14:15 01.03.2017

JKX intends to invest $660 mln in Rudenkivske field in 10 years

4 min read
JKX intends to invest $660 mln in Rudenkivske field in 10 years

JKX Oil&Gas Plc plans capital investment of $660 million in development of the Rudenkivske field in Ukraine.

The full field development model for the Rudenkivske field includes the drilling of 135 wells over ten years and results in plateau production of approximately 110 million standard cubic feet per day (18,300 barrels of oil equivalent per day).

"The reconstruction of the Field Development Plan for Ukraine has revealed that using a modern, North American development approach for the Rudenkivske field could realize over $3 billion worth of gas sales at today's prices," the company said in a report on the London Stock Exchange (LSE) on Wednesday.

The Rudenkivske field is estimated to contain 2.8 trillion cubic feet of gas in place (2C).

"Using modern development and completion techniques could result in the production of as much as 600 billion cubic feet of gas over the field's lifetime. Analogous fields to Rudenkivske's structure and depositional environment in North America were identified and their experience and empirical data were used in the company's planning," the company said.

In addition, gas lift is currently being implemented at well NN16 to restore production and increase overall recovery on the field.

According to the report, Financing will continue to be a challenge for the company as well. Its development project in Ukraine is much bigger than its current market capitalization (GBP 51.41 million).

"We will have to be creative and aggressive in financing that development, and will be keeping shareholders informed in all cases and seeking their support and approval where appropriate," JKX said.

As we obtain sources of financing for the Rudenkivske development, we will tighten our production targets and timing and keep you informed. Monetization of Russia, and perhaps Hungary, remain potential sources of funding for the core Ukrainian development plan," the company said.

In Hungary, operations to sidetrack the Hn-2 well commenced in early December. In January, the sidetrack was successfully completed. Gas sales commenced in early February 2017 at an initial rate of 1.8 MMcfd, after a production and sales break in Hungary of more than three years. A reassessment of all of our Hungarian licenses is underway and a new Field Development Plan will be produced in the next few months.

In Russia, production remains stable with work-over and acid treatments required on a regular basis to combat harsh conditions in our 5,000m deep, high temperature, high pressure wells. The company will be replacing certain production strings with chrome tubing in 2017, at a cost of approximately $5 million. This will result in more stable production and an ability to increase production modestly by opening chokes due to better control of temperature-related string expansion.

For claims relating to 2010, amounting to approximately $10.6 million (including interest and penalties), Poltava Petroleum Company lost an appeal to the High Administrative Court of Ukraine and lost four appeals to the Supreme Court of Ukraine. It is currently engaged in appeal processes in the High Administrative Court and is considering the basis of a further appeal to the Supreme Court.

For claims related to 2015 of approximately $23.3 million, Poltava Petroleum Company is involved in proceedings in the Poltava District Administrative Court, which are temporarily suspended.

In respect of the company's international arbitration against Ukraine to recover production related taxes, the tribunal ruled that Ukraine was found not to have violated its treaty obligations in respect of excessive levying of such taxes, but awarded the company damages of approximately $11.8 million plus interest and costs of $0.3 million in relation to subsidiary claims.

"While disappointed with the overall result, the conclusion of these proceedings presents an opportunity to draw a line under historical legal issues and engage with the Government of Ukraine to settle this award and the local tax issues and return focus to key operational matters. We have commenced this settlement process in earnest and in the meantime continue to defend our local legal cases," JKX said.