JKX Oil & Gas report flat qoq output in 3Q14, expects 10% decline in 4Q14

Natural gas exploration company JKX Oil & Gas (JKX LN) reported its average hydrocarbon output of 10,052 boepd in 3Q14 (flat qoq, -16% yoy), according to its Nov. 17 filing. Its production in Russia amounted to 5,116 boepd, which was 5% higher qoq and 26% less yoy. Currently, production at its Russian assets is limited as one of three earlier operational wells is waiting for tubing replacement.

The company’s output in Ukraine amounted to 4,936 boepd in 3Q14, which was -4% qoq and -2% yoy. Production at its new Ukrainian field, Elizavetovskoye, amounted to 1,656 boepd in 3Q14, while output at its traditional license, Novo-Nikolayevskoye, dropped 35% yoy to 3,280 boepd. JKX reported it expects its average production will decrease to about 9,000 boepd in 4Q14 (-10% qoq, -5% yoy), blaming “increasingly difficult constraints” for its negative outlook.

Alexander Paraschiy: The company’s plan to reduce output in Ukraine is motivated by a trend in decreasing gas production (5.3% m/m in September). The core reasons for the decline are a natural gas production tax in Ukraine that more-than-doubled in August and new regulations on the gas market (since Nov. 11) that limit JKX’s ability to sell its gas to industrial consumers. We maintain our bearish view on JKX stock.