JKX Ukraine hydrocarbon output increases 49% yoy in 1H19

JKX Oil & Gas (JKX LN) produced 10,132 boepd of
hydrocarbons in 1H19, which is 16% more yoy, according to its July 12 trading
update. In Ukraine, the company’s output increased 49% yoy to 5,188 boepd,
while in Russia its output decreased 4% yoy to 4,932 boepd. In 2Q19 alone, the
company’s output increased 19% yoy to 10,354 boepd, including a 50% growth in
Ukraine (to 5,364 boepd) and 1% decline in Russia.

The company also reported on its end-June liquidity
position, declaring that it had USD 10.7 mln in cash, which is USD 8.5 mln less
compared to the end-2018 balance (due to increased CapEx). This amount is still
much more than a year ago (USD 7.6 mln) and two years ago, when the company
faced a potential liquidity problem with a cash balance of just USD 4.2 mln.

On top of that, JKX reported that it had received a
judgment from Kyiv Appellate Court which satisfied the company’s claim to the
state (USD 12.1 mln) based on international arbitration. This was a ruling of a
second-tier court which might be appealed by the government in the Supreme
Court.

Alexander Paraschiy: JKX’s increased 1H19 output in Ukraine is no surprise, as we earlier estimated its 5M19 growth was 48% yoy. The company’s sound liquidity as of end-June is
also good news, and it indicates JKX has enough funds to further invest in the
development of new wells in Ukraine. Positive news from the Kyiv Appellate
Court is also encouraging, opening the way for the company to get another
source of financing in the mid-term. All in all, we see that the company’s legal
risks are decreasing and its value growth potential is unlocking.