Volga Gas Seals Deal for Stake in Russian Gas Facilities

Volga Gas signed with Trans Nafta to purchase a 75% direct interest in gas processing facilities, which will be used for the Company's Vostochny Makarovskoye gas and condensate field.

As a result of this agreement, Gaznefteservice, a company 100% owned by the Volga Gas group, will have a direct 75% interest in a Gas Processing Unit constructed on a site approximately 7km from the VM field. The plant is to be operated by a company which is 75% owned by GNS. Under the terms of the agreement a sum of RUB 187 million (approximately US$6.2 million) has been paid. In November 2008, a sum of RUB 600 million (approximately US$20 million) was paid as an advance on the purchase of the interest in the GPU.

As reported in the 2009 Interim Results announcement, the two initial wells on the VM field have been connected by intra-field pipelines to the gas plant being constructed by TN on its Dobrinskoye field. Before the GPU can become fully operational, it will be necessary to transfer a sulfur treatment unit from the VM license area to the GPU. This process, with the required regulatory approvals, is expected to take up to nine months. Meanwhile, it may be possible to commence long term test production from the VM field during 2010.

Mikhail Ivanov, Chief Executive of Volga Gas commented, "We are pleased to conclude this transaction for the GPU which will enable Volga Gas to realize value in its VM field by bringing it into production and thereby establishing an additional stream of cash flow."