WesternZagros Down 18% on Going Concern Worries

Shares in WesternZagros Resources fell 18% on Tuesday following the release of its year-end results.

There is uncertainty about the company’s ability to continue as a going concern, and additional funds will be required.

The text of the company’s announcement is shown below, and the full announcement can be downloaded here.

WesternZagros’ highlights and activities for the year ended December 31, 2010 and up to and including April 11, 2011 include:

Operations

On March 29, 2011, the Corporation re-entered the Sarqala-1 well bore with the intent to drill a 100-metre sidetrack to evaluate and test the Miocene Jeribe Formation (“Jeribe”) which is the primary reservoir target in the Sarqala-1 well. Sidetracking operations have drilled down to 3,873 metres. The Corporation is currently completing the remaining sidetrack drilling before wireline logging and testing. The Corporation originally drilled Sarqala-1 in 2008 and early 2009, suspending the well after equipment problems prevented logging. Subsequent analysis of the drilling cuttings from, and mud gas chromatograph data across, the Jeribe showed good oil potential and led to the decision to re-enter the well bore and to undertake the current sidetrack operation.

In the fall of 2009, the Corporation confirmed the presence of the Oligocene reservoir and the completed high rate gas and condensate tests from the upper Oligocene of Kurdamir-1 (the Corporation’s second exploration well). During the year ended December 31, 2010, the following operational activities were completed at Kurdamir-1:

During the first quarter of 2010, the well was drilled through the Eocene and Cretaceous formations to a total depth of 4,077 metres and encountered numerous oil and gas shows. Upon encountering high formation pressures at 4,077 metres, WesternZagros commenced well control operations that were completed in March 2010. The Corporation then began sidetracking the well.

During the second quarter of 2010, the well was sidetracked through the Eocene formation into the Aaliji Seal above the Cretaceous formations to a depth of 3,214 metres. At this depth, the well unexpectedly encountered a high pressure, hydrogen sulfide (H2S) bearing, hydrocarbon zone. The well was shut in while attempting to stabilize this zone.

On May 15, 2010, while attempting to stabilize the well, the drill string parted and the Corporation activated its Emergency Response Plan and began well control operations. As a precaution, the Corporation moved non-essential personnel and local inhabitants to locations outside of its Emergency Planning Zone (“EPZ”). The Corporation safely and successfully secured the well on May 31, 2010 and the local residents who had been evacuated were able to return to their homes in early June.

A hydraulic workover rig, known as a snubbing unit and which enables intervention to be performed safely while the well is under pressure, was installed in June in order to recover the drill string from the well and complete well kill operations. Approximately 2,105 metres of the drill string was recovered through successful snubbing operations, and the Corporation subsequently removed the snubbing unit and abandoned the sidetrack.

On October 14, 2010, the open hole was plugged and cemented to approximately 2,500 metres, thus concluding well control operations. Although the Contractor Group decided not to pursue further drilling, it was decided to conduct further testing of the Oligocene formation, in its lower part, through the 9 5/8 inches casing.

In November and December 2010, WesternZagros successfully concluded two cased hole tests of the lower Oligocene formation. The first cased hole test was conducted between 2,365 metres and 2,415 metres. The test achieved a maximum flow rate, after acidization, of 18.3 million cubic feet of gas per day at a flowing wellhead pressure of 1,960 pounds per square inch with a maximum yield of 86 barrels of high quality, 62 degrees API natural gas liquids (condensate) per million cubic feet of gas. No formation water was recovered during the testing. In addition, a mixture of light crude oil and condensate was recovered during the test prior to acidizing the formation. Subsequently, a second deeper cased hole test was conducted between 2,455 metres and 2,469 metres which proved an oil column in the Oligocene reservoir.

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