WesternZagros Resources’ Kurdish foray hits a bump
Test well confirms oil, fails to yield commercial hydrocarbons
Investors keen to buy in to what’s been dubbed the Kurdistan consolidation story ought to take a close look at WesternZagros Resources Ltd., one analyst believes.
The little-known Calgary company, which shares interests in test wells in the northern Iraqi region with Talisman Energy Inc. and is backed in part by Taqa, Abu Dhabi’s national energy company, continues to be rated as a favorable pick despite reporting disappointing results from a prospective drilling program late last week.
FirstEnergy Capital analyst Gerry Donnelly rates the company a buy and believes the stock, which is hovering at about $1.20 per share on the TSX Venture Exchange, is oversold. Investors dumped the stock en masse after WesternZagros said Friday that one of its test wells in the Shiranish formation in the Kurdish region of Iraq failed to yield commercial flow-rates of oil.
Donnelly lowered his price target on the company to $2.60 from $2.70 as a result, but he still thinks there’s lots of upside. In a note to clients this morning, he describes the stock’s current weakness as “a unique opportunity to buy a story which continues to benefit from near-term high impact catalysts.”
In plain language, Kurdistan has attracted interest from the super-majors as a new exploration frontier, and for good reason. A recent well drilled in the northern region by Venture-listed ShaMaran Petroleum tested at 42,000 barrels of oil per day. That’s a “colossal” volume, Chris Helman wrote recently at Forbes, compared to wells drilled in North Dakota’s Bakken that are lucky to pump 1,000 barrels per day before tapering off quickly.
Even so, the Kurdish region of Iraq remains politically dicey. Bloomberg, citing the International Oil Daily, reported last week that Gazprom Neft has halted work on production-sharing arrangements in the northern region. The oil-focused unit of natural gas giant Gazprom holds a 40 per cent working interest in an exploration block called Garmian, where WesternZagros is producing 5,000 barrels per day from its Sarqala-1 well.
WesternZagros says the Shiranish formation is the deepest prospect in a “stacked reservoir” system called Kurdamir, which the company believes could hold a mean estimate of 1.6 billion barrels of prospective oil.
The Cretaceous-age Shiranish is believed to account for just 11 per cent or 181 million barrels of that, an estimate that will likely be revised to reflect Friday’s update. “It doesn’t necessarily write off the Shiranish,” said Lisa Harriman, manager of investor relations at WesternZagros, of the results.
“We know that the Shiranish is a much tighter formation” comprised of dense rock, she added in a telephone interview. It’s not that oil isn’t there, she said. The test well confirmed the presence of light, 39- to 40-degree API oil. That the well failed to yield commercial flow rates “means in this location we didn’t hit it.”