JKX increases hydrocarbon production in Ukraine in 2Q21

JKX Oil & Gas (JKX LN) produced 4,101 boepd of
hydrocarbons in Ukraine in 2Q21, which is 7% more qoq, according to the
company’s trading update of July 19. Its total output increased 2% qoq to 9,332
boepd in 2Q21, as production at its Russian assets declined 2% qoq. On a
year-on-year basis, the company’s 2Q21 output in Ukraine was 17% less, and
total output was 6% less.

The key driver for JKX’ qoq increase of Ukrainian
output was the commissioning of new well IG149. The well produced on average
915 boepd in June, the company reported. Another new well, IG21, produced on
average 50 boepd of hydrocarbons since mid-April. The company is not drilling
new wells now, as it is expecting to spud the next well in September.
Meanwhile, it is engaged in some well workover operations in Ukraine.

In 1H21, the company’s total production reached 9,177
boepd (or 11% less yoy), including 3,973 boepd in Ukraine (23% less yoy).

The company reported its end-June cash balance is USD
35.6 mln, which is 2.5x more yoy and 1.5x more YTD.

Alexander Paraschiy: Relative
success of the IG149 well allowed JKX to show a qoq increase in Ukrainian
output in 2Q21, after six consecutive quarters of decline. However, such
success will not be sustained due to the lack of supply of new wells. Moreover,
June’s average output of the IG149 well (915 boepd) does not look encouraging,
taking into account that in early June JKX stated that the well’s output had “stabilized” at 1,340 boepd.
If the well’s output continues declining, the company’s hydrocarbon output in
Ukraine will decrease about 20% yoy in 2021.

The company’s cash accumulation is encouraging news,
especially taking into account that JKX will have to pay USD 14.1 mln (most
likely in 2022) to Ukraine’s tax authorities based on the recent court ruling. Therefore,
the potential payment won’t completely dry up JKX’ liquidity. 

Meanwhile, we remain skeptical on JKX’ ability to
increase its value in the mid-term.