VGAS.L Regulatory News (VGAS)

19 December 2016

Volga Gas plc

("Volga Gas", the "Company" or the "Group")

Drilling update - Uzen #4 sidetrack

Volga Gas plc, the oil and gas exploration and production group operating in the Volga Region of Russia, announces the following update on its drilling activities on a sidetrack to the Uzen #4 oil well.

Volga Gas has been drilling a sidetrack to its Uzen #4 oil well with the intention of accessing a potentially unproduced zone of the Aptian reservoir of the Uzen oil field, which is the reservoir that has been developed and produced to date. The quantity of additional reserves in the Aptian is likely to be modest, but would provide profitable additional production. Should the anticipated Aptian oil not be present in economic volumes, the plan would be to use the same borehole to drill a horizontal well in the shallower Albian reservoir. Drilling to date confirms that there is a sufficiently thick oil leg in the Albian, consistent with management's estimate of 1.5 million barrels of oil reserves recoverable from a horizontal well. In the case of success with the sidetrack in the Aptian, a new horizontal well is to be drilled from a surface location close to Uzen#4.

However, during the drilling of a deviated section from the existing vertical well mechanical difficulties were encountered. The drill bit and certain directional drilling tools supplied by Schlumberger became stuck in the well, as a result of a faulty pump interrupting drilling mud circulation.

Various attempts have been made to release the stuck drill bit and to retrieve the directional drilling tools but unfortunately they have proved unsuccessful. Consequently management have taken the decision to abandon any further attempts. Given the attractiveness of accessing incremental reserves in a side track well, Volga Gas will recommence drilling a sidetrack after appointing a new drilling contractor.

Volga Gas may, however, incur costs of up to US$2.0 million including compensation for replacement of the directional drilling tools belonging to Schlumberger. Volga Gas will seek to recover such costs from the drilling contractor which the Company considers to have been responsible for the problems. However, it may be prudent to make a provision for some or all of these costs in the 2016 Income Statement.

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Editors' notes:

The information contained in this announcement has been reviewed and verified by Mr. Andrey Zozulya, Chief Executive Officer of Volga Gas plc, for the purposes of the Guidance Note for Mining, Oil and Gas companies issued by the London Stock Exchange in June 2009. Mr. Andrey Zozulya holds a degree in Geophysics and Engineering from the Groznensky Oil & Gas Institute and is a member of the Society of Petroleum Engineers.

This announcement contains inside information as defined in EU Regulation No. 596/2014 and is in accordance with the Company's obligations under Article 17 of that Regulation.