Volga Gas plc Annual Report and Accounts 2008
Volga Gas plc
Annual Report  
and Accounts
2008
Volga Gas plc
Ground Floor 
17–19 Rochester Row 
London SW1P 1QT
www.volgagas.com Meeting the challenge.
Delivering value.
Volga Gas plc is an independent oil and gas 
exploration and production company with 
four exploration and production licences in the 
Volga region of Russia. Since IPO we have 
focused successfully on executing our plans 
and delivering on our objectives.
Where are our 
assets located?
 page 2
How are we 
executing our 
strategy?
 page 7
Our key financial 
performance
 page 12
What assets do we 
have and how do 
we plan to grow 
them?
 page 3
Production and 
development focus
 page 9
How is the Russian 
gas market 
developing?
 page 5
Our management 
team
 page 11
Operations photography by Tony Alves  
Board of Directors photography by Simon Jarratt 1
Volga Gas plc
Annual Report and Accounts 2008
Highlights of 2008
•  Full time production commenced from the  
supra-salt oil field in the Karpenskiy Licence Area 
(‘KLA’)
•  Three new producing oil wells successfully 
completed and in production
•  First phase of development drilling on the  
Vostochny-Makarovskoye (‘V-M’) gas/condensate 
field completed. T wo out of three wells tested at 
commercial rates
•  Resolution of threatened legal action on V-M
•  Combined Russian classification C1/C2 reserves of 
7 .2 bcm (230 bcf) of gas and 26.2 million barrels of 
liquids on Uzenskaya and V-M
•  Completed interpretation of 3-D seismic on the 
Yuzhny-Ershovskoye (‘Y -E’) and Yuzhny-
Mokrousovskoye (‘Y -M’) sub-salt prospects in KLA
•  Rig on location available to commence drilling the 
first sub-salt well during 2009
•  Cash balance of US$23 million at year end  
and no debt
Production 
from the shallow oil 
reservoirs
Development 
first phase of drilling 
completed on V-M
Exploration 
seismic evaluation of 
sub-salt prospects 
completed
Review of the year
Highlights of 2008 1
A Year of Progress 2
Chairman’s Statement 4
Chief Executive’s Review 6
Operational Review 8
Financial Review 12
Risk Factors 14
Governance and accounts
Board of Directors 16
Corporate Governance Statement 18
Report of the Directors 21
Directors’ Remuneration Report 24
Accounts
Independent Auditors’ Report 26
Group Balance Sheet 27
Company Balance Sheet 28
Group Income Statement 29
Group Cash Flow Statement 30
Company Cash Flow Statement 31
Group Statement of Changes in  
Shareholders’ Equity 32
Company Statement of Changes in 
Shareholders’ Equity 33
Notes to the IFRS Consolidated Financial 
Statements 34
Notice of Meeting 54
Glossary of Technical Terms 56
Russian Classification of Reserves 57
Corporate Directory 58 Urozhainoye-2
Karpenskiy
Pre-Caspian
Vostochny-Makarovskoye
RUSSIA
Moscow
Volga Gas plc
Annual Report and Accounts 2008 2
Successful exploration 
and development drilling 
on Uzenskaya and 
completion of the first 
phase of drilling on V-M 
enable the Company to 
aspire to produce 
sufficient oil and gas to 
generate positive cash 
flows towards the end of 
2009. Meanwhile we move 
closer towards testing the 
high impact exploration 
prospects that lie in the 
sub-salt layers in the 
Karpenskiy Licence Area 
and the Pre-Caspian 
Licence Area.
A Year of Progress
Our assets are located in a proven 
area with large oil and gas fields.  
The area benefits from the existing 
rail, road and pipeline infrastructure 
and proximity to Russia’s main 
energy markets.
Licence overview
1. Karpenskiy Licence Area: sub-salt
Covering 4,180 km
2
 in the Saratov region 
of European Russia, the northern part  
of the Karpenskiy Licence Area has  
two identified sub-salt structures, 
Yuzhny-Ershovskoye and Yuzhny-
Mokrousovskoye, which have been  
the subject of both seismic and  
drilling studies.
2. Karpenskiy Licence Area: supra-salt
The southern end of the Karpenskiy 
Licence Area contains a number of 
identified supra-salt structures,  
including the previously-discovered 
Starshinovskoye field. The Uzenskaya 
field was discovered by the Company  
in 2007 .
3. V-M Licence Area
The V-M Licence Area, which covers 18 
km
2
, is located in the Volgograd region of 
European Russia. The V-M field is 
currently in development.
4. Pre-Caspian Licence Area
The licence was awarded at a government 
auction in October 2006. The Pre-Caspian 
Licence covers 1,437 km
2
 and is 
approximately 50 km from the 
Karpenskiy Licence Area.
5. Urozhainoye-2 Licence Area
The licence was awarded at a government 
auction in September 2007. The licence covers 
354 km
2 
and is located approximately 15 km 
north of the Company’s Karpenskiy Licence 
Area. There is one well on the field, currently 
suspended, which flowed at 1,200  
bbls/day of oil on test production. The 
Company has acquired 350 km of 2-D seismic. 3
Volga Gas plc
Annual Report and Accounts 2008
2008 progress 2009 objectives
Volga has 100% interest in two Russian companies:  
Pre-Caspian Gas Company (‘PGK’) and Gaznefteservis (‘GNS’)  
which hold four licences to explore for and produce oil and gas  
in the Volga region.
Completed processing of 3-D seismic 
data on the Yuzhny-Ershovskoye and 
Yuzhny-Mokrousovskoye prospects.
Well location selected: Grafovskaya on 
Yuzhny-Ershovskoye.
Rig contract secured, rig mobilised 
onto location.
Drilled three successful production 
Wells on the Uzenskaya field in 2008.
Constructed oil preparation facilities.
Commenced full time production late 
in 2008.
Russian C1/C2 reserves approved.
First phase development drilling 
completed.
Surface infrastructure construction 
well advanced.
Agreement with Trans Nafta to form a 
gas processing joint venture.
The Russian C1/C2 reserves approved.
Completed acquisition of 1,000 km of 
2-D seismic data.
Processing and interpretation 
commenced.
Large sub-salt exploration structure 
identified.
Completed acquisition, processing and 
interpretation of 340 km
 
of 2-D seismic.
C3 resources of 56 bcm of gas and  
8 million tonnes of condensate  
(390 mmBOE) assigned to Yuzhny-
Ershovskoye by well passport.
Spud first deep exploration well on 
Yuzhny-Ershovskoye.
Drill at least two more development 
wells in the Uzenskaya field.
Drill three exploration wells on 
identified structures.
Further upgrade of facilities  
as required.
Commence production from an initial 
two wells.
Conduct dynamic modelling based  
on well performance to determine 
ultimate recovery potential from 
the field.
Acquisition, processing and 
interpretation of 3-D seismic data over 
the initial exploration prospect.
Preparation for exploration drilling 
in 2010.
Acquire well #11 and re-start limited 
production. Volga Gas plc
Annual Report and Accounts 2008 4
Chairman’s Statement
Volga Gas is distinctive for operating entirely in 
European Russia, close to domestic markets and 
with pipeline and logistical infrastructure nearby. 
Our four licence blocks encompass proven oil, gas 
and condensate in shallow and medium depth 
horizons and major gas and condensate exploration 
targets in deep sub-salt horizons. At the start of 2008 
it was our intention to advance our exploration and 
development projects with a view to achieving near 
term production and to move towards the drilling of 
our deep high impact exploration targets.
Throughout 2008 we made good progress 
towards meeting these key objectives. But 
we have also had to meet some serious 
challenges in the course of the year. Firstly, 
we faced a potential law suit seeking to 
unwind our purchase of the V-M field. 
However, as announced on 12th November 
2008, the court case was withdrawn and 
we reached a resolution agreement with 
Trans Nafta which is more extensively 
described in the Operating Review. 
Secondly, and more seriously in the short 
term, the global economic downturn and 
the associated sharp falls in commodity 
prices have made for a difficult 
environment for all oil and gas companies 
and also for the Russian economy.
The sharp decline in the Ruble exchange 
rate against the US dollar has set back the 
progress of achieving netback parity in 
regulated domestic gas prices. To the best 
of our knowledge the policy of 25% per 
annum increases in Ruble denominated 
gas prices remains in place. In the short 
term, the economic downturn in Russia 
will have impacted both the demand and 
prices paid in the unregulated gas 
market. Similarly, domestic economic 
conditions have also impacted the 
demand and pricing of crude oil in Russia.
Volga Gas, however, is well placed to 
withstand these challenges. Our fields are 
advantageously located and our costs  
are sufficiently low for us to achieve 
acceptable returns even at very low oil and 
gas prices. We will be able to complete the 
development of our production projects to 
benefit immediately from an eventual 
recovery in oil and gas prices. Most 
importantly, we have the necessary capital 
to fulfil our current licence commitments.
Key achievements for the Company in 
2008 include 100% success with our 
development drilling of the supra-salt 
wells on the Uzenskaya oil field in the 
Karpenskiy Licence Area (‘KLA’) and  
two successful wells on the V-M gas-
condensate field. We have commenced 
full-time production from Uzenskaya and 
hope to follow suit at V-M during 2009. 
These fields should enable the Company 
to achieve the important milestone of 
financial self-sustainability before the  
end of 2009.
Volga Gas was originally created to 
explore the sub-salt structures on the 
KLA. Not only are we excited by the 
potential of the two structures, Yuzhny-
Ershovskoye (‘Y-E’) and Yuzhny-
Mokrousovskoye (‘Y-M’), but our initial 
evaluation of the sub-salt potential in the 
nearby Pre-Caspian Licence Area is 
showing equally compelling prospectivity. 5
Volga Gas plc
Annual Report and Accounts 2008
Of course, we need to turn our potential 
into results. During 2008 we have laid the 
foundations for the drilling of our first 
sub-salt well. Interpretation of the 3-D 
seismic data over the two main prospects 
in the Karpenskiy Licence Area was 
completed and we have identified a 
location (Grafovskaya) on which we plan 
to drill an exploration well on the Y-E 
prospect. Furthermore, we have secured a 
suitable rig for this well and have received 
the necessary official consents for the 
well (‘Passport’). On the Pre-Caspian 
Licence, we have acquired and interpreted 
2-D seismic and are seeing some highly 
interesting results.
We started 2009 with a cash balance of 
US$23.1 million and so are well positioned 
to fund our development work 
programme. However, if we were to 
accelerate the drilling of our sub-salt 
exploration well, the Company would 
require additional funding.
Finally, we pay tribute to the hard work 
and dedication of the small team of 
employees who have worked tirelessly 
throughout the year to deliver the 
impressive results which we are now able 
to report. I would like to thank them for 
their hard work. The end of 2008 saw the 
departure of our Chief Financial Officer, 
Alistair Stobie. We thank him for his hard 
work and welcome his successor, Tony 
Alves to the Company. Tony has been 
closely involved with Volga Gas from an 
early stage and has the experience to 
carry on Alistair’s good work.
Alexey V. Kalinin
Chairman
The Russian  
gas market
Supply and demand
Gazprom’s major producing fields  
have either reached peak production  
or are already suffering from declining 
production. At the same time, demand 
for Russian gas, both domestically  
and from Western Europe, already 
exceeds supply. Aggregate domestic  
and international demand for Russian 
gas in 2007 was approximately 707 bcm, 
which exceeded Gazprom’s production 
of approximately 548 bcm and  
exceeded total Russian production of 
approximately 640 bcm, as a result of 
which Gazprom had to purchase and 
transit gas from Central Asia in order  
to meet its supply commitments.
This gas supply deficit is unlikely  
to abate, and could widen, in the 
medium term. The next major fields 
being developed by Gazprom, such  
as the Barents Sea Shtockman field,  
are technologically challenging. 
Gazprom may not be able to bring  
them into production, as previously 
scheduled in 2011 and current 
expectations are for 2014 at the earliest. 
Meanwhile, aggregate domestic and 
international demand for Russian gas, 
notwithstanding current economic 
uncertainties, is expected to remain 
robust and growing in the long term.
Prices
The gas supply deficit has led to a 
significant premium in unregulated 
domestic prices for Russian gas, with 
independent producers achieving prices 
20% above regulated tariffs. In 2008 
regulated prices increased by 25% and 
are set to rise by 16% in 2009. We expect 
further increases in the regulated price 
for natural gas as part of the Russian 
government’s efforts to liberalise the 
price of natural gas on the Russian 
domestic market. The Federal Tariff 
Service will continue to approve the 
effective increase on an annual basis 
although it reserves the right, based on 
market conditions and other factors, to 
modify the percentages published as 
well as potentially prolong the timetable 
toward market price liberalisation, 
which when formulated in 2006 was 
envisaged in 2011. Volga Gas plc
Annual Report and Accounts 2008 6
Chief Executive’s Review
The focus for Volga Gas in 2008 was on 
advancing our key exploration and 
production projects; firstly, to ensure that 
production, and hence cash flow, begins 
from the V-M field and from the supra-salt 
Uzenskaya field in the Karpenskiy Licence 
Area (‘KLA ’); secondly, to complete the 
geological studies on the two deep sub-salt 
structures on the KLA, and to prepare for 
the drilling of our first sub-salt exploration 
well there.
We have also had to deal with a serious 
legal challenge, a resolution of which has 
been agreed, and a sudden and sharp 
deterioration of the external business 
environment. We are confident that we 
can withstand these challenges and have 
made good progress in creating a 
profitable and self-sustaining business, 
while in parallel pursuing the high impact 
exploration ventures which were the 
original motivation for the foundation of 
the Company.
During 2008, the majority of the activity 
and investment was concentrated on 
developing our production assets.
Drilling on Uzenskaya delivered better 
than anticipated results, confirming  
a high quality light oil resource. As a  
result of this drilling activity, as recently 
announced, we were able to record 
Russian classification C1 and C2 
recoverable reserves on Uzenskaya  
of 1.9 million tonnes (approximately 
13.9 million barrels). During 2008 we 
completed three production wells on  
this field and each of these flowed at  
rates of between 2,220 and over 4,000 
barrels of oil per day on open hole tests, 
demonstrating very good reservoir 
characteristics. We intend to manage  
the production from this reservoir very 
carefully to ensure maximum recovery  
of the oil in place.
On V-M, our initial results were extremely 
encouraging. As reported in the 2007 
Annual Report, we found a gross gas-
condensate column of close to 200 m  
in the V-M #1 well. This well tested at 
commercial flow rates and led to a Russian 
reserve C1/C2 classification of 7 .141 bcm 
plus 1.528 million tonnes (12.2 million 
barrels) of condensate which was 
approved by the State Committee for 
Mineral Resources in November 2008.  
We also commenced the construction of 
the required gas processing facility for the 
first stage of production with the aim of 
starting production before the end of 2008.
During the year, however, there was a 
legal challenge raised by a shareholder  
of Trans Nafta, the company from which 
we purchased the V-M licence, seeking  
to have our purchase unwound. This 
threatened legal action was later 
withdrawn and we entered into a 
resolution agreement with Trans Nafta 
involving the creation of a gas processing 
joint venture in which Volga Gas will have 
a 75% interest. The establishment of this 
joint venture will require a balancing 
payment by Volga Gas substantially 
covered by a prepayment of 600 million 
Rubles (approximately US$20.4 million) 
made by Volga Gas in November 2008. 
Final details of the structure of the joint 
venture and legal completion of the asset 
transfer are still being negotiated.  21%
Oil 
18%
Condensate 
           
61%
Gas
Volga
Gas
7
Volga Gas plc
Annual Report and Accounts 2008
The threatened legal action obviously set 
back our plans for first production from 
V-M. First production from the field is 
awaiting completion of construction and 
commissioning of the Dobrinskoye gas 
plant, which is the main asset in the gas 
processing joint venture and through 
which our gas and condensate production 
will flow. We are now hoping to achieve 
first production early in the second half 
of 2009.
Meanwhile we drilled two further wells 
on V-M with mixed results as we detailed 
in recent announcements. We will cover 
this more extensively in the Operational 
Review below, but in summary we 
recognise that there is some risk that 
reserve estimates for the field may be 
subject to future revision. We intend to 
re-examine the technical data on the field 
and incorporate new data from an 
extended period of production from the 
existing wells in order to provide a new 
estimate of recoverable gas and 
condensate reserves by the end of 2009.
Our deep sub-salt exploration projects, 
both in the KLA and in the Pre-Caspian 
Licence Area are as exciting as ever. 
During 2008 we completed processing of 
the new 3-D seismic data that we 
acquired in 2007 over the two main 
exploration prospects identified in the 
KLA. This has refined our picture of the 
potential targets and, we believe, has 
reduced the geological risk associated 
with the prospects. Based on this data we 
have selected a location to drill our first 
well. We have also secured and mobilised 
a suitable rig to drill a 5,000 m sub-salt 
well, although as yet we have not made a 
firm commitment to start drilling.
In the Pre-Caspian Licence Area, analysis 
of the 1,000 km of 2-D seismic data, which 
we acquired during 2008, has confirmed a 
large exploration target in the sub-salt 
play. We now propose to shoot 3-D 
seismic over this structure with the aim 
of facilitating an exploration well within 
the next twelve months.
As a result of this activity we now have a 
total of six productive wells on our two 
fields and expect to add further 
production wells in the course of 2009. 
Based on current plans and assuming no 
exploration success, Volga Gas should by 
the end of 2009 achieve daily production 
of 300,000 m
3
 (approximately 12 million 
cubic feet per day) of gas and 2,000 barrels 
per day of oil and condensate.
Naturally, the revenue and cash flow 
deriving from this production will largely 
depend on the price we realise for our oil, 
condensate and gas sales. In common 
with the rest of the industry, domestic oil 
prices in Russia are currently depressed. 
In the Russian gas market the increases  
in regulated gas prices continue but the 
sharp devaluation of the Ruble against  
the US dollar has led us to expect lower 
US dollar realisations for our short-term 
gas production. Nevertheless, we are 
endeavouring to keep our costs low in 
order to achieve profitability and to be 
able to benefit from a future recovery in 
prices. Meanwhile, lower levels of activity 
in the oil industry and the weak Ruble 
have some beneficial impacts on the costs 
of our ongoing exploration and 
development activities.
We now have Russian C1 Recoverable 
reserves of 43.2 mmBOE and a further  
25.0 million barrels equivalent of C2 
Recoverable reserves contained in just 
two fields. Our C3 Prospective Resources, 
based on just one of the three sizeable 
sub-salt prospects we have mapped 
within our licence blocks, are 
394 mmBOE. This solid base of reserves 
and resources gives us confidence that  
we can continue to build Volga Gas into  
a successful and profitable independent 
exploration and production company  
and to create sustainable value for  
our shareholders.
Volga Gas has a culture of delivering on 
commitments with a small team of 
professionals working smartly. This 
culture will help us meet the challenges 
ahead. The coming year promises to be a 
challenging but exciting one for the team. 
I am confident that they will continue to 
deliver results on schedule and on budget.
Mikhail Ivanov
Chief Executive Officer
Executing our 
strategy
1. Developing our production assets
With greater than anticipated success 
on Uzenskaya, to which we hope to add 
new wells on Vostochny Uzenskaya and 
first production from V-M, Volga Gas 
looks forward to developing a growing 
and sustainable production business 
from its existing licence areas.
2. Exploration of the deep sub-salt 
structures
We have completed the required 
sub-surface work ahead of drilling  
our first sub-salt well Grafovskaya #1,  
in the KLA, and have already secured 
and mobilised a suitable rig for the 
purpose. We intend to commence 
drilling once we are confident of our 
financial position. We are similarly 
progressing with our exploration  
project in the Pre-Caspian Licence Area.
3. Financing
Our existing funds are sufficient  
to meet our current commitments.  
We recognise that timely execution  
of our exploration strategy may require 
additional funds or the creation of joint 
ventures with other parties.
4. Acquisitions
Our acquisition strategy has enabled 
the Company to be secure an asset  
base of four licences with low entry 
cost. We continue to seek further 
similar opportunities where we can 
rapidly add value and, where possible, 
incremental production volumes.
C1/C2 reserves Volga Gas plc
Annual Report and Accounts 2008 8
Operational Review
The Company’s two principal areas of focus 
in 2008 were: exploration activities on two 
major sub-salt prospects in the Karpenskiy 
Licence Area (‘KLA ’), development of the 
Uzenskaya supra-salt oil field, also in the 
KLA, and development of the V-M gas-
condensate field.
Operations overview
We have now completed processing of •	
the 3-D seismic over the KLA and have 
secured a rig to start drilling our first 
sub-salt exploration well in 2009. 
At Uzenskaya we already have four •	
productive wells and expect to add 
further producing wells in the course  
of 2009. 
On the V-M field, two successful •	
development wells have been drilled 
and construction of the gas processing 
plant is near completion.
In addition, we have acquired and 
interpreted 2-D seismic over the 
Pre-Caspian Licence Area where we  
also see exciting sub-salt prospects.
KLA
Early in 2008 we amended the terms of 
the Karpenskiy Licence Agreement, 
thereby curing certain licence breaches 
the Company inherited when it acquired 
the licence from a LUKoil subsidiary. The 
amended licence agreement requires the 
Company to finalise the acquisition of 
400 km
2
 of 3-D seismic and drill a further 
ten exploration or production wells over 
the next two years. We have already 
fulfilled our seismic obligations. The 
ongoing supra-salt drilling programme, 
which will also add to our current 
production, is expected to fulfil the 
remaining drilling commitments before 
the end of 2009. 9
Volga Gas plc
Annual Report and Accounts 2008
Sub-salt
The Company acquired 107 km
2
 and 
160 km
2
 of 3-D seismic respectively over 
the Yuzhny-Ershovskoye (‘Y-E’) and 
Yuzhny-Mokrousovskoye (‘Y-M’) 
structures during 2007 . We completed 
processing and interpretation of this data 
during 2008. Based on this information, 
the location for the first well (Grafovskaya 
#1) has been identified and the drilling 
passport issued. Russian category C3 
reserves of 42 bcm of gas (247 mmBOE) 
and 48 million barrels of condensate  
and 14 bcm of gas (81.2 mmBOE) and 
15.6 million barrels of condensate have 
been identified in two separate structures 
within the Y-E prospect.
The Evrasia rig has been constructed  
on the site of Grafovskaya #1. In order  
to accelerate drilling of this well,  
the Company will need to raise  
additional funding.
Supra-salt
Following on from the successful 
exploration well on Uzenskaya #1, the 
Company continued drilling on the 
adjacent South Uzenskaya structure, 
completing two successful wells in 2008 
and drilling a third well which was 
completed after the year end. Each of 
these wells flowed light (45˚ API) oil from  
a high quality cretaceous sandstone 
reservoir. The flow rates recorded from 
open hole testing on each ranged from 
2,220 to 4,600 barrels per day.
We have constructed surface 
infrastructure, including a separator unit, 
storage tanks and gas fired generator 
utilising associated gas. Full time 
production has commenced with each of 
the wells producing on average between 
350 and 400 barrels of oil per day per well, 
with a 6 mm choke. Given the reservoir 
characteristics and the strong apparent 
natural water drive, these production 
rates are expected to be maintained for 
several years.
Russian category C1 and C2 recoverable 
reserves on the Yuzhny Uzenskaya field 
have recently been approved by the State 
Committee for Reserves of 13.9 mmbbl.
The Uzenskaya field has as yet no SPE 
standard reserves associated with it. 
The estimation of reserves under SPE 
standards will be undertaken after 
completion of the current drilling 
programme.
We have concluded operations on 
Uzenskaya #6. As announced on 30 
March, the main target reservoir was  
not present in the well. The well has  
been suspended.
Ongoing drilling activity in the area 
includes an exploration well, Uzenskaya 
#7, currently being drilled on the 
Vostochny Uzenskaya prospect, 
approximately 7 km east of the existing 
field facility. Should this be successful, we 
plan to drill Uzenskaya #9, 10 and 11 on 
the Vostochny Uzenskaya structure after 
completing Uzenskaya #8 which will be a 
development well on the Yuzhny 
Uzenskaya field.
V-M Licence Area
The Company undertook its first phase 
drilling programme on the V-M field 
during 2008 and commenced construction 
of a gas processing facility for the field.
The V-M #1 well was completed early in 
2008. As we reported in the 2007 Annual 
Report, this well encountered a 
significantly larger gas column than 
previously expected, exceeding 200 m in 
total. A series of open hole tests carried 
out over a 160 m interval resulted in a 
cumulative flow rate of 267 mcm/d 
(approximately 9.4 mmcf/d) of gas plus 215 
tonnes per day (approximately 1,763 b/d) 
of condensate.
Focused on 
production
V-M and Uzenskaya
Cash flow
Growing production from 
Uzenskaya and the start of 
V-M will lead to meaningful 
cash flow which will support 
the Group’s activities on its 
other licence areas.
Drilling programme
First phase drilling on V-M  
is completed. Current drilling 
is focused principally on our 
2009 programme of seven 
supra-salt wells that may  
add materially to reserves  
in addition to driving 
production growth.
Uzenskaya well flow rates
  Flow rates 
Well Announced m
3
/d bbl/d
Uzenskaya #3 September 2008 353 2,220 open hole test
Uzenskaya #4 December 2008 95 600 cased hole, 6 mm choke
Uzenskaya #5 February 2009 731 4,608 open hole test Volga Gas plc
Annual Report and Accounts 2008 10
The Company subsequently drilled two 
further wells on the field, V-M #2 and 
V-M #4. We decided to change the order of 
drilling, and well V-M #3 will be drilled 
later. The V-M #2 well also tested gas in the 
Evlano-Livenskiy layer. When cased  
and perforated the well initially  
produced formation water. The well was 
subsequently repaired. On a further initial 
test, the well flowed at a rate of 190 mcm/d 
of gas plus 320 b/d of condensate from  
a 30 m perforated interval with a 
12 mm choke.
The V-M #4 well was spudded in 
November 2008 and completed early in 
February 2009. The result of this well was 
unexpectedly disappointing. It was drilled 
on the southern portion of the field close 
to the edge of the probable reserve limits. 
V-M #4 found gas and condensate on an 
open hole test at a depth of 2,746–2,755 m 
in the Evlano-Livenskiy formation. 
Net pay measured in the well was 
substantially less than anticipated. 
Although it is capable of production, the 
Company has decided to suspend the well 
with the option in the future, pending an 
evaluation of the data, of sidetracking the 
well to a potentially more favourable 
bottom hole location.
Any impact of this well result on gas and 
condensate reserves in the V-M field has 
yet to be estimated.
In November 2008, Russian category C1 
and C2 recoverable reserves were 
calculated following the results of well 
V-M #1 and approved by State Committee 
for Reserves.
The current plan for the field is to 
commence production from the first two 
wells which will enable a dynamic 
modelling of the field’s productive 
capacity and ultimate potential recovery. 
In the interim, the Company plans not to 
make any changes to reserve estimates. 
Production is expected to commence 
shortly after commissioning of the gas 
processing plant, which is anticipated 
before the end of H1 2009.
Court proceedings and gas processing 
joint venture
As we announced in August 2008, a claim 
was filed in July 2008 against our 100% 
owned subsidiary, Woodhurst Holdings 
(‘Woodhurst’), and Trans Nafta. The 
claim, which was filed by Alexander 
Alexandrovich Kulyaev, a minority 
shareholder in Trans Nafta, in the 
Moscow Arbitration Court, sought to 
invalidate the agreement (‘the Sale 
Agreement’) pursuant to which 
Gaznefteservis (‘GNS’), the holder of the 
V-M licence, was sold by Trans Nafta to 
Woodhurst in September 2006  
(‘the Moscow Proceedings’).
The basis of the claim was that Trans 
Nafta had not obtained the necessary 
corporate approvals to sell GNS to 
Woodhurst. Woodhurst responded by 
commencing proceedings in the High 
Court in London seeking an injunction  
to restrain the Moscow Proceedings. 
Woodhurst also commenced an 
arbitration in London seeking a 
declaration as to the validity of the Sale 
Agreement and seeking damages against 
Trans Nafta for breach of warranty in the 
event that the Sale Agreement were 
declared invalid by the Moscow 
Arbitration Court (together, ‘the UK 
Proceedings’). The parties subsequently 
arrived at a resolution pursuant to which, 
inter alia, the Moscow Proceedings and 
the UK Proceedings were withdrawn in 
November 2008.
As part of the resolution between the 
parties, Volga Gas and Trans Nafta agreed 
Operational Review continued
Group oil and gas reserves and resources
  Recoverable reserves  Resources
 C1 C2 C1/C2 C3
V-M
Natural gas (bcm) 4.661 2.480 7 .141
Condensate (mmT) 1.043 0.485 1.528
Total (mmBOE) 35.844 18.512 54.356
Yuzhny-Uzenskaya (Karpenskiy Licence, supra-salt) 
Crude oil (mmT) 0.983 0.886 1.869
Total (mmBOE) 7 .373 6.510 13.883
Yuzhny-Ershovskoye prospect (Karpenskiy Licence, sub-salt)
Natural gas (bcm)    56.0
Condensate (mmT)    8.0
Total (mmBOE)    394.0
  Recoverable reserves  Resources
All licences C1 C2 C1/C2 C3
Gas (bcm) 4.7 2.5 7 .1 56.0
Condensate (mmT) 1.0 0.5 1.5 8.0
Crude oil (mmT) 1.0 0.9 1.9 0.0
Total (mmBOE) 43.2 25.0 68.4 394.0
Conversion factors used: 1 bcm natural gas = 5.9 mmBOE, I tonne condensate = 8.0 BOE; 1 tonne crude oil = 7.5 BOE 
A B C1 C2 and C3 are official Russian classifications as approved by the State Committee for Reserves    11
Volga Gas plc
Annual Report and Accounts 2008
to combine their Gas Processing Units 
(‘GPUs’) and form a Russian Company 
owned through a 75:25 split. Trans Nafta’s 
GPU is already connected to the Gazprom 
pipeline network. Volga Gas will be able to 
begin selling its gas and condensate as 
soon as its existing wells are tied in to 
the GPU.
The combined facility will have sufficient 
capacity to process quantities of gas and 
condensate previously contemplated by 
Phase 1 and Phase 2 of V-M’s development. 
Initially the GPU will be dedicated to 
processing gas and condensate produced 
from the V-M field and from Trans Nafta’s 
Dobrisnkoye gas field.
In accordance with this agreement, the 
Company made a prepayment to Trans 
Nafta of RUR 600 million (approximately 
US$20 million) in November 2008. This 
prepayment substantially covers the 
estimated balancing payment that would 
fall due to 75% of the cost of constructing 
the GPU. The final operational framework 
for the joint venture and the legal transfer 
of the GPU assets to the joint venture have 
yet to be concluded. Legal closure is 
conditional, inter alia, on the plant being 
formally commissioned by 30th 
September 2009. Should this not be 
achieved within that timeframe, the 
Company has the right to unwind the 
joint venture and to seek recovery of its 
RUR 600 million pre-payment with 
accrued interest.
Pre-Caspian Licence Area
The Pre-Caspian Licence Area has no 
reserves associated with it. To date a total 
of 1,000 km of 2-D seismic has been 
acquired. Processing and interpretation is 
under way. Initial results have revealed a 
very large sub-salt structure in a 
geological setting similar to the sub-salt 
prospects in the KLA.
The licence terms require a further 
500 km to be acquired. We may propose to 
the licensing authorities an exchange of 
our remaining 2-D seismic commitment 
for 78 km
2 
of 3-D seismic data over the 
identified prospect. The cost of forward 
seismic programme is expected to be 
similar in either case.
The results of this seismic will be 
processed and interpreted during 2009 
and will provide a basis for eventual 
exploration drilling.
Urozhainoye-2
On 7 September 2007 the Company 
acquired Urozhainoye-2 at a government 
mandated auction for approximately 
US$1.7 million. The licence area covers 
354 km
2 
and is located approximately 
15 km to the north of the Company’s KLA 
and is in close proximity with up to 30 oil, 
gas and condensate fields.
The licence area is principally an 
exploration asset. Notwithstanding this, 
the licence area has had one well drilled 
on it in 1990 which discovered the 
Sobolevskoye field which has Russian C1 
recoverable reserves of 800,000 barrels of 
oil. The well produced at 1,200 barrels per 
day of oil and 1.9 mmcf/d of gas with an 
8 mm choke on test production.
During 2008 we acquired 350 km of 2-D 
seismic, fulfilling our seismic 
commitment on the licence. Processing 
and interpretation is ongoing.
Mikhail Ivanov
Chief Executive Officer
Experienced 
Russian and 
Western 
management
Meeting the challenge  
and delivering value
Volga Gas has an experienced 
management team which  
has the diverse and 
complementary skills and 
local market knowledge 
required to manage and 
develop an oil and gas 
exploration and production 
company in Russia.
Volga Gas has a culture of 
delivering on commitments 
with a small team of 
professionals working 
smartly. This culture will 
help us meet the challenges 
ahead. The coming year 
promises to be a challenging 
but exciting one for the team. Volga Gas plc
Annual Report and Accounts 2008 12
Financial Review
During 2008 our operations were primarily 
in an exploration and development phase. 
The Group recorded a loss of US$10.3 million 
for the year ended 31 December 2008 (2007: 
loss US$2.6 million). No dividends have been 
paid or proposed for the year (2007: none).
Results for the year
The Group generated US$0.6 million in 
turnover from the sale of 24,545 barrels of 
crude oil. An additional 1,770 barrels of 
crude oil were held in inventory as of the 
balance sheet date. Crude oil sales were 
made into the domestic market during 
the period.
The operating loss for the year was 
US$12.8 million (2007: US$8.4 million) 
which includes exploration expenses of 
US$5.6 million (2007: nil) and 
administrative expenses of US$7.8 million 
(2007: US$8.4 million). Included in the 
latter were expenses of US$2.3 million 
relating to the legal issues on V-M and in 
charges relating to share-based payments 
of US$1.1 million (2007: US$3.9 million).
The Group recognised a loss before tax of 
US$10.1 million (2007: loss US$2.8 million) 
and after tax loss of US$10.3 million (2007: 
loss US$2.6 million). This includes net 
gains on foreign exchange contracts of 
US$1.3 million (2007: US$3.5 million).
Cash flow
Group net cash outflow from operating 
activities was US$15.9 million (2007: 
US$5.1 million), including US$5.6 million 
of exploration expenses and US$6 million 
of prepayments for equipment and 
services relating to the Group’s 
exploration and development activities. 
The remainder of cash outflow consisted 
principally of general and administrative 
expenses incurred to run the Group’s 
operations as well as expenditure relating 
to the resolution of the V-M legal issues.
 Year ended Year ended 
 31 December 31 December 
 2008 2007
Turnover 0.6 0.0
Loss for the period (10.3) (2.6)
Net cash outflow from operating activities (15.9) (5.1)
Net cash used in investing activities (55.7) (12.9)
Net cash at the end of the period 23.1 97.5
Financial summary 13
Volga Gas plc
Annual Report and Accounts 2008
Capital expenditure
During 2008 a total of US$48.5 million was 
invested in capital expenditure on the 
Group’s licence areas including 
acquisitions (2007: US$12.9 million) as 
detailed below.
The most significant individual 
components of the capital expenditure 
were US$16.1 million on the V-M field, 
including drilling and plant construction. 
In addition, US$6.4 million was expended 
on development drilling and field facilities 
for the Uzenskaya oil field.
Security deposit on acquisition of fixed 
assets comprises the US$20.4 million of 
prepayment to Trans Nafta relating to the 
gas processing joint venture.
Balance sheet and financing
As at 31 December 2008, the Group held 
cash balances of US$23.1 million (2007: 
US$97 .5 million) and remains debt free.
The Group intends to fund its operating 
expenditures using a combination of cash 
flow from operations and cash-on-hand. 
The Group will also consider raising 
additional capital to more fully explore 
and develop its asset base.
The Group is currently capable of 
producing approximately 1,200 barrels of 
oil per day from three producing wells in 
the Uzenskaya field. The Group’s 
production is being sold on the domestic 
crude oil markets.
The Group’s financial statements are 
presented on a going concern basis.
Issue of share capital
During the year to 31 December 2008, the 
Company issued a total of 393,852 shares 
at par value in accordance with Restricted 
Share Agreements with Mikhail Ivanov, 
Chief Executive Officer of the Company 
and Alistair Stobie, at that time the Chief 
Financial Officer of the Company.
During the year to 31 December 2007 ,  
the Company issued 22.9 million  
shares, generating US$125.1 million  
in net proceeds.
Tony Alves
Chief Financial Officer
 2008 2007 
 (US$ million) (US$ million)
Oil and gas exploration assets 0.3 3.1
Oil and gas exploration assets (work in progress) 2.1 3.4
Development and producing assets 25.5 5.8
Real estate assets 0.2 0.5
Other 0.0 0.1
Security deposit on acquisition of fixed assets 20.4 0.0
Total 48.5 12.9
Capital expenditure summary Volga Gas plc
Annual Report and Accounts 2008 14
The Group is subject to various risks 
relating to political, economic, legal, 
social, industry, business and  
financial conditions.
The following risk factors, which are not 
exhaustive, are particularly relevant to 
the Group’s business activities:
Volatility of prices for oil and gas
The supply, demand and prices for oil  
and gas are volatile and are influenced  
by factors beyond the Group’s control. 
These factors include global demand  
and supply, exchange rates, interest  
and inflation rates and political events.  
A significant prolonged decline in oil  
and gas prices could impact the viability 
of some of the Group’s exploration 
activities. Additionally, production  
from geographically isolated countries 
may be sold at a discount to current 
market prices.
Substantially all of the Group’s revenues 
and cash flows will come from the sale of 
oil and gas. If oil and gas prices should fall 
below and remain below the Group’s cost 
of production for any sustained period, 
the Group may experience losses and may 
be forced to curtail or suspend some or all 
of the Group’s production, at the time 
such conditions exist. In addition, the 
Group would also have to assess the 
economic impact of low oil and gas prices 
on the Group’s ability to recover any 
losses the Group may incur during that 
period and on the Group’s ability to 
maintain adequate reserves.
The Group does not currently hedge its 
crude oil production to reduce its 
exposure to oil price volatility.
Exploration risk
Whilst the Group will seek to apply the 
latest technology to assess exploration 
licences, the exploration for, and 
development of, hydrocarbons is 
speculative and involves a high degree of 
risk. These risks include the uncertainty 
that the Group will discover sufficient oil 
or gas resources to exploit the discovered 
resource.
Environmental risk
The oil and gas industry is subject to 
environmental hazards, such as oil spills, 
gas leaks, ruptures and discharges of 
petroleum products and hazardous 
substances. These environmental hazards 
could expose the Group to material 
liabilities for property damages, personal 
injuries, or other environmental harm, 
including costs of investigating and 
remediating contaminated properties.
The Group is subject to stringent 
environmental laws in Russia with 
regards to its oil and gas operations. 
Failure to comply with such laws and 
regulations could subject the Group to 
material administrative, civil, or criminal 
penalties or other liabilities. Additionally, 
compliance with these laws may, from 
time to time, result in increased costs to 
the Group’s operations, impact 
production, or increase the costs of 
potential acquisitions.
In particular, the Group’s exploration 
activities in the northern end of the 
Karpenskiy Licence Area are conducted 
close to a protected nature area and the 
natural habitat of the Otis Tarda (Great 
Bustard), a rare and endangered bird 
species protected by Russian 
environmental law. The Group liaises 
closely with the Federal Service of 
Environmental, Technological and 
Nuclear Resources of the Saratov Oblast 
and conducts environmental studies both 
as required by, and in addition to, its 
licence obligations to mitigate any 
specific risk.
The Group did not incur any material 
costs relating to the compliance with 
environmental laws during the period.
Risk of operating oil and gas properties
The oil and gas business involves certain 
operating hazards, such as well blowouts, 
cratering, explosions, uncontrollable 
flows of oil, gas or well fluids, fires, 
pollution and releases of toxic substances. 
Any of these operating hazards could 
cause serious injuries, fatalities, or 
property damage, which could expose the 
Group to liabilities. The settlement of 
these liabilities could materially impact 
the funds available for the exploration 
and development of the Group’s oil and 
gas properties. The Group maintains 
insurance against many potential losses 
and liabilities arising from its operations 
in accordance with customary industry 
practices, but the Group’s insurance 
coverage cannot protect it against all 
operational risks.
Foreign currency risk
The Group’s capital expenditures are 
predominantly in Rubles and its operating 
costs in both US dollars and Rubles. 
Turnover is in Rubles and funding has 
been raised in US dollars.
Any changes in the relative exchange 
rates among US dollars and Rubles could 
positively or negatively affect the Group’s 
results. The Group has sought to mitigate 
exchange risk by a) entering in to a 
number of non-deliverable forward 
contracts with the Royal Bank of Scotland 
which allow the Group to match its cash 
holdings with expected capital 
expenditures whilst maintaining its cash 
balances with highly-rated institutions 
and b) holding significant Ruble  
cash balances.
Business in Russia
Amongst the risks that face the Group in 
conducting business and operations in 
Russia are:
Economic instability, including in other •	
countries or the global economy that 
could lead to consequences such as 
hyperinflation, currency fluctuations 
and a decline in per capita income in 
the Russian economy.
Governmental and political instability •	
that could disrupt, delay or curtail 
economic and regulatory reform, 
increase centralised authority or result 
in nationalisations.
Social instability from any ethnic, •	
religious, historical or other divisions 
that could lead to a rise in nationalism, 
social disturbances or conflict.
Uncertainties in the developing legal •	
and regulatory environment, including, 
but not limited to, conflicting laws, 
decrees and regulations applicable  
to the oil and gas industry and  
foreign investment.
Unlawful or arbitrary action against  •	
the Group and its interests by the 
regulatory authorities, including the 
suspension or revocation of their oil  
or gas contracts, licences or permits  
or preferential treatment of  
their competitors.
Lack of independence and experience  •	
of the judiciary, difficulty in enforcing 
court or arbitration decisions  
and governmental discretion in 
enforcing claims.
Expected changes to the federal and •	
local tax systems.
Laws restricting foreign investment  •	
in the oil and gas industry.
Legal systems
Russia, and other countries in which the 
issuer may transact business in the 
future, have or may have legal systems 
that are less well developed than that in 
the United Kingdom. This could result in 
risks such as:
Potential difficulties in obtaining •	
effective legal redress in the court  
of such jurisdictions, whether in 
respect of a breach of contract,  
law or regulation, including an 
ownership dispute.
A higher degree of discretion on the •	
part of governmental authorities.
Risk Factors 15
Volga Gas plc
Annual Report and Accounts 2008
The lack of judicial or administrative •	
guidance on interpreting applicable 
rules and regulations.
Inconsistencies or conflicts between •	
and within various laws, regulations, 
decrees, orders and resolutions.
Relative inexperience of the judiciary •	
and courts in such matters.
In certain jurisdictions, the commitment of 
local business people, government officials 
and agencies and the judicial system to 
abide by legal requirements and negotiated 
agreements may be more uncertain, creating 
particular concerns with respect to licences 
and agreements for business. These may be 
susceptible to revision or cancellation and 
legal redress may be uncertain or delayed. 
There can be no assurance that joint 
ventures, licences, licence applications or 
other legal arrangements will not be 
adversely affected by the jurisdictions in 
which the Group operates.
Liquidity risk
At 31 December 2008 the Group has 
US$23.1 million of cash and cash 
equivalents available to fund its ongoing 
operations and associated exploration and 
development activities. At 31 December 
2008 the Group has committed capital 
expenditure of US$12.0 million relating  
to licence obligations on the Karpinskiy, 
Pre-Caspian Licence Areas and completion 
of the V-M field development.
Through its ordinary course activities 
however, the Group is exposed to 
operational and development risk that 
could delay cash generation from 
operations or may require additional 
capital investment that could place 
increased burden on the Group’s available 
cash resources.
The Group has evaluated the current 
exploration and development plan for  
the Karpinskiy, Pre-Caspian and V-M 
Licence Areas and has identified a 
number of measures that can be taken  
to preserve cash and secure additional 
funding if necessary. These measures 
include, where practicable, deferral of 
discretionary capital expenditures until 
such time as sufficient cash flow from 
operations has been generated in order to 
fund these expenditures and the potential 
farmout of interests in one or more of its 
exploration licences by way of a joint 
venture type arrangement.
Based on management’s projections  
the Directors believe the Group has 
sufficient cash to fund its remaining 
licence commitments related to 
exploration activity on the Karpenskiy 
and Pre-Caspian Licence Areas, to 
complete the development of the V-M 
Licence Area and to satisfy all expenditure 
related to administrative and operating 
expenses through calendar year 2009.
If the Group does not generate sufficient 
liquidity to fund its expenditures, the 
Group’s ability to execute its long-term 
growth strategy could be significantly 
affected. In addition, adjustments to the 
Group income statement may be required 
to record additional liabilities and to write 
down assets to their recoverable amounts.
The Group’s discretionary exploration 
drilling activities on the sub-salt 
structures on the Karpenskiy and 
Pre-Caspian Licence Areas may require 
additional funding. Furthermore, should 
these activities lead to one or more 
discoveries, the Group will require 
significant further funds to appraise  
and develop these licence areas.
Tony Alves
Chief Financial Officer Volga Gas plc
Annual Report and Accounts 2008 16
Board of Directors
Alexey Kalinin
Non-executive Chairman
Alexey Kalinin is a Co-Managing Partner of Baring Vostok Capital Partners. He 
joined Baring Vostok in 1999 from Alfa Capital, where he served for six years as 
the Director of the Department for Direct Investments. Alexei represents the 
interests of Baring Vostok’s funds on the Board of Directors of a wide range of 
portfolio companies. He has a doctorate from the Moscow Power Engineering 
Institute, where he conducted scientific research, lectured for twelve years and 
served as the Director of the Youth Center for Scientific and Technical Creativity. 
Mr Kalinin is 49 years old.
Mikhail Ivanov
Chief Executive Officer, Executive Director
Mikhail Ivanov was Director of Oil and Gas Investments at Baring Vostok. Mr Ivanov 
has over 15 years’ experience in the oil and gas industry which includes ten years 
working for the Schlumberger Group, beginning his career with Schlumberger 
Limited as a Field Engineer in Siberian Russia. During his time with Schlumberger 
he assumed various management and technical positions in Russia, the USA and 
the United Kingdom. He was responsible for Schlumberger’s operations in Iran, 
Georgia and Azerbaijan. He is the co-founder of a number of successful venture 
companies. Mr Ivanov holds an MS degree in Geophysics from Novosibirsk State 
University and an MBA from the Kellogg School of Management of Northwestern 
University. He is an elected member of SPE. Mr Ivanov is 39 years old.
Tony Alves
Chief Financial Officer, Executive Director (appointed 12th January 2009)
Tony Alves has had experience with the independent oil and gas industry for over 
20 years as one of the leading equity analysts covering the sector. Prior to joining 
Volga Gas, he was head of oil and gas research for KBC Peel Hunt and was closely 
involved with the company’s 2007 IPO. He previously held positions with Investec 
Securities, The Bell Group International and Schroders. He is a Member of the 
Securities Institute and of the Petroleum Exploration Society of Great Britain. 
He read mathematics at Cambridge University between 1977 and 1983 both as an 
undergraduate and a post-graduate research student. Mr Alves is 49 years old. 
He was appointed as Chief Financial Officer and Company Secretary effective 
12 January 2009.
Ronald Freeman
Non-executive Director
Ronald Freeman is a non-executive Board Director of Troika Dialog, (Moscow); 
Severstal (Cherepovets); Polish Telecom (Warsaw). He is also a member of the 
Executive Committee of the Atlantic Council (Washington DC), the International 
Advisory Committee of Columbia Law School (New York); co-chairman of the 
finance committee of the UK-US Fulbright Commission (London). From 1973 to 
1991 and from 1997 until his retirement from Citigroup as co-head of European 
Investment Banking in 2000, he was an investment banker specialising in 
financing and mergers and acquisition for companies in the oil and gas industry 
with Salomon Brothers, now a unit of Citigroup. From 1991 to 1997 , he was head of 
the Banking Department of the European Bank for Reconstruction and 
Development (London). Prior to that, he practiced law with Baker & McKenzie 
(Paris) and served as a management consultant in the Paris office of McKinsey & 
Company. Mr Freeman was born in New York and has dual US and UK citizenship. 
He has a BA from Lehigh University and an LLB from Columbia Law School (1964). 
He was admitted to the Bar of the State of New York. He is 69 years old. 17
Volga Gas plc
Annual Report and Accounts 2008
Stephen Ogden
Non-executive Director
Stephen Ogden is the Founder and Managing Partner of the First Montenegro 
Stone Property Fund, and the Co-Founder and Managing Partner of the 
Istanbul-based Pera Property Fund. Mr Ogden is Chairman of the Board of Lenta, 
Russia’s largest privately owned food retailer, and was previously a non-executive 
Director of MDM-Print (Russia), United Confectioneries (Russia), Heineken Russia 
and Metropolis Media (former Yugoslavia). He was Chief Financial Officer of the 
Bochkarev Brewery in St. Petersburg from 1997 to 2002. Prior to becoming Chief 
Financial Officer of Bochkarev, Mr Ogden was an auditor with KPMG and 
PricewaterhouseCoopers, and Financial Controller of CS First Boston (Moscow). 
Mr Ogden has a joint honours degree in economics and politics from Durham 
University, England, and is a qualified British chartered accountant (‘FCA’). 
Mr Ogden is active in British politics. He is a former Conservative councillor of 
Altrincham, Cheshire and his name is on the approved list of Conservative 
Parliamentary candidates. Mr Ogden is 41 years old.
Michael Calvey
Non-executive Director
Michael Calvey is a Founder and Co-Managing Partner of Baring Vostok Capital 
Partners in Moscow, and a Director of Baring Private Equity International, a global 
private equity firm headquartered in London. Since 1994 Mr Calvey has co-led the 
investment team managing and has acted as the Chairman of the Investment 
Committee for all of Baring Vostok’s funds. Mr Calvey is currently on the Boards of 
Gallery Media Group, Caspian Bank, Europlan, Etalon and Volga Gas. Prior to 
joining Baring Vostok, Mr Calvey worked at the European Bank for Reconstruction 
and Development where he was responsible for several of the bank’s investments 
in the oil and gas sector in Russia. Prior to his work with the bank, Mr Calvey was 
a member of the oil and gas team at Salomon Brothers Inc in New York on a 
variety of corporate finance and mergers and acquisitions assignments. Mr Calvey 
has a MSc in accounting and finance from the London School of Economics. 
Mr Calvey is 41 years old.
Vladimir Koshcheev
Non-executive Director
Vladimir Koshcheev currently acts as President of Pervaya Investizionno–
Stroitelnaya Company LLC, Spinaker LLC. He has been Chairman of CJSC AKSM 
since 2002. Mr Koshcheev was President of Privolzhskaya Neftyanaya Company 
LLC between 2003 and 2005 and was previously a shareholder in and acted as 
President of Vesla. Mr Koshcheev received a specialist diploma from Moscow State 
Technical University in 1978 and he is a member of the Russian Academy of 
Natural Sciences. Mr Koshcheev is 51 years old.
Alistair Stobie
Chief Financial Officer, Executive Director (resigned 31 December 2008)
Alistair Stobie acted as the Managing Director of Chiron Capital, a merchant 
banking corporate finance boutique from 2004 to 2006. Prior to joining Chiron 
Capital, Mr Stobie acted as the Managing Partner of Mint Capital, a venture capital 
company interested in the Russian telecommunications, media and technology 
sectors, which he founded in 2000. Mr Stobie was a Founding Partner of Baring 
Vostok Capital Partners and acted as a member of the investment management 
team of First NIS Regional Fund since inception in 1994 to 1998. Mr Stobie was 
responsible for identifying, negotiating and monitoring private equity investments 
for Baring Vostok Capital Partners, including the fund’s investment in Burren 
Energy PLC, where he was a Director from 1995 to 1998. He graduated from Keele 
University with a BA in International Relations. Mr Stobie resigned from the Board 
effective 31 December 2008. Volga Gas plc
Annual Report and Accounts 2008 18
Corporate Governance Statement
Introduction
The Board’s overriding objective is to ensure that the Group delivers long-term capital appreciation for its shareholders.
Compliance
Volga Gas plc seeks to comply with the Combined Code on Corporate Governance albeit as an AIM-listed company it is not required to. 
The Board of Directors is committed to developing and applying high standards of corporate governance appropriate to the Company’s 
size and its future prospects.
This statement sets out measures taken by the Board to apply the principles of the Code to the year ended 31 December 2008 and to 
the date of the Directors’ Report.
Board of Directors
Role of the Board
The Board’s role is to provide entrepreneurial leadership to the Group within a framework of prudent and effective controls which  
enables risk to be assessed and managed. The Board sets the Group’s strategic aims and ensures that the necessary financial and 
human resources are in place for the Group to meet its objectives, and reviews management’s performance in meeting these objectives.  
The Board sets and monitors the Group’s values and standards and ensures that the Group’s obligations to shareholders and other 
stakeholders are understood and met.
The Board has a formal schedule of matters reserved for its approval, including;
strategic and policy considerations; •	
annual budget, including capital expenditure; •	
interim and final financial statements; •	
management structure and appointments; •	
mergers, acquisitions, disposals; •	
capital raising; •	
significant changes in accounting policies; and •	
appointment or removal of Directors or the Company Secretary. •	
Board composition
The Board currently comprises two Executive Directors and five non-executive Directors, of whom three are deemed to be independent 
and two non-independent:
Alexey Kalinin – non-executive Chairman •	
Mikhail Ivanov – Executive Director and CEO •	
Alistair Stobie – Executive Director, CFO and Company Secretary (resigned 31 December 2008) •	
Tony Alves – Executive Director, CFO and Company Secretary (appointed 29 January 2009) •	
Ronald Freeman – independent non-executive •	
Stephen Ogden – independent non-executive •	
Vladimir Koshcheev – independent non-executive •	
Michael Calvey – non-executive •	
There is a clear division of responsibilities between the Executive and non-executive Directors.
Board balance and independence
The Board recognises that Messrs Kalinin and Calvey are not independent by virtue of their direct management responsibilities for the 
limited partnerships comprising Baring Vostok Private Equity Fund III, the Company’s controlling shareholder (‘Controlling Shareholder’). 
However, in light of the value, experience and contacts which they afford to the Company at this stage of its development and by virtue of 
the Relationship Agreement, which, inter alia, ensures that the Controlling Shareholder does not exercise undue influence over the 
Company or prevent it from acting independently of the Controlling Shareholder, the Board believes that the continued presence of 
Messrs Kalinin and Calvey on the Board is beneficial for the Company. Mr Kalinin also serves as Chairman of the Board and was not 
considered to be independent on his appointment.
Notwithstanding under the provisions of the Combined Code as a Smaller Company the Company meets the requirements to have at 
least two independent non-executives on the Board.
All Directors are permitted access to independent professional advice in the course of execution of their duties, at the Company’s expense. 19
Volga Gas plc
Annual Report and Accounts 2008
The Board has established the following committees:
Audit Committee
The Audit Committee was appointed in March 2007 and comprises three Directors:
Mr Ogden – Chairman
Mr Freeman
Mr Calvey
The Audit Committee is responsible for selecting the Group’s independent auditors, pre-approving all audit and non-audit related 
services, reviewing with management and the independent auditors the Group’s financial statements, significant accounting and financial 
policies and practices, audit scope and adequacy of internal audit and control systems.
The audit committee meets at least twice each year.
Remuneration Committee
The Remuneration Committee was also appointed in March 2007 and comprises three Directors:
Mr Freeman – Chairman
Mr Ogden
Mr Kalinin
The Remuneration Committee is responsible for determining compensation of the Company’s key employees, including the Chief Executive 
Officer, Chief Financial Officer, and other key personnel as may be determined from time to time by the Remuneration Committee.
The Directors’ remuneration report is set out on pages 24 and 25.
Nomination Committee
The Nomination Committee was appointed in March 2007 and comprises three Directors:
Mr Freeman – Chairman
Mr Ogden
Mr Calvey
The Nomination Committee is responsible for reviewing the structure, size and composition of the Board, making recommendations to 
the Board concerning plans for succession for both Executive and non-executive Directors including the Chief Executive and other senior 
management, preparing a description of the role and capabilities required for a particular appointment and identifying and nominating 
candidates to fill Board positions as and when they arise.
Board meetings
The Board met seven times during the year ended 31 December 2008 with the following attendance:
       2008 2007
Alexey Kalinin       7 7
Mikhail Ivanov       7 7
Alistair Stobie       7 7
Ronald Freeman       7 6
Stephen Ogden       6 7
Vladimir Koshcheev       6 7
Michael Calvey       7 7
Indemnification of Directors
In accordance with the Company’s Articles of Association and to the extent permitted by the law of England and Wales, Directors are 
granted an indemnity from the Company in respect of liabilities incurred as a result of their office. In respect of those matters for which the 
Directors may not be indemnified, the Company maintained a Directors’ and officers’ liability insurance policy throughout the financial 
year. This policy has been renewed for the next financial year.
Re-election of Directors
The Company requires that all Directors stand for re-election at intervals of no more than three years. Accordingly Messrs Kalinin and 
Koshcheev will retire at the forthcoming Annual General Meeting and will seek re-election by shareholders.
Internal controls
The Directors acknowledge their responsibility for the system of internal controls for the Group and for reviewing its effectiveness.  
Any system of internal control can only provide reasonable, and not absolute, assurance that material financial irregularities will be 
detected or that the risk of failure to achieve business objectives is eliminated. Volga Gas plc
Annual Report and Accounts 2008 20
Corporate Governance Statement continued
The Group’s risk and controls framework covers all material risks and controls including those of an operational, financial, and compliance 
nature. Internal control procedures consist, inter alia, of formal delegations of expenditure authority by the Board to executive 
management, and controls relating to key stages of transactions including supplier approval, contract signature, and payment release.
The Directors consider that the frequency of Board meetings and level of detail presented to the Board for its consideration in relation to 
the operations of the Group provide an appropriate process to identify, evaluate and manage significant risks relevant to its operations on 
a continuous basis, and this process is considered to be in accordance with the revised guidance on internal control published in 
October 2005 (‘Turnbull Guidance’).
Investor relations
The Company places considerable importance on communication with shareholders and engages them on a wide range of issues.  
The Group has an ongoing programme of dialogue and meetings between the Executive Directors and institutional investors, fund 
managers and analysts. At these meetings a wide range of relevant issues including strategy, performance, management and governance 
are discussed within the constraints of the information already made public.
The Company is equally interested in the views and concerns of private shareholders and to this end ensures that the Executive Directors 
present the Company at forums where private investors are present.
Shareholders have the opportunity to meet and question the Board at the Annual General Meeting which will be held on 18 June 2009, at 
which the Chairman, the Chairman of the Audit Committee and all Executive Directors will be available.
By order of the Board
Tony Alves
Company Secretary
31 March 2009 21
Volga Gas plc
Annual Report and Accounts 2008
Report of the Directors
The Directors present their report together with the Group’s audited financial statements for the period from 1 January 2008 to  
31 December 2008.
Results and dividend
The Group’s results are set out on pages 27 to 33 and show a net loss of US$10.3 million for the year to 31 December 2008. 
The Directors do not propose to pay a dividend.
Subsequent events
In December 2008 the Company announced the terms of a share option granted in relation to the appointment of Tony Alves as Chief 
Financial Officer effective 12 January 2009. In February 2009 the Company announced disappointing drilling results from the V-M #4 well 
on the V-M field, as described in the Operational Review on pages 8 to 11.
Principal activities, business review and future developments
Volga Gas was incorporated in the United Kingdom on 25 July 2006 and listed on AIM on 25 April 2007. Volga Gas operates primarily 
through subsidiary companies as set out in Note 2.2 to the accounts. The principal activity of the Group is the exploration, development 
and production of its gas, condensate and oil fields in the Volga region of European Russia. The Group owns 100% of four licence areas 
in the Saratov and Volgograd regions: Karpenskiy, V-M, Pre-Caspian and Urozhainoye-2.
The Group’s business strategy is to bring the proven-undeveloped V-M field into production and to grow production on the supra-salt 
Uzenskaya field in the Karpenskiy Licence Area (‘KLA’). whilst at the same time exploring the potentially highly prospective sub-salt 
structures on the KLA and Pre-Caspian licence areas. The Group is also conducting an exploration programme on a number of identified 
supra-salt structures on the KLA and Pre-Caspian Licence area.
Highlights of the Group’s activities for the period ended 31 December 2008 are:
Completed the first phase of development drilling on the V-M field. •	
Commenced construction of a gas processing facility on the V-M licence area. •	
Commenced full time production from the Yuzhny Uzenskaya (‘Y-U’) field on the KLA. •	
Completed processing and interpretation of 260 km •	
2 
of 3-D seismic over the Yuzhny-Ershovskoye (‘Y-E’) and Yuzhny-Mokrousovskoye 
(‘Y-M’) sub-salt structures on the KLA.
Completed the acquisition of 1,000 km of 2-D seismic on the Pre-Caspian Licence Area. •	
Court action threatened by purported shareholder of Trans Nafta was withdrawn. •	
Agreed a gas processing joint venture in the V-M Licence Area in which the Company has a 75% interest. •	
The Group’s activities are described in greater detail in the Chief Executive’s Review on pages 6 and 7 and in the Operational Review on 
pages 8 to 11. The principal risks associated with the Group’s activities are set out in Risk Factors on pages 14 and 15.
Key performance indicators (‘KPIs’)
Given the nature of the business and that the Group is in a start-up phase of operations, the Directors are of the opinion that analysis 
using KPIs is not appropriate for an understanding of the development, performance or position of our business at this time. The 
Directors are of the opinion that the Operational Review on pages 8 to 11 provide the relevant information.
Directors
The Directors who served during the year were:
Alexey Kalinin, non-executive Chairman
Mikhail Ivanov, Chief Executive Officer
Alistair Stobie, Chief Financial Officer  resigned 31 December 2008
Ronald Freeman, non-executive
Stephen Ogden, non-executive
Vladimir Koshcheev, non-executive
Michael Calvey, non-executive
Messrs Kalinin and Koshcheev will retire by rotation and offer themselves for re-election in accordance with the Company’s Articles 
of Association. Volga Gas plc
Annual Report and Accounts 2008 22
Report of the Directors continued
Directors’ interests
The Directors serving during the year had the following beneficial interests in the shares of the Company:
 
       Ordinary Shares of 0.01p each
       31 December 31 December 
       2008 2007
Alexey Kalinin
1
       – –
Mikhail Ivanov
2
       525,100 262,549
Alistair Stobie
3
       274,350 131,299
Ronald Freeman       5,000 5,000
Stephen Ogden       15,000 15,000
Vladimir Koshcheev       866,550 866,550
Michael Calvey
1
       – –
1 Mr Calvey and Mr Kalinin are Co-Managing Partners of Baring Vostok Capital Partners Limited, a related party to Cavendish Nominees Limited.  
As such Mr Calvey and Mr Kalinin have an indirect beneficial interest in the Company.
2 Under the terms of a Restricted Share Agreement Mr Ivanov was issued 262,551 shares during 2008.
3 Under the terms of a Restricted Share Agreement Mr Stobie was issued 131,301 during 2008.
Substantial shareholders
On 31 December 2008 the following parties had notifiable interests of 3% or greater in the nominal value of the Company’s issued 0.01p 
Ordinary Shares:
       Number of  
       shares Percentage
Cavendish Nominees Ltd
1
       29,620,000 54.83
HQ Fonder Sverige AB       2,999,735 5.55
Capital Group International, Inc.       2,125,000 3.93
Kairos Investment Management Limited       2,011,244 3.72
1 Cavendish Nominees Ltd is a nominee vehicle which holds the interests of the limited partnerships which comprise Baring Vostok Private Equity Fund III.
Options granted
As of 31 December 2007 the Company had granted no options. During 2008, under the terms of the Executive Share Option Plan 
adopted by the Company in July 2008, options over a total of 1,706,196 shares were granted to the Executive Directors. The details of 
these option grants are disclosed in the Remuneration Report below.
Interests in contracts
There were no contracts or arrangements during the period in which a Director of the Company was materially interested and which were 
significant in relation to the business of the Company.
Creditors payment policy and practice
The Group aims to pay all its creditors promptly. For trade creditors it is the Group’s policy to:
(i) agree the terms of the payment at the start of the business with that supplier;
(ii) ensure that suppliers are aware of the terms of the payment; and
(iii) pay in accordance with contractual and other obligations.
Impact of the credit crunch
The Group is not directly impacted by the credit crunch as it has no outstanding borrowings at balance sheet date. Furthermore, many of 
its suppliers and contractors do not themselves have access to borrowing facilities. The Group’s Russian subsidiaries operate in a 
cash-based economy. The Company does not envisage seeking any borrowings in the foreseeable future. Liquidity risks are discussed in 
Risk Factors on pages 14 and 15 and in Note 3 to the Accounts.
Political and charitable contributions
No political or charitable contributions were made in the year.
Employment policies
The Group is committed to pursuing an equal opportunities employment policy, covering recruitment and selection, training, 
development, appraisal and promotion. The Group recognises the diversity of its employees, its customers, and the community at large 
and seeks to use employees’ talents to the fullest. This approach extends to the fair treatment of people with disabilities, in relation to 
their recruitment, training and development. Full consideration is given to staff who become disabled during employment.
Employee communication
The Group is committed to effective communications, which it maintains through regular information releases and staff briefings. Formal 
communications with employees take place through these channels. With respect to the Group’s operations in Russia and the  23
Volga Gas plc
Annual Report and Accounts 2008
recruitment of Russian employees, announcements, contracts, interviews and advertisements are conducted in the English and Russian 
languages, as applicable.
Health, safety and the environment
The Group’s policy and practice is to comply with health, safety and environmental regulations and requirements of the countries in which 
it operates, to protect its employees, contractors, assets and the environment.
The Company closely monitors its environmental obligations under the terms of its licence agreements. In particular, portions of the KLA 
are located in the Saratovskiy Federal Nature Reserve and Tulipannaya Steppe Natural Sanctuary, which are protected by Russian 
environmental law. In accordance with Russian environmental law, all economic activity within the protected area is approved by the 
Russian government. The Otis Tarda, a rare and endangered bird, occupies portions of the KLA; the Company has ensured that all its 
activities minimise the impact on the birds’ habitat.
Share capital
The Company has authorised Ordinary Share capital of 300 million shares of 1p each. Under a special resolution by the shareholders of the 
Company on 17 June 2008 the Directors have authority to allot shares up to an aggregate nominal value of £520,000 of which £150,000 
could be issued non-preemptively, in accordance with sections 80(1) and 89 of the Companies Act 1985. This authority will expire the earlier 
of (i) 15 months from the passing of the Resolution, or (ii) the conclusion of the Annual General Meeting of the Company to be held in 2009.
Statement of disclosure of information to auditors
As at the date of this report the serving Directors confirm that:
so far as the Directors are aware, there is no relevant audit information of which the Company’s auditors are unaware; and •	
they have taken all steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit •	
information and to establish that the Company’s auditors are aware of that information.
Auditors
The Company’s auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office and a resolution concerning 
their reappointment will be proposed at the next Annual General Meeting.
Statement of Directors’ responsibilities
Company law requires the Directors to prepare financial statements for each financial year (or period) which give a true and fair view of the 
state of affairs of the Group and of the Company and of the profit and loss of the Group for that year.
In preparing those financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently; •	
make judgements and estimates that are reasonable and prudent; •	
prepare the financial statements on the going concern basis unless it is inappropriate to presume the Group will continue in business; and •	
state whether applicable accounting standards have been followed, subject to any material departures and explained in the financial •	
statements.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial 
position of the Group and to enable them to ensure the financial statements comply with the Companies Act of 1985.
They are also responsible for safeguarding the assets of the Group and hence for taking steps for the prevention and detection of fraud 
and other irregularities.
Electronic communications
The maintenance and integrity of the Volga Gas plc website (www.volgagas.com) is the responsibility of the Directors; the work carried 
out by the auditors does not involve consideration of these matters and accordingly, the auditors accept no responsibility for any changes 
that may have occurred to the financial statements since they were initially presented on the website.
The Company’s website is maintained in compliance with AIM Rule 26.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other 
jurisdictions.
By order of the Board
Alexey V. Kalinin
Chairman of the Board
31 March 2009 Volga Gas plc
Annual Report and Accounts 2008 24
Directors’ Remuneration Report
In common with the Board’s commitment to compliance with the Combined Code, the Company has adopted the Principles of Good 
Governance relating to Directors’ remuneration. The Company discloses certain information relating to Directors’ remuneration in this 
report, which is not audited.
Remuneration Committee
The Company established a Remuneration Committee in April 2007, as set out in Corporate Governance on pages 18 to 20.
The Remuneration Committee advises the Board on Group compensation policy as it relates to Executive Directors and other key 
members of management, and may obtain advice from independent remuneration consultants appointed by the Company. The 
Remuneration Committee comprises Ronald Freeman (Chairman), Stephen Ogden and Alexey Kalinin, who are all deemed to be 
non-executive Directors. Executive Directors may be invited to attend meetings of the Remuneration Committee but do not vote on their 
own remuneration or incentives. The Remuneration Committee meets as required. The Remuneration Committee met once in 2008.
Remuneration policy
The Company’s policy is to maintain levels of compensation for the Group that are comparable and competitive with peer group 
companies, so as to attract and retain individuals of the highest calibre, by rewarding them as appropriate for their contribution to the 
Group’s performance.
Executive Directors’ employment agreement and terms of appointment
The terms of each Executive Director’s appointment are set out in their service agreements. Each Executive Director’s agreement is 
based on similar terms, with no fixed duration. Each service agreement sets out details of basic salary and share options as applicable.
All Executive Director employment agreements can be terminated either by the Director concerned or by the Company on giving six 
months’ notice during the first 24 months of service and thereafter by giving three months’ notice.
The Executive Directors do not participate in any Group pension scheme and their remuneration is not pensionable.
The Executive Directors are eligible for payment of cash bonuses and participation in any share-based incentive plan the Board implements.
Basic salaries
The basic salary of each Executive Director is established by reference to their responsibilities and individual performance.
Non-executive Directors’ terms, conditions and fees
The non-executive Directors have been engaged under the terms of their letters of appointment. These engagements are for two years 
and can be terminated upon one month’s notice by either party. Reappointment is subject to the Company’s Articles of Association which 
provide that one third of the Directors shall be required to retire each year.
Fees
The fees paid to non-executive Directors are determined by the Board and reviewed periodically to reflect current rates and practice 
commensurate with the size of the Company and their roles.
The remuneration of the non-executive Directors is a matter for the Chairman of the Board and the Chief Executive Officer. In the event of 
the appointment of an independent non-executive Chairman his remuneration would be a matter for the Chairman of the Remuneration 
Committee and the Chief Executive Officer.
In 2007 fees paid to non-executive Directors were satisfied partially in cash and partially through the issuance of restricted shares. 25
Volga Gas plc
Annual Report and Accounts 2008
Details of the Directors’ compensation are set out below:
 
       Aggregate Aggregate 
       remuneration remuneration 
       for the year for the year  
    Loss of  Share-based 31 December 31 December 
  Salary Bonus office Fees compensation 2008 2007 
  US$000 US$000 US$000 US$000 US$000 US$000 US$000
Executive Directors
Mikhail Ivanov  387 125 – – 753 1,262 2,823
Alistair Stobie  292 50 75 – 377 793 1,500
Non-executive
Alexey Kalinin  – – – – – – –
Ronald Freeman
1
  – – – 50 – 50 72
Stephen Ogden
1
  – – – 50 – 50 72
Vladimir Koshcheev  – – – – – – –
Michael Calvey  – – – – – – –
1 In 2007 US$30,000 was settled through the issuance of 5,000 shares.
Directors’ interests in the share capital of the Company
 
       Ordinary Shares of 0.01p each
       31 December 31 December 
       2007 2006
Alexey Kalinin
1
       – –
Mikhail Ivanov
2
       525,100 262,549
Alistair Stobie
3
       274,350 131,299
Ronald Freeman       5,000 5,000
Stephen Ogden       15,000 15,000
Vladimir Koshcheev       866,550 866,550
Michael Calvey
1
       – –
1 Mr Calvey and Mr Kalinin are Co-Managing Partners of Baring Vostok Capital Partners Limited, a related party to Cavendish Nominees Limited.  
As such Mr Calvey and Mr Kalinin have an indirect beneficial interest in the Company.
2 Under the terms of a Restricted Share Agreement Mr Ivanov was issued 262,551 shares during 2008.
3 Under the terms of a Restricted Share Agreement Mr Stobie was issued 131,301 during 2008.
There has been no change in the interest of any Director between 1 January 2008 and the date of this report.
Directors’ share options
The Company adopted an Executive Share Option Plan on 14 July 2008, which was subsequently amended on 17 December 2008. 
Under the terms of this Plan, a maximum of 2,843,661 shares (equivalent to approximately 5% of the issued share capital) may be 
allocated and subject to performance criteria and vesting periods as specified by the Remuneration Committee.
During 2008, the Company granted options to acquire 1,137,464 Ordinary Shares to Mikhail Ivanov and 568,732 Ordinary Shares to 
Alistair Stobie under the terms of an Executive Share Option Plan adopted by the Company on 14 July 2008. The options may be 
exercised at a price of 405p per share and vest in equal portions on May 2010, 2011 and 2012 and will remain outstanding until May 2017.
On his resignation effective 31 December 2008, Alistair Stobie surrendered his rights under the Executive Share Option Plan. On 17 
December 2008, Tony Alves was granted options to acquire 568,732 Ordinary Shares in the Company at an exercise price of 100p per 
share. The new options will vest over a period of up to four years subject to the satisfaction of certain performance conditions. The vested 
options become exercisable on a straight-line, cumulative basis at a rate of 12.5% of the total option grant every six months (starting from 
the date of grant) and will remain exercisable until eight years from the date of grant. The option arrangements for Mikhail Ivanov, Chief 
Executive Officer, remain unchanged.
By order of the Board
Tony Alves
Company Secretary
31 March 2009 Volga Gas plc
Annual Report and Accounts 2008 26
We have audited the Group and Parent Company financial statements (the ‘financial statements’) of Volga Gas plc for the year ended  
31 December 2008 which comprise the Group Income Statement, the Group and Parent Company Balance Sheets, the Group and 
Parent Company Cash Flow Statements, the Group and Parent Company Statements of Changes in Shareholders’ Equity and the related 
notes. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information 
in the Directors’ Remuneration Report that is described as having been audited.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in 
accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in 
the Statement of Directors’ Responsibilities.
Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be audited in accordance with 
relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, 
has been prepared for and only for the Company’s members as a body in accordance with Section 235 of the Companies Act 1985 and 
for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to 
whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the 
part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We 
also report to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements.
In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the 
information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other 
transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements.  
The other information comprises only the Directors’ Report, the unaudited part of the Directors’ Remuneration Report, the Chairman’s 
Statement, the Operational Review, the Financial Review, the Corporate Governance Statement and all of the other information listed on 
the contents page. We consider the implications for our report if we become aware of any apparent misstatements or material 
inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
The maintenance and integrity of the Volga Gas plc website is the responsibility of the directors; the work carried out by the auditors does 
not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred 
to the financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in  
other jurisdictions.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. 
An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the 
part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements 
made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the 
Group’s and Company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to 
provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors’ Remuneration 
Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we 
also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors’ 
Remuneration Report to be audited.
Opinion
In our opinion:
the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of •	
the Group’s affairs as at 31 December 2008 and of its loss and cash flows for the year then ended;
the Parent Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union  •	
as applied in accordance with the provisions of the Companies Act 1985, of the state of the Parent Company’s affairs as at 
31 December 2008 and cash flows for the year then ended; and
the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance •	
with the Companies Act 1985; and
the information given in the Directors’ Report is consistent with the financial statements. •	
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Aberdeen
31 March 2009
Independent Auditors’ Report to the members of Volga Gas plc 27
Volga Gas plc
Annual Report and Accounts 2008
At 31 December      Notes 2008 2007
ASSETS
Non-current assets
Intangible assets      5 30,596 34, 114
Property, plant and equipment      6 26,550 5,940
Other non-current assets      7 7,245 2,612
Security deposit on acquisition of fixed assets      7 20,422 –
Deferred tax assets      18 2,003 645
Total non-current assets       86,816 43,311
Current assets
Cash and cash equivalents      8 23,093 97,539
Derivative financial instruments      9 – 2,756
Inventories      10 1,485 145
Other receivables      11 8,449 2,661
Total current assets       33,027 103,101
Total assets       119,843 146,412
EQUITY AND LIABILITIES
Equity
Share capital       1,045 1,037
Share premium (net of issue costs)      12 144,682 143,552
Other reserves      13 (16,027) 4,061
Accumulated loss       (14,142) (3,844)
Total equity       115,558 144,806
Current liabilities
Trade and other payables      14 2,416 1,336
Current income tax liability       1,869 270
Total current liabilities       4,285 1,606
Total equity and liabilities       119,843 146,412
Approved by the Board of Directors on 31 March 2009 and signed on its behalf by:
Mikhail Ivanov Tony Alves
Chief Executive Officer Chief Financial Officer
Group Balance Sheet
(presented in US$000)
The accompanying notes on pages 34 to 53 are an integral part of these financial statements. Volga Gas plc
Annual Report and Accounts 2008 28
At 31 December      Notes 2008 2007
ASSETS
Non-current assets
Investments      21 120,305 46,751
Inter-company loan      22 – 55,682
Inter-company receivables       15,862 14,897
Total non-current assets       136,167 1 1 7,330
Current assets
Cash and cash equivalents      26 18,496 26,838
Derivative financial instruments      9 – 2,756
Other receivables       72 105
Total current assets       18,568 29,699
Total assets       154,735 147,029
EQUITY AND LIABILITIES
Equity
Share capital      12 1,045 1,037
Share premium (net of issue costs)      12 144,682 143,552
Accumulated profit      23 324 1,408
Total equity       146,051 145,997
Non-current liabilities
Deferred tax liabilities       – 271
Current liabilities
Trade and other payables      24 2,311 491
Intercompany payables      25 6,067 –
Current income tax liability       306 270
Total current liabilities       8,684 761
Total equity and liabilities       154,735 147,029
Approved by the Board of Directors on 31 March 2009 and signed on its behalf by:
Mikhail Ivanov Tony Alves
Chief Executive Officer Chief Financial Officer
Company Balance Sheet
(presented in US$000)
The accompanying notes on pages 34 to 53 are an integral part of these financial statements. 29
Volga Gas plc
Annual Report and Accounts 2008
Year ended 31 December    Notes  2008  2007
CONTINUING OPERATIONS
Revenue      617  19
Cost of sales    15  (607)  (29)
Gross profit/(loss)      10  (10)
Operating and administrative expenses    15  (12,784)  (8,392)
Operating loss      (12,774)  (8,402)
Interest income    16  1,461  2,474
Interest expense      –  (373)
Other gains and losses – net    17  1,256  3,470
Loss for the period before tax      (10,057)  (2,831)
Current income tax    18  (1,600)  (270)
Deferred income tax    18  1,358  528
Loss for the period attributable to equity holders      (10,299)  (2,573)
– Basic and diluted loss per Ordinary Share (in US dollars)     0.19  0.06
Weighted average number of shares outstanding    19  54,008,474  46,376,181
Group Income Statement
(presented in US$000)
The accompanying notes on pages 34 to 53 are an integral part of these financial statements. Volga Gas plc
Annual Report and Accounts 2008 30
Year ended 31 December      Notes 2008 2007
Net cash outflow from operating activities      20 (15,860) (5,137)
Cash flows from investing activities
Purchase of intangible assets      5 (8,628) (6,987)
Purchase of property, plant and equipment      6 (24,903) (5,928)
Security deposit on acquisition of fixed assets      7 (22,204) –
Net cash used in investing activities       (55,736) (12,915)
Cash flows from financing activities
Proceeds from issue of shares (net of issue costs)       – 125, 118 
Repayment and receipt of long-term borrowings       – (14,387)
Net cash provided by financing activities       – 110,731
Effect of exchange rate changes on cash and cash equivalents      (2,850) 1,532
Net (decrease)/increase in cash and cash equivalents      (74,446) 94,211
Cash and cash equivalents at beginning of the year      8 97,539 3,328 
Cash and cash equivalents at end of the year      8 23,093 97,539
Group Cash Flow Statement
(presented in US$000)
The accompanying notes on pages 34 to 53 are an integral part of these financial statements. 31
Volga Gas plc
Annual Report and Accounts 2008
Year ended 31 December      Notes 2008 2007
Net cash from/used in operating activities      27 7,658 (67,260)
Cash flows from investing activities
Investments in capital      21 (16,000) (34,051)
Net cash used in investing activities       (16,000) (34,051)
Cash flows from financing activities
Proceeds from issue of shares (net of issue costs)       – 125, 118 
Net cash provided by financing activities       – 125, 118
Net (decrease)/increase in cash and cash equivalents      (8,342) 23,807
Cash and cash equivalents at beginning of the year      26 26,838 3,031
Cash and cash equivalents at end of the year      26 18,496 26,838
Company Cash Flow Statement
(presented in US$000)
The accompanying notes on pages 34 to 53 are an integral part of these financial statements. Volga Gas plc
Annual Report and Accounts 2008 32
      Currency 
   Share Share Other translation Accumulated Total 
  Notes capital premium reserves reserve loss equity
Opening equity at 1 January 2007   579 15,251 588 460 (1,271) 15,607
Loss for the year   – – – – (2,573) (2,573)
Share capital issued  12 450 134,550 – – – 135,000
Share issue costs  12 – (10,120) – – – (10,120)
Discount on long-term debt   – – (588) – – (588)
Share-based payments  12 8 3,871 – – – 3,879
Adjustments on translation of non-dollar subsidiaries   – – – 3,601 – 3,601
Closing at 31 December 2007   1,037 143,552 – 4,061 (3,844) 144,806
Opening equity at 1 January 2008   1,037 143,552 – 4,061 (3,844) 144,806
Loss for the year   – – – – (10,299) (10,299)
Share-based payments  12 8 1,130 – – – 1,138
Adjustments on translation of non-dollar subsidiaries   – – – (20,087) – (20,087)
Closing equity at 31 December 2008   1,045 144,682 – (16,026) (14,143) 115,558
All equity and reserves are attributable to the Company’s equity holders.
Group Statement of Changes in Shareholders’ Equity
(presented in US$000)
The accompanying notes on pages 34 to 53 are an integral part of these financial statements. 33
Volga Gas plc
Annual Report and Accounts 2008
     Share Share Accumulated Total 
    Notes capital premium profit/(loss) equity
Opening equity at 1 January 2007     579 15,251 (40) 15,790
Profit for the year     – – 1,448 1,448
Share capital issued    12 450 134,550 – 135,000
Share issue costs    12 – (10,120) – (10,120)
Share based payments    12 8 3,871 – 3,879
Closing equity at 31 December 2007     1,037 143,552 1,408 145,997
Opening equity as at 1 January 2008     1,037 143,552 1,408 145,997
Loss for the year     – – (1,084) (1,084)
Share based payments    12 8 1,130 – 1,138
Closing equity at 31 December 2008     1,045 144,682 324 146,051
All equity and reserves are attributable to the Company’s equity holders.
Company Statement of Changes in Shareholders’ Equity
(presented in US$000)
The accompanying notes on pages 34 to 53 are an integral part of these financial statements. Volga Gas plc
Annual Report and Accounts 2008 34
1. General information
Volga Gas plc (‘the Company’ or ‘Volga’) is a public liability company registered in England and Wales with registered number 5886534. 
The principal activities of the Company and its subsidiaries (‘the Group’) are the acquisition, exploration and development of hydrocarbon 
assets and production of hydrocarbons in the Volga region of the Russian Federation. Its registered office is at Ground floor,  
17–19 Rochester Row, London, SW1P 1QT.
The Company has its primary listing on the Alternative Investment Market of the London Stock Exchange.
These Group consolidated financial statements were authorised for issue by the Board of Directors on 30 March 2009.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies 
have been consistently applied to all the years presented, unless otherwise stated.
2.1. Basis of preparation
The consolidated financial statements of Volga Gas plc have been prepared in accordance with International Financial Reporting 
Standards, as adopted by the European Union (‘IFRSs as adopted by the EU’), IFRIC interpretations, and the Companies Act 1985/2006 
applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost 
convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through 
profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires 
management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree  
of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are 
disclosed in Note 4.
No income statement is presented for Volga Gas plc as permitted by Section 230 of the Companies Act 1985.
The consolidated financial statements have been prepared on the going concern basis on the assumption that the Group will continue  
to have access to sufficient funds in order to meet its obligations as they fall due for the foreseeable future.
At 31 December 2008, the Group has US$23.1 million of cash and cash equivalents available to fund its ongoing operations and 
associated exploration and development activities. During the year to 31 December 2008 the Group had cash outflow from operations of 
US$19.7 million. In addition, at 31 December 2008 the Group has committed capital expenditure of US$12.0 million as explained in Note 
29 to the financial statements. The committed capital expenditure primarily relates to licence obligations on the Karpenskiy, Pre-Caspian 
and V-M Licence Areas. The Group has no specific plans or commitments at this time for drilling expenditures in respect of Karpinskiy 
deep. Additional funding will be required prior to drilling Karpinskiy deep.
Through its ordinary course activities however, the Group is exposed to operational and development risk that could delay cash generation 
from operations or may require additional capital investment that could place increased burden on the Group’s available cash resources.
The Group has evaluated the current exploration and development plan for the Karpenskiy, Pre-Caspian and V-M Licence Areas and has 
identified a number of measures that can be taken to preserve cash and ensure the Group operates within its existing amount of available 
cash. These measures include, where practicable, deferral of discretionary capital expenditures, changes in drilling schedule and other 
measures until such time as sufficient cash flow from operations has been generated in order to fund these expenditures.
Based on management’s projections the Directors believe the Group has sufficient cash to fund its remaining licence commitments 
related to exploration activity on the Karpenskiy and Pre-Caspian Licence Areas, to complete the development of the V-M Licence Area 
and to satisfy all expenditure related to administrative and operating expenses for the forseeable future.
If the Group does not generate sufficient liquidity to fund its expenditures, the Group’s ability to execute its long-term growth strategy 
could be significantly affected.
Disclosure of impact of new and future accounting standards
The following standards, amendments and interpretations to published standards were mandatory for the year ended 31 December 2008:
IFRIC 11 Group and Treasury Share Transactions •	
  This interpretation addresses how to apply IFRS 2 to share-based payment arrangements involving an entity’s own equity instruments 
or instruments of another entity in the same group. IFRS 2 charges are correctly accounted for in a fellow subsidiary of the Group. 
There has been no impact to the Group from the introduction of IFRIC 11.
Notes to the IFRS Consolidated Financial Statements
for the year ended 31 December 2008
(presented in US$000) 35
Volga Gas plc
Annual Report and Accounts 2008
The Group has not yet adopted the following standards, amendments and interpretations which are only effective for periods 
commencing on or after 1 January 2009:
IFRS 8 Operating Segments •	
  This standard replaces IAS 14 ‘Segment Reporting’ and proposes that entities adopt a ‘management approach’ to reporting financial 
performance.
IFRS 3 (Revised) Business Combinations •	
  This standard includes some significant changes to IFRS 3 in respect of business combinations with all payments made to purchase 
a business recorded at fair value at acquisition date. The standard also requires the recognition of subsequent changes in the fair 
value of the contingent consideration in the income statement rather than goodwill. Transaction costs should be recognised 
immediately in the income statement. This standard is effective from 1 July 2009, but the Group will adopt this on any acquisitions 
made from 1 January 2009.
IAS 27 (Revised) Consolidated and Separate Financial Statements •	
  The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no 
change in control and these transactions will no longer result in goodwill or gains and losses. When control is lost, any remaining 
interest in the entity is remeasured to fair value and a gain or loss is recognised in profit or loss.
IAS 1 Presentation of Financial Statements •	
  This standard prescribes the basis for presentation of financial statements and aims to ensure comparability both with the entity’s 
financial statements of previous periods and with the financial statements of other entities.
IFRS 2 Share-Based Payment – Vesting Conditions and Cancellations •	
  The revised standard clarifies the definition of a vesting condition and prescribes the treatment of an award that is effectively 
cancelled because a non-vesting condition is not satisfied.
IAS 23 (Revised) Borrowing Costs •	
  The revised standard removes the option of immediately recognising an expense on borrowing costs that relate to assets that take a 
substantial period of time to get ready for use.
Other standards, amendments and interpretations were considered but specifically excluded as they were not expected to have a 
material impact on the Group or Company’s financial statements.
2.2. Consolidation
(a) Subsidiaries
The consolidated financial statements include the financial statements of the Company and its subsidiaries. Subsidiaries are all entities in 
which the Group directly or indirectly owns more than 50% of the voting stock or otherwise has the power to govern the financial and/or 
operating policies. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated 
from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is 
measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus 
costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business 
combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the 
Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net 
assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated; unrealised losses 
are also eliminated unless the cost cannot be recovered.
The Company and its subsidiaries outside the Russian Federation maintain their financial statements in accordance with IFRS. The 
Russian subsidiaries of the Group maintain their statutory accounting records in accordance with the Regulations on Accounting and 
Reporting of the Russian Federation. The consolidated financial statements are based on these statutory accounting records, 
appropriately adjusted and reclassified for fair presentation in accordance with IFRS.
A list of the Company’s subsidiaries is provided in Note 21.
(b) Segment reporting
Segmental reporting follows the Group’s internal reporting structure.
In the opinion of the Directors the operations of the Group comprise one class of business, being oil and gas exploration, development 
and production and the Group operates in only one geographic area: the Russian Federation. Volga Gas plc
Annual Report and Accounts 2008 36
Notes to the IFRS Consolidated Financial Statements continued
for the year ended 31 December 2008
(presented in US$000)
2.3. Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic 
environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in US dollars, 
which is the Company’s functional and the Group’s presentation currency.
The functional currency of the Group’s subsidiaries that are incorporated in the Russian Federation is the Russian Ruble (‘RUR’). It is the 
Management’s view that RUR best reflects the financial results of its Cyprus subsidiary Woodhurst Holdings Ltd (‘Woodhurst’) because 
Woodhurst is dependant on entities based in Russia that operate in a RUR environment in order to recover its investments. As a result the 
functional currency of Woodhurst was changed from the US dollar to the RUR prospectively from 1 July 2007. The RUR was also 
determined to be the functional currency for the Group’s Cyprus subsidiaries established in 2007.
The closing rates used as at 31 December 2008 were:
US$1: RUR29.38 (at 31 December 2007 US$1: RUR24.55); •	
US$1: GBP0.69 (at 31 December 2007 US$1: GBP0.50); •	
average rate for 2008 US$1: RUR24.87 (average rate for 2007 US$1: RUR25.58). •	
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the 
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end 
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Translation 
differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss.
Foreign exchange gains and losses that relate to cash and cash equivalents, borrowings and other foreign exchange gains and losses are 
presented in the income statement within ‘Other gains and losses’.
(c) Group companies
 The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a 
functional currency different from the presentation currency are translated into the presentation currency as follows:
(i)  assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii)  income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable 
approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are 
translated at the rate on the dates of the transactions); and
(iii)  all resulting exchange differences are recognised as a separate component of equity.
2.4. Oil and gas exploration assets
The Company applies the ‘successful efforts’ method of accounting for Exploration and Evaluation (‘E&E’) costs, in accordance with  
IFRS 6 ‘Exploration for and Evaluation of Mineral Resources’. Costs are accumulated on a field-by-field basis. Costs directly associated 
with an exploration well, including certain geological and geophysical costs, and exploration and property leasehold acquisition costs,  
are capitalised until the determination of reserves is evaluated. If it is determined that commercial discovery has not been achieved,  
these costs are charged to expense after the conclusion of appraisal activities. Exploration costs such as geological and geophysical, 
that are not directly related to an exploration well are expensed as incurred.
Capital expenditure is recognised as property, plant and equipment or intangible assets in the financial statements according to the 
nature of the expenditure and the stage of development of the associated field, i.e. exploration, development, production.
Once commercial reserves are found, exploration and evaluation assets are tested for impairment and transferred to development 
tangible and intangible assets. No depreciation and/or amortisation is charged during the exploration and evaluation phase.
(a) Development tangible and intangible assets
Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of 
development wells into commercially proven reserves, is capitalised within property, plant and equipment and intangible assets according 
to nature. When development is completed on a specific field, it is transferred to production or intangible assets. No depreciation or 
amortisation is charged during the work in progress phase.
(b) Oil and gas production assets
Development and production assets are accumulated generally on a field-by-field basis and represent the cost of developing the 
commercial reserves discovered and bringing them into production together with E&E expenditures incurred in finding commercial 
reserves and transferred from the intangible E&E assets as described above.
The cost of development and production assets also includes the cost of acquisitions and purchases of such assets, directly attributable 
overheads, finance costs capitalised and the cost of recognising provisions for future restoration and decommissioning.
2. Summary of significant accounting policies continued 37
Volga Gas plc
Annual Report and Accounts 2008
Where major and identifiable parts of the production assets have different useful lives, they are accounted for as separate items of 
property, plant and equipment. Costs of minor repairs and maintenance are expensed as incurred.
(c) Depreciation/amortisation
Oil and gas properties intangible assets are depreciated or amortised using the unit-of-production method. Unit-of-production rates are 
based on proved and probable reserves, which are oil, gas and other mineral reserves estimated to be recovered from existing facilities 
using current operating methods. Oil and gas volumes are considered produced once they have been measured through meters at 
custody transfer or sales transaction points at the outlet valve on the field storage tank.
(d) Impairment – exploration and evaluation assets
Exploration and evaluation assets are tested for impairment prior to reclassification to development tangible or intangible assets,  
or whenever facts and circumstances indicate an impairment condition may exist. An impairment loss is recognised for the amount by 
which the exploration and evaluation assets’ carrying amount exceeds their recoverable amount. The recoverable amount is the higher  
of the exploration and evaluation assets’ fair value less costs to sell and their value in use. For the purposes of assessing impairment,  
the exploration and evaluation assets subject to testing are grouped with existing cash generating units of production fields that are 
located in the same geographical region.
(e) Impairment – proved oil and gas production properties and intangible assets
Proven oil and gas properties and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate 
that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount 
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The cash 
generating unit applied for impairment test purposes is generally the field, except that a number of field interests may be grouped 
together where the cash flows of each field are interdependent, for instance where surface infrastructure is used by one or more field in 
order to process production for sale.
2.5. Other businesses and corporate assets
Property, plant and equipment not associated with exploration and production activities are carried at cost less accumulated 
depreciation. These assets are also evaluated for impairment when circumstances dictate.
Land is not depreciated. Depreciation of other assets is calculated on a straight-line basis as follows:
Machinery and equipment six to ten years
Office equipment in excess of US$5,000 three to four years
Vehicles and other two to seven years
2.6. Financial assets
The Group classifies its financial assets in the following categories:
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. This category comprises derivatives unless they are 
effective hedging instruments. No financial assets are currently designated as hedging instruments.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. 
This category comprises trade and other receivables and cash and cash equivalents in balance sheet.
2.7. Derivative financial instruments
Derivative financial assets and financial liabilities are financial instruments whose value changes in response to an underlying variable, 
require little or no initial investment and are settled in the future. The Company uses derivatives such as foreign exchange forward 
contracts to minimise risks of changes in foreign exchange rates. The Group does not apply hedge accounting in respect of forward 
foreign exchange contracts as management believes that existing derivative do not qualify for hedge accounting. Consequently, 
movements in the fair value of derivative instruments are immediately recognised in the income statement.
2.8. Acquisitions, asset purchases and disposals
Acquisitions of oil and gas properties are accounted for under the purchase method where the business meets the definition of a 
business combination.
Transactions involving the purchases of an individual field interest, or a group of field interests, that do not qualify as a business 
combination are treated as asset purchases, irrespective of whether the specific transactions involved the transfer of the field interests 
directly or the transfer of an incorporated entity. Accordingly, no goodwill or deferred tax gross up arises. The purchase consideration is 
allocated to the assets and liabilities purchased on an appropriate basis.
Proceeds on disposal are applied to the carrying amount of the specific intangible asset or development and production assets disposed 
of and any surplus is recorded as a gain on disposal in the income statement. Volga Gas plc
Annual Report and Accounts 2008 38
Notes to the IFRS Consolidated Financial Statements continued
for the year ended 31 December 2008
(presented in US$000)
2.9. Inventories
Crude oil inventories are stated at the lower of cost and net realisable value. Materials and supplies inventories are recorded at average 
cost and are carried at amounts which do not exceed the expected recoverable amount from use in the normal course of business.
2.10. Trade and other receivables
Trade and other receivables are presented at recoverable amounts. A provision for impairment of trade receivables is established when 
there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. 
The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, 
discounted at the original effective interest rate.
2.11. Cash and cash equivalents
Cash and cash equivalents include cash in hand, and deposits held at call with banks.
2.12. Share capital
Ordinary Shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from  
the proceeds.
2.13. Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
2.14. Current and deferred income tax
Current tax is the amount expected to be paid in respect of taxable profits for the current and prior periods. The current income tax 
charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the 
Group’s entities operate and generate taxable income.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and 
liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it 
arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction 
affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted 
or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or 
the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the 
temporary differences can be utilised.
2.15. Employee benefits
(a) Share-based compensation
The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount 
to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any 
non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in 
assumptions about the number of options that are expected to vest.
The Company measures the equity instruments granted to employees at the fair value at grant date. Fair value of fully-vested shares is 
expensed immediately. Fair value of shares with vesting requirements is estimated using Black-Scholes option pricing model. This value is 
recognised as an expense over the vesting period on a straight-line basis.
(b) Social obligations
Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leave and sick leave and 
bonuses are accrued in the year in which the associated services are rendered by the employees of the Group.
2.16. Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of oil and gas in the ordinary course of the 
Group’s activities. Revenue is shown net of value added tax, returns, rebates and discounts and after eliminating sales within the Group.
(a) Sales of oil and gas
Revenue from the sale of oil or gas is recognised when the oil/gas is delivered to customers and title has transferred. Revenue is stated 
net of value added tax. For oil sales, this is at the physical point of delivery, i.e. the loading of a customers truck. For gas sales, this is 
typically the point of entry to the gas distribution system.
(b) Interest income
Interest income is recognised on a time-proportion basis using the effective interest method.
2. Summary of significant accounting policies continued 39
Volga Gas plc
Annual Report and Accounts 2008
3. Financial risk management
3.1. Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, price risk, and cash flow interest rate 
risk), credit risk, and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets 
and seeks to minimise potential adverse effects on the Group’s financial performance.
(a) Market risk
(i) Foreign exchange risk
The Group is exposed to foreign exchange risk arising from currency exposures, primarily with respect to the Russian Ruble. Foreign 
exchange risk arises from future commercial transactions, recognised assets and liabilities.
The following table shows the currency structure of financial assets and liabilities at 31 December 2008:
 
     Rubles US dollars Sterling Total 
     US$000 US$000 US$000 US$000
Financial assets
Total financial assets – cash     844 22,229 20 23,093
Financial liabilities (before provision for UK taxes)     2,245 171 – 2,416
The following table shows the currency structure of financial assets and liabilities at 31 December 2007:
 
     Rubles US dollars Sterling Total 
     US$000 US$000 US$000 US$000
Financial assets
Cash     70,688 26,583 268 97,539
Derivatives     – 2,756 – 2,756
Other financial receivables     – 105 – 105
Total financial assets     70,688 29,444 268 100,400
Financial liabilities (before provision for UK taxes)     593 506 – 1,099
During 2008 the Group used foreign exchange forward contracts to manage financial risks from fluctuation in FX rates (see Note 9).
At 31 December 2008, if the US dollar had weakened/strengthened by 5% against the RUR with all other variables held constant, 
post-tax profit for the year would have been US$234,000  (2007: US$367,000) higher/lower, mainly as a result of foreign exchange gains/
losses on translation of RUR denominated trade payables and financial assets at fair value through profit or loss.
(ii) Price risk
The Group is not exposed to price risk as it does not hold financial instruments of which the fair values or future cash flows will be 
affected by changes in market prices.
(iii) Cash flow and fair value interest rate risk
As the Group has no significant interest-bearing assets and liabilities, the Group’s income and operating cash flows are substantially 
independent of changes in market interest rates.
(b) Credit risk
The Group’s maximum credit risk exposure is the fair value of each class of assets, presented in note 3.1a (i) of US$23,093,000  and 
US$100,400,000 at 31 December 2008 and 2007 respectively.
The Group’s principal financial asset is cash and credit risk arises from cash and cash equivalents, derivative financial instruments and 
deposits with banks and financial institutions. It is the Group’s policy to monitor the financial standing of these assets on an on going 
basis. Bank balances are held with reputable and established financial institutions.
 
       31 December 31 December 
Rating of financial institution (Fitch)       2008 2007
AA+       – 26,838
AA–       19,216 –
A–       – 69,825
BBB+       3,457 –
Other       420 876
Total bank balance       23,093 97,539 Volga Gas plc
Annual Report and Accounts 2008 40
Notes to the IFRS Consolidated Financial Statements continued
for the year ended 31 December 2008
(presented in US$000)
(c) Liquidity risk
The Group believes it has sufficient capital to fund the exploration of the Karpenskiy Licence Area and development of the V-M Licence 
Area until such stage as the Group is operating cash flow positive. Should the Group’s exploration activities on the sub-salt structures on 
the Karpenskiy and Pre-Caspian Licence Areas be successful the Group will require significant additional funding to develop these 
licence areas. The Group does not currently intend to drill the previously planned sub-salt well on the Karpinskiy licence unless additional 
funding is obtained.
The Group expects to fund its exploration and development programme, as well as its administrative and operating expenses, through 
2009 using a combination of existing working capital and expected proceeds from the sale of future oil and gas production.
If the Group is unsuccessful in generating enough liquidity to fund its expenditures, the Group’s ability to execute its long-term growth 
strategy could be significantly affected.
The maturity period of the Group’s financial liabilities, comprising only trade and other payables at 31 December 2008 and 2007 is as follows:
 
     0 to 3 3 to 12 Over 1  
     months months year Total
Maturity period at 31 December 2008
Trade and other payables     2,265 151 – 2,416
 
     0 to 3 3 to 12 Over 1  
     months months year Total
Maturity period at 31 December 2007
Trade and other payables     1,082 254 – 1,336
3.2. Capital risk management
The Group’s objectives when managing capital, are (a) to safeguard the Group’s ability to continue as a going concern, (b) provide returns 
for shareholders and benefits for other stakeholders and (c) to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to 
shareholders, issue new shares or sell assets to reduce debt.
3.3. Fair value estimation
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The carrying 
value less impairment provision of trade and other receivables and trade and other payables approximate their fair values.
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques.
4. Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal 
the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying 
amounts of assets and liabilities within the next financial year are discussed below.
(a) Fair value of derivatives
The fair value of derivative financial instruments is determined by using valuation techniques. The Group uses its judgement to select a 
variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date. No 
derivatives are held at 31 December 2008.
(b) Income taxes
Significant judgement is frequently required in estimating provisions for deferred taxes. This process involves an assessment of temporary 
differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets 
and liabilities, which are included within the balance sheet.
(c) Useful lives of property, plant and equipment
The Group applies a range of useful lives to assets, which are classified as property, plant and equipment. The useful lives of oil and gas 
properties are determined by reference to associated reserves estimates. Estimates of oil and gas reserves are inherently subjective. 
Significant judgement is required in estimating the useful life of such assets.
3. Financial risk management continued 41
Volga Gas plc
Annual Report and Accounts 2008
(d) Carrying value of fixed assets/impairment
Fixed assets are assessed for impairment when events and circumstances indicate that an impairment condition may exist. The carrying 
value of fixed assets is evaluated by reference to their value in use and primarily looks to the present value of management’s best estimate 
of the cash flows expected to be generated from the asset. In identifying cash flows management firstly determine the cash generating 
unit or group of assets that give rise to the cash flows. The cash generating unit is the lowest level of asset at which independent cash 
flows can be generated.
The estimation of forecast cash flows involves the application of a number of significant judgements and estimates to a number of 
variables including production volumes, commodity prices, operating costs, capital investment, hydrocarbon reserves estimates, inflation 
and discount rates. In addition, judgement is applied in determining the cash generating unit to be assessed for impairment.
5. Intangible assets – Group
Intangible assets represent exploration and evaluation assets such as licences, studies and exploratory drilling, which are stated at 
historical cost.
 Work in progress 
 – exploration  Exploration 
 and evaluation  and evaluation  Development  Total
At 1 January 2007  570  24,725  –  25,295
Additions  3,361  3,106  520  6,987
Transfers  –  (21,215)  21,215  –
Exchange adjustments  41  1,791  –  1,832
At 31 December 2007  3,972  8,407  21,735  34,114
 
 Work in progress 
 – exploration  Exploration 
 and evaluation  and evaluation  Development  Total
At 1 January 2008  3,972  8,407  21,735  34,114
Additions  2,065  261  139  2,465
Disposals  –  –  4  4
Exchange adjustments  (965)  (1,424)  (3,598)  (5,987)
At 31 December 2008  5,072  7,244  18,280  30,596
6. Property, plant and equipment – Group
Movements in property, plant and equipment, for the years ended 31 December 2008 and 2007 are as follows:
 
    Subtotal – 
  Development Work in assets under Producing Land and 
  assets progress construction assets buildings Other Total
Cost
At 1 January 2007  – – – – – 38 38
Additions  5,334 – 5,334 – 528 66 5,928
Transfers  (1,658) – (1,658) 1,658 – – –
At 31 December 2007  3,676 – 3,676 1,658 528 104 5,966
Accumulated depreciation
At 1 January 2007  – – –  – – –
Depreciation  – – – (8) – (19) (27)
At 31 December 2007  – – – (8) – (19) (27)
Exchange adjustments  – – – – – 1 1
At 31 December 2007  3,676 – 3,676 1,650 528 86 5,940 Volga Gas plc
Annual Report and Accounts 2008 42
Notes to the IFRS Consolidated Financial Statements continued
for the year ended 31 December 2008
(presented in US$000)
 
    Subtotal – 
  Development Work in assets under Producing Land and 
  assets progress construction assets buildings Other Total
Cost
At 1 January 2008  3,676 – 3,676 1,658 528 104 5,966
Additions  24,568 539 25,107 296 207 3 25,613
Transfers  (4,039) – (4,039) 4,039 – – –
At 31 December 2008  24,205 539 24,744 5,993 735 107 31,579
Accumulated depreciation
At 1 January 2008  – – – (8) – (19) (27)
Depreciation  – – – (86) – (14) (100)
At 31 December 2008  – – – (94) – (33) (127)
Exchange adjustments  (3,763) (83) (3,846) (925) (119) (12) (4,902)
At 31 December 2008  20,442 456 20,898 4,974 616 62 26,550
7. Other non-current assets – Group
       31 December 31 December 
       2008 2007
VAT recoverable       7,209 2,612
Other non-current assets       36 –
Total other non-current assets       7,245 2,612
Security deposit on acquisition of fixed assets       20,422 –
Management believes that it will not be able to recover value added tax specific to licence and E&E contractors’ payments until these 
licences are revenue producing. Therefore this value added tax is classified as a non-current asset.
The construction advance of US$20.4 million relates to an advance paid by the Company to Trans Nafta for the Group’s share of costs 
associated with the construction of a Gas Processing Unit (‘GPU’) to be jointly owned by the Company and Trans Nafta. The payment 
reflected in the Cash Flow statement differs from the amount shown in the non-current assets due to the forex exchange difference.
In October 2008, the Group reached a resolution in relation to a legal claim regarding its 2006 purchase of Gaznefteservice from Trans 
Nafta. As part of the resolution between the parties, the Group and Trans Nafta entered into a preliminary sale and purchase agreement 
under which the parties agreed to combine their GPUs, both of which were under construction at the time of the legal action. The 
combined GPU will be owned and operated on a 75/25 basis by the Group and Trans Nafta.
In accordance with this preliminary agreement, the Group made an advance to Trans Nafta of RUR600 million (approximately US$20.4 
million). Management considers this advance will substantially cover the Group’s 75% share of the cost of constructing the GPU. On 
completion of the GPU, Trans Nafta will register the asset with the authorities. When the completed GPU is registered, a final sale and 
purchase agreement will be entered into and title to the 75% of the completed GPU will pass to the Group.
The final legal form of ownership of the GPU assets has not been determined.
6. Property, plant and equipment – Group continued 43
Volga Gas plc
Annual Report and Accounts 2008
8. Cash and cash equivalents – Group
       31 December 31 December 
       2008 2007
Cash at bank and on hand       22,753 91,507
Short-term bank deposits       340 6,032
Total cash and cash equivalents       23,093 97,539
An analysis of Group cash and cash equivalents by bank and currency is presented in the table below:
 
       31 December 31 December 
       2008 2007 
Bank     Currency  US$000 US$000
Cyprus
Bank of Cyprus     RUR  3 55,100
      US$  8 1
United Kingdom
The Royal Bank of Scotland     US$  19,196 26,570
      GBP  20 268
Russian Federation
Unicreditbank     RUR  432 14,712
Other banks     RUR  409 876
Unicreditbank     US$  3,025 12
Total cash and cash equivalents        23,093 97,539
9. Derivative financial instruments – Group
At 31 December 2008 the Company has no derivative financial instruments. At 31 December 2007 the Company had two open forward 
currency contracts to sell US dollars for RUR with the Royal Bank of Scotland. The fair value of the financial instruments at 31 December 
2007 were:
 
Terms of contract     Settlement date Unrealised gain/(loss)
Forward sale of US$50 million for RUR     4 February 2008 2,767
Forward sale of US$10 million for RUR     17 March 2008 (11)
Total derivative financial instruments      2,756
These two forward contracts were settled on the due dates for US$2,828,000 and US$488,000 respectively, US$2,756,000 of this gain 
was recognised in 2007.
10. Inventories – Group
       31 December 31 December 
       2008 2007
Production and other spares       1,462 114
Crude oil inventory       23 31
Total inventories       1,485 145
11. Other receivables – Group
       31 December 31 December 
       2008 2007
Prepayments, including construction advances made to suppliers      8,314 2,480
Other accounts receivable        135 181
Total other receivables       8,449 2,661 Volga Gas plc
Annual Report and Accounts 2008 44
Notes to the IFRS Consolidated Financial Statements continued
for the year ended 31 December 2008
(presented in US$000)
12. Share capital and premium – Group
The following table summarises the movement in the share capital and share premium of the Company for the years ended 2007 and 2008.
 
     Share capital  Share premium 
   Number of shares  US$000  US$000
At 1 January 2007    307,201  579  15,251
Number of shares before subdivision    307,201  –  –
Subdivision of shares    30,720,100  –  –
Issue of shares:
– public placement    22,500,000  450  134,550
– share issue costs    –  –  (10,120)
– shares issued to Directors (a)    403,848  8  3,871
At 31 December 2007    53,623,948  1,037  143,552
 
     Share capital  Share premium 
   Number of shares  US$000  US$000
At 1 January 2008    53,623,948  1,037  143,552
Issue of shares:
– shares issued to Directors (a)    393,852  8  1,130
At 31 December 2008    54,017,800  1,045  144,682
The total number of authorised Ordinary Shares is 330,720,100 (2007: 330,720,100) with a par value of £0.01 per share ( 2007: £0.01 
per share).
(a) Share-based compensation
Share options and other share-based awards granted to certain Directors. The Group had two share based payment schemes in 2008, 
details of which are given in the Directors’ Remuneration Report.
2007 Restricted share awards
The following table summarises information on the shares issued to the Directors of the Company in exchange for services provided 
under the 2007 Restricted Share Awards:
   Number of Number of Number of 
   shares allotted at shares allotted shares allotted at 
Directors   1 January 2008 for the period 31 December 2008
Executive Directors:
Mikhail Ivanov    262,549  262,551  525,100
Alistair Stobie    131,299  131,301  262,600
Non-executive Directors:
Ronald Freeman    5,000  –  5,000
Stephen Ogden    5,000  –  5,000
    403,848  393,852  797,700
Shares issued to non-executive Directors in 2007 had no vesting conditions, they were valued at the placing price of US$6 each and were 
fully-expensed during the period to 31 December 2007.
The fair value of restricted shares issued to Mikhail Ivanov and Alistair Stobie is measured by use of the Black-Scholes pricing model with 
the following assumptions:
Share price     US$6.29
Exercise price (equal to nominal value of share) US$0.02
Expected volatility    8.48%
Expected life     0–3 years
Risk free rate     5.71%–6.15%
Expected dividends   None
Accordingly US$1,130,000 (2007: US$3,871,000) of the total fair value determined was charged to the income statement for the period 
(Note 15).
According to the Restricted Share Agreement, Mikhail Ivanov (‘CEO’) and Alistair Stobie (‘CFO’) received 787,700 shares in six semi-
annual instalments. As of 31 December 2008 there are no outstanding restricted share agreements under this programme. 45
Volga Gas plc
Annual Report and Accounts 2008
2008 Executive Share Option Plan
On 15 July 2008 the Group announced a new Executive Share Option Plan that certain of the Executive Directors (Mikhail Ivanov  
and Alistair Stobie) are entitled to participate in. No deeds of grant under the scheme have been formally approved by the Board  
at 31 December 2008 and accordingly no options have been issued to the Directors under the plan. No charge is recognised in  
the 2008 financial statements in respect of the Executive Share Option Plan.
13. Other reserves – Group
Other reserves represent adjustment of translation on share capital of non-US dollar subsidiaries into US dollar. All related exchange 
gains and losses are charged directly to equity.
       31 December 31 December 
       2008 2007
Adjustment of translation of non-US dollar subsidiaries       (16,027) 4,061
14. Trade and other payables – Group
       31 December 31 December 
       2008 2007
Trade and other payables       2,416 1,099
Value added tax provision       – 237
Total       2,416 1,336
15. Cost of sales, operating and administrative expenses – Group
       Year ended  Year ended 
       31 December 31 December 
       2008 2007
Cost of sales       607 29
Operating and administrative expenses       12,784 8,392
Total costs and expenses       13,391 8,421
Total costs and expenses are analysed as follows:
       Year ended  Year ended 
       31 December 31 December 
       2008 2007
Exploration and evaluation (a)       5,598 1,893
Legal expenses (b)       2,536 156
Directors’ emoluments and other benefits (c)       2,162 4,417
Salaries (d)       858 368
Consulting service       428 577
Taxes other than payroll       390 72
Audit fees       285 318
Financing costs       234 –
Travel and transport       232 88
Rent and communications       178 125
Depreciation       100 27
Insurance       22 112
Other       368 268
Total costs and expenses       13,391 8,421
(a) Exploration and evaluation
During 2008 expenditure on seismic studies on the Pre-Caspian Licence Area and the supra-salt study of the Karpenskiy licence was 
expensed as management believes that the expenditure is not related closely enough to specific oil and gas reserves to allow its 
capitalisation in accordance with IFRS 6 ‘Exploration for and evaluation of Mineral Resources’.
       Year ended  Year ended 
       31 December 31 December 
       2008 2007
Seismic studies       5,553 1,777
Ecological monitoring       45 116
       5,598 1,893 Volga Gas plc
Annual Report and Accounts 2008 46
Notes to the IFRS Consolidated Financial Statements continued
for the year ended 31 December 2008
(presented in US$000)
(b) Legal expense
An amount of US$2,366,000 is included in legal expenses in 2008 in respect of the 2008 court proceedings brought by Alexander 
Kulyaev to purchase of Gaznefteservice from Trans Nafta in 2006. The costs include legal and other consultation services related to 
preparation for the court proceedings. The court proceedings were withdrawn in November 2008 following resolution of the matter.
(c) Directors’ emoluments and other benefits
Analysis of Directors emoluments and other benefits for the years ended 31 December 2008 and 31 December 2007 is as follows:
 
     Share-based 
Year ended 31 December 2007    Salary  compensation
1
 Other
2/3
 Total
Executive Directors:
Mikhail Ivanov    282  2,541 – 2,823
Alistair Stobie    180  1,270 50 1,500
Non-executive Directors:
Ronald Freeman    42  30 – 72
Stephen Ogden    42  30 – 72
    546  3,871 50 4,467
 
     Share-based 
Year ended 31 December 2008    Salary  compensation
1
 Other
2/3
 Total
Executive Directors:
Mikhail Ivanov    387  753 125 1,265
Alistair Stobie    292  377 125 794
Non-executive Directors:
Ronald Freeman    50  – – 50
Stephen Ogden    50  – – 50
Vladimir Koshcheev      – 3 3
    779  1,130 253 2,162
1 Details of Directors’ interests in the share capital of the Company are provided in Note 12 and in the Directors’ Remuneration Report.
2  Alistair Stobie received a special bonus in respect of the Company’s admission to AIM. This bonus is included within costs associated with the issue of capital.
3  In 2008 Mikhail Ivanov received a performance bonus of US$125,000 in respect of 2007. Alistair Stobie received a performance bonus in 2008 in the amount of US$50,000, 
the remaining amount represents an additional amount received on his departure from the Group.
(d) Staff and salaries
The average monthly number of employees (including Executive Directors) employed by the Group was:
       Year ended  Year ended 
       31 December 31 December 
       2008 2007
Exploration and production       22 18
Administration and support       16 9
       38 27
Their aggregate remuneration comprised
1
Wages and salaries       701 288
Payroll taxes and social contribution       157 80
       858 368
1 Executive Directors’ remuneration is not included. For details of Directors’ remuneration see separate disclosure in Note 15 (c) and Directors’ Remuneration Report.
The average monthly number of employees employed by the Company was:
       Year ended  Year ended 
       31 December 31 December 
       2008 2007
Administration and support       2 2
Only Directors are employed by the Company.
15. Cost of sales, operating and administrative expenses – Group continued 47
Volga Gas plc
Annual Report and Accounts 2008
16. Interest income – Group
Interest income comprises interest earned during the period on cash balances with different financial institutions (Note 8).
17. Other gains and losses – Group
       Year ended  Year ended 
       31 December 31 December 
       2008 2007
Realised gain on forward currency contract       4,179 949
Gain on forward currency contracts       – 2,756
Foreign exchange loss       (3,160) (235)
Other gains       237 –
Total other gains and losses       1,256 3,470
Realised gains on forward currency contracts for the years ended 31 December 2008 includes net gain of US$560,000 from two open 
forward currency contracts recognised in 2007 on fair value and net gain of US$3,619,000 from new forward currency contracts settled 
during the reporting period.
18. Current and deferred income tax – Group
       Year ended  Year ended 
       31 December 31 December 
       2008 2007
Current income tax       (1,600) (270)
Net deferred income tax       1,358 528
       (242) 258
The tax charge in the Group income statement differs from the theoretical amount that would arise using the weighted average tax rate 
applicable to profits of the consolidated entities as follows:
 
       Year ended  Year ended 
       31 December 31 December 
       2008 2007
Loss before income tax and minority interest       (10,057) (2,831)
Tax calculated at domestic tax rates applicable to profits/(losses) in the respective countries   2,180 287
Tax effect of items which are not deductible or assessable for taxation purposes:
   Non-taxable gain       167 56
   Additional deemed taxable income       (1,075) –
   Non-deductible expenses       (814) (85)
   UK taxes on overseas income       (700) –
Income tax (charge)/benefit       (242) 258
Income tax benefit represents the effect of corporate profit tax provision in the amount of US$900,000 and deferred tax accrual in the 
amount of US$1,358,000.
The weighted average applicable tax rate was 21.7% (2007: 10.1%). The increase is caused by a change in the profitability of the Group’s 
subsidiaries in the respective countries. Volga Gas plc
Annual Report and Accounts 2008 48
Notes to the IFRS Consolidated Financial Statements continued
for the year ended 31 December 2008
(presented in US$000)
Deferred taxation is attributable to the temporary differences that exist between the carrying amounts of assets and liabilities for financial 
reporting purposes and the amounts used for tax purposes. The tax effects of temporary differences that give rise to deferred taxation 
are presented below:
       Differences  
      31 December recognition 31 December 
      2008 and reversal 2007
Tax effects of taxable temporary differences:
Other receivables      (487) (487) –
Property, plant and equipment      (12) 59 (71)
Derivatives      – 785 (785)
Exploration assets      – 329 (329)
Total      (499) 686 (1,185)
Tax effect of deductible temporary differences:
Tax losses carry forward      2,302 1,223 1,079
Exploration assets      128 128 –
Trade and other payables      71 (25) 96
Inventories      1 (89) 90
Share grant expenses      – (403) 403
Other receivables      – (155) 155
Insurance assets      – (7) 7
Total      2,502 672 1,830
Net tax effect of temporary differences      2,003 1,358 645
Corporate profit tax provision      – (1,600) –
Income tax      – (242) –
19. Earnings per share – Group
Loss per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of 
ordinary and diluted shares in issue during the year excluding Ordinary Shares purchased by the Company and held as treasury shares.
 
      Year ended   Year ended 
      31 December  31 December 
      2008  2007
Net loss attributable to equity shareholders (per share)      0.19  0.06
Basic weighted number of shares      54,008,474  46,376,181
18. Current and deferred income tax – Group continued 49
Volga Gas plc
Annual Report and Accounts 2008
20. Cash flows used in operating activities – Group
       Year ended  Year ended 
       31 December 31 December 
       2008 2007
Loss for the period before tax       (10,057) (2,831)
Adjustments to loss before tax:
Share grant expense       1,138 3,871
Depreciation       100 27
Other non-cash operating gains       (238) –
Charge for provision       234 –
Interest accrued       – (94)
Gain on forward contract       – (2,756)
Foreign exchange differences       (1,841) 235
Total effect of adjustments       (607) 1,283
Increase in long-term assets       (5,981) –
Operating cash outflow prior to working capital       (16,645) (1,548)
Working capital changes
Increase in trade and other receivables       (33) (4,510)
Decrease in derivative financial instruments       2,756 –
Increase in payables       (327) 1,066
Increase in inventory       (1,611) (145)
Net cash outflow from operating activities       (15,860) (5,137)
21. Investments – Company
Investments in subsidiaries are accounted for at cost.
The Company’s subsidiaries are as follows:
 
Name Jurisdiction   Nature of operations Owned  From
Woodhurst Holdings Ltd Cyprus Intermediate holding company 100% October 2005
Pre-Caspian Gas Company Russia Oil and gas exploration and development 100% May 2006
Gaznefteservice Russia Oil and gas exploration and development 100% September 2006
Shropak Investments Ltd Cyprus Dormant 100% June 2007
Volga Gas (Cyprus) Ltd Cyprus Intermediate holding company 100% August 2007
Gazservice Russia Special purpose entity 99% October 2008
To avoid certain legal restrictions on land ownership in October 2008 Pre-Caspian Gas Company acquired a 99% shareholding in  
ZAO Gazservice. Subsequently, Pre-Caspian Gas Company sold an unimproved plot of land to ZAO Gazservice at cost basis.
 
     31 December   31 December 
Company     2007  Additions Disposals 2008
Investments in Woodhurst Holdings     46,700 72,554 – 119,254
Investments in Volga Gas (Cyprus) Limited     51 1,000 – 1,051
Total investments     46,751 73,554 – 120,305
Included in additions above is an amount of US$57,554,000 reclassified from intercompany loan to investments in the period as the 
Directors consider this item to be permanent in nature.
The Company funds its activities in the Russian Federation via Woodhurst Holdings, the Company’s Cyprus registered subsidiary.
22. Inter-company loan – Company
During 2008 management took the view that the loan of US$55,682,000 together with the interest accrued of US$1,872,000 was 
permanent in nature and accordingly the outstanding balance has been reclassified to ‘Investments’ (Note 20). Volga Gas plc
Annual Report and Accounts 2008 50
Notes to the IFRS Consolidated Financial Statements continued
for the year ended 31 December 2008
(presented in US$000)
23. Accumulated profit – Company
       31 December 31 December 
       2008 2007
Retained (losses)/earnings       (1,084) 1,448
At start of year profit/(loss) for the year       1,408 (40)
Accumulated profit at 31 December       324 1,408
24. Trade and other payables – Company
       31 December 31 December 
       2008 2007
Trade creditors       1,611 254
Current tax provision       700 –
Value added tax provision       – 237
Total trade and other payables       2,311 491
25. Inter-company payables – Company
Intercompany payables represent an interest-free loan from Woodhurst Holdings.
26. Cash and cash equivalents – Company
       31 December 31 December 
       2008 2007
Cash at bank and on hand       18,496 21,213
Short-term bank deposits       – 5,625
Total cash and cash equivalents       18,496 26,838
27. Cash flows from/used in operating activities – Company
       31 December 31 December 
       2008 2007
(Loss)/profit for the period before tax       (619) 1,989
Adjustments to profit/loss before tax:
Interest accrued       (1,871) (777)
Other non-cash operating gains       (238) –
Gain on forward contract       – (2,756)
Charge for provision       234 –
Share grant expense       1,138 3,871
Foreign exchange differences       – –
Operating cash outflow prior to working capital       (1,356) 2,327
Decrease in trade and other receivables       (933) (69,791)
Decrease in derivative financial instruments       2,756 –
Increase in payables       7,191 204
Net cash from/used in operating activities       7,658 (67,260)
28. Audit fees – Group and Company
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditors and 
its associates:
       Year ended  Year ended 
       31 December 31 December 
       2008 2007
Fees payable to Company’s auditor for the audit of Parent Company and consolidated financial statements  235 255
Fees payable to the Company’s auditor and its associated firms for other services:
   – The audit of Company’s subsidiaries pursuant to legislation      9 –
   – Other services pursuant to legislation       50 548
   – Tax services       90 –
   – Other, training       5 –
Total       389 803
Other services pursuant to legislation in 2007 include fees paid by the Group to the previous auditor, Moore Stephens, of US$491,000 
relating to the IPO and US$57,000 relating to the interim review. 51
Volga Gas plc
Annual Report and Accounts 2008
29. Related party transactions – Group and Company
The Group is controlled by Baring Vostok Private Equity Fund III, which owns 54.83% of the Company’s shares. Baring Vostok Private 
Equity Fund III performs its control through a number of nominee holding companies. The remaining 45.17% of the shares are widely held.
The following transactions concerning purchases of goods and services were carried out with related parties:
     
   Year ended Year ended 
   31 December 31 December 
Related party Relationship Nature of transactions 2007 2008
Cavendish Nominees Controlling shareholder Interest expense on loans received – 373
Granite Consulting Affiliated with controlling shareholder Salaries, rent, services – 194
Baring Vostok (Cyprus) Limited Affiliated with controlling shareholder Salaries, rent, services 86 56
Vladimir Koshcheev Director Services 3 –
Outstanded balances with above mentioned related parties as at 31 December 2008 and 31 December 2007 were as follows:
 
       31 December 31 December 
Related party       2008 2007
Cavendish Nominees       – –
Granite Consulting       – –
Baring Vostok (Cyprus) Limited       12 56
All transactions with related parties were made on commercial basis.
(a) Other related parties
The following transactions were carried out with companies nominally held by the Group’s employees but not controlled by the Group.
 
      Year ended Year ended 
      31 December 31 December 
Related party Kind of transactions     2008 2007
OOO Geo Eko Long-term loan (interest rate 1%)     13 4
OOO Geopotential Long-term loan (interest rate 1%)     13 4
(b) Key management compensation
       Year ended  Year ended 
       31 December 31 December 
       2008 2007
Salaries and other short-term employee benefits       1,032 596
Share-based payments       1,130 3,871
       2,162 4,467
(c) Year-end balances arising from transactions with related parties
       31 December 31 December 
       2008 2007
Due to/(from) related parties
Baring Vostok (Cyprus) Limited       12 56
OOO Geo Eko       (13) (4)
OOO Geopotential       (13) (4)
All transactions with related parties were made on commercial basis.
30. Contingencies and commitments
30.1. Capital commitments
(a) Pre-Caspian Gas Company
(i) Karpenskiy licence area
In accordance with the amended Karpenskiy Licence Agreement (‘Amended KLA’) PGK is required to acquire 400
 
km
2 
of 3-D seismic 
studies and to drill 14 wells. At the balance sheet date the Company had acquired 402.7
 
km
2 
of 3-D seismic studies, thereby completing 
the licence requirements on 3-D acquisition. As at the balance sheet date seven of the committed wells have been drilled. Management 
currently estimates that expenditure to drill the balance will be approximately US$10 million. Volga Gas plc
Annual Report and Accounts 2008 52
Notes to the IFRS Consolidated Financial Statements continued
for the year ended 31 December 2008
(presented in US$000)
(ii) Pre-Caspian licence area
  In accordance with the licence agreement for the Pre-Caspian Licence Area, PGK is required to acquire an additional 500 km of 2-D 
seismic in 2009. At balance sheet date the Company had acquired 1,000 km. The cost of seismic acquisition in 2009 is expected to 
be US$1,478,000. The Company may apply for exchange of existing 2-D acquisition obligations to 3-D seismic acquisition. The overall 
cost of seismic acquisition is expected to remain the same.
(iii) Urozhainoye licence area
  There are no capital commitments in respect of the Urozhainoye Licence Agreement for 2009.
(b) Gaznefteservice-V-M licence area
  In accordance with the V-M Licence Agreement, GNS must drill at least one well by July 2008. As of balance sheet date two wells 
have been completed. As of balance sheet date approximately US$512,449 remained to be paid under the drilling contract with 
BK Eurasia.
30.2. Taxation
Russian tax, currency and customs legislation is subject to varying interpretations and changes which can occur frequently. 
Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant 
regional and federal authorities. Recent events within the Russian Federation suggest that the tax authorities may be taking a more 
assertive position in their interpretation of the legislation and assessments, and it is possible that transactions and activities that have not 
been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal 
periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review, but under 
certain circumstances, reviews may cover longer periods.
At 31 December 2008, management believes that its interpretation of the relevant legislation is appropriate and the Group’s tax, currency 
and customs positions will be sustained.
Restoration, rehabilitation and environmental costs
The Group operates in the upstream oil industry in the Russian Federation and its activities may have an impact on the environment. The 
enforcement of environmental regulations in the Russian Federation is evolving and the enforcement posture of government authorities is 
continually being reconsidered. The Group periodically evaluates its obligation related thereto. The outcome of environmental liabilities 
under proposed or future legislation, or as a result of stricter interpretation and enforcement of existing legislation, cannot reasonably be 
estimated at present, but could be material.
Under the current levels of enforcement of existing legislation, management believes there are no significant liabilities in addition to 
amounts which are already accrued and which would have a material adverse effect on the financial position of the Group.
30.3. Oilfield licences
The Group is subject to periodic reviews of its activities by governmental authorities with respect to the requirements of its oilfield 
licences. Management of the Group correspond with governmental authorities to agree on remedial actions, if necessary, to resolve any 
findings resulting from these reviews. Failure to comply with the terms of a licence could result in fines, penalties, licence limitation, 
suspension or revocation. The Group’s management believes any issues of non-compliance will be resolved through negotiations or 
corrective actions without any materially adverse effect on the financial position or the operating results of the Group.
In January 2008 the Group was issued with an amendment to its KLA. The amendments to the KLA remove the historical licence breaches.
The principal licences of the Group and their expiry dates are:
 
Field     Licence holder Licence expiry date
Karpenskiy OOO Pre-Caspian Gas Company  2021
Pre-Caspian OOO Pre-Caspian Gas Company  2031
Urozhainoye-2 OOO Pre-Caspian Gas Company  2032
V-M OOO Gaznefteservice  2026
Management believes that in practice the relevant authorities rarely suspend or restrict the licences, especially at the exploration stage, 
and tend to terminate licences only in the event of continuous non-compliance and the failure of the licence holder to remedy breaches. 
The Group is attempting to comply with its licence requirements and has not received any official warnings or notifications about 
continuous non-compliance or any risk of suspension, restriction or termination.
30. Contingencies and commitments continued 53
Volga Gas plc
Annual Report and Accounts 2008
31. Post-balance sheet events
Results of drilling
On 3 February 2009 the Group announced the results of well #4, a development well on the V-M field that had commenced drilling in 
November 2008. Net gas pay measured in the well was substantially less than anticipated and management has suspended the well 
pending full evaluation of the results. The impact of the results of the well on estimated gas and condensate reserves in the V-M field is 
yet to be estimated. The immediate plan for the field is to commence production from the first two wells early in 2H 2009.
In accordance with the successful efforts method of accounting, the costs associated with the well (US$3,425,000) continue to be 
capitalised as ‘development assets’.
Executive Share Option Plan – grant of options
On 14 January 2009, the Company announced its intention to grant 568,732 thousand share options to Tony Alves, CFO, under the 2008 
Executive Share Option Plan. The options are due to vest in eight semi-annual tranches over a period of four years providing certain 
performance conditions related to the Company’s share price are met. The options are intended to have an exercise price of £1.00 
representing the quoted market price in Volga Gas plc. Volga Gas plc
Annual Report and Accounts 2008 54
Notice of Meeting
Notice is hereby given that the Annual General Meeting of Volga Gas plc will be held at the London office of Akin Gump Strauss Hauer & 
Feld at Ten Bishops Square, London E1 6EG on 18 June 2009 at 9.00am for the following purposes:
Ordinary business
1. To receive the Directors’ report and accounts for the year ended 31 December 2008.
2. To declare a final dividend of £nil.
3. To elect Antonio Maria Alves as a Director
4. To re-elect Aleksey Kalinin and Vladimir Koshcheev as Directors.
5. To reappoint auditors and to authorise the Directors to agree the remuneration of the auditors.
Special business
To consider and, if thought fit, to pass resolution 6 as an ordinary resolution and resolution 7 as a special resolution.
6.  That, the Directors be and they are hereby generally and unconditionally authorised in accordance with Section 80(1) of the 
Companies Act 1985 (‘the Act’) to exercise all the powers of the Company to allot relevant securities (as defined in Section 80(2) of the 
Act) up to a maximum aggregate nominal amount of £1,000,000 to such persons and at such times and on such terms as they think 
proper, provided that this authority shall expire the earlier of (i) 15 months from the passing of this Resolution, or (ii) the conclusion of 
the Annual General Meeting of the Company to be held in 2010, save that this authority shall allow the Company to make offers or 
agreements before the expiry of such authority which would or might require relevant securities to be allotted after such expiry and 
the Directors shall be entitled to allot relevant securities pursuant to any such offer or agreement as if this authority had not expired; 
and all unexercised authorities previously granted to the Directors to allot relevant securities be and are hereby revoked.
7.  That, the Directors be and they are hereby empowered pursuant to Section 95 of the Act to allot equity securities (as defined in 
Section 94(2) of the Act) for cash; pursuant to the authority conferred by resolution 5 set out in the Notice convening this Annual 
General Meeting as if Section 89(1) of that Act did not apply to any such allotment, provided that this power shall be limited to:
 (a)  the allotment of equity securities in connection with a rights issue, open offer or other offer of securities in favour of the holders of 
Ordinary Shares on the register of members at such record date(s) as the Directors may determine where the equity securities 
respectively attributable to the interests of the ordinary shareholders are proportionate (as nearly as may be) to the respective 
numbers of Ordinary Shares held by them on any such record date(s), subject to such exclusions or other arrangements as the 
Directors may deem necessary or expedient to deal with fractional entitlements or legal or practical problems arising under the 
laws of any overseas territory or the requirements of any regulatory body or stock exchange or by virtue of shares being 
represented by depositary receipts or any other matter; and
 (b)  the allotment (otherwise than pursuant to sub-paragraph (a) above) to any person or persons of equity securities up to an 
aggregate nominal amount of £150,000
  and shall expire upon the expiry of the general authority conferred by resolution 6 set out in the Notice convening this Annual General 
Meeting, save that the Company shall be entitled to make offers or agreements before the expiry of such power which would or might 
require equity securities to be allotted after such expiry and the Directors shall be entitled to allot equity securities pursuant to any 
such offer or agreement as if the power conferred hereby had not expired.
Registered Office:   By order of the Board
Ground Floor    Antonio Maria Alves
17–19 Rochester Row  Company Secretary
London     March 2008
SW1P 1QT 55
Volga Gas plc
Annual Report and Accounts 2008
Notes:
1.  A member entitled to attend, speak and vote at the meeting convened by the notice set out above is entitled to appoint a proxy to 
attend, speak and, on a poll, to vote in his place. To appoint more than one proxy you may photocopy this form. Please indicate the 
proxy holder’s name and the number of shares in relation to which they are authorised to act as your proxy (which, in aggregate, 
should not exceed the number of shares held by you). Please also indicate if the proxy instruction is one of multiple instructions being 
given. All forms must be signed and should be returned together in the same envelope.
2.  A form of proxy is enclosed. To be effective, it must be deposited at the office of the Company’s registrars so as to be received not 
later than 48 hours before the time appointed for holding the Annual General Meeting. Completion of the proxy does not preclude a 
member from subsequently attending and voting at the meeting in person if he or she so wishes.
3.  The register of interests of the Directors and their families in the share capital of the Company and copies of contracts of service of 
Directors with the Company or with any of its subsidiary undertakings will be available for inspection at the registered office of the 
Company during normal business hours (Saturdays and public holidays excepted) from the date of this notice until the conclusion of 
the Annual General Meeting.
4.  To appoint a proxy or to give or amend an instruction to a previously appointed proxy via the CREST system, the CREST message 
must be received by the issuer’s agent RO33 48 hours before the meeting date. For this purpose, the time of receipt will be taken to 
be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent 
is able to retrieve the message. After this time any change of instructions to a proxy appointed through CREST should be 
communicated to the proxy by other means. CREST Personal Members or other CREST sponsored members, and those CREST 
Members who have appointed voting service provider(s) should contact their CREST sponsor or voting service provider(s) for 
assistance with appointing proxies via CREST. For further information on CREST procedures, limitations and system timings please 
refer to the CREST Manual. We may treat as invalid a proxy appointment sent by CREST in the circumstances set out in Regulation 
35(5) (a) of the Uncertificated Securities Regulations 2001. In any case your proxy form must be received by the Company’s registrars 
no later than 48 hours before the meeting date.
5.  In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only those members entered on the Company’s 
register of members at 6.00pm on the day which is two days before the day of the meeting or, if the meeting is adjourned, 
shareholders entered on the Company’s register of members at 6.00pm on the day two days before the date of any adjournment shall 
be entitled to attend and vote at the meeting.
6.  In order to facilitate voting by corporate representatives at the Annual General Meeting, arrangements will be put in place at the 
Annual General Meeting so that (i) if a corporate shareholder has appointed the Chairman of the meeting as its corporate 
representative to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at 
the meeting, then on a poll those corporate representatives will give voting directions to the Chairman and the Chairman will vote (or 
withhold a vote) as corporate representative in accordance with those directions; and (ii) if more than one corporate representative for 
the same corporate shareholder attends the meeting but the corporate shareholder has not appointed the Chairman of the meeting 
as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives  
who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated  
corporate representative. Volga Gas plc
Annual Report and Accounts 2008 56
Glossary of Technical Terms
2-D seismic  geophysical data that depicts the subsurface strata 
in two dimensions
3-D seismic  geophysical data that depict the subsurface strata 
in three dimensions. 3-D seismic typically provides 
a more detailed and accurate interpretation of the 
subsurface strata than 2-D seismic
bcm  billion cubic metres
best estimate  the term ‘best estimate’ is used here as a generic 
expression for the estimate considered to be the 
closest to the quantity that will actually be 
recovered from the accumulation between the date 
of the estimate and the time of abandonment
BOE barrels of oil equivalent
condensate  liquid hydrocarbons associated with the production
 
from a primarily natural gas reservoir
field  means an area consisting of either a single reservoir 
or multiple reservoirs, all grouped on or related to 
the same individual geological structural feature 
and/or stratigraphic condition
gas natural gas
gas together with the laboratory, gathering pipelines 
processing and storage facilities (if any), a plant comprising 
facilities  one or more units such that after conditioning the 
gas will be of pipeline quality as, specified by 
Gazprom, such units may include dehydration, 
sweetening and separation of natural gas liquids
gas-water bounding surface in a reservoir above which 
contact  predominantly gas occurs and below which 
predominantly water occurs
hydrocarbons  compounds formed from the elements hydrogen 
(H) and carbon (C) and existing in solid, liquid or 
gaseous forms
Kungurian a layer of salt laid down during the lower Permian 
salt  age which occurs in the Northern Caspian 
Petroleum Province
licence area  the particular subsoil plot specified in the subsoil 
licence issued by the applicable Russian federal 
authority, which the licence holder has the right to 
use for the purpose and on the terms specified in 
the subsoil licence. A licence area may contain one 
or more fields or may encompass only a portion of 
a field
liquidation  to apply a cement plug to close the well and weld  
a steel plate to the top of the well; the well is  
then abandoned
mbbls thousand barrels
mcm thousand cubic metres
mmBOE million barrels of oil equivalent
natural gas  hydrocarbons that are gaseous at one atmosphere 
of pressure at 20°C. It can be divided into lean gas, 
primarily methane but often containing some 
ethane and smaller quantities of heavier 
hydrocarbons (also called sales gas) and wet gas, 
primarily ethane, propane and butane as well as 
smaller amounts of heavier hydrocarbons; partially 
liquid under atmospheric pressure
petroleum  naturally occurring liquids and gasses which are 
predominantly comprised of hydrocarbon 
compounds
possible are those unproven reserves that, on the available 
reserves  evidence and taking into account technical and 
economic factors, have a 10% chance of  
being produced
probable are those reserves in which hydrocarbons have 
reserves  been located within the geological structure with a 
lesser degree of certainty because fewer wells have 
been drilled and/or certain operational tests have 
not been conducted. Probable reserves are those 
reserves that, on the available evidence and taking 
into account technical and economic factors, have 
a better than 50% chance of being produced
prospective are those quantities of hydrocarbons which are 
resources  estimated, on a given date, to be potentially 
recoverable from undiscovered accumulations
proved include reserves that are confirmed with a high 
reserves  degree of certainty through an analysis of 
development history and/or volume method 
analysis of the relevant geological and engineering 
data. Proved reserves are those that, based on the 
available evidence and taking into account technical 
and economic factors, have a better than 90% 
chance of being produced
proved plus sum of the proved reserves and the probable 
probable reserves calculated in accordance with 
reserves SPE standards
reserves  quantities of petroleum which are anticipated to be 
commercially recoverable from known 
accumulations from a given date forward
reservoir  a porous and permeable underground formation 
containing a natural accumulation of producible 
natural gas and/or oil that is confined by 
impermeable rock or water barriers and is separate 
from other reservoirs
risk factor  for contingent resources means the estimated 
chance, or probability, that the volumes will be 
commercially extracted; for prospective resources 
means the chance or probability of discovering 
hydrocarbons in sufficient quantity for them to be 
tested to the surface, this, then, is the chance or 
probability of the prospective resource maturing 
into a contingent resource
SPE  reserves definitions consistent with those standards 
approved in March 1997 by the Society of 
Petroleum Engineers and the World Petroleum 
Congresses
sub-salt below the Kungurian salt layer
supra-salt above the Kungurian salt layer 57
Volga Gas plc
Annual Report and Accounts 2008
Russian Classification of Reserves
The Russian reserves system is based solely on the analysis of geological attributes. Explored reserves are represented by categories A, 
B, and C1; preliminary estimated reserves are represented by category C2; and potential resources are represented by category C3.
Category A reserves are calculated on the part of a deposit drilled in accordance with an approved development project for the oil or 
natural gas field. They represent reserves that have been analysed in sufficient detail to define comprehensively the type, shape and size 
of the deposit; the level of hydrocarbon saturation; the reservoir type; the nature of changes in the reservoir characteristics; the 
hydrocarbon saturation of the productive strata of the deposit; the content and characteristics of the hydrocarbons; and the major 
features of the deposit that determine the conditions of its development.
Category B represents the reserves of a deposit (or portion thereof), the oil or natural gas content of which has been determined on  
the basis of commercial flows of oil or natural gas obtained in wells at various hypsometric depths. Category B reserves are computed  
for a deposit (or a portion thereof) that has been drilled in accordance with either a trial development project or an approved  
development scheme.
Category C1 represents the reserves of a deposit (or of a portion thereof) whose oil or natural gas content has been determined on the 
basis of commercial flows of oil or natural gas obtained in wells and positive results of geological and geophysical exploration of non-
tested wells. Category C1 reserves are computed on the basis of results of geological exploration work and production drilling and must 
have been studied in sufficient detail to yield data from which to draw up either a trial development project or a development scheme.
Category C2 reserves are preliminary estimated reserves of a deposit calculated on the basis of geological and geophysical research  
of unexplored sections of deposits adjoining sections of a field containing reserves of higher categories and of untested deposits of 
explored fields. Category C2 reserves are used to determine the development potential of a field and to plan geological, exploration  
and production activities.
Category C3 resources are prospective reserves prepared for the drilling of (i) traps within the oil-and-gas bearing area, delineated by 
geological and geophysical exploration methods tested for such area and (ii) the formation of explored fields which have not yet been 
exposed by drilling. The form, size and stratification conditions of the assumed deposit are estimated from the results of geological and 
geophysical research. The thickness, reservoir characteristics of the formations, the composition and the characteristics of hydrocarbons 
are assumed to be analogous to those for explored fields. Category C3 resources are used in the planning of prospecting and exploration 
work in areas known to contain other reserve bearing fields.
In accordance with the Law on Subsoil mineral reserves in Russia are subject to mandatory state examination, a precondition of the 
granting of a production licence. The state examination of reserves is conducted by subsidiary organisations of the Federal Agency on 
Subsoil Use, including the State Reserve Commission, Central Reserve Commission and its regional departments. Once a subsoil user is 
granted an exploration, development or production licence, it is required to file annual reports reflecting changes in reserves. Subsoil 
users’ reserve reports are submitted annually for examination and approval by the Central Reserve Commission or, if there has been a 
substantial change in reserves, by the State Reserve Commission. Volga Gas plc
Annual Report and Accounts 2008 58
Corporate Directory
Registered office
c/o Capita Company Secretarial Services
Ground Floor, 17–19 Rochester Row
London SW1P 1QT
United Kingdom
Company Secretary
Tony Alves
of the registered office
Nominated adviser and joint broker
Oriel Securities Limited
125 Wood Street
London EC2V 7AN
United Kingdom
Auditors
PricewaterhouseCoopers LLP
32 Albyn Place 
Aberdeen AB10 1YL
United Kingdom
Lawyers and solicitors to the Company 
as to English and Russian law
As to English law:
Akin Gump Strauss Hauer & Feld
8th Floor, Ten Bishops Square
London E1 6EG
United Kingdom
As to Russian law:
Akin Gump Strauss Hauer & Feld LLP
Ducat Place II, 7 Gasheka Street
123056 Moscow
Russia
Registrar
Capita Registrars
The Registry
34 Beckenham Road 
Beckenham
Kent BR3 4TU
United Kingdom
Corporate communications/PR
Financial Dynamics
26 Southampton Buildings
London WC2A 1PB
United Kingdom
Joint broker
Renaissance Securities (Cyprus) Limited
4 Archbishop Makarios III Avenue
Capital Center, 9th Floor
Nicosia 1505
Cyprus 59
Volga Gas plc
Annual Report and Accounts 2008
Notes Volga Gas plc
Annual Report and Accounts 2008 60
Notes Meeting the challenge.
Delivering value.
Volga Gas plc is an independent oil and gas 
exploration and production company with 
four exploration and production licences in the 
Volga region of Russia. Since IPO we have 
focused successfully on executing our plans 
and delivering on our objectives.
Where are our 
assets located?
 page 2
How are we 
executing our 
strategy?
 page 7
Our key financial 
performance
 page 12
What assets do we 
have and how do 
we plan to grow 
them?
 page 3
Production and 
development focus
 page 9
How is the Russian 
gas market 
developing?
 page 5
Our management 
team
 page 11
Operations photography by Tony Alves  
Board of Directors photography by Simon Jarratt Volga Gas plc Annual Report and Accounts 2008
Volga Gas plc
Annual Report  
and Accounts
2008
Volga Gas plc
Ground Floor 
17–19 Rochester Row 
London SW1P 1QT
www.volgagas.com