JKX Oil & Gas plc Annual Report 201133At a glance01-17Board statements18-23Operational review24-36Financial review37-47CSR review48-61Directors' reports62-83Financial statements84-136Construction of the utilities and services was taking place simultaneously during the year. The generator station, firewater storage and distribution, boiler house and steam generation systems were all commissioned during the fourth quarter. Also completed were the flare stack, thermal oxidiser, manifold and separators, condensate, nitrogen, methanol and water storage systems, together with the offices, laboratory, workshop, canteen, power distribution centre and, finally, the control room - the centre of this highly automated plant.Mechanical completion and plant commissioning permitted the introduction of gas to the GPF in mid March. The plant is ready to process the gas and is awaiting final technical approval from the authorities to finalise the specification and commence exporting.Upstream of the plant:. all flowlines are in place and connected to the manifold at the GPF. wells 20 and 27 have been tested and suspended in preparation for production. A change to the well-head pipeline was required by an update to the local regulations. Once this is complete the two wells should provide most of the initial throughput to the plant. completion and stimulation of well 25, at 5500m the deepest in the field, has proved to be problematic and at start-up its contribution is expected to be modest; a workover is planned. Oxfordian well 26 remains suspended with 1,376m of tubing still stuck in the hole. It is planned to return with a smaller rig to complete fishing more economically. Oxfordian well 15 remains suspended following a successful sidetrack operation but unsuccessful test - possibly due to an obstruction deep in the well. Downstream of the plant:. the metering system is in place and commissioning is complete. the export line has been laid and the final flange to tie in to the nearby gas trunk line will be set as soon as technical authority has been received. the gas sales contract has been concluded with Kubangazifikatzia. Koshekhablskoye Field exploration and appraisal Through its wholly-owned Russian subsidiary, YGE, JKX inherited an obligation to drill an exploration well to appraise the production potential of the underlying Callovian sandstone reservoir. YGE has subsequently undertaken a significant amount of exploration and appraisal activity on the Callovian reservoir and the drilling obligation has been replaced by the Company's proposal to work over and test the Callovian horizon in well 9 (an exploration well drilled in the 1980s) and to deepen an existing dry Oxfordian appraisal well (well-22) to the Callovian reservoir. Both operations have commenced.Callovian well 9 is being sidetracked and will re-drill the full Callovian reservoir sequence and, if successful, will deliver additional throughput to the plant as well as providing invaluable information on the potential for further development of the Callovian reservoir.Callovian well 22 remains suspended while equipment to repair the casing is sourced.Koshekhablskoye Licence ObligationsYGE maintains a regular dialogue with Rosnedra, the licencing authority, to ensure that the authorities are kept abreast with progress on the field development and the associated exploration and reserves determination commitments. Rosnedra, is fully aware that there are commitments under our Koshekhablskoye licence which have not, and will not, be met. At our meeting with Rosnedra in February 2012 we confirmed that production was imminent. We also agreed to submit a proposal to complete the assessment of reserves at a later date and are working with Rosnedra to agree our proposed changes to the timetable.Koshekhablskoye reservesFollowing the results of the well 27 and well 20 tests, the production characteristics of the field have been revised and the reserves reassessed. This has resulted in an increase of the proved and probable reserves from 44.8 MMboe assessed in 2009 to 61.2 MMboe at the year-end (being 364.8 Bcf of gas and 0.4 MMbbl oil).In line with licence requirements the Oxfordian reserves will be reassessed later this year once the results of the well 25 testing can be incorporated. Callovian reserves, which we also expect to revise during 2012, are dependent on the results from well 09 and well 22.
34Hernad (I and II) Exploration Licences and Gorbehaza Mining Plot (development and production licence) (JKX 50%) 2011 updateThe Hadjunanas and Gorbehaza fields produce from three wells (Hn-1, Hn-2 and Gh-1) into a single separator, and then via a 14.5 km export line to an existing facility for input to the Hungarian gas pipeline system. Production in 2011 was affected by water influx which caused the operator to shut-in both fields in August. Remedial work in September brought well Hn-2 back into production and work on well Hn-1 has focused on a recompletion of the oil reservoir in the Miocene volcanoclastics. The wellhead pressure on well Gh-1 fell below the line back pressure and the well has been suspended until a small compressor can be sourced and fitted. At year-end in Hungary:. Hn-2 well was back in production at 3.5 MMcfd and 80 bcpd (gross) . Hn-1 well had tested liquids production rates at around 400 bpd of predominantly black oil, and was still cleaning up. A permanent separator will be Operational review HungaryJKX holds 50% equity in the northern Pannonian Basin Hernád licences in a joint venture with the operator, Hungarian Horizon Energy ('HHE'). The Hernad I licence covers 2,903sq.km and the Hernad II licence covers 2,507sq.km. JKX farmed-in for a 33.3% interest in 120sq.km of the adjacent Nyírseg licence in late 2008 and subsequently increased its holding to 50%, as did HHE, by buying out the minority partners. Following the expiration of the exploration licence in 2009 the Gorbehaza Mining Plot (3.3sq.km) was established in 2010.The Hajdunanas Field was discovered in May 2008 with successful gas tests from three levels in well Hn-1. The discovery was confirmed by a second well Hn-2 which encountered a thicker sequence of Pannonian sands. The reservoirs include two Pannonian sand intervals and a Miocene fractured volcanoclastic sequence. The Gorbehaza discovery well Gh-1 has been tied in the Hadjunanas facility. Gas quality is excellent and requires minimal processing before export.HUNGARYWithin our Hungarian portfolio all our production currently comes from the Hajdunanas area of the Hernad/Nyirseg licences. Hernad fi eldkm25,410LICENCE AREABudapestHernadTurkeveVeszto