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JKX Jkx Oil & Gas Plc

41.50
0.00 (0.00%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Jkx Oil & Gas Plc LSE:JKX London Ordinary Share GB0004697420 ORD 10P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 41.50 39.50 42.00 0.00 00:00:00
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
0 0 N/A 0

JKX Oil & Gas PLC Half-Yearly Results to 30 June 2016 (5878F)

29/07/2016 7:00am

UK Regulatory


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TIDMJKX

RNS Number : 5878F

JKX Oil & Gas PLC

29 July 2016

 
 
 

FOR IMMEDIATE RELEASE

JKX Oil & Gas plc

('JKX' or the 'Company')

HALF-YEARLY RESULTS

FOR

THE SIX MONTHSED 30 JUNE 2016

Operational Highlights

   --      Average production increased by 21% at 10,393 boepd (2015: 8,611 boepd) 
   --      Nearing finalisation of the updated Field Development Plans across the group 
   --      Monetization process of our Russian and Hungarian assets ongoing 
   --      Bond liabilities reduced by $2.2m through bond repurchase program 
   --      Significant efficiencies and costs savings implemented at London headquarters 
   --      Two highly experienced independent Non Executive Directors appointed 

Key Financials

   --      Loss from operations before tax and exceptional costs $2.8m (2015: $7.3m loss) 
   --      Exceptional costs $3.1m (2015: nil) 
   --      Revenue: $35.4m (2015: $44.4m) 
   --      Operating costs down 20% at $9.7m (2015: $12.1m) 
   --      Loss for the period: $10.1m (2015: $13.8m loss) 
   --      Loss per share: 5.86 cents (2015: loss 8.01 cents) 
   --      Operating cash flow: $7.8m (2015: $3.5m) 
   --      Capital expenditure: $2.2m (2015: $4.2m) 
   --      Total cash: $18.6m (31 December 2015: $25.9m) 

Outlook

   --      Implementation of the updated Field Development Plan in Ukraine 
   --      Potential resumption of development drilling in Ukraine in second half of 2016 
   --      Resolution of inherited legal battles 
   --      Two exploration wells scheduled in Slovakia in second half of 2016 

JKX Chief Executive, Tom Reed, commented:

"In our first five months as a Board, we have made significant progress on several fronts. Production is up 21% due to the reinstatement of well-27 in Russia and an enhancement program in Ukraine using existing well stock. Updated Field Development Plans to use best-in-class development know-how, equipment and technology are under final review. We have partially mitigated the legal risks that we inherited in Ukraine and we have re-established a positive working relationship with the Ukrainian Government. Significant efficiencies and costs savings have been implemented, including at our London headquarters, and the process of monetizing our Russian and Hungarian assets is on track.

We continue to believe that JKX has great potential."

For further information please contact EM:

Stuart Leasor

leasor@em-comms.com

T: +44 20 3709 5711

M: +44 7703 537721

Jeroen van de Crommenacker

crommenacker@em-comms.com

T: +44 20 3709 5713

M: +44 7887 946719

Chairman's Statement

In the first five months as the new Board of JKX, we have made significant progress with our plan to restore shareholder value to JKX. Our overriding commitment to shareholders is to do this through transparent communication, by increasing efficiency and production and by reducing needless costs.

Performance

In the first half of the year, average production increased by 21% to 10,393 boepd, despite the suspension of all development drilling in early 2015, which was put in place by the previous Board. The Company has remained focused on maintaining cash generative operations in both Ukraine and Russia with a reduced capital expenditure program.

There has been some recovery in international oil and gas prices, however they remain low. Despite the 21% increase in production, there has been a 20% fall in half-year revenue to $35.4 million which is due to a sharp fall in both oil and gas realisations resulting from a depreciation of local currencies against the US Dollar compared with the prior period and the lower international oil and gas prices. This is addressed more fully in the Financial Review.

The Company's cash balances have also been significantly reduced by the scheduled $12.3 million repayment to Bondholders in February, $1.7 million used to repurchase 11 Bonds at a discount to their par value and $3.1 million of exceptional costs settled in the period mainly relating to the replacement of the previous Board. The exceptional costs are detailed further in Note 13 to the financial information and discussed in the Financial Review.

Despite the low oil and gas prices and the exceptional costs I am pleased to report that your Company has maintained a positive operating cash flow for the period.

Ukrainian legal cases

As reported in previous announcements, in 2014 the Company commenced arbitration proceedings against Ukraine on the basis of overpayment of production taxes ('Rental Fees'), as explained more fully in Note 14 to the financial information.

During 2015 an international arbitration tribunal issued an Interim Award requiring the Government of Ukraine to limit the collection of Rental Fees on gas produced by our Ukrainian subsidiary, Poltava Petroleum Company ('PPC'), to a rate of 28%. This Interim Award remains in effect until final judgement is rendered on the main case or it is otherwise settled. The main arbitration case, which relates to the overpayment of approximately $180 million in Rental Fees plus damages to the business, was heard in London in early July and we expect the tribunal's decision by the end of 2016.

As reported at the 2015 year end, PPC recognised a provision and had two near-term contingent liabilities arising from three separate Ukrainian court proceedings over the amount of Rental Fees paid in Ukraine for certain periods since 2007. At current Hryvnia exchange rates these potential liabilities total approximately $40 million, including interest and penalties.

For claims relating to 2007 and amounting to $6 million, the Supreme Court of Ukraine ruled in favour of the Company and this case is now considered closed. For claims relating to 2010, amounting to $10.5 million following revaluation at the period end, PPC lost an appeal to the High Administrative Court of Ukraine and the Supreme Court of Ukraine refused to consider the case. The Company is in the process of filing a second appeal to the Supreme Court. In the case of 2015 claims of approximately $23 million at period end exchange rates, PPC is in the process of court hearings, although the Company considers such claims to be in violation of the interim award received from the arbitration tribunal as noted above.

As previously announced the Ukrainian police visited the office of PPC and the homes of two of our employees on 14 June 2016 and have continued to request additional documentary information, most recently on 11 July. The searches undertaken were the result of an investigation of claims of alleged underpayment of taxes which have been made against PPC by a local prosecutor. PPC continues to fully cooperate with the authorities and believes that it is in full legal compliance with the matters outlined in the police requests and that this action is completely unjustified. We have referred the matter to the British and US Embassies in Kyiv to ask for their assistance in engaging with the relevant authorities to resolve the situation.

Also as previously reported, following action initiated in late 2015, in January 2016, the State Geology and Mineral Resources Survey of Ukraine suspended four of PPC's subsoil use permits, initially with effect from 1 February 2016, but then with an extension period until 1 March 2016. PPC has now renewed all four of these licenses until 2024 and also received a ruling from the Kharkiv Administration Court of Appeal which deemed the original suspensions to have been illegal.

Your Board

Following the replacement of the entire Board on 28 January 2016, the composition of the Board did not comply with the UK Corporate Governance Code in respect of the number of independent Non Executive Directors. To address this, in April, two new independent Non Executive Directors were appointed.

Alan Bigman and Bernie Sucher both bring extensive knowledge of working at the highest levels in the region combined with directly relevant experience both of which will be of great benefit to the Company. As independent directors, Alan and Bernie have strengthened the corporate governance credentials of the Company which ensures that the interests of all shareholders are protected.

At the Company's AGM on 28 June 2016, the resolutions to accept the appointment of Alan and Bernie were rejected by a small number of shareholders but with enough votes to reject the resolutions. Given the very low turnout of voting shareholders, the fact that the vast majority of voting shareholders were in favour of the appointments and the need for value-adding independent directors, the Board re-appointed both Alan and Bernie at a subsequent Board Meeting and the shareholders will be asked to approve these appointments at the next General Meeting.

Staff

Following a detailed review of London head office costs the Board has made reductions to staff numbers and we are planning to move the remaining staff on to one floor of the building where we previously occupied four floors. Negotiations with the landlord to extract the Company from the long-term lease agreements are ongoing, although the impact of the referendum in which the United Kingdom voted to leave the European Union has created uncertainty in the UK commercial property market which has made finding new tenants and negotiations with the landlord more difficult.

In May we appointed Daniel Valk as the new General Director of PPC, our Ukrainian operating subsidiary. Daniel has over 20 years of industrial management experience in Ukraine and Russia.

Outlook

There remain risks in respect of the $27.6 million bond payment which may become due in February 2017, the contingent liabilities in respect of Ukrainian production taxes and the continued low oil and gas prices, which, if realised, may impact the going concern status of the Company. These risks are fully addressed in Note 2 to the financial information. However the Directors believe that there is a reasonable basis to mitigate the effects of such eventualities through negotiation with the Ukrainian Government, further operational and cash management measures and Bond restructuring or refinancing options, which are currently being assessed.

In Ukraine, the investment climate has improved following the reduction of gas production tax rates to 29% for 2016 and the easing of restrictions on payments of dividends to overseas shareholders, which enables the Company to repatriate dividends from PPC for the years 2014 and 2015.

We've also stabilized our legal risks in Ukraine, for now, and re-established a positive working relationship with the Ukrainian Government. We look forward to completing our inherited legal battles as early as this summer, allowing the Company to resume its focus on investing in oil and gas production through drilling and/or acquisition.

The process of monetization of our Russian and Hungarian assets is underway, which includes maximising cash generation and cost-cutting in Russia and the repatriation of surplus funds. We will update shareholders as soon as appropriate with specific progress.

The Board continues to believe that the Company has great potential given its current physical and human resource assets. I wish to thank all the JKX staff for their support and for continuing to perform professionally over this difficult period of change, and thank our shareholders for their ongoing support.

Chief Executive's Statement

Performance highlights

The performance highlights for the period are:

   --      Average production increased 21% 10,393 boepd (2015: 8,611 boepd) 

-- Production increases achieved through an enhancement program targeting the technical potential of existing well stock

   --      Nearing finalisation of the updated Field Development Plans 
   --      Monetization process of our Russian and Hungarian assets ongoing 
   --      Significant efficiencies and costs savings implemented, including at London headquarters 

For the six months to 30 June 2016, the Company increased production by 21% from the same period as last year to 10,393 boepd.

Gas production in Russia was higher by 40% due to well-27 coming on line in late 2015 and undergoing several successful acid stimulations in the period.

Despite the cancellation of all development expenditure since early 2015, gas production in Ukraine declined by only 4% period-on-period and oil production has increased by 15%. Both results are due to the implementation of an enhancement program targeting the technical potential of existing well stock.

International oil and gas prices were considerably lower than recent historical levels which has decreased our US$-based revenues and which is analysed in more detail in the Financial Review.

Ukraine

Average production in Ukraine in the first half of 2016 was stable period-on period at 4,137 boepd (2015: 4,140 boped). The suspension of development drilling in Ukraine in 2015 required a step-up of work-over activities on the existing well stock in order to minimise the natural production decline.

Through the period, the Company has continued to systematically calculate the technical potential of existing well stock and close gaps between actual and potential production using best practices. This approach stabilized gas production and increased oil production during the period. The success of this enhancement program for the first half of the year is detailed in the following Operational Review.

Production optimization operations continue with the TW-100 workover rig and rigless interventions.

Russia

Average production from the Koshekhablskoye field in the first half of 2016 was 6,256 boepd, a 40% increase on the average for the first half of 2015 due mainly to the completion of repairs on well-27. Periodic acid treatments have been performed during the period to maintain production rates in the four producing wells.

The production figures remain lower than plant capacity of 60 MMcfd as well-05 has remained suspended throughout the period as plans to replace damaged tubing have been postponed pending the outcome of a strategic review of our Russian assets by the new Board.

Hungary

Following the sale of a 50% interest in a small, early stage gas discovery in June, JKX operates six Mining Plots (production licences) in Hungary covering 200 sq km in which it has a 100% equity interest. JKX will seek to develop these licences, and is currently seeking a farm-in partner, or partners, to participate in their development.

Slovakia

In Slovakia, two exploration wells are scheduled to be drilled on our exploration licences in the second half of the year.

Current and future activity

In the first five months as a Board, we have made progress on several fronts, including production optimization in the field, partial mitigation of inherited legal risks in Ukraine and the re-establishment of a positive working relationship with the Ukrainian Government.

The Field Development Plan for our Ukrainian assets is nearing completion, and will provide a framework for future business and capital planning, as well as a baseline for investment decisions. Best in class development know-how, equipment and technology is being sourced, primarily in the United States, to support the execution of the Field Development Plan.

Group production in the second half of the year is anticipated to be maintained. Gas realisations are anticipated to be slightly lower in Ukraine in the second half of the year and oil realisations are expected to remain at current levels. The regulated maximum industrial gas price in Russia was increased by 1.95% from 1 July 2016 however, following a renegotiation of our gas sales contract, we have agreed a temporary reduction of 9.5% to the price at which we sell our gas in Russia in return for a long-term "take or pay" agreement whereby the customer will pay for gas even if they do not take delivery of it. The Company is seeking to engage other buyers of its gas in southern Russia to improve gas realisations there and broaden its customer base.

Dividend restrictions in Ukraine have been eased which improves the Group's internal liquidity however there remain risks in respect of the $27.6 million bond payment which may become due in February 2017, the potential liabilities in respect of Ukrainian production taxes and the continued low oil and gas prices, which, if all realised, may impact the going concern status of the Company. These risks are fully addressed in Note 2 to the financial information.

Ukraine remains the engine of the Group. Once we have mitigated the Group's short-term liquidity risks noted above and the Field Development Plan is approved, development drilling in Ukraine will recommence and we will seek sources of capital to expand the drilling campaign.

I thank all management and staff for their hard work and our stakeholders for their continued support.

Operational Review

Group production

For the six months to 30 June 2016, the Company produced 10,393 boepd, comprised of 56.4 MMcfd of gas and 993 bpd of oil and condensate, an increase of 21% on the same period in 2015.

Ukraine

Novo-Nikolaevskoye licences

Production

Average production from the Novo-Nikolaevskoye group of fields in the first half of 2016 was 2,574 boepd comprising 10.0 MMcfd of gas and 903 bpd of oil and condensate, a 1% increase on the average for the first half of 2015.

Development drilling and other well activity

No drilling took place in the first half of 2016 as the new board focused on rebuilding Field Development Plans using global best practices, including drilling and fracturing techniques from North America. Drilling will commence when these plans are completed, technology and equipment sourced, and financing secured. Production optimisation operations continue with the TW-100 workover rig and rigless interventions.

-- Attempts to reduce the water production from IG-138, with a cement plug were unsuccessful and the well is being reviewed for further intervention work. Tubing replacement resulted in an increase in gas production from IG-106. A cement plug over the T2 and Devonian Sands was drilled out in IG-132, which resulted in a significant increase in production. Initial rates were over 1,100 bbls/d and production remains above 200 bbl/d. On the Molchanovskoye North Field, M-163 was worked over to restore production from the Devonian sandstone. Work is on-going to obtain enhanced production from the Devonian.

-- Rigless interventions included velocity string installations in M155, M157 and M159. These installations at M155 and M157 resulted in an increase in production and stabilisation. The results at M159 are still being evaluated.

-- Wireline operations have focussed on the clearance of wax and salt build up in the production tubing of a number of wells. A sustained programme of wax clearance has stabilised oil production. Additional activities included wireline perforations in NN73 and IG141, neither of which was successful.

-- An extensive production logging tool programme has been ongoing during 2016 in order to optimize production from existing intervals, where possible.

-- The Novo Nikolavskoye seismic inversion study is complete and has provided a fresh insight for new well locations.

Production facilities

Routine operations at the main processing facility, the LPG plant and the oil loading facility continued smoothly throughout the period. At the main processing facility, modifications to the water treatment unit were completed to improve the quality of produced water prior to re-injection and minor flowline and piping modifications continue to enhance production.

Improvements at the oil loading terminal included an upgrade of the fire protection system and an additional loading point was installed to enable loading of road tankers in addition to rail cars.

Elizavetovskoye Production Licence

Production

Average production from the Elizavetovskoye field in the first half of 2016 was 1,563 boepd comprising 9.2 MMcfd of gas and 25 bpd of condensate, a 2% decrease on the average for the first half of 2015.

Drilling and development activity

There was no drilling activity on the Elizavetovskoye field during the period although additional development drilling plans on the Elizavetovskoye field and West Mashivske licence are currently being reviewed.

Production facilities

The Elizavetovskoye production facility continues to operate efficiently and there have been no further changes following the upgrade at the end of 2014 and the addition of compression in 2015. The plant now has sufficient capacity to accommodate future production from additional wells that are currently being planned and no further modifications are expected.

Russia

Koshekhablskoye licence

Production

Average production from the Koshekhablskoye field in the first half of 2016 was 6,256 boepd comprising 37.1 MMcfd of gas and 66 bpd of condensate, a 40% increase on the average for the first half of 2015.

Workover and well stimulation activity

After completion of the well-27 workover at the end of 2015, there have been no additional workover activities in 2016. Routine acid treatment has been carried out using coiled tubing on the main producing wells. Production from crestal well-20 has ranged from 15-18 MMcfd during the period with a single acid treatment. The north flank well-25 has been producing 9-12 MMcfd with two acid treatments in the period. Well-27 has been producing 7-16 MMcfd having required three acid treatments this period. The deep east-flank well-15 continues to cycle between 0.9 MMcfd and 1.5 MMcfd, with fluid build-up being cleared periodically.

Facilities

Following the completion of plant modifications in Q3 2015, the plant inlet capacity increased to 60 MMcfd. The annual plant shut down, primarily for maintenance requirements, was performed in Q2 2016 and the introduction of a new maintenance system has further increased operational efficiency.

Licence obligations

The obligation to assess the Callovian reservoir through sidetracking well-09 has been deferred until 2017 however a new well location is being reviewed to meet this obligation.

Hungary

Following applications made in 2015, JKX now operates the following six new Mining Plots (production licences) in Hungary covering 200 sq km and which are 100% owned by Riverside Energy Kft, the Company's wholly-owned Hungarian subsidiary:

 
 Hajdunanas     28 sq km 
  IV 
 Hajdunanas     7 sq km 
  V 
 Tiszavasvari   41 sq km 
  IV 
 Emod V         100 sq km 
 Pely I         18 sq km 
 Jaszkiser II   6 sq km 
 

The licence terms will enable JKX to carry out appraisal and development activity over a 30 year period and JKX is currently seeking a farm-in partner, or partners, to participate in the development of these assets.

Hajdunanas field

Production from the Hajdunanas and Gorbehaza Fields in north east Hungary, which form the Hajdunanas IV Mining Plot, was suspended by the previous operator in 2013.

JKX is currently reviewing plans for both well intervention and sidetrack of the Hn-2 well and, following the award of the extended Hajdunanas V Mining Plot in Q1 2016, is seeking a farm-in partner to participate in the further development of the Hajdunanas field and nearby prospective features.

Turkeve IV Mining Plot

During the period, JKX sold its 50% beneficial interest in the Ny-7 discovery (within the Turkeve IV Mining Plot) to the operator.

Slovakia

Exploration

JKX holds a 25% equity interest in the Svidnik, Medzilaborce, Snina and Pakostov exploration licences in the Carpathian fold belt in north east Slovakia. A programme of magneto-telluric geophysical surveys combined with seismic re-interpretation has led to the identification of a number of shallow prospects across the licences.

The 128 sq km Pakostov licence was applied for and approved in 2015 as protection acreage around material prospects identified in the Medzilaborce licence. The Operator (DiscoveryGeo) had planned to drill two of these prospects in the fourth quarter of 2015 but a combination of revised permitting procedures and local activist opposition has delayed well location permitting and construction. The Operator now hopes to spud the first well of a larger three well programme in 2H 2016.

Financial performance

 
 PRODUCTION SUMMARY                        First         Second    First 
                                            half      half 2015     half 
                                            2016                    2015 
---------------------------------------  -------  -------------  ------- 
 Production 
 Oil (Mbbl)                                  180            164      154 
 Gas (Bcf)                                  10.2            9.4      8.4 
 Oil equivalent (Mboe)                     1,881          1,724    1,559 
---------------------------------------  -------  -------------  ------- 
 
 Daily production 
 Oil (bopd)                                  993            890      851 
 Gas (MMcfd)                                  56             51       47 
 Oil equivalent (boepd)                   10,393          9,374    8,611 
---------------------------------------  -------  -------------  ------- 
 
                                           First         Second    First 
   OPERATING RESULTS                        half      half 2015     half 
                                            2016                    2015 
                                              $m             $m       $m 
 Revenue 
 Oil                                         6.2            7.3      7.3 
 Gas                                        27.9           34.5     34.2 
 Liquefied petroleum gas                     1.3            2.4      2.2 
 Other                                         -              -      0.7 
---------------------------------------  -------  -------------  ------- 
                                            35.4           44.2     44.4 
---------------------------------------  -------  -------------  ------- 
 
 Cost of sales 
 Exceptional item - production 
  based taxes                                  -         (10.9)        - 
 Exceptional item - provision 
  for impairment of oil and gas 
  assets                                       -         (51.1)        - 
 Other operating costs                     (9.7)         (12.3)   (12.1) 
 Depreciation, depletion and 
  amortisation - oil and gas 
  assets                                  (10.7)         (13.5)   (12.6) 
 Other production based taxes              (8.6)          (5.4)   (20.8) 
 Total cost of sales                      (29.0)         (93.2)   (45.5) 
---------------------------------------  -------  -------------  ------- 
 Gross profit/(loss) before 
  exceptional items                          6.4           13.0    (1.1) 
---------------------------------------  -------  -------------  ------- 
 Gross profit/(loss) after exceptional 
  items                                      6.4         (49.0)    (1.1) 
---------------------------------------  -------  -------------  ------- 
 
 Operating expenses 
 Exceptional item - legal costs                -          (3.0)        - 
 Exceptional item - remuneration 
  and severance costs                      (3.1)              -        - 
 Administrative expenses                   (9.6)         (10.9)    (6.6) 
 Gain/(loss) on foreign exchange             0.5          (5.4)      0.5 
 Loss from operations before 
  exceptional items                        (2.8)          (3.4)    (7.3) 
---------------------------------------  -------  -------------  ------- 
 Loss from operations after 
  exceptional items                        (5.8)         (68.3)    (7.3) 
---------------------------------------  -------  -------------  ------- 
 
 
 Earnings                                  First                         First 
                                            half       Second             half 
                                            2016    half 2015             2015 
---------------------------------------  -------  -----------  --------------- 
 Net loss ($m)                            (10.1)       (67.7)           (13.8) 
 Net loss before exceptional 
  items ($m)                               (7.0)       (12.0)           (13.8) 
 Basic weighted average number 
  of shares in issue (m)                     172          172              172 
 Loss per share before exceptional 
  items (basic, cents)                    (4.09)       (6.96)           (8.01) 
 Loss per share after exceptional 
  items (basic, cents)                    (5.86)      (39.31)           (8.01) 
 Pre-exceptional earnings before 
  interest, corporation tax, 
  depreciation and amortisation(1) 
  ($m)                                       8.4         10.8              6.1 
---------------------------------------  -------  -----------  --------------- 
 
                                           First                         First 
                                            half       Second             half 
 Realisations                               2016    half 2015             2015 
---------------------------------------  -------  -----------  --------------- 
 Oil (per bbl)                            $39.92       $47.49           $49.87 
 Gas (per Mcf)                             $2.96        $3.97            $4.46 
 LPG (per tonne)                            $254         $437             $448 
---------------------------------------  -------  -----------  --------------- 
 
 
                                           First                         First 
                                            half       Second             half 
 Cost of production ($/boe)                 2016    half 2015             2015 
---------------------------------------  -------  -----------  --------------- 
 Production costs (excluding 
  exceptional item)                        $5.18        $7.17            $7.75 
 Depreciation, depletion and 
  amortisation                             $5.67        $7.78            $8.11 
 Production based taxes                    $4.57        $3.15           $13.36 
---------------------------------------  -------  -----------  --------------- 
 
 
                                           First                         First 
                                            half       Second             half 
 Cash flow                                  2016    half 2015             2015 
---------------------------------------  -------  -----------  --------------- 
 Cash generated from operations 
  ($m)                                       7.8          9.3              3.5 
 Operating cash flow per share 
  (cents)                                    4.5          5.4              2.0 
---------------------------------------  -------  -----------  --------------- 
 
 
                                           First                         First 
                                            half       Second             half 
 Statement of Financial Position            2016    half 2015             2015 
---------------------------------------  -------  -----------  --------------- 
 Total cash(2) ($m)                         18.6         26.3             22.4 
 Borrowings ($m)                            23.8         34.4             32.8 
 Net debt(3) ($m)                          (5.2)        (8.1)           (10.4) 
 Net debt to equity (%)                    (2.9)        (4.6)            (3.8) 
 Return on average capital employed(4) 
  (%)                                     (11.4)       (25.8)           (10.0) 
 
 Increase in property, plant 
  and equipment/intangible assets 
  ($m) 
 - Ukraine                                   1.5          1.1              1.7 
 - Russia                                    0.6          2.9              2.3 
 - Other                                     0.1          0.5              0.2 
 Total                                       2.2          4.5              4.2 
---------------------------------------  -------  -----------  --------------- 
 

(1) Pre-exceptional earnings before interest, tax, depreciation and amortisation ('EBITDA') is a non-IFRS measure and calculated using loss from operations of $5.8m (2015: $7.3m) and adding back depreciation, depletion and amortisation and exceptional items of $14.2m (2015: $13.4m). EBITDA is an indicator of the Group's ability to generate operating cash flow that can fund its working capital needs, service debt obligations and fund capital expenditures.

(2) Total cash is Cash and cash equivalents plus Restricted Cash.

(3) Net cash/(debt) is Total cash less Borrowings.

(4) Return on average capital employed is the annualised profit/loss for the period divided by average capital employed.

Financial Review

Results for the period

The Group recorded a loss for the year of $10.1m (after exceptional charges of $3.1m, mainly relating to the replacement of the Board in January 2016) which is significantly lower than the loss of $13.8m recorded for the same period last year. The Company's financial performance for the first half of 2016 has been impacted by the decline in oil and gas prices and the further deterioration of local currencies where the Group operates.

Revenue

Despite the 21% production gains across the Group, the significantly lower commodity prices and the weakening of local currencies resulted in a 20.3% fall in half-year revenues to $35.4m (2015: $44.4m).

 
 
                   2016   2015    Change    % Change 
 Group revenues     $m     $m      $m 
----------------  -----  -----  --------  ---------- 
 Ukraine           25.6   36.7   (11.1)    (30.2) 
----------------  -----  -----  --------  ---------- 
 Russia            9.7    7.7    2.0       26.0 
----------------  -----  -----  --------  ---------- 
 Total             35.4   44.4   (9.0)     (20.3) 
----------------  -----  -----  --------  ---------- 
 
 
 Realisations     2016    2015    % Change 
---------------  ------  ------  --------- 
 Ukraine 
---------------  ------  ------  --------- 
 Gas ($/Mcf)      5.77    8.25    (30.1) 
---------------  ------  ------  --------- 
 Oil ($/bbl)      39.92   51.06   (21.8) 
---------------  ------  ------  --------- 
 LPG ($/tonne)    254     448     (43.3) 
---------------  ------  ------  --------- 
 
 Russia 
---------------  ------  ------  --------- 
 Gas ($/Mcf)      1.47    1.68    (12.5) 
---------------  ------  ------  --------- 
 
 Group 
---------------  ------  ------  --------- 
 Gas ($/Mcf)      2.96    4.46    (33.6) 
---------------  ------  ------  --------- 
 Oil ($/bbl)      39.92   49.87   (20.0) 
---------------  ------  ------  --------- 
 LPG ($/tonne)    254     448     (43.3) 
---------------  ------  ------  --------- 
 
 
 Average exchange 
  rates              2016    2015      Change     % Change 
------------------  ------  ------  ---------  ----------- 
 Russia (RUB/$)      71.32   58.38   (12.9)     (22.1) 
------------------  ------  ------  ---------  ----------- 
 Ukraine (UAH/$)     25.65   21.27   (4.38)     (20.6) 
------------------  ------  ------  ---------  ----------- 
 

Ukrainian revenues

Gas sales volumes in Ukraine were only 1.3% lower at 3,703 boepd (2015: 3,752 boepd) as a result of slightly reduced gas production to 3,209 boepd (2015: 3,336 boepd), despite the suspension of all drilling activity in Ukraine. The natural decline in production was efficiently managed by well-intervention treatments.

Whilst the gas price decreased by 16% from an average of 6,218 UAH per Mcm in 2015 to 5,208 UAH per Mcm in 2016, US Dollar gas realisations in Ukraine declined by 30.1% from $8.25/Mcf to $5.77/Mcf in part due to the 21% devaluation of the Hryvnia. Before the introduction of a new law affecting the Ukrainian gas market on 1 October 2015, the state regulator made periodic adjustments for Hryvnia/$ exchange rate fluctuations which impacted gas realisations. From 1 October 2015, these periodic adjustments ceased and gas prices have followed market trends. The remaining decline in realisations is explained by excessive quantities of imported gas from Europe which has depressed prices, large quantities of locally produced gas accumulated during 2016 and generally reduced demand from industrial customers.

 
 
                 2016   2015    Change    % Change 
 Ukrainian                       $m 
  revenues        $m     $m 
--------------  -----  -----  --------  ---------- 
 Gas             18.4   26.8   (8.4)     (31.3) 
--------------  -----  -----  --------  ---------- 
 Oil             5.9    7.0    (1.1)     (15.7) 
--------------  -----  -----  --------  ---------- 
 Liquefied 
  Petroleum 
  Gas ('LPG')    1.3    2.2    (0.9)     (40.9) 
--------------  -----  -----  --------  ---------- 
 Other           -      0.7    (0.7)     N/A 
--------------  -----  -----  --------  ---------- 
 Total           25.6   36.7   (11.1)    (30.2) 
--------------  -----  -----  --------  ---------- 
 

Ukrainian revenues bridge

To see a chart illustrating this please download release from JKX website

As the revenue bridge chart demonstrates, the single largest factor affecting revenues from our Ukrainian business was the devaluation of the Hryvnia. The increase in oil production was particularly pronounced due to a successful workover of well IG-132, which has high oil content and insignificant gas content. However, oil realisations reduced from $51.06/bbl in 2015 to $39.92/bbl in 2016 (a fall of 22%) due to the weakening of Brent prices from an average of $57.80/bbl during the 1H 2015 to $41.21/bbl during the 1H 2016 (a fall of 29%).

Russia revenues

Russian gas sales made up 56% of the Group's volumes sold (2015: 52%). However, this increased proportion of lower-priced Russian gas, in addition to the weakening of the Ukrainian Hryvnia and Russian Rouble against the US Dollar (when compared with the prior period), resulted in an overall reduction in Group gas realisations of 33.6% to $2.96/Mcf (2015: $4.46/Mcf).

Gas production in Russia was higher by 40% to 6,256 boepd (2015: 4,470 boepd) due to well-27 coming on line in late 2015. However this was not sufficient to compensate for price reductions. Gas prices in Russia dropped by 14% to $51/Mcm (2015: $59/Mcm) entirely due to an 18% devaluation of the Russian Rouble partly compensated by a 7.5% price increase in July 2015.

Despite an increase in the regulated maximum industrial prices of 1.95% on 1 July 2016, our Russian subsidiary Yuzhgazenergie LLC ('YGE') received a request from its sole gas customer for a 14% discount on all of their gas purchases due to the poor prevailing economic environment in Russia. Following negotiation, YGE has agreed a temporary 9.5% reduction to the gas sales price from 1 July 2016, in order to maintain cash flow in the short term. In addition, alternative customers, including industrial end-users, have been approached in an attempt to secure higher prices and to broaden the customer base.

Loss from operations

Loss from operations before exceptional charges for the period was $2.8m (2015: loss $7.3m) representing a $4.5m improvement. This was the result of a decrease of $16.0m in cost of sales compensating for a $9.0m decrease in Group revenues and a $2.5m increase in the Group's administrative expenses and foreign exchange effects.

Cost of sales

The $16.5m decrease in cost of sales (before exceptional charges), to $29.0m (2014: $45.5m), comprises the following savings:

   --      Russian operating costs of $0.4m (a decrease of 6.9% from 2015) 
   --      Ukrainian operating costs of $0.6m (a decrease of 11.9% from 2015) 
   --      a reduction in the depreciation, depletion and amortisation ('DD&A') charge of $1.9m 
   --      production based taxes lower by $12.2m, predominantly related to Ukraine 
   --      a decrease in Rest of World costs of $1.4m. 

The decrease in Russian operating costs of $0.4m is largely due to the Rouble devaluation from an average of RR58.38/$ to an average of RR71.32/$ reduced the US Dollar reported cost base for Russia throughout the year. Russian property tax charges have decreased by approximately $0.3m to $0.4m (2015: $0.7m) due to the reduced value of the Russian assets subject to property tax. We incurred one-off rig standby costs of $0.5m during the period.

Ukrainian operating costs decreased by $0.6m, again mainly due to the effects of Hryvnia devaluation from an average of UAH21.27/$ to an average of UAH25.65/$ (a depreciation of 21%) partly offset by an increase in many local salaries of up to 50% in January 2016 after two years of no pay rises within a high-inflation environment. We have completed a review of staffing requirements in Ukraine and have commenced some reductions in many technical departments for which the financial benefits will be felt in the second half of 2016.

Operating costs in Rest of World decreased by $1.4m mainly due to staff reductions in technical team in London and a reduced allocation of administrative staff costs to operating activities (see below).

The DD&A charge reduced by $1.9m, largely as a result of a lower asset carrying values resulting from impairments recognised in Ukraine. For the purposes of testing for impairment of the Group's non-current assets in 2016, the Company has taken account of developments since the tests for impairment at the 2015 year end and no impairment triggers were noted.

Production based taxes decreased by $12.2m, which are considered further below.

Exceptional charges

Exceptional charges of $3.1million comprised the following:

-- $2.5 million of severance costs and additional remuneration which the previous board approved and paid prior to the General Meeting in January 2016;

-- $0.5 million of professional services incurred in relation to the General Meeting and the replacement of the Board on 28 January 2016;

-- $0.1 million severance costs incurred as a result of staff reduction at the Group's London headquarters.

There were no exceptional items in 1H 2015.

Administrative expenses

Excluding exceptional costs of $3.1 million explained above, administrative expenses have increased by $3.0m to $9.6m (2015: $6.6m) mainly due to:

   --      An increase in legal and professional fees of $1.7 million 

- An increase in arbitration legal fees of $1.0m is largely due to the timing of services: most of the work for the Hague arbitration took place in the 1H 2016. On annual run-rate basis we expect lower legal fees compared with 2015. In the 1H2015 we incurred the legal fees relating to the Stockholm arbitration comprising legal fees of $0.9m and court of arbitration fees of $0.7m. In 1H2016 we incurred legal fees associated with the Hague arbitration comprising legal fees of $2.3m and court of arbitration fees of $0.3m.

- Legal fees of $0.5m were incurred in connection with the restrictions imposed on the exercise of voting and other rights of two shareholders, Eclairs Group Limited ('Eclairs') and Glengary Overseas Limited ('Glengary'), in January 2016;

- Legal fees of $0.5m related to the court cases in Ukraine in respect of 2007, 2010 and 2015 rental fees;

- On an annual run-rate basis we expect lower legal fees going forward as compared with 2015 and 2016;

- Professional services of $0.2m in respect of the updating of the Field Development Plans, compensated by savings of $0.5m in professional fees due to greater scrutiny over the hiring of new advisors.

-- An increase in other costs of $1.3 million mainly due to a reduced allocation of administrative staff costs to operating activities (the reverse side of the $1.4 million decrease in operating costs noted above).

We committed ourselves to perform a detailed review and eliminate unnecessary expense at the London headquarters. We continue to identify cost efficiency possibilities and a number of steps have been implemented since appointment of the new Board to significantly reduce the costs of the Company's London headquarters. Head office headcount has been reduced by 45%. Benefits resulting from these reductions will be more clearly seen when we report on 2016 full year results. We estimate that the annual run-rate for London staff cost savings will be approximately $1.9m due to more appropriate Board composition and staff reductions.

Net finance charges

Finance costs remained constant at $2.4m (2015: $2.4m) comprising convertible bond interest.

The $1.3m charge (2015: $4.0m) of the fair value movement on the derivative liability represents the change in fair value of the conversion option associated with the convertible bond.

Finance income of $0.9m comprises income from bank deposits of $0.4m (2015: $0.6m) and a gain on the repurchase of convertible bonds of $0.5m.

Taxation

The total tax charge for the period was $1.5m (2015: $0.8m) comprising a current tax charge of $1.4m (2015: $2.2m) and a deferred tax charge of $0.1m (2015: credit $1.4m).

The fall in current tax charge to $1.4m reflects lower profitability in Ukraine. In Ukraine, the corporate tax rate for 2015 and 2016 was 18%.

Production taxes

Production based tax expense for the period was $8.6m (2015: $20.8m), representing a 58.7% decrease which has been recognised in cost of sales.

As part of the JKX's international arbitration against Ukraine in respect of overpaid production taxes (see Note 14 to the financial information), the Group applied for interim measures under the bilateral investment treaties that exist between Ukraine and the United Kingdom and the Netherlands, respectively, to reduce the rate of production tax applicable to our Ukrainian subsidiary, Poltava Petroleum Company ('PPC'). On 23 July 2015, an international arbitration tribunal issued an Interim Award requiring the Government of Ukraine to limit the collection of rental fees on gas produced by PPC, to a rate of 28%. The Interim Award, which is binding on Ukraine as a matter of international law, will remain in effect until the final ruling which will be issued following the arbitration hearing which took place in the beginning of July 2016. In December 2015 the Ukrainian Government passed legislation to reduce the gas production tax in Ukraine from 55% to 29% with effect from 1 January 2016. Therefore, in the period from January to June 2015 production taxes were recorded at 55% rate but for the full year 2015 the average rate will be 28% as PPC have re-submitted their tax returns for 2015 using 28%. From January 2016, the rate of 29% is used for calculating production taxes.

In Russia, the gas and condensate mineral extraction tax ('MET') rate applicable in 1H 2016 was 350 Roubles/Mcm (1H 2015: 292 Roubles/Mcm). The formula for MET is based on gas prices, gas production as a share of total hydrocarbon output and complexity of gas reservoirs (depletion rates, depth of the producing horizons and geographical location of producing fields). Our Russian subsidiary, YGE, is entitled to a 50% discount based on the depth of our gas reservoirs.

In addition to production taxes, YGE is subject to a 2.2% property tax which is based on the net book value of its Russian assets as calculated for property tax purposes. This amounted to $0.4m in 2016 (2015: $0.7m) and is included in other cost of sales.

Loss for the period

Loss for the period before exceptional charges was $7.0m (2015: $13.8m). Basic loss per share before exceptional items was 4.09 cents (2015: 8.01 cents). Basic loss per share after exceptional items was 5.86 cents (2015: 8.01 cents).

Cash flows

Cash generated from operations was $7.8m (2015: $3.5m). The increase is as a result of the $0.5m reduction in loss from operations for the reasons described above adjusted for a $2.2m decrease in non-cash DD&A and other charges for the year and a $5.9m cash inflow due to changes in working capital.

Income tax paid in the period decreased to $0.01m (2015: $0.6m), due to lower profits earned by our Ukrainian subsidiary. Interest paid during the period comprised $1.4m (2015: $1.6m), in respect of financing charges on the convertible bond.

Following a full review of operations and capital projects by the new Board and in anticipation of the Field Development Plan, group capital spend for the first half-year remained low at $2.2m (2015: $3.6m).

Net cash outflow from financing activities in the period mainly relates to the $10.9m repayment of the bond in February 2016 in addition to $1.7m used to repurchase 11 convertible bonds.

No dividends were paid to shareholders in the period (2015: nil).

Cash and cash equivalents

The resultant decrease in cash and cash equivalents in the period before adjusting for foreign exchange effects was $7.6m (2015: $4.2m). Cash movements explained above allowed liquidity to be maintained with only a small reduction in period-end cash balances at $18.4m (31 December 2015: $25.9m). This is despite the exceptional Board replacement costs of $3.1m, a Bond Put and interest payment of $12.3m, bond repurchases of $1.7m (explained below) and $0.7million of legal fees reimbursed to Eclairs and Glengary and their nominees as a result of the judgement of the Supreme Court.

Liquidity

The Group employs a number of financial instruments to manage the liquidity associated with the Group's operations. These include cash and cash equivalents, together with receivables and payables that arise directly from our operations.

Separate from these, the main financial instrument of the Group is the $40 million guaranteed unsubordinated convertible bond which was placed in Q1 2013 with institutional investors which matures in 2018. The bonds have an annual coupon of 8 per cent per annum payable semi-annually in arrears. The bonds terms and conditions contain an annual put option each February until maturity. Bonds with a principal amount of $10m were redeemed on 19 February 2016 in addition to an early redemption premium of $0.9m, in accordance with the terms and conditions of the bond. This followed redemption of $4m in February 2015, together with an early redemption premium of $0.2m. In June 2016 bonds with a par value of $2.2m were repurchased by the Company and subsequently cancelled. In addition to being able to acquire these bonds at a discount, the Company has also been able to avoid associated interest and redemption costs amounting to $0.4m that would have been incurred over the next 8 months. As a result of this transaction, the liability facing the Company in February 2017 has fallen from $30.1m to $27.6m. Further information on the terms and conditions of the bonds is included in Notes 8 and 9 to the financial information.

Outlook

Liquidity remains a key risk for the Group, as noted below in the principal risks section below. As detailed in Note 2 to the financial information, there remain a number of material uncertainties that may cast significant doubt about the Group's ability to continue as a going concern.

The financial position of the Company continues to suffer from the adverse economic conditions in Russia and Ukraine and the generally low oil and gas prices affecting similar companies around the world.

The new Board, which was appointed on 28 January 2016, has assessed all possible options to optimise operations and financial returns and reduce costs. We have identified non-core costs that have been removed and we have re-allocated resources toward our Ukrainian business where we see the most upside for shareholders.

We have seen positive movements in the Ukrainian investment climate, namely the reduction of gas production tax rates to 29% and the lifting of restrictions on dividends payments for 2014 and 2015. The Company is in the process of restarting repatriation of dividends for these periods.

We committed ourselves to resolve the inherited legal battles and most of them are now nearing completion. We also started building more positive relationships with our stakeholders in Ukraine. The Company is firmly committed to Ukraine having been present there for more than 20 years with a highly experienced and committed workforce and we will endeavour to increase the cash generation capabilities of our resources in the country.

The operations in Russia are cash flow positive in 2016 and we will utilise these cash resources for allocation throughout the Group. The new Board is evaluating further monetisation options of the Russian assets including additional cost efficiencies to increase cash flow.

When we announced our 2015 annual results, we said that our priority would be the restoration shareholders value in JKX. We continue working towards this goal. We focused on reducing costs and implementing a robust capital allocation policy which will ensure maximised cash flows from our assets and improvements to the Company's profitability and liquidity. We will resume our focus on investing in oil and gas projects in Ukraine which remains our main asset.

Risks and uncertainties

The Group continuously monitors the major strategic, operational, financial and external risks it faces and determines the appropriate course of action to manage these risks. The key risks and uncertainties which may impact the Group's performance have not changed materially from those stated on pages 44 to 53 of the Group's 2015 Annual Report.

Financial risk management

The main financial risk faced by the Group relate to the availability of funds to meet business needs and debt servicing requirements (liquidity risk). The significant factors which are outside the control of management and which could adversely impact cash flows, profits and liquidity of the Group remain the international oil and gas prices and the risks associated with operating in Ukraine as the near term economic outlook for the country remains uncertain.

These are the critical factors to consider when addressing the issue of whether the Group is a going concern (see Note 2).

The principal risks and uncertainties for the remaining six months of 2016 are identified as being:

Liquidity

All of the Group's revenues and cash flow arise from its oil, gas, condensate and LPG sales in Ukraine and Russia. Changes in commodity prices have a direct effect on the Group's liquidity position (see Commodity prices risk below).

In addition, the Board in place in 2015 suspended all capital investment in Ukraine as a result of the actions of the Ukrainian Government to restrict gas sales, increase production taxes and implement currency restrictions. Suspending investment in appraisal and development activities in Ukraine has had a significant adverse impact on the Group's current and future oil and gas production and therefore also on the Group's sales, profits, cash flow, liquidity and cash balances.

The Group has a significant obligation of up to $27.6 million which may become payable pursuant to its $40 million Convertible Bond in February 2017 if all of the Bondholders exercise their put option at that time (see Notes 8 and 9 to the condensed consolidated interim financial information).

However the Directors believe that there is a reasonable basis to mitigate the effects of such eventualities through a combination of operational and cash management measures and bond restructuring options which are currently being assessed.

Tax legislation

The Company's Ukrainian subsidiary, Poltava Petroleum Company ('PPC') has recognised a provision of $10.5 million and has a contingent liability of approximately $24 million in relation to court proceedings over the amount of production taxes ('Rental Fees') paid in Ukraine for certain periods since 2010 (see Note 14 to the condensed consolidated interim financial information). The Board believes that these claims are without merit under Ukrainian law and will continue to contest them vigorously.

In addition, the Company continues to pursue a final award under its arbitration claim against Ukraine, for the overpayment of $180 million of Rental Fees plus damages to the business (see Note 14 to the condensed consolidated interim financial information). The claim was heard by the international arbitration tribunal in July 2016 and the Board expect the tribunal's decision by the end of 2016.

Commodity prices - Russia and Ukraine

Our policy is not to hedge commodity price exposure on oil, gas, LPG or condensate and therefore any change in prices will have a direct effect on the Group's trading results. We are exposed to international oil and gas price movements which can be affected by political developments in Russia and Ukraine. In Russia the government sets the gas prices at which the Company's Russian subsidiary, Yuzhgazenergie LLC ('YGE') can sell its gas.

Ukraine has the ability to purchase gas from Europe, which has more closely aligned Ukrainian gas prices with those across Europe, which have almost halved since the beginning of 2015. A prolonged period of low gas prices in Ukraine would impact the Group's liquidity.

In Russia, from 1 July 2016 the regulated maximum industrial price has increased by 1.95% however, following a renegotiation of its gas sales contract, YGE has agreed a temporary reduction of 9.5% to the price at which it sells its gas to its sole buyer. The Company continues to seek to engage other buyers of its gas in southern Russia to improve its gas realisations.

Health, Safety and Environment

As we continue with the development and monetisation of our oil and gas reserves, we are exposed to a wide range of significant health, safety, security and environmental risks influenced by the geographic range, operational diversity and technical complexity of our exploration and production activities.

There are risks of technical failure, accidents, natural disasters and other adverse conditions where we operate, which could lead to injury, loss of life, damage to the environment, loss of containment of hydrocarbons and other hazardous material, as well as the risk of fires and explosions.

Statement of Directors' responsibilities

The Directors confirm that, to the best of their knowledge, this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.7R and 4.2.8R, namely:

-- an indication of important events that have occurred in the first six months of 2016 and their impact on the condensed set of financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

-- material related party transactions in the first six months of 2016 and any material changes in related party transactions described in the last Annual Report.

A list of current Directors is maintained on the JKX Oil & Gas plc website www.jkx.co.uk.

On behalf of the Board

Russell Hoare

Chief Financial Officer

28 July 2016

Independent review report to JKX Oil & Gas plc

Report on the condensed consolidated interim financial information

Our conclusion

We have reviewed JKX Oil & Gas plc's condensed consolidated interim financial information (the "interim financial statements") in the half-yearly report of JKX Oil & Gas plc for the 6 month period ended 30 June 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Emphasis of matter

Without modifying our conclusion on the interim financial statements, we would like to draw your attention to the disclosure made in note 2 to the condensed consolidated interim financial information concerning the Group's ability to continue as a going concern. A number of potential conditions exist that may impact this assumption: (i) gas and/or oil net realisations remain at current levels for the foreseeable future or deteriorate materially, (ii) the full $27.6 million obligation pursuant to the $40 million Convertible Bond becomes payable in February 2017, and (iii) the Group becomes liable for additional Rental Fees in Ukraine as a result of unfavourable outcomes in one or more of the ongoing court proceedings. These conditions indicate the existence of material uncertainties which may cast significant doubt about the group's ability to continue as a going concern. The interim financial information does not include the adjustments that would result if the group was unable to continue as a going concern.

What we have reviewed

The interim financial statements comprise:

the Condensed Consolidated Statement of Financial Position as at 30 June 2016;

the Condensed Consolidated Income Statement and Condensed Consolidated Statement of Comprehensive Income for the period then ended;

the Condensed Consolidated Statement of Cash Flows for the period then ended;

the Condensed Consolidated Statement of Changes in Equity (unaudited) for the period then ended; and

the explanatory notes to the interim financial statements.

The interim financial statements included in the half-yearly report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The half-yearly report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly report in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the half-yearly report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

28 July 2016

a) The maintenance and integrity of the JKX Oil & Gas plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Condensed Consolidated Income Statement

 
                                                     Six months     Six months 
                                                             to             to        Year to 
                                                        30 June        30 June    31 December 
                                                           2016           2015           2015 
                                            Note    (unaudited)    (unaudited)      (audited) 
                                                           $000           $000           $000 
-----------------------------------------  -----  -------------  -------------  ------------- 
 Revenue                                     4           35,361         44,380         88,535 
-----------------------------------------  -----  -------------  -------------  ------------- 
 Cost of sales 
-----------------------------------------  -----  -------------  -------------  ------------- 
 Exceptional item -production 
  based taxes                                12               -              -       (10,854) 
 Exceptional item - provision 
  for impairment of oil and 
  gas assets                                                  -              -       (51,055) 
 Production based taxes                                 (8,595)       (20,826)       (26,255) 
 Depreciation, depletion 
  and amortisation                                     (10,669)       (12,632)       (26,068) 
 Other cost of sales                                    (9,747)       (12,086)       (24,449) 
-----------------------------------------  -----  -------------  -------------  ------------- 
 Total cost of sales                                   (29,011)       (45,544)      (138,681) 
-----------------------------------------  -----  -------------  -------------  ------------- 
 Gross profit/(loss)                                      6,350        (1,164)       (50,146) 
 Exceptional item- legal 
  costs                                      13               -              -        (2,988) 
 Exceptional item- remuneration 
  and severance costs                        13         (3,055)              -              - 
 Administrative expenses                                (9,566)        (6,572)       (17,525) 
 Gain/(loss) on foreign 
  exchange                                                  451            471        (4,919) 
-----------------------------------------  -----  -------------  -------------  ------------- 
 Loss from operations before 
  exceptional items                                     (2,765)        (7,265)       (10,681) 
-----------------------------------------  -----  -------------  -------------  ------------- 
 Loss from operations after 
  exceptional items                                     (5,820)        (7,265)       (75,578) 
-----------------------------------------  -----  -------------  -------------  ------------- 
 Finance income                                             898            644          1,289 
 Finance cost                                           (2,376)        (2,400)        (6,500) 
 Fair value movement on 
  derivative liability                       9          (1,289)        (3,969)        (1,921) 
 Loss before tax                                        (8,587)       (12,990)       (82,710) 
 Taxation - current                                     (1,385)        (2,203)        (4,827) 
 Taxation - deferred 
              - before the exceptional 
               items                                      (117)          1,406        (3,132) 
              - on the exceptional items                      -              -          9,206 
-----------------------------------------  -----  -------------  -------------  ------------- 
 Total taxation                                         (1,502)          (797)          1,247 
-----------------------------------------  -----  -------------  -------------  ------------- 
 Loss for the period/year 
  attributable to equity 
  shareholders of the parent 
  company                                              (10,089)       (13,787)       (81,463) 
-----------------------------------------  -----  -------------  -------------  ------------- 
 Basic loss per 10p ordinary 
  share (in cents) 
 -before exceptional items                    15         (4.09)         (8.01)        (14.97) 
 -after exceptional items                                (5.86)         (8.01)        (47.32) 
 Diluted loss per 10p ordinary 
  share (in cents) 
 -before exceptional items                    15         (4.09)         (8.01)        (14.97) 
 -after exceptional items                                (5.86)         (8.01)        (47.32) 
 

Condensed Consolidated Statement of Comprehensive Income

 
                                               Six months     Six months 
                                                       to             to        Year to 
                                                  30 June        30 June    31 December 
                                                     2016           2015           2015 
                                             (unaudited))    (unaudited)      (audited) 
                                                    $'000          $'000          $'000 
-----------------------------------  ----  --------------  -------------  ------------- 
 Loss for the period/year                        (10,089)       (13,787)       (81,463) 
 Comprehensive income to 
  be reclassified to loss 
  or profit in subsequent 
  periods when specific conditions 
  are met 
 Currency translation differences                  14,128          2,985       (26,277) 
 Other comprehensive income/(loss) 
  for the year, net of tax                         14,128          2,985       (26,277) 
-----------------------------------------  --------------  -------------  ------------- 
 Total comprehensive income/(loss) 
  for the period/year attributable 
  to equity shareholders 
  of the parent company                             4,039       (10,802)      (107,740) 
-----------------------------------------  --------------  -------------  ------------- 
 

Condensed Consolidated Statement of Financial Position

 
                                              As at                As at          As at 
                                            30 June              30 June    31 December 
                                               2016                 2015           2015 
                                Note    (unaudited)          (unaudited)      (audited) 
                                               $000                 $000           $000 
-----------------------------  -----  -------------  -------------------  ------------- 
 Assets 
 Non-current assets 
 Property, plant and 
  equipment                      5          196,635              284,737        194,649 
 Intangible assets               5            7,918                7,436          7,812 
 Other receivable                6            3,471                4,241          3,534 
 Deferred tax assets                         15,876               19,302         15,603 
                                            223,900              315,716        221,598 
-----------------------------  -----  -------------  -------------------  ------------- 
 
 Current assets 
 Inventories                                  5,075                4,512          3,689 
 Trade and other receivables                  6,761                9,312         11,695 
 Restricted cash                 7              259                  319            312 
 Cash and cash equivalents       7           18,365               22,091         25,943 
-----------------------------  -----  -------------  -------------------  ------------- 
                                             30,460               36,234         41,639 
-----------------------------  -----  -------------  -------------------  ------------- 
 Total assets                               254,360              351,950        263,237 
-----------------------------  -----  -------------  -------------------  ------------- 
 
 Liabilities 
 Current liabilities 
 Trade and other payables                  (17,288)             (13,637)       (18,977) 
 Borrowings                      8         (23,816)             (10,068)       (10,856) 
 Provisions                      12        (10,481)                    -       (10,854) 
 Derivatives                                (1,995)                    -              - 
                                           (53,580)             (23,705)       (40,687) 
-----------------------------  -----  -------------  -------------------  ------------- 
 
 Non-current liabilities 
 Provisions                      12         (4,310)              (4,008)        (4,135) 
 Other payable                              (3,471)              (4,241)        (3,534) 
 Borrowings                      8                -             (22,719)       (23,494) 
 Derivatives                     9                -              (4,219)        (2,171) 
 Deferred tax liabilities                  (14,671)             (22,204)       (14,950) 
                                           (22,452)             (57,391)       (48,284) 
-----------------------------  -----  -------------  -------------------  ------------- 
 Total liabilities                         (76,032)             (81,096)       (88,971) 
-----------------------------  -----  -------------  -------------------  ------------- 
 Net assets                                 178,328              270,854        174,266 
-----------------------------  -----  -------------  -------------------  ------------- 
 
 Equity 
 Share capital                   11          26,666               26,666         26,666 
 Share premium                               97,476               97,476         97,476 
 Other reserves                           (165,417)            (150,283)      (179,545) 
 Retained earnings                          219,603              296,995        229,669 
 
 Total equity                               178,328              270,854        174,266 
-----------------------------  -----  -------------  -------------------  ------------- 
 

Condensed Consolidated Statement of Changes in Equity (unaudited)

 
                                 Attributable to equity shareholders of the parent 
                 -------------  ----------------------------------------------------------------------- 
                                                                             Other reserves 
 
                                                                                                Foreign 
                                                                                 Capital       currency 
                         Share          Share      Retained         Merger    redemption    translation 
                       capital        premium      earnings        reserve       reserve        reserve      Total 
                          $000           $000          $000           $000          $000           $000       $000 
---------------  -------------  -------------  ------------  -------------  ------------  -------------  --------- 
 
 At 1 January 
  2015                  26,666         97,476       310,474         30,680           587      (184,535)    281,348 
 Loss for the 
  period                     -              -      (13,787)              -             -              -   (13,787) 
 Exchange 
  differences 
  arising on 
  translation 
  of overseas 
  operations                 -              -             -              -             -          2,985      2,985 
---------------  -------------  -------------  ------------  -------------  ------------  -------------  --------- 
 Total 
  comprehensive 
  (loss)/income 
  attributable 
  to equity 
  shareholders 
  of the parent              -              -      (13,787)              -             -          2,985   (10,802) 
---------------  -------------  -------------  ------------  -------------  ------------  -------------  --------- 
 Transactions 
 with equity 
 shareholders 
 of the parent 
 Share-based 
  payment 
  charge                     -              -           308              -             -              -        308 
 Total 
  transactions 
  with equity 
  shareholders 
  of the parent              -              -           308              -             -              -        308 
---------------  -------------  -------------  ------------  -------------  ------------  -------------  --------- 
 At 30 June 
  2015                  26,666         97,476       296,995         30,680           587      (181,550)    270,854 
---------------  -------------  -------------  ------------  -------------  ------------  -------------  --------- 
 
 At 1 January 
  2016                  26,666         97,476       229,669         30,680           587      (210,812)    174,266 
 Loss for the 
  period                     -              -      (10,089)              -             -              -   (10,089) 
 Exchange 
  differences 
  arising on 
  translation 
  of overseas 
  operations                 -              -             -              -             -         14,128     14,128 
---------------  -------------  -------------  ------------  -------------  ------------  -------------  --------- 
 Total 
  comprehensive 
  (loss)/income 
  attributable 
  to equity 
  shareholders 
  of the parent              -              -      (10,089)              -             -         14,128      4,039 
---------------  -------------  -------------  ------------  -------------  ------------  -------------  --------- 
 Transactions 
 with equity 
 shareholders 
 of the parent 
 Share-based 
  payment 
  charge                     -              -            23              -             -              -         23 
---------------  -------------  -------------  ------------  -------------  ------------  -------------  --------- 
 Total 
  transactions 
  with equity 
  shareholders 
  of the parent              -              -            23              -             -              -         23 
---------------  -------------  -------------  ------------  -------------  ------------  -------------  --------- 
 At 30 June 
  2016                  26,666         97,476       219,603         30,680           587      (196,684)    178,328 
---------------  -------------  -------------  ------------  -------------  ------------  -------------  --------- 
 
 

Condensed Consolidated Statement of Cash Flows

 
                                              Six months      Six months 
                                                      to              to         Year to 
                                                 30 June         30 June     31 December 
                                                    2016            2015            2015 
                                    Note     (unaudited)     (unaudited)       (audited) 
                                                   $'000           $'000           $'000 
---------------------------------  -----  --------------  --------------  -------------- 
 
 Cash flows from operating 
  activities 
 Cash generated from operations      17            7,828           3,508          12,797 
 Interest paid                                   (1,440)         (1,600)         (3,040) 
 Income tax paid                                     (6)           (631)           (696) 
 
 Net cash generated from 
  operating activities                             6,382           1,277           9,061 
---------------------------------  -----  --------------  --------------  -------------- 
 
 Cash flows from investing 
  activities 
 Decrease in held-to-maturity 
  investments                                          -           2,700           2,700 
 Interest received                                   420             967           1,612 
 Proceeds from sale of property, 
  plant and equipment                                220               -               - 
 Purchase of property, plant 
  and equipment                                  (2,152)         (3,551)         (5,630) 
 Purchase of intangible 
  assets                                               -            (95)           (612) 
---------------------------------  -----  --------------  --------------  -------------- 
 Net cash (used in)/generated 
  from investing activities                      (1,512)              21         (1,930) 
---------------------------------  -----  --------------  --------------  -------------- 
 
 Cash flows from financing 
  activities 
 Restricted cash                                      53             240             247 
 Repayment of borrowings                        (10,856)         (5,738)         (5,738) 
 Repurchase of convertible 
  bonds                                          (1,692)               -               - 
---------------------------------  -----  --------------  --------------  -------------- 
 Net cash used in financing 
  activities                                    (12,495)         (5,498)         (5,491) 
---------------------------------  -----  --------------  --------------  -------------- 
 
 (Decrease)/increase in 
  cash and cash equivalents 
  in the period/year                             (7,625)         (4,200)           1,640 
 Effect of exchange rates 
  on cash and cash equivalents                        47             907         (1,081) 
 Cash and cash equivalents 
  at the beginning of the 
  period/year                                     25,943          25,384          25,384 
 
 Cash and cash equivalents 
  at the end of the period/year       7           18,365          22,091          25,943 
---------------------------------  -----  --------------  --------------  -------------- 
 

Notes to the interim financial information

1. General information and accounting policies

JKX Oil & Gas plc (the ultimate parent of the Group) is a public limited company listed on the London Stock Exchange and incorporated in England. The registered office is 6 Cavendish Square, London, W1G 0PD and the principal activities of the Group are exploration, appraisal, development and production of oil and gas reserves. The registered number of the Company is 03050645.

The condensed consolidated interim financial information incorporate the results of JKX Oil & Gas plc and its subsidiary undertakings as at 30 June 2016 and was approved by the Directors for issue on 28 July 2016.

This condensed consolidated interim financial information does not constitute accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2015 were approved by the Board of Directors on 18 March 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts while unqualified contained an emphasis of matter which drew attention to the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern.

This condensed consolidated interim financial information has not been audited, but was the subject of an independent review carried out by the Company's auditors, PricewaterhouseCoopers LLP.

2. Basis of preparation

This condensed consolidated interim financial information for the six months ended 30 June 2016 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2015 which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union. A copy of the annual financial statements is available on the Company's corporate website (www.jkx.co.uk) or from the Company's registered office.

The Group's business activities, together with factors likely to affect its future development, performance and position are set out in the operational and financial review sections of this report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review section.

Going concern

The majority of the Group's revenues, profits and cash flow from operations are currently derived from its oil and gas production in Ukraine, rather than Russia.

The low international oil and gas prices seen in 2015 have continued through the first half of 2016 with some recovery during the second quarter. These low prices coupled with a devaluation of the Ukrainian Hryvnia have reduced the oil and gas net realisations from JKX's Ukrainian operations and adversely affected the financial results of the Group, and will continue to do so if prices and the currency do not recover.

The Group has a significant obligation of up to $27.6 million which may become payable pursuant to its $40 million Convertible Bond in February 2017 if all of the Bondholders exercise their put option at that time (see Notes 8 and 9 to the condensed consolidated interim financial information). If some or all of the Bondholders do not exercise this option and the Bonds expire at their full term in February 2018, an obligation of up to $28.5 million will become payable, the amount being dependent on the number of remaining Bonds that were not put in February 2017 (see Notes 8 and 9 to the condensed consolidated interim financial information).

The Directors believe that there is a reasonable basis to mitigate the effects of such eventualities through a combination of operational and cash management measures and bond restructuring options which are currently being assessed.

The Company's Ukrainian subsidiary, Poltava Petroleum Company ('PPC') has recognised a provision of $10.5 million and has a contingent liability of approximately $24 million in relation to court proceedings over the amount of production taxes ('Rental Fees') paid in Ukraine for certain periods since 2010 (see Note 14 to the condensed consolidated interim financial information). The Board believes that these claims are without merit under Ukrainian law and will continue to contest them vigorously.

In addition, the Company continues to pursue a final award under its arbitration claim against Ukraine, for the overpayment of $180 million of Rental Fees plus damages to the business (see Note 14 to the condensed consolidated interim financial information). The claim was heard by the international arbitration tribunal in early July 2016 and the Board expect the tribunal's decision by the end of 2016.

The Directors have concluded that it is necessary to draw attention to the potential impact of (i) gas and/or oil net realisations remaining at current levels for the foreseeable future or deteriorating materially (ii) the full $27.6 million obligation pursuant to the $40 million Convertible Bond becoming payable in full in February 2017 and (iii) the Group becoming liable for additional Rental Fees in Ukraine as a result of unfavourable outcomes in one or more of the ongoing court proceedings. It is unclear whether any or all of these risks will be realised but they are material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern.

However, based on the Group's cash flow forecasts, the Directors believe that the combination of its current cash balances, expected future production and resulting net cash flows from operations, the implemented cost reductions as well as bond restructuring or refinancing options which are currently being assessed, mean that it is appropriate to continue to adopt the going concern basis of accounting in preparing the condensed consolidated interim financial information. The financial information does not include the adjustments that would result if the Group was unable to continue as a going concern.

3. Accounting policies

The accounting policies adopted are consistent with those used in the annual financial statements for the year ended 31 December 2015 and those expected to be applied in the 31 December 2016 annual financial statements. Taxes on income in the interim period are accrued using the tax rate that would be applicable on expected total annual earnings. There were no new standards, interpretations or amendments to standards issued and effective for the period which materially impacted the Group. During the period the Group adopted the following new accounting policy:

Upon redemption of convertible bonds by the Company in the market, the difference between the repurchase cost and the total of the carrying amount of the liability plus the repurchased embedded option to convert is recorded in the income statement. The gain in the period on the repurchase of convertible bonds (see Note 8) has been recognised in the income statement under Finance income.

4. Segmental analysis

The Group has one single class of business, being the exploration for, appraisal, development and production of oil and gas reserves. Accordingly the reportable operating segments are determined by the geographical location of the assets.

There are four (2015: four) reportable operating segments which are based on the internal reports provided to the Chief Operating Decision Maker ('CODM'). Ukraine and Russia segments are involved with production and exploration; the 'Rest of World' are involved in exploration, development and production and the UK is the home of the head office and purchases material, capital assets and services on behalf of other segments. The 'Rest of World' segment comprises operations in Hungary and Slovakia.

Transfer prices between segments are set on an arms length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment results include transfers between segments. Those transfers are eliminated on consolidation.

Segment results and assets include items directly attributable to the segment. Segment assets consist primarily of property, plant and equipment, inventories and receivables. Capital expenditures comprise additions to property, plant and equipment.

 
 First half 2016                           UK   Ukraine    Russia   Rest of World   Sub total   Eliminations     Total 
                                         $000      $000      $000            $000        $000           $000      $000 
-----------------------------------  --------  --------  --------  --------------  ----------  -------------  -------- 
 External revenue 
 Revenue by location of asset 
 - Oil                                      -     5,920       289               -       6,209              -     6,209 
 - Gas                                      -    18,424     9,440               -      27,864              -    27,864 
 - LPG                                      -     1,288         -               -       1,288              -     1,288 
                                            -    25,632     9,729               -      35,361              -    35,361 
-----------------------------------  --------  --------  --------  --------------  ----------  -------------  -------- 
 
 Inter segment revenue 
 - Management services/other            4,094         -         -               -       4,094        (4,094)         - 
                                        4,094         -         -               -       4,094        (4,094)         - 
-----------------------------------  --------  --------  --------  --------------  ----------  -------------  -------- 
 
 Total revenue                          4,094    25,632     9,729               -      39,455        (4,094)    35,361 
-----------------------------------  --------  --------  --------  --------------  ----------  -------------  -------- 
 
   (Loss)/profit before tax 
 (Loss)/profit from operations        (5,719)       542      (59)           (556)     (5,792)           (28)   (5,820) 
 Finance income                                                                           898              -       898 
 Finance cost                                                                         (2,376)              -   (2,376) 
 Fair value movement on derivative 
  liability                                                                           (1,289)              -   (1,289) 
-----------------------------------  --------  --------  --------  --------------  ----------  -------------  -------- 
 Loss before tax                                                                      (8,559)           (28)   (8,587) 
                                     --------  --------  --------  -------------- 
 Total assets                           8,667   113,555   118,479          13,659     254,360              -   254,360 
-----------------------------------  --------  --------  --------  --------------  ----------  -------------  -------- 
 
 
 First half 2015                          UK   Ukraine    Russia   Rest of World   Sub total   Eliminations      Total 
                                        $000      $000      $000            $000        $000           $000       $000 
----------------------------------  --------  --------  --------  --------------  ----------  -------------  --------- 
 External revenue 
 Revenue by location of asset 
 - Oil                                     -     7,046       252               -       7,298              -      7,298 
 - Gas                                     -    26,771     7,398               -      34,169              -     34,169 
 - LPG                                     -     2,244         -               -       2,244              -      2,244 
 -Management services/other                -       669         -               -         669              -        669 
                                           -    36,730     7,650               -      44,380              -     44,380 
----------------------------------  --------  --------  --------  --------------  ----------  -------------  --------- 
 
 Inter segment revenue 
 - Management services/other           5,602         -         -               -       5,602        (5,602)          - 
                                       5,602         -         -               -       5,602        (5,602)          - 
----------------------------------  --------  --------  --------  --------------  ----------  -------------  --------- 
 
 Total revenue                         5,602    36,730     7,650               -      49,982        (5,602)     44,380 
----------------------------------  --------  --------  --------  --------------  ----------  -------------  --------- 
 
   (Loss)/profit before tax 
 (Loss)/profit from operations       (3,231)     1,553   (4,451)         (1,116)     (7,245)           (20)    (7,265) 
 Finance income                                                                          644              -        644 
 Finance cost                                                                        (2,400)              -    (2,400) 
 Fair value movement on derivative 
  liability                                                                          (3,969)              -    (3,969) 
----------------------------------  --------  --------  --------  --------------  ----------  -------------  --------- 
 Loss before tax                                                                    (12,970)           (20)   (12,990) 
                                    --------  --------  --------  -------------- 
 Total assets                         10,808   180,497   144,017          16,628     351,950              -    351,950 
----------------------------------  --------  --------  --------  --------------  ----------  -------------  --------- 
 

5. Property, plant and equipment and other intangible assets

During the period the Group acquired $2.2m additional assets (2015: $4.2m) in Ukraine, Russia and Hungary, with 100% (2015: 97%) in respect of Group's oil and gas producing and development assets and nil (2015: 2%) being spent on intangible assets.

6. Other receivable

The non-current receivable consists of VAT recoverable as a result of expenditures incurred in Russia. The receivable is expected to be recovered between two and five years (2015: two and five years).

7. Cash

 
                              1 January                         30 June 
                                   2016          Net movement      2016 
                                   $000                  $000      $000 
---------------------------  ----------  --------------------  -------- 
 
 Cash                            20,244              (10,108)    10,136 
 Short term deposits              5,699                 2,530     8,229 
 Cash and cash equivalents       25,943               (7,578)    18,365 
 Restricted cash                    312                  (53)       259 
 Total                           26,255               (7,631)    18,624 
---------------------------  ----------  --------------------  -------- 
 

Short term deposits comprise amounts which are held on deposit, but are readily convertible to cash.

Restricted cash

At 30 June 2016 $0.3m (31 December 2015: $0.3m) of the cash held in Hungary at K & H Bank Zrt was restricted as under the Hungarian Mining Act the Group is required to deposit cash to cover compensation for any land damage and the costs of recultivation, including environmental damage of the waste management facilities.

8. Borrowings

 
                                30 June   30 June   31 December 
                                   2016      2015          2015 
                                   $000      $000          $000 
-----------------------------  --------  --------  ------------ 
 
   Current 
 Convertible bonds due 2018      23,816    10,068        10,856 
 Term-loans repayable within 
  one year                       23,816    10,068        10,856 
 
   Non-current 
 Convertible bonds due 2018           -    22,719        23,494 
-----------------------------  --------  --------  ------------ 
 Term-loans repayable after 
  more than one year                  -    22,719        23,494 
-----------------------------  --------  --------  ------------ 
 

Convertible bonds due 2018

On 19 February 2013 the Company successfully completed the placing of $40m of guaranteed unsubordinated convertible bonds with institutional investors which are due 2018 raising cash of $37.2m net of issue costs.

The Bonds have an annual coupon of 8 per cent per annum payable semi-annually in arrears. The Bonds are convertible into ordinary shares of the Company at any time up until seven days prior to their maturity on 19 February 2018 at a conversion price of 76.29 pence per Ordinary Share, unless the Company settles the conversion notice by paying the Bondholder the Cash Alternative Amount (see below).

Interest, after the deduction of issue costs and the inclusion of the redemption premium, will be charged to the income statement using an effective rate of 18.0%.

Cash Alternative Amount

At the option of the Company, the conversion notice in respect of the Bonds can be settled in cash rather than shares, the Cash Alternative Amount payable is based on the Volume Weighted Average Price of the Company's shares prior to the conversion notice.

Convertible bonds repurchased

On 7 June 2016 Company repurchased and subsequently cancelled 11 Bonds with par value of $2.2m for consideration of $1.7m resulting in $0.5m gain, which has been included in Finance income for the period.

Credit Facility

On 31 March 2011, Poltava Petroleum Company ('PPC'), our subsidiary in Ukraine, entered into a reducing credit facility agreement with Crédit Agricole CIB (France) secured by indemnity provided by the parent company, JKX Oil & Gas plc. The credit facility was for a maximum of Ukrainian Hryvnia equivalent of $15.0m. The facility was renewed on 27 June 2014 and was available until 30 June 2015 with the maximum facility reducing to $10.0m and $5.0m on 30 April 2015 and 30 May 2015 respectively. All provisions contained in the credit facility documentation were negotiated on normal commercial and customary terms for such finance arrangements. The interest was calculated at prevailing Crédit Agricole CIB (France) bank rate plus a margin.

The credit facility with Crédit Agricole CIB (France) lapsed on 30 June 2015.

   9.    Derivatives 
 
                                        30 June   30 June     31 December 
                                           2016      2015            2015 
 Current derivative financial 
  instruments                              $000      $000            $000 
-------------------------------------  --------  --------  -------------- 
 Reclassification from non-current 
  derivative financial instruments        1,995         -               - 
-------------------------------------  --------  --------  -------------- 
 At the end of the period/year            1,995         -               - 
-------------------------------------  --------  --------  -------------- 
 
 Non-current derivative financial 
  instruments 
-------------------------------------  --------  --------  -------------- 
 At the beginning of the period/year      2,171     1,037           1,037 
 Partial settlement of derivative 
  liability                             (1,465)     (787)           (787) 
 Fair value loss during the 
  period/year                             1,289     3,969           1,921 
 Reclassification to current 
  derivative financial instruments      (1,995)         -               - 
-------------------------------------  --------  --------  -------------- 
 At the end of the period/year                -     4,219           2,171 
-------------------------------------  --------  --------  -------------- 
 
 

Convertible bonds due 2018 - embedded derivatives

Bondholder Put Option

Bondholders have the right to require the Company to redeem the following number of Bonds on the following future dates together with accrued and unpaid interest to (but excluding) such dates:

 
 Redemption    Maximum number of Bonds to be redeemed 
  Date 
------------  --------------------------------------- 
 19 February 
  2017         all outstanding Bonds 
------------  --------------------------------------- 
 

Current liabilities include $23.8m (31 December 2015: $10.1m) in respect of the put option available to bondholders on 19 February 2017 (31 December 2015: 19 February 2016). Bonds with a principal amount of $10.0m were redeemed on 19 February 2016 (19 February 2015: $4.0m) in addition the payment of an early redemption premium of $0.9m (19 February 2015: $0.2m) in accordance with the terms and conditions of the bond.

Company Call Option

The Company can redeem the Bonds early in full but not in part at their principal amount together with accrued interest at any time on or after 19 February 2017 if the Volume Weighted Average Price of the Company's shares over a specified period equal or exceed 130 per cent of the principal amount of the Bonds; or if the aggregate principal amount of the bonds outstanding is less than 15% of the aggregate principal amount originally issued.

Fixed exchange rate

The Sterling-US Dollar exchange rate is fixed at GBP1/$1.5809 for the conversion and other features.

   10.   Financial instruments 

Fair values of financial assets and financial liabilities - Group

Set out below is a comparison by category of carrying amounts and fair values of the Group's financial instruments. Fair value is the amount at which a financial instrument could be exchanged in an arms length transaction. Where available, market values have been used (this excludes short term assets and liabilities).

 
 
                                             Book      Fair        Book and 
                                              Value     Value      Fair Value 
 
                                             30 June   30 June     31 December 
                                              2016      2016       2015 
                                             $000      $000      $'000 
 Financial assets 
  Cash and cash equivalent and restricted 
  cash (Note 7)                              18,624    18,624    26,255 
 Trade receivables - classified 
  as loans and receivables                   3,361     3,361     3,168 
 Other receivables - classified 
  as loans and receivables                   314       314       5,143 
 
 Financial liabilities 
 Trade payables - carried at amortised 
  cost                                       2,282     2,282     2,701 
 Other payables - carried at amortised 
  cost                                       3,300     3,300     2,692 
 Borrowings - convertible bond 
  due 2018 (Note 8) - at amortised 
  cost                                       23,816    17,624    34,350 
 Derivatives - fair value through 
  profit or loss (Note 9)                    1,995     1,995     2,171 
------------------------------------------  --------  --------  ---------------- 
 

Financial liabilities measured at amortised cost are carried at $31.4m (31 December 2015: $39.7m). The Group's borrowings at 30 June 2016 relate entirely to the convertible bond due 2018.

Fair value hierarchy

Derivatives

At the period end the Group's derivative financial instrument related to various embedded derivatives within the convertible bonds due in 2018 (Note 9). The value of the derivative was calculated at inception using the Monte Carlo simulation methodology and subsequently using the Black-Scholes formula, discounted cash flow methodology, and the Company's historic share price and volatility, treasury rates and other estimations. As it was derived from inputs that are not from observable market data it was grouped into level 3 within the fair value measurement hierarchy.

The main assumptions used in valuation of the derivative conversion option as at 30 June 2016 were:

   --      underlying share price of: GBP0.1625 (31 December 2015: GBP0.2725); 
   --      GBP/US$ spot rate of 1.3311 (31 December 2015: GBP1/$1.4736); 
   --      historic volatility of 30.7% (31 December 2015: 45.0%); 
   --      discount rate of 8.2% (31 December 2015: 8.2%); 

-- risk free rate based on 1.64 year (31 December 2015: 2.14 year) US Treasury rate of 0.574% (31 December 2015: 0.932%).

A 10% increase/decrease in Company's historic share price volatility would have no significant impact on the fair value loss for the period (31 December 2015: increase in the fair value loss for the year of $0.3m, decrease in the fair value loss of $0.1m, respectively), assuming that all other variables remain constant.

Credit risk - Group

The Group has policies in place to ensure that sales of products are made to customers with appropriate credit worthiness. The Group limits credit risk by assessing creditworthiness of potential counterparties before entering into transactions with them and continuing to evaluate their creditworthiness after transactions have been initiated. Where appropriate, the use of prepayment for product sales limits the exposure to credit risk. There is no difference between the carrying amount of trade and other receivables and the maximum credit risk exposure.

The maximum financial exposure due to credit risk on the Group's financial assets, representing the sum of cash and cash equivalents, trade receivables, held to maturity financial investments and other current assets, as at 30 June 2016 was $22.3m (31 December 2015: $34.6m).

Capital management - Group

The Directors determine the appropriate capital structure of the Group specifically, how much is raised from shareholders (equity) and how much is borrowed from financial institutions (debt) in order to finance the Group's business strategy.

The Group's policy as to the level of equity capital and reserves is to ensure that it maintains a strong financial position and low gearing ratio which provides financial flexibility to continue as a going concern and to maximise shareholder value. The capital structure of the Group consists of shareholders' equity together with net debt. The Group's funding requirements are met through a combination of debt, equity and operational cash flow.

Net debt

Net debt comprises: borrowings disclosed in Note 8 and total cash in Note 7, and excludes derivatives. Equity attributable to the shareholders of the Company comprises issued capital, capital reserves and retained earnings, (see Condensed consolidated statement of changes in equity).

The capital structure of the Group is as follows:

 
                                              30 June   31 December 
                                                 2016          2015 
                                                 $000          $000 
------------------------------------------  ---------  ------------ 
 Borrowings (Note 8)                         (23,816)      (10,856) 
 Convertible bonds due 2018 - Non-current 
  liability (Note 8)                                -      (23,494) 
 Total cash (Note 7)                           18,624        26,255 
------------------------------------------  ---------  ------------ 
 Net debt                                     (5,192)       (8,095) 
------------------------------------------  ---------  ------------ 
 Total equity                                 178,328       174,266 
------------------------------------------  ---------  ------------ 
 

Following the issue of $40m of convertible bonds in February 2013, the primary capital risk to the Group is the level of indebtedness. The convertible bond includes a financial covenant which limits the Group's indebtedness (excluding the bonds themselves and the $15.0m Credit Agricole facility) in respect of any new borrowings (in addition to the bond amount) to three times 12-month free cash flow based on the most recently published consolidated financial statements. During the period/year the Group complied with this financial covenant.

Liquidity risk - Group

The treasury function is responsible for liquidity, funding and settlement management under policies approved by the Board of Directors. Liquidity needs are monitored using regular forecasting of operational cash flows and financing commitments. The Group maintains a mixture of cash and cash equivalents and committed facilities in order to ensure sufficient funding for business requirements.

Significant restrictions

Temporary capital controls were established by the National Bank of Ukraine ('NBU') on 1 December 2014 in an attempt by the Ukrainian government to safeguard the economy and protect foreign exchange reserves in the short term.

On 4 March 2015 a number of new NBU Resolutions were implemented with immediate effect (NBU No. 160 dated 3 March 2015; Resolution of the NBU No. 161 dated 3 March 2015; Resolution of the NBU No. 154 dated 2 March 2015).

The Resolutions extended the currency control restrictions implemented in Ukraine on 1 December 2014 and introduced additional measures which have the impact of restricting the remittance of funds to foreign investors under certain conditions and bans the transfer of Hryvnia to purchase Ukrainian Government bonds.

The restrictions were effective until 8 June 2016 but have subsequently been eased by the NBU resolution No. 342 on 9 June 2016. The resolution enables the repatriation of dividends from JKX's Ukrainian subsidiary for the years 2014 and 2015.

Prior to the easing of restrictions, Cash and short-term deposits held in Ukraine were subject to local exchange control regulations which restricted exporting capital from Ukraine. Following the easing of these restrictions on 9 June 2016, no cash or short term deposits included within this consolidated financial information is restricted (31 December 2015: $6.1m).

The following tables set out details of the expected contractual maturity of non-derivative financial liabilities. The tables include both interest and principal cash flows on an undiscounted basis. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the reporting date.

The maturity analysis for Convertible bonds due 2018 is based on the earliest Put dates for the relevant portions of the Bonds (see Note 8) of 19 February 2017.

 
                                      Within 3   3months-   1-2 
                                       months     1year      years 
 Group - 30 June 2016                 $000       $000       $000 
 Maturity of financial liabilities 
 Trade payables                       2,282      -           - 
 Other payables                       3,300      -           - 
 Borrowings - Convertible 
  bonds due 2018                      -          23,816      - 
-----------------------------------  ---------  ---------  ------- 
 
 
                                      Within 3   3 months-   1-2 
                                       months     1year       years 
 Group - 31 December 2015             $000       $000        $000 
 Maturity of financial liabilities 
 Trade payables                       2,701      -           - 
 Other payables                       2,692      -           - 
 Borrowings - Convertible 
  bonds due 2018                      12,296     1,040       30,171 
-----------------------------------  ---------  ----------  ------- 
 

Interest rate risk profile of financial assets and liabilities - Group

In the comparative period the Group was exposed to interest rate risk principally in relation to the balance outstanding on the credit facility with Crédit Agricole CIB (France) where interest is calculated at prevailing Crédit Agricole CIB (France) bank rate plus a margin, however there were no balances outstanding on this facility. The facility lapsed on 30 June 2015.

Fixed rate interest is charged on the Group's convertible bond (see Note 8). The interest rate profile of the other financial assets and liabilities of the Group as at 30 June is as follows (excluding short-term assets and liabilities, non-interest bearing):

 
                                 2016      2015 
                                  Within    Within 
                                  1         1 
                                  Year      Year 
 Group - period ended 30 June    $000      $000 
------------------------------  --------  -------- 
 Floating rate 
 Short term deposits (Note 7)    8,229     5,699 
 Other receivables               314       5,143 
 Other payables                  3,300     2,692 
------------------------------  --------  -------- 
 
 

Floating rate financial assets comprise cash deposits placed on money markets at call, seven day and monthly rates.

   11.          Share capital 

Equity share capital, denominated in Sterling, was as follows:

 
                                  2016     2016     2016          2015     2015     2015 
                                Number   GBP000     $000        Number   GBP000     $000 
------------------------  ------------  -------  -------  ------------  -------  ------- 
 Allotted, called 
  up and fully paid 
 Balance at 1 January 
  and 30 June              172,125,916   17,212   26,666   172,125,916   17,212   26,666 
 Of which the following 
  are shares held 
  in treasury: 
------------------------  ------------  -------  -------  ------------  -------  ------- 
 Treasury shares 
  held at 1 January 
  and 30 June                  402,771       40       77       402,771       40       77 
------------------------  ------------  -------  -------  ------------  -------  ------- 
 
 

Treasury shares and Employee Benefit Trust

The Company did not purchase any treasury shares during 2016 (2015: nil). There were no treasury shares used in 2016 (2015: nil) to settle share options.

JKX Employee Benefit Trust was established in 2013 and acquired 5,000,000 shares in JKX Oil & Gas plc for the purpose of making awards under the Group's employee share schemes and these shares have been classified in the statement of financial position as treasury shares within equity.

None of these shares were used during the period (2015: nil) to settle share options. At the period end JKX Employee Benefit Trust held 5,000,000 shares in JKX Oil & Gas plc.

There are no shares reserved for issue under options or contracts.

   12.   Provisions 
 
                                                   30 June   30 June       31 December 
 Current provisions                                   2016      2015              2015 
                                                      $000      $000              $000 
------------------------   ----  ----  ----   ------------  --------  ---------------- 
  Ukrainian production 
   based taxes ('Rental 
   Fees')                                           10,481         -            10,854 
 ------------------------   ----  ----   -------  --------  --------  ---------------- 
 
 
 

Exceptional production based taxes

The provision, which was recognised as a charge to the Consolidated income statement in 2015, is in respect of a claim against PPC for additional Rental Fees for the period from August to December 2010. The claim is being contested in the Ukrainian courts (see Note 14). The amount is denominated in Ukrainian Hryvnia ('UAH') and is stated above at its US$-equivalent amount using the period end rate of UAH24.9/$ (2015: UAH 24.0/$). The provision is based on the total value of the claim plus interest and penalties. The Board believes that the claim is without merit under Ukrainian law and the Company will continue to contest it vigorously.

Contingent liabilities

Other contingent liabilities in respect of Ukrainian production taxes are explained in Note 14.

Non-current provisions

 
                                   30 June   30 June   31 December 
                                      2016      2015          2015 
                                      $000      $000          $000 
--------------------------------  --------  --------  ------------ 
 
 Provision for site restoration      4,310     4,008         4,135 
--------------------------------  --------  --------  ------------ 
 
   13.   Exceptional items 

Exceptional item - remuneration and severance costs

Exceptional charges of $3.1million comprise the following:

-- $2.5 million of severance costs and additional remuneration which the previous Board approved and paid prior to the General Meeting on 28 January 2016;

-- $0.5 million of professional advisory fees incurred in relation to the General Meeting and the replacement of the Board on 28 January 2016;

   --      $0.1 million severance costs incurred as a result of staff reductions at the Group's London headquarters. 

Exceptional item - legal costs

The Company was involved in Court proceedings since July 2013 with two shareholders.

The shareholders appealed to the Supreme Court contesting the Appeal Court ruling made in May 2014 in favour of the Company. In December 2015 the Supreme Court overturned the Appeal Court ruling and therefore the Company is required to settle the appropriate portion of the legal expenses incurred by the two shareholders during the process.

   14.   Taxation 

No UK tax liability has arisen during the six months ended 30 June 2016 (2015: $nil) due to the availability of tax losses. The current tax charged in the period relates to Ukrainian corporation tax which has arisen in the Group's subsidiary, Poltava Petroleum Company. Taxes charged on production of hydrocarbons in Ukraine, Russia and Hungary are included in cost of sales.

Factors that may affect future tax charges

A significant proportion of the Group's income will be generated overseas. Profits made overseas will not be able to be offset by costs elsewhere in the Group. This could lead to a higher than expected tax rate for the Group.

The UK corporation tax rate changes announced in the July 2015 Budget include reductions to the main rate of UK corporation tax to 19% in 2017 and 17% 2020. The impact of the rate reduction is not expected to have a material impact on provided and unprovided UK current or deferred taxation.

The corporation tax rate in Ukraine for 2016 is 18% (2015: 18%).

Taxation in Ukraine - production taxes

Since Poltava Petroleum Company's ('PPC's') inception in 1994 the Company has operated in a regime where conflicting laws have existed, including in relation to effective taxes on oil and gas production.

In order to avoid any confusion over the level of taxes due, in 1994, PPC entered into a licence agreement with the Ukrainian State Committee on Geology and the Utilisation of Mineral Resources ('the Licence Agreement') which set out expressly in the Licence Agreement that PPC would pay royalties on production at a rate of only 5.5% of sales value for the duration of the Licence Agreement.

Pursuant to the Licence Agreement, PPC was granted an exploration licence and four 20-year production licences, each in respect of a particular field. In 2004, PPC's production licences were renewed and extended until 2024, Subsoil Use Agreements were signed and attached to the licences and operations continued as before.

The Company and PPC have continued to invest in Ukraine on the basis that PPC would pay a royalty on sales at a rate of 5.5%.

In December 1994, a new fee on the production of oil and gas (known as a 'Rental Payment' or 'Rental Fee') was introduced through Ukrainian regulations. On 30 December 1995, JKX, together with its Ukrainian subsidiaries (including PPC), was issued with a Joint Decision of the Ministry of Economy, the Ministry of Finance and the State Committee for the Oil and Gas ('the Exemption Letter'), which established a zero rent payment rate for oil and natural gas produced in Ukraine by PPC for the duration of the Licence Agreement for Exploration and Exploitation of the Fields. Based on the Exemption Letter PPC did not expect to pay any Rental Fees.

Rental Fees paid since 2011

In 2011, new laws were enacted which established new mechanisms for the determination of the Rental Fee. Notwithstanding the Exemption Letter, in January 2011 PPC began to pay the Rental Fee in order to avoid further issues with the Ukrainian authorities but without prejudice to its right to challenge the validity of the demands.

Since 2011, the Rental Fees paid by PPC have amounted to more than $180 million. These charges have been recorded in cost of sales in each of the accounting periods to which they relate.

International arbitration proceedings

In 2015, the Company and its wholly-owned Ukrainian and Dutch subsidiaries commenced arbitration proceedings against Ukraine under the Energy Charter Treaty, the bilateral investment treaties between Ukraine and the United Kingdom and the Netherlands, respectively. In these proceedings, the Company is seeking a repayment of more than $180 million in Rental Fees that PPC has paid on production of oil and gas in Ukraine since 2011, in addition to damages to the business.

During 2015 Rental Fees in Ukraine were increased to 55% and capital control restrictions were introduced. On 14 January 2015, an Emergency Arbitrator issued an Award ordering Ukraine not to collect Rental Fees from PPC in excess of 28% on gas produced by PPC, pending the outcome of the application to a full tribunal for the Interim Award. On 23 July 2015 an international arbitration tribunal issued an Interim Award requiring the Government of Ukraine to limit the collection of Rental Fees on gas produced by PPC to a rate of 28%.

The Interim Award was to remain in effect until final judgement is rendered on the main arbitration case, which was heard in early July 2016. A decision from the tribunal is expected by the end of 2016.

Rental Fee demands

The Group currently has three claims (2015: three) for additional Rental Fees being contested through the Ukrainian court process. These arise from disputes over the amount of Rental Fees paid by PPC for certain periods since 2007, which in total amount to approximately $34 million (31 December 2015: $35 million) (including interest and penalties), as detailed below. All amounts are being claimed in Ukrainian Hryvnia ('UAH') and are stated below at their US$-equivalent amounts using the period end rate of UAH24.9/$ (31 December 2015: UAH24.0/$). The Board believes that these claims are without merit under Ukrainian law and the Company will continue to contest them vigorously.

-- August - December 2010: approximately $10.5 million (31 December 2015: $10.9 million) (including $5 million of interest and penalties). On 11 March 2014 PPC won the case in the Poltava Court. The tax office appealed and the Kharkov Court of Appeal reversed the earlier decision. PPC then lost an appeal in the High Administrative Court of Ukraine and the Supreme Court rejected PPC's application for the appeal. PPC is exploring the possibility of filing another appeal with the Supreme Court of Ukraine. The Board intends to continue to pursue a successful decision in this case.

-- January - December 2015: approximately $23 million (31 December 2015: $24 million) (including $9 million of interest and penalties). Following the commencement of international arbitration proceedings at the beginning of 2015 (see above), from July 2015 PPC reverted to paying a 28% Rental Fee for gas production (instead of the revised official rate of 55%) as a result of the awards granted under the arbitration. PPC also declared part of its Rental Fee payments at 55% for the first 6 months of 2015 as overpayments and consequently stopped paying the Rental Fee for gas in order to align the total payments made in 2015 with the 28% rate awarded made under the arbitration proceedings. The Ukrainian tax authorities have issued PPC with claims for the difference between 28% and 55%. PPC is in the process of court hearings in respect of the claim, although the Company considers such claims to be in direct violation of the Interim Award received from the arbitration tribunal, noted above. In addition, in April 2016, the tax authorities issued PPC with a separate demand for $0.1 million of penalties and interest on unpaid Rental Fees for the period of August-October 2015.

In the prior period there was a claim of approximately $6 million (including $3 million of interest and penalties) relating to the period January - March 2007. During the period the Supreme Court of Ukraine ruled in favour of the Company in respect of this claim and a second parallel case related to this claim was won by PPC with the High Administration Court of Ukraine.

As part of these proceedings, property, plant and equipment that cost UAH158m (approximately $6.3m at the period end rate of UAH24.9/$) was required to be pledged as security against the non-settlement of the 2010 Rental Fee claim that may arise in the event that the Ukrainian authorities are successful. The net book value of the property, plant and equipment is $22.0m based on the historical exchange rates at the dates of acquisition which were between UAH5/$1 and UAH8/$1.

A provision for $10.5m is recognised in respect of the claim for the period from August-December 2010 (see Note 12). No provision has been made for the possible future liabilities that may result from the tax uncertainties in respect of the claims for the period from January-December 2015.

No adjustment has been made to recognise any possible future benefit to the Company that may result from the international arbitration proceedings.

   15.   Loss per share 

The calculation of loss per ordinary share for the six months ended 30 June 2016 is based on the weighted average number of shares in issue during the period of 172,125,916 (2015: 172,125,916; 31 December 2015: 172,125,916) and the loss for the relevant period.

In accordance with IAS 33 (Earnings per share) the effects of antidilutive potential have not been included when calculating dilutive loss per share for the periods ended 30 June 2016 and 31 December 2015. 19,733,537 (31 December 2015: 29,849,048) potentially dilutive ordinary shares associated with the convertible bonds (Note 8) have been excluded as they are antidilutive in 2016 however they could be dilutive in future periods.

There were 3,101,400 outstanding share options at 30 June 2016 (31 December 2015:12,740,100), of which 976,300 (31 December 2015: 7,141,100) had a potentially dilutive effect. All of the Group's equity derivatives were anti-dilutive for the period ended 30 June 2016.

The diluted loss per share for the six months ended 30 June 2016 is based on 172,125,916 (30 June 2015: 172,125,916; 31 December 2015: 172,125,916) ordinary shares calculated as follows:

 
                                         30 June       30 June   31 December 
                                            2016          2015          2015 
 Loss                                      $'000         $'000         $'000 
----------------------------------  ------------  ------------  ------------ 
 Loss for the purpose of basic 
  and diluted earnings per share 
  (loss for the year attributable 
  to the owners of the parent): 
 -Before exceptional item                (7,034)      (13,787)      (25,772) 
 -After exceptional item                (10,089)      (13,787)      (81,463) 
----------------------------------  ------------  ------------  ------------ 
 
                                         30 June       30 June   31 December 
 Number of shares                           2016          2015          2015 
----------------------------------  ------------  ------------  ------------ 
 Basic weighted average number 
  of shares                          172,125,916   172,125,916   172,125,916 
 Weighted average of dilutive 
  potential ordinary shares: 
 -Share options                                -             -             - 
 -Convertible bonds 2018 (see 
  Note 8)                                      -             -             - 
----------------------------------  ------------  ------------  ------------ 
                                     172,125,916   172,125,916   172,125,916 
----------------------------------  ------------  ------------  ------------ 
 
   16.   Dividends 

No interim dividend for the six months to 30 June 2016 is being paid or proposed (2015: nil).

   17.   Reconciliation of profit from operations to net cash generated from operations 
 
                                       Six months   Six months 
                                               to           to        Year to 
                                          30 June      30 June    31 December 
                                             2016         2015           2015 
                                             $000         $000           $000 
------------------------------------  -----------  -----------  ------------- 
 
 Loss from operations                     (5,820)      (7,265)       (75,578) 
 Depreciation, depletion and 
  amortisation                             11,168       13,562         27,591 
 Impairment of property, plant 
  and equipment/intangible assets               -            -         51,055 
 Loss on disposal of assets                    24          102            122 
 Share-based payment charge                    23          308            658 
------------------------------------  -----------  -----------  ------------- 
 Cash generated from operations 
  before changes in working 
  capital                                   5,395        6,707          3,848 
 Changes in working capital                 2,433      (3,199)          8,949 
------------------------------------  -----------  -----------  ------------- 
 Net cash generated from operations         7,828        3,508         12,797 
------------------------------------  -----------  -----------  ------------- 
 
   18.   Capital commitments 

Under the work programmes for the Group's exploration and development licenses the Group had committed $0.8m to future capital expenditure on drilling rigs and facilities as at 30 June 2016 (30 June 2015: $4.0m; 31 December 2015: $1.3m).

   19.   Related-party transactions 

Key management compensation amounted to $4.5m for the six months ended 30 June 2016 (2015: $1.5m) which includes $2.5m of remuneration and severance costs paid to the previous Board members on 28 January 2016 (see Note 13) in addition to bonus payments made to the previous Board of $1.4m (2015: nil) in respect of the year ended 31 December 2015, also paid in January 2016.

 
 Glossary                                     Directors and advisers 
 2P reserves   Proved plus probable           Directors 
 3P reserves   Proved, probable and           Paul Ostling 
                possible                       Tom Reed 
                                               Russell Hoare 
                                               Bernie Sucher 
                                               Alan Bigman 
                                               Vladimir Rusinov 
                                               Vladimir Tatarchuk 
 
                                               Company Secretary 
 P50           Reserves and/or resources 
                estimates that have 
                a 50 per cent probability 
                of being met or exceeded 
 AFE           Authorisation For 
                Expenditure 
 AIFR          All Injury Frequency 
                Rate 
 Bcf           Billion cubic feet 
 Bcm           Billion cubic metres 
 Bcpd          Barrel of condensate 
                per day 
 Boe           Barrel of oil equivalent       Nadia Cansun 
 Boepd         Barrel of oil equivalent 
                per day 
 Bopd          Barrel of oil per              Registered office 
                day 
 Bpd           Barrel per day                 6 Cavendish Square, London 
                                               W1G 0PD 
 Bwpd          Barrels of water per 
                day 
 Cfpd          Cubic feet per day 
 EPF           Early Production Facility      Registered in England 
 GPF           Gas Processing Facility        Number: 3050645 
 HHN           HHE North Kft 
 Hryvnia       The lawful currency            Registrars 
                of Ukraine 
 HSECQ         Health, Safety, Environment,   Equiniti 
                Community and Quality          Aspect House, Spencer Road 
 KPI           Key Performance Indicator      Lancing, West Sussex BN99 
                                               6DA 
 LIBOR         London InterBank Offered 
                Rate 
 LPG           Liquefied Petroleum            Solicitors 
                Gas 
 LTI           Lost Time Injuries             Herbert Smith Freehills 
                                               LLP 
 Mbbl          Thousand barrels               Exchange House 
 Mboe          Thousand barrels of            Primrose Street 
                oil equivalent 
 Mcf           Thousand cubic feet            London EC2A 2EG 
 MMcfd         Million cubic feet 
                per day 
 MMbbl         Million barrels                Principal bankers 
 MMboe         Million barrels of             Bank of Scotland plc 
                oil equivalent 
 PPC           Poltava Petroleum              The Mound, Edinburgh EH1 
                Company                        1YZ 
 Roubles       The lawful currency 
                of Russia 
 sq. km        Square kilometre               Independent auditors 
 TD            Total depth                    PricewaterhouseCoopers 
                                               LLP 
 $             United States Dollars          Chartered Accountants and 
                                               Statutory Auditors 
 UAH           Ukrainian Hryvnia              1 Embankment Place, London 
                                               WC2N 6RH 
 US            United States 
 VAT           Value Added Tax 
 YGE           Yuzhgazenergie LLC 
 
 Conversion factors 6,000 standard 
  cubic feet of gas = 1 boe 
 

We welcome visits to our website www.jkx.co.uk

Cautionary statement about forward looking statements

The half yearly financial report contains certain forward looking statements with respect to the financial position, results of operations and business of the Group. Examples of forward looking statements include those regarding oil and gas reserves estimates, anticipated production or construction commencement dates, costs, outputs, demand, trends in commodity prices, growth opportunities and productive lives of assets or similar factors. The words "anticipate", "estimate", "plan", "believe", "expect", "may", "should", "will", "continue", or similar expressions, commonly identify such forward looking statements.

Forward looking statements involve known and unknown risks, uncertainties, assumptions and other factors that are beyond the Group's control. For example, future oil and gas reserves will be based in part on long-term price assumptions that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include the ability to produce and transport products profitably, demand for products, the effect of foreign currency exchange rates on market prices and operating costs, activities by governmental authorities, such as changes in taxation or regulation, and political uncertainty.

Given these risks, uncertainties and assumptions, actual results could be materially different from any future results expressed or implied by these forward looking statements which speak only as at the date of this report. Except as required by applicable regulations or by law, the Group does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward looking statements will not differ materially from actual results.

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR AKFDPABKDKOB

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July 29, 2016 02:00 ET (06:00 GMT)

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