WesternZagros 3rd Quarter Results

As at September 30, 2010, there were 207,464,320 shares issued and outstanding. The number of common shares reserved for issuance pursuant to options granted will not exceed 10 percent of the issued and outstanding common shares. For the nine month period ended September 30, 2010, 85,000 stock options were granted to employees and 1,610,000 forfeited by employees bringing the total stock options outstanding as of September 30, 2010 to 11,482,334.

Supplemental Quarterly Information

The following tables summarize the key financial information on a quarterly basis for the periods indicated.

($ thousands, unless Sept 30 June 30 March 31 Dec 31

otherwise indicated) 2010 2010 2010 2009

----------------------------------------------------------------------------

Revenue 38 17 19 32

Net Loss 1,098 1,720 1,006 1,035

Net Loss per Share (US$/share)

(Basic and Fully Diluted) 0.005 0.008 0.005 0.005

Capital Expenditures 20,455 16,041 13,334 11,250

Total Assets 234,555 236,006 235,977 241,077

Total Long-term Liabilities 228 207 178 175

Dividend (US$ per share) Nil Nil Nil Nil

----------------------------------------------------------------------------

----------------------------------------------------------------------------

($ thousands, unless Sept 30 June 30 March 31 Dec 31

otherwise indicated) 2009 2009 2009 2008

----------------------------------------------------------------------------

Revenue 36 35 81 495

Net Loss 2,712 1,404 340 6,653

Net Loss per Share (US$/share)

(Basic and Fully Diluted) 0.013 0.006 0.002 0.030

Capital Expenditures 11,456 14,796 16,854 20,339

Total Assets 241,600 241,171 239,288 243,697

Total Long-term Liabilities 171 197 71 69

Dividend (US$ per Share) Nil Nil Nil Nil

----------------------------------------------------------------------------

----------------------------------------------------------------------------

Risk Factors

The risks factors that could influence actual results have not changed since the 2009 Annual Report and Annual Information Form including the risk that WesternZagros' ability to access the equity or debt markets in the future may be affected by further drilling challenges and related increases to exploration well costs. The financial market instability seen in the first nine months of 2010 may impact WesternZagros' ability, and that of other exploration and development companies, to access equity or debt markets at all or with acceptable terms. The inability to access the equity or debt markets for sufficient capital, at acceptable terms and within required time frames, could have a material adverse effect on WesternZagros' financial condition, results of operations and prospects.

An investment in WesternZagros should be considered highly speculative due to the nature of its activities, the present stage of its development, the need for continued participation of the Company's co-venturers in the PSC activities and its need for additional financing in the future for any acquisition, exploration, development and production of oil and gas reserves beyond current funding levels. WesternZagros' risk factors include, but are not limited to, all the risks normally incidental to the exploration, development and operation of crude oil and natural gas properties and the drilling of crude oil and natural gas wells, including geological risk, encountering unexpected formations or pressures, potential environment damage, blow-outs, fires and spills, all of which could result in personal injuries, loss of life and damage to property of WesternZagros and others; premature declines of reservoirs; environment risks; delay or changes in plans with respect to exploration or development projects or capital expenditures; the ability to attract key personnel; the risk of commodity price and foreign exchange rate fluctuations.

All of WesternZagros' assets are located in the Kurdistan Region of Iraq. As such, WesternZagros is subject to political, economic, and other uncertainties, including, but not limited to, the uncertainty of negotiating with foreign governments, expropriation of property without fair compensation, adverse determinations or rulings by governmental authorities, changes in energy policies or the personnel administering them, nationalization, currency fluctuations and devaluations, disputes between various levels of authorities, arbitrating and enforcing claims against entities that may claim sovereignty, authorities claiming jurisdiction, potential implementation of exchange controls, royalty and government take increases and other risks arising out of foreign governmental sovereignty over the areas in which WesternZagros' operations are conducted, as well as risks of loss due to civil strife, acts of war, guerrilla activities and insurrections. WesternZagros' operations may be adversely affected by changes in government policies and legislation or social instability and other factors which are not within the control of WesternZagros including, among other things, adverse legislation in Iraq and/or the Kurdistan Region, a change in crude oil or natural gas pricing policy, the risks of war, terrorism, abduction, expropriation, nationalization, renegotiation or nullification of existing concessions and contracts, taxation policies, economic sanctions, the imposition of specific drilling obligations and the development and abandonment of fields.

For a complete list of risk factors please refer to Company's Annual Information Form, which is available at www.westernzagros.com or on SEDAR at www.sedar.com.

Future Accounting Pronouncements

International Financial Reporting Standards ("IFRS")

In February 2008, the Accounting Standards Board confirmed that all Canadian publicly accountable enterprises will be required to adopt IFRS for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2011. WesternZagros has performed its preliminary review on the accounting policy choices upon its conversion to IFRS for the fiscal year beginning on January 1, 2011. The implementation of IFRS 6 "Exploration for and Evaluation of Mineral Resources" ("IFRS 6") has the potential to have the most significance to the Company's results of operations, financial position and disclosures.

WesternZagros currently utilizes the full cost method for accounting for its exploration activities in the Kurdistan Region of Iraq under Canadian GAAP. Under the full cost method, all costs associated with the acquisition of, exploration for, and the development of crude oil and natural gas, including asset retirement obligations, are capitalized and accumulated within cost centres on a country-by-country basis. Such costs include land acquisition, geological and geophysical activity, drilling and testing of productive and non-productive wells, carrying costs directly related to unproved properties, major development projects and administrative costs directly related to exploration and development activities. As WesternZagros is only currently operating in the Kurdistan Region of Iraq and has only one PSC in that region, it has capitalized all costs associated with those exploration activities, including certain costs incurred prior to entering into the PSC.

Under Canadian GAAP, amounts capitalized under the full cost method are reviewed for impairment whenever events or conditions indicate that their net carrying amount may not be recoverable from estimated future cash flows. If impairment is identified, the assets are written down to the estimated fair market value. The calculation of these future cash flows is dependent on a number of estimates, which include reserves, timing of production, crude oil price, operating cost estimates and foreign exchange rates.

Upon conversion to IFRS, WesternZagros will be required to adopt IFRS 6, which is the standard that deals with accounting for exploration and evaluation ("E&E") assets in the extractive industries. Typical costs included in the E&E assets are acquisition of rights to explore, topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling, and activities in relation to evaluating the technical feasibility and commercial viability of extracting mineral resources. Under IFRS 6, costs incurred prior to the legal rights to explore an area being obtained may no longer be capitalized within E&E assets.

Comments are closed.