WesternZagros Resources Ltd

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WesternZagros Announces Fourth Quarter 2008 and Year End Results

CALGARY, ALBERTA--(Marketwire - March 9, 2009) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the Company") announced today its operating and financial results for the fourth quarter and year ended December 31, 2008 and an operational update.

WesternZagros' highlights and activities for the fourth quarter of 2009 and up to and including March 9, 2009 include:

Operational

- Sarqala-1 has been drilled to a depth of 4,357 metres. The well has penetrated through the Lower Fars, Jeribe and Euphrates Formations and has recorded numerous indications of oil and gas in these formations. Analysis of the oil shows indicate the oil is light (34 to 35 degrees API) and sweet (less than one percent sulphur). While attempting to complete wireline logging operations across the intervals with the oil and gas indications, the equipment encountered a wellbore obstruction which prevented logging. After drilling through the wellbore obstruction, the drilling assembly became stuck in the hole and subsequent recovery operations have been unsuccessful. The well will be suspended pending evaluation of the feasibility and merits of future drilling options on Sarqala, and in the meantime the drilling rig will be moved to Kurdamir-1.

- WesternZagros has completed engineering and related work on its second drilling location, Kurdamir-1 and plans to spud the well in May 2009.

- At the end of February 2009, WesternZagros operations achieved a combined total exposure of 3 million person hours with no Lost Time Incidents. This is a significant achievement and demonstrates the commitment of the Company's employees and contractors to the safety and security of its operations.

Financial

- As at December 31, 2008, WesternZagros had $130 million in cash and cash equivalents and short-term investments. The Company is well-positioned to weather the current conditions in the financial markets and will maintain flexibility in the deployment of capital over the course of 2009.

- For the year ended December 31, 2008, WesternZagros incurred capital expenditures of $95.1 million related to its funding requirement for its PSC activities and certain payments required under the PSC. Prior to June 30, 2008 and the KRG's allocation of the 40 percent third party working interest to Talisman, WesternZagros' share of capital expenditures was 100 percent of the costs. Subsequent to that date, WesternZagros' share of capital expenditures was 60 percent.

- WesternZagros had a net loss of $10.1 million for the year ended December 31, 2008. This net loss comprised mainly of the general and administrative costs incurred by the Company and the income taxes generated by certain realized foreign exchange gains.

Operations Update

Sarqala-1

Sarqala-1 has encountered a number of operational delays related to overpressured zones which required the use of anomalously high drilling mud densities (up to 2,380 kilograms per cubic metre or 19.9 pounds per gallon). Some of the zones were pressurized to near formation fracture pressures resulting in time consuming well control operations. Additional delays also occurred related to lost circulation zones, that were controlled with the addition of specialized mud products. Drilling progress was further impacted by encountering thicker halite (salt) deposits in the Lower Fars Formation than originally prognosed. This resulted in the reservoir target zones being approximately 250 metres deeper than prognosed.

Sarqala-1 has been drilled to a depth of 4,357 metres. The well has penetrated through the Lower Fars, Jeribe and Euphrates Formations and has recorded numerous indications of oil and gas in these formations. Analysis of the oil recovered from the drilling mud indicate the oil is light (34 to 35 degrees API) and sweet (less than one percent sulphur).

While conducting wireline logging operations across the intervals with recorded shows, the equipment encountered a wellbore obstruction which prevented logging. WesternZagros successfully drilled through the obstruction, but subsequently the drilling assembly became stuck in the hole. During recovery operations the drill string parted. Recovery operations have been unsuccessful and the well will be suspended pending the evaluation of the feasibility and merits of future drilling options on Sarqala. In the meantime the drilling rig will be moved to Kurdamir-1.

Despite the disappointment that Sarqala-1 did not penetrate all the reservoir targets, nor obtain wireline logs across the Jeribe and Euphrates reservoir targets, WesternZagros views the numerous indications of oil and gas encountered in Sarqala-1 as positive and consider that they enhance the prospectivity of Block 44 as they reduce the risk that any undiscovered resources may be gas instead of oil.

In addition, the thick halite (salt) deposits in the Lower Far Formation also enhances the prospectivity of the block as they reduce the risk associated with top seal of the reservoir target intervals.

Kurdamir-1

Kurdamir-1, WesternZagros' second location, is located on an anticlinal structure approximately 30 kilometres northeast of Sarqala-1. The prognosed total depth for this well is 3,900 metres. Kurdamir-1 will target the Oligocene and Pilaspi/Jaddala intervals in the Tertiary, and the Shiranish and Upper Qamchuqa intervals in the Cretaceous. Well site construction for Kurdamir-1 was completed in the fourth quarter of 2008 and WesternZagros plans to spud the well in May 2009.

Although the prognosed total depth of Kurdamir-1 is less than Sarqala-1, WesternZagros has reviewed its drilling program and has planned for two intermediate casing strings to mitigate the risk of similar overpressure and lost circulation issues as encountered at Sarqala-1. WesternZagros, and its co-venturers Talisman and the KRG, continue to incorporate other key learnings from Sarqala-1 to identify and mitigate possible drilling issues that could be encountered while drilling Kurdamir-1.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following management's discussion and analysis ("MD&A"), effective March 6, 2009, reviews WesternZagros Resources Ltd.'s ("WesternZagros" or the "Company") activities and results for the period ended December 31, 2008. It should be read in conjunction with the Audited Consolidated Financial Statements, together with the accompanying notes, included in this report. The Consolidated Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP).

In the MD&A, unless otherwise indicated, all dollar amounts are expressed in United States ("U.S.") dollars. WesternZagros has adopted the U.S. dollar as its measurement and reporting currency since most of its expenses are or will be directly or indirectly denominated in U.S. dollars. When revenues are realized, it is expected that U.S. dollars will be received. In addition, the U.S. dollar facilitates a more direct comparison to other international crude oil and natural gas exploration and development companies. All references herein to US$ or to $ are to United States dollars and references herein to Cdn$ are to Canadian dollars.

Forward-Looking Information

This discussion offers management's analysis of the financial and operating results of WesternZagros and contains certain forward-looking statements relating, but not limited, to operational information, future drilling plans and the timing associated therewith, estimated PSC commitments, anticipated capital and operating budgets and estimated costs. Forward-looking information typically contains statements with words such as "anticipate", "estimate", "expect", "potential", "could", or similar words suggesting future outcomes. The Company cautions readers and prospective investors in the Company's securities to not place undue reliance on forward-looking information as by its nature, it is based on current expectations regarding future events that involve a number of assumptions, inherent risks and uncertainties, which could cause actual results to differ materially from those anticipated by WesternZagros.

Forward looking information is based on management's current expectations and assumptions regarding, among other things, plans for and results of drilling activity, future capital and other expenditures (including the amount, nature and sources of funding thereof), future economic conditions, future currency and exchange rates, continued political stability and the Company's continued ability to obtain qualified staff and equipment in a timely and cost efficient manner. In addition, budgets are based upon WesternZagros' current exploration plans and anticipated costs both of which are subject to change based on, among other things, the actual results of drilling activity, unexpected delays and changes in market conditions. Although the Company believes the expectations and assumptions reflected in such forward-looking information are reasonable, they may prove to be incorrect. Forward-looking information involves significant known and unknown risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated by WesternZagros including, but not limited to, risks associated with the oil and gas industry (e.g. operational risks in exploration; inherent uncertainties in interpreting geological data; changes in plans with respect to exploration or capital expenditures; the uncertainty of estimates and projections in relation to costs and expenses and health, safety and environmental risks), the risk of commodity price and foreign exchange rate fluctuations, the uncertainty associated with negotiating with foreign governments and risk associated with international activity.

See the Risk Factors section of this MD&A for a further description of these risks. The forward-looking information included in this annual report is expressly qualified in its entirety by this cautionary statement. WesternZagros assumes no obligation to update or revise any forward-looking information to reflect new events or circumstances, except as required by law. For additional information relating to the risks and uncertainties facing WesternZagros, see "Risk Factors". Additional information relating to WesternZagros is available on SEDAR at www.sedar.com.

Overview

WesternZagros is a publicly-traded, Calgary-based, international oil and gas company engaged in acquiring properties and exploring for, developing and producing crude oil and natural gas in Iraq. WesternZagros holds a Production Sharing Contract ("PSC") with the Kurdistan Regional Government ("KRG") which covers a 2,120 square kilometres exploration block in the Kurdistan Region of Iraq and it is on trend with, and adjacent to, a number of prolific historic oil and gas discoveries. WesternZagros (operator) holds a 40 percent working interest, the KRG holds a 20 percent working interest (carried by WesternZagros) and a wholly-owned subsidiary of Talisman Energy Inc. ("Talisman") holds the remaining 40 percent working interest.

Strategy

WesternZagros' main focus is the exploration and development of its PSC lands. WesternZagros' objective is to be recognized, through consistently superior business performance and operations excellence, as one of the leading independent oil and gas companies active in Iraq. The Company is committed to operating in the Kurdistan Region of Iraq in a safe and secure manner. In executing its strategy, WesternZagros has made it a priority to recruit and retain local personnel and to actively participate in, and contribute to, community development projects. WesternZagros believes it has developed a relationship with government authorities, local communities and the business community in the Kurdistan Region which has allowed the Company to gain access to opportunities and to obtain the cooperation needed to successfully execute projects.

Plan of Arrangement

WesternZagros was incorporated on August 22, 2007 under the laws of the Province of Alberta. On October 18, 2007, WesternZagros, Western Oil Sands Inc. (now Marathon Oil Canada Corporation) ("Western"), Marathon Oil Corporation, 1339971 Alberta Ltd. and WesternZagros Resources Inc. ("WZRI") completed a Plan of Arrangement (the "Arrangement"). Pursuant to the Arrangement, each Western shareholder received one share and one-tenth of a warrant of WesternZagros for each Western share held, resulting in the issuance of 165,057,183 common shares and 16,505,729 warrants. Each whole warrant entitled the holder to purchase one WesternZagros share at a unit price of Cdn$2.50 until January 18, 2008.

Upon closing of the Arrangement, WesternZagros indirectly received approximately Cdn$82.5 million cash from Western as part of the transaction. In addition, following the transaction, WesternZagros completed a private placement at a price of Cdn$2.50 per share for proceeds of Cdn$12.5 million. WesternZagros began trading on the TSX Venture Exchange in Canada on October 22, 2007 under the symbol WZR. Of the 16,505,729 warrants issued pursuant to the Arrangement, 4,073,803 were exercised prior to expiry for total proceeds to WesternZagros of approximately Cdn$10.2 million.

In connection with the Arrangement, through a series of transactions, WesternZagros acquired all of the outstanding shares of WZRI. As the shareholders of Western ultimately continued to hold their respective interests in WZRI, there was no resulting change of control. Therefore, the acquisition was accounted for assuming continuity of business for WZRI under Emerging Issues Committee 89 - Exchanges of ownership interests between enterprises under common control-wholly and partially-owned subsidiaries ("EIC-89"). Consequently, no fair value adjustments were made.

The consolidated financial statements of WesternZagros, and the disclosures found throughout the MD&A, reflect the assets and liabilities of WZRI at their book value as reported in the consolidated financial statements of WZRI. The continuity of business accounting requires that the results of operations presented in the consolidated financial statements of WesternZagros include the operations of WZRI for the entire fiscal period in which the Arrangement took place. In addition, the comparative consolidated financial statements of WesternZagros were restated to reflect the financial position and results of operation as if WesternZagros and WZRI had been combined since their inception. As a result, references to WesternZagros in the MD&A incorporate the activities of WZRI and its subsidiaries from their inception; however, certain direct year-over-year comparisons are impacted as results for the year ended December 31, 2007 only reflect revenue and expenses incurred between October 18, 2007 and December 31, 2007. This includes revenue, which was earned on the cash balances received subsequent to the date of the Arrangement, as well as general and administrative expenses and depreciation incurred on employees and related costs and assets, hired or purchased, subsequent to the Arrangement.

Highlights

WesternZagros' highlights and activities to March 6, 2009 include:

Operations

- WesternZagros completed its seismic program in July 2008 and acquired a total of 1,547 kilometres of data under its Phase I and II programs, exceeding its seismic commitment of 1,150 kilometres under its PSC.

- WesternZagros commenced drilling its initial wildcat exploration well, Sarqala-1, in May 2008 and has drilled to a depth of 4,357 metres and has penetrated the Lower Fars, Jeribe and Euphrates Formations. Numerous indications of oil and gas were encountered in these formations. Analysis of the oil shows indicate the oil is light (34 to 35 degrees API) and sweet (less than one percent sulphur).

-- While drilling delays and unexpected events with wildcat wells are not unusual, especially in remote frontier areas, Sarqala-1 has experienced a number of operational delays related to overpressured zones which required the use of anomalously high drilling mud densities (up to 2,380 kilograms per cubic metre or 19.9 pounds per gallon). Some of the zones were pressurized to near formation fracture pressures resulting in time consuming well control operations. Additional delays also occurred related to lost circulation zones that were controlled with the addition of specialized mud products. Drilling progress was further impacted by encountering a thicker Lower Fars Formation than originally prognosed. This resulted in the reservoir target zones being approximately 250 metres deeper than prognosed.

-- While conducting wireline logging operations across the intervals with recorded shows, the equipment encountered a wellbore obstruction which prevented logging. WesternZagros successfully drilled through the obstruction, but subsequently the drilling assembly became stuck in the hole. During recovery operations the drill string parted. Recovery operations have been unsuccessful and the well will be suspended pending the evaluation of the feasibility and merits of future drilling options on Sarqala. In the meantime the drilling rig will be moved to Kurdamir-1.

-- Despite the disappointment that Sarqala-1 did not penetrate all the reservoir targets, nor obtain wireline logs across the Jeribe and Euphrates reservoir targets, WesternZagros views the numerous indications of oil and gas encountered in Sarqala-1 as positive and consider that they enhance the propectivity of Block 44 as they reduce the risk that any undiscovered resources may be gas instead of oil.

-- In addition, the thick halite (salt) deposits in the Lower Far Formation also enhances the prospectivity of the block as they reduce the risk associated with top seal of the reservoir target intervals.

- WesternZagros completed engineering and related work on its second drilling location, Kurdamir-1 and plans to spud the well in May 2009.

- May 2008 marked a full year of in-country operations with no Lost Time Incidents (LTI) and a combined total exposure of 1.8 million person hours. At the end of February 2009, WesternZagros operations achieved a combined total exposure of 3 million person hours with no Lost Time Incidents. This is a significant achievement and demonstrates the commitment of the Company's employees and contractors to the safety and security of its operations.

Financial

- In March 2008, WesternZagros completed a private placement for total net proceeds of Cdn$70.8 million, consisting of 33.3 million shares at a price of Cdn$2.25 per share.

- In June 2008, the KRG nominated Talisman as the Third Party Participant in the Kalar-Bawanoor Block, holding a 40 percent working interest. With Talisman's election, and for costs incurred by WesternZagros, Talisman paid WesternZagros $50.7 million under the terms of the PSC. In addition, Talisman funds its 40 percent share of costs going forward.

Corporate

- In February 2008, WesternZagros signed an amended PSC with the KRG. The Company completed negotiations with the KRG to amend its former Exploration and Production Sharing Agreement in order to bring it in line with the KRG's model PSC. Under the PSC, WesternZagros (operator) has a 40 percent working interest and the KRG holds a 20 percent working interest which is carried by WesternZagros.

- In support of the Company's corporate social responsibility efforts in Kurdistan in 2008, WesternZagros drilled 10 water wells, provided assistance in repairing local schools, and sourced medical supplies for communities in the Garmian region, and assisted the local Sulaymaniya Ground Water Directorate in completing an assessment of sources of water and in refurbishing its water well drilling rig.

- In 2008, WesternZagros continued its sponsorship of an academic scholarship program for nine employees of the KRG in order to complete graduate studies in technical and business related fields.

FINANCIAL PERFORMANCE ------------------------------------... Selected Annual Information (US$ thousands, unless otherwise specified) 2008 2007 2006 ------------------------------------... Total Revenue 2,959 817 - Net Loss 10,100 10,426 8,222 Net Loss Per Share (US$ Per Share) 0.05 0.06 0.05 (Basic and Diluted) Capital Expenditures 95,102 34,556 13,154 Total Assets 243,697 160,777 21,499 Total Long-term Liabilities 69 - 20,215 Dividend (US$ Per Share) Nil Nil Nil ------------------------------------...

WesternZagros is currently exploring for crude oil and natural gas in the Kurdistan Region of Iraq and has no reserves or production. The Company's revenue is comprised entirely of interest earned on cash and cash equivalent balances and short term investments. Capital expenditures and certain general and administrative costs represent WesternZagros' share of costs associated with PSC activities for the respective periods. Prior to June 30, 2008, when the KRG allocated the 40 percent third party working interest to Talisman, WesternZagros funded 100 percent of the PSC expenditures. Subsequent to June 30, 2008, WesternZagros funds 60 percent of the PSC expenditures, representing WesternZagros' 40 percent working interest and its obligation to carry the KRG's 20 percent working interest.

Charges Under Service Agreement

For the year ended December 31, 2008, WesternZagros did not incur any charges under a service agreement compared to $9.1 million for the year ended December 31, 2007. These charges related to operational, technical and other support expenditures incurred pursuant to a services agreement WZRI had with Western. Under the agreement, Western had paid for various PSC negotiation costs, capital, operational, technical, legal, general and administrative expenditures on behalf of WZRI. These transactions were measured at the exchange amount, which is the amount of consideration established and agreed by the related parties. These transactions were undertaken with the same terms and conditions as transactions with non-related parties. This services agreement was terminated upon the completion of the Arrangement on October 18, 2007.

General and Administrative Expenses

For the year ended December 31, 2008, WesternZagros incurred $7.3 million in general and administrative expenses ("G&A") compared to $1.6 million in 2007. G&A for 2007 represented the salaries and related expenditures the Company incurred subsequent to the completion of the Arrangement on October 18, 2007 as prior to this G&A expenses were included under the services agreement provided by Western. The year-over-year increase is the result of a full 12 months of G&A expenses and the increased level of activity, associated staff and consulting costs as WesternZagros expanded its operational capability, including the drilling of its first exploration well. For the year ended December 31, 2008, WesternZagros capitalized $2.1 million of G&A, as these costs were directly related to the supervision of the Company's drilling and geological capital programs, and included $0.7 million of stock-based compensation.

Depreciation, Depletion and Amortization (DD&A)

For the year ended December 31, 2008, DD&A totaled $0.2 million compared to $0.04 million for the year ended December 31, 2007. The increase in DD&A is the result of a full 12 months of DD&A on administrative assets in 2008, compared to DD&A incurred subsequent to the completion of the Arrangement when WesternZagros acquired these administrative assets. No depletion was recorded relating to the Company's exploration activities and assets as WesternZagros has yet to determine whether proved reserves are attributable to its PSC lands.

Foreign Exchange

WesternZagros adopted the U.S. dollar as its measurement and reporting currency since the majority of its expenses are or will be directly or indirectly denominated in U.S. dollars and to facilitate a more direct comparison to other international crude oil and natural gas exploration and development companies. WesternZagros holds over 95 percent of its cash and cash equivalents and short-term investments in U.S. dollar accounts and U.S. dollar priced Government of Canada bonds; however, the Company has certain assets and liabilities in currencies other than the U.S. dollar, mainly Canadian dollars, and converts these to U.S. dollars at the end of each period resulting in foreign exchange gains and losses. The Canadian dollar balances are held for the purpose of funding WesternZagros' Canadian dollar expenditures, which are mainly related to the costs associated with general and administrative costs for its head office and certain drilling related services and tangibles procured from Canadian suppliers. For the year ended December 31, 2008, WesternZagros incurred $1.4 million of foreign exchange losses compared to $0.5 million for the year ended December 31, 2007 relating to these conversions.

Income Taxes

For the year ended December 31, 2008, WesternZagros had an income tax expense of $4.0 million, comprised of $4.6 million of current income tax expense and $0.6 million of future income tax recovery. The current income tax expense relates to taxes generated on realized foreign exchange gains in WesternZagros' two Canadian companies. WesternZagros is required to file its two Canadian subsidiaries tax returns in Canadian dollars, and with WesternZagros converting the majority of its equity financings from Canadian dollars to and continuing to hold the majority of the cash and cash equivalents and short-term investments in US dollars, this has resulted in the two Canadian companies having realized foreign exchange gains of approximately Cdn$33.4 million for Canadian tax purposes.

The future income tax recovery results from tax assets that will be utilized in the future to recover a portion of the current income tax expense. These tax assets include non-capital loss carryforward balances of Cdn$5.7 million and share issuance costs. WesternZagros anticipates recovering the majority of the current income tax expense through the utilization of the tax assets and as it continues to incur G&A and related expenditures through exploration.

Revenue

WesternZagros' revenue is comprised entirely of interest earned on cash and cash equivalents and short-term investment balances held subsequent to the completion of the Arrangement. Interest of $3.0 million was earned for the year ended December 31, 2008 compared to $0.8 million for the year ended December 31, 2007. The increase in revenue resulted from a full 12 months of interest on the cash and cash equivalents and short-term investments compared to 2007 when interest was earned on the cash and cash equivalent balances and short-term investments only subsequent to the Arrangement.

Net Loss

For the year ended December 31, 2008, WesternZagros incurred a net loss of $10.1 million compared to a net loss of $10.4 million for the year ended December 31, 2007. The decrease in the net loss was the result of increased revenue on the cash and cash equivalent and short-term investment balances for the full 12 months in 2008, the increased level of capitalized G&A resulting from the commencement of drilling operations and the reduced funding of certain G&A amounts due to the allocation by the KRG of the third party interest to Talisman. This was mainly offset by the increase in income tax expense and an increase in the foreign exchange loss reported. WesternZagros is currently a development stage enterprise and, apart from the Company's working interest in its PSC, WesternZagros has no other assets or ongoing operations.

Capital Expenditures

For the year ended December 31, 2008, the total capital expenditures on WesternZagros' block were $75.3 million, including $49.4 million of drilling related costs, $16.7 million of Phase II seismic costs and $9.2 million of supervision and local office costs in support of drilling operations and Phase II seismic operations. Included in the drilling costs are $37.3 million for operations at Sarqala-1, $5.4 million for long-lead items and pre-spud costs for Kurdamir-1, and $6.7 million for tangible items for subsequent wells and consumables for testing operations. For the year ended December 31, 2007, the total capital expenditures on WesternZagros' PSC block were $26.5 million, including $21.8 million associated with Phase I seismic, $0.9 million related to the procurement of long lead items associated with Sarqala-1 and $3.8 million of supervision and local office costs in support of both the Phase I seismic operations and certain pre-spud logistical expenditures.

For the year ended December 31, 2008, WesternZagros' share of capital expenditures associated with its PSC activities and other PSC costs were $95.1 million compared to $34.6 million for the year ended December 31, 2007. Higher capital expenditures for the year ended December 31, 2008 were the result of the increased operational activity associated with drilling operations, partially offset by the reduced funding requirements subsequent to the allocation of the third party interest by the KRG in June 2008. WesternZagros' share of capital expenditures were 100 percent of costs to June 30, 2008, prior to the allocation of the 40 percent third party working interest to Talisman by the KRG, and 60 percent of the costs subsequent to June 30, 2008, representing WesternZagros' 40 percent working interest and its obligation to fund the KRG's 20 percent working interest. Upon the allocation of the 40 percent working interest to Talisman, Talisman paid $50.7 million to WesternZagros, representing 50 percent of the estimated recoverable costs under the PSC at June 30, 2008 as per the terms of the PSC.

For the year ended December 31, 2008, WesternZagros capitalized $2.1 million in G&A and stock-based compensation costs directly related to exploration activities compared to $nil million for the year ended December 31, 2007.

Quarterly Information

The following table summarizes key financial information on a quarterly basis for the following two years:

Selected Quarterly Information -----------------------"WesternZagros

Announces Fourth Quarter 2008 and Year End Results

CALGARY, ALBERTA--(Marketwire - March 9, 2009) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED

STATES

WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the

Company") announced today its operating and financial results for the fourth

quarter and year ended December 31, 2008 and an operational update.

WesternZagros' highlights and activities for the fourth quarter of 2009 and

up to and including March 9, 2009 include:

Operational

- Sarqala-1 has been drilled to a depth of 4,357 metres. The well has

penetrated through the Lower Fars, Jeribe and Euphrates Formations and has

recorded numerous indications of oil and gas in these formations. Analysis of

the oil shows indicate the oil is light (34 to 35 degrees API) and sweet (less

than one percent sulphur). While attempting to complete wireline logging

operations across the intervals with the oil and gas indications, the equipment

encountered a wellbore obstruction which prevented logging. After drilling

through the wellbore obstruction, the drilling assembly became stuck in the hole

and subsequent recovery operations have been unsuccessful. The well will be

suspended pending evaluation of the feasibility and merits of future drilling

options on Sarqala, and in the meantime the drilling rig will be moved to

Kurdamir-1.

- WesternZagros has completed engineering and related work on its second

drilling location, Kurdamir-1 and plans to spud the well in May 2009.

- At the end of February 2009, WesternZagros operations achieved a combined

total exposure of 3 million person hours with no Lost Time Incidents. This is a

significant achievement and demonstrates the commitment of the Company's

employees and contractors to the safety and security of its operations.

Financial

- As at December 31, 2008, WesternZagros had $130 million in cash and cash

equivalents and short-term investments. The Company is well-positioned to

weather the current conditions in the financial markets and will maintain

flexibility in the deployment of capital over the course of 2009.

- For the year ended December 31, 2008, WesternZagros incurred capital

expenditures of $95.1 million related to its funding requirement for its PSC

activities and certain payments required under the PSC. Prior to June 30, 2008

and the KRG's allocation of the 40 percent third party working interest to

Talisman, WesternZagros' share of capital expenditures was 100 percent of the

costs. Subsequent to that date, WesternZagros' share of capital expenditures was

60 percent.

- WesternZagros had a net loss of $10.1 million for the year ended December

31, 2008. This net loss comprised mainly of the general and administrative costs

incurred by the Company and the income taxes generated by certain realized

foreign exchange gains.

Operations Update

Sarqala-1

Sarqala-1 has encountered a number of operational delays related to

overpressured zones which required the use of anomalously high drilling mud

densities (up to 2,380 kilograms per cubic metre or 19.9 pounds per gallon).

Some of the zones were pressurized to near formation fracture pressures

resulting in time consuming well control operations. Additional delays also

occurred related to lost circulation zones, that were controlled with the

addition of specialized mud products. Drilling progress was further impacted by

encountering thicker halite (salt) deposits in the Lower Fars Formation than

originally prognosed. This resulted in the reservoir target zones being

approximately 250 metres deeper than prognosed.

Sarqala-1 has been drilled to a depth of 4,357 metres. The well has

penetrated through the Lower Fars, Jeribe and Euphrates Formations and has

recorded numerous indications of oil and gas in these formations. Analysis of

the oil recovered from the drilling mud indicate the oil is light (34 to 35

degrees API) and sweet (less than one percent sulphur).

While conducting wireline logging operations across the intervals with

recorded shows, the equipment encountered a wellbore obstruction which prevented

logging. WesternZagros successfully drilled through the obstruction, but

subsequently the drilling assembly became stuck in the hole. During recovery

operations the drill string parted. Recovery operations have been unsuccessful

and the well will be suspended pending the evaluation of the feasibility and

merits of future drilling options on Sarqala. In the meantime the drilling rig

will be moved to Kurdamir-1.

Despite the disappointment that Sarqala-1 did not penetrate all the reservoir

targets, nor obtain wireline logs across the Jeribe and Euphrates reservoir

targets, WesternZagros views the numerous indications of oil and gas encountered

in Sarqala-1 as positive and consider that they enhance the prospectivity of

Block 44 as they reduce the risk that any undiscovered resources may be gas

instead of oil.

In addition, the thick halite (salt) deposits in the Lower Far Formation also

enhances the prospectivity of the block as they reduce the risk associated with

top seal of the reservoir target intervals.

Kurdamir-1

Kurdamir-1, WesternZagros' second location, is located on an anticlinal

structure approximately 30 kilometres northeast of Sarqala-1. The prognosed

total depth for this well is 3,900 metres. Kurdamir-1 will target the Oligocene

and Pilaspi/Jaddala intervals in the Tertiary, and the Shiranish and Upper

Qamchuqa intervals in the Cretaceous. Well site construction for Kurdamir-1 was

completed in the fourth quarter of 2008 and WesternZagros plans to spud the well

in May 2009.

Although the prognosed total depth of Kurdamir-1 is less than Sarqala-1,

WesternZagros has reviewed its drilling program and has planned for two

intermediate casing strings to mitigate the risk of similar overpressure and

lost circulation issues as encountered at Sarqala-1. WesternZagros, and its

co-venturers Talisman and the KRG, continue to incorporate other key learnings

from Sarqala-1 to identify and mitigate possible drilling issues that could be

encountered while drilling Kurdamir-1.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following management's discussion and analysis ("MD&A"), effective

March 6, 2009, reviews WesternZagros Resources Ltd.'s ("WesternZagros" or the

"Company") activities and results for the period ended December 31, 2008. It

should be read in conjunction with the Audited Consolidated Financial

Statements, together with the accompanying notes, included in this report. The

Consolidated Financial Statements have been prepared in accordance with Canadian

generally accepted accounting principles (GAAP).

In the MD&A, unless otherwise indicated, all dollar amounts are expressed

in United States ("U.S.") dollars. WesternZagros has adopted the U.S. dollar as

its measurement and reporting currency since most of its expenses are or will be

directly or indirectly denominated in U.S. dollars. When revenues are realized,

it is expected that U.S. dollars will be received. In addition, the U.S. dollar

facilitates a more direct comparison to other international crude oil and

natural gas exploration and development companies. All references herein to US$

or to $ are to United States dollars and references herein to Cdn$ are to

Canadian dollars.

Forward-Looking Information

This discussion offers management's analysis of the financial and operating

results of WesternZagros and contains certain forward-looking statements

relating, but not limited, to operational information, future drilling plans and

the timing associated therewith, estimated PSC commitments, anticipated capital

and operating budgets and estimated costs. Forward-looking information typically

contains statements with words such as "anticipate", "estimate", "expect",

"potential", "could", or similar words suggesting future outcomes. The Company

cautions readers and prospective investors in the Company's securities to not

place undue reliance on forward-looking information as by its nature, it is

based on current expectations regarding future events that involve a number of

assumptions, inherent risks and uncertainties, which could cause actual results

to differ materially from those anticipated by WesternZagros.

Forward looking information is based on management's current expectations and

assumptions regarding, among other things, plans for and results of drilling

activity, future capital and other expenditures (including the amount, nature

and sources of funding thereof), future economic conditions, future currency and

exchange rates, continued political stability and the Company's continued

ability to obtain qualified staff and equipment in a timely and cost efficient

manner. In addition, budgets are based upon WesternZagros' current exploration

plans and anticipated costs both of which are subject to change based on, among

other things, the actual results of drilling activity, unexpected delays and

changes in market conditions. Although the Company believes the expectations and

assumptions reflected in such forward-looking information are reasonable, they

may prove to be incorrect. Forward-looking information involves significant

known and unknown risks and uncertainties. A number of factors could cause

actual results to differ materially from those anticipated by WesternZagros

including, but not limited to, risks associated with the oil and gas industry

(e.g. operational risks in exploration; inherent uncertainties in interpreting

geological data; changes in plans with respect to exploration or capital

expenditures; the uncertainty of estimates and projections in relation to costs

and expenses and health, safety and environmental risks), the risk of commodity

price and foreign exchange rate fluctuations, the uncertainty associated with

negotiating with foreign governments and risk associated with international

activity.

See the Risk Factors section of this MD&A for a further description of

these risks. The forward-looking information included in this annual report is

expressly qualified in its entirety by this cautionary statement. WesternZagros

assumes no obligation to update or revise any forward-looking information to

reflect new events or circumstances, except as required by law. For additional

information relating to the risks and uncertainties facing WesternZagros, see

"Risk Factors". Additional information relating to WesternZagros is available on

SEDAR at www.sedar.com.

Overview

WesternZagros is a publicly-traded, Calgary-based, international oil and gas

company engaged in acquiring properties and exploring for, developing and

producing crude oil and natural gas in Iraq. WesternZagros holds a Production

Sharing Contract ("PSC") with the Kurdistan Regional Government ("KRG") which

covers a 2,120 square kilometres exploration block in the Kurdistan Region of

Iraq and it is on trend with, and adjacent to, a number of prolific historic oil

and gas discoveries. WesternZagros (operator) holds a 40 percent working

interest, the KRG holds a 20 percent working interest (carried by WesternZagros)

and a wholly-owned subsidiary of Talisman Energy Inc. ("Talisman") holds the

remaining 40 percent working interest.

Strategy

WesternZagros' main focus is the exploration and development of its PSC

lands. WesternZagros' objective is to be recognized, through consistently

superior business performance and operations excellence, as one of the leading

independent oil and gas companies active in Iraq. The Company is committed to

operating in the Kurdistan Region of Iraq in a safe and secure manner. In

executing its strategy, WesternZagros has made it a priority to recruit and

retain local personnel and to actively participate in, and contribute to,

community development projects. WesternZagros believes it has developed a

relationship with government authorities, local communities and the business

community in the Kurdistan Region which has allowed the Company to gain access

to opportunities and to obtain the cooperation needed to successfully execute

projects.

Plan of Arrangement

WesternZagros was incorporated on August 22, 2007 under the laws of the

Province of Alberta. On October 18, 2007, WesternZagros, Western Oil Sands Inc.

(now Marathon Oil Canada Corporation) ("Western"), Marathon Oil Corporation,

1339971 Alberta Ltd. and WesternZagros Resources Inc. ("WZRI") completed a Plan

of Arrangement (the "Arrangement"). Pursuant to the Arrangement, each Western

shareholder received one share and one-tenth of a warrant of WesternZagros for

each Western share held, resulting in the issuance of 165,057,183 common shares

and 16,505,729 warrants. Each whole warrant entitled the holder to purchase one

WesternZagros share at a unit price of Cdn$2.50 until January 18, 2008.

Upon closing of the Arrangement, WesternZagros indirectly received

approximately Cdn$82.5 million cash from Western as part of the transaction. In

addition, following the transaction, WesternZagros completed a private placement

at a price of Cdn$2.50 per share for proceeds of Cdn$12.5 million. WesternZagros

began trading on the TSX Venture Exchange in Canada on October 22, 2007 under

the symbol WZR. Of the 16,505,729 warrants issued pursuant to the Arrangement,

4,073,803 were exercised prior to expiry for total proceeds to WesternZagros of

approximately Cdn$10.2 million.

In connection with the Arrangement, through a series of transactions,

WesternZagros acquired all of the outstanding shares of WZRI. As the

shareholders of Western ultimately continued to hold their respective interests

in WZRI, there was no resulting change of control. Therefore, the acquisition

was accounted for assuming continuity of business for WZRI under Emerging Issues

Committee 89 - Exchanges of ownership interests between enterprises under common

control-wholly and partially-owned subsidiaries ("EIC-89"). Consequently, no

fair value adjustments were made.

The consolidated financial statements of WesternZagros, and the disclosures

found throughout the MD&A, reflect the assets and liabilities of WZRI at

their book value as reported in the consolidated financial statements of WZRI.

The continuity of business accounting requires that the results of operations

presented in the consolidated financial statements of WesternZagros include the

operations of WZRI for the entire fiscal period in which the Arrangement took

place. In addition, the comparative consolidated financial statements of

WesternZagros were restated to reflect the financial position and results of

operation as if WesternZagros and WZRI had been combined since their inception.

As a result, references to WesternZagros in the MD&A incorporate the

activities of WZRI and its subsidiaries from their inception; however, certain

direct year-over-year comparisons are impacted as results for the year ended

December 31, 2007 only reflect revenue and expenses incurred between October 18,

2007 and December 31, 2007. This includes revenue, which was earned on the cash

balances received subsequent to the date of the Arrangement, as well as general

and administrative expenses and depreciation incurred on employees and related

costs and assets, hired or purchased, subsequent to the Arrangement.

Highlights

WesternZagros' highlights and activities to March 6, 2009 include:

Operations

- WesternZagros completed its seismic program in July 2008 and acquired a

total of 1,547 kilometres of data under its Phase I and II programs, exceeding

its seismic commitment of 1,150 kilometres under its PSC.

- WesternZagros commenced drilling its initial wildcat exploration well,

Sarqala-1, in May 2008 and has drilled to a depth of 4,357 metres and has

penetrated the Lower Fars, Jeribe and Euphrates Formations. Numerous indications

of oil and gas were encountered in these formations. Analysis of the oil shows

indicate the oil is light (34 to 35 degrees API) and sweet (less than one

percent sulphur).

-- While drilling delays and unexpected events with wildcat wells are not

unusual, especially in remote frontier areas, Sarqala-1 has experienced a number

of operational delays related to overpressured zones which required the use of

anomalously high drilling mud densities (up to 2,380 kilograms per cubic metre

or 19.9 pounds per gallon). Some of the zones were pressurized to near formation

fracture pressures resulting in time consuming well control operations.

Additional delays also occurred related to lost circulation zones that were

controlled with the addition of specialized mud products. Drilling progress was

further impacted by encountering a thicker Lower Fars Formation than originally

prognosed. This resulted in the reservoir target zones being approximately 250

metres deeper than prognosed.

-- While conducting wireline logging operations across the intervals with

recorded shows, the equipment encountered a wellbore obstruction which prevented

logging. WesternZagros successfully drilled through the obstruction, but

subsequently the drilling assembly became stuck in the hole. During recovery

operations the drill string parted. Recovery operations have been unsuccessful

and the well will be suspended pending the evaluation of the feasibility and

merits of future drilling options on Sarqala. In the meantime the drilling rig

will be moved to Kurdamir-1.

-- Despite the disappointment that Sarqala-1 did not penetrate all the

reservoir targets, nor obtain wireline logs across the Jeribe and Euphrates

reservoir targets, WesternZagros views the numerous indications of oil and gas

encountered in Sarqala-1 as positive and consider that they enhance the

propectivity of Block 44 as they reduce the risk that any undiscovered resources

may be gas instead of oil.

-- In addition, the thick halite (salt) deposits in the Lower Far Formation

also enhances the prospectivity of the block as they reduce the risk associated

with top seal of the reservoir target intervals.

- WesternZagros completed engineering and related work on its second drilling

location, Kurdamir-1 and plans to spud the well in May 2009.

- May 2008 marked a full year of in-country operations with no Lost Time

Incidents (LTI) and a combined total exposure of 1.8 million person hours. At

the end of February 2009, WesternZagros operations achieved a combined total

exposure of 3 million person hours with no Lost Time Incidents. This is a

significant achievement and demonstrates the commitment of the Company's

employees and contractors to the safety and security of its operations.

Financial

- In March 2008, WesternZagros completed a private placement for total net

proceeds of Cdn$70.8 million, consisting of 33.3 million shares at a price of

Cdn$2.25 per share.

- In June 2008, the KRG nominated Talisman as the Third Party Participant in

the Kalar-Bawanoor Block, holding a 40 percent working interest. With Talisman's

election, and for costs incurred by WesternZagros, Talisman paid WesternZagros

$50.7 million under the terms of the PSC. In addition, Talisman funds its 40

percent share of costs going forward.