WesternZagros Resources Ltd

Market reaction appears to be negative , considering yesterday`s action and today`s bid and ask prior to market .

But i view this as a step back as we await further results from Kurdamir-1 while moving on to Sarquala-1 and planning further drilling at Mil Qasim well early in the second quarter of 2011.

Below are some of the items that held my attention concerning ongoing operations , obligations and financing . I remain optimist about the prospect we have here . If some tangibles concerning oil in Kurdamir-1 and positive results from Sarquala-1 were to be confirm before the end of 2010 , i believe the outlook would increase manyfold for WZR .

Please share your opinion about this Q3 so we can have a better view .

Tec

Highlights :

　

Cased hole testing of the Lower Oligocene commenced at the Kurdamir-1 well on October 16, 2010. The first cased hole test was completed at depths between 2,365 and 2,415 metres. The test achieved a maximum flow rate, after acidization, of 18.3 million cubic feet per day of gas and a maximum yield of 86 barrels of high quality, 62 degrees API natural gas liquids (condensate), per million cubic feet of gas. No formation water was recovered during the testing. In addition, a mixture of light crude oil and condensate was recovered during the test prior to acidizing the formation. After acidizing the well, the Company interprets that the high gas flow rates and pressures prevented further oil flow. The second cased hole test is currently being performed in a zone between 2,455 and 2,470 metres to confirm the presence of the potential oil leg below the discovered gas and condensate in the Oligocene formation.

　

- WesternZagros advanced its analysis of the Sarqala-1 well re-entry opportunity in order to test the Miocene Jeribe Formation. The analysis suggests strong oil potential, analogous to the same formation in the nearby Qamar-1 well, which flowed 2,200 barrels of oil per day.

　

Financial

- As at September 30, 2010, WesternZagros had $50.5 million in working capital.

As at September 30, 2010, WesternZagros had received $15.7 million in insurance proceeds from the insurers. The Company estimated an additional receivable of $21.3 million for interim claimable costs as at September 30, 2010. These costs, under the terms of the insurance policy, are subject to review and approval by the adjuster as appointed by the insurers. The Company continues to submit interim insurance claims as allowable costs are incurred and paid. Subsequent to September 30, 2010, the Company received $1.2 million in insurance proceeds and has received approval for a further payment of $6.3 million.

- The Company's maximum limit of coverage for the current insurance claim is $45 million, of which approximately $38.2 million has been incurred up to October 14, 2010, when the completion and testing of the Lower Oligocene formation began. This leaves approximately $6.8 million available for a future Kurdamir re-drill.

To meet its remaining commitments for the first exploration sub-period, WesternZagros estimates expenditures of approximately $15 million to $25 million, excluding the costs associated with future activities at Kurdamir-1. Additional costs of any testing, if required, would be in addition to these amounts. This represents the Company's 60 to 100 percent funding requirement and includes the remaining costs associated with drilling one additional exploration commitment well by the end of the first exploration sub-period, and providing associated supervision and local office support.

WesternZagros, on behalf of the Contractor Group, has applied to the KRG to extend the first exploration sub-period for up to 12 months, i.e. to December 31, 2011,

WesternZagros is actively involved in discussions with the KRG and Talisman regarding the optimum way to conduct future activities on the PSC lands. These discussions have focused on determining the timing of the third exploration commitment well; the timing for Kurdamir-2; the operator for drilling Kurdamir-2; and addressing the co-venturers' commercial concerns. The current PSC may be restructured as a result of these discussions.

WesternZagros has continued to analyze the petroleum prospectivity of the remainder of its PSC lands. WesternZagros has identified two locations, Mil Qasim and Qulijan, as potential drilling opportunities to meet the third well commitment, and is currently preparing to drill Mil Qasim. The Mil Qasim prospect, which is located nearby the first exploration well drilled by WesternZagros at Sarqala-1, is shallower and considerably less complex than other prospects WesternZagros has identified in the Kalar-Bawanoor Block. The Company plans to complete site construction, well planning and the ordering of the necessary long lead items in the fourth quarter of 2010 and the first quarter of 2011, and anticipates spudding the Mil Qasim well early in the second quarter of 2011. The Company has also revisited the results of Sarqala-1, the first well it drilled in Kurdistan, and has revised its analysis of the oil shows in the Miocene Jeribe reservoir encountered in that well. Once the cased hole tests are completed at Kurdamir-1, and prior to moving operations to Mil Qasim, WesternZagros plans to re-enter Sarqala-1 to drill a short sidetrack to test this zone.

WesternZagros estimates its share of expenditures for the remainder of 2010 to be between $16 million and $18 million after insurance proceeds. This range includes $8.2 million of costs for the continued completions and testing operations at Kurdamir-1, of which $1.2 million is estimated to be recoverable from insurance, leaving a net cost to the Company of $7.0 million. The remainder of the costs include approximately $0.5 million for the preparation of Mil Qasim and $5.8 million to initiate operations to re-enter Sarqala, with the balance associated with various other support costs

At September 30, 2010, WesternZagros had $50.5 million in working capital.

Management currently expects to use this balance to fund future capital expenditures as described in the "Outlook" section. WesternZagros is considering the proper timing to access further financial resources, including assessing the following factors:

in order to allow sufficient time for drilling the flank of the Kurdamir structure to determine whether the downdip Oligocene Reservoir is oil bearing or gas-condensate bearing.