WesternZagros 3rd Quarter Results

IFRS 6 allows either of two alternatives to be chosen as the accounting policy for E&E assets after initial recognition. The first alternative is the "cost model" whereby the item is carried at cost less impairment. The other alternative is the "revaluation model." The revaluation model requires that, after initial recognition, an asset whose fair value can be reliably measured should be carried at a re-valued amount, being fair value at the date of measurement, less any subsequent accumulated depreciation or accumulated impairment losses. For the purpose of completing an impairment test under IFRS 6, the E&E assets must be allocated to specific cash-generating units (CGUs).

In July 2009, the International Accounting Standards Board ("IASB") approved additional exemptions that will allow entities to allocate their oil and gas asset balances as determined under full cost accounting to the IFRS categories of exploration and evaluation assets and development and producing properties. Under the exemption, exploration and evaluation assets are measured at the amount determined under an entity's previous GAAP. This exemption will relieve entities from significant adjustments resulting from retrospective adoption of IFRS. The project team has analyzed the utilization of the previous GAAP full cost accounting and intends to utilize this exemption.

During the third quarter of 2010 the project team prepared draft accounting policies for Audit Committee approval. Based upon the project teams' initial analysis the transition to IFRS on the opening balance sheet date does not result in a material adjustment to the Company's property and equipment.

The valuation and expensing of share-based payments will be done using a graded vesting under IFRS whereas under previous GAAP entire stock option issuances were valued as a whole and expensed on a straight line over the expected lives of the options. This results in an accelerated expensing of the share-based payments as the fair value is weighted more heavily toward the periods closer to the date of issuance of the stock options. The adjustment for the change in treatment of share-based payments results in an increase in contributed surplus with a corresponding decrease in retained earnings. The Company also continues to work on calculating adjustments for the first three quarters of 2010.

Presentation and disclosure portions of the each policy will continue to be addressed during the fourth quarter of 2010. The project team continues to work on the implementation phase, which includes determining the specific qualitative and quantitative impacts for each IFRS requirement that is relevant to the Company and anticipates completion of this prior to the issuance of the Company's December 31, 2010 consolidated financial statements. Furthermore, in the last quarter of 2010 the Company will continue to work on the development of processes and systems to ensure that IFRS comparative data is captured, and to position it for reporting under IFRS in 2011.

The Company does not anticipate significant system modifications or significant changes in internal controls upon conversion to IFRS.

INTERIM CONSOLIDATED BALANCE SHEETS

(United States dollars thousands)

(Unaudited)

September 30, December 31,

2010 2009

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

Assets

Current Assets

Cash and Cash Equivalents $ 30,100 $ 76,708

Accounts Receivable 10,739 6,880

Insurance Recoveries Receivable (note 4) 21,270 -

Prepaid Expenses 225 183

Income Tax Recoverable 2,155 1,738

Future Income Taxes (note 7) 127 231

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

64,616 85,740

Long-term Assets

Property, Plant and Equipment (note 4) 169,519 154,911

Deposits held in trust (note 5) 420 420

Future Income Taxes (note 7) - 6

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

169,939 155,337

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

$ 234,555 $ 241,077

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

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

Liabilities

Current Liabilities

Accounts Payable and Accrued Liabilities $ 14,011 $ 18,297

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

14,011 18,297

Long-term Liabilities

Asset Retirement Obligation (note 6) 186 175

Future Income Taxes (note 7) 42 -

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

14,239 18,472

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

Shareholders' Equity

Share Capital (note 8) 253,583 253,583

Contributed Surplus (note 10) 10,284 8,749

Deficit (43,551) (39,727)

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

220,316 222,605

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

$ 234,555 $ 241,077

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

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

Going Concern (note 1)

Commitments and Contingencies (note 14)

See Accompanying Notes to the Interim Consolidated Financial Statements

Approved by the Board of Directors

Fred J. Dyment, Director Randall Oliphant, Director

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS,

COMPREHENSIVE LOSS AND DEFICIT

(United States dollars thousands, except per share amounts)

(Unaudited)

Three months ended Nine months ended

September September September September

30, 30, 30, 30,

2010 2009 2010 2009

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

Comments are closed.