WesternZagros more than doubles Q1 gross oil proceeds quarter-over-quarter

WesternZagros Resources (CVE:WZR) announced late Wednesday that it generated $25.9 million of gross oil proceeds in the first quarter, more than double what it made in the fourth quarter of 2011.

The company said proceeds were generated from the sales of 450,000 barrels of test oil from the Sarqala-1 well in Iraq.

WesternZagros is focused on exploring, developing and producing crude oil and natural gas in Iraq. Through its wholly-owned subsidiaries, the company holds two production sharing contracts (PSC) with the Kurdistan Regional Government in the Kurdistan region.

The company said it had $30.6 million in working capital at the end of the quarter that finished March 31.

After the first quarter, the company announced several operational achievements, including an increase in the mean estimate of gross unrisked contingent resources within its PSC lands to 171 million barrels of oil, compared to 54 million barrels previously.

The substantial boost was due to the discovery at the Kurdamir-2 exploration well of 147 million barrels of mean contingent resources, and a further 1.4 billion barrels of mean estimate gross unrisked prospective resources.

The major oil discovery at the Kurdamir-2 exploration well was announced in late March.

The Kurdamir-2 well encountered a 118-metre light oil column with no indications of a water leg at the Kurdamir-2 location, proving that the oil leg in the Oligocene reservoir on the flank of the Kurdamir structure was involved in a much larger trap than was previously interpreted.

Wireline logs indicated a porous zone of 140 metres thickness within the Oligocene interval, between 2,422 and 2,562 metres, all of which is hydrocarbon bearing. Within this hydrocarbon zone, well log data indicated 22 metres of gross gas pay above 118 metres of gross oil pay.

The company said that according to analysis by an independent third party engineering expert, the 33 metres of oil pay tested to date is capable of flowing at rates of 4,000 barrels per day if stimulated and isolated from the gas pay.

On a mean prospective resources basis for the entire PSC lands the company holds, WesternZagros now has 4.7 billion barrels of oil equivalent, compared to 3.7 billion barrels reported previously.

"I am very pleased with the continued strong operational performance in the first quarter and delighted with the world-class oil discovery at Kurdamir which followed it," said CEO Simon Hatfield.

"We have already exceeded our expectations at the Kurdamir-2 well by discovering a giant field with over one billion barrels on a Mean Prospective Resources basis, and we have yet to drill and test the deeper zones.

"We are confident that our appraisal, exploration and production activities planned for both of our exploration blocks in the coming months will build on our recent success."

Indeed, there is still more news to come on the Kurdamir well as the company drills deeper into the Eocene and Cretaceous reservoirs and conducts further testing of the Oligocene oil leg in the coming months.

The Kurdamir-2 exploration well was spudded on October 25, 2011 and is operated by Talisman Energy (TSE:TLM) (NYSE:TLM).

The well is located approximately two kilometres northeast of WesternZagros’s Kurdamir-1 discovery well and is targeting the Oligocene, Eocene and Cretaceous reservoirs on the flank of the structure, where the company says the combined potential oil interval is likely at maximum thickness.

WesternZagros and Talisman each have a 40 percent working interest in the Kurdamir block, with the Kurdistan Regional Government holding the remaining 20 percent.

The company said in late April that operations, to date, remain on time and budget, and WesternZagros anticipates that the deeper Eocene and Cretaceous reservoirs will be drilled and evaluated by the end of the second quarter this year at Kurdamir-2.

The co-venturers are also planning a 3D seismic program over the Kurdamir structure and a further appraisal well (Kurdamir-3) to assess the ultimate size of the Oligocene reservoir.

At its Sarqala-1 well, WesternZagros said lifting of Sarqala-1 crude oil has not been affected despite the Kurdistan Regional Government (KRG) halting the exporting of oil from the Kurdistan region due to a dispute with the federal government in Baghdad.

Sarqala-1 production continues at an average rate of approximately 5,000 barrels per day, but effective May 1, the regional government began to receive roughly 36 per cent of the production in kind.

The oil and gas explorer has entered into contracts for April and May production and received total proceeds of $14.2 million, after consideration of the KRG volumes that were taken in kind for May.

In addition, during the quarter, the company announced an oil discovery in the Upper Fars Formation at its Mil Qasim-1 exploration well, where four tests were conducted, resulting in the flow of light, 43 to 44 degree API oil to surface from low permeability, naturally fractured sandstones.

WesternZagros started additional testing on the test 4 interval at Mil Qasim-1 during the first week of April to further clean-up the well and get additional information on the long term deliverability of the Upper Fars reservoir.

The company is still investigating stimulation and alternate drilling techniques to figure out how to increase flow rates and unlock what it called "the considerable potential" of the Upper Fars Formation.