Volga Gas Awarded Urozhainoye-2 License

Volga Gas has won the Urozhainoye-2 license at government-mandated auction in Saratov on Friday, September 7.

The Company has won the government-mandated license for the Urozhainoye-2 License area with a bid of RUR44 million (US$1.7 million). The license will be issued on payment of the balance of the amount due, RUR4 million ($0.2 million), which has to be paid within 30 days. The license area covers 354km2 and is located approximately 15km to the north of the Company's Karpensiy License Area and is in close proximity with up to 30 gas/condensate/oil fields. These fields include Preobrazhanskoye, Lyubimovskoye and Gorchakovskoye fields of Saratovneftegas.

The Company views the license area principally as an exploration asset. Notwithstanding, the license area has had one well drilled on it in 1990 and includes the Sobolevskoye field which has Russian category C1 recoverable reserves of 0.8 million barrels of oil. There are no C2, C3 reserves as no seismic was previously acquired across the license area but D1 recoverable resources of 49 million barrels of oil equivalent were estimated. The Company will publish SPE standard reserves on completion of initial exploration.

The Company believes that the nearby Stepnovsky and Kalininsky fields are analogous with the Urozhainoye-2 License Area. These fields produce gas and condensate from up to three separate layers down to 2,700m at good flow rates.

The Company's strategy is to investigate the potential of putting the Sobolevskoye field in to production during 1H 2008 whilst acquiring seismic over the remainder of the license area to identify potential structures.

Mikhail Ivanov, CEO of the Company, commented:

"This acquisition is in line with the Company's strategy to utilize management's local knowledge to identify, acquire and exploit undervalued assets which are close to existing markets and infrastructure. The Company will be able to derive synergies from the license area's close proximity to the Company's existing areas of operation."