Shares Volga Gas, the oil and gas exploration and production group operating in the Volga Region of Russia, rose on the promise of significantly higher production when it puts the Vostochny Makarovskoye (VM) field into full-time production.

Three of the wells on the field are ready to begin full-time production imminently, which is expected to build up production to over 3,000 barrels of oil equivalent per day. This is expected to further increase towards 6,000 boepd in 2013.

The news has help cushion the firm's half year results, which showed a decline in revenues to $13.3m from $14.0m the same period the previous year and delivered a net loss of $5.6m (2011 H1: profit of $3.0m) after exploration write-offs of $7.4m. The cost of sales rose from $6.6m to $7.1m year-on-year, while general and admin expenses were also higher at $3.4m compared to $2.9m in the first half of 2011.

Group production averaged 2,406 boepd, an improvement on the 2,092 averaged during the same period in 2011.

Regionally, continued production was seen on the Dobrinskoye field, averaging 3.5m cubic feet per day of gas (H1 2011: 3.8 mcf/d) and 327 barrels per day of condensate (H1 2011: 313 bcpd). A successful sidetrack on shut-in well 22 was recently completed and will be put on production shortly.

On the Karpenskiy licence area average production during the period was 932 bopd (H1 2011: 1,147 bopd) with some weather and market related disruption during March and April 2012. Production during July and August averaged 1,300 bopd.

The Yuzhno Romanovskaya-1 exploration well in the Urozhainoye 2 licence area was plugged and abandoned and the costs associated with the prospect written off.

In a statement Volga Gas said: "During July and August 2012, production averaged 1,966 boepd with strong performance from the Uzen oil field offset by intermittent gas production at Dobrinskoye while the gas plant upgrade was reaching its final stages. The group anticipates that when the plant recommences full time operation by the end of September, oil, gas and condensate production capacity will remain stable at rates of between 2,700 and 2,800 bopd for the remainder of 2012.

"For the second half of 2012, the group's capital expenditure is expected to be between $5.0m and $7.0m. The key projects include further stages of the gas plant upgrade, the sidetrack of well #26 on Dobrinskoye and a shallow exploration well on the pre-Caspian licence area.

"The group is now poised to benefit from the efforts expended and investment made in the Vostochny Makarovskoye field which should start contributing to revenues and cash flow imminently. This lays a foundation for sustainable production and cash flow which provides a strong platform for future growth. A key priority for the group now is to secure opportunities to grow the group's asset base by selective value-accretive acquisition."

The share rose 3.87% to 94p by 12:51.

NR

Related share prices
Volga Gas (VGAS) share price