i hope the result will be a big oil and gas field by this very promising fundCALGARY — Shares in junior WesternZagros Resources Ltd. jumped by almost 20 per cent in early trading Monday after partner Talisman Energy Inc. announced promising well results in Kurdistan.
Talisman, the operator on the play in northern Iraq, has been focused recently on investing in oil and natural gas liquids, reducing investment in dry gas and selling non-core assets.
It said in a news release that the Kurdamir-2 well had produced hydrocarbons and testing would continue.
“This is an exciting development in our understanding of this play,” Richard Herbert, executive vice-president of international exploration, said in the statement.
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We have tested only a portion of an upper zone, but we have clear indications that there is oil here, in addition to natural gas and gas condensate. We are now drilling into the deeper objectives and will conduct more extensive testing, including stimulation, over the summer.”
The company said the well tested at 950 barrels per day of oil and condensate and over seven million cubic feet of gas, with no indications of water and no observed decline.
Simon Hatfield, chief executive of WesternZagros, was more enthusiastic about the well in a news release Monday, saying it suggests a “giant oil and gas field.”
“We’re even more excited by the fact that we don’t yet know the full extent of the resources that the Oligocene (formation), alone, contains,” he said.
WesternZagros said an analysis by an independent third-party engineering expert suggested the 33 metres of oil pay tested to date is capable of flowing at rates of 4,000 bpd if isolated from the gas pay and stimulated.
TSX Venture Exchange-traded Western Zagros shares climbed as high as 80 cents, up 13 cents, on the news. Talisman shares rose initially but then fell to just under $13.
Analyst Rafi Khouri of investment dealer Raymond James said the test results are encouraging but it’s premature to come to any conclusions.
“For Talisman it’s not hugely material,” he said.
He added that drilling costs are enormous in northern Iraq and there is an ongoing dispute with the national government about how to split export profits.
The dispute continued on Monday with the Kurdistan regional government saying it had decided to reduce exports to 50,000 bpd because of a lack of oil payments from Baghdad.
It claims Iraq’s central government owes it almost $1.5 million and threatened to stop oil exports in a month if Baghdad continues to withhold payments from producers.
The dispute has resulted in most major oil companies staying away from the Kurdish region for now.
Tensions between Baghdad and the regional government over oil have been high since October, when ExxonMobil Corp. announced a Kurdish exploration deal that the central government deemed illegal. Exxon was banned from bidding on new oil contracts by Baghdad.
Iraqi Oil Minister Abdul Kareem Luaibi said earlier this month that central authorities had only received 65,000 bpd of oil — less than half of the 175,000 bpd expected — from the Kurdish region since the start of the year.
In October, Abu Dhabi National Energy Co., or Taqa, took a 20 per cent stake in WesternZagros by buying $46.6 million worth of new stock (at 63 cents each) with the goal of gaining exposure to Iraq.
WesternZagros owns 40 per cent of two Kurdistan exploration blocks, with the Kurdistan regional government owning 20 per cent of each.
The other 40 per cent on the northern block is held by Talisman, while the 40 per cent stake in the southern block is to be awarded by the government at a later date.
In 2010, WesternZagros was the operator of a wildcat exploration well called Kurdamir-1 that had to be shut down when it encountered a high-pressure zone. A nearby village was evacuated.
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