WesternZagros

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Alberta-based WesternZagros came to Kurdistan to find a giant oil field and the company is now proving this was no wasted effort at its Kurdamir block.

When IRJ first spoke to WesternZagros, the company announced confident plans to become a near-term producer. As it turns out, those plans became reality in record time.

The Sarqala-1 well on the company’s Garmian block was into production at some 2,000 barrels per day (b/d) just three months after the decision to complete it. By the end of 2011 production increased to 5,000 b/d with plans for a further boost to 8,000 b/d by end of year. Moreover, the light crude being produced is high quality with low sulphur content.

WesternZagros holds two production sharing contracts (PSC) in Iraqi Kurdistan – the Kurdamir and Garmian blocks – which combined form one of the largest exploration and development properties for crude oil and natural gas in the region.

The Garmian contract area, 1,780km2, is operated by WesternZagros and the Kurdamir contract area, 340km2, is operated by Talisman. WesternZagros holds a 40 per cent working interest in each block while the Kurdistan Regional Government (KRG) holds 20 per cent working interest in both PSCs. 

Pay dirt

After the success at its Sarqala-1 well, the company then made headlines with a massive find at the Kurdamir-2 well when the Oligocene reservoir it was drilling in hit pay dirt, proving 147 billion barrels with two more, deeper reservoirs yet to be drilled.

“Our oil discovery extends to the block northwest of us, Talisman’s Topkhana block, and to the block north held the Korean National Oil Company, if you take those into account, we have already discovered a giant field, meaning there are at least 500 million barrels recoverable reserves. There is 1.2 billion prospective resources on our block alone…we are excited about it because this is as good as it gets, better than we hoped for,” said Simon Hatfield, chief executive  officer of WesternZagros.

In fact, the oil zone at Topkhana and Kurdamir is common to both structures meaning that compartmentalisation is unlikely, Hatfield adds. That claim is backed up by seismic data at the Oligocene reservoir level showing that the blocks are “two little hubs” on the same giant structure, he explains. 

These findings have also led to speculation over Talisman’s next move since the company has to decide whether to pay a $280 million bonus to the Kurdistan government as part of the PSC or relinquish its 40 per cent interest. In its quarterly results, Talisman stated that it is “excited about the results of the Kurdamir-2 well” and plans to further test the well this summer. Hatfield explains that this should put a floor value on the working interest which in turn would add a significant amount of value to WesternZagros’ share price.

Still, the company expects more good news soon as it continues drilling. By the end of June the well needs to reach the lowest reservoir in the cretaceous layer as part of a contractual commitment to the KRG. So far, it is going “extremely well”, Hatfield notes, and the plan is to test the deeper zones in July.

But part of the success story at Kurdamir-2 is also what the company did not find, namely water, while a big gas cap – 1 trillion cubic feet (Tcf) of recoverable gas – on top of the structure will help to maintain pressure in the reservoir when oil starts to flow.

“The gas cap on top of the oil column is quite good news for this oil discovery…because gas is so compressible, as you draw the oil out, the gas cap expands and helps push the oil out, so you get higher recoveries…meanwhile we have encountered no water during testing; and well log data indicates 22 metres of gross natural gas pay above 118 metres of gross oil pay. We don’t know how far that oil leg extends from the flank of the structure and the fact that we haven’t found any water whatsoever looks very promising,” Hatfield says.

According to engineering services firm, Fekete Associates Inc., the oil column, if tested exclusively, would be capable of flowing at a rate of 4,000 b/d. The company is working with the operator, Talisman, to examine options for additional cased hole testing focused on the full 118 metres of oil pay after the well has met its contractual commitments.

“We have some pretty high expectations for what kind of oil rates we can get out of this,” Hatfield notes. 

Great expectations

High expectations can also be found in local communities, where people are seeing upwards of 20 oil tankers moving in and out of the producing site every day. As such, local employment as well as continuity of employment is an important issue and when communities perceive this to be inadequate, the situation can cause friction. WesternZagros believes it has a workable solution in place that is satisfying both local and company requirements. 

That includes providing as much local employment as possible and ensuring that goods and services are sourced within the country, while also making efforts to find contractors local to the operational areas. Other initiatives include supporting healthcare, education and drought relief in surrounding communities.

“We work in close conjunction with local communities to assist in training and employment.  Employment is a big issue and our community relations managers work very hard at making sure there is continuity of employment. We know that expectations are going to increase so we are guided by and adhere to international best practices and industry quality standards. Both the company and the communities are getting better at understanding the hiring needs and processes,” Hatfield says. 

“Community leaders asked us to provide recreational facilities for youth so we built soccer pitches and sponsor tournaments and provide the kit, team transportation. Engaging their youth has proved to have one of the most positive impacts,” Hatfield adds.

Political realities

WesternZagros business dealings are with the KRG, which has full constitutionally protected rights over administration of its petroleum resources, but the company still has to operate within the reality of an acrimonious relationship between Baghdad and Kurdistan.

On April 1, 2012, the Kurdish government turned the taps off on exports to express displeasure at the national government’s lack of action in fulfilling agreements with coalition partners. However, the company’s production continues and is unaffected since local refineries pick up the product, Hatfield notes.

Politically, the situation is coming to a head from all sides as groups accuse Prime Minister Nouri al-Maliki of sectarianism and a no-confidence motion is being threatened.  Instability in some form is likely to continue though a resolution still seems to be the goal.

“Political turmoil has not stopped the industry from investing in Kurdistan. Last year Exxon Mobil moved in and there are 48 companies active. The industry has invested $10 billion in oil exploration and development and you have seen production capacity go from almost nothing a few years ago to 250,000 b/d capacity. Despite the political tensions and the fact that issues are not resolved, the industry is not holding off on investing money and Kurdistan is still one of the hottest exploration areas on earth,” Hatfield says. 

To punctuate that point, WesternZagros is pushing forward with plenty of activity this year. Aside from continuing to prove and expand its Kurdamir and Sarqala operations, the Mil Qasim well results continues to be analyzed to determine how to increase flow rates and unlock this well’s considerable potential.

Additionally, a shallow reservoir, the Bakhtaria formation, could prove to be a profitable production site with some 1,000 to 2,000 b/d at just 500m depth. 

“It has taken us longer to get to this point than I originally expected but we are there. The Kurdamir and Sarqala discoveries are exactly what we came here for, big oil fields on trend with the Kirkuk super giant field. This is our seventh year of operations there and the results are coming in rapidly now,” Hatfield says.

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