TIDMJKX

RNS Number : 0579I

JKX Oil & Gas PLC

09 August 2021

JKX Oil & Gas plc ('JKX' or the 'Company')

Half Year Report

For the six months ended 30 June 2021

Highlights to 30 June 2021

-- Average daily production: 9,255 boepd (H1 2020: 10,445 boepd)

-- Revenue: $39.5m (H1 2020: $35.1m)

-- Cost of sales: $7.2m (H1 2020: $9.6m)

-- Administrative expenses: $5.0m (H1 2020: $4.4m)

-- Exceptional item - net reversal of provision/(provision for disputed production based taxes): $1.8m

credit (H1 2020: $1.1m charge)

-- Net profit for the period: $9.9m (H1 2020: $1.5m)

-- Earnings per share: 5.79 cents (H1 2020: 0.89 cents)

-- Operating cash flow before interest and tax: $16.8m (H1 2020: $12.5m)

-- Capital expenditure: $3.7m (H1 2020: $7.5m)

-- Total cash balance at 30 June 2021: $36.2m (31 Dec 2020: $24.3m)

For further information please contact:

   JKX Oil & Gas plc                              +44 (0) 20 7323 4464 

Dmytro Piddubnyy, CFO

   EM Advisors                                        +44 (0) 20 7002 7860 

Jeroen van de Crommenacker

Chairman's statement

Dear Shareholder,

I am pleased to present the results for the six month period ended 30 June 2021.

We are once again reporting a profit for the period (HI 2021 profit $9.9m), which compares favourably to the result for the same period in 2020 (H1 2020 profit $1.5m) and for the last pre-pandemic year of 2019 (H1 2019 profit $2.2m). 2021 first half revenue also increased to $39.5m (H1 2020 $35.1m).

H1 2021 Financial and Production Performance

The Group's positive performance in H1 2021 is largely the result of improvements in realised oil and gas prices and investments made prior to 2020, since the ongoing pandemic has prevented the Group from undertaking any major scheduled capex works such as new well or side track activity. Whilst 2021 H1 production from Russia (H1 2021 5,282 boepd) remained stable when compared to H1 2020 (H1 2020 5,283 boepd) the inability to undertake scheduled capex works in 2020 negatively impacted Ukrainian production in H1 2021 (H1 2021 3,973 boepd, H1 2020 5,162 boepd). As a result overall group production in H1 2021 was 9,255 boepd, a reduction of 11% from H1 2020 (H1 2020 10,445 boepd).

Whilst H1 2021 production results have been heavily impacted by the lack of activity in 2020, drilling activity has now resumed in Ukraine and the highly successful IG149 well is already contributing to Group production. Further drilling activity is expected in Ukraine in H2 and more details of our H1 2021 operational performance and anticipated H2 drilling activity are set out in the CEO's statement.

We have already achieved recognition in Ukraine of the international arbitration award made in the Company's favour in 2017 and we continue to press to have this paid. Details of these issues, including the revised provisions maintained in respect of rental fee claims, are given in the financial review.

In closing I would to thank the Group's staff for their continued dedication and professionalism, despite the difficulties the current Covid 19 pandemic poses.

Charles Valceschini

Chairman, Board of Directors.

9 August 2021

Chief Executive's statement

Dear Shareholder,

I am pleased to report that despite the impact of the ongoing pandemic, and in particular its impact on the Group's ability to undertake scheduled capex works in 2020, drilling and workover activity is now starting to increase as a result of the practical steps taken by management and the continuing hard work and loyalty of our staff.

Profit for the period (H1 2021 profit $9.9m) compares favourably to the result for the same period in 2020 (H1 2020 profit $1.5m) and for the last pre-pandemic year of 2019 (H1 2019 profit $2.2m). 2021 first half revenue also increased to $39.5m (H1 2020 $35.1m).

Our strong financial performance in H1 2021(H1 2021 profit $9.9m, H1 2020 profit $1.5m) has been favourably impacted by the continuing positive impact of management action taken in H1 2020 that reduced costs across all locations and the recovery in oil and gas prices, with average Ukrainian gas and oil sales prices achieved during H1 2021 rising to $232/MCM (H1 2020 131/Mcm) and $63 bbl (H1 2020 $40 bbl) respectively.

2021 H1 production from Russia (H1 2021 5,282 boepd) remained stable when compared to H1 2020 (H1 2020 5,283 boepd) although the ongoing pandemic and resulting absence of drilling activity in Ukraine negatively impacted Ukrainian production in H1 (H1 2021 3,973 boepd, H1 2020 5,162 boepd). As a consequence overall Group production in H1 2021 fell to 9,255 boepd, a reduction of 11% from H1 2020 (H1 2020 10,445 boepd).

The operational highlight of the first half of 2021 has been the drilling and completion of IG149, a new well in the Ignativske license in Ukraine. This well has averaged 962 boepd since coming online in May 2021and has significantly increased the Group's daily oil production. The IG149 drilling rig was demobilised after completion of IG149 but is expected to return in H2 2021to start drilling R110 - the first new well to be drilled in the Rudenkivkse license since 2010. Workovers also restarted in Ukraine during the first half of 2021 with notable production additions from the workovers of NN76 and IG21.

In Russia acid treatments were carried out in May but met with only limited success and the coiled tubing unit used has been demobilised with a commensurate cost saving.

On the new business front we remain focussed on the need to identify new growth opportunities, both within our existing portfolio and as part of a Ukrainian focused acquisition strategy. The sale of the Group's Hungarian interests continues to remain outstanding although negotiations with possible purchasers continue.

In closing I would once more like to recognize the continued loyalty and commitment demonstrated by women and men of your Company across our different locations in the face of the continuing pandemic.

Victor Gladun

Chief Executive Officer

9 August 2021

Operations review

Group production

In H1 2021 group average production was 9,255 boepd (H1 2020: 10,445 boepd), an overall decrease in production of 11%. The reduction in production year-on-year was a result of continued production decline and a reduction in drilling in 2020.

 
                               boepd          Workovers(1)       Sidetracks        New wells 
                          H1 2021  H1 2020  H1 2021  H1 2020  H1 2021  H1 2020  H1 2021  H1 2020 
------------------------  -------  -------  -------  -------  -------  -------  -------  ------- 
Novomykolaivske complex     2,908    3,824        5        5        1        2        1        2 
Elyzavetivske Licence       1,065    1,338        -        -        -        -        -        - 
------------------------  -------  -------           -------           -------           ------- 
Total Ukraine               3,973    5,162        5        5        1        2        1        2 
------------------------  -------  -------  -------  -------  -------  -------  -------  ------- 
Russia                      5,282    5,283        -        -        -        -        -        - 
Hungary                         -        -        -        -        -        -        -        - 
------------------------  -------  -------           -------           -------           ------- 
Total Group                 9,255   10,445        5        5        1        2        1        2 
------------------------  -------  -------  -------  -------  -------  -------  -------  ------- 
 

Ukraine

Novomykolaivske complex production and operations

 
                       boepd          Workovers(1)       Sidetracks        New wells 
Field name        H1 2021  H1 2020  H1 2021  H1 2020  H1 2021  H1 2020  H1 2021  H1 2020 
----------------  -------  -------  -------  -------  -------  -------  -------  ------- 
Ignativske          1,645    2,701        4        3        -        1        1        1 
Molchanivske          426      380        -        -        -        -        -        - 
Novomykolaivske       645      510        1        1        1        -        -        1 
Rudenkivske           192      233        -        1        -        1        -        - 
----------------  -------  -------  -------  -------  -------  -------  -------  ------- 
Novomykolaivske     2,908    3,824        5        5        1        2        1        2 
----------------  -------  -------  -------  -------  -------  -------  -------  ------- 
 

(1) Excludes abandonments

Production across the Novomykolaivske complex has reduced year on year with the majority of the decline in the Ignativske license due to IG142 ceasing production suddenly in February 2021. Ongoing decline of IG103 sidetrack and IG143 also contributed to year on year decline in the Ignativske license. IG149 completed late in H1 2021 has only partially offset the production decline seen in the other wells of the Ignativske license. Production in the Molchanivske license has increased year on year due to increased production from M28, which has benefited from intermittent gas lift introduced in February 2021, and M158 sidetrack after additional perforations in December 2020. Production in the Novomykolaivske license has increased year on year following the successful sidetrack of NN75 completed in January 2021 and the workover of NN76 from the V16 to the V15 completed in March 2021.

Outlook

When the drilling rig returns in September it is expected to drill R110 which will be the first new well drilled in the Rudenkivske field since R103 was drilled in 2010. R110 is being drilled to the Devonian to the south of NN16, a leased well which was successfully worked over in 2016.

Elyzavetivske License production and operations

 
                             boepd           Workovers         New wells 
Field name              H1 2021  H1 2020  H1 2021  H1 2020  H1 2021  H1 2020 
----------------------  -------  -------  -------  -------  -------  ------- 
Elyzavetivske             601      809       -        -        -        - 
West Mashivska            464      529       -        -        -        - 
----------------------  -------  -------  -------  -------  -------  ------- 
Elyzavetivkse Licence    1,065    1,338      -        -        -        - 
----------------------  -------  -------  -------  -------  -------  ------- 
 

The decrease in production from the West Mashivske and Elyzavetivkse fields compared to H1 2020 is due to ongoing production decline in these two fields.

Outlook

There are currently no immediate plans for workovers or new wells in the Elyzavetivske license.

Russia

Koshekhablskoye licence production and operations

 
                       boepd           Workovers 
Well name         H1 2021  H1 2020  H1 2021  H1 2020 
----------------  -------  -------  -------  ------- 
Well 5                320      359        -        - 
Well 18             1,477    1,474        -        - 
Well 20                 -      114        -        - 
Well 25             1,770    1,719        -        - 
Well 27             1,642    1,547        -        - 
----------------  -------  -------  -------  ------- 
Koshekhablskoye 
 field(1)           5,282    5,283        -        - 
----------------  -------  -------  -------  ------- 
 

(1) Includes Well 15

Production in H1 2021 from the Koshekhablskoye field is the same as in H1 2020. This is due to production from the wells being stable over the period with the assistance of a few acid treatments.

In May 2021 Well 15, 5 and 27 were treated with acid. There was no significant improvement in the production from these wells following the acid treatments despite using improved treatments recommended by the service company. The coiled tubing equipment has now been demobilised from the production site.

Outlook

There is no update on the timing of the workover on Well 20.

Financial review

 
                                                                                Second 
                                                             First half           half     First half 
                                                                   2021           2020           2020 
                                                            (unaudited)    (unaudited)    (unaudited) 
Operating results                                                    $m             $m             $m 
 
Revenue 
Oil                                                                 8.8            8.5            8.1 
Gas                                                                26.4           22.3           24.4 
Liquefied petroleum gas                                             4.0            3.4            2.2 
Other                                                               0.3            0.3            0.4 
                                                                   39.5           34.5           35.1 
--------------------------------------------------------  -------------  -------------  ------------- 
 
Cost of sales 
Exceptional item - net reversal of provision/(provision 
 for disputed production based taxes)                               1.8           14.6          (1.1) 
Other production based taxes                                      (9.9)          (6.8)          (7.0) 
Depreciation, depletion and amortisation 
 - oil and gas assets                                             (5.6)          (6.1)         (11.0) 
Other cost of sales                                               (7.2)          (8.2)          (9.6) 
Total cost of sales                                              (20.8)          (6.5)         (28.7) 
--------------------------------------------------------  -------------  -------------  ------------- 
Gross profit                                                       18.7           28.0            6.4 
--------------------------------------------------------  -------------  -------------  ------------- 
 
Administrative expenses 
Other administrative expenses                                     (5.0)          (5.7)          (4.4) 
(Loss)/gain on foreign exchange                                   (0.9)            0.7            0.3 
Other income                                                        0.4        -              - 
--------------------------------------------------------  -------------  -------------  ------------- 
Profit from operations before exceptional 
 items                                                             11.3            8.4            3.4 
--------------------------------------------------------  -------------  -------------  ------------- 
Profit from operations after exceptional 
 items                                                             13.2           23.0            2.3 
--------------------------------------------------------  -------------  -------------  ------------- 
 

Note: there are minor differences in the tables above due to rounding effects.

 
                                                                  First         Second 
                                                                   half           half      First half 
                                                                   2021           2020            2020 
EARNINGS                                                    (unaudited)    (unaudited)     (unaudited) 
Profit before tax ($m)                                             13.1           22.9                 2.0 
Net profit ($m)                                                     9.9           18.4                 1.5 
Net profit before exceptional items ($m)                            8.3            8.2                 2.8 
Basic weighted average number of shares in 
 issue (m)                                                        171.7          171.7               171.7 
Profit per share after exceptional items (basic, 
 cents)                                                            5.79          10.68            0.89 
Pre-exceptional earnings before interest, corporation 
 tax, 
 depreciation and amortisation(1) ($m)                             17.4       15.0                    14.7 
------------------------------------------------------  ---------------  -------------  ------------------ 
 
 
 
                                                    First half    Second half     First half 
                                                          2021           2020           2020 
COST OF PRODUCTION ($/BOE)                         (unaudited)    (unaudited)    (unaudited) 
Production costs (excluding exceptional items)            $4.3           $4.5           $5.1 
Depreciation, depletion and amortisation                  $3.3           $3.3           $5.8 
Production based taxes                                    $5.9           $3.7           $3.7 
-----------------------------------------------  -------------  -------------  ------------- 
 
 
                                           First half    Second half     First half 
                                                 2021           2020           2020 
CASH FLOW                                 (unaudited)    (unaudited)    (unaudited) 
Cash generated from operations ($m)              16.8           16.4           12.5 
Operating cash flow per share (cents)             9.8            9.6            7.3 
--------------------------------------  -------------  -------------  ------------- 
 
 
                                                    As at          As at 
                                                                             As at 31 
                                                  30 June        30 June     December 
                                                     2021           2020         2020 
STATEMENT OF FINANCIAL POSITION               (unaudited)    (unaudited)    (audited) 
Total cash and cash equivalents(2) ($m)              36.2           14.4         24.3 
Net cash(3) ($m)                                     36.2           14.4         24.3 
Net cash to equity (%)                               18.9            8.6         13.7 
Return on average capital employed(4) (%)            10.8            1.7         10.9 
------------------------------------------  -------------  -------------  ----------- 
 
 
                                                           First half         Second     First half 
                                                                                half 
                                                                 2021           2020           2020 
                                                          (unaudited)    (unaudited)    (unaudited) 
Additions to property, plant and equipment/intangible 
 assets ($m) 
- Ukraine                                                         3.5            2.9            6.5 
- Russia                                                          0.2          (0.5)            1.0 
Total                                                             3.7            2.4            7.5 
------------------------------------------------------  -------------  -------------  ------------- 
 

(1) Pre-exceptional earnings before interest, tax, depreciation and amortisation ('EBITDA') is a non-IFRS measure and calculated using profit from operations after exceptional items of $13.2m (30 June 2020: $2.3m) and adding back depreciation, depletion and amortisation and exceptional items $4.2m ($12.4m). 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. EBITDA and liquidity measures in the monthly internal reporting are used by the Board to monitor subsidiaries' performance.

The Group uses alternative performance measures, which are not defined by generally accepted accounting principles ('GAAP') such as IFRS, as additional performance measures. These measures are used by management, alongside the comparable GAAP measures, in evaluating the business performance. The measures are not intended as a substitute for GAAP measures and may not be comparable to similarly reported measures by other companies.

(2) Total cash is cash and cash equivalents from continuing operations.

(3) Net cash is cash and cash equivalents less Borrowings.

(4) Return on average capital employed is the annualised profit for the period divided by average capital employed.

Results for the period

The profit for the period of $10.0m compares favourably to the profit of $1.5m in the first half of 2020. The Company's financial performance for the first half of 2021 has been impacted by the significant improvement in oil and gas prices. Results for both periods include reversals/ charges reflecting updated calculations for the provisions for the disputed production based taxes as for 2010 and 2015 in Ukraine (credit of $1.8m in H1 2021 and charge of $1.1m in H1 2020).

Total revenue for the first half of 2021 is $39.5m, 12.5% higher than the $35.1m reported in 2020. The increase is primarily due to the significantly higher commodity prices and partially offset by reduced volumes.

Revenue

 
                      6 months  6 months 
                          2021      2020  Change         % 
Group revenues              $m        $m      $m    Change 
Ukraine                   31.5      26.8     4.7        18 
Gas                       18.7      16.4     2.3        14 
Oil                        8.5       7.8     0.7         9 
Liquefied Petroleum 
 Gas ('LPG')               4.0       2.2     1.8        82 
Other                      0.3       0.4   (0.1)      (25) 
--------------------  --------  --------  ------  -------- 
Russia                     7.9       8.3   (0.4)       (5) 
Gas                        7.7       8.0   (0.3)       (4) 
Condensate                 0.2       0.3   (0.1)      (33) 
--------------------  --------  --------  ------  -------- 
Total                     39.5      35.1     4.4        13 
--------------------  --------  --------  ------  -------- 
 

Note: there are minor differences in the tables above due to rounding effects.

 
Sales prices    6 months 2021  6 months 2020  Change  % Change 
Ukraine 
Gas ($/Mcm)               232            131     101        77 
Oil ($/bbl)                63             40      23        58 
LPG ($/tonne)             525            328     197        60 
--------------  -------------  -------------  ------  -------- 
Russia 
Gas ($/Mcm)                52             54     (2)       (4) 
--------------  -------------  -------------  ------  -------- 
 

Ukraine revenues

The $4.7m increase in total revenues was due to significantly higher sales prices partially offset by lower sales volumes.

The average gas sales price in dollar terms was 77% higher in the first half of 2021 than in the first half of 2020. This is in line with international market trends. Total gas sales volumes decreased by 34% from 123,210 Mcm in the first half of 2020 to 81,137 Mcm in the first half of 2021, due to selling gas inventory which reduced from 14,041 Mcm in the beginning of 2020 to 5,573 Mcm at 30 June 2021 in addition to the gas production volume having decreased by 25% from 125,613 Mcm in the first half of 2020 to 93,997 Mcm in the first half of 2021. For more detail on production trends please refer to the Operations review.

The average oil sales price increased from $40/bbl in the first half of 2020 to $63/bbl in the first half of 2021 and total oil sales volumes for the period decreased by 46% from 195,036 barrels in the first half of 2020 to 133,490 barrels in the first half of 2021. Oil production volume decreased by 16% from 196,460 barrels in the first half of 2020 to 164,184 barrels in the first half of 2021, with the surplus being taken to inventory.

LPG sales volumes were 7,583 tonnes in the first half of 2021 compared to 6,787 tonnes in the first half of 2020, with sales prices being 60% higher in 2021 ($525/tonne in 2021 compared to $328/tonne in 2020).

Inventory held at 30 June 2021 (3.0 million cubic metres of gas and 50.8 thousand barrels of oil) had an estimated sales value of $4.4m using average sales prices for June 2021.

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

The $0.4m reduction in total revenues from $8.4m in the first half of 2020 to $8m in the first half of 2021 is mainly due to lower gas production volumes (H1 2020: 161,519Mcm, H1 2021: 160,646Mcm) and negative forex effect. A decrease of the average gas sales prices in dollar terms caused by the comparatively weaker local currency.

Cost of sales

Cost of sales before exceptional items for the first half of 2021 totalled $22.6m (H1 2020: $27.6m). This includes:

-- $9.9m of production taxes(1) , which were $2.9m higher than in the first half of 2020. In Ukraine, production tax expense (before exceptional charges) increased by $5.7m from $6.1m to $9.0m mainly due to an increase in the average border gas price which is the basis for calculating gas production taxes. Only $0.8m of the total production taxes relate to Russia (H1 2020: $0.9m) where the mineral extraction tax rate for wells deeper than 5,000m has remained at 330 Roubles/Mcm.

-- $8.7m of operating costs, of which $5.7m relates to Ukraine (H1 2020:$5.1m), $2.8m relates to Russia (H1 2020:$3.2m) and $0.2m to London (H1 2020:$0.2m). The increase in operating costs in Ukraine is mainly due to a $0.7m increase in well lease costs due to market-driven lease rates (H1 2021:$1.3m, H1 2020:$0.9m) and higher production activity. The decrease in operating costs in Russia is mainly due optimising the coil tubing rental contract and switching to another more cost efficient provider.

-- Movement in inventory volumes in Ukraine resulted in recognition of a credit of $1.5m (H1 2020: charge $1.2m as a result of selling inventory), which was netted off/ added to these operating costs respectively, gives the $7.2m costs of sales reported in the condensed consolidated income statement.

-- $5.6m of depreciation, depletion and amortisation charge (H1 2020: $11.0m), of which $3.6m relates to Ukraine (H1 2020: $7.5m) and Russia $2.0m (H1 2020: $3.5m). The charge in the first half of 2021 is lower in Ukraine due to lower revised depletion rate as a result of higher reserves at 31 December 2020. It is also impacted by lower production levels explained in detail in the Operations review. The reduction of the charge in Russia is mainly due to lower production.

General and administrative expenses

Administrative expenses were $5.0m in the first half of 2021 and remained similar to those of $4.4m in the first half of 2020. The increase is mainly due to higher legal and professional fees as advisory projects were postponed to 2021 in response to the challenging environment.

Net finance charges

Finance costs decreased from $0.5m to $0.4m due to the full repayment of principal outstanding in February 2020. Finance income of $0.3m comprises income from bank deposits (H1 2020: $0.3m).

Taxation

The total tax charge for the half year is $3.0m (H1 2020: charge $0.1m) comprising a current tax charge of $2.6m (H1 2020: $1.6m) which relates to Ukraine and a deferred tax charge of $0.3m (H1 2020: credit $1.5m). The deferred tax credit relates to movements in various deferred tax assets and liabilities in Ukraine and Russia.

Discontinued operation

The discontinued operation is the Hungarian business. The related charge reported reflects the running costs incurred during 2021. A Letter of Interest with a new potential buyer was signed in July 2021. The sale of the business is expected in 2021 for approximately $3.0m.

Cash flows

During the period, the available cash balances increased from $24.3m to $36.2m. Cash generated from continuing operations of $16.8m (H1 2020:$12.5m) remains strong and reflects the improved pricing environment and efficient measures the Group implemented in 2020.

Use of cash during the period is as shown in the cash bridge chart. To view this chart, readers show download a PDF version of this report from www.jkx.co.uk.

[1] 'Rental fees' and 'production based taxes' terminology interchangeably used throughout the report. Disputed production taxes refer to the 2010 and 2015 claims.

Liquidity outlook

After a final payment of $5.8m to bond holders in February 2020 the Group is debt free. Our subsidiary in Ukraine still has a UAH280m ($10.3m) revolving credit line and a UAH50m ($1.8m) 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. Additionally, in July 2020 the Group secured a $5.0m facility with Alfa-Bank which is valid until July 2023, although draw downs are conditional on credit approval by the bank and tranches are repayable 2 months from draw down.

We continue to maintain provisions in respect of the 2010 and one of the 2015 rental fee claims. PPC has received the final judgement of the Supreme Court of Ukraine in respect of 2010 rental fee claim relating to the Poltava Tax Authorities appeal against lower court judgments in this case. A judgment has been made in favour of the Poltava Tax Authorities. The case on a court dispute to enable collection of the 2010 rental fees claimed was historically initiated by the tax authorities against PPC. The Supreme Court by its ruling in July 2021 upheld the judgment of the first instance court and the case is closed in favour of PPC. However, there is a probability of re-opening the case if the tax authorities succeed in renewing the terms for reconsidering the court judgments in this case due to newly discovered circumstances. Whilst PPC has been successful in the court hearings, the Board considers it appropriate to maintain a provision given the uncertainty that remains regarding the future development of the claim, although this required significant judgment given the recent nature of the court rulings and assessment of the legislative environment. Any legal proceedings seeking to re-open the case and seek collection is anticipated to continue beyond 12 months after the reporting date given the legislative steps that would be required, and provisions in relation to this case has been presented as non-current liability based on the expected timing of any subsequent payments.

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 2020 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. As a result of management actions to reduce costs and work programme deferral during 2020 and 2021, the Company generated strong cash flows. Operationally the Group's cash flows are forecasted to be sufficient to manage potential rental fee settlements if they become due. The Group also has access to the conditional Tascombank and Alfa-Bank loan facilities or can pursue other options to maintain liquidity should the need arise.

The consolidated interim financial statements have been prepared on a going concern basis (see Note 2 to these financial statements).

Dmytro Piddubnyy

Chief Financial Officer

9 August 2021

Risks and uncertainties

The Group continuously monitors major strategic, operational, financial and external risks it faces and determines the appropriate course of action to manage these risks. Key risks and uncertainties which may impact the Group's performance have not changed significantly from those stated on pages 30 to 38 of the Group's 2020 Annual Report. However, the level of liquidity risk is considered to have reduced since the announcement of the Group's 2020 results due to the additional cash generation, trading successfully during the current challenging environment together with the Group having secured an additional loan facility.

Financial risk management

The main financial risk faced by the Group is non-availability of funds to meet business needs and rental fee payments (liquidity risk). The significant factors outside of management control that could adversely impact cash flows, profits and liquidity of the Group remain the ongoing legal disputes concerning Rental Fees in Ukraine, along with international oil and gas prices and risks associated with operating in Ukraine and Russia given the short-term economic outlook for these countries remains uncertain. Although the Group has been debt free since February 2020 this risk remains.

These are critical factors considered when assessing whether the Group is a going concern (see Note 2 to the condensed consolidated interim financial information).

Tax legislation

The taxation systems in emerging markets where Group companies operate are relatively new and are characterised by frequently changing legislation, which might be subject to interpretation. Taxes are subject to review and investigation by local authorities, who are enabled by law to impose substantial fines, penalties and interest charges. In Ukraine and the Russian Federation a tax year remains open for review by the tax authorities during subsequent three calendar years.

Management believes that it has adequately met and provided for tax liabilities based on its interpretation of existing tax legislation. However, the relevant tax authorities may have differing interpretations and the effects on these consolidated financial statements, if the authorities were successful in enforcing their interpretations, could be significant.

The Company has persistently defended its position in Ukrainian courts regarding the Rental Fee claims for 2010 and 2015. Please refer to Note 10 for more detail.

Reservoir and operational performance

The hydrocarbon reservoirs that we operate in Ukraine and Russia generate the cash flow that underpins the Group's growth. These reservoirs may not perform as expected, exposing the Group to lower profits and less cash to fund planned development.

Existing production from our mature fields at the Novomykolaivske Complex in Ukraine requires a high level of maintenance and intervention to minimise natural production decline. In Russia, acidization of producing wells and other well maintenance procedures are required from time to time to maintain stable production levels.

Our investment in development projects or workovers of old wells is subject to uncertainty inherent in exploring and developing hydrocarbon reserves and resources. Accurate reservoir performance forecasts are critical in achieving the desired economic returns and to determine the availability and allocation of funds. In modelling reservoir performance, we rely on multiple sources of data, some of which are decades old (reflecting the time when certain wells were originally drilled) and therefore may not be accurate.

Commodity prices - Russia and Ukraine

Company policy is not to hedge commodity price exposure on oil, gas, LPG or condensate and therefore any change in prices would have a direct effect on the Group's trading results. We are subject to risk of unfavourable international oil and gas price movements that can be affected by political developments in Russia and Ukraine. In Russia, the government sets certain gas tariffs to which the Company's Russian subsidiary, Yuzhgazenergie LLC ('YGE') has pegged its gas sales price.

Ukrainian gas prices have recently been aligned with those across Europe that exhibit significant volatility and seasonality. Change in gas import flows had already had impact on gas prices in Ukraine, and a prolonged period of low gas prices would impact the Group's liquidity. Hydrocarbon prices started to recover in the second half of 2020. The Ukrainian market generally followed the global trends.

Environmental, asset integrity, and safety incidents

As we continue with the development of our oil and gas reserves, we are exposed to a wide range of significant health, safety, security and environmental risks that arise as a result of the geographic spread, operational diversity, regulatory environment and technical complexity of our exploration and production activities.

Technical failure, non-compliance with existing standards and procedures, accidents, natural disasters and other adverse conditions in our operational locations, 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, or loss of operating licence.

Health, safety and the environment is a priority of the Board who are involved in the planning and implementation of continuous improvement initiatives. Operations in Ukraine, Russia and Hungary all have dedicated HSECQ teams and HSE Management Systems modelled on the ISO 9000 series, OHSAS 18001 and ISO 14001. Appropriate insurances by reputable insurers are maintained to manage the financial exposure to any unexpected adverse events that would affect normal operations.

195 countries signed the historic Paris Agreement to tackle climate change. Despite this, we know that some changes to the climate are already inescapable due to past emissions of greenhouse gases. The Paris Agreement commits the international community to reduce greenhouse gas emissions in order to avoid some of the most severe impacts of climate change. A programme for adaptation to climate change to address the identified risks has been initiated in all Group locations and is an ongoing process for 2021/2022 so as to deliver resilience to climate change on the ground. This programme will be then reviewed at least every three years and must set out the Government's objectives, proposals and policies for responding to the risks identified.

Corporate governance

The Group has major operations in Ukraine and Russia. Such a complex structure requires rigorous governance and control procedures to be in place to ensure an appropriate level of financial discipline and controls, as well as delegation of authority along the corporate and management structure.

Over the past few years, the Group has gone through several major Board and management changes, with subsequent revisions of strategy, changes of advisors and contractors, and a significant reduction of staff across its operations. These changes require additional efforts to ensure proper maintenance of governance, controls, and financial discipline procedures.

Global Covid-19 pandemic

The Group has all necessary arrangements in place to ensure the safe conduct of its business. We have implemented a number of policies recommended by Governments in the countries of our assets for the protection of our employees, as well as to help minimize the spread of coronavirus (Covid-19). Our first priority is the safety and wellbeing of our staff. Our next priority is supporting the local communities, especially where there is a lack of medical assistance, and we have directed our corporate and social responsibility projects helping to fight further spread of Covid-19. We continue to monitor the impact of Covid-19 developments on our industry, operations, staff and contractors and are confident about the safety measures we put in place.

Statement of Directors' responsibilities

The Directors confirm that, to the best of their knowledge, this condensed consolidated interim financial information has been prepared in accordance with the UK-adopted International Accounting Standard 34, 'Interim Financial Reporting', and that the Interim Report includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.7R and 4.2.8R, namely:

-- an indication of important events that have occurred in the first six months of 2021 and their impact on the condensed set of financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

-- material related party transactions in the first six months of 2021 and any material changes in related party transactions described in the last Annual Report.

A list of current Directors is maintained on the JKX Oil & Gas plc website www.jkx.co.uk .

Charles Valceschini

Victor Gladun

Tony Alves

Dr. Rashid Javanshir

Michael Bakunenko

The Board of Directors

9 August 2021

Independent review report to JKX Oil & Gas plc

Report on the condensed consolidated interim financial information

Introduction

We have been engaged by the Group to review the condensed set of financial statements in the Half Year Report for the six months ended 30 June 2021 which comprises the condensed consolidated income statement and condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and the related explanatory notes.

We have read the other information contained in the Half Year Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The Half Year Report is the responsibility of and has been approved by the directors. The directors are responsible for preparing the Half Year Report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with international accounting standards in conformity with the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the UK-adopted International Accounting Standard 34, "Interim Financial Reporting".

Our responsibility

Our responsibility is to express to the Group a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half Year Report for the six months ended 30 June 2021 is not prepared, in all material respects, in accordance with the UK-adopted International Accounting Standard 34, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Group in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

BDO LLP

Chartered Accountants

London

United Kingdom

9 August 2021

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

GROUP FINANCIAL STATEMENTS

Condensed consolidated income statement

 
                                                          Six months 
                                                                  to 
                                                             30 June                       Year to 
                                                                         Six months    31 December 
                                                                2021     to 30 June           2020 
                                                         (unaudited)           2020      (audited) 
                                                                        (unaudited) 
                                                 Note           $000           $000           $000 
Revenue                                             4         39,480         35,092         69,623 
-----------------------------------------------  ----  -------------  -------------  ------------- 
Cost of sales 
-----------------------------------------------  ----  -------------  -------------  ------------- 
Exceptional item - net reversal / (charge) 
 of provision for production based taxes           11          1,810        (1,099)         13,543 
Production based taxes                                       (9,873)        (6,978)       (13,783) 
Depreciation, depletion and amortisation                     (5,569)       (10,982)       (17,130) 
Other cost of sales                                          (7,173)        (9,632)       (17,867) 
-----------------------------------------------  ----  -------------  -------------  ------------- 
Total cost of sales                                         (20,805)       (28,691)       (35,237) 
-----------------------------------------------  ----  -------------  -------------  ------------- 
Gross profit                                                  18,675          6,401         34,386 
-----------------------------------------------  ----  -------------  -------------  ------------- 
Administrative expenses                                      (5,029)        (4,364)       (10,119) 
(Loss)/gain on foreign exchange                                (903)            250          1,048 
Other income                                                     407              -              - 
-----------------------------------------------  ----  -------------  -------------  ------------- 
Profit from operations before exceptional 
 items                                                        11,340          3,386         11,772 
-----------------------------------------------  ----  -------------  -------------  ------------- 
Profit from operations after exceptional 
 items                                                        13,150          2,287         25,315 
-----------------------------------------------  ----  -------------  -------------  ------------- 
Finance income                                                   323            284            487 
Finance cost                                                   (353)          (543)          (951) 
Profit before tax                                             13,120          2,028         24,851 
Taxation - current                                           (2,637)        (1,604)        (3,303) 
Taxation - deferred 
- before the exceptional items                                  (98)          1,714          3,692 
- on the exceptional items                                     (222)          (197)        (4,370) 
-----------------------------------------------  ----  -------------  -------------  ------------- 
Total taxation                                               (2,957)           (87)        (3,981) 
-----------------------------------------------  ----  -------------  -------------  ------------- 
Profit from continuing operations                             10,163          1,941         20,870 
-----------------------------------------------  ----  -------------  -------------  ------------- 
Loss from discontinued operation (attributable 
 to equity holders of the parent company)           8          (226)          (420)        (1,002) 
-----------------------------------------------  ----  -------------  -------------  ------------- 
Profit for the period/year attributable 
 to equity shareholders of the parent company                  9,937          1,521         19,868 
-----------------------------------------------  ----  -------------  -------------  ------------- 
 
 
                                                       Six months 
                                                               to 
                                                                      Six months 
                                                          30 June     to 30 June        Year to 
                                                                                    31 December 
                                                             2021           2020           2020 
                                                      (unaudited)    (unaudited)      (audited) 
Earnings per share for profit from continuing 
 operations attributable to the ordinary 
 equity holders of the parent company:                       $000           $000           $000 
----------------------------------------------      -------------  -------------  ------------- 
Basic and diluted profit per 10p ordinary 
 share (in cents) 
-after exceptional items                                     5.92           1.13          12.15 
-before exceptional items                       13           4.99           1.89           6.81 
 
Loss per share for loss from discontinued 
 operations attributable to the ordinary 
 equity holders of the parent company: 
----------------------------------------------      -------------  -------------  ------------- 
Basic and diluted loss per 10p ordinary 
 share (in cents) 
-after exceptional items                                   (0.13)         (0.24)         (0.58) 
-before exceptional items                       13         (0.16)         (0.24)         (0.40) 
 
Earnings per share for profit attributable 
 to the ordinary equity holders of the 
 parent company: 
----------------------------------------------      -------------  -------------  ------------- 
Basic and diluted profit per 10p ordinary 
 share (in cents) 
-after exceptional items                        13           5.79           0.89          11.57 
-before exceptional items                                    4.83           1.64           6.41 
 

GROUP FINANCIAL STATEMENTS

Condensed consolidated

statement of financial position

 
                                                                  Six months 
                                                                          to 
                                                                     30 June                              Year to 
                                                                                                      31 December 
                                                                        2021                                 2020 
                                                                                      Six months 
                                                                 (unaudited)          to 30 June        (audited) 
                                                                                2020 (unaudited) 
                                                                        $000                $000             $000 
Profit for the period/year                                             9,937               1,521           19,868 
Other comprehensive income to be reclassified 
 to loss or profit in subsequent periods 
 when specific conditions are met 
- Currency translation differences                                     5,309            (21,434)         (30,431) 
Other comprehensive income that will not 
 be reclassified to profit or loss in subsequent 
 periods 
- Remeasurements of post-employment benefit 
 obligations                                                               -                   -            (115) 
- Changes in the fair value of equity 
 investments at fair value through other 
 comprehensive income                                                  (317)                   -                - 
Other comprehensive income/(loss) for 
 the period/year, net of tax                                           4,992            (21,434)         (30,546) 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
Total comprehensive income for the period/year 
 attributable to equity shareholders of 
 the parent company                                                   14,929            (19,913)         (10,678) 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
 
   *    Continuing operations                                         15,155            (19,493)          (9,676) 
 
   *    Discontinued operations                                        (226)               (420)          (1,002) 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
                                                                       As at               As at            As at 
                                                                     30 June             30 June      31 December 
                                                                        2021                2020             2020 
                                                                 (unaudited)         (unaudited)        (audited) 
                                                    Note                $000                $000             $000 
ASSETS 
Non-current assets 
Property, plant and equipment                          5             176,928             187,050          173,913 
Deferred tax assets                                                    9,293               8,604            9,451 
Investment                                             6                 183          500                     500 
                                                                     186,404             196,154          183,864 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
Current assets 
Inventories                                                            5,696               4,819            4,358 
Trade and other receivables                                            3,916               3,166            3,661 
Cash and cash equivalents                                             36,244              14,371           24,329 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
                                                                      45,856              22,356           32,348 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
Assets classified as held for sale                     8               3,252               3,212            3,186 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
Total current assets                                                  49,108              25,568           35,534 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
Total assets                                                         235,512             221,722          219,398 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
LIABILITIES 
Current liabilities 
Current tax liabilities                                              (1,330)               (362)            (877) 
Trade and other payables                                            (10,575)             (7,877)          (9,332) 
Provisions                                            10             (2,826)            (27,207)         (15,911) 
Lease liabilities                                                      (329)              (803)             (401) 
                                                                    (15,060)            (36,249)         (26,521) 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
Liabilities of disposal group classified 
 as held for sale                                      8               (252)               (312)            (286) 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
Total current liabilities                                           (15,312)            (36,561)         (26,807) 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
Non-current liabilities 
Provisions                                            10            (23,592)            (16,418)         (10,931) 
Defined pension benefit plan                                           (929)               (744)            (922) 
Lease liabilities                                                      (246)               (372)            (358) 
Deferred tax liabilities                                             (3,642)                   -          (3,518) 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
Total liabilities                                                   (43,721)            (54,095)         (42,536) 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
Net assets                                                           191,791             167,627          176,862 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
EQUITY 
Share capital                                          9              26,666              26,666           26,666 
Share premium                                                         97,476              97,476           97,476 
Other reserves                                        14           (176,290)           (172,170)        (181,282) 
Retained earnings                                                    243,939             215,655          234,002 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
Total equity                                                         191,791             167,627          176,862 
--------------------------------------------------  ----  ------------------  ------------------  --------------- 
 
 

GROUP FINANCIAL STATEMENTS

Condensed consolidated

statement of changes in equity

 
                                         Share                       Retained 
                                       capital   Share premium       earnings  Other reserves     Total 
                                          $000            $000           $000            $000      $000 
-----------------------------------  ---------  --------------  -------------  --------------  -------- 
At 1 January 2020                     26,666        97,476         212,849       (150,736)      186,255 
Profit for the period                    -            -             1,521            -            1,521 
Exchange differences arising 
 on translation of overseas 
 operations                              -            -               -           (21,434)     (21,434) 
Total comprehensive income 
 attributable to equity 
 shareholders of the parent              -            -             1,521         (21,434)     (19,913) 
-----------------------------------  ---------  --------------  -------------  --------------  -------- 
Transactions with equity 
 shareholders of the parent 
Sale of shares held by 
 Employee Benefit Trust                  -            -                 1,285        -            1,285 
-----------------------------------  ---------  --------------  -------------  --------------  -------- 
Total transactions with 
 equity shareholders of 
 the parent                              -            -             1,285            -            1,285 
-----------------------------------  ---------  --------------  -------------  --------------  -------- 
                                                                                                   167, 
At 30 June 2020 (unaudited)           26,666        97,476         215,655       (172,170)          627 
-----------------------------------  ---------  --------------  -------------  --------------  -------- 
 
At 1 January 2021                     26,666        97,476         234,002       (181,282)      176,862 
Profit for the period                    -            -             9,937            -            9,937 
Exchange differences arising 
 on translation of overseas 
 operations                              -            -               -            5,309          5,309 
Changes in the fair value 
 of equity investments 
 at fair 
 value through other comprehensive 
 income                                  -            -               -            (317)          (317) 
Total comprehensive income 
 attributable to equity 
 shareholders of the parent              -            -             9,937          4,992         14,929 
-----------------------------------  ---------  --------------  -------------  --------------  -------- 
At 30 June 2021 (unaudited)           26,666        97,476         243,939       (176,290)      191,791 
-----------------------------------  ---------  --------------  -------------  --------------  -------- 
 
 

GROUP FINANCIAL STATEMENTS

Condensed consolidated

statement of cash flows

 
                                                            Six months 
                                                                    to 
                                                               30 June                                 Year to 
                                                                                                   31 December 
                                                                  2021                                    2020 
                                                                                Six months 
                                                           (unaudited)          to 30 June           (audited) 
                                                                          2020 (unaudited) 
                                                   Note           $000                $000                $000 
Cash flows from operating activities 
Cash generated from continuing operations            15         16,793              12,492              28,938 
Cash generated from discontinued operations           8             29                  19                 300 
Interest paid                                                        -               (381)               (381) 
Income tax paid                                                (2,041)             (3,110)             (4,250) 
-------------------------------------------------  ----  -------------  ------------------  ------------------ 
Net cash generated from operating activities                    14,781               9,020              24,607 
-------------------------------------------------  ----  -------------  ------------------  ------------------ 
Cash flows from investing activities 
Interest received                                                  323                 273                 487 
Proceeds from sale of property, plant 
 and equipment                                                       -                  16                 120 
Purchase of property, plant and equipment                      (3,734)             (9,467)            (13,389) 
Net cash used in investing activities                          (3,411)             (9,178)            (12,782) 
-------------------------------------------------  ----  -------------  ------------------  ------------------ 
Cash flows from financing activities 
Sale of shares held by Employee Benefit 
 Trust                                                               -               1,285               1,285 
Repayment of borrowings                                              -             (5,440)             (5,440) 
Lease liabilities                                                (224)               (756)             (1,661) 
Net cash used in financing activities                            (224)             (4,911)             (5,816) 
-------------------------------------------------  ----  -------------  ------------------  ------------------ 
Increase/(decrease) in cash and cash equivalents 
 in the period/year                                             11,146             (5,069)               6,009 
Effect of exchange rates on cash and cash 
 equivalents                                                       798             (1,183)             (2,009) 
Cash and cash equivalents at the beginning 
 of the period/year                                             24,725        20,725                    24,725 
-------------------------------------------------  ----  -------------  ------------------  ------------------ 
Cash and cash equivalents from continuing 
 operations at the end of the period/year                       36,244        14,371                    24,329 
-------------------------------------------------  ----  -------------  ------------------  ------------------ 
Cash and cash equivalents from discontinued 
 operations at the end of the period/year             8            425         102                         396 
-------------------------------------------------  ----  -------------  ------------------  ------------------ 
 

GROUP FINANCIAL STATEMENTS

Notes to the interim financial information

1. General information and accounting policies

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 office is 6 Cavendish Square, London, W1G 0PD and the principal activities of the Group are exploration, appraisal, development and production of oil and gas reserves. The registered number of the Company is 03050645.

The condensed consolidated interim financial information incorporates the results of JKX Oil & Gas plc and its subsidiary undertakings as at 30 June 2021 and was approved by the Directors for issue on 9 August 2021.

This condensed consolidated interim financial information does not constitute accounts within the meaning of section 434 and of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020 were approved by the Board of Directors on 31 March 2021 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified. The auditors' report on those accounts did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

This condensed consolidated interim financial information has not been audited, but was the subject of an independent review carried out by the Company's auditors, BDO LLP.

2. Basis of preparation

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK-adopted international accounting standards in its consolidated financial statements on 1 January 2021. There was no impact or changes in accounting policies from the transition.

This condensed consolidated interim financial information for the six months ended 30 June 2021 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with the UK-adopted International Accounting Standard 34, 'Interim financial reporting'. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2020 which were prepared in accordance with international accounting standards in conformity with the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. A copy of the annual financial statements is available on the Company's corporate website ( www.jkx.co.uk ) or from the Company's registered office.

The Group's business activities, together with factors likely to affect its future development, performance and position are set out in the operational and financial review sections of this report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review section.

Going concern

The Directors note that the Group is debt free and has generated $14.8m of operating cash flow in the first half of 2021 with $36.2m of cash held at 30 June 2021. In addition, the Group benefits from an undrawn Tascombank loan facility of UAH280m ($10.3m) and overdraft facility of UAH50m ($1.8m) that were both renewed in December 2019, although each draw down is subject to credit approval by the bank. The facility will be available through December 2021 (subject to planned renewal after this date, if required). Additionally, in July 2020 the Group secured a $5.0m facility with Alfa-Bank, although draw downs are conditional on credit approval by the bank and tranches are repayable 2 months from draw down. The last date of the agreed loan facility is 21 July 2023.

The Board have reviewed the Group's forecast cash flows, sensitivities and combined stress case scenarios for a period of at least the next 12 months. In doing so, the Board considered risks and uncertainties associated with COVID-19 and the probability of those occurring noting the additional information available to assess such risks following the development of the pandemic over recent months. Factors considered included: a) market volatility in respect of commodity prices; and c) the Group's ability to utilise its credit facilities.

The forecasts have been based on the latest Board approved operational budgets. Gas prices in the regulated Russian market have been forecasted based on recent prices and contractual terms, oil price assumptions in Ukraine have been forecast at a discount to current market forward curves and Ukrainian gas prices have been estimated considering market prices, seasonal gas price trends and market outlooks.

The forecast cash flows reviewed include scenarios where potential liabilities arise in relation to the rental fee claims in Ukraine that the Group continues to contest. This included assessments of the timing of such potential payments that may fall due in the forecast period following detailed analysis of Ukrainian legislation and the status of each claim with internal and external legal and tax experts, notwithstanding the previous experience of continued delays in the court proceedings.

The Board further considered separate scenarios including the effect of reductions in Ukrainian oil and gas prices of 10% on the base case, noting that the base case pricing is below market prices, sustained across the forecast period. The rental claims stress test scenario is based on the estimated earliest payment dates when the payments could fall due. This case was combined with the scenario listed above. All reasonably possible forecasts demonstrate that significant cash balances are maintained under such scenarios without draw down on the facilities and they would be sufficient to meet such obligations as they fall due.

Based on the Group's cash flow forecasts, the Directors believe that the combination of its current cash balances, net cash flows from operations and undrawn facilities mean that the Group will be able to meet its liabilities and commitments as they fall due across the forecast period. Accordingly the Board considers it is appropriate to adopt the going concern basis of accounting in preparing these financial statements.

3. Accounting policies

The accounting policies adopted together with critical accounting estimates, assumptions and judgements are consistent with those used in the annual financial statements for the year ended 31 December 2020. There were no new standards that became applicable for the current reporting period.

Taxes on income in the interim period are accrued using the tax rate that would be applicable on expected total annual earnings.

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 (2020: four) reportable operating segments which are based on the internal reports provided to the Chief Operating Decision Maker ('CODM'), the Group's Board of Directors. 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.

 
                                                          Rest of 
                                   UK   Ukraine   Russia    World  Sub total  Eliminations     Total 
First half 2021                  $000      $000     $000     $000       $000          $000      $000 
External revenue 
Revenue by location 
 of asset 
- Oil                               -     8,517      260        -      8,777             -     8,777 
- Gas                               -    18,732    7,676        -     26,408             -    26,408 
- LPG                               -     3,977        -        -      3,977             -     3,977 
 
          *    Other                -       314        4        -        318             -       318 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
                                    -    31,540    7,940        -     39,480             -    39,480 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
Inter segment revenue 
- Management services/other        90         -        -        -         90          (90)         - 
- Equipment                        30         -        -        -         30          (30)         - 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
                                  120         -        -        -        120         (120)         - 
                              -------  --------  -------  -------  ---------  ------------  -------- 
Total revenue                     120    31,540    7,940        -     39,600         (120)    39,480 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
Profit before tax 
(Loss)/profit from 
 operations                   (1,912)    13,132    1,491      428     13,139            11   13,150 
Finance income                      -       277       46        -        323             -       323 
Finance cost                      (6)     (261)     (86)        -      (353)             -     (353) 
Profit before tax             (1,918)    13,148    1,451      428     13,109            11    13,120 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
Total assets(1)                 2,075   122,593   95,065   12,527    232,260             -   232,260 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
Total liabilities(1)            (711)  (38,174)  (4,579)      (5)   (43,469)             -  (43,469) 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
 

(1) Total assets and liabilities exclude assets and liabilities of the Hungarian disposal group classified as held for sale. Please refer to Note 8 for details.

 
                                                          Rest of 
                                   UK   Ukraine   Russia    World  Sub total  Eliminations     Total 
First half 2020                  $000      $000     $000     $000       $000          $000      $000 
External revenue 
Revenue by location 
 of asset 
- Oil                            -      7,827      287       -       8,114         -         8,114 
- Gas                            -      16,366    8,013      -      24,379         -         24,379 
- LPG                            -      2,224       -        -       2,224         -         2,224 
- Other                          -       370        5        -        375          -          375 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
                                 -      26,787    8,305      -      35,092         -         35,092 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
Inter segment revenue 
- Management services/other     381       -         -        -        381        (381)         - 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
                                381       -         -        -        381        (381)         - 
                              -------  --------  -------  -------  ---------  ------------  -------- 
Total revenue                   381     26,787    8,305      -      35,473       (381)       35,092 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
Profit before tax 
(Loss)/profit from 
 operations                   (1,959)   3,909      215     (76)      2,089        198        2,287 
Finance income                     26       250        8        -     284          -          284 
Finance cost                    (152)     (265)    (126)        -    (543)         -         (543) 
Profit before tax                                                    1,830        198        2,028 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
Total assets(1)                3,547   115,998   96,012    2,953    218,510        -        218,510 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
Total liabilities(1)           (532)   (48,175)  (5,072)    (4)    (53,783)        -        (53,783) 
----------------------------  -------  --------  -------  -------  ---------  ------------  -------- 
 

(1) Total assets and liabilities exclude assets and liabilities of the Hungarian disposal group classified as held for sale. Please refer to Note 8 for details.

5. Property, plant and equipment and other intangible assets

During the period the Group acquired $3.7m additional assets in Ukraine and Russia (2020: $7.5m in Ukraine, Russia), with 88% in respect of Group's oil and gas producing and development assets (2020: 86% in respect of Group's oil and gas producing and development assets).

At the reporting date a review of the carrying amounts of property, plant and equipment was undertaken 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 and Russian assets due to the carrying amount of the Group net assets exceeding the Company's market capitalisation. An impairment test was performed in respect of assets in Ukraine and Russia.

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.

-- Economic life of field: it was assumed that the title to the licences is retained based on legal right 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 2034 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 2021 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 period of the model a forward gas price curve was used.

-- Oil prices: the Company used a forward price curve till the end of the model.

-- Production taxes: the Company has assumed production tax rates of 29% for gas and 31% for oil and condensate. 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 16.7%. 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 ($93.1m) exceeds its carrying amount ($85.7m) and therefore NNC's oil and gas assets were not impaired.

-- Elyzavetivske's recoverable amount (including the West Mashivska extension) ($11.3m) exceeds its carrying amount ($8.8m), 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 and operating expenditure and post-tax discount rates, all other inputs remaining equal, would be as follows:

 
                                                                        NNC         Elyzavetivske 
                                                        Increase/(decrease)   Increase/(decrease) 
                                                                in headroom           in headroom 
                                                               of $7.4m for          of $2.5m for 
                                                                    NNC CGU         Elyzavetivske 
                                                                         $m                CGU $m 
-------------------------  --------------------------  --------------------  -------------------- 
Impact if gas and oil 
 prices:                   increased by 20%            35.7                  4.0 
 reduced by 20%                                        (36.9)                (3.9) 
 ----------------------------------------------------  --------------------  -------------------- 
Impact if gas and oil 
 production volumes:       increased by 10%            24.0                  3.2 
 decreased by 10%                                      (24.0)                (1.5) 
 ----------------------------------------------------  --------------------  -------------------- 
Impact if future capital 
 expenditure:              increased by 20%            (13.4)                (0.4) 
 decreased by 20%                                      13.4                  0.4 
 ----------------------------------------------------  --------------------  -------------------- 
Impact if operating 
 expenditure:              increased by 20%            (7.2)                 (0.7) 
 decreased by 20%                                      7.2                   0.8 
 ----------------------------------------------------  --------------------  -------------------- 
Impact if post-tax         increased by 2 percentage 
 discount rate:             points to 18.7%            (8.5)                 (0.4) 
 decreased by 2 percentage 
  points to 14.7%                                      9.6                   0.5 
 

Management performed sensitivity analysis on the estimates of recoverable amounts and found that the excess of recoverable amount over the carrying amount of both CGUs would be reduced to nil as a result of a reasonably possible change in the key assumption of oil and gas prices given the inherent volatility of prices. However, the pricing assumptions applied are considered appropriate best estimates considering market data and trends that support the base case. The discount rates involve judgment but are considered appropriately risk weighted. Management have considered the sensitivity scenarios associated with production, capital expenditure and operating costs and consider the base case estimates to be supportable based on detailed planning with such scenarios less than reasonably possible.

Key Assumptions - Russia

The key assumptions used in the impairment testing were:

-- Production profiles: these were based on the latest available information assessed internally.

-- 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.

-- Gas prices: from 1 July 2021 and annually thereafter, the gas prices have been increased by 3.0% through to 2026 based on historical experience.

-- Capital and operating costs: these were based on the revised budget for 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 12.6%. This was based on a Capital Asset Pricing Model analysis.

Based on the key assumptions set out above YGE's recoverable amount ($102.7m) exceeds it carrying amount of CGU's assets including deferred tax assets ($76.6m) and therefore YGE's Koshekhablskoye gas field was not impaired.

The impact on the impairment calculation of applying different assumptions to gas prices, production, future capital and operating expenditure and post-tax discount rates, all other inputs remaining equal, would be as follows:

 
                                                             Increase/(decrease) 
                                                           in headroom of $ 26.1 
                                                            m for Yuzhgazenergie 
                                                                             CGU 
-----------------------------  ------------------------ 
                                                                              $m 
-----------------------------  ------------------------  ----------------------- 
 Impact of Adygean gas          growth rates increased 
  price:                         by 10% annually                             3.8 
  growth rates reduced 
   by 10% annually                                                          -3.6 
 ------------------------------------------------------  ----------------------- 
 Impact of production 
  volumes:                      Increased by 10%                            19.4 
  Decreased by 10%                                                         -19.4 
 ------------------------------------------------------  ----------------------- 
 Impact of future capital 
  expenditure:                  Increased by 20%                            -5.0 
  Decreased by 20%                                                           5.0 
 ------------------------------------------------------  ----------------------- 
 Impact of operating 
  expenditure                   Increased by 20%                           -11.7 
  Decreased by 20%                                                          11.8 
 ------------------------------------------------------  ----------------------- 
                                Increased by 1 
 Impact of post-tax discount     percentage point 
  rate:                          to 13.6%                                   -7.2 
  Decreased by 1 
   percentage point 
   to 11.6%                                                                  8.1 
 ------------------------------------------------------  ----------------------- 
 

Management performed sensitivity analysis on the estimates of recoverable amounts and found that the excess of recoverable amount over the carrying amount of both CGUs would be reduced to nil as a result of a reasonably possible change in the key assumptions of gas prices given the inherent volatility of prices. However, the pricing assumptions applied are considered appropriate best estimates considering market data and trends that support the base case. The discount rates involve judgment but are considered appropriately risk weighted. Management have considered the sensitivity scenarios associated with production, capital expenditure and operating costs and consider the base case estimates to be supportable based on detailed planning with such scenarios less than reasonably possible.

6. Investments

The carrying value of unlisted investments comprises:

 
                                                      30 June  31 December 
                                             2021 (unaudited)         2020 
                                                         $000         $000 
PJSC of "Mining Company Ukrnaftoburinnya"                   -            - 
------------------------------------------  -----------------  ----------- 
Linx Telecommunications Holding B.V.                      183          500 
------------------------------------------  -----------------  ----------- 
                                                          183          500 
------------------------------------------  -----------------  ----------- 
 

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. At 31 December 2019 and 2020 investment in Linx was valued at $0.5m.

As of 1 January 2018 the 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).

At 30 June 2021 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;

-- 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 30 June 2021 the carrying value of Linx was reported as $0.2m (31 December 2020: $0.5m), with this valuation being based upon management's expectation of future and final dividends to be received from Linx. During half-year 2021 the management was informed that Linx completed disposal of the significant business unit in April 2021. Following the sale a dividend of $0.4m was received in June 2021. It is reported under "Other income" in the Profit and Loss account. The fair value of Linx was adjusted to $0.2m through Other Comprehensive Income.

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 $0.2m 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. Borrowings

 
                                            30 June        30 June 
                                                                    31 December 
                                               2021           2020         2020 
                                        (unaudited)    (unaudited)    (audited) 
                                               $000           $000         $000 
Current 
Convertible bonds due 2020                  -              -             - 
------------------------------------  -------------  -------------  ----------- 
Term-loans repayable within one year        -              -             - 
------------------------------------  -------------  -------------  ----------- 
 

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.

Please refer to Annual Group Consolidated financial statements for 2020 for the full disclosure on Borrowings in Note 11.

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.

Credit facility

On 11 December 2019, 12 month revolving credit line from Tascombank amounting to UAH280m has been renewed for 2 years by PPC, our subsidiary in Ukraine (originally secured 15 December 2017 for UAH150 m). At 30 June 2021 the total short-term line of credit amounted to $10.3m at an exchange rate of $1: 27.18 (31 December 2020: $9.9m at an exchange rate of $1: 28.27 Hryvnia). The amount outstanding at 30 June 2021 was nil (31 December 2020: nil), so the undrawn portion totaled $10.3m (2020: $9.9m). The facility will be available through December 2021 (subject to planned renewal after this date, 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 with Tascombank 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 $3.3m at 30 June 2021 (2020: $3.2m) 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 $16.9m at 30 June 2021 (2020: UAH460m, equivalent to $16.3m) have been identified for use as a collateral, collateral is to be provided only on a drawdown; and

-- 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 $10.3m (31 December 2020: $9.9m) 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. This covenant was not met, however this did not result in additional interest of 2% being applied as the credit facility was not used during the period ended 30 June 2021.

-- 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. This covenant has been met as PPC had no debt during the period ended 30 June 2021.

In July 2020 PPC also signed a $5.0m loan facility agreement with Alfa-Bank valid for 3 years. The loan facility cannot exceed $5.0m, calculated at a fixed at the date of agreement exchange rate of $27.6647.

The main terms and conditions of the loan facility with Alfa-Bank are as follows:

-- drawdowns can be made either in USD, EUR or UAH and are individually subject to credit approval by the lender;

-- interest rate cost for USD drawn down is 4.9%, based on 2 months repayment;

-- interest rate cost for EUR drawn down 4.4%, based on 2 months repayment;

-- interest rate cost for UAH drawn down 11.3%, based on 2 months repayment;

-- full loan facility 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 Alfa-Bank is considered to be an insurance contract under the provisions of IFRS 4;

-- collateral shall be properly documented and provided in advance, the tranche cannot be granted otherwise; and

each amount borrowed shall be repaid within 2 months from the date when the tranche is agreed (agreed by signing of an additional agreement ). The last date of the agreed loan facility is 21 July 2023.

Significant financial penalties:

-- the non-payment penalty is 0.2% per day of the overdue amount but no more than National Bank of Ukraine (NBU) double discount rate;

-- if the covenants are not met (for each case) an additional interest of 0.1% applies to the facility; and

-- if the amount of the loan facility is not used for the purpose indicated in the loan facility agreement PPC is liable to pay 25% of the amount used not for the purpose indicated in the loan facility agreement.

Significant financial covenants:

All covenants listed below have been met during the period ended 30 June 2021.

-- EBITDA - should not be less than Nil at the end of each quarter during the period of the loan facility agreement;

-- Debt to EBITDA ratio - should be no more than 3.0 at the end of each quarter during the period of the loan facility agreement; and

EBITDA to Financial costs (Interest) ratio - should be not less than 2.0 at the end of each quarter during the period of the loan facility agreement.

8. 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.

On 9 March 2020 the company announced that it had agreed terms for the disposal of the entire share capital of Hungarian business. Following pandemic related delays the Group received notification that the relevant Hungarian authorities had refused the necessary consent to the transaction pursuant to legislation introduced as a result of the current COVID-19 pandemic. Consequently, the transaction did not proceed.

The Hungarian business unit has been classified as held for sale for the period of more than 12 months.

An extension of the period required to complete the sale does not preclude the asset from being classified as held for sale as the delay is caused by events and circumstances beyond the Group's control. Management reviewed the classification criteria as defined by IFRS 5 and confirms that the sale is highly probable and the Group remains committed to its plan to sell the Hungarian business unit.

In February 2021 the Group signed Memorandum of Understanding with a new potential buyer in the amount of $2.9m. The purpose of this Memorandum is to establish the responsibilities/next steps of the parties in order to successfully conclude the possible deal, subject to the agreement and execution of a legally binding acquisition agreement. The potential buyer did not proceed with the sale.

On 14 July 2021 the Group received Letter of Interest from a new potential buyer in the amount of $3.0m. The letter confirms their readiness to consider purchase of the Hungarian business unit.

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, 31 December 2020 and 30 June 2021. Prior to the reclassification assets were measured at the lower of carrying amount and fair value less costs to sell.

The financial performance and cash flow information presented are for periods ended 30 June 2020 and 30 June 2021.

 
                                                          30 June  30 June 
                                                             2021 
                                                             $000     2020 
                                                                      $000 
Administrative expenses                                     (259)    (490) 
Exceptional item - reversal of provision for impairment 
 of Hungary                                                    47      173 
Loss on foreign exchange                                     (14)    (103) 
--------------------------------------------------------  -------  ------- 
Loss from operations before and after tax                   (226)    (420) 
--------------------------------------------------------  -------  ------- 
 
 
Net cash inflow from operating activities               29    19 
Effect of exchange rates on cash and cash equivalents    -  (13) 
------------------------------------------------------      ---- 
Net increase in cash used by the subsidiary             29     6 
 
 

The following assets and liabilities were reclassified as held for sale in relation to the discontinued operation as at 31 December 2020 and 30 June 2021.

 
                                                       30 June  31 December 
                                                          2021         2020 
Assets and liabilities of disposal group classified       $000         $000 
 as held for sale 
Assets classified as held for sale 
Property, plant and equipment                            1,957        1,911 
Trade and other receivables                                870          879 
Cash                                                       425          396 
Total assets of disposal group held for sale             3,252        3,186 
-----------------------------------------------------  -------  ----------- 
Liabilities of the disposal group classified as held 
 for sale 
Trade and other payables                                  (52)         (86) 
Abandonment provision                                    (200)        (200) 
-----------------------------------------------------  -------  ----------- 
Total liabilities of disposal group held for sale        (252)        (286) 
-----------------------------------------------------  -------  ----------- 
Net assets                                             (3,000)        2,900 
-----------------------------------------------------  -------  ----------- 
 

9. Share capital

Equity share capital, denominated in Sterling, was as follows:

 
                              30 June       30 June       30 June  31 December  31 December  31 December 
                                 2021          2021          2021         2020         2020         2020 
                          (unaudited)   (unaudited)   (unaudited)    (audited)    (audited)    (audited) 
                               Number        GBP000          $000       Number       GBP000         $000 
Allotted, called up 
 and fully paid 
-----------------------  ------------  ------------  ------------  -----------  -----------  ----------- 
Balance at 31 December 
 and 30 June              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 
 31 December and 30 
 June                  402,771  40  77  402,771  40  77 
---------------------  -------          ------- 
 

Treasury shares and Employee Benefit Trust

The Company did not purchase any treasury shares during the period (2020: nil). There were no treasury shares used in the period (2020: nil) to settle share options.

JKX Employee Benefit Trust was established in 2013 and acquired 5,000,000 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 GBP0.30 per share. 180,525 shares were used in 2019 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 . During January 2020 JKX Employee Benefit Trust sold remaining 3,632,928 shares at an average price of GBP0.28 per share.

There are no shares reserved for issue under options or contracts.

10. Provisions

Refer to note 12 for details of the disputed production based taxes in respect of 2010 and 2015, also referred to interchangeably as rental fee claims through this report.

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. $1.8m was recognised as a credit in the half-year 2021 Consolidated income statement (30 June 2020: $1.1m charge) which is the net of a $2.1m reversal of provisions for one tax case that has been closed in favour of PPC relating to January to December 2015 claims and of $0.3m interest accrued for the remaining cases that have not been closed, of which $0.2m charge relates to the August to December 2010 claim (30 June 2020:$0.3m) and $0.1m charge relate to January to December 2015 claims (30 June 2020: $0.8m). Remaining claims are being contested in the Ukrainian courts (see Note 12). The amount is denominated in Ukrainian Hryvnia ('UAH') and is stated above at its US$-equivalent amount using the half-year 2021 rate of UAH27.18/$ (31 December 2020: UAH28.27/$).

Case 816/685/16, principal only, amounting to $2.8m and related to January to December 2015 claims was reclassified from non-current to current at 30 June 2021. This case is expected to be considered on merits by the courts during the next twelve months.

Provision related to August to December 2010 case amounting to $14.6m was reclassified from current to non-current at 30 June 2021. Whilst PPC has been successful in the court hearings, the Board considers it appropriate to maintain a provision given the uncertainty that remains regarding the future development of the claim, although this required significant judgment given the recent nature of the court rulings and assessment of the legislative environment. Any legal proceedings seeking to re-open the case and seek collection is anticipated to continue beyond 12 months after the reporting date given the legislative steps that would be required, and provisions in relation to this case has been presented as non-current liability based on the expected timing of any subsequent payments. The provision against the case was previously classified as current based on the expected timing of the Supreme Court ruling in 2021 and potential payment.

The provision for rental fee claims at 30 June 2021 includes estimated interest and penalties. Judgement is applied regarding application of the 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.

Changes in the judgement about the timing of the provision releases: during 2019 provisions were maintained for open cases unless judgments of the Supreme Court of Ukraine had been received in favour of PPC or appeals to this court were considered remote, based on assessment of facts and circumstances at the time. During 2020 the Group had determined that it was appropriate to release provisions when first and appellate Court rulings have been received in respect of the 2015 cases (on its merits) in the Group's favour. In reaching that conclusion Management have considered their experience of the legal process to date, the fact that the Supreme Court checks judgments of the first and appellate Courts and cannot review any new facts or circumstances and have sought advice from external counsel. Accordingly the risk of the lower court judgments on the merits of the cases being cancelled are considered very low. Consequently the Group's Management had released provisions after court judgments of first and appellate instances in favour of PPC.

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.

 
                                                    Disputed 
                                                  production 
                                                 based taxes 
Current provisions                                      $000 
---------------------------------------------  ------------- 
At 1 January 2021                                     15,911 
Foreign currency translation                             598 
Released during the period                           (2,142) 
Amount provided in the period                            221 
Reclassification from non-current provisions        (11,762) 
At 30 June 2021                                        2,826 
---------------------------------------------  ------------- 
 
 
                                           Production 
                                          based taxes 
Non-current provisions                           $000 
---------------------------------------  ------------ 
At 1 January 2021                               5,080 
Foreign currency translation                      207 
Amount provided in the period                     111 
Reclassification to current provisions         11,762 
---------------------------------------  ------------ 
At 30 June 2021                                17,160 
---------------------------------------  ------------ 
 

Provision on decommissioning

 
                                       30 June        30 June 
                                          2021           2020  31 December 2020 
                                   (unaudited)    (unaudited)         (audited) 
                                          $000           $000              $000 
Provision for site restoration       6,432              5,913             5,851 
-------------------------------  -------------  -------------  ---------------- 
 

11. Exceptional items

During the period exceptional items as detailed below have been included in cost of sales in the income statement:

 
                                                       Cost of 
                                                      sales(1) 
                                                          $000 
---------------------------------------------------  --------- 
Net movement in provision for disputed rental fees       1,810 
                                                         1,810 
---------------------------------------------------  --------- 
 

(1) Please see Note 10 for details

12. Taxation

No UK tax liability has arisen during the six months ended 30 June 2021 (2020: nil) due to the availability of tax losses. The current tax charged in the period relates to Ukrainian corporation tax which has arisen in the Group's subsidiary, Poltava Petroleum Company. Taxes charged on production of hydrocarbons in Ukraine, Russia and Hungary are included in cost of sales.

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.

At Budget 2020, the government announced that the Corporation Tax main rate (for all profits except ring fence profits) for the year starting 1 April 2021 would remain at 19%.

The corporation tax rate in Ukraine for 2021 is 18% (2020: 18%).

Taxation in Ukraine - disputed 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 and operations continued as before.

In December 1994, a new fee on the production of oil and gas (known as a '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 rental fee 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 a new law on rental fees was enacted in 2011.

The new law enacted in 2011 established new mechanisms for the determination of the rental fees. Notwithstanding the Exemption Letter, in January 2011 PPC began to pay rental fees in order to avoid further issues with the Ukrainian authorities but without prejudice to its right to challenge the validity of rental fee demands.

During 2015 rental fees in Ukraine were increased to 55% and capital control restrictions were introduced.

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 m in rental fees that PPC had paid on production of oil and gas in Ukraine since 2011, in addition to damages to the business.

The tribunal decision, in February 2017, did not find in favour of the Company in respect of the rental fees but awarded the Company damages of $11.8 m plus interest, and costs of $0.3 m in relation to subsidiary claims.

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 (2020: 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, which in total amount to approximately $20.0million (2020: $21.0 million) (including interest and penalties), as detailed below. All amounts are being claimed in Ukrainian Hryvnia ('UAH') and are stated below at their US$-equivalent amounts using the year end rate of $1:UAH 27.18 (2020: $1: UAH 28.27).

August - December 2010: approximately $14.6 million (2020: $13.8 million) (including $10.1 million (2020: $9.5 million) of interest and penalties). The case is a split into three cases - two cases on merits (No. 816/539/14 and No. 816/4476/14) and one fiduciary case related to collection of the rental fees claimed (No. 816/3731/14).

-- 816/539/14 - Case lost historically on merits. Since this time, PPC have been incurring interest and penalty charges.

-- 816/4476/14 -PPC considered that there were in fact certain procedures in case 816/539/14 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. On 05 April 2017 the Poltava Circuit Administrative Court found in favor of PPC. The Kharkiv Appellate Administrative Court on 01 June 2017 turned down PJTI's appellate complaint on merits. However, on 22 April 2021 the Supreme Court cancelled the judgments of the lower courts which had been in favor of PPC and decided to close the proceedings leaving the court judgments against PPC in the above case No. 816/539/14 the only effective ones. As a result PPC has now lost the case.

-- 816/3731/14 - This case is a fiduciary court dispute on forcible collection of the 2010 rental fees claimed and was historically initiated by PJSTI against PPC once PPC lost tax dispute No. 816/539/14 above. After two court judgments in favor of PPC in case No. 816/4476/14, on 29 June 2017, the PCAC having considered legal and tax expert evidence put forward by PPC along with PJSTI's objections, found in favor of PPC preventing collection of the amounts claimed. The KHAC by its ruling of 05th February 2018 and the Supreme Court by its ruling of 21st July 2021 upheld the judgment of the first instance court - thus, the case is closed in favor of PPC such that PJSTI is unable to enforce collection. However, the Board consider that there is a risk that the case may be re-opened if the PJSTI applies for reconsideration of the court judgments in this case due to newly discovered circumstances i.e. utilizes the judgment of the Supreme Court in case No. 816/4476/14 in April 2021 to instigate a new collection motion.

Whilst PPC has been successful in the court hearings, the Board considers it appropriate to maintain a provision given the uncertainty that remains regarding the future development of the claim, although this required significant judgment given the recent nature of the court rulings and assessment of the legislative environment. Any legal proceedings seeking to re-open the case and seek collection is anticipated to continue beyond 12 months after the reporting date given the legislative steps that would be required, and provisions in relation to this case has been presented as non-current liability based on the expected timing of any subsequent payments. The provision against the case was previously classified as current based on the expected timing of the Supreme Court ruling in 2021 and potential payment.

January - December 2015: approximately $5.4 million (2020: $7.2 million) (including $3.5 million (2020: $5.4 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. Six of these cases have now been resolved in

PPC's favour and the others continue to be contested:

Open 2015 cases for which provisions held:

Management have specifically assessed whether the success on cases during 2020 and 2021 provides a sufficient precedent to release the remaining provisions for the 2015 claims. It was concluded that given the inherent uncertainty associated with the Ukrainian Court system and political environment it remains appropriate to retain the remaining provisions.

-- Case No. 816/685/16 for $5.4m has already been suspended. PJSTI have filed cassation complaint with the Supreme Court to unsuspend it. A principal of $2.8m was reclassified from non-current to current at 30 June 2021. This case is expected to be considered on merits by the courts during the next twelve months.

Pending 2015 cases for which provisions released:

Notwithstanding that for the three cases below there are further cassation complaints from PJSTI, the Group's assessment is that once there is a judgment of the first and appellate instance court in favour of PPC, tax notification decision in respective case is cancelled and the provision released unless there are specific circumstances which would indicate provision should be retained.

-- On 4 May 2020 the Poltava Circuit Administrative Court found in favour of PPC in case No. 816/687/16 for $4.7m. The Kharkiv Appellate Administrative Court on 15 October 2020 turned down PJTI's appellate complaint. PJSTI filed a cassation complaint, however on 19 November 2020 the Supreme Court returned it to the PJTI stating that it sees no grounds on reconsideration of the lower instance courts. PJTI, ignoring the ruling of the Supreme Court, refiled another cassation complaint. The Supreme Court accepted it and commenced the cassation proceedings. The consideration is expected at the end of 2021. The provision was released in 2020.

-- On 22 December 2020 the Poltava Circuit Administrative Court found in favour of PPC in case No. 816/686/16 for $10.4m. PJSTI filed an appellate complaint and the Kharkiv Appellate Administrative Court accepted it. On 12 March 2021 Kharkiv Appellate Administrative Court found in favour of PPC and cancelled the tax notification decisions recognising them as illegal. We expect that PJSTI will file the cassation complaint against the above judgments within the following months. The provision was released in 2020.

-- On 18th November 2020 the Poltava Circuit Administrative Court found in favor of PPC in case No. 816/1191/16. PJSTI filed appellate complaint and the Kharkiv Appellate Administrative Court accepted it. The Kharkiv Appellate Administrative Court on 29 March 2021 turned down PJTI's appellate complaint on merits. PJSTI attempted to file several times the cassation complaint - however, twice the cassation complaints of PJSTI were turned down. Provision amounting to $2.1m was release on 1 April 2021 when decision was received.

It is expected that the process of hearings in respect of the remaining outstanding 2015 rental fee claim will continue into 2022 and possibly beyond. Full provisions are made for claim 816/685/16 and the 2010 cases.

2015 cases closed in favour of the Group for which provisions released in prior periods:

Case No. 816/846/16 for $5.3m. On 14 November 2019 the Poltava Circuit Administrative Court found in favour of PPC as well as ruled that Tax Notification Decisions previously issued against PPC were illegal and were cancelled. The KHAC by its judgment of 5 October 2020 and the Supreme Court by its judgment of 17 March 2021 upheld the judgment of the first instance court - thus, the case is fully closed in favour of PPC.

Changes in the judgement about the timing of the provision releases: during 2019 provisions were maintained for open cases unless judgments of the Supreme Court of Ukraine had been received in favour of PPC or appeals to this court were considered remote, based on assessment of facts and circumstances at the time. During 2020 the Group had determined that it was appropriate to release provisions when first and appellate Court rulings have been received in respect of the 2015 cases (on its merits) in the Group's favour. In reaching that conclusion Management have considered their experience of the legal process to date, the fact that the Supreme Court checks judgments of the first and appellate Courts and cannot review any new facts or circumstances and have sought advice from external counsel. Accordingly the risk of the lower court judgments on the merits of the cases being cancelled are considered very low. Consequently the Group's Management had released provisions after court judgments of first and appellate instances in favour of PPC.

$1.8m was recognised as a credit in the half-year 2021 Consolidated income statement (30 June 2020: $1.1m charge) which is the net of a $2.1m reversal of provisions for one tax case that has been closed in favour of PPC relating to January to December 2015 claims and of $0.3m interest accrued for the remaining cases that have not been closed, of which $0.2m charge relates to the August to December 2010 claim (30 June 2020:$0.3m) and $0.1m charge relate to January to December 2015 claims (30 June 2020: $0.8m). Remaining claims are being contested in the Ukrainian courts (see Note 11). The amount is denominated in Ukrainian Hryvnia ('UAH') and is stated above at its US$-equivalent amount using the half-year 2021 rate of UAH27.18/$ (2020: UAH28.27/$).

13. Earnings per share

The calculation of earnings per ordinary share for the six months ended 30 June 2021 is based on the weighted average number of shares in issue during the period of 171,723,145 (30 June 2020: 171,723,145 and 31 December 2020: 171,723,145), including shares held to satisfy the Group's employee share schemes and shares purchased by the Company and held as treasury shares of 402,771 (30 June 2020: 402,771and 31 December 2020: 402,771), and the profit for the relevant period.

Profit before exceptional items in 2021 of $8,302,515 (30 June 2020: $2,817,230 and 31 December 2020 profit: $11,016,481) is calculated from the half-year 2021 profit of $ 9,936,932 (30 June 2020: $1,520,811 and 31 December 2020: $19,867,529) adjusted for exceptional items of $1,856,596 credit (30 June 2020: $1,099,420 charge 31 December 2020: $13,221,048 credit) and the related deferred tax on the exceptional items of $222,179 charge (30 June 2020: $197,000 charge and 31 December 2020: $4,370,000 charge).

There were no outstanding share options at 30 June 2021 (30 June 2020: nil).

There are no dilutive instruments.

 
                                                      30 June  30 June  31 December 
                                                         2021     2020         2020 
Reconciliations of earnings used in calculating          $000     $000         $000 
 earnings per share 
Profit from continuing operations for the 
 purpose of basic and diluted earnings per 
 share (profit for the year attributable to 
 the owners of the parent): 
- After exceptional item                               10,163    1,941       20,870 
- Before exceptional item                               8,576    3,237       11,696 
----------------------------------------------------  -------  -------  ----------- 
 
(Loss)/profit from discontinued operations 
 for the purpose of basic and diluted earnings 
 per share ((loss)/profit for the year attributable 
 to the owners of the parent): 
- After exceptional item                                (226)    (420)      (1,002) 
- Before exceptional item                               (273)    (420)        (680) 
----------------------------------------------------  -------  -------  ----------- 
 
Total 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                                9,937    1,521       19,868 
- Before exceptional item                               8,303    2,817       11,016 
----------------------------------------------------  -------  -------  ----------- 
 
 
                                                      30 June        30 June  31 December 
                                                         2021           2020         2020 
Number of shares                                  (unaudited)    (unaudited)    (audited) 
Basic weighted average number of shares           172,125,916    172,125,916  172,125,916 
Treasury shares                                   (402,771)      (402,771)     (402,771) 
Shares held in Employee Benefit Trust (Note 
 8)                                                   -         (3,632,928)   (3,632,928) 
Sale of shares held by Employee Benefit Trust 
 (Note 8)                                             -          3,632,928     3,632,928 
Weighted average number of shares excluding 
 treasury shares                                 171,723,145    171,723,145   171,723,145 
----------------------------------------------  -------------  -------------  ----------- 
 

14. Other reserves

 
 
                                                           Foreign  Post-employment         Equity 
                                             Capital      currency          benefit    investments 
                                 Merger   redemption   translation       obligation     with FVOCI 
                                reserve      reserve       reserve          reserve        reserve      Total 
                                   $000         $000          $000             $000           $000       $000 
At 1 January 2020                30,680          587     (182,054)            (449)            500  (150,736) 
Exchange differences arising 
 on translation of overseas 
 operations                           -            -      (21,434)                -              -   (21,434) 
At 30 June 2020                  30,680          587     (203,488)            (449)            500  (172,170) 
-----------------------------  --------  -----------  ------------  ---------------  -------------  --------- 
 
 
At 1 January 2021              30,680  587  (212,485)  (564)    500  (181,282) 
Exchange differences arising 
 on translation of overseas 
 operations                         -    -      5,309      -      -      5,309 
Changes in the fair value 
 of equity investments 
 at fair value through other 
 comprehensive 
 income                             -    -          -      -  (317)      (317) 
At 30 June 2021                30,680  587  (207,176)  (564)    183  (176,290) 
-----------------------------  ------  ---  ---------  -----  -----  --------- 
 

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.

Equity investments with FVOCI reserve includes movements that relate to changes in the fair value of unlisted investments in equity.

Foreign currency translation reserve includes movements that relate to the retranslation of the subsidiaries whose functional currencies are not the US Dollar.

During the first half of 2021, the Russian Rouble ('RR') strengthened by approximately 0.02% from RR73.88/$ to RR72.37/$ (30 June 2020: weakened by approximately by 13% from RR61.91/$ to RR69.95/$) Ukrainian Hryvnia ('UAH') strengthened by approximately 0.04% from UAH 28.27/$ to UAH 27.18/$ (30 June 2020: weakened by approximately 14% from UAH 23.69/$ to UAH 26.69/$).Currency translation differences of US$5.3m gain (2020: US$21.4m loss) 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 $2.0m and $3.3m respectively.

Post-employment benefit obligation reserve relates to a remeasurement of liability for defined benefit pension plan in PPC, our subsidiary in Ukraine.

15. Reconciliation of profit from operations to net cash generated from operations

 
                                                    Six months   Six months 
                                                    to 30 June   to 30 June        Year to 
                                                                               31 December 
                                                          2021         2020           2020 
                                                          $000         $000           $000 
Profit from continuing operations before tax         13,120        2,287        25,315 
Loss from discontinued operations before tax          (226)        (420)        (1,002) 
Depreciation, depletion and amortisation              6,009       11,278        17,912 
Exceptional item - (decrease)/increase in 
 provision for production based taxes, including 
 forex                                               (1,810)       1,099       (13,543) 
(Decrease)/increase in provision for impairment 
 of Hungary                                           (47)         (173)          322 
Loss/(profit) on disposal of fixed assets              91          (15)          (113) 
Cash generated from operations before changes 
 in working capital                                  17,137       14,056        28,891 
(Increase)/decrease in operating trade and 
 other receivables                                    (290)         874           272 
Increase/(decrease) in operating trade and 
 other payables                                       1,444       (5,202)       (3,794) 
(Increase)/decrease in inventories                   (1,498)       2,783         3,867 
-------------------------------------------------  -----------  -----------  ------------- 
Net cash generated from continuing operations        16,793       12,492        28,938 
Net cash generated from discontinued operations        29           19            300 
-------------------------------------------------  -----------  -----------  ------------- 
 

16. Related-party transactions

Key management compensation amounted to $0.4m for the six months ended 30 June 2021 (2020: $0.4m).

The following transactions were carried out with PJSC "Mining Company Ukrnaftoburinnya" ("UNB") a Ukrainian oil and gas company in which Group holds a 10% of the ordinary share capital and which was considered a related party at 30 June 2021:

 
            30 June  30 June 
               2021     2020 
               $000     $000 
Gas sales         -    1,133 
----------  -------  ------- 
 
 
                          30 June  30 June 
                             2021     2020 
                             $000     $000 
Gas condensate purchase         -       30 
------------------------  -------  ------- 
 

PPC received 100% prepayment from UNB for July's gas. $86,200 received is included under "Contract liabilities" in the period ending 30 June 2021.

Gas and condensate are sold and purchased on normal commercial terms and conditions.

17. Events after the reporting date

We are not aware of any events after the reporting date.

Glossary

   2P reserves     Proved plus probable 
   3P reserves     Proved, probable and possible 

P50 Reserves and/or resources estimates that have a 50 per cent probability of being met or exceeded

   Boe                   Barrel of oil equivalent 
   Boepd               Barrel of oil equivalent per day 
   Bopd                 Barrel of oil per day 
   Bpd                   Barrel per day 
   HHN                Riverside Energy Kft 
   Hryvnia           The lawful currency of Ukraine 
   HSECQ            Health, Safety, Environment, Community and Quality 
   KPI                  Key Performance Indicator 
   LIBOR             London InterBank Offered Rate 
   LPG                  Liquefied Petroleum Gas 
   Mbbl                 Thousand barrels 
   Mboe                Thousand barrels of oil equivalent 
   MMboe             Million barrels of oil equivalent 
   MMcm              Million cubic metres 
   PPC                  Poltava Petroleum Company 
   Roubles           The lawful currency of Russia 
   Sq. km             Square kilometre 
   TD                    Total depth 
   $                       United States Dollars 
   UAH                 Ukrainian Hryvnia 
   US                    United States 
   VAT                  Value Added Tax 
   YGE                 Yuzhgazenergie LLC 

Directors and advisors

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: 03050645

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

Broker

SP Angel Corporate Finance LLP

Prince Frederick House

35-39 Maddox Street

London

W1S 2PP

Public relations

EM Communications

6 Snow Hill

London, EC1A 2AY

We welcome visits to our website www.jkx.co.uk

Cautionary statement about

forward looking statements

The Half Year Report contains certain forward looking statements with respect to the financial position, results of operations and business of the Group. Examples of forward looking statements include those regarding oil and gas reserves estimates, anticipated production or construction commencement dates, costs, outputs, demand, trends in commodity prices, growth opportunities and productive lives of assets or similar factors. The words "anticipate", "estimate", "plan", "believe", "expect", "may", "should", "will", "continue", or similar expressions, commonly identify such forward looking statements.

Forward looking statements involve known and unknown risks, uncertainties, assumptions and other factors that are beyond the Group's control. For example, future oil and gas reserves will be based in part on long-term price assumptions that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include the ability to produce and transport products profitably, demand for products, the effect of foreign currency exchange rates on market prices and operating costs, activities by governmental authorities, such as changes in taxation or regulation, and political uncertainty.

Given these risks, uncertainties and assumptions, actual results could be materially different from any future results expressed or implied by these forward looking statements which speak only as at the date of this report. Except as required by applicable regulations or by law, the Group does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward looking statements will not differ materially from actual results.

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August 09, 2021 10:40 ET (14:40 GMT)

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