2P reserves of JKX decrease 13% yoy mostly on revaluation

The proved and probable reserves of JKX Oil & Gas
(JKX LN) amounted to 95.1 mln boe as of end-2017, which is a 13% decline yoy,
the company reported on Feb. 21. Of the total decline, 11% is attributed to the
revision of the 2P reserves’ value, while the rest is attributed to the
reserves’ extraction during the year. The biggest downward revision occurred in
Ukraine’s Rudenkivske field (down 32% to 15.0 mln boe) and its Russian assets
(down 8.7% to 71.7 mln boe).

In Ukraine, the company is going to drill one new
well, as well as perform four sidetracks and 12 workovers at the existing wells
in 2018. Also, the company reported it is going to “take advantage” of
“low-cost production enhancement opportunities” from five state-owned wells
that it has received access to. The company provided no development plans for
its Russian assets.

Alexander Paraschiy: The
impairment of the Rudenkivske field is of no surprise to us, and we see further
impairment potential of this field in the future. Even with the recent reserves
downgrade, the Rudenkivske field remains the biggest Ukrainian asset for JKX in
terms of 2P reserves (64% of JKX’s total 23.4 mln boe in Ukraine as of
end-2017). We see the risk of a further downgrade of the Rudenkivske reserves,
which accounted for just 4% of JKX’s Ukrainian proved-developed reserves as of
end-2016. But the further downgrade is likely to happen no earlier than in late
2019, as the company has no plans to drill at Rudenkivske in 2018.

A positive surprise to us is the company gaining
access to five state wells – their development theoretically could result in
significant production gains this year. The fact that JKX provided no
development plans in Russia might mean that the company is considering selling
its Russian assets. That could somehow improve the company’s financial
liquidity, which is low, as we mentioned before.