JKX increases production

27/08/2010 Robert Tyerman

JKX Oil & Gas foreshadows a 72 per cent daily production increase in 2011 after a 15 per cent first-half gain.

The fully-listed company, focused on the Ukraine, Russia and Hungary, lifted pre-tax profits 9.8 per cent to $49 million (£31.4 million) in the six months to June on turnover up 33 per cent to $104.5 million. Daily production rose from 10,191 barrels of oil equivalent in the first half of 2009 to 11,689 barrels a day this time and JKX insists it is 'on target' to meet its key production objective of 20,000 barrels of oil equvalent a day next year. However, a 42 per cent increase in operating costs to $33 million, partly reflecting new production in Hungary, where costs are much higher than in Ukraine, blunted overall profitability.

JKX, chaired by Lord Fraser of Carmyllie and steered by chief executive Dr. Paul Davies, suggests a 10 per cent gas price increase in the Ukraine since 1 August should help on this front. Unfortunately, delays in rig mobilisation and slow start-ups at some wells following maintenance shut downs are slowing third quarter ouput and the company says it expects daily production for 2010 to be more than 10,500 barrels of oil equivalent a day, down from 11,665 barrels a day last year.

However, JKX, which is also drilling two 40 per cent-owned wells in Bulgaria, argues increased production from its Poltava licences in the Ukraine and its half-owned Hajdunanas field in Hungary, as well as new production from Rudenkovskoye in the Ukraine, should restore the position, with renewed growth into 2011. The company, which raised £37.8 million at 265p in January, ended June with £69 million cash and is raising the interim dividend by 0.1p to 2.4p a share.

JKX shares, which have traded between 309.3p and 223.2p over the past year, now stand at 289p, valuing the company at £497.5 million. They could outperform some sector peers.