Volga Gas Grows Production During First Half 2009

Volga Gas, the oil and gas exploration and production group operating in the Volga Region of European Russia, has provided an operation review for the six months ended June 30, 2009.



Supra-Salt (Uzenskoye oil field)

  • Uzenskoye has been in continuous production for the full six month period.
  • Average production of 1,050 b/d in the six months to June 30, 2009. Production in July and August averaged 1,600 b/d from three wells.
  • Three further wells have been completed, tied-in to field facilities and are being put on production. Oil production is expected to rise to a sustainable rate of over 2,000 b/d.


  • A rig was assembled on location to drill the first deep sub-salt well, Grafovskaya # 1 on the Yuzhny Ershovskoye prospect.
  • Drilling commenced on August 28, 2009. The well has been cased at 670 meters, has reached a depth of 1,180 meters and continues drilling through the thick salt section.


  • VM # 1 and VM # 2 wells, were successfully completed and tested in 2008, and pipelines laid to the Dobrinskoye Gas Processing Unit ("GPU") in preparation for first production.
  • Construction of the GPU is advanced and commissioning is continuing.
  • Application has been made for authority to commence production of gas and condensate.

Mikhail Ivanov, Chief Executive Officer of Volga Gas, said, "I am very pleased with our operational achievements during the first half of the year which included the start of sustained and growing production from the Uzenskoye field, the connection of the initial two Vostochny-Makarovskoye wells to the gas processing unit and the groundwork that enabled us to start drilling operations on the first of our sub-salt wells, Grafovskaya #1. The results of our production have enabled us to report a first period of positive EBITDA and positive operating cash flow - an important milestone for our company. Thanks to the support of our shareholders, the Company remains well capitalized and able to progress towards testing the potentially value transforming sub-salt potential of our licenses. The remainder of 2009 will be the most exciting period to date in the Company's history. We look forward to updating shareholders as and when appropriate."

Operational Overview

Volga Gas and its subsidiaries (together, the "Group") are involved in the exploration, evaluation and production of, oil and gas in four licenses in the Volga Region of European Russia.

During the first six months of 2009, the Group has made significant progress towards meeting its objectives for the year. Volga Gas is able to report that the current phase of development drilling on Uzenskoye is complete, giving the Group sustained and growing oil production. Construction continued on the Dobrinskoye gas processing unit which is expected to be the principal facility for processing the gas and condensate from Vostochny Makarovskoye. Finally and most excitingly, the mobilization of drilling crews and service contractors enabled the Group to start drilling the deep sub-salt exploration well, Grafovskaya # 1, on August 28, 2009.

The selling price of the Group's oil production has risen steadily in the course of H1 2009. With rising production volumes and rigorous cost control this has enabled the Group to achieve positive operating cash flow in the first six months of 2009 and to aspire to deliver a growing cash flow profile over the coming years. This is a significant turning point for a company that hitherto had little or no revenues and significant negative operating cash flow.

Karpenskiy License Area ("KLA")


During the first half of 2009, production from the Uzenskoye area averaged 1,051 barrels of oil per day and, during July and August, production averaged 1,600 barrels of oil per day. With rising sales prices, net revenues from oil sales have risen to a level that enables the Group to more than cover all operating costs and overheads and to begin generating positive operating cash flow.

Full time production commenced in November 2008 from the Uzenskoye field area in the southern portion of the KLA, initially with the Uz#3 well followed by the Uz#4 and Uz#5 wells, both of which were tested and completed during the first half of 2009.

Two further supra-salt wells were drilled during the period: Uz#6 and V-Uz#7.

  • Uz#6 was an appraisal well located at the edge of the Yu-Uzenskoye field. The initial vertical well did not encounter the oil reservoir although a deviated sidetrack drilled from the initial well - Uz#6bis - was successful in intersecting net pay of 8 meters in the principal Cretaceous Aptian reservoir. The well has been completed with a slotted liner run in the deviated open hole producing section. In-field flow lines have been installed and production commenced on early in September 2009.
  • V-Uz#7 was an exploration well drilled on the Vostochny Uzenskaya prospect approximately 7km east of the Uzenskaya field facilities. The principal cretaceous sandstone target was found to be water bearing, however a secondary, deeper Jurassic interval was found to be oil bearing. 3-D seismic and electromagnetic surveys are being conducted over this potential new oil discovery and the data will be analysed before appraisal drilling, most likely before the end of 2009.

Since the period end development drilling has continued successfully. The Yu-Uz#8 and Yu-Uz#9 development wells on the producing field have been drilled, tested and completed as new production wells. With the new wells in production, current output has already increased and with sustained build up we expect average field output to exceed 2,000 barrels per day during Q4 2009.


The main activity during the period was the processing and interpretation of the 3-D data acquired over the Yuzhny-Mokrousovskoye structure, the second significant sub-salt prospect in the KLA. This has validated the initial interpretation of the historic 2-D seismic data in terms of the deep sub-salt prospectivity. In addition, a further structure at an intermediate depth has also been mapped in the same area. This is a potentially oil bearing prospect at a depth of approximately 2,000 metres which could form part of the Group's future exploration drilling activities.

Most importantly for the Group is that having secured the necessary funds, it is in a position to drill the first sub-salt well, Grafovskaya #1, on the Yuzhny-Ershovskoye prospect. In order to obtain the well passport the Group booked Russian category C3 resources. These have been allocated in two structures; Grafovskaya and Yuzhny-Zapadnaya with recoverable C3 resources of 42.3 BCM (1.48 TCF) of gas and 48.4 million barrels of condensate and with 13.8 BCM (0.48 TCF) of gas and 15.6 million barrels of condensate respectively. The drilling site was prepared during 2008 and a high specification western drilling rig, LEWCO 450ton operated by Eurasia Drilling, was constructed on location. Having secured the required service contractors, such as Baker Hughes, Schlumberger and local Russian service providers, equipment and supplies, drilling commenced on 28 August 2009. The drilling operation is budgeted to take a total of 250 days to reach the target depth of 5,200 metres and to complete the well although the Company will make interim announcements as and when appropriate. The well has been drilled to and casing set at approximately 670 metres. It has now reached a depth of 1,180 meters and continues drilling through the thick salt section. The first potential reservoir target is estimated to be at a vertical depth of approximately 3,700 meters.

Vostochny-Makarovskoye Licence Area ("VM")

The VM # 1 and VM # 2 wells were drilled and tested during 2008. These two wells have now been connected by inter-field pipeline to the plant gate at the Dobrinskoye Gas Processing Unit ("GPU").

In February 2009 drilling on the VM # 4 well was completed. As reported at the time, the well found only a limited eight meters of effective pay. The VM#4 well has been temporarily suspended and may be re-drilled as a sidetrack to locate more of the productive reservoir.

As construction of the GPU has progressed, commissioning procedures have commenced and the plant is being tested with production from the Dobrinskoye field, which is owned by Trans Nafta. It is envisaged under an agreement with Trans Nafta that the GPU will be transferred into a joint venture, 75% owned by Volga Gas. Negotiations in relation to this are in progress. The Group has applied to the government authorities to commence production from the VM#1 and VM#2 wells and hopes to be able to announce start up of the field early in 2010.

Pre-Caspian License Area

Processing and interpretation of 1,000 km of 2-D seismic, acquired during 2008, has identified a potentially large sub-salt prospect within this license area. The Group applied successfully to the licensing authorities to exchange our remaining 2-D seismic commitment for a more concentrated 78 km2 3-D seismic program to enable more detailed mapping of the prospect. The new 3-D seismic has been acquired and the interpretation of the new data is underway. At the same time the licencing authorities agreed to a one year extension of the period before exploration drilling has to start.


This license area contains a partially appraised oil discovery. A well drilled on the Sobolevskoye prospect in 1990 flowed at 1,200 barrels per day of oil and 1.9 mmcf/d of gas. We have now completed an initial 350 km of 2-D seismic survey and commenced interpretation. We expect to formulate plans for further exploration and appraisal activity during 2010.




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