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WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the
Company") announced today its operating and financial results for the first
quarter ended March 31, 2013, and additional key highlights and activities to
date. A summary of the activities, the financial statements the accompanying
Management Discussion and Analysis ("MD&A") are available at
www.westernzagros.com and on SEDAR at www.sedar.com.
Commenting on the first quarter results and subsequent events, WesternZagros's
Chief Executive Officer, Simon Hatfield said,
"Our twin goals of increasing proven resources and production potential are our
main focus and the first quarter provided a solid start to the year. So far in
2013 we have spud an appraisal well on one of our major discoveries and have
spud the first well of a planned three-well shallow drilling program, we are
preparing to spud two more exploration wells, and we have acquired a significant
amount of both 2D and 3D seismic data. We remain very optimistic that the
strength of our business model, the proven expertise of our personnel and the
evolved efficiency of our drilling program will help us to achieve significant
increases in our proven resource estimates from our aggressive multi-rig
drilling program in the remainder of 2013, while also continuing our excellent
track record in regards to health, safety, environment and security practices."
Highlights
Health Safety and Environment ("HSE")
-- As at May 21, 2013, WesternZagros achieved a total of over 3.4 million
man hours performed safely and 939 days without any Lost Time Incidents.
Resource Estimates
-- The total combined mean estimate of gross unrisked contingent resources
of the Kurdamir structure 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
-- The Kurdamir-3 appraisal well was spudded on the giant oil discovery of
the Kurdamir structure on February 22. Kurdamir-3 will evaluate the
Oligocene reservoir. Casing is currently being set in the seal above the
Oligocene reservoir at depth of approximately 2,400 metres, before
drilling continues to a planned total depth of 2,800 metres. Testing is
anticipated to be completed in the third quarter.
-- We have acquired approximately 20 percent of the data for the 3D seismic
survey which covers the Kurdamir structure and extends onto the
neighbouring Topkhana Block. This survey commenced in January 2013 and
completion of the data acquisition phase is anticipated early in the
third quarter. Following the completion of the Kurdamir/Tophkana seismic
survey, the crew will be mobilized to conduct the North Garmian 3D
seismic acquisition survey.
Planning and Development
-- Design work is beginning on appraisal and future potential development
plans for the existing WesternZagros oil discoveries in the Sarqala
area. A preliminary engineering design of the Sarqala-1 first phase
central processing facility with 20,000 barrel-per-day capacity is
underway.
-- In order to begin development planning on the Kurdamir Block, the joint
venture has created a sub-committee and Talisman, as operator, has
staffed a dedicated team to commence this work following the recent oil
discoveries in the Kurdamir-2 well.
-- The Company and its joint venture partners continue discussions with the
KRG to advance plans for the utilization of natural gas from both the
Garmian and Kurdamir Blocks. Gas conservation studies are ongoing for
pipeline routing, gas re-injection options to maximize oil recovery, and
options for temporary and permanent power generation.
Operations - Garmian Block
-- The Mil Qasim Upper Bakhtiari-1 was spudded on May 19, 2013. This is the
first well of a planned three-well drilling program that will explore
the shallow Upper Bakhtiari formation in the southern part of the
Garmian Block.
-- A 2,000 horsepower rig has been mobilized from North America and is
currently being set-up at the Hasira-1 location. Hasira-1 has an
anticipated spud date in early June 2013 and will appraise the extent of
the oil leg previously encountered in the Jeribe reservoir at Sarqala-1
and also explore the deeper Oligocene reservoir potential beneath the
Jeribe.
-- The acquisition phase of the 2D seismic survey over the Chwar prospect
and the 3D seismic survey over the Sarqala and Mil Qasim oil discoveries
and the Zardi Complex prospect was completed on April 8, 2013, on time
and on budget. Processing and interpretation of the obtained data is
currently underway.
-- On the Baram prospect, the data from the Kurdamir-2 well resulted in an
increase of the total mean estimate of gross unrisked prospective
resources by over 300 percent to 423 million barrels of oil. The Company
now interprets that the Baram prospect has the potential to contain an
extension of the Kurdamir oil leg into the Garmian Block.
-- If successful and the extension is confirmed, the Baram-1 exploration
well could be the Company's highest impact well in 2013, with the
potential to add gross unrisked mean contingent resources of 200 to 300
million barrels of oil equivalent (MMBOE) in the Garmian Block and 500
to 600 MMBOE in the Kurdamir Block. A second 2,000 horsepower drilling
rig will be deployed shortly from North America for transport to the
Baram-1 location with an anticipated spud date in the third quarter
2013.
-- The Company is also beginning to prepare for future exploration wells,
with the Qulijan-1 well site prepared and long leads beginning to be
ordered.
Financing
-- During the first quarter of 2013, the Company completed a non-brokered
private placement of 51 million common shares with Crest Energy
International LLC ("Crest") of Houston, USA, at Cdn$1.25 per common
share for gross proceeds of $62.4 million. This represented an
approximate 25 percent premium to the March 8, 2013, closing share
price. Crest obtained the right under the associated investment
agreement to appoint an additional nominee to the WesternZagros Board of
Directors and has elected John Howland to that position. Eric Stoerr, an
officer of Crest, has been a member of the Company's Board of Directors
since August 2012.
-- In conjunction with the private placement, WesternZagros also entered
into a loan agreement with Crest and received US$57.5 million, which is
secured by 10 percent of the issued share capital of WesternZagros
Limited, a wholly-owned subsidiary of the Company that is the
contracting party to the Garmian and Kurdamir Production Sharing
Contracts (PSCs). The loan accrues interest at a fixed rate of six
percent per annum, compounded monthly. The principal and accrued
interest is repayable by September 30, 2014, subject to certain
prepayment terms.
-- Subsequent to March 31, 2013, the Company completed a further marketed
private placement of 11,431,422 common shares with Crest and Jasmine
Capital (a wholly-owned subsidiary of Richard Chandler Corporation) at
Cdn$1.25 per common share for gross proceeds of $14.1 million. The net
proceeds of $13.5 million were then used to repay accrued interest of
$0.2 million and repay $13.3 million of the principal amount of the loan
from Crest. As a result of these transactions, the remaining principal
amount of the Crest loan was reduced to $44.2 million as at April 4,
2013.
-- Upon closing of the further private placement in April 2013, Crest held
approximately 19.8 percent and Jasmine Capital held approximately 15.1
percent of the issued and outstanding common shares of the Company.
-- During the first quarter of 2013, the Company executed a two-year
drilling contract for two rigs, for which the Company deposited into
trust its share of a required deposit in the amount of $20 million. The
total deposit in trust is $40 million of which Gazprom Neft has funded
their 50 percent share of the total deposit that was due.
-- As at March 31, 2013, WesternZagros had $152.2 million in working
capital, excluding the $20 million deposit in trust pertaining to the
drilling contract. The Company is fully funded for its planned
activities in 2013.
Corporate
-- The Company is pursuing admittance to the Standard Listing segment of
the Official List of the London Stock Exchange ("LSE") in order to
provide access to an alternate market with a strong understanding of the
Middle East and, particularly, Kurdistan focused companies.
-- 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.
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 MMBOE of Gross
Mean Contingent Resources and an estimated 1.6 billion BOE 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), the 2013 drilling results from 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 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
the Kurdamir structure will assist in this process.
Planned expenditures for the remainder of 2013 include approximately $25 million
for the Kurdamir-3 vertical appraisal well (spudded February 22, 2013), $8
million for the Kurdamir seismic program which commenced in the first quarter of
2013 and $6 million for Kurdamir office costs and other Kurdamir Block
activities. Contingent projects during 2013 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
Sarqala-1 Extended Well Test ("EWT")
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, and the procurement of suitable rig
and tubular equipment, 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. Long lead items
have been ordered for this workover. 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 is underway
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 exploration and appraisal well rig set up is nearing completion
with an anticipated spud date in early June, 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.
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. A drilling rig will be deployed shortly from North America for transport
to the Baram-1 location with an anticipated spud date in the third quarter 2013.
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
Upper Bakhtiari-1 was spudded on May 19, 2013. This is the first well that will
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.
Garmian Seismic Programs
WesternZagros has completed the acquisition phase of a 3D seismic appraisal
survey over the Sarqala, Mil Qasim and adjacent Zardi Complex structures as well
as 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 2013 over the northern portion of the
Block targeting the Baram and Qulijan structures utilizing the seismic crew from
the Kurdamir/Tophkana program. 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 for the remainder of 2013 include $27 million for the
Hasira-1 well, $26 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, $2 million for
the remainder of the Garmian South seismic program, $5 million for the planned
North Garmian 3D seismic program and $8 million for G&A and other costs.
Contingent projects during 2013 may also include $4 million for anticipated
Sarqala-1 work over and recompletion costs, subject to KRG approval, 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 operational information, future drilling and testing plans, seismic
programs and the timing and costs 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. 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. 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
WesternZagros Resources Ltd. (TSXV:WZR)
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