LONDON (Alliance News) - Volga Gas PLC Thursday said drilling operations on the VM No. 3 well are underway, while it expects production from the VM field to increase during the second half of the year on the back of contributions from new wells.
The oil and gas explorer, which operates in the Volga region of Russia, said drilling operations are underway on the VM No. 3 well, which is being partially re-drilled after mechanical difficulties caused operations to be suspended late in 2014. The drilling is planned to reach a target depth of around 2,600 metres.
The company also said that drilling of a sidetrack to the VM No. 4 well will shortly commence. The well was originally drilled in 2009.
At the start of 2015, the new regime of significantly lower export taxes and significantly higher Mineral Extraction Taxes on Russian oil and condensate was introduced.
Volga Gas said Thursday that changes to oil and gas taxation and the indirect impact of, among other things, western sanctions imposed on Russia, have increased the "challenges" for all oil and gas producing companies in Russia.
"Changes in the pattern of trade in crude oil and oil products, as the market adjusts to the new regime, have had an impact on independent refineries in the Russian market at a time of seasonally soft domestic demand," Volga Gas said in a trading update Thursday.
Volga Gas said the market disruption has had an impact on the ability of the company's purchasers of condensate to take delivery and subsequently led to the temporary suspension of production at its VM and Dobrinskoye gas fields.
"However, the temporary suspension of production has had no impact on our fields' productive capacity and the company's robust financial position, with substantial cash balances and no debt, has enabled us to continue with the development of our assets. We have utilised the unplanned down time to bring forward our scheduled maintenance from March into January," said Chief Executive Mikhail Ivanov in the statement.
The company said that sales of oil from the Yuzhny Uzenskoye field have also been hit by the market conditions but continued as planned during the period.
Ivanov said that in the longer term, the company intends to investigate additional sales routes for its gas liquids.
"Our plans for the development of a [liquefied petroleum gas] production capability at the gas plant should enhance our commercial options, including exports of LPG and condensate," he added.
Volga Gas shares were untraded Thursday. The stock last traded at 74.00 pence.
By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty
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