WesternZagros Resources Ltd.
TSX VENTURE : WZR

WesternZagros Resources Ltd.

December 16, 2010 11:33 ET

WesternZagros Confirms Oil Column at Kurdamir-1 Well and Announces Increase in Contingent and Prospective Resources

CALGARY, ALBERTA--(Marketwire - Dec. 16, 2010) -

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WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the Company") is pleased to announce successful test results at the Kurdamir-1 well, which proves the existence of an oil column in the Oligocene reservoir.  Sproule International Limited. ("Sproule") has completed an independent audit which confirms a 327 metre combined gas and oil hydrocarbon column in the Oligocene. Consequently, the Company's best estimate of gross contingent gas and condensate resources has increased to 850 billion cubic feet (BCF) and 33 million barrels (MMBBL), respectively, as of December 14, 2010. WesternZagros' best estimate of gross unrisked prospective oil resources has increased to 260 MMBBL as of December 14, 2010 and our best estimate of gross contingent oil resources is 6.5 MMBBL. Tables 1 and 2, below, provide the range of estimates. These resource estimates do not include the Upper Aaliji, Shiranish and Kometan or Cretaceous reservoir intervals penetrated, but not evaluated, during the drilling of Kurdamir-1, where WesternZagros believes there is additional oil potential.

"We are very excited to achieve our primary objective of proving a low sulphur, light oil column in the Oligocene and substantially increasing the prospective oil resources. Our Kurdamir-2 well, which will be drilled next year to test the approximately 700 metres of gross interval with oil shows in the Upper Aaliji, Shiranish and Kometan formations that we were unable to test in  this well, will penetrate the Oligocene on the flanks of the structure and will provide further information," said Simon Hatfield, WesternZagros' Chief Executive Officer. "Nothing about this Kurdamir-1 well has been easy, but everything we learn supports our view that there is a huge upside to be realized in this structure."

Contingent resources were assigned over a 327 metre gross pay zone from the crest of the structure at 2,142 metres down to 2,469 metres, which is the lowest known hydrocarbon in the Oligocene reservoir of the Kurdamir-1 wellbore as determined by wireline logs and production testing. These contingent resource numbers do not include any of the potential in the as yet undrilled downdip flanks of the Kurdamir structure in the Tertiary Oligocene reservoir deeper than 2,469 metres. This undrilled potential is classified as prospective resource and is addressed below.

The recently completed cased hole production testing of the Tertiary Oligocene reservoir in Kurdamir-1 has confirmed that the gas and condensate discovery announced on November 4, 2009 is in a gas cap, which is associated with a deeper oil column.

Because WesternZagros was unable to test any zones below 2,469 metres in Kurdamir-1, the vertical extent of the oil column encountered is uncertain. If the oil column extends below 2,469 metres, WesternZagros' best estimate of gross unrisked prospective oil resources is 260 MMBBL. Additional information, to be obtained by drilling the Kurdamir-2 well, will be required to confirm the existence of these prospective oil resources. WesternZagros and its co-venturers plan to drill the Kurdamir-2 well in late 2011. The co-venturers are currently conducting the necessary planning and purchases of long lead items to drill this well on the flank of the Oligocene structure to evaluate the extent of the oil column and to extend the well deeper into the Aaliji and Cretaceous formations to test the over 700 metres of hydrocarbon shows encountered in the Kurdamir-1 well.

Additional information obtained from future drilling or additional seismic data may result in a change to this assessment.

Sproule carried out an independent audit of the Kurdamir resources in the Oligocene reservoir in accordance with the current guidelines outlined in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Pursuant to the COGE Handbook, an audit is the process whereby an independent qualified reserves auditor carries out procedures designed to allow the independent qualified reserves auditor to provide reasonable assurance that a reporting issuer's reserves data (or specific parts thereof) have, in all material respects, been determined and presented in accordance with the COGE Handbook and are, therefore, free of material misstatement.

Gas, gas condensate, and oil resources in the Oligocene reservoir in the Kurdamir-1 well in Block 44, as of December 14, 2010, are as follows:

Table 1
Gross Unrisked Contingent Resources at Kurdamir-1(1)(2)(9)(10)
Gas, Condensate and Oil
(As of December 14, 2010)
Oligocene Reservoir
    Low Estimate   Best Estimate   High Estimate   Mean
    P90(5)   P50(6)   P10(7)   Estimate (8)
Gas (BCF)                
    505   850   1420   920
Condensate (MMBBL)                
    22   33   48   35
Oil (MMBBL)                
    0.7   6.5   60   30
Solution gas (BCF)   1   10   100   50
 
Table 2
Gross Unrisked Prospective Oil Resources at Kurdamir-1(3)(4)(9)
(As of December 14, 2010)
Oligocene Reservoir
    Low Estimate   Best Estimate   High Estimate   Mean
    P90(5)   P50(6)   P10(7)   Estimate (8)
Oil (MMBBL)   85   260   560   280
Solution gas (BCF)   125   405   910   475

Notes:

(1) The contingent resources are the gross volumes estimated for the Tertiary Oligocene carbonate reservoirs at Kurdamir-1, without any adjustments for working interest or encumbrances.

(2) 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). These estimates have not been risked for the chance of development. There is no certainty that the contingent resources will be developed and, if they are 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.

(3) The prospective resources are the gross volumes estimated for the Tertiary Oligocene carbonate reservoirs at Kurdamir-1 below 2,469 metres, without any adjustments for working interest or encumbrances.

(4) 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 and facility, corporate commitment or political risks). The chance of commerciality is the product of these two risk components. 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. In this case, prospective resources are undiscovered resources that indicate development potential in the event the discovery is commercial and should not be construed as reserves or contingent resources. Prospective resources are provided for oil in Table 2, if the oil column extends deeper in the structure. Additional information, likely through the drilling of an appraisal well, will be required to confirm the existence and extent of a deeper oil column downdip on the flanks of the structure.

(5) Low Estimate is considered to be a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the low estimate. If probabilistic methods are used, there should be at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low estimate.

(6) Best Estimate is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater of less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.

(7) High Estimate is considered to be an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. If probabilistic methods are used, there should be at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimate.

(8) Mean Estimate is the average from the probabilistic assessment.

(9) The gross contingent and prospective resource estimates are based on 115 kilometres of 2D seismic lines (10 lines), wireline logs, two drill stem tests and two cased hole production tests. Logging results indicated a gross hydrocarbon pay of 327 metres, penetrated from the top of the Tertiary Oligocene carbonate reservoir at 2,142 metres to the lowest known oil at 2,469 metres and composed of 270 metres of gas and gas condensate column overlying 57 metres of oil column on a best estimate (P50) basis. The two drill stem tests conducted were between 2,195 metres and 2,235 metres and between 2,280 metres and 2,352 metres. Combined test rates indicate approximately 27.5 million cubic feet per day of gas and 1,172 barrels per day of 61 degree API natural gas liquids (condensate). Test rates were limited due to testing equipment restrictions; however, initial well test analysis conducted by an independent third party indicates that reservoir production potential of approximately 52 million cubic feet per day of gas and 2,240 barrels per day of condensate could be expected from these intervals. No formation water was recovered during the drill stem testing. The two cased hole production tests were conducted between 2,365 metres and 2,415 metres and between 2,455 metres and 2,469 metres in the tight zone of the Tertiary Lower Oligocene interval. Before acidizing the upper zone, approximately 5 bbls of oil was recovered at surface. After acidization, the upper zone tested gas and condensate at a maximum rate of 18.3 million cubic feet per day of gas with a maximum yield of 86 barrels of 61 degree API condensate per million cubic feet. The lower zone tested gas and liquids (completion brine and oil) at maximum rates of approximately 1.5 million cubic feet per day of gas and 300 barrels of fluid per day (10% oil cut, 45 degree API gravity and 90% water cut). Analysis of the water produced in the lower zone test indicates it was completion brine. No formation water was recovered during these tests. Test rates were limited due to the formation of an oil emulsion in the formation and due to the breakthrough of gas and completion brine from the upper zone, which remained open during the test of the lower zone. No formation water was recovered during any of the testing. The significance of the oil produced from the lower zone is that it was from a depth which is deeper than the previous depth of maximum closure of the structure at the Oligocene level as mapped from seismic data. As such, the Company has revised the depth of maximum closure to 2,776 metres (-2,150 metres sub sea depth) at the Oligocene level. This change increases the area under closure on Block 44 significantly and results in a consequential and corresponding increase in prospective oil resources. To view an updated schematic structural cross-section and depth structure map of the Oligocene reservoir at Kurdamir, plese visit the following links: http://media3.marketwire.com/docs/1216wzr2.jpg, http://media3.marketwire.com/docs/1216wzr3.jpg

(10) The gross unrisked contingent resources for gas reflect reductions for condensate recovery, surface losses, and fuel gas.

To view a photo and video (with audio) of the cased hole production well test in the lower tight zone of the Tertiary Oligocene interval, please visit the following links: http://www.youtube.com/watch?v=_JXqU3Jb3F8. http://media3.marketwire.com/docs/1216wzr1.jpg

There are several contingencies that prevent the classification of the contingent resources as reserves. WesternZagros has no current plans to develop the gas and/or condensate and/or oil resources at this time. There is limited local infrastructure and markets for natural gas and condensate in the area at this time, and export infrastructure for natural gas to gain access to international markets has not yet been developed. Additional information, likely to be obtained through the drilling of a well on the flank of the structure, will be required to determine the economic viability of development. WesternZagros will work with its co-venturers, the Kurdistan Regional Government and Talisman Energy Inc., on the evaluation of the commercial potential and technical feasibility of developing the gas, condensate and oil discovered at Kurdamir-1. Beyond this contingency, no federal Iraq legislation has been agreed to or enacted to address the future organization of Iraq's petroleum industry or the sharing of petroleum and other revenues within Iraq. Failure to enact legislation (or the enactment of federal legislation contradictory to Kurdistan Region legislation) could materially adversely impact WesternZagros' interest in the Kurdistan Region and the PSC.

This resource disclosure coincides with the filing on SEDAR at www.sedar.com of a material change report, which includes the following additional information: the risks and level of uncertainty associated with the discovery and recovery of the resources, the risks and uncertainties relating to the development of any discovered resources, and the significant positive and negative factors relevant to the estimates.

About WesternZagros Resources Ltd.

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

This news release contains certain forward-looking information relating, but not limited, to operational information, future drilling plans and testing programs and the timing and costs associated therewith. 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 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 potential production rates 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, future capital and other expenditures (including the amount, nature and sources of funding thereof), continued political stability, timely receipt of any necessary government or regulatory approvals, the continued participation of the Company's co- venturers in exploration activities and the timely receipt of any insurance proceeds due to the Company. 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), risks associated with resource estimates, the risk of commodity price and foreign exchange rate fluctuations, the uncertainty associated with negotiating with foreign governments and risk associated with international activity. For further information on WesternZagros and the risks associated with its business, please see the Company's Annual Information Form dated March 24, 2010, which is available on SEDAR at www.sedar.com.

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