JKX hydrocarbon output rises 10% m/m, falls 14% yoy in July

JKX Oil & Gas (JKX LN) boosted natural gas and oil
production 10% m/m to 8,439 boepd in July, according to its Aug. 10 production
report. The growth occurred solely in Russia (20% m/m growth to 4,949 boepd),
where the company commissioned a new well (#25) in early July. The well
produces now about 1,680 boepd of gas, according to the company. In Ukraine,
JKX was able to show flat m/m production at 3,447 boepd thanks to 5.3% m/m
higher oil production, which offset a 1.2% m/m decline in gas output.

On a year-on-year basis, JKX output declined in July
by 14% in total, including 13% in Ukraine and 16% in Russia.

In 7M17, JKX produced 8,575 boepd of hydrocarbons
(-17% yoy), including 3,766 boepd in Ukraine (-9% yoy) and 4,854 boepd in
Russia (-25% yoy).

Alexander Paraschiy: JKX’s
output growth in Russia is what we expected,
given commissioning of a new well, and we see some potential for a slight
increase in August as well. JKX’s Ukraine results look surprisingly good as we
anticipated a slight decrease in total output. Nevertheless, we expect reduced
Ukraine output in August.

We continue to believe JKX is a risky asset as the
company has nearly run out of money. Its end-1H17 cash balance was USD 4 mln
and it can generate about USD 5 mln in 2H17 from its operations, which would
allow the company to just barely cover its upcoming debt repayment (about USD 7
mln in half a year) but keeps little money for CapEx (for which it spent USD 10
mln in 1H17). That means no output growth should be anticipated in the
short-term.

When factoring in its unresolved tax issues in
Ukraine (tax authorities claim up to USD 37 mln from the company), we see that
JKX badly needs an additional debt or equity contribution to remain a going concern.