WesternZagros 3rd Quarter Results

Political

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.

General and Administrative Expenses

For the three and nine month periods ended September 30, 2010, WesternZagros incurred $1.2 million and $4.2 million, respectively, in general and administrative ("G&A") expenses compared to $2.4 million and $4.8 million for the comparable periods in the prior year. G&A expenses were lower in 2010 compared to the same periods in 2009 mainly due to reduced corporate activities including legal and consulting activities, but were partially offset by a stronger Canadian dollar in 2010 which impacts a large portion of Company's G&A expenditures. On a year-to-date basis, total G&A expenses were also lower in 2010 due to reduced stock-based compensation expense compared to 2009.

Depreciation, Depletion and Amortization (DD&A)

For the three and nine month periods ended September 30, 2010, WesternZagros had $0.1 and $0.4 million, respectively, of depreciation related to certain administrative assets (2009: $0.2 and $0.6 million). No depletion is recorded on oil and gas related assets because WesternZagros has yet to determine whether proved reserves are attributable to the PSC lands.

Stock-Based Compensation

The Company recognizes stock-based compensation expense for all stock options granted, with a corresponding increase to contributed surplus. For the three months ended September 30, 2010, WesternZagros had $0.4 million of stock-based compensation expense included in G&A and $0.1 million in capitalized G&A, and for the nine months ended September 30, 2010, had $0.9 million of expense and $0.7 million in capitalized G&A. In comparison, WesternZagros had $0.4 million of stock-based compensation expense included in G&A and $0.5 million in capitalized G&A for the three month period ended September 30, 2009, and had $1.2 million of expense and $1.0 million in capitalized G&A for the nine month period ending September 30, 2009.

Foreign Exchange

WesternZagros adopted the U.S. dollar as its measurement and reporting currency because the majority of its expenses are, or will be, directly or indirectly denominated in U.S. dollars, and also to facilitate a more direct comparison to other international crude oil and natural gas exploration and development companies. WesternZagros holds over 90 percent of its cash and cash equivalents and short-term investments in U.S. dollar accounts and U.S. dollar-priced Government of Canada bonds; however, the Company has certain assets and liabilities in currencies other than the U.S. dollar, mainly Canadian dollars. These are converted to U.S. dollars at the end of each period, resulting in foreign exchange gains and losses. The Canadian dollar balances are held for the purpose of funding WesternZagros' Canadian dollar expenditures, which are mainly related to G&A costs for its head office and certain drilling-related services and tangibles procured from Canadian suppliers. In the third quarter of 2010, WesternZagros recorded a foreign exchange gain of $0.1 million compared to a foreign exchange loss of $0.04 million in the third quarter of 2009 relating to these conversions. In the nine months ended September 30, 2010, WesternZagros recorded a foreign exchange loss of $0.1 million compared to a foreign exchange gain of $0.009 million for the nine months ended September 30, 2009.

Income Taxes

For the three month period ended September 30, 2010, WesternZagros had an income tax recovery of $0.07 million (2009: $0.2 million expense), comprised of $0.11 million of current income tax recovery and reduced by $0.04 million of future income tax expense. For the nine month period ended September 30, 2010, WesternZagros had an income tax recovery of $0.9 million (2009: $0.8 million recovery), made up of $1.0 million of current income tax recovery and reduced by $0.1 million of future income tax expense. The current tax recovery relates to the expected recovery of taxes incurred in 2008 on realized foreign exchange gains and losses in WesternZagros' wholly-owned Canadian subsidiary. The tax recovery uses the associated G&A costs incurred by, and related tax pools available in, the Company's subsidiaries. The future income tax expense results from the utilization of share issuance costs in the current year to recover a portion of the current income tax expense. WesternZagros anticipates recovering the majority of the current income tax expense incurred in 2008 as it continues to incur G&A and other expenditures related to its exploration and financing activities.

Subsequent to September 30, 2010, the Company received a tax refund of Cdn$1.5 million relating to the carry back of certain capital and non-capital losses from 2009 against the realized foreign exchange gains in the 2008 taxation year.

Revenue

WesternZagros' revenue is comprised entirely of interest earned on cash and cash equivalents. Interest of $0.038 million was earned in the third quarter of 2010 compared to $0.036 million in the third quarter of 2009. For the nine month period ending September 30, 2010, WesternZagros earned $0.074 million of interest, compared to $0.152 million in the nine months ended September 30, 2009. On a year-to-date basis, the decrease in interest income during 2010 is mainly due to the decreased balances of cash and cash equivalents. For the three month period ended September 30, 2010, interest income included interest of $0.02 million received in relation to a prior year tax refund, which offset the decrease in interest income during the quarter associated with decreased balances of cash and cash equivalents as compared to the same period in 2009.

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