JKX increases output 16% in 11M16, seeks bond rescheduling till 2020

JKX Oil & Gas (JKX LN) produced 9,746 boepd of hydrocarbons in November (-1.6% m/m, +3.5% yoy), according to its Dec. 12 report. Its production in Ukraine increased 9.7% m/m to 4,095 boepd due to the impact of the NN-16 well, which was successfully worked over in October. The well’s stabilized production rate was close to 315 boepd (vs. an initial peak output of 3,200 boepd). Year-on-year, Ukrainian output still lagged in November (-10.2%, we estimate). In Russia, JKX produced 5,651 boepd in November, 8.4% less m/m due to delayed stimulation work on its K-27 well. Year-on-year, JKX performed better in Russia in November (+16.3% yoy output, we estimate).  

In 11M16, JKX increased its output of hydrocarbons by 15.8% yoy to 10,126 boepd, solely thanks to growth in its Russian assets (+38% yoy to 6,098 boepd). Its Ukrainian production fell 7.0% yoy to 4,028 boepd.

In other news published on Dec. 9, JKX reported on initiation of restructuring of its convertible bonds by three years. The company offers to repay USD 16.0 mln in bonds (callable in February 2017) in three equal annual installments starting February 2018. In February 2017, the company will only pay USD 2.6 mln in scheduled interest and accretion payments. The coupon rate on the bond will increase to 14% from 8% currently. According to JKX, it already has approval from the holders of 72.5% of the bonds, and it needs a total 75% approval rate to restructure them in early January.

Alexander Paraschiy: The successful restructuring of JKX’s bonds, if happens, will significantly improve its liquidity position and ability to invest in the development of new wells in Ukraine. Given that the company nearly accumulated the required votes, we believe the restructuring will go smoothly and will be welcomed by the stock market. The successful commissioning of its NN-16 well in Ukraine is also good news, although the stabilized hydrocarbon output from the well does not look very encouraging.

In its Dec. 12 update, JKX also reported that the Ukrainian parliament approved in the first reading a draft law that reduces the production tax for new natural gas wells to 12% (from the current rate of 29%). Although the company and some mass media reported that bill #5132 calls for such an adjustment, there is no official confirmation of that in the bill’s draft that has been published on the website of the Ukrainian parliament. Indeed a reduced gas production tax for new wells (commissioned since 2017) was widely discussed in recent days in the expert community, but the likelihood of its approval does not look high, in our view.