Volga Gas

Writen by Lionel Therond

Volga Gas is an independent oil and gas exploration and production company focused on the Volga Region of western Russia and with a 100% interests in four licenses to explore for and produce oil, gas and condensate in the Volgograd and Saratov Regions. The share price has steadily recovered from a low of c.30p reached in Jan 2016 to the current c.55p, following an improvement in production operations. In our opinion the stock as fairly valued versus that of industry peers; however, we view the recent stock purchase by a Director of Baring Vostok Capital Partners as a positive indicator for potential share price performance.

In 2016, gas and condensate production benefitted from the completion of the VM field development, the capacity increase at the gas treatment facility at Dobrinskoye as well as the development of export sales channels for condensate, which enabled the VM field to maintain production rates despite disruptions to the domestic market for condensate. During the year oil production benefitted from the installation of electrical submersible pumps in some of the Uzenskoye wells, increasing production rates from 450bpd to 850bpd (Figure 1).


In 2017, the company will continue to benefit from the full year impact of capacity upgrades to the gas processing plant at the end of 2016 as well as potential additional production from a horizontal well planned to be drilled in 2017. A further increase to commodity prices in 2017 would also positively impact the financial performance of the company.

We believe the rise in the share price during 2016 from a low of below 30p to current level of c.55p adequately discounts the recent operational and pricing improvement. Indeed, we note that the Volga Gas stock trades at a P/B value of 1.03 which compares with a median value of 0.6 and an average value of 1.2 for comparable companies; hence we believe it is currently fairly valued (Figure 2).


We see two avenues of potential upside, both of them presenting a certain level of risk.

The first one is additional appraisal and exploration success in the Karpenskiy licence. The licence area contains a producing oil field discovered by the company in 2007 in a supra-salt horizon and exploration potential in other identified structures in supra-salt, intra-salt and sub-salt horizons. Volga Gas had good success in supra-salt exploration with 11 wells drilled since 2007 resulting in the discovery of commercial reserves in the Uzenskoye and South Uzenskoye accumulations. However, the first deep sub-salt well, Grafovskaya#1, spudded on August 28, 2009 encountered hydrocarbons but proved to be sub-commercial.

The second one is M&A, either with Volga Gas being the target in a consolidation play for oil and gas assets in Russia, or Volga Gas being an acquirer of assets in the region. It is part of the strategy of the Company to seek potentially value accretive acquisition of other oil, gas and condensate reserves.

Interestingly on 13 January 2017 Baring Vostok Investments PCC Ltd, a closed end fund advised by  Baring Vostok Capital Partners which also advises the Baring Vostok Private Equity Funds that are founder shareholders of Volga Gas, bought 4.8 million shares of Volga Gas at a price of 49.5p (Source: RNS).

We believe such a stock purchase from someone close to the company is a positive indicator for potential share price performance in the relatively short-term.

Important – Please read this information: This report has been commissioned by Volga Gas and prepared and issued by Capital Network for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however, we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Capital Network at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. Capital Network does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Capital Network’s solicitation to effect, or attempt to effect, any transaction in a security. This document is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Capital Network has a restrictive policy relating to personal dealing. Capital Network does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Capital Network may have a position in any or related securities mentioned in this report. Capital Network or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Capital Network within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Capital Network, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication.

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