JKX Oil & Gas profit rises in 2013 despite revenue decline

Обзоры по компаниям и отраслям 28.03.2014 JKX Oil & Gas (JKX LN) reported an 11% decrease in revenue to USD 151.0 mln in 2013, despite 18% yoy growth in its carbohydrates output to 9,731 boepd, according to a March 27 company statement. In particular, JKX reported a 21% yoy drop in revenue in its Ukrainian business (on a 19% drop in carbohydrates output to 4,815 boepd), which was not compensated by 5.7x growth in Russian sales (on 3.5x growth in output to 4,641 boepd). A spectacular surge in the share of Russian operations, where achieved natural gas prices were 4.3x smaller than in Ukraine (USD 2.77/Mcf vs. USD 11.96/Mcf), led to a 36% yoy drop in the average achieved price of JKX products to USD 6.73/Mcf. A 14% yoy increase in COGS resulted in a 5x yoy plunge in JKX operating profit to USD 9.2 mln, while the lack of a negative effect of exceptional items in 2013 enabled the company to report an improvement in its bottom line: 2013 net profit amounted to USD 6.5 mln vs. net losses of USD 11.3 mln a year before. JKX management stated there will be no dividends in 2014. The company expects to increase its output both in Ukraine and Russia in 2014 by continuing to invest in the development of new wells, as well as expand its gas processing infrastructure. Alexander Paraschiy: As soon as JKX’s Ukrainian operations start recovering, and as long as gas prices in Ukraine don’t decline, we see a high chance that JKX will improve its top line in 2014. The key upside risk for JKX is the possible cancellation of the 2010 Kharkiv Agreement between Russia and Ukraine, which stipulated a USD 100/tcm (USD 2.83/Mcf) discount for Russian gas imported to Ukraine. The price of imported gas is a benchmark for the pricing of JKX products inside Ukraine. At the same time, the company’s 2014 bottom line will suffer from a higher gas production tax in Ukraine with production royalty rate rising to 28% from 25% of gas prices, based on the draft anti-crisis bill that was approved last night.