Volga Gas Begins Production at Uzenskaya #1 Ahead of Schedule

Volga Gas says that oil production has commenced from Uzenskaya #1 and first revenues have been received. The Company has structured an agreement to sell all its oil production at its surface facilities located on the Uzenskaya field at RUR7,550/tonne (approx $42/bbl). As the production is sold locally the Company does not need to pay export taxes, which are currently approximately $35/bbl.

The production from this well has been kept to 100 barrels of oil per day to limit the production of free gas. The well was drilled at the top of the structure and hit a small gas cap as well as the underlying oil. The surface facilities will be upgraded in 2008 to allow the Company to utilize the gas, which should lead to increased oil production rates.

The Company has started acquiring 140km2 of 3-D seismic over the Uzenskaya field and 5 other identified supra-salt structures on the Karpenskiy license area. It is expected that this 3-D will assist the Company in identifying locations of additional wells on the Uzenskaya field which, if successful, would be expected to have higher production rates as they would be located away from the gas cap.

Additional supra-salt fields, which are successfully brought in to production, may be tied back in to the surface facilities at Uzenskaya.

Mikhail Ivanov, Chief Executive Officer of Volga Gas said:

"I am pleased we have delivered our first production, albeit on a small scale, a year ahead of the schedule outlined at the time of our IPO. We will continue to develop these small, but profitable, supra-salt fields. Our principal efforts remain the exploration/appraisal of the larger supra-salt prospects in the north of the Karpenskiy license area and bringing Vostochny-Makarovskoye in to production."