OPERATIONAL UPDATE

17 July 2019

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 providing the following update on its operations on its Vostochny Makarovskoye ("VM") field.

As previously announced, most recently on 20 May 2019 a sidetrack, on the VM#2 well, was completed on 17 February 2019.  This well was drilled on a deviated path and a total reservoir intersection of 71 metres of pay has been logged in the well in a zone with average reservoir thickness of 13 metres. As announced on 3 April 2019, flow testing on the sidetrack well at VM#2 has been conducted. The well testing conducted recently resulted in gas flow but with high water cut. As the well logging indicated gas pay in the well, management believed that the water was flowing from an aquifer below the reservoir through a local fault. 

A further workover to install a cement plug to cut off this water influx was undertaken, but subsequent tests continued to exhibit high rates of water influx.

Separately, management decided to run a production log in the nearby VM#3 using a Schlumberger FSI multiphase production logging tool. The results of the logging on several runs showed the gas:water contact was higher than expected. This high level of gas:water contact seems to be the likely explanation of the result of the testing on the VM#2 sidetrack.

Management continues to study the results.  However, the initial conclusions are:

·      VM#2 and VM#3 appear to produce from the same reservoir block, and that the reserves in this block are now largely depleted

·      VM#1 and VM#4 continue to produce at good rates suggesting that the gas:water contact in this fault block is lower than in the fault block in which the VM#3 well is located and, encouragingly, this is where the majority of the VM field remaining reserves are located

·      Current production rates on the existing wells are in line with management plans.  However, as a consequence of the result on VM#2, the guidance for Group production rates beyond September 2019 will need to be reduced to approximately 4,400 boepd from the current 5,900 boepd.

The remaining reserves in the VM field will have to be reviewed and adjusted in accordance with the latest information.  Whilst the scale of this reduction is yet to be determined, on the basis of the reserves previously estimated in the VM#3 block, our preliminary analysis indicates it would be in the order of approximately 20% of the total Group's proved reserves as at 1 January 2019.

Andrey Zozulya, Chief Executive of Volga Gas commented:

"While disappointed by these results, production from the VM field continues as expected. Management is working hard to optimise the recovery of gas and condensate from the reservoir and is actively seeking opportunities to build sources of additional alternative production."

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

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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 five 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

mcf             thousand cubic feet

mmcfd         Millions of standard cubic feet per day