Agreement with Trans Nafta and update on VM

28 April 2011

VOLGA GAS PLC

Agreement with Trans Nafta

and

Update on Vostochny Makarovskoye

Volga Gas Plc ("Volga Gas" or the "Company"), the oil and gas exploration and production group operating in the Volga Region of Russia, is pleased to announce that its wholly-owned subsidiary, Woodhurst Holdings Limited has entered into a binding agreement with Trans Nafta for the purchase of 100% of the share capital of OOO Gazneftedobycha ("GND"), a subsidiary of Trans Nafta, for a cash consideration of RUR 30 million (US$1.1 million).

Assets being acquired

The principal assets of GND comprise:

·; 100% ownership of the Dobrinskoye gas condensate field, which has Russian C1/C2 reserves of 1.223 billion cubic metres (43.2 bcf) of natural gas and 267,000 tonnes (2.1 million barrels) of condensate, a total of 9.3 million barrels of oil equivalent. Following the acquisition, the Group's C1/C2 reserves will increase to 76.6 mmboe. The Dobrinskoye field has been in full production since mid-2010 and is currently producing approximately 7.6 mmcf/d of gas plus 640 bpd of condensate (approximately 1,900 boepd).

·; 100% ownership of a gas processing unit ("GPU") in which Volga Gas had previously planned to acquire a 75% interest. The GPU is being used to process gas from the Dobrinskoye field and, after some modifications and upgrades, will also be used to process gas to be produced from Volga Gas' Vostochny Makarovskoye ("VM") gas/condensate field, which is located 5km from the GPU. The GPU and related infrastructure assets have net book value of RUR 736 million (US$26.6 million) as at 31 December 2010.

In the year to 31 December 2010, from these assets, GND generated revenues of RUR 229.8 million (US$7.7 million) and operating profits of RUR 63.2 million (US$2.1 million).

The principal liabilities of GND are:

·; RUR 677 million (US$24.4 million) of intercompany borrowings from the Trans Nafta group.

·; A RUR 600 million (US$21.7 million) payable to OOO Gaznefteservice ("GNS"), a subsidiary of Volga Gas. This liability arises from a pre-payment made by GNS in 2008 for the originally planned purchase of the 75% interest in the GPU.

·; In addition, GND has received a court order to pay RUR 118 million (US$4.3 million) of VAT and related fines. This liability arose because the tax authorities deemed the prepayment outlined above from GNS to be payment for an asset and claimed a proportion in VAT. Volga Gas expects that GND may be able to recover a substantial proportion of this in due course.

The acquisition consideration and repayments of the intercompany loan will be funded from the Volga Gas group's existing cash resources, cash flow generated by current operations and cash generated from the sales of gas and condensate from the newly-acquired Dobrinskoye field. As of 31 December 2010, Volga Gas had US$26.6 million of cash and no debt. As at 31 March 2011, the Volga Gas group's net cash had increased to US$27.7 million (unaudited).

Update on Vostochny Makarovskoye

To date, Volga Gas has drilled and completed two production wells on the VM field and during 2009, flow lines were installed to connect these wells to the GPU. Management expects the cost of completing the connection to the GPU to be modest.

The principal works required to start production from VM will be the relocation of a sulphur treatment unit from the VM field site onto the GPU and minor modifications and de-bottlenecking to provide sufficient capacity at the GPU. Management estimates the total cost of these works to be approximately US$10.0 million.

Since mid-2010, the two production wells on the VM field have been placed on long term flow test. Based on the data gathered from this procedure, Volga Gas has derived a field management plan which will enable maximum extraction of condensate earlier in the field life, which is expected in the short term to provide greater returns.

The current aim is to commence production from the VM field by the beginning of 2012.

Mikhail Ivanov, Chief Executive of Volga Gas commented:

"I am pleased to have reached a final resolution of the legal, financial and commercial differences between Trans Nafta and Volga Gas. The Company looks forward to bringing the Vostochny Makarovskoye gas-condensate field into production in the near future."

For additional information please contact:

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 four licence areas. As a result of this transaction, the Volga Gas group will have a fifth licence area.

The information contained in this announcement has been reviewed and verified by Mr. Mikhail Ivanov, 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. Mikhail Ivanov holds a M.S. Degree in Geophysics from Novosibirsk State University. He also has an MBA degree from Kellogg School of Management (Northwestern University). He is a member of the Society of Petroleum Engineers.