Summary
After an extensive technical review, following the arrival of the new senior management team and Board of Directors, JKX announces:
Reserves Update
Following an internal re-evaluation, we have reduced our 2P reserves from 109.4 to 95.1 million boe or 13% year-on-year. The most significant reduction is due to the negative results from the pilot fracturing program completed at the Rudenkivske field in June 2017 in Ukraine.
An extensive review following the fracturing of 12 intervals in 4 Soviet era wells has led the Company to temper its assumptions about recovery rates per well throughout the field. A new field development plan has been generated based on this analysis (see below). As a result, we have reduced our Rudenkivske 2P reserves all of which were attributed to the Devonian clastic horizons located in the southern section of the field. Although some reserves were added to reflect historical production (and remaining potential) in the Visean horizons to the north of the field, total Rudenkivske 2P reserves have been reduced by 7.1 million boe or by 32%.
At the same time, 2.2 million boe of 2P reserves have been added in the Ignativske field to reflect the potential of Devonian clastics that extend from southern Rudenkivske into the Ignativske section of the field and which were previously not included in field development plans.
Once 2017 production of 1.2 million boe has been taken into account, total reduction of our reserves in Ukraine amounts to 5.8 million boe.
In addition, we have reduced our 2P reserves in Russia attributed to the planned Callovian well by 6.8 million boe. Given our current estimates of US$25-30 million required to drill a well to the target of 5800 meters on the one hand, and low gas prices in Russia on the other, the well is at present considered not economic. This reduction in reserves will have no impact on current production rates. An additional 1.8 million boe reduction in reserves is attributed to production in 2017.
| Total remaining 2P reserves at 31 December 2017 | ||||
| 31-Dec-16 | Revisions | Production | 31-Dec-17 | |
| TOTAL | ||||
| Oil MMbbl | 3.9 | 0.2 | (0.2) | 3.9 |
| Gas Bcf | 632.6 | (68.8) | (17.3)* | 546.5 |
| Oil + Gas MMboe | 109.4 | (11.3) | (3.0) | 95.1 |
| UKRAINE | ||||
| Oil MMbbl | 3.1 | 0.3 | (0.2) | 3.2 |
| Gas Bcf | 155.6 | (29.1) | (6.1) | 120.4 |
| Oil + Gas MMboe | 29.1 | (4.6) | (1.2) | 23.3 |
| RUSSIA | ||||
| Oil MMbbl | 0.8 | (0.1) | (0.0) | 0.7 |
| Gas Bcf | 476.9 | (40.1) | (10.9) | 425.9 |
| Oil + Gas MMboe | 80.3 | (6.8) | (1.8) | 71.7 |
*0.26 Bcf produced in Hungary
Field-by-Field 2P reserves at 31 December 2017
| MMboe | Dec-16 | Production | Revisions | Dec-17 |
| Ukraine | ||||
| Ignativske | 3.9 | (0.5) | 2.2 | 5.6 |
| Movchanivske | 0.6 | (0.1) | 0.2 | 0.7 |
| Novomykolaivske | 0.7 | (0.1) | (0.1) | 0.5 |
| Rudenkivske | 22.2 | (0.1) | (7.1) | 15.0 |
| Zaplavska | – | – | – | – |
| sub-total Novo-Nik production licences | 27.4 | (0.8) | (4.9) | 21.8 |
| Elyzavetivske | 1.7 | (0.4) | 0.3 | 1.6 |
| Total Ukraine | 29.1 | (1.2) | (4.6) | 23.4 |
| Russia | ||||
| Koshekhablskoye | 80.3 | (1.8) | (6.8) | 71.7 |
| Total | 109.4 | (3.0) | (11.4) | 95.1 |
Ukraine Field Development Plans Update
Since the arrival of the new senior management team and new Board, we have significantly revised our field development plans in Ukraine.
Our plan for 2018 includes significant activity to boost production in our core fields and engage in low risk appraisal. This includes 12 workovers, 4 sidetracks and one new well. We plan to take advantage of access we have gained to 5 state-owned wells located on our licenses to target low-cost production enhancement opportunities. Our main development targets are production enhancement through evaluation of clastic reservoirs in the western part of the Ignativske field, infill drilling at the Elyzavetivske field, appraisal of the West Mashivske area of Elyzavetivske license, and testing the deep Devonian horizons at our Movchanivske field.
Our approach to the development of the Rudenkivske field has changed significantly. The new field development plan now targets the Devonian horizons in the southern section of the field. This is where the Company was able to achieve the best results to date (wells R12 and R103) and where target depths are relatively shallow. Meanwhile, the number of planned wells targeting Visean sands in the northern part of the field – the main target of the previous field development plans – has been significantly reduced. Overall, compared to the previous Rudenkivske field development plan, the number of target wells and fracture stages have been significantly reduced. To achieve lower costs per reservoir penetration, the use of multilateral wells is envisaged. We expect to be able to finance the program from cashflow when drilling begins in 2019.
Finally, our new field development plans (and reserves estimates) are in part underpinned by significant reductions to royalty rates for new gas wells recently introduced by the Ukrainian government to aid the strategic goal of energy independence. Starting from January 1, 2018 new gas wells shallower than 5000 meters are taxed at the rate of 12% (instead of 29%).