WesternZagros Resources Ltd. is pleased to announce that it has finalized an agreement with the Kurdistan Regional Government of Iraq (KRG) and Talisman (Block K44) B.V. (Talisman) to amend the original Production Sharing Contract (Original PSC) that governed the Company's exploration activities in the Kalar-Bawanoor Block in Kurdistan. The agreement divides the contract area of the Original PSC into two contract areas named Garmian and Kurdamir and each will be operated under a distinct PSC.
WesternZagros will continue to operate the southern contract area named the Garmian Block that covers approximately 1,780 square kilometers and is now governed under the new Garmian PSC. The Garmian Block contains the Sarqala-1 oil discovery, the Mil Qasim-1 prospect, and the other numerous prospects that contributed to a large increase in prospective resources reported by the Company on July 20, 2011. The northern contract area is named the Kurdamir Block. It covers some 340 square kilometres and contains the Kurdamir-1 oil, gas and condensate discovery and is now governed under an amended version of the Original PSC (the "Kurdamir PSC"). The northern area is now operated by Talisman. WesternZagros production sharing terms, under both the Garmian and Kurdamir PSCs, remain unchanged from the Original PSC.
The agreement amends the work obligations and timeline for the first exploration period of the Original PSC.
1. On the Garmian Block, WesternZagros's remaining work commitment will be fulfilled by drilling the Mil Qasim-1 exploration well by December 31, 2011. The drilling rig for the Mil Qasim-1 well is on location with the spud date anticipated for mid August. Mil Qasim-1 will be drilled to test the oil potential of the Upper Fars Formation at a location three kilometres away from where that same formation displayed shows of high-pressure light oil when penetrated by the Company's Sarqala-1 well. WesternZagros's 40% working interest and the KRG's 20% carried interest remain unchanged in the Garmian Block. The remaining 40% working interest will be assigned to a Third Party Participant (TPP) by the KRG in due course.
2. On the Kurdamir Block, the remaining work commitment will be fulfilled by the drilling of the Kurdamir-2 well by June 30, 2012. Talisman is in the process of securing a drilling rig for the Kurdamir-2 well, with an anticipated spud date within the fourth quarter of 2011. The well will be drilled to evaluate the Oligocene, Eocene and Cretaceous reservoirs at a location two kilometres away from where the Company observed numerous oil shows and tested oil, gas and condensate in Kurdamir-1 well. The working interests in the Kurdamir Block remain unchanged. As operator of the Kurdamir Block, Talisman will draw on the experience from both the Kurdamir-1 well and the Topkhana-1 well, which Talisman is currently drilling on their adjacent K-39 Block.
"We are pleased that we have reached a win-win solution that meets the objectives of the government and each of the contractor parties," said Simon Hatfield, WesternZagros's Chief Executive Officer. "These amended PSCs give us the additional time needed to drill our next wells and to enable us to incorporate the information gained from our recent discoveries in order to maximize our potential for future exploration success. We are excited by the opportunities we see in both Garmian and Kurdamir Blocks."
On the Garmian Block WesternZagros is preparing to carry out an extended well test in the Jeribe Formation at the Sarqala-1 light oil discovery concurrently with the drilling of the Mil Qasim-1 well. WesternZagros has identified numerous other prospects and plays on the Garmian Block, including Baran, Qulijan, Bawanoor, the Upper Fars Fault Trap Play and the Zardi Complex, all of which offer considerable further exploration potential.
For the Kurdamir-2 well the necessary long lead items, including casing and well head equipment, have been procured and a 2000 horse power rig is being contracted for the drilling operations.