JKX gas and oil output falls 4% yoy in 2Q20

JKX Oil & Gas (JKX LN) produced 9,894 boepd of
hydrocarbons in 2Q20, which is 4.4% less yoy and 10.0% less qoq, according to
the company’s July 9 trading update. Production decreased both in Ukraine
(-7.5% yoy, -7.4% qoq to 4,963 boepd) and in Russia (-1.2% yoy, -12.5% qoq to
4,931 boepd). The decline in Ukraine was from a lack of new wells being
commissioned, while Russia’s decline was mostly the result of a seven-day
shutdown of a gas processing plant for maintenance works in June.

In 1H20, the company’s output increased 3.2% yoy to an
average of 10,445 boepd, as output decline in Ukraine by 0.5% was offset by
higher output in Russia (up 7.1% yoy). Average prices for natural gas plunged
in Ukraine by 47% yoy to USD 131/tcm and by 4% yoy in Russia to USD 54/tcm in
1H20.

The company is planning to commence drilling of the
IG-146 well in Ukraine in late 3Q, and is also going to perform acidizing of
some wells in Russia.

JKX reported it ended 2Q20 with a cash balance of USD
14.5 mln (up from USD 14.2 mln in 1Q20) and no debt. The company reported on no
progress in the recovery of USD 12 mln of an international arbitration award
from the Ukrainian government, only indicating that it has filed for
collection.

Alexander Paraschiy: The company’s Ukrainian performance in 3Q20 will likely follow the
trend of recent quarters, with a decline by about 7% qoq from the natural
decrease of well yields. In Russia, the company’s output is likely to slightly
recover in 3Q20. Lower gas prices and weaker output will lead to worsened JKX
P&L in 2020, but the company’s strong liquidity will safeguard its
financial stability during times of low hydrocarbon prices. All in all, we
remain positive about JKX stock’s mid-term performance.