JKX improves output, liquidity in 2018
JKX Oil & Gas (JKX LN) increased its hydrocarbon output 3.2% yoy to 8,937 boepd in 2018, according to the company’s Jan. 10 trading update. Its output in Ukraine and Russia increased 4.8% to 3,677 boepd and 3.0% to 5,169 boepd, respectively.
In 4Q18 alone, the company reported weaker performance compared to 3Q, including a 7.6% drop in Ukraine (to 3,707 boepd) and 4.1% decline in Russia (to 5,083 boepd). The company attributed its declining Ukrainian operations to a natural decline in yields amid reduced workover and drilling activity, and also to an underperformance of leased wells that showed initially high yields in late 3Q18.
In particular, its WM215 and R3 wells demonstrated 77% and 74% decline rates, respectively, compared to levels shown in September. At the same time, its IG103 well in Ukraine – whose side-tracking was completed in late December – showed a better-than-expected performance, with its production rate exceeding 2,000 boepd as of Jan. 8. JKX attributed its Russia declines to short repair work at one of its wells.
JKX also provided an update on its liquidity, reporting on total cash of USD 19.3 mln as of end-2018 (USD 14.4 mln higher qoq, USD 12.4 mln higher yoy). The company’s end-2018 cash exceeds its USD 10.7 mln principal bond outstanding, JKX stressed. The company attributed its improved cash balance to a decrease of its working capital by USD 9.2 mln qoq (mainly due to reduced inventories by USD 6.2 mln and increased payables by USD 3.7 mln).
The company also provided an update on its litigation with Ukraine’s tax administration (total tax claims provisioned by the company amount to USD 42.7 mln), reporting on interim victories in first tier and appellate courts on litigation totaling USD 26.0 mln. On top of that, the company is working to get the Ukrainian courts to enforce a USD 12.1 mln award gained in 2017 in Stockholm against the Ukrainian government.
Alexander Paraschiy: While the company’s 4Q18 production results in Ukraine disappoint (we were expecting a significant increase in output in 4Q, as hinted by new wells’ numbers), the other set of information provided by the company looks encouraging. Most importantly, the company has a good chance to avoid multi-million-dollar payments to Ukraine's tax administration (though it’s still too early to be sure of that).
Also, we see the company has enough liquidity to implement its drilling and workover operations in Ukraine, and we hope that it will consider the lessons of 2017 when it spent too much on a single project, which turned out to be unsuccessful. At the same time, despite the company’s positive rhetoric about its wells performance, we do not expect any significant increase in its production indicators for 2019. But at least its P&L and balance sheet promise to not disappoint this year.