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Friday, 6 September 2013
WesternZagros shines among top picks for Dundee Securities with exploration upside ahead
WesternZagros Resources (CVE:WZR) was selected as a top resource pick by Dundee Securities, alongside a host of other Canadian based companies in a report released earlier this week, with analyst David Dudlyke assigning the junior oil and gas explorer a "buy" recommendation and a price target of C$3.00.
The target price, more than 200 per cent above the company's current trading price, was predicated on a one times multiple of Dundee's base case risked net asset value of C$3.03 per share, which is based on a gross recoverable oil resource of 500 million barrels.
The exploration and production company, which is focused on the Kurdistan region of northern Iraq, holds two production sharing contracts with the local goverment, with an 40 per cent working interest in the Garmian and Kurdamir blocks.
WesternZagros recently reported its second quarter results, ending the latest period with more than $167 million in working capital, fully funded for its planned activities as it continues to test its Kurdamir-3 well in Iraq and advance toward commercial production.
The company, which closed several private placements amounting to $175 million over the past 12 months, has a high impact drilling program funded to mid-late 2014.
"The company is thus able to fund additional exploration and/or appraisal drilling beyond the current drilling program – Kurdamir-3, Hasira-1, Baram-1 and Upper Bakhtiari wells," Dudlyke noted in his research report.
"Such additional funding is of particular importance given the pace at which WesternZagros and its partners need to explore and appraise prospects ahead of the 2014 exploration deadlines," the analyst wrote, with the Kurdamir deadline approaching in September of next year, and the Garmian deadline following a few months later in December, 2014.
Additional exploration targets, according to the Dundee report, include Qulijan, Chwar, Alyan, Qula or the Zardi Complex.
Dundee's Dudlyke also highlighted wells to watch in the current drilling program, including Kurdamir-3 on the Kurdamir block, and the Baram-1 well on the Garmian block.
"Whilst the first two tests at Kurdamir-3 have proven to be disappointing, the remaining Kurdamir-3 test results remain key as they will not only confirm WesternZagros' contingent resource base but, with a well profile outside of the gas cap and with a larger tubing completion, should also provide further evidence of likely oil test flow rates."
Dundee's base case resource assumption for WesternZagros lies below the company's independently audited gross contingent oil resources of 569 million barrels, and completely discounts its independently audited gross unrisked mean prospective oil resource of 3.4 billion barrels as well as any gas resources, contingent or prospective, Dudlyke took note.
Meanwhile, the highly anticipated Baram-1 well at Garmian - which is testing a potential extension of the Oligocene oil leg of the Kurdamir discovery into the Garmian block - is now drilling ahead, and is expected to reach total depth by year end.
Dudlyke wrote in his report that following the recent results at Kurdamir-3, three distinct scenarios exist at Baram-1. "First, Baram is an entirely distinct structure separated by a fault (management's original interpretation); second, Baram is connected to Kurdamir but a widespread oil/water contact exists above the reservoir target depth at Baram (thus decreasing the likelihood of finding oil); and lastly, Baram is connected to Kurdamir – and the water at Kurdamir-3 is contained in a compartment – thus perched (and the results from DST #2 will thus have no impact)."
Upcoming catalysts for the company include the results from this well, expected by year-end or early in the first quarter of 2014, as well as testing results from Kurdamir-3, and results from the Hasira-2 well in late 2013.
Shares of WesternZagros were trading higher by more than 1 per cent on Friday, to 95 cents.