JKX reported half-yearly results for the six months ended June 30, 2010.
JKX Chief Executive, Dr. Paul Davies, commented, "We have delivered improved results for the half year while accelerating our development programs on our two deep gas licenses in Ukraine and Russia respectively. Hungary increased its share of the Company's production, revenues, and profit, contributing 9% of Group revenues. We are confident of our ability to continue to deliver long term value for shareholders."
Total revenue increased by 33% to $104.5m (2009: $78.6m). This was due to a number of reasons: a 6% increase in Ukrainian production following the uninterrupted completion of development wells compared to H1 2009, when a backlog of wells for completion had constrained new production; 936 boepd (2009: nil) of production from the Group's Hungarian interests, following the Hajdunanas field coming on-stream in August 2009; and the 56% increase in realized oil price in the period to $65.97/bbl (2009: $42.29/bbl) following the recovery in international oil prices.
Combined oil and gas production totaled 11,689 boepd (2009: 10,191 boepd), an increase of 15%.
While not having as dramatic an impact as the increase in realized oil price, the Group also recorded an important 3% rise in average realized gas price during the period to $7.41/Mcf (2009: $7.18/Mcf). The increase stems from the introduction of Hungarian gas sales into the Group mix, outweighing a slight reduction in price in Ukraine. Hungarian gas production accounted for 10% (2009: nil) of the Group total, and with an average selling price of $9.96/Mcf it enhanced the Group average. The average price realized in Ukraine was $7.10/Mcf (2009: $7.18 Mcf). This comparable stability was due to the state-regulated maximum selling price for industrial gas in Ukraine remaining materially unchanged in the period. This was despite Russia and Ukraine reaching an agreement that included a significant reduction in the price paid by Ukraine for gas imported from Russia. Very encouragingly, following the end of the period the Ukrainian authorities have increased the maximum sales price for industrial gas to approximately $7.80/Mcf with effect from 1st August. This will have a positive effect on future Group realizations.
Total operating costs were up 42% to $33.3m as a combined result of a 15% increase in Group production and the impact of higher costs associated with Hungarian production. As previously noted, commercial production in Hungary only commenced in August 2009 and there were therefore no associated costs of sales in H1 2009. The Hungarian production had an impact on each of the three constituent elements of costs of production.
Overall, however, the Company believes that at $15.76/boe, the combined costs of production (operating costs, DD&A and production based taxes) continues to underpin the Group's credentials as an efficient low cost onshore producer of oil and gas.
General and Administrative expenses increased by $3.8m (49%) to $11.5m (2009: $7.7m) primarily a result of costs associated with the significant ramp up of activity related to the Group's Russian assets, the new Hungarian production stream and advisory costs in Ukraine.
Write-offs and provisions for exploration costs totalled $7.9m (2009: $0.1m). This follows the abandonment in the period of the Zaplavskoye 3 exploration well in Ukraine, and the provision for some gas processing equipment intended for use in the Koshekhablskoye re-development. The equipment is now not required and is to be sold.
The $3.1m foreign exchange loss (2009: $2.8m loss), consistent with the comparative period derives mainly from realized exchange losses in relation to the Group's sterling cash balances being re-valued at period-end.
Profit for the year
The profit after tax of $35.1m (2009: $31.8m) shows an 11% increase, driven by higher overall production (including the first full period of production from the Group's Hungarian operations) and a stronger oil price in the period. Basic earnings per share of 20.72 cents per share (2009: 20.23 cents per share) are also up. The increase of 2.4% is lower than the 11% increase in profit after tax, however, as a result of the 8% increase in the basic weighted average number of shares in issue. This follows a placing of shares in January 2010 to raise funds, primarily for the continuation of the Khoshekhableskoye re-development and the commencement of drilling on the Rudenkovskoye field.
Cash flow/net cash
After accounting for net interest received ($0.5m) and taxes paid ($14.7m), net cash from operating activities totaled $53.0m, up $3.5m or 7% (2009: $49.5m).
The increase is lower than the 12% increase in cash generated from operations because of the timing of certain activities relative to the financial calendar, which drove a 38% increase in taxes paid in the period. In January a placing was undertaken of 14.3m shares at a price of £2.65 per share. Net of costs ($2.2m), a total of $58.2m was raised. The cash generated from operations was primarily applied to: pay a further $3m contingent consideration in relation to the 2007 Yuzgazenergie acquisition (leaving $2m outstanding for fulfillment and conditional payment); pay dividends to shareholders of $6.7m (2009: $6.4m); and, in combination with the proceeds of the share placing, fund $68.3m of capital expenditure (2009: $50.6m). Of the total capital expenditure 63% was in relation to Russia, 31% Ukraine, 5% Hungary and 1% other areas.
After accounting for the effect of foreign exchange revaluation of cash held, the resultant period end cash was $107.2m ($54.1m). The current cash balance is approximately $100m.
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