Event in Progress:
View the latest research on other companies in the sector.
WesternZagros reported 2Q16 production results of 4,884 (1,953 bbl/d net) from the Sarqala-1 well on the Garmian Block. To date, the well has now produced over 3 mmbbl of light oil with no indications of formation water and no hydrogen sulphide. As previously announced in 2Q16, the Garmian field development plan was approved and the Kurdamir field development plan was submitted. At the present time, there is very little operational activity being undertaken. The Sarqla-2 well is expected to spud in 1H17e.
WESTERNZAGROS RESOURCES
WesternZagros has received field development plan (FDP) approval for the Garmian Block, Sarqala discovery (40% WI). Approval will enable WesternZagros to proceed with the development drilling of the Sarqala-2 and -3 wells, which also realizing incremental value via the expected reclassification of prospective resources to reserves.
WesternZagros reported 1Q16 results that were inconsequential. As previously announced, production in 1Q16 was significantly curtailed as new payment arrangements were being finalized. The Kurdistan export pipeline also experienced a disruption. At the Garmian Block (Sarqala discovery), WesternZagros continues to wait for field development plan approval. WesternZagros is ready to drill the Sarqala-2 well, post FDP approval. At the Kurdamir Block, WesternZagros and Repsol are progressing negotiations with the Kurdistan Regional Government to advance the field development plan. The co-ventures have completed engineering, are reviewing bids for construction of the natural gas plant, and negotiating a gas sales agreement. Work continues to advance.
Market Impact: Positive. WesternZagros has resumed production from the Sarqala-1 well on the Garmian Block (40% WI). We were not anticipating production to resume until late 2Q16e/early 3Q16e. The well is expected to average approximately 5,000 bbl/d (2,000 bbl/d net), which is in line with production levels prior to being temporarily shut-in.
Market Impact: Positive. WesternZagros has amended its US$200 mm unsecured and undrawn credit facility. The revised drawdown dates are now expected to more appropriately match capital spending. The Company's current working capital is sufficient to meet the current commitments in 2016e.
Production in 4Q15 of 1,952 bbl/d and cash flow of negative US$1 mm were slightly below our estimates. Our 2016e production forecast has been reduced, given shut-in volumes in 1Q16e and delays in drilling the Sarqala-2 well. Our 2016e cash flow estimate has decreased to nil, due to our reduced production forecast and realized pricing becoming pegged and fluctuating with Brent. The development plans for the Kurdamir Block and Garmian Block have not yet been approved by the KRG. Field development plan approval would be a major milestone for the Company, and help alleviate some of the current uncertainty.
Market Impact: Positive.
Impact: Neutral. WesternZagros reported net production of 1,269 bbl/d which was slightly higher than our estimate of 1,142 bbl/d, and as a result, revenues of US$10 mm topped our forecast of US$8 mm. Cash flow from operations for the quarter of US$0.3 mm was in line with our expectation of nil.
WesternZagros reported 3Q15 production of 2,499 bbl/d (gross, WI %), which was better than our production forecast. Cash flow from operations of negative US$0.5 mm was in line with expectations. The Sarqala-1 well continues to produce at a rate of 5,200 bbl/d (2,080 bbl/d net), which is consistent with steady-state production guidance between 5,000 bbl/d and 5,500 bbl/d (2,000 bbl/d and 2,200 bbl/d net). Since first production, the Sarqala-1 well has produced 2.3 mmbbl with no formation water. Our outlook for 2016e remains unchanged. WesternZagros continues to work toward field development plan approval on the Garmian Block (40% WI), which is expected by 1Q16e, at which time the Sarqala-2 well will spud. WesternZagros envisions finalizing the Kurdamir Block field development plan in 1Q16e. The Company’s field development plans and processes remain unchanged from prior guidance and expectations.
Market Impact: Neutral. The Company reported 3Q15 production of approximately 5,000 bbl/d (2,000 bbl/d net), which was in line with expectations. The current status of the Garmian Block and Kurdamir Block are also in line with our expectations.
With this publication, we have transferred formal research coverage to the Calgary office. Our revised estimates are post 2Q15 results and FirstEnergy’s recently revised crude oil price outlook. Given that WesternZagros sells its crude oil into the domestic market at approximately US$42/bbl, the Company’s near-term cash flows were not impacted by our reduced crude oil price outlook.
Market Reaction: Slightly negative on production guidance reduction.
Market Reaction: Slightly positive on production at Sarqala being slightly above expectations and on the back of the MNR announcing its plans to issue monthly payments from its direct crude sales to the producing IOCs in Kurdistan from September 2015.
Market Reaction: Positive for sentiment as we were not expecting any material payment from the KRG for export in 2015. However, it remains to be seen how much will be allocated to international producers from September.
Market Reaction: Slightly negative on lower cash at the end of the period than we anticipated. This reflects high capex in 1Q15. We anticipate that the capex guidance for 2015 will be reduced reflecting a lower level of activities at Sarqala as the Company awaits government approval to start the development of Garmian. Production guidance for 2015 is unchanged.
Market Reaction: Negative. We carry the Oligocene at Hasira-1 well at C$0.18 per share within our RENAV. The results of the well test are currently inconclusive. Production at Sarqala-1 could be well below our expectations in 2015 (8.8 mbbl/d over 2-4Q/15).
Share: