Companies: VGAS   

Volga Gas expects a further pay zone increase at one Russian prospect, Vostochny-Makarovskoye, and a reserve boost at another, Karpensky.

The AIM-quoted company, backed by investment group Baring Vostok, recently encountered a gross pay zone of more than 100 metres at Vostochny-Makarovskoye and now hopes new drilling results will indicate it is ‘significantly bigger’ than that. Chief executive officer Mikhail Ivanov and chief finance officer Alistair Stobie have already indicated that gas reserves in the most probable, 2P, category should more than double from the present 254.3 billion cubic feet, confirming estimates of a net present value of at least £140 million, and suggest there could be more to come.

Volga says it is on track to start production at Vostochny-Makarovskoye in the fourth quarter of this year. Next year, the London-headquartered company intends to separate much higher-priced butane and propane from the gas and argues that this project will generate £50 million annual pre-tax cash flow from 2010 or 2011, helped by Russia’s present programme of price liberalisation.

Karpensky is already producing modestly and Volga should receive new data on gas reserves from deep drilling there in the summer. The company says a recently signed off-take deal for10 billion cubic feet a year implies a 250 billion cubic feet field.

Volga expects to boost capital expenditure by £10 million and is looking at fresh prospects to buy. However, it says that, with £45 million cash, it will not need to tap the stock market, unless a tempting corporate acquisition appears. Despite police raids on BP’s Russian partner, the company says that, if you stick to the rules, Russia is still a good place to do business.

Highlighted by Growth Company Investor at 305p last May, Volga Gas hit 425p earlier this month and now trades at 387p, valuing the company at £208 million. Further drilling cheer could revive stock market progress.

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Volga Gas	AIM	£25.93m	48.00p	-5.25p
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Other company articles:
Green light for Volga Gas			13/11/2008
Exploration Insights			31/03/2008
Reserve hopes at Volga Gas			31/03/2008
Asset hopes at Volga Gas			20/03/2008
Pay zone cheer for Volga Gas			07/02/2008