VGAS.L Regulatory News (VGAS)

5 June 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 holding its Annual General Meeting today and is pleased to provide the following update on its activities and operations:

Production Update

As reported on 19 February 2015, the Group's production was impacted as the domestic market for oil adjusted to the significant changes to the export taxes that came into effect on 1 January 2015. For a period of approximately four weeks the local demand situation led to the temporary suspension of production at the Company's Vostochny Makarovskoye ("VM") and Dobrinskoye gas fields and the Group consequently brought forward certain scheduled maintenance operations.

Since mid-February 2015, the Group resumed production operations and is pleased to report that during March and April 2015 full production has been achieved in line with plans. In these months production averaged 16.7 mmcfd of gas, 817 bpd of condensate and 482 bpd of oil, giving a total of 4,086 boepd. These numbers are in line with management expectations and compares to an average of 4,244 boepd in 2014. During May maintenance operations on the gas plant were undertaken which consequently constrained gas and condensate production during that month, resulting in total production of 2,004 boepd for May.

Realisations

As detailed in the Volga Gas 2014 Annual Report, domestic oil and condensate pricing in the early part of 2015 did not fully adjust to reflect the drop in export taxes and consequently the realised prices were below full netback parity. More recently, price realisations have moved closer towards netback parity. The average sales price, excluding VAT, for oil and condensate during March, April and May 2015 was approximately $36 per barrel.

Gas sales prices continue to be stable in Ruble terms at approximately RUR3,300 per thousand cubic metres excluding VAT. Consequently the devaluation of the Ruble has led to a significant fall in the US dollar equivalent value. However, the Ruble has partly recovered from over 63 to the US dollar early in 2015 to approximately 53 at present. At the current exchange rate the selling price equates to US$1.76/mcf.

Drilling operations

Drilling operations on the sidetrack to well VM#4 have recently concluded with cores being taken from the identified reservoir section. The results seen to date appear encouraging, with a pay section that appears to be similar to that seen in VM#1, the most productive well on the VM field. Further updates will be made as appropriate.

The rig used on VM#4 is shortly to be mobilised to the VM#3 location to complete the drilling of this well. A previous drilling contractor had been drilling VM#3 during 2014 but encountered mechanical difficulties. The current contractor, Eurasia Drilling, is to drill the final 300-350 metres of the well to a target depth of approximately 2,600 metres.

Both of these wells are expected to contribute to increased production from the VM field during Q4 2015.

Gas plant development

An outline plan for the redevelopment of the Dobrinskoye Gas Plant has recently been completed comprising amine-based desulphurisation and cryogenic separation of LPG. The Board will shortly be considering the options in relation to this project.

Board and Management Changes

As announced on 16 April 2015, Mikhail Ivanov has stepped down as Group CEO and on conclusion of today's AGM will become non-executive Chairman of Volga Gas. Aleksey Kalinin remains on the Board as a non-executive director. Andrey Zozulya was subsequently appointed as Group CEO and assumed his position on 7 May 2015.

Andrey Zozulya, Chief Executive of Volga Gas, commented:

"I am pleased and excited to have taken up the position of CEO of Volga Gas and am glad to report that the assets of the Company are performing as planned. As has been detailed by my predecessor, the current economic environment has its challenges and the significant increases in production taxes since 1 January 2015 have added materially to these challenges. Nevertheless, Volga Gas has a competitive business and a robust balance sheet which will provide a strong base for the current operations and for further growth in the future.

"Management's priority is to build on this base within the constraints of the existing environment, to maximise the potential of the Group's assets and to seek further opportunities to add shareholder value."

For further information, please contact:

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.

Glossary

bbl Barrel

bopd Barrels of oil per day

bpd Barrels per day

boepd Barrels of oil equivalent per day, in which 6,000 cubic feet of natural gas is equated to one barrel of oil

LPG Liquefied petroleum gas

mcf thousand cubic feet

mmcfd Millions of standard cubic feet per day