WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the Company") announced today its operating and financial results for the fourth quarter and year ended December 31, 2016. All amounts set out in this press release are in US dollars unless otherwise stated.
Commenting on the year end and subsequent events, WesternZagros's Chief Executive Officer, Simon Hatfield said:
"In 2016 our focus was on containing costs and protecting our balance sheet in view of the global recession in the oil and gas industry. We see the outlook improving for 2017 and are prudently preparing to increase activity on our Garmian and Kurdamir blocks. We are encouraged by the receipt of oil sales payments for IOCs for 2016 from the Kurdistan Regional Government. We are also pleased to announce the receipt of payments for our January and February 2017 oil sales, which reinforce our optimism for the Region. On Garmian, we are planning to drill the Sarqala-2 well in the third quarter of this year with the goal of tripling our production. On Kurdamir, although we are working diligently with Repsol and the KRG, the project has taken more time than anticipated to negotiate the development plan and gas sales agreement, and as such, the timing for the first phase of development is uncertain.
We have increased the Garmian Gross Block's estimated 2P Reserves by 60 percent to over 20 million barrels of oil and without any material change to the Gross Block's estimate of unrisked P50 Prospective Resources, now at 65 million barrels of oil. Our Sarqala-1 well continues to produce at over 5,000 barrels of oil per day. To date, the well has produced 4.5 million barrels of high quality crude with no evidence of formation water or hydrogen sulphide.
We continue to defer the draw down dates of our debt facility to better align with our anticipated capital requirements, notably the anticipated spud of the Sarqala-2 well. We also continue to review alternate financing options to best fund the advancement of our projects while maintaining our financial flexibility."
WesternZagros achieved several key financial and operational milestones during 2016 and to date, including:
The highlight of the Company's unrisked Prospective Resources (Gross Block P50) for the Sarqala Jeribe / Upper Dhiban reservoir of the Garmian block as at December 31, 2016 is that the estimate is 65 MMbbl of oil, a change of less than 2 percent from the 2015 estimate. This is contrary to the Company's previous expectation that the material increase in Garmian Reserves would result in a material reduction of the estimated Prospective Resources. The major reason that the Prospective Resources remained effectively the same, after the material increase in Reserves, is that the Company's material balance analyses provides for higher confidence in Prospective Resources below the revised lowest known oil level (i.e. the maximum depth cut-off for Reserves).
There was no change to the Kurdamir Oligocene unrisked Contingent Resources of 366 MMbbl of oil, 1.8 Tcf of natural gas and 55 MMbbl of condensate or the unrisked Prospective Resource of 1 billion barrels of oil and 1 Tcf of natural gas (all Gross Block P50 estimates). All Reserves and Resources estimates listed above have been audited by the Company's independent reserves evaluator, Sproule International Limited ("Sproule").
Fourth Quarter 2016 and Year End Results
WesternZagros has posted its operating and financial results for the fourth quarter and year ended December 31, 2016 on its website. The financial statements, the Management Discussion and Analysis, and the Annual Information Form are available at www.westernzagros.com and on SEDAR at www.sedar.com.
WesternZagros continues to focus on advancing development in accordance with the approved Garmian FDP and securing KRG approval of the phased development plan for the giant Kurdamir field in line with market conditions and dependent upon the sustainability of regular payments for production.
In 2017, the Company anticipates the average daily productive capacity of Sarqala-1 will range from 4,500 to 5,000 bbl/d. Assuming continuous production and payments for the year, and an average Brent price of $50 to $55 per barrel, WesternZagros estimates 2017 revenues of $17 to $22 million.
The Company has $24.7 million in cash and cash equivalents as at December 31, 2016 to advance the field development plans with its co-venturers. The Company continues its focus on strict cost management and estimates spending approximately $35 million in 2017 to operate the Sarqala production operations, advance the respective development of the Garmian and Kurdamir blocks with its co-venturers and fund WesternZagros head office costs, but excluding any drilling capital. The Sarqala-2 well is anticipated to spud in the third quarter of 2017. A Final Investment Decision ("FID") on this well is planned for the second quarter with an estimated cost net to the Company of $25 to $30 million. The Company will provide further guidance on the anticipated quantum and timing of capital expenditures for the respective Garmian and Kurdamir projects as the field development plans and related development budgets are finalized and approved.
The Company is reviewing all financing alternatives including but not limited to, the completion of an alternative debt financing or equity financing, or the farm down or sale of some of the assets of the Company to advance the developments. The Company has retained TD Securities to act as its financial advisor.
Liquidity and Capital Resources
As at December 31, 2016, WesternZagros had $24.7 million in cash and cash equivalents and an undrawn $200 million debt facility provided by Crest in a loan agreement between the parties dated August 14, 2014, as amended (the "Loan Agreement"), which is available in two tranches subject to certain conditions precedent: one tranche is for up to $50 million (the "$50M Tranche") and the other tranche is for up to $150 million (the "$150M Tranche").
On March 1, 2017, the Company entered a fourth letter agreement with Crest to extend the Drawdown Deadline for each of the two tranches to better align with the Company's anticipated capital needs. The Drawdown Deadline for the $50M tranche has been extended from March 1, 2017 to May 1, 2017. In addition, the maturity date for this tranche has been extended from March 1, 2019 to May 1, 2019. The drawdown deadline for the $150M tranche has been extended from August 1, 2017 to November 1, 2017, with a corresponding extension of the maturity date for this tranche from August 1, 2019 to November 1, 2019. This deferral of the deadlines provides the Company with an opportunity to reduce commitment fees and interest costs as it does not expect to need to access any funds until the third quarter of 2017 based upon the currently anticipated level and timing of capital expenditures. All other terms of the Loan Agreement remain in effect unamended.
With the existing capital resources on hand and anticipated revenue, the Company anticipates that it is fully funded for currently planned activities for the next twelve months (excluding the drilling of Sarqala-2). However, additional funding will be required by the Company as it advances the execution of its development activities, including the spud of Sarqala-2. The sources for such additional funding may include the existing Crest debt facility but, as previously announced, the Company is also exploring all other financing alternatives to allow for optimum alignment of capital availability with the development plan needs of the Company.
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".
SOURCE: WesternZagros Resources Ltd.
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