WesternZagros Resources Ltd.
TSX VENTURE : WZR

WesternZagros Resources Ltd.

May 23, 2012 16:35 ET

WesternZagros Announces First Quarter 2012 Results

CALGARY, ALBERTA--(Marketwire - May 23, 2012) -

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WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the Corporation") announced today its operating and financial results for the first quarter ended March 31, 2012, and additional key highlights and activities to date. The financial statements and the accompanying MD&A are available at www.westernzagros.com and on SEDAR at www.sedar.com

Headlines
  • $25.9 million of gross oil proceeds in Q1 2012, more than double the proceeds generated in Q4 2011.
  • Proceeds generated from the sales of 450,000 barrels of test oil from the Sarqala-1 well.
  • WesternZagros had $30.6 million in working capital at end Q1 2012 compared to $41.0 million at end Q4 2011.
  • Subsequent to the quarter end, the Corporation reported an increase in the mean estimate of gross unrisked contingent resources ("Mean Contingent Resources") within its PSC lands to 171 million barrels ("MMbbl") of oil compared to 54 MMbbl reported previously. Increase due to the discovery reported at the Kurdamir-2 exploration well of 147 MMbbl Mean Contingent Resources, and a further 1.4 billion barrels ("Bbbl") mean estimate of gross unrisked prospective resources ("Mean Prospective Resources").
  • On a Mean Prospective Resources basis for the entire PSC Lands, the Corporation is able to report 4.7 billion barrels of oil equivalent ("BOE") compared to 3.7 billion BOE reported previously.

Commenting on the first quarter results and subsequent events, WesternZagros's Chief Executive Officer, Simon Hatfield said,

"I am very pleased with the continued strong operational performance in the first quarter and delighted with the world-class oil discovery at Kurdamir which followed it. We have already exceeded our expectations at the Kurdamir-2 well by discovering a giant field with over one billion barrels on a Mean Prospective Resources basis, and we have yet to drill and test the deeper zones. We are confident that our appraisal, exploration and production activities planned for both of our exploration blocks in the coming months will build on our recent success."

Operational & Financial Review

On April 23, 2012, WesternZagros reported increases of over 400 percent in Mean Contingent Resources and 300 percent in Mean Prospective Resources in the Oligocene reservoir of the Kurdamir exploration block. The updated estimate of Mean Contingent Resources is 147 MMbbl of oil (corresponding to 464 MMbbl of mean estimated gross discovered oil initially in place) or 384 million BOEs when gas and condensate contingent resources are included. The updated estimate of Mean Prospective Resources is 1.2 Bbbl of oil (corresponding to 3.6 Bbbl of mean estimated gross undiscovered oil initially in place) or 1.4 billion BOE when gas and condensate prospective resources are included.

The significant increase in the estimate of Kurdamir resources is a result of the discovery of a major oil column in the Oligocene reservoir at the Kurdamir-2 exploration well. Wireline logs indicated a porous zone of 140 metres thickness within the Oligocene interval, between 2,422 and 2,562 metres, all of which is hydrocarbon bearing. Within this hydrocarbon zone, well log data indicates 22 metres of gross gas pay above 118 metres of gross oil pay. No evidence of a water leg has been encountered within the Oligocene interval. An open hole drill stem test was conducted from 2,315 metres to 2,477 metres, which included 55 metres of the Oligocene porous zone. This test was conducted across the interpreted gas-oil contact at 2,444 metres. The test achieved a flow rate of 7.3 million cubic feet ("MMcf") per day of gas and a stabilized flow rate of 950 barrels per day ("bbl/d") of 47 degree API mixture of light oil and condensate over the final seven hours of the main flow period. This rate was achieved through a 56/64 inch choke at an average flowing well head pressure of 650 pounds per square inch and without any stimulation. There was no observed decline and no formation water was recovered during testing. According to analysis by an independent third party engineering expert, the 33 metres of oil pay tested to date is capable of flowing at rates of 4,000 barrels per day if stimulated and isolated from the gas pay.

These latest audited estimates represent an increase in the combined Mean Contingent Resources on the Kurdamir and Garmian exploration blocks ("PSC Lands") to 171 MMbbl of oil, or 415 MMBOE when gas and condensate are included. Prior to the drilling of Kurdamir-2, these estimates were 54 MMbbl of oil, or 258 MMBOE. These latest audited estimates represent an increase in the combined Mean Prospective Resources on the PSC Lands to 3.2 Bbbl of oil, or 4.7 billion BOE when gas and condensate are included. Prior to the drilling of Kurdamir-2, these estimates were 2.3 Bbbl of oil, or 3.7 billion BOE. These updated mean estimates have been independently audited by Sproule International Limited ("Sproule").

Currently in the Kurdamir-2 well, an intermediate casing is being set in the Aaliji seal at 3,140 metres, having successfully drilled through the Eocene interval where it encountered numerous oil shows. Drilling will continue through the Cretaceous reservoir with the approximate total depth anticipated to be 4,072 metres. Under the Kurdamir Production Sharing Contract (PSC") commitments, the Kurdamir-2 well is required to be drilled by June 30, 2012 which will then be followed by a fulsome testing program of the indicated pay intervals of the Eocene and Cretaceous reservoirs. In addition, the Corporation is working with the operator, Talisman (Block K44) B.V. ("Talisman") to examine options for cased hole testing of the 118 metres of gross oil pay in the Oligocene. The co-venturers are also planning a 3D seismic program over the Kurdamir structure and a further appraisal well (Kurdamir-3) to assess the ultimate size of the Oligocene reservoir.

For the three month period ended March 31, 2012, the Corporation generated $25.9 million of gross proceeds from the sales of approximately 450,000 barrels of test oil from the Sarqala-1 well. Lifting of Sarqala-1 crude oil has not been affected despite the Kurdistan Regional Government ("KRG") halting the exporting of oil from the Kurdistan region due to a dispute with the federal government in Baghdad, and Sarqala-1 production continues at an average rate of approximately 5,000 bbl/d. However, effective May 1, 2012 the KRG began to receive approximately 36% of the production in kind. The Corporation has entered into contracts for April and May production and received total proceeds of $14.2 million, after consideration of the KRG volumes that were taken in kind for May production.

On February 14, 2012, the Corporation announced an oil discovery in the Upper Fars Formation at the Mil Qasim-1 exploration well. Four tests were conducted in the Mil Qasim-1 well resulting in the flow of light, 43 to 44 degree API oil to surface from low permeability, naturally fractured sandstones in the Upper Fars Formation. WesternZagros commenced additional testing on the Test 4 interval at Mil Qasim-1 during the first week of April 2012 to further clean-up the well and gain additional information on the long term deliverability of the Upper Fars reservoir. The Corporation is investigating stimulation and alternate drilling techniques to determine how to increase flow rates and unlock the considerable potential of the Upper Fars Formation.

About the Corporation

WesternZagros is a publicly-traded, Calgary-based, international oil and gas company engaged in acquiring properties and exploring for, developing and producing crude oil and natural gas in Iraq. WesternZagros holds two Production Sharing Contracts ("PSCs") with the Kurdistan Regional Government ("KRG") in the Kurdistan Region of Iraq that are both on trend with, and adjacent to, a number of prolific historic oil and gas discoveries. The Kurdamir and Garmian PSCs each govern separate contract areas (collectively referred to as the "PSC Lands"). The Garmian contract area (1,780 square kilometres) is operated by WesternZagros. The Kurdamir contract area (340 square kilometres) is operated by Talisman (Block K44) B.V. ("Talisman") with a 40 percent working interest. WesternZagros holds a 40 percent working interest in both PSCs. The KRG holds a 20 percent working interest in both PSCs. The remaining 40 percent third party participant interest ("TPPI") in the Garmian PSC is held pending assignment by the KRG to a third party participant.

Strategy

WesternZagros continues to move forward on its growth strategy for exploration and development of its PSC Lands in the Kurdistan Region of Iraq. WesternZagros's objective is to be recognized, through consistently superior business performance and operations excellence, as one of the leading junior oil and gas companies active in Iraq. The Corporation is committed to apply the lessons learned from its operations and from operations occurring elsewhere within the Kurdistan Region to improve its operating performance. The Corporation is committed to operating in Iraq in a safe and secure manner. In executing its strategy, WesternZagros has made it a priority to recruit and retain local personnel and to actively participate in, and contribute to, community development projects. WesternZagros believes it has developed a relationship with government authorities, local communities and the business community in the Kurdistan Region that has enabled access to opportunities and to facilitate the cooperation needed to successfully execute projects.

Additional information relating to the Corporation, including its operational and financial report for the three months ended 31st March 2012, together with the accompanying MD&A for the period is available on SEDAR at www.sedar.com.

This news release contains certain forward‐looking information relating, but not limited, to operational information, future drilling and testing plans, future well designs and completions and future production rates and the timing associated therewith. Forward-looking information typically contains statements with words such as "anticipate", "plan", "estimate", "expect", "potential", "could", or similar words suggesting future outcomes. The Company cautions readers not to 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. Readers are also cautioned that disclosed test rates and AOFs may not be indicative of ultimate production levels. In addition, the forward‐looking information is made as of the date hereof, and the Company assumes no obligation to update or revise such to reflect new events or circumstances, except as required by law.

Forward‐looking information is not based on historical facts but rather on management's current expectations and assumptions regarding, among other things, plans for and results of drilling activity and testing programs, future capital and other expenditures (including the amount, nature and sources of funding thereof), continued political stability, and timely receipt of any necessary government or regulatory approvals. 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 exploration; inherent uncertainties in interpreting geological data; changes in plans with respect to exploration or capital expenditures; interruptions in operations together with any associated insurance proceedings; the uncertainty of estimates and projections in relation to costs and expenses and health, safety and environmental risks), the risk of commodity price and foreign exchange rate fluctuations, the uncertainty associated with negotiating with foreign governments and risk associated with international activity.

In addition, statements relating to "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. 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. "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. 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. "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 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. Discovered Petroleum Initially-In-Place (equivalent to discovered resources) is that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations on company lands. The petroleum type for the Kurdamir property is crude oil and natural gas.
The recoverable portion of discovered petroleum initially in place includes production, reserves, and contingent resources; the remainder is unrecoverable (there are no reserves or production for the Oligocene reservoir). Undiscovered Petroleum Initially-In-Place (equivalent to undiscovered resources) is that quantity of petroleum that is estimated, as of a given date, to be contained in accumulations yet to be discovered on company lands. The petroleum type for the Kurdamir property is crude oil and natural gas. The recoverable portion of undiscovered petroleum initially-in-place is referred to as prospective resources; the remainder is unrecoverable. These are the gross undiscovered initially-in-place volumes estimated for the Oligocene carbonate reservoir in the Kurdamir structure below the lowest known oil. The undiscovered petroleum initially-in-place has not been risked for chance of discovery. All resource estimates presented are gross volumes for the indicated reservoirs, without any adjustment for the Corporation's working interest or encumbrances. A barrel of oil equivalent (BOE) is determined by converting a volume of natural gas to barrels using the ratio of 6 million cubic feet (Mcf) to one barrel. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 BOE is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The Corporation's Statement of Oil and Gas Information contained in its Annual Information Form dated March 26, 2012 ("AIF") and Material Change Report dated April 23, 2012 ("Material Change Report") filed on SEDAR at www.sedar.com contains additional detail with respect to the resource assessments and include the significant risks and uncertainties associated with the estimates and the recovery and development of the resources, and, in respect of contingent resources, the specific contingencies which prevent the classification of the resources as reserves. In addition, combined mean estimates of resources which are presented are an arithmetic sum of the mean estimates for individual reservoirs and each such individual mean estimate is the average from the probabilistic assessment that was completed for the reservoir. Readers should refer to the AIF and the Material Change Report for a detailed breakdown of the high (P10), low (P90) and best (P50) estimates for each of the individual reservoir assessments.

For further information on WesternZagros and the risks associated with its business, please see the Company's current Annual Information Form which is available on SEDAR at www.sedar.com.

WESTERNZAGROS RESOURCES WAS RECOGNIZED AS A TSX VENTURE 50® COMPANY IN 2012. TSX VENTURE 50 IS A TRADE-MARK OF TSX INC. AND IS USED UNDER LICENSE

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