Interim Management Statement

JKX Oil & Gas plc

INTERIM MANAGEMENT STATEMENT

INCLUDING DATA FOR

THE FIRST QUARTER ENDING 31 MARCH 2010

Q1 Q1 Change

2010 2009

Production (boepd) 11,384 9,876 +15%

Gas Production (MMcfd) 46.6 40.8 +14%

Oil Production (bopd) 3,621 3,083 +17%

Realised gas price ($ per Mcf) $7.39 $7.04 +5%

Realised oil price ($ per barrel) $61.60 $34.91 +76%

JKX Chief Executive, Dr Paul Davies, said: "The Company is embarked on an extensive capital programme this year with the aim of significantly raising production levels in 2011. The Company has started the year positively with good progress being made on all development and exploration assets in the first quarter including the key development projects of Rudenkovskoye in Ukraine and Koshekhablskoye in Russia. Exploration success continues in Hungary with a gas discovery in our Veszto licence. Realised gas prices in Ukraine averaged in excess of $7 per Mcf in the period, a small discount to the regulated maximum internal sales price, and at a level significantly above current UK and US prices. Reduction in the imported price of gas recently agreed between Ukraine and Russia has not affected ongoing gas sales realisations, with the Ukrainian government confirming its intention to maintain maximum internal sales prices at current levels through 2010. We continue to seek attractive opportunities to add to our exploration and development portfolios."

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Highlights

Group production was in excess of 11,300 boepd in the period, despite severe winter weather conditions in Ukraine. The Company raised $61 million via a share placement in January in order to accelerate its development programmes in both Ukraine and Russia. Work has commenced in Ukraine on the first of the horizontal wells to be drilled on the deep Rudenkovskoye tight gas field. Workovers continue on the Company's Russian re-development project with facilities under construction. Exploration activity is ongoing in Hungarywith testing of the deeper Nykepustza-2 gas discovery well continuing. Further exploration drilling is scheduled this year in Hungary and Bulgaria and further seismic acquisition programmes planned in Hungary and Slovakia. 

Production

Ukraine: Average production in the first quarter was 10,358 boepd comprising 41.3 MMcfd of gas and 3,472 bpd of oil and condensate, a 9% increase on the average for the first quarter 2009. Production is currently running 10% higher at over 11,400 boepd.

Hungary: Gross production from the Hajdúnánás Field in the first quarter was 2,051 boepd comprising 10.5 MMcfd of gas and 297 bpd of oil and condensate. (JKX share: 50%)

Outlook: We anticipate average production in the second quarter to be approximately 11,500 boepd.

Ukraine

Development and Workover Activity: First quarter activity focused on preparation for the drilling programme in the Rudenkovskoye licence. The 2009 2D and 3D seismic surveys have been processed, and interpretation continued in the period with finalisation of the location for Well R103 in the southern part of Rudenkovskoye. The well will be drilled in proximity to existing producers with a horizontal section of up to 1,000m. Provision is being made to frac the well. Further drilling locations in the southern part of the licence have been identified as potential follow-ups to coincide with mobilisation of the second drilling rig. Activity in the second quarter will include identification of potential drilling locations in the northern part of the Rudenkovskoye licence.

Three new development wells were drilled and three wells worked over in the first quarter.

Development Well M167 was drilled as a high angle Tournasian carbonate infill well across the main natural fracture system in the Molchanovskoye North field. Drilling was suspended in 2009 due to stuck drill pipe in the overlying swelling shale. The sidetrack was drilled successfully to a measured depth of 3,000m with a 400m section of Tournasian carbonate. Following a controlled acid squeeze on the low porosity formation, the well settled to a stabilised flow rate of 2.3 MMcfd of gas with 26 bpd condensate through a 36/64" choke with a FWHP of 626 psi. Other areas of the extensive low porosity carbonate in the area are being evaluated for potential application of this development technique.

Development well N73 was drilled as a Visean sandstone gas producer in the Novo-Nikolaevskoye field. The V16 level was completed and flowed at a stabilised rate of 1.4 MMcfd of gas, 15 bcpd and 178 bwpd with a FWHP of 186 psi. Some fill has been detected in the well and a workover is planned to enhance production by cleaning out the well and shutting off the water which appears to be coming from the lowermost reservoir intervals.

Development well I137 was drilled as a Visean carbonate oil producer in the southeast of the Ignatovskoye Field but was suspended in late 2008 with a fish in the hole below the 7-inch casing. A sidetrack was drilled in the period but encountered problems setting the casing and has been suspended until later in the year.

The Skytop rig is now drilling the Rudenkovskoye well R103 pilot hole with a planned TD of 3,850m in the Devonian reservoir. It will then plug back before kicking off to drill a 1,000m horizontal section with a planned TD of 4,600m.

The TW-100 workover rig carried out a water shut-off operation in well M152 in the Molchanovskoye North field in anticipation of recompleting higher in the Devonian reservoir. The perforating will be done by coiled tubing conveyed jet perforating and the rig is due on site in the second quarter. Jet perforating will also be carried out in well M205 in the Molchanovskoye Main field where tests suggest that the original V22 perforating did not adequately penetrate the reservoir when recompleting in this larger diameter section of the well.

A workover was also carried out in well M206 in the Molchanovskoye Main field in preparation for the propped acid frac to be carried out in the second quarter. This well was originally completed as a Tournasian sandstone producer but production has now declined. The Tournasian carbonate is a poor producer in the area at present, but logs indicate upside which may be realised by stimulation. The 2009 frac programme indicated that a propped acid frac stimulation technique may be effective in this location.

A workover is underway on well I105 in the Ignatovskoye field for recovery of broken downhole pump rods. A surface pump for well I105 is due for delivery in the third quarter to replace the existing downhole pump.

Preparations are underway for a seismic programme in the Elizavetovskoye licence ahead of planned drilling in 2011, following resolution of the status of the licence.

Facilities: The major activity in the period was the preparation and evaluation of tenders for the supply of the LPG plant, together with its associated storage and delivery system. The successful bidders were identified and work has commenced, aiming at a start up in the first half of 2011.

The replacement unit for the K200 compressor was commissioned in the period and will provide greater support for gas-lift and production optimisation.

Russia

Development and Workover Activity: Well workover operations are ongoing in the Koshekhablskoye Field and progress continues with the fabrication of the new gas processing facility (GPF).

The workover of Well 20 reached a point in the Oxfordian carbonate reservoir where a sidetrack became the preferred mode of well completion. The rig was moved to Well 25 whilst additional equipment was ordered and delivered. Good progress was made in Well 25 with sufficient tubing being removed to permit a sidetrack in the Oxfordian carbonate reservoir. Well 25 is the deepest well in the field and the necessary high temperature and pressure rated equipment is being manufactured. The equipment for the Well 20 sidetrack is now available and the rig is currently returning to complete this well in the second quarter. The merit of sidetracking is that it penetrates virgin reservoir in open hole with the potential for better performance than re-completions in the old cased holes.

Downhole conditions to date have indicated a greater degree of milling and/or sidetracking than anticipated and, consequently, mobilisation of a second rig is being considered to ensure that maximum gas production capacity is available for start-up of the gas plant at year end.

Site preparation on the GPF location is complete and the foundations are being laid to enable construction and installation work on the facility to commence in the third quarter. Flowline installation is nearing completion despite delays due to wet ground. Laying of the export line and connection to the nearby gas trunkline will follow.

Procurement and manufacture of equipment continues to gather pace with construction and installation commencing in the third quarter. Commissioning and testing are scheduled to start in the fourth quarter.

Hungary

Development Activity: The Hajdunanas field produces from two wells to 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 has remained steady, with gross rates of around 10.9 MMcfd with 251 bcpd during the first half of April. JKX holds a 50% equity interest in the field.

Production in January and February was enhanced by the incorporation of test production from the deeper Miocene oil reservoir which reached 300 bopd. This has now been shut-in pending a decision on the best means of developing this reservoir - probably by drilling a dedicated well later in the year. Negotiations are also underway to permit an increase in production and sales given the sustained reservoir performance to date.

Exploration

Ukraine: PPC has been awarded two area extensions to the Zaplavskoye exploration licence. The first of these extensions fills in an area between the NovoNikolaevskoye and Rudenkovskoye licences and the second is an extension to the east of the Ignatovskoye licence. Additional seismic is planned in both areas later in the year ahead of drilling in 2011.

Exploration well Zaplavskoye-3 has been plugged and abandoned after an unsuccessful acid frac in the Tournasian carbonate.

Hungary: Hernad licences: JKX holds a 50% equity interest in the northern Pannonian Basin Hernad licences. Interpretation of the 348 sq km of 3D seismic data acquired over the south eastern portion of Hernad I licence has identified three additional prospects for drilling in 2010 with the first due to spud in the second quarter..

Nyírseg Licence: JKX farmed into the adjacent Nyírseg licence in late 2008 and holds a 33.3% equity interest in the area covered by the 120 sq km 3D seismic survey. The first exploration well, Gorbehaza -1 is expected to be tied into the Hajdunanas facility with a 2.5 km flowline. The second well, Gorbehaza -5, was drilled in the period but only encountered gas cut water. The plan is to obtain a mining plot (production licence) for the Gh-1 well area and relinquish the rest of the licence.

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. A 3D seismic survey identified target horizons with amplitude supported Miocene clastic and volcanoclastic intervals within four-way dip closed structures. The first well, Nyekpuszta -1 was suspended due to the high pressures encountered. The second well, Nyekpuszta -2 reached a TD of 3,702m in the fourth quarter of 2009 and began testing a gas discovery late in the first quarter of 2010. The reservoir was stimulated with a propped frac and, despite initial flow rates being constrained by the abrasion due to returning proppant, the rates were steady at 2.0 MMcfd and 600 bpd oil/condensate with a FWHP of 4,500 psi. The well is being prepared to allow a full clean-up before starting a comprehensive test programme.

A third well is planned on the Nyekpuszta discovery for later in the year.

Bulgaria: JKX holds a 40% interest in the B and B1 Golitza licenses and is operator. Interpretation of the 250 sq km 3D seismic survey across the east-central parts of the licences has revealed a number of prospects and two of these have been selected for the 2010 drilling programme. Well-sites are being acquired and preparations have commenced for drilling in the second half of the year.

Slovakia:  JKX holds a 25% interest in the Svidnik, Medzilaborce and Snina exploration licences in the Carpathian fold belt in north east Slovakia. The full first phase regional 2D seismic has all been interpreted and numerous leads have been identified for in-fill acquisition. The next phase of data acquisition will take place in the third quarter. The data should enable the participants to begin the process of firming up the leads for drilling and identifying areas for relinquishment within the 2,278 sq km area of these three large licences.

ENDS