VGAS.L Regulatory News (VGAS)

15 Dec 2008 07:00



15 December 2008

VOLGA GAS PLC

Operational Update

Volga Gas Plc ("Volga Gas" or the "Company") is pleased to provide an operational update on its activities.

Highlights

Karpenskiy Licence Area - Supra-Salt

Completed Well Uzenskaya#4 which discovered 11m of net pay and  tested approximately 600bbl/d on a 6mm choke

Combined Uzenskaya production currently approximately 1,000 barrels per day ("bpd") 

Well Uzenskaya#5 spudded as a production well

Karpenskiy Licence Area - Sub-Salt

Eurasia rig being constructed on site of Well Grafovskaya #1 (G#1). Well passport identified Russian category C3 resources of 42bcm (247mmboe) and 48mmbbls of condensate and 14bcm (82mmboe) and 15.6mmbbls of condensate in two separate structures

It is expected that once the rig is constructed it will be mothballed awaiting commencement of drilling operations in 2H 09

Vostochny-Makarovskoye Licence Area

Well VM#2 complete, Well VM#4 currently being drilled

Expect to commence test production from Vostochny-Makarovskoye with gas sales via Gazprom pipeline and local condensate sales in 1H09

General

Cash position remains strong. Well Grafovskaya#1 has been delayed until 2H09 to ensure that the Company maintains a strong cash balance.

Vostochny-Makarovskoye ("VM")

Under the terms of the agreement with Trans Nafta, the Company has agreed to combine its gas processing facilities with those of Trans Nafta in a company which will be owned 75% by a Volga Gas group company and 25% by Trans Nafta. Services will be charged at cost to both companies. The combined facility is currently hooked in to the Gazprom pipeline. Each company will retain ownership of its own gas and condensate.

Well VM#1 is currently being hooked up to the joint production facilities. Well VM#2 the Evlansko-Livenskiy layer tested gas in 2297m-2334m (TVD) interval and also a further interval (starting just below the previous one and the estimated gas water contact at 2442m (TVD)) tested gas in open hole testing but produced water when cased. The well has subsequently been repaired and testing is expected to recommence in January 2009. Once production rates are better understood it will be possible to further refine the field development plan which currently requires a total of between 4 and 10 wells. 

Well VM#4 was spudded in November 2008 and is expected to be completed during 1Q09. It was decided to change the order of drilling and Well VM#3 will be drilled later in the drilling campaign.

Russian category C1 and C2 recoverable reserves were calculated following the results of Well VM#1 and approved at State Reserves Committee as follows:

C1 Recoverable

Gas  4,661 bcm

Condensate 1,043 mmt (~8,3 mm bbls)

C2 Recoverable

Gas 2,480bcm

Condensate 0,485 mmt (~3.9 mm bbls)

A further reserve calculation will be undertaken following the completion of VM#4.

Karpenskiy Licence Area

Supra-Salt - Uzenskaya Field

Well Uzenskaya#3, as previously reported, was put on production in October 2008 and has been producing at approximately 400bbl/day of light oil.

Well Uzenskaya#4 was spudded in October targeting Jurassic and completed testing in December. The well discovered net pay zone of 11.2m at 1000 meter depth and has tested approximately 600bbl/d of 45 API oil on a 6mm choke. The well has been hooked in to existing production facilities.

Well Uzenskaya#5 spudded in December and is expected to complete during 1Q09.

Russian category reserves have been calculated and will be presented to the State Reserves Committee for approval during 1Q09.

Sub-salt

Yuzhny-Ershovskoye Structure

The well passport (the drilling documentation) for Grafovskaya #1 has been completed, Russian category C3 resources of 42bcm (247mmboe) and 48mmbbls of condensate and 14bcm (82mmboe) and 15.6mmbbls of condensate were identified in two separate structures. 

The Eurasia rig is being constructed on the site of Grafovskaya #1. It is likely that drilling will be delayed until 2H09 whilst cash flow from VM and Uzenskaya builds up in order to ensure that Volga Gas maintains a strong cash balance.

Mikhail Ivanov, Chief Executive of Volga Gas commented:

"The company is following its plans to develop the VM field and put it on production at the earliest opportunity. The recent discovery of oil fields on Karpensky supra-salt has become material and may generate good cash flow in 2009 and beyond. "

"The financial position of our company is solid with $28million in cash and zero debt. The company pre-paid $4million for mobilization and for the first months of drilling of G#1 on Karpensky deep; we will commence drilling the high-impact exploration well when we see significant cash flow coming from our producing fields next year."

- Ends -

Volga Gas is an independent gas exploration and production company, which currently holds four subsoil licenses in the Volga Region of European Russia

For additional information please contact:

The information contained in this announcement has been reviewed and verified by Mr. Mikhail Ivanov, 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 March 2006. Mr. Mikhail Ivanov holds a M.S. Degree in Geophysics from Novosibirsk State University. He has also MBA degree from Kellogg School of Management (Northwestern University). He is a member of the Society of Petroleum Engineers.