VGAS.L Regulatory News (VGAS)

3 Feb 2009 15:28



3 February 2009

VOLGA GAS PLC

Operational Update

Volga Gas Plc ("Volga Gas" or the "Company") the independent gas exploration and production company operating in the Volga region of European Russia is pleased to provide an operational update on its activities.

Highlights

VM-4 well on Vostochny Makarovskoye was drilled and encountered a thinner than anticipated pay zone. It is to be suspended pending evaluation of well and field data

Uz-5 development well in the supra-salt play on the Karpensky licence has been completed as a production well after open hole testing at a rate of 4,600 barrels of oil per day.

Vostochny Makarovskoye ("VM")

Operations are currently being concluded on the VM-4 well. It was drilled on the southern portion of the field close to the edge of the Probable reserve limits. VM-4 found gas and condensate on an open hole test at a depth of 2746-2755 metres in the Evlano-Livenskiy formation. Net pay measured in the well was substantially less than anticipated.

Although it is capable of production, the Company has decided to suspend the well with the option in the future, pending an evaluation of the data, of sidetracking the well to a potentially more favourable bottom hole location.

Any impact of this well result on gas and condensate reserves in the VM field is yet to be estimated.

The immediate plan for the field is to commence production from the first two wells which will enable a dynamic modeling of the field's productive capacity and ultimate potential recovery. In the interim, the Company plans not to make any changes to Reserve estimates.  Production is expected to commence shortly after commissioning of the gas processing plant and this is anticipated to come online before the end of H1 2009.

Karpensky Licence Area - Supra Salt

Volga Gas is pleased to announce that the Uzenskaya-5 well has been drilled, tested and completed as a productive oil well.

An interval between 976-985 meters was tested. The well flowed at an equivalent of 731.5 cubic metres of light oil per day (4,608 bbl/day) in drill stem test.  The well is expected to commence production shortly. Management believes that the well will produce initially at not less than 400 barrels per day with a 6 mm choke. Development operations on the Uzenskaya field continue with the drilling of the Uzenskaya-6 well.

Mikhail Ivanov, Chief Executive of Volga Gas commented: 

"Following the success of our previous wells on the VM licence area, we are disappointed with the result of VM-4. Our short term priority is to build up a sustainable revenue base from the two existing productive wells on VM, which will also enable us to decide on the optimal way to maximise recovery of reserves from the field.

"Our disappointment on VM is offset by the better than anticipated results on Uzenskaya, which will be an important source of cash flow in the short term. We hope to build on that with further low risk exploration, as we prepare to test the major sub-salt prospects in both the Karpensky and Pre-Caspian Licences."

- Ends -

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.

Appendix

The following are the reserve estimates disclosed for the Vostochny Makarovskoye field comprising the estimates compiled by Schlumberger in 2007 in a Petroleum Consultant's Report ("PCR") and the more recent Russian reserve classification as approved by the State Committee of Reserves in November 2008. The latter was disclosed in an earlier Operating Update by the Company.

PCR at IPO on April, 2007

VM Reserve classification as per the State committee of reserves

C1 Recoverable

C2 Recoverable