JKX Oil & Gas - Ending the year on a high
For any resources company, building up resources and reserves is the name of the game. Currently Jkx Oil & Gas (LON:JKX) has booked 21.6 million barrels of oil equivalent (boe) of probable reserves in its Rudenkovskoye field in the Ukraine. With a reserves review on the agenda after the completion of drilling, Rudenkovskoye’s contribution to JKX’s asset base is set to increase.
Well R-103 is the first of a series of horizontal wells designed to develop and further appraise the vast gas resources of the deep tight gas Rudenkovskoye reservoirs. The well was the longest horizontal well drilled in Ukraine to date with drilling and completion taking 227 days.
The results were worth the wait and the well flowed at a stabilised rate of 8.1 million cubic feet of gas per day (MMcfd) and 18 barrels of oil per day of condensate. Having moved on the rig will return to the Rudenkovskoye Field in early 2011 to drill horizontal well R-105, an offset to R-103. Should upcoming drilling follow suit, JKX’s leverage to the energy market will only strengthen and the share price - which has increased by around 50% since the end of May – in our view will continue to rise.
The positive drilling result has been extremely welcome given the group’s 3Q10 interim management statement which conveyed a 34% fall in year-on-year production. Whilst the group averaged 9,080 barrels of oil equivalent per day (boepd), average oil production was down 52% to 2,505 barrels and average gas production declined 22%, to 39.5 MMcfd.
Pricing on the other hand was firmer with both oil and gas enjoying increases in 3Q10 compared to 3Q09. Oil prices rose by 13% to US$70.67 per barrel, and gas prices by 3% to US$7.64 per million cubic feet.
JKX’s focus is to complete a series of horizontal wells in the Rudenkovskoye field to prove-up oil and gas production, with the first well successfully completed. The company’s Ukraine fields are by far the biggest contributors, representing around 96% of the company’s production.
As at 31 December 2009 the company had oil and gas reserves of 88.7 million barrels of oil equivalent consisting of 8.1 million barrels of oil and 483.7 billion cubic feet of gas. The company is aiming to average production of between 10,000 and 10,500 boepd for calendar 2010. Given operational issues have been resolved and technical issues are being addressed, we consider the target should readily be achieved.
Looking ahead, the JKX continues to undertake development work across its fields. With Well R-103 providing a boost, the company has identified further drilling targets at Rudenkovskoye and is in the process of developing a new drilling programme for 2011.
Importantly, the company continues to explore. In the Ukraine additional acreage at the company’s Zaplavskoye field (JKX holds a 50% interest) has been granted and is awaiting final ratification. Whilst in Hungary, the company is actively exploring across the Hernad, Nyrseg and Veszto fields. All of which will help in the pursuit of JKX’s 20,000 boepd target by the end of 2011.
This report was produced by Senior Research Analyst, Aamer Nawid.
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1 comment
Odd that FP failed to mention Russia in their piece above. Also from the IMS..
Following the successful testing of well 20, the Kremco 900 rig moved to well 26 to begin recovery of the tubing in that well. Severe corrosion of the tubing led to slow progress, and the decision was made in October to suspend well 26 operations and move the rig to well 9 to test the underlying Callovian sandstone reservoir. Progress to date on the workover of well 9 is good, with approximately 4,200m of the 5,400m of tubing recovered. If progress on recovering the remainder of the tubing continues at the current rate, testing of well 9 will be underway before the end of the year. Work on well 26 will now recommence later in the workover programme.
A newly contracted second rig, the Geostream KES-536, began work in the period on Well 15 which lies deep on the east flank of the structure. The 5,400m of tubing was recovered with relatively little difficulty, the plugs drilled out and new cement plugs set in preparation for a sidetrack through the Oxfordian reservoir section to obtain the best possible hole condition for testing and production. Completion of the sidetrack is anticipated in December, with testing at the turn of the year.
...Well 9 testing the underlying Callovian may turn out interesting... (imvh, dyor,....)