Subsequent to the quarter end, the Corporation reported an increase in the mean estimate of gross unrisked contingent resources ("Mean Contingent Resources") within its PSC lands to 171 million barrels ("MMbbl") of oil compared to 54 MMbbl reported previously. Increase due to the discovery reported at the Kurdamir-2 exploration well of 147 MMbbl Mean Contingent Resources, and a further 1.4 billion barrels ("Bbbl") mean estimate of gross unrisked prospective resources ("Mean Prospective Resources"). - On a Mean Prospective Resources basis for the entire PSC Lands, the Corporation is able to report 4.7 billion barrels of oil equivalent ("BOE") compared to 3.7 billion BOE reported previously.
Commenting on the first quarter results and subsequent events, WesternZagros's Chief Executive Officer, Simon Hatfield said,
"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. 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."
Operational & Financial Review
On April 23, 2012, WesternZagros reported increases of over 400 percent in Mean Contingent Resources and 300 percent in Mean Prospective Resources in the Oligocene reservoir of the Kurdamir exploration block. The updated estimate of Mean Contingent Resources is 147 MMbbl of oil (corresponding to 464 MMbbl of mean estimated gross discovered oil initially in place) or 384 million BOEs when gas and condensate contingent resources are included. The updated estimate of Mean Prospective Resources is 1.2 Bbbl of oil (corresponding to 3.6 Bbbl of mean estimated gross undiscovered oil initially in place) or 1.4 billion BOE when gas and condensate prospective resources are included.
The significant increase in the estimate of Kurdamir resources is a result of the discovery of a major oil column in the Oligocene reservoir at the Kurdamir-2 exploration well. 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 indicates 22 metres of gross gas pay above 118 metres of gross oil pay. No evidence of a water leg has been encountered within the Oligocene interval. An open hole drill stem test was conducted from 2,315 metres to 2,477 metres, which included 55 metres of the Oligocene porous zone. This test was conducted across the interpreted gas-oil contact at 2,444 metres. The test achieved a flow rate of 7.3 million cubic feet ("MMcf") per day of gas and a stabilized flow rate of 950 barrels per day ("bbl/d") of 47 degree API mixture of light oil and condensate over the final seven hours of the main flow period. This rate was achieved through a 56/64 inch choke at an average flowing well head pressure of 650 pounds per square inch and without any stimulation. There was no observed decline and no formation water was recovered during testing. 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.
These latest audited estimates represent an increase in the combined Mean Contingent Resources on the Kurdamir and Garmian exploration blocks ("PSC Lands") to 171 MMbbl of oil, or 415 MMBOE when gas and condensate are included. Prior to the drilling of Kurdamir-2, these estimates were 54 MMbbl of oil, or 258 MMBOE. These latest audited estimates represent an increase in the combined Mean Prospective Resources on the PSC Lands to 3.2 Bbbl of oil, or 4.7 billion BOE when gas and condensate are included. Prior to the drilling of Kurdamir-2, these estimates were 2.3 Bbbl of oil, or 3.7 billion BOE. These updated mean estimates have been independently audited by Sproule International Limited ("Sproule").
Currently in the Kurdamir-2 well, an intermediate casing is being set in the Aaliji seal at 3,140 metres, having successfully drilled through the Eocene interval where it encountered numerous oil shows. Drilling will continue through the Cretaceous reservoir with the approximate total depth anticipated to be 4,072 metres. Under the Kurdamir Production Sharing Contract (PSC") commitments, the Kurdamir-2 well is required to be drilled by June 30, 2012 which will then be followed by a fulsome testing program of the indicated pay intervals of the Eocene and Cretaceous reservoirs. In addition, the Corporation is working with the operator, Talisman (Block K44) B.V. ("Talisman") to examine options for cased hole testing of the 118 metres of gross oil pay in the Oligocene. 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.
For the three month period ended March 31, 2012, the Corporation generated $25.9 million of gross proceeds from the sales of approximately 450,000 barrels of test oil from the Sarqala-1 well. 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, and Sarqala-1 production continues at an average rate of approximately 5,000 bbl/d. However, effective May 1, 2012 the KRG began to receive approximately 36% of the production in kind. The Corporation 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 production.
On February 14, 2012, the Corporation announced an oil discovery in the Upper Fars Formation at the Mil Qasim-1 exploration well. Four tests were conducted in the Mil Qasim-1 well resulting in the flow of light, 43 to 44 degree API oil to surface from low permeability, naturally fractured sandstones in the Upper Fars Formation. WesternZagros commenced additional testing on the Test 4 interval at Mil Qasim-1 during the first week of April 2012 to further clean-up the well and gain additional information on the long term deliverability of the Upper Fars reservoir. The Corporation is investigating stimulation and alternate drilling techniques to determine how to increase flow rates and unlock the considerable potential of the Upper Fars Formation.
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