WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the Company") has, subsequent to its declarations of commerciality and submissions of development plans, and in accordance with its accounting policies, completed an independent evaluation and a new independent audit of its light oil discovery on the Garmian block in the Kurdistan Region of Iraq. The evaluation has, for the first time, recognized the Company's light oil reserves. Independent preliminary partial economic assessments of the Company's interests in the light oil discoveries on both the Garmian and Kurdamir blocks were also conducted.
"Establishing interim proved oil reserves in the Jeribe/Upper Dhiban reservoir at the Sarqala Discovery on the Garmian Block is a modest but significant first step for the Company. These initial reserve estimates are for the crestal area of the structure around the Sarqala-1 well alone, and do not extend as far as the Hasira-1 well which we anticipate testing in the fourth quarter. Although Sarqala-1 has already produced 1 million barrels of light oil during extended well testing in 2012, the reserves represent only a small portion of the potential of the Sarqala Discovery. As we conduct additional tests in Hasira-1 and drill additional development wells, we expect to see our reserves volumes grow considerably," said Simon Hatfield, WesternZagros's Chief Executive Officer.
"To date we have completed independent economic evaluations for three of our light oil reservoirs, the Jeribe/Upper Dhiban reservoir at Sarqala and the Oligocene and Eocene reservoirs at Kurdamir. At Kurdamir we evaluated the contingent resources in the Oligocene and Eocene, resulting in a value of over $1.5 Billion to WesternZagros. In the coming months we will complete the valuation of the over 1 Billion bbls of light oil prospective resources in the Oligocene reservoir. At Sarqala, we evaluated the reserves and the prospective resources in the Jeribe/Upper Dhiban in the main part of the structure. These valuations are for our working interest alone and highlight the fact that both blocks are economically viable," Hatfield said.
The table below summarizes the Company's Working Interest (Gross) Reserves and Prospective Resources for the Jeribe/Upper Dhiban reservoir on the Garmian Block and the Contingent Resources for the Oligocene and the Eocene reservoirs on the Kurdamir Block as at September 1, 2014 (other than the Prospective Resources which are as at July 1, 2014). The economic evaluations provided are based on the initial phased development plans for the Garmian and Kurdamir blocks that have been submitted to the Kurdistan Regional Government ("KRG"), and the additional conceptual development plans for future phased development of the remaining Prospective Resources in the Jeribe/Upper Dhiban reservoir at Garmian and the Contingent Resources in the Oligocene and Eocene reservoirs at Kurdamir. The Reserves, Prospective Resources and economic valuations for the Garmian Block as shown below consider oil volumes only and do not consider gas volumes as, under the Garmian Production Sharing Contract ("PSC"), the KRG has the right to develop these resources. The Company and the KRG continue discussions on the development of the gas and the potential for the Company to participate in this development.
Other than as indicated above, the Company has yet to complete conceptual development plans or economic evaluations for the over 1 Billion Barrels of remaining Prospective Resources on the Kurdamir or Garmian blocks as indicated in the table below. As the Company continues to delineate these additional Prospective Resources on both of its blocks and incorporates the reservoirs into its conceptual development plans, it will provide independently verified economic evaluations in its annual information form or other continuous disclosure filings.
Following the submission of the phased development plan for the Garmian Block to the KRG in June 2014, WesternZagros expects in the fourth quarter 2014 to complete both the workover of the Sarqala-1 well and the upgrade of the oil processing facility, conduct additional testing at the Hasira-1 well, and obtain final approval from the KRG for the Garmian field development plan. In addition, the Company is planning to spud two additional development wells on the Garmian Block in the first half of 2015.
A separate phased development plan for the Kurdamir Block was submitted to the KRG on August 31, 2014. The Company is advancing discussions for approval of this plan prior to any reclassification of the Kurdamir Contingent Resources as Reserves. WesternZagros is planning to spud its first horizontal well on the Kurdamir Block, Kurdamir-4, in the fourth quarter of this year.
The Company engaged Sproule International Limited ("Sproule") to: conduct an interim evaluation (based on all information obtained to date) of the Reserves for the Garmian Block; audit the Company's estimates of the Prospective Resources in the Jeribe/Upper Dhiban reservoir at Garmian; provide the net present values of future net revenue attributable to the Company's interest in such Reserves and Prospective Resources; and provide estimated net present values of future net revenue attributable to the Company's interest in Contingent Resources on the Kurdamir Block using a conceptual development plan and simulation model prepared by the Company, all as described above and in the material change report referenced below. Sproule prepared the related reports in accordance with the current guidelines outlined in the Canadian Oil and Gas Evaluation Handbook and in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities.
Additional information related to the above noted reserves and other resources estimates, including the net present value estimates and the forecast prices and cost assumptions and details of the conceptual development plans used in connection therewith, are included in the Company's Material Change Report dated October 2, 2014, which may be viewed under the Company's profile on SEDAR at www.sedar.com.