JKX improves gas production in Russia in 1Q14, after a 4Q13 dip

Обзоры по компаниям и отраслям 16.05.2014 JKX Oil & Gas (JKX LN) reported a 50% yoy and a 13% qoq increase in carbohydrates production to 10,235 boepd in 1Q14, the company reported on May 15. Its output in Ukraine has remained flat qoq, but 3% lower yoy at 4,653 boped, while Russian output demonstrated a 162% growth yoy and a 27% growth qoq to 5,582 boepd. The company expects its 2Q14 output will be close to 10,000 boepd, or up to 2% below the 1Q result. JKX reported its average achieved price for natural gas decreased 31% yoy to USD 6.28/MCf in 1Q14. Alexander Paraschiy: The company’s Russian output is disappointing, as JKX produced more than 6,700 boepd in Russia in 2Q13 and 3Q13. The company has hid the poor performance of its Russian subsidiary for 4Q13 (where output fell 36% qoq, according to our estimates) and has said little about such a weak performance. The only explanation the company has provided was some problems of tubing leaks at two wells at its Koshekhablskoye field. A noticeable recovery in Russian operations in 1Q14 and JKX’s forecast of stable production for 2Q14 allows us to believe that the company was able to cope with its problems. We therefore expect that the company will be able to report increasing output in 2014, in yoy terms, and it will slightly improve its bottom line as well. So far, the key unknown factor for JKX is the pricing of natural gas in Ukraine, which depends heavily on the price of Russian gas imports. A significant decline in JKX’ average achieved gas price in 1Q14 is as result of a higher share of Russian sales, where gas prices are almost 4x less than in Ukraine. If Ukrainian gas prices improve in 2Q14 or 3Q14, JKX will benefit from a substantial growth of the average price. As previously stated, Ukraine and Russia, with EU intermediation, are going to meet in May to discuss pricing issues.