaged tubing prior to acidizing and testing the well. Meanwhile, PPC has applied for both easterly and westerly extensions to the Zaplavskoye exploration licence. 

The proppant fracture stimulation test programme for two of the producing wells on the Rudenkovskoye field was completed after the reporting period. The aim of the programme was to identify a preferred stimulation technique to be employed for the full development of the field. Initial results from Well R102 indicate that the frac was successful and flow rates increased significantly over previous production from the same interval. Work is now in progress to evaluate the impact of these results on the other intervals in the well and the rest of the South Rudenkovskoye area. Unfortunately a pressure leak curtailed the Well R101 frac operation and the results were inconclusive. 

In addition to the proppant fracture stimulation test programme in the Rudenkovskoye field, the 3D seismic data over the field has been re-interpreted and alternative locations for a horizontal well targeting the Devonian sandstone in the shallower southern part of the field have been identified for drilling in the coming year. Most of the northern part of the Rudenkovskoye field lies beyond the existing 3D seismic coverage and a 30 sq.km extension was acquired in April. This survey will permit more accurate identification of the multiple sand bodies and potential drilling locations in the main Tournasian sandstone. It should also aid interpretation of the underlying Devonian sandstone penetrated by Well R101 but which had to be plugged off due to the high pressures encountered when drilled in 2006.

An acid fracture stimulation programme was carried out in the period to enhance production from the Tournasian carbonate in areas where the natural fracture system is less developed i.e. where the carbonate is tight. The frac on Well M162 in the Molchanovskoye North field area resulted in a significant increase in flow in comparison to the pre-frac rate and PPC continues to monitor rates as the well re-stabilises. The frac on Well I131 in the Ignatovskoye field (which had stopped flowing prior to stimulation) did result in some flow to the production facility and a measurable improvement in reservoir performance, but was not sustainable. Further evaluation will be needed to assess the potential for other frac techniques in low productivity areas of the PPC fields.

Exploration Well Z2 on the Zaplavskoye licence, located to the south of the Molchanovskoye field, was drilled in 2008 and encountered thicker than expected T2 carbonate with the primary sandstone objective being deeper than prognosed. The reservoir was tested in the period and proved to be tight and unproductive. Initial plans to abandon the well are on hold pending evaluation of the results of the acid fracture stimulation programme.

The pace of facility development has eased with the connection to the Soyuz gas export line being completed in late 2008. Final implementation of the updated gas metering system is in progress and the oil export metering system has been upgraded. An additional compressor has been installed and commissioned, and a second test separator added to improve reservoir monitoring and management.

Russia

During the period, JKX's wholly owned subsidiary, Yuzhgazenergie ("YGE"), started the initial three-well workover programme in the Koshekhablskoye field in the southern Russian Republic of Adygea and progressed the programme for development of a new Gas Processing Facility (GPF).

Well 27 has been worked over, re-logged and re-completed in the Oxfordian limestone. The well will be tested shortly with results anticipated early next month. A full re-evaluation of the development schedule and the project economics will be undertaken after the well has been tested. Following completion of the work on Well 27, the Kremco-900 rig will return to working over Well 20 which will also be re-completed in the Oxfordian limestone. This is now scheduled for testing in the fourth quarter. The rig will then workover the Callovian sandstone interval in Well 9. Workover of the remaining eight wells is currently planned to commence in late 2010. 

The second half of 2009 will see the procurement and laying of replacement infield flowlines and the new export connection to the nearby gas trunkline. The 70 man camp and site office has been completed and the site for the GPF has been cleared. The land is levelled and being prepared for construction operations to commence at the beginning of 2010. Design work on the GPF and related infrastructure is ongoing. First gas is anticipated in the fourth quarter 2010, subject to the development schedule review mentioned above.

Hungary

Hernad licences: The licences (JKX: 50%) are in the northern Pannonian Basin and include the Hajdunanas field.

The Hajdunanas field development is complete with commercial gas delivery commencing earlier this month. Production from the two discovery wells is routed through a simple separator and then via a 14.5 km export line to an existing facility for input to the Hungarian gas pipeline system. Production of approximately 8.5MMcfd is now being sold under contract to Fogaz Zrt, the Hungarian subsidiary of the German utility, RWE. JKX has a 50% interest in the field.

Interpretation of the 348 sq.km of 3D seismic data acquired over the south eastern portion of Hernad I licence identified a number of prospects additional to Hajdunanas. The Tiszatarjan-1 exploration well was spudded in late 2008 to investigate the first of these additional prospects and targeted a Miocene volcanoclastic reservoir 20km south west of the Hajdunanas discovery. The well reached TD in January 2009 with oil being recovered from the Miocene objective but at sub-commercial rates. The well has been suspended pending a forward programme of formation stimulation.

Nyirseg Licence: JKX and its co-venturer in the Hernad licences, Hungarian Horizon Energy (HHE), farmed into the adjacent Nyirseg licence operated by PetroHungaria in late 2008. JKX and HHE each acquired a one-third equity share in 120 sq.km of the Nyirseg licence by funding the acquisition of 3D seismic over the area. Acquisition was completed in early 2009 and the first well, Gorbehaza-1, was spudded on the 17th August. The well has now reached TD of 1,300m with gas shows in two Pannonian sandstones levels and is being prepared for testing.

Veszto Licence: During the period, JKX farmed-in for a 25% interest in a 15.6 sq.km area of the Veszto exploration licence held by HHE in the eastern Pannonian Basin. A 3D seismic survey covering the entire 219 sq.km licence has been completed and interpreted with two prospects identified. The first well has been drilled and logged gas in both the deeper primary target and a shallower secondary target. High pressures were encountered in the primary target, causing the well to be suspended. Testing of the secondary target will await the drilling of a follow-up well planned for the third quarter which will utilise a higher rated drilling spread to investigate fully the primary, high pressure formation.

Bulgaria 

 

The Company operates the B Golitza and B1 Golitza exploration permits which cover a total of 3,499 sq.km, onshore Bulgaria. The 250 sq.km 3D seismic survey across the east-central parts the B and B1 Golitza licenses was completed in February 2009. Processing is complete and interpretation is now in progress with the goal of identifying a drilling prospect before the end of the year. Sorgenia E&P SpA ("Sorgenia") has farmed-in for a 30% working interest in the Golitza licences. Following the earning of Sorgenia's interest and subject to the approval of the Bulgarian authorities, participation in the licences will be: JKX (40% and operator), Aurelian (30%) and Sorgenia (30%).

Slovakia

The Company farmed-in to the Svidnik, Medzilaborce and Snina exploration licences in the Carpathian Fold Belt in north east Slovakia in 2008 (JKX: 25%). The licences cover a total area of 2,278 sq.km. A 238 km 2D seismic programme was started in 2008 but suspended due to poor weather conditions. The remaining 108 km is being acquired in 2009, and will provide basic regional information in the two eastern licences as well as infill to the 2008 data in the western Svidnik licence. 

Current and Future Activity

The drilling programme on the Poltava licences, Ukraine, for the second half of the year will include more development drilling on the Ignatovskoye and Molchanovskoye fields targeting the productive carbonate and sandstone horizons. The results of the proppant fracture stimulation test programme on two of the producing wells in the Rudenkovskoye field, together with the acid fracture stimulation programme in the carbonate reservoir will provide the base criteria for the 2010 drilling and development programme. In addition, we will continue to actively pursue development and exploration opportunities elsewhere in Ukraine through a programme of high-grading technical and commercial potential. 

 

In Russia, the focus is firmly on the Koshekhablskoye field where work-over and testing activity is in progress along with preparations for installation of flowlines and design and construction at the GPF. First gas is anticipated by the end of 2010. The gas market in Russia is evolving and we continue to seek additional licences for our Russian portfolio for development following the start up of the Koshekhablskoye Field. 

The strategy of focusing the Company's exploration efforts in eastern and central Europe will continue. The Company's first gas production in Hungary commenced in August and there is the potential for further developments in 2010. We anticipate participating in further exploration plays in the area in the coming periods. 

 

 

 

FINANCIAL REVIEW

Revenue

Total revenues decreased by 33% to $78.6m (2008: $116.8m) as a result of a 30% fall in oil production in the period and the significant fall in world oil prices, bringing the average oil realisation down 53% to $42.29/bbl (2008: $90.45/bbl). The decline in oil production is due to the fewer than anticipated new wells completed towards the end of 2008 not compensating for natural field decline. This was compounded by delays in clearing the backlog of wells for completion (as previously reported) and some lower than anticipated individual well performances. The combined effect of the decrease in oil prices and the reduced production meant that oil revenues dropped by 68% to $24.2m (2008: $75.1m). This fall in oil revenues was partly offset by a 31% increase in gas revenues to $53.6m (2008: $40.8m) The increase is a function of production in the period being consistent with H1 2008 but a rise in the Ukrainian domestic gas price to $7.18/mcf (2008: $5.40/mcf). Combined oil and gas production was 12% lower at an average daily rate of 10,191 boepd (2008: 11,607 boepd).

Operating profit

Total cost of sales fell 16% to $23.6m (2008: $28.2m) with falls in each of the cost components:

Production costs fell 20% to $9.4m (2008: $11.7m) as a result of general cost savings initiatives combined with reductions in a number of specific Ukrainian costs following inflation and foreign exchange driven changes in the local cost environment. On a boe basis production costs fell 8% to $5.13/boe (2008: $5.60/boe).

DD&A fell 10% to $12.7m (2008: $14.1m) largely driven by the 12% fall in production in the period. The average DD&A rate itself rose 4% in the period to $6.90/boe (2008: $6.66/boe) as a result of revisions to future capital expenditure forecasts and a slight change in mix of the field specific rates dictated by the production mix in the period.

Total production related taxes fell 39% to $1.4m (2008: $2.3m).  As with DD&A this was largely a function of the 12% fall in production but was also impacted by a number of changes in rates in specific taxes. The cost on a boe basis is 34% lower at $0.73/boe (2008: $1.10/boe).

General and administrative expenses were largely unchanged in the period at $7.7m (2008: $7.8m), although the combined figure contains a number of savings arising from changes in the cost environment in Ukraine in the latter part of 2008 and into 2009. 

There was a $2.8m net loss on foreign exchange (2008: net gain of $1.3m) due mainly to realised exchange losses in relation to the Group's Ukrainian operations. This was partially offset by gains from Group companies transacting in Euros.

Taxation

The tax charge in the period was $12.9m (2008: $21.8m), which equates to an effective rate of 30% (2008: 26%). The main reason for this increase in effective rate is the net increase in losses, primarily in Russia and the Netherlands which are not recognized at present.

These losses may reduce the effective tax rate in future periods if they are used or if they were to be recognized as deferred tax assets. If the impact of these losses is excluded, the effective tax rate for the period is 26% (2008: 26%).

Profit for the year

The profit after tax was $31.8m (2008: $61.8m) down 49%. The basic earnings per share is also down 49% to 20.23 cents per share (2008: 39.43 cents per share).

Cash flow/Net cash

Net cash from operating activities (after tax payments of $10.7m and net interest received of $0.3m) was $49.5m, down 32% (2008: $72.6m), consistent with the reduction in revenues and costs. Total net cash used in investing activities remained constant at $49.0m (2008: $48.9m). Most of this cash was invested in the continued development of the Ukrainian and Russian assets, together with the new development in Hungary. During the period $1.6m was received as proceeds for the farm down in B Golitza and B1 Golitza licences in Bulgaria.

The effect of exchange rates on cash and cash equivalents had a materially adverse effect on non $US balances at period end. The total effect of $5.2m compares to a modest positive effect in 2008 of $0.2m.

After accounting for proceeds from the issue of shares of $0.4m (2008: $0.8m) and dividends paid of $6.4m (2008: $7.4m) there was a 37% net decrease in cash and cash equivalents to $54.1m (2008: $85.4m). The current cash balance is approximately $74.8m. 

Financial instruments

The Group's financial instruments comprise of cash and liquid resources, and various items such as trade and other receivables, and trade and other payables that arise directly from its operations. The main purpose of these financial instruments is to finance the Group's operations.

Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and commodity price risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets in which it operates and seeks to minimise potential adverse effects on the Group's financial performance. Risk management is carried out by the Finance Director under policies and procedures approved by the board of directors.

(a) Market risk

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to Ukrainian Hryvna and the Russian Rouble. Foreign exchange risk arises from future commercialtransactions, recognised assets and liabilities and net investments in foreign operations. The Group manages its exposure by matching, as far as is practical, receipts and payments in the same currency and by following a range of commercial policies to minimise exposure to the Hryvna denominated sales, which continued to account for virtually all Group revenues in 1H 2009.

The Group was affected by continuing exchange rate fluctuations in its main operational currencies. The fluctuations had impact on foreign exchange losses emanating from revaluation of period end cash balances. 

(ii) Price risk

The Group is exposed to international oil and gas price movements. The Group is a price taker and does not enter hedge agreements unless required for borrowing purposes from time to time.

(iii) Cash flow and fair value interest rate risk 

As the Group has no significant interest-bearing assets other than cash, the Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group manages its cash flow interest rate risk by actively managing cash in short term or overnight fixed interest rate deposits.

(b) Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. Credit risk on cash and cash equivalents is managed at a Group level with two Treasury Committees (one comprised of Management which meets weekly, and another being a sub committee of the Audit Committee) evaluating the relative risks of banks and determining the appropriate allocation of Group funds across a range of banks in varying jurisdictions aimed at minimizing credit risk associated with cash deposits. Customers are managed at the operating company level and are evaluated if there is no independent rating, taking account of their financial position, past experience and other factors. Credit terms are only agreed with significant entities who can offer guarantees from appropriately rated banks or corporate guarantees from credit worthy international companies. Management does not expect any losses from non-performance by any period-end counterparties. The Company does not have any concentration of credit risk and management does not consider there to be any exposure to loss.

(c) Liquidity risk

Management monitors rolling forecasts of the Group's liquidity on the basis of expected cash flow.

Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets. The Group has no borrowings (2008: nil).

Fair value estimation

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

  

Financial review

Production summary	1H 2009	2H 2008	1H 2008
Production
Oil (Mbbl)	578	615	830
Gas (Bcf)	7.6	7.8	7.7
Oil equivalent (Mboe)	1,845	1,917	2,113
Daily production
Oil (bopd)	3,191	3,339	4,563
Gas (MMcfd)	42	42	42
Oil equivalent (boepd)	10,191	10,423	11,607

Operating results	1H 2009 $m	2H 2008  $m	1H 2008 $m
Revenue
Oil	24.2	46.7	75.1
Gas	53.6	42.3	40.8
Other	0.8	1.2	0.9
	78.6	90.2	116.8
Cost of sales
Operating costs	(9.4)	(12.2)	(11.7)
Depreciation, depletion and amortisation	(12.7)	(13.1)	(14.1)
Production based taxes	(1.4)	(1.7)	(2.3)
	(23.5)	(27.0)	(28.1)
Provision for impairment/write off of exploration costs	(0.1)	(6.9)	-
Total cost of sales	(23.6)	(33.9)	(28.1)
Gross Profit	55.0	56.3	88.7
Operating expenses
General and administrative expenses	(7.7)	(7.5)	(7.8)
(Loss)/profit on foreign exchange	(2.8)	(5.6)	1.3
Operating profit	44.5	43.2	82.2

Earnings	1H 2009	2H 2008	1H 2008
Net profit ($m)	31.8	16.4	61.8
Basic weighted average number of shares in issue (m)	157	157	157
Earnings per share (basic, cents)	20.23	10.42	39.43
Earnings before interest, tax, depreciation and amortisation ($m)	58.5	57.6	97.3

Realisations	1H 2009	2H 2008	1H 2008
Oil (per bbl)*	$42.29	$76.08	$90.45
Gas (per Mcf)	$7.18	$5.53	$5.40

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

Cost of production ($/boe)	1H 2009	2H 2008	1H 2008
Production costs	$5.13	$6.37	$5.60
Depreciation, depletion and amortisation	$6.90	$6.86	$6.66
Production based taxes	$0.73	$0.87	$1.10

Cash flow	1H 2009	2H 2008	1H 2008
Cash generated from operations ($m)	59.9	74.9	86.9
Operating cash flow per share (cents)	38.1	47.7	55.5

Balance sheet	1H 2009	2H 2008	1H 2008
Net cash ($m)	54.1	64.8	85.4
Net cash to equity (%)	15.1	19.3	24.8
Return on average capital employed (%)	18.4	10.6	39.2
Increase in property, plant and equipment/intangible assets ($m)
Ukraine	25.5	27.2	29.0
Russia	17.6	11.2	21.3
Other	8.5	14.1	7.4
Capital expenditure ($m)	51.6	52.5	57.7

 

Interim financial information - Group income statement

			Notes	Six months to 30 June 2009 (un-audited) $000	Six months to 30 June 2008 (un-audited) $000	Year  to  31 December 2008 (audited) $000
Revenue			4	78,584	116,847	207,047
Cost of sales
Operating costs - excluding impairment/write off of exploration costs			7	(23,497)	(28,183)	(55,077)
Provision for impairment/write off of exploration costs			7	(95)	-	(6,883)
Total cost of sales				(23,592)	(28,183)	(61,960)
Gross profit				54,992	88,664	145,087
General and administrative expenses				(7,730)	(7,834)	(12,700)
(Loss)/profit on foreign exchange				(2,783)	1,334	(6,994)
Operating profit			8	44,479	82,164	125,393
Finance income				715	1,542	3,172
Finance cost				(514)	(112)	(1,004)
Profit before tax				44,680	83,594	127,561
Taxation - current			10	(12,888)	(21,842)	(49,407)
Profit for the period				31,792	61,752	78,154
Earnings per share		- basic earnings per 10p ordinary share  (in cents)	12	20.23	39.43	49.85
		- diluted earnings per 10p ordinary share (in cents)	12	20.15	39.04	49.44

Dividends paid	11	(6,377)	(7,436)	(13,610)
Dividend (per share)		2.6 pence	2.4 pence	4.6 pence

Interim financial information - Group statement of comprehensive income

		Six months to 30 June 2009 (un-audited) $000	Six months to 30 June 2008 (un-audited) $000	Year  to 31 Dec 2008 (audited) $000
Profit for the period		31,792	61,752	78,154
Currency translation differences		(3,009)	2,980	(16,985)
Total comprehensive income attributed to:
JKX shareholders		28,783	64,732	61,169

The notes below form an integral part of this financial information.

Interim financial information - Group balance sheet

	Notes	As at 30 June 2009  (un-audited) $000	As at 30 June 2008 (un-audited) $000	As at 31 Dec 2008 (audited) $000
Assets
Non-current assets
Property, plant and equipment	5	307,753	266,739	278,902
Other intangible assets	5	26,545	26,514	22,359
Goodwill		2,028	3,256	2,165
		336,326	296,509	303,426
Current assets
Inventories - finished goods		1,603	2,017	1,758
Trade and other receivables		23,530	20,510	15,002
Cash and cash equivalents	14	54,079	85,391	64,805
		79,212	107,918	81,565
Assets of disposal group classified as held for sale	15	7,397	-	7,347
		86,609	107,918	88,912
Total assets		422,935	404,427	392,338
Liabilities
Current liabilities
Current tax liabilities		(3,269)	(8,906)	(10)
Trade and other payables		(33,155)	(29,187)	(26,670)
		(36,424)	(38,093)	(26,680)
Liabilities directly associated with the assets classified as held for sale	15	(8)	-	(8)
		(36,432)	(38,093)	(26,688)
Non-current liabilities
Provisions	9	(2,261)	(3,812)	(2,396)
Deferred tax		(27,150)	(18,830)	(29,097)
		(29,411)	(22,642)	(31,493)
Total liabilities		(65,843)	(60,735)	(58,181)
Net assets		357,092	343,692	334,157
Equity
Share capital	6	24,334	24,245	24,256
Share premium		41,296	40,964	41,015
Merger reserve		30,680	30,680	30,680
Other reserves
Capital redemption reserve		587	587	587
Equity - share options		2,889	2,579	2,719
Equity - foreign currency translation		(24,644)	(1,670)	(21,635)
Retained earnings		281,950	246,307	256,535
Total shareholders' equity		357,092	343,692	334,157

The notes below form an integral part of this financial information.

 

Interim financial information - Group statement of changes in equity (un-audited)

	Share capital $000	Merger reserve $000	Capital redemption reserve $000	Equity share options reserve $000	Foreign currency translation reserve $000	Assets held for sale $000	Share premium $000	Retained earnings $000	Total $000
Group:
At 1 January 2008	24,148	30,680	587	2,448	(4,650)	803	40,217	191,991	286,224
Net gains not recognised in the income statement	-	-	-	-	2,980	-	-	-	2,980
Issue of employee share options	97	-	-	-	-	-	747	-	844
IFRS 2 share option charge	-	-	-	131	-	-	-	-	131
Profit attributable to equity shareholders	-	-	-	-	-	(803)	-	61,752	60,949
Dividend	-	-	-	-	-	-	-	(7,436)	(7,436)
At 30 June 2008	24,245	30,680	587	2,579	(1,670)	-	40,964	246,307	343,692
Group:
At 1 January 2009	24,256	30,680	587	2,719	(21,635)	-	41,015	256,535	334,157
Net gains not recognised in the income statement	-	-	-	-	(3,009)	-	-	-	(3,009)
Issue of employee share options	78	-	-	-	-	-	281	-	359
IFRS 2 share option charge	-	-	-	170	-	-	-	-	170
Profit attributable to equity shareholders	-	-	-	-	-	-	-	31,792	31,792
Dividend	-	-	-	-	-	-	-	(6,377)	(6,377)
At 30 June 2009	24,334	30,680	587	2,889	(24,644)	-	41,296	281,950	357,092

The notes below form an integral part of this financial information.

 

Interim financial information - Group cash flow statement

	Notes	Six months  to 30 June 2009 (un-audited) $000	Six months  to 30 June 2008 (un-audited) $000	Year  to 31 Dec 2008 (audited) $000
Cash flows from operating activities	13
Cash generated from operations		59,919	86,865	161,762
Interest received		429	1,884	3,045
Interest paid		(163)	(3)	(2)
Income tax paid		(10,694)	(16,186)	(38,300)
Net cash from operating activities		49,491	72,560	126,505
Cash flows from investing activities
Acquisition of subsidiary, net cash of acquired		-	(119)	(5,119)
Proceeds from sale of property, plant and equipment		-	14	-
Net proceeds on part disposal/disposal of business	16	1,595	2,911	2,911
Short term loan advanced		-	(90)	(130)
Purchase of property, plant and equipment and intangible assets		(50,617)	(51,572)	(102,594)
Net cash used in investing activities		(49,022)	(48,856)	(104,932)
Cash flows from financing activities
Proceeds from issue of ordinary share capital		359	844	906
Proceeds from borrowing/(repayment of borrowing)		-	(7)	(6)
Dividends paid to shareholders	11	(6,377)	(7,436)	(13,610)
Net cash used in financing activities		(6,018)	(6,599)	(12,710)
Increase/(decrease) in cash and cash equivalents in the period		(5,549)	17,105	8,863
Effect of exchange rates on cash and cash equivalents		(5,177)	160	(12,184)
Cash and cash equivalents at 1 January		64,805	68,126	68,126
Included in cash and cash equivalents as per balance sheet	14	54,079	85,391	64,805

The notes below form an integral part of this financial information.

 

 

 

 

 

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.

This condensed consolidated interim financial information was approved by the directors for issue on 28 August 2009.

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2008 were approved by the Board of directors on 6 April 2009 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 of the Companies Act 2006.

This condensed consolidated interim financial information has been reviewed and not audited. 2. Basis of preparation

This condensed consolidated interim financial information for the six months ended 30 June 2009 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services 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 2008 which were prepared in accordance with IFRSs as adopted by the European Union. 3. Accounting policies

Except as described below, the accounting policies adopted are consistent with those used in the annual financial statements for the year ended 31 December 2008. 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.

Taxes on income in the interim period are accrued using the tax rate that would be applicable on expected total annual earnings.

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2009:

IAS 1 (revised), 'Presentation of financial statements'. The revised standard prohibits the presentation of

items of income and expenses (that is 'non-owner changes in equity') in the statement of changes in equity,

requiring 'non-owner changes in equity' to be presented separately from owner changes in equity. All 'non-owner

changes in equity' are required to be shown in a performance statement, however this is not currently relevant for the group.

Entities can choose whether to present one performance statement (the statement of comprehensive income)

or two statements (the income statement and statement of comprehensive income).

The group has elected to present one statement: an income statement. The condensed consolidated interim financial information have been prepared under the revised disclosure requirements.

IFRS 8, 'Operating segments'. IFRS 8 replaces IAS 14, 'Segment reporting'. It requires a 'management

approach' under which segment information is presented on the same basis as that used for internal reporting

purposes. 

Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Directors. 

Goodwill is allocated by management to groups of cash-generating units on a segment level. 

The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2009 but are not currently relevant for the group:

IFRIC 13, 'Customer loyalty programmes'.

IFRIC 15, 'Agreements for the construction of real estate'.

IFRIC 16, 'Hedges of a net investment in a foreign operation'.

IAS 39 (amendment), 'Financial instruments: Recognition and measurement'.

IFRS 2 (amendment), 'Share based payments'.

IAS 23 (revised), 'Borrowing costs'.

IAS 32 (amendment), 'Financial instruments: Presentation'.

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2009 and have not been early adopted:

IFRS 3 (revised), 'Business combinations' and consequential amendments to IAS 27, 'Consolidated and

separate financial statements', IAS 28, 'Investments in associates' and IAS 31, 'Interests in joint ventures',

effective prospectively to business combinations for which the acquisition date is on or after the beginning of

the first annual reporting period beginning on or after 1 July 2009. Management is assessing the impact of the

new requirements regarding acquisition accounting, consolidation and associates on the group. The group

does not currently have any joint ventures.

The revised standard continues to apply the acquisition method to business combinations, with some

significant changes. For example, all payments to purchase a business are to be recorded at fair value at the

acquisition date, with contingent payments classified as debt subsequently re-measured through the statement

of comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the minority

interest in the acquiree either at fair value or at the minority interest's proportionate share of the acquiree's

net assets. All acquisition-related costs should be expensed. The group will apply IFRS 3 (revised) to all

business combinations from 1 January 2010, subject to endorsement by the EU.

IFRIC 17, 'Distributions of non-cash assets to owners', effective for annual periods beginning on or after 1

July 2009. This is not currently applicable to the group, as it has not made any non-cash distributions.

IFRIC 18, 'Transfers of assets from customers', effective for transfers of assets received on or after 1 July

2009. This is not relevant to the group, as it has not received any assets from customers.

4. Segmental analysis

 

The Executive Directors review the group's internal reporting in order to assess performance and allocate resources. The business is reviewed from a geographical perspective and income is analysed by product.

Transfer prices between geographical segments are on an arm's-length basis in a manner similar to transactions with third parties.

Inter-segment revenues are eliminated on consolidation.

  4. Segmental analysis (continued)

1H 2009		UK $000	Ukraine $000	Russia $000	Hungary $000	Rest of world $000	Sub total $000	Eliminations $000	Total $000
External revenue
Revenue by location of asset	Oil	-	24,136	-	-	-	24,136	-	24,136
	Gas	-	53,611		-	6	53,617	-	53,617
	Management services	-	831	-	-	-	831	-	831
		-	78,578	-	-	6	78,584	-	78,584
Inter segment revenue	Oil	-	-	-	-	-	-	-	-
	Gas	-	-	-	-	-	-	-	-
	Management services	6,097	-	-	-	-	6,097	(6,097)	-
	Equipment	10,944	-	-	-	71	11,015	(11,015)	-
		17,041	-	-	-	71	17,112	(17,112)	-
Total revenue	Oil	-	24,136	-	-	-	24,136	-	24,136
	Gas	-	53,611	-	-	6	53,617	-	53,617
	Management services	6,097	831	-	-	-	6,928	(6,097)	831
	Equipment	10,944	-	-	-	71	11,015	(11,015)	-
		17,041	78,578	-	-	77	95,696	(17,112)	78,584
Operating profit/(loss)		(2,820)	50,108	(1,721)	(157)	194	45,604	(1,125)	44,479
Total assets		33,085	229,662	117,139	20,450	22,599	422,935	-	422,935

1H 2008		UK $000	Ukraine $000	Russia $000	Hungary $000	Rest of world $000	Sub total $000	Eliminations $000	Total $000
External revenue
Revenue by location of asset	Oil	-	75,132	-	-	-	75,132	-	75,132
	Gas	-	40,771	-	-	-	40,771	-	40,771
	Management services	-	944	-	-	-	944	-	944
		-	116,847	-	-	-	116,847	-	116,847
Inter segment revenue	Oil	-	-	-	-	-	-	-	-
	Gas	-	-	-	-	-	-	-	-
	Management services	12,418	-	-	-	-	12,418	(12,418)	-
	Equipment	15,329	-	-	-	-	15,329	(15,329)	-
		27,747	-	-	-	-	27,747	(27,747)	-
Total revenue	Oil	-	75,132	-	-	-	75,132	-	75,132
	Gas	-	40,771	-	-	-	40,771	-	40,771
	Management services	12,418	944	-	-	-	13,362	(12,418)	944
	Equipment	15,329	-	-	-	-	15,329	(15,329)	-
		27,747	116,847	-	-	-	144,594	(27,747)	116,847
Operating profit/(loss)		(894)	87,345	(2,130)	(32)	221	84,510	(2,346)	82,164
Total assets		67,611	210,002	99,147	8,101	19,566	404,427	-	404,427

 

5. Property, plant and equipment and intangible assets

 

During the period the group acquired $51.6m additional assets (2008: $57.7m), with 92% (2008: 86%) being in Ukraine, Russia and Hungary on the Group's oil and gas producing and development assets and 8% (2008: 14%) being spent on intangible assets.

 

6. Share capital

 

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

	2009 Number	2009 £000	2009 $000	2008 Number	2008 £000	2008 $000
Authorised
Ordinary shares of 10p each	250,000,000	25,000	35,940	250,000,000	25,000	49,771
Allotted, called up and fully paid
Opening balance at 1 January	156,974,380	15,697	24,256	156,415,131	15,642	24,148
Exercise of share options	530,500	54	78	488,224	48	97
Closing balance at 30 June	157,504,880	15,751	24,334	156,903,355	15,690	24,245
Of which the following are shares held in treasury:
Treasury shares held at 1 January	402,711	40	77	402,771	40	77
Treasury shares held at 30 June	402,711	40	77	402,771	40	77

The Company did not purchase any treasury shares during 2009 (2008: nil). There were no treasury shares used in 2009 (2008: nil) to settle share options. There are no shares reserved for issue under options or contracts. 7. Cost of sales

	Six months  to 30 June 2009 $000	Six months  to 30 June 2008 $000	Year to 31 Dec 2008 $000
Operating costs	9,421	11,781	23,874
Depreciation, depletion and amortisation	12,720	14,080	27,222
Production based taxes	1,356	2,322	3,981
	23,497	28,183	55,077
Provision for impairment/write off of exploration costs	95	-	6,883
Total cost of sales	23,592	28,183	61,960

 

 

8. Operating profit

 

In calculating the operating profit there have been no costs recorded in addition to operating costs and general and administrative costs (2008: $nil). 

All assets that are subject to amortisation are reviewed for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. Goodwill is reviewed at the end of each financial year or as circumstances dictate. 9. Provisions

	30 June 2009 $000	30 June 2008 $000	31 Dec 2008 $000
Provision for site restoration	2,253	2,053	2,380
Deferred consideration, due after more than one year, relating to the acquisition of Yuzhgazenergie LLC	-	1,734	-
Other provisions	8	25	16
	2,261	3,812	2,396

 

 

10. Taxation

 

No liability to UK taxation has arisen during the six months ended 30 June 2009 (2008: $nil) due to the availability of tax losses, relief for overseas taxes paid on dividends received and tax relief on employee share options exercised. The tax charged in the period relates to Ukrainian corporation tax which has arisen in the Group subsidiary, Poltava Petroleum Company. Taxes charged on production of hydrocarbons in Ukraine and the USA are included in cost of sales.

11.  Dividends

In respect of the full year 2008 a final dividend of 2.6 pence per share (2007: 2.4 pence per share) was paid on 5 June 2009. An interim dividend for 2009 has been declared of 2.3 pence per share (2008: 2.2 pence per share) which will be paid in October 2009.

Total dividends paid during the six months period to 30 June 2009 amounted to $6.4m (2008: $7.4m) and for the full year ended 31 December 2008 $13.6m.

 12. Earnings per share

The calculation of earnings per ordinary share for the six months ended 30 June 2009 is based on the weighted average number of shares in issue during the period of 157,173,684 (30 June 2008:156,606,199; 31 December 2008: 156,769,466) and the profit for the relevant period. 

The diluted earnings per share for the six months ended 30 June 2009 is based on 157,806,129 (30 June 2008: 158,160,088; 31 December 2008: 158,063,386) ordinary shares calculated as follows:

Number of shares	30 June 2009	30 June 2008	31 Dec 2008
Basic weighted average number of shares	157,173,684	156,606,199	156,769,466
Dilutive potential ordinary shares:
Share options	632,445	1,553,889	1,293,920
	157,806,129	158,160,088	158,063,386

13. Reconciliation of operating profit to net cash inflow from operating activities

	Six months to 30 June 2009 $000	Six months to 30 June 2008 $000	Year to 31 Dec 2008 $000
Operating profit	44,479	82,164	125,393
Depreciation, depletion and amortisation	14,054	15,170	29,503
Impairment of property, plant and equipment/intangible assets	139	90	6,883
Gain on disposal of subsidiary/asset disposal	-	(843)	(915)
Share-based payment costs	170	131	271
Exchange differences	(683)	(1,334)	6,435
Cash generated from operations before changes in working capital	58,159	95,378	167,570
Changes in working capital	1,760	(8,513)	(5,808)
Cash generated from operations	59,919	86,865	161,762

	At 1 January 2009 $000	Net movement $000	At 30 June 2009 $000
Cash	962	970	1,932
Short term deposits	63,843	(11,696)	52,147
Cash and cash equivalents	64,805	(10,726)	54,079

 

 

15. Assets held for sale

 

The assets that the group holds in the USA were presented in the 2008 annual report and accounts and also in these interim accounts as being held for sale. Subsequent to the half year these assets have been sold to Petrohawk Energy Corporation, a US independent oil and gas company, which resulted in cash proceeds of $10.1m being received against a holding value of $7.4m.  

 

 

16. Part disposal/disposal of business

During the period the Company agreed to reduce its holding in B Golitza and B1 Golitza exploration permits from 50% to 40% through a farm out to Songenia E&P SpA in exchange for $1.6m (2008: $2.9m Italy). Songenia's interest is subject to approval by the Bulgarian authorities. 17. Capital commitments

Under the programs for exploration, development and production of oil and gas assets in Hungary, Slovakia, Bulgaria, Ukraine and Russia, the Group had committed $5.6m (2008: $4.5m) to future capital expenditure on drilling rigs and facilities as at 30 June 2009.

 

18. Related-party transactions

Key management compensation amounted to $1.7m for the six months ended 30 June 2009 (30 June 2008: $2.0m).

19. Ukrainian and Russian 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 30 June 2009, oil and gas assets based in Ukraine and Russia represent approximately 61% (2008: 62%) and 30% (2008: 29%) 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 condensed consolidated interim financial information 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.

20. Copies of this half-year report are being sent to registered shareholders and further copies are available from the Company's registered office.

Registered office6 Cavendish Square

London W1G 0PD

 

 

 

Statement of directors' responsibilities 

The directors confirm that 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 herein includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.7 and 4.2.8, 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 

The directors of JKX Oil & Gas plc are listed in the JKX Oil & Gas plc Annual Report for 31 December 2008 and a list of current directors is maintained on the JKX Oil & Gas plc website www.jkx.co.uk.

By order of the Board

Dr Paul Davies

Chief Executive Officer

B J Burrows

Finance Director

Independent review report to JKX Oil & Gas plc

Introduction

We have been engaged by the company to review the condensed consolidated interim financial information in the half-yearly financial report for the six months ended 30 June 2009, which comprises the Group income statement, Group balance sheet, Group statement of comprehensive income, Group cash flow statement, comparative figures and associated related notes. 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 information.

Directors' responsibilities

The half-yearly financial report 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 Services Authority.

As disclosed in note 3, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated interim financial information included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial information 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 the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, 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.

Scope of review

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.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial information in the half-yearly financial report for the six months ended 30 June 2009 is 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 Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

London

28 August 2009

Notes:

(a) The maintenance and integrity of the JKX Oil & Gas plc web site is the responsibility of the directors; the work carried 

out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the web site.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from 

legislation in other jurisdictions.

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

Conversion factors

6,000 standard cubic feet of gas = 1 boe

We welcome visits to our website

www.jkx.co.uk

ENDIR KDLFLKVBBBBE

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Related Shares:

JKX.L