Volga Gas plc FINAL RESULTS 2016 Andrey Zozulya, CEO April 2017 - - PowerPoint PPT Presentation

Volga Gas plc FINAL RESULTS 2016

Andrey Zozulya, CEO April 2017

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Disclaimer

1

Where we operate

Source: Incotec Source: Incotec

Urozhainoye-2 Dobrinskoye

Dobrinskoye

2

Business overview

Production

• Gas & condensate production in two fields: Vostochny Makarovskoye (“VM”) and Dobrinskoye
• Oil production from the Uzenskoye field increased in May 2016 after successful workovers increased production

from ~300 bpd to ~800 bpd.

• 2016 average production increased 99% to 6,524 boe/d (2015: 3,278 boe/d)
• Exports of condensate prevented local market conditions from impacting sales/production as experienced during H1

2015

• Increased gas production in 2H 2016 to up to 1,000 mcm/d and achieved production of over 8,000 boepd by the end
• f the year

Gas Processing Plant

• Increased throughput by to 1000 mcm/d (35.3 mmcf/d) in 2H 2016 and sustained since then – bar maintenance

downtimes.

• Testing of lower cost gas sweetening processes with potential for significant operating cost savings and elimination
• f the need to dispose of bulky waste materials.
• Plans to construct LPG facility at the plant during mid-2017. Long lead items already ordered.

Field development

• VM field development drilling completed in 2015 and well capacity is in place to deliver planned plateau production
• f 1,000 mcm/d (35.3 mmcf/d) gas plus 2,000 bpd of condensate (total of 8,000 boepd).
• Uzen field shallower reserves to be developed with horizontal well drilling, in 2Q 2017
• Workovers and maintenance to optimise long term extraction of the resources

3

Strategy

Strategy

• Establish planned plateau production rate of 8,000 boepd from VM/Dobrinskoye fields
• Significant increase in oil production from the Uzen field
• Future development potential for oil resources in the Karpenskiy licence area
• Expansion of activities into new areas with strong value growth opportunities
• Maintenance of strong financial condition.

4

Financial overview of 2016

• Revenue up 122% US$39.4 million (2015: US$17.8 million)
• Higher production and sales volumes assisted by recovery in oil prices and RUR
• Exports of condensate accounting for 48% of condensate sales.
• Netback revenues (after selling costs) up 102% to US$35.3m (2015: US$17.5m)
• EBITDA US$9.6 million (2015 : US$0.9 million)
• Operating costs were 28% of revenues (2015: 41%)
• Mineral Extraction Taxes were 26% of revenues (2015: 33%)
• Selling expenses (export taxes and transport) were 10% of revenues (2015: n/a)
• Pre-tax profit of US$1.9 million (2015: loss of US$4.6 million)
• DD&A of US$5 million (2015: US$2.3 million) driven by higher production
• Additional expense of US$1.7m (2015: US$3.0m) primarily cost of logging tools lost down a stuck hole.
• Exploration expense of US$0.2 million (2015: US$0.6m ) – remaining expenses on 2015 exploration well
• Net cash flow from operations of US$13.3 million (2015: US$1.2 million)
• Cash generation before working capital movements reflecting EBITDA
• Positive working capital movement of US$2.9m (2015: US$0.7m) due to prepayments from export sales
• Net cash US$15.8 million at 31 Dec 2016 (31 Dec 2015 : US$6.8 million). Net of US$4.0m borrowing drawn in

December 2016

• Recommencing dividend payments
• Total dividend of US$0.062/share proposed (US$5.0m dividend in total) (2015: nil)

5

Updated Reserve Report

6

Oil & Condensate (mmbbl) Gas (bcf) LPG (tonne '000) Total (mmboe) Proved Reserves Dobrinskoye 0.48 6.5

• 1.56

VM 4.069 92 277 22.657 Uzenskoye 6.087

• 6.087

Sobolevskoye 0.315

• 0.315

Total 10.951 98.5 277 30.619 2P Reserves Dobrinskoye 0.702 9.7

• 2.322

VM 5.049 121.8 367 29.658 Uzenskoye 6.087

• 6.087

Sobolevskoye 0.315

• 0.315

Total 12.153 131.5 367 38.382

Reserve estimates as at 31 December 2016 independently assessed by OOO Geostream Assets Management.

Vostochny–Makarovskoye gas/condensate field

• Five production wells drilled, completed and hooked up to the Dobrinskoye gas plant, 5 km from

the field site

• Productive capacity of over 8,000 boe/d
• Final well (VM#3) was completed in June 2016
• 2015 drilling completed the field development
• Current well stock estimated to deliver > 1.0 mmcm/d (35.3 mmcf/d) of gas to fill the gas plant
• Sufficient to access all reserves in the field

VM field site office VM#4 wellhead and flow line installation Drilling rig on VM#3

7

Dobrinskoye gas plant

Gas Processing Unit used to process gas from the VM and Dobrinskoye fields

• Originally constructed solely for the Dobrinskoye field, the GPU has been upgraded to process the

gas from VM and to increase its throughput capacity

• Established 35 mmcf/d physical capacity: increase in condensate storage and other minor upgrades

expected to be completed shortly

• Testing of Redox-based gas sweetening continuing
• Results to date are encouraging
• Potential for significant cost reduction in gas sweetening costs with minimal changes to existing plant configuration
• Eliminates the need to handle chemical waste products
• Construction of LPG plant
• Capture of propane/butane flared from condensate stabilisation or included in sales gas stream
• Low capex cost (US$4.0m budget),

8

Oil production from shallow supra-salt fields

UZENSKOYE FIELD

• Produced over 2 million barrels to date
• Current production capacity 800 bopd – doubled since 1 January 2016 with successful workover
• perations
• Shallower (Albian) reservoir to be developed with horizontal wells
• First horizontal well to be drilled in 2Q 2017
• Aim to increase production to the range of 1,500 to 2,000 bpd.

9

* Management estimate as at 31 December 2015. Source – as per Miller & Lents reserve report of 1 August 2012, less subsequent production

Uzen Drilling Activity

Well 101 – Horizontal Albian:

• Well-site prepared
• Necessary equipment purchased (pipes,

screens, wellhead etc.)

• Mobilization delayed due to early spring

roads, expected to complete by 15th April

• Drilling rig & equipment installation in April
• Spud date – 29th April
• Expected drilling – 41 days / 2669m
• Estimated cost of US$3m, ex-VAT

10

Exploration: Karpenskiy Licence

YUZHNY ERSHOVSKOYE

• Grafovskaya#1 sub-salt

exploration well drilled and tested.

• Non-commercial

hydrocarbon shows YUZHNY MOKROUSOVSKOYE

• Novaya supra- and intra-salt

prospect.

• C3 Prospective

Resources of 189 mmboe UZENSKOYE

• Discovered in 2007/8
• Developed 2008/9
• Produced > 2 mmbbls

Source: Wood Mackenzie

11 SHALLOW OIL TARGETS

Geology Strategy

12

• 1. Karpenskiy Geology study project -

Feb-Apr 2017

• 2. Seismic re-interpretation 2D - 2614 km:

1 phase - 1127, 9 km - Mar-Dec 2017; 2 phase - 1486,1 km - Jul-17 – Jun-18

• 3. Evaluation of potential resources:

Lukashevskoe site, North-Starshinovskoe; Results – Apr - 2017.

Karpenskiy site

North-Starshinovskoe Lukashevskoe

Monthly average production rates Jan 2015 – Feb 2017 (boepd)

13

Monthly revenues and cash margins (Jan 2015 – Feb 2107)

Monthly revenue by product (US$ 000) Monthly revenue and cash margins (US$ 000)

14

Summary and Outlook

Upstream development of VM gas field is completed

• Current wells expected to sustain production of 1.0 million m3/day plus condensate.
• Sufficient wells to effectively drain the known reserves in the field
• Condensate export sales mitigate risk of regional domestic market constraints

Gas Processing Plant

• Operating sustainably at 1000 mmcm/d (35.3 mmcf/d)
• Testing of Redox gas sweetening
• Potential cost savings on chemicals consumption by using regenrarable reagents
• Significant reduction/elimination of waste products
• Increased condensate storage capacity and other
• LPG project in construction mid-2017 => further significant increase in revenues and in profit margin expected

Future oil exploration and development potential in the Karpenskiy licence area

• Workovers on existing wells during H1 2016 revived production capacity back up to ~800 bpd from ~400 bpd
• Horizontal well development of undeveloped shallower Albian reservoir to start in 2Q 2017
• Geological studies to generate an inventory of high impact exploratory prospects to provide future reserves and production

15

Summary and Outlook

Finance

• Higher production, assisted by exports of condensate, enabled a significant recovery in profits and cash flow compared to 2015
• Basis set for continued improvement in financial performance
• Cash balance increased to US$19.7 million by 31 December (net cash US$15.8m) and has increased further subsequently
• Return to dividend distributions

Current trading and outlook

• Production during 1Q 2017 averaged >8,000 boepd
• Financial performance in US$ driven by oil prices, RUR rates and Mineral Extraction Taxes
• Expect to increase production with oil development and LPG capture

16

Key share data

Debt – $3.9 as at 31 December 2016 Cash – $19.8 million as at 30 June 2016 VGAS share price, UK p 12 month min 32p | max 61p | at 31/03/17 54p Shares in issue: 81,017,800 Market capitalisation: £44m www.volgagas.com

VGAS share price chart

Source: London Stock Exchange

Major shareholders (as disclosed)

Baring Vostok Private Equity Funds III & IV 58.66% Nicholas Mathys 13.10% Baring Vostok Investments PCC Ltd 5.93% Blackrock Investment Management 3.81% JP Morgan Asset Management 3.41% BNP Paribas Investment Partners 3.37% Management/Directors 2.20%

17

18

Glossary and technical information

GLOSSARY

• bbl

barrel

• bopd

barrels of oil per day

• bpd

barrels per day

• boepd or boe/d

barrels of oil equivalent per day, in which 6,000 cubic feet of natural gas is equated to one barrel of oil

• LPG

liquid petroleum gases

• mcm/d

thousands of cubic metres per day

• mmcf/d

millions of standard cubic feet per day OIL, GAS AND CONDENSATE RESERVES

• There has been no external reassessment of reserves subsequent to the Miller and Lents reserve study of 2012.
• The reserves and production numbers herein exclude all volumes related to the Sobolevskoye field which was not included in

the Miller and Lents reserve study of 2012. The numbers for Sobolevskoye are estimated by management not to be material in the context of Group reserves.

• The above reserve estimates, prepared in accordance with reserve definitions prepared by the Oil and Gas Reserves

Committee of the SPE, have been reviewed and verified by Mr. Mikhail Ivanov, Chairman of Volga Gas plc, for the purposes

• f 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.