WesternZagros (CVE:WZR) is a Canadian oil and gas explorer that is successfully exploring and developing crude oil and natural gas resources in the Kurdistan region of Iraq.

Results generated by the drilling of Sarqala-1 in the Garmian Block, and Kurdamir-1 on the Kurdamir Block, indicate that the two Blocks cover multiple prospects that have the potential to develop into giant oil fields that could host over 3.6 billion barrels of oil equivalent (BOE) of independently audited prospective resources.

These excellent results are allowing WesternZagros to transition from being a pure exploration company into an explorer and production company that is producing over 5,000 bbl/d from the Sarqala-1 oil discovery and targeting over 1 billion BOE in the next five months including the Sarqala-1 oil discovery, and drilling of Mil Qasim, and Kurdamir-2.

The Kurdamir and Garmain Blocks cover 2,120 square kilometres, and are among the largest exploration areas that were granted by the Kurdistan Regional Government to any entity.

WesternZagros is the operator and holds a 40% interest in the Garmian Contract Area that covers 1,780 square kilometres; and holds a 40% interest in the Kurdamir Contract Area that covers 340 square kilometres and has Talisman Energy(NYSE:TLM) (TSE:TLM) as operator. The Kurdistan Regional Government retains a 20% working interest in both Blocks.

The Production Sharing Contracts require the operators and partners to carry all development costs and make payment of a 10% royalty from total crude production, with up to 45% of the remaining oil available for cost recovery. The profit on the remaining oil is split between the parties on a sliding scale from 16% to 35%, and is based on a formula that assesses revenue over cost. The PSCs negotiated on the Kurdamir and Garmian Blocks carry among the most favorable terms when compared to other PSCs negotiated with the Kurdish Regional Government.

Sarqala-1 was drilled and completed in the second calendar quarter of 2011 at a total cost of $20 to $25 million, which included casing repair operations, sidetracking and testing operations.

The well was drilled in the middle of the Sarqala structure that extends over a distance of 15 kilometres, and was sited on the flank of an Upper Fars Sandstone reservoir that is located above the crest of deeper Jeribe Dolo-Limestone, Oligocene, Eocene and Cretaceous reservoirs. It was penetrated through the Upper Fars reservoir and crest of the Jeribe and Oligocene reservoir, terminating below a prospective oil formation at 4,357 metres.

A sidetrack was completed through the Jeribe Formation, and tested at over 9,000 bopd that flowed 40°API oil, with no stimulation or water recovered. An independent audit completed by Sproule Associates estimated Gross Unrisked Resources for total mean oil of 24 MMbbls, with gas of 31 MMBOE within Jeribe.

Total mean oil for the Jeribe and Upper Dhiban, along with Oligocene, Eocene, and Cretaceous reservoirs, on a Gross Unrisked Resource basis, was estimated at 296 MMbbls for oil, and at 463 MMBOE with gas.

Sarqala-1 commenced oil production through an extended well testing in mid October and produced 220,000 barrels of oil by the end of the 2011 calendar year. Sarqala-1 was producing at a rate of 4,000 barrels per day in December and is projected to produce at an average rate of 5,000 barrels per day through the first half of calendar 2012. The company is also sourcing and installing permanent facilities to increase production beyond 5,000 barrels a day, and to have a gas conservation solution in place to deal with the natural gas.

Western Zagros is contractually committed to provide 100% of the exploration and development costs on the Garmian Block and Sarqala-1, and is entitled to collect 100% of the current oil revenues, which may total as much as $60 per barrel, or approximately $10 million per month until a third party participant is assigned on the Garmian Block.

Mil Quasim-1 was recently drilled and completed on the crest of the Upper Fars reservoir, located about 3 kilometres from Sarqala-1. The well was completed at a final depth of 2,425 metres and an open hole test conducted in the lowermost part of the wellbore successfully flowed oil to surface with no water. Further testing is underway in the Upper Fars, with final results due for release on completion of testing.

The well is estimated to cost $30 to 35 million, with total mean oil for the Upper Fars reservoir on a Gross Unrisked basis at 106 MMbbls, and with oil equivalent of 121 MMBOE.