JKX boosts hydrocarbon production 1.5% yoy in 1H18

JKX Oil & Gas (JKX LN) produced 8,728 boepd of
hydrocarbons in 1H18, or 1.5% more yoy, according to its July 5 trading update.
The increase was fueled by 10.6% higher output in Russia (to 5,146 boepd),
while production in Ukraine fell 7.3% yoy to 3,491 boepd. Improved performance
in Russia was due to a low comparison base (as one of the wells was idle a year
ago).

In 2Q18, the company produced 8,707 boepd of
hydrocarbons, which is 0.5% less qoq but 12.1% more yoy. Importantly, JKX
managed to boost production in Ukraine by 5.6% qoq to 3,585 boepd, which is a
result of its newly commissioned well M158 in late March, as well as the
successful workover of three wells leased from the state (R22, EM52 and R3).
Nevertheless, JKX’s Ukrainian output decreased 0.9% yoy in 2Q18. The company is
going to commission another state-leased well (NN10) shortly. On top of that,
the company nearly completed drilling of its E308 well at its most successful
Elizavetivske field.

In Russia, JKX mined 5,030 bopepd in 2Q18, which is 4.4%
less qoq (due to a natural decline of output at existing wells) but 26% more
yoy (due to a low comparison base).

Alexander Paraschiy: Providing its new wells will be successful, JKX has a high chance to
further improve hydrocarbon output in Ukraine in 3Q18 and boost total Ukrainian
output by about 2% yoy in full year 2018. So far, we see the company’s new
tactics in Ukraine – focusing on low-cost workover of old state wells and
developing its own wells in most historically successful area – is paying off.
That improves chances for the company to sustain itself in the mid-term, while
we warn that the issue of large tax claims in Ukraine remains the core risk for
JKX.