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JKX Oil & Gas PLC plans to issue convertible bonds for $40 million

January 25, 2013

JKX Oil & Gas PLC (the "Company") announces that it intends to raise a minimum of U.S.$40 million through the issue of guaranteed unsubordinated convertible bonds due 2018 (the "Bonds"). The Bonds will be issued by a wholly owned subsidiary of the Company,  JKX Oil & Gas (Jersey) Limited, and will be guaranteed by the Company. 

The Company intends to raise U.S.$25.4 million by way of a firm placing of Bonds with institutional investors and any amounts in excess of that by way of a conditional placing of Bonds with institutional investors, subject to clawback in respect of valid applications made by qualifying shareholders under the open offer. The placings are conditional upon the satisfaction of a number of customary conditions.

The board of directors of the Company (the "Board") has concluded that the Company would benefit from raising additional funding to increase momentum in its development, appraisal and exploration programme, and for the upgrade of its facilities in Ukraine and Russia. The Board is satisfied that the amount being raised is appropriate for the requirements of the Company.
 
The Company's cash balances have been reduced as a result of its strategic move to diversify into new assets in Russia, which has taken longer and cost more to effect than originally anticipated, whilst continuing to invest in Ukraine. The Company has also paid back U.S.$40,000,000 of debt in 2012 under a loan facility which was arranged at a time when completion of the Russian project was anticipated by year end 2011.

The rate of production for Q4 averaged more than 8,000 boepd, split between Ukraine and Russia in the ratio 2:1. Production from the Koshekhablskoye field in Russia is anticipated to rise in the first half of 2013 to the existing plant capacity of 40MMcfd. The Company also plans to fulfil its licence commitments at Koshekhablskoye to side-track and test an existing well to the deeper Callovian reservoir and to make further investment to increase the efficiency of the wells and production at this facility, which came on-stream Q2 2012.

A production increase in Ukraine is also anticipated in the second half of 2013, following implementation of a work programme that includes: initiation of the stand-alone development  on the Elizavetovskoye licence where well data has indicated the potential for a material reserves upgrade; appraisal drilling on the Zaplavskoye licence following the successful exploration well in 2012; and fracking of the 1-km horizontal well in the Rudenkovskoye licence which may be followed by a further well on the licence in 2014.

The Board considers that these actions should result in additional improved financial performance, stability and opportunity for future growth.

The Bonds will be issued in principal amounts of U.S.$200,000 and will be issued at an issue price of 100 per cent. The Bonds will have an annual coupon of 8.00 per cent. per annum and a conversion price set at an initial premium of 25 per cent. above the volume weighted average price of the Ordinary Shares of the Company between launch and pricing (subject to a minimum initial reference price of 97 per cent. of the share price at launch of 75 pence per Ordinary Share). The Company will have the option, upon giving notice, to redeem the Bonds after four years, if the parity value on each of at least 20 dealing days in any period of 30 consecutive dealing days prior to the giving of such notice shall have equalled or exceeded 130 per cent. of a Bond in the principal amount of U.S.$200,000. The Bonds will mature in 2018 on the fifth anniversary of the issue. Further details on the terms and conditions of the Bonds will be set out in a circular which is expected to be despatched to shareholders shortly.

The Bonds will be convertible into either (i) fully paid Ordinary Shares in the Company or (ii) if the Company so elects, a cash alternative amount in sterling, as further described in the terms and conditions of the Bonds. The conversion price of the Bonds will be subject to standard convertible market anti-dilution adjustments.

It is intended that the Bonds will be listed on the Official List and admitted to trading on the Professional Securities Market of the London Stock Exchange before the first interest payment date under the Bonds.

It is intended that the Bonds will be conditionally placed through an accelerated bookbuild placement with institutional investors (outside the United States and certain other excluded jurisdictions) conducted by ISM Capital LLP, acting as sole bookrunner in connection with the offering.