WesternZagros Announces First Quarter 2015 Operational and Financial Results

CALGARY, ALBERTA--(Marketwired - May 22, 2015) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the Company") announced today its operating and financial results for the first quarter ended March 31, 2015. A summary of the activities, the financial statements, and the accompanying Management Discussion and Analysis ("MD&A") are available at www.westernzagros.com and on SEDAR at www.sedar.com. All amounts set out in this news release are in US dollars unless otherwise stated.

WesternZagros achieved several key financial and operational milestones during the first quarter of 2015 and to date, including:

• Production from the Sarqala-1 well in the Garmian Block commenced on February 11, 2015, and for the remainder of the quarter averaged 5,221 barrels of oil per day ("bbl/d").
• Gross sales were 255,807 barrels of oil ("bbl"), of which WesternZagros's net oil sales were 68,997 bbl. Sales revenue to WesternZagros was $2.9 million, reflecting an average realized price of $41.71 per barrel. Field netback was $1.9 million.
• Gross production from Sarqala-1 is anticipated in the range of 5,700 to 6,700 bbl/d for the remainder of 2015.
• Prepared well site and secured long lead equipment for the next development well on the Sarqala oilfield. This well is anticipated to spud pending approval of the Garmian Development Plan by the KRG in accordance with the PSC terms.
• Commissioned the Sarqala production facility upgrades that increased processing capacity from 10,000 to 15,000 bbl/d with the capability to tie in future Sarqala development wells.
• In the process of suspending the Hasira-1 well after conducting an unsuccessful cased-hole testing program in the high pressure Mio-Oligocene oil reservoir.
• Maintained a strong balance sheet with $158.6 million in cash and cash equivalents as at March 31, 2015 and an available $200 million undrawn credit facility. Focusing on capital efficiency and prioritized strict cost reduction efforts including optimizing capital investment, reducing staff, renegotiating contracts with service companies and cutting discretionary expenditures.

Commenting on the first quarter results and subsequent events, WesternZagros's Chief Executive Officer Simon Hatfield said:

"The first quarter of 2015 was a significant transition point for WesternZagros as we initiated light oil production, commenced sales into the domestic market and generated cash flow from our Sarqala-1 well. As the well and surface facilities are optimized, we expect Sarqala-1 to produce up to 6,700 bbl/d on a sustained basis. We also plan to grow this production with our next development well at Sarqala pending approval of the Garmian Development Plan. Should the current oil sales arrangement continue, cash flow generated from production will help support our development program as we progress towards a planned production rate of 35,000 bbl/d for the field."

"Our strategy through 2015 is to utilize our capital flexibility and balance sheet strength to maintain optionality throughout this time of lower oil prices and regional geo-political uncertainty. We will continue to strengthen our internal operations management, exercise strict cost control, and enhance efficiency to proactively respond to low oil prices through the prudent advancement of various production and operational plans. We are continuing negotiations with our co-venturer and the KRG on the Kurdamir Development Plan - approval of both the Sarqala and Kurdamir field development plans are key value driving events to our Company."

Operations Summary

WesternZagros's assets comprise two contract areas, the Garmian and Kurdamir blocks, with significant oil and natural gas discoveries and an estimated 2.2 billion BOE of unrisked Prospective Resources (Gross Block combined Mean estimate) remaining for future appraisal and development.

Production: Garmian Block

• The Company commenced light oil production and sales at the Sarqala-1 well on February 11, 2015. Gross sales during the first quarter were 255,807 bbl, of which WesternZagros's net oil sales were 68,997 bbl. Sarqala-1 crude oil sales in the first quarter averaged 5,221 bbl/d over this period. WesternZagros has, under the auspices of the KRG, supplied this crude oil to the domestic market under pre-paid contracts. Sales volumes are currently constrained by domestic market transportation limitations. Should this situation continue, the Company anticipates gross production from Sarqala-1 in the range of 5,700 to 6,700 bbl/d for the remainder of 2015.
• In January 2015, WesternZagros commissioned upgrades to the Sarqala processing facility that increased processing capacity from 10,000 to 15,000 bbl/d. Production from Sarqala-1 will support additional expansion that targets production of 35,000 bbl/d in the Garmian Block over the course of the planned development period.

Operated Joint Venture: Garmian Block

• The Hasira-1 well is in the process of being suspended after conducting an unsuccessful cased-hole testing program in the high pressure Mio-Oligocene reservoir. Logging and open-hole tests previously confirmed the presence of light oil in both the Mio-Oligocene and the shallower Jeribe reservoir. The oil that flowed in those tests was similar to production from the Jeribe reservoir at the nearby Sarqala-1 well and had no indications of hydrogen sulphide or formation water. During the cased-hole test, the wellbore experienced a considerable influx of reservoir formation debris and this resulted in the termination of the test before a definitive oil flow was possible.
• The Garmian Development Plan was submitted to the KRG on June 19, 2014, and the Company is awaiting the KRG's approval of the plan. The parties are aligned on development and the Company is actively providing technical support to the KRG on its plans for the construction of a natural gas plant close to the existing oil facilities.
• The well site is prepared and long lead equipment secured for the first development well on the Sarqala oilfield. This well is anticipated to spud pending approval of the Garmian Development Plan in accordance with the PSC terms.

Non-Operated Joint Venture: Kurdamir Block

• The Company estimates that the Kurdamir discovery contains unrisked Contingent Resources of 541 MMbbl of oil and Prospective Resources of 1.3 billion barrels of oil (both Gross Block combined Mean estimates).
• On August 31, 2014, the Company and Talisman submitted a development plan for the oil and natural gas resources on the Kurdamir Block to the KRG for approval. Following a review, the KRG requested changes to the plan and WesternZagros and its co-venturer remain in discussions with the KRG.
• On May 8, 2015, Talisman Energy Inc., the parent company of Talisman, was acquired by Repsol SA. Discussions are ongoing between WesternZagros, Talisman and the KRG regarding the development plan to advance the Kurdamir discovery into production. During these deliberations, operations on the Kurdamir Block are suspended. Certain activities, including front-end engineering of the necessary facilities and planning for additional drilling, will be completed in coordination with the KRG.
• Because the development plan for Kurdamir remains under discussion with the KRG, Reserves have not yet been recognized by a qualified independent reserves evaluator. Accordingly, all expenditures that pertain to the Kurdamir Block continue to be capitalized in accordance with the Company's exploration and evaluation accounting policy.

Financial

• As at March 31, 2015, WesternZagros had $158.6 million in cash and cash equivalents.
• During the three months ended March 31, 2015, the Company commenced production and sales of crude oil to the Kurdistan domestic market under the auspices of the KRG and recognized net sales revenue of $2.9 million in accordance with the commercial terms of the Garmian PSC.
• WesternZagros's share of exploration and evaluation ("E&E") expenditures includes 50 percent of Garmian Block costs and 60 percent of Kurdamir Block costs. For the quarter ended March 31, 2015, WesternZagros's share for these PSC activities and other related capitalized costs was $15.7 million, comprised of $8.1 million of drilling-related costs and $7.6 million in other appraisal and development costs.
• The Company capitalized its 50 percent share of applicable oil and natural gas assets expenditures of $3.5 million on the Garmian Block, which was comprised of costs for the upgrades to the Sarqala production site and planning and design costs related to the next Sarqala development well. Subsequent to the commencement of production, costs related to Sarqala-1 well operations and the operation of related production facilities were treated as operating costs.

Outlook

2015 Operations Outlook

The Company anticipates that gross production from Sarqala-1 will be in the range of 5,700 to 6,700 bbl/d for the remainder of 2015. Based on these production rates and domestic oil prices in the range of $42 to $52 per barrel, WesternZagros estimates 2015 sales revenue of $17 to $25 million and field netback of $12 to $20 million.

2015 Capital Outlook

The Company's planned expenditures for the remainder of 2015 total $100 million. This includes $82 million of capital costs for phases 1 and 2 of the Garmian development, $7 million of capital costs for development planning and long leads to advance the Kurdamir Development Plan, and $11 million of corporate, G&A and interest costs. Phase 2 spending for Garmian is dependent on securing KRG approval of the Garmian Development Plan and the continued ability to monetize crude sales from Sarqala-1. If Garmian Development Plan approval is not secured in the second quarter, the Company anticipates a deferral of Phase 2 spending in the second half of the year. In conjunction with this, the Company is focused on capital efficiency and has prioritized strict cost reduction efforts including optimizing capital investment, reducing staff, renegotiating contracts with service companies and cutting discretionary expenditures.

About WesternZagros Resources Ltd.

WesternZagros is an international natural resources company focused on acquiring properties and exploring for, developing and producing crude oil and natural gas in Iraq. WesternZagros, through its wholly-owned subsidiaries, holds a 40 percent working interest in two Production Sharing Contracts with the Kurdistan Regional Government in the Kurdistan Region of Iraq. WesternZagros's shares trade in Canada on the TSX Venture Exchange under the symbol "WZR".

This news release contains certain forward-looking statements relating to, but not limited to, operational information, future development plans and the timing associated therewith, planned expenditures, future production capability and capacity of facilities and expected production rates, production revenues and field netback. Forward-looking information typically contains statements with words such as "anticipate", "estimate", "expect", "potential", "could", or similar words suggesting future outcomes. The Company cautions readers and prospective investors in the Company's securities to not place undue reliance on forward -looking information as, by its nature, it is based on current expectations regarding future events that involve a number of assumptions, inherent risks and uncertainties, which could cause actual results to differ materially from those anticipated by WesternZagros.

Forward looking information is not based on historical facts but rather on management's current expectations as well as assumptions made by, and information currently available to management, concerning, among other things, outcomes of future well operations, plans for and results of extended well tests and drilling activity, future capital and other expenditures (including the amount, nature and sources of funding thereof), the continued ability to sell production in the domestic market and the prices to be received in connection therewith, anticipated operating costs, future economic conditions, future currency and exchange rates, continued political stability, continued security in the Kurdistan Region, timely receipt of any necessary co-venturer, government or regulatory approvals, the successful resolution of disputes, the Company's continued ability to employ qualified staff and to obtain equipment in a timely and cost efficient manner and the participation of the Company's co-venturers in joint activities. In addition, budgets are based upon WesternZagros's current development plans and anticipated costs, both of which are subject to change based on, among other things, the actual outcomes of well operations and the installation and commissioning of facilities, unexpected delays, availability of future financing and changes in market conditions. Although the Company believes the expectations and assumptions reflected in such forward - looking information are reasonable, they may prove to be incorrect. Forward-looking information involves significant known and unknown risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated by WesternZagros including, but not limited to, risks associated with the oil and gas industry (e.g. operational risks in development and production; inherent uncertainties in interpreting geological data; changes in plans with respect to capital expenditures; interruptions in operations together with any associated insurance proceedings; the uncertainty of estimates and projections in relation to costs and expenses and health, safety and environmental risks), the risk of commodity price and foreign exchange rate fluctuations, risks relating to domestic refining capacity and continuing ability to access the domestic market, the uncertainty associated with any dispute resolution proceedings, the uncertainty associated with negotiating with foreign governments and risk associated with international activity, including the lack of federal petroleum legislation and ongoing political disputes and recent terrorist activities in Iraq in particular.

Readers are cautioned that the foregoing list of important factors is not exhaustive and that these factors and risks are difficult to predict. The forward-looking statements contained in this news release are made as of the date of this news release and, except as required by law, WesternZagros does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement. See the "Risk Factors" section of the Company's Annual Information Form dated March 13, 2015 ("AIF") filed on SEDAR at www.sedar.com for a further description of these risks and uncertainties facing WesternZagros. Additional information relating to WesternZagros is also available on SEDAR at www.sedar.com, including the Company's AIF.

Non-IFRS Measures

Field netback is a non-IFRS measure that represents the Company's working interest share of oil sales, royalties and field operating expenses. Management believes that the field netback is a useful measure to analyze operating performance and provides an indication of the Company's results of business activities prior to other income and expenses. Field netback does not have a standard meaning under IFRS and may not be comparable to similar measures used by other companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS such as total income (loss) or cash flow from operating activities. See the "Financial Performance" section of the Company's first quarter MD&A dated May 21, 2015, for a reconciliation of field netback. Note that the Annual MD&A dated March 13, 2015, and news release dated May 4, 2015, previously used the term operating income rather than field netback.

Reserves and Resources Advisory

In addition, statements relating to "reserves and other "resources" contained herein are deemed to be forward - looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources described can be economically produced in the future. Future net revenue values are estimated values only and do not represent fair market value. There is no assurance that the forecast prices and cost assumptions, the initial phases of the development plans as submitted to the KRG and anticipated future phases contemplated in completing the full field development utilized in such estimated values will be attained and variances could be material. The reserve and resource estimates provided herein are estimates only and there is no assurance that the estimated reserves and other resources will be recovered. Actual reserves and other resources may be greater than or less than the estimates provided herein. Terms related to resource classifications referred to herein are based on the definitions and guidelines in the Canadian Oil and Gas Evaluation Handbook which are as follows.

"Reserves" are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on (a) analysis of drilling, geological, geophysical and engineering data, (b) the use of established technology and (c) specified economic conditions which are generally accepted as being reasonable and shall be disclosed. Reserves are classified as Proved, Probable or Possible according to the degree of certainty associated with the estimates. "Proved Reserves" are those Reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated Proved Reserves. If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated Proved Reserves. "Probable Reserves" are those additional Reserves that are less certain to be recovered than Proved Reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated Proved plus Probable (2P) Reserves. If probabilistic methods are used, there should be at least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated 2P Reserves. "Possible Reserves" are those additional Reserves that are less certain to be recovered than Probable Reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated Proved plus Probable plus Possible (3P) Reserves. If probabilistic methods are used, there should be at least a 10 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated 3P Reserves.

"Contingent Resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingent Resources have an associated chance of development (economic, regulatory, market and facility, corporate commitment or political risks). The Contingent Resources estimates referred to herein have not been risked for the chance of development. There is no certainty that the Contingent Resources will be developed and, if developed, there is no certainty as to the timing of such development or that it will be commercially viable to produce any portion of the Contingent Resources.

"Prospective Resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective Resources have both an associated chance of discovery (geological chance of success) and a chance of development (economic, regulatory, market, facility, corporate commitment or political risks). The chance of commerciality is the product of these two risk components. The estimates referred to herein have not been risked for either the chance of discovery or the chance of development. There is no certainty that any portion of the Prospective Resources will be discovered. If a discovery is made, there is no certainty that it will be developed or, if it is developed, there is no certainty as to the timing of such development or that it will be commercially viable to produce any portion of the Prospective Resources.

Gross Block resource estimates presented herein represent the total volumes for the indicated reservoirs attributable to 100 percent of the relevant block, without any adjustment for the Company's working interest therein whereas the Working Interest (Gross) resource estimates presented represent the Company's 40 percent working interest (operating or non-operating) share before deduction of royalty petroleum, profit petroleum, production bonuses and capacity building support payments pursuant to the provisions of the applicable Production Sharing Contract.

A barrel of oil equivalent (BOE) is determined by converting a volume of natural gas to barrels using the ratio of 6 thousand cubic feet (Mcf) to one barrel. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 BOE is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

The sections "Resources Overview" and "Statement of Reserves and Other Oil and Gas Information contained in the Company's Annual Information Form dated March 13, 2015 ("AIF") filed on SEDAR at www.sedar.com, contain additional detail with respect to the Company's resource assessments and the estimates of net present values and include the significant risks and uncertainties associated with the volume estimates and the recovery and development of the resources, the forecast prices and cost assumptions and details of the conceptual development plans used in connection with the net present value estimates and the specific contingencies which prevent the classification of the Contingent Resources as Reserves. In addition, combined mean estimates of Contingent Resources and Prospective Resources that are presented in this news release are an arithmetic sum of the mean estimates for individual reservoirs and each such individual mean estimate is the average from the probabilistic assessment that was completed for the reservoir. Readers should refer to the AIF for a detailed breakdown of the high (P10), low (P90) and best (P50) Prospective Resources and Contingent Resources estimates for each of the individual reservoir assessments.

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