WesternZagros Resources Ltd.
TSX VENTURE : WZR

WesternZagros Resources Ltd.

February 28, 2017 19:21 ET

WesternZagros Announces 2016 Garmian YE Reserves Increase of 60%, Valuation Increase of 250%, and Full Payment for 2016 Production

CALGARY, ALBERTA--(Marketwired - Feb. 28, 2017) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or the "Company") is pleased to announce a 60 percent increase in the Company's Proved plus Probable ("2P") Reserves and a 250 percent increase in the net present value of the future net revenue of such reserves discounted at 10 percent ("NPV10"). The Company is also pleased to provide an Operational Update and confirmation of receipt of all proceeds for 2016 oil sales.

Reserve Report Highlights

The Company's Reserves as at December 31, 2016 were evaluated by the Company's independent reserves evaluators, Sproule International Limited ("Sproule") for the Sarqala Jeribe / Upper Dhiban reservoir on the Garmian Block located in Kurdistan, Iraq in a report dated February 28, 2017 (the "2016 Sproule Report"). The 2016 Sproule Report has been prepared in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGEH") and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI51-101").

Highlights of the 2016 Sproule Report in comparison with the reserves evaluation completed by Sproule as at December 31, 2015 include:

  • The estimated 2P Reserves (Gross Block) increased by 60 percent to 20.7 million barrels ("MMbbl") of oil.
  • The estimated NPV10 of the Company's 2P Reserves increased by 250 percent to US$113.4 million.(1)
  • On a fully diluted share basis, this NPV10 reflects a value of CAD$0.18/share.(2)

The table below presents highlights from the 2016 Sproule Report for both WesternZagros's Working Interest (Gross) and Gross Block 2P Reserves volumes, together with 2015 YE estimates for comparison.

December 31, 2015 December 31, 2016
Proved Plus Probable (2P) Proved Plus Probable (2P)
Working NPV(10)(1) Working NPV(10)(1)
Gross Block Interest Gross Block Interest
Oil Reserves (MMbbl) (MMbbl) (US$million) (MMbbl) (MMbbl) (US$million)
Garmian Block - Kurdistan Region of Iraq
Jeribe / Upper Dhiban 12.8 5.1 $32.5 20.7 8.3 $113.4

In addition, as a result of the increased Reserves recognized in the 2016 Sproule Report the Company is now able to reverse the non-cash impairments of property, plant and equipment recorded in previous years(3).

(1) Estimated value of future net revenue does not represent fair market value.
(2) Per share value computed based on 786.7 million common and preferred shares outstanding with 23.6 million common shares added for in the money options based on Canadian/US exchange rate of 0.7631. This per share value is only one component of, and is not intended to provide an estimate of the per share value of the Company.
(3) Subject to final audit of the Company's December 31, 2016 financial statements.

Commenting on the Company's 2016 YE 2P Reserves, Simon Hatfield, WesternZagros's CEO said, "We are pleased that the steady performance of Sarqala-1 has allowed us to continue the conversion of Prospective Resources into Reserves at Garmian. The well continues to produce at over 5,000 barrels of oil per day and has produced almost 4.5 million barrels of high quality crude with no water or H2S to date. The Company's forward production estimates predict that, under the current 2P reserves scenario, Sarqala-1 will ultimately produce over 13 million barrels of crude. Although our material balance calculations indicate additional reserves below the current lowest known oil, COGEH guidelines restrict the estimates to the deepest known oil evident on well logs at Hasira-1. We have been and will continue to be annually subject to the stringent Canadian securities requirements of reserves and contingent resources reporting although we remain optimistic about our ability to continue to increase reserve estimates as drilling and production continues."

The increases to the Company's Reserves are due to the conversion of Prospective Resources to Reserves and are based on the performance of the Sarqala-1 well. The conversion to Reserves is supported by the Company's material balance analysis to reconcile the modest pressure decline observed during production and the continued absence of produced water at the Sarqala-1 well. 2016 YE Reserves are now assessed down to a revised depth of -3574 metres subsea ("ss"), which is the depth of lowest known oil as indicated on petrophysical logs in the Hasira-1 well whereas the 2015 YE Reserves were assessed down to -3501 metres ss, the depth of the top of the pay zone from logs in the Hasira-1 well (see figures 1 and 2 below).

The Company's internal material balance analyses support the further presence of oil reserves below the lowest known oil interpreted from petrophysical logs in the Hasira-1 well. However, COGEH guidelines in accordance with NI 51-101 limit the estimation of reserves to the lowest known oil in Hasira-1. As such, the Company expects that the reserves estimates will increase further once additional wells penetrate the Jeribe/Upper Dhiban oil reservoir at greater depths than the Hasira-1 penetration.

The following map and cross-section illustrate the reservoir configuration associated with the revised lowest known oil at -3574 metres ss. The darker green shaded areas represent Reserves and the light shaded green area represents Prospective Resources.

Fig 1 - Top Jeribe (top reservoir) Depth Structure Map showing the difference between 2015 YE and 2016 YE Base Reserves (Lowest Known Oil).

To view figure 1, please visit the following link: http://media3.marketwire.com/docs/1087332_fig1.jpg

Fig 2 - Schematic Cross-Section illustrating 2016 YE Base Reserves defined by Lowest Known Oil in the H-1 well.

To view figure 2, please visit the following link: http://media3.marketwire.com/docs/1087332_fig2.jpg

Additional information related to the 2016 Sproule Report and the Reserves estimates is included in the Appendix below and certain advisories and relevant definitions related to the Reserves and Resources are noted at the end of this news release.

Sproule's audit of the revised estimates of Prospective Resources resulting from the conversion to Reserves and other technical factors for the Garmian Block discussed above is pending and revised estimates will be included in the Company's 2016 Annual Oil and Gas Statement (see the Appendix below under "Additional Information"). In relation to the material increase in Reserves, a material reduction in the Prospective Resources is anticipated.

On the Company's other development project at Kurdamir, estimates of the Prospective and Contingent Resources are currently being audited by Sproule and will also be included in the Company's 2016 Annual Oil and Gas Statement. No material changes are anticipated.

Operational Update

WesternZagros Fully Paid to 2016 Year End

Subsequent to December 31, 2016, the Company received payment for outstanding oil sales proceeds of US$4.9 million related to the fourth quarter, resulting in no remaining outstanding receivables for 2016 sales. At Sarqala, WesternZagros's revenue for the 2016 fiscal year is estimated to be US$14.4 million (unaudited), which has been collected in accordance with production sharing contract entitlements. WesternZagros acknowledges the efforts made by the Ministry of Natural Resources of the Kurdistan Regional Government, despite the hardships the Region is under, to pay its oil producing contractors in accordance with their production sharing entitlements.

Production Levels Anticipated to Increase in 2018

The Sarqala-2 well on the Garmian Block is planned to be drilled in the third quarter of 2017. This is the Company's first Garmian development well targeted with the advantage of 3D seismic data and designed as a producing well for the Jeribe reservoir. Revised drilling and completion techniques will be used in Sarqala-2 and it is anticipated to be put on stream in early 2018 with the objective of tripling the current field production levels. In addition, the drilling of Sarqala-3 in 2018 is designed to further advance the project to 25,000 bbls per day by 2020.

Cost Reduction

Recent Garmian oilfield service tender responses are reflecting a significant reduction in service industry costs in Kurdistan and WesternZagros expects to see future well costs decline by 15 percent or more over previous well estimates.

Commenting on the Company's Operational as well as Regional updates, Hatfield said, "WesternZagros is very well positioned for long-term development opportunities - which we will pursue with our tradition of prudent capital management and paced development. We are pleased to see that the Kurdistan Regional Government is committed to regular payments to IOCs. The KRG's economic reforms initiated in 2015 aimed at reducing expenditures have resulted in a significant drop in their deficit. We also are encouraged by their development of new markets worldwide for Kurdistan crude oil as seen with the recent new financing and oil sales arrangements. We remain committed to a strong partnership and are optimistic about our projects and the long-term future of the Kurdistan Region."

Appendix

Reserves Estimate (Year-to-Year Comparison)

A summary table from the 2016 Sproule Report and from the reserve report prepared by Sproule as at December 31, 2015 and dated March 16, 2016 (the "2015 Sproule Report") are presented below and show the significant increases to the Proved, Probable and Possible Reserves categories.

2016 Sproule Report

Summary of the Estimates of Reserves and Net Present Values (1)
of WesternZagros Resources Ltd.
Before and After Income Taxes(6)
(As of December 31, 2016)
Reserves Category Remaining
Recoverable(2)
Oil Reserves
Company
Working
Interest
Company
Gross (3) Oil
Reserves
Lessor Royalties and Burdens
Company Net(4)
Oil Reserves

Net Present Value of Future Net Production Revenue (5) at Several Discount Rates Before and After Taxes (M$)
Mbbl % Mbbl Mbbl Mbbl 0% 5% 10% 15% 20%
Garmian Block, Kurdistan Region of Iraq
Proved Developed Producing 3,281 40 1,312 427 885 20,231 19,872 19,487 19,091 18,695
Proved Undeveloped 7,306 40 2,923 984 1,939 31,657 23,441 16,873 11,599 7,342
Total Proved 10,587 40 4,235 1,411 2,824 51,888 43,313 36,360 30,690 26,037
Probable 10,129 40 4,052 1,320 2,732 120,798 95,773 77,003 62,685 51,589
Total Proved Plus Probable 20,716 40 8,286 2,731 5,555 172,686 139,085 113,363 93,375 77,626
Possible(7) 19,637 40 7,855 2,695 5,160 237,652 156,206 108,309 78,621 59,303
Total Proved Plus Probable Plus Possible 40,353 40 16,141 5,425 10,716 410,339 295,292 221,672 171,996 136,929

2015 Sproule Report

Summary of the Estimates of Reserves and Net Present Values (1)
of WesternZagros Resources Ltd.
Before and After Income Taxes(6)
(As of December 31, 2015)
Reserves Category Remaining
Recoverable(2)
Oil Reserves
Company
Working
Interest
Company
Gross (3) Oil
Reserves
Lessor
Royalties and Burdens

Company Net(4)
Oil Reserves

Net Present Value of Future Net Production Revenue (5) at Several Discount Rates Before and After Taxes (M$)
Mbbl % Mbbl Mbbl Mbbl 0% 5% 10% 15% 20%
Garmian Block, Kurdistan Region of Iraq
Proved Developed Producing 2,009 40 803 291 512 3,613 3,744 3,847 3,927 3,989
Total Proved 2,009 40 803 291 512 3,613 3,744 3,847 3,927 3,989
Probable 10,802 40 4,321 1,435 2,886 52,063 38,874 28,686 20,787 14,623
Total Proved Plus Probable 12,810 40 5,124 1,726 3,398 55,676 42,618 32,533 24,714 18,612
Possible(7) 13,707 40 5,483 1,835 3,648 210,217 157,409 120,838 94,929 76,123
Total Proved Plus Probable Plus Possible 26,517 40 10,607 3,561 7,046 265,893 200,026 153,372 119,642 94,735
(1) Values may not add or be consistent from one presentation to the next due to rounding.
(2) Remaining Recoverable Reserves are the total remaining recoverable reserves associated with the acreage in which the Company has an interest. These are also referred to herein as Gross Block Reserves.
(3) "Company Gross" means the Company's 40 percent working interest share before deduction of royalty petroleum, profit petroleum, production bonuses and capacity building support payments pursuant to the provisions of the applicable production sharing contract.
(4) "Company Net" means the Company's cost and profit petroleum volume entitlements pursuant to the provisions of the applicable production sharing contract.
(5) Net Production Revenue is income derived from the sale of net reserves of oil less all capital and operating costs. Estimated net present value of future net revenue does not represent fair market value.
(6) An after income tax evaluation has been prepared based on the terms of the PSC for the Garmian Block, Kurdistan Region of Iraq which identifies income taxes of up to 40 percent as being paid by the government on behalf of the contractor. In such cases, the Company's reserves entitlement includes volumes or tax barrels attributed to the income tax, calculated as the income taxes divided by the oil price. The tax barrels have not been calculated to estimate the before income tax reserves and net present values. Consequently, the income taxes paid by the government, as outlined in the terms of the PSC, have not been included in the estimated before income tax reserves and net present values. Therefore, the before income tax reserves and net present values are presented as being equal to the after income tax reserves and net present values.
(7) Possible Reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10 percent probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

Reserves Reconciliation

The table below presents a reconciliation of the Company's Gross Reserves by Product Type as at December 31, 2016 against such Reserves as at December 31, 2015 using forecast prices and costs.

Light and Medium Oil BOE
Gross Gross
Proved Proved
Gross Gross Plus Gross Gross Plus
Proved Probable Probable Proved Probable Probable
Factors (Mbbl) (Mbbl) (Mbbl) (Mbbl) (Mbbl) (Mbbl)
December 31, 2015 803 4,321 5,124 803 4,321 5,124
Technical Revisions 4,041 (269) 3,771 4,041 (269) 3,771
Production (609) 0 (609) (609) 0 (609)
December 31, 2016 4,235 4,052 8,286 4,235 4,052 8,286

Additional Information Concerning Future Net Revenue

The forecast prices utilized by Sproule in the 2016 Sproule Report for estimating future net revenue from Reserves were based on Sproule's December 31, 2016 pricing model. The table below presents a summary of selected forecasts. The Company's weighted average historical price for 2015 was US$41.42 and for 2016 was US$36.41.

To view the table associated with this release, please visit the following link: http://media3.marketwire.com/docs/1087332_table.jpg

Additional Information

Additional information related to the 2016 Sproule Report and the Reserves estimates is included in the Company's Material Change Report dated February 28, 2017, which is available under the Company's profile on SEDAR at www.sedar.com and on its corporate website at www.WesternZagros.com.

The reserves data provided in this news release and the Material Change Report present only a portion of the disclosure required under NI 51-101. The Company's oil and gas disclosure statement for the year ended December 31, 2016, which will include complete disclosure of the Company's oil and gas reserves and other oil and gas information in accordance with NI 51-101, will be contained in the Company's annual information form which will be available on SEDAR on or before March 31, 2017 (the "2016 Annual Oil and Gas Statement").

The 2016 Annual Oil and Gas Statement will also include updated estimates of Jeribe / Upper Dhiban Prospective Resources on the Garmian Block, as well as updated estimates of Prospective and Contingent Resources for the Company's other development project at Kurdamir.

About WesternZagros Resources Ltd.

WesternZagros is an international natural resources company focused on acquiring properties and exploring for, developing and producing crude oil and natural gas in Iraq. WesternZagros, through its wholly-owned subsidiaries, holds a 40 percent working interest in two Production Sharing Contracts with the Kurdistan Regional Government in the Kurdistan Region of Iraq. WesternZagros's shares trade in Canada on the TSX Venture Exchange under the symbol "WZR".

This news release contains certain forward-looking statements relating to, but not limited to, expected costs and revenues and future development plans, including expected timing thereof and increased production rates therefrom. Forward-looking information typically contains statements with words such as "anticipate", "estimate", "expect", "potential", "could", or similar words suggesting future outcomes. The Company cautions readers and prospective investors in the Company's securities to not place undue reliance on forward-looking information as, by its nature, it is based on current expectations regarding future events that involve a number of assumptions, inherent risks and uncertainties, which could cause actual results to differ materially from those anticipated by WesternZagros.

Forward looking information is not based on historical facts but rather on management's current expectations as well as assumptions made by, and information currently available to management, concerning, among other things, development plans and concepts, future capital and other expenditures (including the amount, nature and sources of funding thereof), the ability to identify appropriate financing transactions, the outcomes of future well operations, results of drilling activity and testing, future capital and other expenditures (including the amount, nature and sources of funding thereof), the availability of debt financing or access to alternate financing, the continued ability to sell production in the domestic or export markets and the payments to be received in connection therewith, anticipated operating costs, future economic conditions, future currency and exchange rates, continued political stability, continued security in the Kurdistan Region, timely receipt of any necessary co-venturer, government or regulatory approvals, the successful resolution of any disputes, the Company's continued ability to employ qualified staff and to obtain equipment in a timely and cost efficient manner and the participation of the Company's co-venturers in joint activities. In addition, budgets are based upon WesternZagros's current development plans and anticipated costs, both of which are subject to change based on, among other things, the outcome of negotiations with co-venturers and the government, the actual outcomes of well operations and the installation and commissioning of facilities, unexpected delays, availability of future financing and changes in market conditions.

Although the Company believes the expectations and assumptions reflected in such forward-looking information are reasonable, they may prove to be incorrect. Forward-looking information involves significant known and unknown risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated by WesternZagros including, but not limited to, risks associated with the oil and gas industry (e.g. operational risks in development and production; inherent uncertainties in interpreting geological data; changes in plans with respect to capital expenditures; interruptions in operations together with any associated insurance proceedings; the uncertainty of estimates and projections in relation to timing, costs and expenses and health, safety and environmental risks), the risk of commodity price and foreign exchange rate fluctuations, risks relating to domestic refining capacity and continuing ability to access the domestic market, risks relating to the ability to access export markets and receive payments in accordance with the terms of its production sharing contracts on a timely basis, the uncertainty associated with any dispute resolution proceedings, the uncertainty associated with negotiating with foreign governments and risk associated with international activity, including the lack of federal petroleum legislation and ongoing political disputes and recent terrorist activities in Iraq in particular.

Readers are cautioned that the foregoing list of important factors is not exhaustive and that these factors and risks are difficult to predict. The forward-looking statements contained in this news release are made as of the date of this news release and, except as required by law, WesternZagros does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement. See the "Risk Factors" section of the Company's Annual Information Form (AIF) dated March 16, 2016 filed on SEDAR at www.sedar.com for a further description of these risks and uncertainties facing WesternZagros. Additional information relating to WesternZagros is also available on SEDAR at www.sedar.com, including the Company's AIF.

Reserves and Resources Advisory

In addition, statements relating to reserves and other resources contained herein are deemed to be forward -looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources described can be economically produced in the future. Future net revenue values are estimated values only and do not represent fair market value. There is no assurance that the forecast prices and cost assumptions, the initial phases of the development plans as submitted to the KRG and anticipated future phases contemplated in completing the full field development utilized in such estimated values will be attained and variances could be material. The reserve estimates provided herein are estimates only and there is no assurance that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein. Terms related to resource classifications referred to herein are based on the definitions and guidelines in the Canadian Oil and Gas Evaluation Handbook which are as follows. The reserves have been evaluated by Sproule International Limited ("Sproule").

"Reserves" are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on (a) analysis of drilling, geological, geophysical and engineering data, (b) the use of established technology and (c) specified economic conditions which are generally accepted as being reasonable and shall be disclosed. Reserves are classified as Proved, Probable or Possible according to the degree of certainty associated with the estimates. "Proved Reserves" are those Reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated Proved Reserves. If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated Proved Reserves. "Probable Reserves" are those additional Reserves that are less certain to be recovered than Proved Reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated Proved plus Probable (2P) Reserves. If probabilistic methods are used, there should be at least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated 2P Reserves. "Possible Reserves" are those additional Reserves that are less certain to be recovered than Probable Reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated Proved plus Probable plus Possible (3P) Reserves. If probabilistic methods are used, there should be at least a 10 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated 3P Reserves.

"Contingent Resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingent Resources have an associated chance of development (economic, regulatory, market and facility, corporate commitment or political risks). The Contingent Resources estimates referred to herein have not been risked for the chance of development. There is no certainty that the Contingent Resources will be developed and, if developed, there is no certainty as to the timing of such development or that it will be commercially viable to produce any portion of the Contingent Resources.

"Prospective Resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective Resources have both an associated chance of discovery (geological chance of success) and a chance of development (economic, regulatory, market, facility, corporate commitment or political risks). The chance of commerciality is the product of these two risk components. Unless otherwise indicated, the estimates referred to herein have not been risked for either the chance of discovery or the chance of development. There is no certainty that any portion of the Prospective Resources will be discovered. If a discovery is made, there is no certainty that it will be developed or, if it is developed, there is no certainty as to the timing of such development or that it will be commercially viable to produce any portion of the Prospective Resources.

Gross Block resource estimates presented herein represent the total volumes for the indicated reservoirs attributable to 100 percent of the relevant block, without any adjustment for the Company's working interest therein whereas the Working Interest (Gross) or Company Gross resource estimates presented represent the Company's 40 percent working interest (operating or non-operating) share before deduction of royalty petroleum, profit petroleum, production bonuses and capacity building support payments pursuant to the provisions of the applicable contract.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE

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