Proving an oil column in the Oligocene reservoir beneath the gas cap resulted in an increase in the gross contingent resource estimates for this reservoir. The Corporation's best estimate of gross contingent gas, gas condensate, and oil resources for the Oligocene reservoir at Kurdamir as of December 14, 2010 increased to 850 billion cubic feet (BCF), 33 million barrels (MMBBL) and 6.5MMBBL, respectively. These contingent resource numbers do not include any of the potential in the, as yet undrilled, downdip flanks of the Kurdamir structure in the Tertiary Oligocene reservoir. In the case where the oil column potentially extends below into the flanks, the Corporation's best estimate of gross unrisked prospective oil resources for this reservoir effective as of December 14, 2010 increased to 260 MMBBL.
The gross costs for the Kurdamir-1 well were approximately $76 million ($46 million net to WesternZagros), including $14 million ($8 million net to WesternZagros) of costs associated with the cased hole tests. These gross costs exclude approximately $70 million of incremental costs associated with well control and sidetrack activities ($42 million net to WesternZagros) which are subject to the insurance claim being pursued by the Contractor Group.
HSE&S
WesternZagros has operated in Kurdistan with few safety or security incidents since 2004. During the course of its operations, the Corporation has achieved a maximum total of four million person hours without any Lost Time Incidents ("LTI's"). This milestone was reached in December 2009, and subsequently, on March 2, 2010, the Corporation achieved another milestone of 1,000 days of operations without any LTI's. Unfortunately, on May 15, 2010, the Corporation experienced its first serious situation while undertaking well control operations in order to stabilize a zone of high pressure in the sidetrack well when the drill string parted and part of the drill string became stuck in the Blow Out Preventer ("BOP") at the wellhead. This resulted in a potentially dangerous situation and caused the Corporation to activate its Emergency Response Plan and begin various additional well control operations. As a precaution, the Corporation moved non-essential personnel and local inhabitants outside of its Emergency Planning Zone ("EPZ"). The Corporation was successful in safely securing the well on May 31, 2010 and the local residents who had been evacuated were able to return to their homes in early June. All of these achievements demonstrate the commitment of the Corporation's Board of Directors, Executive Management, employees and contractors to the safety and security of the local residents and to the staff and contractors involved in its operations.
Exploration
During the year ended December 31, 2010, WesternZagros undertook a range of exploration activities to further its understanding of the geology on its PSC Lands. Focusing on its lowest risk prospect areas at Kurdamir, Sarqala, Mil Qasim, Qulijan and Baran, the Corporation's exploration work included:
Completion of geochemical and basin modeling studies which indicate that the Aaliji Formation (the "Aaliji") is likely the source rock for the hydrocarbons on the PSC Lands. This is significant, because the Aaliji is both oil prone and likely to be generating oil at the present time, and this increases the probability that WesternZagros' exploration prospects contain oil and reduces the probability that they contain only natural gas. The specific studies undertaken include a geochemical study of the drill cuttings and hydrocarbons recovered from the Kurdamir-1 and Sarqala-1 wells, and analyses of oil from the natural oil seep at Aj Dagh (approximately nine kilometres from Kurdamir-1).
Completion of a re-analysis of the prospectivity of the Miocene Jeribe Formation (the "Jeribe") in the Sarqala structure. This consisted of detailed petrophysical analysis of the wireline logs obtained from Sarqala-1 in 2008/2009 and detailed analysis of the cuttings captured while drilling. This analysis suggests good oil potential in the Jeribe as it is analogous to the same formation in the nearby Qamar-1 well, which flowed 2,200 barrels of oil per day.
Completion of the evaluation of the high quality light oil shows (35 degree API gravity) that were encountered while drilling the Upper Fars interval at Sarqala-1. This evaluation indicated the prospectivity of the adjacent structure at Mil Qasim. The crestal location at Mil Qasim-1 is just three kilometres from the Sarqala-1 well.
Completion of the evaluation of the Oligocene, Eocene and Cretaceous formations of two additional prospects in the vicinity of the Kurdamir structure, i.e. Qulijan and Baran. Both Qulijan and Baran are anticline structures with upside potential extending to the fault that separates them from Kurdamir.
Integration of the encouraging test results from the Kurdamir-1 well and determination of the optimum location for Kurdamir-2.
WesternZagros also continues to compile seismic data and information from wells adjacent to its PSC Lands and to integrate the data, together with the reprocessed seismic data on its PSC Lands, into its seismic interpretations to further define and update its prospects and leads inventory. The Corporation's efforts include re-evaluating the hydrocarbon potential beneath the Kalar thrust fault as part of its overall prospective resource re-assessment of its PSC Lands.
All of the above exploration work in 2010 refined the Corporation's understanding of the regional geology, and reinforced management's view of the excellent prospects for significant oil discoveries on the Corporation's PSC Lands.
Financial
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