JKX reports strong 3Q18 operational results in Ukraine

JKX Oil & Gas (JKX LN) produced 9,411 boepd of
hydrocarbons in 3Q18, which is 8% more qoq and 8% more yoy, according to the
company’s Oct. 5 operating update. In Ukraine, the company produced 4,014 boepd
of hydrocarbons in 3Q18, which is 12% more qoq and 23% more yoy. In Russia, its
output amounted to 5,302 boepd, up 5% qoq but down 2% yoy.

The key contributor to JKX’s production growth in
Ukraine was production from its R3 well that the company leased and worked over
to start producing in June. On top of that, the company reported on the
commission of three successful wells in September: its newly drilled well E-308
operating since Sept. 17, its side-tracked IG-101 well producing since early
September and its leased well WM-215 commissioned after a workover on Sept. 26.

JKX’s hydrocarbon output in 9M18 amounted to 8,958
boepd, which is 3.6% more yoy (including a 2.0% yoy increase in Ukraine and
6.0% yoy growth in Russia).

The company also reported on its liquidity position,
stating that it had USD 4.9 mln in cash and of end-3Q18, down from USD 7.6 mln
as of end-2Q18. At the same time, JKX reported that it has boosted its natural
gas inventories to USD 9.9 mln as of end-3Q18, from USD 3.1 mln a quarter before.
In the first days of October, it has already sold inventories for USD 3.7 mln.

Alexander Paraschiy: If the
wells that JKX commissioned in September will perform as the company announced,
it will show a significant increase of hydrocarbon output in Ukraine in 4Q18
(up to 20% qoq). The company’s new strategy to focus on the workover of
abandoned state-owned wells in Ukraine is paying off, as the company has been
able to improve both its operational results and liquidity from last year.

We believe the stock market will reward such
results, but still we refrain from any positive recommendation on JKX stock,
given its looming risk of losing court cases against Ukrainian tax authorities
at a cost of up to USD 30 mln.