WesternZagros Resources Ltd.
TSX VENTURE : WZR

WesternZagros Resources Ltd.

January 17, 2011 03:30 ET

WesternZagros to Target Over 1 Billion BOEs during 2011/2012 Exploration Program

Latest Audit Confirms Significant Prospective Resources

CALGARY, ALBERTA--(Marketwire - Jan. 17, 2011) -

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 that Sproule International Limited ("Sproule") has completed an independent audit of the Company's resource assessment of: the Tertiary Eocene and Cretaceous reservoir intervals of Kurdamir-1; the Jeribe reservoir at Sarqala-1; and the Upper Fars reservoir at Mil Qasim in the Kalar-Bawanoor Block ("Block K44"). This audit, together with the previous audit results of the Kurdamir-1 Tertiary Oligocene announced on December 16, 2010, confirms WesternZagros' assessment of the prospective resources at its five exploration targets for 2011/2012. The five prospects are, in anticipated order of drilling: Sarqala-1 Jeribe sidetrack appraisal; Mil Qasim-1 Upper Fars exploration well; and the Kurdamir Tertiary Oligocene, Tertiary Eocene and Cretaceous exploration tests, all three of which are to be drilled in the second Kurdamir well. The combined mean estimate of gross unrisked prospective resources for these five prospects is 792 million barrels of oil or 1,083 million barrels of oil equivalent when gas and condensate are added in.

"In addition to the approximate one trillion cubic feet of gas already discovered, these significant gross prospective oil resources validate the highly encouraging results we have achieved at our first two wells. We have the potential to discover 800 million barrels of recoverable light oil as we drill during the next 12 to 18 months," said Simon Hatfield, WesternZagros' Chief Executive Officer. "We're looking forward to applying the lessons learned from our past drilling challenges and realizing the huge upside on our Block."

The Company's best estimate of gross unrisked prospective oil resources is 86 million barrels (MMbbl) in the Kurdamir-1 Tertiary Eocene reservoir, 152 MMbbl in the Kurdamir-1 Cretaceous reservoir, 63 MMbbl in the Mil Qasim Upper Fars reservoir, and 66 MMbbl in the Sarqala-1 well Jeribe reservoir, as of January 14, 2011.

To view the Kurdamir Structure Schematic Cross Section graphic, please visit the following link: http://media3.marketwire.com/docs/117wzr_1.pdf

The above illustration indicates the schematic distribution of unrisked contingent resources and unrisked prospective oil resources in the Tertiary Oligocene, Tertiary Eocene and Cretaceous reservoirs at the Kurdamir-1 well in Block K44.

The prospective resource assessment numbers for the Tertiary Eocene and Cretaceous reservoirs at Kurdamir-1 are separate and in addition to the prospective resource assessment of the Tertiary Oligocene reservoir at Kurdamir-1 as previously disclosed on December 16, 2010. WesternZagros' best estimate of gross unrisked prospective oil resources on the flank of the Kurdamir Tertiary Oligocene reservoir is 260 MMbbl as of December 14, 2010, if this reservoir that lies below 2,469 metres on the flank of the structure contains oil. Tables 1 and 2 below provide the range of estimates including the previously announced estimates for the Kurdamir-1 Tertiary Oligocene.

The figure below indicates the schematic distribution of unrisked prospective oil resources in the Jeribe reservoir at the Sarqala-1 well, and in the Upper Fars reservoir at Mil Qasim in Block K44, as at January 14, 2011.

To view the Mil Qasim & Sarqala Structures Schematic Cross Section graphic, please visit the following link: http://media3.marketwire.com/docs/117wzr_2.pdf

The Company is assessing the potential of additional prospects, including satellite prospects adjacent to the Kurdamir discovery, and will continue to release the audited results of these assessments as they become available.

Sproule carried out an independent audit of the Kurdamir, Mil Qasim and Sarqala resources 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.

Block K44 consists of approximately 2,120 square kilometres of land in the Kurdistan Region of Iraq. WesternZagros holds a 40 per cent working interest in Block K44 pursuant to a Production Sharing Contract ("PSC") with the Kurdistan Regional Government signed on February 28, 2008. Additional information concerning the terms of the PSC can be found in the Corporation's Annual Information Form dated March 25, 2010, which is available at www.sedar.com.

Tables 1 and 2 provide estimates of the oil, associated gas, gas condensate and solution gas resources in the Tertiary Oligocene, Tertiary Eocene, and Cretaceous reservoirs at Kurdamir-1, the Jeribe reservoir at Sarqala-1 and the Upper Fars reservoir at the Mil Qasim-1 reservoir in Block K44, as at December 14, 2010 in respect of the Tertiary Oligocene and as at January 14, 2011 in respect of the other reservoirs.

Table 1
Gross Unrisked Contingent Resources (1), (2),
Kurdamir-1 Oil, Gas and Condensate
(As of December 14, 2010)
 
          Low
Estimate(6
) Best
Estimate(7
) High
Estimate(8
) Mean
Estimate(9
)
Prospect Reservoir   Hydrocarbon   P90   P50   P10   Mean  
      Type   MMbbl/Bcf   MMbbl/Bcf   MMbbl/Bcf   MMbbl/Bcf  
Kurdamir Tertiary
Oligocene(15
) Oil   0.7   6.5   60   30  
      Solution Gas   1   10   100   50  
      Associated Gas(5 ) 505   850   1420   920  
      Condensate   22   33   48   35  
   
Table 2
Gross Unrisked Prospective Resources (3)
Kalar-Bawanoor Block K44 Oil, Gas and Condensate
(As of January 14, 2011) (4)
 
          Low
Estimate(6
) Best
Estimate(7
) High
Estimate(8
) Mean
 Estimate(9
)
Prospect Reservoir   Hydrocarbon   P90   P50   P10   Mean  
      Type   MMbbl/Bcf   MMbbl/Bcf   MMbbl/Bcf   MMbbl/Bcf  
Kurdamir Tertiary
Oligocene(4
) Oil   85   260   560   280  
      Solution Gas   125   405   910   475  
      MMBOE(16 ) 106   328   712   359  
Kurdamir Tertiary
Eocene(10), (11
) Oil   18   86   273   124  
      Solution Gas   24   150   630   265  
      Associated Gas   30   60   110   65  
      Condensate   1   1   3   2  
      MMBOE   28   122   399   181  
Kurdamir Cretaceous
(10), (12
) Oil   59   152   340   181  
      Solution Gas   80   330   965   455  
      Associated Gas   65   135   245   145  
      Condensate   1   3   7   4  
      MMBOE   84   233   549   285  
Kurdamir Sub Total Mean MMBOE - Gross Unrisked Prospective Resources   825  
Mil Qasim Upper
Fars
(10),(13
) Oil   7   63   265   106  
      Solution Gas   5   45   225   90  
      MMBOE   8   71   303   121  
Sarqala Re-entry Jeribe
(10),(14
) Oil   9   66   248   101  
      Solution Gas   15   120   540   215  
      MMBOE   12   86   338   137  
Table 2 Total Mean MMBOE - Gross Unrisked Prospective Resources   1083  
                         

Notes to Tables 1 and 2: 

  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.
  1. The 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. 
  1. The prospective resources are the gross volumes estimated for the indicated reservoirs, without any adjustments for working interest or encumbrances. 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. These estimates have not been risked for 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. 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.
  1. The prospective resources for the Tertiary Oligocene carbonate reservoirs at the Kurdamir-1 well are as at December 14, 2010 as previously disclosed in the Corporation's Material Change Report dated December 16, 2010, which is available at www.sedar.com. Prospective resources are provided for oil 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.
  1. The gross unrisked contingent resources for gas reflect reductions for condensate recovery, surface losses, and fuel gas.
  1. 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.
  1. 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 or 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.
  1. 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.
  1. Mean Estimate is the average from the probabilistic assessment.
  1. The prospective resource estimates for the Kurdamir Tertiary Eocene, Kurdamir Cretaceous, Sarqala Jeribe and Mil Qasim prospects are based upon interpretation of WesternZagros' extensive recent vintage 2D seismic database within Block K44 (1483 kilometres, 42 lines), well data from WesternZagros' Sarqala-1 and Kurdamir-1 exploration wells (wireline logs, test information, core, mud log information, etc.), together with available information from a number of offset wells.
  1. The Kurdamir Tertiary Eocene prospective resource assessment is based primarily on a potential 275 metres' thick gross hydrocarbon column interpreted over the interval 2569 metres and 2844 metres. The anticlinal structure of the potential Tertiary Eocene reservoir at Kurdamir is very similar to that of the overlying Tertiary Oligocene reservoir, which tested gas, condensate and oil, and for which contingent resources have previously been reported. Gas wetness data indicates a potential gas / oil contact within the Tertiary Eocene reservoir at approximately 2672 metres in the Kurdamir-1 well.
  1. The Kurdamir Cretaceous prospective resource assessment is based on an interpreted approximately 750 metres thick gross hydrocarbon column in the Cretaceous formations encountered over the interval 3309 to 4061 metres in the Kurdamir-1 well. Gas wetness data over this interval indicates a gas column overlying an oil leg with the gas / oil interface likely being between 3507 metres and 3580 metres. Oil was liberated into the drilling fluid from 3687 metres and 3785 metres.
  1. The Mil Qasim prospective resource assessment is based on an anticlinal structure defined by six good quality recent vintage 2D seismic lines, together with oil shows (35 degree API gravity oil) from Upper Fars sandstones encountered in the offsetting Sarqala-1 well.
  1. The Sarqala Jeribe prospective resource assessment is based on probable pay encountered in the Sarqala-1 well. The anticlinal trap (with fault assisted closure upside) is defined by 10 recent vintage, good quality 2D seismic lines. The Qumar-1 well, 25 kilometres south of Sarqala, is considered by the Corporation as a good analog. Qumar-1 tested 2,200 barrels of oil per day (bopd) on a ¼" choke from the Jeribe reservoir.
  1. The gross contingent resource estimates for the Tertiary Oligocene reservoir at Kurdamir-1 are based on 115 kilometres of 2D seismic lines (10 lines), wireline logs, and the hydrocarbons recovered from two drill stem tests and two cased hole production tests. No formation water was recovered during any of the testing. Logging results indicated a gross hydrocarbon pay of 327 metres, penetrated from the top of the Tertiary Oligocene carbonate reservoir at 2142 metres to the lowest known oil at 2469 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 significance of the oil produced from the deepest cased hole production test 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 2776 metres (-2150 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.
  1. Barrels of oil equivalent (BOEs) may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl has been used and is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

There are several contingencies that prevent the classification of the contingent resources at Kurdamir-1 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 Block K44 B.V., 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 Production Sharing Contract (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: a further description of the information used in the assessment of prospective resources, 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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