Interim Results 2014 Maintaining a stable business platform in - PowerPoint PPT Presentation

Interim Results 2014 Maintaining a stable business platform in volatile emerging markets 28 July 2014

Disclaimer This presentation contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst JKX believes the expectations reflected herein to be reasonable in light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Group’s control or within the Group’s control where, for example, the Group decides on a change of plan or strategy. The Group undertakes no obligation to revise any such forward-looking statements to reflect any changes in the Group’s expectations or any change in circumstances, events or the Group’s plans and strategy. Accordingly no reliance may be placed on the figures contained in such forward looking statements. 2

Agenda Introduction - Paul Davies, Chief Executive Financial Review - Cynthia Dubin, Finance Director Operations Review & Outlook – Paul Davies, Chief Executive 3

Agenda Introduction - Paul Davies, Chief Executive Financial Review - Cynthia Dubin, Finance Director Operations Review & Outlook – Paul Davies, Chief Executive 4

Summary Continued increase in production  Solid performance given challenging operating environment  Average oil and gas production up 12% to 10,126 boepd  Ukraine: 4,900 boepd (2013: 4,649 boepd)  Russia: 5,226 boepd (2013: 4,356 boepd)  Production commenced at Elizavetovskoye field in Ukraine, significantly above expectations  Russian production increased by 20% despite operating at only 80% of plant capacity whilst two tubing failures are rectified  Lower revenue at $74.3m and profit from operations at $5.8m  Work programmes are fully funded 5

Agenda Introduction - Paul Davies, Chief Executive Financial Review - Cynthia Dubin, Finance Director Operations Review & Outlook – Paul Davies, Chief Executive 6

Financial summary Impacted by lower gas realisations in Ukraine  Revenue down at $74.3m resulting from Key Financials lower gas realisations in Ukraine and H1 H1 ($m) Change 2013 2014 modest increase in Russian revenues: %  Ukraine: $9.77/Mcf (2013: $12.04/Mcf) Group revenue 91.3 74.3 (18.6)  Russia: $2.64/Mcf (2013: $2.58/Mcf) Profit from operations  Profit from operations of $5.8m (before before exceptional 9.4 5.8 (38.3) item exceptional item) due to lower Ukrainian Exceptional item revenues - 3.3 N/A (pre-tax)  Exceptional item of $3.3m reflects cost of Profit from operations well kill operation in Russia 9.4 2.4 (73.6) after exceptional item  Capex spend in line with expectations Cash from operations 43.2 31.1 (28.0)  Solid operating cash flow of $31.1m Capital expenditure 33.3 21.4 (35.7) Realised gas price 7.19 5.64 (21.6) ($ per Mcf) Realised oil price 89.45 92.39 3.3 ($ per bbl) 7

Group revenue Reduction in revenue in Ukraine offset by Russian revenue  Group revenue declined by 18.6% to $74.3m mainly due to lower gas realisations in Ukraine  Oil production from mature fields continued to decline as we seek to maintain oil recovery rates  Russian production and resulting sales volumes from our Koshekhablskoye field contributed to increased revenues in 2014 Group revenue ($m) 100.0 (12.2) 91.3 90.0 (4.8) 80.0 2.7 74.3 (1.4) (1.3) 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 1HY2013 Ukraine gas price and Ukraine oil price and Ukraine LPG price and Hungary and other Russia sales 1HY2014 volume effect volume effect volume effect sales 8

Profit from operations Impacted by lower realisations in Ukraine  Profit affected by $17.0m decrease in revenues mainly due to lower gas realisations and oil production in Ukraine, partially offset by an increase in production and realisations in Russia  Group operating costs decreased mainly due to reduced Ukrainian sales from inventory and gas purchases  DD&A charge reduced by $6.5m mainly as a result of the upward revision in reserves in Ukraine  Production based taxes reduced by 13.7% to $17.6m  Foreign exchange loss increased by $3.5m due to revaluation of balance sheet items as a result of weakening of Ukrainian Hryvnia by approximately 50%. Administrative expenses remained constant  The $3.3m exceptional item is a result of one-off costs incurred in Russia to kill well 27 15.0 Profit from operations ($m) 9.4 10.0 7.5 6.5 5.8 5.0 2.8 2.4 * 0.0 -5.0 (3.4) (3.3) -10.0 -15.0 (17.0) -20.0 Profit from Sales Operating costs DD&A Production based Administrative Profit from Exceptional item - Profit from operations taxes expenses and operations (before well control operations (after 1HY2013 foreign exchange exceptional item) operations exceptional item) 1HY2014 1HY2014 * due to rounding 9

Profit for the period Impacted by operations and reduced taxation  $4.3m change in fair value movement on derivative liability is associated with the convertible bond since its placement on 19 February 2013  Pre-exceptional total tax credit of $0.6m (2013: charge $2.2m) comprising  current tax charge of $3.0m (2013: $5.7m)  deferred tax credit of $3.6m in respect of Russian tax losses carry-forwards (2013: $3.5m) Profit for the period ($m) 12.0 * 11.2 10.0 8.5 8.0 7.5 6.0 4.3 4.0 2.8 2.0 0.3 0.0 -2.0 (2.7) -4.0 (3.6) -6.0 Profit after tax Movement in profit Fair value gain on Net finance Reduction in Profit after tax Exceptional item - Profit after tax 1HY2013 from operations derivative liability charges taxation (before exceptional well control (after exceptional 1HY2014 item) 1HY2014 operations, net of item) 1HY2014 tax * due to rounding 10

Capital expenditure Majority of investment in Ukraine  Investment in Ukraine accounted for First half 2014 Capex: $21.4m 77.1% ($16.5m) of the total capex in the 0.7 first half of 2014 in line with strategy of focusing on Ukraine and Elizavetovskoye 4.2 development  Capex programme fully covered by 16.5 operating cash flow  Capex spend of $21.4m in line with expectations both in Ukraine and Russia  Expansion programme to double First half 2013 Capex: $33.3m Elizavetovskoye plant capacity to 30 MMcfd expected to complete in Q3 2014 1.6 13.5 Russia Ukraine Rest of the World 18.2 11

Movement in cash and undrawn credit facilities Strong liquidity position  Cash generated from operations of $31.1m  Total cash resources and undrawn bank facilities at end of the period were $43.5m, including Crédit Agricole facility of $15m successfully renewed until 30 June 2015  Fully funded capex programme for 2014/15 Movement in cash and undrawn credit facilities ($m) 50.0 43.5 40.9 40.0 31.1 30.0 20.0 10.0 0.0 (2.2) (3.8) (1.8) -10.0 -20.0 * (20.7) -30.0 31 December 2013 Cash from operations Purchase of property, Income tax paid Effect of exchange on Interest paid 30 June 2014 plant and equipment cash and cash and intangible assets equivalents * cash element of total CAPEX of $21.4m 12

Agenda Introduction - Paul Davies, Chief Executive Financial Review - Cynthia Dubin, Finance Director Operations Review & Outlook – Paul Davies, Chief Executive 13

Ukraine Ongoing development, appraisal and exploration 14

Ukraine: Key developments in H1 Ongoing development, appraisal and exploration Elizavetovskoye Elizavetovskoye Field  Field commenced production in January 2014, on schedule and on budget, with average production in the period exceeding expectations at 1,547 boepd (9.2 MMcfd of gas and 18 bpd of condensate) Novo-Nikolaevskoye Complex  Continued development and appraisal drilling  Steady production in period averaging 3,353 boepd (14.2 MMcfd of gas and 982 bpd oil and condensate) Zaplavskoye  Good progress made on identifying additional prospects in licence from recent 3D seismic acquisition programme 15

Ukraine: Current and future activity Enhancing production and extending field life Novo-Nikolaevskoye Complex Elizavetovskoye Field  Completion of first deep sandstone appraisal well scheduled for Q3  Plant upgrade on schedule to double capacity to 30 MMcfd in Q3 Novo-Nikolaevskoye Complex Rudenkovskoye  Return to Rudenkovskoye field drilling in Ukraine planned for second half of 2014 Molchanovskoye/Ignatovskoye  Appraisal drilling on north and west flanks Novo-Nikolaevskoye Field  Seismic attribute analysis aiding drilling and recompletions Zaplavskoye  Visean stratigraphic traps and Devonian structural traps emerging from recent 3D seismic. Licence expected to be 16 extended before year end

Russia Fully funded development programme 17

Russia: Key developments in H1 Fully funded development programme Koshekhablskoye  Work-over of well-05 in the Koshekhablskoye field completed at beginning of year, but subsequent tubing failures in both well-05 and well-27 have constrained production in the period to approx. 80% of plant capacity  Average production increased by 20% to 5,226 boepd although below expectations Georgievskoye exploration licence  Recovery, reprocessing and interpretation of all existing 2D seismic was completed 18