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WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the
Company") announced today its operating and financial results for the fourth
quarter and year ended December 31, 2013, and additional key highlights and
activities to date. The financial statements, the Management Discussion and
Analysis, and the Annual Information Form are available at www.westernzagros.com
and on SEDAR at www.sedar.com.
Headlines:
-- The KRG approved the Company's declaration of commerciality on December
23, 2013 triggering the start of the development period on the Garmian
Block.
-- The Company completed audited resource estimates for the Kurdamir
discovery incorporating both the 3D seismic acquired during the year and
Kurdamir-3 test results, confirming gross contingent resources in excess
of 1 billion barrels of oil equivalent.
-- The Hasira-1 well was drilled through the targeted Jeribe and Oligocene
reservoirs, with initial results confirming light oil in the Jeribe
reservoir, and is currently being prepared for testing operations.
-- WesternZagros ended 2013 with $97.2 million in working capital,
sufficient for funding the completion of its exploration and appraisal
activities on the Garmian and Kurdamir blocks.
WesternZagros's objective is to manage the pace and scale of investment and
development to maximize the value of the Garmian and Kurdamir Blocks for the
Company's shareholders. Key elements of achieving its objective include
maintaining best in class operating procedures and protocols to help ensure safe
operating practices and remaining attractive in the capital markets by
demonstrating operational success and maintaining prudent and conservative
financial discipline.
In 2014, WesternZagros will focus on completing the remaining exploration and
appraisal activities, and advancing development plans on the Garmian and
Kurdamir blocks. Emphasis will be on advancing a phased development plan that
include early production systems with the potential for staged expansions to
deliver significant production rates of both oil and gas. The Company continues
advancing opportunities with its co-venturers and the KRG on the development of
gas at both the Garmian and Kurdamir discoveries. This follows the Kurdistan
Region's initiatives to provide gas to domestic markets, including power plants,
and for development of export gas markets, including required pipeline
infrastructure.
WesternZagros will continue to evaluate the various alternatives available to it
to satisfy its future funding needs while it progresses the development plans.
These alternatives may include accessing the debt and/or equity markets,
additional partnerships, farmouts or other strategic arrangements.
Operations Summary
Operated Joint Venture: Garmian Block
-- The Company declared the commerciality of the Sarqala Discovery on
December 23, 2013, which the KRG has subsequently approved. Design work
is underway on future development plans for the oil resources in the
Sarqala area.
-- During 2013, the Company and Gazprom Neft established a dedicated team
for preparing development plans for the Sarqala Discovery. This team has
commenced preliminary engineering work for expanded production
facilities with a design capacity of up to 35,000 barrels of oil per day
("bbl/d").
-- The Hasira-1 well has reached a total depth of 4,181 metres, drilling
through both the Jeribe and Oligocene reservoirs. Results to date have
confirmed light oil in the Jeribe reservoir. The Company has completed
logging operations in the Oligocene reservoir and is preparing to
commence testing operations. Additional testing in the Jeribe may be
conducted subject to the Oligocene test results.
-- As part of transitioning to development, WesternZagros, Gazprom Neft,
and the KRG have agreed to focus future activities on development of the
discoveries on the Garmian Block subsequent to the completion of testing
at Hasira-1. WesternZagros and Gazprom Neft are now preparing
development plans for submission on the production areas at Sarqala,
which includes Mil Qasim and Hasira, and the remainder of the acreage
has been returned to the KRG.
-- At Sarqala-1, a workover commenced in March 2014 to increase the
production capability above the current capacity of 5,000 bbl/d
anticipated up to 10,000 bbl/d. Once the Sarqala development plan is
approved, the Company anticipates KRG approval to commence oil sales
into the domestic or export market via the new pipeline.
-- Processing of the 3D seismic data over the Sarqala and Mil Qasim oil
discoveries was completed in the fourth quarter of 2013 and
interpretation is underway. The use of this new 3D seismic data will
allow future wells to more accurately pinpoint fracture locations in
reservoirs resulting in higher reservoir deliverability.
-- An open-hole test of this reservoir at the Baram-1 well confirmed a
gross interval of 73 metres that flowed 42 degree API light oil and
water at an approximate rate of 600 barrels per day. The wireline log
and test data obtained indicate the test was conducted across an oil-
water contact in low permeability reservoir. Subsequently, the Baram
well will be relinquished as it is considered non-core to
WesternZagros's development plans.
Non-Operated Joint Venture: Kurdamir Block
-- WesternZagros updated its contingent and prospective resource estimates
for the Oligocene reservoir in the Kurdamir structure based on new
information obtained from the Kurdamir-3 well and the interpretation of
3D seismic data. The revised resources assessment has been audited by
the Company's independent reserves evaluator, Sproule International
Limited, as of February 10, 2014, resulting in a revised mean estimate
of gross unrisked contingent resources ("Mean Contingent Resources") of
750 MMBOE, an increase of five percent from those previously recognized.
On an oil basis, the Mean Contingent Resources are now 386 million
barrels of oil ("MMbbl"). The combined Mean Contingent Resources
estimates for the Oligocene and Eocene reservoirs in the Kurdamir Block
are now 976 MMBOE and 541 MMbbl of oil.
-- The revised mean estimate of gross unrisked prospective resources ("Mean
Prospective Resources") for the Oligocene reservoir at Kurdamir is now
1,084 MMbbl of oil, effectively unchanged from a previous estimate of
1,076 MMbbl of oil.
-- During 2013, the Company and Talisman established a dedicated team for
preparing the declaration of commerciality and development plans for the
Kurdamir Discovery.
-- The Kurdamir-3 appraisal well confirmed light oil (37 degree API) in the
upper part of the Oligocene reservoir. Flow rates averaged between 450
and 900 bbl/d. This was lower than expected due to a lower density of
fractures encountered in the Oligocene reservoir compared to those found
in Kurdamir 1 or 2.
-- Kurdamir-3 test results, together with pressure data and log data, are
interpreted to have identified an oil water contact at approximately
-2049 metres sub-sea ("mSS"). The previous interpreted lowest known oil
at the Kurdamir-2 well was at -2016 mSS.
-- The Kurdamir 3D seismic survey started in January 2013 and was completed
in July 2013. It covered 184 square kilometres and also extended into
the neighbouring Topkhana Block (operated by Talisman) to more clearly
define the Oligocene, Eocene and Cretaceous reservoirs. Completion of
processing the data is anticipated in the third quarter of 2014 and
processing is underway.
Outlook
In 2014, WesternZagros will focus on the completion of the appraisal and
development activities and the advancement of development plans on the Garmian
and Kurdamir blocks. With the approval of the declaration of commerciality on
the Garmian Block, the Company is progressing towards bringing production on
from its Sarqala discovery and anticipates that this will happen subsequent to
the submission of the development plan. On the Kurdamir Block the Company is
completing the appraisal program and is bringing in test production equipment to
conduct a further 30 day flow test in the Kurdamir-2 well in the second quarter
of 2014, while at the same time working with the operator on the submission of a
declaration of commerciality and development plan.
As part of transitioning to development, WesternZagros, its co-venturer, Gazprom
Neft and the KRG have agreed to end exploration activities on the Garmian Block
following the completion of the Hasira-1 well. As such, the Company has no
further exploration expenditure obligations and will now be able to apply its
focus and financial resources on development. Under the terms of the Declaration
of Commerciality, the partners will relinquish prospects in the Garmian Block
that are not covered by the development plan, such as Chwar, Qula, Quilijan and
Baram, which are considered non-core to WesternZagros's development plans.
During the preparation of the development plan and its approval by the KRG, and
in order to minimise short-term expenses, WesternZagros is in advanced
discussions with the KRG and Gazprom Neft to temporarily assign two of its
contracted drilling rigs elsewhere for the remainder of 2014. Under this
arrangement, the rigs would return to the Company's Garmian Block for
development drilling on Sarqala in early 2015 once the development plan is
approved and additional development locations are prepared.
The Company and Gazprom Neft, are advancing the development plan and have
established a dedicated team to complete this work by the submission deadline of
June 21, 2014. Current facilities at Sarqala can support production levels of at
least 10,000 bbl/d, and a workover of the Sarqala-1 well has commenced with the
objective of increasing the production capability up to 10,000 bbl/d. These
facilities may also be expanded to handle any additional volumes of crude oil
that Hasira-1 may support if testing is successful from that well.
The second phase of the development will focus on the construction of
centralized production facilities and future wells for the Sarqala discovery
that could support up to 35,000 bbl/d of oil production. Additional phases for
the Sarqala discovery may be added as future wells appraise the ultimate extent
of the reservoir. Work is continuing on opportunities to utilize the associated
natural gas from any future crude oil production to minimize the flaring.
On the Kurdamir Block, a declaration of commerciality is anticipated to be made
within the next 12 months. The Company continues to work with Talisman on the
completion of the appraisal program and pre-development planning. Activities
during 2014 will include completion of the interpretation of the 3D seismic
program over the Kurdamir structure, the 30 day extended well test at the
Kurdamir-2 well (anticipated in the second quarter of 2014), and securing a site
and long lead materials for a future horizontal well. In preparing the
development plan the Company is on applying the same phased approach that is
being utilized on the Garmian Block, with early production achieved using the
extended well testing equipment. Subsequent phases will then focus on the
construction of centralized production facilities and the drilling of
development wells targeting initial production levels of 25,000 to 35,000
barrels per day. Additional phases will then be completed as further development
wells are drilled on the approximately 1 billion barrels of gross unrisked
contingent resources of oil equivalent.
The Company's portion of planned expenditures related to Garmian Block
activities for 2014 include $15 million for the completion of the Hasira-1 and
Baram-1 wells, $5 million for the Sarqala-1 workover, $5 million for the
Kurdamir-2 EWT activities, $15 million for Garmian and Kurdamir development
planning, $20 million for supervision, local office costs and other Garmian and
Kurdamir PSC-related costs, and $10 million for other Corporate costs.
Liquidity and Capital Resources
As at December 31, 2013, WesternZagros had $97.2 million in working capital,
which is sufficient for funding the completion of its exploration and appraisal
activities on the Garmian and Kurdamir blocks. WesternZagros invests its cash
and cash equivalents and short-term investments with major Canadian financial
institutions with investment grade credit ratings and in Government of Canada
instruments in accordance with an Investment Policy approved by the Board of
Directors. The other income generated during 2013 was comprised entirely of
interest earned on cash and cash equivalent balances and short-term investments.
WesternZagros and its co-venturers on the Garmian and Kurdamir blocks are
currently preparing staged development plans with early production systems to
supply both oil and natural gas to either the domestic or export markets. With
the submission of the development plan on the Garmian Block, which is
anticipated by the end of the second quarter of 2014, WesternZagros will be
requesting to commence the production and sale of crude oil from Sarqala-1.
Further funding will be required by WesternZagros as it moves from exploration
into the development stage on its properties. WesternZagros is continually
evaluating the various alternatives available to it to satisfy such future
funding needs while it progresses the development plans. These alternatives may
include accessing the debt and/or equity markets, additional partnerships,
farmouts or other strategic arrangements. In determining which course of action
to pursue, the Company will monitor and assess all relevant factors, including
the following:
-- The timing of submission and approval for development plans;
-- The expected timing and scope of development activities;
-- The ability to export or to sell into the domestic markets oil and
natural gas in accordance with the economic terms of the PSCs;
-- The ability to generate cash flow from early production;
-- The current conditions in the financial markets, including the potential
for further market instability;
-- The ability to access debt, and the costs thereof, for development
activities in Kurdistan; and
-- The timing for repayment of outstanding debt.
Conference Call
WesternZagros will host a live audio conference call on Thursday, March 13,
2014, to discuss its transition to development in the Kurdistan Region and its
Q4 and 2013 year end results. The investment community is invited to participate
in the conference call, which will begin at 8:30 A.M. Mountain Standard Time
(MST) (10:30 AM EST / 2:30 PM GMT). You may participate in the call by telephone
at 647-788-4922 or toll free at 1-877-223-4471.
A replay of the conference call will be available on the Company website,
www.westernzagros.com, following the call. A digital recording of the conference
call will be available for replay two hours after the call's completion and may
be accessed by telephone at 1-416-621-4642 or 1-800-585-8367 and entering the
passcode: 11365199.
About WesternZagros Resources Ltd.
WesternZagros is an international natural resources company focused on acquiring
properties and exploring for, developing and producing crude oil and natural gas
in Iraq. WesternZagros, through its wholly-owned subsidiaries, holds a 40
percent working interest in two Production Sharing Contracts with the Kurdistan
Regional Government in the Kurdistan Region of Iraq. WesternZagros's shares
trade in Canada on the TSX Venture Exchange under the symbol "WZR".
This news release contains certain forward-looking statements relating to, but
not limited to, operational information, future appraisal and development plans
and the timing associated therewith, future production capability and capacity
of wells and facilities, estimated commitments under the Company's Production
Sharing Contract for the Kurdamir area ("Kurdamir PSC") and Production Sharing
Contract for the Garmian area ("Garmian PSC"), and planned expenditures.
Forward-looking information typically contains statements with words such as
"anticipate", "estimate", "expect", "potential", "could", or similar words
suggesting future outcomes. The Company cautions readers and prospective
investors in the Company's securities to not place undue reliance on
forward-looking information as, by its nature, it is based on current
expectations regarding future events that involve a number of assumptions,
inherent risks and uncertainties, which could cause actual results to differ
materially from those anticipated by WesternZagros. Readers are also cautioned
that disclosed test rates and results are not necessarily indicative of
long-term performance or of ultimate recovery.
Forward looking information is not based on historical facts but rather on
management's current expectations as well as assumptions made by, and
information currently available to management, concerning, among other things,
outcomes of future well operations, plans for and results of extended well tests
and drilling activity, future capital and other expenditures (including the
amount, nature and sources of funding thereof), future economic conditions,
future currency and exchange rates, continued political stability, timely
receipt of any necessary government or regulatory approvals, the successful
resolution of disputes, the Company's continued ability to employ qualified
staff and to obtain equipment in a timely and cost efficient manner, the
participation of the Company's co-venturers in joint activities, and the ability
to sell production and the prices to be received in connection therewith. In
addition, budgets are based upon WesternZagros's current appraisal and
development plans and anticipated costs, both of which are subject to change
based on, among other things, the actual outcomes of well operations and the
installation and commissioning of facilities, unexpected delays, availability of
future financing and changes in market conditions. Although the Company believes
the expectations and assumptions reflected in such forward-looking information
are reasonable, they may prove to be incorrect. Forward-looking information
involves significant known and unknown risks and uncertainties. A number of
factors could cause actual results to differ materially from those anticipated
by WesternZagros including, but not limited to, risks associated with the oil
and gas industry (e.g. operational risks in exploration and production; inherent
uncertainties in interpreting geological data; changes in plans with respect to
capital expenditures; interruptions in operations together with any associated
insurance proceedings; the uncertainty of estimates and projections in relation
to costs and expenses and health, safety and environmental risks), the risk of
commodity price and foreign exchange rate fluctuations, the uncertainty
associated with any dispute resolution proceedings, the uncertainty associated
with negotiating with foreign governments and risk associated with international
activity, including the lack of federal petroleum legislation and ongoing
political disputes in Iraq in particular.
In addition, statements relating to "resources" contained herein are deemed to
be forward-looking statements, as they involve the implied assessment, based on
certain estimates and assumptions that the resources described can be
economically produced in the future. Terms related to resource classifications
referred to herein are based on the definitions and guidelines in the Canadian
Oil and Gas Evaluation Handbook which are as follows. "Prospective resources"
are those quantities of petroleum estimated, as of a given date, to be
potentially recoverable from undiscovered accumulations by application of future
development projects. Prospective resources have both an associated chance of
discovery (geological chance of success) and a chance of development (economic,
regulatory, market, facility, corporate commitment or political risks). The
chance of commerciality is the product of these two risk components. The
estimates referred to herein have not been risked for either the chance of
discovery or the chance of development. There is no certainty that any portion
of the prospective resources will be discovered. If a discovery is made, there
is no certainty that it will be developed or, if it is developed, there is no
certainty as to the timing of such development or that it will be commercially
viable to produce any portion of the prospective resources. "Contingent
resources" are those quantities of petroleum estimated, as of a given date, to
be potentially recoverable from known accumulations using established technology
or technology under development, but which are not currently considered to be
commercially recoverable due to one or more contingencies. Contingent resources
have an associated chance of development (economic, regulatory, market and
facility, corporate commitment or political risks). The estimates referred to
herein have not been risked for the chance of development. There is no certainty
that the contingent resources will be developed and, if developed, there is no
certainty as to the timing of such development or that it will be commercially
viable to produce any portion of the contingent resources.
All resource estimates presented are gross volumes for the indicated reservoirs,
without any adjustment for the Company's working interest or encumbrances. A
barrel of oil equivalent ("BOE") is determined by converting a volume of natural
gas to barrels using the ratio of 6 million cubic feet ("Mcf") to one barrel.
BOEs may be misleading, particularly if used in isolation. A BOE conversion
ratio of 6 Mcf:1 BOE is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead. Given that the value ratio based on the current
price of oil as compared to natural gas is significantly different from the
energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be
misleading as an indication of value. The Company's Statement of Oil and Gas
Information contained in its Annual Information Form dated March 13, 2014
("AIF"), filed on SEDAR at www.sedar.com contains additional detail with respect
to the resource assessments and includes the significant risks and uncertainties
associated with the estimates and the recovery and development of the resources,
and, in respect of contingent resources, the specific contingencies that prevent
the classification of the resources as reserves. In addition, combined mean
estimates of resources that are presented in this MD&A are an arithmetic sum of
the mean estimates for individual reservoirs and each such individual mean
estimate is the average from the probabilistic assessment that was completed for
the reservoir. Readers should refer to the AIF for a detailed breakdown of the
high (P10), low (P90) and best (P50) estimates for each of the individual
reservoir assessments as audited by the Company's independent reserves
evaluator.
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 / James McFarlane / Brett Jacobs
+44 (0) 20 7360 4900
jkiely@smithfieldgroup.com
Jmcfarlane@smithfieldgroup.com
bjacobs@smithfieldgroup.com