Update re: Trans Nafta legal process

24 November 2010

VOLGA GAS PLC

("Volga Gas" or the "Company"),

Update re: Trans Nafta legal process

Highlights

·; Volga Gas moves towards completing the purchase of 75% interest in the gas processing unit, following an appeal court ruling

·; Production through gas processing unit closer to realisation following successful extended test production on the Company's Vostochny Makarovskoye field

Volga Gas the oil and gas exploration and production group operating in the Volga Region of European Russia, is providing an update on the legal proceedings initiated by its wholly-owned subsidiary, OOO Gaznefteservice ("GNS"), against OOO Gazneftedobycha ("GND"), a subsidiary of ZAO Trans Nafta ("TN").

On 4 March 2010, Volga Gas announced that GNS had signed an agreement to purchase a 75% interest in a gas processing unit ("the GPU Interest") which was intended to process gas and condensate from GNS's Vostochny Makarovskoye field (the "VM Field").

After GND failed to expedite registration and completion of this agreement, GNS initiated legal proceedings in May 2010 to recover from GND a sum of RUR 600 million (approximately US$ 20 million) plus interest accrued since November 2008. The sum of RUR 600 million, which Volga Gas was seeking to recover, was originally paid by GNS to GND as a prepayment for the acquisition of the GPU Interest.

On 23 August 2010, an initial judgment by the Moscow Arbitration Court ordered GND to pay to GNS a sum of RUR 640 million.

At a recent appeal hearing, GND changed its legal stand claiming that the 600mln Rub were kept in fact as per February 2010 agreement which was signed but not registered. GND has separately applied to the Volgograd court to order the registration of the same agreement.

The appeal judge considered that the sale and purchase agreement related to the GPU Interest is valid and the purchase by GNS should be completed. Consequently the order against GND to pay GNS was rescinded and GNS expects to move towards completion of the purchase of the 75% interest in the GPU.

In 2007 and early 2008 construction was commenced of a suitably scaled processing facility for the VM Field but was put on hold in November 2008. Certain parts (H2S processing unit) of this facility will need to be relocated to the GPU site and further upgrades undertaken to the GPU to enable production to commence from the VM Field. Meanwhile, as announced on 5 November 2010, GNS has undertaken successful extended test production of the VM#1 and VM#2 wells which moves production nearer.

Mikhail Ivanov, Chief Executive of Volga Gas commented:

"We are pleased to be reaching a conclusion of the legal process and that we can finally proceed towards completing the purchase of the GPU Interest as we sought to in March 2010. The delays to the VM Field development caused by this protracted dispute have been a matter of great frustration to Volga Gas. We hope now for a timely completion of the purchase of the GPU Interest and to move towards the start of production from the VM Field."

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Editors' notes:

Volga Gas is an independent oil and gas exploration and production company operating in the Volga region of European Russia. The company has 100% interests in its four 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 March 2006. 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.

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