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Market: LSE
Sector: Energy
EPIC: JKX
Latest Price: 111.00p  (1.37% Ascending)
52-week High: 300.10p
52-week Low: 109.25p
Market Cap: 190.55M
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JKX Oil & Gas investors have certainly seen better times – Fat Prophets

15th Jun 2011, 9:20 am

With JKX Oil & Gas’ (LON:JKX) recently released full year 2010 results reporting marginally lower revenue and falling production investors have certainly have seen better times.  However the group is aiming to bounce back in 2011 by achieving output of 20,000 barrels of oil equivalent per day (boepd), cashing in on elevated oil and gas prices.

 

JKX’s reported revenue for 2010 was lower by 2% compared to 2009, negatively impacted by an 11% fall in production. Production has suffered due to the unscheduled delay in the mobilisation of a second drilling rig to the company development licences in Poltava, Ukraine.

 

In addition, during the first quarter of 2011 production from the company’s Ukraine field (its major oil producing field) was impacted by work-over and development activities and as such decreased by 22% when compared to the corresponding quarter in 2010.  

 

Looking ahead though, JKX is confident of arresting the decline and management has indicated that as a result of the completion of improvements the field is currently producing at an improved rate. In addition, investors will be encouraged by the reiteration of the petroleum product guidance of 20,000 boepd for the current financial year.

 

Although, lower production weighed on the 2010 revenue number, higher realised oil and gas prices at least offset the decline.  JKX expects to commence natural gas production from its Russian field during the coming autumn in Russia and this new production may benefit from firmer realised price contracts.

 

To prevent a repeat JKX has been on a major expenditure programme that includes work-over, appraisal and development wells. Capital expenditure in 2010 rose by 66% over the previous financial year to US$178.5 million.

 

Capital expenditure was focussed on the company’s Russian and Ukrainian fields. Development of the Rudenkovskoye field in the Ukraine commenced and construction of gas infrastructure commenced during the 2010 year.

 

Further capital expenditure in 2011 will include the development of additional wells (two already completed) and reworking of wells to recover oil and gas production from the main Rudenkovskoye field.  Two development wells in the Rudenkovskoye field have already flowed gas and condensates. Further wells are currently being drilled.

 

In the company’s Russian field, capital expenditure has been focussed on gas transmission infrastructure which is nearing commissioning stage and accelerating the well work-over programme currently underway on the field. 

 

Due to the cashflow from its producing fields the company remains in a healthy financial position.  With cash at the end of December 2010 of US$62 million, JKX has the financial firepower to fund the expansionary capital budget currently being undertaken.

 

 

This article was produced by Senior Research Analyst, Aamer Nawid

 

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