CALGARY, ALBERTA--(Marketwired - March 13, 2014) -
NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES
Following approval of its declaration of commerciality by the Kurdistan Regional Government (KRG), WesternZagros Resources Ltd. (TSX VENTURE:WZR) (WesternZagros or the Company) is moving to develop the first of its two significant light oil discoveries. Once its development plan for the Sarqala field is approved, the Company expects to produce up to 10,000 barrels per day (bbls/d) of light, sweet oil in the second half of 2014.
"After 10 years of rewarding exploration in the Kurdistan Region, WesternZagros is turning its discoveries into production that is destined for the domestic market and potentially the Kurdistan Region's export markets via the new pipeline," said Simon Hatfield, Chief Executive Officer of WesternZagros. "This monumental step marks a new era in our Company history that was recently defined by the KRG's approval of our declaration of commerciality on the Sarqala Discovery."
"We are focused on promptly generating productive value from the Sarqala field for our shareholders and the people of the Kurdistan Region, and undertaking development planning for our giant Kurdamir Discovery, which contains mean contingent resources of almost a billion barrels of oil equivalent," Hatfield said.
Moving to production and cash flow
The Sarqala-1 well, which produced up to 5,000 bbls/d during a nine-month extended well test in 2011-12, already has production facilities in place. WesternZagros is completing a workover on this well that is expected to take production capacity up to 10,000 bbls/d. Additional development wells at Sarqala, including the Hasira-1 well currently being tested, are expected to deliver additional volumes through planned expansions to initial production facilities that have a design capacity of up to 35,000 bbls/d. WesternZagros will submit a Garmian Block development plan, outlining future development wells, production facilities and support infrastructure, to the KRG by June 21, 2014. Independent reserves evaluators have audited estimates that, as at February 8, 2013, the Sarqala Discovery contained gross unrisked mean estimates of 463 million barrels of oil equivalent in prospective resources and 24 million barrels of oil in contingent resources. Future expansion phases will be determined by the success of a forthcoming development drilling campaign to delineate the prospective resources.
On the neighbouring giant Kurdamir Discovery, development planning to bring this find into production is a longer-term initiative that requires extensive geological and operational evaluation, as well as engineering and financial planning. Three Kurdamir exploration wells have defined an oil and natural gas-charged structure that contains gross unrisked mean estimates of 541 million barrels of oil in contingent resources, and a further 1.3 billion barrels of oil in prospective resources. WesternZagros expects to file a declaration of commerciality for the Kurdamir Discovery within the next 12 months.
"As we move to this development phase, WesternZagros is focused on optimizing and monetizing the value of its discoveries through a variety of means, which includes working with our partners and the KRG to generate near-term production from Sarqala, as well as exploring the greatest value creation opportunities available from our suite of resources," Hatfield said.
Transition to development
As part of transitioning to development, WesternZagros, its co-venturer, Gazprom Neft, and the KRG have agreed to end exploration activities on the Garmian Block following the completion of the Hasira-1 well. As such, the Company has no further exploration expenditure obligations and will now be able to apply its focus and financial resources on development. Under the agreement with the KRG, the partners have relinquished the areas of the Garmian Block that are not covered by the development plan. The development plan area includes the Sarqala and Hasira discoveries. The relinquished area includes Chwar, Qula, Quilijan and Baram, which are considered non-core to WesternZagros's development plans.
Optimizing drilling rig contracts
During the preparation of the development plan and its approval by the KRG, and in order to minimise short-term expenses, WesternZagros is in advanced discussions with the KRG and Gazprom Neft to temporarily assign two of its contracted drilling rigs elsewhere for the remainder of 2014. Under this arrangement, the rigs would return to the Company's Garmian Block for development drilling on Sarqala in early 2015 once the development plan is approved and additional development locations are prepared.
WesternZagros as at December 31, 2013, had net working capital of approximately $97million, which is sufficient to fund planned operations in 2014. As development plans advance, the Company will evaluate funding options with a mind to maximizing value creation for shareholders. Options may include accessing the debt and/or equity markets, additional partnerships, farmouts or other strategic arrangements.
WesternZagros will host a live audio conference call on Thursday, March 13, 2014, to discuss its transition to development in the Kurdistan Region and its Q4 and 2013 year end results. The investment community is invited to participate in the conference call, which will begin at 8:30 A.M. Mountain Standard Time (MST) (10:30 AM EST / 2:30 PM GMT). You may participate in the call by telephone at 647-788-4922 or toll free at 1-877-223-4471.
A replay of the conference call will be available on the Company website, www.westernzagros.com, following the call. A digital recording of the conference call will be available for replay two hours after the call's completion and may be accessed by telephone at 1-416-621-4642 or 1-800-585-8367 and entering the passcode: 11365199.
About WesternZagros Resources Ltd.
WesternZagros is a publicly-traded, Calgary-based, international oil and gas company focussed on acquiring, exploring, developing and producing crude oil and natural gas in the Kurdistan Region of Iraq. WesternZagros, through its wholly-owned subsidiaries, holds a 40 percent working interest in two Production Sharing Contracts with the Kurdistan Regional Government. 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, operational information, future appraisal and development plans and the timing associated therewith, future production capability and capacity of wells and facilities, estimated commitments under the Company's Production Sharing Contract for the Kurdamir area ("Kurdamir PSC") and Production Sharing Contract for the Garmian area ("Garmian PSC"), and planned expenditures. 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. Readers are also cautioned that disclosed test rates and results are not necessarily indicative of long-term performance or of ultimate recovery.
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, outcomes of future well operations, plans for and results of extended well tests and drilling activity, future capital and other expenditures (including the amount, nature and sources of funding thereof), future economic conditions, future currency and exchange rates, continued political stability, timely receipt of any necessary government or regulatory approvals, the successful resolution of disputes, the Company's continued ability to employ qualified staff and to obtain equipment in a timely and cost efficient manner, the participation of the Company's co-venturers in joint activities, and the ability to sell production and the prices to be received in connection therewith. In addition, budgets are based upon WesternZagros's current appraisal and development plans and anticipated costs, both of which are subject to change based on, among other things, 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 exploration 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 costs and expenses and health, safety and environmental risks), the risk of commodity price and foreign exchange rate fluctuations, 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 in Iraq in particular.
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.
All resource estimates presented are gross volumes for the indicated reservoirs, without any adjustment for the Company'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. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value. The Company's Statement of Oil and Gas Information contained in its Annual Information Form dated March 13, 2014 ("AIF"), filed on SEDAR at www.sedar.com contains additional detail with respect to the resource assessments and includes 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 that prevent the classification of the resources as reserves. In addition, combined mean estimates of resources that are presented in this MD&A 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 for a detailed breakdown of the high (P10), low (P90) and best (P50) estimates for each of the individual reservoir assessments as audited by the Company's independent reserves evaluator.
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WESTERNZAGROS RESOURCES WAS RECOGNIZED AS A TSX VENTURE 50® COMPANY IN 2012 AND 2013. TSX VENTURE 50 IS A TRADE-MARK OF TSX INC. AND IS USED UNDER LICENSE.