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WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the
Company") announced today its operating and financial results for the second
quarter ended June 30, 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 second quarter results and subsequent events, WesternZagros's
Chief Executive Officer, Simon Hatfield said,
"We're continuing testing in the Kurdamir-3 well to provide valuable information
on the Kurdamir Discovery as we progress towards commerciality and to help us
plan future well locations. In addition, our two Garmian wells, Baram-1 and
Hasira-1, are drilling with completion anticipated in late Q4 2013 and early Q1
2014, respectively. Hasira-1 will help us in our development plans for our
Sarqala Discovery. The timing of declaration of commerciality and submission of
development plans are actively in discussion with our partners and will
represent a major step for our Company. We have also completed our first 3D
seismic program at Sarqala and the second, our North Garmian, is underway. This
is a busy year for WesternZagros."
Exploration and Appraisal Operations - Kurdamir Block
-- Testing of the Oligocene reservoir in the Kurdamir-3 well is ongoing
with final results anticipated in late third quarter 2013 or early
fourth quarter 2014. As operator of the Kurdamir-3 well, Talisman (Block
K44) B.V. ("Talisman") has conducted two DSTs in the deepest zones of
the Oligocene reservoir at Kurdamir-3. Log and sample analysis obtained
from testing to date has warranted the testing of two other intervals in
the upper zones of the Oligocene reservoir. Interim test results from
Kurdamir-3 have increased the risk associated with the undiscovered
Prospective Resource assessment that the Company carries for the
Kurdamir Oligocene reservoir.
-- The acquisition of the Kurdamir Block 3D seismic survey, which comprised
184 square kilometers, has been completed in order to define more
clearly the areal extent of the Oligocene, Eocene and Cretaceous
reservoirs. Processing and interpretation of the data are currently
underway with completion anticipated in the first quarter of 2014. The
results will be utilized to select the location of the Kurdamir-4 well
to further appraise the extent of the oil discovery in the Oligocene
reservoir.
Exploration and Appraisal Operations - Garmian Block
-- The Baram-1 well was spudded on August 13, 2013 and is preparing to
drill ahead after setting 20 inch casing at 816 metres. This well is
exploring whether the Baram structure is a separate structure from
Kurdamir or a potential extension of the oil leg discovered in the
Oligocene reservoir of the Kurdamir structure onto the northern portion
of the Garmian Block. The Company expects the well to be drilled to
planned total depth of 3,800 metres by the end of 2013. If successful
(the extension is confirmed and it is oil bearing) the Company believes
that this could be the highest impact well of the 2013 drilling program,
with the potential to add substantial contingent resources in both the
Garmian Block and in the Kurdamir Block. The interim results of
Kurdamir-3 testing increase the risk associated with the undiscovered
Prospective resource assessment for the Baram-1 well. Alternatively, the
Baram structure may be separated from the Kurdamir structure by a fault,
in which case the Kurdamir-3 well results have no material impact on the
chance of success of Baram-1.
-- The Hasira-1 appraisal and exploration well is currently drilling ahead
at 2,886 metres after setting 16 inch casing at 2,047 metres. The next
casing point is planned for approximately 3,900 metres just above the
Jeribe reservoir. The well is planned to drill to a total depth of
approximately 4,100 metres in the Oligocene reservoir. WesternZagros
plans to complete the well either in the Jeribe or the Oligocene
reservoir depending on testing results. Hasira-1 is anticipated to be
completed in late fourth quarter 2013 or early first quarter 2014.
-- The acquisition phase of the 2D seismic survey over the Chwar and Alyan
prospects 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 data
are currently underway and expected to be completed in the fourth
quarter, 2013.
-- The acquisition phase of the 3D seismic survey over the northern portion
of the Garmian block commenced on August 6, 2013 in order to define more
clearly the areal extent of the Baram and Qulijan structures.
Acquisition is anticipated to be completed in the third quarter with
processing and interpretation completed by the end of the year.
-- The Company is also beginning to prepare for future exploration wells,
with the Qulijan well site prepared and long lead items ordered.
Preliminary interpretation and technical evaluations are underway of the
Chwar Prospect in the southwest of the Garmian Block, the Alyan Prospect
in the west of the Block and the Qula Prospect on the southeast of the
Block, Qula is in close proximity to Genel Energy plc's Chia Surkh oil
discovery on the adjacent block. The Company will determine its 2014
drilling program in the fourth quarter 2013.
Planning and Development (Garmian and Kurdamir Blocks)
-- Design work is underway on future development plans for the
WesternZagros oil discoveries in the Sarqala and Kurdamir areas.
-- On the Garmian Block, the preliminary engineering design of the Sarqala-
1 first phase central processing facility with 20,000 bbl/d capacity is
advancing. WesternZagros is in active discussions with its co-venturer
Gazprom Neft Middle East B.V. ("Gazprom Neft") regarding the timing of
the Declaration of Commerciality for the Sarqala discovery.
WesternZagros and Gazprom Neft have formed a dedicated team to plan the
phased development of the Sarqala Discovery.
-- On the Kurdamir Block, Talisman has staffed a dedicated team which has
commenced development planning and the joint venture has created a sub-
committee to focus on designing the development plan for the Kurdamir
Discovery. Subject to the extended test results from the Kurdamir-3 well
and the interpretation of the 3D seismic, the Kurdamir Joint Venture is
contemplating a Declaration of Commerciality for the Kurdamir structure
by the second quarter of 2014.
-- The Company and its co-venturers continue discussions with the Kurdistan
Regional Government ("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.
Financing
-- On April 4, 2013 the Company completed a marketed private placement of
11,431,422 common shares with Crest Energy International LLC ("Crest")
of Houston, USA, 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. This followed the non-brokered private
placement of 51 million common shares at Cdn$1.25 per common share and
the entering of a loan agreement with Crest for $57.5 million. The net
proceeds of the marketed private placement of $13.5 million were used to
repay $13.3 million of the principal amount of the loan from Crest plus
$0.2 million of accrued interest.
-- On June 18, 2013, the Company completed a non-brokered private placement
of Cdn$70 million aggregate principal amount of 4.00% Convertible Senior
Unsecured Notes of WesternZagros ("Convertible Notes") to investment
funds managed by Paulson & Co. Inc. Effective June 28, 2013 the Company
completed a second non-brokered private placement of Cdn$30 million
aggregate principal amount of Convertible Notes. A portion of the
proceeds from the private placements were used to repay the remaining
Crest debt of $44.5 million plus accrued interest as per the terms of
the loan agreement with the balance to be used to fund the Company's
capital and operating activities.
-- All of the Convertible Notes issued in the second quarter of 2013 have a
face value of Cdn$1,000 per note, a coupon of 4 percent per annum, a
maturity date of December 31, 2015 and are convertible into common
shares of the Company ("Common Shares") at the option of the holder at a
conversion price of Cdn$1.45 per share (subject to adjustment in certain
events), representing a conversion premium of approximately 27 percent
to the thirty day average price for the Common Shares prior to issuance
of the Convertible Notes.
-- As at June 30, 2013, WesternZagros had $167.4 million in working
capital, excluding the $16.9 million additional non-current portion of
the deposit held in trust pertaining to the drilling contract. The
Company is fully funded for its currently planned activities.
Corporate
-- The Company is considering the optimal timing to pursue 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 June 3, 2013, Ms. Mary Benassi was appointed to the position of Vice
President Human Resources with responsibility for WesternZagros's
overall Human Resources function.
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
continue to delineate the existing 943 MMBOE of unrisked gross contingent
resources (combined mean estimate ("Gross Mean Contingent Resources") and an
estimated 1.6 billion BOE of unrisked gross prospective resources (combined mean
estimate) ("Gross Mean Prospective Resources"). On the Garmian Block, the
Company's focus will be on exploration and appraisal drilling to delineate the
following estimated Gross Mean Prospective Resources: 527 MMBOE on the Baram
prospect and 463 MMBOE on the Sarqala Discovery. In addition, WesternZagros's
work program on the Garmian Block over the next 18 months will also include
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 other operators' well results on neighbouring
blocks. Possible prospects for future exploration drilling in 2014 include
Qulijan, Qula, Chwar, and Alyan. At the same time, the Company has started
discussions with its respective co-venturers with respect to timing of declaring
commerciality and submitting development plans. Subject to the completion of the
exploration and appraisal programs, WesternZagros anticipates issuing
Declarations of Commerciality before the end of the Exploration period on the
Kurdamir and Garmian Blocks of September 1, 2014 and December 31, 2014,
respectively.
Kurdamir Block
The Company continues to work with the operator, Talisman, to appraise the giant
Kurdamir discovery. Activities in the second half of 2013 will focus on further
testing at Kurdamir-3, the processing and interpretation of the 3D seismic,
analysis and integration into reservoir models of the data from Kurdamir-3
acquired to date (including cores, log data, oil samples, and water samples),
and the preparation and planning required for a declaration of commerciality in
2014 and the start of field development. The remaining tests at Kurdamir-3 will
be conducted on the upper part of porous zone of the Oligocene reservoir which
was oil-bearing in Kurdamir-2 and which is more than 87 meters below the depths
of the gas-oil contact as seen in Kurdamir-2. This testing is anticipated to be
completed early in the fourth quarter.
Planned expenditures for the remainder of 2013 include approximately $12-$17
million for the Kurdamir-3 testing program (including the costs of DST#1 and #2
estimated at $7-8 million), $4 million for the remainder of Kurdamir 3D seismic
program and processing costs, and $4-8 million for preparation and planning for
declaration of commerciality and field development. Contingent projects during
2013 may also include $9 million for a potential Kurdamir-3 sidetrack.
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 a suitable rig
and tubular equipment, the Company also plans to complete a workover of the
Sarqala-1 well in the first half of 2014 in order to allow future EWT production
capability to increase beyond the current 5,000 bbl/d. 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 appraisal and exploration well was spudded on June 6, 2013 and is
currently drilling ahead at 2,886 metres after setting 16 inch casing at 2,047
metres. WesternZagros plans to complete the well either in the Jeribe or the
Oligocene reservoir depending on drilling and testing results. Hasira-1 will
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 due to wellbore conditions. The Company expects
Hasira-1 to take approximately seven months to drill.
Baram-1 Exploration Well
The Baram-1 well was spudded on August 13, 2013 to explore the potential
extension of the oil leg discovered in the Oligocene reservoir of the Kurdamir
structure onto the northern portion of the Garmian Block. The Company expects
the well to reach the planned total depth of 3,800 metres by the end of 2013. If
successful and it is oil bearing, the Company believes that this could be the
highest impact well of the 2013 drilling program with the potential to add
substantial contingent resources in both the Garmian Block and in the Kurdamir
Block. The interim results of Kurdamir-3 testing increase the risk associated
with the undiscovered Prospective resource assessment for the Baram-1 well.
Alternatively, the Baram structure may be separated from the Kurdamir structure
by a fault, in which case the Kurdamir-3 well results have no material impact on
the chance of success of Baram-1.
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.
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 the Chwar and Alyan prospects which are to the north
and west-northwest of Sarqala to elevate these low risk, Jeribe oil
opportunities to drill ready status. 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 Jeribe, Oligocene, Eocene and Cretaceous reservoirs on the southern
portion of the Block.
The Company is conducting a 3D seismic program in the second half of 2013 over
the northern portion of the Garmian 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 $20 million for the
Hasira-1 well, $20 million for the Baram-1 well $4 million for the Sarqala
planning and predevelopment activities, $ million for long leads for future
wells, $10 million for the planned North Garmian 3D seismic program and $3
million for other costs.
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.
NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT
TERM IS DEFINED IN POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY
FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.
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
jkiely@smithfieldgroup.com
Smithfield Group
James McFarlane
jmcfarlane@smithfieldgroup.com
.Smithfield Group
Brett Jacobs
bjacobs@smithfieldgroup.com
WesternZagros Resources Ltd. (TSXV:WZR)
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