JKX Oil & Gas 2014 revenue falls 19% yoy, causing heavy losses

JKX Oil &Gas (JKX LN) reported a 19% yoy decline in 2014 net revenue to USD 146.2 mln, according to its report released on March 20. It also reported USD 79.5 mln in losses for 2014 (compared to a USD 6.5 mln profit a year before), or a loss of 46.2 cents per share. The core factors for the negative bottom line were exceptional loss items, which amounted to USD 72.6 mln in 2014 (compared to USD 1.5 mln in 2013). JKX’s 2P reserves amounted to 97.7 mln boe as of end-2014, which is a 4% yoy increase.



JKX hydrocarbon production rose 2% yoy to 9,919 boepd, with both the Russian and Ukrainian regions contributing to the increase. Its output in Russia increased 1% yoy to 5,109 boepd, and Ukrainian output increased 2% to 4,810 boepd. A 30% decline in output at its traditional Ukrainian asset, Novo-Nikolayevskoye, was compensated by a good start in production at its new Elizavetovskoye license, which amounted to 1,511 boepd last year.



Ukraine remained the most important revenue and income generating region for JKX, despite a significant decline in USD-denominated sales. Revenue in Ukraine decreased 21% yoy to USD 118.8 mln, while in Russia it fell 2% yoy to USD 27.4 mln. The decline was mostly caused by devaluation of local currencies, which resulted in lower average realization of gas prices, in USD terms. Average natural gas prices decreased 17% yoy in Ukraine to USD 9.93/MCf and fell 6% yoy in Russia to USD 2.60/MCf. An additional factor that led to falling Ukrainian revenue was a nearly 30% decrease in oil production (mostly sourced from the stagnating Novo-Nikolayevskoye asset).



The company’s operating profit before exceptional items remained nearly flat yoy at USD 11.7 mln, with Ukrainian assets having remained the only positive contributor. The operating income (before exceptional items) of its Ukrainian assets decreased 22% yoy to USD 30.2 mln. Instead, the operating losses of its Russian assets increased 17% to USD 8.2 mln.



The company’s total CapEx decreased 34% yoy to USD 42.3 mln in 2014, with Ukrainian CapEx falling just 15% yoy to USD 35.4 mln. In 2015, the company said it will minimize its CapEx in Ukraine, with no new wells being drilled, and will revise this plan once Ukrainian gas production taxes are cut. In Russia, the company’s development plans will be limited to overhauling one of its wells and modifying its gas processing facility. The company also plans some investments into exploration at its Hungarian and Slovakian licenses, which currently produce no hydrocarbons.



Alexander Paraschiy: The company’s operational and financial results, if adjusted for ForEx losses and exceptional items, look in line or slightly better than we expected. Though clearly, 2015 will be much more challenging for the company than we initially anticipated (refer to our Oct. 2, 2014 report on Ukraine-focused E&P companies).



In particular, instead of growth that should have been fueled by the development of its successful Ukrainian project, Elizavetovskoye, we will likely to see a 10%-15% yoy decline in output from JKX’s Ukrainian assets in 2015. In any case, JKX’s Ukrainian division remains the only value driver for the company. To understand better the company’s value generation potential, we should wait no longer than until mid-June, when the Ukrainian government is scheduled to deliver its plan for changing gas production taxes.

Источник: Конкорд Капитал