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WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the
Company") announced today its operating and financial results for the year end
ended December 31, 2012, and additional key highlights and activities to date. A
summary of the activities, the financial statements, the accompanying Management
Discussion and Analysis ("MD&A") and Annual Information Form ("AIF") are
available at www.westernzagros.com and on SEDAR at www.sedar.com.
With tremendous exploration success and solid operational execution in 2012,
WesternZagros moved well ahead on its mission to be recognized as one of the
leading junior oil and gas companies active in the Kurdistan Region of Iraq.
Commenting on the year end results, WesternZagros's Chief Executive Officer
Simon Hatfield said,
"WesternZagros had a breakthrough year in 2012, highlighted by the giant oil
discovery at Kurdamir-2. We anticipate building on this success through our
fully funded, aggressive exploration and appraisal program of 2013. Our
objectives for 2013 include drilling and testing Kurdamir-3 and further
exploration and appraisal on the Garmian Block with the Hasira-1 well, Baram-1
well and the Mil Qasim Upper Bakhtiari shallow well program."
Highlights
Health Safety and Environment ("HSE")
-- As at March 20, 2013 WesternZagros achieved a total of over 3.0 million
man hours of work performed safely and 877 days without any Lost Time
Incidents.
Resource Estimates
-- The total combined mean estimate of gross unrisked contingent resources
at Kurdamir increased to 545 million barrels of oil in the Oligocene and
Eocene reservoirs (audited by independent reserve evaluator, Sproule
International Limited).
-- On the Kurdamir and Garmian Blocks, the total combined mean estimate of
gross unrisked contingent resources is now 974 million barrels of oil
equivalent and the total mean estimate of gross unrisked prospective
resources is now 4.7 billion barrels of oil equivalent.
Operations - Kurdamir Block
-- During the fourth quarter 2012, three intervals were tested within the
168 metres gross hydrocarbon column (22 metres of gas and 146 metres of
oil) encountered in the Oligocene reservoir. No formation water was
encountered during this testing. The table below summarizes the flow
rates from the three intervals tested:
----------------------------------------------------------------------------
Oligocene Tested Stabilized Gas Rate Oil API Apparent
Reservoir Tests Interval Oil Rate (MMcf/d) Gas-Oil Ratio
(metres) (bbl/d) (scf/bbl)
----------------------------------------------------------------------------
DST 1 2,422-2,477 950 7.3 38-42 degrees 7,684
----------------------------------------------------------------------------
DST 7 2,528-2,552 2,184 10.4 42 degrees 4,762
----------------------------------------------------------------------------
DST 6 2,570-2,590 3,450 8.8 38 degrees 2,550
----------------------------------------------------------------------------
The apparent gas-oil ratios for these tests were higher than expected due to the
following: 1) DST 1 was conducted across the gas-oil contact and, consequently,
the test was dominated by gas flowing from the gas cap and 2) DST 6 and 7 were
interpreted to be pulling gas down fractures or other high permeability zones
within the reservoir that are connected to the gas cap or through channels in
the cement behind casing.
-- Based on reservoir data obtained from the Kurdamir testing program and
independent engineering assessments, the Company predicts that
sustainable production rates of 7,000 to 11,000 barrels of oil per day
are possible for individual wells in the Oligocene reservoir utilizing
horizontal drilling and completions technology. These sustainable
production rates would follow higher initial flow rates. Horizontal
wells will also minimize gas production from the oil leg where it
underlies the gas cap.
-- Oil discovery confirmed in Eocene reservoir at Kurdamir-2. A single
cased-hole test was performed over a net perforated interval of 108
metres and resulted in the flow of light, 45 degree API oil at sub-
commercial flow rates. No formation water encountered.
-- Oil discovery confirmed in Cretaceous reservoir at Kurdamir-2. Three
cased-hole tests were conducted over a 221 metres gross interval and
resulted in the flow of light, 39 to 40 degree API oil at sub-commercial
rates.
-- Spudded Kurdamir-3, an Oligocene appraisal well on February 22 on the
giant oil discovery of the Kurdamir structure. Kurdamir-3 is targeting
150-250 million barrels of prospective oil resources. Currently drilling
at depth of 1,926 metres with a planned total depth of 2800 metres.
-- Awarded contract for two 2,000 horse-power drilling rigs with a leading
North American drilling contractor to drill the Hasira-1 and Baram-1
wells. Award was for a two year term with an option to extend for an
additional two years and a provision for a third 2,000 horse-power rig
if required.
-- Commenced 3D seismic survey in January, 2013 encompassing the Kurdamir
structure and extending onto the neighbouring Topkhana Block; completion
of the data acquisition phase anticipated early in the third quarter of
2013.
Operations - Garmian Block
-- Commenced 3D seismic survey on November 1, 2012 over the Sarqala and Mil
Qasim oil discoveries and the Zardi Complex prospect and 2D seismic
survey over the Chwar prospect. 2D seismic acquisition is completed and
the 3D seismic survey is over 75 percent completed.
-- On the Baram prospect, the data from the Kurdamir-2 well resulted in the
total mean estimate of gross unrisked prospective resources to increase
by over 300 percent to 423 million barrels of oil. The Company now
interprets that the Baram prospect has the potential to contain the
extension of the Kurdamir Oligocene oil leg into the Garmian Block.
-- The Baram-1 exploration well has the possibility of being the highest
impact well in 2013 with the potential to add gross mean contingent oil
equivalent resources of 200-300 million barrels in the Garmian Block and
500-600 million barrels in the Kurdamir Block.
Financing
-- Non-brokered private placement completed with Crest Energy International
LLC ("Crest"), of Houston, USA, at Cdn $1.25 per share for gross
proceeds of $63.75 million for a placement of 51 million common shares
in the Company at a 25 percent premium to the March 8, 2013, closing
price. Upon closing Crest holds approximately 19.8 percent of the issued
and outstanding common shares. Crest obtained the right under the
Investment Agreement to appoint an additional nominee to the Company's
Board of Directors and has elected John Howland to that position. Eric
Stoerr, an officer of Crest, has been a member of the Corporation's
Board of Directors since August 2012.
-- Also entered into a loan agreement with Crest for US$57.5 million that
incurs interest at 6 percent per annum to be repaid within 18 months in
which the funding of the loan occurs.
-- Subsequent to the Crest private placement, the Company announced the
finalized terms of a further private placement of common shares issued
at C$1.25 per share for gross proceeds of US$13.9 million which is
anticipated to close on April 4, 2013. Proceeds from the second private
placement will be used to reduce the principal amount outstanding under
the Crest loan.
-- 2012 financial results consistent with an early-stage exploration
company, with a net loss of $10.3 million, a solid financial position
and a track record of conservative financial management.
-- Fully funded for planned activities in 2013, with $79.6 million working
capital in place at the end of 2012 and the funds received from the
subsequent financing.
-- Capital expenditures estimate for the fourth quarter of 2012, including
the requirement for the Company to fund 50 percent of Garmian activities
and 60 percent of Kurdamir activities were $31.2 million.
Corporate
-- Actively pursuing a dual listing of the Company's share capital on the
L.S.E. in London, U.K. in order to provide an additional market for
future equity financing and trading of shares for existing shareholders.
-- On February 1, 2013 Mr. William Jack was appointed to the position of
General Manager Kurdistan with responsibility for government liaison and
in-country administration following the retirement of Mr. Ian McIntosh.
-- Continued strong emphasis on Corporate Social Responsibility including
Community Investment. Employed 203 full and part time local national
employees and service contractors to support Company's operations in the
corporate offices in Kurdistan and at its camp and EWT production
facilities on the Garmian Block. Employed a further 190 local national
employees for the ongoing seismic survey program on the Garmian Block.
Outlook
In accordance with the Kurdamir and Garmian PSCs, the end of the exploration
periods are September 1, 2014 and December 31, 2014, respectively, after which
the development periods begin. On the Kurdamir Block, the Company's focus will
be on continued appraisal drilling to delineate the existing 943 million barrels
of oil equivalent ("MMBOE") of Gross Mean Contingent Resources and the estimated
1.6 billion barrels of oil equivalent of Gross Mean Prospective Resources. On
the Garmian Block, the Company's focus will be on exploration drilling to
delineate the following estimated Gross Mean Prospective Resources: 527 MMBOE on
the Baram prospect, 463 MMBOE on the Sarqala Discovery and 143 MMBOE on the Mil
Qasim Upper Bakhtiari Discovery. In addition, WesternZagros's work program on
the Garmian Block over the next two years will be on exploration activities to
rank, prioritize and drill the highest ranked additional prospects prior to the
end of the exploration period. This ranking will be based on the results of the
North and South Garmian Seismic Programs (2D and 3D) and the 2013 drilling
results of the Company's planned wells on the Garmian and Kurdamir Blocks and
also other Operator's wells on neighbouring blocks. Possible prospects for
future exploration drilling in 2014 include Qulijan, Chwar, Bawanoor, Alyan,
Zardi Complex, Tilako and the Upper Fars Fault Trap play.
Kurdamir Block
The Company continues to work with the operator, Talisman, to appraise the giant
oil discovery in the Oligocene reservoir of the Kurdamir discovery. This
includes a 3D seismic program over the Kurdamir structure with acquisition that
commenced in January 2013, drilling and testing the Kurdamir-3 well that was
spudded on February 22, 2013, targeting an estimated 150-250 MMBOE of Gross Mean
Prospective Resources, and an extended well test in the Kurdamir-2 well which is
anticipated to start in the second half of 2013, subject to the approval of the
KRG. Appraisal activities for the deeper Eocene and Cretaceous reservoirs will
be deferred until additional insight is obtained on optimal drilling locations.
The Company anticipates that the results of the 3D seismic survey currently
underway over Kurdamir will assist in this process.
Planned expenditures include approximately $30 million for the Kurdamir-3
vertical appraisal well (spudded February 22, 2013), $9 million for the Kurdamir
seismic program which commenced in the first quarter of 2013, and $2 million for
the Kurdamir-2 completion costs. Contingent projects may also include $9 million
for a potential Kurdamir-3 sidetrack, if required, and, subject to KRG approval,
$7 million related to commencement of extended well test production at the
Kurdamir-2 well.
Garmian Block
WesternZagros expects to recommence the EWT at Sarqala upon KRG approval to gain
additional information in order to appraise the discovery for future
development. Upon receipt of KRG approval, the Company plans to complete a
workover of the Sarqala-1 well in the second half of 2013 in order to allow
future EWT production capability to increase beyond the current 5,000 barrels
per day. Engineering work is also underway for permanent facilities to increase
EWT production capability at Sarqala including gas conservation measures. In
particular, preliminary engineering design of the Sarqala first phase permanent
facilities with 20,000 bbl/d capacity has been completed in readiness to request
engineering procurement and construction tenders at the appropriate time. Work
is continuing on opportunities to utilize the associated natural gas from any
future crude oil production to minimize the flaring of natural gas.
Hasira-1 Exploration and Appraisal Well
The Hasira-1 well is planned to spud in the second quarter of 2013 to appraise
the extent of the oil leg previously encountered in the Jeribe reservoir,
targeting 25-50 MMBOE of Gross Mean Prospective Resources, at the Sarqala-1 well
and also to explore the deeper Oligocene reservoir, targeting a further 25-50
MMBOE of Gross Mean Prospective Resources. Significant oil shows were
encountered in the Oligocene interval at Sarqala-1 but the Company was unable to
evaluate them at that time due to wellbore conditions. Hasira-1 is expected to
take approximately seven months to drill to a planned total depth of 4,100
metres. The drilling rig is currently being prepared in North America for
deployment to the Kurdistan Region.
Baram-1 Exploration Well
The Baram-1 well is planned to spud in the third quarter of 2013, in order to
explore a potential extension of the oil leg in the Oligocene reservoir of the
Kurdamir discovery into the Garmian Block. If successful and the extension is
confirmed, this well could add 200-300 MMBOE of Gross Mean Contingent Resources
in the Garmian Block and possibly also confirm an additional 500-600 MMBOE of
Gross Mean Contingent Resources on the Kurdamir Block. WesternZagros expects the
well to take approximately five months to reach the planned total depth of 3,800
metres. An additional drilling rig is also currently being prepared in North
America for deployment to the Kurdistan Region.
The completion of either Baram-1 or Hasira-1 in 2013 would fulfill the Company's
obligations under the second exploration sub-period of the Garmian PSC, prior to
any extension of such sub-period.
Upper Bakhtiari Three-Well Drilling Program
This program is to explore the potential of the shallow (500 to 700 metres
depth) Upper Bakhtiari formation in the southern part of the Garmian Block
through a low cost, three well drilling program, targeting 29 MMBOE of Gross
Mean Prospective Resources. If successful, the wells could be quickly tied into
the existing Sarqala facilities for EWT production, subject to KRG approval. The
Company plans to spud the first well in the second quarter of 2013 subject to
the availability of a drilling rig in Kurdistan.
Garmian Seismic Programs
WesternZagros has commenced a 3D seismic appraisal survey over the Sarqala, Mil
Qasim and adjacent Zardi Complex structures. WesternZagros has completed the 2D
seismic survey at Chwar which is located 22 kilometres west-northwest of Sarqala
to elevate this low risk, Jeribe oil opportunity to drill ready status. The
Chwar prospect will be ranked against the other prospects on the Garmian Block.
The Company will utilize the 3D information to optimize the number and placement
of future appraisal and development well, improve its understanding of
fracturing within these structures and further evaluate the Bakhtiari, Upper
Fars, Jeribe, Oligocene, Eocene and Cretaceous reservoirs on the southern
portion of the Block. The Company also plans to conduct a 3D seismic program in
the second half of 2013over the northern portion of the Block targeting the
Baram and Qulijan structures. The 3D data over Baram will assist in determining
whether Baram is an extension of the existing Kurdamir Oligocene discovery or a
separate structure.
Planned expenditures include $30 million for the Hasira-1 well (expected to be
spudded in the second quarter of 2013), $28 million for the Baram-1 well
(expected to be spudded in the third quarter), $4 million for the Sarqala EWT
facilities, $2 million for the first of three wells of the Mil Qasim Upper
Bakhtiari program, $7 million for the Garmian South seismic programs and $11
million for G&A and other costs. Contingent projects may also include $4 million
for anticipated Sarqala-1 work over and recompletion costs, subject to KRG
approval, $8 million for the Garmian North seismic program and $4 million for up
to two additional wells at the Mil Qasim Upper Bakhtiari program, subject to
successful results.
This news release contains certain forward-looking information relating, but not
limited, to the closing of the private placement, funding of the loan and
anticipated timing thereof. 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. 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,
timely receipt of all necessary stock exchange approvals, 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. For further information on WesternZagros and the risks associated with
its business, please see the Company's Annual Information Form dated March 22,
2013, which is available on SEDAR at www.sedar.com.
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 22, 2013
("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 which
prevent the classification of the resources as reserves. In addition, combined
mean estimates of resources which 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.
WESTERNZAGROS RESOURCES WAS RECOGNIZED AS A TSX VENTURE 50(R) COMPANY IN 2012
AND 2013. TSX VENTURE 50 IS A TRADE-MARK OF TSX INC. AND IS USED UNDER LICENSE.
FOR FURTHER INFORMATION PLEASE CONTACT:
WesternZagros Resources Ltd.
Greg Stevenson
Chief Financial Officer
(403) 693-7007
WesternZagros Resources Ltd.
Tony Kraljic
VP Business Development
(403) 693-7011
WesternZagros Resources Ltd.
Lisa Harriman
Manager of Investor Relations
(403) 693-7017
investorrelations@westernzagros.com
www.westernzagros.com
Smithfield Group
John Kiely
+44 (0) 20 7360 4900
jkiely@smithfieldgroup.com
Smithfield Group
Brett Jacobs
+44 (0) 20 7360 4900
bjacobs@smithfieldgroup.com
Smithfield Group
James McFarlane
+44 (0) 20 7360 4900
jmcfarlane@smithfieldgroup.com
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