JKX Oil & Gas plc

INTERIM MANAGEMENT STATEMENT

 FOR THE THIRD QUARTER ENDING 30 SEPTEMBER 2014

Highlights

·     Award of 20-year production licence for  Elizavetovskoye field, Ukraine

·     Completion of Elizavetovskoye plant upgrade with doubling of gas capacity and enhanced condensate recovery

·     Successful implementation of pilot water flood on Ignatovskoye field, Ukraine

·     Award of 5-year extension to the Zaplavskoye exploration licence, Ukraine

·     New shallow drilling exploration programme planned in Slovakia

Dr Paul Davies, JKX's Chief Executive, said:

"Production levels were maintained above 10,000 boepd during the period despite challenging fiscal changes and political events in Ukraine, as well as the introduction of sanctions in Russia. We have continued to develop our licence portfolio and progress our development projects in Ukraine, whilst continuing to monitor the situation closely. Russian production remains constrained to around 80% of base capacity due to tubing issues in two wells. Rig mobilisation is underway, with rectification works anticipated to commence in the New Year."

For further information please contact:

Cardew Group                                                                                                020 7930 0777

Anthony Cardew                                                                                             07770 720 389

Nadja Vetter                                                                                                    07941 340436

Lauren Foster                                                                                                 07887 676 603

Production

Ukraine: Total production in Ukraine during the period was 4,936 boepd comprising 23.8 MMcfd of gas and 974 bpd of oil and condensate. Average production from the Novo-Nikolaevskoye group of fields was 3,280 boepd comprising 14.0 MMcfd of gas and 951 bpd of oil and condensate, with LPG sales averaging 33 tonnes per day. Average production from the Elizavetovskoye field was 1,656 boepd comprising 9.8 MMcfd of gas and 23 bpd of condensate.

Russia: Average production was 5,116 boepd comprising 30.4 MMcfd of gas and 51 bpd of condensate. Production at the Koshekhablskoye field is constrained until repairs on wells 27 and 05 are completed. Rig mobilisation is now underway.

Hungary: There was no production from the Hajdunanas Field in the first quarter as a result of 2013 water breakthrough to the existing perforations.

Outlook: We anticipate average production in the fourth quarter to be approximately 9,000 boepd recognising the increasingly difficult constraints within which we are operating.

Ukraine

Development and workover activity:

Third quarter drilling and workover activity continued with the Skytop N-75 rig and the TW-100 workover rig. Following the successful two wells in the A2 carbonate reservoir of the Elizavetovskoye field earlier in the year, the N-75 rig drilled deep appraisal well E-303 to the G7-G13 sandstone reservoirs, encountering a gross gas pay of 167m. The well has been completed and is still cleaning up, although test production is flowing to the treatment plant. Further perforations are currently planned.

The rig is now drilling IG-140 to a downthrown fault block on the west side of the Ignatovskoye field targeting the Visean carbonate reservoir. The aim is to drill a sub-horizontal well penetrating some 600m of reservoir.

This well will be followed by a further A2 carbonate development well on the Elizavetovskoye field towards the end of the year.

Ignatovskoye waterflood pilot project:

The pilot waterflood project on Ignatovskoye was kicked off in 2012 with the injection of produced water into the Visean carbonate reservoir well IG-126 and was boosted by the injection of excess water from the Rudenkovskoye R-103 frac operation in 2013. The aim of the project was to verify fault barriers and establish which wells were in direct communication. Well IG-138 reacted positively and it was evident that, once pressure had been partially restored in the fault block, production was rising slowly reaching almost three times its historical low point on natural decline. Water breakthrough in the third quarter lead to a reduction in oil production from the well and confirmed the model.

Work continues on planning for the Molchanovskoye North sandstone reservoir waterflood and a pilot project is expected to commence in the third quarter of 2015.

Novo-Nikolaevskoye facilities 

Operations at the main production facility and the LPG plant continued smoothly through the period. Work focuses on well maintenance, including wax and salt clearance in the production tubing, to enhance production from the available well stock.

Elizavetovskoye Field

Production licence: A new production licence covering an area of 70.8 square kilometres was awarded on the 31^st July. It is valid for 20 years and replaces the existing 5-year exploration licence which was due to expire at the end of November.

Production continued steadily from A2 carbonate wells E-301 and E-302 but well EM-53, a partner- operated well, was shut-in at the beginning of September for commercial reasons. G-sands well E-303 started test production in October.

Facilities: Condensate recovery was doubled and gas exports boosted by the completion of the Phase 1 plant upgrade in the period. This upgrade also doubled the plant capacity to 30 MMcfd, and included debottlenecking, improved metering, enhanced condensate separation and the addition of a stand-alone gas-powered electricity supply. Phase 2 will be completed in the fourth quarter and is designed to increase flexibility to the plant by adding compression and a low pressure gas train.

Seismic: Processing of the 3D seismic is complete and preliminary interpretation has enabled us to pick the location for the next A2 carbonate development well. Further processing refinements are in progress to enhance character recognition in the carbonate and fault discrimination in the deeper G-sands.

Development drilling: Two additional drilling pads are under construction to the west and east of the first pad. Drilling on the field will recommence in the fourth quarter.

Zaplavskoye exploration licence

Interpretation of the recent Zaplavskoye 3D data is complete and a number of targets are under consideration for drilling in 2015-16.

The Ukrainian authorities have awarded a further 5-year term to the Zaplavskoye exploration licence. An area to the south of the licence has been relinquished, whilst an area to the west of the licence has been added. The licence area now totals 173 square kilometres and is valid until 31 December 2019.

Russia

Production continues steadily from wells 15, 20 and 27. Coiled tubing is now being used for the regular acid washes and this method has allowed us to increase the interval between treatments from around four weeks to 12 weeks.

Development and workover activity:

Wells 27 and 05 remain shut-in awaiting tubing replacement and casing repairs. A rig is being mobilised and operations should commence late in the fourth quarter with completion of the first repair expected in mid-2015.

Facilities: With reduced production, the gas processing facility continues to operate smoothly. The scheme for the modifications to increase throughput to 60 MMcfd has been finalised and is awaiting completion of the Industrial Expertise approval process in the New Year. The shut-down for implementation is now planned for May 2015 ahead of first gas from the well-27 recompletion.

Exploration: YGE was awarded the 170.7 sq km Georgievskoye exploration licence in 2012. Recovery, reprocessing and interpretation of the existing 2D seismic is complete and no further activity is planned in 2014.

Hungary

Development activity

Hadjunanas and Gorbehaza fields (JKX: 50%): Production from the Hajdunanas and Gorbehaza fields (JKX 50%) was suspended in 2013.

Sarkad I Mining Plot: JKX retains its 25% interest in the 15.6 sq. km farm-in area around the Nyekpuszta-2 gas condensate discovery well.

Turkeve IV Mining Plot: JKX retains its 50% interest in the 10 sq. km farm-in area around the Ny-7 high CO₂ gas discovery well.

Exploration: Hernad licences (JKX: 50%): There has been no significant activity in 2014 to date.

Slovakia

Exploration: Svidnik, Medzilaborce and Snina explorationlicences (JKX 25%): Following the completion of a magneto-telluric geophysical survey, the new operator has defined a number of relatively shallow prospects and its immediate drilling programme is under consideration by the licence partners.

ENDS