JKX Oil & Gas plc Annual Report 2011115At a glance01-17Board statements18-23Operational review24-36Financial review37-47CSR review48-61Directors' reports62-83Financial statements84-13617. ProvisionsUkraine Russia Hungary TotalTotalProvision for site restoration 2011 2011 2011 2011 2010 $000 $000 $000 $000 $000At 1 January 1,474 1,380 420 3,274 2,810Revision to estimate - - - - 79Foreign exchange adjustment - (73) (41) (114) (29)Additional wells drilled/wells restored (55) - - (55) 278Unwinding of discount (note 20) 64 200 76 340 136At 31 December 1,483 1,507 455 3,445 3,274The provision in respect of Ukraine represents the present value of the well and site restoration costs that are expected to be incurred up to 2024. The Russia provision results from the decommissioning of 12 wells (2010: 12) and removal of plant as required by the licence obligation. Decommissioning is due to take place from 2014 to 2060 (2010: 2014 to 2051). The provisions are made using the Group's internal estimates that management believe form a reasonable basis for the expected future costs of decommissioning.18. Cost of sales 2011 2010 $000 $000Operating costs 17,226 17,835Depreciation, depletion and amortisation 32,347 33,238Production based taxes 67,102 5,219116,675 56,292Provision for impairment of oil and gas assets/write off of exploration costs 12,920 13,676Exceptional item - impairment of Russian assets (note 5(d) and (e)) - 74,600129,595 144,568Production based taxes have increased following a new tax code becoming effective in Ukraine on 1 January 2011 (see note 25).The 2011 provision for impairment of oil and gas assets/write off of exploration and evaluation costs of $12.9m (2010: $13.7m) comprises Bulgarian exploration and license costs for B-Golitza ($6.2m) and exploration and drilling costs incurred in Hungary in respect of our Turkeve licence ($6.7m).The 2010 provision for impairment of oil and gas assets/write off of exploration costs of $13.7m (2009: $5.0m) includes Ukrainian assets, well Zaplavskoye 3 ($6.2m) which was dry and licence cost for Chervonoyarske ($1.0m), additionally costs were written off in Hungary for Well Gy-3 ($1.9m) and Bulgarian wells, Staro Oryahovo ($1.1m) and Well Shkorpilovtci ($0.6m). A provision of $2.9m was also made against an asset held for Russia. The exceptional item consists of impairment of Russian assets, refer to note 5(d) for further details.The cost of inventories (calculated by reference to production costs) expensed in cost of sales in 2011 was $115.3m (2010: $56.2m).19. Finance income 2011 2010 $000 $000Interest income on deposits 506 854Other 409 14915 868

11620. Finance costs 2011 2010 $000 $000Bank interest payable 512 307Borrowing costs amortisation and fees 3,206 -Unwinding of discount on site restoration (note 17) 340 1364,058 443Less: finance costs capitalised at 25.2% (2010: nil)* (3,206) -852 443*Tax relief on capitalised interest is $0.8m (2010 nil). 21. Profit from operations - analysis of costs by natureProfit from operations derives solely from continuing operations and is stated after charging the following: 2011 2010 $000 $000Depreciation - other assets 1,979 2,151Depreciation, depletion and amortisation - oil and gas assets 32,348 33,238Staff costs (net of $6.4m (2010: $2.6m) capitalised, see note 23) 21,808 17,813Foreign exchange (gain)/loss (460) 2,644Operating lease payments - property lease rentals 1,439 1,237- plant and equipment 622 500During the year the Group (including its overseas subsidiaries) obtained the following services from the Group's auditors as detailed below: Group auditors' remuneration 2011 2010 $000 $000Audit of the parent company and consolidated financial statements 239 294Audit of the Company's subsidiaries 213 218 452 512 Audit related assurance services 110 160Total assurance services 562 672Taxation advisory services 354 594Other non-audit services 5 5 3595999211,271Group financial statementsNotes to the financial statements continued