www.volgagas.com
Volga Gas plc
Ground Floor
17–19 Rochester Row
London
SW1P 1QT
Volga Gas plc
Annual Report 
and Accounts
For the year ended 31 December 2009
www.volgagas.com
Volga Gas plc Annual Report and Accounts 2009 
Drilling rig at Grafovskaya #1.
Volga Gas plc is an 
independent oil and 
gas exploration and 
production company 
focused on the 
Volga Region of 
Russia and traded 
on AIM since March 
2007 . It has offices 
in London, Moscow 
and Saratov and has 
100% interests in 
four oil and gas 
exploration and 
production licences 
in the Saratov and 
Volgograd Regions. 01
Volga Gas plc   Annual Report and Accounts 2009 volgagas.com
BUSINESS OVERVIEW
CORPORATE GOVERNANCE FINANCIAL STATEMENTS
2009 a Milestone Year
Development of supra-salt Uzenskoye oil field in the Karpenskiy ` `
Licence Area completed
Five new oil wells successfully tested and production of 1,267 ` `
barrels of oil per day achieved in 2009
Sub-salt exploration drilling at Grafovskaya #1 continuing as at ` `
30 March 2010
First phase development drilling on the Vostochny ` `
Makarovskoye gas/condensate field completed. Two wells tested 
and ready for production
Combined Russian classification C1/C2 recoverable reserves  ` `
of 68 million barrels of oil equivalent on Uzenskoye and  
Vostochny Makarovskoye
Revenues of US$11.6 million in 2009, positive EBITDA and ` `
positive operating cash flow established 
Year end cash and deposits of US$33.6 million ` `
“2009 was an important year for Volga 
Gas. We have achieved sustainable 
production that gives us positive 
operating cash flow and we started 
drilling our sub-salt exploration well  
at Grafovskaya #1.”
Mikhail Ivanov, Chief Executive Officer
“We believe that Volga Gas has performed 
well in 2009. The Company has managed 
successful drilling operations, most 
importantly in the challenging sub-salt 
exploration project, where we look 
forward to the evaluation of the results. ”
Alexey Kalinin, Chairman
BUSINESS OVERVIEW
01 2009 a Milestone Year
02 Volga at a Glance
04 Chairman’s Statement
06 Chief Executive’s Report
08 Operational Review
12 Financial Review
14 Risk Factors
CORPORATE GOVERNANCE
16 Board of Directors
18  Corporate Governance 
Statement
20 Report of the Directors
23 Directors’ Remuneration Report
FINANCIAL STATEMENTS
25 Independent Auditors’ Report
26 Group Income Statement
26  Group Statement of 
Comprehensive Income
27 Group Balance Sheet
28 Group Cash Flow Statement
29 Company Balance Sheet
30 Company Cash Flow Statement
31  Group and Company Statements 
of Changes in Shareholders’ 
Equity
32  Notes to the IFRS Consolidated 
Financial Statements
49 Notice of Meeting
51 Glossary of Technical Terms
53  Russian Classification  
of Reserves
54 Corporate Directory
Contents 02
KARPENSKIY (SUB-SALT) KARPENSKIY (SUPRA-SALT)
MOSCOW
KAZAKHSTAN
FINLAND
BELARUS
POLAND
RUSSIA
Urozhainoye-2
Karpenskiy
Pre-Caspian
Vostochny Makarovskoye
Completed five new production 
wells on the Uzenskoye field in 2009.
First full year of production, 
averaging 1,267 barrels of oil per day.
Field facilities upgraded in 2009 to 
improve field uptime.
Russian C1/C2 recoverable reserves 
of 13.5 mmbbl with 32% upgrade of 
C1 reserves to 9.7 mmbbl.
Water injection study on the field.
Maintain/enhance production profile 
and maximise extraction of oil.
Spudded Grafovskaya #1 on the 
Yuzhny Ershovskoye prospect on 
28 August 2009.
Successfully drilled through the 
salt layer to 3,900 metres depth.
Encountered light oil in a carbonate 
sequence between 4,000 and  
4,300 metres. Estimated 
permeability is low but will be 
subject to further evaluation.
Grafovskaya #1 reached total depth 
of 5,379 metres in April 2010.
Further shows of hydrocarbon in 
deeper horizons. The commercial 
significance is yet to be established.
Evaluation and testing of potential 
reservoirs is to be conducted.
2009 PROGRESS
2010 OBj ECTIVES
Volga at a Glance 03
Volga Gas plc   Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE FINANCIAL STATEMENTS
BUSINESS OVERVIEW
VOSTOCHNY MAKAROVSKOYE PRE-CASPIAN LICENCE AREA UROZHAINOYE-2 LICENCE AREA
`
Completed seismic commitment 
on the licence. 
Acquired, processed and 
interpreted new 3-D seismic data.
Large sub-salt exploration 
structure confirmed.
 
Preparation to meet target for 
exploration drilling by 2011.
Completed acquisition, processing 
and interpretation of 340km 
 
of  
2-D seismic.
Planning for a commitment well  
in 2010.
Drill a step-out appraisal/
exploration well close to the 
existing oil discovery well.
First two development wells 
completed and wellhead facilities 
constructed ready for production.
Intra-field flow lines installed.
Negotiations with Trans Nafta on 
gas processing unit.
Russian C1/C2 reserves approved.
Aim to commence test production 
from the initial two wells.
Our assets are located in a proven  
area of large oil and gas finds. The area 
benefits from the existing rail, road and 
pipeline infrastructure and proximity 
to Russia’s main energy markets.
Successful development drilling 
on the Uzenskoye field enabled 
the Company to achieve positive 
operating cash flow and EBITDA 
in 2009. With eventual 
completion of the Vostochny 
Makarovskoye project and 
further potential developments, 
the Company aspires to further 
growth in production in the 
medium term. 
Meanwhile as we evaluate the 
resources encountered and 
identified in the sub-salt 
structures in the Karpenskiy 
Licence Area and the Pre-
Caspian Licence Area, the 
Company has the potential  
to deliver material growth  
in reserves. 04
Chairman’s Statement
“We believe that Volga  
Gas has performed well  
in 2009. The Company  
has managed successful 
drilling operations,  
most importantly in  
the challenging sub-salt 
exploration project, where 
we look forward to the 
evaluation of the results.”
Having been through a challenging period  
late in 2008 and early 2009, the economic 
environment in Russia stabilised during 2009. 
There has been a strong recovery in global oil 
prices, which was reflected in the prices 
achieved by Volga Gas in 2009.
The Russian Ruble reversed some of its steep 
declines but remains at a level far lower than 
seen up to mid 2008. The developments in the 
Russian gas market in terms of demand and 
pricing were significantly better than the 
consensus expectations early in the year.
We believe that Volga Gas has performed  
well in face of the challenges. Our fields are 
advantageously located and our costs are 
sufficiently low for us to achieve good returns 
even at low oil prices. Most importantly, we  
have fulfilled our licence commitments on  
the Karpenskiy and Vostochny Makarovskoye 
licences and have sufficient funds to meet  
the commitments due in other licence areas 
during 2010.
Volga Gas currently operates 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 exploration targets in deep 
sub-salt horizons that were previously believed  
to be principally gas and condensate. The actual 
results from our first well suggest that there may 
also be significant oil potential. 
The Group was created to explore the sub-salt 
structures on the Karpenskiy Licence Area 
(“KLA”). The highlight of the 2009 operations was 
the commencement of drilling operations on the 
Group’s first sub-salt exploration well.
As of the date of writing, the well has reached  
a depth of 5,270 metres and drilling continues. 
The commercial significance of any hydrocarbon 
bearing zones encountered has yet to be 
evaluated. If they prove capable of commercial 
production, there would be a significant 
contingent resource for the Group.
We have identified further high impact sub-salt 
exploration targets within our acreage at  
Yuzhny Mokrousovskoye in the KLA and in  
the nearby Pre-Caspian Licence where the 3-D 
seismic acquired in 2009 has already been 
processed and interpreted. This provides the 
opportunity to apply the understanding of the 
sub-salt play acquired from the first well in 
other high impact prospects within our existing 
licence areas.
Volga also achieved an important milestone  
in the Company’s development: a first year 
of substantial revenues and positive cash flow. 
While the financial impact is currently modest, 
as the other assets are brought into production,  05
Volga Gas plc   Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE FINANCIAL STATEMENTS
BUSINESS OVERVIEW
the vision of Volga Gas as a sustainable and high 
growth oil and gas exploration and production 
business comes a step closer to being realised.
While the Group made progress on most  
fronts, it is frustrating that the Vostochny 
Makarovskoye field is yet to commence 
production. As outlined in the 2008 Annual 
Report, we reached an agreement to acquire a 
75% interest in a gas processing facility being 
constructed by Trans Nafta and had in late 2008 
made a RUR 600 million advance payment for 
this acquisition. In March 2010 the Company 
moved ahead to complete the purchase of the 
75% interest in the gas processing facility.
Since the beginning of 2010, oil production from 
the Uzenskoye supra-salt field has been steady 
although recently transportation by customers 
has been disrupted by unusually heavy snow 
falls. This field continues to provide the Group 
with positive operating cash flow. The key 
activities for 2010 will include ongoing 
management and enhancement of the existing 
production, completion of the Vostochny 
Makarovskoye development and evaluation of 
the results from the sub-salt exploration drilling 
on the Grafovskaya #1 well. During 2010, the 
Group will also evaluate its forward strategy  
in relation to exploration of the sub-salt 
exploration potential in existing licence areas  
as well as opportunities to extend the Group’s 
activities into new areas.
We ended 2009 with cash and bank deposits  
of US$33.6 million and with positive operating 
cash flow. Volga Gas is consequently sufficiently 
funded to complete planned developments and 
to fulfil the committed 2010 exploration work 
programme.
Alexey Kalinin
Chairman
Horses grazing freely within 
the Karpenskiy Licence Area. 06
Chief Executive’s Report
“2009 was an important 
year for Volga Gas.  
We fulfilled the licence 
commitments on our  
key Karpenskiy block,  
we have achieved 
sustainable production 
that gives us positive 
operating cash flow and 
we started drilling our 
sub-salt exploration well 
at Grafovskaya #1.”
During 2009, the majority of the activity and 
investment was concentrated on developing 
our production assets. Drilling on Uzenskoye 
delivered better than anticipated results, 
confirming a high quality light oil resource.
There is still much to accomplish, namely 
completion of the Vostochny Makarovskoye field 
development, evaluation of the results from our 
sub-salt Grafovskaya #1 exploration well and 
enhancement of our understanding of the 
sub-salt hydrocarbon resources in our licence 
areas. We remain committed to delivering 
growing value to our shareholders.
The focus for Volga Gas in 2009 was on 
advancing our key sub-salt exploration project 
and completing the first phase development of  
our oil reserves in the Uzenskoye field. This 
coincided with fulfilment of the key remaining 
licence commitments on the Karpenskiy Licence 
Area (“KLA”). These we achieved.
During 2009, we completed eight shallow supra-
salt wells in the KLA and commenced drilling 
the Grafovskaya #1 sub-salt exploration well.
The resulting growth in oil production has 
enabled Volga Gas to reach a significant 
milestone for a young company: positive EBITDA 
and operating cash flow. This allows us to deploy 
our equity entirely in the most value-productive 
part of our activities – growing the asset base.
This is exemplified by the commencement  
of drilling of Grafovskaya #1, on the Yuzhny 
Ershovskoye prospect which itself was one of  
the original catalysts for the establishment of 
Volga Gas. In parallel, we have progressed with 
the geological and geophysical studies on 
opportunities to follow on from a successful 
outcome. Two further high impact sub-salt 
exploration targets have been advanced 
sufficiently to be ready for drilling.
Prior to undertaking this technically challenging 
well, we considered it vital for the Company to 
have sufficient financial headroom to deal with 
possible cost overruns. For this reason, we 
launched a placing of 27 million shares to raise 
net proceeds of US$26.6 million. Management is 
appreciative of the continuing support of 
shareholders in the placing.
We had at the beginning of the year also expected 
to bring the Vostochny Makarovskoye gas field into 
production. We did complete two production wells 
and installed intra-field pipelines, but the planned 
acquisition of a 75% interest in a gas processing unit 
was still under negotiation by the end of the year. 
As announced on 4 March 2010, this acquisition is 
now moving towards legal completion. We will now 
proceed as quickly as possible to enable the gas 
processing unit to commence operation and to start 
the first phase of production from the Vostochny 
Makarovskoye field. 07
Volga Gas plc   Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE FINANCIAL STATEMENTS
BUSINESS OVERVIEW
During the first quarter of 2010, we have 
continued to enjoy net positive operating cash 
flow and have fulfilled all of our obligations on 
the licences where we have recognised reserves 
and prospective resources. Our planned capital 
expenditure for 2010 totals US$14.0 million, 
including the portion of the Grafovskaya #1 well 
cost falling in 2010. The Group is thus well 
positioned to move quickly to bring Vostochny 
Makarovskoye into production as and when the 
commercial and legal arrangements over the gas 
processing facilities have been resolved.
We now have Russian C1 recoverable reserves  
of 45.4 million barrels of oil equivalent and a 
Executing  
our strategy 
1. Developing our production assets
With successful completion of the first phase 
development drilling on the Uzenskoye field, 
the focus turns towards managing production 
with a view to maximising ultimate extraction 
from the field. With eventual start up of 
production from Vostochny Makarovskoye and 
with appraisal of other identified resources, 
Volga Gas looks forward to developing a 
growing and sustainable production business 
from its existing licence areas.
2. Sub-salt exploration
We are completing drilling our first sub-salt 
well Grafovskoye #1, in the KLA and are 
carefully evaluating the potential of the 
further 22.3 million barrels equivalent of C2 
recoverable reserves contained in just two  
fields. 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.
Mikhail Ivanov
Chief Executive Officer
hydrocarbons found there. We have two 
additional major sub-salt exploration projects 
both within the Karpenskiy Licence and in the 
Pre-Caspian Licence Area. 
3. Financing
With funds raised in 2009, our existing funds 
are sufficient to meet our current commitments 
and planned developments. Timely execution 
of our further sub-salt 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 secure an asset base of four 
licences with low entry cost. We regularly 
evaluate further similar opportunities where 
we can rapidly add value and, where possible, 
incremental production volumes.
Flow lines within the Vostochny 
Makarovskoye Licence. 08
Operational Review
Operations overview
The Group’s two principal activities in 2009 
were: preparation for and commencement of 
drilling of Grafovskaya #1, the Group’s first major 
sub-salt exploration well in the KLA, and 
development of the Uzenskoye supra-salt oil 
field, also in the KLA. We also completed 
processing of the 3-D seismic over the second 
sub-salt prospect area in the KLA and acquired 
and processed 3-D seismic on the Pre-Caspian 
Licence Area. 
At Uzenskoye we have already achieved a steady 
level of production that provides the Group  
with a valuable source of cash generation while 
we seek to bring our other field, Vostochny 
Makarovskoye, into production and while  
we undertake the beginning of what we hope 
will become an extended campaign of sub-salt 
exploration in our licences.
Karpenskiy Licence Area
Early in 2008 we amended the terms of the 
Karpenskiy Licence Agreement, thereby 
resolving certain licence breaches the Group 
inherited when it acquired the licence from  
a LUKOIL subsidiary. The amended licence 
agreement requires the Group 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. By the start of 2009 we had 
already fulfilled our seismic obligations and the 
drilling programme of 2009, which we report 
below, completed the remaining licence 
commitments.
Sub-salt exploration
There are two main sub-salt prospect areas in 
the KLA: the Yuzhny Ershovskoye and Yuzhny 
Mokrousovskoye structures. Pre-drilling 
evaluation of these structures was concluded 
during the first half of 2009. A brand new 
western deep drilling rig operated by Evrasia 
was mobilised late in 2008 and was assembled 
early in 2009 on location ready to commence 
drilling Grafovskaya #1, our first sub-salt 
exploration well on the Yuzhny Ershovskoye 
structure.
Drilling operations on Grafovskaya #1 
commenced on 28 August 2009 and the drilling 
of the first 3,900 metres, including a 3,000 metre 
salt section was accomplished far more rapidly 
than planned. Having set casing at 3,900 metres, 
the well was drilled on through the first of two 
target zones that were, on seismic sections, 
identified as potential carbonate reservoirs.
Within the first section, a total column of over 
300 metres was found to exhibit shows of light 
oil and condensate within a dolomitised carbonate 
formation that also exhibited some zones with 
both fracture and matrix porosity. Initial open hole 
logging was unable to determine conclusively the 
productive capability of this reservoir and we 
decided to conduct further tests after completing 
the drilling operations including various methods 
that may improve productivity.
After the first carbonate section, drilling 
continued through a 600 metre shale sequence 
before entering a second carbonate sequence at 
5,000-5,070 metre depth where gas shows were 
recorded. We plan to collect some further data 
from this layer after completing the drilling.
Drilling has continued through into a Devonian 
carbonate layer starting at a depth of 
approximately 5,200 metres. The commercial 
potential of this layer is yet to be evaluated.  
We expect to continue to drill a further  
100–200 metres.
Supra-salt development
During 2009, activity was concentrated on 
completing initial development drilling on the 
Yuzhny Uzenskoye oil field and to evaluate 
further supra-salt prospects close to the 
Uzenskoye field production facilities. A total  
of eight supra-salt wells were drilled in this area 
during 2009 which, together with the 
commencement of drilling on Grafovskaya #1, 
completed the drilling commitments within the 
Karpenskiy licence terms.
The drilling programme included five 
development wells (including Uz. #6-bis, drilled 
as a sidetrack of Uz. #6 which did not at first 
The Group’s operational activities in 2009 
were focused on drilling of Grafovskaya #1, 
the first major sub-salt exploration well and 
development of the Uzenskoye supra-salt  
oil field. 09
Volga Gas plc   Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE FINANCIAL STATEMENTS
BUSINESS OVERVIEW
encounter the productive reservoir). These wells, 
were progressively put on production in the 
course of 2009, enabling the Group to achieve  
its first year of sustained, albeit modest scale, 
production. Starting with a single well producing 
at approximately 300 barrels of oil per day  
in January 2009, there are now five wells on 
permanent production. With output increasing 
through the earlier part of the year, production 
averaged just over 1,050 barrels per day in the 
first half of 2009, while second half production 
was sustained at 1,484 barrels per day.
Exploration drilling in the area included 
additional 3-D seismic and two exploration 
wells, V.Uz #7 and V.Uz. #10. Although these 
wells found oil in a cretaceous sandstone 
formation, the pay encountered was  
considered sub-economic and the wells  
have been abandoned.
During 2009 we also upgraded the surface 
infrastructure, including the installation of a 
second separator unit, and additional storage 
tanks. This allows routine maintenance and 
testing operations on individual wells to be 
undertaken without disrupting the flow from 
other wells.
In the latter part of 2009, it was decided to  
choke back production from some of the higher 
productivity wells in order to preserve reservoir 
pressure and prevent early water break-through. 
During 2010 we plan to convert two of the 
existing wells, which are on the edge of the  
field, into water injectors which will then enable 
higher levels of production to be sustained  
for the longer term.
The Yuzhny Uzenskoye field, while of modest 
scale, is very profitable. It was developed at a cost 
of US$1.91 per barrel of C1 reserves and benefits 
from very low production costs, which in 2009 
averaged US$0.71 per barrel. The oil is sold 
directly at the field facilities. During 2009 the 
average sales price was US$25.23 per barrel and 
after paying Mineral Extraction Tax (“MET”), 
gross profitability averaged US$14.52 per barrel. 
Prices in the second half of 2009 were higher 
Drilling rig used on 
Grafovskaya #1. 10
Uzenskoye eld: daily oil production 
(barrels per day) 
      JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
0
500
1000
1500
2000
2500
Uzenskoye eld: sales price comparison 
(US$/bbl) 
100
90
80
70
60
50
40
30
20
10
0
JAN  FEB MAR APR MAY JUN  JUL  AUG SEP  OCT  NOV DEC
Urals  Urals minus export tax  Sales price (excl VAT) Net revenue post MET
than in the first half, during the second half of 
2009 average sales price was US$30.20 per barrel 
and gross profitability after MET averaged 
US$18.03 per barrel. The Group achieved an even 
better cash benefit as both the VAT receipts on 
sales and the MET liabilities were available to 
offset against unrecovered VAT paid on historic 
capital expenditure.
Vostochny Makarovskoye Licence Area
The Group completed its first phase three  
well drilling programme on the Vostochny 
Makarovskoye field early in 2009. As we reported 
in the 2008 Annual Report, there are two 
completed and tested wells on the field ready to 
commence production.
During early 2009, intra-field pipelines were laid 
between the well locations to the boundary of the 
Dobrinskoye gas facility in preparation for initial 
production. Actual commencement of production 
has been delayed pending completion of the 
acquisition by the Group of a 75% interest  
in the gas processing unit (“GPU”) that is being 
constructed approximately 7 km from the 
Vostochny Makarovskoye Licence Area. Before the 
GPU can become fully operational, it would be 
necessary to transfer a sulphur treatment unit 
from the Vostochuy Makarovskoye Licence Area 
to the GPU. This process, with the required 
regulatory approvals, is expected to take up to 
nine months. Meanwhile, it may be possible to 
commence long-term test production from the 
VM field during 2010.
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.
Pre-Caspian Licence Area
Following interpretation of an initial 1,000 km  
of 2-D seismic data acquired in 2008, we agreed 
with the licensing authorities to exchange our 
remaining 2-D seismic commitment for 78 km
2
 
of 3-D seismic data over a potential sub-salt 
prospect identified by our initial work.
The new 3-D seismic data was acquired during 
2009 and processing and interpretation largely 
completed by the end of the year. There is a 
commitment under the licence terms, for a well 
to commence drilling before the end of 2011. The 
Pre-Caspian Licence Area has no reserves 
associated with it.
Urozhainoye-2
On 7 September 2007 the Group acquired 
Urozhainoye-2 at government mandated auction 
for approximately US US$1.7 million. The licence 
area covers 354 km
2
. It is located approximately 
15 km to the north of the Group’s Karpenskiy 
Licence Area 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 2009 we completed processing and 
interpretation of 350 km of 2-D seismic we 
acquired during 2008. The licence terms include 
a committed well during 2010. The current plan 
is to drill an offset well to the Sobolevskoye 
discovery well to attempt to prove up additional 
reserves and to enable a development plan for 
this field to be drawn up. The Group currently 
has no reserves or resources allocated to  
this licence.
Oil, gas and condensate reserves
The Group’s Russian category C1 and C2 
recoverable oil, gas and condensate reserves are 
presented in the table below. The reserves on the 
Yuzhny Uzenskoye field have recently been 
approved by the State Committee for Reserves as 
follows and represent the remaining recoverable 
reserves as at 1 January 2010. The reserves 
attributed to the Vostochny Makarovskoye field 
are unchanged from the numbers approved by the 
State Committee for Reserves in November 2008.
Mikhail Ivanov
Chief Executive Officer 11
Volga Gas plc   Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE FINANCIAL STATEMENTS
BUSINESS OVERVIEW
“ Drilling operations on the Grafovskaya 
#1 well have been accomplished more 
efficiently than anticipated and are 
expected to be within budgeted cost.”
Mikhail Ivanov
Chief Executive Officer
C1/C2 reserves 
 
  Gas – 62%
  Condensate – 18%
  Oil – 21%
Capital expenditure
  Exploration – 42%
  Development – 58%
Oil, gas and condensate reserves
   Recoverable reserves category
   C1 C2 C1+C2
Vostochny Makarovskoye   
Natural gas (bcf)   164.5 87.5 252.1
Condensate (mmbbl)   8.3 3.9 12.2
Total (mmboe)   35.8 18.5 54.2
   
Yuzhny Uzenskoye (Karpenskiy Licence supra salt)   
Crude oil (mmbbl)   9.7 3.8 13.5
Group total   C1 C2 C1+C2
Gas (bcf)   164.5 87.5 252.1
Condensate (mmbbl)   8.3 3.9 12.2
Crude oil (mmbbl)   9.7 3.8 13.5
Total (mmboe)   45.4 22.3 67.7
In the rig control room. 12
Financial Review
During 2009 our 
operations were primarily 
in an exploration and 
development phase 
although we also benefited 
from a period of sustained  
and growing production 
from the shallow oil 
reserves in the KLA.
The Group recorded net income after minority 
interests of US$0.2 million for the year ended  
31 December 2009 (2008: net loss of US$10.3 
million). No dividends have been paid or 
proposed for the year (2008: none).
In 2009, the Group generated US$11.6 million in 
turnover (2008: US$0.6 million) from the sale of 
458,900 barrels of crude oil (2008: 24,545 barrels). 
Crude oil sales were made into the domestic 
market during the period. The average price 
realised was the equivalent of US$25.23 per 
barrel, with sales prices increasing steadily 
through the year as international oil prices 
recovered and the differential discounts for  
our crude reduced. The oil production activities 
generated a gross profit of US$5.8 million in 2009 
(2008: profit of US$0.01 million), approximately 
US$12.64 per barrel of oil sold.
The Group experienced positive EBITDA  
(defined as operating profit before non-cash 
charges, exploration expense, depletion and 
depreciation) of US$3.0 million (2008: EBITDA 
loss of US$5.9 million). The operating profit for 
the year was US$0.6 million (2008: US$12.8 
million loss) which includes exploration 
expenses of US$1.5 million (2008: US$5.6 million) 
and administrative expenses of US$3.7 million 
(2008: US$7.2 million).
The Group recognised a profit before tax of  
US$0.9 million (2008: loss US$10.1 million) and 
reported net income after minorities interests  
of US$0.2 million (2008: loss of US$10.3 million).  
These numbers include expenses of US$0.4 
million (2008: nil) associated with the Vostochny 
Makarovskoye project, net gains on foreign 
exchange of US$0.2 million (2007: US$1.3 million) 
and current and deferred income tax charges of 
US$0.7 million (2008: tax charge of US$0.3 million).
Cash flow
Group net cash flow from operating activities 
was US$4.0 million (2008: outflow of US$15.9 
million), after US$1.5 million of expensed 
exploration costs. The working capital of the 
Group was enhanced by a net US$1.3 million 
(2008: US$0.8 million) positive cash flow from 
working capital movements, including recovery of 
VAT on capital expenditures. Having accrued net 
prepayments in earlier years, the cash outflow 
from investing in exploration and development 
assets in 2009 was US$20.2 million (2008: 
US$55.7 million), somewhat less than the capital 
expenditure for the year.
Capital expenditure
During 2009 a total of US$23.7 million was 
invested in capital expenditure on the Group’s 
licence areas (2008: US$48.5 million) as detailed 
on page 13.
The most significant individual components of 
the capital expenditure were US$5.6 million on 
the Yuzhny Uzenskoye oil field, including drilling 
and facilities, US$5.2 million on drilling 
operations at Grafovskaya #1 (which continues 
into 2010).   13
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CORPORATE GOVERNANCE FINANCIAL STATEMENTS
BUSINESS OVERVIEW
In addition, US$4.7 million was expended early 
in 2009 on development drilling and field 
facilities for the Vostochny Makarovskoye field 
and a total of US$1.4 million was incurred on 
other exploration activities.
The security deposit on acquisition of fixed 
assets recognised in 2008 comprises the US$20.4 
million of prepayment to Trans Nafta relating  
to the gas processing joint venture.
  2009 2008
Year ended 31 December (US$ million) (US$ million)
Oil & gas exploration assets 9.8 2.4
Development & producing 
assets  13.7 25.5
Real estate assets  0.2 0.2
Security deposit on 
acquisition of fixed assets 0.0 20.4
Total 23.7 48.5
Balance sheet and financing
As at 31 December 2009, the Group held cash 
and bank deposits of US$33.6 million (2008: 
US$23.1 million) and remains debt free. In July 
2009, the Company completed a placing of 
Ordinary Shares to raise a total of US$27 million 
gross ($26.6 million net of expenses).
The Group intends to fund its development and 
exploration expenditures using a combination  
of cash flow from operations and cash-on-hand. 
The Group will consider raising additional 
financing to more fully explore and develop  
its asset base as appropriate.
The Group’s financial statements are presented 
on a going concern basis.
Issue of share capital
During the year to 31 December 2009, the 
Company issued a total of 27,000,000 shares  
in a non-preemptive placement generating  
net proceeds of US$26.6 million.
Tony Alves
Chief Financial Officer
Financial and operational summary
Production  2009 2H09 1H09 2008
Oil (barrels)  462,455 270,830 191,625 24,545
Oil (bopd)  1,267 1,484 1,050 67
Operating results (US$ 000)  2009 2H09 1H09 2008
Revenue   11,580 8,212   3,368  617
Production costs  (327) (142) (185) –
Production based taxes  (4,465) (3,001) (1,464) (280)
Depletion, depreciation and other  (983) (636) (347) (327)
Cost of sales  (5,775) (3,779) (1,996) (607)
Gross profit   5,805 4,433 1,372  10
Exploration expense  (1,466) (987) (479) (5,598)
Operating and administrative expenses  (3,728) (2,175) (1,553) (7,186)
Operating profit/(loss)  611  1,271 (660) (12,774)
Operating data (US$/bbl)  2009 2H09 1H09 2008
Net realisation  25.76 31.10 18.15  25.14
Production costs  0.71 0.52 0.97  –
Production based taxes  9.65 11.08 7.64  11.41 
Depletion, depreciation and other  2.13 2.35 1.81  13.32 
EBITDA calculation (US$ 000)  2009 2H09 1H09 2008
Operating profit/(loss)  611 1,271 (660) (12,774)
Exploration expense  1,466 987 479  5,598 
Depletion, Depreciation and Amortisation  881 534 347  100 
EBITDA  2,958 2,792 166 (7,076) 14
Risk Factors
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, the Group’s 
production is predominantly sold in the 
domestic Russian markets which are influenced 
by domestic supply and demand factors, the 
level of Russian export taxes and regional 
transportation costs.
Substantially all of the Group’s revenues and 
cash flows 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 and reserve risks
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 commercially exploitable oil or gas 
resources. Unsuccessful exploration efforts may 
result in impairment to the balance sheet value 
of exploration assets.
The Group has disclosed Russian category C1 
and C2 reserves for its oil and gas fields, as 
recorded by the Russian State Committee for 
Reserves. If the actual results of producing these 
fields are significantly different to expectations, 
there may be changes in the future estimates of 
reserves. These may impact the balance sheet 
values of the Group’s development intangible 
assets and the Group’s property, plant  
and equipment.
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. 15
Volga Gas plc   Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE FINANCIAL STATEMENTS
BUSINESS OVERVIEW
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 Russian Rubles (“RUR”) 
and its operating costs in both US$ and  
RUR. Turnover is in RUR and funding has  
been raised in US$. Any changes in the  
relative exchange rates among US$ and  
RUR could positively or negatively affect  
the Group’s results.
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 ` y
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 ` y
disrupt, delay or curtail economic and regulatory 
reform, increase centralised authority or result  
in nationalisations.
Social instability from any ethnic, religious, ` y
historical or other divisions that could lead to a rise 
in nationalism, social disturbances or conflict, 
including terrorist attacks such as the bombing on 
the Moscow Metro in March 2010.
Uncertainties in the developing legal and regulatory ` y
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 ` y
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 ` y
judiciary, difficulty in enforcing court or  
arbitration decisions and governmental  
discretion in enforcing claims.
Expected changes to the federal and local  ` y
tax systems.
Laws restricting foreign investment in the oil and  ` y
gas industry.
Legal systems
Russia, and other countries in which the Group 
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 ` y
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 ` y
governmental authorities.
The lack of judicial or administrative guidance  ` y
on interpreting applicable rules and regulations.
Inconsistencies or conflicts between and within ` y
various laws, regulations, decrees, orders  
and resolutions.
Relative inexperience of the judiciary and courts ` y
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 2009 the Group had US$33.6 million ` y
of cash and cash equivalents available to fund its 
ongoing operations and associated exploration and 
development activities. At 31 December 2009 the 
Group has committed capital expenditure of US$12.0 
million relating to licence obligations on the 
Karpenskiy, Pre-Caspian Licence Areas and 
completion of the Vostochny Makarovskoye field 
development. 
Through its ordinary course activities, the Group 
is exposed to legal, 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’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 16
Board of Directors
Alexey Kalinin
Non-Executive Chairman
Appointed to the Board: 14 March 2007
Committee membership: Remuneration
Mr 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. Mr Kalinin 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 12 years and 
served as the Director of the Youth Center for 
Scientific and Technical Creativity. Mr Kalinin is 
50 years old.
Mikhail Ivanov
Chief Executive Officer, Executive Director
Appointed to the Board: 14 March 2007
Committee membership: n/a
Mr 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. During 2009  
he was appointed non-executive director of 
Zhaikmunai Group Limited. Mr Ivanov holds  
an M.S. degree in Geophysics from Novosibirsk 
State University and an M.B.A. from the Kellogg 
School of Management of Northwestern 
University. He is an elected member of SPE.  
Mr Ivanov is 40 years old.
Antonio Alves
Chief Financial Officer, Executive Director
Appointed to the Board: 12 January 2009
Committee membership: n/a
Mr 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 50 years old. He was 
appointed as Chief Financial Officer and 
Company Secretary and joined the Board on  
12 January 2009.
Ronald Freeman
Non-Executive Director
Appointed to the Board: 14 March 2007
Committee membership: Audit, Nomination, 
Remuneration
Mr 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.   17
Volga Gas plc   Annual Report and Accounts 2009 volgagas.com
BUSINESS OVERVIEW FINANCIAL STATEMENTS
CORPORATE GOVERNANCE
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 B.A. from 
Lehigh University and an LL.B. from Columbia 
Law School (1964). He was admitted to the Bar of  
the State of New York. He is 70 years old.
Stephen Ogden
Non-Executive Director
Appointed to the Board: 14 March 2007
Committee membership: Audit, Nomination, 
Remuneration
Mr Ogden is the Founder & Managing Partner of 
the First Montenegro Stone Property Fund, and 
the Co-Founder & Managing Partner of the 
Istanbul-based Prospera Property Fund. Mr 
Ogden was previously Chairman of the Board of 
Lenta, Russia's largest privately owned food 
retailer, and 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 & 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. Mr Ogden is 42 years old.
Michael Calvey
Non-Executive Director
Appointed to the Board: 14 March 2007
Committee membership: Audit, Nomination
Mr 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 M.Sc. 
in accounting and finance from the London 
School of Economics. Mr Calvey is 42 years old.
 
Vladimir Koshcheev
Non-Executive Director
Appointed to the Board: 14 March 2007
Committee membership: n/a
Mr Koshcheev currently acts as President  
of Joint Stock Company “NPO POG”. Until 2009 
 he was 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 52 years old. 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 2009 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. ` `
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 Chief ` `
Executive Officer.
Tony Alves – Executive Director, Chief Financial ` `
Officer 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 Funds III and IV, 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.
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 
23 to 24.
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  BUSINESS OVERVIEW FINANCIAL STATEMENTS
19
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
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 nine times during the year ended 
31 December 2009 with the following attendance:
  2009 2008
Alexey Kalinin  8 7
Mikhail Ivanov  8 7
Tony Alves  9 –
Ronald Freeman  6 7
Stephen Ogden  7 6
Vladimir Koshcheev  5 6
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 Calvey, Ivanov and Ogden will 
retire at the forthcoming AGM 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.
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 AGM which will be held on 
14 June 2010, 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
29 March 2010 20
The Directors present their report together with the 
Group’s audited financial statements for the period 
from 1 January 2009 to 31 December 2009.
Results and dividend
The Group’s results are set out on pages 26 to 31 and 
show net income of US$0.2 million for the year to 
31 December 2009. The directors do not propose to pay 
a dividend.
Subsequent events
In March 2010 the Company announced that an 
agreement had been signed with Trans Nafta for the 
completion of an acquisition of a 75% direct interest  
in a Gas Processing Unit situated nearby the Group’s 
Vostochny Makarovskoye licence. The Group made  
an additional payment of US$6.2 million in relation  
to this, having made a payment in November  
2008 of US$20.2 million as a security deposit for the 
acquisition of fixed assets. This is further detailed in 
the Chief Executive’s Report on page 6 and in the 
Operational Review on page 8.
Principal activities, business review and  
future developments
Volga Gas is a public limited company registered in 
England and Wales with registered number 5886534, 
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, Vostochny Makarovskoye,  
Pre-Caspian and Urozhainoye-2.
The Group’s business strategy is to bring the proven-
undeveloped Vostochny Makarovskoye field into 
production and to grow production on the supra-salt 
Uzenskoye field in the Karpenskiy Licence Area (“KLA”) 
whilst at the same time exploring the potentially 
highly prospective sub-salt structures on the 
Karpenskiy 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 the Urozhainoye-2 Licence Area. 
Highlights of the Group’s activities for the period ended 
31 December 2009 are:
Concluded first phase development of the Yuzhny ` `
Uzenskoye oil field on the KLA.
Commenced drilling of the Grafovskaya #1 sub-salt ` `
exploration well on the Yuzhny Ershovskoye 
structure on the KLA.
Completed the acquisition and interpretation of 80 ` `
km
2
 of 3-D seismic on the Pre-Caspian Licence Area.
Negotiations over a gas processing facility to enable ` `
production from the Vostochny Makarovskoye 
Licence Area.
The Group’s activities are described in greater detail in 
the Chief Executive’s Report 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 the Risk Factors section on pages 14 to 15.
Key performance indicators
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 further analysis using KPI’s 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 
and Financial Reviews on Pages 8 to 13 provides the 
relevant information.
Directors
The directors who served during the year were:
Alexey Kalinin, non-Executive Chairman
Mikhail Ivanov, Chief Executive Officer
Tony Alves, Chief Financial Officer
Ronald Freeman, non-executive
Stephen Ogden, non-executive
Vladimir Koshcheev, non-executive 
Michael Calvey, non-executive 
Messrs Calvey, Ivanov and Ogden will retire by rotation 
and offer themselves for re-election in accordance with 
the Company’s Articles of Association.
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 
  2009 2008
Alexey Kalinin
1
  – –
Mikhail Ivanov  1,000,000 525,100
Tony Alves  25,000 –
Ronald Freeman  55,000 5,000
Stephen Ogden  115,000 15,000
Vladimir Koshcheev  650,000 866,550
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 
and Dehus Dolmen Nominees Limited. As such Mr Calvey and Mr Kalinin 
have an indirect beneficial interest in the Company.
Substantial shareholders
On 31 December 2009 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
 39,620,000 48.90
Dehus Dolmen Nominees Ltd
2
  7,906,889 9.76
Capital Group International, Inc.  4,552,516 5.62
HQ Fonder Sverige AB  4,499,633 5.55
1  Cavendish Nominees Ltd is a nominee vehicle which holds the interests of 
the limited partnerships which comprise Baring Vostok Private Equity 
Fund III.
2  Dehus Dolmen Nominees Ltd is a nominee vehicle which holds the 
interests of the limited partnerships which comprise Baring Vostok Private 
Equity Fund IV.
Report of the Directors Volga Gas plc Annual Report and Accounts 2009 volgagas.com
BUSINESS OVERVIEW FINANCIAL STATEMENTS
21
CORPORATE GOVERNANCE
Options granted
An Executive Share Option Plan was adopted by the 
Company in July 2008 following which options over  
a total of 1,706,196 shares were granted to Mikhail 
Ivanov and to Tony Alves. Of these, 71,092 became 
eligible for vesting during 2009. 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:
agree the terms of the payment at the start of the ` `
business with that supplier;
 ensure that suppliers are aware of the terms of the ` `
payment; and
 pay in accordance with contractual and other ` `
obligations.
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 
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 Karpenskiy Licence Area 
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 Karpenskiy Licence Area; 
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 300,000,000 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 £1,000,000 
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. Under that 
law the directors have elected to prepare the Group 
and parent company financial statements in 
accordance with International Financial Reporting 
Standards (“IFRSs”) as adopted by the European Union. 
Under company law the directors must not approve the 
financial statements unless they are satisfied that they 
give a true and fair view of the state of affairs of the 
Group and the Company and of the profit or loss of the 
Group for that period.
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 IFRSs as adopted by the ` `
European Union have been followed, subject to any 
material departures disclosed and explained in the 
financial statements. 22
Statement of directors’ responsibilities continued
The directors are responsible for keeping adequate 
accounting records that are sufficient to show and 
explain the Company’s transactions and disclose with 
reasonable accuracy at any time the financial position 
of the Company and the Group and enable them to 
ensure that the financial statements and the directors’ 
remuneration report comply with the Companies Act 
2006 and, as regards the Group financial statements, 
Article 4 of the IAS Regulation. They are also 
responsible for safeguarding the assets of the Company 
and the Group and hence for taking reasonable  
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.
On behalf of the Board
Alexey Kalinin
Chairman of the Board
29 March 2010
Report of the Directors continued BUSINESS OVERVIEW FINANCIAL STATEMENTS
23
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
23
BUSINESS OVERVIEW FINANCIAL STATEMENTS
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 19.
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.
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 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 
Directors’ Remuneration Report
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. However, one of the executive directors 
has elected to receive part of his remuneration by way 
of contributions to a personal pension plan. 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. 
Re-appointment 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.
Audited information – Directors detailed emoluments
       Aggregate  Aggregate 
       remuneration  remuneration 
       for the year for the year  
    Pension Share-based  31 December 31 December 
   Salary contribution compensation Fees 2009 2008 
   US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Executive Directors
M. Ivanov   391 – 46 – 437 1,262
A. Alves   270 24 26 – 320 –
Non-Executive
A. Kalinin   – – – – – –
R. Freeman   – – – 50 50 50
S. Ogden   – – – 50 50 50
V. Koshcheev   – – – – – –
M. Calvey   – – – – – – 24
Directors’ Interests in the share capital of the 
Company
 Ordinary Shares  
 of 0.01p each
  31 December 31 December 
  2009 2008
Alexey Kalinin
1
  – –
Mikhail Ivanov  1,000,000 525,100
Tony Alves  25,000 –
Ronald Freeman  55,000 5,000
Stephen Ogden  115,000 15,000
Vladimir Koshcheev  650,000 866,550
Michael Calvey
1
  – –
1  Mr Calvey and Mr Kalinin are Co-Managing Partners of Baring Vostok 
Capital Partners, a related party to Cavendish Nominees Limited and to 
Dehus Dolmen Nominees Limited. 
   As such Mr Calvey and Mr Kalinin have an indirect beneficial interest  
in the Company.
There has been no change in the interest of any 
director between 1 January 2010 and the date of  
this report.
Directors’ Share Options
The Company adopted an Executive Share Option  
Plan (“ESOP”) 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 then 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 under the 
terms ESOP. 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 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 options will vest over a period of up to four years 
subject to the satisfaction of performance conditions 
which are related to the market price of the Company’s 
shares. 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. In December 2009, 
options over 71,092 shares became eligible for vesting.
By order of the Board
Tony Alves
Company Secretary
29 March 2010
Directors’ Remuneration Report continued 25
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
25
BUSINESS OVERVIEW
FINANCIAL STATEMENTS
CORPORATE GOVERNANCE
Opinion on financial statements 
In our opinion: 
the financial statements give a true and fair view of ` `
the state of the group’s and of the parent company’s 
affairs as at 31 December 2009 and of the group’s 
profit and group’s and parent company’s cash flows 
for the year then ended;
the group financial statements have been properly ` `
prepared in accordance with IFRSs as adopted by the 
European Union; 
the parent company financial statements have been ` `
properly prepared in accordance with IFRSs as 
adopted by the European Union and as applied in 
accordance with the provisions of the Companies 
Act 2006; and
the financial statements have been prepared in ` `
accordance with the requirements of the Companies 
Act 2006. 
Opinion on other matter prescribed by the Companies 
Act 2006
In our opinion: 
the part of the Directors’ Remuneration Report to be ` `
audited has been properly prepared in accordance 
with the Companies Act 2006; and 
the information given in the Directors’ Report  ` `
for the financial year for which the financial 
statements are prepared is consistent with the 
financial statements. 
Matters on which we are required to report  
by exception
We have nothing to report in respect of the following 
matters where the Companies Act 2006 requires us to 
report to you if, in our opinion: 
adequate accounting records have not been kept by ` `
the parent company, or returns adequate for our 
audit have not been received from branches not 
visited by us; or 
the parent company financial statements and the ` `
part of the Directors’ Remuneration Report to be 
audited are not in agreement with the accounting 
records and returns; or 
certain disclosures of directors’ remuneration ` `
specified by law are not made; or
we have not received all the information and ` `
explanations we require for our audit.
Kevin Reynard 
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Aberdeen
29 March 2010
We have audited the group and parent company 
financial statements (the “financial statements”) of 
Volga Gas plc for the year ended 31 December 2009 
which comprise the Group Income Statement, the 
Group Statement of Comprehensive Income, the Group 
Balance Sheet, the Group Cash Flow Statement, the 
Company Balance Sheet, the Company Cash Flow 
Statement, the Group Statement of Changes in 
Shareholders’ Equity, the Company Statement of 
Changes in Shareholders’ Equity and the related  
notes. The financial reporting framework that has been 
applied in their preparation is applicable law and 
International Financial Reporting Standards (“IFRSs”)  
as adopted by the European Union and, as regards  
the parent company financial statements, as applied  
in accordance with the provisions of the Companies 
Act 2006.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ 
Responsibilities Statement the directors are 
responsible for the preparation of the financial 
statements and for being satisfied that they give  
a true and fair view. Our responsibility is to audit  
the financial statements in accordance with applicable 
law and International Standards on Auditing (UK and 
Ireland). Those standards require us to comply with 
the Auditing Practices Board’s Ethical Standards  
for Auditors.
This report, including the opinions, has been prepared 
for and only for the company’s members as a body  
in accordance with Sections 495 and 496 of the 
Companies Act 2006 and for no other purpose.  
We do not, in giving these opinions, 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.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the 
amounts and disclosures in the financial statements 
sufficient to give reasonable assurance that the 
financial statements are free from material 
misstatement, whether caused by fraud or error. 
This includes an assessment of: whether the 
accounting policies are appropriate to the group’s 
and parent company’s circumstances and have been 
consistently applied and adequately disclosed; the 
reasonableness of significant accounting estimates 
made by the directors; and the overall presentation  
of the financial statements.
Independent Auditors’ Report to the Members of Volga Gas plc 26
Year ended 31 December      Notes 2009 2008
Continuing operations
Revenue        11,580   617 
Cost of sales      5 (5,775) (607)
Gross profit        5,805   10 
Other operating income
Exploration and evaluation expense      5(a) (1,466) (5,598)
Operating and administrative expenses      5 (3,728) (7,186)
Operating profit/(loss)        611  (12,774)
Interest income      6  87   1,461 
Other gains and losses – net      7  183   1,256 
Profit/(loss) for the period before tax        881  (10,057)
Current income tax      8 (21) (1,600)
Deferred income tax      8 (716)  1,358 
Profit/(loss) for the period before non-controlling interests     144  (10,299)
Non-controlling interests        88  –
Profit/(loss) for the period attributable to equity holders      232  (10,299)
Basic and diluted profit/(loss) per share (in US dollars)     9  0.004  (0.191) 
Weighted average number of shares outstanding        66,915,354 54,008,474
The Company has elected to take the exemption under section 408 of the Companies Act 2006 to not present the parent 
company profit and loss account. The loss for the parent company for the year was US$1,006,000 (2008: US$1,084,000).
Group Statement of Comprehensive Income
(presented in US$ 000)
Year ended 31 December      Notes 2009 2008
Profit/(loss) for the period        144  (10,299)
Other comprehensive expense: 
Currency translation differences       (2,037) (20,087)
Total comprehensive expense for the period       (1,893) (30,386)
Non-controlling interests        88  –
Attributable to equity shareholders of the Company      (1,805) (30,386)
The accompanying notes on pages 32 to 48 are an integral part of these financial statements.
Group Income Statement 
(presented in US$ 000) BUSINESS OVERVIEW
FINANCIAL STATEMENTS
27
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
At 31 December      Notes 2009 2008
Assets
Non-current assets 
Intangible assets      10  40,093   30,596 
Property, plant and equipment      11  37,628   26,550 
Other non-current assets      12  6,229   7,245 
Security deposit on acquisition of fixed assets      12  19,839   20,422 
Deferred tax assets        1,211   2,003 
Total non-current assets        105,000   86,816 
Current assets 
Cash and cash equivalents      13  32,643   23,093 
Term bank deposit      13 1,000 –
Inventories      14  3,614   1,485 
Other receivables      15  2,952   8,449 
Total current assets        40,209   33,027 
Total assets        145,209   119,843 
Equity and liabilities 
Equity 
Share capital      16  1,485   1,045 
Share premium (net of issue costs)      16  165,873   139,681 
Other reserves      17 (12,990) (11,025)
Accumulated loss        (13,911) (14,143)
Minority interest        (92) – 
Total equity         140,365   115,558 
Long-term liabilities 
Asset retirement obligation         164  – 
Total long-term liabilities        164  –
Current liabilities 
Trade and other payables      18  3,162   2,416 
Current income tax liability         1,518   1,869 
Total current liabilities        4,680   4,285 
Total equity and liabilities         145,209   119,843 
Approved by the Board of Directors on 29 March 2010 and signed on its behalf by
Mikhail Ivanov Tony Alves
Chief Executive Officer Chief Financial Officer
The accompanying notes on pages 32 to 48 are an integral part of these financial statements.
Group Balance Sheet 
(presented in US$ 000) 28
Year ended 31 December      Notes 2009 2008
Profit/(loss) for the before tax        881  (10,057)
Adjustments to loss after tax: 
Share grant expense        72   1,138 
Depreciation        890   100 
Other non-cash operating gains        –  (238)
Charge for provision        220   234 
Foreign exchange differences        (220) (1,841)
Total effect of adjustments        962  (607)
Decrease/(increase) in long-term assets        770  (5,981)
Operating cash flow prior to working capital       2,613  (16,645)
Working capital changes 
Decrease/(increase) in trade and other receivables        3,794  (33)
Decrease in derivative financial instruments        –   2,756 
Increase/(decrease) in payables        6  (327)
Increase in inventory        (2,067) (1,611)
Cash flow from operations         4,346  (15,860)
Income tax paid       (389)  – 
Net cash flow from operating activities         3,957  (15,860)
Cash flows from investing activities 
Purchase of intangible assets      10 (7,347) (8,628)
Purchase of property, plant and equipment      11 (12,847) (24,904)
Movement in term bank deposit      13 (1,000) –
Security deposit on acquisition of fixed assets      12  –  (22,204)
Net cash used in investing activities        (21,194) (55,736)
Cash flows from financing activities 
Proceeds from the issue of shares (net of issue costs)       26,632   – 
Change in loans         56   – 
Net cash provided by financing activities         26,688   – 
Effect of exchange rate changes on cash and cash equivalents     99 (2,850)
Net increase/(decrease) in cash and cash equivalents       9,550  (74,446)
Cash and cash equivalents at beginning of the year     13  23,093   97,539 
Cash and cash equivalents at end of the year      13  32,643   23,093 
The accompanying notes on pages 32 to 48 are an integral part of these financial statements.
Group Cash Flow Statement
(presented in US$ 000) BUSINESS OVERVIEW
FINANCIAL STATEMENTS
29
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
Company registration number: 05886534
At 31 December      Notes 2009 2008
Assets
Non-current assets 
Investments      19  144,734   120,305 
Intercompany receivables        15,876   15,862 
Total non-current assets       160,610   136,167 
Current assets 
Cash at bank and on hand        11,999   18,496 
Term bank deposit      13 1,000 –
Other receivables        20   72 
Total current assets        13,019   18,568 
Total assets         173,629   154,735 
Equity and liabilities 
Equity 
Share capital      16 1,485   1,045 
Share premium (net of issue costs)      16 165,873  139,681 
Other reserves      20 5,073 5,001
Accumulated (loss)/profit      21 (682)  324 
Total equity        171,749  146,051 
Current liabilities 
Trade creditors        1,666   1,611 
Intercompany payables        –   6,067 
Current income tax liability         214   1,006 
Total current liabilities        1,880   8,684 
Total equity and liabilities         173,629   154,735 
Approved by the Board of Directors on 29 March 2010 and signed on its behalf by
Mikhail Ivanov Tony Alves
Chief Executive Officer Chief Financial Officer
The accompanying notes on pages 32 to 48 are an integral part of these financial statements.
Company Balance Sheet
(presented in US$ 000) 30
Year ended 31 December      Notes 2009 2008
Loss for the period before tax       (1,410) (619)
Adjustments to loss after tax: 
Interest accrued        –  (1,871)
Other non-cash operating gains        –  (238)
Charge for provision        220   234 
Share grant expense         72   1,138 
Total effect of adjustments        292  (737)
Operating cash flow prior to working capital       (1,118) (1,356)
Working capital changes 
Decrease/(increase) in trade and other receivables        38  (933)
Decrease in derivative financial instruments        –   2,756 
Increase/(decrease) in payables        (6,231)  7,191 
Cash (used in)/from operating activities       (7,311)  7,658 
Income tax paid       (389)  – 
Net cash flow (used in)/from operating activities       (7,700)  7,658 
Cash flows from investing activities 
Movement in term bank deposit      13 (1,000) –
Investments in capital      19 (24,429) (16,000)
Net cash used in investing activities       (25,429) (16,000)
Cash flows from financing activities 
Proceeds from the issue of shares (net of issue costs)      26,632  – 
Net cash provided by financing activities        26,632   – 
Net decrease in cash and cash equivalents       (6,497) (8,342)
Cash and cash equivalents at beginning of the year       18,496   26,838 
Cash and cash equivalents at end of the year         11,999   18,496 
The accompanying notes on pages 32 to 48 are an integral part of these financial statements.
Company Cash Flow Statement
(presented in US$ 000) BUSINESS OVERVIEW
FINANCIAL STATEMENTS
31
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
       Non-  
   Share Share Other Accumulated controlling Total 
  Notes Capital Premium Reserves Loss Interest Equity
Opening equity at 1 January 2008    1,037   139,681   7,932  (3,844)  –   144,806 
Loss for the year    –   –   –  (10,299)  –  (10,299)
Share based payments  16  8  –   1,130   –   –   1,138 
Currency translation differences     –   –  (20,087)  –   –  (20,087)
Closing equity at 31 December 2008    1,045   139,681  (11,025) (14,143)  –  115,558 
Opening equity at 1 January 2009    1,045  139,681  (11,025) (14,143)  –  115,558 
Profit for the year    –   –   –   232   –   232 
Share capital issued  16  440   26,560   –   –   –   27,000 
Share issue costs    –  (368)  –   –   –  (368)
Share based payments    –  –  72   –   –   72 
Currency translation differences    –   –  (2,037)  –   –  (2,037)
Non-controlling interests     –   –   –   –  (92) (92)
Closing equity at 31 December 2009     1,485   165,873  (12,990) (13,911) (92) 140,365
Company Statement of Changes in Shareholders’ Equity
(presented in US$ 000)
         
    Share Share Other Accumulated Total 
   Notes Capital Premium Reserves Profit/(loss) Equity
Opening equity as at 1 January 2008     1,037   139,681   3,871   1,408   145,997 
Loss for the year     –   –   –  (1,084) (1,084)
Share grant expense   16  8   – 1,130   –   1,138 
Closing equity at 31 December 2008     1,045   139,681  5,001   324   146,051 
Opening equity as at 1 January 2009     1,045   139,681  5,001   324   146,051 
Loss for the year     –   –   –  (1,006) (1,006)
Share capital issued     440   26,560   –   27,000 
Share Issue costs     –  (368)  –   –  (368)
Share grant expense   16  –   –   72   –   72 
Closing equity at 31 December 2009      1,485   165,873   5,073  (682)  171,749 
The accompanying notes on pages 32 to 48 are an integral part of these financial statements.
Group Statement of Changes in Shareholders’ Equity
(presented in US$ 000) 32
1. General information
Volga Gas plc (the “Company” or “Volga”) is a public limited 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 is listed 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 29 March 2010.
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 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 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 408 of the Companies Act 2006.
The consolidated financial statements have been prepared on the going concern basis as the directors have 
concluded that the Group will continue to have access to sufficient funds in order to meet its obligations as they 
fall due for at least the foreseeable future. 
Disclosure of impact of new and future accounting standards
The Group has adopted the following new and amended IFRSs as of 1 January 2009:
• IAS 1 (revised), “Presentation of financial statements”
The revised standard prohibits the presentation of items of income and expenses (that is “non-owner changes in 
equity”) in the statement of changes in equity, requiring “non-owner changes in equity” to be presented 
separately from owner changes in equity. All “non-owner changes in equity” are required to be shown in a 
performance statement. Entities can choose whether to present one performance statement (the consolidated 
statement of comprehensive income) or two statements (the income statement and a consolidated statement of 
comprehensive income). The Group has elected to present two statements: an income statement and a statement 
of comprehensive income. The financial statements have been prepared under the revised disclosure 
requirements.
• IFRS 2 (amendment), “Share-based payment” 
The revised standard deals with vesting conditions and cancellations. It clarifies that vesting conditions are 
service conditions and performance conditions only. Other features of a share-based payment are not vesting 
conditions. These features would need to be included in the grant date fair value for transactions with employees 
and others providing similar services; they would not impact the number of awards expected to vest or valuation 
there of subsequent to grant date. All cancellations, whether by the entity or by other parties, should receive the 
same accounting treatment. The Group and Company have adopted IFRS 2 (amendment) from 1 January 2009. The 
amendment does not have a material impact on the Group or Company’s financial statements.
• IFRS 7 (amendment), “Financial instruments – Disclosures” 
The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, 
the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy.
• 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. The adoption of this standard has no impact 
on the Group or Company financial statements.
The following new standards, amendments to standards and interpretations are mandatory for the first time for 
the financial year beginning 1 January 2009, but are not currently relevant for the Group:
IFRIC 13, “Customer loyalty programmes”. ` `
IFRIC 15, “Agreements for the construction of real estate”. ` `
IFRIC 16, “Hedges of a net investment in a foreign operation”. ` `
IAS 39 (amendment), “Financial instruments: Recognition and measurement”. ` `
Notes to the IFRS Consolidated Financial Statements
for the year ended 31 December 2009 
(presented in US$ 000) BUSINESS OVERVIEW
FINANCIAL STATEMENTS
33
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
The following standards and amendments to existing standards have been published and are mandatory for the 
Group’s accounting periods beginning on or after 1 January 2010 or later periods, but the Group has not early 
adopted them:
IFRIC 17, “Distribution of non-cash assets to owners” (effective on or after 1 July 2009). The interpretation was ` `
published in November 2008. This interpretation provides guidance on accounting for arrangements whereby 
an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends.  
IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are 
available for distribution in their present condition and the distribution is highly probable. The Group and 
Company will apply IFRIC 17 from 1 January 2010. It is not expected to have a material impact on the Group or 
Company’s financial statements.
IAS 27 (revised), “Consolidated and separate financial statements”, (effective from 1 July 2009). 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. The 
standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured 
to fair value, and a gain or loss is recognised in profit or loss. The Group will apply IAS 27 (revised) 
prospectively to transactions with non-controlling interests from 1 January 2010.
IFRS 3 (revised), “Business combinations” (effective from 1 July 2009). The revised standard continues to apply ` `
the acquisition method to business combinations, with some significant changes. For example, all payments 
to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments 
classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-
by-acquisition basis to measure the non-controlling interest in the acquiree either at fair vale or at the non-
controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be 
expensed. The Group will apply IFRS 3 (revised) prospectively to all business combinations from 1 January 2010.
IAS 38 (amendment), “Intangible Assets”. The amendment is part of the IASB’s annual improvements project ` `
published in April 2009 and the Group and Company will apply IAS 38 (amendment) from the date IFRS 3 
(revised) is adopted. The amendment clarifies guidance in measuring the fair value of an intangible asset 
acquired in a business combination and it permits the grouping of intangible assets as a single asset if each 
asset has similar useful economic lives. The amendment will not result in a material impact on the Group or 
Company’s financial statements.
IFRS 5 (amendment), “Non-current assets held for sale and discontinued operations”. The amendment is  ` `
part of the IASB’s annual improvements project published in April 2009. The amendment provides clarification 
that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified  
as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still  
apply, particularly paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation 
uncertainty) of IAS 1. The Group and Company will apply IFRS 5 (amendment) from 1 January 2010. It is not 
expected to have a material impact on the Group or Company’s financial statements.
IAS 1 (amendment), “Presentation of financial statements”. The amendment is part of the IASB’s annual ` `
improvements project published in April 2009. The amendment provides clarification that the potential 
settlement of a liability by the issue of equity is not relevant to its classification as current or non-current. By 
amending the definition of current liability, the amendment permits a liability to be classified as non-current 
(provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for 
at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by 
the counterparty to settle in shares at any time. The Group and Company will apply IAS 1 (amendment) from 
1 January 2010. It is not expected to have a material impact on the Group or Company’s financial statements.
IFRS 2 (amendments), “Group cash-settled share-based payment transaction” (effective from 1 January 2010).  ` `
In addition to incorporating IFRIC 8, “Scope of IFRS 2”, and IFRIC 11, “IFRS 2 – Group and treasury share 
transactions”, the amendments expand on the guidance in IFRIC 11 to address the classification of Group 
arrangements that were not covered by that interpretation. The new guidance is 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 de-consolidated 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.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are 
eliminated; unrealised losses are also eliminated unless the cost cannot be recovered.  34
2. Summary of significant accounting policies continued
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 19.
2.3 Segment reporting
Segmental reporting follows the Group’s internal reporting structure. 
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.
2.4 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 the RUR best reflects the financial results of its Cyprus 
subsidiaries because they are dependent on entities based in Russia that operate in an RUR environment in order 
to recover their investments. As a result, the functional currency of the subsidiaries continues to be the RUR.
(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.
The major exchange rates used for the revaluation of the closing balance sheet at 31 December 2009 were:
GBP1:US$1.5653 (2008: GBP 1:US$1.4605) ` `
US$1:RUR 30.2442 (2008 US$1:RUR 29.3804) ` `
2.5 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 a 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.
Notes to the IFRS Consolidated Financial Statements con tin ued BUSINESS OVERVIEW
FINANCIAL STATEMENTS
35
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
Once commercial reserves are found, exploration and evaluation assets are tested for impairment and 
transferred to development tangible and intangible assets. No depreciation 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 
development 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.
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
E&E assets are tested for impairment prior to reclassification to development tangible or intangible assets, or 
whenever facts and circumstances indicate that an impairment condition may exist. An impairment loss is 
recognised for the amount by which the E&E 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 E&E 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. 
(f) Decommissioning
Provision is made for the cost of decommissioning assets at the time when the obligation to decommission arises. 
Such provision represents the estimated discounted liability (the discount rate used currently being at 10% per 
annum) for costs which are expected to be incurred in removing production facilities and site restoration at the 
end of the producing life of each field. A corresponding item of property, plant and equipment is also created at an 
amount equal to the provision. This is subsequently depreciated as part of the capital costs of the production 
facilities. Any change in the present value of the estimated expenditure attributable to changes in the estimates 
of the cash flow or the current estimate of the discount rate used are reflected as an adjustment to the provision 
and the property, plant and equipment. The unwinding of the discount is recognised as a finance cost.
2.6 Other business 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 6–10 years
Office equipment in excess of US$5,000 3–4 years
Vehicles and other 2–7 years 36
2. Summary of significant accounting policies continued
2.7 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. The Group had no financial assets in this class as at 
31 December 2008 or 31 December 2009.
(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.
2.8 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 has 
used derivatives such as foreign exchange forward contracts to manage risks of changes in foreign exchange 
rates. The Group has not applied hedge accounting in respect of forward foreign exchange contracts. Consequently, 
movements in the fair value of derivative instruments are immediately recognised in the income statement.
2.9 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.
2.10 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.
2.11 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.
2.12 Cash and cash equivalents
Cash and cash equivalents include cash in hand, and deposits held at call with banks.
2.13 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.
2.14 Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the 
effective interest method. 
2.15 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, 
except to the extent that it relates to items recognised in other comprehensive income or directly in equity.  
In this case the tax is also recognised in other comprehensive income or directly in equity, respectively. 
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 Company’s subsidiaries and associates operate and generate 
taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in 
which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the 
basis of amounts expected to be paid to the tax authorities. 
Notes to the IFRS Consolidated Financial Statements con tin ued BUSINESS OVERVIEW
FINANCIAL STATEMENTS
37
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
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. 
2.16 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. The fair 
value of fully-vested shares is expensed immediately. The 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, sick leave and bonuses are accrued in the year in which the associated services are rendered by the 
employees of the Group.
2.17 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 VAT, 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 VAT. For oil sales, this is at the physical point of delivery,  
i.e. the loading of a customer’s truck. For gas sales, this is typically the point of entry to the gas distribution 
system. In 2008 and 2009 all of the Group’s revenue related to oil sales collected directly by customers.
(b) Interest income
Interest income is recognised on a time-proportion basis using the effective interest method.
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.
At 31 December 2009, 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$812,000 (2008: US$234,000) higher/lower, mainly as 
a result of foreign exchange gains/losses on translation of RUR denominated trade payables and financial assets. 
At 31 December 2009, if the US dollar had weakened/strengthened by 5% against the Pound Sterling (“GBP”) with 
all other variables held constant, post-tax profit for the year would have been US$14,000 (2008: US$nil) higher/
lower, mainly as a result of foreign exchange gains/losses on translation of GBP denominated trade payables and 
financial assets. 38
3. Financial risk management continued
The following table shows the currency structure of financial assets and liabilities:
     RUR US Dollars GBP Total 
At 31 December 2009     US$ 000 US$ 000 US$ 000 US$ 000
Financial assets
Cash and cash equivalents     4,032 28,219 392 32,643
Term bank deposit     – 1,000 – 1,000
Total financial assets     4,032 29,219 392 33,643
Financial liabilities (before provision for UK taxes)    3,060 56 46 3,162
     RUR US Dollars GBP Total 
At 31 December 2008     US$ 000 US$ 000 US$ 000 US$ 000
Total financial assets – cash     844 22,229 20 23,093
Financial liabilities (before provision for UK taxes)    2,245 171 – 2,416
During 2008 the Group used foreign exchange forward contracts to manage financial risks from fluctuation in 
foreign exchange rates. No foreign exchange forward contracts were used in 2009.
(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 3.1(a)(i) of 
US$33,643,000 and US$23,093,000 at 31 December 2009 and 2008 respectively. 
The Group’s principal financial asset is cash and credit risk arises from cash and cash equivalents and deposits 
with banks and financial institutions. It is the Group’s policy to monitor the financial standing of these assets on 
an ongoing basis. Bank balances are held with reputable and established financial institutions.
       31 December 31 December 
Rating of financial institution (Fitch)       2009 2008
AA+       – –
AA–       12,552 19,216
A–       1,000 –
BBB+       19,752 3,457
Other       339 420
Total bank balance       33,643 23,093
(c) Liquidity risk
Cash flow forecasting is performed by Group finance. Group finance monitors rolling forecasts of the Group’s 
liquidity requirements to ensure it has sufficient cash to meet operational needs. The Group believes it has at 
least sufficient liquidity headroom to fund its currently planned exploration and development activities. During 
2009, the Company raised US$27 million of equity funds which allowed sufficient cash headroom prior to drilling 
a sub-salt exploration well. Should the Group decide to undertake further exploration drilling on the sub-salt 
structures in the Karpenskiy and Pre-Caspian Licence Areas beyond the currently planned programmes, or if 
development is planned for any successful efforts, significant additional funding would be required.
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 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.
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.
Notes to the IFRS Consolidated Financial Statements con tin ued BUSINESS OVERVIEW
FINANCIAL STATEMENTS
39
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
3.3 Fair value estimation
Effective 1 January 2009, the Group adopted the amendment to IFRS 7 for financial instruments that are 
measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the 
following fair value measurement hierarchy:
Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). ` `
Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either ` `
directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) ` `
(level 3).
The Group has no financial assets and liabilities that are required to be measured at fair value.
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) 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.
(b) 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.
(c) 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.
5. Cost of sales and administrative expenses – Group
Cost of sales and administrative expenses are as follows:
       2009 2008 
Year ended 31 December        US$ 000 US$ 000
Cost of sales       5,775 607
Exploration and evaluation expenses       1,466 5,598
Operating and administrative expenses       3,728 7,186
Total operating and administrative expenses       10,969 13,391
Total operating and administrative expenses are analysed as follows:
       2009 2008 
Year ended 31 December        US$ 000 US$ 000
Exploration and evaluation      (a) 1,466 5,598
Mineral extraction tax       4,465 280
Field operating expenses       327 –
Depreciation and amortisation       881 100
Salaries and staff benefits      (b) 938 858
Directors’ emoluments and other benefits       (c) 857 2,162
Audit fees      (d) 285 285
Taxes other than payroll and mineral extraction       112 110
Legal and consulting services      (e) 410 2,964
Other       1,228 1,034
Total        10,969 13,391 40
5. Cost of sales and administrative expenses – Group continued
(a) Exploration and evaluation
During 2009 expenditure on seismic studies certain drilling expenditures relating to supra-salt exploration on the 
Karpenskiy Licence were expensed as management considered that the expenditure was 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”. In 2008, the E&E expense was primarily related to seismic studies on the 
Pre-Caspian Licence Area and supra-salt seismic studies on the Karpenskiy Licence.
(b) Staff and salaries
The average monthly number of employees (including Executive Directors) employed by the Group was:
Year ended 31 December       2009 2008
Exploration and production       29 22
Administration and support       15 16
Total       44 38
Their aggregate remuneration comprised:
       2009 2008 
Year ended 31 December        US$ 000 US$ 000
Wages and salaries       716 701
Payroll taxes and social contribution        166   157 
Staff benefits        56   – 
Total       938 858
The average monthly number of employees employed by the Company was:
Year ended 31 December        2009 2008
Administration and support       2 2
Only directors are employed by the Company. 
(c) Directors’ emoluments and other benefits
Details of Directors emoluments and other benefits for the years ended 31 December 2009 and 31 December 2008 
are provided in the Directors’ Remuneration Report. Included in Directors’ emoluments were share grant 
expenses of US$72,000 (2008: US$1,138,000).
(d) Audit fees – Group and Company
Disclosure of the fees paid to the Company’s auditors and its associates is given in Note 22.
(e) Legal expense
An amount of US$2,366,000 is included in legal expenses in 2008 in respect of the 2008 court proceedings brought 
by a minority shareholder of Trans Nafta in relation to the purchase of Gaznefteservice from Trans Nafta in 2006. 
The costs include legal and other consultation services related to preparation for the court proceedings. The court 
proceedings were withdrawn in November 2008 following resolution of the matter.
6. Interest income – Group
Interest income comprises interest earned during the period on cash balances with different financial institutions 
(Note 13).
7. Other gains and losses – Group
       2009 2008 
Year ended 31 December        US$ 000 US$ 000
Realised gain on forward currency contract        –   4,179 
Foreign exchange gain/(loss)        163  (3,160)
Other gains        20   237 
Total other gains and losses        183   1,256 
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 at fair value in 2007 and a net gain of 
US$3,619,000 from forward currency contracts settled during 2008.
Notes to the IFRS Consolidated Financial Statements con tin ued BUSINESS OVERVIEW
FINANCIAL STATEMENTS
41
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
8. Current and deferred income tax – Group
       2009 2008 
Year ended 31 December        US$ 000 US$ 000
Current tax: 
Current income tax       (584) (1,600)
Adjustments to tax charge in respect of prior periods      563  –
Total current tax       (21) (1,600)
Deferred tax: 
Origination and reversal of timing differences       (716)  1,358 
Total deferred tax       (716)  1,358 
Total tax       (737) (242)
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:
       2009 2008 
Year ended 31 December        US$ 000 US$ 000
Profit/(loss) before income tax and minority interest       881  (10,057)
Tax calculated at domestic tax rates applicable to (profits)/losses in the  
respective countries       (163)  2,180 
Tax effect of items which are not deductible or assessable for taxation purposes:
Additional deemed taxable income       (469) (1,075)
Non-deductible expenses        (218) (786)
UK taxes on overseas income        –  (700)
Current tax – adjustments in respect of prior years       563   167 
Tax losses for which no deferred tax asset was recognised     (400) (28)
Other tax adjustments       (50) – 
Income tax charge       (737) (242)
The weighted average applicable tax rate was 18.5% (2008: 21.7%).
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 
      2009 and reversal 2008
Tax effects of taxable temporary differences:
Exploration assets      (1,380) (1,160) (220)
Inventories       (5) (12)  7 
Total      (1,385) (1,172) (213)
Tax effect of deductible temporary differences:
Tax losses carry forward       2,117   261   1,856 
Trade and other receivables       340  (18)  358 
Property, plant and equipment       132   130   2 
Share grant expenses       7   7   – 
Total       2,596   380   2,216 
Net tax effect of temporary differences       1,211  (792)  2,003 
Movement due to current period results (income statement)     (716)
Movement due to current period results (statement of changes in  
shareholder equity)       7
Foreign exchange movement on brought forward deferred tax balances  
(statement of changes in shareholder equity)       (83)
Deferred income tax assets are recognised for tax loss carry forwards to the extent that the realisation of the 
related tax benefit through the future taxable profits is probable. The Group did not recognise deferred income tax 
assets of US$460,000 (2008: US$28,000) in respect of losses (US$428,000) and timing differences (US$32,000) in 
Volga Gas plc and in Volga Gas Cyprus which were carried forward at 31 December 2009. 42
9. Basic and diluted profit/(loss) per share – Group
Profit 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 31 December        2009 2008
Net profit/(loss) attributable to equity shareholders (per share)     0.004 (0.191)
Basic weighted number of shares         66,915,354 54,008,474
10. Intangible assets – Group
Intangible assets represent E&E assets such as licences, studies and exploratory drilling, which are stated at 
historical cost.
    Work in     
    progress:   Producing  
    E&E E&E Development assets 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 
    Work in     
    progress:   Producing  
    E&E E&E Development assets Total
At 1 January 2009     5,072   7,244   18,280   –   30,596 
Additions     9,147   679   290   9   10,125 
Disposals    (197)  –   –   –  (197)
Transfers     –  (1,576)  –   1,576   – 
At 31 December 2009     14,022   6,347   18,570   1,585   40,524 
Accumulated amortisation  
At 1 January 2009     –   –   –   –   – 
Depreciation     –   –   –  (55) (55)
At 31 December 2009     –   –   –  (55) (55)
Exchange adjustments     306  (252) (507)  77  (376)
At 31 December 2009     14,328   6,095   18,063   1,607   40,093 
11. Property, plant and equipment – Group
Movements in property, plant and equipment, for the years ended 31 December 2009 and 2008 are as follows:
    Development Land and Producing   
    assets buildings assets Other Total
Cost 
At 1 January 2008     3,676   528   1,658   104   5,966 
Additions     24,862   207   296   542   25,907 
Disposals    (294)  –   –   –  (294)
Transfers    (4,039)  –   4,039   –   – 
At 31 December 2008     24,205   735   5,993   646   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) (119) (925) (95) (4,902)
At 31 December 2008     20,442   616   4,974   518   26,550 
Notes to the IFRS Consolidated Financial Statements con tin ued BUSINESS OVERVIEW
FINANCIAL STATEMENTS
43
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
    Development Land and Producing   
     assets   buildings  assets   Other   Total 
Cost 
At 1 January 2009     20,442   616   5,054   546   26,658 
Additions     13,298   157   81   28   13,564 
Disposals    (1,445)  –  (8)  –  (1,453)
Transfers    (6,177)  –   6,177   –   – 
At 31 December 2009     26,118   773   11,304   574   38,769 
Accumulated depreciation  
At 1 January 2009     –   –  (80) (28) (108)
Depreciation     –   –  (822) (13) (835)
At 31 December 2009     –   –  (902) (41) (943)
Exchange adjustments    (297) (10)  125  (16) (198)
At 31 December 2009     25,821   763   10,527   517   37,628 
12. Other non-current assets – Group
       2009 2008 
As at 31 December       US$ 000 US$ 000
VAT recoverable        6,189 7,209
Other non-current assets       40 36
Total other non-current assets       6,229 7,245
Management believes that it may not be able to recover all VAT specific to licence and E&E contractors’ payments 
within the 12 months of the balance sheet date. Therefore this VAT is classified as a non-current asset.
The security deposit on acquisition of fixed assets of US$19.8 million (2008: 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 foreign exchange difference. 
In October 2008, the Group reached 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. The Group made an advance to Trans Nafta of RUR600 
million (approximately US$20.4 million).
In March 2010, a final agreement was signed between the Group and Trans Nafta to complete the acquisition by 
the Group of a direct interest in the GPU assets. Under the terms of the agreement a sum of RUR187 million 
(approximately US$6.2 million) has been paid to Trans Nafta. The GPU is to be managed and operated by ZAO 
Gamma, a company owned 75% by the Group and 25% by Trans Nafta.
13. Term deposits, cash and cash equivalents – Group
       2009 2008 
At 31 December         US$ 000 US$ 000
Cash at bank and on hand       14,171 22,753
Short-term bank deposits        18,472 340
Total cash and cash equivalents        32,643 23,093
Term bank deposit       1,000 – 44
13. Term deposits, cash and cash equivalents – Group continued
An analysis of Group deposits, cash and cash equivalents by bank and currency is presented in the table below:
At 31 December        2009 2008 
Bank      Currency US$ 000 US$ 000
Cyprus  
Bank of Cyprus      RUR –  3
       US$  – 8
United Kingdom  
The Royal Bank of Scotland      US$   12,160 19,196
The Royal Bank of Scotland      GBP 392 20
Russian Federation  
Unicreditbank      RUR 3,697 432
Other banks and cash on hand      RUR 339 409
Unicreditbank      US$   16,055 3,025
Total cash at bank and short term deposits        32,643 23,093
Republic of Ireland 
EBS Building Society      US$   1,000 – 
Total term deposit       1,000 – 
14. Inventories – Group
       2009 2008 
At 31 December        US$ 000 US$ 000
Production and other spares       3,533 1,462
Crude oil inventory       81 23
Total inventories       3,614 1,485
15. Other receivables – Group
       2009 2008 
At 31 December        US$ 000 US$ 000
VAT receivable       1,355  – 
Prepayments       1,338 8,314
Other accounts receivable       259 135
Total other receivables       2,952 8,449
16. Share capital and share premium – Group 
The following table summarises the movement in the share capital and share premium of the Company for the 
years ended 2008 and 2009. 
      Share Share 
     Number capital premium 
     of shares US$ 000 US$ 000
At 1 January 2008     53,623,948 1,037 139,681 
Issue of shares: 
– shares issued to directors      393,852 8 –
At 31 December 2008     54,017,800 1,045 139,681
      Share Share 
     Number capital premium 
      of shares US$ 000 US$ 000
At 1 January 2009      54,017,800   1,045   139,681
Issue of shares: 
– public placement      27,000,000   440   26,560 
– share issue costs      – – (368)
At 31 December 2009      81,017,800   1,485   165,873 
The total number of authorised Ordinary Shares is 330,720,100 (2008: 330,720,100) with a par value of £0.01 per 
share (2007: £0.01 per share).
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. There were no shares 
issued to directors under such schemes during 2009.
Notes to the IFRS Consolidated Financial Statements con tin ued BUSINESS OVERVIEW
FINANCIAL STATEMENTS
45
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
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  Number 
      of shares Number of shares 
      allotted at of shares allotted at 
      1 January allotted for 31 December 
Directors      2008 the period 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
US$1,138,000 of the total fair value determined was charged to the income statement for the year ended  
31 December 2008 (Note 5). As of 31 December 2008 there are no outstanding restricted share agreements  
under this programme.
2008 Executive Share Option Plan 
On 15 July 2008 the Group announced a new Executive Share Option Plan (“ESOP”). During 2008, the Company 
granted options to acquire 1,137,464 Ordinary Shares to Mikhail Ivanov under the terms of the ESOP. 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. In January 2009, the Company granted 568,732 thousand share options to 
Tony Alves under the ESOP. The options 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 have an exercise price 
of £1.00. Under the terms of the plan, options over 71,092 shares were eligible for vesting. Share grant expenses of 
US$72,000 have been made in 2009 (2008: nil).
The fair value of share options granted and of restricted shares issued is measured by use of the Black-Scholes 
pricing model with the following assumptions:
     2009  
     Executive 2007 
     Share Restricted 
Year ended 31 December     Option Plan Share Award
Share price     76.5p US$6.29
Exercise price      100.0p–200.0p US$0.02
Expected volatility     107.7% 8.48%
Expected life     0–4 years 0–3 years
Risk free rate     3.0% 5.71%–6.15%
Expected dividends     None None
17. Other reserves – Group
       2009 2008 
At 31 December        US$ 000 US$ 000
Currency translation adjustment       (18,063) (16,026)
Share grant expense       5,073 5,001 
Total other reserves       (12,990) (11,025)
Currency translation adjustments represent adjustments on translation of the share capital of non-US$ 
subsidiaries into US$. All related exchange gains and losses are charged directly to equity. 46
18. Trade and other payables – Group
       2009 2008 
At 31 December        US$ 000 US$ 000
Trade payables        2,688   2,416 
Taxes other than profit tax       316 –
Customer advances        158   – 
Total        3,162  2,416 
The maturity period of the Group’s financial liabilities, comprising only trade and other payables at 31 December 
2009 and 2008 is as follows:
     0 to 3 3 to 12 Over 
Maturity period at 31 December 2009      months months 1 year Total
Trade and other payables     2,419 549 194 3,162
     0 to 3 3 to 12 Over  
Maturity period at 31 December 2008     months months 1 year Total
Trade and other payables     2,265 151 – 2,416
19. 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
ZAO Gamma Russia  Joint venture operating company 75% January 2009
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 
     2008 Additions Disposals 2009 
Company     US$ 000 US$ 000 US$ 000 US$ 000
Investments in Woodhurst Holdings     119,254 24,429   –   143,683 
Investments in Volga Gas (Cyprus) Ltd.     1,051  –   –   1,051 
Total investments     120,305  24,429   –   144,734 
The Company funds its activities in the Russian Federation via Woodhurst Holdings, the Company’s Cyprus 
registered subsidiary. 
20. Other reserves – Company
       2009 2008 
At 31 December        US$ 000 US$ 000
Share grant expense       5,073 5,001 
Total other reserves       5,073 5,001 
21. Accumulated (loss)/profit – Company
       2009 2008 
At 31 December        US$ 000 US$ 000
Retained losses       (1,006) (1,084)
Accumulated profit at start of year        324   1,408 
Accumulated (loss)/profit 31 December       (682)  324 
Notes to the IFRS Consolidated Financial Statements con tin ued BUSINESS OVERVIEW
FINANCIAL STATEMENTS
47
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
CORPORATE GOVERNANCE
22. Audit fees – Group and Company
During the year the Group (including its overseas subsidiaries) obtained the following services from the 
Company’s auditors and associates:
       2009 2008 
Year ended 31 December        US$ 000 US$ 000
Fees payable to Company’s auditor for the audit of parent company and consolidated  
financial statements       235 235 
Fees payable to the Company’s auditor and its associated firms for other services:
– The audit of Company’s subsidiaries pursuant to legislation     20  9 
– Other services pursuant to legislation       50  50 
– Tax services       201  90 
– Other, training       –  5 
Total        506  389 
23. Related party transactions – Group and Company
The Group is controlled by Baring Vostok Private Equity Funds III and IV, which respectively own 48.9% and 9.76% 
(in aggregate 58.66%) of the Company’s shares. The Baring Vostok Private Equity Funds exercise their control 
through a number of nominee holding companies. The remaining 41.34% of the shares are widely held.
The following transactions concerning purchases of goods and services were carried out with related parties:
    Year ended 31 December
   Nature of 2009 
2008 
Related party Relationship transactions US$ 000 US$ 000
Baring Vostok (Cyprus) Limited Affiliated with controlling  Rent, services 133 86 
 shareholder
Vladimir Koshcheev Director Services 13 3
(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 31 December
    2009 
2008 
Related party Nature of transactions  US$ 000 US$ 000
OOO Geo Eko Long-term loan (interest rate 1%)  24   13
OOO Geopotential Long-term loan (interest rate 1%)  23   13
(b) Year-end balances arising from transactions with related parties 
       31 December 31 December 
       2009 2008 
       US$ 000 US$ 000
Due to related parties 
Baring Vostok (Cyprus) Limited       12 12
All transactions with related parties were made on commercial basis.
24. Contingencies and commitments 
24.1 Capital commitments
(a) Pre-Caspian Gas Company (“PGK”)
(i) Karpenskiy Licence Area
In accordance with the amended Karpenskiy Licence Agreement (“Amended KLA”) PGK was required to acquire 
400 km
2
 of 3D seismic studies and to drill 14 wells. At the balance sheet date the Company had fulfilled all of its 
licence commitments.
(ii) Pre-Caspian Licence Area
In accordance with the license agreement for the Pre-Caspian License Area, PGK was required to acquire an 
additional 500 km of 2D seismic in 2009. At balance sheet date the Company had completed its seismic 
commitments on the Pre-Caspian Licence Area. In order to maintain its licence interest, the Company will be 
required to commence drilling a well before 31 December 2011. This expenditure is not at present committed.
(iii) Urozhainoye-2 Licence Area
The Company is required to commence drilling a well in the Urozhainoye-2 Licence Area during 2010. 
Management estimates the cost of such a well to be US$4.0 million. 48
24. Contingencies and commitments continued
(b) Gaznefteservice (“GNS”) – Vostochny-Makarovskoye Licence Area
In accordance with the Vostochny Makarovskoye licence agreement, GNS was required to drill at least one well by 
July 2008. As of the balance sheet date the licence commitments have been met.
24.2 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 2009, management believes that its interpretation of the relevant legislation is appropriate and 
the Group’s tax, currency and customs positions will be sustained.
24.3 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.
24.4 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 Karpenskiy Licence Agreement.  
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
Vostochny-Makarovskoye 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 has not received any official warnings or notifications 
about continuous non-compliance or any risk of suspension, restriction or termination.
25. Post-balance sheet events
Acquisition of 75% interest in a Gas Processing Unit
On 4 March 2010 the Group announced that an agreement has been signed with Trans Nafta (“TN”) to purchase a 
75% direct interest in gas processing facilities which will be used for the Group’s Vostochny Makarovskoye (“VM”) 
gas and condensate field.
As a result of this agreement, Gaznefteservice (“GNS”), a company which is wholly owned by the Group, will have 
a direct 75% interest in a Gas Processing Unit (“GPU”) constructed on a site approximately 7 km from the VM field. 
The plant is to be operated by a company which is 75% owned by GNS. Under the terms of the agreement a sum 
of RUR187 million (approximately US$6.2 million) has been paid. In November 2008, a sum of RUR600 million 
(approximately US$20 million) was paid as an advance on the purchase of the interest in the GPU. As disclosed in 
Note 12, the initial payment remains recorded at the balance sheet date as a security deposit on acquisition of 
fixed assets.
Notes to the IFRS Consolidated Financial Statements con tin ued 49
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
Notice is hereby given that the annual general meeting of Volga Gas plc (the “Company”) will be held at the 
London office of Akin Gump Strauss Hauer & Feld at Ten Bishops Square, London E1 6EG on 14 June 2010 at 09.00 
for the following purposes:
Ordinary business
1. To receive and adopt the Company’s accounts for the year ended 31 December 2009 and the directors’ report.
2. To declare a final dividend of £nil.
3. To reappoint Michael Calvey, who retires by rotation, as a director.
4. To reappoint Mikhail Ivanov, who retires by rotation, as a director.
5. To reappoint Stephen Ogden, who retires by rotation, as a director.
6.  To reappoint PricewaterhouseCoopers LLP as auditors of the Company until the conclusion of the next general 
meeting at which accounts are laid before the Company.
7. To authorise the directors to determine the remuneration of the auditors of the Company.
Special business
To consider and, if thought fit, to pass resolution 7 as an ordinary resolution and resolution 8 as a special resolution.
8.  That, the directors be and they are hereby generally and unconditionally to exercise all the powers of the 
Company to allot shares in the Company and/or to grant rights to subscribe for or to convert any security  
for shares in the Company (together “Relevant Securities”) 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 2011, 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.
9.  That, the directors be and they are hereby empowered pursuant to Sections 570 and 573 of the Companies Act 
2006 (the “Act”) to allot equity securities (as defined in Section 560 of the Act) for cash; pursuant to the 
authority conferred by resolution 8 set out in this Notice convening the Annual General Meeting (the “Notice”) 
as if Section 561 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 the power conferred hereby shall expire upon the expiry of the general authority conferred by resolution 8 
set out in this Notice, 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 14 April 2010
SW1P 1QT
Notice of Meeting 50
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 AGM.
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 forty eight 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.  Only those members entered on the register of members of the Company at 09.00 a.m. on 12 June 2010 or, in the event that this meeting is adjourned, in the 
register of members as at 6.00 p.m. on the day two days before the date of any adjourned meeting, shall be entitled to attend and vote at the meeting in 
respect of the number of Ordinary Shares registered in their names at that time. Changes to the entries on the register of members after the close of 
business on 12 June 2010 or, in the event that this meeting is adjourned, in the register of members after the close of business on the day two days before the 
date of the adjourned meeting, shall be disregarded in determining the rights of any person to attend or vote at the meeting.
Notice of Meeting continued 51
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
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
abandonment  application of a cement plug to close a well and welding of a steel plate to the top 
of the well; the well is then plugged and abandoned
bbl  the standard barrel of crude oil or other petroleum product is 42 US gallons 
(approximately 159 litres)
bcf billion cubic feet
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, being for natural gas the energy equivalent on one barrel 
of oil. The usual ratio is to equate 6,000 cubic feet to one barrel 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 processing facilities  together with the laboratory, gathering pipelines and storage facilities (if any), a 
plant comprising 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 contact  bounding surface in a reservoir above which 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 Salt  a layer of salt laid down during the lower Permian 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 Abandonment
mmbbls million 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
Glossary of Technical Terms 52
possible reserves   are those unproven reserves that, on the available evidence and taking into 
account technical and economic factors, have a 10.0% chance of being produced
probable reserves   are those reserves in which hydrocarbons have 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 50.0% chance of being produced
prospective resources  are those quantities of hydrocarbons which are estimated, on a given date, to be 
potentially recoverable from undiscovered accumulations
proved reserves   include reserves that are confirmed with a high 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 90.0% chance of being produced
proved plus probable  sum of the proved reserves and the probable reserves calculated in accordance
reserves with 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 standards  reserves definitions consistent with those 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
Glossary of Technical Terms continued 53
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
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.
Russian Classification of Reserves 54
Registered Office
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 Ltd
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
volgagas.com
Corporate Directory 55
Volga Gas plc Annual Report and Accounts 2009 volgagas.com
Notes 56
Notes 
Drilling rig at Grafovskaya #1.
Volga Gas plc is an 
independent oil and 
gas exploration and 
production company 
focused on the 
Volga Region of 
Russia and traded 
on AIM since March 
2007 . It has offices 
in London, Moscow 
and Saratov and has 
100% interests in 
four oil and gas 
exploration and 
production licences 
in the Saratov and 
Volgograd Regions. Job: 13410_VOLGA GAS_Proxy09 AW Proof: 01 Proof Read by:
Operator: Keith Date: 13 May 2010 6:30 PM 
Server: studio 1 Set-up: Edinburgh First Read/Revisions
Volga Gas plc 
Annual General Meeting
Proxy Form
Before completing this form, please read the explanatory notes below.
I /We
FULL NAME(S) IN BLOCK CAPITALS  ...............................................................................................................................................................................
of
ADDRESS IN BLOCK CAPITALS  .......................................................................................................................................................................................
.............................................................................................................................................................................................................................................
being a member of Volga Gas plc (the “Company”) appoint the Chairman of the meeting or (see note 3) 
.............................................................................................................................................................................................................................................
as my/our proxy to attend, speak and vote on my/our behalf at the Annual General Meeting of the Company to be held at the London office of 
Akin Gump Strauss Hauer & Feld at Ten Bishops Square, London E1 6EG on 14 June 2010 at 09:00am and at any adjournment of the meeting.
I/We direct my/our proxy to vote on the following resolutions as I/we have indicated by marking the appropriate box with an ‘X’.  
If no indication is given, my/our proxy will vote or abstain from voting at his or her discretion and I/we authorise my/our proxy to vote  
(or abstain from voting) as he or she thinks fit in relation to any other matter which is properly put before the meeting.
Ordinary Resolutions For Against Vote 
Withheld
Discretionary
1.   To receive and adopt the Company’s accounts for the year ended  
31 December 2009 and the directors’ report. 
2.   To declare a final dividend of £nil.
3.   To reappoint Michael Calvey as a director.
4.   To reappoint Mikhail Ivanov as a director.
5.   To reappoint Stephen Ogden as a director.
6.  To reappoint PricewaterhouseCoopers LLP as Auditors of the Company 
until the conclusion of the next general meeting at which the accounts 
are laid before the Company .
7.  To authorise the directors to agree the remuneration of the Auditors.
8.  That the directors be and are hereby authorised generally and unconditionally 
to exercise all the powers of the Company to allot Relevant Securities  
(as defined in the Notice of Annual General Meeting dated 14 April 2010  
(the “Notice”) up to a maximum aggregate value of £1,000,000. 
Special Resolution For Against Vote 
Withheld
Discretionary
9.  That the Directors be and are hereby empowered to allot equity securities 
(as defined in s560 of the Companies Act 2006 (the “Act”) for cash 
pursuant to the authority conferred by resolution 8 as if section 561 of the 
Act did not apply to such allotment, provided that this power shall be 
limited to allotments (a) in connection with a rights issue or other pre-
emptive offer and (b) equity securities up to an aggregate nominal value 
of £150,000 (as described in the Notice as resolutions 9(a) and (b)).
Signature  ........................................................................................................................................................................................................................... 
Date  ...................................................................................................................................................................................................................................
Notes to the proxy form
1. As a member of the Company you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at a general meeting of the Company . You 
can only appoint a proxy using the procedures set out in these notes.
2. Appointment of a proxy does not preclude you from attending the meeting and voting in person. If you have appointed a proxy and attend the meeting in person, your 
proxy appointment will automatically be terminated.
3. A proxy does not need to be a member of the Company but must attend the meeting to represent you. T o appoint as your proxy a person other than the Chairman of the meeting, 
insert their full name in the box. If you sign and return this proxy form with no name inserted in the box, the Chairman of the meeting will be deemed to be your proxy . Where 
you appoint as your proxy someone other than the Chairman, you are responsible for ensuring that they attend the meeting and are aware of your voting intentions. If you wish 
you proxy to make any comments on your behalf, you will need to appoint someone other than the Chairman and give them the relevant instructions directly .
4. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint more than one proxy to 
exercise rights attached to any one share. 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.  
5. T o direct your proxy how to vote on the resolutions mark the appropriate box with an ‘X’. T o abstain from voting on a resolution, select the relevant “Vote withheld” box.  
A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If you either select the 
“Discretionary” option or if no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting)  
as he or she thinks fit in relation to any other matter which is put before the meeting.
6. T o appoint a proxy using this form, the form must be:  
•  completed   and   signed; 
•  sent   or   deli v er ed   to   the   Reg istr ar   at   Ca pita   Reg istr ars ,   PXS ,   34   Bec k enham   Road,   Bec k enham,   BR3   4TU ,   United   Kingdom;   and 
•  r ecei v ed   b y   the   Reg istr ar   no   later   than   48   hours   prior   to   commencement   of   the   meeting.
7. In the case of a member which is a company , this proxy form must be executed under its common seal or signed on its behalf by an officer of the company or an attorney 
for the company .
8.  Any power of attorney or any other authority under which this proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form.
9.  CREST members who wish to appoint a proxy or proxies by using the CREST electronic appointment service may do so by using the procedures described in the CREST 
Manual. T o be valid, the appropriate CREST message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instructions given to a 
previously appointed proxy , must be transmitted so as to be received by the Registrar RA10 no later than 48 hours prior to commencement of the meeting. 
10.  In the case of joint holders, where more than one of the joint holders purports to appoint a proxy , only the appointment submitted by the most senior holder will be 
accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the 
first-named being the most senior).
11.  If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence.
12.  For details of how to change your proxy instructions or revoke your proxy appointment see the notes to the notice of meeting.
13.  You may not use any electronic address provided in this proxy form to communicate with the Company for any purposes other than those expressly stated. Job: 13410_VOLGA GAS_Proxy09 AW Proof: 01 Proof Read by:
Operator: Darren Date: 13 May 2010 6:30 PM 
Server: studio 1 Set-up: Edinburgh First Read/Revisions
SECOND FOLD
THIRD FOLD AND TUCK IN
FIRST FOLD
Business Reply 
Licence Number
RSBH-UXKS-LRBC
PXS
34 Beckenham Road
BECKENHAM
BR3 4TU www.volgagas.com
Volga Gas plc
Ground Floor
17–19 Rochester Row
London
SW1P 1QT
Volga Gas plc
Annual Report 
and Accounts
For the year ended 31 December 2009
www.volgagas.com
Volga Gas plc Annual Report and Accounts 2009