WesternZagros 3rd Quarter Results

- WesternZagros completed a basin modelling study that indicates oil was expelled from the late Cretaceous and early Tertiary source rocks during the time hydrocarbon traps were forming. As such, this study confirms the potential for oil discoveries within the Production Sharing Contract Area.

- WesternZagros is re-evaluating the hydrocarbon potential beneath the Kalar thrust as part of its overall prospective resource re-assessment of its PSC lands. WesternZagros also continues to compile seismic data and information from wells on the exploration blocks adjacent to its Production Sharing Contract Area. WesternZagros is integrating this new information, along with the reprocessed seismic data on its Production Sharing Contract Area, into its seismic interpretations to further define and update its prospects and lead inventory.


- As at September 30, 2010, WesternZagros had $50.5 million in working capital.

- WesternZagros' share of capital expenditures for the nine months ended September 30, 2010 associated with its PSC activities and other capitalized costs was $49.8 million, prior to insurance recoveries. Year-to-date expenditures for 2010 include $46.2 million of drilling-related costs; $0.7 million of geological and geosciences related work; $1.9 million of supervision and local office costs; $0.3 million of PSC-related costs; and $0.7 million of corporate-related expenditures. As at September 30, 2010, the Company has recorded estimated insurance recoveries of $37.0 million, net of deductibles, related to the year-to-date well recovery costs incurred at Kurdamir-1.


- WesternZagros initiated an insurance claim in the first quarter of 2010 related to well control operations at Kurdamir-1, commencing when Kurdamir-1 was drilled into a high pressure formation in the Gulneri seal and continuing with the well control operations related to a subsequent additional high pressure zone in the Aaliji seal. The Company received initial confirmation of coverage for the claim from the insurers during the second quarter of 2010. The claim continued through the third quarter of 2010, including well recovery costs incurred until October 14, 2010, when the Company began completion and testing of a portion of the Kurdamir-1 well.

- As at September 30, 2010, WesternZagros had received $15.7 million in insurance proceeds from the insurers. The Company estimated an additional receivable of $21.3 million for interim claimable costs as at September 30, 2010. These costs, under the terms of the insurance policy, are subject to review and approval by the adjuster as appointed by the insurers. The Company continues to submit interim insurance claims as allowable costs are incurred and paid. Subsequent to September 30, 2010, the Company received $1.2 million in insurance proceeds and has received approval for a further payment of $6.3 million.

- The Company's maximum limit for the current insurance claim is $45 million, of which approximately $38.2 million has been incurred up to October 14, 2010, when the completion and testing of a portion of the well began. This leaves approximately $6.8 million available for Kurdamir-2.


It was announced on November 12, 2010, that an agreement had been reached to form a new federal government with Nouri Al-Maliki and Jalal Talabani reappointed to their respective posts as Prime Minister and President. Mr. Maliki has until December 12, 2010 in order to establish a cabinet.

- Corporate Social Responsibility

- During the first nine months of 2010, WesternZagros and its co-venturers continued to focus on three key corporate social responsibility initiatives in the Garmian region of Kurdistan - water supply, education and health care. Activities during the third quarter of 2010 included:

-- Procuring extensive local water tanker services;

-- Providing low cost methods of obtaining water through extensive earthworks projects for over 40 villages;

-- Implementing a partnership project with Mercy Corp, an international NGO, and the local government to improve water access to two rural villages;

-- Training the community to maintain the biosand water filter project that was completed in partnership with the Kurdistan Village Reconstruction Association, a local NGO;

-- Supporting the Garmian Sports Directorate's Youth Activity Festival, a seven day event attended by 1,400 children through the donation of uniforms, trophies, medals and equipment. Children learned and played various sports including football, volleyball, bicycling and basketball;

-- Partnering with Project Cure, an NGO committed to donating medical equipment. The equipment included beds, examination tables, crutches, wheelchairs and IV stands. This equipment was distributed to three local clinics and one hospital in the Kalar-Bawanoor Block.

Summary of Exploration Activities Completed and Exploration Opportunities Being Pursued


- WesternZagros began drilling the Kurdamir-1 well in May 2009, announced a large Oligocene gas and condensate discovery in November 2009, and reached a total depth of 4,077 metres in January 2010 where it encountered a high pressure formation which resulted in a well control incident. Well control operations were concluded on October 14, 2010. A cased hole test of the Lower Oligocene formation conducted in late October and November 2010 resulted in high gas flow rates and high quality condensate, and also confirmed the potential of an Oligocene oil leg in the Kurdamir structure. Technical analysis of the oil shows encountered in the well also supports the presence of oil prone reservoirs in the Upper Aaliji, Shiranish and Kometan formations. The Company is planning a second well in the Kurdamir structure to further evaluate its potential. This second well will likely take place after the Company drills its third exploration commitment well.

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