JKX total 2016 oil & gas production rises 12%, drops 8% in Ukraine

JKX Oil & Gas (JKX LN) produced 10,083 boepd of hydrocarbons in 2016, a 12.1% yoy improvement, according to its trading update of Jan. 16. The growth was fuelled by a 30.2% yoy boost in Russian output (to 6,082 boepd), while its production in Ukraine dropped 7.5% yoy to 4,001 boepd.

In December 2016 alone, JKX produced 9,954 boepd of hydrocarbons, a 2.1% m/m rise again owing to a better performance in Russia (+8.2% m/m to 6,114 boepd). Its Ukraine output fell 6.2% m/m in December, which the company attributed to cold weather.

In Ukraine, JKX tested a new well (NN-47) at its most promising Rudenkivske field, with initial maximum rates being a bit higher than for the previous well, NN-16. At NN-16 well, which showed stabilized production at just 314 boepd in November, the company implements a natural gas lift “to restore production and increase overall recovery.”

The company also reported on the successful testing of a well in Hungary, also expecting to start selling about 300 boepd of natural gas there in February, which would be the first sale there since early 2013.

Alexander Paraschiy: As JKX’s Russian operations are barely at breakeven, the company’s key focus should be on the prospects of its Ukrainian and Hungarian assets. In Hungary, the success has yet to be proven, while its Ukraine operations do not look good at all. From this report, we can conclude that something went wrong with the NN-16 well located in the field with JKX’s largest probable reserves, but where JKX has few successful wells, so far.

In any case, we continue to believe that it’s not JKX’s production results, but the courts that will determine JKX’s value. Recall, the company has yet to report on the results of its international arbitration against Ukraine, where the company demanded compensation of more than USD 180 mln in losses. There are also some ongoing legal proceedings in Ukrainian courts, in which the government is demanding additional taxes from JKX for about USD 24 mln.