The Company has also revisited the results of Sarqala-1, the first well it drilled in Kurdistan, and completed a revised analysis of the oil shows in the Miocene Jeribe reservoir encountered in that well. Once the cased hole tests are completed at Kurdamir-1, and prior to moving operations to Mil Qasim, WesternZagros plans to re-enter Sarqala-1 to drill a short sidetrack to test the Jeribe.
Meanwhile, WesternZagros is actively involved in discussions with the KRG and Talisman regarding the optimum way to conduct future activities on the PSC lands. These discussions have focused on determining the timing of the third exploration commitment well; the timing for Kurdamir-2; the operator for drilling Kurdamir-2; and addressing the co-venturers' commercial concerns. The current PSC may be restructured as a result of these discussions.
"We are pursuing a win-win solution that meets the individual objectives of the government and the contractor parties," said Simon Hatfield, WesternZagros' Chief Executive Officer. "For WesternZagros, we are seeking flexibility on the timing for drilling our next well, to allow us to incorporate lessons learned and maximize the potential for success. We are encouraged by our recent test results at Kurdamir-1, where we have made a large gas and condensate discovery and encountered 700 metres of oil shows in deeper reservoirs. We are excited by the various opportunities ahead of us, including pursuing further exploration activities at Sarqala, where we have also encountered oil shows, Mil Qasim and Kurdamir-2."
WesternZagros' highlights and activities for the third quarter of 2010 to November 18, 2010 include the following:
- During the drilling of a sidetrack at the Kurdamir-1 well in the second quarter of 2010, WesternZagros encountered a high pressure hydrogen sulphide (H2S) bearing, hydrocarbon zone. The well was shut in on April 25, 2010 while attempting to stabilize this zone. WesternZagros commenced well control operations on May 15, 2010, after the drill string parted.
- The upper 450 metre portion of the parted drill string was recovered in early July 2010. The hydraulic workover rig, known as a snubbing unit, that had been in use was subsequently removed and well control operations resumed using conventional drilling. A further 1,655 metres of drill string was recovered in early August 2010, with approximately 800 metres remaining in the well bore.
- WesternZagros safely and successfully completed well control operations at the Kurdamir-1 well on October 14, 2010. The open hole was plugged and cemented up to approximately 2,500 metres. No further drilling is planned for the Kurdamir-1 well at this time.
- Cased hole tests of the Lower Oligocene commenced at the Kurdamir-1 well on October 16, 2010. The first cased hole test was completed at depths between 2,365 and 2,415 metres. The test achieved a maximum flow rate, after acidization, of 18.3 million cubic feet per day of gas and 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. After acidizing the well, the Company interprets that the high gas flow rates and pressures prevented further oil flow. The second cased hole test is currently being performed in a zone between 2,455 and 2,470 metres to confirm the presence of the potential oil leg below the discovered gas in the Oligocene formation.
- The gross costs for Kurdamir-1 as of September 30, 2010 were approximately $121 million ($73 million net to WesternZagros). These gross costs include approximately $66 million of incremental costs associated with well control and sidetrack activities ($40 million net to WesternZagros). The Company is pursuing reimbursement of a significant portion of these costs under an insurance claim. WesternZagros, as operator, has notified the KRG of a force majeure event under the terms of the PSC related to the well control and subsequent sidetracking operations associated with Kurdamir-1. Under the terms of the PSC, when a force majeure event occurs, the time resulting from any such delay and the time necessary to repair any damage resulting from the delay will be added to any time period provided under the PSC, including the first exploration sub-period.
- WesternZagros advanced its analysis of the Sarqala-1 re-entry opportunity. The analysis suggests strong oil potential in the Miocene Jeribe Formation, possibly analogous to the nearby Qamar-1 well, which flowed 2,200 barrels of oil per day from this formation.