Half Yearly Report

FOR IMMEDIATE RELEASE 14 AUGUST 2012

JKX Oil & Gas plc

('JKX' or the 'Company')

HALF-YEARLY RESULTS

 FOR

THE SIX MONTHS ENDED 30 JUNE 2012

Key Financials

·; Revenue: $103.0m (2011: $107.8m)

·; Operating profit*: $31.3m (2011: $32.9m)

·; Operating costs*: $58.3m (2011: $64.6m)

·; Production based taxes: $24.6m (2011: $33.0m)

·; Earnings per share*: 12.05 cents (2011: 14.00 cents)

·; Operating cash flow: $60.0m (2011: $58.9m)

·; Capital expenditure: $45.6m (2011: $101.0m)

·; Cash resources: $20.3m (2H 2011: $28.9m) 

*underlying figures before exceptional item of $30.7m non-cash accelerated depreciation charge against Ukrainian assets

Operational Highlights

·; Average production of 7,481 boepd (2011: 9,476 boepd)

·; Completion of Russian gas plant, receipt of Permit to Operate and initiation of gas sales

·; Award of Giorgievskoye exploration licence in Adygea, southern Russia

·; Successful exploration well in Zaplavskoye exploration licence, Ukraine

·; Commencement of production from Elizavetovskoye licence, Ukraine, and sanctioning of stand-alone development

·; Award of contract for multi-stage frac for Rudenkovskoye field in Ukraine

Outlook

·; On-going ramp-up of Russian production to plant capacity to extend into 2013

·; Testing of initial Callovian appraisal well in Russia now scheduled for Q1 2013

·; Pre-frac work-over of well R-103 in Ukraine and injectivity test scheduled for completion in Q3 2012, with multi-stage frac scheduled for Q2 2013

·; Drilling of new well and construction of stand-alone Elizavetovskoye facility in Ukraine for anticipated start-up in Q2 2013

JKX Chief Executive, Dr Paul Davies, commented: "Operating results for the first half of the year are solid with strong gas and LPG realisations in Ukraine offsetting the shortfall in Russian production and associated revenues. In Ukraine, lower levels of production based taxes and operating costs have contributed to improved cash flow and underlying operating profit. The retirement of our short-term Credit Suisse facility remains on-track for completion by the year-end.

Since the period end, we have awarded our multi-frac project contract for well R-103 in the Rudenkovskoye field in Ukraine and have agreed with the contractor to schedule the operation for April 2013 to avoid winter weather conditions. We are also initiating the stand-alone development of our Elizavetovskoye gas condensate field.

The key milestone of the first half of the year has been the start-up and initiation of gas sales from our Russian gas plant. We experienced some difficulties in bringing our wells on-stream at their design production rate and this has delayed ramp-up to plant capacity to the first half of 2013.

We expect our performance in the second half of the year to reflect the extended schedule for build-up to Russian plant capacity, and remain committed to delivering long term value for our shareholders."

ENDS

For further information please contact:

Chairman's Statement

Strategy

The Group strategy remains focused on oil and gas developments in eastern and central Europe and good progress has been made in the period towards achieving our 2012 goals. Ukraine remains our core market and continues to support our early entry into the Russian independent gas market which we believe will lead to further growth opportunities.

Performance

In the first half of 2012, we have achieved the key goals of bringing on-stream our first Russian gas project, initiation of gas sales and the receipt of our Permit to Operate. These achievements are tempered by the difficulties being encountered in bringing on-stream our re-completed wells at their design capacity. Consequently, ramp-up of production to plant capacity is being delayed whilst re-work of the completions of these high pressure wells is undertaken. We anticipate this work will be completed in the first half of 2013.

Exploration and development drilling and work-over programmes in Ukraine have proceeded satisfactorily in the period, with a notable exploration success in the recently awarded extension to the Zaplavskoye exploration licence. The contract for the large multi-stage frac of well R-103 in the deep, tight gas Rudenkovskoye field has been awarded to Schlumberger with pre-frac preparatory work underway on the well. Lead time for import of the large amount of equipment and materials into Ukraine has moved the execution of the fraccing operation to April 2013 to avoid winter weather conditions. Gas production has also started on our Elizavetovskoye licence from an existing well, and sufficient production data has been gathered in the period for sanctioning of a new well and the construction of a stand-alone processing facility. We continue to benefit from strong local gas and LPG prices.

Dividend

The Board has reviewed carefully the Company's cash flow profile which is required to support both the delay in ramp-up of our Russian gas sales and the retirement of the $50 million Credit Suisse facility by year end. The Board has concluded that it is not appropriate at this time to award an interim dividend. The Board will continue to review its dividend policy as circumstances change.

Board

Sir Ian Prosser resigned from the Board in July to pursue other interests. On behalf of all members of the Board and the staff of the Group, I wish to thank him for his contribution to the Company during his stewardship. I am delighted to have been voted unanimously by the Board to assume the post of Chairman and will endeavour to progress the Company's development in the interests of all shareholders.

I am very pleased that Dipesh Shah has agreed to become Senior Independent Director in addition to his role as Chairman of the Remuneration Committee. I will continue to act as Chairman of the Audit Committee whilst we seek a suitable candidate to fill this important role going forward.

Outlook

The Company's immediate goal is to bring production levels from its Russian project up to the full capacity of the gas plant. Once this is achieved, we will return to completion and testing of the underlying Callovian reservoir.

Activity in Ukraine in the second half of the year is concentrated on completing the pre-frac work on well R-103, and continuing the on-going work-over programme which has demonstrated both success and efficiency in the first half of the year. In addition, we are beginning work on a new development on the Elizavetovskoye licence, comprising initially a new well and processing facilities, for an anticipated start-up in the second quarter of 2013.

In parallel with retiring our short-term debt, we are actively pursuing longer term funding options to allow the Company to expand its current asset portfolio as we move into 2013. We continue to seek opportunities for growth whether by acquisition or by organic development in our core central and east European areas.

Chief Executive's Statement

Performance Highlights

The performance highlights for the period are:

·; Average production of 7,481 boepd (2011: 9,476 boepd)

·; Completion of Russian gas plant, receipt of Permit to Operate and initiation of gas sales

·; Award of Giorgievskoye exploration licence in Adygea, southern Russia

·; Successful exploration well in Zaplavskoye exploration licence, Ukraine

·; Commencement of production from Elizavetovskoye licence, Ukraine, and sanctioning of stand-alone development

·; Award of contract for multi-stage frac for Rudenkovskoye field in Ukraine.

The first half of 2012 saw the April start-up of production at the Koshekhablskoye field in Russia and at the Elizavetovskoye field in Ukraine. The overall fall in production reflects a decline in field production in the Novo-Nikolaevskoye group of fields in Ukraine and the Hadjunanas field in Hungary, and delays in build-up of Russian production. Oil realisations remained strong in the period averaging $97.82/bbl (2011:$97.92/bbl), with average gas realisations climbing 36.5% to $11.85/Mcf (2011: $8.68/Mcf). LPG realisations in Ukraine were also buoyant at $923/tonne (2011: not applicable).

Ukraine

Development activity continued at the Novo-Nikolaevskoye complex in the period with the completion of four new wells and work-over of five existing wells. Exploration success with the first well on the extension to the Zaplavskoye licence contributed to production in the period but further appraisal drilling of the area awaits the acquisition of 3-D seismic which will be acquired over the winter months. Production was also initiated in our Elizavetovskoye licence in the second quarter from one of the existing well-stock in the field with a further two wells available for refurbishment by our wholly owned subsidiary, Poltava Petroleum Company ('PPC') to gain a share of the production. Most importantly, sufficient test data has been gathered in the period to allow finalisation of PPC's development plans for, and sanctioning of, a stand-alone facility for production from its planned drilling programme. Finally, the contract has been awarded for the large multi-stage frac of well R-103 in the Rudenkovskoye field. Preparatory pre-frac work is on-going on the well, with the main frac operations now scheduled for spring 2013.

Russia

The Koshekhablskoye field began production with the commencement of gas deliveries under contract. All regulatory approvals were received in the period, with the final Permit to Operate received in early July. The plant has required only minor modifications and equipment repair/replacement in the period, which have entailed a small number of shut-ins. Technical problems at the wells have held back production levels in the second quarter but remedial action is in progress and production is expected to have increased significantly by the end of the third quarter, although ramp-up to full plant capacity will now extend into 2013. The award of the Giorgievskoye exploration licence in Adygea, southern Russia in the second quarter has secured the boundaries of our existing field and provides upside in the prospect to the south of the licence.

Current and Future Activity

Increasing production at our Koshekhablskoye field in Russia is the main focus of activity in the second half of the year with the completion of the side-track to well-27, clearance of the down-hole blockage in well-20 and workover of well-05. Appraisal of the underlying Callovian reservoir will recommence in 2013, together with reprocessing of existing 2-D seismic over the recently awarded Giorgievskoye exploration licence.

Completion of the pre-frac preparatory work on well R-103 in the Rudenkovskoye field is a priority activity in Ukraine in the second half of the year in preparation for execution of the multi-frac in April 2013. The sanctioning of the development project for our Elizavetovskoye licence allows design, procurement work and the approval process to commence in the third quarter on the production facility, with drilling of the first new well and initiation of production anticipated for the first half of 2013. Acquisition of 3-D seismic data over the extension to the Zaplavskoye exploration licence is scheduled for the end of the year, which will permit planning of the 2013 appraisal drilling programme on the licence. On-going development drilling and well workover operations will continue over the production licences at Poltava in line with the 2012 programme.

Limited activity is planned in Hungary in the second half of the year with the focus in the coming period restricted to evaluation and optimisation of appraisal and exploration options available to us in 2013. Exploration drilling in Slovakia has been rescheduled by the operator to 2013. Additional 2-D seismic data is being acquired in the second half of the year over our Provadia licence in Bulgaria by the operator, Overgas.

We anticipate the modest decline in production levels in Ukraine through year-end being more than offset by a rising contribution to group production from Russia.

We remain committed to developing the exploration and production assets in our core areas and continue to seek and pursue new opportunities to broaden the base and scope of our operations.

Operational Review

Group Production

The first half of 2012 saw the April start-up of production at Koshekhablskoye Field in Russia and at the Elizavetovskoye Field in Ukraine.

Group average production in the first half of 2012 was 7,481 boepd comprising 34.3 MMcfd of gas and 1,774 bpd of oil and condensate, a 21% decrease on the average for the first half of 2011. The fall in production reflects the predicted decline in field production in the Novo-Nikolaevskoye group of fields in Ukraine, now only partly offset by continuing success in the in-fill and exploration drilling programme.

Technical problems at the wells on the Koshekhablskoye field in Russia have held back production levels in the second quarter but remedial action is in progress and production is expected to have increased significantly by the end of the third quarter, although full plant capacity is not expected until mid-2013.

Water breakthrough in the Hungarian Hadjunanas field wells Hn-1, Hn-2 and GH-5 has led to a decline in gas production there. Production has now been stabilised, albeit at lower rates, and now includes oil from the Hn-1 well.

Ukraine

Novo-Nikolaevskoye Licences

Production

Average production from the Novo-Nikolaevskoye group of fields in the first half of 2012 was 6,753 boepd comprising 30.2 MMcfd of gas and 1,727 bpd of oil and condensate, a 23% decrease on the average for the first half of 2011. Production in the first half was helped by the early success of the Zaplavskoye-04 exploration well but decline was rapid and overall production fell slightly in the second quarter. Production rates in mid-July were running at around 2,000 bopd and 30 MMcfd (circa 7,000 boepd) with just over 60 tons per day of LPG being produced.

Development Drilling and Workover Activity

In the first half of the year, activity at our wholly-owned subsidiary, PPC, covered exploration, appraisal and in-fill drilling as well as workovers and recompletions of existing wells.

During the first half of the year, PPC worked-over five wells and completed four new wells in the Poltava licences using its Skytop and TW-100 rigs.

·; Appraisal well M-172 was an appraisal to the successful M-170 'Wedge Zone' deep Devonian sandstone gas discovery in the Molchanovskoye licence and was drilled some 500m to the southwest with a TD of 3,203m. Despite encountering the target approximately 200m above the gas water contact in the discovery well, the reservoir was water bearing. This result is attributed to an unseen fault between the wells. Seismic data are being reprocessed in anticipation of further appraisal in the area.

·; Exploration well Z-04 was drilled to a TD of 2,937m in the northwest part of the Zaplavskoye licence area and encountered gas in the V-25 and V-26 sandstone reservoirs. The V-25 reservoir was over- pressured and was completed first. Initial rates exceeded 20 MMcfd with a rich condensate and LPG content but, as anticipated, the rates declined rapidly.

·; Appraisal well IG-135, located on the west flank of the Ignatovskoye structure, was a high-angle well targeting a down-faulted Visean carbonate block. The target reservoir proved tight but a completion in the upper Visean carbonate is now flowing at 240 bopd with 1.3 MMcfd gas with a FWHP of 195 psi.

·; Development well N-78 was drilled to 2,023m and completed in 16 days. The reservoir quality on the southern flank of the Novo-Nikolaevskoye structure proved to be disappointing and initial attempts to flow the V-16 reservoir failed. The second Upper V-15 sand has been recompleted and is now flowing at 0.4 MMcfd with some condensate.

The above wells were drilled and completed by PPC's Skytop rig which went on to replace the liner in the Rudenkovskoye R-103 horizontal well ahead of the forthcoming multistage frac. This operation involved recovering the 1,200m long uncemented pre-perforated liner and replacing it with a cemented non-perforated liner which will be perforated stage by stage during the frac process. Perforation of the first stage and execution of an injectivity test is scheduled for the third quarter.

Final details of the multi-stage frac programme have now been concluded with the selected contractor and the contract for the work awarded. The bulk of materials required will be imported from the USA, with transport and customs schedules precluding the execution of the frac during the remaining 2012 weather window. Consequently, the frac has been rescheduled for the spring of 2013.

Other rig activity during the first half of the year involved PPC's TW-100 rig which completed five workover/recompletion operations:

·; recovery of a complicated fish in Rudenkovskoye well R-102 in preparation for testing a shallower Tournasian interval in the well. The test was ultimately inconclusive and the well has been suspended

·; rework on Ignatovskoye well IG-105 to replace the rods for the beam pump. The well continues to flow at around 110 bopd with a water cut of just over 40%

·; water shut-off and recompletion of the Devonian sandstone in the Molchanovskoye well M-168 was partially successful with flow rates reaching 1.05 MMcfd before dropping off sharply suggesting cross-flow; the well has been placed on intermittent production

·; Zaplavskoye well Z-04 was successfully re-completed in the V-26 sandstone reservoir late in the second quarter. High rates and rapid decline were observed (see below)

·; workover on Ignatovskoye well IG-150 entailed a water shut-off and recompletion operation in the Devonian sandstone reservoir with the installation of gas lift. Resultant oil and gas production was limited and the well is now on an intermittent production regime

·; following water encroachment, re-completion of the prolific Molchanovskoye well M-166ST higher in the horizon was completed ahead of a planned additional side-track. Even with gas lift, oil production is limited and detailed modelling is required to determine the merits of the proposed side-track.

Additional perforations were also made at the heel of horizontal Molchanovskoye well M-171 using wireline (without rig intervention), and resulted in a substantial increase in oil production to 430 bopd with 3.5 MMcfd gas.

Zaplavskoye Exploration Licence Activity

The 2010 extension of the Zaplavskoye licence gave PPC access to an area that had been drilled in the 1960s but never put into production. PPC has some 2D seismic over the area and this, together with the database of old wells, enabled it to select a location close to an existing well which permitted good stratigraphic control and reasonable production expectations from the deeper Visean sandstones, also seen further north in the Rudenkovskoye area.

The Z-04 well discovered gas in the V-25 and V-26 sandstones with the V-25 appearing to have a better quality, though over-pressured, reservoir. Production testing confirmed this with high initial rates in both reservoirs and, incidentally, a rich condensate giving an increased LPG and C5+ offtake. Decline in the V-25 sandstone was rapid with production ceasing after around 10 weeks. The well was recompleted to the deeper reservoir which also started at a high rate but has since declined to around 2.2 MMcfd with around 110 bcpd where it is showing signs of levelling off.

The over-pressure and short life of the V-25 upper reservoir suggest a small, possibly fault or lithologically bounded, reservoir. The normal pressure and slower decline of the deeper V-26 reservoir suggest a larger reservoir. However the 2D seismic resolution is inadequate and further appraisal drilling will depend on the results of the 3D seismic planned for the winter season.

Liquefied Petroleum Gas (LPG) Production Facilities

The plant is operating satisfactorily producing a 44/54% C3/C4 mixture. The C1/C2 content has been reduced to less than 3% with the onset of warmer weather. Production in the first half has been around 60 tons per day depending on the level of gas production. LPG volumes have increased slightly with well Z-04 in production.

Other Gas Production Activities

No significant activity in the first half of 2012. The K220 compressor will be upgraded in the second half to enhance production from the increasing number of low pressure wells.

Elizavetovskoye Exploration Licence

Following resolution of the status of the Elizavetovskoye licence in 2010, preparations are underway for the development of the remaining reserves in this field. Agreement was reached with the owners of the existing well-stock on the field to give PPC access to the wells for long-term test production ahead of PPC finalising its own development plan. The agreement gives PPC 33.3% of the production from the wells in return for a modest investment in the wells' refurbishment.

The first well, East Machevska-53 (M-53), was brought into production in April, and is currently flowing at around 2.8 MMcfd (gross) with 20 bpd condensate. The second well, M-52, is being surveyed and the necessary repairs costed. The data acquired from well-M-53 has given us sufficient confidence to justify a stand-alone development and the final design and work programme will be submitted for approval by the authorities in the fourth quarter. Drilling of the first new well, E-301, and installation of the additional facilities is anticipated to commence in the first quarter of 2013 with production start-up planned for the second quarter.

Russia

Koshekhablskoye Licence

Facilities and Production

Our wholly owned subsidiary, YGE, is redeveloping the Koshekhablskoye Field in southern Russia. The Gas Processing Plant was commissioned in the first quarter of the year with test production running through it and gas sales commenced in April.

Downhole problems with the wells have meant that production during the start-up period has been restricted to between 5 and 15 per cent of plant capacity, with a limited number of shut-downs to make adjustments and/or replacements to various items of plant equipment. Currently, both well-20 and well-25 are in production with well-27 being worked over. Production is expected to begin to ramp-up during the third quarter, with full plant capacity now expected in the first half of 2013.

All regulatory inspections of the facilities are complete and YGE received its Permit to Operate in early July.

Development Drilling and Workover Activity

Difficulties were experienced in removing the temporary plug in well-27, following its extended shut-in period since initial work-over and testing in 2009. YGE was required to re-run the completion, but differential sticking of the pipe during this operation necessitated a side-track of the well in the reservoir section. This operation was successfully completed at the end of July and production is anticipated to commence during August.

Well-20 is producing but at a reduced rate due to a downhole restriction. The Geostream rig will re-enter the well to clear the blockage and run an updated completion, as soon as well-27 is on-stream.

Earlier testing in well-25 had also indicated a downhole blockage, probably mechanical, and a further side-track is being planned.

An additional well, well-05, has been identified as a possible producer and a coiled tubing operation is in progress to prepare this well for either early production or, more probably, a well workover.

Preparations for the side-track of the Callovian well-09 and the deepening of well-22 to the Callovian sandstone reservoir were completed last year and YGE will return to them in early 2013.

Our licence in Koshekhablskoye requires that we drill or workover two Callovian wells and carry out a reserves determination on both the Oxfordian and Callovian reservoirs. YGE has continued to maintain a regular dialogue with Rosnedra, the licencing authority, and have recently agreed with them to defer completion of this licence commitment to July 2014.

Georgievskoye Exploration Licence

YGE was awarded the 170.7 sq km Georgievskoye exploration licence in May. 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 west and east flanks of the field.

The whole of the mapped field area is now secured under licences held by YGE. Most of the Oxfordian 2P reserves in the new licence area were already expected to be recoverable through existing wells on the field, but a further 30-90 Bcf of contingent Oxfordian resources could be recovered by additional drilling, together with a total 140-180 Bcf of Callovian resources. There is also an additional lead in the south of the block, beyond the existing 3D seismic coverage, with estimated P50 resources of 30 Bcf unrisked.

Hungary

Production

Hajdunanas Field

The Hajdunanas and Gorbehaza fields have been producing from three wells to a single separator and then via a 14.5 km export line to an existing facility for input to the Hungarian gas pipeline system.

Production last year was affected by water influx and the operator temporarily shut-in both fields. Well Hn-2 has been in production throughout the first half 2012 averaging 3.2 MMcfd with 57 bcpd (gross), despite a short period of increased water influx which, although quickly remedied, does indicate that further water breakthrough can be anticipated at any time. Well Hn-1 has been recompleted as a Miocene oil producer with new separation facilities; production commenced in June and averaged 125 bopd (gross) with 50 Mcfd gas. The Gh-5 well was going to receive pressure support from a small compressor, but on restarting was found to be producing insufficient gas to support such a facility and the well remains suspended.

Average gross production in the first half was 616 boepd (JKX net: 308 boepd) comprising 3.2 MMcfd of gas and 87 bpd of oil and condensate, a 52% decrease on the average for the first half of 2011.

Exploration and Appraisal

Hernad Licences

JKX holds a 50% equity interest in the two Hernad licences in the northern Pannonian Basin. The 2011 3D seismic data acquisition in the Jaszsag area in the south of the Hernad II licence was interpreted and a two well drilling programme planned for the end of 2011. The first well, Pely-02, was unsuccessful and drilling at the second location was deferred while the data was re-evaluated. A tilted fault block structure with amplitude supported Lower Pannonian reservoir intervals lies up-dip from the Tiszavasvari-6 well discovery and appraisal drilling is under consideration for the second half of 2012.

Veszto Licence

JKX holds a 25% equity interest in a 15.6 sq km part of the Veszto exploration licence in the east Hungarian Pannonian Basin. The operator is continuing the evaluation of appraisal locations and a further well is under consideration for the second half of 2012, following award of the Mining Plot.

Turkeve Licence

Exploration well Ny-7 (JKX: 50%) made a significant gas discovery in the Turkeve area in 2011. However, the proportion of CO2 (25%) requires a more complex treatment plant. The operator continues to evaluate treatment and development options with the aim of bringing the field into production around mid-2013.

Bulgaria

Exploration

Provadia Licence

JKX has a 18% carried interest in the 1,787 sq km Provadia licence operated by Overgas. The 380 km 2D seismic survey has been completed and the data are now being evaluated. An additional 119km 2D seismic is planned for the third quarter of 2012.

B and B1 Golitza licences

The B1 Golitza licence, in which JKX held a 40% interest, expired in March 2012.

Slovakia

Exploration

JKX holds a 25% equity interest in the Svidnik, Medzilaborce and Snina exploration licences in the Carpathian fold belt in north east Slovakia. An aero-gravity survey should start in August to help finalise the location of the planned Cierne-1 exploration well in the westernmost Svidnik licence. The well will be drilled to more than 3,500m with a number of additional targets identified in this sub-thrust play. Spud date is not now expected until mid-2013.

Financial Review

The first half of the year continued with solid operating cash flow from our Ukrainian subsidiary and reduced capital expenditure, reflecting the completion of construction and commissioning of our Russian Gas Processing Facility. Whilst production has decreased in Ukraine, our performance (excluding the additional non-cash DD&A charges, which are discussed below) was underpinned primarily by continued robust gas prices in Ukraine and significantly lower operating costs stemming mainly from lower production based taxes from the implementation of new tax legislation.

Following the reduction in the Group's oil and gas reserves at our Novo-Nikolaevskoye Complex, and subsequent revision to future production plans from those fields, certain oil and gas assets have become redundant and a one-off non-cash accelerated depreciation charge of $30.7m has been recognised in the income statement during the period in respect of these assets. In addition our depreciation, depletion and amortisation ('DD&A') charge for the period is $9.1m higher than in the comparative period as a direct result of the reserves reassessment of our Molchanovskoye field in Ukraine.

Revenue

Group revenues of $103.0m (2011: $107.8m) were 4.5% down on prior year which was the result of a 21.1% diminished production from Ukraine partly offset by production in Russia and Hungary, and improved gas realisations in Ukraine of 44.5% compared with 2011.

Average sales volume in the period was a combined 6,644 boepd (2011: 9,440 boepd), with 91% (6,074 boepd) sold in Ukraine, 4% (262 boepd) attributable to Russia and the remaining 5% (308 boepd) in Hungary. This reduction was partly offset by the 36.5% increase in average gas price realised of $11.85/Mcf (2011: $8.68/Mcf). The operation of the LPG plant in combination with strong LPG prices contributed $9.1m (2011: nil) to realisations and helped defray the impact of reduced oil sales volumes. Average oil realisations remained high at $97.82/bbl (2011: $97.92/bbl) following the strong international oil prices.

Profit from Operations before exceptional item

Group profit before tax and before the exceptional depreciation charge declined to $30.1m (2011: $32.7m) primarily as a result of the increase in on-going DD&A charge. Applying DD&A rates that are consistent with the prior year, this non-cash charge would have been $12.2m lower and profit before tax for the period (before exceptional item) would have been $42.3m, a 28.6% increase over the same period in 2011, despite a drop in production of 21.1%.

Total cost of sales for the period (excluding exceptional item and write off of exploration costs) decreased to $57.1m (2011: $58.3m). This is due to the $9.1m increase in the DD&A charge to $25.4m (2011: $16.3m), offset by a reduction in production taxes of $8.4m and a reduction in operating costs of $2.0m. The DD&A charge for the period has increased significantly due to the reduction in reserves of our Molchanovskoye field in Ukraine which has accelerated our depletion charge for that field. On a boe basis this increased the Group's combined current and future DD&A rate per unit of production to $18.69/boe (2011: $9.51/boe).

Production based taxes for the Group reduced by $8.4m as a result of the reduction in oil production taxes in Ukraine; this reduced from 54% to 42% of oil revenues to $18.10/boe (2011: $19.26/boe).

Operating costs fell 21.8% to $7.0m (2011: $9.0m). On a boe basis this represents a reduction of 1.5%, to $5.15/boe (2011: $5.23/boe). The $2m fall is mainly attributable to an increase in oil and gas inventory at the end of the period. Excluding inventory movements operating costs increased 17.6% to $10.0m (2011: $8.5m) which is entirely due to the operating costs associated with first commercial gas production from our Russian GPF.

The Group exercised prudent cost controls and reduced administrative expenses by 9.1% (excluding movements in foreign exchange) to $10.4m (2011: $11.5m). The Group was negatively impacted by foreign exchange losses in the period of $3.0m (2011: a gain of $1.2m) mainly resulting from a strengthening of the US Dollar against the Rouble during the period (2011: weakening).

Exploration and evaluation costs written off were reduced by 80.4% to $1.2m (2011: $6.3m) and relate entirely to our exploration activity in Hungary.

Taxation

The total tax charge for the period was $4.4m (2011: $8.6m). The Group's effective tax rate has increased in the period as we have not recognised the deferred tax benefit of the loss incurred during the period by our Russian operations due to the length of time over which we intend to use the losses.

In December 2010 new Ukrainian corporation tax rate legislation was effected which reduced future tax rates; as a result the corporation tax rate in Ukraine for 2012 is 21% (2011: 23.5%), 19% is expected for 2013 and 16% is expected for periods after 31 December 2013.

There has been much speculation in the press recently concerning royalties and corporation tax rates in both Ukraine and Russia which we continue to monitor closely. In Ukraine, changes to the production taxes from 2013 have been approved by parliament and signed by the President. At current production and price levels they do not materially impact the Group's effective production tax rate.

In Russia, recent proposed changes to the Mineral Extraction Tax ('MET') rates by the Ministry of Finance were vehemently objected to by industry and quickly revoked. The Russian government has asked for formal comment by the autumn at which time they will commence discussions with respect to possible changes to the MET levels and the overall oil and gas tax regime.

Loss for the Period

The loss for the period of $5.1m is after exceptional charges net of tax effects of $25.8m; excluding the exceptional items the result for the period would have been $20.7m profit (2011: $24.1m profit). As noted above, while there are a number of contributing factors to this reduction in pre-exceptionals profit, the most significant factor is the impact of the increase in the DD&A charge on our Molchanovskoye field in Ukraine resulting from a 90% reduction in its remaining reserves at the end of the prior year and therefore significantly reducing its expected remaining productive life.

The DD&A charge for the period is a non-cash charge which reflects the expensing of the costs of developing the Molchanovskoye field over the expected remaining period of production. The impact on the DD&A charge of the reduction in reserves is accounted for prospectively therefore increasing the future charge, on per boe basis, relating to production from the field.

Basic earnings per share before exceptional items decreased 13.9% to 12.05 cents (2011: 14.00 cents) in line with the reduced profit.

Cash Flows

Net operating cash flows were up 1.9% at $60.0m (2011: $58.9m) which represents 58% of gross revenue (2011: 55%).

Interest paid during the period of $4.9m comprises $4.3m of financing charges on the Credit Suisse swap (2011: nil) and $0.6m paid in respect of the Crédit Agricole facility.

Income tax paid in the period has increased to $13.5m (2011: $9.0m) despite a reduction in the Ukrainian corporation tax charge. This is mainly due to a reduction in corporation tax payable from $2.9m to nil during the period, a $0.3m increase in prepaid corporation tax (2011: nil) and short term timing differences on taxable items in Ukraine. As a result of the $9.3m increase in interest and taxation payments in the period net cash from operating activities in the period has reduced by $8.2m to $41.6m (2011: $49.8m).

Total net cash outflow from investing activities was $45.3m (2011: $100.1m).

The $45.6m of capital investment is materially reduced from the amount invested in H2 2011 ($64.8m), reflecting the completion of construction and commissioning of YGE's Koshekhablskoye GPF, which accounted for 60% (2011: 62%) of the total for the period. At the end of the period the carrying value of the Group's oil and gas assets in Russia ($266.7m including the $50.0m acquisition cost) which when compared with the value of the Group's Ukrainian oil and gas assets ($192.0m) is indicative of the scale of the Russian project and its importance to the Group.

Interest received in the period was $0.3m (2011: $0.1m) reflecting both the low interest rate environment and the reduced cash deposits held by the Group.

Net Cash outflow from financing activities in the period was $5.1m (2011: inflow $41.2m) comprising $20.0m of principal repayments (2011: $49.5m receipts) with respect to the loan element of the Credit Suisse funding off-set by $14.9m (2011: $8.9m) drawn down in the period from the increased working capital facility provided by Crédit Agricole in addition to a $0.1m (2011: $10.1m) increase in restricted cash balances.

In June 2011, Credit Suisse advanced $50m to the Group for repayment over 18 months, with an initial three month repayment holiday to September 2011 concluding with a final payment in December 2012. Of the funds received from Credit Suisse, $9.5m is a Debt Service Reserve and is presented as restricted cash in accordance with the terms of the prepaid element of the transaction.

The key terms of the swap element of the transaction are that the Group has sold forward 36,000 bbl/month of crude at $94/bbl Urals Med over the term of the loan, with a cap at $130/bbl Urals Med where additional value over this amount is retained by the Group.

No dividends were paid to shareholders in the period (2011: $7.2m).

Net Cash

The resultant decrease in cash and cash equivalents in the period before adjusting for foreign exchange effects was $8.7m (2011: $9.1m).

Total cash at the end of the period was $20.3m including restricted cash, compared to 31 December 2011 total of $28.9m. Restricted cash of $9.5m will be used to settle the Credit Suisse monthly payments from October through to the end of its term in December.

As in 2011 the Group's cash flow continues to reflect the investment required to bring the Russian project up to full production. Our Russian project is now making commercial sales albeit at lower volumes than planned and remediation of the wells continues. Subject to the remediation work being successful and the ramp-up to full capacity being achieved as planned, the cash flow profile in relation to this project will change from a net recipient of Group cash to a significant net contributor.

Liquidity

Our immediate priority with our cash resources is the support of realisation and operational risks in Ukraine and our Russian operations.

With the on-going cash requirements arising due to the delays experienced with our ramp-up to full production in Russia and related cash flow, Group liquidity will be carefully managed.

As a result of our continuing expenditure on Russian workover operations we have delayed some of the Group's other discretionary capital expenditure for 2012 and 2013. We expect to pay down our Credit Suisse facility by the end of this year and see a strengthening of the Group's liquidity toward the end of the year and into 2013.

The Group has the ability to fund its future operating and capital expenditures through existing working capital, cash flow from operations and borrowings under its credit facility with Crédit Agricole. We continue to maintain a low level of gearing which provides us with a wide variety of options to maximise our financial flexibility to support our operating and growth objectives.

Financial Instruments

The Group employs a number of financial instruments to finance the Group's operations. These include cash and liquid resources, together with items such as receivables and payables that arise directly from our operations.

In June 2011 the Group entered into a prepaid swap transaction with Credit Suisse which secured $50m for capital expenditure and other purposes. The Group amortized $30m of the total facility by the end of the period (2011: none) in addition to $4.3m (2011: $nil) of finance charges in relation to the swap. Under the swap JKX has sold forward 36,000 bbl/month of crude at $94 Urals Med, with a cap at $130 Urals Med.

The Group increased the Crédit Agricole working capital facility from $10m net to $15m during the period and continues to benefit from the flexibility that this financing provides its Ukrainian subsidiary, in particular, to manage its working capital needs.

Risks and uncertainties

The Group's business of oil and gas exploration and production and its chosen area of operation, central and eastern Europe, results in exposure to a broad range of risks. 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 classification of key risks and uncertainties which were identified at the year-end have not changed from those stated on pages 42 to 47 of the JKX Group 2011 Annual Report and still remain appropriate. The principal risks and uncertainties for the remaining six months of 2012 are identified as being:

Reservoir performance - Koshekhablskoye ramp-up in Russia

The ramp-up to full capacity of the GPF has been slower than anticipated due to technical issues with well completions. Remediation is under way and we anticipate that production will achieve plateau levels in 2013 at the production levels achieved during the well testing phase. This will ensure that the plant operates at its full capacity. The Group's hydrocarbon reservoirs that generate production and cash flow to underpin the Group's operations and growth may not perform as expected, exposing the Group to lower profits and challenges in funding planned development. Accordingly, forecast reservoir performance is critical in deciding on development options for specific assets and allocation of resources generally across the Group.

LiquidityThe continued cash requirements of our Russian project during 2012 due to the production delays and work over activity continues to affect the Group's liquidity. The timing and nature of most of the Group's exploration and development activities are discretionary and therefore the Group continues to carefully prioritise these activities 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 $15m credit facility with Crédit Agricole.

Capital management

An optimal capital structure should be maintained for the Group to continue maximising returns for shareholders and benefits to other stakeholders. Failure to manage the capital structure could reduce stakeholder returns and, in extreme circumstances, impact the Group's ability to operate as a going concern.

Commodity prices - Russia and Ukraine

The Group is exposed to international oil and gas price movements and political developments in Russia and Ukraine which influence local oil and gas prices. Previous oil and gas price increases in many countries have resulted in increased taxes in the industry, cost inflation and more onerous terms for access and producing resources. As a result, increased oil and gas prices may not improve the Group results.

A prolonged period of low oil and gas prices would lead to further reviews for impairment of the group's oil and gas assets and may impact the Group's ability to support its long-term capital investment programme and reduce shareholder returns including dividends and share price.

The Group is a price taker and does not enter into hedge agreements, unless it is required for borrowing purposes which may occur from time to time.

Capital expenditure

The Group operates in a capital intensive business requiring long lead time investment decisions. The on-going Koshekhablskoye workover programme in Russia continues to be the Group's most capital intensive project. A Project Management team of specialists from the UK, Ukraine and Russia are overseeing the continued workover activities there.

We look to engage only those suppliers that have the expertise and proven capability to deliver the required service or equipment at market prices and regularly monitor costs against the agreed budgets as the workovers progress.

Future capital requirements for additional exploration, appraisal and development activities can be difficult to predict as they are principally driven by the Group's cash requirements of the on-going Russian project. The timing and nature of some of the Group's exploration and development activities are discretionary and therefore the Group prioritises these activities according to the available finance.

Reduction in liquidity and working capital could result in delay or cancellation of capital projects. In extreme circumstances, this could impact day-to-day operations and the Group's ability to continue as a going concern.

Country exposure

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 their economies. This can result in the Group being subject to uncertainties relating to the determination of its tax as well as other liabilities.

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.

Tax legislation

In Ukraine, 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 advisors and the tax authorities concerning rules of calculation and payment of various production related taxes to 31 December 2010.

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 and therefore the tax authorities in the countries of operation 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 uncertainties.

Health, Safety, Environment and Community relations

Failure to put in place and operate a rigorous HSEC regime can endanger and negatively affect stakeholders. Adverse publicity from any poor performance in this field could negatively affect the Group. The Group could be held responsible for addressing any contamination or damage to current or past licenced or surrounding areas. The associated cost could be significant.

This summary of principal risks and uncertainties noted above is not intended, and should not be used, as a substitute for reading the appropriate pages of the 2011 Annual Report which is available on the JKX Oil & Gas plc website www.jkx.co.uk.

Financial review

1 Earnings before interest, tax, depreciation and amortisation is a non-IFRS measure and calculated using Profit from operations of $0.5m (1H 2011: $32.9m) and adding back depreciation, depletion and amortisation of $57.1m (1H 2011: $17.3m)

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

3Gross Borrowings is Borrowings of $31.8m (2011: $35.9m) gross of unamortised effective interest and arrangement fees of $2.0m (2011: $4.6m).

4Net (debt)/cash is Total cash less Gross Borrowings.

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

By order of the Board

Dr Paul Davies

Chief Executive Officer

13 August 2012

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 2012, which comprises the Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Cash Flows and 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 2, 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 2012 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

13 August 2012

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.

Condensed Consolidated Income Statement

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statement of Changes in Equity (unaudited)

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 2012 and was approved by the Directors for issue on 13 August 2012.

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 2011 were approved by the Board of Directors on 27 March 2012 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 2012 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 2011 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 preceding paragraphs of this financial review.

The Directors have reviewed the Group's forecast cash flows for the next twelve months and through to the end of 2013. Capital and operating costs are based on approved budgets and latest forecasts in the case of 2012 and current development plans in the case of 2013. In addition the Directors have made enquiries into and considered the Ukrainian and Russian business environments and future expectations regarding country and currency risks that the Group may encounter.

Having considered the sensitivities and 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 $15m on the credit facility in Ukraine which is currently available until 30 June 2013, 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 2011 and those expected to be applied in the 31 December 2012 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.

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 five reportable operating segments which are based on the internal reports provided to the Chief Operating Decision Maker. Ukraine, Russia and Hungary segments are involved with production and exploration; the 'Rest of World' are involved in exploration and development 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 Bulgaria 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.

A non-cash accelerated depreciation charge of $30.7m has been recognised in Profit from operations in respect of oil and gas assets in the Ukrainian segment (see Note 6). 4. Segmental analysis (continued)

5. Property, plant and equipment and other intangible assets

During the period the Group acquired $45.6m additional assets (2011: $101.0m), with 96% (2011: 90%) being in Ukraine, Russia and Hungary on the Group's oil and gas producing and development assets and 4% (2011: 10%) being spent on intangible assets.

Yuzhgazenergie ('YGE'), Russia

As disclosed on pages 105 through 107 of the 2011 Annual Report, an impairment test of our Russian assets was undertaken in 2011 which compared the recoverable amount of the Cash Generating Unit (CGU), being YGE for the purpose of the review, to the carrying value of the CGU.

Management have reviewed the assumptions adopted in the 2011 impairment test following the 15% rise in base industrial gas price in Russia on 1 July 2012, the announcement by the Russian government to increase the price annually (on 1 July) thereafter at 15% p.a. through 2014, developments in the wider gas market, delays to first gas sales in Russia and to the ramp-up to the full production capacity of YGE's gas processing facility, and a reassessment of anticipated workover activity and future capital expenditure at the plant. No indication of impairment or triggers were noted in relation to YGE's Koshekhablskoye gas field.

Ukraine

Following a review of the Novo-Nikolaevskoye Complex Cash Generating Unit during the period, no indication of impairment or triggers were identified.

 6. Exceptional item - accelerated depreciation of Ukrainian oil and gas assets

Following the change in the Group's oil and gas reserves at the Novo-Nikolaevskoye Complex on 31 December 2011, and subsequent revision to future production plans from those fields during 2012, there was a reassessment of the expected future economic benefit from the Complex's oil and gas assets in Ukraine. As a result, certain oil and gas assets have become obsolete and therefore their carrying value has been written off. A one-off accelerated depreciation charge of $30.7m has been recognised in the income statement during the period in respect of these oil and gas assets.

7. Other receivables

Long term receivables consist of VAT recoverable as a result of expenditures incurred in Russia. The receivables are expected to be recovered during 2013.

8. Cash

Restricted cash

Pursuant to the pre-paid swap transaction (see Note 9), the Group holds $9.5m (2011: $9.5m) in an account at Barclays Bank Plc, which is treated as restricted cash as this account is not under the exclusive control of the Group and the Group does not have immediate direct access to the funds.

At 30 June 2012 $0.3m (31 December 2011: $0.3m) 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 mine damage and the costs of recultivation, including environmental damage of the waste management facilities.

9. Borrowings

Pre-paid Swap

On 14 June 2011 the Group entered into a pre-paid swap transaction with Credit Suisse International. The transaction which secured $50m for capital expenditure and other purposes is repayable over an 18 month schedule commencing in September 2011, concluding with a final payment in November 2012. There is a zero coupon rate on the outstanding balance however under the transaction JKX has hedged forward sales of oil (see Note 10).

Short-term borrowings, term loans and guarantees are secured by fixed and floating charges over the oil and gas assets of the Group.

Credit Facility

On 31 March 2011, PPC, our subsidiary in Ukraine, entered into a 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 $15m and will be available until 28 June 2013. 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.

10. Derivative liability

Pre-paid Swap

The pre-paid swap transaction the Group entered with Credit Suisse International in 2011 has been structured to enable repayment by JKX from future sales of oil. Under this structure, JKX has sold forward 36,000 bbl/month of crude at $94.00 Urals Med per barrel while retaining value if prices rise above $130 per bbl.

The Urals Med index is the closest international benchmark for the range of oil and gas produced by JKX and delivered in local markets. The volume allocated represents approximately 15% of the Group's current daily production on a barrel of oil equivalent basis.

As the amount of consideration payable to Credit Suisse International will change in response to the change in the Urals Med index and will be settled in the future, the payable is treated as a derivative liability.

11. Share capital

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

The Company did not purchase any treasury shares during 2012 (2011: nil). There were no treasury shares used in 2012 (2011: nil) to settle share options. There are no shares reserved for issue under options or contracts.

12. Provisions

13. Other cost of sales

14. Taxation

No liability to UK taxation has arisen during the six months ended 30 June 2012 (2011: $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 main rate of UK corporation tax effective from 1 April 2012 was reduced from 25% to 24%. The Finance Act 2012, which became law on 17 July 2012, introduced a reduction to the main rate of corporation tax from 24% to 23% from 1 April 2013. Further reductions to the main rate of 1% per annum to 22% by 1 April 2014 are expected to be enacted over the next year. The impact of the rate reduction is not expected to have a material impact on provided and unprovided UK deferred taxation.

The new corporation tax rate in Ukraine for 2012 is 21%. The expected corporation tax rate for 2013 is 19% and 16% for 2014 and beyond.

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 (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 period from January to March 2007. 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 July 2009 to December 2010, additional production related taxes could be approximately twenty 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 the period from May 2007 to June 2009 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. Given the lack of clarity over the legal position together with arguments that the Group has to defend its position, the Group considers that no payments are likely to be made in the next 12 months.

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.

15. Earnings/(loss) per share

The calculation of earnings per ordinary share for the six months ended 30 June 2012 is based on the weighted average number of shares in issue during the period of 172,070,477 (30 June 2011: 172,064,952; 31 December 2011: 172,067,737) and the (loss)/profit for the relevant period.

The diluted earnings per share for the six months ended 30 June 2012 is based on 173,762,803 (30 June 2011: 173,300,486; 31 December 2011: 172,835,079) ordinary shares calculated as follows:

16. Dividends

In respect of the full year 2011, the Directors did not propose any final dividend (full year 2010 final dividend: 2.6 pence per share). No interim dividend for 2012 is being paid or proposed (2011: nil)

No dividends were paid during the six months period to 30 June 2012. Interim dividends paid in the six months to 30 June 2011 in respect of the full year ended 31 December 2011 were $7.2m (2010: $13.2m).

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

18. Capital commitments

Under the programmes for exploration, development and production of oil and gas assets in Hungary, Slovakia, Bulgaria, Ukraine and Russia, the Group had committed $3.5m to future capital expenditure on drilling rigs and facilities as at 30 June 2012 (30 June 2011: $6.4m; 31 December 2011: $4.0m).

19. Related-party transactions

Key management compensation amounted to $2.8m for the six months ended 30 June 2012 (30 June 2011: $2.5m).

20. Events after the reporting date

Since the reporting date, the Company's wholly owned subsidiary Poltava Petroleum Company and Schlumberger have agreed contracts to perform fracture stimulation ('frac') operations on well-R103 in the Rudenkovskoye licence, Poltava, Ukraine.

Well R103 was drilled in 2010 to a total measured depth of 4,589m including a sub-horizontal component of 1,000m in a low permeability gas bearing Devonian sandstone unit. Detailed geological and engineering studies have concluded that the well will benefit from a multi-stage fracture treatment.

Pre-frac preparations on the well, which include the replacement of the liner, are well advanced, with the injectivity test scheduled to be completed in the third quarter of 2012, and the bulk of the frac operation scheduled for the second quarter of 2013.

On 8 August, Dipesh Shah OBE was appointed as Senior Independent Director. He succeeds Nigel Moore who became Chairman on 13 July 2012. Dipesh was appointed to the Board as a Non-Executive Director in 2008 and is Chairman of the Remuneration Committee and a member of the Audit Committee.

Glossary

2P reserves Proved plus probable

P50 Reserves and/or resources estimates that

have a 50 per cent probability of being met

or exceeded

AIFR All Injury Frequency Rate

Bcf Billion cubic feet

bcpd Barrel of condensate per day

boe Barrel of oil equivalent

boepd Barrel of oil equivalent per day

bopd Barrel of oil per day

bpd Barrel per day

cfpd Cubic feet per day

FWHP Flowing Well Head Pressure

Hryvna The lawful currency of Ukraine

HSEC Health, Safety, Environment and Community

LIBOR London InterBank Offered Rate

LPG Liquefied Petroleum Gas

LTI Lost Time Injuries

Mbbl Thousand barrels

Mboe Thousand barrels of oil equivalent

Mcf Thousand cubic feet

MMcfd Million cubic feet per day

MMbbl Million barrels

MMboe Million barrels of oil equivalent

Roubles The lawful currency of Russia

sq km Square kilometre

TD Total depth

$ United States Dollars

US United States

VAT Value Added Tax

Conversion factors 6,000 standard cubic feet of gas = 1 boe

Directors and Advisers

Directors

Nigel Moore

Lord Oxford

Alastair Ferguson

Dipesh Shah

Paul Davies

Cynthia Dubin

Martin Miller

Peter Dixon

Company Secretary

Limor Gonen

Registered office

6 Cavendish Square

London W1G 0PD

Registered in England

Number: 3050645

We welcome visits to our website www.jkx.co.uk

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.