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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Where we operate Dobrinskoye Urozhainoye-2 Dobrinskoye Source: Incotec Source: Incotec 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 of 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 of 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 of 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 Oil & Gas LPG Total Condensate (bcf) (tonne '000) (mmboe) (mmbbl) 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. 6

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 operations  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. * Management estimate as at 31 December 2015. Source – as per Miller & Lents reserve report of 1 August 2012, less subsequent production 9

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 15 th April - Drilling rig & equipment installation in April Spud date – 29 th 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 SHALLOW OIL TARGETS UZENSKOYE • Discovered in 2007/8 • Developed 2008/9 • Produced > 2 mmbbls Source: Wood Mackenzie 11

Geology Strategy 1. Karpenskiy Geology study project - Karpenskiy site 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 Lukashevskoe 3. Evaluation of potential resources: Lukashevskoe site, North-Starshinovskoe; North-Starshinovskoe Results – Apr - 2017. 12

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