For any resources company, building up resources and reserves is the name of the game. Currently Jkx Oil & Gas (LON:JKX) has booked 21.6 million barrels of oil equivalent (boe) of probable reserves in its Rudenkovskoye field in the Ukraine. With a reserves review on the agenda after the completion of drilling, Rudenkovskoye’s contribution to JKX’s asset base is set to increase.
Well R-103 is the first of a series of horizontal wells designed to develop and further appraise the vast gas resources of the deep tight gas Rudenkovskoye reservoirs. The well was the longest horizontal well drilled in Ukraine to date with drilling and completion taking 227 days.
The results were worth the wait and the well flowed at a stabilised rate of 8.1 million cubic feet of gas per day (MMcfd) and 18 barrels of oil per day of condensate. Having moved on the rig will return to the Rudenkovskoye Field in early 2011 to drill horizontal well R-105, an offset to R-103. Should upcoming drilling follow suit, JKX’s leverage to the energy market will only strengthen and the share price - which has increased by around 50% since the end of May – in our view will continue to rise.
The positive drilling result has been extremely welcome given the group’s 3Q10 interim management statement which conveyed a 34% fall in year-on-year production. Whilst the group averaged 9,080 barrels of oil equivalent per day (boepd), average oil production was down 52% to 2,505 barrels and average gas production declined 22%, to 39.5 MMcfd.
Pricing on the other hand was firmer with both oil and gas enjoying increases in 3Q10 compared to 3Q09. Oil prices rose by 13% to US$70.67 per barrel, and gas prices by 3% to US$7.64 per million cubic feet.
JKX’s focus is to complete a series of horizontal wells in the Rudenkovskoye field to prove-up oil and gas production, with the first well successfully completed. The company’s Ukraine fields are by far the biggest contributors, representing around 96% of the company’s production.
As at 31 December 2009 the company had oil and gas reserves of 88.7 million barrels of oil equivalent consisting of 8.1 million barrels of oil and 483.7 billion cubic feet of gas. The company is aiming to average production of between 10,000 and 10,500 boepd for calendar 2010. Given…
