VGAS.L Regulatory News (VGAS)

14 December 2015

Volga Gas plc

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

OPERATIONAL UPDATE

Volga Gas plc, the oil and gas exploration and production group operating in the Volga Region of Russia, is pleased to provide the following update on its operations.

Vostochny Makarovskoye ("VM") field

As of 11 December 2015, the VM#4 well, in which the Group drilled a successful sidetrack earlier in 2015, has been hooked up and is ready to be put on production. With the inclusion of this well to the existing stock of producing wells on the VM and Dobrinskoye fields, there is sufficient capacity for full utilization of the current planned operational capacity of 750,000 m3 per day of gas processing at the Dobrinskoye Gas Plant. This production rate, with the associated condensate equates to production of over 5,700 barrels of oil equivalent per day ("boepd"). Combined with the Company's currently modest oil output, total Group production is estimated to be approximately 6,000 boepd.

Yuzhno Mironovskaya exploration well

The exploratory well on the Yuzhno Mironovskaya prospect, as announced on 7 December 2015, was drilled to a total vertical depth of 940 metres within a time of 21 days, a record drilling rate for the Group. After running logs, the principal and secondary target zones in the Cretaceous post salt Albian and Aptian formations were found to be water bearing and the well is being plugged and abandoned. With the efficient well drilling, the total cost of this well was limited to approximately US$800,000.

Sobolevskaya-11 and Uzen-8 sidetracks

As stated in the 2015 Interim Report, sidetracks were being drilled on both of these currently non-producing oil wells with the aim of recovering production. Unfortunately significant mechanical difficulties were encountered in both of these wells and the operations on both have been temporarily suspended.

At Sobolevskaya-11, there is an ongoing contractual dispute with the drilling contractor. Subject to satisfactory resolution of this, the Group plans to complete the drilling of this well which requires a further 250 metres to reach the potential target reservoir at a total vertical depth of approximately 2,600 metres, expected to be in Q1 2016.

At Uzen-8, which at 1,000 metres has a shallower reservoir, it is believed that a re-drill would be required. For the time being this operation is to be deferred.

Export channels for condensate sales

During November and December 2015, the Group exported its first two cargoes of 500 tonnes each of condensate from its gas plant. The cargoes were delivered to a rail loading terminal and shipped on to customers in Lithuania. While this is still a trial operation, export channels are being developed to offset the risk of disruption to the regional domestic market which impacted production and sales of gas and condensate earlier in 2015.

Andrey Zozulya, Chief Executive of Volga Gas, commented:

"It is pleasing to achieve the important production target with the new well on the VM field. With the completion of the VM#3 well, which is already drilled but awaiting tie-back, the Group is well placed to reach an eventual plateau of 1 million cubic metres of daily gas production from the VM and Dobrinskoye fields.

"The results from the exploration well and delays to the sidetracks are disappointing. However, recent changes in the management of drilling contractors are expected to improve efficiency, as we have seen at Yuzhno Mironovskaya, and we will update the market once we have clarity on the timing for completion of these wells."

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Editors' notes:

Volga Gas is an independent oil and gas exploration and production company operating in the Volga region of Russia. The company has 100% interests in its four licence areas.

The information contained in this announcement has been reviewed and verified by Mr. Andrey Zozulya, Director and 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.