JKX Oil & Gas plc
2019
Annual Report
JKX Oil & Gas plc Annual Report 2019
In this report
Strategic report
How we performed this year
Our business
Chairman’s statement
Chief Executive’s statement
Market overview
Our business model
2020 Strategic objectives
Operations review
Reserves update
Performance in 2019
Financial review
Corporate social responsibility (CSR) review
Principal risks and how we manage them
Governance
Board composition
Corporate governance
Audit committee report
Directors’ remuneration report
Directors’ report – other disclosures
Financial statements
Group
Independent auditors’ report
Consolidated income statement
01
02
04
06
08
12
13
16
18
20
22
25
30
40
42
50
55
74
77
85
Consolidated statement of comprehensive income 87
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Company
Company statement of financial position
Company statement of changes in equity
Notes to the Company financial statements
88
89
90
91
129
130
131
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JKX Oil & Gas plc Annual Report 2019
STRATEGIC REPORT
How we performed this year
Update:
2019 was another year of achievement for JKX. Strong production
results allowed us to again report healthy profit and cash flow
generation despite the much weaker gas sales prices in Ukraine.
We continued our field development in Ukraine and completed our
workover programme in Russia. The Group is now debt free.
Revenue
Profit from operations
before exceptional items*
Profit for the year
$101.7m
2018: $92.9m
$23.1m
2018: $20.7m
$22.2m
2018: $15.3m
Cash generated from continuing
operations
Cash flow used in investing
activities
Total year-end cash
$41.4m
2018: $37.3m
$26.5m
2018: $12.8m
$20.6m
2018: $19.2m
Outlook:
• Assets continue to generate positive cash flow despite recent oil and
gas market turbulence.
• In Ukraine we are continuing our field development activities while
also monitoring new opportunities.
• We expect final decisions on most of the outstanding tax claims
in 2020 and 2021.
*See page 23 for exceptional items.
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JKX Oil & Gas plc Annual Report 2019
STRATEGIC REPORT
Our business
What we do
JKX is an oil and gas exploration and
production company focused on
eastern Europe.
Where we operate
MOSCOW
Russia
Ukraine
KIEV
POLTAVA
Elyzavetivske
Novomykolaivske Complex
Koshekhablskoye
MAIKOP
Black Sea
C
a
s
p
i
a
n
S
e
a
3
JKX Oil & Gas plc Annual Report 2019
Group statistics
Licences
Total licence area, sq. km
Stage
Production
2019 Gas production, Mcmd
2019 Oil production, bopd
2019 total production, boepd
Reserves
2P reserves, MMboe
3P reserves, MMboe
2C resources, MMboe
Staff
*Includes Hungary.
Ukraine
Russia
Group*
1. Ignativske
1. Koshekhablskoye
13 licences
2. Elyzavetivske
3. Rudenkivske
4. Novomykolaivske
5. Movchanivske
6. Zaplavska
405
33
638
Exploration
Appraisal
Development
Production
Appraisal
Development
Production
Exploration
Appraisal
Development
Production
769
1,058
5,584
23.4
36.6
66.9
363
867
59
5,158
61.0
103.7
39.1
203
1,637
1,118
10,748
84.4
140.3
106
574
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JKX Oil & Gas plc Annual Report 2019
STRATEGIC REPORT
Chairman’s statement
The new Board, appointed following the 2019 Annual General
Meeting, consists of a diverse selection of experienced oil and
gas industry professionals expert in the Group’s key focus areas.
This new team has taken the months following its appointment
to review the company’s business, to engage with its staff and
to visit its operations in Russia and Ukraine. We have been
impressed by the quality and commitment exhibited, traits that
will be key to your company’s future successes.
Outlook
The Board and management will continue to devote their
full attention to our core assets. In addition the Board will
actively review material opportunities in our key focus areas
where we can leverage our excellent financial and operational
performance in order to obtain access to interesting prospects.
As part of this strategy we have already disposed of the Group’s
Hungarian assets that were considered to be a distraction from
the company’s core areas of expertise.
Clearly recent developments in the commodities’ markets are a
significant and growing challenge, not just to those involved in
the upstream sector, but to all involved in international business.
Additionally, while our assets are robust and strongly cash
generative, the situation regarding Covid-19 and its potential
impact on the global economy and our operations remains
uncertain and is rapidly changing. We continue to monitor the
impact of these developments on our industry, our operations
and - most importantly - our staff and contractors.
During 2020 the Board will seek to foster an active and open
communication with all our shareholders in order to explain its
strategy and to discuss any concerns that they may have in order
to ensure that all decisions are taken in the best interests of the
Company as a whole.
People
I am happy to report that our HSE performance in 2019 has been
excellent, with no significant incidents recorded.
I also take this opportunity to welcome the appointment of
Victor Gladun as CEO and more recently Dmitriy Poddubnyy
as CFO. With their experience of successfully managing our
major operating subsidiary and the Group more generally I am
sure that they will bring renewed focus to the senior executive
team. I would like to thank JKX’s staff for ensuring continuity
and smooth operations and in particular our outgoing CFO, Ben
Fraser, for his commitment and hard work over the last three
years.
Whilst significant challenges remain, such as the new reality
of lower gas prices, international disruption driven by health
concerns, technical difficulties in the field and the historical
tax cases (where we have had a number of successes this year)
I remain optimistic about the Company, whilst being realistic
about the challenges that it continues to face.
Charles Valceschini
Chairman
I am pleased to be writing to you for the first
time as Chairman of your Company, following
my appointment in September 2019.
Before discussing the outcome of the 2019 financial year I would
like to recognise the challenges that we are currently facing as
a result of the Covid-19 pandemic impacting the countries in
which we operate. I am pleased that we have been able to take
proactive measures to protect our staff, contractors, suppliers
and the communities in which we operate as well as increasing
the resilience of our business. Further details of our response
are set out in the risk section of this report. My thoughts are
with all those impacted in this difficult time.
Turning then to the Group’s financial performance in 2019,
as our newly appointed Chief Executive Officer, Victor Gladun,
remarks in his own report the results for the full 2019 year
show it to have been another successful year. There has been
positive progress in many key areas including operations
(production volumes increased by 20% over 2018), finance
(profitability increased by over 10% compared to 2018) and
portfolio rationalisation. As a consequence the Company’s
financial position has been further strengthened and it is now
debt free, having benefitted from both improved cost control
and increased production volumes and is reporting its second
consecutive year of profit.
The Board continues to focus on the key areas identified in
2018 and 2019 that will be fundamental to the Company’s
future success:
• Restoring a constructive relationship with the
shareholders of the Company;
• Ensuring full operational and financial alignment
between all companies of the Group;
• Operational risk management developing existing fields
with proven, low risk technology;
• Ensuring financial stability by building liquidity
reserves and keeping tight control over cost; and
• Resolving outstanding tax issues.
5
JKX Oil & Gas plc Annual Report 2019
6
JKX Oil & Gas plc Annual Report 2019
STRATEGIC REPORT
Chief Executive's statement
2019 was another year of achievement for
JKX. Despite the collapse in commodity
prices our strong production results allowed
us to report healthy profit and cash flow for
the second year in a row. The Group is now
debt free.
Before discussing our performance in the 2019 financial year
I would like to recognise the steps that are being taken by all
our staff to keep their colleagues safe and the business running
despite the challenges presented by the current Covid-19
pandemic. We have implemented a range of pre-emptive
measures, further discussed in the risk section of this report, in
recognition of the fact that our people remain our greatest asset
and their continuing health our priority.
Our performance
Strong production performance has enabled us to deliver
positive financial performance despite the significantly lower
gas price that we have experienced in our Ukrainian market
where pricing is unregulated and follows international trends.
Our Group revenue has exceeded $100m for the first time since
2014 (2019: $102m, 2018: $93m) and our operational profit before
exceptional items is up by over 10% year on year (2019: $23.1m,
2018: $20.7m).
Our operations
In both Ukraine and Russia we have kept our focus on
operational risk management developing existing fields step
by step with proven, low risk technology. Overall our fields
have delivered a 20% year on year increase in Group annual
production (2019: 10,748 boepd, 2018: 8,937 boepd).
This increase was underpinned by a more than 50% increase
in annual production in Ukraine (2019: 5,584 boepd, 2018:
3,677 boepd) where we continue to enjoy the results of the
field development plan we have been executing since late
2018. In 2019 our Ukrainian subsidiary drilled 4 new wells and
completed 19 workovers as well as completing a 3D seismic
survey in West Mashivska. The continuous use of the same low
cost rig sourced from a local contractor for most of the drilling
has meant that we have enjoyed improvements in operational
performance, and the securing of a second rig with greater
capacity allowed us to begin more technically challenging
drilling in Rudenkivske in the third quarter of 2019.
Meanwhile in Russia we have managed to maintain production
at previous levels (2019: 5,158 boepd, 2018: 5,169 boepd) while at
the same time completing the successful workover of two wells
using a contracted rig selected by tender in 2018. The addition of
these two wells to the producing well stock more than offset the
production lost due to the continuing decline of Well 20.
I am pleased to report that in early March 2020 we have agreed
a sale of our Hungarian business, which was non-producing, for
expected consideration of approximately $2.9m, and that we
expect this disposal to be finalised shortly.
7
JKX Oil & Gas plc Annual Report 2019
Our financial stability
The Group’s financial strength has been improved by both the
paying down of long term debt and by the reduction in the level
of provisions maintained for the outstanding legal cases.
Thanks to the cash generated by our operations we have in
February 2019 and February 2020 made the final payments to
our bondholders (capital repaid 2019: $5.4m, capital repaid 2020:
$5.4m). The Group is now debt free for the first time in ten years.
We have continued our efforts to resolve the long outstanding
tax issues that the company has faced and I am pleased to report
that four of the eight cases relating to claims for underpayment
of rental fees for 2015 made against our Ukrainian subsidiary
PPC have now been closed in our favour. This has allowed us to
reverse the provisions in our accounts for these four cases. We
are continuing to defend our position in the courts in relation
to the remaining 2015 rental fee claims and are still awaiting
a final ruling from the Supreme Court in relation to a claim for
disputed rental fees for 2010.
During 2019 we successfully filed an application for
recognition in the Ukrainian courts of an award made to JKX of
approximately $12.1m made by the Hague international tribunal
and in 2020 we continue to carry out the appropriate procedures
for the collection of this award.
Managing our risks
The maintenance of an adequate internal control framework
and appropriate risk management are essential to our success.
Policies and procedures that have been implemented across the
Group are subject to annual review to ensure that they remain
appropriate and fit for purpose.
Geological and operational risks are intrinsic to our business.
We seek to maintain and improve our internal expertise
and supplement this with the use of appropriate contractors
and specialists to mitigate these risks. In 2019 we enjoyed
predominantly positive results from our new wells and
workovers but we know that this cannot be taken for granted
and we continue to take a measured approach using proven,
low risk technology and diversifying our geological risk across
different targets.
During 2019 we have, of course, seen a significant fall in the gas
price in Ukraine, in line with the rest of Europe, and at the time
of writing there is considerable turbulence in the financial and
commodities' markets. We have to remain focussed on control
of operational and administrative costs and, as we continue
development of our fields in Ukraine, we perform regular
economic analysis of our planned capital projects to ensure that
profitability is central to our decision making.
In recent weeks we have also seen the escalation of the Covid-19
pandemic globally. Whilst our operations have to date seen little
impact we are focused on implementing measures to ensure the
safety of our people and contractors and prepare the business to
face potential challenges that may emerge. Further details are
set out in section 'Principle risks and how we manage them' on
pages 30-39.
Outlook
The well workover programme in Russia has been successfully
completed meaning that our operations there, with increased
profitability and free from further workover capex
requirements in the short term, can contribute more positive
cash flow to the Group. In addition to this, the agreement of the
disposal of the Hungarian assets has allowed management to
focus in 2020 on Ukraine where we are engaged in both further
development of our existing assets and monitoring of new
opportunities.
While I recognise the challenges we face, including the emerging
challenges that Covid-19 may present against a backdrop
of uncertainty in the oil and gas markets, I take confidence
from the talents and continued dedication of our staff and
our improved financial strength. I am optimistic about the
ability of the Company to prosper and would like to assure
all shareholders that the Board and management remain
committed to continuing to deliver production growth combined
with positive financial results.
Victor Gladun
Director
Chief Executive Officer
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JKX Oil & Gas plc Annual Report 2019
STRATEGIC REPORT
Market overview - Ukraine
Why are we here?
Ukraine is our most important market,
providing most of our cash flow.
Regulatory and investment climate
Applicable rental fees for new wells are 12% for those less than
5,000 metres and 6% for those deeper than 5,000 metres.
The investment climate in Ukraine’s gas production sector is
favourable. The government has announced an “Open Door
Policy for Investors”. The State Geologic and Subsoil Survey
of Ukraine is focussed on making processes more efficient,
treating all subsoil users fairly and attracting new investment
into the sector.
Access to geologic data has been improved. A transparent
process for electronic auctioning of oil and gas field licences
is in place and there is the opportunity to invest in Production
Sharing Agreements (PSA). In 2019, 19 licences were sold
via electronic auction and 9 PSA tenders were concluded and
similar opportunities are available in 2020.
Ukraine has completed “unbundling” the national oil & gas
company Naftogaz, which is an important step towards further
transparency and liberalization of the gas market. Under the
new transit agreement concluded between Ukraine and Russia,
gas transmission entry tariffs are not expected to increase for
domestic gas producers.
Gas consumption still exceeds Ukrainian domestic production,
which leaves an incentive for us to increase our production
further. The gas market remains liberal.
Reserves
Ukraine holds 1.1 trillion cubic metres (37 trillion cubic feet)
of proven gas reserves - the second largest proven reserves in
Europe. JKX’s expertise in this market, gained through more
than 25 years of successful business in the Ukraine, leaves
us well placed to take advantage of the emerging investment
opportunities. The company is considering the acquisition of
new licences.
Total proven gas reserves in Europe
Trillion cubic meters
1.7
2.0
1.5
1.0
0.5
0.0
1.1
0.7
Norway
Ukraine
Netherlands
Source: BP Statistical Review of World Energy
0.2
United
Kingdom
0.1
0.1
Poland
Romania
Ukraine's gas balance 1991-2019 (bcm)
150
120
90
60
30
0
-30
3
9
9
1
4
9
9
1
5
9
9
1
6
9
9
1
7
9
9
1
8
9
9
1
9
9
9
1
0
0
0
2
1
0
0
2
2
0
0
2
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
Source: Energobusiness; Company Research.
Ukraine's gas price premium ($/Mcm)
500
400
300
200
100
0
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: Company Research.
Imports from Russia
Imports from Central Asia
Domestic production
Imports from Europe
Exports
Ukraine
TTF
Henry Hub
9
JKX Oil & Gas plc Annual Report 2019
Netback
Netback analysis of gas sales (at $206.0/Mcm in 2019
and $307.8/Mcm in 2018)
JKX’s assets in Ukraine
$39.4 (19%)
$54.6 (27%)
$53.2 (18%)
$81.4 (26%)
$111.9 (54%)
$173.2 (56%)
2019
2018
Production costs
Production taxes
Net
Netback analysis of oil sales (at $61.0/bbl in 2019
and $74.0/bbl in 2018)
$9.2 (15%)
$15.3 (25%)
$9.0 (12%)
$19.2 (26%)
D N I E P E R - D O N E T S
B A S I N
Kiev
Ukraine
Elyzavetivske
Novomykolaivske
Complex
Russia
Black Sea
Novomykolaivske Complex
Our Novomykolaivske Complex
reserves comprise five distinct fields
producing in to one GPF. In addition
we have a Liquefied Petroleum Gas
(‘LPG’) facility which converts some
of our gas into LPG for sale into the
expanding Ukrainian market.
Elyzavetivske field
Our Elyzavetivske license and
GPF, which are 45km from our
Novomykolaivske Complex, began
commercial production in 2014.
The field currently produces from
ten wells.
Ukrainian reserves
At the end of 2019, our 2P reserves in
Ukraine comprised 3,061 MMcm of
gas and 2.1 MMbbl of oil (total 23.4
MMboe including 3.2 MMboe of LPG).
Project life cycle
Reserves
$36.5 (60%)
$45.7 (62%)
Novomykolaivske Complex
Reserves split
2019
2018
Production costs
Production taxes
Net
Principal risks associated with our business
in Ukraine (detail on pages 30-39)
Liquidity, funding, and portfolio management
Commodity prices and FX fluctuations
Reservoir and operational performance
A
H
C
25 years
of commercial production to date
77.3% gas
13.7%
9.0%
77.3%
Gas
LPG
Oil
4
9
9
1
9
1
0
2
7
3
0
2
Movchanivske
Ignativske
Novomykolaivske
Rudenkivske
Zaplavska
Elyzavetivske field
6 years
of commercial production to date
5
9
9
1
9
1
0
2
8
2
0
2
10
STRATEGIC REPORT
Market overview - Russia
Why are we here?
We have access to high quality, long
life reserves in Russia together with an
established processing facility.
Whilst gas prices are regulated, they are stable and increase
year on year. According to the latest forecast by the Russian
Ministry of Economic Development, gas prices are expected
to continue rising steadily in the next 5 years. We remain
committed to increasing production volumes closer to the plant
capacity, in order to maximise return on the capital expenditure
invested.
Despite Russia’s overall gas surplus, Russia’s southern regions
are short of gas with consumption exceeding production by more
than three times. Whilst Russia’s average gas consumption has
stagnated in recent years, Russia’s southern regions such as
Krasnodar have continued to grow.
Our Koshekhablskoye field is located in the Autonomous
Republic of Adygea in southern Russia. This region enjoys
some of the country’s highest gas prices. This is because the
gas industry’s key reference price - the regulated price for
industrial consumers set for Gazprom - is set based on the
distance from Russia’s key producing region - Nadym Pur Taz
(NPT) in Russia’s far north. Adygea is located more than
4,000 km from NPT.
Adygean regional authorities are proactively working on
investment projects aimed at boosting industrial potential,
and as the major local energy supplier we look forward to their
development.
Due to the depth of the main production horizons in our
Koshekhablskoye field, we enjoy a significant production tax
break as compared to other non-Gazprom producers.
Notwithstanding our access to some of the highest regional gas
prices in Russia, we continue to seek opportunities to increase
gas sales margins, particularly by direct gas sales to end users.
In the longer term we remain extremely well placed for any
liberalisation of the gas market in Russia.
Regulated gas pricing by region (RUB/Mcm)
Region
YaNAO
KhMAO
Chelyabinsk
Samara
Moscow
Adygeya
Netback
Residential
price
Industrial
price
2609
3049
3651
3702
3807
3858
2610
3071
4059
4272
4760
4859
Netback analysis of gas sales (at $57.0/Mcm in 2019 and $58.3/Mcm in
2018)
$21.9 (38%)
$5.6 (10%)
$29.5 (52%)
$27.0 (46%)
$5.7 (10%)
$25.6 (44%)
2019
2018
Production costs
Production taxes
Net
Southern Russia gas supply and demand (Bcm)
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
13.1
53.9
18.3
Supply
Demand
Gas production
Gas export
Gas consumption
Source: Company Research.
JKX Oil & Gas plc Annual Report 2019 11
JKX’s assets in Russia
Ukraine
Rostov-on-Don
Russia
Krasnodar
Koshekhablskoye
Maikop
R E P U B L I C
O F A DY G E A
Black Sea
Koshekhablskoye field
Koshekhablskoye gas field is located
in the Republic of Adygea, southern
Russia where gas resource is scarce,
and there are high transportation
costs from Russia’s main gas
production area in the far north,
some 4,000 km away.
Russian reserves
At the end of 2019, our 2P reserves in
Russia comprised of 10,246 MMcm
of gas and 0.7 MMbbl of oil (total 61.0
MMboe).
Koshekhablskoye
project life cycle
Reserves
Total project life cycle
Reserves split
7 years
of commercial production to date
99% gas
1%
2
1
0
2
9
1
0
2
9
6
0
2
99%
Gas
Oil
Principal risks associated with our business
in Russia (detail on pages 30-39)
Geopolitical and fiscal risks
Reservoir and operational performance
B
C
JKX Oil & Gas plc Annual Report 2019 12
STRATEGIC REPORT
Our business model
We strive to create value for our stakeholders
by investing in exploration for appraisal and
development of oil and gas assets in eastern
Europe.
We generate revenue from production and
sales of oil, gas, condensate and LPG. Cash
flow is distributed to our stakeholders and
reinvested in our business.
Cash is distributed among our stakeholders
Exploration
Appraisal
Government
Suppliers
Asset life
cycle
Stakeholders
Investors
Employees
Production
Development
Local community
Cash is invested in existing and new assets
We manage a portfolio of assets in Ukraine and Russia.
We aim to evaluate where we can add the most value and manage our portfolio accordingly.
Exploration
We use highly experienced in-house and contracted technical staff
to help us identify exploration targets both within our portfolio and
elsewhere. However, exploration activity is currently not what we are
focused on.
Appraisal
A large number of legacy wells are located in and around the area of
the mature assets operated by JKX. Dedicated efforts to gain access
and evaluate valuable data from these wells allow JKX to greatly
reduce risks and costs of its appraisal activities and optimize further
development planning.
Development
We strive to manage our field development based on ‘what’s possible’
in petroleum engineering, physics and execution.
Production
JKX has engaged experts in the latest drilling, completion, and
engineering technology from countries we operate in and abroad.
Although production decline is a characteristic of oil & gas assets, we
strive to minimize decline within our mature fields by identifying and
executing production enhancement and workover opportunities.
Government.
Payments to government include production, payroll, corporate, VAT,
land, utility, licensing and other taxes and fees. Through payment of
taxes and fees we support local and national economies.
Suppliers
Payments to suppliers are made for equipment, materials and services.
Where possible, we purchase local goods and services and develop
infrastructure that benefits the entire community. However, using new
technologies proven internationally is important for maximizing returns
from investing in and developing our assets.
Employees
We provide jobs in developed, emerging and developing economies,
creating local purchasing power and improving standards of living.
Local community
We support local communities through providing both funding and staff
time and commitment to charitable causes in Ukraine and Russia.
Investors
We deploy capital provided by our investors, and aim to realize attractive
return on investments while adhering to our commitments.
JKX Oil & Gas plc Annual Report 2019 13
STRATEGIC REPORT
2020 Strategic objectives
Our objective is to be a leading independent,
emerging market upstream company and
enhance shareholder value by increasing oil
and gas production and cash flow through
safe and responsible operations.
Our strategic priorities are:
1. Financial and operational stability
The technical challenges inherent in our business, commodity price
volatility and the need to be able to react to future risks and opportunities
mean that we have an emphasis on maintaining a liquidity reserve,
maintaining strong governance and controls, and effectively managing
operational, technical, and subsurface risks.
2. Profitable production growth
Our future production profile underpins the value of the Group. We aim
to maximise production from our existing fields, and to grow our reserve
base and hence production through either successful exploration and
appraisal activities within our existing assets, or through acquisition of
new ones.
3. Operating safely and responsibly
We work in environments that are challenging and hazardous by nature.
As well as operating efficiently, it is vital that we also operate safely and
responsibly. Our behaviour impacts on our employees, our shareholders,
the wider community and the environment. Our performance in the
society in which we operate, and the environment, are a critical part of
measuring our overall performance.
JKX Oil & Gas plc Annual Report 2019 14
STRATEGIC REPORT
2020 Strategic priorities
Strategic priority
Strategic priority
1
Financial and operational stability
2
Profitable production growth
Key targets 2020
Key targets 2020
• Growing our liquidity reserve through maximizing the cash
• Continue implementing five year development plan in Ukraine
flow and access to external funding
• Maintaining strong and stable governance
• Focus on low-risk investments and use of proven
technologies
• Resolution of most of the outstanding rental fee claim cases
• Maintain production and positive cash flow generation
• Review other growth opportunities in Ukraine
Performance to date
Operating cash flow from
continuing operations,
$million
Liquidity (cash and available
facilities), $million
Production volumes, boepd
EBITDA $per boe
Performance to date
41.4
37.3
50
40
30
20
10
0
14.2
40
30
20
10
0
5.3
6.9
11.9
19.2
13.9
20.6
12000
10000
8000
6000
4000
2000
0
10,748
8,657
8,937
10.9
10.6
8.0
12
10
8
6
4
2
0
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
Cash
Facilities
EBITDA is defined on page 21
Associated principal risks
Associated principal risks
(detail on pages 30 to 39)
Liquidity, funding, and portfolio management
Financial discipline and governance
A
D
(detail on page 30 to 39)
Geopolitical and fiscal risks
Reservoir and operational performance
Commodity prices and FX fluctuation
B
C
H
JKX Oil & Gas plc Annual Report 2019 15
Strategic priority
3
Operating safely and responsibly
Key targets 2020
• Zero fatalities
• To exceed internal and industry targets for AIFR, LTI, and EIFR
Performance to date
Fatalities
All Injury Frequency Rate
(‘AIFR’)
Lost Time Injury (‘LTI’) cases
Environmental Incident
Frequency Rate (‘EIFR’)
3
2
1
0
1
0
0
2
1
0
0
0.19
0
3
2
1
0
0
0
0
0.59
0.32
0.80
0.60
0.40
0.20
0.00
0.07
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
Associated principal risks
(detail on page 30 to 39)
Health, Safety, and Environment
Major breach of business, ethical, or compliance standards
E
G
JKX Oil & Gas plc Annual Report 2019 16
STRATEGIC REPORT
Operations review
Group production
In 2019 group average production was 10,748 boepd (2018: 8,937 boepd), an overall increase
in production of 20%. The increase in production year-on-year was a result of the ongoing
drilling and workover programme in Ukraine.
Group production
Cash generating unit
Novomykolaivske complex
Elyzavetivske licence
Total Ukraine
Russia
Hungary
Total Group
*Includes abandonments.
boepd
Workovers*
Sidetracks
New wells
2019
4,127
1,457
5,584
5,158
6
10,748
2018
2,414
1,263
3,677
5,169
91
8,937
2019
2018
2019
2018
2019
2018
17
2
19
2
0
21
18
2
20
0
0
20
0
0
0
0
0
0
2
0
2
0
0
2
2
2
4
0
0
4
0
1
1
0
0
1
Gas and oil production increased year-on-year in both cash generating units in Ukraine and stayed flat in Russia.
Gas, Mcmd
Oil, bopd
boepd
Cash generating unit
2019
2018
527
242
769
867
1
286
211
497
868
14
2019
1,025
33
1,058
59
1
2018
731
20
751
58
7
2019
4,127
1,457
5,584
5,158
6
1,637
1,379
1,118
816
10,748
2018
2,414
1,263
3,677
5,169
91
8,937
Novomykolaivske complex
Elyzavetivske licence
Total Ukraine
Russia
Hungary
Total Group
Ukraine
Novomykolaivske complex production and operations
boepd
Workovers
Sidetracks
New wells
Field name
Ignativske
Molchanivske
Novomykolaivske
Rudenkivske
2019
3,069
355
398
305
2018
1,395
346
286
387
2019
2018
2019
2018
2019
2018
7
5
1
4
6
2
2
8
0
0
0
0
0
1
1
0
0
2
1
0
1
0
2
0
0
0
0
0
Novomykolaivske complex
4,127
2,414
17
18
The increase in Novomykolaivske complex production year-on-year was mostly attributed to production from the IG103 sidetrack
drilled at the end of 2018 and a new well, IG142, drilled in 2019 in the Ignativske field. The increase in oil production in the
Novmykolaivske complex was mostly attributed to a new well, NN81, drilled in the Novomykolaiske field.
JKX Oil & Gas plc Annual Report 2019 17
Outlook
Following the success of IG103 sidetrack and IG142 in the Devonian reservoir of the Ignativske field there are follow-up wells planned
to this reservoir in 2020. One of these is a new well, IG143, which is targeting a separate fault block to the west of IG103 ST.
Following the success of NN81 in 2019 finding a new oil reservoir in the V16 there are follow-up wells planned to target the V16 both in
the Ignativske and Novomykolaivske licenses.
In Rudenkivske, the completion of R101 sidetrack is on-going and is expected to be completed in April 2020. Meanwhile a subsurface
study is being carried out by an external contractor in order to refine the field development plan for the Devonian in Rudenkivkse.
Once this study is complete in Q2 2020 the results will be used to plan a well to the Devonian in Rudenkivske.
Elyzavetivske licence production and operations
Field name
Elyzavetivske
West Mashivska
Elyzavetivske Licence
boepd
Workovers
New wells
2019
996
462
1,458
2018
1,177
86
1,263
2019
2018
2019
2018
0
2
2
1
1
2
0
2
2
1
0
1
The increase in production from the Elyzavetivske license was mainly the result of the successful completion of the first new well
in the West Mashivske field, WM3 which is producing from the A8 reservoir. A second well in the West Mashivske field was also
completed and is producing from the G8 reservoir.
Outlook
In 2020 methods of increasing production from the G8 in WM4 will be investigated. Compression is also being investigated for the
Elizavetivske plant which would benefit both the wells in the Elizavetivske and West Mashivske fields.
Further subsurface work will be carried out in order to determine whether there are any opportunities for further drilling in the West
Mashivske field.
Russia
Koshekhablskoye licence production and operations
Well name
Well 5
Well 18
Well 20
Well 25
Well 27
Koshekhablskoye field*
*Includes Well 15 production.
boepd
Workovers
2018
2019
2018
0
0
1,733
1,693
1,665
5,169
1
1
0
0
0
2
0
0
0
0
0
0
2019
263
78
1,353
1,735
1,672
5,158
In 2019 both Well 5 and Well 18 were successfully worked over and sidetracked. Well 5 production was significantly less than expected
whereas production from Well 18 met expectations after only one acid job. The rig has since been demobilised.
JKX Oil & Gas plc Annual Report 2019
18
STRATEGIC REPORT
Reserves update
JKX was audited by RPS Energy Consultants Ltd. (“RPS”) in accordance with the SPE Petroleum
Resources Management System (“PRMS”) 2018 for the 2019 annual report, effective date 31st
December 2019.
The tables below give the 2P Reserves reported by RPS as a result of the audit. The most significant change is in Russia and is due
to the lower than expected production rate of Well 5. LPG has been included this year for the first time due to a change of reference
point.
The methodology followed for the audit was to estimate Hydrocarbons Initially in Place (HIIP) only for reservoirs with significant
future development plans. For the remainder of the fields where there was no significant future development planned, Reserves
were estimated using decline curve analysis.
The evaluation of Hungary was not included in the RPS audit. The year-end 2018 reserves were updated internally. JKX working
interest for all licenses in Ukraine and Russia is 100%.
Total remaining 2P reserves at 31 December 2019
Total
Oil (MMbbl)
Gas (MMcm)
LPG (MMbbl)
Oil + Gas + LPG (MMboe)
Ukraine
Oil (MMbbl)
Gas MMcm
LPG (MMbbl)
Oil + Gas + LPG (MMboe)
Russia
Oil (MMbbl)
Gas (MMcm)
Oil + Gas (MMboe)
31-Dec-18
Revisions
Production
31-Dec-19
3.2
15,415
-
93.9
2.5
3,676
-
24.2
0.7
11,740
69.8
0.0
(1,510)
3.2
(5.7)
0.0
(334)
3.2
1.2
0.0
(1,177)
(6.9)
(0.4)
(597)*
-
(3.9)
(0.4)
(281)
-
(2.0)
(0.0)
(316)
(1.9)
2.8
13,308
3.2
84.4
2.1
3,061
3.2
23.4
0.7
10,247
61.0
*0.4 MMcm produced in Hungary. Note there are minor difference in the tables due to rounding effects.
Field-by-Field 2P reserves at 31 December 2019
MMboe
Dec-18
Revisions
Production
Dec-19
Ukraine
Ignativske
Movchanivske
Novomykolaivske
Rudenkivske
Zaplavska LPG Novomykolaivske complex
Sub-total Novomykolaivske complex licences
Elyzavetivske
Total Ukraine
Russia
Koshekhablskoye
Total
5.2
0.5
0.8
15.2
-
21.7
2.5
24.2
69.8
93.9
(0.5)
0.2
0.3
(1.7)
3.2
1.5
(0.3)
1.2
(6.9)
(5.7)
(1.1)
(0.1)
(0.1)
(0.1)
-
(1.5)
(0.5)
(2.0)
(1.9)
(3.9)
3.6
0.6
0.9
13.4
3.2
21.7
1.7
23.4
61.0
84.4
Reserves reported gross of royalties and includes fuel gas (Novomykolaivske -1.8 MMboe (298 MMcm), Elyzavetivske - 0.1 MMboe (17 MMcm) and Koshekhabslskoye - 2.5
MMboe (425 MMcm))
JKX Oil & Gas plc Annual Report 2019
19
JKX contingent resources
RPS estimated contingent resources for the reservoirs and fields listed below.
Field
Ignativske
Movchanivske
Novomykolaivske
Rudenkivske
West Mashivska
Koshekhablskoye
Reservoir
V16
Mol Main Devonian
V15
V16
Visean sands
Tournaisian Clastics
Devonian Clastics
A1+A2
A8
G8
Oxfordian
Callovian I-IV
Callovian V-VI
1C (low)
MMboe
2C (best)
3C (high)
0.0
0.0
0.2
0.0
0.2
11.8
17.1
0.1
0.5
0.9
6.3
12.9
2.8
0.3
0.0
0.3
0.1
4.1
26.2
32.6
0.3
1.0
2.0
4.5
28.5
6.2
1.3
0.6
0.5
0.6
15.3
49.9
60.5
0.5
2.0
3.7
0.0
54.5
11.8
JKX Oil & Gas plc Annual Report 2019 20
STRATEGIC REPORT
Performance in 2019
OPERATING RESULTS
Revenue
Oil
Gas
Liquefied petroleum gas
Other
Cost of sales
Exceptional item – production based taxes
Other production based taxes
Depreciation, depletion and amortisation - oil and gas assets
Other cost of sales
Total cost of sales
Gross profit
Administrative expenses
(Loss)/gain on foreign exchange
Profit from operations before exceptional items
Profit from operations after exceptional items
Note: there are minor differences in the tables above due to rounding effects.
Total
2019
$m
Second half
2019
$m
First half
2019
$m
25
69
6.6
1.1
101.7
8.4
(23.5)
(18.5)
(22.8)
(56.4)
45.4
(13.2)
(0.6)
23.1
31.6
15.2
36.5
3.7
1.0
56.4
10.7
(10.8)
(9.6)
(13.9)
(23.6)
32.8
(7.5)
(0.3)
14.2
25.0
9.8
32.5
2.9
0.1
45.3
(2.3)
(12.7)
(8.9)
(8.9)
(32.8)
12.5
(5.7)
(0.3)
8.9
6.6
Total
2018
$m
20.0
66.4
5.6
0.9
92.9
(5.1)
(21.9)
(14.8)
(20.7)
(62.5)
30.3
(13.9)
(0.7)
20.7
15.7
JKX Oil & Gas plc Annual Report 2019
21
EARNINGS
Profit before tax
Net Profit ($m)
Net profit before exceptional items ($m)
Basic weighted average number of shares in issue (m)
Profit per share after exceptional item (basic, cents)
Pre-exceptional earnings before interest, tax, depreciation and
amortisation ($m)1
COSTS OF PRODUCTION ($/boe)
Operating costs (excluding exceptional item)
Depreciation, depletion and amortisation
Production based taxes
CASH FLOW
Cash generated from continuing operations ($m)
Operating cash flow per share (cents)
STATEMENT OF FINANCIAL POSITION
Total cash2 ($m)
Borrowings (excluding derivatives) ($m)
Net cash/(debt)3 ($m)
Net cash/(debt) to equity (%)
Return on average capital employed (%)4
Increase in property, plant and equipment/
intangible assets ($m)
Ukraine
Russia
Total
Total
2019
30.4
22.2
13.2
168.1
7.88
42.3
Second half
2019
First half
2019
24.4
20.0
9.4
169.5
6.56
24.1
6.0
2.2
3.8
166.7
1.32
18.2
Total
2019
Second half
2019
First half
2019
5.8
4.8
6.0
Total
2019
41.4
24.6
6.7
4.7
5.2
5.9
4.9
6.9
Second half
2019
First half
2019
29.2
17.3
12.2
7.3
Total
2018
14.0
15.3
18.6
166.7
11.13
35.5
Total
2018
6.4
4.6
6.8
Total
2018
37.3
22.4
At 31 December
2019
At 30 June
2019
At 31 December
2018
20.6
(5.7)
14.9
8.0
14.4
20.5
8.9
29.4
12.7
5.9
18.6
10.6
(5.6)
5
3.2
2.9
7.8
3
10.8
19.2
(11.0)
8.2
5.8
8.2
11.1
0.7
11.8
1 Earnings before interest, tax, profit and amortisation (‘EBITDA’) is a non-IFRS measure and calculated using profit from operations adding back depletion, depreciation,
amortisation. 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 from continuing operations.
3 Net debt is total cash less borrowings (excluding derivatives).
4 Return on average capital employed is the annualised profit for the period divided by average capital employed.
JKX Oil & Gas plc Annual Report 2019
22
STRATEGIC REPORT
Financial review
Ben Fraser
Chief Financial Officer
2019’s strong operating cash flows
have allowed us to pay off our
outstanding bonds in February
2020, thus making us debt free - a
very important milestone for us as
we continue to work to improve the
Group’s balance sheet.
Group revenues*
9.5%
2019
($m)
2018
($m)
Change
($m)
%
Change
Ukraine
Gas
Oil
Liquefied Petroleum
Gas (‘LPG’)
Other
Russia
Gas
Condensate
Other
Total
84.3
52.3
24.3
6.6
1.1
17.4
16.7
0.7
-
101.7
74.9
49.2
19.3
5.6
0.8
17.8
17.2
0.6
0.2
92.9
9.4
3.1
5
1.0
0.3
(0.4)
(0.5)
0.1
(0.2)
8.8
12.6%
6.3%
25.9%
17.9%
37.5%
(2.2%)
(2.9%)
6.7%
N/A
9.5%
*note this excludes Hungary that is presented as a discontinued operation in the
financial statements.
Sales prices
Ukraine
Gas ($/Mcm)
Oil ($/bbl)
LPG ($/tonne)
Russia
Gas ($/Mcm)
2019
2018
Change
%
Change
206
61
449
308
74
544
(102)
(13)
(95)
(33%)
(18%)
(17%)
57
58
(1)
(2%)
Average exchange rates
Russia (RUB/$)
Ukraine (UAH/$)
2019
64.6
25.8
2018
Change
62.9
27.2
(1.7)
1.4
%
Change
(2.7)
5.1
Results for the year
2019 was another profitable year for the Group. We are pleased
to report profit before tax of $30.4m which compares favourably
to the profit $14.0m reported for 2018. Results for both years
include net movements in respect of provisions for disputed
rental fees for 2010 and 2015 in Ukraine (credit of $8.4m in 2019
and charge of $5.1m in 2018).
Total revenue for 2019 is $101.7m, 9.5% higher than the $92.9m
reported in 2018 and above $100m for the first time since 2014.
This was achieved despite the 33% lower gas sales prices in
Ukraine thanks to the increase in total average daily Group
production from 8,937 boepd in 2018 to 10,748 boepd in 2019.
JKX Oil & Gas plc Annual Report 2019 23
We generated significant EBITDA at the same time as continuing
to make substantial investment in the fields in Ukraine and
Russia.
2019’s strong operating cash flows have allowed us to pay off
our outstanding bonds in February 2020, thus making us debt
free - a very important milestone for us as we continue to work to
improve the Group’s balance sheet.
Ukraine revenues
The $9.4m increase in total revenues was due to higher sales
volumes offset by lower sales prices, as shown in the table.
The average gas sales price in dollar terms was 33.1% lower
in 2019 than in 2018. This is in line with international market
trends. Total gas sales volumes increased by 58% from 159,887
Mcm in 2018 to 257,030 Mcm in 2019, primarily due to the gas
production volume having increased 54.9% from 181,482 Mcm
in 2018 to 280,673 Mcm in 2019. The increase in production was
a result of the on-going drilling and workover activity started in
2018 and continued throughout 2019. For more detail please refer
to the Regional operations' update.
The average oil sales price decreased from $74/bbl in 2018 to
$61/bbl in 2019 and total oil sales volumes for the year increased
46.2% from 261,420 barrels in 2018 to 382,200 barrels in 2019. Oil
production volume increased 36.3% from 274,087 barrels in 2018
to 373,616 barrels in 2019.
LPG sales volumes were 10,294 tonnes in 2018 compared to
13,636 tonnes in 2019, with sales prices being lower in 2019
($449/tonne in 2019 compared to $544/tonne in 2018).
Inventory held at 31 December 2019 (14 million cubic metres of
gas and 27 thousand barrels of oil) had an estimated sales value
of $4.1m using average sales prices for December 2019.
A portion of production comes from wells owned by third parties,
operated under service agreements with UkrGasVidobuvannya
and under rental agreements with NAK Nadra Ukrayini and
Ukrnafta. This production is subject to sale in the normal way,
with payments being made to the well owners in accordance with
the service and rental agreements.
Russia revenues
Total revenues in Russia were flat year-on-year as gas volumes
were maintained at similar levels (2019: 314,446 Mcm,
2018:316,996 Mcm) despite the intensive workover programme.
The benefit of the 1.4% increase in the average rouble gas sales
price on 1 July 2019 was offset by the slightly weaker Rouble
in 2019.
Cost of sales
Exceptional items relate to provisions for disputed rental fees.
A release of $14.4m of provisions due to the closure of some of
the 2015 rental fee claims in favour of our subsidiary was offset
by an additional charge of $6.0m reflecting updated interest
calculations in relation to the rental fee claims still provided for
as set out in Note 18.
Cost of sales before exceptional items for 2019 totalled $64.8m
(2018:$57.5m), including:
• $23.5m of production taxes, which were $1.7m higher than in
2018 due to the higher production taxes incurred in Ukraine
(2019:$21.8m, 2018:$20.1m) where we had higher volumes.
Only $1.8m of the total production taxes relate to Russia
(2018: $1.8m) where the mineral extraction tax rate for wells
deeper than 5,000m has remained at 340 Roubles/Mcm.
• $22.9m of operating costs, of which $14.7m relates to Ukraine
(2018:$12.1m) and $7.0m relates to Russia (2018:$8.6m) and
$0.6m relates to central costs. The increase in operating
costs in Ukraine is mainly due to the introduction of the gas
capacity fee (2019:$1.4m, 2018:nil) and the overall increase in
field activity.
• $18.4m of depreciation, depletion and amortisation charge
(2018:$14.7m) which is larger due to the higher production
volumes and the recent higher levels of capital expenditure.
Analysis showing production costs, production taxes and
netbacks for both our Ukrainian and Russian operations is
shown on pages 9 and10.
Administrative expenses
Administrative expenses were $13.2m in 2019, comparing
favourably to those of $13.9m in 2018. The decrease is mainly due
to staff cost reductions resulting from a right-sizing exercise
carried out during 2018 and lower legal and professional fees. In
the Company's London office we exited the long-term lease of one
of the office floors in May 2019 and closed a data centre.
Finance income and costs
Finance costs decreased from $2.5m in 2018 to $2.1m in 2019.
This mainly consists of the bond interest which reduced from
$2.1m to $1.4m due to the repayment of principal outstanding in
February 2019. Finance costs also includes unwinding of discount
of provisions for site restoration of $0.6m (2018: $0.4m).
Finance income of $0.9m (2018: $0.9m) comprises income from
bank deposits.
Taxation
The total tax charge for 2019 is $10.2m (2018: $2.2m) comprising
a current tax charge of $6.6m (2018: $5.5m) which relates to
Ukraine and a deferred tax charge of $3.6m (2018: credit $3.2m).
The increase in current tax charge reflects a higher profitability
in Ukraine. The deferred tax relates to movements in various
deferred tax assets and liabilities in Ukraine and Russia as set
out in Note 25 to the financial statements.
Discontinued operation
The discontinued operation is the Hungarian business. The
related gain reported reflects both the running costs incurred
during 2019 and the part reversal of a previous impairment
charge following the sale of the business currently expected to be
valued at approximately $2.9m that was agreed in March 2020.
Capital Expenditure
We continue to balance the need to improve liquidity while
also recognising the need for long-term investment. Of the
$28.8m oil and gas capital expenditure incurred during the
year (2018:$11.3m), $19.9m relates to Ukraine where field
development continued as planned. $8.9m relates to Russia,
where the well workover programme was completed.
Cash flows
During the year the Group’s available cash balances in continuing
operations remained approximately at the same level ($20.6m
at 31 December 2019 compared to $19.2m at 31 December 2018)
while at the same time decreasing its borrowings from $11.0m
to $5.7m and investing significant capital expenditure in our
operations in 2019. This was achieved as a result of strong
operating cash flow of $41.4m (2018:$37.3m) from continuing
operations, almost all of it generated in Ukraine. Use of cash
during the year is as shown in the cash bridge on the next page.
Net cash outflow from financing activities in the period mainly
relates to the $5.3m payment to the bondholders in February
2019. No dividends were paid to shareholders in the period (2018:
nil).
JKX Oil & Gas plc Annual Report 2019 24
STRATEGIC REPORT
Financial review
Cash flows ($m)
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
41.4
(1.1)
(7.1)
19.2
(27.4)
0.9
20.6
(5.3)
31
December
2018
Cash
generated
from
continuing
operations
Interest
paid
Income tax
paid
Capital
expenditure
additions
Bond
repayment
Interest
received and
other cash
movements
31
December
2019
Liquidity outlook
After a final payment of $5.8m to bond holders in February
2020 the Group is now debt free. Our subsidiary in Ukraine still
has a 24 month UAH280m ($11.8m) revolving credit line and a
UAH50m ($2.1m) overdraft facility with Tascombank, neither
of which are currently being used and can be drawn down
subject to credit approvals by the bank. Both facilities have been
renewed until December 2021 and can be drawn down subject
to credit approvals by the bank. In addition to our continued
focus on cost control, other options available to us to improve our
liquidity include the execution of forward sales in Ukraine and
deferring capital expenditure if required. We are not burdened
by significant field development commitments in the short or
long term.
We continue to maintain provisions in respect of 2010 and 2015
rental fee claims ($15.9m and $25.4m respectively). While we still
wait for 2010 case resolution, there has been progress with some
of the 2015 cases with four having been closed in our favour. The
provision has been adjusted accordingly with a $14.4m release
offsetting the increase in provision due to interest calculation
(see Note 18 to the consolidated financial statements for detail).
The Group’s expectation is that a final hearing with respect to
the 2010 rental fee claim will take place in 2020 and the full
provision for it has therefore been reported under current
liabilities. It is expected that the final hearings in respect of the
remaining 2015 rental fee claims will take place in 2021. The
$25.4m provision for the 2015 rental fee claims therefore has
been reported under non-current liabilities.
The international arbitration award, directing the State of
Ukraine to pay $11.8m plus interest and $0.3m costs to JKX as
described in the 2018 Annual Report, has now been successfully
legally recognised in Ukraine and JKX has filed for collection.
No possible future benefit that may result from this award will
be reflected in the accounts until there is further clarity on the
process for, and likely success of, enforcing collection.
Both our Ukrainian and Russian operations remain cash flow
positive, generating sufficient cash to cover the Group’s costs
and investment programmes and, provided we do not encounter
extended periods of severe operational disruption as a result of
Covid-19, the Group's cash flows are forecast to be sufficient to
meet potential rental fees should they arise without the need to
access the conditional Tascom facilities or pursue other options
to maintain liquidity. Thanks to the successful completion of its
workover programme in 2019, our Russian subsidiary is now well
placed to contribute increased cash flows to Group.
The consolidated financial statements have been prepared on
a going concern basis (see Note 2 to the consolidated financial
statements) which highlights a material uncertainty over going
concern as a result of Covid-19. However, whilst the impact of
the pandemic is uncertain, as it is for almost every business, for
the first time in several years the group has a suitably stable
financial position from which to better manage challenges that
may arise and also then take advantage of opportunities in our
key markets.
Ben Fraser
Chief Financial Officer
JKX Oil & Gas plc Annual Report 2019 25
STRATEGIC REPORT
Corporate social responsibility (‘CSR’) review
Health and safety performance
This industry best practice makes sure:
• health, safety and environment issues are clearly identified
and assessed;
•
•
•
•
•
regulatory and JKX requirements are met;
risks have been removed or mitigated according to a
structured, systematic process, with any remaining risks
demonstrated to be both tolerable and as low as reasonably
practicable;
critical safety items and procedures are identified to manage
remaining risks;
a comprehensive environmental management plan has been
developed;
social, health, and environmental benefits and opportunities
are identified;
•
personnel roles and responsibilities are indicated.
We have a manager based in our London office that is responsible
for the planning, reviewing and authorising of Group drilling
and workover operations which significantly strengthens our
capability to identify and manage drilling risk.
Health and safety risk management
We apply ISO 45001 (The Standard Replacing OHSAS 18001)
ISO 14001 Environmental and ISO 9001 Quality Management
standards.
Consistent hazard assessment processes
In both Russia and Ukraine, we continued to carry out risk
management studies using our proven Hazard and Operability
(‘HAZOP’), Hazard Identification (‘HAZID’) and As Low as
Reasonably Practical (‘ALARP’) methodologies.
Health and safety training
Each location has an H&S training budget which includes legally
required training from the host country H&S regulations.
Additional training is provided according to operational
requirements.
Before reporting on our health and safety performance in
2019 financial we take this opportunity to acknowledge the
challenge of the global Covid-19 pandemic. The Group has
already implemented a range of pre-emptive measures, further
discussed in the risk section of this report, in recognition of
the fact that our people remain our greatest asset and their
continuing health our priority. We recognise the steps that are
being taken by all our staff, contractors and suppliers to keep
their colleagues and communities safe and the business running
despite the challenges they are facing.
Our approach
By integrating health, safety and environmental considerations
into all aspects of our business, we protect our employees, our
communities and the environment. We will never knowingly
compromise our health, safety, environmental or quality
standards to meet our operational objectives. Our priority is to
ensure that all staff and contractors work in a safe environment,
where effective systems of work are maintained and appropriate
procedures and processes are followed. We set annual HSECQ
targets for all levels within the organisation.
Our performance in 2019
We have a clear Safety Management System, which provides
a comprehensive and systematic vision of our objectives. In
occupational health, the drug and alcohol policy continues to be
successful throughout the Group with no instances of breaches
noted. The policy applies to all our staff and contractors
and forbids the possession and/or use of defined prohibited
substances which includes drugs and alcohol. Our policy also
clarifies our testing and inspection procedures.
During 2019 we achieved an AIFR Zero (0) per 200,000 hours
worked. In 2019 we reported 68 incidents, which demonstrates
further consolidation in our incident reporting procedures.
Drilling risks
We recognise that the safety and efficiency of our drilling and
workover operations depends primarily on the performance of
our employees and contractors. We utilise a mix of primarily
local staff with decades of local experience and expatriate
supervisors on our drilling rigs to provide additional expertise
and oversight.
Our drilling and workover employees and contractors have
the necessary training in well safety and well control, and all
personnel have the authority (and are expected) to stop any job
they deem unsafe.
We select supervisors for their expertise as well as for their
familiarity with the regions where we operate. They understand,
and are sensitive to local working practices and culture, and
work to enhance the education and training of local staff and
contractors alike.
We make the best use of our resources by sharing expertise
between our operating companies, and we have a strong
collaborative environment where everybody contributes to
analyse the risks and develop mitigating strategies in order to
minimise it.
Before we even begin to drill or workover a well, we identify and
address the inherent risks in drilling and workover operations.
JKX Oil & Gas plc Annual Report 2019 26
STRATEGIC REPORT
Corporate social responsibility (‘CSR’) review
Health and safety statistics
All Injury Frequency Rate 2019 (‘AIFR’)
5
4
3
2
1
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
0
HSECQ Statistical Analysis for 2019
Fatal accident case
Lost time injuries
Medical treatment/restricted work cases
Near miss/loss/hazards/property damage/
unsafe act or conditions
2019 JKX and contractors
Days away from work
Fatal accident cases
Lost time injury cases
Medical treatment/restricted
work cases
Near miss/loss/hazards/property
damage/unsafe act or conditions
Environmental incidents
Man-hours since last lost
time injury
0
0
0
68
0
0
0
0
68
1
Safety exposure man-hours
2,734,193
Fatal accident case frequency rate
Lost time injuries frequency rate
Medical treatment/restricted work cases
frequency rate
Near miss/loss/hazards/property damage/
unsafe act or conditions frequency
Environmental incidents frequency rate
0
0
0
4.97
0.07
7,553,810
Man-hours since last fatal accident case
2,873,164
JKX Oil & Gas plc Annual Report 2019 27
Environmental management system
The JKX Environmental Management System is a comprehensive,
systematic, planned an documented management process.
Our impact
We comply with all relevant environmental requirements,
including environmental laws and regulations and industry
guidelines.
Environmental performance in 2019
In 2019, we again made good progress and we are committed
to providing information to investors about its environmental
performance.
Environmental incident frequency rate (‘EIFR’)
Our EIFR Target for 2019 was not to exceed 0.6 Environmental
incidents per 200,000 hours worked; we achieved 0.07.
Greenhouse gas (‘GHG’) emissions reporting
All emissions sources owned, operated or controlled by the Group
are included in our reporting.
Our approach
Our terminals are self-sufficient and can maintain operations
without the need for grid electricity therefore improving
the security of supply. We used the Greenhouse Gas Protocol
methodology for compiling our GHG data.
Mandatory GHG reporting
JKX is required to comply with the UK government legislation on
mandatory GHG reporting. The legislation requires all companies
as a minimum, to report Scope 1 and 2 GHG emissions and an
emission intensity ratio. According to the GHG Protocol Scope 2
Guidance released in January 2015, corporates now are to report
two scope 2 emission totals – location-based and market-based.
Since market-based emission factors are not available to
any of JKX’s Russia and Ukraine locations, residual emission
factors are only adopted for offices in the UK, and average grid
emission factors are adopted for locations in Russia and Ukraine.
Calculations shall be updated upon the Government release of
residual factors for public use. JKX’s disclosure is in accordance
with this legislation and the latest GHG protocol requirements.
Supply chain management
At the heart of our sustainable supply chain is a policy of localising
supply by fabricating, manufacturing and sourcing as much as
possible as close to the point of use by using indigenous companies.
Our achievements
During 2019 some advances were made in our Supply Chain
Initiative, and this will continue in 2020 with a more focused
approach to procurement and supply.
Outlook
Plans to improve these procedures during 2020 include enhancing
our JKX Code of Conduct.
Environmental Incident Frequency Rate (‘EIFR’)
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
2009
2010
2011
2012 2013 2014
2015 2016 2017 2018
2019
0.07
Mandatory GHG reporting
Data point
Scope 1
Scope 2
(Location based )
Scope 2
(Market based )
Units
tonnes CO2e
tonnes CO2e
tonnes CO2e
Scope 1 & 2 Intensity
(Location based )
tonnes CO2e /Mboe
of production
Quantity
2019
281,590
960
975
124
JKX Oil & Gas plc Annual Report 2019 28
STRATEGIC REPORT
Corporate social responsibility (‘CSR’) review
Community
Our approach
We are committed to engaging with the community to share the
benefits of our success at our operating plants.
Our community engagement
We conduct various activities to forge good relations with local
communities through participation in forums established by
local authorities and residents' associations.
Assistance in our local communities
In practical terms, our community support frequently involves
using the Company’s plant and machinery – as well as manpower
– to provide much-needed assistance.
Charitable donations and volunteering
Each operation has a limited budget for good causes and we
handle charitable donations at a local level. Locally, donations
from the Group during 2019 amounted to $279,000 across the
group. Subject to management approval, staff may be given
additional time off in order to join in certain charity-related
activities. A detailed list of donations is available on request.
Quality
Applying ISO 9001 requirements ensures that the quality
management systems that JKX has adopted work to improve the
efficiency of the business. The new versions of ISO 9001 as well as
OHSAS 18001 & ISO 14001 have been applied.
Diversity and equality
Access to work opportunities is based on merit, equality, fairness
and need, and no one is treated less favourably on the basis of
their sex, racial or ethnic origin, colour, religion, disability,
marital status, sexuality or age. We will not tolerate any form of
discrimination – either direct or indirect. Acts of discrimination,
prejudice, harassment and victimisation which occur within the
workplace or within the communities in which we work is not
tolerated.
Our stakeholder engagement
We work closely with outside interest groups and maintain an
open-door policy to better understand local issues and ensure
problems are avoided.
Our investor engagement
We seek to enhance shareholder value through responsible and
effective communication with our shareholders.
JKX Oil & Gas plc Annual Report 2019
29
JKX Oil & Gas plc Annual Report 2019 30
STRATEGIC REPORT
Principal risks and how we manage them
Our framework of internal controls is
supported by a culture that promotes good risk
management processes led by the Board.
Responsibilities
The Board is responsible for the Group’s continuous system of
internal control and risk management systems and for reviewing
their effectiveness.
Risk profile
The chart below represents our current assessment of the potential impact
and probability of occurrence of each of the principal risks noted below.
A
D
G
E
B
C
I
AA
D
G
F
H
H
Probability of occurrence
Higher
Risk management process
The risk management process is designed to manage, rather than
eliminate, the risk of failure to achieve business objectives, and
can only provide reasonable, not absolute, assurance against
material mis-statement or loss.
Higher
t
c
a
p
m
i
l
a
i
t
n
e
t
o
P
Lower
2020
2019
A risk management process involves the Group Risk Committee
and subsidiary Risk Committees in Ukraine and Russia. All the
Risk Committees were in place throughout 2019, with the last
Group Risk Committee being in December 2019.
Risk Committee
The purpose of the Group Risk Committee is to assist the Board
in the operation and implementation of the risk management
process, and to provide a source of assurance to the Audit
Committee that the process is operating effectively. This
approach aims to actively manage risk in a transparent and
accountable way.
The Risk Committee reports to the Audit Committee.
Composition of the Group Risk Committee includes
representatives from our Ukrainian and Russian Risk
Committees to expand on the risks identified locally and their
related mitigation plans.
Risk management framework
The key elements of the risk management process are as follows:
Risk identification - risks faced by the Group are identified by
senior management and risk owners, who periodically review the
risks to ensure that the risk management processes and controls
in their area are appropriate and effective, and that new risks are
identified.
Risk assessment - the consequence and likelihood of each risk
materialising is assessed. Risk registers are used to document
the risks identified, the level of severity of its impact, and
probability of occurrence, ownership and mitigation measures
for each risk.
The Board has completed a robust assessment of the most
significant risks and uncertainties which could impact the
business model, long-term performance, solvency or liquidity,
and the results are summarised below. Also presented is an
assessment of the probability of each risk occurring, its potential
impact should it occur, the Key Performance Indicators (‘KPIs’)
and strategic priorities most affected as each risk increases, how
each risk is being managed or mitigated and whether the overall
business risk has increased or decreased since the last Annual
Report.
The principal risks set out (right) are not set out in any order of
priority, are likely to change and do not comprise all the risks and
uncertainties that the Group faces.
JKX Oil & Gas plc Annual Report 2019
31
Risk summary
Risk profile
What is the risk
KPIs affected
Change from 2018
A
A
B
B
C
C
D
D
E
E
F
F
G
G
H
H
I
Liquidity, funding,
and portfolio
management
Geopolitical and
fiscal
Reservoir and
operational
performance
- Operating cash flow
- Liquidity
- Operating cash flow
- Production
- Liquidity
- Production
I
- Cash from operations
I
- EBITDA per boe
Financial discipline
and governance
- Liquidity
- Cash from operations
Health, safety,
and environment
Asset integrity
- AIPR
- LTI
- EIFR
- Production
- Liquidity
I
I
Major breach of business,
ethical, or compliance
standards
- Cash from operations
- Liquidity
Commodity prices
and FX fluctuations
- Liquidity
- EBITDA per boe
Global Covid-19
pandemic
- Operating cash flow
- Production
- Liquidity
Strategic objective
impacted
Responsibility
1, 2
CFO
Page
32
1, 2
1, 2
1
3
3
3
1, 2
1, 2
The Board
32
General Directors
34
CFO
The Board
34
34
General Directors
34
The Board
CFO
The Board
36
36
36
JKX Oil & Gas plc Annual Report 2019 32
STRATEGIC REPORT
Principal risks and how we manage them
What is the risk
Liquidity, funding, and portfolio management
Description: As for any other exploration and production company, our fields are prone to natural
production decline. Our ability to ensure long-term sustainable production depends on having sufficient
funds to invest in our development and efficient allocation of capital on investment projects or
acquisitions.
It is important to maintain sufficient liquidity to allow for operational, technical, commercial, legal, and
other contingencies.
Having sufficient funds to invest in development projects or other growth opportunities is subject to not
only cash flow generated by existing operations, but also access to external capital (such as equity or debt
financing) or ability to carry out corporate transactions (such as mergers, acquisitions, or divestitures).
Impact: Inability to build or maintain sufficient liquidity may result in increased risk of having
insufficient funds on hand to address unanticipated cash outflows, need to suspend planned payments to
third parties, or other unplanned actions to urgently build sufficient liquidity.
Poor capital allocation decisions, inability to access external sources of capital or execute corporate
transactions may result in long-term decline in production and cash flow from existing operations and
further reduced ability to engage in new development projects.
Although the group has been debt free since February 2020 this risk remains.
Geopolitical and fiscal
Description: The Group’s oil and gas operations are located in Ukraine and Russia and the oil, gas and
condensate that we produce is sold into their domestic markets.
There are geopolitical risks related to these countries and the relationship between them.
Some of such risks may be related to changes in taxes, capital controls, laws and regulations, political
situation, or investor sentiment.
Both countries have relatively weak judicial systems that are susceptible to outside influence, and it can
take an extended period for the courts to reach final judgment.
Both countries display emerging market characteristics where the right to production can be challenged
by State and non-State parties. The business environment is such that a challenge may arise at any time
in relation to the Group’s operations, licence history, compliance with licence commitments and/or local
regulations.
Local legislation constantly evolves as the governments attempt to manage the economies and business
practices regarding taxation, banking operations and foreign currency transactions. The constantly
evolving legislation can create uncertainty for local operations if guidance or interpretation is not clear.
Geopolitical tensions between Ukraine and Russia, political instability and military action in parts
of Ukraine have negatively impacted its economy, financial markets and relations with the Russian
Federation. Any continuing or escalating military action in eastern Ukraine could have a further adverse
effect on the economy.
Impact: If Management’s interpretation of tax legislation does not align with that of the tax authorities,
the tax authorities may challenge transactions which could result in additional taxes, penalties and fines
which could have a material adverse effect on the Group’s financial position and results of operations.
PPC has at times sought clarification of their status regarding a number of rental fees. PPC continues
to defend itself in court against action initiated by the tax authorities regarding rental fees for August
to December 2010 and for January to December 2015. In addition, in February 2017, the Company
was awarded approximately $11.8m in damages plus interest and costs of $0.3m by an international
arbitration tribunal pursuant to a claim made against Ukraine under the Energy Charter Treaty. This
award has been recognised in Ukraine and the Group is following procedures for its collection.
Probability
Impact
Change from
2019
Responsibility
How do we manage it?
Further information
MED
HIGH
CFO
Liquidity is accumulated by deferring high-risk investment projects and minimizing costs. Projects are
Chairman’s statement
analysed and ranked across the Group and capital is allocated accordingly. All significant investment
page 4
decisions are subject to Board approval and taken with due consideration to funding availability. These
decisions are taken within the context of the longer term field development plans.
Financial review
page 22
In addition in December 2019 PPC, our subsidiary in Ukraine, has renewed a 24 month UAH280m
($11.8m) revolving credit line and a UAH50m ($2.1m) overdraft facility with Tascombank, neither of
which are currently being used. We are confident that this facility can be renewed again for 2022. Other
liquidity tools include the ability to make forward sales in Ukraine.
Four of the 2015 rental fee cases have been closed in PPC’s favour. Furthermore we have improved our
understanding of the 2010 and the remaining 2015 rental fee claims and ensured that we have the
resources to meet these potential liabilities if necessary. In particular, careful consideration has been
given to the earliest dates that courts may conclude that PPC may be required to settle any or all of the
various claims in the event that court hearings proceed without undue delay. The Group's expectation
is that a final hearing with respect to the 2010 rental fee claim will take place in 2021 and that final
hearings in respect of the remaining active 2015 rental fee claims will take place in 2021.
HIGH
HIGH
I
challenges from local authorities, which could lead to remediation work, time-consuming negotiations
page 4
The Board
The Group’s operations and financial position may be adversely affected by interruption, inspections and
Chairman’s statement
and suspension of production licences.
In respect of the 2010 rental fee claims and 2015 rental fee claims, provisions of $15.9m and $25.4m
respectively, have been recognised in these financial statements to reflect the Company’s estimate of the
potential liability. Except for this $41.3m provision, the Group’s financial statements do not include any
other adjustments to reflect the possible future effects on the recoverability, and classification of assets
or the amounts or classifications of liabilities that may result from these tax uncertainties.
The Company continues to work through the proper processes for enforcement of collection of the
international arbitration award. A key priority for the Group is to maintain transparent working
relationships with all key stakeholders in our significant assets in Ukraine and Russia and to improve the
methods of regular dialogue and on-going communications locally.
Our strategy is to employ skilled local staff working in the countries of operation and to engage
established legal, tax and accounting advisers to assist in compliance, when necessary. The Group
endeavours to comply with all regulations via Group procedures and controls or, where this is not
immediately feasible for practical or logistical considerations, seeks to enter into dialogue with the
relevant Government bodies.
Financial review
page 22
JKX Oil & Gas plc Annual Report 2019 33
What is the risk
Probability
Impact
Change from
Responsibility
How do we manage it?
Further information
2019
Liquidity, funding, and portfolio management
Description: As for any other exploration and production company, our fields are prone to natural
production decline. Our ability to ensure long-term sustainable production depends on having sufficient
funds to invest in our development and efficient allocation of capital on investment projects or
It is important to maintain sufficient liquidity to allow for operational, technical, commercial, legal, and
acquisitions.
other contingencies.
Having sufficient funds to invest in development projects or other growth opportunities is subject to not
only cash flow generated by existing operations, but also access to external capital (such as equity or debt
financing) or ability to carry out corporate transactions (such as mergers, acquisitions, or divestitures).
Impact: Inability to build or maintain sufficient liquidity may result in increased risk of having
insufficient funds on hand to address unanticipated cash outflows, need to suspend planned payments to
third parties, or other unplanned actions to urgently build sufficient liquidity.
Poor capital allocation decisions, inability to access external sources of capital or execute corporate
transactions may result in long-term decline in production and cash flow from existing operations and
further reduced ability to engage in new development projects.
Although the group has been debt free since February 2020 this risk remains.
Geopolitical and fiscal
Description: The Group’s oil and gas operations are located in Ukraine and Russia and the oil, gas and
condensate that we produce is sold into their domestic markets.
There are geopolitical risks related to these countries and the relationship between them.
Some of such risks may be related to changes in taxes, capital controls, laws and regulations, political
situation, or investor sentiment.
Both countries have relatively weak judicial systems that are susceptible to outside influence, and it can
take an extended period for the courts to reach final judgment.
Both countries display emerging market characteristics where the right to production can be challenged
by State and non-State parties. The business environment is such that a challenge may arise at any time
in relation to the Group’s operations, licence history, compliance with licence commitments and/or local
regulations.
Local legislation constantly evolves as the governments attempt to manage the economies and business
practices regarding taxation, banking operations and foreign currency transactions. The constantly
evolving legislation can create uncertainty for local operations if guidance or interpretation is not clear.
Geopolitical tensions between Ukraine and Russia, political instability and military action in parts
of Ukraine have negatively impacted its economy, financial markets and relations with the Russian
Federation. Any continuing or escalating military action in eastern Ukraine could have a further adverse
effect on the economy.
Impact: If Management’s interpretation of tax legislation does not align with that of the tax authorities,
the tax authorities may challenge transactions which could result in additional taxes, penalties and fines
which could have a material adverse effect on the Group’s financial position and results of operations.
PPC has at times sought clarification of their status regarding a number of rental fees. PPC continues
to defend itself in court against action initiated by the tax authorities regarding rental fees for August
to December 2010 and for January to December 2015. In addition, in February 2017, the Company
was awarded approximately $11.8m in damages plus interest and costs of $0.3m by an international
arbitration tribunal pursuant to a claim made against Ukraine under the Energy Charter Treaty. This
award has been recognised in Ukraine and the Group is following procedures for its collection.
CFO
Liquidity is accumulated by deferring high-risk investment projects and minimizing costs. Projects are
analysed and ranked across the Group and capital is allocated accordingly. All significant investment
decisions are subject to Board approval and taken with due consideration to funding availability. These
decisions are taken within the context of the longer term field development plans.
In addition in December 2019 PPC, our subsidiary in Ukraine, has renewed a 24 month UAH280m
($11.8m) revolving credit line and a UAH50m ($2.1m) overdraft facility with Tascombank, neither of
which are currently being used. We are confident that this facility can be renewed again for 2022. Other
liquidity tools include the ability to make forward sales in Ukraine.
Four of the 2015 rental fee cases have been closed in PPC’s favour. Furthermore we have improved our
understanding of the 2010 and the remaining 2015 rental fee claims and ensured that we have the
resources to meet these potential liabilities if necessary. In particular, careful consideration has been
given to the earliest dates that courts may conclude that PPC may be required to settle any or all of the
various claims in the event that court hearings proceed without undue delay. The Group's expectation
is that a final hearing with respect to the 2010 rental fee claim will take place in 2021 and that final
hearings in respect of the remaining active 2015 rental fee claims will take place in 2021.
Chairman’s statement
page 4
Financial review
page 22
The Board
The Group’s operations and financial position may be adversely affected by interruption, inspections and
challenges from local authorities, which could lead to remediation work, time-consuming negotiations
and suspension of production licences.
Chairman’s statement
page 4
In respect of the 2010 rental fee claims and 2015 rental fee claims, provisions of $15.9m and $25.4m
respectively, have been recognised in these financial statements to reflect the Company’s estimate of the
potential liability. Except for this $41.3m provision, the Group’s financial statements do not include any
other adjustments to reflect the possible future effects on the recoverability, and classification of assets
or the amounts or classifications of liabilities that may result from these tax uncertainties.
The Company continues to work through the proper processes for enforcement of collection of the
international arbitration award. A key priority for the Group is to maintain transparent working
relationships with all key stakeholders in our significant assets in Ukraine and Russia and to improve the
methods of regular dialogue and on-going communications locally.
Our strategy is to employ skilled local staff working in the countries of operation and to engage
established legal, tax and accounting advisers to assist in compliance, when necessary. The Group
endeavours to comply with all regulations via Group procedures and controls or, where this is not
immediately feasible for practical or logistical considerations, seeks to enter into dialogue with the
relevant Government bodies.
Financial review
page 22
JKX Oil & Gas plc Annual Report 2019 34
STRATEGIC REPORT
Principal risks and how we manage them
What is the risk
Reservoir and operational performance
Description: Subsurface and operational risks are inherent to our business. The reservoir performance
cannot be predicted with certainty, and operations required for hydrocarbon production are subject to
risks of interruption or failure.
Production from our mature fields at the Novomykolaivske Complex in Ukraine require a high level of
maintenance and intervention to minimize the production decline. In Russia, acidization of deep, high
pressure and high temperature wells and other well maintenance procedures to stabilise production are
required, increasing risk of failure.
Impact: Accurate reservoir performance forecasts from fields in Ukraine and Russia are critical in
achieving the desired economic returns and to determine the availability and allocation of funds for
future investment into the exploration for, or development of, other oil and gas reserves and resources.
If reservoir performance is lower than forecast, sufficient finance may not be available for planned
investment in other development projects which will result in lower production, profits and cash flows.
Inability to ensure continuous operation of wells, flowlines, production facilities and successful execution
of drilling, workover, repair, enhancement interventions may result in lower production, profits and cash
flows.
Financial discipline and governance
Description: The Group has presence in four countries with major operations in Russia, Ukraine, and the
United Kingdom. Such complex structure requires complex governance and control procedures to be in
place to ensure appropriate level of financial discipline and controls, as well as delegation of authority
along the corporate and management structure.
From 2015 to 2019 the Group underwent several major Board and management changes, changes of
advisors and contractors, as well as significant reduction of staff across its operations. These changes
require additional efforts to ensure proper implementation of governance, controls, and financial
discipline procedures.
Impact: Failure to maintain an appropriate level of financial discipline, governance and controls may
lead to unnecessary or inappropriate spending, lack of control over procurement, contracting, investing
decisions, and exposure to increased legal, regulatory, or financial risks.
Health, safety, and environmental risks
Description: 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 oil and gas
exploration and production activities.
The Group has not assessed Climate Change as being a significant risk to its business in the foreseeable
future. We monitor supply and demand forecasts for our products from a variety of sources and Climate
Change does not appear as a major cited factor. If political responses to Climate Change actually lead to
major reductions in coal – fired European electricity generation, the Group may benefit from substitution
by cleaner gas – fired plant.
Impact: Technical failure, non-compliance with existing standards and procedures, accidents, natural
disasters and other adverse conditions where we operate, 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. Failure to manage these risks effectively could result in loss of certain facilities,
with the associated loss of production, or costs associated with mitigation, recovery, compensation and
fines. Poor performance in mitigating these risks could also result in damaging publicity for the Group.
Asset integrity
Probability
Impact
Change from
2019
Responsibility
How do we manage it?
Further information
HIGH
HIGH
I
data is analysed by our in-house technical expertise. This supports well intervention planning and further
page 16
There is daily monitoring and reporting of the well and plant performance at all our fields. Production
Operations review
General
Directors
field development.
Our subsurface and operations specialists and industry-recognised personnel are part of the daily
monitoring and reservoir management process of our field and assets.
Production forecasts generated for future development opportunities are risked to take account of
geological uncertainty. Operational risks are taken account of by adding a percentage of contingency to
the duration and cost of the planned development action. The percentage of contingency added is based
on both historical experience and perceived difficulty of the development action.
MED
HIGH
including through more frequent and detailed management reporting to the Board of Directors.
page 4
CFO
During 2018 new financial controls were implemented and corporate governance was enhanced,
Chairman’s statement
A Group Policy Manual has been implemented across the group. It is subject to annual review and revision
by the Board to ensure that governance and control procedures are sufficient to insure the appropriate
level of financial discipline and controls, as well as delegation of authority along the corporate and
Financial review
page 22
management structure.
HIGH
HIGH
I
General
Directors
Health, safety and the environment is a priority of the Board who are involved in the planning and
Corporate social
implementation of continuous improvement initiatives. A London-based HSECQ Manager reports directly
responsibility
to Board of Directors.
page 25
The Group HSECQ Manager is responsible for maintaining a strong culture of health, safety and
environmental awareness in all our operational and business activities. The HSECQ Manager reports to
the Board with details of Group performance.
Operations in Ukraine, Russia and Hungary all have a dedicated HSECQ Team of local personnel led by an
HSECQ Manager who reports to the HSECQ Director for that particular region.
All locations have HSE Management Systems modelled on the ISO 9000 series, OHSAS 18001 and ISO
14001.
Appropriate insurance policies, provided by reputable insurers, are maintained at Group level to mitigate
the Group’s financial exposure to any unexpected adverse events arising out of the normal operations.
Description: Our operations depend on maintaining and adhering to licence requirements and related
regulations set by government authorities in countries we operate in.
Impact: Failure to comply with licence obligations and other regulations or requirements may result in
our licences being suspended or revoked which will require us to suspend production and operations.
MED
HIGH
I
General
Directors
Status of our licences and relevant licence obligations are monitored on a country level.
In 2018 the deadline for the Callovian well drilling commitment in Russia, which is the Group’s largest
single commitment, was extended until 2025.
Corporate social
responsibility
page 25
Corporate governance
page 40
JKX Oil & Gas plc Annual Report 2019
35
What is the risk
Probability
Impact
Change from
Responsibility
How do we manage it?
Further information
2019
Reservoir and operational performance
Description: Subsurface and operational risks are inherent to our business. The reservoir performance
cannot be predicted with certainty, and operations required for hydrocarbon production are subject to
risks of interruption or failure.
Production from our mature fields at the Novomykolaivske Complex in Ukraine require a high level of
maintenance and intervention to minimize the production decline. In Russia, acidization of deep, high
pressure and high temperature wells and other well maintenance procedures to stabilise production are
required, increasing risk of failure.
Impact: Accurate reservoir performance forecasts from fields in Ukraine and Russia are critical in
achieving the desired economic returns and to determine the availability and allocation of funds for
future investment into the exploration for, or development of, other oil and gas reserves and resources.
If reservoir performance is lower than forecast, sufficient finance may not be available for planned
investment in other development projects which will result in lower production, profits and cash flows.
Inability to ensure continuous operation of wells, flowlines, production facilities and successful execution
of drilling, workover, repair, enhancement interventions may result in lower production, profits and cash
flows.
Financial discipline and governance
Description: The Group has presence in four countries with major operations in Russia, Ukraine, and the
United Kingdom. Such complex structure requires complex governance and control procedures to be in
place to ensure appropriate level of financial discipline and controls, as well as delegation of authority
along the corporate and management structure.
From 2015 to 2019 the Group underwent several major Board and management changes, changes of
advisors and contractors, as well as significant reduction of staff across its operations. These changes
require additional efforts to ensure proper implementation of governance, controls, and financial
discipline procedures.
Impact: Failure to maintain an appropriate level of financial discipline, governance and controls may
lead to unnecessary or inappropriate spending, lack of control over procurement, contracting, investing
decisions, and exposure to increased legal, regulatory, or financial risks.
Health, safety, and environmental risks
Description: 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 oil and gas
exploration and production activities.
The Group has not assessed Climate Change as being a significant risk to its business in the foreseeable
future. We monitor supply and demand forecasts for our products from a variety of sources and Climate
Change does not appear as a major cited factor. If political responses to Climate Change actually lead to
major reductions in coal – fired European electricity generation, the Group may benefit from substitution
by cleaner gas – fired plant.
Impact: Technical failure, non-compliance with existing standards and procedures, accidents, natural
disasters and other adverse conditions where we operate, 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. Failure to manage these risks effectively could result in loss of certain facilities,
with the associated loss of production, or costs associated with mitigation, recovery, compensation and
fines. Poor performance in mitigating these risks could also result in damaging publicity for the Group.
Asset integrity
Description: Our operations depend on maintaining and adhering to licence requirements and related
regulations set by government authorities in countries we operate in.
Impact: Failure to comply with licence obligations and other regulations or requirements may result in
our licences being suspended or revoked which will require us to suspend production and operations.
General
Directors
There is daily monitoring and reporting of the well and plant performance at all our fields. Production
data is analysed by our in-house technical expertise. This supports well intervention planning and further
field development.
Operations review
page 16
Our subsurface and operations specialists and industry-recognised personnel are part of the daily
monitoring and reservoir management process of our field and assets.
Production forecasts generated for future development opportunities are risked to take account of
geological uncertainty. Operational risks are taken account of by adding a percentage of contingency to
the duration and cost of the planned development action. The percentage of contingency added is based
on both historical experience and perceived difficulty of the development action.
CFO
During 2018 new financial controls were implemented and corporate governance was enhanced,
including through more frequent and detailed management reporting to the Board of Directors.
Chairman’s statement
page 4
A Group Policy Manual has been implemented across the group. It is subject to annual review and revision
by the Board to ensure that governance and control procedures are sufficient to insure the appropriate
level of financial discipline and controls, as well as delegation of authority along the corporate and
management structure.
Financial review
page 22
General
Directors
Health, safety and the environment is a priority of the Board who are involved in the planning and
implementation of continuous improvement initiatives. A London-based HSECQ Manager reports directly
to Board of Directors.
Corporate social
responsibility
page 25
The Group HSECQ Manager is responsible for maintaining a strong culture of health, safety and
environmental awareness in all our operational and business activities. The HSECQ Manager reports to
the Board with details of Group performance.
Operations in Ukraine, Russia and Hungary all have a dedicated HSECQ Team of local personnel led by an
HSECQ Manager who reports to the HSECQ Director for that particular region.
All locations have HSE Management Systems modelled on the ISO 9000 series, OHSAS 18001 and ISO
14001.
Appropriate insurance policies, provided by reputable insurers, are maintained at Group level to mitigate
the Group’s financial exposure to any unexpected adverse events arising out of the normal operations.
General
Directors
Status of our licences and relevant licence obligations are monitored on a country level.
In 2018 the deadline for the Callovian well drilling commitment in Russia, which is the Group’s largest
single commitment, was extended until 2025.
Corporate social
responsibility
page 25
Corporate governance
page 40
JKX Oil & Gas plc Annual Report 2019
36
STRATEGIC REPORT
Principal risks and how we manage them
What is the risk
Probability
Impact
Change from
2019
Responsibility
How do we manage it?
Further information
Major breach of business, ethical, or compliance standards
Description: The Company is subject to numerous requirements and standards including UK Bribery Act,
UK Listing Rules, UK Corporate Governance Code, and the Disclosure and Transparency Rules, among
others. Additionally, some of our stakeholders, such as financial institutions, may require us to comply
with other requirements or ask us to provide information on our business, operations, employees and
shareholders as part of Know Your Client (“KYC”) procedures.
Impact: Failing to comply with onerous regulations and requirements, such as failure to implement
adequate systems to prevent bribery and corruption, could result in prosecution, fines or penalties
imposed on the Company or its officers, suspension of operations or listing.
Inability to clear KYC procedures to satisfaction of the third parties may result in refusal to engage in
business relationships with the Company.
MED
HIGH
The Board
The CFO is responsible for compliance and, with the support of the Board, implements compliance-related
Corporate social
Such activities focus on training, monitoring, risk management, due diligence and regular review of
responsibility
page 25
activities and procedures.
policies and procedures.
We prohibit bribery and corruption in any form by all employees and by those working for and/or
Corporate governance
connected with the business. Employees are expected to report actual, attempted or suspected bribery
page 40
or other issues related to compliance to their line managers or through our independently managed
confidential reporting process, which is available to all staff as well as third parties.
In 2017 we engaged an independent consultant to assess our anti-bribery and corruption (“ABC”) policies,
procedures, and practices and in 2018 we engaged KPMG to conduct a forensic review of procurement
of legal services and subsequent payments made to legal advisors in Ukraine in 2017. Recommendations
arising from both have been implemented to further strengthen our ABC framework. This included
completion of a full Bribery Risk Assessment.
In dealing with the third parties, our policy is to maximize transparency and provide all information
available to address KYC-related procedures and requests.
Commodity prices and FX fluctuations
Description: JKX is exposed to international oil and gas price movements, policy developments in Russia
which may affect the regulated gas price, and movements in exchange rates. Such changes will have a
direct effect on the Group’s trading results.
Gas prices in Ukraine are closely aligned with gas prices in Europe. Ukraine does not currently purchase
gas from Russia directly. Change in gas import flows may have impact on gas prices in Ukraine, and a
prolonged period of low gas prices would impact the Group’s liquidity.
In Russia, from 1 July 2019 the regulated price to which our sales contract is tied has increased by 3.9%
however, prevailing prices remain significantly lower than in Europe due to existing regulations.
In Ukraine PPC sells the oil it produces at prices determined by a combination of the global oil market and
local market factors.
During 2019, both the Hryvnia and the Rouble strengthened moderately.
Impact: A period of low oil and/or gas prices could lead to impairments of the Group’s oil and gas assets
and may impact the Group’s ability to support its field development plans and reduce shareholder returns.
Global Covid-19 pandemic.
Description: The Group’s oil and gas operations are located in Ukraine and Russia with a head office
located in the United Kingdom. All locations are suffering from increasing levels of Covid-19 infection
and in due course there may be increasing disruption of normal working patterns. The national and local
governments in all locations are recommending or implementing increasingly severe restrictions in order
to manage the situation.
In view of the risk the Group’s primary objectives include:
i) Protecting the health of the Group’s staff, contractors and suppliers and those in the
communities from which they are drawn;
ii) Maintaining the Group’s operations and business more generally and ensure that high levels of
operational safety are maintained; and
iii) Maximising sales prices in an unpredictable market.
Impact: Increasing levels of infection and restrictions on movement have the potential to negatively
impact the Group and specifically the operating companies. These impacts may include a reduction in the
number of staff fit to work, a reduced ability to conduct production operations, contractors and suppliers
being unable to provide the necessary support, a reduction in demand and lower sales prices. If these
risks crystallise there may be business constraint or interruption, reduced production, a fall in demand
and reduced sales prices and a consequent reduction in the Group’s ability to commit to new capital
expenditure.
HIGH
HIGH
foreign exchange risk.
CFO
JKX’s policy is not to hedge commodity price exposure on oil, gas, LPG or condensate and not to hedge
Financial review
JKX attempts to maximise its realisations versus relevant benchmarks while keeping credit risk to a
minimum by selling mostly on spot markets and on a prepayment basis.
As commodity prices in Ukraine closely follow international benchmarks, significant changes in the
Page 13
exchange rates are reflected in commodity prices providing a natural hedge.
In Russia, the vast majority of gas produced is sold to a single local gas trading company through a long
term gas sales contract with prices set in Roubles. Sales price for gas is fixed and is subject to increase
according to changes in a tariff set by relevant regulatory bodies. The Company continues to seek other
sales opportunities in Russia to improve realisations.
The Group attempts to match, as far as practicable, receipts and payments in the same currency and also
follow a range of commercial policies to minimise exposures to foreign exchange gains and losses.
page 22
Strategic report
HIGH
HIGH
The Board
In order to manage this risk the Group (and in particular the 2 operating units, PPC and YGE) have
Chairman’s statement
undertaken a holistic review of the likely impact on their businesses and have implemented a range of
page 4
b) Introducing and enforcing social distancing and remote-working, cancellation of business trips
statement
Chief Executive's
page 6
escalating and proportionate responses. These responses include:
a) Undertaking awareness-raising in all locations;
and meetings and the use of remote working solutions;
c) Enhanced cleaning regimes for certain Group facilities;
d) Temperature screening of staff and contractors at entry points;
e) Active liaison with local regional and national government;
f) Securing normal business activities including oil and LPG loading, drilling and work over
activity;
g) Taking steps to minimise exposure to further commodity price decrease; and
h) Reducing costs to maintain Group liquidity.
JKX Oil & Gas plc Annual Report 2019
37
What is the risk
Probability
Impact
Change from
Responsibility
How do we manage it?
Further information
2019
Major breach of business, ethical, or compliance standards
Description: The Company is subject to numerous requirements and standards including UK Bribery Act,
UK Listing Rules, UK Corporate Governance Code, and the Disclosure and Transparency Rules, among
others. Additionally, some of our stakeholders, such as financial institutions, may require us to comply
with other requirements or ask us to provide information on our business, operations, employees and
shareholders as part of Know Your Client (“KYC”) procedures.
Impact: Failing to comply with onerous regulations and requirements, such as failure to implement
adequate systems to prevent bribery and corruption, could result in prosecution, fines or penalties
imposed on the Company or its officers, suspension of operations or listing.
Inability to clear KYC procedures to satisfaction of the third parties may result in refusal to engage in
business relationships with the Company.
Commodity prices and FX fluctuations
Description: JKX is exposed to international oil and gas price movements, policy developments in Russia
which may affect the regulated gas price, and movements in exchange rates. Such changes will have a
direct effect on the Group’s trading results.
Gas prices in Ukraine are closely aligned with gas prices in Europe. Ukraine does not currently purchase
gas from Russia directly. Change in gas import flows may have impact on gas prices in Ukraine, and a
prolonged period of low gas prices would impact the Group’s liquidity.
In Russia, from 1 July 2019 the regulated price to which our sales contract is tied has increased by 3.9%
however, prevailing prices remain significantly lower than in Europe due to existing regulations.
In Ukraine PPC sells the oil it produces at prices determined by a combination of the global oil market and
local market factors.
During 2019, both the Hryvnia and the Rouble strengthened moderately.
Impact: A period of low oil and/or gas prices could lead to impairments of the Group’s oil and gas assets
and may impact the Group’s ability to support its field development plans and reduce shareholder returns.
Global Covid-19 pandemic.
Description: The Group’s oil and gas operations are located in Ukraine and Russia with a head office
located in the United Kingdom. All locations are suffering from increasing levels of Covid-19 infection
and in due course there may be increasing disruption of normal working patterns. The national and local
governments in all locations are recommending or implementing increasingly severe restrictions in order
to manage the situation.
In view of the risk the Group’s primary objectives include:
i) Protecting the health of the Group’s staff, contractors and suppliers and those in the
communities from which they are drawn;
ii) Maintaining the Group’s operations and business more generally and ensure that high levels of
operational safety are maintained; and
iii) Maximising sales prices in an unpredictable market.
Impact: Increasing levels of infection and restrictions on movement have the potential to negatively
impact the Group and specifically the operating companies. These impacts may include a reduction in the
number of staff fit to work, a reduced ability to conduct production operations, contractors and suppliers
being unable to provide the necessary support, a reduction in demand and lower sales prices. If these
risks crystallise there may be business constraint or interruption, reduced production, a fall in demand
and reduced sales prices and a consequent reduction in the Group’s ability to commit to new capital
expenditure.
The Board
The CFO is responsible for compliance and, with the support of the Board, implements compliance-related
activities and procedures.
Such activities focus on training, monitoring, risk management, due diligence and regular review of
policies and procedures.
We prohibit bribery and corruption in any form by all employees and by those working for and/or
connected with the business. Employees are expected to report actual, attempted or suspected bribery
or other issues related to compliance to their line managers or through our independently managed
confidential reporting process, which is available to all staff as well as third parties.
In 2017 we engaged an independent consultant to assess our anti-bribery and corruption (“ABC”) policies,
procedures, and practices and in 2018 we engaged KPMG to conduct a forensic review of procurement
of legal services and subsequent payments made to legal advisors in Ukraine in 2017. Recommendations
arising from both have been implemented to further strengthen our ABC framework. This included
completion of a full Bribery Risk Assessment.
In dealing with the third parties, our policy is to maximize transparency and provide all information
available to address KYC-related procedures and requests.
Corporate social
responsibility
page 25
Corporate governance
page 40
CFO
JKX’s policy is not to hedge commodity price exposure on oil, gas, LPG or condensate and not to hedge
foreign exchange risk.
Financial review
page 22
JKX attempts to maximise its realisations versus relevant benchmarks while keeping credit risk to a
minimum by selling mostly on spot markets and on a prepayment basis.
As commodity prices in Ukraine closely follow international benchmarks, significant changes in the
exchange rates are reflected in commodity prices providing a natural hedge.
Strategic report
Page 13
In Russia, the vast majority of gas produced is sold to a single local gas trading company through a long
term gas sales contract with prices set in Roubles. Sales price for gas is fixed and is subject to increase
according to changes in a tariff set by relevant regulatory bodies. The Company continues to seek other
sales opportunities in Russia to improve realisations.
The Group attempts to match, as far as practicable, receipts and payments in the same currency and also
follow a range of commercial policies to minimise exposures to foreign exchange gains and losses.
The Board
In order to manage this risk the Group (and in particular the 2 operating units, PPC and YGE) have
undertaken a holistic review of the likely impact on their businesses and have implemented a range of
escalating and proportionate responses. These responses include:
Chairman’s statement
page 4
a) Undertaking awareness-raising in all locations;
b) Introducing and enforcing social distancing and remote-working, cancellation of business trips
and meetings and the use of remote working solutions;
Chief Executive's
statement
page 6
c) Enhanced cleaning regimes for certain Group facilities;
d) Temperature screening of staff and contractors at entry points;
e) Active liaison with local regional and national government;
f) Securing normal business activities including oil and LPG loading, drilling and work over
activity;
g) Taking steps to minimise exposure to further commodity price decrease; and
h) Reducing costs to maintain Group liquidity.
JKX Oil & Gas plc Annual Report 2019
38
STRATEGIC REPORT
JKX Oil & Gas plc Annual Report 2018
Principal risks and how we manage them
Long term viability statement
The Directors have assessed the viability of the Group over a three-
year period to 31 December 2022 taking account of the Group’s
current position and the potential impact of the principal risks
documented above.
Summary of the strategic review by country
•
•
•
Ukraine In 2018 we developed a five year field development
plan (medium term), that we are now executing. In addition,
we systematically review opportunities for acquisition and
new licensing in Ukraine.
Russia Operations, production and cash flow are stable in
Russia, following completion of a workover programme
in 2019.
Hungary We are in the process of disposing of our six mining
plots in Hungary.
The Board believes that the Group’s assets and staff provide a good
platform to consolidate and improve on its existing oil and gas
opportunities.
The Group has been operating in Ukraine for over 25 years and
in Russia for over 10 years. Most of the Group’s profits and cash
flows continue to be generated in Ukraine and, to a lesser extent,
in Russia. However there remain significant risks associated with
operating in the emerging markets in general, and operating our
assets specifically, which could adversely impact cash flows, profits
and liquidity of the Group.
Assessment of viability
The Board closely monitors and manages its liquidity risk using
cash flow forecasts which are regularly produced and applies
sensitivities for different scenarios including, but not limited
to, changes in oil and gas prices, changes in Rouble and Hryvnia
exchange rates, various scenarios for reservoir performance,
and delays to additional future revenue. These sensitivities are
considered both individually and in unison.
The assessment incorporated the use of mitigating actions
available to the business, such as a reduction in capital expenditure
and use of external facilities.
Capital and operating costs were based on approved budgets and
latest forecasts in the case of 2020 and current development plans
in the case of 2021 through to December 2022. In addition, the
Directors made enquiries into and considered the Ukrainian and
Russian business environments and future expectations regarding
country and currency risks that the Group may encounter, as
disclosed in the risks above. In addition, the Board has considered
potential reverse stress tests performed to assess the impact of
Covid-19 including production stoppages combined with sustained
lower commodity prices as detailed in note 2 to the financial
statements.
Principal risks facing the Group
For the purposes of assessing the Group’s viability, the Directors
focused on the following principal risks which are critical to the
Group’s success but which are outside the control of management
and could have a significant impact on the business:
• Commodity prices and FX fluctuations
The Group is exposed to international oil and gas price
movements, policy developments in Russia which may affect
the regulated gas price, and movements in exchange rates. Such
changes will have a direct effect on the Group’s trading results.
• Potential rental fee claims
The Company has persistently defended its position in the
Ukrainian courts regarding the rental fee claims for 2010
and 2015 totalling approximately $41.3 million (including
interest and penalties, see Note 25 to the consolidated
financial statements). The Company will continue to defend
its position in the Ukrainian courts in all outstanding cases,
the Directors have given careful consideration to the earliest
dates that courts may conclude that any or all of the claims
may be required to be settled and ensured that the resources
are available to meet these liabilities if necessary, based on the
expected timing of potential payments (see Financial review
page 22).
• Global Covid-19 pandemic
This risk arose in 2020 and the Board of Directors continue
to monitor its potential impact. The potential impact of the
pandemic is currently unknown but may include production
disruption due to government restrictions, impact on our
workforce, supply chain disruption, customer sales and ability
to access funding facilities as detailed in note 2 to the financial
statements.
Confirmation of longer-term viability
The Board has undertaken a robust assessment of these risks
and the other principal risks faced by the business detailed on
pages 30 to 39 of the Annual Report. As noted in the going concern
disclosures in note 2 to the financial statements which highlight a
material uncertainty in respect of going concern, should the 2010
and certain 2015 rental fee claims fall due in the next 12 months
or disruption to production occur in excess of one month due to the
Covid-19 in conjunction with depressed prices, the Group would
likely need to utilise its Tascom facilities, make forward gas sales,
agree a payment plan with the tax authorities or take such other
measures as necessary to safeguard its viability. As set out in the
going concern disclosures the Board anticipates such steps to be
achievable and therefore, combined with the debt-free status of the
Group, its cash resources and anticipated cash generation the Board
has a reasonable expectation that the Company will continue to be
viable and meet its liabilities over the assessment period.
Section 172 Statement
The Directors are mindful of their duty to promote the success of
the Company in accordance with S 172 of the Companies Act for
the benefit of its members as a whole and in doing so to have regard
for the matters set out in S 172 (1) (a)-(f). Further details of how the
Directors have had regard to the issues, factors and stakeholders
considered relevant in complying with S 172 (1) (a)-(f), the methods
used to engage with stakeholders and the effect on the Group’s
decision during the year can be found throughout this report
and in particular at page 12 (where matters relating to the
Group’s business model, stakeholder map and stakeholder relations
are addressed), page 13 (where strategic objectives are addressed),
pages 14 and 15 and the CSR report on page 25 (in relation to
decision-making).
The Directors have applied a structured decision-making process
supported by detailed information relevant to any decision. In
addition the Board has received regular management information
and HSE updates from expertly qualified staff. This information
has, when appropriate, expressly addressed the interests of
employees, the impact on business relationships with suppliers,
customers and others, the impact of the Company and Group’s
operations on relevant communities and the environment, the
potential impact on the Company’s reputation for high standards,
with Board decisions being recorded in writing and maintained as
part of the Company’s minutes. This process aims to ensure that all
relevant issues are identified and considered by the Board whilst
coming to a decision on any issue.
39
JKX Oil & Gas plc Annual Report 2018
The Board has encouraged senior management in each location to
engage with staff, suppliers, customers and the community in order
to assist the Board in discharging its obligations. Board members
also carry out regular site visits enabling staff to raise issues
directly with them and to enable them to meet key contractors
when necessary.
The Board has undertaken specific training with its private
practice corporate lawyers in order to ensure that it is aware of
its responsibilities under S 172 and in particular to ensure that
all members are fully aware of the need to act fairly between its
members, especially given the presence of a number of long term
significant shareholders and the existence of a nominee of the
largest shareholder on its Board.
Governance and
Financial statements
Governance
Board composition
Corporate governance
Audit committee report
Directors’ remuneration report
Directors’ report - other disclosures
Financial statements
Group
Independent auditors’ report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Company
40
42
50
55
74
77
85
87
88
89
90
91
Company statement of financial position
Company statement of changes in equity
Notes to the Company financial statements
129
130
131
40
JKX Oil & Gas plc Annual Report 2019
GOVERNANCE
Board composition
Charles Valceschini Chairman
Appointed – 16 September 2019
Experience – Mr Valceschini has worked in the oil and gas sector for nearly 40 years
and currently specialises in the provision of technical and commercial advice to a wide
range of upstream oil and gas companies. Mr Valceschini was previously engaged in
technical and leadership roles for a range of companies including BP, TNK-BP and other
international upstream companies. During 2000 and 2001 he was CEO and CFO of
American Energy Group Limited. Mr Valceschini has a degree in Petroleum Engineering
from the University of Wyoming, an MSc in Engineering Management from Portland
State University and is an alumnus of the INSEAD Executive Management programme
and Moscow School of Management at Skolkovo Project Academy.
Victor Gladun Executive Director, Chief Executive Officer
Appointed – 23 May 2019
Experience – Victor Gladun studied engineering and finance. He graduated from
Harvard Law School (International Taxation), participated in Harvard University’s
project on macroeconomic transformations in Ukraine, and holds the US Brandeis
University’s Master’s Degree in Sustainable International Development. Victor held
executive positions in a number of leading international companies in the USA, Ukraine,
and Russia. He has worked for TNK-BP, Mitsubishi Motors/NIKO and DTEK. Victor has
experience in business development, promotion and crisis management.
Tony Alves Senior Independent Director
Appointed – 16 September 2019
Experience – Mr Alves has worked in the oil and gas sector for over 30 years. From
January 2009 until June 2016 he served as an Executive Director and Chief Financial
Officer for AIM Listed Volga Gas plc, with whom he remains as a consultant. Previously
he was one of the leading equity analysts covering the sector including periods as Head
of Oil and Gas research for Peel Hunt and with Investec, Bell Group International and
Schroders. Mr Alves read Mathematics at Cambridge University, both as an
undergraduate and a post-graduate research student.
Dr. Rashid Javanshir Non Executive Director
Appointed – 16 September 2019
Experience – Dr. Rashid Javanshir worked at BP for over 20 years in senior
management roles including Senior Vice President for Strategy & Integration in Global
Upstream, London (2012 - 2015) and Regional President for Azerbaijan - Georgia -
Turkey (2009 -2012). He also led BP's Southern North Sea Gas Operations in 2003-2006.
Dr. Javanshir is a distinguished scientist with more than 150 books and papers
published internationally. He holds a PhD in Geophysics from Moscow Gubkin
University and a Doctoral Degree in Geology and Mineralogy from the Institute of
Geology in Baku. He has completed management programmes in several US
Universities, and is an alumnus of Harvard Business School.
41
JKX Oil & Gas plc Annual Report 2019
Michael Bakunenko Non Executive Director
Appointed – 8 December 2017
Experience – an Executive Chairman of the Board at PJSC Ukrnaftoburinnya, the third
largest private oil and gas E&P Company in Ukraine since September 2015. From 2011
to 2015 Mr. Bakunenko was Deputy Board Chairman, Director of Corporate
Development and Strategy at PJSC Ukrnafta, the largest oil company in Ukraine. Prior
to this Mr. Bakunenko worked for 8 years in the investment banking industry, notably
at Goldman Sachs in New York and Renaissance Capital in Moscow and Kiev. Mr.
Bakunenko holds a Bachelor’s degree from Lehigh University and a Master’s degree
from Columbia University.
Appointed
Resigned/Stood Down
Hans Jochum Horn Chairman
24 October 2017
23 May 2019
Andrey Shtyrba Non Executive Director
24 October 2017
22 August 2019
Adrian Coates Non Executive Director
8 December 2017
23 May 2019
Christian Bukovics Non Executive Director
9 February 2018
22 August 2019
42
JKX Oil & Gas plc Annual Report 2019
GOVERNANCE
Corporate governance
Governance principles
The Company has a premium listing on the London Stock Exchange and is subject to the Listing Rules of the UK Listing Authority. The
Board is committed to applying the principles of the 2018 UK Corporate Governance Code (‘the Code’) and relevant institutional
shareholder guidelines. This section explains in more detail how we have applied these provisions.
JKX’s Group-wide policies and procedures provide a framework for governance and are underpinned by the Group’s Code of Conduct.
Good governance is taken seriously and the Board sets the tone and takes the lead to ensure that good practice flows throughout the
Group.
Governance framework
Chairman
BOARD
Non Executive Chairman,
3 Non Executive Directors (including two independent
Non Executive Directors)
Executive Director
Nomination
Committee
Group Risk
Committee
Audit
Committee
Remuneration
Committee
PPC Risk Committee
YGE Risk Committee
JKX Board changes during 2019
On 23 May 2019 the 2019 AGM was held at which all directors, including the Chairman, stood down and presented themselves for
reappointment by the Shareholders.
Hans Jochum Horn and Adrian Coates were not reappointed and immediately ceased to be directors. Christian Bukovics and
Andrey Shtyrba were reappointed but resigned on the same day, their notice period expiring on the 22 August 2019. Mr Victor
Gladun was appointed as an Executive Director at the same AGM.
Following the 2019 AGM the Board consisted of 2 independent non-executive directors (Christian Bukovics and Andrey Shtyrba)
one non-executive director who was not independent (Michael Bakunenko) and an executive director ( Victor Gladun1).
Following the expiry of the notice period of Christian Bukovics and Andrey Shtyrba on the 22 August 2019 the Board consisted of
one non-executive director who was not independent (Michael Bakunenko) and an executive director ( Victor Gladun).
On 16 September 2019, following a search by independent executive search consultants (Ward Howell International), Mr Charles
Valceschini was appointed as an independent non-executive director and Chairman, Mr Tony Alves was appointed as an
independent non-executive director and Senior Independent Director and Mr Rashid Javanshir was appointed as an independent
non-executive director. Ward Howell International has no other connection with the Company or any director.
1 Victor Gladun is a director appointed from the workforce in accordance with the recommendations of Chapter 1 Provision 5 of
the Code. The Board believes he will bring a workforce view to the boardroom and as a financial professional and General Director
of PPC is in a position to contribute to discussions on wider issues.
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JKX Oil & Gas plc Annual Report 2019
On 20 September 2019 the following Board Committee appointments were made: Nomination Committee: Charles Valceschini
(Committee Chairman), Tony Alves, Dr. Rashid Javanshir, Michael Bakunenko, Victor Gladun; Remuneration Committee: Dr.
Rashid Javanshir (Committee Chairman), Charles Valceschini, Tony Alves; and Audit Committee: Tony Alves, (Committee
Chairman), Dr. Rashid Javanshir. On the same date Victor Gladun was appointed as Chief Executive Officer of the Group.
The Group is now led by a Board of Directors consisting of a Non Executive Chairman, two independent Non Executive Directors,
one Non Executive Director who represents the interests of Eclairs, JKX’s largest shareholder with a holding of over 27% and an
Executive Chairman.
During the Period from 23 May until 20 September the Board did not comply with the Code in relation to the makeup of the Board
(where there were insufficient independent non-executive directors during certain periods), the Chairman of the Board (where
there was none appointed from 23rd May until 16th September) and the Board Committees (where due to the makeup of the Board
they were not constituted in accordance with the requirements of the Code). In addition Dr Rashid Javanshir did not have at least
12 months experience on a Remuneration Committee before being appointed as Chairman of that Committee. The Board however
took into account the size of the Group, the existing remuneration structure and Dr Javanshir’s general management experience
and considered him well suited to the role.
Board effectiveness
Role of the Board
The Board provides leadership to the Group. Key matters reserved for the consideration and the approval of the Board are:
setting and monitoring Group strategy;
review of Group business plans, trading performance and costs;
review and approval of the annual operating and capital expenditure budgets;
approval of capital investment projects across the Group;
examination of acquisition opportunities, divestment possibilities and significant financial and operational issues;
remuneration policy (through the Remuneration Committee);
appointments to the Board (through the Nominations Committee) and senior management, Committee membership and
remuneration for Directors and senior management;
review and approval of the Company’s financial statements (through the Audit Committee);
setting any interim dividend and recommendation of the final dividend; and
ensuring that significant business risks are actively monitored and managed using robust control and risk management systems.
In addition, the Board considers strategy in depth as well as reviewing the strategic objectives of the Company at each of its Board
meetings.
All other authorities are delegated by the Board, supported by appropriate controls, to the Chief Executive, Chief Financial Officer and
General Directors of PPC and YGE.
How the Board functions
The Board has historically held six scheduled meetings each year, and arranges additional meetings if the need arises. During 2019,
there were five unscheduled Board meetings (2018: six), including one meeting at which the Non Executive Directors met in private
session, with an open agenda to discuss the current issues affecting the Group (2018: once). The number of unscheduled Board meetings
in 2019 was needed for the Board members to build a strategic direction for the Company and to address ongoing developments.
The Chairman, in consultation with the Directors and senior executives, sets the agenda for Board meetings. All Directors receive
comprehensive documentation prior to each meeting on the matters to be discussed.
Monthly Board reporting
The Group provides the Board with a monthly performance update each month after the month end. The monthly reports outline all
material operational, health & safety, financial, commercial and strategic developments.
The monthly reports consolidate all financial and operational information from all parts of the Group and include actual performance
against budget and forecast for oil and gas production, sales and costs.
These reports provide the Board with the latest information on cash, cash flow forecast, receivables and payables and the implications
of key sensitivities including changes in production, commodity prices, production taxes and exchange rates. These monthly reports
ensure that board members remain properly briefed on the performance and financial position of the Group.
Board meeting documents
Prior to each set of meetings the Chairman ensures that all the relevant papers and other information is delivered, where possible, at
least five days in advance of the meeting date so that all Directors have the necessary time to review in detail the latest information.
44
JKX Oil & Gas plc Annual Report 2019
GOVERNANCE
Corporate governance
Support for Directors
The Board has adopted a policy whereby Directors may, in the furtherance of their duties, seek independent professional advice at the
Company’s expense.
Each Director has the benefit of a deed of indemnity from the Company and its subsidiaries in respect of claims made and liabilities
incurred, in either case arising out of the bona fide discharge by the Director of his or her duties. The Company has also arranged
appropriate directors’ and officers’ insurance cover in respect of legal action against Directors of the Company and its subsidiaries.
Committees of the Board in 2019
During 2019 the Board had three committees focusing on specialist areas, which were ultimately accountable to the Board. These
comprised:
the Audit Committee;
the Nominations Committee; and
the Remuneration Committee.
The Board committees met independently and provided feedback to the main Board through their chairmen.
There was also an executive Risk Committee chaired by the Chief Financial Officer and comprising group employees.
Committee memberships during 2019
Audit Committee
Remuneration Committee
Nomination Committee
Hans Jochum Horn1
Michael Bakunenko
Christian Bukovics3
Adrian Coates1
Andrey Shtyrba3
Charles Valceschini4
Tony Alves4
Victor Gladun4
Rashid javanshir4
Member
Member
-
Chairman
Member
-
Chairman
-
Member
Member
Member2
Member
-
Chairman
Member
Member
-
Chairman
Chairman
Member5
Member
Member
Member
Chairman
Member
Member
Member
1 Ceased to be a director and to hold any committee appointments from 23 May 2019.
2 Ceased to be a member on 20 September 2019
3 Ceased to be a director and to hold any committee appointments from 22 August 2019
4 Appointed as a member of the Board on 16 September 2019 and a member of the relevant board committees on 20 September 2019.
5 Appointed as a member on 20 September 2019
The roles and activities of each of these committees during 2019 are noted on pages 45, 46, 51 and 58.
Board composition, independence and commitment
Until the 23 May 2019 the Board comprised 5 individuals:
The Non Executive Chairman (Hans Jochum Horn),
1 Non Executive Director (Michael Bakunenko) representing the interests of Eclairs, JKX’s largest shareholder with a holding of over
27%, and
3 independent Non Executive Directors (Christian Bukovics, Adrian Coates, Andrey Shtyrba) who were assessed as independent on
the basis, inter alia, that the matters set out in Provision 10 of the Code did not apply to them.
Following the decision of the AGM not to reappoint Hans Jochum Horn and Adrian Coates on 23 May 2019 the Board comprised 4
individuals:
1 Non Executive Director (Michael Bakunenko) representing the interests of Eclairs, JKX’s largest shareholder with a holding of over
27%, and
2 independent Non Executive Directors (Christian Bukovics and Andrey Shtyrba) who were assessed as independent on the basis,
inter alia, that the matters set out in Provision 10 of the Code did not apply to them.
1 Executive Director (Victor Gladun).
Following the expiry of Christian Bukovics and Andrey Shtyrba’s notice period on 22 August 2019 the Board comprised 2 individuals:
1 Non Executive Director representing the interests of Eclairs, JKX’s largest shareholder with a holding of over 27%, and
1 Executive Director (Victor Gladun).
45
JKX Oil & Gas plc Annual Report 2019
Following the appointment of Charles Valceschini , Tony Alves and Rashid Javanshir on 16 September 2019 the Board comprised 5
individuals:
The Non Executive Chairman (Charles Valceschini),
1 Non Executive Director (Michael Bakunenko) representing the interests of Eclairs, JKX’s largest shareholder with a holding of over
27%, and
2 independent Non Executive Directors (Tony Alves, Rashid Javanshir) who were assessed as independent on the basis, inter alia, that
the matters set out in Provision 10 of the Code did not apply to them; and
1 Executive Director (Victor Gladun).
It is the Board’s view that the current Non Executive Directors have sufficient time to fulfil their commitments to the Company. The
Board does however regularly consider the appropriateness of Board composition.
Board skills, experience and responsibilities
The Board has significant knowledge and experience of the oil and gas industry, engineering and financial matters in central and
eastern Europe, particularly Ukraine and Russia as well as Central Asia. The key biographical details, relevant experience and
responsibilities of each Director are provided on pages 40 and 41.
The Non Executive Directors bring the skills and expertise necessary to challenge effectively, independently and constructively, the
performance of the Company and its strategy.
Board diversity
During the period covered by this report the Board consisted entirely of men. The Board consisted of 4 different nationalities at
31 December 2019.
Gender is only one aspect of diversity, and there are many other attributes and experiences that can improve the Board’s ability to act
effectively. Our policy is to search for the highest quality people with the most appropriate experience for the requirements of the
business, be they men or women.
The Board supports the longer term aspirations of Lord Davies’ report regarding gender diversity on appointment of directors to boards
and will maintain its practice of embracing diversity in all its forms, but has chosen not to set any measurable objectives. Currently the
CEO and his immediate reports consist entirely of men.
Senior Independent Director
Adrian Coates was Senior Independent Director (‘SID’) until 23 May 2019. Following the decision of the AGM not to reappoint Adrian
Coates as a Director on 23 May 2019 there was no SID until Tony Alves was appointed as SID on 16 September 2019.
The SID is available for discussions with other Non Executive Directors who may have concerns which they believe have not been
properly considered by the Board as a whole.
A key responsibility of the SID is to ensure he is available to shareholders if they have concerns that have not been resolved by contact
through the normal channels of Chairman, Chief Executive and Chief Financial Officer or where such contact is inappropriate.
2019 Board evaluation process
During the first quarter of 2019 the Senior Independent Director reviewed the performance of the Chairman and the Nomination
Committee carried out an internal Board and Committee Evaluation. In both cases detailed feedback was provided and where relevant
action plans put in place to address any issues.
External evaluation
As the Company was outside of the FTSE 350 during 2019 there was no requirement for an externally-facilitated evaluation of the
Board at least every three years, although an internal Board and committee evaluation was conducted. The Chairman will consider the
relevance of an externally facilitated evaluation in due course.
Development of the Board
All Directors are provided with opportunities for further development and training updates. In addition to the updates on governance,
legal and regulatory matters, the Board receives invitations to detailed briefings from advisers and at their seminars on a variety of
topics that are relevant to the Group and its strategy. The newly appointed Directors all received a full day’s induction training session,
including specific presentations on key topics and detailed briefings on legal, regulatory and compliance matters from the Company’s
external legal, financial and communications advisers.
Board activities
Attendance at meetings
When a Director is unable to participate in a meeting either in person or remotely because of another engagement, they are provided
with the briefing materials and the Chairman will solicit their views on key items of business ahead of time, in order for the views to be
presented at the meeting and influence the debate.
The number of meetings of the Board and its committees during 2019 and individual attendance by Director is shown below:
46
JKX Oil & Gas plc Annual Report 2019
GOVERNANCE
Corporate governance
Board and Committee meeting attendance in 2019
Number of meetings
Attendance/Eligibility:
Hans Jochum Horn
Board
11
Board
3/3
Michael Bakunenko
10/11
Christian Bukovics
Adrian Coates
Andrey Shtyrba
Charles Valceshini
Tony Alves
Victor Gladun
Rashid Javanshir
7/7
3/3
6/7
3/3
3/3
8/8
3/3
Audit Committee
Remuneration Committee
Nomination Committee
3
3
3
Audit Committee
Remuneration Committee
Nomination Committee
2/2
2/2
_
2/2
2/2
2/2
1/1
-
1/1
1/1
1/1
1/1
-
1/1
2/2
2/2
-
2/2
1/1
-
1/1
1/1
1/1
2/2
2/2
-
2/2
Senior management from across the Group, and advisers, attend some of the meetings for the discussion of specific items in greater
depth. This is important to the Board as it further enhances the Board’s understanding of operations and the implementation of
strategy.
Board’s work during 2019
During the year the Board used a rolling agenda of strategy, finance, operations, commercial matters, corporate governance and
compliance including the matters set out below. All Directors have the authority to add any item to the Board agenda.
Reports from the General Directors of each of the two major operating units on strategic, and operational matters including political
and economic developments,
The Chief Financial Officer’s report, and following his appointment the Chief Executive Officer’s report, which includes a report of
actual performance against budget, reforecasting, updates on oil, gas and condensate prices,
HSECQ matters,
Additional funding and growth opportunities,
Compliance (including Anti Bribery and Corruption) issues,
Where applicable, reports from the Nominations Committee, Audit Committee and Remuneration Committee,
In addition to the standing agenda items and annual Board responsibilities in respect of the Group’s reporting, other topics covered by
the Board during the year included:
the implementation of the Board’s updated strategy for the Company reflecting matters such as the deployment of an improved
contractor base, a focus on cost control and the execution of low risk, high margin operations;
managing the Group’s liquidity including the payment of principal and interest on the existing Convertible Bond;
review of crude oil and gas storage strategy;
reduction in overhead costs and improved efficiency;
increased transparency and engagement with shareholders regarding production and operations with a regular reporting schedule.
identifying and addressing critical gaps in the Board and senior management team;
monitoring enhanced management information updates focussing on key parameters including production, liquidity and future cash
flow;
disposal of non-core assets and reviewing the group portfolio;
review of organic and inorganic growth opportunities, particularly in Ukraine;
simplification of Group structure;
review and management of ongoing tax and other litigation;
identifying sources of third party financing; and
appointment of expert executive search agents and identification of appropriate replacement directors.
Re-electing your Board
The Board contains a broad range of experience and skills from a variety of industries and advisory roles, which fully complement each other.
47
JKX Oil & Gas plc Annual Report 2019
In line with the Code all the Directors (including the Chairman) stood down and offered themselves for reappointment at the 2019
Annual General Meeting. Additionally Victor Gladun was proposed for appointment as a director.
Whilst Michael Bakunenko, Victor Gladun, Andrei Shtyrba and Christian Bukovics were reappointed at the AGM Hans Jochum Horn
and Adrian Coates were not. Immediately following the conclusion of the 2019 AGM Andrey Shtyrba and Christian Bukovics tendered
their resignations which expired on 22 August 2019.
3 further independent non-executive directors (Charles Valceschini, Tony Alves and Dr. Rashid Javanshir) were appointed by the Board
on 16 September 2019, as described on page 42.
In line with the recommendations of the Code the Directors have all agreed to stand down and submit themselves to the shareholders
for reappointment at the 2020 AGM.
Full biographies of all the Directors can be found on pages 40 and 41.
Nomination Committee
The role of the Nomination Committee is to review the structure, size, skills and composition of the Company Board and the Boards of
companies owned by JKX Oil & Gas plc. The Committee also considers succession planning and suitable nominations for appointments
to the Boards, and makes appropriate recommendations based on qualifications and experience. The Nomination Committee regularly
reviews the management structure of the Company and seeks ways to minimise any negative impact. During Q1 2019 the Nomination
Committee carried out an internal Board and Committee evaluation
The Committee meets as often as it determines is appropriate. Generally it meets at least once a year and more frequently if required.
Committee member since
To
Number of meetings in 2019
Attendance/Eligibility
Hans Jochum Horn (Chairman) November 2017
23 May 2019
Christian Bukovics
February 2018
22 August 2019
Adrian Coates
Andrey Shtyrba
December 2017
23 May 2019
November 2017
22 August 2019
Charles Valceschini (Chairman) September 2019
Tony Alves
September 2019
Michael Bakunenko
September 2019
Victor Gladun
Rashid Javanshir
September 2019
September 2019
Present
Present
Present
Present
Present
1/1
1/1
1/1
1/1
2/2
2/2
2/2
2/2
2/2
The Committee met 3 times during 2019 (2018: 5). During 2019 3 new independent Non Executive Directors (Charles Valceschini, Tony
Alves and Rashid Javanshir) were appointed following a search by an independent search consultant (Ward Howell International ) that
has no other connection with the Group. In addition Victor Gladun was appointed as an executive director and Chief Executive Officer
in addition to his existing role as General Director of PPC.
Membership and process
During 2019 the membership of the Nomination Committee underwent significant change as a consequence of changes in the Board
membership. In order to ensure continuity of understanding the new members of the Board were provided with copies of previous
committee minutes and the Chairman ensured that new Directors were provided with a full induction.
In the period from 22 August until 20 September the Nomination Committee did not comply with the Code as there were no
independent non-executive directors until 16 September.
The letters of appointment of each Non Executive Director are available for inspection at the registered office of the Company.
Succession planning
The Board is responsible for succession planning for Directorships and key management roles. This requires performance and talent
assessment in order to ensure that able successors for key roles are identified and then provided with suitable opportunities through
career and personal development plans. It is crucial that we remunerate our most talented people fairly and properly such that they are
more likely to stay in our employment.
Revision of Terms of Reference
The Nomination Committee reviewed its terms of reference against the Code and proposed a number of amendments to the Board to
ensure it remained in compliance with the Code. The Board unanimously approved these amendments and the revised terms of
reference are available on the Company’s website.
48
JKX Oil & Gas plc Annual Report 2019
GOVERNANCE
Corporate governance
Compliance
Compliance with the 2018 UK Corporate Governance Code
The Board believes that, except in relation to the composition of the Board and certain Board Committees following the 2019 AGM and
the appointment of Dr Rashid Javanshir as Chairman of the Remuneration Committee the Company was fully compliant during 2019
with the provisions set out in the Code.
Internal control and risk management
The Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. The internal control
systems are designed to meet the particular needs of the Group and to manage rather than eliminate the risk of failure to achieve
business objectives. Such systems can only provide reasonable and not absolute assurance against material misstatement or loss.
The Board is responsible for identifying and evaluating the major business risks faced by the Company and for determining and
monitoring the appropriate course of action to manage these risks. The Audit Committee reviews the Company’s internal control
processes and risk management systems and reports its conclusions to the Board.
During the year the Board has reviewed and strengthened a number of key internal control processes, in particular to reflect the
appointment of a Chief Executive Officer, including those relating to approval of expenditure.
The Board has concluded that for the period up until the date of the Annual Report the Company’s current procedures, policies and
systems are appropriate and suitable to enable the Board to safeguard shareholders’ investment and the Company’s assets, and comply
with FRC ‘Risk Management, Internal Control and Related Financial Business Reporting Guidance’.
The Board has carried out a robust assessment of the principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. Details of the principal risks and how they are managed or mitigated is
included on pages 30 to 39. Further information on internal control and risk management is set out in the Audit Committee Report on
page 50.
Budgetary process
Each year the Board reviews and approves the Group’s annual budget with key risk areas identified. The preparation of the annual
Group budget is a multi-stage comprehensive process led by the Chief Executive Officer and Chief Financial Officer who work closely
with local managers of operating subsidiaries in Russia and Ukraine.
Performance is monitored through the monthly reporting to the Board of variances from the budget. Relevant action is taken by the
Board throughout the year based on updated forecasts which are prepared using current information on the key risk areas and
sensitivities.
Investment appraisal
For each capital intensive project there is a rigorous project analysis and risk and return appraisal completed using technical, financial,
commercial, and operational specialists across the Group. The Board has reviewed the approach to ensure the most effective allocation
of capital across the group as part of a wider consideration of the Company’s strategy.
Capital investment is regulated by the budgetary process, our automated authorisation for expenditure (‘AFE’) system and pre-defined
authorisation levels. For expenditure beyond specified levels, detailed written proposals are submitted to the Board.
Using our AFE system Group capital expenditures are reviewed on a project-by-project basis by the Chief Executive Officer and Chief
Financial Officer and overruns, actual or foreseen, are investigated, and approved by the Board where appropriate.
Whistleblowing
The Board reviews the arrangements by which employees and others can raise any concerns they may have about workplace fraud or
mismanagement with local management on a confidential basis. Whistleblowing incidents are taken very seriously by the Board.
As part of the Board’s commitment to support our employees in the work place, we have a confidential process for reporting “Concerns
at Work”. This is a confidential service for reporting delicate matters that sometimes arise in the work place.
In addition, this service forms part of the Company’s commitment to comply with best practice under the UK Bribery Act. As disclosed
in our Anti-Bribery and Corruption policy which is available on the Company’s website, all individuals who work on behalf of the Group
have a responsibility to help detect, prevent and report instances not only of bribery but also of any other suspicious activity or
potential wrongdoing.
Employees are expected to make complaints to their line managers or, if this is not appropriate, through our independently managed
confidential reporting process, which is available to all employees as well as third parties.
Complaints made under the confidential reporting service are sent to the Internal Audit Manager and are investigated in the first
instance prior to a decision being taken about further steps. Feedback is provided to the person making the complaint, if necessary.
The Board is absolutely committed to ensuring that all employees have a safe, reliable, and confidential way of reporting any suspicious activity.
49
JKX Oil & Gas plc Annual Report 2019
Communication with shareholders
The Board is committed to frequent and comprehensive communication with all shareholders. The Board is committed to an open
relationship involving regular communications in order that shareholders views on the Group can be better understood and addressed
as appropriate.
A number of formal communication channels are used to account to shareholders for the performance of the Group, which include the
Annual Report, AGMs and periodic reports to the London Stock Exchange.
Formal presentations, when made, are available to all shareholders to download from the Group’s website (www.jkx.co.uk). Less formal
processes include contacts with other shareholders for which the Board as a whole takes responsibility.
Extensive information about the Group’s activities is provided in the Annual Report and the Half-yearly Report. Enquiries from
individuals on matters relating to their shareholding and the business of the Group are welcomed and are dealt with in an informative
and timely manner. Shareholders are encouraged to attend the Annual General Meeting to discuss the progress of the Group.
Conflicts of Interest
The Company complies with the provisions on conflicts of interest in the Companies Act 2006.
The Company has procedures in place for the disclosure and review of any conflicts, or potential conflicts of interest which the
Directors may have and for the authorisation of such conflicting matters by the Board. In deciding whether to authorise a conflict or
potential conflict the Directors must have regard to their general duties under the Companies Act 2006. The procedure operates to
ensure the disclosure of conflicts, and for the consideration and if appropriate, the authorisation of them by non-conflicted Directors.
The authorisation of a conflict matter, and the terms of authorisation, may be reviewed at any time by the Board. The Nomination
Committee is mandated to support the Board in this process, being tasked to review requests from Directors for authorisations of
situations of actual or potential conflict and making recommendations to the Board and to review any situations of actual or potential
conflict that have been previously authorised by the Board. The Committee may also make recommendations regarding
appropriateness of the authorisation.
Going concern
The Board closely monitors and manages the Group’s liquidity risk using cash flow forecasts which are regularly produced and applies
sensitivities for different scenarios that reflect future expectations including but not limited to those regarding country, commodity
price and currency risks that the Group may encounter.
On behalf of the Board
Charles Valceschini
Chairman
31 March 2020
50
GOVERNANCE
Audit committee report
JKX Oil & Gas plc Annual Report 2019
Attendance and eligibility
Member
Committee member since
Number of meetings in 2019
Attendance/Eligibility
Adrian Coates (as Chairman)
December 2017
Ceased to be a member 23/5/19 2/2
Michael Bakunenko
December 2017
Ceased to be a member 20/9/19 2/2
Hans Jochum Horn
Andrey Shtyrba
October 2017
October 2017
Ceased to be a member 23/5/19 2/2
Resigned 22/8/19
Tony Alves (Chairman)
September 2019
Rashid Javanshir
September 2019
Present
Present
2/2
1/1
1/1
The Audit Committee currently comprises 2 Non Executive Directors, both of whom are independent.
Audit Committee during 2019
Adrian Coates (Chairman), Michael Bakunenko, Hans Jochum Horn and Andrey Shtyrba were the members of the Audit Committee
until 23 May 2019. Following the decision at the AGM not to reappoint Adrian Coates or Hans Jochum Horn the Audit Committee
consisted of Andrey Shtryba and Michael Bakunenko. Following the expiry of Andrey Shtyrba’s notice period on 22 August 2019
Michael Bakunenko was the only member of the Audit Committee until 20 September 2019 when Tony Alves (as Chairman of the Audit
Committee) and Rashid Javanshir were appointed as members and Michael Bakunenko stood down. Up until 20 September 2019 the
Audit Committee did not comply with the Code. Thereafter it did.
The Audit Committee has carried out the requirements under the Disclosure and Transparency Rules 7.1.3R throughout the period that
this report covers. The Board has determined that Tony Alves has relevant and relevant financial experience as defined by the Code
and both Tony Alves and Rashid Javanshir have competence relevant to the sector in which the Company operates.
Role of the Audit Committee
The Audit Committee has delegated authority from the Board set out in its written terms of reference, available on the Company’s
website, which were last reviewed by the Board in Q4 2019 in order to bring them into line with the latest recommendations of the
Code. The principal objectives of the Audit Committee are:
to monitor the integrity of the financial statements of the Group and regulatory announcements, and to review any significant
financial reporting judgements;
to monitor the adequacy and effectiveness of the Group’s internal control, risk management and financial reporting processes;
to provide the Board with an independent assessment of the Group’s accounting affairs and financial position;
to provide the Board with assurance that the Annual Report and Accounts are presented in a manner that is fair, balanced and
understandable, so as to enable shareholders to assess the Group’s performance, business model and strategy;
to recommend the re-appointment of the external auditors or following an appropriate competitive tender recommend the
appointment of a new external auditor and to annually assess their independence, objectivity, effectiveness, quality,
remuneration and terms of engagement, as well as ensuring that the policy with regard to their appointment for non-audit
services is appropriately applied. Thereafter, the Committee provides a recommendation to the Board regarding the auditors
appointment to be put to the shareholders in the forthcoming annual general meeting; and
to manage the adequacy and effectiveness of the Internal Audit function and the Risk Committee and to review any significant
matters arising.
Composition of the Audit Committee
The Board determined that Andrey Shtyrba, Hans Jochum Horn , Adrian Coates and Tony Alves had recent and relevant financial
experience gained through their previous and current roles.
The composition of the Audit Committee over the relevant period provided the Committee with an appropriate balance between those
individuals with a financial or accounting background and those with wider experience of the oil and gas sector and doing business in
regions in which JKX operates. In practice, the Committee achieves its objectives by a process of regular interaction with management
and the external auditors, as well as by reviewing the work of Internal Audit and other advisory firms.
Together with the collective financial and commercial skills and experience of the Committee members, the Committee had the
appropriate experience to fulfil its responsibilities and oversee the activities of the Company’s auditors.
Revision of Terms of Reference
In Q4 2019 the Audit Committee reviewed its terms of reference against the Code and proposed a number of amendments to the Board
to ensure it remained in compliance with the Code. The Board unanimously approved these amendments and the revised terms of
reference are available on the Company’s website.
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JKX Oil & Gas plc Annual Report 2019
Attendance at meetings
The Audit Committee met three times during 2019 (2018: 6).
The Committee’s meetings were attended, when considered appropriate by the Chairman of the Committee, by other Directors
including the Chief Executive, the Chief Financial Officer, the external auditors and other professional advisers, and by certain senior
managers who are responsible for specific topics, such as risk management, internal audit, financial control, and internal compliance
procedures.
The Committee Chairman maintains contact with those other attendees throughout the year. Twice during 2019 (2018: twice) the
Committee Chairman met with the external auditors to discuss matters which the auditors and Audit Committee may wish to raise.
The Committee’s activities during 2019
During the period covered by this report, the Committee had an annual work plan, developed from its terms of reference, with standing
items that the Committee considered at each meeting in addition to any specific matters arising and topical items on which the
Committee has chosen to focus.
The work of the Audit Committee during the year principally fell under three main areas and is summarised below.
Internal controls and risk
External auditors
Accounting, tax and
financial reporting
Considered reports from the external
auditors on their assessment of the
control environment;
Considered feedback from both the
Considered and approved the audit
Reviewed the half year and annual
approach and scope of the audit work
to be undertaken by the external
auditors and the fees for the same;
financial statements and the
significant financial reporting
judgements made therein;
internal and external auditor reports
as submitted by local and Group
management;
Reviewed auditors’ reports on their
audit findings at the half year review
and at the year end;
Considered the independence of the
auditors and their effectiveness,
taking into account:
(a) non-audit work undertaken by the
external auditors and compliance with
the policy;
(b) FRC guidance;
(c) the Committee’s own Assessment;
Considered the liquidity risk and the
basis for preparing the Group half
yearly and full year financial
statements on a going concern basis
and reviewed the related disclosures in
the Annual Report;
Reviewed the external auditors’ report
on audit and accounting judgements,
including consideration of relevant
accounting standards and underlying
assumptions;
Considered and approved letters of
Reviewed disclosures in the Annual
representation issued to the external
auditors; and
Agreement of the external auditors’
remuneration for the 2019 statutory
accounts.
Report in relation to internal controls,
risk management, principal risks and
uncertainties and the work of the
Committee;
Ongoing analysis of future cash flow
and liquidity and implementation of
monthly financial update reports;
Review of Transfer Pricing matters ;
and
Review of ongoing tax and other
litigation.
Reviewed risk reports, which required
management to identify risks and
evaluate them, and ensured
appropriate mitigating controls were
agreed and implemented;
Approved the scope of the Internal
Audit programme for the year;
Considered the effectiveness of the
Internal Audit function;
Assessed the effectiveness of the
Group’s internal control environment;
Review of finance, legal, internal audit
and compliance staffing;
Review of enhanced interim controls
relating to cost, procurement and
payment and ongoing monitoring of
their appropriateness and
effectiveness;
Liaison with FCA relating to Free Float
level; and
Review of going concern and viability
status and potential impact in the
event of any adverse tax judgements.
Significant issues considered by the Audit Committee
After discussion with management and the external auditors, the Committee determined that the key risks of misstatement in relation
to the Group’s 2019 financial statements related to:
the carrying value of oil and gas assets;
rental fee claims in Ukraine;
registration and enforcement of the international arbitration award; and
liquidity and going concern.
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These issues were discussed with management and the external auditors at the time the Committee reviewed and agreed the auditors’
Group Audit Plan, during the review of the half year interim financial statements in July 2019 and at the conclusion of the audit of
these financial statements.
Matters considered
Response and conclusion
The carrying value of oil and gas assets
As explained in Note 5 to the financial statements, JKX’s oil and
gas assets are grouped into cash generating units (‘CGUs’) for the
purpose of assessing the recoverable amount. In each period
these assets are reviewed for indications of impairment. If any
assets are considered to have been impaired, the carrying value is
adjusted downwards by an appropriate amount, with a
corresponding charge made to the Income Statement.
An impairment review necessarily involves the use of
assumptions such as long-term production forecasts, gas prices,
production-related taxes, capital expenditure, discount rates,
and other macroeconomic assumptions underlying the valuation
process.
Rental fee claims in Ukraine
As detailed in Note 25 to the financial statements, PPC continues
to defend itself in the local courts against claims initiated by the
tax authorities regarding rental fees for August to December
2010 and for January to December 2015. Management has
recorded total provisions for the rental fee claims of $41.3m
(2018:$42.5m). The movement in provision during the year is
reflected in a net credit of $8.4m (as set out in Note 18 to the
financial statements) that is reported as an exceptional item.
Management has made a detailed investigation into the mostly
likely timing of any potential payments in respect of these rental
fee claims and accordingly reclassified some of the 2015 rental
fee claims as current. The underlying amounts claimed are
denominated in UAH, which has resulted in foreign currency
translation charges of $2.1m in relation to current provisions and
$5.1m in relation to non-current provisions (as set out in Note 18
to the financial statements which have been reported within the
movement in foreign currency translation reserve (see Note 17
to the financial statements)
The Committee received reports from management outlining the
basis for each of the key assumptions used, and these
assumptions were reviewed and challenged by the Committee to
ensure reasonableness and consistency e.g. with the Group’s
2020 Budget which is approved by the Board. In addition, this
area is a prime source of audit focus and accordingly our auditors
provided detailed reporting to the Committee. Management also
brought to the attention of the Committee the sensitivity
analyses disclosed in Note 5 to the financial statements.
The Committee agreed that, on the basis of the evidence
available, the projected future cash flows from the Group’s CGUs
adequately supported the carrying value of oil and gas assets in
Ukraine and Russia, and noted that full disclosure of the key
assumptions in respect of the CGUs (including sensitivity
analyses in Note 5) had been appropriately made in the financial
statements.
The Committee addressed this issue, as in previous periods, by
reviewing reports from senior management and examining the
degree to which these are supported by professional advice from
external legal and other advisory firms. This is also an area of
significant audit risk and accordingly the Committee received
detailed verbal and written reporting from BDO LLP (“BDO” ) on
this matter.
Having reviewed these reports and submissions, the Committee
was satisfied that total provisions of $41.3m (2018:$42.5m)
(including interest and penalties) were required in respect of the
rental fee claims and that both the classification of the $15.9m
provision for the 2010 rental fee claim and the classification of
the $25.4m provision for the 2015 rental fee claims as non-
current were appropriate.
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JKX Oil & Gas plc Annual Report 2019
Matters considered
Response and conclusion
International arbitration award
Also as detailed in Note 25 to the financial statements, in
February 2017 an international arbitration tribunal awarded the
Company damages of $11.8m plus interest, and costs of $0.3m,
pursuant to a claim made against the Government of Ukraine.
While the tribunal ruling has been recognised in the Ukrainian
courts it has not yet been enforced. Management has judged that
it is not appropriate to recognise any potential inflow of
economic benefits from the arbitration award in the
Consolidated statement of financial position until there is
further clarity on the process for, and likely success of, enforcing
collection.
The Committee addressed this issue, as in previous periods, by
reviewing reports from senior management and examining the
degree to which these are supported by professional advice from
external legal and other advisory firms. This is also an area of
significant audit risk and accordingly the Committee received
detailed verbal and written reporting from BDO on this matter.
Having reviewed these reports and submissions, the Committee
has concurred with management’s judgment and is satisfied that
the disclosures made in Note 25 to the financial statements in
respect of the international arbitration award are appropriate.
Liquidity and going concern
Under guidelines set out by the UK Financial Reporting Council
the Board is required to consider whether the going concern basis
is the appropriate basis of preparation for the financial
statements, and furthermore, is required to include appropriate
disclosure of any material uncertainties relevant to the going
concern assumption.
The Committee addressed this issue by reviewing cash flow
forecasts, together with associated sensitivity analysis and a
reverse stress test scenario considering risks and potential
impacts relating to Covid 19 provided by senior management
having considered the Group's business model. In particular this
included examining and challenging the appropriateness of the
assumptions used to prepare them and the scenarios considered.
This is also an area of significant audit risk and accordingly the
Committee received detailed verbal and written reporting from
BDO on this matter. Having reviewed these reports and
submissions, the Committee has advised the Board that the
Group has adequate resources to continue in operational
existence for the foreseeable future and that the going concern
basis is the appropriate basis of preparation for the 2019
financial statements but that a material uncertainty exists in
respect of going concern as a result of potential impacts of Covid
19 ( See Note 2 to the financial statements).
Misstatements
Management reported to the Committee that they were not aware of any material or immaterial misstatements made intentionally to
achieve a particular presentation. The auditors reported the misstatements that they had found in the course of their work to the
Committee and confirmed that no material amount remained unadjusted.
Internal control
The Audit Committee monitors the integrity of the financial statements and related announcements, reviews the Company’s internal
control processes and risk management systems, and reports its conclusions to the Board. The Committee regularly reviews the
effectiveness of the Company’s systems of internal control and risk management.
Risk management
The Risk Committee, which comprises senior management and functional experts, assists the Board in discharging their responsibility
to review on an ongoing basis the risks potentially facing the Group, their potential impact, the strategies available to mitigate those
risks and the costs of such mitigation.
The Risk Committee met once in 2019 (2018: once).
The Chairman of the Risk Committee reports to the Audit Committee and the Board at relevant meetings on matters it has reviewed
and material changes to the Group’s risk environment, in addition to making recommendations when appropriate.
Following each Risk Committee meeting, the Committee reviews the minutes, the latest Risk Register and related output, and
challenges the Group’s high-rated risks and the mitigating actions identified by each risk owner. An updated list of principal risks is
included within the Strategic Report on pages 32 to 39.
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For each high-rated risk the Committee reviews the Group’s current level of exposure and considers the appropriateness of the
mitigating actions being taken by management.
The Committee was comfortable with the processes in place for risk management.
Additional information on risk management is included in the ‘Principal risks and how we manage them’ section on pages 30 to 32.
Internal Audit
The Internal Audit Manager has direct access to the Chairman of the Audit Committee and undertook a number of significant pieces of
work including:
A health check of the main processes established at JKX’s Hungarian asset, including distribution of roles and responsibilities
between JKX management and contractors;
Coordinating the Risk Management process at all JKX entities;
Continuous monitoring of the software development process at PPC during implementation of a new ERP system; and
Participation in Compliance Committee meetings, ensuring that supporting measures are timely taken.
The Audit Committee remains fully supportive of the development of the Internal Audit programme which is intended to ensure that
the necessary processes and controls are firmly embedded within our organisation making the control environment stronger and more
efficient.
External Audit
The Audit Committee maintains an objective and professional relationship with the Company’s auditors, BDO LLP. BDO were appointed
with effect from 18 October 2018 following a competitive tender process.
The Audit Committee are fully supportive of the Code’s requirement that the audit should be put out to tender at least once in every ten
years. Any decision to open the external audit to tender within ten years is taken on the recommendation of the Audit Committee based
on the results of the annual performance review.
Non-audit services
During the year the Committee reviewed their policy governing the engagement of the external auditor to provide non-audit services.
The policy precluded the auditor from providing certain services such as valuation work or the provision of accounting services and
also sets a presumption that the external auditor should only be engaged for non-audit services where there is no legal or practical
alternative supplier.
In such instances, the continued objectivity and independence of the auditors in their capacity of auditor is an objective of the Group.
The Committee approves all non-audit services procured from the auditors. During 2019 in addition to the statutory audit fee BDO LLP
and member firms charged the Group $80,000 for audit-related assurance services.
Further details of the fees paid, for both audit and non-audit services, can be found in Note 22 to the consolidated financial statements.
The Committee is satisfied that the quantum of the non-audit services provided by BDO is such that the objectivity and independence
of the external auditor had not been compromised during their tenure.
Tony Alves
Chairman of the Audit Committee
31 March 2020
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Directors' remuneration report
JKX Oil & Gas plc Annual Report 2019
Introduction
On behalf of the Board, I am pleased to present our Remuneration Report for the year ended 31 December 2019, my first as Chairman of
the Remuneration Committee.
During 2019 the Remuneration Committee has reviewed remuneration across the Group, adopting a fit-for-purpose approach that
ensures that the necessary talent and skills are available at all levels of the Group in each of the locations in which it operates.
More specifically the Remuneration Committee has undertaken a number of significant activities, including reviewing the
remuneration of the Chairman, the Non-Executive Director’s, the Chief Executive (the Company's sole Executive Director) and senior
executives, updating the KPI’s and reward structures for key staff and implementing additional remuneration for technical staff who
have skills that are particularly in demand.
The Remuneration Committee has a full agenda, ensuring that the Directors' Remuneration Policy and remuneration structures for its
Executive Director, Non-Executive Directors and senior executives remain in line with market trends and governance development.
The Remuneration Committee annually examines the evolution of remuneration practices and policy for Executive Directors, Non-
Executive Directors and senior executives of the Company.
The Company’s existing Directors' Remuneration Policy has applied since 1 January 2015, having been initially approved by
shareholders at the 2014 AGM and re-instated at the AGM in 2017. This policy will expire this year and at the upcoming AGM, currently
expected to take place on 12 June 2020, the Remuneration Committee will put forward a new Directors' Remuneration Policy for
approval, which (if approved) shall apply from the date of the AGM (the "New Policy"). The New Policy will be a continuation of the
existing Remuneration Policy, albeit that it will be updated to reflect the new requirements introduced by the new UK Corporate
Governance Code 2018 (the "Code") and changes to the legislative framework. The New Policy is disclosed on pages 64 to 71 and a
summary of the changes can be found in the "Looking Ahead" section noted below.
Reward principles
The principles of the Company’s remuneration policy are to:
pay an appropriate level of total remuneration in relation to Group and individual performance and with reference to peer group
companies in order to attract, retain and motivate individuals with the appropriate skills and capabilities;
ensure that there is an appropriate link between performance and reward;
award annual bonuses which reflect the achievement of short term financial and strategic objectives as well as personal
performance; and
maintain the ability to foster long-term strategic thinking and to align the executive directors with shareholders through awards
granted under the Performance Share Plan (PSP) that vest over several years.
Each element of remuneration has a specific role in achieving the objectives of the remuneration policy and aligning the interests of
Executive Directors with the interests of shareholders. The combined potential remuneration ensures that the balance of the executive
remuneration package includes significant at risk performance pay.
More than 95% of Group staff are based outside of the UK, primarily in the Ukraine and Russia. The Remuneration Committee takes
into account remuneration conditions elsewhere in the Company, and particularly for those employees based in the UK, in formulating
the Executive Directors' remuneration policy.
Board Changes
On 23 May 2019 Hans Jochum Horn and Adrian Coates stood down from the Company’s Board of Directors at the 2019 Annual General
Meeting and were not reappointed. During the meeting, Victor Gladun, General Director of the Company's main operating subsidiary,
Poltava Petroleum Company (‘PPC’), was appointed as an Executive Director of the Company.
Following the AGM, Christian Bukovics and Andrey Shtyrba tendered their resignations as Non-Executive Directors of the Company
and left the Board at the end of their three months' notice period, on 22 August 2019.
Until 23 May 2019 the Remuneration Committee comprised Andrey Shtyrba (as Chairman), Christian Bukovics, Hans Jochum Horn and
Michael Bakunenko. From 23 May 2019 until 22 August 2019 the Remuneration Committee comprised Andrey Shtyrba (as Chairman),
Christian Bukovics and Michael Bakunenko. From 22 August until 16 September there were no independent directors and the
Company was not able to form a Remuneration Committee compliant with the Code.
On 16 September 2019 three independent Non-Executive Directors joined the Board and on 20 September 2019 a Remuneration
Committee comprising three independent Non-Executive Directors (Dr Rashid Javanshir (Chairman), Tony Alves and Charles
Valceschini) was formed. The Chairman did not have at least 12 month’s experience on a remuneration committee prior to his
appointment as Chairman of the Committee as recommended by the Code. The Board however took into account the size of the Group,
the existing remuneration structure and Dr Javanshir’s general management experience and considered him well suited to the role.
There were no Directors appointed as Executive Directors prior to 23 May 2019. On 23 May 2019, Victor Gladun was appointed as an
Executive Director of the Company at the Annual General meeting and on 20 September he was additionally appointed as the CEO of
the JKX Group. Victor Gladun does not receive any board or committee fees in addition to his i) salary (as set out in section 2 below) in
relation to his role as CEO of the Company and Group; and ii) and his other executive roles including as General Director of PPC. The
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Remuneration Committee considers that the CEO’s remuneration is appropriate and reflects input from a benchmarking study
conducted by h2glenfern, specialist remuneration consultants.
Remuneration and discretion in 2019
Details of the remuneration decisions for the reporting year are covered in the Annual Report on Remuneration below.
As discussed in the Chairman and CEO’s reports, the Group’s performance in 2019 was strong with an increase in production volumes
and profitability despite difficult trading conditions and a declining Ukrainian gas price. As a result, the Remuneration Committee
concluded that Victor Gladun had met the KPI’s agreed with the previous board in his capacity as General Director of PPC at the
beginning of 2019 and awarded him an annual bonus of $382,000 for his performance in the 2019 financial year. No other bonus
payments or incentives (including any share options or awards in the Company or Group) were paid to Victor Gladun. More information
about the level of bonus awarded can be found in the later sections of this Remuneration Report.
The Remuneration Committee aims to ensure that total remuneration is set at an appropriate level relative to its peer group
comparator companies, those being UK-based oil and gas companies which are primarily quoted on the London Stock Exchange or AIM,
and it has sought advice from specialist, independent remuneration consultants in doing so. The main components of remuneration for
Executive Directors and senior management are basic annual salary, pension and benefits (including non-contributory health
insurance and life assurance) and an annual bonus scheme linked to short-term financial and strategic objectives.
Board fees for Non-Executive Directors were reduced in 2019 in line with market comparators in the light of a benchmarking exercise
carried out by Pearl Meyer, specialist remuneration consultants, and to reflect the Non-Executive Directors’ reduced time commitment
following Victor Gladun's appointments in May and September 2019. The Non-Executive Director (Michael Bakunenko) who was not
independent had previously waived his board fees with effect from 22 March 2018 and ceased to be a member of the Remuneration
Committee on 20 September 2019.
The Remuneration Committee considers that the remuneration of the sole Executive Director and the Non-Executive Directors
operated as intended in 2019 in terms of quantum and Company performance.
Looking ahead
The current Directors' Remuneration Policy will expire this year and we are seeking your support and approval for the new
remuneration policy which is intended to apply for three performance years from the date of the 2020 AGM. As noted above, it is
intended that the New Policy will be a continuation of the previous Directors' Remuneration Policy and the sole Executive Director’s
salary will remain unchanged as a result of the approval of the New Policy. The new remuneration policy reflects the following limited
changes to the existing policy:
a) malus and clawback provisions may apply to the annual bonus award, in line with the FRC's best practice guidance;
b) shareholding guidelines apply post-cessation of employment as set out on page 68, at the lower of the shareholding guidelines and
the executive director's actual shareholding on the date that he/she leaves employment. Please see page 68 for more details;
c) any PSP awards will be subject to total holding and vesting period of 5 years from grant;
d) any PSP awards may be subject to enhanced malus and clawback provisions, in line with the FRC's guidance.
The Remuneration Committee believes that the New Policy will continue to strike the right balance between generating sustainable
success for the Group and for our shareholders and rewarding exceptional performance of our Executive Director, senior management
and NEDs. The Remuneration Committee considers that the New Policy is appropriate in the light of the benchmarking studies carried
out in 2019 by Pearl Meyer (in relation to the Chairman and Non-Executive Director’s fees) and h2glenfern (in relation to the CEO’s
remuneration) and the challenges and opportunities that the Group faces.
The Group is determined to foster trust and open dialogue between its staff and the Board in all governance matters, including
executive pay. Similarly, in designing the New Policy, the Remuneration Committee considered the incentive opportunity awarded to
the Group's workforce. All UK employees are eligible to receive an annual pension contribution equivalent to 15% of base salary, on the
same basis as the Executive Director, and life assurance, income protection and private medical cover. The Executive Director receives
the same vacation allowance as employees in the Ukraine, his principal work location and participates in the annual bonus on a similar
basis to other employees (albeit that the performance weightings and opportunities within the annual bonus plan will vary depending
on role, tenure, seniority and individual performance).
Principles of Remuneration
The Remuneration Committee strives to ensure that the Directors' remuneration attracts and retains the best talent, fosters
sustainable growth and preserves the flexibility to change to market conditions and trends. The following principles have been
considered when determining our Directors' remuneration and in designing the New Policy:
Clarity - The Remuneration Committee has adopted a harmonious approach to remuneration. The Group's workforce and its sole
Executive Director are all eligible to receive an annual cash bonus on the satisfaction of their KPIs, along with their cash salary. In
2019, the sole Executive Director did not participate in the Company's PSP nor was he awarded any other shares or options to acquire
shares.
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JKX Oil & Gas plc Annual Report 2019
Simplicity - The Remuneration Committee strives to ensure that performance measures are clear and transparent with respect to the
annual bonus (including the relative weighting thereof). To the extent that any share interests are granted to Executive Directors in
the future under the Company's PSP or other performance plan arrangement, the Remuneration Committee will disclose the Executive
Directors' KPIs and relative weightings thereof in the remuneration report for the relevant year.
Risk - The Remuneration Committee has the discretion to reduce and clawback any awards granted under the PSP and annual bonus
plan. Please see page 70 below for more information on the application of malus and clawback. Given the inherently discretionary
nature of the annual bonus scheme, there is no opportunity for inflated payments to Executive Directors due to formulaic outcomes.
Predictability - the range of possible values of the Executive Director's remuneration alongside the Remuneration Committee's
discretion to reduce or stop the vesting of awards under the PSP and annual bonus plan is set out in the New Policy (which has been
detailed on pages 64 - 71).
Proportionality/Alignment to culture - the Remuneration Committee strives to align the Executive Director's remuneration with the
short-to-medium term success of the Group through the annual bonus scheme which is linked to the performance of the individual and
the Group during the previous financial year. Further, the Policy reserves the flexibility with the use of the PSP to link Executive
Director performance to the long-term growth of the Company if there is a desire in the future from the Company and our shareholders
to do so.
Remuneration disclosure
This Report is split into two parts: the Directors’ Remuneration Policy and the Directors’ annual remuneration report:
The Annual Report on Directors’ Remuneration (pages 58 to 64) sets out details of how our existing remuneration policy has been
applied for the year ended 31 December 2019. This section is subject to an advisory shareholder vote. A summary of the existing
Remuneration Policy that has applied since 1 January 2015 can be found in the 2014 Annual Report.
The new Directors' Remuneration Policy (pages 64 to 71) which shall be subject to a vote at the 2020 AGM and which is intended to
apply from the date of the 2020 AGM.
These sections work together to give you full and transparent disclosure of the Company’s approach to Directors’ remuneration during
2019, 2020 and for the years to come.
The Remuneration Committee will continue to review the Remuneration Policy for Executive and Non-Executive Directors on a regular
basis to ensure that it is in compliance with the regulatory framework, market practice and is appropriate in the business environment
that the Group operates.
The Report was approved by the Board of Directors and signed on its behalf by
Dr. Rashid Javanshir
Chairman of the Remuneration Committee
31 March 2020
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Work of Remuneration Committee during 2019
The Company’s Remuneration Committee is responsible for establishing and overseeing the Group's Director and senior executive
remuneration policy principles, approving remuneration arrangements, exercising oversight of Director remuneration and for
communicating Director remuneration to its stakeholders.
A summary of the Remuneration Committee's role and activities during 2019 can be found in the table below:
Members from 1 Jan 2019
Role of the Committee
Activities during 2019
Establishes the overall principles of
remuneration for Directors of all Group
companies
In addition to regular topics, the
Committee engaged in specific matters
including:
Determines the remuneration of
Executive Directors and Senior
Management, communicates this to the
stakeholders in the annual report
Recommends the participation in, and
operation of, the Company’s long-term
incentive plans.
The full terms of reference are available
from the Company’s website
Review and approval of performance
targets for the 2019/20 Annual Bonus
Scheme, and
Review the application and
appropriateness of current
remuneration policies.
Setting of Non-executive Directors fee
levels and Executive Director
remuneration.
Dr. Rashid Javanshir (as Chairman) -
appointed 20 September 2019
Charles Valceschini - appointed 20
September 2019
Tony Alves- appointed 20 September
2019
Michael Bakunenko – appointed 8
October 2018, resigned as a member of
the Committee on 20 September 2019
Andrey Shtyrba (as Chairman) -
appointed 11 December 2017, resigned
22 August 2019
Christian Bukovics – appointed
9 February 2018, resigned 22 August
2019
Hans Jochum Horn - appointed
11 December 2017, stood down 23 May
2019
Membership and process
Members
From
Dr. Rashid Javanshir (Chairman)
20 September 2019
20 September 2019
20 September 2019
To
present
present
present
Tony Alves
Charles Valceschini
Michael Bakunenko
Andrey Shtyrba
Christian Bukovics
Hans Jochum Horn
8 October 2018
20 September 2019
11 December 2017
22 August 2019
9 February 2018
22 August 2019
11 December 2017
23 May 2019
Number of meetings
in 2019 -
Attendance/Eligibility
2/2
2/2
2/2
1/1
1/1
1/1
1/1
Dr. Rashid Javanshir, Charles Valceschini and Tony Alves joined the Board as independent Non-Executive Directors on 16 September
2019 and were appointed to the Remuneration Committee on 20 September 2019. Dr. Rashid Javanshir was appointed as Chairman of
the Remuneration Committee on 20 September 2019. This is Dr. Rashid Javanshir’s first time serving on a Remuneration Committee.
Although the Code recommends that a Chairman has at least 12 months experience on a Remuneration Committee before being
appointed as Chair, the Board took into account the size of the Group, the existing remuneration structure and Dr Javanshir’s general
management experience and considered him well suited to the role.
Between 22 August and 20 September 2019 the Board did not have a Remuneration Committee as a result of the Board restructure.
The Remuneration Committee meets at least twice a year to assist the Board in determining the remuneration arrangements and
contracts of the Directors and senior employees. The Remuneration Committee met three times during 2019.
During 2019, no member of the Remuneration Committee had any personal financial interest and no conflicts of interests arise from
cross-directorships or day-to-day involvement in running the Group. No Director plays a part in any decision regarding his/her own
remuneration.
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JKX Oil & Gas plc Annual Report 2019
Advisors to the Remuneration Committee
Members of the Remuneration Committee provide valuable input in shaping the remuneration practice and polices for Executive
Directors. Similarly the Remuneration Committee also seeks internal input from other members of the Board in determining Executive
Remuneration and assessing its appropriateness.
In addition, during the year, the Remuneration Committee received advice and information from Pearl Meyer and h2glenfern,
specialist remuneration consultants with experience of peer companies in the same sector in order to ensure that the Non-Executive
Directors’ fees and the CEO’s remuneration package remained appropriate and market related. Both were appointed as an independent
remuneration consultant following a tender process conducted in 2019. The aggregate amount of the fees paid to Pearl Meyer and h2
glenfern for advice to the Remuneration Committee during 2019 amounted to £11,400.
The Remuneration Committee is satisfied that the advice they have received was objective and independent and was free of any
conflict in interest.
Statement of voting at General Meeting
At the Annual General Meeting held on 23 May 2019, the Directors’ Remuneration Report received the following votes from
shareholders:
For
Against
Total votes cast (for and against, excluding withheld votes)
Votes witheld1
Total votes (for, against and withheld)
Total number of votes
% of votes cast
99,778,459
30,381
99,808,840
47,289,211
147,098,051
99.97%
0.03%
100 %
47%
1 A withheld vote is not a vote in law and is not counted in the calculation of votes cast “for” and “against” a resolution.
Single figure of total remuneration
The table below sets out a single figure for the total remuneration received by each Director of the Company in respect of their
employment with the Company’s Group (defined as the Company and PPC and YGE, being the only entities in the Group that have any
employees) for the financial years ended 31 December 2018 and 31 December 2019. Since 28 January 2016, all Directors' remuneration
was rebased to US Dollars (the Group’s reporting currency).
Single figure of total remuneration for Executive Directors (audited)
The table below sets out a single figure for the total remuneration received by each Executive Director for the year ended 31 December
2019 since his appointed as CEO and the Company's sole Executive Director on 23 May 2019. In 2019, the Executive Director’s contract
was settled in its Ukrainian Hryvna equivalent. Figures in this Report are disclosed in US Dollars (the Group’s reporting currency).
Amounts paid were translated at the National Bank of Ukraine monthly average exchange rates in accordance with the Group’s foreign
exchange policy.
Salary and fees
Benefits3
Annual
Bonus4
Pension5
$’000
$’000
$’000
$’000
2019
Executive Director
Victor Gladun
Chief Executive Officer1
General Director
Total
33
2612
294
-
-
-
382
382
-
-
Total
$’000
331
643
676
1 This represents additional salary received following the appointment of Victor Gladun as a Chief Executive Officer from 20 September 2019 and is a prorated proportion of his
additional salary payable as CEO of $120,000 per annum together with separate remuneration in his role as General Director of PPC.
Salary: amount earned in 2019 by Victor Gladun in his capacity as General Director of PPC following his appointment as an Executive Director on 23rd May 2019
2
3 Benefits: the taxable value of benefits received in the year, including life assurance and private medical cover are negligible.
4 Annual Bonus: this is the total cash bonus earned based on performance for the 2019 calendar year and paid in Q1 2020.
5 Pension: annual contribution by the Group to directors’ pension plans or cash in lieu. Victor Gladun will receive an amount which is 15% of his base salary, which is line with the
rest of the UK workforce rate, from 1/1/2020.
6 Victor Gladun does not receive any board or committee fees in his capacity as Executive Director of the Company or for any other executive role that he holds in the Group.
Victor Gladun has not received any other benefit from the Group (including any share awards). As no shares have been awarded, no amount of Victor Gladun's remuneration has
been subject to any share price appreciation or depreciation. No aspect of Victor Gladun's remuneration has been deferred.
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JKX Oil & Gas plc Annual Report 2019
Fixed - cash salary
Discretionary - Annual bonus award
The Company did not have any Executive Directors prior to 23 May 2019. On 23 May
Victor Gladun was appointed as an Executive Director of the Company at an Annual
General meeting. Victor Gladun has held the position of CEO from 20 September 2019
and was paid a proportion of his annual CEO salary starting from this date. He does
not receive any board or committee fees in addition to his salary for his CEO and
other executive roles including as General Director of PPC.
The Executive Director’s basic salary and the other fixed elements of pay are
determined by the Remuneration Committee on appointment and then reviewed at
the beginning of each year and within the parameters of the remuneration policy.
The individual salary and benefits of the Executive Director were set taking into
account individual performance and market factors, with reference to independent
and objective research conducted by h2glenfern that provides up-to-date
information on a comparator group of UK companies operating in the independent oil
and gas sector.
Victor Gladun received an annual bonus of $240,000 for the 2018 calendar year (paid
in 2019) in respect of his role as General Director of PPC. This was calculated by
reference to KPI’s agreed by the previous board for the 2018 year. He received an
annual bonus of $382,000 in Q1 2020 in relation to his performance in 2019 calendar
year.
Pension
The Company will make a contribution equivalent to 15% of basic salary for the
Executive Director with effect from 1/1/20.
Taxable benefits
At his option, the Executive Directors may either have contributions of the same
amounts made to his personal pension schemes or cash in lieu of pension at the stated
rate, or a combination of pension contributions and cash in lieu at the stated rate,
subject to normal statutory deductions.
Benefits provided to the Executive Director include life assurance, which is also
provided for senior managers, for a sum assured of four times base salary and private
medical cover is offered to all Company employees and provides medical cover for
them and their dependents, on a non-contributory basis.
Notes to table
There was no Executive Director appointed in 2018.
Basis for determining Executive Director's annual bonus award
The annual cash bonus award reflects the Remuneration Committee's assessment of the extent to which his financial and non-financial
KPIs were achieved.
The Annual Bonus Scheme for the 2019 year applied to certain senior management including senior staff in PPC and Yuzhgazenergie
(‘YGE’). The scheme is discretionary and annual awards are not pensionable. The Remuneration Committee considered Victor Gladun's
performance to have fully met his KPI’s and awarded him 100% of his maximum opportunity under his bonus award for 2019.
The annual bonus scheme payment for the 2018 year awarded to Victor Gladun in Q1 2019 did not relate to his work as Chief Executive
Officer or as an Executive Director of the Company but was based upon his 2018 KPI’s and achievements in his capacity as General
Director of PPC. This annual cash bonus award was paid prior to Victor Gladun's appointment as an Executive Director of the Group and
therefore, in accordance with the legislative framework, we have not reported on the assessment of the bonus in this report.
Annual bonuses for the 2019 year paid in January 2020 will be further disclosed in next year's report (including the relevant KPIs and
reporting thereof).
Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out a single figure for the total remuneration received by each Non-Executive Director of the Company for the
financial years ended 31 December 2018 and 31 December 2019.
All Non-Executive Directors' remuneration was rebased from GBP to US Dollars from 28 January 2016 (the Group’s reporting currency).
However, in accordance with the letters of appointment, Dr. Rashid Javanshir, Tony Alves, Adrian Coates and Christian Bukovics
director fees were settled in its Sterling equivalent at the rate set in accordance with the Group’s foreign exchange policy.
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JKX Oil & Gas plc Annual Report 2019
$’000
2019
2018
2019
2018
Fees
Total remuneration
Non Executive Directors
Charles Valceschini
Tony Alves
Dr Rashid Javanshir
Michael Bakunenko
Former Non Executive Directors
Hans Jochum Horn
Andrey Shtyrba
Adrian Coates
Christian Bukovics
Vladimir Tatarchuk
Vladimir Rusinov
53
31
26
-
110
96
62
87
-
-
-
-
-
2
260
142
149
113
2
2
53
31
26
-
110
96
62
87
-
-
-
-
-
2
260
142
149
113
2
2
465
670
465
670
The Non-Executive Directors’ fees are subject to an overall cap of £500,000 per annum, excluding exceptional fees for additional work
under the Company’s Articles of Association. In order to ensure compliance with this cap the Non-executive Directors’ waived certain of
their fees in December 2018.
Changes to Non-Executive Directors' remuneration during 2019
The following Non-Executive Directors had been appointed as such during the year:
Non-Executive
Date of contract
Term of contract
Notice period
Date of termination1
Charles Valceschini
16 September 2019
Dr Rashid Javanshir
16 September 2019
Tony Alves
16 September 2019
Michael Bakunenko
8 December 2017
Hans Jochum Horn
24 October 2017
Adrian Coates
8 December 2017
Andrey Shtyrba
24 October 2017
Christian Bukovics
9 February 2018
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
N/A
N/A
N/A
N/A
23 May 2019
23 May 2019
22 August 2019
22 August 2019
1 On 23 May 2019, Hans Jochum Horn and Adrian Coates stood down from the Board and were not reappointed at the Annual General Meeting of the Company. Following the
meeting, Christian Bukovics and Andrey Shtyrba tendered their resignations as directors of the Company and left the Board at the end of their three months' notice period, on
22 August 2019.
All Non-Executive Directors’ letters of appointment automatically terminate if a number of events occur, including material breach,
being disqualified from acting as a director or ceasing to act as a director for other reasons. Non-Executive Directors are appointed for
an initial term of three years and notice periods are three months for either the Company or individual. No compensation is payable
under the terms of the letters of appointment and within the remit of the remuneration policy in force for early termination.
The independent Non-Executive Directors are paid a base fee for carrying out their duties and responsibilities as Directors, fees for
membership of board committees and, where applicable, chairmanship of each of the remuneration, nomination and audit committees.
The fees were reduced in 2019 from the level introduced in 2013 and were based on a per annum rate (in Sterling) which was compared
to published material concerning Non-Executive Director fees in similar size companies and comparable companies in the sector.
All Non-Executive Directors’ remuneration was stated and paid in Sterling until 27 January 2016. From 28 January 2016, all Directors'
remuneration was rebased to US Dollars (the Group’s reporting currency).
These fees were reviewed at the 2019 year end and no increase has been awarded from their 2019 level. Non-Executive Directors’ fees
for 2019 and 2020 are as follows:
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GOVERNANCE
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JKX Oil & Gas plc Annual Report 2019
Position1
2019
2020
% decrease from
2019 to 2020
Chairman of the Company
$250,000
$180,000
Board membership fee
Senior Independent Director
Committee chairman - Audit
Committee chairman - Remuneration
Committee chairman - Nomination
Committee membership – Audit
Committee membership – Remuneration
Committee membership – Nomination
$120,000
$15,000
$15,000
$15,000
$15,000
$7,500
$7,500
$7,500
$60,000
$15,000
$15,000
$15,000
$15,000
$7,500
$7,500
$7,500
28
50
nil
nil
nil
nil
nil
nil
nil
1 These payments relate solely to the position referred to and where a Non-Executive Director holds more than one position he will receive payment for each such position held.
Non-Executive Directors cannot participate in any of the Company’s share schemes nor are they eligible to join the Company’s pension
benefit arrangements. Non-Executive directors who were not independent waived their fees for committee membership with effect
from 23 March 2018, having previously agreed to waive their board membership fees.
Scheme interests awarded in 2019 (audited)
Whilst the Company does still have one long-term incentive plan, the 2010 Performance Share Plan (‘PSP’) which was approved by
shareholders at the 2010 and 2014 Annual General Meetings, no grants have been made to Directors under the PSP (or otherwise)
during 2019.
Percentage change in CEO remuneration
The table below shows the percentage change in the CEO's remuneration from the prior year compared to the average percentage
change in remuneration for UK employees.
The CEO’s remuneration includes base salary, taxable benefits and annual bonus. The analysis excludes part-time employees and is
based on a consistent set of all UK employees, i.e. the same individuals appear in the 2018 and 2019 populations. A comparison with UK
employees is used as the most likely recruitment location for senior staff in a premium listed company; all other Group staff are
employed in Ukraine and Russia which have different economies from the UK driving their remuneration levels and practices.
Base salary
Taxable benefits
Annual bonus
Total
2019
$’000
331
-
382
415
CEO
20182
$’000
N/A
N/A
N/A
N/A
% change
2018 - 2019
100%3
N/A
N/A
100%
All UK employees
% change
2018 - 2019
100%
N/A
N/A
100%
1 This relates solely to the CEO remuneration received by Victor Gladun in the period from his appointment as CEO on 20 September 2019 until year end and does not include any
payment he receives in relation to his role as General Director of PPC. his role as CEO of PPC was received in Q1 2019, prior to his appointment.
2 No amounts were received by a CEO in 2018, and Victor Gladun was not appointed as CEO until 20 September 2019.
3
100% increase is due to the fact that prior to 23 May 2019, the Company did not have an Executive Director.
On 23 May 2019 Victor Gladun was appointed as an Executive Director of the Company at an Annual General meeting. There were no
Executive Directors appointed as Directors in 2018.
Payments for loss of office (audited)
Executive Director Service Contract severance payments
There were no Executive Directors who left the business during the year.
Non-executive Director – Exit payments
On 23 May 2019 Hans Jochum Horn and Adrian Coates stood down form the Board and were not reappointed at the Annual General
Meeting of the Company. No additional payments were made to them. Following the Annual General Meeting, Andrey Shtyrba and
Christian Bukovics, tendered their resignations and such resignations were accepted by the Board, and they left the Board at the end of
their three months' notice period, on 22 August 2019. No additional payments were made to them.
Payments to past directors (audited)
There were no payments made to past directors in 2019.
63
JKX Oil & Gas plc Annual Report 2019
Statement of directors' shareholdings and share interests (audited)
In 2010, the Remuneration Committee introduced an executive share ownership guidelines of 100% of basic salary for Executive
Directors which can be built up over a reasonable period of time from the date of appointment.
Victor Gladun, as the sole Executive Director, does not hold any Shares or options (vested or unvested) in the Company as at 31
December 2019 and has not been awarded any Shares or options as part of his remuneration in 2020 between 1 January 2020 and the
date of this document, nor has he acquired any Shares in the Group. There were no Executive Directors appointed in 2019 prior to
Victor Gladun’s appointment on 23 May 2019.
At 31 December 2019, no Non-Executive Director held any Shares or options (vested or unvested) in the Company. Since 31 December
2019, there have been no changes in the Directors’ interests in shares of the Company.
Relative importance of spend on pay
The table below shows shareholder distributions (i.e. dividends and share buybacks) and total employee pay expenditure for the
financial years ended 31 December 2019 and 31 December 2018, along with the percentage change in both.
All-employee remuneration
Distributions to shareholders
2019
$’000
8,741
-
2018
Year-on-year
$’000
12,502
–
change
(30)%
N/A
1 All-employee remuneration includes total staff costs for the Group and is converted into US$ in accordance with Group foreign exchange policy
2 No dividends or other distributions were made to shareholders in 2018 or 2019.
3 No other significant distributions and payments or other uses of profit or cash-flow were made in 2018 or 2019.
Performance graph and table
The following graph shows the Company’s TSR performance compared to the performance of the FTSE All-Share and FTSE All-Share Oil
& Gas Producers indices over a 10-year period. These indices have been chosen as suitable broad comparators against which the
Company’s shareholders may judge their relative returns given that the Company is a member of the FTSE All-Share and continue to be
part of the FTSE All-Share Oil & Gas Producers Index.
JKX vs FTSE All-Share Index and FTSE All-Share Oil & Gas Producers Index
75.00%
50.00%
25.00%
0.00%
-25.00%
-50.00%
-75.00%
-100.00%
JKX
FTSE All-Share Index
FTSE All-Share Oil & Gas Producers Index
The table below details the Company's Chief Executive Officer's total remuneration over the 10-year period. An investment of £100 in
the Company on 31 December 2009 was worth £8.7at 31 December 2019 (same investment on 31 December 2008 was worth £.14.0 at
31 December 2018).
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GOVERNANCE
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JKX Oil & Gas plc Annual Report 2019
CEO single figure of remuneration -
Paul Davies ($’000)
CEO single figure of remuneration –
Tom Reed ($’000)
CEO single figure of remuneration –
Victor Gladun ($’000)
Total CEO single figure of
remuneration ($’000)
Bonus award - % against maximum
opportunity
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
818
832
983
1,141
1,043
1,322
62
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1,261
325
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
676
818
832
983
1,141
1,043
1,322
1,323
325
N/A
676
40%
43%
33%
62%
33 %
86%
70%
0%
N/A
57%
1
From 28 January 2016, the CEO’s remuneration was rebased to its equivalent US Dollar amount at that time. For financial years 2010 to 2015, the CEO’s single figure
remuneration amounts, which in previous Remuneration Reports were quoted in Sterling, have been converted into their US Dollar equivalent in each year using the following
average Sterling: US Dollar exchange rates as follows: $2010: £1:$1.546; 2011: £1:$1.604; 2012: £1:$1.585; 2013: £1:$1.565; 2014: £1:$1.648; 2015:£1: $1.529. In 2019, the
Executive Director’s contract was settled in its Ukrainian Hryvna equivalent. Amounts paid were converted at the National Bank of Ukraine monthly average exchange rates.
2 No cash bonus award was received by the CEO in 2017.
3 The Company did not have a CEO in 2018 (or any other Executive Director).
4 No CEO of the Company has ever been awarded an award under the Company's Performance Share Plan or any other deferred share bonus or salary.
5 Victor Gladun did not receive any bonus payment in 2019 after his appointment as CEO on 29 September 2020.
6
Single figure remuneration is calculated on the same basis as set out on page 59 and includes both remuneration actually received as CEO in 2019 and also as General Director
of PPC. The figure of $676,000 includes the bonus award made in Q1 2020 in relation to the 2019 financial year.
Summary of policy changes and 2020 implementation
The table below summarises the key components of our proposed remuneration framework, illustrating how it differs from the
existing policy and how we intend to implement the New Policy in 2020. Full details of the New Policy are set out on pages 64 – 71.
As the table below illustrates, the New Policy is intended to be a continuation of the existing policy that was approved by shareholders
at the 2014 AGM and which was re-instated at the 2017 AGM. The full policy, as approved by shareholders, can be found on pages 125-
133 of the 2013 Annual Report, a copy of which can be found on the Company’s website at http://www.jkx.co.uk/investor-
centre/investor-download-centre.aspx
Fixed
Salary
Pension
Existing Policy
New Policy and 2020 implementation
Fixed remuneration set out in the
service contract, to attract and
retain talent, which reflects the
role, skills and responsibilities.
An executive director may receive
payment under different contracts
in relation to different roles (e.g.
acting as Group CEO and General
Director of an operating unit), but
receives no other fees in
relationship to directorship of any
group company or membership of
any Board committee.
An Executive Director receives a
payment in lieu of pension of 15% of
base salary per annum, in line with
the pension contributions for UK
workforce.
No change to the Policy.
An Executive Director’s basic salary and the other
fixed elements of pay are determined by the
Remuneration Committee on appointment and then
reviewed at the beginning of each year and within the
parameters of the remuneration policy. The individual
salary and benefits of the Executive Director were set
taking into account individual performance and
market factors, with reference to independent and
objective research that provides up-to-date
information on a comparator group of UK companies
operating in the independent oil and gas sector.
No change.
At their option, Executive Directors may either have
contributions of the same amounts made to their
personal pension schemes or cash in lieu of pension at
the stated rate, or a combination of pension
contributions and cash in lieu at the stated rate,
subject to normal statutory deductions.
Benefits
Life assurance, private medical
insurance and other benefits at the
Remuneration Committee's
discretion.
No change.
65
JKX Oil & Gas plc Annual Report 2019
Discretionary
Annual bonus
Existing Policy
New Policy and 2020 implementation
To align the executive director with
the short-term and medium-term
success of the Group.
Enhanced malus and clawback provisions may apply
and may be exercised at the discretion of the
Remuneration Committee. No other change.
PSP Award
The Remuneration Committee has
the discretion to defer the annual
bonus into shares to be held for one
year.
KPIs are set by the Remuneration
Committee at the start of each year.
The measures selected may vary
each year depending on business
context and strategy, and measures
will be weighted appropriately
according to business priorities.
Under normal circumstances,
financial measures will make up at
least half of the total bonus
opportunity.
The Remuneration Committee has
the ability to grant awards of nil-
cost options annually to executive
directors, conditional on group
performance.
Maximum opportunity: 150% base
salary.
Previous Measures and weightings:
25% TSR;
25% Earnings per share;
25% Other financial measures
(e.g. ROCE, Profit before tax, cash
resources);
25% Strategic and operational
measures (e.g. production,
reserves).
Three-year vesting period.
No PSP award was made in 2019.
PSP awards granted will be subject to a further two-
year holding period after vesting (total vesting and
holding period of 5 years).
No PSP award is intended to be made in 2020.
To the extent that any PSP award is granted, full
disclosure of the KPIs and relative weightings will be
disclosed in following annual report.
Enhanced malus and clawback provisions will apply
and may be exercised at the discretion of the
Remuneration Committee.
Other
Shareholding
guidelines
100% of base salary.
NED fees
Fees reflect experience and skill of
the individuals and responsibilities
and time commitments for the role.
The lower of the shareholding requirement or the
Executive Director's actual shareholding will be
maintained for two years post-employment, releasing
on a phased basis: 50% after year 1 and 50% year two.
No change.
Fee levels will be next reviewed during 2020, with any
increase effective 1 January 2021. It is expected that
increases to Non-Executive Director fee levels will be
in line with salaried UK-based employees over the life
of the New Policy.
Directors' Remuneration Policy
The New Policy will be put to shareholders for approval at the AGM to be held on 12 June 2020. Subject to approval, the New Policy is
intended to apply for three years from the date of the AGM. The Remuneration Committee is satisfied that the New Policy is in the best
interests of shareholders and does not promote excessive risk-taking.
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The New Policy is a continuation of the existing remuneration policy, subject to the following differences:
a) malus and clawback provisions may apply to the annual bonus award, which may be exercised at the Remuneration Committee's
discretion, in line with the FRC's best practice guidance;
b) Shareholding guidelines apply post-cessation of employment, at the lower of the shareholding guideline and the executive
director's actual shareholding on the date that he/she leaves employment;
c) any PSP awards will be subject to total holding and vesting period of 5 years from grant;
d) any PSP awards may be subject to enhanced malus and clawback provisions.
Future Policy Table
Base salary
Purpose and link to strategy
Operation
To attract and retain the best talent by ensuring base salaries reflect individual performance,
market factors and the individual's role, responsibilities and skills.
Base salaries are reviewed annually, with reference to the individual’s role, experience and
performance; salary levels are referable to relevant UK sector comparators, and the range of
salary increases applied across the Group.
Maximum Opportunity
Any base salary increases are applied in line with the outcome of the annual review.
Different increases may be awarded at the Remuneration Committee's discretion in instances
such as:
a) where there has been a significant increase in the size, value or complexity of the Group;
b) there has been a change in the role/responsibility;
c) the incumbent executive director is paid below market comparators.
Performance metrics
Business and individual performance are considered in setting base salary.
Comparator companies used to assess market pay competitiveness have historically included UK-based oil and gas companies listed on
the London Stock Exchange or AIM. The Remuneration Committee reviews comparator companies periodically to ensure they remain
appropriate and retains the discretion to adjust the reference group or companies as appropriate. In 2019, h2glenfern, a specialist
remuneration consultant, was engaged to assist the Remuneration Committee is setting the Executive Director's remuneration and
conducted a benchmarking exercise to ensure that it remained in line with market norms..
Pension
Purpose and link to strategy
To provide competitive retirement benefits and to encourage long-term saving and planning
for investment.
Operation
The Company makes a contribution to the pension scheme of the individual’s choice.
At their option, Executive Directors may either have equivalent contributions made to their
personal pension schemes or cash in lieu of pension or a combination of both.
Maximum Opportunity
Executive Directors are eligible to receive an annual contribution equivalent to 15% of base
salary, in line with the rest of the UK workforce.
Performance metrics
Not performance related.
Benefits
Purpose and link to strategy
To provide competitive benefits.
Operation
Executive Directors receive benefits which include, but are not limited to, life assurance and
private medical cover, although can include any such benefits that the Remuneration
Committee deems appropriate, including (but not limited to) a car or a car allowance and long-
term disability insurance.
Maximum Opportunity
Benefits values vary by role and are reviewed periodically relative to market circumstances.
The cost of the benefits provided changes in accordance with market conditions and
jurisdiction and will, therefore, determine the maximum amount that would be paid in the
form of benefits during the life-time of the Policy. The Remuneration Committee retains the
discretion to approve a higher cost in exceptional circumstances (e.g. relocation) or in
67
JKX Oil & Gas plc Annual Report 2019
circumstances where factors outside the Company’s control had changed materially (e.g.
increases in insurance premiums).
Performance metrics
Not performance related.
Annual bonus
Purpose and link to strategy
To incentivise the achievement of short-term and medium-term financial and strategic
objectives on an annual basis
Operation
Performance measures, targets and weightings are set at the start of the year according to
strategic priorities.
At the end of the year, the Remuneration Committee determines the extent to which the
targets have been achieved, with any bonus payments delivered in cash. The annual bonus is
paid at the start of the following financial year (in relation to the executive director's
performance of the previous year).
For Executive Directors, the Remuneration Committee has the discretion to mandate the
deferral of a proportion (up to 100%) of the annual bonus in JKX shares, to be held for a
minimum of 1 year.
The annual bonus award (and any deferred shares) may be subject to malus and clawback
provisions, which can be exercised at the Remuneration Committee's discretion, in the event
of material erroneous, misleading data, gross misconduct, misstatement of accounts, serious
reputational damage, and corporate failure. Please see the notes to the table for more
information.
The sale of any deferred shares is subject to meeting shareholding guidelines.
For Executive Directors, the maximum annual bonus opportunity is 100% of base salary or
150% of base salary in exceptional circumstances.
Performance is assessed annually based on challenging and stretch targets for operational,
organisational, financial and health and safety performance. The measures selected may vary
each year depending on business context and strategy, and measures will be weighted
appropriately according to business priorities. Under normal circumstances, financial
measures will make up at least half of the total bonus opportunity. The targets and relative
weightings will be disclosed in the annual report following the relevant financial year.
Payment of any annual bonus award will be subject to a discretionary underpin (including
individual performance).
The Remuneration Committee has the discretion to alter the measures and/or targets during
the performance period if it believes the original measures and/or targets are no longer
appropriate.
The Remuneration Committee has discretion to adjust the formulaic bonus outcomes both
upwards and downwards within the plan limits (including down to zero) to ensure alignment
of pay with the underlying performance of the business, e.g., in the event of a target being
significantly missed or unforeseen circumstances outside of management control.
To incentivise strong long-term financial performance and superior longer term returns to
shareholders relative to peers and to align the interests of executive directors and
shareholders.
The Remuneration Committee has the ability to grant awards of nil-cost options annually to
Executive Directors, conditional on Group performance over a period of at least three years.
Shares that vest under the PSP may then be subject to an additional holding period of up to
two years.
The PSP awards may be subject to malus and clawback provisions, which may be exercised at
the Remuneration Committee's discretion, in the event of material erroneous, misleading
data, gross misconduct, misstatement of accounts, serious reputational damage, and
corporate failure. Please see the notes to the table for more information.
Opportunity
Performance metrics
Performance Share Plan
Purpose and link to strategy
Operation
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JKX Oil & Gas plc Annual Report 2019
Opportunity
Performance metrics
The sale of vested PSP awards is subject to meeting shareholding guidelines.
The PSP provides for an award up to a normal aggregate limit of 150% of salary for Executive
Directors, with an overall limit of 200% of salary in exceptional circumstances.
Vesting of PSP awards is subject to continued employment and the Company’s performance
over a 3-year performance period. If no entitlement has been earned at the end of the
relevant performance period, awards will lapse.
From 2015, PSP awards are based on a number of financial and strategic measures, which may
include, but are not limited to:
TSR;
Earnings per share (‘EPS’);
Other financial measures (e.g. ROCE, Profit before tax, cash resources); and
Strategic and operational measures (e.g. production, reserves).
In addition, awards are subject to an underpin such that for any PSP awards to vest, the
Remuneration Committee must satisfy themselves that health and safety performance has
been satisfactory over the performance period. Each measure can be applied a weighting of
between 0% and 50%. Executive Directors will not be rewarded for poor performance. The
Remuneration Committee has the discretion to adjust the performance measures and
weightings in advance of making a PSP award to ensure that they continue to be linked to the
delivery of Company strategy and long-term success of the Company. Performance measures
and weightings, as well as performance against these, will be disclosed in the Report on
Remuneration for the relevant year.
Under each measure, threshold performance will result in up to 25% of maximum vesting for
that element. The vesting level will increase on a sliding scale to 100% vesting for stretch
levels of performance.
Vesting of PSP awards may be deferred in whole or in part for a period of up to two years
following the end of a three year vesting period.
As under the annual bonus, the Remuneration Committee has discretion to adjust the
formulaic PSP outcomes within the PSP limits to ensure alignment of pay with performance,
i.e. to ensure the outcome is a true reflection of the performance of the Company and the
individual.
Shareholding guidelines
Purpose and link to strategy
To align Executive Directors with the strategic long term success of the Company.
Operation
To the extent that Executive Directors are awarded share options and shares as part of their
remuneration package, Executive Directors may be required to build up a shareholding in the
Company over a reasonable period.
All beneficially owned shares and deferred annual bonus shares and vested PSP awards will
count towards an individual's shareholding on a net of tax basis (where relevant).
The lower of the Shareholding guideline (100% of base salary) and the individual's actual
shareholding will continue post-employment, unless the Remuneration Committee
determines otherwise (including determining that the Shareholding guidelines shall not
apply where the Executive Director has voluntarily acquired shares in the Company or
Group):
the shareholding requirement will fall to 50% at the end of year 1;
the shareholding requirement will fall to zero after two years.
Maximum Value
100% of base salary.
Performance metrics
Not performance related.
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JKX Oil & Gas plc Annual Report 2019
Non-Executive Directors' fees
Purpose and link to strategy
Operation
To attract and retain Non-Executive Directors of the highest calibre with broad commercial
and other experience relevant to the Company and the Group.
Fee levels are reviewed annually, with any adjustments effective 1 January in the year
following review. The fees paid to the Chairman and Non-Executive Directors are determined
by the Board.
Additional fees are payable for acting as Senior Independent Director and as Chairman of the
Audit, Nomination and Remuneration Committees, and for individual membership of such
committees.
Fee levels are benchmarked against comparable companies in the sector as well as FTSE-
listed companies of similar size and complexity. Time commitment and responsibility are
taken into account when reviewing fee levels.
Opportunity
Non-Executive Directors’ fee increases are applied in line with the outcome of the annual fee
review.
Fee levels will be next reviewed during 2020, with any increase effective 1 January 2021. It is
expected that increases to Non-Executive Director fee levels will be in line with salaried UK-
based employees over the life of the policy. In the event that there is a material misalignment
with the market or a change in the complexity, responsibility or time commitment required to
fulfil a Non-Executive role, the Board has discretion to make an appropriate adjustment to
the fee level within the maximum level set out under the Policy.
The maximum amount that may be paid to non-executive directors is £500,000 as set out in
the Company's Articles of Association.
Additional remuneration for a non-executive director who performs special services (as
determined by the Board) as expressly permitted by the Articles of Association of the
Company is also permitted under this policy.
Performance metrics
None
Non-Executive Directors' expenses
Purpose and link to strategy
Operation
To compensate Non-Executive Directors for expenses incurred in connection with the
performance of their duties.
The Company may reimburse Non-Executive directors for any business related costs (such as
travel costs, accommodation and other subsistence expenses incurred in connection with
their duties) and any associated tax on these.
The Remuneration Committee reserves the discretion to reimburse Non-Executive Directors
for other expenses if it considers that it is appropriate in the circumstances to do so.
Opportunity
The maximum amount payable depends on the costs of providing such expenses.
Performance metrics
None
Notes to the future policy table
Performance measure selection and approach to target setting
The measures used to calculate the annual bonus are selected annually to reflect the Group's main objectives for the year and reflect
both financial and non-financial priorities.
Under the Company's PSP plan, the Remuneration Committee considers the use of TSR to be appropriate since it is dependent on the
Company's relative long-term share price performance and therefore provides strong alignment with the interests of the Company's
shareholders. The Remuneration Committee equally considers EPS to be an appropriate measure, since it is the primary internal
benchmark of long-term financial performance and promotes alignment between management and the Company's shareholders. As
outlined in the Policy Table above, for future grants of long-term incentives, the Remuneration Committee may decide to include other
financial, strategic and operational measures in addition to EPS and relative TSR. Such measures would be selected on the basis of their
relevance to the company's longer term strategy and the Remuneration Committee will provide rationale for their inclusion in the
Annual Report on Remuneration for the relevant year.
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Targets applying to both the annual bonus and PSP awards are reviewed annually, based on a number of internal and external
reference points. Performance targets are set to be stretching but achievable, with regard to the particular strategic priorities and
economic environment in a given year.
Malus and clawback
At any time prior to the vesting of a PSP award, delivery of any deferred shares pursuant to the annual bonus plan, or payment of a cash
bonus, the Remuneration Committee may determine that an unvested award may not vest (regardless of whether or not the
performance conditions have been met). At any time up to three years after the award vests, or a cash payment is paid or shares
delivered, the Remuneration Committee may determine that the cash bonus or shares, or their equivalent value in cash, shall be
returned to the Company as a result of misleading financial performance, or a material misstatement in the financial results of the
Group, a material downturn in the financial performance of the Group, gross misconduct, reputational damage, corporate failure and/or
if the Remuneration Committee considers that the amount of cash bonus or shares under an award cannot be justified based on the
financial performance of the Company or performance of the individual.
Remuneration Committee discretion
In addition to the malus and clawback provisions noted above, the Policy gives discretion to the Remuneration Committee to override
formulaic outcomes of the performance assessment in relation to the annual bonus and PSP.
Recruitment policy: Executive directors
External appointment
In cases of hiring or appointing a new Executive Director from outside the Group, the Remuneration Committee may make use of all
existing components of remuneration, as described on the Policy table above.
In determining appropriate remuneration structure and levels, the Remuneration Committee will take into consideration all relevant
factors to ensure that arrangements are in the best interests of both the Group and its shareholders. The Remuneration Committee
may make an award in respect of a new appointment to ‘buy out' incentive arrangements forfeited on leaving a previous employer, i.e.
over and above the approach outlined in the table above. In doing so, the Remuneration Committee will consider relevant factors
including any performance conditions attached to these awards, the likelihood of those conditions being met and the proportion of the
vesting period remaining.
Any such ‘buy-out' awards will typically be made under the existing annual bonus and PSP schemes, although in exceptional
circumstances the Remuneration Committee may exercise the discretion available under Listing Rule 9.4.2 R to make awards using a
different structure. Any ‘buy-out' awards would have a fair value no higher than the awards forfeited.
Internal appointment
In cases of appointing a new Executive Director by way of internal promotion from within the Group, the Policy will be consistent with
that for external appointees, as detailed above. Where an individual has contractual commitments made prior to their promotion to
Executive Director level, the Company will continue to honour these arrangements even in instances where they would not otherwise
be consistent with the prevailing Executive Director remuneration policy at the time of appointment.
Recruitment policy: Non-Executive directors
In recruiting a new Non-Executive Director, the Board will use the Policy as set out in the table above.
A base fee in line with the prevailing fee schedule would be payable for membership of the Board of Directors, with additional fees
payable for acting as Senior Independent Non-Executive Director and as Chairman of any of the Audit, Remuneration and Nomination
Committees, and for individual membership of such Committees.
The Remuneration Committee considers that external directorships provide the Group's Directors and senior executives with valuable
experience that is of benefit to the Company, and believes that it is reasonable for the individual Non-Executive Director to retain any
fees received from external appointments.
Directors and senior executives may accept appointments outside the Group providing that the Chairman's permission is sought and
granted. Details of Directors external appointments and the associated fees received are included in the Annual Report on
Remuneration.
Service contracts and policy on payment for loss of office
It is the Remuneration Committee's policy that poor performance should not be rewarded. The table below summarises how variable
incentives are typically treated in specific circumstances, with the final treatment remaining subject to the Remuneration
Committee's discretion.
The current Executive Director's contract is for an indefinite term and has a 6 months’ notice period by either the Company or the
individual. This would be the normal policy for new appointments.
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JKX Oil & Gas plc Annual Report 2019
Annual Bonus
Reason for leaving
Timing of vesting/payment
Calculation of vesting/payment
Retirement, ill-health, disability, death or
any other reasons the Remuneration
Committee may determine in its absolute
discretion.
Normal payment date, although the
Remuneration Committee has discretion to
accelerate.
No automatic eligibility for payment. The
Remuneration Committee may in its
absolute discretion award a bonus for the
performance year. Cash bonuses will only
be paid to the extent that Group and
personal objectives set at the beginning of
the year have been achieved. Any resulting
bonus will be pro-rated for time served
during the year.
Change of control.
Any other reason.
PSP
Reason for leaving
Not applicable.
No bonus is paid.
Not applicable.
Not applicable.
Timing of vesting
Calculation of vesting/payment
Retirement, ill-health, disability, death or
any other reasons the Remuneration
Committee may determine in its absolute
discretion.
Normal vesting date, although the
Remuneration Committee has discretion to
accelerate.
Death.
On date of event.
Change of control.
On date of event.
Any outstanding PSP awards will be pro-
rated for time and performance. Note the
Remuneration Committee may in its
absolute discretion waive time pro-rating
of award.
Any outstanding PSP awards will be pro-
rated for time and performance. Note the
Remuneration Committee may in its
absolute discretion waive time pro-rating
of award.
Any outstanding PSP awards will be pro-
rated for time and performance. Note the
Remuneration Committee may in its
absolute discretion waive time pro-rating
of award. In the event of a change of
control, PSP awards may alternatively be
exchanged for new equivalent awards in
the acquirer where appropriate.
Any other reason.
No bonus is paid.
Not applicable.
The table below sets out the date of the Executive Director's service contract, the dates of the Non-Executive Directors' letters of
appointment and their notice periods.
Victor Gladun
Effective 20 September 20192
6 months
Charles Valceschini
Effective 16 September 2019
3 months
Tony Alves
Effective 16 Septmber 2019
3 months
Michael Bakunenko
Effective 8 December 2017
3 months
Dr Rashid Javanshir
Effective 16 September 2019
3 months
Service contracts and letters of appointment are available for inspection at the Company's registered office.
Application of Policy
The table below provides an estimate of the potential future reward opportunities for the Executive Director, and the potential split
between the different elements of remuneration under three different performance scenarios: ‘Minimum', ‘On-target' and ‘Maximum'.
2 Victor Gladun’s contract is for an indeterminate period subject to termination by 6 months’ notice either way.
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JKX Oil & Gas plc Annual Report 2019
Potential reward opportunities are based on the new Policy. The annual bonus is based on the maximum opportunity level which will
apply in 2020. Note that no PSP awards will be been granted in 2020. If a PSP award is granted in the future, a revised version of this
table will be prepared and disclosed in the annual return
The ‘Minimum' scenario reflects base salary, pension and benefits (i.e. fixed remuneration), being the only elements of the Executive
Directors' remuneration package not linked to performance.
The ‘On-target' scenario reflects fixed remuneration as above, plus on-target bonus (60% of salary).
The ‘Maximum' scenario reflects fixed remuneration, plus full payout under all incentives (150% of salary under the annual bonus).
The chart below illustrates the potential future remuneration for the Executive Director under the new policy. In line with current
regulations, the illustrations do not assume any share price growth or dividend equivalent payments in share awards.
Victor Gladun
Illustration of package value under new policy.
Minimum
100%
$415,000
On Target
62.5%
$415,000
Maximum
40%
$415,000
TOTAL: $415,000
37.5%
$249,000
60%
$622,500
TOTAL: $664,000
TOTAL: $1,037,500
Fixed Pay
Annual Bonus
Notes to application of remuneration policy charts
Element of package
Assumptions used
Fixed Pay
Annual Bonus
Basic salary effective: 20 September 2019
Benefits: as disclosed in single figure of remuneration
Pension: 15% cash allowance
Minimum: no bonus earned
On target: 60% of maximum bonus is earned
Maximum: 150% of maximum bonus is earned
Consideration of conditions elsewhere in the Company and employee engagement
The Remuneration Committee takes into consideration the remuneration arrangements for the UK-based employee population in
making its decisions on remuneration for executive directors, non-executive directors and senior executives. More than 95% of the
Group's staff are based outside of the UK, primarily in the Ukraine and Russia, where salaries and benefits reflect local practice. The
Remuneration Committee does not currently consult with employees specifically on the effectiveness and appropriateness of the
executive remuneration policy and framework. However, the Company seeks to promote and maintain good relationships with
employee representative bodies as part of its employee engagement strategy and consults on matters affecting employees and
business performance as required in each case by law and regulation in the jurisdictions in which the Company operates.
Consideration of shareholders views and shareholder engagement
When determining remuneration, the Remuneration Committee takes into account view of its shareholders and best practice
guidelines issued by institutional shareholder bodies.
The Remuneration Committee is always open to feedback from shareholders on remuneration policy and arrangements, and commits
to undergoing shareholder consultation in advance of any significant changes to remuneration policy. The Remuneration Committee
will continue to monitor trends and developments in corporate governance and market practice to ensure the structure of the
executive remuneration remains appropriate. We will consult shareholders before making any significant changes to our
remuneration policy.
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JKX Oil & Gas plc Annual Report 2019
This information is required to be presented by law. The UKLA’s Disclosure & Transparency Rules (‘DTRs’) and Listing Rules (‘LRs’) also
require the Company to make certain disclosures.
The Corporate Governance Report, the Audit Committee Report and the Strategic report form part of this information. Disclosures
elsewhere in the Annual Report and Accounts are cross-referenced where appropriate. Taken together, they fulfil the combined
requirements of company law, the DTRs and LRs.
Legal form
JKX Oil & Gas plc is a company limited by shares and incorporated in England & Wales, with company number 3050645. The principal
activities of the Group are oil and gas exploration, appraisal, development and production. It conducts very limited business activities
on its own account, and trades principally through its subsidiary undertakings in various jurisdictions.
Annual General Meeting
Notice of the 2020 AGM and matters of Ordinary Business and those proposed as Special Business, together with explanatory notes,
will be sent to shareholders at least 20 clear working days before the meeting.
At the AGM, individual shareholders are given the opportunity to put questions to the Chairman and to other members of the Board.
The voting results are announced via the London Stock Exchange as soon as practicable after the meeting. The announcement is also
made on the Company’s corporate website.
Political and charitable contributions
In line with Group policy, the Group did not make any political contributions during the year (2018: nil). The Group made charitable
contributions of $0.3m (2018: $0.2m) for local educational, health, sport and village infrastructure initiatives in Ukraine and Russia.
Disabled employees
The Group gives full consideration to applications for employment from disabled persons where the requirements of the job can be
adequately fulfilled by such persons.
Should an existing employee become disabled, it is in the Group’s policy wherever practicable to provide continuing employment under
normal terms and conditions and to provide training and career development and promotion.
Greenhouse gas emissions
The disclosures concerning greenhouse gas emissions required by law are included in the Corporate Social Responsibility review on
pages 25 to 28.
Policy on derivatives and financial instruments
The Group’s objectives and policies on financial risk management, and information on the Group’s exposures to foreign exchange,
commodity price and liquidity risks can be found on pages 32 to 39 and in Note 13 to the financial statements.
Shares in JKX Oil & Gas plc
Details of movements in share capital during the year are set out in Note 16 to the financial statements. The Company has one class of
Ordinary Share which carries no right to fixed income. Each share carries the right to one vote at General Meetings of the Company.
There are no significant restrictions on the transfer of securities.
Treasury shares
In 2019, the Company did not purchase in the market any of its own ordinary 10p shares, to be held as treasury shares. At 31 December
2019, 402,771 (2018: 402,771) shares continued to be held as treasury shares representing 0.23% (2018: 0.23%) of the shares then in
issue.
Restrictions on voting
No member shall, unless the Directors otherwise determine, be entitled in respect of any share held by him/her to vote either
personally or by proxy at a shareholders’ meeting or to exercise any other right conferred by membership in relation to shareholders’
meetings if any call or other sum presently payable by him/her to the Company in respect of that share remains unpaid. In addition, no
member shall be entitled to vote if he/she has been served with a notice after failing to provide the Company with information
concerning interests in those shares required to be provided under the Companies Act.
Amendment of Articles of Association
Any amendments to the Articles may be made in accordance with the provisions of the Companies Act by way of special resolution.
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JKX Oil & Gas plc Annual Report 2019
Directors
The names and biographies of the Directors who held office as at the date of this Annual Report are set out on pages 40 and 41.
Directors who held office throughout 2019 and the changes made to the Board during the year are set out below:
Name
Charles Valceschini
Michael Bakunenko
Tony Alves
Victor Gladun
Rashid Javanshir
Name
Hans Jochum Horn
Christian Bukovics
Adrian Coates
Andrey Shtyrba
Appointed
16 September 2019
8 December 2017
16 September 2019
16 September 2019
16 September 2019
Removed/Resigned
23 May 2019
22 August 2019
23 May 2019
22 August 2019
Position
Non Executive Director,
Non Executive Director
Non Executive Director
Executive Director
Non Executive Director
Position
Non Executive Director
Non Executive Director
Non Executive Director
Non Executive Director
Appointment and replacement of Directors
The number of Directors shall not be less than two nor more than ten.
Directors may be appointed to the Board by shareholders by ordinary resolution or by the Board. A Director appointed by the Board
holds office only until the next following AGM and is then eligible for election by shareholders.
Directors and their interests
The Directors in office at the year end and their interests at the beginning and end of the year in the shares of the Company, all
beneficially held, were as follows:
1 January 2019
Ordinary Share
Number
31 December 2019
Ordinary Share
Number
Michael Bakunenko1
47,287,027
47,287,027
1 Michael Bakunenko as a nominee for Eclairs Group Limited, is deemed to have a beneficial interest in these ordinary shares.
There were no changes to the shareholdings of the continuing Directors between the end of the financial year and the date of this
Annual Report.
Details of Directors’ remuneration and share options are shown in the Remuneration Report on pages 59 to 63. No Director had a
material interest in any significant contract, other than a service contract or contract for services, with the Company or any of its
subsidiary companies at any time during the year.
The share capital structure is listed in Note 16 to the financial statements and the significant holdings are listed below.
Directors’ indemnities
As permitted by the Articles of Association, the Directors have the benefit of an indemnity which is a qualifying third party indemnity
provision as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the last financial year and is
currently in force. The Company also purchased and maintained throughout the financial year Directors’ and Officers’ liability
insurance in respect of itself and its Directors.
Change of control (significant contracts)
The Company is not party to any significant agreements (and was not party to any significant agreements during 2019) that take effect,
alter or terminate upon a change of control following a takeover except for the $40m convertible bond dated 19 February 2013 (which,
following repurchases and cancellation of bonds during 2016, was reduced to a nominal value of $16m of which $5.7m remained
outstanding at 31 December 2019, see Note 11 to the consolidated financial statements). The final payments due under the terms of the
convertible bond were made on 19 February 2020 and it is now fully redeemed and all payments due have been made. There are no
agreements between the Company and any Director or its employees that would provide compensation for loss of office or employment
resulting from a change of control following a takeover bid, except that provisions of the Company’s share schemes may cause options
75
JKX Oil & Gas plc Annual Report 2019
and awards granted under such schemes to vest in those circumstances. All of the Company’s share schemes contain provisions relating
to a change of control. Outstanding options and awards would normally vest and become exercisable for a limited period of time upon a
change of control following a takeover, reconstruction or winding up of the Company (not being an internal reorganisation), subject at
that time to rules concerning the satisfaction of any performance conditions. There are a number of other agreements that take effect,
alter or terminate upon a change of control of the Company such as commercial contracts, finance agreements and property lease
arrangements. None of these is considered to be significant in terms of their likely impact on the business of the Group as a whole.
There were no options or awards outstanding under any such scheme as at 31 December 2019 and no options or awards have been
granted between that date and the 31 March 2020.
Events after the reporting date
Events after the reporting date are discussed in Note 33 to the financial statements.
Substantial shareholders
At 31 December 2019 and at 29 March 2020, the Company had received notification from the following institutions of interests in
excess of 3% of the total number of voting rights of the Company:
Substantial shareholders
Eclairs Group Limited
Cascade Investment Fund
Neptune Invest & Finance Corp
Keyhall Holding Limited
Interneft Ltd
31 December 2018
Number of shares
31 December 2018
% of total voting rights
29 March 2019
Number of shares
29 March 2019
% of total voting rights
47,287,027
34,288,253
22,295,598
19,656,344
10,599,447
27.54%
19.97%
12.98%
11.45%
6.16%
47,287,027
34,288,253
22,295,598
19,656,344
10,601,447
27.54%
19.97%
12.98%
11.45%
6.16%
Directors’ responsibilities statement
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements
in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have
prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by
the European Union, and the parent company financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and the parent company and of the profit or loss of the Group and
parent company for that period. In preparing these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether they have been prepared in accordance with IFRSs as adopted by the European Union for the group financial
statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the parent company
financial statements, subject to any material departures disclosed and explained in the financial statements; prepare the
financial statements on the going concern basis unless it is inappropriate to presume that the Group and parent company will
continue in business: and
prepare a director’s report, a strategic report and director’s remuneration report which comply with the requirements of the
Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and
parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company
and the Group and enable them to ensure that the financial statements and the Remuneration Report comply with the Companies
Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the parent company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the parent company’s website. Legislation in the United
Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Other disclosures
Certain information that is required to be included in the Directors’ Report can be found elsewhere in this document as referred to
below, each of which is, to the extent not in this report, incorporated by reference.
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JKX Oil & Gas plc Annual Report 2019
Dividends
No dividends have been paid or proposed for the year ended 31 December 2019. The Board will not be recommending the payment of a
dividend at the forthcoming AGM.
Going concern
The going concern statement can be found on pages 91 - 92.
Future developments within the Group
The Strategic report starting on page 1 contains details of likely future developments within the Group.
Profit
Details of the Company’s profit for the year ended 31 December 2019 can be found on page 85 - 87.
Capitalised interest
No interest was capitalised in 2019 (2018: nil).
Long term incentive schemes
See pages 58 to 71 of the Directors’ Remuneration Report.
Directors’ responsibilities
Directors’ responsibilities pursuant to DTR4
The directors confirm to the best of their knowledge:
The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial
position and profit and loss of the Group.
The parent company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable
law), give a true and fair view of the assets, liabilities, financial position and loss of the company;
The annual report includes a fair review of the development and performance of the business and the financial position of the Group
and the parent company, together with a description of the principal risks and uncertainties that they face.
The annual report and financial statements, taken as a whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group and parent company's performance, business model and strategy;
In the case of each Director in office at the date the Directors’ Report is approved:
so far as the Director is aware, there is no relevant audit information of which the Group and parent company’s auditors are unaware;
and
he or she has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any
relevant audit information and to establish that the Group and parent company’s auditors are aware of that information.
By order of the Board
Julian Hicks
Company Secretary
31 March 2020
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JKX Oil & Gas plc Annual Report 2019
Independent auditor’s report
to the members of JKX Oil & Gas plc
Report on the audit of the group financial statements
Opinion
We have audited the financial statements of JKX Oil & Gas Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year
ended 31 December 2019 which comprise the consolidated income statement, the consolidated statement of comprehensive income,
the consolidated and company statement of financial position, the consolidated and company statement of cash flows, the consolidated
and company statement of changes in equity and notes to the financial statements, including a summary of significant accounting
policies.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has
been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting
Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted
Accounting Practice).
In our opinion the financial statements:
give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2019 and of the Group’s
profit for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS
Regulation.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to public interest entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty in relation to going concern arising from the Covid-19 pandemic
We draw attention to note 2 in the financial statements which sets out the directors’ considerations of the potential impact on the
Group’s business of the Covid-19 pandemic. As stated in note 2, these events or conditions, indicate that a material uncertainty exists
that may cast significant doubt on the Group and Company’s ability to continue as a going concern. These financial statements do not
include the adjustments that would result if the Company and Group were unable to continue as a going concern. Our opinion is not
modified in respect of this matter.
We have highlighted going concern as a key audit matter as a result of the estimates and judgments required determining oil and gas
prices, production, the timing and quantum of potential 2010 and 2015 Rental fee payments in the period to June 2021, and the
availability of sufficient and appropriate lending facilities. The level of judgment and estimation uncertainty has subsequently been
significantly increased by the Covid-19 pandemic. We considered the resulting potential impact and the effect on our audit strategy
made this a key audit matter.
Our audit procedures in response to this key audit matter included:
We discussed the potential impact of Covid-19 with management and the Audit Committee including their assessment of risks and
uncertainties associated with areas such as the Group’s workforce, supply chain, customer sales and commodity market prices that
are relevant to the Group’s business model and operations. We formed our own assessment of risks and uncertainties based on our
understanding of the business and oil and gas sector.
We obtained management’s reverse stress testing analysis which was performed to determine the point at which liquidity breaks and
considered whether such scenarios, including significant reductions in commodity prices and production were possible given the
potential impacts of Covid-19 and the level of uncertainty.
We evaluated potential mitigating actions identified by management. In doing so we confirmed the terms of facilities in place and
assessed the risk that draw down requests may not be approved given uncertainties associated with Covid-19. We used our Ukrainian
tax and legal specialists to confirm that Ukrainian legislation allows for payment plans to be granted should the rental claims fall
due but such arrangements are at the discretion of the relevant governmental departments.
We obtained management’s base case cash flow forecast, challenging the key operating assumptions based on 2019 and 2020 actual
results and external data and market commentary, where possible.
We tested the integrity of the forecast models and assessed their consistency with approved budgets and Field Development Plans, as
applicable.
We confirmed that the forecasts did not include any receipts associated with the arbitration award detailed in ‘Rental fee claims in
Ukraine’ below.
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We critically assessed management’s judgments regarding the quantum and timing of rental fee payments to assess the status of the
claims, scenarios for the remaining legal process and risks of acceleration in the timing of potential payments, as well as considering
the impact of the wider Ukrainian economic, political and legislative environment on the Group’s operations. In doing so, we made
inquiries of internal and external legal counsel and involved our own Ukrainian legal specialists.
We reviewed the adequacy and completeness of disclosures in the financial statements in respect of going concern.
Conclusions relating to principal risks and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to
report to you whether we have anything material to add or draw attention to:
the disclosures in the annual report set out on pages 30 - 39 that describe the principal risks and explain how they are being managed
or mitigated; or
the directors’ confirmation set out on page 38 in the annual report that they have carried out a robust assessment of the principal
risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
the directors’ statement set out on page 53 in the financial statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting in preparing the financial statements and the directors’ identification of any material
uncertainties to the Group’s ability to continue to do so over a period of at least twelve months from the date of approval of the
financial statements;
whether the directors’ statement relating to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3)
is materially inconsistent with our knowledge obtained in the audit; or
the directors’ explanation set out on page 38 in the annual report as to how they have assessed the prospects of the Group, over what
period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of
their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
Key audit matters
In addition to the matter described in the material uncertainty relating to going concern paragraph above, key audit matters are those
matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and
include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those
which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
How the matter was addressed in our audit
Carrying value of oil and gas assets
(see note 5)
Management and the Directors are required to assess whether
there are potential indicators of impairment of the Group’s oil and
gas assets at each reporting date and, if potential indicators of
impairment are identified, management are required to perform a
full assessment of the recoverable value of the oil and gas assets
in accordance with the requirements of the relevant accounting
standard.
Management identified an impairment indicator in respect of
each of the three cash generating units in the Ukraine and Russia
and performed an impairment test. Based on that impairment test
management concluded that no impairment was required.
The assessment of the recoverable value of the oil and gas assets
required judgments and estimates by management and the Board
regarding the inputs applied in the models including future oil
and gas prices, production and reserves, operating and
development costs and discount rates.
The carrying value of the Group’s oil and gas assets were
therefore considered to be a key audit matter.
We obtained and examined management’s impairment indicator
paper and agreed with their conclusion that a potential indicator
of impairment was present, as detailed in note 5. Accordingly, we
obtained management’s impairment test assessments.
We assessed the appropriateness of Management’s determination
of each cash generating unit (CGU) in order to determine if the
conclusions were in line with the relevant accounting standard.
We obtained management’s discounted cash flow models and
performed data integrity and mechanical checks on the models
using our proprietary tool.
We determined whether the basis of preparation of the models
were in line with the applicable accounting standard, our
expectations and valuation methodology.
We compared the actual performance of the CGUs during 2019 to
budgets for the period in order to assess the quality of
management’s forecasting.
We critically challenged the NPV model, focussing on the
appropriateness of estimates with reference to empirical data
and external evidence with specific emphasis on the following
assumptions: oil and gas prices, foreign exchange rates, reserves
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Key Audit Matter
How the matter was addressed in our audit
and production levels, operating and development costs and
discount rates.
We compared forecast oil and gas prices in Ukraine to current
pricing, empirical data and market analysis compiled with our
internal research team. In addition, we compared the price
forecasts to those forecast by managements external reserves
engineer. In Russia, where prices are regulated, we compared
forecasts to current contracted prices and market inflation data.
We assessed the consistency of production profiles and capital
expenditure forecasts against the Group’s Field Development
Plans, approved budgets, external reserves engineer decline
rates, and met with operational management to inform our
assessment and understanding of these plans and budgets.
We compared the 2P reserves included in the models to Reserve
Statements prepared by the Group’s internal and external reserve
engineers and performed procedures to assess for both their
independence and competence. We met with both the internal
and external reserve engineers as part of this process and
ascertained there had been no limitation to their scope.
We compared management’s key assumptions to relevant
assumptions used by the external reserve engineers and
considered the appropriateness of management’s assumptions
based on the field development plan and the merits of different
economic assumptions.
We reviewed management’s sensitivity analysis and performed
our own sensitivity analysis on key inputs to assess the impact of
changes in assumptions.
We involved our valuations specialists to review the valuation
methodology and support our assessment of the discount rates
applied and discussed the judgments regarding the calculation
with the Audit Committee.
We read the key licence agreements and confirmed that the
Group holds valid licences. We considered management’s
judgment that licences would be capable of being extended
beyond 2024 and 2026 including assessment of the legislative
process, the forecast economic value of the assets beyond the
expiry date and risks and uncertainties within the operating
environments.
We evaluated management’s conclusion that the potential impact
of Covid-19 and the impact of represented a non-adjusting
subsequent event against the relevant accounting standards.
We reviewed the disclosures in the financial statements
regarding key assumptions and sensitivity of the carrying value
to reasonable changes in such assumptions to ensure they were in
accordance with the requirements of the relevant accounting
standard.
Key Observation
Based on the procedures performed, we noted no material issues arising from our work in relation to the carrying value of oil and gas
assets. We found management’s conclusion that no impairment charge was required as at 31 December 2019 in respect of the CGU’s to
be supported by the underlying models. We found the disclosures in note 5 to be appropriate. We found the conclusion that the
potential impact of Covid-19 represent a non-adjusting subsequent event and the disclosures regarding such subsequent events to be
appropriate. We found the judgments and estimates applied by management in preparing the forecasts to be supportable, although the
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sensitivity to changes in key inputs including oil and gas prices, foreign exchange rates and discount rates has increased compared to
2018.
We found the disclosures in note 5 to be appropriate.
Key Audit Matter
How the matter was addressed in our audit
Rental fee claims in the Ukraine
(see notes 18 and 25)
The assessment of the provisioning for the 2010 and 2015 Rental
fee claims requires significant judgement and estimation by
management including both the value of the provision and its
presentation within the financial statements.
Management have recorded a provision of $41.3m with $14.4m of
provisions released in the year as detailed in notes 18 and 25.
Separately, in a prior period the Group was awarded $11.8m plus
interest and costs at international arbitration in relation to
claims brought by the Group against the Ukraine. The Group
registered its claim and filed application for collection in
December 2019. The assessment of whether the award meets
asset recognition criteria at year end under relevant accounting
standards requires judgment given the operating environment.
The legislation behind the Rental fee claims is complex in nature
and the claims have been, and continue to be, subject to court
proceedings which are at various stages of progression. When
taken together with the developing nature of the Ukrainian tax
system and the challenging legal and political regime, to which
the Group are subject, this area is considered to be a key audit
matter.
We held focused meetings with management, internal and
external legal counsel in order to obtain an understanding of the
significant developments in the year and the impact of the wider
legislative environment in the Ukraine on the overall assessment
of the claims.
We read key correspondence in the year between the Group, its
external legal advisers and the tax and legal authorities for
indications of additional claims or factors which may indicate
management’s conclusions are inappropriate.
We inspected a number of critical documents such as the most
recent court rulings in the Ukraine during 2019 and 2020 to date,
including those relating to the claims for which provisions have
been released.
We evaluated management’s conclusion that it remained
appropriate to maintain provision against the remaining claims,
following the awards in the Group’s favour to date. In doing so, we
considered the background to the favourable awards and
legislative environment in the Ukraine.
We performed a recalculation of the movement in the Rental
claim provision including interest accrued and the quantum of
amounts released.
We compared the base claim amounts to the original claim
documents and assessed the compliance of the fines and penalties
with local legislation. We specifically considered and challenged
any change to the basis of the calculations from prior year and
assessed the calculations for consistency with relevant Ukrainian
legislation in conjunction with our own legal and tax specialists.
We obtained legal letters from the Group’s external legal advisor
and compared these to management’s assessment of each claim.
We confirmed that there were no changes to the previous basis of
preparation and critically assessed the calculations for
consistency with relevant Ukrainian legislation, in conjunction
with our legal experts in the Ukraine and assessed whether
judgments and estimates associated with the claims were
supportable and appropriate.
We obtained management’s analysis of the estimated timing of
any payments, discussed further under the material uncertainty
relating to going concern paragraph above and agreed the
presentational split between current and non-current provision
was consistent with this analysis.
In respect of the arbitration award, we confirmed the status of the
award with the Management, internal and external legal counsel
regarding the registration of the claim in Ukraine and reviewed
related documents.
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JKX Oil & Gas plc Annual Report 2019
Key Audit Matter
How the matter was addressed in our audit
We critically assessed Management’s judgments regarding the
probability of ultimate recovery and associated financial
reporting treatment. We specifically considered factors such as
the local legislative environment, history of awards being
successfully enforced and other relevant facts and circumstances.
We discussed the process with legal counsel and the Board.
We reviewed the disclosures in the financial statements. In
particular, we focused on ensuring that the disclosures are clear,
transparent and understandable notwithstanding the complex
nature of the matters.
Key Observation
Based on the procedures performed, we noted no material issues arising from our work in relation to the Rental fee claims in the
Ukraine. We found management’s conclusion that it remains appropriate to record a provision in respect of the 2010 Rental fee claim
to be appropriate given the uncertainties associated with the remaining court process. We found the release of provisions in respect of
four of the total 2015 Rental fee claims to be appropriate. We found the conclusion that it remains appropriate to maintain provision in
respect of the remaining 2015 Rental fee claims to be appropriate recognising the uncertainty associated with the court process. We
found the value of the provision to be appropriate and that the underlying judgments in determining the quantum to be acceptable.
We found the presentation of the provisions between current and non-current classifications in the statement of financial position to
be appropriate and consistent with the Board’s assessment of the most likely timing of any required payments.
We found the disclosures in note 18 and 25 to be appropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We
consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of
reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below these levels will not
necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Materiality
Basis for determining materiality
Group
$1,100,000
5% of profit before tax before
exceptional items
Group
Performance materiality
$825,000
Basis for performance materiality
75% of Group materiality
Materiality
Company
$780,000
Basis for determining materiality
1% of total assets
Performance materiality
Company
$585,000
Basis for performance materiality
73% of Company materiality
We considered the activities of the Group and previous period benchmarks. Given the Group earnings are now stabilising from prior
year, we consider a profit before tax before exceptional items based measure to appropriately reflect the key drivers of the business at
present and therefore and appropriate basis for materiality.
Whilst materiality for the financial statements as a whole was $1,100,000, each significant component of the Group was audited to a
lower performance materiality ranging from $110,000 to $600,000.
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Performance materiality has been set at 75% of materiality, which is used to determine the financial statement areas that are included
within the scope of our audit and the extent of sample sizes during the audit. Performance materiality is applied at the individual
account or balance level set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality for the financial statements as a whole.
We agreed with the Audit Committee that we would report to them all individual audit differences identified during the course of our
audit in excess of $20,000. We also agreed to report differences below that threshold that, in our view, warranted reporting on
qualitative grounds.
An overview of the scope of our audit
In setting our Group audit strategy we obtain an understanding of the Group, its environment and assessed the risks of material
misstatement in the financial statements at the Group as a whole.
In setting the audit strategy we considered our approach in respect of the ability of the audit to detect irregularities, including fraud.
We designed audit procedures to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as a fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations or through collusion.
We considered the laws and regulations of the Ukraine, Russia and the UK to be of significance in the context of the Group audit. As
part of our Group audit strategy direction was provided to the auditors of the significant components to ensure an assessment was
performed on the extent of the components compliance with the relevant local and regulatory framework. As part of our Group audit
work we reviewed this work and held meetings with relevant internal Management and external third parties to form our own opinion
on the extent of Group wide compliance. In addition our tests included, but were not limited to agreement of the Financial Statement
disclosures to underlying supporting documentation, performing substantive testing on accounts balances which were considered to be
at a greater risk of susceptibility to fraud and reviewed correspondence with regulators in so far as the correspondence related to the
Financial Statements. There are inherent limitations in the audit procedures described above and the further removed non-compliance
with laws and regulations is from the events and transactions reflected in the Financial Statements, the less likely we would become
aware of it.
The Group’s operations principally comprise exploration, development and production assets split across two primary geographical
locations being Ukraine and Russia. We assessed there to be two significant components (Ukraine and Russia) which were both subject
to a full scope audit. Together with the parent company (also considered a significant component) and its group consolidation, which
was also subject to a full scope audit, these represent the significant components of the Group.
The three significant components subject to full scope audit procedures represent the principal business units and account for 100% of
the Group’s revenue, 94% of the Group’s profit before tax and 99% of the Group’s total assets.
The audits of the Ukrainian and Russian components were performed in the Ukraine and Russia, respectively. The audits of the parent
company and the Group consolidation were performed in the United Kingdom. All of the audits were conducted by BDO LLP and BDO
network member firms.
All BDO member firms performed the full scope audit of the significant components in the Ukraine and Russia, under the direction and
supervision of BDO LLP as Group auditor.
As part of our audit strategy, the Group Audit Partner or a Key Audit Partner and senior members of the Group audit team visited both
of the Group’s key oil and gas operations during the year and met with management and the component auditors in the Ukraine and
Russia during the planning and execution phases of the audit. These teams from BDO UK performed a review of the component audit
files in the Ukraine and Russia and held meetings with the component audit teams during the planning and completion phases of their
audits.
The Group audit team was actively involved in the direction of the audits performed by the component auditors along with the
consideration of findings and determination of conclusions drawn. We performed additional procedures in respect of certain of the
significant risk areas that represented Key Audit Matters in addition to the procedures performed by the component auditor.
The remaining components of the group were considered non-significant and these components were principally subject to analytical
review procedures.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we
are required to report that fact.
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JKX Oil & Gas plc Annual Report 2019
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items meet
the following conditions:
Fair, balanced and understandable set out on page 76 the statement given by the directors that they consider the annual report and
financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders
to assess the Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit;
or
Audit committee reporting set out on page 51 the section describing the work of the audit committee does not appropriately address
matters communicated by us to the audit committee; or
Directors’ statement of compliance with the UK Corporate Governance Code set out on page 47 the parts of the directors’ statement
required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing
provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of
the audit, we have not identified material misstatements in:
the strategic report or the Directors’ report; or
the information about internal control and risk management systems in relation to financial reporting processes and about share
capital structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you
if, in our opinion:
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received
from branches not visited by us; or
the Parent Company financial statements and the part of the directors’ remuneration report to be audited are not in agreement with
the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 76, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative
but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
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Other matters which we are required to address
Following the recommendation of the audit committee, we were appointed by the Board of directors on 13 October 2018 to audit the
financial statements for the year ending 31 December 2018 and subsequent financial periods. The period of total uninterrupted
engagement is two years, covering the years ending 31 December 2018 and 31 December 2019.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain
independent of the Group and the Parent Company in conducting our audit.
Our audit opinion is consistent with the additional report to the audit committee.
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Parent Company’s members as a body, for our audit work, for this report, or
for the opinions we have formed.
Ryan Ferguson (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
31 March 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
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JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Consolidated income statement
For the year ended 31 December 2019
Revenue
Cost of sales
Exceptional item – net reversal of provision/(provision for production based taxes)
Other production based taxes
Other cost of sales
Total cost of sales
Gross profit
Administrative expenses
Loss on foreign exchange
Profit from operations before exceptional items
Profit from operations after exceptional items
Finance income
Finance costs
Fair value movement on derivative liability
Profit before tax
Taxation – current
Taxation – deferred
- before the exceptional items
- on the exceptional items
Total taxation
Profit from continuing operations (attributable to equity holders of the parent company)
Note
2019
$000
2018
$000
4
101,744
92,873
18
19
19
19
20
21
12
25
25
25
25
8,410
(23,518)
(41,264)
(56,372)
(5,055)
(21,857)
(35,629)
(62,541)
45,372
30,332
(13,207)
(13,945)
(615)
(711)
23,140
31,550
857
20,731
15,676
908
(2,054)
(2,510)
62
30,415
(6,561)
(1,968)
(1,677)
(10,206)
20,209
(59)
14,015
(5,478)
1,472
1,761
(2,245)
11,770
Profit from discontinued operation (attributable to equity holders of the parent company), net
of tax
14
2,004
3,487
Profit for the year attributable to equity shareholders of the parent company
22,213
15,257
The above consolidated income statement should be read in conjunction with the accompanying notes on pages 91 to 128
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JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Consolidated income statement
For the year ended 31 December 2019
Earnings per share for profit from continuing operations attributable to
the ordinary equity holders of the parent company:
Basic profit per 10p ordinary share (in cents)
-after exceptional items
-before exceptional items
Diluted profit per 10p ordinary share (in cents)
-after exceptional items
-before exceptional items
Earnings per share for (loss) /profit from discontinued operations
attributable to the ordinary equity holders of the parent company:
Basic profit/(loss) per 10p ordinary share (in cents)
-after exceptional items
-before exceptional items
Diluted profit/(loss) per 10p ordinary share (in cents)
-after exceptional items
-before exceptional items
Earnings per share for profit attributable to the ordinary equity holders of
the parent company:
Basic profit per 10p ordinary share (in cents)
-after exceptional items
-before exceptional items
Diluted profit per 10p ordinary share (in cents)
-after exceptional items
-before exceptional items
Note
27
2019
$000
2018
$000
27
27
27
27
27
27
27
27
27
27
27
27
12.02
8.02
12.02
8.02
1.19
(0.14)
1.19
(0.14)
13.21
7.88
13.21
7.88
7.06
9.04
6.67
8.54
2.09
2.09
1.98
1.98
9.15
11.13
8.65
10.51
The above consolidated income statement should be read in conjunction with the accompanying notes on pages 91 to 128
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JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Consolidated statement of comprehensive income
For the year ended 31 December 2019
Profit for the year
Other comprehensive income to be reclassified to profit or loss in subsequent periods when specific
conditions are met:
2019
$000
2018
$000
22,213
15,257
- Currency translation differences
21,481
(19,475)
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods:
- Remeasurements of post-employment benefit obligations
- Changes in the fair value of equity investments at fair value through other comprehensive income
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to equity shareholders of the parent company
Continuing operations
Discontinued operations
(94)
500
21,887
44,100
42,096
2,004
(22)
-
(19,497)
(4,240)
(7,587)
3,347
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes on
pages 91 to 128
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JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Consolidated statement of financial position
As at 31 December 2019
ASSETS
Non-current assets
Property, plant and equipment
Deferred tax assets
Investment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets classified as held for sale
Total current assets
Total assets
LIABILITIES
Current liabilities
Current tax liabilities
Trade and other payables
Borrowings
Provisions
Lease liabilities
Liabilities of disposal group classified as held for sale
Total current liabilities
Non-current liabilities
Provisions
Borrowings
Derivatives
Defined pension benefit plan
Lease liabilities
Deferred tax liabilities
Total liabilities
Net assets
EQUITY
Share capital
Share premium
Other reserves
Retained earnings
Total equity
Note
2019
$000
2018*
$000
5(a)
26
6
7
8
9
14
10
11
18
10
14
18
11
12
10
26
16
17
215,728
8,012
500
175,112
10,419
-
224,240
185,531
6,915
3,931
20,629
31,475
3,187
34,662
4,352
5,111
19,182
28,645
1,237
29,882
258,902
215,413
(1,941)
(14,158)
(5,683)
(15,861)
(1,461)
(39,104)
(287)
(2,214)
(10,782)
(5,962)
(12,645)
-
(31,603)
(775)
(39,391)
(32,378)
(31,769)
-
-
(859)
(628)
-
(33,256)
(72,647)
186,255
(35,673)
(5,041)
(62)
(577)
-
-
(41,353)
(73,731)
141,682
26,666
97,476
26,666
97,476
(150,736)
(172,623)
212,849
186,255
190,163
141,682
Comparative amounts in respect of inventories and property, plant and equipment have been reclassified for comparability with 2019. Please refer to Note 2.
These financial statements on pages 85 to 128 were approved by the Board of Directors on 31 March 2020 and signed on its behalf by:
Victor Gladun
Chief Executive Officer
Ben Fraser
Chief Financial Officer
The above consolidated statement of financial position should be read in conjunction with the accompanying notes on pages 91 to 128
89
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Consolidated statement of changes in equity
For the year ended 31 December 2019
At 1 January 2019
Profit for the year
Exchange differences arising on translation of overseas
operations
Remeasurement of post-employment benefit obligations
Changes in the fair value of equity investments at fair
value through other comprehensive income
Total comprehensive income attributable to equity
shareholders of the parent
Transactions with equity shareholders of the parent
Share-based payment charge
Exercise of share options (Note 15)
Sale of shares held by Employee Benefit Trust (Note 15)
Total transactions with equity shareholders of the parent
Attributable to equity shareholders of the parent
Share
capital
$000
Share
premium
$000
Retained
Earnings
$000
Other reserves
(Note 17)
$000
Total
equity
$000
26,666
97,476
190,163
(172,623)
141,682
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22,213
-
22,213
-
-
-
21,481
21,481
(94)
500
(94)
500
22,213
21,887
44,100
14
17
442
473
-
-
-
-
14
17
442
473
At 31 December 2019
26,666
97,476
212,849
(150,736)
186,255
At 1 January 2018
Profit for the year
Exchange differences arising on translation of overseas
operations
Remeasurement of post-employment benefit obligations
Total comprehensive loss attributable to equity
shareholders of the parent
Transactions with equity shareholders of the parent
Share-based payment charge
Total transactions with equity shareholders of the parent
26,666
97,476
174,893
(153,126)
145,909
-
-
-
-
-
-
-
-
-
-
-
-
15,257
-
15,257
-
-
(19,475)
(19,475)
(22)
(22)
15,257
(19,497)
(4,240)
13
13
-
-
13
13
At 31 December 2018
26,666
97,476
190,163
(172,623)
141,682
Share premium represents the amounts received by the Company on the issue of its shares which were in excess of the nominal value
of the shares.
Retained earnings represent the cumulative net gains and losses recognised in the statement of comprehensive income less any
amounts reflected directly in other reserves.
Other reserves – please refer to the Note 17 for the details.
90
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Consolidated statement of cash flows
For the year ended 31 December 2019
Note
29
14
Cash flows from operating activities
Cash generated from continuing operations
Cash used in discontinued operations
Bank fees paid
Interest paid
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Interest received
Dividend received
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Restricted cash movement
Exercise of share options
Sale of shares held by Employee Benefit Trust
Repayment of borrowings
Lease liabilities
Net cash used in financing activities
Increase in cash and cash equivalents in the year
Cash and cash equivalents at 1 January
Effect of exchange rates on cash and cash equivalents
Cash and cash equivalents at 31 December
Cash and cash equivalents in continuing operations at the end of the year
Cash and cash equivalents in discontinued operations at the end of the year
9
14
2019
$000
2018
$000
41,386
(176)
-
(1,131)
(7,090)
37,281
(158)
(69)
(1,870)
(3,896)
32,989
31,288
818
27
47
908
-
3
(27,380)
(26,488)
(13,688)
(12,777)
211
17
442
(5,280)
(1,776)
(6,386)
286
-
-
(5,760)
-
(5,474)
115
13,037
19,455
1,155
20,725
20,629
96
6,929
(511)
19,455
19,182
273
91
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
1. General information
JKX Oil & Gas plc (the ultimate parent of the Group hereafter, ‘the Company’) is a public limited company listed on the London Stock
Exchange which is domiciled and incorporated in England and Wales under the UK Companies Act. The registered number of the
Company is 3050645. The registered office is 6 Cavendish Square, London, W1G 0PD and the principal place of business is disclosed in
the introduction to the Annual Report.
The principal activities of the Company and its subsidiaries (the ‘Group’) are the exploration for, appraisal and development of oil and
gas reserves.
2. Basis of preparation
The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as
adopted by the European Union, IFRS Interpretations Committee (‘IFRS IC’) interpretations and the Companies Act 2006 applicable for
Companies reporting under IFRS and therefore the consolidated financial statements comply with Article 4 of the EU IAS Regulations.
The Group’s financial statements have been prepared under the historical cost convention, as modified for derivative instruments held
at fair value through profit or loss. The principal accounting policies adopted by the Group are set out below.
Additionally, on 1 January 2019, the functional currency of the Group’s wholly owned Ukrainian subsidiary Poltava Petroleum
Company (‘PPC’) changed from US Dollar ($) to Ukrainian Hryvnia (hryvnia). The change in the functional currency was considered
appropriate as gas prices are denominated in hryvnia in a freely traded gas market and the increased impact of local market forces on
gas prices, together with the increasing hryvnia cost base, development plan and availability of hryvnia draw downs in the Group’s
facilities. As such, management concluded that hryvnia is the currency of the primary economic environment which the Company
operates in. This change in functional currency is applied prospectively with effect from 1 January 2019. The exchange rate used to
translate the balance sheet to reflect the change in functional currency on adoption is $1: 27.69 hryvnia.
Comparative amounts in respect of property, plant and equipment and inventories have been reclassfied for comparability with 2019 in
accordance with IFRS. The reclassifications had no impact on net assets or the profit for the period.
Comparatives
In the 2018 Annual report a group of inventories of $1.6m held for well workovers was included in inventories, whereas in 2019
Annual report they were reclassified under property, plant and equipment to conform with 2019 presentation and to more
appropriately reflect their nature. In 2019 Annual report 31 December 2018 inventories balance was reduced by $1.6m from $6.0m
to $4.4m; property, plant and equipment balance was increased by $1.6m from $173.5m to $175.1m.
Going concern
The Directors note that the Group is debt free and has generated $33.0m of operating cash flow in 2019, continued its drilling program
and ended the year with $20.6m of cash in continuing operations. The Board have reviewed the Group’s forecast cash flows for the
period to June 2021. Capital and operating costs are based on approved budgets and latest forecasts in the case of 2020 and current
development plans in the case of 2021. The forecast cash flows reviewed include scenarios where potential liabilities arise in relation to
the rental fee claims in Ukraine (see Note 25 to the consolidated financial statements) including assessments of the timing of such
potential payments undertaken following detailed analysis of Ukrainian legislation and the status of each claim with internal and
external legal and tax experts. Based on the Group’s cash flow forecasts, the Directors believe that the combination of its current cash
balances, net cash flows from operations, as well as the anticipated availability of additional courses of action with respect to financing
the settlement of any successful rental fee claims arising in the forecast period, mean that the Group will be able to meet its liabilities
and commitments as they fall due across the forecast period. In addition, the Group benefits from an undrawn Tascombank loan facility
of UAH280m ($11.8m) and overdraft facility of UAH50m ($2.1m) that were both renewed in December 2019, although each draw down
is subject to credit approval by the bank.
Notwithstanding the Group’s current financial performance and position, the Board are cognisant of the potential impacts of COVID-19
on the Group. Whilst there has been little impact of COVID-19 on the Group’s operations at present there may be significant impacts on
the business going forward which are currently unknown. The Board has considered possible reverse stress case scenarios for the
impact on the Group’s operations, financial position and forecasts. Whilst the potential future impacts of Covid-19 are unknown the
Board has considered operational disruption that may be caused by the factors such as a) restrictions applied by governments, illness
amongst our workforce and disruption to supply chain and sales channels; b) market volatility in respect of commodity prices
associated with Covid-19 in addition to geopolitical factors; and c) the Group’s ability to utilise its credit facilities.
In addition to sensitivities that reflect future expectations regarding country, commodity price and currency risks that the Group may
encounter, in March 2020 and to date, reverse stress tests have been run to reflect possible negative effects of COVID-19 including
sustained lower commodity prices and one month production stop in both Russia and Ukraine. None of the scenarios have recognised
any possible future benefit that may result from the arbitration award (see Note 25 to the consolidated financial statements). Should
the rental claims become payable during the forecast period, or more extended disruption to production occur, the Group would likely
need to utilise the Tascom facilities, make forward gas sales, agree a payment plan with the tax authorities, or take other such measure
as may be required. Whilst the Board anticipate being able to draw down under those facilities, draw down requests are subject to
certain credit approval procedures by the bank and there can be no guarantee that such funding will be made available as and when
required. Similarly the Board anticipate being able to secure a payment arrangement with the tax authorities if needed, securing
sufficient forward gas sales or taking other such measures as may be required but there can be no guarantee that these measures will
be available when required or sufficient.
92
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
Having considered the forecasts and sensitivity scenarios the Board considers it is appropriate to adopt the going concern basis of
accounting in preparing these financial statements. However, at the date of approval of these financial statements, the potential future
impact of COVID-19 is uncertain and there can be no guarantee that the Group would receive credit approval for draw downs on the
Tascom facilities, secure an appropriate payment plan arrangement for rental fee claims that fell due, secure sufficient forward gas
sales or be able to take suitable other measures as required to maintain liquidity. These circumstances indicate the existence of a
material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern and therefore it may be
unable to realise its assets and discharge its liabilities in the normal course of business. As such this is considered to be a material
uncertainty. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going
concern.
Adoption of new and revised standards
New standards, interpretations and amendments effective from 1 January 2019
The disclosed policies have been applied consistently by the Group for both the current and previous financial year with the exception
of the new standards adopted.
The European Union (“EU”) IFRS financial information has been drawn up on the basis of accounting policies consistent with those
applied in the financial statements for the year to 31 December 2018, except for the following:
(a)
(b)
IFRS 16 ‘Leases’
IFRIC 23 ‘Uncertainty over Income Tax Positions’
(c) Prepayment Features with Negative Compensation – Amendments to IFRS 9
(d) Long-term Interests in Associates and Joint Ventures – Amendments to IAS 28
(e) Annual Improvements to IFRS Standards 2015 – 2017 Cycle
(f) Plan Amendment, Curtailment or Settlement – Amendments to IAS 19
The application of (b) to (f) has had no impact on the disclosures or the amounts recognised in the Group’s consolidated financial
statements.
There were no retrospective adjustments as a result of adopting IFRS 16 ‘Leases’. The Group amended accounting policies applied from
1 January 2019 are disclosed in Note 3 under ‘Significant accounting policies’.
IFRS 16 specifies how to recognise, measure, present and disclose leases. The standard provides a single lessee accounting model,
requiring lessees to recognise right-of-use assets and lease liabilities for all material leases. It results in almost all leases being
recognised on the balance sheet by lessees, as the distinction between operating and finance leases was removed. Under the new
standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-
term and low-value leases. The Group’s well service and rental arrangements in Ukraine for oil and gas extraction activities are outside
of the scope of IFRS 16.
The Group adopted IFRS 16 from 1 January 2019 using the modified retrospective approach and accordingly the information presented
for 2018 is not restated. It remains as previously reported under IAS 17 and related interpretations. On initial application, the Group
elected to record right-of-use assets based on the corresponding lease liability. A right-of-use asset and lease obligations of $3.1m were
recorded as of 1 January 2019, with no net impact on retained earnings. When measuring lease liabilities, the Group discounted lease
payments using its incremental borrowing rate at 1 January 2019. The weighted-average rate applied is 16%.
The balance sheet shows the following amounts relating to leases:
Oil and gas asset – coil tubing
Properties
Total
Lease liabilities
Current
Non-current
Total
Right-of-use
asset
recognised
during the
year
$’000
Depreciation
charge for
the year
$000
31 December
2019
$000
-
446
446
(1,177)
(332)
(1,509)
982
1,021
2,003
1 January
2019
$000
2,159
907
3,066
31 December
2019
$000
1,461
628
2,089
93
JKX Oil & Gas plc Annual Report 2019
The income statement shows the following amounts relating to leases:
Interest on lease liabilities (included in finance cost)
Expenses relating to short-term leases (included in administrative expenses)
Expenses relating to low-value assets, excluding short-term leases of low-value assets (included in administrative
expenses)
Total
Amounts recognised in the statement of cash flows
Total cash outflow for leases
31 December
2019
$000
254
235
31
520
31 December
2019
$000
1,776
The following table reconciles the Group’s operating lease obligations at 31 December 2018, as disclosed in the Group’s consolidated
financial statements, to the lease obligations recognised on initial application of IFRS 16 at 1 January 2019.
Operating lease commitments at 31 December 2018
Discounted using the incremental borrowing rate at 1 January 2018
Effect of discounting
Recognition exemption for short-term leases
Assets that do not meet definition of a lease
Impairment provision to be recognised on one of the properties
$
3.9
2.8
0.4
0.2
0.1
0.4
Effective as of 1 January 2019, IFRIC 23 explains how to recognise and measure deferred and current income tax assets and liabilities
where there is uncertainty over a tax treatment. An uncertain tax treatment is any tax treatment applied by the Group where there is
uncertainty over whether that treatment will be accepted by the tax authority. IFRIC 23 applies to all aspects of income tax accounting
where there is an uncertainty regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities,
tax losses and credits and tax rates. There was no impact on adoption of IFRIC 23 on 1 January 2019.
New standards, interpretations and amendments not yet effective
Below is a list of new and revised IFRSs that are not yet mandatorily effective (but allow early application) for the year ending
31 December 2019 and have not been early adopted by the Group. These standards are not expected to have a material impact on the
Group in the future reporting periods and on foreseeable future transactions.
Amendments to IFRS 3, ‘Business combinations’
Amendments to IAS 1 and IAS 8: Definition of Material
Effective for
annual periods
beginning on or
after
01-Jan-20
01-Jan-20
Amendments to References to the Conceptual Framework in IFRS Standards
01-Jan-20
IFRS 17, ‘Insurance contracts’
01-Jan-21
3. Significant accounting policies
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries) made up to 31 December each year. All intragroup balances, transactions, income and expenses and profits or losses,
including unrealised profits arising from intragroup transactions, have been eliminated on consolidation.
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They
94
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
are deconsolidated from the date that control ceases. The consolidated financial statements include all the assets, liabilities, revenues,
expenses and cash flows of the Companies and their subsidiaries after eliminating intragroup transactions as noted above. Uniform
accounting policies are applied across the Group.
Year end for one of the Group’s subsidiary, JKX Oil & Gas (Jersey) Ltd, is non-contemporaneous with the Group’s year end, but its
financial results are being consolidated at 31/12/2019.
Foreign currencies
All amounts in these financial statements are presented in thousands of US dollars, unless otherwise stated. The presentation currency
of the Group is the US Dollar.
Each entity in the Group is measured using the currency of the primary economic environment in which the entity operates (‘the
functional currency’). Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the
dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement
of such transactions and from translation at year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement.
The effect of a change in functional currency is accounted for prospectively. The Group translates all items into the new functional
currency using the exchange rate at the date of the change. The resulting translated amounts for non-monetary items are treated as
their historical cost.
On consolidation of subsidiaries and joint operations with a non US Dollar presentation currency, their statements of financial position
are translated into US Dollar at the closing rate and income and expenses at the average monthly rate. All resulting exchange
differences arising in the period are recognised in other comprehensive income, and cumulatively in the Group’s translation reserve.
Such translation differences are reclassified to profit or loss in the period in which any such foreign operation is disposed of.
Subsidiaries within the Group hold monetary intercompany balances for which settlement is neither planned nor likely to occur in the
foreseeable future and thus this is considered to be part of the Group’s net investment in the relevant subsidiary. An exchange
difference arises on translation in the company income statement which on consolidation is recognised in equity, only being recognised
in the income statement on the disposal of the net investment.
The major exchange rates used for the revaluation of the closing statement of financial position at 31 December 2019 were $1:£0.76
(2018: $1:£0.78), $1: 23.69 Hryvnia (2018: $1: 27.69 Hryvnia), $1: 61.91Roubles (2018: $1: 69.47 Roubles), $1: 294.43 Hungarian Forint
(2018: $1: 280.31 Hungarian Forint).
Goodwill and fair value adjustments arising on acquisition are treated as assets/liabilities of the foreign entity and translated at the
closing rate.
Property, plant and equipment and other intangible assets
Property plant and equipment comprises the Group’s tangible oil and gas assets together with computer equipment, motor vehicles and
other equipment and are carried at cost, less any accumulated depreciation and accumulated impairment losses. Cost includes purchase
price and construction costs for qualifying assets, together with borrowing costs where applicable, in accordance with the Group’s
accounting policy. Depreciation of these assets commences when the assets are ready for their intended use.
Oil and gas assets
Exploration, evaluation and development expenditure is accounted for under the ‘successful efforts’ method. The successful efforts
method means that only costs which relate directly to the discovery and development of specific oil and gas reserves are capitalised.
Exploration and evaluation costs are valued at costs less accumulated impairment losses and capitalised within intangible assets.
Development expenditure on producing assets is accounted for in accordance with IAS 16, ‘Property, plant and equipment’. Costs
incurred prior to obtaining legal rights to explore are expensed immediately to the income statement.
All lease and licence acquisition costs, geological and geophysical costs and other direct costs of exploration, evaluation and
development are capitalised as intangible assets or property plant and equipment according to their nature. Intangible assets are not
amortised and comprise costs relating to the exploration and evaluation of properties which the Directors consider to be unevaluated
until reserves are appraised as commercial, at which time they are transferred to property plant and equipment following an
impairment review and are depreciated accordingly. Where properties are appraised to have no commercial value, the associated costs
are treated as an impairment loss in the period in which the determination is made.
Costs related to hydrocarbon production activities including production plants and capital spares are depreciated on a field by field
unit of production method based on commercial proved plus probable reserves of the production licence, except in the case of assets
whose useful life differs from the lifetime of the field, which are depreciated on a straight-line basis over their anticipated useful life of
up to 10 years.
For assets under construction depreciation begins when the assets are available for use and continues until the assets are derecognised,
even if it is idle.
The calculation of the ‘unit of production’ depreciation takes account of estimated future development costs. The ‘unit of production’
rate is set at the beginning of each accounting period. Changes in reserves and cost estimates are recognised prospectively applied from
the date of the Board approval of revised field development plans.
95
JKX Oil & Gas plc Annual Report 2019
Other assets
Depreciation is charged so as to write off the cost, less estimated residual value, over their estimated useful lives, using the straight-
line method, for the following classes of assets:
Motor vehicles
Computer equipment
Other equipment
- 4 years
- 3 years
- 5 to 10 years
The estimated useful lives of property plant and equipment and their residual values are reviewed on an annual basis and, if necessary,
changes in useful lives are accounted for prospectively. Assets under construction are not subject to depreciation until the date on
which the Group makes them available for use.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in the income statement for the relevant period.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of
the fair values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the Group in
exchange for control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the criteria for
recognition under IFRS 3 (revised) are recognised at their fair value at the acquisition date. In a business combination achieved in
stages, the previously held equity interest in the acquiree is re-measured at its acquisition date fair value and the resulting gain or loss,
if any, is recognised in the income statement. Acquisition costs are expensed.
Goodwill is recognised as an asset and is initially measured at cost being the excess of the cost of the business combination over the
Group’s share in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. After initial recognition,
goodwill is measured at cost less any accumulated impairment losses. Goodwill impairment reviews are undertaken annually or more
frequently if events or changes in circumstances indicate a potential impairment. Impairment losses on goodwill are not reversed.
On disposal of a subsidiary or joint arrangement, the attributable amount of unamortised goodwill, which has not been subject to
impairment, is included in the determination of the profit or loss on disposal.
Non-current assets held for sale and discontinued operations
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a
separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of
business or area of operations, or is a subsidiary acquired exclusively with a view to resale.
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a
sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their
carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, and financial assets within the scope of
IFRS 9, which are specifically exempt from this requirement. An asset classified as held for sale is not depreciated.
Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from
the other assets in the statement of financial position. The liabilities of a disposal group classified as held for sale are presented
separately from other liabilities in the statement of financial position.
Any gain or loss from disposal, together with the results of these operations until the date of disposal, is reported separately as
discontinued operations. The financial information of discontinued operations is excluded from the respective captions in the
Consolidated financial statements and related notes for all periods presented. Comparatives in the statement of financial position are
not represented when a non-current asset or disposal group is classified as held for sale. Comparatives are represented for
presentation of discontinued operations in the Statement of cash flow and Statement of comprehensive income. Further information
on discontinued operations and non-current assets held for sale can be found in note 14 “Discontinued operations and assets classified
as held for sale”.
Impairment of property, plant and equipment and intangible assets
Whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, the Group reviews the
carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those
assets have suffered an impairment loss. Individual assets are grouped together as a cash-generating unit for impairment assessment
purposes at the lowest level at which their identifiable cash flows, that are largely independent of the cash flows of the other Groups
assets, can be determined. A cash-generating unit is the smallest group of assets that independently generates cash flow and whose
cash flow is largely independent of the cash flows generated by other assets.
If any such indication of impairment exists the Group makes an estimate of its recoverable amount.
The recoverable amount is the higher of fair value less costs of disposal and value in use. Where the carrying amount of an individual
asset or a cash-generating unit exceeds its recoverable amount, the asset/cash-generating unit is considered impaired and is written
down to its recoverable amount. Fair value less costs of disposal is determined by discounting the post-tax cash flows expected to be
generated by the cash-generating unit, net of associated selling costs, and takes into account assumptions market participants would
96
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
use in estimating fair value. In assessing the value in use, the estimated future cash flows are adjusted for the risks specific to the
asset/cash-generating unit and are discounted to their present value that reflects the current market indicators.
Where an impairment loss subsequently reverses, the carrying amount of the asset/cash-generating unit is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an
impairment loss is recognised as income immediately.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such
time as the assets are substantially ready for their intended use or sale. To the extent that variable rate borrowings are used to finance
a qualifying asset and are hedged in an effective cash flow hedge of interest rate risk, the effective portion of the derivative is
recognised in other comprehensive income and reclassified to profit or loss when the qualifying asset impacts profit or loss. To the
extent that fixed rate borrowings are used to finance a qualifying asset and are hedged in an effective fair value hedge of interest rate
risk, the capitalised borrowing costs reflect the hedged interest rate. Investment income earned on the temporary investment of
specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
JKX Employee Benefit Trust
The JKX Employee Benefit Trust was established in 2014 to hold ordinary shares purchased to satisfy various new share scheme
awards made to the employees of the Company which will be transferred to the members of the scheme on their respective vesting
dates subject to satisfying the performance conditions of each scheme.
Financial instruments
Financial assets and financial liabilities are recognised in the consolidated statement of financial position when the Group becomes
party to the contractual provisions of the instrument.
Convertible bonds due 2020 – embedded derivative
The net proceeds received from the issue of convertible bonds at the date of issue have been split between two elements: the host debt
instrument classified as a financial liability in Borrowings, and the embedded derivative.
The fair value of the embedded derivative has been calculated first and the residual value is assigned to the host debt liability. The
difference between the proceeds of issue of the convertible bonds and the fair value assigned to the embedded derivative, representing
the value of the host debt instrument, is included as Borrowings and is not remeasured. The host debt component is then carried at
amortised cost and the fair value of the embedded derivative is determined at inception and at each reporting date with the fair value
changes being recognised in profit or loss.
Issue costs are apportioned between the host debt element (included in Borrowings) and the derivative component of the convertible
bond based on their relative carrying amounts at the date of issue.
The interest expense on the component included in Borrowings is calculated by applying the effective interest method, with interest
recognised on an effective yield basis.
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.
Equity investments at fair value through other comprehensive income (FVOCI)
Investments in unquoted equity instruments were previously measured at cost less impairment as allowed by IAS 39. As of 1 January
2018 investments in equity instruments were reclassified to financial assets at fair value through other comprehensive income. The
Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through
other comprehensive income (FVOCI). Movements in the carrying amount are taken through OCI, except for the recognition of
impairment gains or losses, interest and dividends income and foreign exchange gains and losses which are recognised in profit or loss.
There was no impact of reclassification on the carrying value of its unlisted investment. Please refer to Note 6 for details.
Borrowings
Borrowings are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the
effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of
calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial
liability, or, where appropriate, a shorter period.
Trade and other receivables
Trade and other receivables are recognised initially at their transaction price in accordance with IFRS 9 and are subsequently
measured at amortised cost. The Group applies the simplified approach to providing for expected credit losses (ECL) prescribed by IFRS
9, which permits the use of the lifetime expected loss provision for all trade receivables. Expected credit losses are assessed on a
forward looking basis. The loss allowance is measured at initial recognition and throughout its life at an amount equal to lifetime ECL.
Any impairment is recognised in the income statement within ‘Administrative expenses’.
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JKX Oil & Gas plc Annual Report 2019
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and current balances with banks and similar institutions, which are readily
convertible to known amounts of cash. Cash equivalents are short-term with an original maturity of less than 3 months.
Restricted cash
Restricted cash is disclosed separately on the face of the statement of financial position and denoted as restricted when it is not under
the exclusive control of the Group.
Trade and other payables
Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective
interest rate method if the time value of money is significant.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An
equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity
instruments issued by the Company are recorded at the proceeds received net of direct issue costs.
Inventories
Inventory is comprised of produced oil and gas and certain materials and equipment that are acquired for future use such as: parts for
cars/trucks, field maintenance, overalls, hand-tools, general materials, accessories, small value parts for production equipment. The oil
and gas is valued at the lower of average production cost and net realisable value; the materials and equipment inventory is valued at
purchase cost. Cost comprises direct materials and, where applicable, direct labour costs plus attributable overheads based on a normal
level of activity and other costs associated in bringing the inventories to their present location and condition. Cost is calculated using
the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and
costs to be incurred in marketing, selling and distribution and any provisions for obsolescence.
Taxation
Income tax expense represents the sum of current tax payable and deferred tax.
The current tax payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the reporting date.
Tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity or in other
comprehensive income, in which case the tax is also dealt with in equity or other comprehensive income respectively.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the
financial statements and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, and interests in joint
ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Any such reduction shall be reversed to
the extent that it becomes probable that sufficient taxable profit will be available.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised
based on tax rates and laws substantively enacted by the reporting date. Deferred tax assets and liabilities are offset when there exists
a legal and enforceable right to offset and they relate to income taxes levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker.
The Chief Operating Decision Maker, who is responsible for allocating resources and assessing performance of the operating segments,
has been identified as the Executive Directors of the Group that make the strategic decisions.
Pension obligations
The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit
obligation at the end of the reporting period. The defined benefit obligation is calculated annually by an independent actuary using the
projected unit credit method.
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest
rates of government bonds that are denominated in the currency in which the benefits will be paid (hryvnia), and that have terms
approximating to the terms of the related obligation. Currently, there is no sufficiently developed market of bonds denominated in
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JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
hryvnia with a sufficiently long period of repayment which would be consistent with an estimated period of payment of all benefits. In
such cases the Standard allows using current market rates to discount respective short-term payments and calculating the discount
rate for long-term liabilities by extending the current market rates along the yield curve.
The current service cost of the defined benefit plan, recognised in the Income Statement, except where included in the cost of an asset,
reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes
curtailments and settlements. Past-service costs are recognised immediately in the Income Statement.
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation. This cost is
included in employee benefit expense in the statement of profit or loss.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity
in other comprehensive income in the period in which they arise.
Share options
The group operates an equity-settled, share-based compensation plan, under which the Company receives services from Senior
Management as consideration for equity instruments (options) of the group. The fair value of the services received from Senior
Management in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by
reference to the fair value of the options granted:
including any market performance conditions; (for example, the Company's share price);
excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets
and remaining an employee of the entity over a specified time period); and
including the impact of any non-vesting conditions (for example, the requirement for employees to save).
Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest.
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be
satisfied.
In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value
is estimated for the purposes of recognising the expense during the period between service commencement period and grant date.
At the end of each reporting period, the group revises its estimates of the number of options that are expected to vest based on the non-
market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a
corresponding adjustment to equity.
When the options are exercised, the company issues new shares or shares held by the JKX Employee Benefit Trust. The proceeds
received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.
The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the group is treated as
a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised
over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent
entity financial statements.
The social security contributions payable in connection with the grant of the share options is considered an integral part of the grant
itself, and the change will be treated as a cash-settled transaction.
The rules regarding the scheme are described in the Remuneration Report on pages 67 and 68 and in Note 24 on share based payments.
Bonus scheme
The Group operates a bonus scheme for its employees. The bonus payments are made annually, normally in January of each year and the
costs are accrued in the period to which they relate.
Pension costs
The Group contributes to the individual pension scheme of the qualifying employees’ choice. Contributions are charged to the income
statement as they become payable. The Group has no further payment obligations once the contributions have been paid.
Decommissioning
Provision is made for the cost of decommissioning assets at the time when the obligation to decommission arises. Such provision
represents the estimated discounted liability for costs which are expected to be incurred in removing production facilities and site
restoration at the end of the producing life of each field. A corresponding item of property plant and equipment is also created at an
amount equal to the provision. This is subsequently depreciated as part of the capital costs of the production facilities. Any change in
the present value of the estimated expenditure attributable to changes in the estimates of the cash flow or the current estimate of the
discount rate used are reflected as an adjustment to the provision and the property plant and equipment. Discount rates are based on
governmental bonds which will be redeemed around the end of field life. The unwinding of the discount is recognised as a finance cost.
Provisions
Provisions are created where the Group has a present obligation as a result of a past event, where it is probable that it will result in an
outflow of economic benefits to settle the obligation, and where it can be reliably measured.
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JKX Oil & Gas plc Annual Report 2019
Provisions are measured at the best estimate of the expenditure required to settle the obligation at the balance sheet date, and are
discounted to present value where the effect is material. Where amounts provided for attract interest reflecting the appropriate time
value of money no discounting is applicable. The amounts provided are based on the Group’s best estimate of the likely committed
outflow.
Amounts received in advance for future gas sales are recorded as contract liabilities and revenue is recognised as the performance
obligations are met.
Revenue recognition
Revenue from contracts with customers is recognised when or as the Group satisfies a performance obligation by transferring a
promised good or service to a customer. A good or service is transferred when the customer obtains control of that good or service. The
transfer of control of oil, natural gas, LPG, condensate, and other items sold by the Group usually coincides with title passing to the
customer and the customer taking physical possession. The Group principally satisfies its performance obligations at a point in time
and the amounts of revenue recognised relating to performance obligations satisfied over time are not material.
Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, value added tax (“VAT”) and other
sales taxes or duty. Production based taxes are not included in revenue, they are paid on production and recorded within cost of sales.
Amounts received in advance for future gas sales are recorded as contract liabilities and revenue is recognised as the performance
obligations are met.
Share capital and treasury shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a
deduction from share premium, net of any tax effects.
When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable
costs, net of any tax effects, is recognised in retained earnings.
Repurchased JKX Oil & Gas plc shares are classified as treasury shares in shareholders’ equity and are presented in the retained
earnings. The consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the
Company’s equity holders until the shares are cancelled or reissued.
When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting
surplus or deficit on the transaction is presented in share premium. No gain or loss is recognised in the financial statements on the
purchase, sale, issue or cancellation of treasury shares.
Leases
At inception of a contract, the Group assesses whether a contract is, or contains, a lease based on whether the contract conveys the
right to control the use of an identified asset for a period of time in exchange for consideration.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially
measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date,
plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying
asset or the site on which it is located, less any lease incentives received.
The asset is depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the straight-line
method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes
periods covered by an option to extend if the Group is reasonably certain to exercise that option. Lease terms range from two to three
years for oil and gas equipment and offices. Service agreements for equipment on the working sites are not considered leases as, based
upon an assessment of the terms and nature of their contractual arrangements, the contracts do not convey the right to control the use
of an identified asset. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing
rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The lease liability is measured at amortised cost
using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index
or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the
Group changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is
remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or the effect is recorded
in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Group elected to apply the practical expedient not to recognise right-of-use assets and lease liabilities for short-term leases that
have a lease term of 12 months or less and leases of low-value assets. The Group also made use of the practical expedient to not
recognise a right-of-use asset or a lease liability for leases for which the lease term ends within 12 months of the date of initial
application.
The lease payments associated with these leases are recognised as an expense on a straight-line basis over the lease term.
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JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
The Group did not elect to apply the practical expedient to grandfather the assessment of which transactions are leases on the date of
initial application, as previously assessed under IAS 17 and IFRIC 4. The Group applied the definition of a lease under IFRS 16 to all
existing contracts.
Dividends
Interim dividends are recognised when they are paid to the Company’s shareholders. Final dividends are recognised when they are
approved by shareholders.
Exceptional items
Exceptional items comprise items of income and expense, including tax items, that are material either because of their size or their
nature and unlikely to recur and which merit separate disclosure in order to provide an understanding of the Group’s underlying
financial performance. Examples of events which may give rise to the disclosure of material items of income and expense as
exceptional items include, but are not limited to litigation claims by or against the Group and the restructuring of components of the
Group’s operations. Exceptional items are disclosed separately on the face of the income statement.
Critical accounting estimates, assumptions and judgements
The Group makes estimates, assumptions and judgements concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates, assumptions and judgements that have a risk of causing material adjustment to
the carrying amounts of assets and liabilities within the next financial year are discussed below.
a) Recoverability of oil and gas assets and intangible oil and gas costs (Note 5 (a))
Costs capitalised as oil and gas assets in property, plant and equipment, and intangible assets are assessed for impairment when
circumstances suggest that the carrying value may exceed its recoverable value. As part of this assessment, management has carried
out an impairment test (ceiling test) on the oil and gas assets classified as property, plant and equipment, where indicators of
impairment have been identified on a CGU. This test compares the carrying value of the assets at the reporting date with the expected
discounted cash flows from each project prepared under the fair value less cost of disposal approach. For the discounted cash flows to
be calculated, management has used a production profile based on its best estimate of proven and probable reserves of the assets and a
range of assumptions, including an internal oil and gas price profile benchmarked to mean analysts’ consensus and third party
estimates and a discount rate which, taking into account other assumptions used in the calculation, management considers to be
reflective of the risks. This assessment involves judgement as to (i) the likely commerciality of the asset, (ii) proven, probable (‘2P’)
reserves which are estimated using standard recognised evaluation techniques (iii) future revenues and estimated development costs
pertaining to the asset, (iv) the discount rate to be applied for the purposes of deriving a recoverable value including estimates of the
relevant levels of risk premiums applied to the assets. In cases where impairment tests demonstrate headroom, reversals of
impairment charges are not recognised in the Group income statement if the existence of the headroom is sensitive to pricing,
production or discount rates.
b) Depreciation of oil and gas assets (Note 5 (a))
Oil and gas assets held in property, plant and equipment are mainly depreciated on a unit of production basis at a rate calculated by
reference to proved plus probable reserves and incorporating the estimated future cost of developing and extracting those reserves.
Future development costs are estimated using assumptions as to the numbers of wells required to produce those reserves, the cost of
the wells, future production facilities and operating costs; together with assumptions on oil and gas realisations based on the approved
field development plans.
c) Taxation including rental fees and deferred tax assets (Notes 25 and 26)
Tax provisions are recognised when it is considered probable that there will be a future outflow of funds to the tax authorities. In this
case, provision is made/reversed for the amount that is expected to be settled or won. The provision is updated at each reporting date
by management by interpretation and application of known local tax laws with the assistance of established legal, tax and accounting
advisors. These interpretations can change over time depending on precedent set and circumstances. In addition new laws can come
into effect which can conflict with others and, therefore, are subject to varying interpretations and changes which may be applied
retrospectively. A change in estimate of the likelihood of a future outflow or in the expected amount to be settled would result in a
charge or credit to income in the period in which the change occurs.
Tax provisions are based on enacted or substantively enacted laws. To the extent that these change there would be a charge or credit to
income both in the period of charge, which would include any impact on cumulative provisions, and in future periods.
Deferred tax assets are recognised only to the extent it is considered probable that those assets will be recoverable. This involves an
assessment of when those deferred tax assets are likely to reverse, and a judgement as to whether or not there will be sufficient
taxable profits available to offset the tax assets when they do reverse. This requires assumptions regarding future profitability and is
therefore inherently uncertain. To the extent assumptions regarding future profitability change, there can be an increase or decrease
in the level of deferred tax assets recognised that can result in a charge or credit in the period in which the change occurs.
d) Provisions for decommissioning costs (Note 18)
Estimates of the cost of future decommissioning and restoration of production facilities are based on current legal and constructive
requirements, technology and price levels, while estimates of when decommissioning will occur depend on assumptions made
regarding the economic life of fields which in turn depend on such factors as oil and gas prices, decommissioning costs, discount rates
and inflation rates. Management reviewed the estimation process and the basis for the principal assumptions underlying the cost
estimates, noting in particular the reasons for any major changes in estimates as compared with the previous year. The Group was
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JKX Oil & Gas plc Annual Report 2019
satisfied that the approach applied was fair and reasonable. The Group was also satisfied that the discount and inflation rates used to
calculate the provision were appropriate. The discount rates were based on government bonds issued in the respective countries.
e) Judgement used in the fair value of unlisted investments (Note 6)
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The
objective of a fair value measurement is to estimate the price at which an orderly transaction would take place between market
participants under the market conditions that exist at the measurement date. IFRS 13 requires that valuation techniques maximise the
use of observable inputs and minimise the use of unobservable inputs. The Group has used a market approach to estimate fair value of
the unlisted investments. The Group used its judgements to (i) select a valuation method, (ii) make assumptions that are based on
market conditions existing at the end of the reporting period, (iii) determine the point in a range of values that is ‘most representative
of a fair value’, (iv) determine discounts applied to the fair value.
f) Enforcement of arbitration award (Note 25)
No asset has been recognised in respect of the arbitration award due to the uncertainty inherent in the process for, and likely success
of, enforcing collection.
g) Exceptional items (Notes 18 and 25)
Judgment is required when determining whether items meet the definition of ‘exceptional’ under the Group’s accounting policy.
Provisions and reversals for August to December 2010 and January to December 2015 rental fee claims have been included in
‘exceptional items’ due to their material, specific and unusual nature and the Board considered that it was appropriate to highlight
these items to users of the financial statements. In particular, the issues are considered to represent isolated historical disputes that
will not recur having related to specific circumstances and discrete periods of time with production based taxes currently paid at
standard Ukrainian government rates. Whilst the Board is cognisant that items should not be disclosed as exceptional when they recur,
in this instance the Board considered items to be exceptional, because the underlying claims are not anticipated to recur and the
additional charges refer to accrual of interest and penalties of the original claims.
4. Segmental analysis
The Group has one single class of business, being the exploration for, evaluation, development and production of oil and gas reserves.
Accordingly the reportable operating segments are determined by the geographical location of the assets and, therefore all information
is being presented for geographical segments. This is consistent with the revenue information that is disclosed for each reportable
segment under IFRS 8 Operating Segments.
There are four (2018: 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 Group derives revenue from the transfer of goods at a point in time.
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 and intangible
assets.
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JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
2019
External revenue
Revenue by location of asset:
– Oil
– Gas
– Liquefied petroleum gas
– Other
Inter segment revenue:
– Management services/other
Total revenue
Profit/(loss) before tax:
UK
$000
Ukraine
$000
Russia
$000
Rest of
World1
$000
Sub Total
$000
Eliminations
$000
Total
$000
-
-
-
-
-
24,339
701
52,319
16,750
6,562
1,055
-
18
84,275
17,469
1,650
1,650
1,650
-
-
-
-
84,275
17,469
-
-
-
-
-
-
-
-
25,040
69,069
6,562
1,073
101,744
-
-
-
-
-
25,040
69,069
6,562
1,073
101,744
1,650
1,650
(1,650)
(1,650)
-
-
103,394
(1,650)
101,744
Profit/(loss) from operations
(6,922)
37,544
1,052
(236)
31,438
112
31,550
Finance income
Finance cost
Derivative liability written-off
Assets
Property, plant and equipment
365
116,734
98,629
857
(2,054)
62
-
-
-
857
(2,054)
62
30,303
112
30,415
Investment
Deferred tax
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets1
Total liabilities1
500
-
-
349
9,496
-
-
(172)
8,184
5,295
1,603
9,571
1,620
1,973
1,414
10,714
133,027
111,820
-
-
-
-
6
148
154
215,728
500
8,012
6,915
3,931
20,629
255,715
(7,323)
(57,980)
(7,027)
(30)
(72,360)
Non cash expense (other than depreciation
and impairment)
Exceptional item – net reversal of
provision for production based taxes
Increase in property, plant and equipment
and intangible assets
229
214
118
-
-
8,410
-
20,850
9,104
Depreciation, depletion and amortisation
246
13,049
5,922
-
-
-
-
561
8,410
29,954
19,217
1 Total assets and liabilities exclude assets and liabilities of the Hungarian disposal group classified as held for sale. Please refer to Note 14 for details.
-
-
-
-
-
-
-
-
-
-
-
-
215,728
500
8,012
6,915
3,931
20,629
255,715
(72,360)
561
8,410
29,954
19,217
Major customers
Ukraine
Russia
2019
$000
-
17,231
2018
$000
18,131
16,911
There is one customer in Russia that exceeds 10% of the Group’s total revenues (2018: two customers, one in Ukraine
and one in Russia).
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JKX Oil & Gas plc Annual Report 2019
2018
External revenue
Revenue by location of asset:
– Oil
– Gas
– Liquefied petroleum gas
– Other
Inter segment revenue:
– Management services/other
Total revenue
Profit/(loss) before tax:
UK
$000
Ukraine
$000
Russia
$000
Rest of
World1
$000
Sub Total
$000
Eliminations
$000
Total
$000
-
-
-
112
112
3,523
3,523
19,341
679
49,221
17,155
5,579
781
-
5
74,922
17,839
-
-
-
-
3,635
74,922
17,839
-
-
-
-
-
-
-
-
20,020
66,376
5,579
898
92,873
-
-
-
-
-
20,020
66,376
5,579
898
92,873
3,523
3,523
(3,523)
(3,523)
-
-
96,396
(3,523)
92,873
Profit/(loss) from operations
(6,106)
20,979
(104)
(817)
13,952
1,724
15,676
Finance income
Finance cost
Fair value movement on derivative
liability
Assets
908
(2,510)
(59)
-
-
-
908
(2,510)
(59)
12,291
1,724
14,015
Property, plant and equipment
211
91,836
82,331
734
175,112
Deferred tax
Inventories
Trade and other receivables
-
-
736
966
9,453
2,851
2,502
1,501
1,864
-
-
9
10,419
4,352
5,111
Cash and cash equivalents
13,344
3,493
2,265
80
19,182
Total assets1
Total liabilities1
14,291
101,648
97,414
823
214,176
(12,580)
(56,857)
(3,481)
(38)
(72,956)
Non cash expense (other than depreciation
and impairment)
Exceptional item – production based taxes
Increase in property, plant and equipment
and intangible assets
-
-
-
673
5,055
11,011
80
-
742
Depreciation, depletion and amortisation
58
9,210
5,887
6
-
-
-
759
5,055
11,753
15,155
-
-
-
-
-
-
-
-
-
-
-
175,112
10,419
4,352
5,111
19,182
214,176
(72,956)
759
5,055
11,753
15,155
1 Total assets and liabilities exclude assets and liabilities of the Hungarian disposal group classified as held for sale. Please refer to Note 14 for details.
104
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
5. Property, plant and equipment and Intangible assets
5.(a) Property, plant and equipment
2019
Group
Cost
At 1 January
Application of IFRS 16 – Right-of-use assets
Additions during the year
Foreign exchange
Disposal of property, plant and equipment
At 31 December
Accumulated depreciation, depletion and amortisation and
provision for impairment
At 1 January
Depreciation on disposals of property, plant and equipment
Foreign exchange
Depreciation charge for the year
At 31 December
Carrying amount
At 1 January
At 31 December
Oil and gas
fields
Ukraine
$000
Gas field
Russia
$000
Other assets
$000
Total
$000
578,094
192,952
17,755
788,801
-
19,924
99,454
-
2,159
8,887
23,579
(10)
1,353
1,143
510
(407)
3,512
29,954
123,543
(417)
697,472
227,567
20,354
945,393
486,258
110,621
16,810
613,689
-
83,397
12,728
(10)
13,327
5,784
(195)
240
705
(205)
96,964
19,217
582,383
129,722
17,560
729,665
91,836
115,089
82,331
97,845
945
2,794
175,112
215,728
Oil and gas fields in Ukraine and Russia include $7.8m and $0.6m respectively relating to items under construction (2018: $1.0m and
nil).
105
JKX Oil & Gas plc Annual Report 2019
2018
Group
Cost
At 1 January
Additions during the year
Foreign exchange
Disposal of property, plant and equipment
Reclassified to assets held for sale
Reclassified from inventories
Oil and gas assets
Oil and gas
fields
Ukraine
$000
Gas field
Russia
$000
Oil and gas
fields
Hungary
$000
Other assets
$000
Total
$000
567,195
230,149
37,442
18,257
853,043
10,899
-
-
-
-
602
(39,325)
(112)
-
-
-
-
(37,442)
1,638
-
-
252
(292)
(462)
-
-
11,753
(39,617)
(574)
(37,442)
1,638
17,755
788,801
At 31 December
578,094
192,952
Accumulated depreciation, depletion and
amortisation and provision for impairment
At 1 January
477,171
127,188
37,442
17,211
659,012
Depreciation on disposals of property, plant and
equipment
Foreign exchange
Depreciation charge for the year
Reclassified to assets held for sale
At 31 December
Carrying amount
At 1 January
At 31 December
-
-
9,087
-
(112)
(22,212)
5,757
-
-
-
-
(37,442)
486,258
110,621
90,024
91,836
102,961
82,331
-
-
-
(459)
(253)
311
-
(571)
(22,465)
15,155
(37,442)
16,810
613,689
1,046
945
194,031
175,112
106
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
5.(b) Intangible assets: exploration and evaluation expenditure
2019
Group
At 1 January
At 31 December
2018
Group
Cost:
At 1 January
Reclassified to assets held for sale
Disposal of assets written off
At 31 December
Provision against oil and gas assets
At 1 January
Reclassified to assets held for sale
Disposal of assets written off
At 31 December
Carrying amount
At 1 January
At 31 December
Ukraine
$000
Hungary
Rest of World
$000
$000
Total
$000
-
-
-
-
-
-
-
-
Ukraine
$000
Hungary
$000
Rest of World
$000
Total
$000
1,308
-
(1,308)
-
1,308
-
(1,308)
-
-
-
814
(814)
-
-
814
(814)
-
-
-
-
14,236
-
16,358
(814)
(14,236)
(15,544)
-
-
14,236
-
16,358
(814)
(14,236)
(15,544)
-
-
-
-
-
-
5.(c) Impairment test for property, plant and equipment
A review was undertaken at the reporting date of the carrying amounts of property, plant and equipment to determine whether there
was any indication of a trigger that may have led to these assets suffering an impairment loss. Following this review impairment
triggers were noted in relation to the Ukrainian assets due to the significantly lower gas sales prices in 2019, in relation to the Russian
assets due to the lower than expected production rate achieved by Well 5 and the negative revision to its reserves in the latest CPR, and
in relation to both Ukrainian and Russian assets due to the carrying amount of the Group net assets exceeding the Company’s market
capitalisation.
As there is no readily available market for the Group’s oil and gas properties, fair value is derived as the net present value of the
estimated future cash flows arising from the continued use of the assets, incorporating assumptions that a typical market participant
would take into account.
The value in use of an oil and gas property is generally lower than its Fair Value Less Costs of Disposal (‘FVLCD’) as value in use reflects
only those cash flows expected to be derived from the asset in its current condition. FVLCD includes appraisal and development
expenditure that a market participant would consider likely to enhance the productive capacity of an asset and optimise future cash
flows. Consequently, the Group determines recoverable amount based on FVLCD using a Discounted Cash Flow (‘DCF’) methodology.
The DCF was derived by estimating discounted after tax cash flows for each CGU based on estimates that a typical market participant
would use in valuing such assets.
The impairment tests compared the recoverable amount of the respective CGUs noted below to the respective carrying values of their
associated assets. The estimates of FVLCD meet the definition of level three fair value measurements as they are determined from
unobservable inputs. The impairment tests were performed based on conditions as at year end.
Impairment test for the Ukrainian oil and gas assets
Poltava Petroleum Company (‘PPC’), a wholly owned subsidiary of JKX, holds 100% interest in five production licences (Ignativske,
Movchanivske, Rudenkivske, Novomykolaivske, Elyzavetivske) and one exploration licence (Zaplavska) in the Poltava region of
Ukraine.
The Ignativske, Movchanivske, Rudenkivske, Novomykolaivske production licences contain one or more distinct fields which, together
with the Zaplavska exploration licence, form the Novomykolaivske Complex (‘NNC’).
107
JKX Oil & Gas plc Annual Report 2019
The Elyzavetivske production licence is located 45km from the Novomykolaivske Complex and has its own gas production facilities.
Ukrainian Cash Generating Units (‘CGUs’)
In respect of the Group’s Ukraine assets the NNC forms a single CGU as these contain oil and gas fields which are serviced by a single
processing facility and do not have separately identifiable cash inflows. In addition they have commonality of facilities, personnel and
services.
The Elyzavetivske licence also has its own separate processing facilities and separately identifiable cash flows and therefore is a
distinct CGU for the purpose of the impairment test. During 2015 an extension to the Elyzavetivske production licence was awarded to
PPC which included the West Mashivska field. Due to the proximity of the West Mashivska field to the Elyzavetivske plant, production
will be tied back to the Elyzavetivske processing facilities and therefore forms part of this CGU.
In accordance with IAS 36, the impairment review was undertaken in Ukrainian hryvnia being the currency in which future cash flows
from NNC and Elyzavetivske will be generated.
Key Assumptions – NNC and Elyzavetivske
The key assumptions used in the impairment testing were:
Production profiles: these were based on the latest available information assessed internally including assessment of the results of
external reserve engineer audits in the year. Such information included 2P reserves for NNC and Elyzavetivske of 21.5 MMboe and
1.8 MMboe, respectively.
Economic life of field: it was assumed that the title to the licences is retained and that the NNC licence term will be successfully
extended beyond its current 2024 expiration date through to the economic life of the field (expected to be around 2037). The
economic life of the Elyzavetivske field is currently expected to be around 2035 as per management’s current expectation.
Gas prices: during 2015 Ukraine acquired the ability to purchase gas from Europe rather than being completely dependent on Russia
for imports. As such, Ukrainian gas prices are expected to be more aligned with European gas prices in future but also influenced by
international oil prices. The gas price used for 2020 is based on estimates of gas prices to be realised by our Ukrainian subsidiary
determined considering external market forecasts as at year end with consideration given the applicability or otherwise of relevant
pricing adjustments for the local market. For the following ten years a forward gas price curve was used with gas prices increasing in
line with inflation thereafter.
Oil prices: the Company used a forward price curve as at year end for the next eight years and remaining constant thereafter.
Production taxes: the Company has assumed production tax rates of 29% for gas and oil. A gas tax rate of 12% is applied to wells
drilled since 1 January 2018.
Capital and operating costs: these were based on current operating and capital costs in Ukraine for both projects. Estimates were
provided by third parties and supported by estimates from our own specialists, where necessary.
Post tax nominal discount rate of 14.2%. This was based on a Capital Asset Pricing Model analysis consistent with that used in
previous impairment reviews.
Based on the key assumptions set out above:
the recoverable amount of NNC’s oil and gas assets ($111.4m) exceeds its carrying amount ($107.8m) by $3.6m and therefore NNC’s
oil and gas assets were not impaired.
Elyzavetivske’s recoverable amount (including the West Mashivska extension) ($19.9m) exceeds its carrying amount ($15.8m) by
$4.1m, and therefore the CGU’s oil and gas assets were not impaired.
Sensitivity analysis for the NNC and Elyzavetivske
Any impairment is dependent on judgement used in determining the most appropriate basis for the assumptions and estimates made by
management, particularly in relation to the key assumptions described above. Sensitivity analysis to potential changes in key
assumptions has therefore been provided below.
The impact on the impairment calculation of applying different assumptions to gas prices, production volumes, future capital
expenditure and post-tax discount rates, all other inputs remaining equal, would be as follows:
Impact if gas and oil prices:
increased by 20%
Impact if gas and oil production
volumes:
reduced by 20%
increased by 10%
decreased by 10%
Impact if future capital expenditure:
increased by 20%
NNC
Increase/(decrease) in
headroom of $3.6 for
NNC CGU
$m
Elyzavetivske
Increase/(decrease) in
headroom of $4.1m for
Elyzavetivske CGU $m
40.0
(40.0)
36.8
(17.1)
(7.2)
7.9
(7.9)
6.5
(0.4)
(2.2)
108
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
Impact if post-tax discount rate:
increased by 2 percentage points to 16.2%
decreased by 2 percentage points to 12.2%
decreased by 20%
26.9
(10.4)
14.5
4.7
(0.5)
0.5
Impairment test for Yuzhgazenergie LLC (‘YGE’), Russia
Following the 2007 acquisition of YGE in Russia, a technical and environmental re-evaluation of YGE’s Koshekhablskoye gas field
redevelopment was undertaken by the Group. The re-evaluation resulted in a revised development plan and production profile. The
development plan and production profile have continued to be refined since that time.
In accordance with IAS 36, the impairment review has been undertaken in Russian Roubles, which is the functional currency of YGE.
Key Assumptions – YGE
The key assumptions used in the impairment testing were:
Production profiles: these were based on the latest available information assessed internally including assessment of the results of
external reserve engineer audits in the year. Such information included 2P reserves for YGE of 56.6 MMboe.
Economic life of field: it was assumed that YGE will be successful in extending the licence term beyond its current 2026 expiration to
the economic life of the field (expected to be around 2049). The discounted cash flow methodology used has not taken account of any
opportunities that may exist to extract reserves in a shorter timeframe by investing to increase the current plant capacity.
Gas prices: from 1 July 2020 and annually thereafter, the gas prices have been increased by 3.8% and then by 2% through to 2025
based on historical experience.
Capital and operating costs: these were based on current operating and capital costs in Russia, project estimates provided by third
parties and supported by estimates from our own specialists, where necessary.
Post tax nominal Rouble discount rate of 10.5%. This was based on a Capital Asset Pricing Model analysis consistent with that used in
previous impairment reviews.
Based on the key assumptions set out above YGE’s recoverable amount ($112.8m) exceeds it carrying amount ($97.8m) by $15.0m and
therefore YGE’s Koshekhablskoye gas field was not impaired.
Any impairment is dependent on judgement used in determining the most appropriate basis for the assumptions and estimates made by
management, particularly in relation to the key assumptions described above. Sensitivity analysis to potential changes in key
assumptions has therefore been reviewed below.
The impact on the impairment calculation of applying different assumptions to gas prices, production, future capital expenditure and
post-tax discount rates, all other inputs remaining equal, would be as follows:
Sensitivity Analysis
Increase/(decrease) in headroom of $15.0m for
Yuzhgazenergie CGU
$m
Impact of Adygean gas price:
growth rates increased by 10% annually
growth rates reduced by 10% annually
Impact of production volumes:
Increased by 10%
Decreased by 10%
Impact of future capital expenditure:
Increased by 20%
Decreased by 20%
Impact of post-tax discount rate:
Increased by 1 percentage point to 11.5%
Decreased by 1 percentage point to 9.5%
4.2
(4.2)
36.3
(7.4)
(9.7)
20.2
(8.0)
10.4
6. Investments
Group unquoted equity investments comprise a 10% holding of the ordinary share capital of PJSC of “Mining Company
Ukrnaftoburinnya” (“UNB”), a Ukrainian oil and gas company, and a 1.43% holding of the ordinary share capital of Linx
Telecommunications Holding B.V. (“Linx”), a Netherlands telecommunications company. These investments were previously measured
at cost as allowed by IAS 39 (paragraph 46 (c)) and were fully impaired at 31 December 2017 and had been for several years.
As of 1 January 2018 Group’s investments in equity instruments were reclassified to financial assets at fair value through other
comprehensive income in accordance with the provisions of IFRS 9. The Group has made an irrevocable election at the time of initial
recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).
109
JKX Oil & Gas plc Annual Report 2019
At 31 December 2019 the carrying value of UNB remained fully impaired following assessment by the Board considering relevant
available information and valuation techniques, reflecting:
the lack of liquidity in the shares of UNB and considerations regarding the nature of markets for such an investment;
the absence of any history of dividends or other returns on the investment since acquisition in 2006 and the significant uncertainty
regarding future returns;
the absence of regular formal communication with UNB or potential buyers;
the level of uncertainty regarding any market valuation method based on quoted Ukrainian oil and gas companies given key
differences in the respective businesses and corporate structures;
the limited number of quoted Ukrainian oil and gas companies that can be used for the market valuation approach, defined
in IFRS 13; and
a paper prepared by a specialist third party advisor to the Board of Directors noted the limited number of likely parties potentially
interested in purchasing the investment and the difficulties in determining the consideration for which the investment might be
disposed generally.
At 31 December 2019 the carrying value of Linx was reported as $0.5m (2018: nil), with this valuation being based upon management’s
expectation of future and final dividends to be received from Linx in 2020. Management attends Linx shareholder meetings and is in
regular communication with its management. Management understands that Linx continues to dispose of its businesses units and
dividend out all proceeds to shareholders prior to a liquidation of the company. Previously dividends were received during 2017 and
2019 of $0.1m and $0.03m respectively after disposals of other business units. The carrying value of $0.5m is consistent with Linx
management expectations of consideration to be received for disposal of the remaining business units and also with the most recent
financial statements of Linx.
7. Inventories
Warehouse inventory and materials
Oil and gas inventory
2019
$000
4,056
2,859
6,915
2018
$000
2,273
2,079
4,352
During the year there were no obsolete inventories written off to profit and loss (2018: there were no obsolete inventories written off
to profit and loss).
8. Trade and other receivables
Trade receivables
Less: ECLs
Trade receivables – net
Other receivables
VAT receivable
Prepayments
2019
$000
2,221
(423)
1,798
160
639
1,334
3,931
2018
$000
2,085
(559)
1,526
279
384
2,922
5,111
As of 31 December 2019, trade and other receivables of $0.4m (2018: $0.6m) were past due and full expected credit loss (“ECL”)
provision was recognised with the asset considered credit impaired. The amount of the provision was $0.4m (2018: $0.6m). This
receivable relates to a single gas customer, which is more than three years past due. Legal proceedings were initiated in Q4 of 2016 and
finished in Q3 of 2018 in favour of the Company. During the year ended 31 December 2019 the Company collected $0.1m and is seeking
collection of the amount outstanding, but significant uncertainty remains over the collection.
As of 31 December 2019, trade and other receivables of $3.9m (2018: $1.8m) were current and not impaired. There is no difference
between the carrying value of trade and other receivables and their fair value.
Prepayments comprise of prepayments made to suppliers. Decrease in prepayments of $1.6m from $2.9m to $1.3m is mainly due to the
completion of 3D seismic work on Elyzavetivske field in Ukraine in April 2019, which amounted to $1.3m and was included in $2.9m
balance at 31 December 2018.
110
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
US Dollar
Sterling
Euros
Hungarian Forints
Ukrainian Hryvnia
Russian Roubles
9. Cash and cash equivalents
Cash
Short term deposits
Short term deposits held comprised amounts held on deposit, but were readily convertible to cash.
10. Trade and other payables
Current
Trade payables
Other payables
Contract liabilities
Other taxes and social security costs
VAT payable
Accruals
Current
Lease liabilities
Non-Current
Lease liabilities
11. Borrowings
Current
Convertible bonds due 2020
Term-loans repayable within one year
Non-Current
Convertible bonds due 2020
Term-loans repayable after more than one year
2019
$000
11
-
1
-
148
1,798
1,958
2019
$000
12,495
8,134
20,629
2018
$000
42
-
1
-
15
1,747
1,805
2018
$000
16,939
2,243
19,182
2019
$000
2018
$000
3,894
298
2,111
2,435
1,993
3,427
873
3
3,273
2,196
1,327
3,110
14,158
10,782
1,461
628
2019
$000
5,683
5,683
-
-
-
-
2018
$000
5,962
5,962
5,041
5,041
Convertible bonds due 2020
On 19 February 2013 the Company successfully completed the placing of $40m of guaranteed unsubordinated convertible bonds with
institutional investors which were due 2018 (prior to restructuring) raising cash of $37.2m net of issue costs.
111
JKX Oil & Gas plc Annual Report 2019
Prior to restructuring the Bonds had an annual coupon of 8 per cent per annum payable semi-annually in arrears.
The Bonds were convertible into ordinary shares of the Company at any time from 1 April 2013 up until seven days prior to their
maturity on 19 February 2020 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).
The Company made the final payment to Bondholders on 19 February 2020 in accordance with the terms and conditions of the Bond
(see Note 33).
Convertible bonds restructured on 3 January 2017
On 3 January 2017 a special resolution was approved by Bondholders to change the terms and conditions of the Bonds. The main
amendments to the terms and conditions of the Bonds were as follows:
the Bondholder's option to require redemption of all of the outstanding Bonds on 19 February 2017 was deleted;
the final maturity date of the Bonds was extended to 19 February 2020, with the outstanding principal amount of the Bonds being
repaid in three instalments; 33% on 19 February 2018; 33 % on 19 February 2019; and 34% on the 19 February 2020;
the coupon rate of the Bonds was increased from 8% to 14%;
the covenant which limited new borrowings by the Company was removed; and
the Company were to make two payments to Bondholders in respect of prior accretion amounts, on 19 February 2017 and on 19
February 2018 of 12.0% and 3.0%, respectively, of the principal amount of the Bonds.
On 19 February 2018 the Company made a payment of the first instalment to Bondholders of $5.3m (33% of the principal amount of the
Bonds), together with the final accretion payment of $0.5m (3.0% of the principal amount of the Bonds) and interest of $1.1m. On 19
February 2019 the Company made a payment of the second instalment to Bondholders of $5.3m (33% of the principal amount of the
Bonds), together with $0.7m interest payment in accordance with the terms and conditions of the Bond. On 19 August 2019 the
Company made interest payment of $0.4m in accordance with the terms and conditions of the Bond. On 19 February 2020 the Company
made the final payment of the third instalment to Bondholders of $5.4m (34% of the principal amount of the Bonds), together with
$0.4m interest payment in accordance with the terms and conditions of the Bond.
Cash Alternative Amount
At the option of the Company, the conversion notice in respect of the Bonds could be settled in cash rather than shares, the Cash
Alternative Amount payable was based on the Volume Weighted Average Price of the Company’s shares prior to the conversion notice.
Credit facility
On 11 December 2018, PPC, our subsidiary in Ukraine, renewed a 12 month revolving credit line from Tascombank for UAH280m
(originally secured 15 December 2017 for UAH150 m). At 31 December 2019 the total short-term line of credit amounted to $11.8m at an
exchange rate of $1: 23.69 (2018: $10.1m at an exchange rate of $1: 27.69 Hryvnia). The amount outstanding at 31 December 2019 was
nil (2018: nil), so the undrawn portion totaled $11.8m (2018: $10.1m). The facility will be available through December 2021 (subject to
planned renewal if required) and draw downs are subject to certain bank credit approvals. In addition PPC holds a UAH50m ($1.8m)
overdraft facility which remains undrawn and was renewed until 13 December 2021.
The main terms and conditions of the revolving credit line are as follows:
drawdowns can be made either in USD or UAH and are individually subject to credit approval by the lender;
interest rate cost for USD drawn down is 9%;
interest rate cost for UAH drawn down: 17.0% to 30 days, 17.50% 31 to 90 days, 20.00% 91 to 180 days, 21.00% 181 to 365 days;
borrowing above UAH90m, equivalent to $3.8m at 31 December 2019 (2018: $3.3m) will require a corporate guarantee from JKX Oil &
Gas Plc. The corporate guarantee provided by the JKX Oil & Gas plc in respect of the credit facility with Tascombank is considered to
be an insurance contract under the provisions of IFRS 4;
assets with a market value of UAH460m, equivalent to $19.4m at 31 December 2019 (2018: UAH460m, equivalent to $16.6m at 31
December 2018) have been identified for use as a collateral, collateral is to be provided only on a drawdown;
amount borrowed will be repaid during the last 4 months, by equal-sized monthly payments, to be effected on the last day of the
month/the last day of the credit limit period. Last date of repayment for the last part of amount borrowed is 13 December 2021.
The credit facility of $11.8m (2018: $10.1m) includes two financial covenants. If the covenants are not met an additional interest of 2%
applies to the facility but failure to meet covenants does not represent an event of default:
to keep gross margin at no less than 50% during the period of the credit facility agreement, based on PPC’s financial reporting
results.
starting from the first quarter of 2019 and during the period of the credit facility agreement, PPC is to maintain the ratio between
financial (interest) debt and EBITDA (adjusted to the annual value) at no more than 3.0.
112
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
12. Derivatives
Non-current derivative financial instruments
At the beginning of the year
Derivative liability written-off
Fair value loss movement during the year
At the end of the year
2019
$000
62
(62)
-
-
2018
$000
3
-
59
62
Convertible bonds due 2020 – embedded derivatives
Company Call Option
The Company could redeem the Bonds at any time in full but not in part at their principal amount plus one semi-annual coupon plus any
accrued interest. If the Bonds were called prior to 19 February 2020, the redemption price would also include an additional U.S. $6,000
per Bond.
The Company could redeem the Bonds any time in full but not in part at their principal amount plus any accrued interest 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 £1/$1.5809 for the conversion and other features.
The Company made the final payment to Bondholders on 19 February 2020 in accordance with the terms and conditions of the Bond
(see Note 33).
13. 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 arm’s length transaction. Where available, market values have been
used (this excludes short term assets and liabilities).
Financial assets
Cash and cash equivalents and restricted cash (Note 9) – classified at
amortised cost
Trade receivables (Note 8) – classified at amortised cost
Other receivables (Note 8) – classified at amortised cost
Financial liabilities
Trade payables (Note 10) - carried at amortised cost
Other payables (Note 10) - carried at amortised cost
Accruals (Note 10) - carried at amortised cost
Borrowings – convertible bonds due 2020
(Note 11) - carried at amortised cost (current)
Borrowings – convertible bonds due 2020
(Note 11) - carried at amortised cost (non-current)
Lease liabilities
Derivatives – fair value through profit or loss (Note 12)
Book Value
2019
$000
Fair Value
2019
$000
Book Value
2018
$000
Fair Value
2018
$000
20,629
20,629
19,182
19,182
1,798
160
1,798
160
3,894
298
3,080
5,683
3,894
298
3,080
5,683
1,526
279
873
3
2,468
5,962
1,526
279
873
3
2,468
5,962
-
-
5,041
5,041
2,089
2,089
-
-
-
62
-
62
Financial liabilities measured at amortised cost are carried at $15.0m (2018: $14.3m). The Group’s borrowings at 31 December 2019
relate entirely to the convertible bonds due 2020.
Fair value hierarchy
Derivatives
At 31 December 2018 the Group’s derivative financial instrument related to embedded derivative within the convertible bonds due
2020 (Note 12). The value of the derivative was calculated at inception using the Monte Carlo simulation methodology and
subsequently using the Black-Scholes formula, and the Company’s historic share price and volatility, treasury rates and other
113
JKX Oil & Gas plc Annual Report 2019
estimations. As it was derived from inputs that are not from observable market data it was grouped into level 3 within the fair value
measurement hierarchy.
The main assumptions used in valuation of the derivative conversion option as at 31 December 2018 were:
underlying share price of 2018: £0.11;
£/US$ spot rate of £1/$1.2754;
historic volatility of 54.03%;
risk free rate based on the maturity which is 1.14 year US Treasury rate of 2.578% and 0.14 year US Treasury rate of 2.444%
(continuously compounded).
A 10% increase/decrease in Company’s historic share price volatility would have resulted in an increase in the fair value loss for the
year of $0.1m and decrease in the fair value loss of $0.02m, respectively, assuming that all other variables remain constant.
Following the final payment of the Bond made to Bondholders on 19 February 2020 (see Note 33) the derivative of $0.1m was written
off to the Income statement at 31 December 2019 as its fair value was negligible at year end.
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 and other current assets, as at 31 December 2019 was $22.6m (2018: $21.0m).
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 cash
Net cash comprises: borrowings disclosed in Note 11 and total cash in Note 9 and excludes derivatives. Equity attributable to the
shareholders of the Company comprises issued capital, other reserves and retained earnings (see Consolidated statement of changes in
equity).
The capital structure of the Group is as follows:
Convertible bonds due 2020 (current and non-current, Note 11)
Total cash (Note 9)
Net cash
Total shareholders’ equity
2019
$000
2018
$000
(5,683)
(11,003)
20,629
14,946
19,182
8,179
186,255
141,682
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.
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.
114
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
The maturity analysis for financial liabilities was as follows:
Group - 31 December 2019
Maturity of financial liabilities
Trade payables (Note 10)
Other payables (Note 10)
Accruals (Note 10)
Borrowings – Convertible bonds due 2020
Lease liabilities
Group - 31 December 2018
Maturity of financial liabilities
Trade payables (Note 10)
Other payables (Note 10)
Accruals (Note 10)
Borrowings – Convertible bonds due 2020
Within 3
months
$000
3 months
- 1year
$000
1 – 2
years
$000
2 – 5
years
$000
3,894
298
3,080
5,683
-
-
-
-
-
-
-
-
-
-
-
-
484
1,294
392
342
Within 3
months
$000
3 months
- 1year
$000
1-2 years
$000
873
3
2,468
6,030
-
-
-
-
-
-
381
5,821
Interest rate risk profile of financial assets and liabilities - Group
Fixed rate interest is charged on the Group’s convertible bond (see Note 11). The interest rate profile of the other financial assets and
liabilities of the Group as at 31 December is as follows (excluding short-term assets and liabilities, non-interest bearing):
Group – 31 December
Floating rate
Short term deposits (Note 9)
Other receivables (Note 8)
Other payables (Note 10)
2019
Within 1 Year
$000
2018
Within 1 Year
$000
8,134
160
298
2,243
279
3
Floating rate financial assets comprise cash deposits placed on money markets at call, seven day and monthly rates.
Interest rate sensitivity - Group
The sensitivity analysis below has been determined based on the exposure to interest rates on our short term deposits at the reporting
date.
If interest rates had been 1 per cent higher/lower and all other variables were held constant, the Group’s profit (2018: profit) after tax
and net assets for the year ended 31 December 2019 would increase/decrease by $12,000 (2018: $16,000). 1 per cent is the sensitivity
rate used as it best represents management’s assessment of the possible change in interest rates that could apply to the Group.
Foreign currency exposures - Group
The table below shows the extent to which the Group has monetary assets and liabilities in currencies other than the functional
currency of the operating company involved. These exposures give rise to the net currency gains and losses recognised in the income
statement.
115
JKX Oil & Gas plc Annual Report 2019
As at 31 December the asset/(liability) foreign currency exposures were:
Sterling
Euros
Ukrainian Hryvnia
Bulgarian Leva
Russian Roubles
Canadian Dollar
Total net
2019
$000
675
1,086
5,470
41
(368)
-
2018
$000
(1,223)
371
4,583
33
3,732
6
6,904
7,502
1
Foreign currency exposures do not include Hungarian Forints, as Hungary is included under “assets held for sale” in the Statement of financial position.
Foreign currency sensitivity - Group
The Group is mainly exposed to the currency fluctuations of Ukraine (Hryvnia), Russia (Rouble) and UK (Sterling). The sensitivity
analysis principally arises on money market deposits and working capital items held at the reporting date.
The following table details the Group’s sensitivity to a 10 per cent (2018: 10 per cent) increase and decrease in the US Dollar against
Sterling and against Hryvnia and Rouble, all other variables were held constant. Due to the historically significant foreign currency
fluctuation in the UK, Ukraine and Russia 10 per cent has been used to calculate sensitivity for Sterling, Hryvnia and Rouble. 10 per
cent (2018: 10 per cent) is the sensitivity rate that best represents management’s assessment of the possible change in the foreign
exchange rates affecting the Group. A positive number below indicates an increase in profit and equity when the US Dollar weakens
against the relevant currency. For a strengthening of the US Dollar against the relevant currency, there would be an equal and opposite
impact on the profit and other equity, and the balances below would be negative.
Hryvnia
2019
$000
Hryvnia
2018
$000
Rouble
2019
$000
Rouble
2018
$000
Sterling
2019
$000
Sterling
2018
$000
Profit/(loss) for the year and Equity
10 per cent strengthening of the US Dollar/ (2018: 10 per
cent)
547
458
(37)
373
10 per cent weakening of the US Dollar/(2018: 10 per cent)
(547)
(458)
37
(373)
67
(67)
(122)
122
Commodity risk and sensitivity - Group
The Group’s earnings are exposed to the effect of fluctuations in oil, gas and condensate prices and the risks relating to their
fluctuation in are discussed on page 38, together with the discussion of financial risk factors. The Group’s oil, gas and condensate is sold
to local trading companies through market related contracts.
The Group is a price taker and does not enter into commodity hedge agreements unless required for borrowing purposes which may
occur from time to time. Therefore no sensitivity analysis has been prepared on the exposure to oil, gas or condensate prices for
outstanding monetary items at the 31 December 2019 as there is no impact on any outstanding amounts.
14. Discontinued operations and assets classified as held for sale
In early February 2018 the Group announced its intention to exit its oil and gas operations in Hungary and initiated an active
programme to dispose of its Hungarian business. The sale-purchase agreement for the disposal of the Hungarian business was executed
in March 2020.
The associated assets and liabilities were presented as held for sale in the financial statements at 31 December 2018 and remains as
such at 31 December 2019. Prior to the reclassification assets were measured at the lower of carrying amount and fair value less costs
to sell.
At the time the sale was agreed the consideration expected to be received was comprising of approximately $2.0m of consideration and
a working capital adjustment anticipated to be $0.9m, with the actual consideration sum due to be determined and settled in full on
completion which is expected before the end of April 2020. A reversal of impairment of $2.2m was recognised at 31 December 2019.
The amount of this reversal is exceeded by previous historical impairment charges, allowing for depreciation, made against the
Hungarian assets.
116
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
The financial performance and cash flow information presented are for periods ended 31 December 2019 and 31 December 2018.
Revenue
Exceptional item - reversal of provision for impairment of Hungary
Royalties
Other cost of sales
Total cost of sales
Administrative expenses
Gain/(loss) on foreign exchange
Profit from operations and before tax
Taxation – current
Taxation – deferred
Total taxation
Profit for the year
Net cash outflow from operating activities
Effect of exchange rates on cash and cash equivalents
Net cash used by the subsidiary
31 December
2019
$000
31 December
2018
$000
133
2,232
(25)
(369)
1,971
(11)
44
2,004
-
-
-
2,004
(176)
-
(176)
1,645
-
(75)
(356)
(431)
20
(304)
930
(7)
2,564
2,557
3,487
(158)
17
(141)
The following assets and liabilities were classified as held for sale in relation to the discontinued operation as at 31 December 2019 and
2018.
Assets and liabilities of disposal group classified as held for sale
Assets classified as held for sale
Property, plant and equipment
Trade and other receivables
Cash
Restricted cash
Total assets of disposal group held for sale
Liabilities of the disposal group classified as held for sale
Trade and other payables
Abandonment provision
Total liabilities of disposal group held for sale
Net assets
15. JKX Employee Benefit Trust
31 December
2019
$000
31 December
2018
$000
2,232
859
96
-
-
753
273
211
3,187
1,237
(87)
(200)
(287)
2,900
(322)
(453)
(775)
462
In 2013, JKX Employee Benefit Trust was established and acquired 5,000,000 of shares in JKX Oil & Gas plc at a cost of $4.0m 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 retained earnings.
During 2019 JKX Employee Benefit Trust sold 1,186,547 shares at an average price of £0.30 per share (2018: nil). 180,525 shares
were used in 2019 (2018: nil) to settle share options, out of which 48,660 were sold in order to cover National insurance cost,
therefore at 31 December 2019 JKX Employee Benefit Trust held 3,632,928 shares in JKX Oil & Gas plc (2018: 5,000,000). During
January 2020 JKX Employee Benefit Trust sold its remaining 3,632,928 shares at an average price of £0.28 per share.
117
JKX Oil & Gas plc Annual Report 2019
16. Share capital
Equity share capital, denominated in Sterling, was as follows:
2019
Number
2019
£000
2019
$000
2018
Number
2018
£000
2018
$000
Authorised
Ordinary shares of 10p each
300,000,000
30,000
-
300,000,000
30,000
-
Allotted, called up and fully paid
Opening balance at 1 January
172,125,916
17,212
26,666
172,125,916
17,212
26,666
Exercise of share options
-
-
-
-
-
-
Closing balance at 31 December
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 31 December
402,771
40
77
402,771
40
77
The Company did not purchase any treasury shares during 2019 (2018: none) and no treasury shares were used in 2019 (2018: none) to
settle share options. There are no shares reserved for issue under options or contracts. As at 31 December 2019 the market value of the
treasury shares held was $0.1m (2018: $0.2m).
17. Other reserves
At 1 January 2018
Exchange differences arising on translation of
overseas operations
Remeasurement of post-employment benefit
obligations
Merger
reserve
$000
30,680
-
-
Capital
redemption
reserve
$000
Foreign
currency
translation
reserve
$000
Post-
employment
benefit
obligation
reserve
$000
Equity
investments
with FVOCI
reserve
$000
587
(184,060)
(333)
-
-
(19,475)
-
-
(22)
At 31 December 2018
30,680
587
(203,535)
(355)
At 1 January 2019
30,680
587
(203,535)
(355)
Exchange differences arising on translation of
overseas operations
Remeasurement of post-employment benefit
obligations
Changes in the fair value of equity investments
at fair value through other comprehensive
income
-
-
-
-
-
-
21,481
-
-
-
(94)
Total
$000
(153,126)
(19,475)
(22)
(172,623)
(172,623)
21,481
(94)
-
-
-
-
-
-
-
-
500
500
At 31 December 2019
30,680
587
(182,054)
(449)
500
(150,736)
Merger reserve was created on 30 May 1995 when JKX Oil & Gas plc acquired the issued share capital of JP Kenny Exploration &
Production Limited for the issue of ordinary shares and represents the difference between the fair value of consideration given for the
shares and the nominal value of those instruments.
Capital redemption reserve relates to the buyback of shares in 2002, there have been no additional share buy-backs since this time.
Foreign currency translation reserve includes movements that relate to the retranslation of the subsidiaries whose functional
currencies are not the US Dollar.
Equity investments with FVOCI reserve includes movements that relate to changes in the fair value of unlisted investments in equity.
118
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
During 2019, the Russian Rouble (‘RR’) strengthened by approximately 11% from RR69.47/$ to RR61.91/$ (2018: weakened by
approximately 21%, from RR57.60/$ to RR69.47/$). Ukrainian Hryvnia (‘UAH’) strengthened by approximately 14% from UAH 27.69/$
to UAH 23.69/$ (2018: strengthened by approximately 1%, from UAH 28.07/$ to UAH 27.69/$). Currency translation differences of
US$21.4m (2018: US$19.4m) included in the Consolidated statement of comprehensive income arose on the translation of property,
plant and equipment denominated in RR and UAH and amounted to $12.2m and $9.2m respectively (see Note 5 (a)).
Post-employment benefit obligation reserve relates to a remeasurement of liability for defined benefit pension plan in PPC, our
subsidiary in Ukraine. Under the Ukrainian legislation, employees who work in hazardous conditions have the right for an early
retirement. PPC has jobs with hazardous working conditions (hereinafter referred to as the “list II”) and participates in the government
defined benefit plan. Upon early retirement the pensioners are entitled to a pension which is financed by their employers until they
enrol into a regular pension scheme financed by a Pension Fund of Ukraine. The early pension benefit (in the form of a monthly
annuity) is payable by employers only until the employee has reached the statutory retirement age (60 – for males and females). The
right to pension emerges once a number of conditions pertaining to pension insurance service record and service record in hazardous
jobs have been met and a certain age has been reached. Once employees from the list II have reached 55 years of age, PPC would
compensate to Pension Fund of Ukraine pension obligation for the next 5 years on a monthly basis. The employer is responsible for
100% for “list II” categories of early pensioners. Pensions are calculated using a formula based on the employee’s salary, pension
insurance service record, and total length of past service at specific types of workplaces (“list II” category) and, thus, the pension plan is
a defined benefit plan by its nature.
18. Provisions
Current provisions
At 1 January 2019
Included in right-of-use assets on transition
Foreign currency translation
Amount provided in the year
At 31 December 2019
Non-current provisions
At 1 January 2019
Amount provided in the year
Amount released in the year
Foreign currency translation
At 31 December 2019
Production based
taxes1
$000
Onerous lease
provision2
$000
12,431
-
2,107
1,323
15,861
214
(214)
-
-
-
Production based
taxes1
$000
30,074
4,670
Total
$000
12,645
(214)
2,107
1,323
15,861
Total
$000
30,074
4,670
(14,403)
(14,403)
5,064
25,405
5,064
25,405
1 The provision for production based taxes, is in respect of claims against PPC for additional rental fees for the periods August to December 2010 and January to December 2015.
$8.4m was recognised as a credit in the 2019 Consolidated income statement (2018:$5.1m charge) which is the net of a $14.4m reversal of provisions for four tax cases that
have been closed in favour of PPC relating to January to December 2015 claims and of $6.0m interest accrued for the remaining cases that have not been closed, of which $1.3m
charge relates to the August to December 2010 claim (2018:$1.0m) and $4.7m charge relate to January to December 2015 claims (2018:$4.1m). Remaining claims are being
contested in the Ukrainian courts (see Note 25). The amount is denominated in Ukrainian Hryvnia (‘UAH’) and is stated above at its US$-equivalent amount using the 2019 year
end rate of UAH23.69/$ (2018: UAH27.69/$). The provision for rental fee claims at 31 December 2019 includes estimated interest and penalties. Judgement is applied
regarding application of relevant legislation to determine estimates of the interest and penalties, together with aspects of the underlying claims which are considered
overstated based on the legislation on which the claims are based, should this legislation be applied, notwithstanding that the Group disputes the claims in their entirety. The
Board believes that the claims are without merit under Ukrainian law and the Company will continue to contest them vigorously. Whilst provisions are held by the Group,
additional contingent liabilities exist in respect of the rental fee claims given the judgments required in forming the provisions and alternative potential outcomes.
2
2018 onerous lease provision concerned the Group’s liability for onerous lease contracts relating to its London office. Following a reduction in London office staff in 2016, three
out of the four floors of the occupied building became surplus to requirements. The provision was determined as the present value of the unavoidable costs relating to rents and
rates to the end of the lease terms, net of the expected sub-lease income, discounted at 6.5%. The remaining life of the leases at 31 December 2018 was 3 years. Subsequently,
three out of three floors have been assigned to new tenants which resulted in the release of the provision.
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JKX Oil & Gas plc Annual Report 2019
Non-current provisions
Provision on decommissioning
Provision for site restoration
At 1 January 2019
Foreign exchange adjustment
Revision in estimates
Unwinding of discount (Note 21)
At 31 December 2019
Ukraine
$000
Russia
$000
Total
$000
3,581
2,018
5,599
573
(676)
500
251
-
117
824
(676)
617
3,978
2,386
6,364
The provision in respect of Ukraine represents the present value of the well and site restoration costs that are expected to be incurred
up to 2034 (2018: 2035). The Russia provision results from the decommissioning of 15 wells (2018:15) and removal of plant as required
by the licence obligation and is due to start from 2050 (2018: 2050). The provisions are made using the Group’s internal estimates that
management believe form a reasonable basis for the expected future costs of decommissioning.
19. Cost of sales
Operating costs
Depreciation, depletion and amortisation
Other production based taxes
Exceptional item – production based taxes (credit)/charge (Note 18)
2019
$000
22,752
18,512
23,518
64,782
(8,410)
56,372
2018
$000
20,897
14,732
21,857
57,486
5,055
62,541
The cost of inventories (calculated by reference to production costs) expensed in cost of sales in 2019 was $3.0m (2018: $0.9m).
20. Finance income
Interest income on deposits
21. Finance costs
Borrowing costs
Interest for lease liabilities
Unwinding of discount on site restoration (Note 18)
2019
$000
857
857
2019
$000
1,183
254
617
2,054
22. Profit from operations – analysis of costs by nature
Profit from operations derives solely from continuing operations and is stated after charging/(crediting) the following:
Depreciation – other assets (Note 5. (a))
Depreciation, depletion and amortisation – oil and gas assets (Note 5. (a))
Staff costs (none was capitalised during the year (2018: net of $0.5m), Note 23)
Foreign exchange loss
2019
$000
705
18,512
9,051
615
2018
$000
908
908
2018
$000
2,068
-
442
2,510
2018
$000
311
14,732
12,452
711
120
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditors:
2019
$000
2018
$000
2018
$000
BDO fees
BDO fees
PWC fees
Audit of the parent company and consolidated financial statements
294
205
Fees payable to company’s auditors for other services:
- Audit of the Company’s subsidiaries
- Audit related assurance services
- Other non-audit services
231
80
-
605
167
-
2
374
-
-
105
2
107
No non-audit services were provided in 2019 (2018: included $2 thousand of tax advisory services provided by BDO Unicon Moscow.
The tax advisory services fee relates to reporting periods prior to BDO LLP’s appointment as the Group auditor and was discontinued
upon their appointment.)
23. Staff costs
Wages and salaries
UK social security costs
Other pension costs
Share based payments (equity-settled) (Note 24)
2019
$000
8,741
130
166
14
2018
$000
12,502
257
205
13
9,051
12,977
Staff costs for the year ended 31 December 2018 were shown gross and $0.5m was capitalised, representing time spent on exploration
and development activities.
During the year, the average monthly number of employees was:
Management/operational
Administration support
2019
Number
2018
Number
492
82
574
487
88
575
There is one Director on service contract included within management/operational (2018: nil). Further details of the Directors and
their remuneration are included on pages 59 to 62 which form part of these financial statements.
24. Share-based payments
According to the 2010 Performance Share Plan (PSP) that is currently in place, the Remuneration Committee has the ability to grant
awards of nil-cost options annually to senior management of the Group, conditional on the Group’s performance over a period of at least
three years. No consideration is required to be paid for the grant or exercise of an Option. Vesting of the options is dependent upon
certain criteria, including comparison of the Group’s TSR against the FTSE Fledgling index and the All-Share Oil & Gas Producers index.
Options lapse when certain criteria are not met and may be forfeited when employees cease to be employed by the Group. The plan rules
are described in the Directors’ Remuneration Report. All share-based payments are equity settled. During the year 180,525 share
options were exercised and none granted in accordance with the PSP (2018: nil). The weighted average share price at the date of
exercise of these shares was 23 pence.
At 31 December 2018, there were outstanding options under the PSP, exercisable during the years 2019 to 2026 to acquire 256,150
shares of the Company at nil cost per share. The vesting period for 256,150 of the share options was 3 years, with an exercise period of 7
years making a 10 year maximum term. During 2019 180,525 shares were exercised at nil cost per share and 75,625 shares lapsed.
There were no outstanding options under the PSP at 31 December 2019.
The following table illustrates the number and weighted average exercise prices (‘WAEP’) of, and movements in, share options during
the year.
121
JKX Oil & Gas plc Annual Report 2019
Outstanding at 1 January
Exercisable at 1 January
Lapsed/forfeited during the year
Exercise of share options
Outstanding at 31 December
Exercisable at 31 December
25. Taxation
Analysis of tax on loss
Current tax
UK - current tax
Overseas - current year
Current tax expense
Deferred tax
Overseas – prior year
Overseas - current year
Deferred tax benefit
Income tax expense
2019
Number
151,250
104,900
(75,625)
(180,525)
-
-
2019
WAEP
0.00p
0.00p
0.00p
0.00p
-
-
2018
Number
1,059,650
-
(803,500)
-
151,250
104,900
2019
$000
-
6,561
6,561
-
3,645
3,645
10,206
2018
WAEP
0.00p
-
0.00p
-
0.00p
0.00p
2018
$000
-
5,478
5,478
-
(3,233)
(3,233)
2,245
Factors that affect the total tax charge
The total tax charge for the year of $10.2m (2018: $2.2m charge) is lower (2018: lower) than the average rate of UK corporation tax of
19.00% (2018: 19.00%). The differences are explained below:
Total tax reconciliation
Profit before tax
Tax calculated at 19.00% (2018: 19.00%)
Movement in recognised tax losses
Effect of tax rates in foreign jurisdictions
Rental fee provision
Other non-deductible expenses
Other
Total tax charge
2019
$000
2018
$000
30,415
14,015
5,779
474
355
1,677
1,745
176
2,663
(1,332)
205
(724)
1,149
284
10,206
2,245
The total tax charge for the year was $10.2m (2018: $2.2m charge) comprising a current tax charge of $6.6m (2018: $5.5m charge) in
respect of Ukraine, a deferred tax charge before exceptional items of $2.0m (2018: credit of $1.5m) and a deferred tax charge of $1.7m
in respect of exceptional items (2018: credit of $1.8m). The increase in current tax charge reflects a higher profitability in Ukraine. In
Ukraine, the corporate tax rate for 2018 was 18% and remains at this level in 2019.
The standard rate of corporation tax in the UK changed from 20% to 19% with effect from 1 April 2017. The Company’s profits for this
accounting year are taxed at an effective rate of 19.00%.
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.
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 and Finance Bill 2016. These include a
reduction to the main rate from 19% to 17% from 1 April 2020. The impact of the rate reduction is not expected to have a material
impact on UK current taxation.
122
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
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 Rental Fees 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.
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
until the new law on Rental Fees was enacted in 2011.
Rental Fees paid since 2011
In 2011 a new law was 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.
Rental fees paid 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 sought repayment of more than $180 million in Rental Fees that PPC had 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 was rendered on the main arbitration case, which was heard in early
July 2016. A decision from the tribunal was awarded on 6 February 2017.
The tribunal did not find in favour of the Company in respect of the Rental Fees but awarded the Company damages of $11.8 million
plus interest, and costs of $0.3 million in relation to subsidiary claims.
In March 2017, Ukraine's Ministry of Justice filed a claim with the High Court of the United Kingdom naming JKX as a defendant in an
application seeking to set aside the arbitration award for damages against Ukraine and in favour of JKX.
In October 2017 the High Court of the United Kingdom, ordered that the application brought by Ukraine seeking to set aside the recent
arbitration award against Ukraine and in favour of JKX be dismissed. The Government of Ukraine is therefore still liable to pay to JKX
the sum of USD11.8 million plus interest, and costs of USD0.3 million in relation to subsidiary claims, as previously ordered. The Judge
also ordered that Ukraine should pay JKX's costs of $0.1 million.
The arbitration award has now been legally recognised in Ukraine and in December 2019 JKX filed for its collection. No recognition will
be made in the financial statements of any possible future benefit that may result from this award until there is further clarity on the
process for, and likely success of, enforcing collection.
Rental Fee demands
The Group currently has two claims (2018: two) 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 2010 (2018: 2010), which in total amount to
approximately $41.3 million (2018: $42.5 million) (including interest and penalties), as detailed below. All amounts are being claimed in
Ukrainian Hryvnia (‘UAH’) and are stated below at their US$-equivalent amounts using the year end rate of $1:UAH 23.69 (2018: $1:
UAH 27.69).
August – December 2010: approximately $15.9 million (2018: $12.4 million) (including $10.7 million (2018: $8.0 million) of interest
and penalties). On 11 March 2014 PPC won the case in the Poltava Court. The tax office appealed and the Kharkiv Appellate
Administrative Court 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 has discovered that there were in fact certain procedures that were not
followed regarding the tax notifications that formed the basis of the original claims against PPC. Certain documentation was found
to be missing from the files of the tax authorities. In April 2017 the Poltava Circuit Administrative Court found in favour of PPC and
123
JKX Oil & Gas plc Annual Report 2019
cancelled the tax notification decisions on the grounds that due process had not been followed. On 1 June 2017 the Kharkiv Appellate
Administrative Court upheld the judgment of the Poltava Circuit Administrative Court. In July 2017 the Poltava Joint State Tax
Inspectorate ("PJSTI") filed a cassation complaint against the previous court judgements of lower courts in PPC's favour. This
cassation hearing at the Supreme Court of Ukraine is expected before the end of 2020. Whilst PPC has been successful in the April,
June and July 2017 court hearings, the Board considers it appropriate to maintain a provision notwithstanding that PPC disputes the
claim basis, given assessment of all relevant facts and circumstances.
January – December 2015: approximately $25.4 million (2018: $30.1 million) (including $16.7 million (2018: $17.9 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 the series of claims
for the difference between 28% and 55%, which were being contested in eight separate cases. Four of these cases have now been
resolved in PPC’s favour and the others continue to be contested:
Case No. 816/845/16 for principal of $0.3m. In December 2018 the Poltava Circuit Administrative Court, and in May 2019 the
Kharkiv Appellate Administrative Court, found in favour of PPC and both ruled that Tax Notification Decisions previously issued
against PPC were illegal and were cancelled. It was expected that PJSTI would file cassation complaint. In July 2019 the Supreme
Court of Ukraine refused to accept the cassation complaint of the PJSTI for procedural reasons, meaning that these decisions will
not be appealed. This case is therefore closed in favour of PPC.
Case No. 816/688/16 for principal of $1.8m. In April 2019, the Poltava Circuit Administrative Court, found in favour of PPC and
ruled that Tax Notification Decisions previously issued against PPC were illegal and were cancelled. As PJSTI did not file an
appeal within the required time, the judgement of the Poltava Circuit Administrative Court is now binding. This case is therefore
closed in favour of PPC.
Two cases (Nos. No. 816/846/16 and No. 816/844/16) for a total principal of $3.5m. On 14 November 2019 the Poltava Circuit
Administrative Court found in favor of PPC in both cases as well as ruled that Tax Notification Decisions previously issued
against PPC were illegal and were cancelled. PJSTI filed appellate complaints in both cases, however, failed to pay the court fee.
The Kharkiv Appellate Administrative Court returned in January 2020 appellate complaints in both cases without consideration.
PJSTI had time until mid-March 2020 to challenge the above return of appellate complaints, however they failed to do so. Thus,
the cases are effectively closed in favour of PPC.
Two cases (Nos. 816/687/16 and 816/1191/16) for a total principal of $2.1m are in the process of consideration by the first
instance court of merits.
Case No. 816/685/16 for a total principal of $2.2m was previously suspended. PJSTI have filed cassation complaint with the
Supreme Court to unsuspend it. The hearing is expected to take place in the second half of 2020. If PJSTI is successful at these
hearings, then the case will be considered by the first instance court of merits.
Case No. 816/686/16 for a total principal of $4.4m were previously confirmed as suspended by the Supreme Court. It is expected
that PJSTI may file motions in the first instance court to renew these cases.
It is expected that the process of hearings in respect of the remaining outstanding 2015 rental fee claims will continue into 2021 and
possibly beyond. Full provisions are made for all these outstanding claims and classified as non-current. In 2019 reversals have been
applied to the provisions (inclusive of interest and penalties) of $0.6m in respect of Case No. 816/845/16, $4.8m in respect of Case No.
816/688/16, $5.3m in respect of Case No. 816/846/16 and $3.7m in respect of Case No. 816/844/16, as all four cases have been
closed in PPC’s favour.
An exceptional item of $8.4 million has been credited to the Consolidated income statement in the year (2018: $5.1 million charge),
being the net of provisions reversed for cases closed in PPC’s favour and interest accrued on the remaining August – December 2010
and January – December 2015 claims (see Note 18).
124
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
26. Deferred tax
Continuing operations
Ukraine
Russia
Deferred tax asset
Assets
Liability
Net
2019
$000
2018
$000
2019
$000
2018
$000
8,108
12,033
9,193
11,130
(8,280)
(3,849)
(8,227)
(1,677)
2019
$000
(172)
8,184
2018
$000
966
9,453
8,012
10,419
Refer to Note 2 for details of reclassifications between deferred tax assets and liabilities affecting the comparative information.
The balance comprises temporary differences attributable to:
Property, plant and equipment
Inventory
Provision for disputed rental fees
Provision for site restoration
Tax losses
Other
Deferred tax asset
/(liability)recognised
Deferred tax liabilities
Property, plant and equipment
Other
Deferred tax assets
Inventory
Provision for disputed rental fees
Provision for site restoration
Tax losses
Other
Net deferred tax
Assets
Liability
Net
2018
$000
2019
$000
2018
$000
2019
$000
2018
$000
-
(12,128)
(9,635)
(12,128)
(9,635)
-
-
-
-
-
-
-
-
614
6,528
1,131
1,206
7,038
1,058
11,556
10,721
2019
$000
-
614
6,528
1,131
1,206
7,038
1,058
11,556
10,721
311
300
(1)
(269)
310
31
20,141
20,323
(12,129)
(9,904)
8,012
10,419
1 January
2019
$000
exchange
differences
$000
to profit
or loss
$000
31 December
2019
$000
(9,635)
(269)
1,206
7,038
1,058
10,721
300
10,419
(1,511)
32
191
1,188
160
1,310
(132)
1,238
(982)
236
(783)
(1,698)
(87)
(474)
143
(3,645)
(12,128)
(1)
614
6,528
1,131
11,556
310
8,012
* Note there are minor differences in the tables due to rounding effects
125
JKX Oil & Gas plc Annual Report 2019
(Charged)/credited
1 January
exchange
2018
$000
differences
to profit or loss *
$000
$000
(9,941)
(3,000)
1,215
5,277
925
10,858
584
5,918
-
-
-
-
(75)
(1,221)
-
(1,296)
306
167
(9)
1,761
208
1,084
(284)
3,233
classified as
discontinued
operation and
credited to
income
statement
$000
-
2,564
-
-
-
-
-
31 December
2018
$000
(9,635)
(269)
1,206
7,038
1,058
10,721
300
2,564
10,419
Deferred tax liabilities
Property, plant and equipment
Other
Deferred tax assets
Inventory
Provision for disputed rental fees
Provision for site restoration
Tax losses
Other
Net deferred tax
* Out of charge of $1.3m, $2.4m (charge) relates to discontinued operation (refer to Note 14) and $3.8m (credit) to continuing operation.
The deferred tax assets include an amount of $11.6m (2018: $10.7m) which relates to carried forward tax losses of our Russian
subsidiary. The Group concluded that the deferred tax assets will be recoverable using the estimated future income based on the
approved business plans and budgets for the subsidiary notwithstanding historic losses. The subsidiary is expected to generate
taxable income from 2020 onwards.
Unprovided deferred taxation
Tax losses
Property, plant and equipment
Other temporary differences
2019
$000
2018
$000
(12,547)
(35,439)
-
-
-
-
(12,547)
(35,439)
There is no expiry date on the remaining losses as at 31 December 2019. The UK corporation tax main rate will be at 19% for the next
year and starting from 1 April 2020 will be reduced to 17%. The impact of the rate reduction is not expected to have a material impact.
27. Earnings per share
The calculation of the basic and diluted earnings per share attributable to the owners of the parent is based on the weighted average
number of shares in issue during the year of 168,090,217 (2018: 166,723,145), including shares held to satisfy the Group’s employee
share schemes and shares purchased by the Company and held as treasury shares of 4,035,699 (2018: 5,402,771), and the profit for the
relevant year.
Profit before exceptional items in 2019 of $13,246,738 (2018 profit: $18,550,956) is calculated from the 2019 profit of $22,212,692
(2018: $15,257,404) adjusted for exceptional items of $10,642,954(2018: $5,054,552) and the related deferred tax on the exceptional
items of $1,677,000 (2018: $1,761,000).
The diluted earnings per share for the year is based on 173,176,095 (2018: 176,455,391) ordinary shares calculated as follows:
Profit
Profit for the purpose of basic and diluted earnings per share (profit for the year attributable to the
owners of the parent):
After exceptional item
Before exceptional item
2019
$000
2018
$000
22,213
13,247
15,257
18,551
126
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
Number of shares
Basic weighted average number of shares
Treasury shares
Shares held in Employee Benefit Trust (Note 15)
Sale of shares held by Employee Benefit Trust (Note 15)
Exercise of share options (Note 24)
Weighted average number of shares
Dilutive potential ordinary shares:
Share options
Convertible bonds 2020
2019
2018
172,125,916
172,125,916
(402,771)
(402,771)
(5,000,000)
(5,000,000)
1,186,547
180,525
-
-
168,090,217
166,723,145
-
-
256,150
9,476,096
Weighted average number of shares for diluted earnings per share
168,090,217
176,455,391
In accordance with IAS 33 (Earnings per share) the effects of antidilutive potential have not been included when calculating dilutive
earnings per share for the year end 31 December 2019. 5,085,878 potentially dilutive ordinary shares associated with the convertible
bonds (Note 13) have been excluded as they are antidilutive in 2019.
The effects of dilutive potential have been included when calculating dilutive earnings per share for the years ended 31 December
2018. 9,476,096 potentially dilutive ordinary shares associated with the convertible bonds have been included as they are dilutive at 31
December 2018.
There were no outstanding share options at 31 December 2019 (2018: 256,150, of which 256,150 had a potentially dilutive effect). All of
the Group’s equity derivatives were anti-dilutive for the year ended 31 December 2019 (2018: all dilutive).
28. Dividends
No interim dividend was paid for 2019 (2018: nil). In respect of the full year 2019, the directors do not propose a final dividend (2018: no
final dividend paid).
29. Reconciliation of profit from operations to net cash inflow from operations
Profit from operations (continuing operations)
Profit from operations (discontinued operations)
Depreciation, depletion and amortisation
Gain on disposal of fixed assets
Exceptional item – (decrease)/increase in provision for production based taxes, including forex
Reversal of provision for impairment of Hungary
Increase in provisions – onerous lease provision, including forex
Abandonment provision write-off
Share-based payment charge
Cash generated from operations before changes in working capital
Decrease/(increase) in operating trade and other receivables
Increase in operating trade and other payables
Increase in inventories
Net cash generated from continuing operations
Net cash used in discontinued operations (Note 14)
2019
$000
31,550
2,004
19,217
(98)
(8,410)
(2,232)
-
-
14
42,045
1,156
1,811
(3,802)
41,386
(176)
2018
$000
15,676
930
15,155
-
5,441
-
284
(172)
13
37,327
(1,288)
1,250
(166)
37,281
(158)
127
JKX Oil & Gas plc Annual Report 2019
Changes in liabilities from financing activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes.
Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s
consolidated cash flow statement as cash flows from financing activities.
At 1 January 2019
Cash flows
- Payment of principal
- Payment of interest
Non-cash flows
- Accruals
- Foreign exchange
- Interest accruing in the period
At 31 December 2019
At 1 January 2018
Cash flows
- Payment of principal
- Payment of interest
- Accretion payment
Non-cash flows
- Interest accruing in the period
At 31 December 2018
30. Capital commitments
Borrowings
$000
Leases
$000
11,003
3,511
(5,280)
(1,131)
(1,776)
-
-
-
1,091
5,683
134
(34)
254
2,089
Borrowings
$000
16,633
(5,280)
(1,870)
(480)
2,000
11,003
Under the work programmes for the Group’s exploration and development licenses the Group had no commitments to future capital
expenditure on drilling rigs and facilities at 31 December 2019 (2018: $4.4m).
31. Related party transactions
Key management compensation
Key management personnel are considered to comprise only the Directors. The remuneration of Directors during the year was as
follows:
Short-term employee benefits
Share-based payments charge
2019
$000
1,141
14
1,155
2018
$000
670
13
683
Further information about the remuneration of individual Directors, together with the Directors’ interests in the share capital of JKX
Oil & Gas plc, is provided in the audited part of the Remuneration Report on pages 59 to 63 and in the Directors Report on page 71.
Three Non Executive Directors joined the Board during 2019 following removal of two Non Executive Directors at 2019 Annual General
meeting (AGM) and resignations of the other two Non Executive Directors after 2019 AGM. Victor Gladun was appointed as an
Executive Director of the Company at the AGM and on 20 September he was additionally appointed as the CEO of the JKX Group. Please
refer to the Remuneration Report on page 59 for the disclosure on the bonus awarded to the Group CEO for 2019 (2018: nil).
128
JKX Oil & Gas plc Annual Report 2019
GROUP FINANCIAL STATEMENTS
Notes to consolidated financial statements
There were five Non Executive Directors at 31 December 2018 following resignations of Vladimir Tatarchuk and Vladimir Rusinov on
16 August 2018. There were no Executive Directors appointed as Directors in 2018.
Share-based payments represents the expenses arising from share-based payments included in the income statement, determined
based on the fair value of the related awards at the date of grant (Note 24).
Transactions with related parties
The transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.
PJSC “Mining Company Ukrnaftoburinnya” (“UNB”), a Ukrainian oil and gas company in which Group holds a 10% of the ordinary share
capital was considered a related party at 31 December 2019. One of the Group’s Non Executive Directors, Michael Bakunenko, a
member of Audit and Remuneration Committees, is also a Chairman of the Board of UNB.
The following transactions were carried out with UNB:
Gas sales
Sale of property, plant and equipment (pipes)
Oil purchase
2019
$000
1,330
135
2019
$000
-
2018
$000
662
-
2018
$000
240
Gas, oil and property, plant and equipment are sold and purchased on normal commercial terms and conditions.
Vladimir Tatarchuk and Vladimir Rusinov were appointed to the Board on 28 January 2016 and had a beneficial interest in Convertible
Bonds with principal amount of $3.4m (interest and accretion amount of $0.8m) at 31 December 2017, which are held by Proxima (see
Notes 11 and 12).
In February 2018, the following redemptions were made in relation to Proxima’s bond holding and in accordance with the terms and
conditions of the restructured Bonds (see Note 11):
$1.1m in respect of first instalment of the principal;
$0.1m in respect of prior accretion amounts;
$0.2m Bond interest payment.
On 16 August 2018 Vladimir Tatarchuk and Vladimir Rusinov tendered their resignations with immediate effect, and such resignations
were accepted by the board. They ceased to be related parties as of this date.
Subsidiary undertakings and joint operations
The Company’s principal subsidiary undertakings including the name, country of incorporation, registered address and proportion of
ownership interest for each are disclosed in Note B to the Company’s separate financial statements which follow these consolidated
financial statements.
Transactions between subsidiaries and between the Company and its subsidiaries are eliminated on consolidation.
32. Audit exemptions for subsidiary companies
The Group has elected to take advantage of the full extent of the exemptions available under Section 479A of the Companies Act 2006.
Exemption from mandatory audit in section 479A of the act is available for qualifying subsidiaries that fulfil a set of conditions. As a
result, statutory financial statements will not be audited for the following UK entities: JKX Services Limited, JKX Bulgaria Limited, JKX
Georgia Ltd, JKX (Ukraine) Ltd, Baltic Energy Trading Ltd, EuroDril Limited, JP Kenny Exploration & Production Limited, Page Gas Ltd,
Trans-European Energy Services Limited, JKX Limited.
33. Events after the reporting date
On 19 February 2020 the Company made a payment of the final instalment to Bondholders of $5.4m (34% of the principal amount of
the Bonds), together with $0.4m interest payment in accordance with the terms and conditions of the Bond.
In early February 2018 the Group announced its intention to exit its oil and gas operations in Hungary and initiated an active
programme to dispose of its Hungarian business. The sale-purchase agreement for the disposal of the Hungarian business for expected
consideration of around $2.9m was executed in March 2020.
At the date of approval of these consolidated financial statements, Covid-19 continues to spread internationally, contributing to a
sharp decline in global financial markets and a significant decrease in global economic activity. On 11 March 2020, the Covid-19
outbreak was declared a global pandemic by the World Health Organization and has since then resulted in numerous governments and
companies, including JKX, introducing a variety of measures to contain the spread of the virus. The outbreak has also created
significant volatility in financial markets and is considered to have negatively impacted commodity prices, including oil prices, which is
relevant to financial performance since year end and may impact future asset values should they remain depressed.
129
JKX Oil & Gas plc Annual Report 2019
COMPANY FINANCIAL STATEMENTS
Company statement of financial position
For the year ended 31 December 2019
Company number 3050645
Assets
Non-current assets
Investments
Right-of-use assets
Other receivables
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Lease liabilities
Non-current liabilities
Derivatives
Lease liabilities
Total liabilities
Net Assets
Equity
Share capital
Share premium
Other reserves
Accumulated deficit
Total equity
Note
2019
$000
2018
$000
B
A
C
C
E
F
F
F
F
G
G
21,424
21,424
240
47,881
69,545
263
8,825
9,088
-
104,700
126,124
631
13,272
13,903
78,633
140,027
(15,391)
(81,301)
(139)
-
(15,530)
(81,301)
-
(133)
(62)
-
(15,663)
(81,363)
62,970
58,664
26,666
97,476
(503)
26,666
97,476
(503)
(60,669)
(64,975)
62,970
58,664
The Company has elected to take the exemption under section 408 of the Companies Act 2006, to not present the parent company
income statement. The net profit for the parent company was $3.8m (2018: $12.1m loss).
These financial statements on pages 129 to 140 were approved by the Board of Directors on 31 March 2020 and signed on its behalf by:
Victor Gladun
Chief Executive Officer
Ben Fraser
Chief Financial Officer
130
JKX Oil & Gas plc Annual Report 2019
COMPANY FINANCIAL STATEMENTS
Company statement of changes in equity
For the year ended 31 December 2019
At 1 January 2018
Loss for the financial year
Total comprehensive loss for the year
Transactions with equity shareholders
Share option charge
Total transactions with equity shareholders
Share
capital
$000
Share
premium
$000
Accumulated
deficit
$000
26,666
97,476
-
-
-
-
-
-
-
-
(52,922)
(12,066)
(12,066)
13
13
Other
reserves
$000
(503)
-
-
-
-
Total
equity
$000
70,717
(12,066)
(12,066)
13
13
At 31 December 2018
26,666
97,476
(64,975)
(503)
58,664
At 1 January 2019
Profit for the financial year
Total comprehensive loss for the year
Transactions with equity shareholders
Share option charge
Exercise of share options
Sale of shares held by Employee Benefit Trust 1
Total transactions with equity shareholders
Share
capital
$000
Share
premium
$000
Accumulated
deficit
$000
Other
reserves
$000
Total
equity
$000
26,666
97,476
(64,975)
(503)
58,664
-
-
-
-
-
-
-
-
-
-
-
-
3,833
3,833
14
17
442
473
-
-
-
-
-
-
3,833
3,833
14
17
442
473
At 31 December 2019
26,666
97,476
(60,669)
(503)
62,970
1 Please refer to Group Consolidated financial statements for the full disclosure on the sale of shares held by Employee Benefit Trust in Note 15.
131
JKX Oil & Gas plc Annual Report 2019
COMPANY FINANCIAL STATEMENTS
Notes to the Company financial statements
A. Presentation of the financial statements
Basis of preparation
The financial statements have been prepared under the historical cost convention, as modified for financial assets and financial
liabilities (including derivative instruments) at fair value through income statement, and in accordance with the Companies Act 2006
as applicable to companies using Financial Reporting Standard 101, ‘Reduced Disclosure Framework’ (FRS 101).
Please refer to Directors’ report on pages 73 to 76 for information on Company’s domicile, legal form, country of incorporation,
description of the nature of the entity’s operations and business activities.
Going concern
Please refer to Group Consolidated financial statements for the full disclosure on Going Concern on pages 91 - 92.
Adoption of new and revised standards
IFRS 16 is effective for the year ended 31 December 2019. Please refer to Group’s accounting policies note for the full disclosure.
There were no retrospective adjustments as a result of adopting IFRS 16 ‘Leases’. The Company’s amended accounting policy applied
from 1 January 2019 is disclosed below.
IFRS 16 specifies how to recognise, measure, present and disclose leases. The standard provides a single lessee accounting model,
requiring lessees to recognise right-of-use assets and lease liabilities for all material leases. It results in almost all leases being
recognised on the balance sheet by lessees, as the distinction between operating and finance leases was removed. Under the new
standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-
term and low-value leases.
The Company adopted IFRS 16 from 1 January 2019 using the modified retrospective approach and accordingly the information
presented for 2018 is not restated. It remains as previously reported under IAS 17 and related interpretations. On initial application,
the Company elected to record right-of-use assets based on the corresponding lease liability. A right-of-use asset and lease obligations
of $0.4m were recorded as of 1 January 2019, with no net impact on retained earnings. When measuring lease liabilities, the Company
discounted lease payments using its incremental borrowing rate at 1 January 2019. The weighted-average rate applied is 14%.
The balance sheet shows the following amounts relating to leases:
Properties
Total
The income statement shows the following amounts relating to leases:
Interest on lease liabilities
Total
1 January
2019
$000
375
375
Depreciation
charge for the
year
$000
31 December
2019
$000
(135)
(135
240
240
31 December
2019
$000
44
44
The following table reconciles the Company’s operating lease obligations at 31 December 2018, as disclosed in the Company’s financial
statements, to the lease obligations recognised on initial application of IFRS 16 at 1 January 2019.
Operating lease commitments at 31 December 2018
Discounted using the incremental borrowing rate at 1 January 2018
Effect of discounting
Impairment provision to be recognised on one of the properties
$
0.9
0.4
0.1
0.4
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JKX Oil & Gas plc Annual Report 2019
COMPANY FINANCIAL STATEMENTS
Notes to the Company financial statements
Disclosure exemptions
The Company has taken advantage of the following disclosure exemptions under FRS 101:
Presentation of statement of cash flows;
The requirements of IFRS 7 ‘Financial instruments’: Disclosure of quantitative and qualitative information regarding risks arising
from all financial instruments held by the Company. Equivalent disclosures are included in the Group’s consolidated financial
statements;
The requirement of IFRS 13 ‘Fair Value Measurement’ to disclose the valuation techniques and inputs used to develop fair value
measurements for assets and liabilities held at fair value. Equivalent disclosures are included in the Group consolidated financial
statements;
Disclosure of related party transactions entered into between two or more members of a Group. Equivalent disclosures are included
in the Group consolidated financial statements;
Disclosure of information relating to new standards not yet effective and not yet applied.
Property, plant and equipment
Property, plant and equipment are stated at historic purchase cost less accumulated depreciation. Cost includes the original purchase
price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is calculated
to write off the cost of property, plant and equipment, less their residual values, over their expected useful lives using the straight line
basis as follows:
Fixtures and fittings
Computer equipment and software
- five to ten years
- three years
Investments in subsidiaries
Investments are initially measured at historic cost, including transaction costs, and stated at cost less accumulated impairment losses.
The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an
investment may not be recoverable. If any such indication of impairment exists, the Company makes an estimate of its recoverable
amount. Where the carrying amount of an investment exceeds its recoverable amount, the investment is considered impaired and is
written down to its recoverable amount.
Foreign currencies
Transactions in foreign currencies are initially recorded at the exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the statement of financial position date,
with a corresponding charge or credit to the income statement. Non-monetary items are measured in terms of historical cost in foreign
currency and are translated using the exchange rates of the original transaction.
The presentation and functional currency of the Company is the US Dollar. The US$/£ exchange rate used for the revaluation of the
closing statement of financial position at 31 December 2019 was $1/£0.76 (2018: $1/£0.78).
Share based payments
The Company operates a number of equity-settled, share-based compensation plans, under which the Company receives services from
Executive Directors and Senior Management as consideration for equity instruments (options) of the Company. The fair value of the
services received from Executive Directors and Senior Management in exchange for the grant of the options is recognised as an
expense. The total amount to be expensed is determined by reference to the fair value of the options granted:
including any market performance conditions; (for example, the Company’s share price);
excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets
and remaining an employee of the entity over a specified time period); and
including the impact of any non-vesting conditions (for example, the requirement for employees to save).
Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest.
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be
satisfied.
In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value
is estimated for the purposes of recognising the expense during the period between service commencement period and grant date.
At the end of each reporting period, the Company revises its estimates of the number of options that are expected to vest based on the
non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a
corresponding adjustment to equity.
When the options are exercised, the Company issues new shares or shares held by the JKX Employee Benefit Trust. The proceeds
received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.
The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the group is treated as
a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised
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JKX Oil & Gas plc Annual Report 2019
over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent
entity financial statements.
The social security contributions payable in connection with the grant of the share options is considered an integral part of the grant
itself, and the change will be treated as a cash-settled transaction.
The rules regarding the scheme are described in the Remuneration Report on pages 67 to 68 and in Note H on share based payments.
Share capital and treasury shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a
deduction from share premium, net of any tax effects.
When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable
costs, net of any tax effects, is recognised in retained earnings.
Repurchased JKX Oil & Gas plc shares are classified as treasury shares in shareholders’ equity and are presented in the retained
earnings. The consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the
Company’s equity holders until the shares are cancelled or reissued.
When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting
surplus or deficit on the transaction is presented in share premium. No gain or loss is recognised in the financial statements on the
purchase, sale, issue or cancellation of treasury shares.
JKX Employee Benefit Trust
The JKX Employee Benefit Trust was established in 2013 to hold ordinary shares purchased to satisfy various new share scheme
awards made to the employees of the Company which will be transferred to the members of the scheme on their respective vesting
dates subject to satisfying the performance conditions of each scheme.
Leases
At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the
right to control the use of an identified asset for a period of time in exchange for consideration.
The Company recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially
measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date,
plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying
asset or the site on which it is located, less any lease incentives received.
The asset is depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the straight-line
method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes
periods covered by an option to extend if the Company is reasonably certain to exercise that option. Lease terms range from two to
three years for offices. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental
borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. The lease liability is measured at
amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a
change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value
guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the
lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or the
effect is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Company elected to apply the practical expedient not to recognise right-of-use assets and lease liabilities for short-term leases
that have a lease term of 12 months or less and leases of low-value assets. The Company also made use of the practical expedient to not
recognise a right-of-use asset or a lease liability for leases for which the lease term ends within 12 months of the date of initial
application.
The lease payments associated with these leases are recognised as an expense on a straight-line basis over the lease term.
The Company did not elect to apply the practical expedient to grandfather the assessment of which transactions are leases on the date
of initial application, as previously assessed under IAS 17 and IFRIC 4. The Company applied the definition of a lease under IFRS 16 to
all existing contracts.
Financial instruments
Financial assets and financial liabilities are recognised on the Company’s balance sheet when the Company becomes party to the
contractual provisions of the instrument.
Derivative financial instruments
The Company accounts for derivative financial instruments in line with IFRS 9 – ‘Financial Instruments’.
134
JKX Oil & Gas plc Annual Report 2019
COMPANY FINANCIAL STATEMENTS
Notes to the Company financial statements
Any such derivative was initially recorded at fair value on the date at which the contract was entered into and subsequently re-
measured at fair value on subsequent reporting dates.
Fair value is the amount for which a financial asset, liability or instrument could be exchanged between knowledgeable and willing
parties in an arm’s length transaction. The value of the derivative is calculated at inception using the Monte Carlo simulation
methodology and subsequently using the Black-Scholes formula, and the Company’s historic share price and volatility, treasury rates
and other estimations. As it is derived from inputs that are not from observable market data it is grouped into level 3 within the fair
value measurement hierarchy.
Other receivables
Other receivables include intercompany receivables which are initially recorded at their transaction price in accordance with IFRS 9
and are subsequently measured at amortised cost, reduced by any provision for impairment. IFRS 9 sets out a new forward looking
‘expected loss’ impairment model which replaced the incurred loss model in IAS 39. Under the IFRS 9 ‘expected loss’ model, a credit
event (or impairment ‘trigger’) no longer has to occur before credit losses are recognised. Expected credit losses are assessed on a
forward looking basis. The loss allowance is measured at initial recognition and throughout its life at an amount equal to lifetime ECL.
Any impairment is recognised in the income statement within ‘Administrative expenses’.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and current balances with banks and similar institutions, which are readily
convertible to known amounts of cash. Cash is short-term with an original maturity of less than 3 months, highly liquid investments
that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Trade and other payables
Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective
interest rate method if the time value of money is significant.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An
equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.
Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.
Dividends
Interim dividends are recognised when they are paid to the Company’s shareholders. Final dividends are recognised when they are
approved by shareholders.
Taxation
Income tax expense represents the sum of the current tax payable and deferred tax.
The current tax payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items
that are never taxable or deductible. Company’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the reporting date.
Tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity or in other
comprehensive income, in which case the tax is also dealt with in equity or other comprehensive income respectively.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the
financial statements and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary differences can be recognised. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of
other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, and interests in joint
ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Any such reduction shall be reversed to
the extent that it becomes probable that sufficient taxable profit will be available.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised
based on tax rates and laws substantively enacted by the reporting date. Deferred tax assets and liabilities are offset when there exists
a legal and enforceable right to offset and they relate to income taxes levied by the same taxation authority and the Company intends
to settle its current tax assets and liabilities on a net basis.
135
JKX Oil & Gas plc Annual Report 2019
B. Investments
The net book value of unlisted fixed asset investments comprises:
Cost
At 1 January and 31 December
Equity investment in subsidiaries
At 31 December
2019
$000
2018
$000
21,424
21,424
21,424
21,424
21,424
21,424
During 2012, JKX Oil & Gas (Jersey) Limited was incorporated in Jersey as a wholly-owned subsidiary. Its sole activity is to hold the
bonds that were issued in February 2013 and which provided finance for the JKX Group of companies (see Note 11 to the consolidated
financial statements). The amounts are considered recoverable based on post year end liquidation distributions.
136
JKX Oil & Gas plc Annual Report 2019
COMPANY FINANCIAL STATEMENTS
Notes to the Company financial statements
At 31 December 2019, subsidiary undertakings of JKX Oil & Gas plc were:
Name
Adygea Gas B.V. 1
Baltic Catering Services 7
Baltic Energy Trading Ltd* 4
Catering-Yug LLC3
Eastern Ukrainian Pipeline Ltd 7
EuroDril Limited4
JKX Bulgaria Limited* 9
JKX Bulkan BG EAD 9
JKX Georgia Ltd*4
JKX Hungary BV 1
JKX Ltd*5
JKX (Navtobi) Limited 8
JKX (Nederland) B.V. 1
JKX Oil & Gas (Jersey) Limited* 5
JKX Services Limited*4
JKX Ukraine BV 1
JKX (Ukraine) Ltd* 4
JP Kenny Exploration & Production
Limited* 4
Kharkiv Investment Company 7
Page Gas Ltd* 4
Poltava Gas B.V. 1
Business
Holding
Oil & gas services
% held
(ordinary
shares)
Country of incorporation
and area of operation
100.00 Netherlands
100.00 Ukraine
Oil & gas exploration and production
100.00 UK
Oil & gas services
Oil & gas services
100.00 Russia
100.00 Ukraine
Oil & gas exploration, production and services
100.00 UK
Oil & gas exploration and production
100.00 UK
Oil & gas exploration and production
100.00 Bulgaria
Oil & gas exploration, production and services
100.00 UK
Oil & gas exploration and production
100.00 Netherlands
Dormant
Oil & gas exploration and production
Finance and Holding
Finance
Services
Finance and Holding
100.00 UK
100.00 Cyprus
100.00 Netherlands
100.00
Jersey
100.00 UK
100.00 Netherlands
Oil & gas exploration, production and services
100.00 UK
Finance and Holding
100.00 UK
Holding
100.00 Ukraine
Oil & gas exploration and production
100.00 UK
Holding
100.00 Netherlands
Poltava Petroleum Company 2
Oil & gas exploration and production
100.00 Ukraine
Folyópart Energia Kft 10
Oil & gas exploration, production and services
100.00 Hungary
Trans-European Energy Services Limited* 4 Oil & gas exploration, production and services
100.00 UK
Yuzhgazenergie LLC 6
Oil & gas exploration, production and services
100.00 Russia
* Held directly by JKX Oil & Gas plc. All other companies are held through subsidiary undertakings.
Company registered addresses:
1. Schiphol Boulevard 283, Tower F, 7th floor, 1118 BH Schiphol, Netherlands.
2. 30V, Lesi Ukrainky Boulevard, 01133, Kyiv, Ukraine.
3. 177-a Pervomaiskaya Str., Maikop, Adygea Republic, 385000, Russia.
4. 6 Cavendish Square, London, W1G 0PD, England.
5. 47 Esplanade, St Helier, JE1 0BD, Jersey.
6. 400m from Shovgenovsk-Koshekhabl motor road, a. Koshekhabl, Koshekhablsky District, Republic of Adygea, 385400, Russia.
7. Production site of JV PPC, Sokolova Balka, Novosanjary district, Poltava region, 39352, Ukraine.
8. 1st Floor, 22 Stasicratous Olga Court, Nicosia, Cyprus.
9. 45/A Bulgaria Boulevard, Sofia, 1404, Bulgaria.
10. VI. Floor, Vaci ut 33, Budapest, 1134, Hungary.
a
The Group also holds a 100% investment in Schevchenko farm in Ukraine. The investment was not included in the “subsidiary undertakings” list above and does not need to be
consolidated as the Group does not have any control over the entity. The Group is not exposed to any rights to variable returns from its involvement with the farm and does not
have any ability to affect the farm’s returns through its holding in the Farm’s Charter Capital. The interest was purchased to protect access required for oil and gas activities,
originally recorded at immaterial cost and subsequently impaired as part of the NNC cash generating unit in prior years.
In the opinion of the Directors the carrying value of the investments is supported by their underlying net assets of the Group’s CGU’s.
137
JKX Oil & Gas plc Annual Report 2019
C. Other receivables
Current
Prepayments
VAT receivable
Non-current
Amounts owed by group undertakings
2019
$000
75
188
263
2019
$000
2018
$000
285
346
631
2018
$000
47,881
104,700
$47.9m (2018: $104.7m) owed by subsidiary undertakings bears no interest and is due on demand. They were classified as non-current to
reflect estimated timing of recovery.
In accordance with IFRS 9 5.5 ‘Recognition of expected credit losses’, the Company recorded an expected credit loss in relation to the
intercompany loans of $0.3m (2018: $35.7m) as at 31 December 2019. Movement, mainly due to the waiver of intercompany balances,
amounted to $56.8m.
The Company expects that the carrying value of the intercompany loan receivable may not be fully recoverable as the subsidiaries may
not generate sufficient future profits to settle the amounts owing and accordingly, these amounts have been impaired. Amongst other
things, the Company’s expected credit loss model used information generated by the expected credit losses model of its subsidiary
undertakings to give an indication of the expected trading cash flows to be generated during the loan recovery period. That model
includes relevant and reliable internal and external forward-looking information, incorporating economic forecasts about gas and oil
prices and inflation. Discounting over the recovery period had no effect as an effective interest rate is 0% given the loans are due on
demand.
D. Taxation
Unprovided deferred tax
Tax losses
Property, plant and equipment differences
Other temporary differences
2019
$000
8,545
-
-
2018
$000
5,820
-
-
8,545
5,820
Neither the deductible temporary differences nor the tax losses expire under current tax legislation. Deferred tax assets have not been
recognised in respect of the unprovided deferred taxation items because it is not probable that future taxable profit will be available to
utilise these deductible temporary differences.
The standard rate of corporation tax in the UK changed from 20% to 19% with effect from 1 April 2017. The Company’s profits for this
accounting year are taxed at an effective rate of 19.00%.The impact of the rate reduction is not expected to have a material impact on
UK current or provided deferred taxation but is expected to reduce unprovided UK deferred tax balances in future periods.
E. Cash and cash equivalents
Cash and cash equivalents
Short term deposits
Total
2019
$000
915
7,910
8,825
2018
$000
13,272
-
13,272
138
JKX Oil & Gas plc Annual Report 2019
COMPANY FINANCIAL STATEMENTS
Notes to the Company financial statements
F. Trade and other payables
Current
Amounts owed to group undertakings
Trade payables
Accruals
Current
Lease liabilities
Non-current
Lease liabilities
Derivatives
Maturity of financial liabilities
31 December 2019
Maturity of financial liabilities
Amounts owed to group undertakings
Trade payables
Accruals
Lease liabilities
31 December 2018
Maturity of financial liabilities
Amounts owed to group undertakings
Trade payables
Accruals
Derivatives
2019
$000
2018
$000
14,168
80,598
308
915
527
176
15,391
81,301
139
-
133
-
-
62
In 1 year or
less, or on
demand
$000
In 2 - 3 years
$000
14,168
308
915
166
-
-
-
133
In 1 year or less,
or on demand
$000
2-5 years
$000
80,598
527
176
-
-
-
-
62
Non-current derivative financial instruments
Please refer to Group Consolidated financial statements for the full disclosure on Non-current financial instruments in Note 11 and 12.
G. Called up share capital and other reserves
Share capital, denominated in Sterling, was as follows:
2019
Number
2019
£000
2019
$000
2018
Number
2018
£000
2018
$000
Authorised
Ordinary shares of 10p each
300,000,000
30,000
-
300,000,000
30,000
-
Allotted, called up and fully paid
Opening balance at 1 January
172,125,916
17,212
26,666
172,125,916
17,212
26,666
Exercise of share options
-
-
-
-
-
-
Closing balance at 31 December
172,125,916
17,212
26,666
172,125,916
17,212
26,666
139
JKX Oil & Gas plc Annual Report 2019
Of which the following are shares held in treasury:
Treasury shares held at 1 January and
31 December
402,771
40
77
402,771
40
77
The Company purchased no treasury shares during 2019 (2018: none). There were no treasury shares used in 2018 (2017: none) to settle
share options. There are no shares reserved for issue under options or contracts. As at 31 December 2019 the market value of the
treasury shares held was $0.1m (2018: $0.2m).
Other reserves
Capital Redemption
Reserve
$000
Foreign Currency
Translation reserve
$000
Total
$000
At 1 January 2019 and 31 December 2019
587
(1,090)
(503)
Capital redemption reserve relates to the buyback of shares in 2002, there have been no additional share buy-backs since this time.
The foreign currency translation reserve comprises differences arising from the retranslation of the Company balance sheet from
£ Sterling into US Dollars in 2006.
H. Share-based payments
Please refer to Group Consolidated financial statements for the full disclosure on share-based payments in Note 24.
Bonus scheme
The full details of the bonus performance criteria for senior employees and the bonus earned is explained in the Remuneration Report
on pages 59 and 67.
I. Auditors’ remuneration
Audit services
2019
$000
2018
$000
Fees payable to the Company’s auditors for the audit of the parent company
30
30
J. Directors’ remuneration
The remuneration of the Directors is disclosed in the audited section of the Remuneration Report on pages 60 to 63, which form part of
these financial statements.
K. Dividends
No interim dividend was paid for 2019 (2018: nil). In respect of the full year 2019, the directors do not propose a final dividend (2018: no
final dividend paid).
L. Employees
From 1 January 2019 all employee cost that were previously met by the group company JKX Services Ltd were transferred to JKX Oil &
Gas plc. There were no employees of the Company during the year ended 31 December 2018.
Wages and salaries
UK social security costs
Other pension costs
Share based payments (equity-settled) (Note H)
2019
$000
1,247
130
134
14
1,525
140
JKX Oil & Gas plc Annual Report 2019
COMPANY FINANCIAL STATEMENTS
Notes to the Company financial statements
During the year, the average monthly number of employees was:
Management/operational
Administration support
M. Events after the reporting date
See Note 33 to the consolidated financial statements.
2019
Number
7
1
8
141
JKX Oil & Gas plc Annual Report 2019
General information
Glossary
2P reserves
Proved plus probable
3P reserves
Proved, probable and possible
P50
AFE
AIFR
Bcf
Bcm
boe
boepd
bopd
GPF
Reserves and/or resources estimates that
have a 50 per cent probability of being met or
exceeded
Authorisation For Expenditure
All Injury Frequency Rate
Billion cubic feet
Billion cubic metres
Barrel of oil equivalent
Barrel of oil equivalent per day
Barrel of oil per day
Gas Processing Facility
Hryvnia
The lawful currency of Ukraine
HSECQ
KPI
LIBOR
LPG
LTI
Mbbl
Mboe
Mcf
Mcm
MMcfd
MMbbl
MMboe
MMcm
PPC
Health, Safety, Environment, Community and
Quality
Key Performance Indicator
London InterBank Offered Rate
Liquefied Petroleum Gas
Lost Time Injuries
Thousand barrels
Thousand barrels of oil equivalent
Thousand cubic feet
Thousand cubic metres
Million cubic feet per day
Million barrels
Million barrels of oil equivalent
Million cubic metres
Poltava Petroleum Company
Roubles
The lawful currency of Russia
RR
sq. km
TD
$
UAH
US
VAT
YGE
Russian Roubles
Square kilometre
Total depth
United States Dollars
Ukrainian Hryvnia
United States
Value Added Tax
Yuzhgazenergie LLC
Conversion factors 6,000 standard cubic feet
of gas = 1 boe
Directors and advisers
Directors
Charles Valceschini
Victor Gladun
Tony Alves
Dr. Rashid Javanshir
Michael Bakunenko
Company Secretary
Julian Hicks
6 Cavendish Square
London
W1G 0PD
Registered office
6 Cavendish Square, London W1G 0PD
Registered in England
Number: 3050645
Registrars
Equiniti
Aspect House, Spencer Road
Lancing, West Sussex BN99 6DA
Independent auditors
BDO LLP
55 Baker Street
Chartered Accountants and Statutory Auditors
London, W1U 7EU
Financial advisors
SPARK Advisory Partners Limited
5 St. John’s Lane
London, EC1M 4BH
Public relations
EM Communications
25 Southampton Buildings
London, WC2A 1AL
142
JKX Oil & Gas plc Annual Report 2019
Notes
143
JKX Oil & Gas plc Annual Report 2019
Notes
144
JKX Oil & Gas plc Annual Report 2019
Notes
JKX Oil & Gas plc Annual Report 2019
Designed and produced by DB&CO
www.dbandco.co.uk,
Printed in the UK by Pureprint Group Ltd.
The report is printed on Amadeus 50 Recycled Silk which is produced with
50% recycled fibre from both pre and post-consumer sources, together with
50% virgin fibre from sustainable forests independently certified according to
the rules of the Forest Stewardship Council. All pulps used are Elemental Chlorine
Free (ECF) and the manufacturing mill is accredited with ISO 14001 standard for
environmental management.
JKX Oil & Gas plc
JKX Oil & Gas plc
6 Cavendish Square
London W1G 0PD
+44 (0)20 7323 4464