JKX hydrocarbon output drops 7% yoy in 1Q18

JKX Oil & Gas (JKX LN) produced 8,749 boepd hydrocarbons
in 1Q18, according to its operating update published on Apr. 13. This is 7.3%
less yoy and 0.6% more qoq. Its Ukrainian assets, which usually contribute more
than 90% to JKX’s EBITDA, produced 3,396 boepd, which is 13.3% less yoy and
4.7% more qoq. In Russia, it produced 5,263 boepd, which is 1.1% less yoy and
1.8% less qoq.

The company also reported it completed sidetrack
drilling of its M158 well in Ukraine and is currently evaluating its results.
In 2Q18, the company is going to activate its development operations with
workovers of state-owned wells it recently leased, as well as drilling of a new
well at its Elyzavetivske field.

Alexander Paraschiy: The
company’s 1Q18 results imply its natural gas production in Ukraine continued to
decline in March as compared to the first two months of the year, when it
produced about 3,420 boepd, on average. We still hope for a turnaround in
production in 2Q18, providing its newly commissioned well M158 is successful
and providing the state-owned wells will be successfully developed.

However, given the company’s relatively low
liquidity, we do not expect JKX will be able to develop its wells fast, meaning
that even in the best-case scenario it will be unlikely to reach last year’s
output level in 2018. We see a good chance for the company’s improvement of
operations in 2019, but we are not rating the stock keeping in mind it has a
huge debt problem (over USD 14 mln in net debt to Ukrainian tax authorities).