JKX Reports Ukraine Fracking Setback
East Europe-focused gas and oil producer JKX has reported a disappointing start to its much-heralded fracking of the Rudenkivske tight gas field in the Poltava region of onshore Ukraine.
Following its initial hydraulic fracturing (fracking) campaign this summer with the help of US services giant Schlumberger, London-listed JKX said October 13 that “the presence of large volumes of formation water in post fracture production was not predicted.”
“A significant amount of geological work is still required to understand this complicated reservoir before further significant expenditure can be justified,” it added. Of the four fractured wells, JKX plans to introduce gas lift at R6 and, if successful, then at R19; but wells R25 and R10 are being abandoned.
In its nine-month operational update JKX said it is updating its overall field development plans for Ukraine, with a view to raising production volumes and restarting its drilling program in 2018, but is looking at “different options to raise the external financing needed to implement this strategy.”
Protests in Slovakia
JKX also said of its joint venture with Alpine Oil & Gas that it is “considering its options with regard to continued activity in Slovakia”, where the government has refused to settle landowner/environmental protests and access to rig sites has been blocked by protesters for nearly two years.
JKX's entry into Slovakia was made with the intention of diversifying its production outside its Russia/Ukraine core. In the latter two countries, the firm’s net production for the first nine months of 2017 fell.
In Russia output dropped 20% year on year to 4,905/d of barrels of oil equivalent and in Ukraine it fell 11% to 3,595 boe/d (both producing mostly gas). Inclusive of 145 boe/d of new production in Hungary, total net JKX production for January-September 2017 was down 15% to 8,645 boe/d.
Legal and management issues
Following the ousting of the JKX board in June by key Ukrainian and Russian shareholders, the company said that Victor Gladun and Dmitriy Poddubny – respectively general director and finance chief of its Ukraine subsidiary – had now taken on the roles of acting CEO and acting CFO.
Former CEO Tom Reed had said earlier this year that Rudenkivske has 2.8 trillion ft³ of gas in place and that, using US technology, the recovery factor could rise from under 2% today to between 25% and 50%, the lower end of which would mean output of over 600bn ft³, generating $3bn of revenue.
JKX is also continuing to press its legal claims against Ukraine. For those relating to 2010 concerning $11.3mn, it is expecting a hearing in the High Administrative Court of Ukraine but did not say when this would take place. For claims related to 2015 of $25.9m, Ukraine has filed an appeal to set aside an arbitration award in favour of JKX in the UK High Court, heard October 12; “We are expecting the official ruling shortly,” JKX said.
Mark Smedley