VGAS.L Regulatory News (VGAS)

12 May 2010

VOLGA GAS PLC

Update re: Trans Nafta

Volga Gas Plc ("Volga Gas" or the "Company"), the oil and gas exploration and production group operating in the Volga Region of European Russia, announces that legal proceedings have been commenced by its wholly-owned subsidiary, OOO Gaznefteservice ("GNS"), against OOO Gazneftedobycha ("GND"), a subsidiary of ZAO Trans Nafta ("TN") , for the recovery from GND of a sum of RUR 600 million (approximately US$ 20 million) plus interest accrued since November 2008.

The sum was originally paid by GNS to GND as a prepayment for the agreed acquisition of a 75% interest in a gas processing unit ("GPU") which was intended to process gas and condensate from GNS's Vostochny Makarovskoye field (the "VM Field").

On 4 March 2010, the Company announced that a sum of RUR 187 million (approximately US$6.2 million) had been paid by GNS to GND as GNS sought to complete the acquisition of 75% of the GPU. This sum has subsequently been recovered from GND after it became clear that the resolution of certain key operational and commercial matters was unlikely to be achieved within a reasonable timeframe.

The Company believes it has a strong case and is confident of reaching a successful conclusion. There can, however, be no certainty of a successful outcome.

GNS will shortly proceed with planning of the construction of its own gas processing facilities for the VM Field. In 2007 and early 2008 construction was commenced of a suitably scaled processing facility for the VM Field. The installed units and constructed sites will provide an advanced starting point for the processing facilities that will be required to commence production from the VM Field.

Mikhail Ivanov, Chief Executive of Volga Gas commented:

"We are disappointed that it was not possible to resolve the matters that prevented us from concluding the acquisition of a 75% interest in the GPU. Although the need to construct our own facilities may lead to further delays in the start of production from the VM Field, the economics of the field remain very robust. The Company has sufficient funds to continue with its present activities and to continue with the development of the VM Field whilst we await the outcome of the legal action that has been commenced."

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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 four 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 March 2006. 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.

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