Half Yearly Results

18 September 2012

Volga Gas plc

('Volga Gas' or 'the Company' or 'the Group')

HALF YEARLY RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2012

Volga Gas, the oil and gas exploration and production group operating in the Volga Region of Russia, announces its half yearly results for the six months ended 30 June 2012.

HIGHLIGHTS

FINANCIAL

·; Group production averaged 2,406 barrels of oil equivalent per day in H1 2012 (H1 2011: 2,092 boepd).

·; Revenues of US$13.3 million (H1 2011 US$14.0 million).

·; EBITDA of US$4.3 million (H1 2010 US$5.3 million).

·; Net loss of US$5.6 million (H1 2011: net profit of US$3.0 million) after exploration write offs of US$7.4 million (H1 2011: US$21,000).

·; Net cash flow from operations before working capital movements of US$2.8 million (H1 2011 US$3.8 million).

·; Net cash at 30 June 2012 of US$3.3 million (US$5.9 million at 31 December 2011).

VOSTOCHNY MAKAROVSKOYE ("VM")

·; First stage of the upgrade of the gas processing facility has been completed.

·; Successful recompletion of well #30 during H1 2012.

·; Three wells on the VM field ready to start full time production imminently.

·; Long term testing of the production wells on the VM field continued during H1 2012.

DOBRINSKOYE

·; Continued production from a single well during H1 2012.

·; Production in H1 2012 averaged 3.5 million cubic feet per day of gas (H1 2011: 3.8 mmcf/d) and 327 barrels per day of condensate (H1 2011: 313 bcpd).

·; Successful sidetrack on the shut-in well #22 recently completed and will be put on production shortly.

KARPENSKIY LICENCE AREA

Supra-Salt (Uzenskoye oil field)

·; Average production during H1 2012 was 932 bopd (H1 2011: 1,147 bopd) with some weather and market related disruption during March and April 2012.

·; Production between 1 July and 31 August 2012 averaged 1,300 bopd.

·; Underlying reservoir performance remains steady.

UROZHAINOYE 2 LICENCE AREA

·; The Yuzhno Romanovskaya-1 ("YR#1") exploration well in the Urozhainoye-2 licence area was plugged and abandoned and the costs associated with the prospect written off in the income statement for H1 2012.

·; Acquired the Sobolevskaya well with the intention to recomplete and, if successful, to re-establish production on an oil field discovered by a previous licencee.

Mikhail Ivanov, Chief Executive Officer of Volga Gas, said:

"Following completion of the first phase of the gas plant upgrade Volga Gas will shortly achieve its key aim of 2012: to put its VM field into full time production. We have also added further production capacity to our gas fields with successful sidetracking and well recompletions, while we have also maintained continued steady production from our Uzen oil field.

"After the gas plant becomes fully operational, expected within the coming weeks, production is anticipated to build up to over 3,000 boepd and as the further stages of the plant upgrade are concluded, we expect in 2013 to increase production towards 6,000 boepd. In the short term Volga Gas will also drill a shallow exploration prospect in the Pre-Caspian licence area and work over the Sobolevskaya well both of which, if successful, could add new production streams within a short timeframe.

"In addition, we are actively looking for opportunities to expand the Group's operations by value-accretive acquisitions. The Board looks forward to updating the market on the Group's progress in due course."

For further 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 five licence areas.

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.

Interim Management Report

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

The key activity of H1 2012 was the upgrade undertaken on the Dobrinskoye gas plant which has been completed since the period end, enabling the Group imminently to commence full time production from its Vostochny Makarovskoye ("VM") gas field. Other activities included drilling of a sidetrack to well #22 on the Dobrinskoye gas field, to enable that well to be brought back into production, and a successful workover of well #30, adding a third well to the production wells on VM.

Production Operations

Oil production - Uzenskoye field

During H1 2012, production from the Uzenskoye area averaged 932 barrels of oil per day ("bopd") (H1 2011 - 1,147 bopd). The underlying performance of the field has remained stable throughout H1 2012 although there were more weather related disruptions in H1 2012 than in H1 2011.

Sales prices realised from the oil remained stable, averaging US$47.18/bbl net of VAT in H1 2012 (H1 2011: US$48.80/bbl), while production costs remained low at $1.98/bbl (H1 2011 $1.92/bbl). After providing for Mineral Extraction Taxes ("MET"), the cash margin per barrel in H1 2012 was US$23.92/bbl (H1 2010: US$24.47/bbl).

A sidetrack on the Uzenskoye #9 well on the flank of the Uzenskoye oil field, was drilled in February 2012 intersecting a section of the main Aptian reservoir updip from the original bottom hole location. However, when put on production, the well flowed water, indicating that the oil:water contact in the field had migrated to a higher elevation than had been anticipated on the basis of cumulative production of oil from the field. This higher than anticipated oil:water contact may have implications for the remaining recoverable reserves on the Uzenskoye field. We expect to conclude our findings on the results by the end of 2012. No further development activity on the Uzenskoye field for the remainder of 2012.

Gas and condensate production - Dobrinskoye field

During H1 2012, the Dobrinskoye field, which was acquired by the Group in April 2011, produced on average 3.5 mmcf/d of gas and 327 bpd of condensate (April to June 2011 8.0 mmcf/d of gas and 623 bpd of condensate). During H1 2012, production from Dobrinskoye was derived from a single well, #26, while a sidetrack on the other production well, #22, was being drilled.

The sidetrack on well #22 was completed in August 2012 and the well is expected to be put back on stream shortly. Preparations for drilling a sidetrack to well #26 are also in train. At the end of these operations, the production capacity of these two wells is expected to increase significantly.

Gas continues to be sold to Trans Nafta at a fixed price equivalent to approximately US$83 per thousand cubic metres net of VAT (US$2.35 per thousand cubic feet). During H1 2012 the average condensate sales price was US$51.27 per barrel (April-June 2011, US$50.17 per barrel).

Development

Gas plant upgrade

During H1 2102, the majority of the upgrade work on the Dobrinskoye gas plant was undertaken and largely completed. This involved the installation of additional sulphur absorption trains, expanded capacity for condensate separation and increased storage capacity. The effective processing capacity of the plant has, as a result, been increased from 250 thousand cubic metres per day (8.8 million cubic feet per day) to up to 1 million cubic metres per day (35.5 million cubic feet per day). However, for the time being, the permitted working capacity will remain at 250 thousand cubic metres per day until an upgrade of the required safety flare systems has been completed and the higher throughput capacity has been approved by the regulatory authorities. This is anticipated to be achieved early in 2013.

Vostochny Makarovskoye gas and condensate field ("VM")

During H1 2012, the extended production testing operations continued on the two existing VM wells, which were drilled by the Group during 2008 and 2009. This was carried out using a test separator located at the field site. Condensate was produced and sold, while gas was flared. Revenues from test production have not been included in the Group income statements.

In addition, well #30, an exploration well drilled and tested by a previous licensee in the Bobrikovskiy sandstone formation, was recompleted. After the recompletion under a series of production tests the well flowed at a rate of 161,890 cubic metres per day (approximately 5.7 million cubic feet per day) through a 10 mm choke. Management estimates that when placed on permanent operation, the production rates for the well will exceed 100,000 cubic metres per day (3.5 mmcf/d) with condensate of approximately 20 cubic metres (125 barrels) per day.

The Bobrikovskiy sandstone formation is a secondary reservoir in the VM field, lying above the main Evlansko-Livenskiy carbonate reservoir. No C1 recoverable reserves are currently attributed to this reservoir, although the potential reserve additions are expected to be modest. However, the workover of the #30 well provides Volga Gas with a low cost addition to production capacity.

On completion of the upgrade to the Dobrinskoye gas plant, the three wells on the VM field will be brought into production.

Exploration

Urozhainoye-2 Licence area

Drilling operations on the YR#1 exploration were completed during H1 2012 with no commercial hydrocarbons found. The well has consequently been plugged and abandoned and the costs of the well have been written off. During the period, the Group acquired for a nominal sum the rights to produce from the Sobolevskaya #11 well, an oil discovery drilled by a former licensee. During H2 2012, the Sobolevskaya #11 well is to be worked over with the aim of establishing production.

Pre-Caspian Licence area

During H1 2012 preparations have been made to commence drilling of an exploration well on the Mirnaya prospect. A rig has been mobilized and pending finalization of land access, drilling would commence shortly. The C3 prospective resources in Mirnaya comprise two separate horizons of Jurassic and Triassic age which contain cumulatively unrisked resources of 54 mmbbl of recoverable oil plus 26 bcf of associated gas. These resources are within a depth of 1,220 metres. The well is estimated to cost approximately $2.0 million.

Financial Review

Results of Operations

For the six months ended 30 June 2012 the Group recorded turnover of US$13.3 million (H1 2011: US$14.0 million) and a gross profit of US$6.1 million (H1 2011: US$7.4 million).

After exploration expenses of US$7.4 million (H1 2011 $0.02 million), relating principally to the unsuccessful exploration well on the Urozhainoye-2 licence, and administrative expenses of US$3.4 million (H1 2011: US$2.9 million) there was an operating loss of US$4.6 million (H1 2011: net operating profit US$4.4 million). After foreign exchange losses of US$0.4 million (H1 2011 foreign exchange loss of US$1.4 million) the loss before tax was US$5.0 million (H1 2011: profit before tax of US$3.0 million). In H1 2012 there was a deferred tax provision of US$0.6 million (H1 2011 US$0.1 million). EBITDA, calculated as operating income before exploration expense, depletion and depreciation was US$4.3 million (H1 2011: US$5.3 million).

Oil and condensate sales are made respectively at the field facilities and the gas plant and are sold to domestic customers. Net sales prices achieved during the six months to 30 June 2012 increased moderately. Average realizations for the six months to 30 June 2012 were US$47.96 per barrel of oil and condensate sold (H1 2011: US$46.06 per barrel). For the six months to 30 June 2012, Mineral Extraction Taxes accounted for 29.6% of revenues (H1 2011: 32.6%) while the production costs were 12.7% of revenues (H1 2011: 8.4%) and the Depletion and Depreciation charge was 11.4% of revenues (H1 2011: 6.0%).

Cash inflow from operating activities before working capital movements in H1 2012 was US$2.8 million (H1 2011: $3.8 million) after making repayments of loans by offset of gas sales of US$1.2 million (H1 2011: US$ 1.7 million).

Sales are recorded net of VAT; however VAT receipts on sales may be retained while each Group company recovers accumulated VAT on past capital expenditure. In addition MET liabilities are also available for offset against accumulated VAT. The remaining amount of as yet unrecovered VAT are recorded on the Group Balance Sheet in Other Non-current assets and Other receivables, depending on whether they are expected to take more than 12 months to recover. Included in the accounts payable as of 30 June 2012 is approximately US$3.2 million of VAT which is in dispute with the tax authorities. It is expected that this payable will be recovered and an equivalent sum has been included in Other receivables.

Capital Expenditure

For the six months ended 30 June 2012, the Group incurred capital expenditures of US$5.8 million (H1 2011: US$1.6 million). The majority of capital expenditure in H1 2012 was incurred on the upgrade project on the Dobrinskoye gas plant, drilling of a sidetrack on the Dobrinskoye well #22 and completion of drilling the Yuzhny Romanovskaya #1 exploration well in the Urozhinoye licence area

Borrowings

As at 30 June 2012, the Group had total borrowings outstanding of US$10.0 million (31 December 2011: US$4.2 million). During the six months ended 30 June 2012, the Group made a final repayment of loans due to Trans Nafta of US$3.3 million and drew US$10.0 million of borrowings under its bank facility.

Cash Position

The Group's cash balances at 30 June 2012 were US$13.3 million (31 December 2011: US$10.1 million). The increase in cash is primarily due to the full drawdown under the bank facility offset by, the repayment of debts owed by GND to its former owner Trans Nafta, and capital expenditure.

Outlook

During July and August 2012, production averaged 1,966 boepd with strong performance from the Uzen oil field offset by intermittent gas production at Dobrinskoye while the gas plant upgrade was reaching its final stages. The Group anticipates that when the plant recommences full time operation by the end of September, oil, gas and condensate production capacity will remain stable at rates of between 2,700 and 2,800 bopd for the remainder of 2012.

For the second half of 2012, the Group's capital expenditure is expected to be between US$5.0 and US$7.0 million. The key projects include further stages of the gas plant upgrade, the sidetrack of well #26 on Dobrinskoye and a shallow exploration well on the Pre-Caspian Licence Area.

The Group is now poised to benefit from the efforts expended and investment made in the Vostochny Makarovskoye field which should start contributing to revenues and cash flow imminently. This lays a foundation for sustainable production and cash flow which provides a strong platform for future growth. A key priority for the Group now is to secure opportunities to grow the Group's asset base by selective value-accretive acquisition.

On 28 August 2012, following press speculation, the Company announced that one of its group companies has received clearance from the Russian Federal Antimonopoly Service ("FAS") to purchase two Russian companies with oil exploration and production licences in the Khanty-Mansiysk region of Western Siberia. This clearance was sought as an initial part of a transaction process which is still under negotiation. There remains at this stage no certainty a potential transaction will occur. Volga Gas will update shareholders on this potential transaction and provide further information as appropriate, in due course.

Principle Risks and Uncertainties

The risks described on pages 10-11 of the 2011 Annual Report and in Note 3 - Financial Risk Management, a copy of which can be obtained from www.volgagas.com, remain extant.

Forward-Looking Statements

Certain statements in this interim report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

VOLGA GAS plc

IFRS CONSOLIDATED INTERIM FINANCIAL INFORMATION

(UNAUDITED)

AS OF AND FOR THE SIX MONTHS ENDED 30 JUNE 2012

Group Interim Income Statement (Unaudited)

(presented in US$000, except for profit per ordinary share and number of shares)

Group Interim Statement of Comprehensive Expenses (Unaudited)

(presented in US$000)

The accompanying notes are an integral part of this condensed consolidated interim financial information.

Group Balance Sheet (Unaudited)

(presented in US$000)

The accompanying notes are an integral part of this condensed consolidated interim financial information.

Group Interim Cash Flow Statement (Unaudited)

(presented in US$000)

The accompanying notes are an integral part of this condensed consolidated interim financial information.

Group Interim Statement of Changes in Equity(Unaudited)

(presented in US$000)

The accompanying notes are an integral part of this condensed consolidated interim financial information.

Notes to the IFRS Consolidated Interim Financial Statements(Unaudited)

(presented in US$000 unless otherwise stated)

1. General information

Volga Gas plc (hereinafter referred to as "Company" or "Volga") is a public liability company registered in England and Wales with registered number 05886534 and quoted on the AIM market of London Stock Exchange plc. The principal activities of the Company and its subsidiaries (hereinafter jointly referred to as the "Group") are the acquisition, exploration and development of hydrocarbon assets and production of hydrocarbons in the Volga Region of the Russian Federation. The Company's registered office is at Ground Floor, 17-19 Rochester Row, London SW1P 1QT. This condensed consolidated interim financial information was approved for issue on 17 September 2012.

2. Basis of presentation

This condensed consolidated interim financial information for the half-year ended 30 June 2012 has been prepared in accordance with IAS 34, 'Interim financial reporting'. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2011, which have been prepared in accordance with IFRSs as adopted by the European Union.

Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Financial Position and performance of the group since the last annual consolidated financial statements.

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2011 were approved by the board of directors on 10 April 2012 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

Going-concern basis The group meets its day-to-day working capital requirements through its cash resources. After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its consolidated interim financial statements.

Exchange rates. The official rate of exchange of the Russian ruble to the US dollar ("USD") at 30 June 2012 and 31 December 2011 was 32.82 and 32.20 Russian rubles to USD 1.00, respectively. Any re-measurement of Russian ruble amounts to US dollars or any other currency should not be construed as a representation that such Russian ruble amounts have been, could be, or will in the future be converted into other currencies at these exchange rates.

Taxation. Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2010, as described in those annual financial statements. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

Segmental reporting follows the Group's internal reporting structure. The operations of the Group comprise one class of business, being oil and gas exploration, development and production and the Group operates in only one geographic area - the Russian Federation.

3. Accounting policies

The principal accounting policies and methods of computation followed by the Group are consistent with those disclosed in the consolidated financial statements for the year ended 31 December 2011.

4. COST OF SALES

Cost of sales is analysed as follows:

5. GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses are analysed as follows:

6. OTHER INCOME, NET

7. PROPERTY PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

8. BORROWINGS

The short term and long term debt outstanding as at 30 June 2012 are respectively the current and long term portions of repayments due under the Group's debt facility which was drawn down during H1 2012.

9. CONTINGENCIES AND COMMITMENTS

The Group has a commitment to drill one well on the Pre-Caspian Licence Area. The Group plans to commence drilling the latter well before the end of 2012. Management expects the remaining cost of meeting the commitments to be approximately US$2.0 million.

10. SUBSEQUENT EVENTS

There were no material events beyond the normal course of business in the period since 30 June 2012.

11. RELATED PARTY TRANSACTIONS

The Group is controlled by Baring Vostok Private Equity Fund III and Baring Vostok Private Equity Fund IV, which own 58.66% of the Company's shares as at 30 June 2012. Baring Vostok Private Equity Funds III and IV perform their control through a number of nominee holding companies. The remaining 41.34% of the shares are widely held.

Related party transactions are disclosed in Note 22 to the accounts for the year ended 31 December 2011. There were no material related party transactions in the six months to 30 June 2012.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors confirm that this consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

·; an indication of important events that have occurred during the first six months and their impact on the set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·; material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The directors of Volga Gas plc are listed in the Volga Gas plc Annual Report for 31 December 2011.

By order of the Board