JKX Oil & Gas (JKX LN) boosted its net revenue 7%
yoy to USD 38.0 mln in 1H17, according to its interim report published on Aug.
1. Its Russian revenue decreased 19% yoy to USD 7.9 mln on a 25% yoy drop in
hydrocarbons output there. Its revenue in Ukraine advanced 13% yoy to USD 28.9
mln, primarily due to increased hydrocarbon prices (production volumes
decreased 17% yoy). The company’s EBITDA improved 6% yoy to USD 8.41 mln and
its net losses fell 22% yoy to USD 6.7mln.
The company’s end-June cash balance dropped 71% YTD to
USD 4.0 mlm while its total debt stood nearly flat YTD at USD 16.3 mln. In
1H17, it generated USD 1.5 mln cash from operations and spent USD 9.8 mln for
investments.
JKX also reported the termination of its contracts of
its acting CEO and acting CFO starting Aug. 1.
It also reported that it lost an appeal in Ukraine’s
Supreme Court in March against a court ruling requiring payment of USD 11.3 mln
in taxes from 2010, but the case is still being heard in Kharkiv appellate
court. It also has to pay USD 25.9 mln in underpaid tax for 2015, but this
amount may be partially offset by a USD 12.1 mln gain that Ukraine has to pay
JKX, according to a Hague court ruling from early 2017 that the government is
appealing.
Commenting on its Rudenkivske filed (the company’s
most prospective in Ukraine in terms of development), JKX acknowledged that
first phase tests “showed that our understanding of the complex geology of the
field is incomplete.” JKX also announced it expects to start a new well
drilling campaign in Ukraine in late 2017 or early 2018, without mentioning any
specifics. In Russia, the company will be focused on a workover of Well #15.
Alexander Paraschiy: The
company’s financial results are better than we expected, yet the future remains
uncertain, particularly because of the high risk that the company will have to
pay USD 25-37 mln in overdue taxes in Ukraine.
The company’s tiny end-1H17 cash balance won’t cover
even the upcoming debt payment (USD 6.9 mln due in February 2018), while JKX
also has to invest in its development and reserve some money for possible tax
repayment.
All this suggests the company will have to tap
additional financing soon – with a new debt or equity issue – to increase its
chance of remaining a going concern. For now, it does not look like an
appealing equity story.