JKX sees 30% qoq increase in 4Q12 production

JKX Oil & Gas’ (JKX LN) average production fell 11.8% yoy to 7.740 boepd in 3Q12, gas production for the period fell 15.9% yoy to 34.3 MMcfd while oil output grew 2% to 2.023 boepd, according to an operations update this morning. The company’s average gas price increased 8.1% yoy to USD 10.92 /Mcf in 3Q12, while its oil price dropped 16.8% yoy to USD 87.04 /bbl. Production from Russian assets ramped up to 737 boepd in 3Q12 (after only insignificant volumes previously) as the W-27 and W-20 wells were put into production after sidetracking. Management expects average production in the fourth quarter will reach 10,000 boepd (1.3x more qoq).

Roman Dmytrenko: As we anticipated (see our news on October 12), the reported data implies JKX increased its average production 3.4% in 3Q12 compared to 1H12 mainly on the start of operations at its Russian wells. However, Russian output growth will have only a minor effect on the company’s bottom line and a negative effect on profitability. JKX’s Russian gas sale price is 4x lower compared to the price in Ukraine. Therefore, the increased share of cheaper Russian gas in the company’s overall sales mix in 3Q12 led to a 8.5% drop in JKX’s average gas sale price for the period compared to 1H12.