Volga Gas

Volga Gas is boosting production, moving fast towards profitability and hopes to double reserves in two years.

Focused on the Volga region of European Russia, the London-based company saw turnover soar 30-fold to $3.4m in the first half of this year, which brought continuous production from the Uzenskoye oil field in its Karpenskiy licence area. This helped AIM-quoted Volga Gas slash interim losses from $5m to $215,000 and chief financial officer Tony Alves says he would be surprised if the company did not issue ‘a positive income statement’ for the full year.

Chief executive officer Mikhail Ivanov says he expects production, which averaged 1,050 barrels a day in the first half year but ended it at 1,600 barrels a day, to reach 2,000 barrels a day during the second half. He anticipates Volga’s Vostochny-Makarovskoye field to start producing early next year, after some plant delays, and argues it could generate cash flow of between $25m and $30m next year.

Drilling began recently at Grafovskaya, the first deep ‘sub-salt’ well in the Yuzhny Ershovskoye project in the Karpenskiy licence. Volga Gas claims proven and probable reserves of 68.4m barrels of oil equivalent and suggests ‘that could be doubled in two years’.

After raising $27m (£16.6m) at a fiercely discounted 61.4p a share in June, the company says its rising production is ‘generating more cash than we can consume’. Floated at £3 in 2005, Volga Gas shares crumbled to 32p when a Moscow oil trader challenged the company’s right to the Vostochny-Makarovskoye project, but have been rallying since this challenge failed.

Highlighted by Growth Company Investor last November at 90p, they have now reached 177p. Despite country and commodity risks, they have scope to go further.