VGAS.L Regulatory News (VGAS)

14 January 2014

VOLGA GAS PLC

Trading statement and operational update

Volga Gas plc ("Volga Gas" or the "Company"), the oil and gas exploration and production group operating in the Volga Region of Russia, is pleased to provide the following trading statement and operational update.

Production volumes and sales

Production during the year ended 31 December 2013 was approximately 8.9 million cubic feet per day (mmcfd) of gas and 1,400 barrels per day (bpd) of oil and condensate, a total of approximately 2,922 barrels of oil equivalent per day (boepd), which represents a 46% increase on 2012.

Production levels increased significantly during the second half of the year when the Company's operating subsidiary, OOO Gaznefteservice ("GNS"), received regulatory approval for the upgrade works on the Dobrinskoye Gas Processing Plant. Production between 1 July and 31 December 2013 averaged 10.2 mmcfd of gas and 1,570 bpd of oil and condensate (a total of 3,275 boepd), while the average production during December 2013 was over 4,500 boepd.

Volga Gas expects to report revenues of approximately US$34 million for 2013, a 21% increase on 2012.

Gas plant operation

As announced on 13 November 2013, GNS received regulatory approval for the upgrade works on the Dobrinskoye Gas Processing Plant. Since then, GNS increased the output from wells on the Vostochny Makarovskoye ("VM") and Dobrinskoye gas fields and achieved production rates of up to 18.7 mmcfd of gas, although the average rate during the final quarter of 2013 was approximately 14 mmcfd.

Following the installation of certain additional minor modules during the first half of 2014, final approval of the completed upgrade is expected to be granted, which will allow GNS to utilise the plant at full passport capacity of 1.05 million cubic metres per day (37 million cubic feet per day). Pending this, GNS will continue to operate at test rates utilising the current well capacity.

Development drilling

As announced previously, development drilling on the VM field is to continue in Q1 2014. A drilling rig is currently being mobilised onto the field site and drilling of the new VM#3 production well, to a location at a vertical depth of approximately 2,600 metres, is expected to commence in February and to take up to four months.

Bank Loan repaid in full

During December 2013, the outstanding balance of the Group's bank loan was repaid in full. The balance of the loan at 30 June 2013 was US$4.8 million and was being amortised in monthly instalments of approximately US$0.5 million. At 31 December 2013, Volga Gas held a net cash balance of approximately US$7 million and had no outstanding debts.

2013 financial results

Volga Gas expects to release its preliminary 2013 financial statements towards the end of March 2014.

Mikhail Ivanov, Chief Executive of Volga Gas, commented:

"2013 has been a pivotal year for Volga Gas, having successfully completed the main element of the upgrade works on the gas plant. With the completion of the final stages of the upgrade and the development drilling programme, we look forward to delivering strong growth in revenues and cash flow for Volga Gas in 2014 and beyond."

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Editors' notes:

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

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 June 2009. Mr. Mikhail Ivanov holds a M.S. Degree in Geophysics from Novosibirsk State University. He also has an MBA degree from Kellogg School of Management (Northwestern University). He is a member of the Society of Petroleum Engineers.