22Chief Executive's statement continued. Complete installation, hook-up, testing and commissioning of facility and start-up of production of the Koshekhablskoye field, Russia: All construction activities were completed in the period. Delays were experienced in starting our operations in the first quarter both due to a change to the well-head piping required by the local regulator, and an extended period in obtaining regulatory approval of all as-built documentation which is required before a Permit to Operate can be requested for issue by the federal authorities in Moscow. . Add reserves and double production in Hungary:Operator delays in executing workovers on the Hajdunanas field have caused a fall in production in 2011. Limited exploration success on the Turkeve area farm-in has not provided the increase in reserves anticipated.. Continue to develop exploration portfolio in Hungary, Ukraine, Slovakia and Bulgaria: Exploration activity in 2011 has included seismic acquisition and exploration drilling in Hungary, workover and drilling preparation in Ukraine and seismic acquisition in Slovakia and Bulgaria.Our business model, which is centred on the development of onshore production, is robust but we will experience changes in the fiscal regimes where we operate and also experience some delays in bringing production on-stream from deep and complex reservoirs.In Ukraine, the success of the LPG project has demonstrated the strength and breadth of expertise of our operating company PPC. Drilling operations continue apace and most recently we have seen exploration success with the Z-04 well in the recently awarded extension to our Zaplavskoye exploration licence. Encouragingly, we have finally reached an agreement with the state Naftogaz of Ukraine company to begin workover operations on three existing wells on our Elizavetovskoye exploration licence. We anticipate gas deliveries to commence in the second quarter.Completion of the Koshekhablskoye field in southern Russia adds an important operating asset to our production portfolio. We are optimistic that the significant Oxfordian reserve position will be enhanced by positive results this year from the appraisal wells to the underlying Callovian reservoir. The independent gas market in Russia is growing and we intend to pursue opportunities to extend our operations in southern Russia, a region rich in potential.Our operations in Hungary, where we are non-operator, have not progressed in 2011 to the extent we had hoped. We have a more modest exploration programme scheduled for 2012, with the emphasis shifting to restoring full production at the Hajdunanas facility. OrganisationWe have made a number of key organisational and staffing changes this year. Cynthia Dubin has joined us as Finance Director and will be implementing a restructuring of our finance, accounting and compliance functions during 2012. We have made an important change to our London-based technical group in the period with the establishment of an experienced sub-surface function staffed by experienced geologists and geophysicists. Group reserves (MMboe)070809101190.789.288.785.176.2After 2011 production7%>Production volumes(boepd)07080910119,04510,32411,66511,01212,57912%>

JKX Oil & Gas plc Annual Report 201123At a glance01-17Board statements18-23Operational review24-36Financial review37-47CSR review48-61Directors' reports62-83Financial statements84-136Finally, we have changed the senior management at our Russian subsidiary and strengthened the technical and financial support provided to it by its experienced Ukrainian sister company.Managing our risksRisk is intrinsic to our industry and we expend considerable resources and expertise in managing it. During 2011, we revised our risk register and reviewed our procedures to ensure that robust risk management processes were in place, with continued oversight at Board level. We have reviewed our existing policies and introduced new processes and procedures to comply with the UK Bribery Act and its guidance.OutlookThe Company is anticipating an increase in production volumes in 2012 as Russian gas production begins in the second quarter and builds to the processing plant capacity by mid-year. Ukrainian production will show a moderate decline until the proposed multi-frac is performed on our deep tight Rudenkovskoye gas field later in the year. We anticipate oil realisations to remain buoyant during 2012 but are budgeting an easing in Ukrainian gas realisations going forward. The Company has absorbed substantially increased production related taxes in Ukraine in 2011 but we are pleased to report that the production tax for oil has been reduced for 2012 by approximately 30%. Prospects for 2012 are bright with significant progress anticipated on development of the Rudenkovskoye field and further exploration success on the Zaplavskoye licence. We await test results from the underlying Callovian reservoir on our Russian licence, in the second quarter, which will allow us to complete our scoping work for the second production train at Koshekhablskoye before the end of the year. I anticipate that 2012 will be a year of operational consolidation, with increased focus on expansion of our licence portfolio.Amine distillation column in Koshekhablskoye, Russia, where the Hydrogen Sulphide and Carbon Dioxide is removed from our gas