Agoracom: Small Cap Investment - AGORACOM Small Cap Energy and Environment News Feed

Continental Enters Into Partnership For Indonesian CBM

15 May 2012 13:00:00 GMT

JAKARTA, Indonesia, May 15, 2012 -- Continental Energy Corporation (OTCBB: CPPXF) (the "Company") an emerging international energy company, today announced that it has entered into a Joint Study and Bid Group agreement with CBM Asia Development Corp. ("CBM Asia").

CBM Asia (TSX.V:TCF) (www.cbmasia.com ), a Canadian-listed coalbed methane ("CBM") company focused solely on the Indonesian CBM industry and with interests in four CBM production sharing contracts ("PSC") is pursuing new CBM opportunities in Indonesia. Under the agreement, Continental and CBM Asia will jointly and exclusively study selected areas in Indonesia with the objective of identifying geologically justified candidate areas to be jointly pursued as targets of opportunity for direct acquisition of CBM PSCs offered by the Indonesian government through public tenders or through direct proposal tenders conducted under joint study arrangements.

Successful CBM PSC acquisitions shall be shared by Continental and CBM Asia under a pre-agreed joint operating agreement ("JOA") format in the participating interest proportions 75% CBM Asia and 25% Continental. CBM Asia shall act as operator under the JOA and any CBM PSC and shall pay 100% of the JOA's CBM PSC general and administrative costs. All CBM PSC acquisition costs and other JOA exploration and drilling costs shall be borne by the parties in proportion to their respective JOA participating interests.

According to MIGAS, the oil and gas division of Indonesia's Ministry of Energy, gas production from CBM is expected to contribute to the country's efforts in boosting its declining gas output. Indonesia has the world's second largest CBM reserves after China, with total potential reserves of 453 trillion cubic feet, twice that of its estimated conventional natural gas resources. In order to promote CBM development, the Indonesian Government has prepared some new incentives and streamlined CBM working area applications. Foremost among these incentives is a favorable production sharing split for the contractor of 45% for CBM gas as opposed to the 30% conventional PSC operators receive for gas. A tax holiday incentive is also being considered for CBM gas.

Continental's CEO, Richard McAdoo stated, "This agreement with CBM Asia is the first step along a planned path of expansion into the unconventional oil and gas sector in Indonesia which is pushing increased gas production by any means, largely to fuel a chronic under capacity of electrical power generation. We intend to leverage our long history of oil and gas operating experience in Indonesia with a far reaching understanding and knowledge of the geology of Indonesia into the CBM sector. We are pleased to have CBM Asia, a leading CBM developer and operator, as our operating partner in this expansion. I am confident we will make a good team, as we each bring a strong competitive advantage to the table."

CBM Asia's President and CEO, Al Charuk, added, "We are very excited to enter into a CBM agreement with Continental Energy Corporation which like ourselves is Indonesian focused. Continental's management and technical teams have extensive geological knowledge underpinning potential CBM opportunities as well as operating experience required for surface operations. We have identified several areas of interest which we and our new partner will be actively pursuing in the near future."

On behalf of the Company,Robert V. Rudman, C.A.Chief Financial Officer

Further Info:www.continentalenergy.com http://agoracom.com/ir/continentalenergy

No securities regulatory authority has either approved or disapproved the contents of this news release.

Statements in this news release that are not historical are forward looking statements. Certain matters discussed within this press release may be forward-looking statements within the meaning of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Although Continental believes the expectations reflected in such forward-looking statements including reserves estimates, production forecasts, feasibility reports and economic evaluations are based on reasonable expectations and assumptions, it can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from expectations include financial performance, oil and gas prices, drilling program results, regulatory changes, political risk, terrorism, changes in local or national economic conditions and other risk detailed from time to time in Continental's periodic filings with the US Securities Exchange Commission. Readers should also refer to the risk disclosures outlined in disclosure documents filed by other early stage energy and environmental companies with the Securities and Exchange Commission available at www.sec.gov.

The Company assumes no obligation to update the information in this release.

SOURCE Continental Energy Corporation

For further information: Robert Rudman, CFO, +1-561-779-9202, rrudman@continentalenergy.com or AGORACOM cppxf@agoracom.com

Continental Buys First Stake in a Geothermal Energy Project

09 May 2012 13:00:00 GMT

JAKARTA, Indonesia, May 9, 2012 -- Continental Energy Corporation (OTCBB: CPPXF) (the "Company" or "Continental") an emerging international energy company operating in Southeast Asia, today announced that it has purchased a 10% stake in Tawau Green Energy Sdn. Bhd. ("TGE"), a privately held company based in Kota Kinabalu, Sabah, Malaysia.

TGE is a geothermal energy developer. On November 29, 2011, TGE entered into a Renewable Energy Power Purchase Agreement (the "PPA") with Sabah Electricity Sdn. Bhd. ("SESB") to supply a capacity of 30 megawatts of electrical power to SESB's East Coast Sabah power grid. SESB is a utility owned 80% by Tenaga Nasional Berhad, the federally owned electrical generation authority and utility of Malaysia and 20% by the State Government of Sabah. TGE is developing a volcano related geothermal resource known as "Apas Kiri" which is located in southern Sabah near the city of Tawau approximately 100 miles north of Continental's Bengara-II oil and gas PSC in Indonesia.

TGE will build, own and operate the geothermal power plant and expects to construct it at an estimated total cost of 400 Million Malaysian Ringgit ("MYR") (approximately US$ 133 Million). TGE plans to commission the plant by the end of 2014 and when completed, it will be Malaysia's first power plant fired by a geothermal resource.

The PPA provides for a fixed purchase price by SESB of MYR 0.21 per kilowatt hour (approximately US$ 0.07) and a guaranteed off-take of all power the geothermal plant can produce for a fixed term of 21 years from first commercial operation. Over the 21 year life of the PPA, TGE expects to generate about US$ 328 Million in revenues at the PPA price. Additionally, TGE has applied for a Feed-In Tariff incentive from the Malaysian Government which if and when approved, would increase the overall revenue projection.

Further, TGE's Tawau geothermal power project has been registered and validated with the United Nations Framework Convention on Climate Change under its Clean Development Mechanism program and is enabled to earn certified emission reduction ("CER") credits during its first ten years of operations. Each CER may be sold and traded on carbon credit exchanges such as BlueNext at a quoted market price (current spot CER price is euro 3.55 each). When operating at its rated capacity of 30 megawatts, the power plant is expected to reduce CO2 emissions by 282,400 metric tonnes per year and earn the same number of CERs (1 CER = 1 tonne CO2 reduction). Under its agreement with a third party carbon credit solutions provider, TGE will be entitled to 75% of the CER revenue or about euro 750,000 per year at current CER spot prices.

Continental is purchasing its 10% stake in TGE from an existing TGE shareholder (the "Seller"). Pursuant to a share sale and purchase agreement, Continental will make a combination of cash payments on behalf of or directly to TGE in the form of shareholder loans repayable by TGE to the Seller. The payments will include set amounts per month plus other cash payments from time to time over a 12 month period to a cumulative and maximum amount of 6 Million Malaysian Ringgit (approximately US$ 2 Million). Continental's payments are to be administered jointly by Continental and the Seller and utilized solely to provide financing for pre-agreed, front-end geothermal resource development costs incurred by, or on behalf of, TGE. In addition, the share sale and purchase agreement provides Continental with the right to appoint one person to TGE's Board of Directors and the right to designate TGE's Geotechnical Director. Continental's Chief Executive Officer, Richard L. McAdoo has accepted the role of Director and he will also act as TGE's Geotechnical Director for geosciences and geothermal resource exploration, development and exploitation.

Richard McAdoo stated, "This acquisition of a 10% stake in TGE is a milestone event for Continental. It represents that all important, first big-step of our planned expansion into the renewable electrical power generation sector in a high growth region. The countries of Southeast Asia are all aggressively pursuing additional electrical power generation as the solid growth of their economies places unprecedented demand on current electrical generation capacity. As a result, clean, sustainable and renewable energy projects are generating major interest from regional financing sources and are attracting substantial investment incentives from the highest levels of government. The rapid and impressive track record of TGE in bringing the Apas Kiri geothermal project from concept to PPA is an excellent example of one of many attractive business opportunities available to innovative renewable and unconventional energy companies in Southeast Asia. We are extremely pleased to be joining TGE in this business venture and we are confident that our expertise in geological resource evaluation, risk management, and drilling will make a major contribution to TGE's success."

Ramzi Raad, TGE's Managing Director confirmed, "With our PPA in place and other supporting contracts and approvals either in place or in final stages of completion, we are now shifting our corporate focus to implementing development of the Apas Kiri geothermal resource. As a new shareholder, Continental is expected to play a major role in our future success. Continental brings a considerable amount of valuable geological and drilling technical expertise to the table in addition to its financial commitment. Continental's technical expertise and its long track record of oil and gas operating experience in nearby Indonesia is the perfect complement to TGE's proven expertise and experience in electrical power generation in Sabah."

This press release is available on the Company's online investor relations HUB for shareholder questions, comments and discussion. http://agoracom.com/ir/continentalenergy

On behalf of the Company,
Robert V. Rudman
Chief Financial Officer

Investor Relations
http://agoracom.com/ir/continentalenergy

Further Info: www.continentalenergy.com

No securities regulatory authority has either approved or disapproved the contents of this news release.

Forward Looking Statements

Statements in this news release that are not historical are forward looking statements. Forward-looking statements in this news release include: that TGE will build, own and operate a geothermal power plant near Tawau and expects to construct it at an estimated total cost of 400 Million MYR; that the plant will be commissioned by the end of 2014; that the PPA agreement will be complied with and generate about US$ 328 Million in revenues over the term of the PPA agreement; that TGE may get a Feed-In Tariff incentive; that the project will generate carbon credits that can be sold; that we can complete all payments required to earn our interest in the project; that we plan expansion into renewable electrical power generation in high growth regions; and that our expertise in geological resource evaluation, risk management, and drilling will make a major contribution to TGE's success.

Forward-looking statements are subject to risks, uncertainties and factors that include, but are not limited to the nature of major construction projects, which are subject to construction delays, cost overruns and uncertainties of whether a project will work as well as expected or generate revenues as expected; the nature of the carbon credit industry, including changing customer demand, changing regulatory requirements, an immature and unpredictable market for CERs, different regulations across national borders; other risk factors include customer acceptance of our services and products; the impact of competitive services, energy alternatives and pricing; dependence on existing management;, that technology may not work as expected; and general economic conditions. In regards to our company, the following are also risk factors: we may not be able to complete our non-financial contractual obligations; we may not be able to finance our contractual obligations to acquire our interest in the project; we may not be able to finance operations and growth; we may not be able to attract and retain employees and consultants; we face competition from cheaper or more accepted competitors or energy sources; it is not yet assured that TGE and our technology can perform under commercial conditions or that TGE or we can keep control on costs. Substantial revenues, including sales of electricity, heat and CERs does not necessarily mean that our company will be profitable. In addition our company faces political risks in the regions where we operate. Readers should also refer to the risk disclosures outlined in disclosure documents filed by other early stage energy and environmental companies with the Securities and Exchange Commission available at www.sec.gov.

The Company assumes no obligation to update the information in this release.

SOURCE Continental Energy Corporation

AGORACOM Client Feature (CPPXF: OTCBB) - Continental Energy Corp.

16 Apr 2012 19:59:00 GMT

CPPXF: OTCBB

Continental Energy Corporation is a small and aggressive oil and gas exploration company focusing its efforts on making large commercial discoveries and establishing petroleum production in low to medium risk, but high potential reward, international properties.

Indonesian Focus

Indonesia holds proven oil reserves of 4.2 billion barrels and ranks twenty first among world oil producers, accounting for approximately 1.2% of world oil production . Declining oil production and increased consumption resulted in Indonesia becoming a net oil importer inlate 2004. This factor, along with high oil prices in 2004-2008, led the Government to substantially scale back the domestic fuel subsidyin 2008 and to decide to temporarily withdraw from the Organization of Petroleum Exporting Countries –an organization representing approximately 45% of world oil production. As the only Asian member of OPEC since 1962, the Government has indicated it will consider rejoining OPEC if the country’s oil production can be increased and it can becomea net exporter again.

Indonesia is ranked eighth in world gas production, with proven reserves of 108 trillion cubic feet in year 2010. This ranks eleventh largest in the world and the largest in the Asia Pacific region.

Management has long experience in-country and solid relationships with both industry and government at all levels; there is a well established history of positive relationships between the international oil industry and the Government of Indonesia; there is strong and growing regional demand for both crude oil and natural gas provides expanding and near-by I-C-I (India-China-Indonesia) markets for any production Continental establishes.

Bengara II Block

Field shooting and recording operations on the 3D portion of the Bengara-II block seismic acquisition program are now completed. The full original 3D program of 178 square kilometers (120 km(2) full fold) has been recorded. Computer processing of the entire 3D program is also now completed.

Original plans called for a total of 920 line kilometers of new 2D seismic data to also be shot and recorded. Repositioning of some lines and abandonment of others due to the prawn farm issues has resulted in a reduction of the planned 2D program. CGB2 now expects to complete a total of 685 line kilometers of new 2D seismic recording.

IR Hub / Corporate Profile / Discussion Forum

Continental Launches Online Investor Relations Program via AGORACOM

03 Apr 2012 13:00:00 GMT

JAKARTA, Indonesia, April 3, 2012 -- Continental Energy Corporation (OTCBB: CPPXF) (the "Company") an emerging international oil and gas company, today announced that it has retained the services of AGORACOM Investor Relations ("AGORACOM") (http://www.agoracom.com) to provide online investor relations services. AGORACOM will specifically provide an online investor relations community for current shareholder communications, in addition to online marketing through search engines, social media networks and Tier-1 financial content partners for the purpose of attracting new shareholders.

Online investor relations maximizes the speed of communication, the degree of transparency and the access to company information. In response to overwhelming research data being generated by small-cap investors, the Company selected online investor relations to facilitate faster and more efficiently communications with both current and prospective shareholders around the world.

Effective immediately, a customized and monitored Continental Energy Corporation IR HUB will be available at http://agoracom.com/ir/continentalenergy, allowing management to communicate with shareholders anytime and in near real-time through an electronic shareholder forum http://agoracom.com/ir/continentalenergy/forums/discussion. Moreover, the IR HUB will provide the Company's management with the ability to extend communications beyond text via audio messages, video presentations, Skype broadcasts, webcasts and podcasts.

Richard L. McAdoo, Chief Executive Officer commented, "We are anxious to embark on this campaign to both increase communications with existing shareholders and to attract new shareholders to our company as we continue to expand our involvement into new energy projects throughout Southeast Asia. We encourage everyone to get involved and to maximize the strength of our online IR campaign."

About AGORACOM

AGORACOM Investor Relations (http://www.AgoracomIR.com) is North America's largest online investor relations firm for small-cap companies. It has partnered with some of the world's largest internet and mobile companies to market its clients to a massive audience of new small-cap investors. It has served over 250 small-cap public companies and its industry pioneering online investor relations platform (http://www.Agoracom.com) has held an Alexa traffic ranking above the top 0.5% of all websites around the world since 2007. AGORACOM averages 1.1 million investors, 7.4 million visits and 75 million page views annually.

On behalf of the Company,

Robert V. Rudman, Chief Financial Officer

Further Info: www.continentalenergy.com and http://agoracom.com/ir/continentalenergy

No securities regulatory authority has either approved or disapproved the contents of this news release.
Certain matters discussed within this press release may be forward-looking statements within the meaning of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Although Continental believes the expectations reflected in such forward-looking statements including reserves estimates, production forecasts, feasibility reports and economic evaluations are based on reasonable expectations and assumptions, it can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from expectations include financial performance, oil and gas prices, drilling program results, regulatory changes, political risk, terrorism, changes in local or national economic conditions and other risks detailed from time to time in Continental's periodic filings with the US Securities Exchange Commission.

SOURCE Continental Energy Corporation

Source: PR Newswire (April 3, 2012 - 9:00 AM EDT)

Quetzal Energy - 2012 Operational Update (Feb 28)

29 Feb 2012 13:36:00 GMT

release from Marketwire

Quetzal Energy Ltd. Provides 2012 Budget and Operational Update

Tuesday, February 28, 2012

TORONTO, ONTARIO--(Marketwire - Feb. 28, 2012) - Quetzal Energy Ltd. (TSX VENTURE:QEI) ("Quetzal" or the "Company") is pleased to provide the following operational update and budget for 2012:

Llanos 27 Block

Mani-1 Exploration Well

On January 16, 2012, Quetzal announced an oil discovery in the Mani-1 exploration well. Initial production rates from the test were 1,510 bbls/d of fluids with a 32% watercut equating to approximately 1,025 boe/d of 14 degree API oil. During the course of the following 57 hour test, fluid and oil production rates improved to 2,310 bbls/d of fluids and a 16% watercut equating to approximately 1,940 boe/d of 16 degree API oil. Following the initial test, the well was suspended while regulatory approval was applied for to place the well on extended test. All applications and submissions have been made and Quetzal expects the extended test approval to be granted in the next one to two weeks. Production under the extended test will commence immediately following receipt of the approval.

Flami-1 Exploration Well

On February 3, 2012, negotiations were completed for land access at the Flami-1 exploration location and preliminary construction has begun to prepare the location for drilling. Subject to rig availability, Quetzal and its partners expect to spud the Flami-1 well by May 1, 2012. Once drilling begins, management expects to reach target depth of approximately 10,000 feet in 45 days. Prospective targets include the oil bearing intervals in the Mirador and Une Formations, with the Carbonera formation representing a secondary target. The current well budget for the Flami-1 well is $11,000,000 for drilling and casing and Quetzal will pay 50% of the cost and have a 45.275% revenue interest in this block before payout, and a 34.25% private participating interest following payout. The Flami-1 well sits on Block 27's Prospect D location. Quetzal management estimates that Prospect D has a P50 area of approximately 350 acres, compared to a P50 area at Mani-1's Prospect B of approximately 75 acres.

Canaguaro Block

Canaguay-1 Well

On October 20, 2011, the Company and its partners shut in the Canaguay 1 well to service the well by conducting a clean-out of the well, replacing the ESP, and placing the new ESP at a deeper depth in the well closer to the producing zone. Management's expectation was that this would lead to increased fluid production and a resultant increase in oil production as well. One of the objectives of this job was to remove a considerable amount of high viscosity emulsion that was plugging the well and limiting its productivity. The second objective was to run a new ESP design to ensure more effective drawdown on the well. On October 29^ththe well was put back on production and since that time production has averaged between 900-1,000 boe/d of oil with a watercut of approximately 35%.

In early February, the ESP began to run into complications due to the same high viscosity emulsion that was addressed in the October 2011 workover. Due to this, the well has been suspended in order to run a second workover of the well to remove the emulsion. Quetzal and its partners are also reviewing other pump design options that may be better suited to address the production challenges that come from the emulsion factor. Management estimates Quetzal's share of the current workover to be approximately $250,000 and should take approximately two to three weeks to complete.

Canaguay-2 Well

In late 2011, Quetzal and its partners received approval for the Evaluation Program at the Canaguaro Block. The commitment under the Evaluation Program is to shoot 20 km²of 3D seismic and to drill another well by February 3, 2013. Planning has commenced to complete the 3D seismic survey in the summer of 2012 and plans are being made to drill the Canaguay-2 well in Q4 of 2012. Quetzal currently has the financial resources to meet its share of commitments under the evaluation program.

Quetzal has a 25% private participating interest in the Canaguaro Block.

Block 21

Following the Mani-1 oil discovery at Block 27 and the successful workover completed at the Canaguaro Block, Quetzal has re-evaluated its spending and investment priorities and has decided to focus capital expenditure activity on Block 27 and the Canaguaro Block. As a result, the Company has entered into an agreement with Omega Energy Colombia to renegotiate its farm-in arrangement at Block 21, whereby Quetzal will cap its capital expenditure commitment to an agreed amount in return for a reduced production income participation.

Under the terms of the original farm-in agreement, Quetzal was to pay 50% of two wells in exchange for an income production participation of 35%. Under the new arrangement, Quetzal will pay a maximum of $3,875,000 towards the two wells and will have the option, following the completion of those wells to: a) waive any right to an income production participation going forward and have no further financial obligations; or b) retain a 24.75% income production participation in the block by reimbursing Omega Energy Colombia for its incurred cost in the two wells, such that Quetzal will have paid 50%.

Block 36

Quetzal has been advised by Montecz, the operator of Block 36, that it has made an application to the ANH for an extension of the Phase 1 exploration deadline and is awaiting a decision on that application.

2012 Budget

Management and the Board of Directors of Quetzal are pleased to provide the recently approved budget for the 2012 fiscal year:

(Cash Uses)	US Dollars
Block 27 Capital Expenditures	($9,563,951	)
Canaguaro Capital Expenditures	($7,345,376	)
Block 21 Capital Expenditures	($3,875,000	)
Block 36 Capital Expenditures	($50,000	)
Operational Expenses	($10,505,487	)
Total Uses	($31,339,814	)

Cash Sources
Revenue from Production ⁽¹⁾	$15,800,620
Cash Balance at Beginning of Year	$11,538,913
Other Sources ⁽²⁾	$5,150,652
Total Sources	$32,490,185

Forecast Cash Balance at end of Year	$1,150,372

Notes:

1. Assumes average gross production from Canaguaro of 821 boe/d and from Mani-1 of 1,266 boe/d (assumes 9 months).

2. Includes cash received from sale of Horden Lake Mining property, sale of Guatemala division, recovery of ANH warranty from Block 27 Phase 1, and GST recoveries.

Updated Website and Management Presentation

Quetzal management is pleased to announce that a new company website will be launched on February 29, 2012 and can be found at www.quetzalenergy.com. In addition, a new management presentation has been updated and will be available in the Investor Relations area of the new website.

About Quetzal Energy Ltd.

Quetzal is a junior oil and gas company with private participating interests in 4 blocks in the Llanos Basin of Colombia.

Xcite Energy upgrades Bentley Field Oil Reserves

28 Feb 2012 00:16:00 GMT

Xcite Upgrades Bentley Field's Oil Reserves

Feb 20, 2012 - Xcite Energy has upgraded its oil reserves at the Bentley field, located in the UK sector of the North Sea. TRACS International Consultancy, an independent reserves auditor, estimated that oil reserves of the type 1P, 2P and 3P for the core area of Bentley are approximately 99 million, 116 million and 140 million barrels of oil, respectively. The operator plans to begin developing the field this year, after completing "significant work" in the latter half of 2011 to prepare for the Bentley Phase 1A work program in 2012. The field development plan for Bentley, comprising of Phase 1B and Phase 2, was submitted for approval to the Department of Energy and Climate Change in the final quarter of 2011.

News

22 Feb 2012 06:37:00 GMT

February 21, 2012

WesternZagros Announces Stock Option Grant

CALGARY, ALBERTA--(Marketwire - Feb. 21, 2012) -

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

WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the Company") announces, as part of its annual employee compensation program, it has granted 6,604,000 stock options to directors, officers, employees and selected consultants of WesternZagros pursuant to the Company's approved stock option plan. These options are exercisable at a price of $0.73 per share representing the closing price of the Company's shares on the TSX Venture Exchange on February 15, 2012. With this grant, WesternZagros will have 25,864,300 stock options outstanding which represents seven percent of the total shares outstanding.

About WesternZagros Resources Ltd.

WesternZagros is an international natural resources company engaged in acquiring properties and exploring for, developing and producing crude oil and natural gas in Iraq. WesternZagros, through its wholly-owned subsidiaries, holds two Production Sharing Contracts with the Kurdistan Regional Government in the Kurdistan Region of Iraq. WesternZagros's shares trade in Canada on the TSX Venture Exchange under the symbol "WZR".

WESTERNZAGROS RESOURCES WAS RECOGNIZED AS A TSX VENTURE 50(R) COMPANY IN 2012. TSX VENTURE 50 IS A TRADE-MARK OF TSX INC. AND IS USED UNDER LICENSE.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE

CONTACT INFORMATION:

WesternZagros Resources Ltd.
Greg Stevenson
Chief Financial Officer
(403) 693-7007

or

WesternZagros Resources Ltd.
Lisa Harriman
Manager of Investor Relations
(403) 693-7017
investorrelations@westernzagros.com
www.westernzagros.com

NEWS UPDATE - Dynamic Completes Order for 178 Hydrogen Generating Units

31 Jan 2012 03:09:00 GMT

Dynamic Announces Completion of Order for Delivery and Installation of 178 Hydragen(TM) Hydrogen Generating Units

Oshawa, Ontario--(Newsfile Corp. - January 30, 2012) - Dynamic Fuel Systems Inc. (TSXV: DYA) ("Dynamic" or the "Corporation"), announces that it has completed the delivery and installation of 178 HydraGen™, hydrogen generating units on transport trucks for Pepsi Beverages Company. These deliveries and installations were managed through its Michigan based reseller; Hydrogen Fuel Systems Inc. (“HFS”) as part of an upgrade program on Class 8 Vehicles that are specifically equipped with a number of fuel and emission reduction measures; including the Corporation’s HydraGen™, hydrogen generating unit.

“The delivery of the Corporation’s flagship product, HydraGen™ to Pepsi Beverages Company is a significant milestone and paves the way for future shipments and product enhancements of the HydraGen™ hydrogen generating unit. We will work closely with the customer to ensure that benefits are maximized. Throughout fiscal years 2010 and 2011, the Corporation’s primary goal was the commercialization of the HydraGen™ product. The completion of the initial order of 178 systems will allow us to manage the results achieved on the trucks and also provide a solid foundation for future shipments and product enhancements.” stated Mr. Grove Bennett, President of Dynamic

www.greenfleetmagazine.com/article/50890/pepsi-beverages-company-fleet-adds-hydrogen-injected-trucks

Industry sets Canada-wide fracking guidelines for shale gas extraction ‎

30 Jan 2012 21:35:00 GMT

http://www.digitaljournal.com/pr/565748

"Shale gas can and is produced responsibly every day across Canada and the United States with almost 200,000 wells fractured in Western Canada over the last 60 years. With increased focus on fracturing from coast-to-coast, the Canadian industry wants to be at the forefront of transparency and to establish clear and consistent practices across the country."

Connacher Refinery Myth

27 Jan 2012 17:40:00 GMT

Why Refinery is more less irrelevant for Connacher ?

Total CLL refining netbacks from 2008 to 2011 (as per CLL reports) was $68 million.

The same time the Total refinery Capital Expenditure from 2008 to 2011 was $66 million. $2 million net profit in 4 years would barely cover 1 year old-dog total compensation.

Big share of the above capital are related to ongoing new government environmental regulation (like the latest benzine removal program).

Like I said in my previous posts, refining business in high OIL price environment is a very small margin operation. Look at the largest US independent refinery Valero which is trying to unload 30% of their holdings and move to Asia were the margins are much higher.

BP and Marathon are trimming their US downstream portfolio as well. There are dozens of refineries for sale in US including (just a sample) 30,000 bbl/d Texas refinery for asking price of $35millions or Kentucky 5500bbl/d for $15 million.

Fully refurbish refineries asking price is ~$15,000 per 1 bbl/day not including 10% commission sell.

Most Institutional Reports give CLL about $100 million credit to the NAV for 9,500 bbl/d Montana refinery.

Only rebel who never understood the difference between the revenue, refining margin (profit) and free cash flow could get exited about the refining business.

Seriously, if you want to make money on oil you have to buy Albert's Light Oil plays. The hottest properties now, with very high netbacks are Swan Hills were the payout (return of your cost) range from 20 weeks to 1 year.

MEO Provides an Update on Reinstatement

27 Dec 2011 15:18:00 GMT

Friday, December 23, 2011	TSX Symbol: MEO

Montello Announce update on reinstatement process

CALGARY, ALBERTA - Montello is pleased to update its shareholders that the company has now signed an agreement with a private company to assist Montello in finally bringing on production in the Pincher Creek area. This agreement will provide the company with the necessary funds to participate in follow-up projects in its focus area. Another important direct result of this agreement is that the company is now in a position to proceed with its business plan and to present the same to the regulatory bodies. The company has been in steady contact with the TSX Venture Exchange and will present its business plan, financials, updated disclosures and reinstatement application before the end of January 2012. Montello appreciates the patience and support through these difficult times shown by its shareholders. ON BEHALF OF THE BOARD OF DIRECTORS "Peter C. Brown" Peter C. Brown President-CEO-Chairman For further information about this announcement and about Montello, please contact Corporate Communications' Greg Tweed at info@montello.com. Please go to www.sedar.com for a detailed list of all filings. Visit www.montello.com for ongoing updates & have your name included on our mailing list. Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release. About Montello Management's goal is to pursue opportunities for high impact oil and gas exploration and recompletion projects in the Appalachian Basin in Tennessee as well as search for potential high impact exploration drilling opportunities back home in the Province of Alberta, Canada's oil and gas heartland. Forward-Looking Information This document may contain "forward-looking information" within the meaning of Canadian securities legislation and "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 (collectively, "forward-looking statements"). These forward-looking statements are made as of the date of this document and Montello Resources Ltd. (the "Company") does not intend, and does not assume any obligation, to update these forward-looking statements, except as required under applicable securities legislation. Forward-looking statements relate to future events or future performance and reflect Company management's expectations or beliefs regarding future events and include, but are not limited to, statements with respect to the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to actual results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of resources; possible variations in ore reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; as well as those factors detailed from time to time in the Company's interim and annual financial statements and management's discussion and analysis of those statements, all of which are filed and available for review on SEDAR at www.sedar.com. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward looking statements.

NEWS on SEDAR

02 Dec 2011 18:00:34 GMT

Interim Financial Statements posted on Sedar http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aGNZ-1907584&symbol=GNZ®ion=C

MD&A also posted http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aGNZ-1907585&symbol=GNZ®ion=C

Looks like there is a light at the end of the tunnel and they hope to be back trading in January 2012.

Louise

WesternZagros Announces 2011 Third Quarter Results

21 Nov 2011 14:17:00 GMT

November 21, 2011

WesternZagros Announces 2011 Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 21, 2011) -

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

WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the Company") provides its results for the periods ended September 30, 2011, key highlights, and activities to date.

In September 2011, WesternZagros received approval from the Ministry of Natural Resources of the Kurdistan Regional Government to start an extended well test at Sarqala. First oil production from Sarqala-1 was achieved on October 18, 2011, after the necessary construction and commissioning activities for the initial facilities were completed. Production started at approximately 2,000 barrels of oil per day ("bopd") and the Company is planning to achieve production from Sarqala-1 of approximately 5,000 bopd by the end of 2011. In the first half of 2011, the Sarqala-1 well initially tested 40 degrees API crude oil at rates of over 9,000 bopd and at a wellhead pressure of approximately 2,400 pounds per square inch. The well was not stimulated and is expected to improve production rate capability during the extended well test. WesternZagros will utilize the information gathered from the extended well test in determining future appraisal and development activities, including the potential for increasing production beyond 5,000 bopd.

On October 27, 2011, WesternZagros sold its first oil produced from Sarqala-1 into the domestic market. To date, for the sales into the domestic market WesternZagros has executed two sales contracts for total delivery of approximately 66,500 barrels of oil priced in the range of $50 to $60 per barrel, and under the terms of these sales contracts WesternZagros received payments totaling $3.8 million in advance of delivery for these sales. Deliveries under these sales agreements to November 17, 2011 have totaled approximately 47,000 barrels of oil.

On October 25, 2011, WesternZagros closed a strategic investment with the Abu Dhabi National Energy Company PJSC ("TAQA") whereby TAQA purchased from WesternZagros, through a private placement, 74 million common shares of the Company at a price of Cdn$0.63 per share for gross proceeds of Cdn$46,620,000. TAQA now holds approximately 19.9 percent of the Company's issued and outstanding common shares. The proceeds from the private placement will be used towards WesternZagros's 2011/2012 capital and operating program.

On August 29, 2011, WesternZagros commenced drilling operations at the Mil Qasim-1 well on the Garmian Block. Mil Qasim-1 is located three kilometres to the south-east of the Company's Sarqala-1 discovery well and is targeting the prospective Upper Fars interval. After successfully setting the 13-5/8 inch casing at 1,615 metres in Mil Qasim-1, the Company has drilled into the Upper Fars interval and has encountered over 88 metres of sands in the Upper Fars and had hydrocarbon shows, both oil and gas, while drilling. WesternZagros has completed logging these initial sands in the Upper Fars, set the 9-5/8 inch casing at 2,128 metres and is preparing to complete drilling to the estimated total depth of Mil Qasim-1 of 2,400 metres. Once total depth is reached, WesternZagros plans to conduct a testing program of the Upper Fars interval.

On October 25, 2011, the Kurdamir-2 exploration well commenced drilling operations, with expected completion by June 2012. The well is being drilled on the flank of the Kurdamir structure approximately two kilometres from the Kurdamir-1 discovery well. Kurdamir-2 is targeting the prospective Oligocene, Eocene and Cretaceous reservoirs. Talisman (Block K44) B.V. ("Talisman") is the operator of the Kurdamir-2 well. To date Kurdamir-2 has been drilled to a depth of approximately 700 metres, where the first intermediate string of casing has been set. WesternZagros anticipates that the drilling and testing of the first reservoir, the Oligocene reservoir, will occur in the first quarter of 2012, with the deeper reservoirs, the Eocene and Cretaceous reservoirs, expected to be drilled and tested by the end of the second quarter of 2012.

During the third quarter of 2011, WesternZagros updated its contingent and prospective resource estimates to reflect the discovery in the Jeribe reservoir at Sarqala-1 and the additional prospects and plays identified on the Garmian Block (Tilako, Zardi, Segrdan, Chwar and Alyan prospects, the Upper Fars Fault Trap Play and the Upper Fars Bawanoor Saddle Play). These updates of contingent and prospective resource estimates were audited by Sproule International Limited. The Company's mean estimate of gross contingent resources for the discovery at Sarqala-1 is 24 million barrels (MMbbl) of oil, or 31 million barrels of oil equivalent (MMBOE), as of September 7, 2011. This contingent resource number does not include the significant prospective resource potential on the flanks of the Sarqala structure deeper than the lowest known oil at 3,485 metres, nor the potential of an extension of this reservoir interval on the southwest flank of the structure. WesternZagros's combined mean estimate of gross unrisked prospective oil resources for these intervals increased to 198 MMbbl, or 250 MMBOE, as of September 7, 2011. Previously the mean estimate of gross unrisked prospective resources for the Jeribe reservoir of Sarqala-1 was 101 MMbbl, or 137 MMBOE. As at January 14, 2011 Western Zagros's mean estimate of gross unrisked prospective oil resources is 705 MMbbl in the Upper Fars Fault Trap Play, 120 MMbbl in the Bawanoor Saddle Play, 127 MMbbl in the Zardi prospect, 93 MMbbl in the Segrdan prospect, 25 MMbbl in the Chwar prospect, 17 MMbbl in the Alyan prospect, and 13 MMbbl in the Tilako prospect as of July 19, 2011. With the completion of these assessments the combined mean estimate of prospective resources on the Company's two contract areas in Kurdistan is 2.3 billion barrels of oil, or 3.7 billion barrels of oil equivalent. Further details on these resource assessments can be found in the material change reports of the Company dated September 14, 2011 and July 19, 2011.

Building on the significant discovery made at Sarqala-1, WesternZagros during the first half of 2012 will begin to design, plan and procure the necessary long lead materials and services for a 3D appraisal program, an appraisal well on Sarqala targeting the Jeribe reservoir ("Sarqala-2") and an exploration well on the Garmian Block to target the Oligocene reservoir ("Hasira-1") that would also appraise the Jeribe reservoir from the Sarqala structure. WesternZagros anticipates that the 3D seismic, Sarqala-2 and Hasira-1 would commence in the second half of 2012, dependent on the availability of the long lead materials and services, including drilling rigs.

Commenting on the third quarter results and subsequent events, WesternZagros's Chief Executive Officer Simon Hatfield said, "We have delivered strong operating performance through the achievements of the last few months, including our first sale of oil from the Sarqala extended well test, securing the necessary funding for our remaining commitments, and by spudding both the Mil Qasim-1 and Kurdamir-2 wells. Our current objectives are increasing oil production from Sarqala-1, completing the drilling and testing at the Mil Qasim-1 well and proving up our prospective oil resources with the Kurdamir-2 well."

Management's Discussion and Analysis

The following management's discussion and analysis ("MD&A") reviews WesternZagros Resources Ltd.'s ("WesternZagros" or the "Company") financial condition, activities and results of operations for the three and nine month periods ended September 30, 2011. It should be read in conjunction with the unaudited condensed consolidated interim financial statements prepared under International Financial Reporting Standards for the period ended September 30, 2011, and the audited consolidated financial statements for the year ended December 31, 2010 prepared under Canadian Generally Accepted Accounting Principles ("GAAP") and the related notes. The effective date of this MD&A is November 18, 2011.

Forward-Looking Information

This discussion offers management's analysis of the financial and operating results of WesternZagros and contains certain forward-looking statements relating to, but not limited to, operational information, future drilling plans and testing programs and the timing associated therewith, future production and sales, estimated commitments under the Company's amended Production Sharing Contract for the Kurdamir area ("Kurdamir PSC") and Production Sharing Contract for the Garmian area ("Garmian PSC"), anticipated capital and operating budgets, anticipated working capital 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. Readers are also cautioned that disclosed test rates may not be indicative of ultimate production levels.

Forward looking information is not based on historical facts but rather on management's current expectations and assumptions regarding, among other things, outcomes of future well operations, plans for and results of extended well tests and 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, timely receipt of any necessary government or regulatory approvals, the Company's continued ability to employ qualified staff and to obtain equipment in a timely and cost efficient manner, the participation of the Company's co-venture partners in exploration activities and the timing of and costs reimbursed by the third party participant interest assignment in the Garmian PSC. In addition, budgets are based upon WesternZagros's current exploration and appraisal plans and anticipated costs, both of which are subject to change based on, among other things, the actual outcomes of well operations and the results of drilling and testing activity, unexpected delays, availability of future financing 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 and production; inherent uncertainties in interpreting geological data; changes in plans with respect to exploration or capital expenditures; interruptions in operations together with any associated insurance proceedings; denial of any portion of the insurance claims; 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.

In addition, statements relating to "resources" contained herein are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources described can be economically produced in the future. Terms related to resource classifications referred to herein are based on the definitions and guidelines in the Canadian Oil and Gas Evaluation Handbook which are as follows. "Prospective resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery (geological chance of success) and a chance of development (economic, regulatory, market, facility, corporate commitment or political risks). The chance of commerciality is the product of these two risk components. The estimates referred to herein have not been risked for either the chance of discovery or the chance of development. There is no certainty that any portion of the prospective resources will be discovered. If a discovery is made, there is no certainty that it will be developed or, if it is developed, there is no certainty as to the timing of such development or that it will be commercially viable to produce any portion of the prospective resources. "Contingent resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingent resources have an associated chance of development (economic, regulatory, market and facility, corporate commitment or political risks).

The estimates referred to herein have not been risked for the chance of development. There is no certainty that the contingent resources will be developed and, if developed, there is no certainty as to the timing of such development or that it will be commercially viable to produce any portion of the contingent resources. All resource estimates presented are gross volumes for the indicated reservoirs, without any adjustment for the Company's working interest or encumbrances. A barrel of oil equivalent (BOE) is determined by converting a volume of natural gas to barrels using the ratio of 6 million cubic feet (Mcf) to one barrel. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 BOE is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The Company's material change reports filed on SEDAR at www.sedar.com and dated December 16, 2010, January 17, 2011, February 22, 2011, July 19, 2011, and September 14, 2011 contain additional detail on the information used in the resource assessments and include the risks and level of uncertainty associated with the recovery and development of the resources, the significant positive and negative factors relevant to the estimates and, in respect of contingent resources, the specific contingencies which prevent the classification of the resources as reserves. In addition, combined mean estimates of resources which are presented in this MD&A are an arithmetic sum of the mean estimates for individual reservoirs and each such mean estimate is the average from the probabilistic assessment that was completed for the reservoir. Readers should refer to the foregoing material change reports for a detailed breakdown of the high (P10), low (P90) and best (P50) estimates for each of the individual reservoir assessments.

Readers are cautioned that the foregoing list of important factors is not exhaustive. The forward-looking statements contained in this MD&A are made as of the date of this MD&A and, except as required by law, WesternZagros does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement. See the Risk Factors section of this MD&A for a further description of these risks and uncertainties facing WesternZagros. Additional information relating to WesternZagros is also available on SEDAR at www.sedar.com, including the Company's Annual Information Form.

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 two Production Sharing Contracts ("PSCs") with the Kurdistan Regional Government ("KRG") in the Kurdistan Region of Iraq that are both on trend with, and adjacent to, a number of prolific historic oil and gas discoveries. The Kurdamir and Garmian PSCs each govern separate contract areas (collectively referred to as the "PSC Lands"). The Garmian contract area (1,780 square kilometres) is operated by WesternZagros. The Kurdamir contract area (340 square kilometres) is operated by Talisman with a 40 percent working interest. WesternZagros holds a 40 percent working interest in both PSCs. The KRG holds a 20 percent working interest in both PSCs. The remaining 40 percent third party participant interest ("TPPI") of the Garmian PSC is held pending assignment by the KRG to a third party participant.

Basis of Presentation

Reporting and Functional Currency

The Company has prepared its September 30, 2011 unaudited Condensed Consolidated Interim Financial Statements in accordance with International Financial Reporting Standards ("IFRS"). December 31, 2011 will mark the Company's first annual reporting date under IFRS. Accordingly, the comparative information for 2010, including that utilized in this MD&A, has been prepared in accordance with the Company's IFRS accounting policies. Please refer to "Adoption of IFRS" section of this MD&A for further descriptions of this impact.

The reporting and functional currency of the Company is the United States ("U.S.") dollar. All references herein to US$ or to $ are to United States dollars and references herein to Cdn$ are to Canadian dollars.

Highlights

WesternZagros is currently exploring for crude oil and natural gas in the Kurdistan Region of Iraq and is in the exploration phase on its PSC Lands. WesternZagros's highlights and activities for the third quarter of 2011 and to November 18, 2011 include the following.

HSE&S

--  On October 27, 2011, WesternZagros's operations celebrated having worked
    one full year without a recordable injury incident. To this date, over
    1.2 million hours of work have been performed safely. The dedication to
    safety demonstrated by all of the Company's employees and contractors
    has produced a work safety culture ranked as world class.
--  WesternZagros continues to integrate health, safety, environmental and
    security matters into its business decisions and remains committed to
    playing a leadership role in this regard. Positive safety results
    indicate that the Company is on the right track.
--  WesternZagros has achieved a total of 387 days without any Lost Time
    Incidents ("LTIs") to November 17, 2011.

Production

--  On October 18, 2011, first oil production from the Sarqala-1 extended
    well test was achieved. Production started at approximately 2,000
    barrels of oil per day ("bopd") and is anticipated to increase towards
    5,000 bopd by 2011 year end. The Sarqala-1 well initially tested 40
    degree API crude oil at rates of over 9,000 bopd at a wellhead pressure
    of approximately 2,400 pounds per square inch. The well was not
    stimulated and is expected to continue to clean up and increase
    production capability during the extended well test.
--  On October 27, 2011, WesternZagros sold its first oil produced from
    Sarqala-1 into the domestic market. To date, for the sales into the
    domestic market, WesternZagros has executed two sales contracts for
    total delivery of approximately 66,500 barrels of oil priced in the
    range of $50 to $60 per barrel, and under the terms of these sales
    contracts WesternZagros received payments totaling $3.8 million in
    advance of delivery for these sales. Deliveries under these sales
    agreements to November 17, 2011 have totaled approximately 47,000
    barrels of oil.

Operations

--  Mil Qasim-1, the Company's third exploration well, commenced drilling
    operations on August 29, 2011, on the Garmian Block in the Kurdistan
    Region of Iraq. After successfully setting the 13-5/8"casing at 1,615
    metres in Mil Qasim-1, WesternZagros has drilled into the Upper Fars
    interval and has encountered over 88 metres of sands in the Upper Fars
    and had hydrocarbon shows, both oil and gas, while drilling.
    WesternZagros has completed logging these initial sands in the Upper
    Fars, set the 9-5/8" casing at 2,128 metres and is preparing to complete
    drilling to the estimated total depth of Mil Qasim-1 of 2,400 metres.
    Once total depth is reached, WesternZagros plans to conduct a testing
    program of the Upper Fars interval.
--  The Kurdamir-2 exploration well commenced drilling operations on October
    25, 2011, and is anticipated to be completed by June 2012. The well is
    being drilled on the flank of the Kurdamir structure approximately two
    kilometres from the Company's Kurdamir-1 discovery well and the well
    will target the Oligocene, Eocene and Cretaceous reservoirs. Talisman is
    the operator of the Kurdamir-2 well. To date Kurdamir-2 has been drilled
    to a depth of approximately 700 metres, where the first intermediate
    string of casing has been set. WesternZagros anticipates that the
    drilling and testing of the first reservoir, the Oligocene reservoir,
    will occur in the first quarter of 2012, with the deeper reservoirs, the
    Eocene and Cretaceous reservoirs, expected to be drilled and tested by
    the end of the second quarter of 2012.

Exploration

--  In the third quarter of 2011, Sproule International Limited ("Sproule")
    completed an independent audit of the Company's contingent and
    prospective resource estimates for the Jeribe/Upper Dhiban reservoir
    interval at Sarqala-1. As at September 7, 2011, the Company estimates
    gross unrisked contingent oil resources for this interval of 9 MMbbl
    (low estimate), 21 MMbbl (best estimate), 44 MMbbl (high estimate) and
    24 MMbbl (mean estimate). Contingent resources were assigned over a 66
    metre gross pay zone from the top of the Sarqala reservoir down to 3,485
    metres as determined by wireline logs and production testing. This
    contingent resource number does not include the significant prospective
    resource potential on the flanks of the Sarqala structure deeper than
    the lowest known oil at 3,485 metres, nor the potential of an extension
    of this reservoir interval on the southwest flank of the structure. The
    gross unrisked prospective resources in the Sarqala structure deeper
    than the lowest know oil at 3,485 metres are 17 MMbbl (low estimate), 49
    MMbbl (best estimate), 125 MMbbl (high estimate) and 63 MMbbl (mean
    estimate). The gross unrisked prospective resources in the potential
    extension of the Jeribe reservoir on the southwest flank of structure
    are 14 MMbbl (low estimate), 87 MMbbl (best estimate), 304 MMbbl (high
    estimate) and 135 MMbbl (mean estimate). These estimated resources are
    in addition to the Company's prior audited estimates of prospective
    resources for the deeper reservoirs at Sarqala and the prior audited
    estimates of contingent resources and prospective resources for the
    Company's other prospects on the PSC Lands, including Mil Qasim and
    Kurdamir.
--  In the third quarter of 2011, Sproule completed a further independent
    audit of the Company's resource assessments on the PSC Lands. The audit
    included prospects identified on the Garmian Block with Jeribe, Mio-
    Oligocene, Shiranish and Eocene reservoirs (Tilako, Zardi, Segrdan,
    Chwar, Alyan) and two Upper Fars plays (Fault Trap Play, Bawanoor
    Saddle). As at July 19, 2011, the combined mean estimate of gross
    unrisked prospective resources for these prospects was 1,099 million
    barrels of oil or 1,798 million barrels of oil equivalent when gas and
    condensate prospective resources are included.
--  With the completion of these additional assessments, the combined mean
    estimate of prospective resources on the Company's two contract areas in
    Kurdistan is 2.3 billion barrels of oil, or 3.7 billion barrels of oil
    equivalent. Further details on these resource assessments can be found
    in the material change reports of the Company dated September 14, 2011
    and July 19, 2011.
--  WesternZagros continues to compile seismic data and information from
    wells adjacent to its PSC Lands to integrate with its existing large
    technical database and aid further in the definition and upgrade of its
    prospects and leads inventory. Talisman is expected to complete its
    Topkhana-1 well, which is located on the neighbouring Topkhana Block
    that is currently held by Talisman and the KRG, in the fourth quarter of
    2011 and has tested the Oligocene reservoir in the prospect, though
    details of the results are not known. The Topkhana well results will
    impact the interpretation of the Kurdamir-Topkhana megastructure trap
    and the attractiveness of drilling offsetting prospects on the Garmian
    Block, notably Qulijan.

Financial

--  As at September 30, 2011, WesternZagros had $20.4 million in working
    capital.
--  On October 25, 2011, WesternZagros closed a strategic investment with
    the Abu Dhabi National Energy Company PJSC ("TAQA") whereby TAQA
    purchased from WesternZagros, through a private placement, 74 million
    common shares of the Company at a price of Cdn$0.63 per share for gross
    proceeds of Cdn$46,620,000. TAQA now holds approximately 19.9 percent of
    the Company's issued and outstanding common shares. The proceeds from
    the private placement will be used towards WesternZagros's 2011/2012
    capital and operating program.
--  For the nine months ended September 30, 2011, WesternZagros's share of
    capital expenditures, associated with its Garmian and Kurdamir PSC
    activities and other capitalized costs was $58.5 million (net of
    disposals and prior to the impact of changes in non-cash investing
    capital). Year-to-date expenditures for 2011 included $42.3 million of
    drilling-related costs; $1.8 million for appraisal activities; $1.5
    million of geological and geosciences related work; $4.0 million of
    supervision and field office costs; $1.5 million of PSC-related
    expenditures; and $7.4 million for corporate related activities. These
    expenditures reflect the requirement that WesternZagros currently fund
    100 percent of the activities on the Garmian Block, with the Company to
    recover the third party participant's share of these costs when the KRG
    assigns the remaining interest in the Garmian Block.

Insurance

--  WesternZagros has concluded its insurance claim for a total of $45
    million relating to the Kurdamir-1 well. The final proceeds of $4.4
    million were received during the third quarter of 2011. The Company and
    its insurers have also renewed the Company's insurance policy for the
    drilling of the Kurdamir-2 well. The terms of the policy include an
    increase in the net aggregate limit from $45 million to $75 million.

Corporate

--  On October 27, 2011, David Cook, TAQA Executive Officer and Head of
    Oil and Gas, was appointed to the WesternZagros Board of Directors. Mr.
    Cook has in excess of 20 years of experience in the upstream oil and gas
    sector through a variety of global technical, commercial and managerial
    positions based from the United States, United Kingdom, and Russia, as
    well as board directorships.

Political

--  Although the Iraq federal laws have yet to be enacted to address the
    future organization of Iraq's petroleum industry or the sharing of
    petroleum and other revenues within Iraq, in February 2011 an interim
    agreement was reached between the KRG and the federal government of Iraq
    with respect to the export and sale of crude oil from Kurdistan. The
    agreement is reported to provide 50 percent of the revenues from such
    sales to the KRG in order to reimburse the operators for costs
    associated with the producing fields. The KRG has confirmed receipt of
    two payments to date under this agreement, with the first payment
    received from the federal government equalling $243 million for
    production from February and March and distributed to the operators in
    June. The second payment to the KRG pursuant to this interim agreement
    occurred in the third quarter of 2011, with the KRG confirming it has
    received $207 million from the federal government for production from
    the second quarter of 2011. According to statements made by the KRG, a
    further approximate $1 billion is owing for the oil exported to date
    from Kurdistan.
--  The Parliament Oil and Energy Committee ("POEC") released a draft
    federal petroleum law in August 2011 that was based upon the 2007 draft
    federal petroleum law (the "2007 Draft Law") that was supported by the
    KRG and formed the basis for Kurdistan's Oil and Gas Law enacted in
    August 2007. The draft released by the POEC provided for greater
    involvement of the regions of Iraq in administering and issuing
    contracts related to oil and gas activities and was supported by both
    the KRG and the Kurdistan Alliance. The federal Council of Ministers, or
    Cabinet, subsequently released its draft of a federal petroleum law
    which centralized authority at the federal level and diminished the
    authority of the regions of Iraq. In October 2011, Iraqi Prime Minister
    Nuri Al-Maliki and Prime Minister Barham Salih, of the KRG, sidelined
    the two controversial oil and gas versions presented in August 2011 and
    agreed to, by the end of 2011, either amend the 2007 Draft Law, with
    agreement by all political factions, or adopt the 2007 Draft Law as is.

Corporate Social Responsibility

--  WesternZagros aspires to be an industry leader with respect to corporate
    social responsibility. The Company continues to focus on four key
    corporate social responsibility initiatives in the PSC Lands of
    Kurdistan, namely, local employment, water supply, education and health
    care. Activities in the third quarter of 2011 included:
    --  An ongoing Environmental Impact Assessment data collection
        process for the Garmian Block;
    --  Drilling and repairing water wells in several villages; digging 
        sumps, pits and irrigation channels in several rural communities
        that did not have any other reliable sources of drinking water;
        and completion of water projects in Qulijan Sarhad village and
        Shakal village;
    --  Commencement of a Community Health Awareness Program with doctors
        giving presentations on preventative measures in Hasira and Mil
        Qasim villages; and completion of major refurbishments to the
        medical clinic in Aziz Qadr village;
    --  Completion of approximately twenty earthworks projects in
        surrounding villages providing infrastructure for new-build
        housing, road/access improvement and sanitation upgrades;
        significant upgrading of roads to both Mil Qasim and Hasira
        villages;
    --  Refurbishment and upgrading of six primary schools in local
        villages; and ongoing purchasing and distribution of sports
        equipment throughout the Garmian region; and partnering with
        Heartland Alliance to facilitate 'mobile literary bus'
        educational visits to villages in Sarqala sub-district.

WesternZagros also continues to place a strong, yet safe, emphasis on the incremental development of local personnel capacity:

--  Local Garmian village personnel are being trained and promoted to
    positions within drilling crews and within the extended well testing
    operations;
--  Additional Garmian personnel trained and appointed as Health, Safety and
    Environment Technicians and Material & Logistics Supervisors; and
--  All Garmian local rig labourers and rig crew completed 'Rig Pass'
    training and certification.

General and Administrative Expenses

For the three and nine months ended September 30, 2011, WesternZagros expensed $2.0 million and $5.6 million in general and administrative expenses ("G&A"), respectively, as compared to $0.9 million and $4.2 million for the comparable periods in 2010. G&A costs were higher in 2011 due to increased personnel costs and a relatively stronger Canadian dollar in 2011, which impacts a large portion of the Company's G&A expenditures.

For the nine months ended September 30, 2011, WesternZagros capitalized $3.1 million of G&A (2010: $1.4 million), including the capitalized portion of share-based payments. The amounts capitalized are directly related to the supervision of the Company's exploration and evaluation activities. The increase in 2011 reflects the current requirement that WesternZagros fund 100 percent of the activities on the Garmian Block, prior to assignment of the TPPI by the KRG. For the three months ended September 31, 2011, WesternZagros capitalized $1.0 million of G&A (2010: $0.5 million), including the capitalized portion of share-based payments.

Depreciation, Depletion and Amortization (DD&A)

For the three and nine months ended September 30, 2011, WesternZagros had $0.1 million and $0.2 million, respectively, of depreciation related to certain administrative assets (2010: $0.1 and $0.4 million respectively). No depletion of exploration and evaluation expenditures will be recognized until such time that the technical feasibility and commercial viability has been demonstrated and development has been sanctioned, in which case the assets would then be tested for impairment and reclassified as development expenditures and then depleted on a unit of production basis.

Share based payments

The Company recognized the expense associated with share based payments on a graded vesting basis for all stock options granted. For the quarter ended September 30, 2011, WesternZagros recorded $0.2 million in stock based compensation expense (2010: $0.1 million) and $0.2 million as part of capitalized G&A (2010: negligible), with a corresponding increase to contributed surplus. For the nine months ended September 30, 2011, WesternZagros recorded $0.6 million in stock-based compensation expense (2010: $0.6 million), and $0.5 million as part of capitalized G&A (2010: negligible).

Foreign Exchange

WesternZagros adopted the U.S. dollar as its measurement and reporting currency since the majority of its expenditures 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. As at September 30, 2011, WesternZagros held approximately 90 percent of its cash and cash equivalents in U.S. dollar accounts and U.S. dollar overnight term deposits. The Company also has certain assets and liabilities in currencies other than the U.S. dollar (mainly Canadian dollars). For financial statement presentation purposes, WesternZagros converts other currencies to U.S. dollars at the end of each period resulting in foreign exchange gains and losses. Canadian dollar balances are held for the purpose of funding WesternZagros's 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 tangible equipment procured from Canadian suppliers. For the quarter ended September 30, 2011, WesternZagros recorded a foreign exchange loss of $0.3 million relating to these conversions, compared to a $0.1 million foreign exchange gain for the quarter ended September 30, 2010. For the nine months ended September 30, 2011, WesternZagros recorded a foreign exchange loss of $0.3 million, compared to a $0.1 million loss for the nine months ended September 30, 2010. As at September 30, 2011, had the U.S. Dollar changed by one percent against the Canadian Dollar, with all other variables held constant, the Company's foreign exchange gain or loss would have affected by approximately $22,000.

Income Taxes

For the quarter ended September 30, 2011, WesternZagros had a net income tax recovery of $0.2 million (2010: $0.1 million recovery), comprised of $0.3 million of current income tax recovery (2010: $0.1 million recovery) and a $0.1 million deferred income tax expense (2010: negligible). For the nine months ended September 30, 2011, WesternZagros had a net income tax recovery of $1.1 million (2010: $0.9 million) comprised of current income tax recovery of $1.2 million and partially offset by a $0.1 million deferred tax expense (2010: $1.0 million current income tax recovery and $0.1 million deferred tax expense). The current tax recovery relates to the expected recovery of taxes incurred in 2008 on realized foreign exchange gains and losses in WesternZagros's wholly-owned Canadian subsidiary through the utilization of share issuance costs as well as the associated G&A costs incurred by the subsidiary.

Other Income

WesternZagros's other income is comprised entirely of interest earned on cash and cash equivalents and short-term investment balances. Interest of $0.02 million was earned for the quarter ended September 30, 2011 compared to $0.04 million for the quarter ended September 30, 2010. Interest of $0.07 million was earned for the nine months ended September 30, 2011, compared to $0.07 million for the nine months ended September 30, 2010.

Net Loss

For the quarter ended September 30, 2011, WesternZagros recorded a net loss of $2.0 million compared to a $0.8 million loss for the quarter ended September 30, 2010. For the nine months ended September 30, 2011, WesternZagros recorded a net loss of $4.9 million (2010: $3.8 million loss). WesternZagros is an early stage exploration enterprise and, apart from its working interest in the Kurdamir and Garmian PSCs and cash and cash equivalents, the Company has no other significant assets. The increase in G&A costs and foreign exchange losses for the first nine months of 2011 was offset by lower depreciation and increased tax recoveries as compared to the same period of 2010.

Capital Expenditures

For the three months ended September 30, 2011, WesternZagros's share of capital expenditures associated with its activities and other capitalized costs was $24.7 million (prior to the impact of changes in non-cash investing capital). Expenditures for the third quarter of 2011 included $12.7 million of drilling-related costs; $1.8 million for appraisal activities; $0.6 million of geological and geosciences related work; $1.7 million of supervision and field office costs; $0.8 million of other PSC related expenditures; and $7.1 million for corporate activities. These expenditures reflect the requirement that WesternZagros currently fund 100 percent of activities on the Garmian Block.

By comparison, WesternZagros's share of exploration and evaluation expenditures for the quarter ended September 30, 2010 associated with its activities was $20.5 million, prior to insurance recoveries. Capital expenditures for the third quarter of 2010 included $19.0 million of drilling-related costs; $0.3 million of geological and geosciences-related work; $0.7 million for related field office and supervision costs in support of operations; $0.3 million of PSC-related costs; and $0.2 million for corporate-related activities.

For the nine months ended September 30, 2011, WesternZagros's share of capital expenditures associated with its activities and other capitalized costs was $58.5 million (net of disposals and prior to the impact of changes in non-cash investing capital). Expenditures included $42.3 million of drilled-related costs; $1.8 million for appraisal activities; $1.5 million of geological and geosciences related work; $4.0 million of supervision and field office costs; $1.5 million of other PSC-related expenditures; and $7.4 million for corporate activities. These expenditures reflect the requirement that WesternZagros currently fund 100 percent of activities on the Garmian Block.

By comparison, WesternZagros's share of exploration and evaluation expenditures for the nine months ended September 30, 2010 associated with its activities was $49.6 million, prior to insurance recoveries. Expenditures included $46.2 million of drilling-related costs; $0.7 million of geological and geosciences work; $1.9 million of supervision and field office costs; $0.3 million of PSC-related expenditures; and $0.5 million for corporate activities.

WesternZagros capitalized $3.1 million of G&A expenses, including $0.5 million of stock-based compensation, for the nine months ended September 30, 2011, compared to capitalizing $1.4 million of G&A expenses, including a negligible amount of stock-based compensation, for the nine months ended September 30, 2010. For the three months ended September 31, 2011, the Company capitalized $1.0 million of G&A expenses (2010: $0.5 million), including $0.2 million of stock-based compensation (2010: negligible amount).

Subsequent to September 30, 2011, the Company commenced production from an extended well test at Sarqala-1. Prior to sanctioning development any production is considered to be test production and any associated proceeds, net of applicable costs, received will be credited to exploration and evaluation expenditures.

Kurdamir and Garmian Production Sharing Contracts: Summary and Commitments

Under the terms of its Kurdamir and Garmian PSCs, WesternZagros has a 40 percent working interest in each PSC and the KRG has a 20 percent working interest which is carried by WesternZagros. The remaining 40 percent TPPI in the Kurdamir PSC is held by Talisman and the remaining 40 percent TPPI in the Garmian PSC is held by the KRG to be assigned to another third party participant. WesternZagros, the KRG and Talisman for the Kurdamir PSC and WesternZagros, the KRG, and the third party participant for the Garmian PSC, are collectively the "Contractor Groups."

WesternZagros's remaining PSC commitments are summarized in the following table:

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                        Kurdamir PSC                Garmian PSC
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First exploration
 sub-period
 (expires)              June 30, 2012               December 31, 2011
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Exploration
 obligation                                         Mil Qasim-1 exploration
 (remaining)            Kurdamir-2                  well
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Second exploration
 sub-period             Additional two years        Additional two years
----------------------------------------------------------------------------
Exploration
 obligation             One appraisal well          One exploration well
----------------------------------------------------------------------------

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Other extensions        Six month extension         One year extension
----------------------------------------------------------------------------
Work commitments        One appraisal well          One exploration well
----------------------------------------------------------------------------

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Economic terms          Unchanged                   Unchanged
----------------------------------------------------------------------------
PSC payments            Additional Capacity
                        Building Support Payment    Additional Capacity
                        payable equal to 3% of      Building Support Payment
                        WesternZagros Profit        payable equal to 3% of
                        Oil. Continuation of        WesternZagros Profit
                        previous annual             Oil. Annual payments 50%
                        payments.                   of previous payments.
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Operator                Talisman                    WesternZagros
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Working interest        WesternZagros 40%           WesternZagros 40%
                        Talisman 40%                Unassigned TPPI 40%(ii)
                        KRG 20% (i)                 KRG 20% (i)
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Contract area           340 km2                     1,780 km2
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(i) WesternZagros funds the KRG costs, ultimately to be recovered by WesternZagros through the KRG's share of Cost Recovery Oil. For the Garmian Block, the current PSC requires that the third party participant will be required to pay for half of the KRG's carried share. This will be confirmed once the TPPI is assigned.

(ii) WesternZagros initially funds the 40% of the costs for the third party participant until the TPPI is assigned by the KRG. The amounts funded by WesternZagros for the TPPI will be repaid upon assignment of this interest.

As at September 30, 2011, the Company estimates expenditures of approximately $52 million to meet its remaining commitments for the first exploration sub-periods under the PSCs. This estimate includes the Company's current 100 percent funding requirement for the remaining costs associated with drilling the Mil Qasim-1 commitment well by December 31, 2011; the Company's 60 percent funding requirement of costs for drilling the Kurdamir-2 commitment well by June 30, 2012; the associated supervision and local office support costs related to both drilling operations; the Company's annual funding requirements for certain technological, logistical, recruitment and training support under its PSCs; and other commitments related to the Kurdamir Block activities.

Kurdamir and Garmian Production Sharing Contracts: Commercial Terms

Under the Kurdamir and Garmian PSCs, the sharing of oil occurs as follows: of the total oil produced, operations oil is available to the Contract Group for use in carrying out its obligations under the PSCs; the remaining oil is subject to a 10 percent royalty payable to the KRG (the residual is considered to be "net available oil"). Up to 45 percent of the net available oil is available for cost recovery with the remainder as "profit oil". Costs subject to cost recovery include all costs and expenditures incurred by the Contractor Group for exploration, development, production and decommissioning operations, as well as any other costs and expenditures incurred directly or indirectly with these activities. The portion of profit oil available to the Contractor Group is based on a sliding scale from 35 percent to 16 percent depending on a calculated R-Factor. The R-Factor is established by reference to the ratio of cumulative revenues over cumulative costs. When the ratio is below one, the Contractor Group is entitled to 35 percent of the profit oil. The percentage is then reduced on a linear sliding scale to a minimum of 16 percent at an R-Factor ratio of two or greater.

The production sharing terms for natural gas are the same as the oil production sharing terms except that the net available gas available for cost recovery is 55 percent and the profit sharing component is on a different scale. For natural gas, the portion of profit natural gas available for the Contractor Group is based on a sliding scale from 40 percent to 20 percent depending on a calculated R-factor. The R-Factor is established by reference to the ratio of the Contractor Group's cumulative revenue over cumulative costs. When the R-Factor is below one, the Contractor Group is entitled to 40 percent of the profit oil. The Contractor Group's percentage is then reduced on a linear scale to a minimum of 20 percent at a ratio of 2.75 or greater.

As at September 30, 2011, the Company had approximately $129 million related to the Garmian PSC and $98 million relating to the Kurdamir PSC, both net to WesternZagros, of recoverable costs available that may ultimately be recovered from future crude oil or natural gas sales in accordance with the PSCs.

Production

The Kurdamir and Garmian PSCs provide the Contractor Group with the exclusive right to develop and produce any commercial discoveries. The development period for producing a commercial discovery is an initial term of 20 years from the date of declaring a commercial discovery with a further automatic right to a five year extension. If commercial production is possible at the end of the last period then the Contractor Group shall be entitled to an extension of a further five years under the same terms as in the applicable PSC if a request is made by the Contractor Group at least six months before the end of the first five year extension.

Pursuant to the terms of the Kurdamir and Garmian PSCs, WesternZagros maintains the right to market its share of oil on the world market. There is an obligation under the Kurdamir and Garmian PSCs to make oil production available to meet regional market demand. The price of such oil is a market-based price based on a basket of crudes. Subsequent to September 30, 2011, the Company signed two separate oil sales contracts, with the approval from the Ministry, to sell initial test production from Sarqala-1 to local buyers based on an auction process within local markets at prices between $50 and $60 per barrel. With continued approval from the Ministry of Natural Resources of the KRG, any future sales contracts for ongoing test production from Sarqala-1 could continue to be sold via the local auction market process or alternatively sold for export depending on local demand.

Pursuant to the terms of the Kurdamir and Garmian PSCs, the price for natural gas is based on local commercial value and Iraq tariffs. However, limited markets exist for natural gas within Iraq and there is limited infrastructure for export. The KRG has as one of its priorities the expansion of its electricity generation and is pursuing a number of projects that may expand these markets and the demand for natural gas.

Other Commitments

The Company has entered into various exploration-related contracts, including contracts for drilling equipment, services, tangibles and consulting service contracts. The following table summarizes the estimated commitments in relation to these exploration-related contracts relating to the Garmian PSC and other contractual obligations at September 30, 2011:

                                 For the Years Ending December 31,
                        2011      2012      2013      2014   2015+     Total
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Exploration         $  1,437         -         -         -       -  $  1,437
Office              $    162  $    602  $    559  $    456       -  $  1,779
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                    $  1,599  $    602  $    559  $    456       -  $  3,216
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Legal Proceedings

From time to time, the Company may become involved in legal or administrative proceedings in the normal conduct of business. The Company is currently in disputes with two contractors, one is related to compensation owing to a contractor under a terminated agreement and the other is over a potential breach of contract by a contractor related to services provided to the Company. Although there has been no formal claim of monetary damages to date in either of the matters, the Company does not currently expect that the matters, individually or in aggregate, would have a material impact on the Company's financial position. The Company continues to pursue resolution of these disputes, and will enforce its contractual rights through arbitration if necessary. Notice of arbitration has been received by the Company with respect to one of these disputes. Given the early stage of the disputes there is no certainty as to the ultimate outcome of any such proceedings. Amounts involved in such matters are not reasonably estimable due to uncertainty as to the final outcome.

Off Balance Sheet Arrangements

The Company does not presently utilize any off-balance sheet arrangements to enhance its liquidity and capital resource positions, or for any other purpose. During the period ended September 30, 2011, WesternZagros did not enter into any off-balance sheet transactions.

Insurance Claim Update

WesternZagros initiated a control of well insurance claim in the first quarter of 2010 in relation to certain events at Kurdamir-1 which commenced when the well was drilled into a high pressure formation in the Gulneri Seal. These operations continued after a subsequent additional high pressure zone was encountered in the Aaliji Seal and continued until October 14, 2010, when the open hole in the Kurdamir-1 well was plugged and cemented to approximately 2,500 metres, concluding well control operations.

WesternZagros has concluded its insurance claim for a total of $45 million relating to the Kurdamir-1 well, with the final proceeds due of $4.4 million received during the third quarter of 2011. The Company and its insurers have also renewed the Company's insurance policy for the drilling of the Kurdamir-2 well. The terms of the policy include an increase in the net aggregate limit from $45 million to $75 million.

Outlook

WesternZagros's plans for the remainder of 2011 and for fiscal 2012 are to focus its exploration and appraisal programs on the highly prospective formations discovered through the Sarqala-1 and Kurdamir-1 wells. These exploration and appraisal programs will further delineate the approximately one billion barrels of oil equivalent of mean gross unrisked prospective resources that these formations are estimated to contain (prospective resources estimated as of December 14, 2010, January 14, 2011, January 31, 2011 and September 7, 2011, as audited by Sproule International Limited - see "Forward Looking Information").

Activities on the Garmian Block for the remainder of 2011 and for fiscal 2012 are planned to include the Sarqala extended well test, the drilling and testing of Mil Qasim-1, completing a 3D seismic appraisal program for the Sarqala discovery and completing the design, drilling plan and necessary procurement for both an exploration well and a Sarqala appraisal well. Activities on the Kurdamir Block for the remainder of 2011 and for fiscal 2012 are planned to include the drilling and testing of Kurdamir-2 and planning for further appraisal activities, including a potential 3D seismic program and future appraisal wells.

On October 27, 2011, WesternZagros began producing oil from the extended well test at Sarqala-1 and is estimating achieving production rates of approximately 2,000 bopd for the remainder of 2011. Production is currently being restricted to 2,000 bopd, however the Company expects to increase production to approximately 5,000 barrels per day by the end of 2011, through the addition of more tank capacity, the construction of a new weighbridge at site and the construction of a new road from the facilities to the highway that will by-pass the neighbouring village.

Further engineering work has also commenced in the fourth quarter of 2011 and is expected to be completed in the first half of 2012 with respect to sourcing permanent facilities and optimizing the location of these facilities for increasing future production beyond 5,000 barrels per day from the Sarqala-1 well and future wells on the Sarqala structure. This work will include the necessary facilities to utilize the associated natural gas from this crude oil production.

On August 29, 2011, WesternZagros spudded the Garmian Block exploration commitment well at Mil Qasim-1, located three kilometres from Sarqala-1. After successfully setting the 13-5/8 inch casing at 1,615 metres in Mil Qasim-1, WesternZagros has drilled into the Upper Fars interval and has encountered over 88 metres of sands in the Upper Fars and had hydrocarbon shows, both oil and gas, while drilling. WesternZagros has completed logging these initial sands in the Upper Fars, set the 9-5/8 inch casing at 2,128 metres and is preparing to complete drilling to the estimated total depth of Mil Qasim-1 of 2,400 metres. Once total depth is reached, WesternZagros plans to conduct a testing program of the Upper Fars interval. If the testing at Mil Qasim-1 confirms a discovery, WesternZagros will look to complete an extended well test at Mil Qasim-1 and examine ways to appraise and develop Mil Qasim in combination with the Sarqala discovery.

During the first half of 2012, WesternZagros expects to design, plan and procure the necessary long lead materials and services for a 3D appraisal program, an appraisal well on Sarqala targeting the Jeribe reservoir ("Sarqala-2") and an exploration well on the Garmian Block to target the Oligocene reservoir ("Hasira-1") that would also appraise the Jeribe reservoir from the Sarqala structure. WesternZagros anticipates that the 3D seismic, Sarqala-2 and Hasira-1 would commence in the second half of 2012, dependent on the availability of the long lead materials and services, including drilling rigs.

The Kurdamir-2 exploration well was spudded on October 25, 2011 and is being operated by Talisman. The well is being drilled on the flank of the Kurdamir structure approximately two kilometres from the Kurdamir-1 discovery well and the well will target the Oligocene, Eocene and Cretaceous reservoirs. WesternZagros anticipates that the drilling and testing of the first reservoir, the Oligocene reservoir, will occur in the first quarter of 2012, with the deeper reservoirs, the Eocene and Cretaceous reservoirs, expected to be drilled and tested by the end of the second quarter of 2012. WesternZagros continues to evaluate with its co-venturer Talisman options for early production at Kurdamir of crude oil, condensate and natural gas.

WesternZagros estimates its capital and operating expenditures for the fourth quarter of 2011, including the requirement for the Company to fund 100 percent of Mil Qasim-1 until the TPPI is assigned and to fund its share of the costs of the Kurdamir-2 well, to be approximately $37 million. This includes approximately $13 million for drilling and related costs for Kurdamir-2, $19 million for drilling and related costs for Mil Qasim-1, $3.5 million for in-country support costs related to both Kurdamir-2 and Mil Qasim and the remainder of the budget comprised of funds for corporate general and administrative costs.

For the first half of fiscal 2012, WesternZagros estimates its capital and operating expenditures, including the requirement for the Company to fund 100 percent of Garmian activities in 2012 until the assignment of the TPPI by the KRG and to fund its share of the costs of the Kurdamir-2 well, to be approximately $47-57 million. This includes approximately $30-35 million for drilling and testing Kurdamir-2; $10-15 million for designing, planning. procurement of the necessary long lead materials, for the Sarqala-2 and Hasira-1 wells and the 3D seismic program; $4 million for in-country support costs and other PSC expenditures for both the Kurdamir and Garmian Blocks; and approximately $3 million for corporate and general and administrative costs. This excludes any of the proceeds from the sale of crude oil from the extended well test at Sarqala-1 and the reimbursement of the costs on the Garmian Block that WesternZagros has funded and will be reimburse upon the assignment of the TPPI by the KRG.

Liquidity and Capital Resources

WesternZagros is currently exploring for and appraising discoveries of crude oil and natural gas in the Kurdistan Region of Iraq. Subsequent to September 30, 2011, the Company commenced an extended well test and the sale of crude oil test production from the Sarqala-1 exploration well. Prior to sanctioning development, any production is considered to be test production and any associated proceeds received, net of applicable costs, will be credited to exploration and evaluation expenditures. WesternZagros's other income is comprised entirely of interest earned on cash and cash equivalent balances and short-term investments. WesternZagros invests its cash and cash equivalents with major Canadian financial institutions with investment grade credit ratings and in Government of Canada instruments. This is in accordance with an Investment Policy approved by the Board of Directors.

As at September 30, 2011, WesternZagros had $20.4 million in working capital and no outstanding bank debt or other interest bearing indebtedness. Subsequent to September 30, 2011, the Company also raised an additional Cdn$46.6 million through a private placement of 74 million shares. WesternZagros has granted certain rights to TAQA to participate for its pro-rata share in future equity issuances and the shares issued are subject to a hold period until June 30, 2012.

During the fourth quarter of 2011, WesternZagros began oil production from the Sarqala-1 extended well test and sales of this test production into the domestic market in Kurdistan. Under the terms of the contracts entered into for the sale of this production, the purchasers have prepaid WesternZagros for the production, with payments received to date for both October and November production totaling approximately $3.8 million. WesternZagros will use these cash proceeds, along with sales proceeds from further production from the extended well test to fund future exploration and appraisal activities. WesternZagros may be required to access further funding over time dependent on the level and timing of exploration and appraisal activities pursued by the Company and the funding requirements under the relevant PSCs.

WesternZagros will monitor the timing and likelihood of the TPPI being assigned by the KRG in the Garmian PSC in determining its future capital requirements, as WesternZagros will continue to fund 100 percent of the costs incurred on the Garmian Block until such a time as the TPPI is assigned by the KRG. Upon assignment of the TPPI by the KRG, WesternZagros will be reimbursed for the costs that it has funded on the Garmian PSC and will be able to utilize these funds for other exploration and appraisal activities. WesternZagros, in considering the proper timing to potentially access further capital, will also assess the following factors:

--  Continuation of the Sarqala-1 extended well test and sale of the related
    production;
--  The expected timing for exploration results from Mil Qasim-1 and
    Kurdamir-2;
--  The expected timing for appraisal activities at Sarqala and future
    exploration activities, including the 3D seismic program, the drilling
    of Sarqala-2 and the drilling of Hasira-1;
--  The ability to export oil and natural gas from the Kurdistan Region of
    Iraq in accordance with the economic terms under the PSCs likely
    following the promulgation of the new Federal Petroleum Law of Iraq; and
--  The current conditions in the financial markets, including the potential
    for further market instability.

With the commencement of production from the Sarqala-1 extended well test and the receipt of proceeds from the sale of its production, the completion of the Company's recent private placement and the general industry interest in the Kurdistan Region, management has a reasonable expectation that any future capital requirements will be able to be met through either further equity issuances or sales proceeds generated from extended well tests.

Outstanding Share Data

As at November 18, 2011, the total number of shares outstanding was 371,209,472, including the 74 million shares issued to TAQA subsequent to September 30, 2011.

The total number of options outstanding as at November 18, 2011 was 18,778,700, including 48,000 options granted to, and 126,667 stock options forfeited by, employees and contractors subsequent to September 30, 2011.

Supplemental Quarterly Information

The following table summarizes key financial information on a quarterly basis for the periods indicated, note that only the quarters for 2011 and 2010 are in accordance with accounting policies under IFRS, while the presented 2009 data is in accordance with previous GAAP:

----------------------------------------------------------------------------
(US$ thousands, unless otherwise
 specified)                                        Three Month Periods Ended
----------------------------------------------------------------------------
                                       Sept 30    Jun 30    Mar 31    Dec 31
                                          2011      2011      2011      2010
----------------------------------------------------------------------------
Total Revenue                               16        34        17        13
----------------------------------------------------------------------------
Net Loss                                 2,013     1,416     1,480     2,003
----------------------------------------------------------------------------
Net Loss Per Share (US$ Per Share)
(Basic and Fully Diluted)                0.007     0.005     0.006     0.010
----------------------------------------------------------------------------
Capital Expenditures, net of
 disposals                              24,649    18,420    15,494    17,283
----------------------------------------------------------------------------
Total Assets                           275,078   272,650   271,720   240,290
----------------------------------------------------------------------------
Total Non-Current Liabilities            1,417       864       816       649
----------------------------------------------------------------------------
Dividend (US$ per Share)                   Nil       Nil       Nil       Nil
----------------------------------------------------------------------------

----------------------------------------------------------------------------
                                                   Three Month Periods Ended
----------------------------------------------------------------------------
                                       Sept 30    Jun 30    Mar 31    Dec 31
                                          2010      2010      2010      2009
----------------------------------------------------------------------------
Total Revenue                               38        17        19        32
----------------------------------------------------------------------------
Net Loss                                   819     1,646     1,333     1,035
----------------------------------------------------------------------------
Net Loss Per Share (US$ Per Share)
(Basic and Fully Diluted)                0.004     0.008     0.006     0.005
----------------------------------------------------------------------------
Capital Expenditures                    20,455    15,962    13,153    11,250
----------------------------------------------------------------------------
Total Assets                           233,770   235,295   235,514   241,077
----------------------------------------------------------------------------
Total Non-Current Liabilities              665       624       573       175
----------------------------------------------------------------------------
Dividend (US$ per Share)                   Nil       Nil       Nil       Nil
----------------------------------------------------------------------------

RISK FACTORS

The risks factors that could influence actual results are described in the Company's 2010 Annual Report and Annual Information Form, including the risk that WesternZagros's ability to access the equity or debt markets in the future may be affected by further drilling challenges and related increases to exploration well costs. Any financial market instability may also impact WesternZagros's ability, and that of other exploration and development companies, to access equity or debt markets at all or with acceptable terms. The inability to access the equity or debt markets for sufficient capital, at acceptable terms and within required time frames, could have a material adverse effect on WesternZagros's financial condition, results of operations and prospects.

An investment in WesternZagros should be considered highly speculative due to the nature of its activities, the present stage of its development, the need for continued participation of the Company's co-venturers in the PSC activities, the timing and likelihood of the Garmian TPPI being assigned and the Company's potential need for additional financing in the future for any acquisition, exploration, development and production of oil and gas reserves beyond current funding levels. WesternZagros's risk factors include, but are not limited to, all the risks normally incidental to the exploration, development and operation of crude oil and natural gas properties and the drilling of crude oil and natural gas wells, including geological risk, encountering unexpected formations or pressures, potential environmental damage, and blow-outs, fires and spills, all of which could result in personal injuries, loss of life and damage to property of WesternZagros and others; premature declines of reservoirs; environmental risks; delays or changes in plans with respect to exploration or development projects or capital expenditures; the ability to attract key personnel and; the risk of commodity price and foreign exchange rate fluctuations.

All of WesternZagros's assets are located in the Kurdistan Region of Iraq. As such, WesternZagros is subject to political, economic, and other uncertainties, including, but not limited to, the uncertainty of negotiating with foreign governments, expropriation of property without fair compensation, adverse determinations or rulings by governmental authorities, changes in energy policies or the personnel administering them, nationalization, currency fluctuations and devaluations, disputes between various levels of authorities, arbitrating and enforcing claims against entities that may claim sovereignty, authorities claiming jurisdiction, potential implementation of exchange controls, royalty and government take increases and other risks arising out of foreign governmental sovereignty over the areas in which WesternZagros's operations are conducted, as well as risks of loss due to civil strife, acts of war, guerrilla activities and insurrections. WesternZagros's operations may be adversely affected by changes in government policies and legislation or social instability and other factors which are not within the control of WesternZagros including, among other things, adverse legislation in Iraq and/or the Kurdistan Region, a change in crude oil or natural gas pricing policy, the risks of war, terrorism, abduction, expropriation, nationalization, renegotiation or nullification of existing concessions and contracts, taxation policies, economic sanctions, the imposition of specific drilling obligations and the development and abandonment of fields.

For a detailed list of risk factors please refer to the Company's Annual Information Form, which is available atwww.westernzagros.com or on SEDAR at www.sedar.com. In addition to such risk factors, readers should consider the following additional risks related to the Company's recent start of extended well test operations:

Operations related to extended well tests are subject to all of the risks and hazards typically associated with production operations, including hazards such as fire, explosion, releases and spills, each of which could result in substantial damage to production facilities or the environment or result in personal injury or death.

In addition, the Company will initially be relying on trucking to transport oil to export terminals or domestic markets. This method of transportation may be subject to additional risks as compared to transport by pipeline, including the risk of vehicle accident during transport. Any loss of capacity or delay in transportation may negatively impact testing operations and the sale of oil production.

There is no guarantee that the Company will continue to be able to effectively market oil produced from extended well tests. If the Company is required to deliver its crude oil to the export market there may be a delay in the collection of revenue due to the fact that proceeds from the sale of this crude oil will be collected by the federal government for distribution to the KRG, and then ultimately the Company. The Company, if selling into the domestic market, may be exposed to third-party credit risk through its contractual arrangements with buyers of its production from extended well tests if buyers are not required to pre-pay for production. In the event buyers fail to meet their obligations to pay, or there are significant delays in payments from any sales to the export market, such events could negatively affect the Company.

Adoption of International Financial Reporting Standards ("IFRS")

The Company has prepared its September 30, 2011 condensed consolidated interim financial statements in accordance with IAS 34, "Interim Financial Reporting" and in accordance with IFRS 1, "First Time Adoption of International Financial Reporting Standards". The Company's first annual reporting date under IFRS will be December 31, 2011. Accordingly, the comparative information for 2010 has been prepared in accordance with the Company's IFRS accounting policies. The adoption of IFRS has not had a material impact on the Company's operations, strategic decisions, cash flow, or overall capital expenditures.

The Company's IFRS accounting policies are provided in detail in Note 3 to the September 30, 2011 Condensed Consolidated Interim Financial Statements. Prior period reconciliations between IFRS and previous GAAP are included within Note 24 to the September 30, 2011 Condensed Consolidated Interim Financial Statements. In summary, Note 24 includes the following reconciliations:

--  Balance Sheets as at January 1, 2010, September 30, 2010 and December
    31, 2010;
--  Statements of Comprehensive Loss for the three and nine month ended
    September 30, 2010 as well as for the year ended December 31, 2010; and
--  Statements of Cash Flows for the three and nine months ended September
    30, 2010 as well as for the year ended December 31, 2010.

Financial Statement Impacts Upon Conversion to IFRS

The following discussion explains the significant impacts on the financial statements upon conversion to IFRS.

Exploration and Evaluation Expenditures "(E&E")

WesternZagros previously utilized the full cost method under Canadian GAAP for accounting for its exploration activities in the Kurdistan Region of Iraq. Under the full cost method, all costs associated with the acquisition of, exploration for, and development of crude oil and natural gas, including asset retirement obligations, were capitalized and accumulated within cost centres on a country-by-country basis. Such costs included land acquisition, geological and geophysical activity, drilling and testing of productive and non-productive wells, carrying costs directly related to unproved properties, major development projects as well as insurance and administrative costs directly related to exploration and development activities. As WesternZagros was only operating in the Kurdistan Region of Iraq and originally had only one PSC in that region covering all of the PSC Lands, it capitalized all costs associated with those exploration activities, including certain costs incurred prior to entering into the original PSC.

IFRS 1 sets out the procedures that an entity must follow when adopting IFRS as the basis for preparing financial statements. IFRS 1 also provides entities with a number of optional exemptions upon conversion to IFRS, the most significant of which that WesternZagros utilized was the exemption that allows the December 31, 2009 full cost pool under previous GAAP which are related to costs where the technical feasibility and commercial viability have not yet been determined to be reclassified as exploration and evaluation assets under IFRS. This resulted in $154 million of costs being reclassified from property, plant and equipment ("PP&E") to E&E expenditures on a deemed costs basis as at January 1, 2010.

Upon conversion to IFRS, WesternZagros was also required to adopt IFRS 6, "Exploration for and Evaluation of Mineral Resources", which is the standard that deals with accounting for exploration and evaluation expenditures for extractive industries. Typical costs included in the E&E expenditures are acquisition of rights to explore, topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling, activities in relation to evaluating the technical feasibility and commercial viability of extracting mineral resources, as well as insurance and certain general and administrative costs. Under IFRS 6, costs incurred prior to the legal rights to explore an area being obtained may no longer be capitalized within E&E expenditures. During 2010 the Company reclassified a further $27 million from PP&E to E&E expenditures. As at December 31, 2010 a total of $181 million in costs had been reclassified from PP&E under previous GAAP to E&E expenditures relating to the Company's Original PSC upon conversion to IFRS.

WesternZagros was also required to complete an impairment test of E&E expenditures as at January 1, 2010. There was no impairment of E&E assets upon transition to IFRS.

Share Based Payments

The Company previously valued stock option issuances based on each grant as a whole and expensed the valuation of each grant on a straight line basis over the expected lives of the options. Upon conversion to IFRS, the Company was required to adopt IFRS 2, "Share-Based Payment" which provides that the valuation and expensing of share-based payment be done on a graded vesting basis. This resulted in an accelerated expensing of share-based payments based on each individual vesting tranche of options under IFRS as compared to previous GAAP, less the impact of estimated forfeiture rates under IFRS that had not previously been estimated under GAAP. As at January 1, 2010 the adoption of IFRS 2 resulted in an increase in contributed surplus of approximately $0.9 million, with a corresponding increase in the accumulated deficit. As at December 31, 2010 the adoption of IFRS 2 resulted in a net minor overall decrease in contributed surplus as compared to previous GAAP as the timing of expense recognition was similar between IFRS and previous GAAP at that point in time.

Provision for Decommissioning Liabilities

The provisions for decommissioning obligations under IFRS are treated similarly to previous Canadian GAAP, which had previously been disclosed as asset retirement obligations ("ARO"). Upon conversion to IFRS, the Company was required to adopt IAS 37, "Provisions, Contingent Liabilities and Contingent Assets", which required that a risk-free discount rate, that was not credit risk adjusted, be applied to the present value calculation of estimated future abandonment costs. This resulted in a lower discount rate utilized in the present value calculation under IFRS as compared to previous GAAP. As a result of the lower discount rate under IFRS, the provision for decommissioning liabilities increased by $0.3 million under IFRS as at January 1, 2010 and remained at a $0.3 million increase as at December 31, 2010 when compared to GAAP.

Other IFRS 1 Exemptions Utilized

IFRS 1 allows first time adopters of IFRS to utilize a number of voluntary exemptions from the general principal of retrospective treatment. Beyond the full-cost book value as deemed cost exemption utilized for E&E expenditures as discussed in the E&E section of this MD&A, the Company also utilized the allowed exemption relating to IFRS 3, "Business Combinations". Accordingly, IFRS 3 has not been applied to acquisitions that occurred prior to January 1, 2010.

CRITICAL ACCOUNTING ESTIMATES

WesternZagros's critical accounting estimates are defined as those estimates that have a significant impact on the portrayal of its financial position and operations and that require management to make judgments, assumptions and estimates in the application of IFRS. Judgments, assumptions and estimates are based on historical experience and other factors that management believes to be reasonable under current conditions. As events occur and additional information is obtained, these judgments, assumptions and estimates may be subject to change. WesternZagros believes the following are the critical accounting estimates used in the preparation of its consolidated financial statements, which can also be found in Note 5 to the September 30, 2011 Condensed Consolidated Interim Financial Statements.

Use of Estimates

The preparation of the condensed consolidated interim financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the condensed consolidated interim financial statements, and the reported amounts of revenues and expenses during the reporting period. Such estimates relate to unsettled transactions and events as of the date of the condensed consolidated interim financial statements. Accordingly, actual results may differ from these estimated amounts as future confirming events occur. Significant estimates used in the preparation of the condensed consolidated interim financial statements include, but are not limited to, recovery of asset carrying values, provision for decommissioning liabilities, incomes tax, and share-based payments.

Recoverability of asset carrying values

At each reporting date, the Company assesses its exploration and evaluation and property, plant and equipment expenditures for possible impairment if events or circumstances indicate the carrying values of the assets might not be recoverable. Relevant indicators include the following: the continued progression of Management's operational plans; new information obtained from wells that have been drilled or tested; changes or restrictions in access to drilling sites; changes in legal, regulatory, market, environmental, technological, or political factors that could impact ongoing operations; the ability of the Company to continue fulfilling ongoing commitments; and significant changes in the Company's market value.

If factors indicate that the Company may need to recognize impairment, the carrying value of the assets for each cash-generating-unit is compared to the greater of value-in-use or fair-value less costs to sell. It is anticipated that the value-in-use model, based on discounted estimated future net cash flows, would be more readily computed. Determination of the value-in-use amount and any resulting impairment involves the use of significant estimates and assumptions about future events and factors such as future commodity prices, the impact of inflation on operating expenses, discount rates, production profiles, the ability to produce and export crude oil and natural gas, the future capital costs needed to develop reserves, as well as the future marketability and availability of transportation for crude oil and natural gas that is produced.

At the reporting date, the Company is still in the exploration phase of operations on its PSC Lands. The Company has not recognized any impairment for exploration and evaluation expenditures nor for property, plant, and equipment.

Provision for decommissioning obligations

The Company recognizes both an asset and a provision for decommissioning obligations in the period in which they are incurred by estimating the fair value of the obligation. Provisions for environmental clean-up and remediation costs associated with the Company's drilling operations are based on current legal and constructive requirements, technology, price levels and expected plans for remediation. Actual costs and cash outflows and the timing of those cash outflows can differ from estimates because of changes in laws and regulations, public expectations, prices, discovery and analysis of site conditions, future performance of wells drilled, and changes in clean-up technology. Estimating the timing and amount of cash outflows required to settle these obligations are inherently difficult and are based on Management's current experience. A risk free rate has been used in the calculations. Any differences between actual and estimated decommissioning obligations would impact both the asset and the provision which then would impact future depletion on the asset as well as accretion on the provision.

Income tax

Tax regulations and legislation and the interpretations thereof in the jurisdictions that the Company operates are subject to change. As such, income taxes are subject to measurement uncertainty. Deferred income tax assets are assessed by Management based on all available information at the end of the reporting period to determine the likelihood that they will be realized from future taxable earnings.

Share-based payments

The estimates, assumptions, and judgements made in relation to the fair value of share-based payments and the associated expense recognition is subject to measurement uncertainty. The fair value of employee stock options is measured using a Black Scholes option pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility, expected life of the instrument, estimated forfeitures, expected dividends, and the risk-free interest rate.

Recent accounting pronouncements issued but not yet effective

The IASB has issued the following standards which are effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Company is currently evaluating the impact, if any, of each of these new standards, which are briefly summarized as follows:

IAS 27 - Separate Financial Statements:

IAS 27 replaces the existing IAS 27, "Consolidated and Separate Financial Statements". IAS 27 contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. IAS 27 requires an entity preparing separate financial statements to account for those investments at cost or in accordance with IFRS 9, "Financial Instruments".

IAS 28 - Investments in Associates and Joint Ventures:

IAS 28 prescribes the accounting for investments in associates and sets out the application of the equity method when accounting for investments in associates and joint ventures.

IFRS 9 - Financial Instruments:

IFRS 9 is the first part of a new standard on classification and measurement of financial assets and liabilities that will replace IAS 39, "Financial Instruments: Recognition and Measurements".

For financial assets, IFRS 9 has two measurement categories: amortized cost and fair value. All equity instruments are measured at fair value. A debt instrument is at amortized cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise it is at fair value through profit and loss.

For financial liabilities, although the classification criteria for financial liabilities will not change under IFRS 9, the approach to the fair value option for financial liabilities may require different accounting for changes to the fair value of a financial liability as a result of changes to an entity's own credit risk.

IFRS 10 - Consolidated Financial Statements:

IFRS 10 establishes the principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 replaces IAS 27 "Consolidated and Separate Financial Statements" and SIC-12 "Consolidation - Special Purpose Entities".

IFRS 11 - Joint Arrangements:

IFRS 11 establishes principles for financial reporting by parties to a joint arrangement, and requires entities to classify interests in joint arrangements as either a joint venture or a joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for joint operations the entity will recognize it share of the assets, liabilities, revenue and expenses of the joint operation. IFRS 11 replaces IAS 31 "Interests in Joint Ventures" and SIC-13 "Jointly Controlled Entities - Non-monetary Contributions by Venturers".

IFRS 12 - Disclosure of Interests in Other Entities:

IFRS 12 establishes disclosure requirements relating to an entity's interests in other entities such as joint arrangements, associates or unconsolidated structured entities, including special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosure requirements and also introduces significant additional disclosure requirements that address the nature and risk associated with interests in other entities.

IFRS 13 - Fair Value Measurements:

IFRS 13 defines fair value and sets out a single IFRS framework for measuring fair value and the required disclosures about fair value measurements for use across all IFRS standards. IFRS 13 is intended to eliminate the inconsistencies in fair value measurement and the disclosure requirements contained in various other IFRS standards that refer to fair value.

Condensed consolidated interim statements of financial position

(United States dollars thousands)

(Unaudited)

                                                      December      January
                                        September     31, 2010      1, 2010
                                 Note    30, 2011     (Note 24)    (Note 24)
----------------------------------------------------------------------------

Assets
Current assets
 Cash and cash equivalents          7  $   35,162   $   31,482   $   76,708
 Trade and other receivables        8         284        8,648        6,880
 Insurance recoveries
  receivable                                    -       17,597            -
 Deposits held in trust            11           -          420            -
 Prepaid expenses                             237           39          183
 Income tax recoverable            12       1,847          887        1,738
----------------------------------------------------------------------------
 Total current assets                      37,530       59,073       85,509

Non-current assets
 Deposits held in trust            11           -            -          420
 Property, plant and equipment     10         110          261          814
 Exploration and evaluation
  expenditures                      9     237,347      180,770      154,097
 Deferred tax assets               12          91          186          371
----------------------------------------------------------------------------
 Total non-current assets                 237,548      181,217      155,702
----------------------------------------------------------------------------
Total assets                           $  275,078   $  240,290   $  241,211
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities
Current liabilities
 Trade and other payables          13  $   17,176   $   21,525   $   18,297
----------------------------------------------------------------------------
 Total current liabilities                 17,176       21,525       18,297

Non-current liabilities
 Provision for decommissioning
  obligations                      14       1,250          509          432
 Deferred tax liabilities          12         167          140          134
----------------------------------------------------------------------------
 Total non-current liabilities              1,417          649          566
----------------------------------------------------------------------------
Total liabilities                          18,593       22,174       18,863
----------------------------------------------------------------------------

Equity
Share capital                      15     295,784      253,583      253,583
 Contributed surplus               16      12,300       11,223        9,654
 Deficit                                  (51,599)     (46,690)     (40,889)
----------------------------------------------------------------------------
 Total equity                             256,485      218,116      222,348
----------------------------------------------------------------------------
Total equity and liabilities           $  275,078   $  240,290   $  241,211
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Commitments and contingencies (Note 22)
Subsequent events (Note 23)

The notes are an integral part of these condensed consolidated interim financial statements.

These condensed consolidated interim financial statements were authorized for issue by the Audit Committee of the Board of Directors on November 18, 2011. They are signed on the Company's behalf by:

Fred J. Dyment, Director

Randall Oliphant, Director

Condensed consolidated interim statements of comprehensive loss

(United States dollars thousands, except per share amounts)

(Unaudited)

                                   Three months ended     Nine months ended
                                         September 30,         September 30,
                            Note      2011       2010       2011       2010
----------------------------------------------------------------------------
Other Income
 Other Income

                                  $     16   $     38   $     67   $     74
Expenses
 General and
  administrative expenses 17, 18     1,958        929      5,601      4,175
 Depreciation                           50        132        151        443
 Accretion                    14         5          4         17         12
 Foreign exchange
  (gain)loss                           259       (140)       330        105
----------------------------------------------------------------------------
 Total expenses                      2,272        925      6,099      4,735
----------------------------------------------------------------------------

Loss before taxation                 2,256        887      6,032      4,661

Taxation
 Current                      12      (327)      (111)    (1,244)    (1,014)
 Deferred                     12        84         43        121        151
----------------------------------------------------------------------------
 Total taxation (recovery)            (243)       (68)    (1,123)      (863)
----------------------------------------------------------------------------

Total loss and
 comprehensive loss for
 the period attributable
 to the shareholders              $  2,013   $    819   $  4,909   $  3,798
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net loss per share
- basic and diluted           19  $  0.007   $  0.004   $  0.018   $  0.018
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The notes are an integral part of these condensed consolidated interim financial statements.

Condensed consolidated interim statements of changes in equity

(United States dollars thousands)

(Unaudited)

                                               Number of
                                   Note           shares      Share capital
----------------------------------------------------------------------------

Balance January 1, 2010              24      207,464,320      $     253,583
 Share based payments                                  -                  -
 Loss for the period                                   -                  -
----------------------------------------------------------------------------
Balance September 30, 2010           24      207,464,320            253,583
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 Share based payments                                  -                  -
 Loss for the period                                   -                  -
----------------------------------------------------------------------------
Balance December 31, 2010            24      207,464,320            253,583
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 Issuance of common shares                    89,665,352             44,227
 Options exercised                   16           79,800                 64
 Share issuance costs                                  -             (2,090)
 Share based payments            16, 17                -                  -
 Loss for the period                                   -                  -
----------------------------------------------------------------------------
Balance September 30, 2011                   297,209,472      $     295,784
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                  Contributed    Accumulated
                                      surplus        deficit   Total equity
----------------------------------------------------------------------------

Balance January 1, 2010           $     9,654    $   (40,889)   $   222,348
 Share based payments                     544              -            544
 Loss for the period                        -         (3,798)        (3,798)
----------------------------------------------------------------------------
Balance September 30, 2010             10,198        (44,687)       219,094
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 Share based payments                   1,025              -          1,025
 Loss for the period                        -         (2,003)        (2,003)
----------------------------------------------------------------------------
Balance December 31, 2010              11,223        (46,690)       218,116
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 Issuance of common shares                  -              -         44,227
 Options exercised                        (21)                           43
 Share issuance costs                       -              -         (2,090)
 Share based payments                   1,098              -          1,098
 Loss for the period                        -         (4,909)        (4,909)
----------------------------------------------------------------------------
Balance September 30, 2011        $    12,300        (51,599)   $   256,485
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The notes are an integral part of these condensed consolidated interim financial statements.

Condensed consolidated interim statements of cash flows

(United States dollars thousands)

(Unaudited)

                                   Three months ended     Nine months ended
                                        September 30,         September 30,
                            Note      2011       2010       2011       2010
----------------------------------------------------------------------------

Cash flow from operating
 activities
Net loss before taxation          $ (2,256)  $   (887)  $ (6,032)  $ (4,661)
 Adjustments for
  Depreciation                          50        132        151        443
  Accretion                   14         5          4         17         12
  Share based payments    16, 17       197        106        635        593
 Income taxes recovered                283          -        283        598
 Change in non-cash
  operating working
  capital                     21     1,516        402       (182)       143
----------------------------------------------------------------------------
Net cash from (used in)
 operating activities                 (205)      (243)    (5,128)    (2,872)
----------------------------------------------------------------------------

Cash flow from investing
 activities
 Expenditures on
  exploration and
  evaluation                  21   (19,731)   (23,710)   (54,481)   (59,400)
 Disposals of assets                     2          -        463          -
 Insurance recoveries                4,446     10,284     20,646     15,664
----------------------------------------------------------------------------
Net cash from (used in)
 investing activities              (15,283)   (13,426)   (33,372)   (43,736)
----------------------------------------------------------------------------

Cash flow from financing
 activities
 Issuance of common
  shares, net of costs                 (56)         -     42,137          -
 Proceeds from options
  exercised                             38          -         43          -
----------------------------------------------------------------------------
Net cash from (used in)
 financing activities                  (18)         -     42,180          -
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Change in cash and cash
 equivalents                       (15,506)   (13,669)     3,680    (46,608)
----------------------------------------------------------------------------

Cash and cash equivalents,
 beginning of period                50,668     43,769     31,482     76,708

----------------------------------------------------------------------------
Cash and cash equivalents,
 end of period                    $ 35,162   $ 30,100   $ 35,162   $ 30,100
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The notes are an integral part of these condensed consolidated interim financial statements.

Notes to the condensed consolidated interim financial statements

For the three and nine months ended September 30, 2011 and 2010

(Tabular amounts in United States dollars thousands)

(Unaudited)

1. General information

WesternZagros Resources Ltd. (the "Company" or "WesternZagros") is headquartered in Calgary, Canada. The Company is incorporated under the laws of the Province of Alberta, Canada. The address for the Company is Suite 600, 440 - 2nd Avenue S.W., Calgary, Alberta, T2P 5E9.

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 two Production Sharing Contracts ("PSCs") with the Kurdistan Regional Government ("KRG") in the Kurdistan Region of Iraq. Each PSC governs a separate contract area. The northern contract area (comprising some 340 square kilometres) is governed by the Kurdamir PSC which is an amended version of the original February 28, 2008 PSC that governed all of the Kalar-Bawanoor Block (the "Original PSC") and is now called the Kurdamir Block. The southern contract area (comprising some 1,780 square kilometres) is governed by the Garmian PSC and is named the Garmian Block. WesternZagros holds a 40 percent working interest in both the Kurdamir and Garmian PSCs. The KRG holds a 20 percent working interest in both PSCs. The remaining 40 percent working interest (the third party participation interest or "TPPI") of the Kurdamir PSC is held by a wholly-owned subsidiary of Talisman Energy Inc. ("Talisman"). The remaining 40 percent TPPI of the Garmian PSC is held by the KRG and it is to be assigned to a third party participant (refer to Note 22 "Commitments and contingencies" for a description of the PSCs).

The Company has its listing on the TSX Venture Exchange under the symbol "WZR.V".

Authorization of financial statements

These condensed consolidated interim financial statements as at and for the three and nine months ended September 30, 2011 were authorized for issuance in accordance with a resolution of the Audit Committee of the Board of Directors on November 18, 2011.

2. Basis of preparation

These condensed consolidated interim financial statements, including prior year comparative information, have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, and International Financial Reporting Standard 1, First Time Adoption of IFRS, using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), and interpretations issued by the IFRS Interpretations Committee, that are published at the time of preparation and that are effective or available for early adoption on December 31, 2011, the Company's first annual reporting date under IFRS. Prior to 2011, the Company prepared its consolidated annual and consolidated interim financial statements in accordance with Canadian generally accepted accounting principles ("GAAP").

These condensed consolidated interim financial statements have been prepared on a going concern basis under the historical cost convention. These condensed consolidated interim financial statements should be read in conjunction with the Company's annual financial statements and the notes thereto in the Company's annual report for the year ended December 31, 2010, which were prepared in accordance with previous GAAP.

As is typical with exploration stage companies, the Company has incurred losses from operations and negative cash flows from operating activities, and has an accumulated deficit at September 30, 2011. During the three months ended September 30, 2011, the Company had expenditures of $0.2 million for operating activities and $19.7 million for investing activities related to exploration and evaluation assets, including changes in non-cash working capital. During the nine months ended September 30, 2011, the Company had expenditures of $5.1 million for operating activities and $54.5 million for investing activities related to exploration and evaluation assets, including changes in non-cash working capital. The Company may require additional funding over time to maintain ongoing exploration programs and property commitments, as well as for administration expenses. In general, the Company's ability to continue operations and exploration activities is dependent upon its ability to obtain additional funding over time. While the Company has been successful in obtaining its required funding, including its recent Cdn $46.6 million equity financing described in Note 23 "Subsequent events", there is no assurance that sufficient funds will be available to the Company in the future, or if available, available on favourable terms. Factors that could affect the availability of financing include the continued support of its shareholders; the results of exploration activities; the potential assignment by the KRG of the third party participant interest in the Garmian PSC and timing thereof (see Note 22 "Commitment and contingencies" for a description of the PSCs); the results and timing associated with potential future production and sales; the political climate in Iraq and the general effect it has on the oil and gas industry; and the overall state of the capital markets. This requirement for funding may occur during the next twelve months of operations and is dependent on the level and timing of exploration and appraisal activities pursued by the Company and the funding requirement of the Company under the relevant PSCs.

3. Significant accounting policies

The significant accounting policies used in the preparation of these condensed consolidated interim financial statements are described below.

A. Conversion to IFRS

The Canadian Accounting Standards Board ("AcSB") confirmed in February 2008 that IFRS would replace Canadian generally accepted accounting principles for publicly accountable enterprises for financial periods beginning on or after January 1, 2011.

These condensed consolidated interim financial statements present the Company's financial results of operations and financial position as at and for the three and nine months ended September 30, 2011. The Company's transition date to IFRS is January 1, 2010. Consequently, the comparative figures for 2010 and the Company's consolidated statement of financial position as at January 1, 2010 have been restated from GAAP to comply with IFRS. The reconciliations between previously reported GAAP and IFRS are explained in Note 24 of these condensed consolidated interim financial statements.

B. Basis of measurement

These condensed consolidated interim financial statements have been prepared on a historical costs basis, and have been prepared using the accrual basis of accounting, except for certain cash flow information. The accounting policies, as described in further detail in this note, have been consistently applied to all periods presented in these condensed consolidated interim financial statements. They also have been applied in preparing an opening statement of financial position at January 1, 2010 for the purposes of transition to IFRS as required by IFRS 1, First Time Adoption of International Financial Reporting Standards.

These condensed consolidated interim financial statements, unless otherwise indicated, are expressed in United States dollars ("US"). The company has adopted the US dollar as its functional and reporting currency since most of its expenses are directly or indirectly denominated in US dollars. When revenues are realized, it is expected that US dollars would be received. All references herein to U.S. $ or to $ are to United States dollars and references herein to Cdn $ are to Canadian dollars. These condensed consolidated interim financial statements are rounded to the nearest thousand (U.S. $000) except where otherwise indicated.

The preparation of these condensed consolidated interim financial statements in conformity with IFRS requires the use of critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the reporting date, as well as the reported amounts of revenues and expenses during the reporting period. Such estimates relate to unsettled transactions and events at the reporting date. Accordingly, actual results may ultimately differ from the estimated amounts as future confirming events occur. Areas that involve a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the condensed consolidated interim financial statements are disclosed in Note 5.

C. Basis of consolidation

These condensed consolidated interim financial statements include the accounts of the Company and its wholly-owned subsidiaries as follows:

Wholly-owned subsidiary                   Jurisdiction  Nature of operations
----------------------------------------------------------------------------

WesternZagros Resources Inc.                    Canada       Holding Company
Western Oil International Holdings Limited      Cyprus       Holding Company
WesternZagros (Garmian) Limited                 Cyprus       Holding Company
WesternZagros Limited                           Cyprus   Exploration Company

These subsidiaries are entities over which the Company has the power to govern the financial and operating policies. The Company has 100 percent direct ownership of these entities. Accordingly, the subsidiaries are fully consolidated within the Company's condensed consolidated interim financial statements.

Inter-company transactions and balances, including unrealized income and expenses arising from inter-company transactions, are eliminated in full in preparing these condensed consolidated interim financial statements.

D. Jointly controlled assets under the PSCs

The jointly controlled assets under the PSCs offer joint ownership by the Company and its co-venturers to the PSCs for assets contributed to the ongoing exploration project in the Kurdistan Region of Iraq. The Company recognizes its share of the jointly controlled assets and its share of the joint liabilities incurred under the PSCs (refer to Note 22 "Commitments and contingencies" for a description of the PSCs).

E. Foreign currency translation

These condensed consolidated interim consolidated financial statements are presented in U.S. dollars, which is the Company's functional and reporting currency.

Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At the reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated at the exchange rates prevailing at the date of the statement of financial position. Non-monetary items are measured at historical exchange rates.

F. Exploration and evaluation expenditures

Crude oil and natural gas exploration and evaluation expenditures ("E&E expenditures") are accounted for using a modified 'successful efforts' method of accounting. Accordingly, the Company accounts for its share of costs relating to the acquisition of, exploration for, and evaluation of crude oil and natural gas assets, including related provisions for decommissioning liabilities, as E&E expenditures. E&E expenditures include, but are not limited to, license and land acquisition costs; topographical, geological, geochemical, and geophysical costs or studies; drilling and testing of exploratory and non-productive wells; costs related to evaluating the technical feasibility or commercial viability of extracting mineral reserves; carrying costs directly related to unproved properties; major development projects; and administrative costs directly related to exploration and evaluation activities.

The costs continue to be carried as E&E expenditures until such time that the technical feasibility and commercial viability of the crude oil and natural gas hydrocarbons has been demonstrated and development has been sanctioned. At that point the E&E expenditures are assessed for impairment and then transferred to development expenditures. Prior to sanctioning development, any production is considered to be test production and any associated proceeds received, net of applicable costs, are credited to E&E expenditures. As at the date of these financial statements the Company is an exploration stage company and has not yet incurred any development expenditures.

Accumulated E&E expenditures are assessed for impairment if: a) sufficient data exists to determine technical feasibility and commercial viability; and b) facts or circumstances suggest the carrying amount exceeds the recoverable amount. Indicators of impairment are considered at least annually or whenever facts and circumstances indicate potential impairment. For the purposes of impairment testing, E&E expenditures are allocated on a cash-generating unit ("CGU") basis. The Company has established that each PSC entered into will be identified as a separate CGU. An impairment loss is recognized for the amount by which the E&E expenditure's carrying value exceeds its recoverable amount. The recoverable amount is the higher of the E&E expenditure's fair value less costs to sell and their value in use. Impairment losses are recognized immediately in the statement of comprehensive income (loss). If facts and circumstances subsequently indicate that a reversal of a previous impairment loss is warranted, the carrying value is increased up to the recoverable amount, with the reversal limited to the original loss amount. As at the reporting date no impairment has been recognized.

No depreciation or amortization is charged against exploration and evaluation assets.

G. Property, plant and equipment ("PP&E")

Property, plant and equipment are stated at historical cost, less depreciation, and are depreciated on a straight-line basis over their estimated useful lives based on the following annual rates:

Furniture, fixtures and office equipment           20-33%
Computer hardware and software                     33-50%

Whenever events or circumstances dictate, the Company compares the carrying value of other property, plant and equipment to estimated net recoverable amounts, based on estimated discounted future cash flows, to determine whether there is any indication of impairment.

H. Cash and cash equivalents

Cash and cash equivalents consist of cash in the bank, less outstanding cheques, and short-term deposits with original maturity dates of three months or less.

I. Financial instruments

Financial assets and liabilities are recognized on the Company's statement of financial position when the Company becomes party to the contractual provisions of the instrument. Financial assets are de-recognized when the contractual rights to the cash flows from the financial assets expire or when the contractual rights to those assets are transferred. Financial liabilities are derecognized when the obligation specified in the contract is discharged, cancelled, or expired.

Upon initial recognition, the Company classifies its financial instruments into one of the following categories based on the purpose for which the instruments were acquired:

Financial assets and liabilities at fair value through profit or loss - this category is comprised of derivatives, or assets acquired or incurred principally for the purpose of selling or repurchasing in the near term, except for those derivatives designated as hedges. They are carried in the statement of financial position at fair value with changes in fair value recognized in the comprehensive statement of income (loss) for the period. The Company has not classified any instruments in this category, and has not identified any material embedded derivatives in any of its financial instruments.

Available-for-sale financial assets - this category is comprised of non-derivative investments designated as available for sale and can include marketable securities and investments in debt and equity securities. Available-for-sale investments are recognized initially at fair value plus transaction costs and are subsequently carried at fair value. Gains or losses arising from changes in fair value are recognized in other comprehensive income. Available-for-sale investments are classified as non-current, unless the investments mature within twelve months, or management expects to dispose of them within twelve months. The Company has not classified any instruments in this category.

Loans and receivables - this category is comprised of non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Company's loans and receivables are comprised of cash and cash equivalents, trade and other receivables, insurance recoveries receivable, deposits held in trust and income tax recoverable and are included in current assets due to their short-term nature.

Loans and receivables are initially recognized at the amount expected to be received less, when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest rate method.

Financial liabilities at amortized cost - this category is comprised of financial liabilities measured at amortized cost using the effective interest rate method, which includes trade and other payables.

J. Impairment of financial instruments

At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss as follows:

Financial assets carried at amortized cost - the impairment loss is the difference between the amortized cost of the loan or receivable and the present value of the estimated future cash flows, discounted using the instrument's original effective interest rate. The carrying amount of the asset is reduced by this amount either directly or indirectly through the use of an allowance account.

Available for sale financial assets - the impairment loss is the difference between the original cost of the asset and its fair value at the measurement date, less any impairment losses previously recognized in the statement of loss. This amount represents the cumulative loss in accumulated other comprehensive income that is reclassified to net income.

Impairment losses on financial instruments carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. Impairment losses on available-for-sale equity instruments are not reversed.

K. Provision for decommissioning obligations

Provision for decommissioning obligations are recognized when the Company has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of obligation can be made. Provision is made for the present value of the future cost of abandonment of oil and gas wells and related facilities. The Company recognizes the initial spud date as the obligating event for each well location. The Company currently has no other facilities or infrastructure relating to petroleum operations that would require future abandonment activities. When the provision is first recognized a corresponding amount equivalent to the provision is also currently recognized as part of the cost of E&E expenditures.

The amount recognized is the estimated cost of decommissioning activities based on internal engineering estimates prevailing at the reporting date, discounted to its present value utilizing a pre-tax risk-free interest rate. Changes in the estimated timing of decommissioning or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision, with a corresponding adjustment to E&E expenditures, and are updated at each reporting date to reflect the current market assessments of the time value of money and the risks specific to the obligation.

The liability is increased each period due to the passage of time and the associated accretion is expensed to income in the period.

L. Taxation including deferred taxation

Tax expense represents current tax and deferred tax. Income tax is recognized in the statement of income or loss except to the extent that it relates to items directly in equity, in which case the related income tax impact is recognized in equity.

Current tax is based on the taxable profits for the period and any adjustment to tax payable or receivable in respect of previous years.

Deferred tax assets and liabilities are determined on a non-discounted basis, using the liability method, based on the differences between the carrying values in the condensed consolidated interim financial statements and the tax bases of assets and liabilities. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered. Deferred income tax assets and liabilities are presented as non-current.

Deferred taxes are calculated using tax rates that have been enacted or substantively enacted by the reporting date.

Taxes on income in interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

M. Share capital

Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity.

N. Share-based payments

The Company has established a Stock Option Plan for the issuance of options to directors, officers, employees and consultants to purchase Common Shares of the Company. The vesting period and expiry date for each option grant is set at the discretion of the Board of Directors. Each vesting tranche is considered a separate award with its own vesting period. The fair value of each tranche is measured at the grant date using the Black-Scholes option pricing model. Compensation costs are recognized over the vesting period for each particular tranche based on the number of awards expected to vest, with a corresponding increase to contributed surplus. Compensation costs directly related to exploration activities are capitalized, costs related to non-exploration activities are treated as general and administrative expenses. The number of option awards expected to vest is reviewed at least annually, with any impact being recognized immediately.

The cash proceeds received, net of any directly attributable transaction costs, together with the amount recorded to contributed surplus are credited to share capital when the options are exercised.

O. Other income

The Company recognizes other income on an accrual basis and is related to the interest income earned on the Company's cash and cash equivalents balances.

P. Fair value

The fair value of instruments, trade and other receivables, and trade and other payables approximate their carrying amounts due to the short term maturity of the instruments.

Q. Loss per share

The Company presents the basic and diluted loss per share data for its common shares, calculated by dividing the loss attributable to the shareholders of the Company by the weighted-average number of common shares outstanding during the period. Diluted income per share is determined by adjusting the income attributable to the common shareholders and the average number of common shares outstanding for the period for the effects of all potential dilutive common shares. Note that by definition, for periods in which there is a loss attributable to the common shareholders, there can be no dilutive impact on the loss per share calculation.

R. Recent accounting pronouncements issued but not yet effective

The IASB has issued the following standards which are effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Company is currently evaluating the impact, if any, of each of these new standards, which are briefly summarized as follows:

IAS 27 - Separate Financial Statements:

IAS 27 replaces the existing IAS 27, "Consolidated and Separate Financial Statements". IAS 27 contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. IAS 27 requires an entity preparing separate financial statements to account for those investments at cost or in accordance with IFRS 9, "Financial Instruments".

IAS 28 - Investments in Associates and Joint Ventures:

IAS 28 prescribes the accounting for investments in associates and sets out the application of the equity method when accounting for investments in associates and joint ventures.

IFRS 9 - Financial Instruments:

IFRS 9 is the first part of a new standard on classification and measurement of financial assets and liabilities that will replace IAS 39, "Financial Instruments: Recognition and Measurements".

For financial assets, IFRS 9 has two measurement categories: amortized cost and fair value. All equity instruments are measured at fair value. A debt instrument is at amortized cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise it is at fair value through profit and loss.

For financial liabilities, although the classification criteria for financial liabilities will not change under IFRS 9, the approach to the fair value option for financial liabilities may require different accounting for changes to the fair value of a financial liability as a result of changes to an entity's own credit risk.

IFRS 10 - Consolidated Financial Statements:

IFRS 10 establishes the principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 replaces IAS 27 "Consolidated and Separate Financial Statements" and SIC-12 "Consolidation - Special Purpose Entities".

IFRS 11 - Joint Arrangements:

IFRS 11 establishes principles for financial reporting by parties to a joint arrangement, and requires entities to classify interests in joint arrangements as either a joint venture or a joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for joint operations the entity will recognize it share of the assets, liabilities, revenue and expenses of the joint operation. IFRS 11 replaces IAS 31 "Interests in Joint Ventures" and SIC-13 "Jointly Controlled Entities - Non-monetary Contributions by Venturers".

IFRS 12 - Disclosure of Interests in Other Entities:

IFRS 12 establishes disclosure requirements relating to an entity's interests in other entities such as joint arrangements, associates or unconsolidated structured entities, including special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosure requirements and also introduces significant additional disclosure requirements that address the nature and risk associated with interests in other entities.

IFRS 13 - Fair Value Measurements:

IFRS 13 defines fair value and sets out a single IFRS framework for measuring fair value and the required disclosures about fair value measurements for use across all IFRS standards. IFRS 13 is intended to eliminate the inconsistencies in fair value measurement and the disclosure requirements contained in various other IFRS standards that refer to fair value.

4. Financial risk management

The Company's financial instruments consist of cash and cash equivalents, trade and other receivables, insurance recoveries receivable, deposits held in trust, and trade and other payables. The main risks that could adversely affect the Company's financial instruments are credit risk, liquidity and funding risk, and market and interest rate risk.

Risk management is carried out by senior management, and reviewed regularly by the Board of Directors. The risk management policies employed by the Company are discussed below:

Credit risk is the risk of loss associated with the counterparty's inability to fulfill its payment obligations. The Company is currently exposed to credit risk on its cash and cash equivalents to the extent these balances are invested with various institutions. The Board of Directors of the Company has approved an Investment Policy to dictate the various types of instruments and institutions that can be invested in and monitors these against this policy on a regular basis. Currently, the Company has entered into transactions for cash equivalents with major Canadian financial institutions with investment grade credit ratings.

The Company is also normally exposed to credit risk on trade and other receivables, mainly associated with its role as operator in the Garmian PSC, its share of related expenditures and the potential reimbursement of costs incurred under the Garmian PSC that may ultimately be due upon assignment by the KRG of the third party participant in the Garmian PSC, and Talisman's 40 percent interest in the Kurdamir PSC for gross costs incurred by WesternZagros while operator under the Kurdamir PSC. Accordingly, the ability of the Company to successfully carry out the exploration, appraisal and development of its PSC contract areas may be impacted by the continued participation of the parties in these activities and the potential assignment of the third party participant interest in the Garmian PSC by the KRG and any corresponding reimbursement of costs incurred under the Garmian PSC (refer to Note 22 "Commitments and contingencies" for a description of the PSCs).

With respect to the Company's financial assets, the maximum exposure to credit risk due to default of a counter party is equal to the carrying value of these instruments. The maximum exposure to credit risk as at the reporting date is as follows:

As at                                 September 30, 2011   December 31, 2010
----------------------------------------------------------------------------
Cash and cash equivalents                     $   35,162          $   31,482
Trade and other receivables                          284               8,648
Insurance recoveries receivable                        -              17,597
Deposits held in trust                                 -                 420
----------------------------------------------------------------------------
Total                                         $   35,446          $   58,147
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The Company does not expect any losses from non-performance by these counterparties, and has not recorded a provision against any of these amounts as it does not consider the balances to be impaired.

Liquidity and funding risk

Liquidity and funding risk is the risk that the Company may be unable to generate or obtain sufficient cash or its equivalent in a timely and cost-effective manner to meet its commitments as they become due. The Company is engaged in acquiring properties and exploring for crude oil and natural gas and is in the exploration phase, and subsequent to September 30, 2011 has commenced an extended well test and the sale of crude oil test production from the Sarqala-1 exploration well. The Company funds its share of all commitments from existing cash balances, the proceeds from any sales of test production resulting from the extended well test and by accessing additional sources of funding from debt or equity markets.

The Company's capital structure consists of shareholder's equity and working capital. The Company has not entered into any debt financing arrangements as at the reporting date and is not subject to any externally imposed capital requirements. Trade and other payables of $17.2 million are all current liabilities due in less than 1 year. Certain commitments of approximately $3.2 million identified in Note 22 "Commitments and contingencies" are also due within 1 year of the reporting date. The Company will adjust its capital structure to manage its drilling program though the issuance of shares and adjustments to capital spending.

The Company's objectives when managing its capital structure are as follows:

i.  Ensure adequate levels of available cash and cash equivalents to meet
    the Company's commitments under the Garmian and Kurdamir PSCs (also
    refer to Note 22 "Commitments and contingencies"); and
ii. To prudently fund expenditures related to the acquisition of properties,
    and for exploration, appraisal and development of crude oil and natural
    gas properties.

The Board of Directors regularly reviews the Company's cash and cash equivalents against the Company's expenditure commitments and assesses the need and timing for additional financing. This review includes assessing the likelihood and timing of an assignment of the third party participant interest by the KRG under the Garmian PSC and any corresponding reimbursement of costs under the Garmian PSC (refer to Note 22 "Commitments and contingencies" for a description of the PSCs), as well as an assessment of any potential proceeds to be derived from crude oil sales during any extended well testing. Management has a reasonable expectation that the Company can raise the additional capital required in order to meet future expenditures. However, the Company's results will impact its access to the capital necessary to meet these expenditure commitments. There can be no assurance that debt or equity financing will be available or sufficient to meet those commitments, or for other corporate purposes, or if debt or equity financing is available, that it will be on terms acceptable to the Company. The inability of the Company to access sufficient capital for its operations could have a material adverse impact on the Company's financial condition, results of operations and prospects.

The Company realizes that the combination of circumstances and risks represent an uncertainty that may cast doubt upon the Company's ability to realize its assets and discharge its liabilities in the normal course of business. Nevertheless, after considering the uncertainties, Management has a reasonable expectation that the Company has adequate resources or can raise the additional resources required in order to continue to adopt the going concern basis of accounting in preparing the financial statements.

Market and interest rate risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates and equity or commodity prices. The Company is exposed to interest rate risk to the extent that changes in market interest rates will impact interest earned on the Company's cash and cash equivalents. The Company is also exposed to foreign exchange risk, as the majority of costs are anticipated to be incurred in U.S. dollars while the funds it will have available to it may be in other currencies.

The Company's Investment Policy dictates the various types of instruments and institutions that can be invested in and monitors these against this policy on a regular basis. The Board of Directors has also approved a Foreign Exchange Policy to dictate the currencies held by the Company and the instruments that can be utilized by the Company to meet its day to day requirements. This Foreign Exchange Policy requires the Company to hold the majority of its cash and cash equivalents and short term investments in U.S. dollars and sets out the type and duration of instruments that can be used to meet the Company's day to day foreign exchange requirements. The Foreign Exchange Policy does allow the Company to hold other balances, mainly Canadian dollars, to meet its funding needs for general and administrative and other spending requirements in these currencies. Neither aforementioned policy permits the Company to enter into any economic hedging as it relates to interest or foreign exchange risks. As at September 30, 2011, had the U.S. dollar changed by one percent against the Canadian dollar, with all other variables held constant, the Company's foreign exchange gain (loss) would have been affected by approximately $0.02 million.

The marketability and price of crude oil and natural gas that may be acquired or discovered by the Company is, and will continue to be, affected by numerous factors beyond its control including the impact that the various levels of government may have on the ultimate price received for crude oil and natural gas sales. The Company's ability to market its crude oil and natural gas may depend on its ability to secure transportation. The Company may also be affected by deliverability uncertainties related to the proximity of its potential production to pipelines and processing facilities and operational problems affecting such pipelines and facilities as well as potential government regulation relating to price, the export of crude oil and natural gas and other aspects of the crude oil and natural gas business.

Both crude oil and natural gas prices are subject to wide fluctuation. During the nine months ended September 30, 2011, Brent daily spot crude prices ranged in value from $93 to $126 per barrel. WesternZagros originally negotiated the economic terms of the Original PSC in 2007 in a crude oil price environment of approximately $50 per barrel. Any significant and sustained decline in crude oil prices from that price may impact the feasibility of WesternZagros's business plan.

5. Critical accounting judgments, estimates and assumptions

The preparation of these condensed consolidated interim financial statements in conformity with IFRS requires the use of critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the reporting date, as well as the reported amounts of revenues and expenses during the reporting period. Such estimates relate to unsettled transactions and events as at the reporting date. Accordingly, actual results may ultimately differ from the estimated amounts as future confirming events occur. Areas that involve a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the condensed consolidated interim financial statements are disclosed below.

A. Recoverability of asset carrying values

At each reporting date, the Company assesses its exploration and evaluation and property, plant and equipment expenditures for possible impairment if events or circumstances indicate the carrying values of the assets might not be recoverable. Relevant indicators include the following: the continued progression of Management's operational plans; new information obtained from wells that have been drilled or tested; changes or restrictions in access to drilling sites; changes in legal, regulatory, market, environmental, technological, or political factors that could impact ongoing operations; the ability of the Company to continue fulfilling ongoing commitments; and significant changes in the Company's market value.

If factors indicate that the Company may need to recognize impairment, the carrying value of the assets for each cash-generating-unit is compared to the greater of value-in-use or fair-value less costs to sell. The determination of the value-in-use amount, which is based on discounted future cash flows, and any resulting impairment involves the use of significant estimates and assumptions about future events and factors such as future commodity prices, the impact of inflation on operating expenses, discount rates, production profiles, the ability to produce and export crude oil and natural gas, the future capital costs needed to develop reserves, as well as the future marketability and availability of transportation for crude oil and natural gas that is produced.

At the reporting date, the Company is still in the exploration phase of operations on the Garmian and Kurdamir Blocks. The Company has not recognized any impairment for E&E expenditures nor for property, plant, and equipment.

B. Provision for decommissioning obligations

The Company recognizes both an asset and a provision for decommissioning obligations in the period in which they are incurred by estimating the fair value of the obligation. The fair value calculations are based on a risk-free discount rate. Provisions for environmental clean-up and remediation costs associated with the Company's drilling operations are based on current legal and constructive requirements, technology, price levels and expected plans for remediation. Actual costs and cash outflows and the timing of those cash outflows can differ from estimates because of changes in laws and regulations, public expectations, prices, discovery and analysis of site conditions, future performance of wells drilled, and changes in clean-up technology. Estimating the timing and amount of cash outflows required to settle these obligations are inherently difficult and are based on Management's current experience. Any differences between actual and estimated decommissioning obligations would impact both the asset and the provision, which would then impact future depreciation of the asset as well as accretion on the provision.

C. Income tax

Tax regulations and legislation and the interpretations thereof in the jurisdictions that the Company operates are subject to change. As such, income taxes are subject to measurement uncertainty. Deferred income tax assets are assessed by Management based on all available information at the end of the reporting period to determine the likelihood that they will be realized from future taxable earnings.

D. Share-based payments

The estimates, assumptions, and judgments made in relation to the fair value of share-based payments and the associated expense recognition is subject to measurement uncertainty. The fair value of employee stock options is measured using a Black Scholes option pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility, expected life of the instrument, expected dividends, and the risk-free interest rate.

6. Segment reporting

The Company has only one significant asset related to its interest in the PSCs with the KRG in respect of an exploration project in the Kurdistan Region of Iraq. The Company is still in the exploration phase and has identified one segment for operational activities carried out in the country of Iraq. Also refer to Note 22 "Commitments and contingencies" for a description of the PSCs.

7. Cash and cash equivalents

                   September 30, 2011   December 31, 2010    January 1, 2010
----------------------------------------------------------------------------
Bank balances            $      3,064         $     3,613        $     6,609
Term deposits                  32,098              27,869             70,099
----------------------------------------------------------------------------
Cash and cash
 equivalents             $     35,162         $    31,482        $    76,708
----------------------------------------------------------------------------
----------------------------------------------------------------------------

8. Trade and other receivables

                                 September 30,   December 31,     January 1,
Current                                   2011           2010           2010
----------------------------------------------------------------------------
Joint venture receivables          $         -    $     7,675     $    6,636
Other receivables                          284            973             53
Loan receivable from related
 party                                       -              -            191
----------------------------------------------------------------------------
Total trade and other
 receivables                       $       284    $     8,648     $    6,880
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Other receivables include a GST receivable as well as balances owing from certain payables vendors that have yet to be realized. The loan receivable at January 1, 2010 was in respect of a loan to a senior officer, this loan was fully repaid in the third quarter of 2010.

All classes within trade and other receivables do not contain any impaired assets.

9. Exploration and evaluation expenditures

                                 September 30,    December 31,    January 1,
As at                                     2011            2010          2010
----------------------------------------------------------------------------
Costs                               $  237,347      $  180,770    $  154,097
Accumulated impairment                       -               -             -
----------------------------------------------------------------------------
Net book value                      $  237,347      $  180,770    $  154,097
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                     Nine months ended   Twelve months ended
                                    September 30, 2011     December 31, 2010
----------------------------------------------------------------------------
Opening net book value                 $       180,770       $       154,097
Additions, net of insurance
 recoveries                                     57,040                26,673
Disposals                                         (463)                    -
Impairment                                           -                     -
----------------------------------------------------------------------------
Closing net book value                 $       237,347       $       180,770
----------------------------------------------------------------------------
----------------------------------------------------------------------------

All E&E expenditures pertain to the Kurdistan Region Exploration Project with respect to the Company's PSCs and have been capitalized in accordance with the Company's exploration and evaluation accounting policy. Included in E&E expenditures as at September 30, 2011 is $0.9 million related to provisions for decommissioning obligations (December 31, 2010: $0.2 million). For the nine months ended September 30, 2011, the Company has capitalized $3.1 million of general and administrative costs (September 30, 2010: $1.4 million), including $0.5 million of share-based compensation costs (September 30, 2010: negligible amount) directly related to exploration activities. All E&E expenditures are excluded from depreciation.

As at September 30, 2011, the Company had approximately $227 million relating to the Kurdamir and Garmian PSCs, net to WesternZagros, of recoverable costs available that may ultimately be recovered from future crude oil or natural gas sales in accordance with the PSCs (refer to Note 22 "Commitments and contingencies" for a description of the PSCs). Under each PSC, costs subject to recovery include all costs and expenditures incurred for exploration, development, production and decommissioning operations, as well as any other costs and expenditures incurred directly or indirectly from these activities.

10. Property plant and equipment

As at the reporting date, property, plant and equipment is comprised of office and computer equipment and leasehold improvements. As the Company is still in the exploration stage all oil and gas assets, including assets related to provisions for decommissioning obligations, are classified within exploration and evaluation assets.

                                September 30,   December 31,     January 1,
As at                                    2011           2010           2010
----------------------------------------------------------------------------
Costs                             $     1,830    $     1,830    $     1,830
Accumulated impairment                      -              -              -
Accumulated depreciation               (1,720)        (1,569)        (1,016)
----------------------------------------------------------------------------
Net book value                    $       110    $       261    $       814
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                    Nine months ended   Twelve months ended
Period ended                       September 30, 2011     December 31, 2010
----------------------------------------------------------------------------
Opening net book value                     $      261            $      814
Additions                                           -                     -
Impairment                                          -                     -
Depreciation                                     (151)                 (553)
----------------------------------------------------------------------------
Closing net book value                     $      110            $      261
----------------------------------------------------------------------------
----------------------------------------------------------------------------

11. Deposits held in trust

The Company had deposited in trust for a supplier amounts to be utilized to fund certain expenditures for drilling operations. During the first quarter of 2011 these funds held in trust were released back to the Company.

12. Income taxes

For the nine months ended September 30                    2011         2010
----------------------------------------------------------------------------
Current income tax recovery                        $    (1,244)  $   (1,014)
Future income tax expense (recovery)                       121          151
----------------------------------------------------------------------------
Income tax expense (recovery)                      $    (1,123)  $     (863)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The deferred income tax asset is comprised of:

                                  September 30,   December 31,   January 1,
Deferred income tax asset as at            2011           2010         2010
----------------------------------------------------------------------------
 Share issue costs                    $      82      $     204    $     408
 Temporary differences on
  property, plant and equipment               9            (18)         (37)
----------------------------------------------------------------------------
 Total deferred income tax asset      $      91      $     186    $     371
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The deferred income tax liability is comprised of:

Deferred income tax liability as  September 30,   December 31,   January 1,
 at                                        2011           2010         2010
----------------------------------------------------------------------------
 Temporary differences on
  property, plant and equipment            $167           $140         $161
 Non-capital loss carryforwards               -              -          (27)
----------------------------------------------------------------------------
 Total deferred income tax
  liability                           $     167      $     140    $     134
----------------------------------------------------------------------------
----------------------------------------------------------------------------

13. Trade and other payables

Current                            September 30,   December 31,   January 1,
                                            2011           2010         2010
----------------------------------------------------------------------------
Trade payables                         $     370      $   4,052    $   6,705
Accruals                                  16,806         17,473       11,592
----------------------------------------------------------------------------
Total trade and other payables         $  17,176      $  21,525    $  18,297
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Trade payables are non-interest bearing and are normally settled on 30 to 60 day terms. Accruals relate mainly to E&E and other expenditures incurred as at the reporting date.

14. Provision for decommissioning obligations

Decommissioning liabilities are recognized when the Company has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of obligation can be made. Provisions are made for the present value of the future cost of abandonment of oil and gas wells and related facilities.

The amount recognized is the estimated cost of decommissioning activities based on internal engineering estimates prevailing at the reporting date, discounted to its present value utilizing a pre-tax risk-free interest rate. Changes in the estimated decommissioning costs or the estimated timing of decommissioning costs are dealt with prospectively by recording an adjustment to the provision, with a corresponding adjustment to exploration and evaluation assets, and are updated at each reporting date to reflect the current market assessments of the time value of money and the risks specific to the obligation.

These costs are assumed to be incurred in the years 2035 and 2036 in respect of well locations as at the reporting date. The Company's share of the total undiscounted amount of estimated cash flow required to settle the obligation is $2.4 million. The Company has used the Bank of Canada long-term bond yield rate and an inflation rate of 4 percent to calculate the net present value of the future obligations. The additional obligations incurred in 2011 relate to the Company's 100 percent working interest funding for the Sarqala-1 re-entry operation as well as the drilling operations at Mil Qasim-1 (also refer to Note 22 "Commitments and contingencies" for a description of the PSCs).

The following table presents the reconciliation of the Company's provision for decommissioning liabilities:

                                      Nine months ended  Twelve months ended
                                     September 30, 2011    December 31, 2010
----------------------------------------------------------------------------
Balance, beginning of period                        509                  432
Additional obligations incurred             $       662          $         -
Changes in estimates or timing of
 cash flows                                          62                   61
Accretion                                            17                   16
----------------------------------------------------------------------------
Balance, end of period                      $     1,250          $       509
----------------------------------------------------------------------------
----------------------------------------------------------------------------

15. Share capital

As at September 30, 2011, the Company is authorized to issue an unlimited number of common shares and preferred shares, issuable in series. The common shares are without nominal or par value.

16. Share based payments

Pursuant to the stock option plan, the Board of Directors may grant options to directors, officers, employees and other service providers. The aggregate number of shares that may be reserved for issuance pursuant to stock options may not exceed 10 per cent of the issued and outstanding common shares of the Company on a non-diluted basis as at the time of granting. Stock options expire not more than five years from the date of grant, or earlier if the individual ceases to be associated with the Company, and the option vesting period is determined at the discretion of the Board of Directors when granted. These options are equity settled share based payment transactions.

The following tables present the reconciliation of stock options granted:

                                                                   Weighted
For the year ended December 31, 2010                                average
                                                                   exercise
                                           Number of options    price ($Cdn)
----------------------------------------------------------------------------
Outstanding, beginning of year                    13,007,334    $      1.50
Granted                                            9,764,900           0.49
Exercised                                                  -              -
Forfeited and expired                             (2,417,334)          1.67
----------------------------------------------------------------------------
Outstanding, end of year                          20,354,900    $      1.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Exercisable at December 31, 2010                  12,143,965          $1.30
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                                                   Weighted
For the three months ended September 30,                            average
 2011                                                              exercise
                                           Number of Options    price ($Cdn)
----------------------------------------------------------------------------
Outstanding, beginning of period                  19,585,033    $      0.97
Granted                                              535,000           0.55
Exercised                                            (70,600)          0.51
Forfeited and expired                             (1,192,066)          0.85
----------------------------------------------------------------------------
Outstanding, end of period                        18,857,367    $      0.97
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                                                   Weighted
For the nine months ended September 30,                             average
 2011                                                              exercise
                                           Number of Options    price ($Cdn)
----------------------------------------------------------------------------
Outstanding, beginning of period                  20,354,900    $      1.00
Granted                                              582,000           0.56
Exercised                                            (79,800)          0.51
Forfeited and expired                             (1,999,733)          1.17
----------------------------------------------------------------------------
Outstanding, end of period                        18,857,367    $      0.97
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Exercisable at September 30, 2011                 10,727,898    $      1.31
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The fair value of all options granted have been estimated at the grant date using the Black-Scholes option pricing model and are summarized in the following table:

----------------------------------------------------------------------------
                                    Nine months ended   Twelve months ended
                                   September 30, 2011     December 31, 2010
----------------------------------------------------------------------------
Weighted average fair value of
 stock options granted                 $         0.37       $          0.29
Average Risk Free Interest Rate        $         1.16%                 1.62%
Expected Life                                 3 years           2 - 3 years
Average Expected Volatility                       108%                  120%
Dividend Per Share                                Nil                   Nil
----------------------------------------------------------------------------
----------------------------------------------------------------------------

During the nine months ended September 30, 2011, the Company recognized $0.6 million (2010: $0.6 million) of stock based compensation as general and administrative expense and capitalized $0.5 million (2010: negligible amount).

17. General and administrative expenses, by nature

For the nine months ended September 30                   2011          2010
----------------------------------------------------------------------------
Staff expenses                                      $   4,379     $   3,492
Share-based payments                                      635           593
Travel expenses                                           725           337
Professional fees                                         924           924
Office costs                                              823           820
Regulatory and corporate project costs                    414           538
Other administrative expenses                             370           314
Less capitalized general and administrative costs
                                                       (2,669)       (2,843)
----------------------------------------------------------------------------

Total administrative expenses                       $   5,601     $   4,175
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Key management personnel have been identified as the Board of Directors and the Executive Management Team. Details of key management remuneration are shown in Note 18.

18. Related party transactions and balances

All wholly-owned subsidiaries as listed in Note 3(c) have been included in the consolidated accounts.

The remuneration of the eleven key management personnel of the Company, which includes the Directors and Officers and other Executive Management personnel, is set out below in aggregate:

For the nine months ended September 30                       2011       2010
----------------------------------------------------------------------------
Salaries and employee benefits                           $  1,335   $    945
Share-based compensation expense                              636        505
----------------------------------------------------------------------------
Total                                                    $  1,971   $  1,450
----------------------------------------------------------------------------
----------------------------------------------------------------------------

19. Loss per share, basic and diluted

The basic loss per share is calculated by dividing the loss attributable to shareholders of the Company by the weighted average number of common shares issued during the period. In computing diluted per share amounts, all of the Company's options at the reporting date totaling 18,857,367 (September 30, 2010 - 11,482,334) have been excluded as they are anti-dilutive. Accordingly no additional common shares were added to the basic weighted average shares outstanding to account for dilution.

The basic and diluted loss per share was calculated as follows:

                                Three months ended        Nine months ended
                                     September 30,             September 30,
                                 2011         2010         2011         2010
----------------------------------------------------------------------------
Loss for the period        $    2,013   $      819   $    4,909   $    3,798
Weighted-average common
 shares (000's)               297,191      207,464      274,816      207,464
----------------------------------------------------------------------------
Loss per share (basic and
 diluted)                  $    0.007   $    0.004   $    0.018   $    0.018
----------------------------------------------------------------------------
----------------------------------------------------------------------------

20. Shareholder rights plan

On October 18, 2007, the Company adopted a shareholder rights plan (the "Plan"). Under the Plan, one right has been issued in respect of each currently issued common share and one right will be issued with each additional common share which is issued. The rights remain attached to the common shares and are not exercisable or separable unless one or more of certain specified events occur. If a person or group acting in concert acquires 20 per cent or more of the common shares of the Company, the rights will entitle the holders thereof (other than the acquiring person or group) to purchase common shares at a substantial discount from the then market price. The rights are not triggered by a "Permitted Bid" as defined in the Plan. The Plan will remain in effect until termination of the annual meeting of shareholders in 2013, unless extended by resolution of the shareholders at such meeting.

21. Supplemental cash flow information

Expenditures on exploration and evaluation assets are comprised of:

                               For the three months     For the nine months
                                ended September 30,     ended September 30,
                                   2011        2010        2011        2010
----------------------------------------------------------------------------

Expenditures on exploration
 and evaluation assets       $  (24,651) $  (20,455) $  (59,026) $  (49,570)
Change in non-cash investing
 working capital                  4,920      (3,255)      4,545      (9,830)
----------------------------------------------------------------------------
                             $  (19,731) $  (23,710) $  (54,481) $  (59,400)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Changes in non-cash working capital is comprised of:

                               For the three months     For the nine months
                                ended September 30,     ended September 30,
                                    2011       2010        2011        2010
----------------------------------------------------------------------------

Related to operating
 activities
 Trade and other receivables   $   1,294  $     232   $      16   $     185
 Prepaid expenses                    222        170        (198)        (42)
 Trade and other payables              -          -           -           -
----------------------------------------------------------------------------
                               $   1,516  $     402   $    (182)  $     143
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Related to investing
 activities
 Trade and other receivables   $   1,377  $    (908)  $   8,768   $  (4,045)
 Trade and other payables          3,543     (2,347)     (4,223)     (5,785)
----------------------------------------------------------------------------
                               $   4,920  $  (3,255)  $   4,545   $  (9,830)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

22. Commitments and contingencies

A. PSC commitments

During the third quarter of 2011, the Company finalized an agreement with the Kurdistan Regional Government and Talisman to amend the original Production Sharing Contract ("Original PSC") that governed the Company's exploration activities in the Kalar-Bawanoor Block in Kurdistan. The agreement divided the contract area of the Original PSC into two contract areas named Garmian and Kurdamir (see chart below), each of which is now operated under a distinct PSC.

WesternZagros continues to operate the southern contract area named the Garmian Block that covers approximately 1,780 square kilometres and is now governed under the new Garmian PSC. The northern contract area is named the Kurdamir Block. It covers some 340 square kilometres and is now governed under an amended version of the Original PSC (the "Kurdamir PSC"). The northern area is now operated by Talisman. WesternZagros's production sharing terms, under both the Garmian and Kurdamir PSCs, remain unchanged from the Original PSC.

A summary of the material amendments to the Original PSC is as follows:

----------------------------------------------------------------------------
                   Original PSC        Amended PSC         New PSC
                   (Kalar-Bawanoor)    (Kurdamir)          (Garmian)
----------------------------------------------------------------------------
First              December 31, 2010   June 30, 2012       December 31, 2011
 Exploration
 Sub-Period
 (expires)
----------------------------------------------------------------------------
Exploration        Third Exploration   Kurdamir-2          Mil Qasim-1
 Obligation        Well                                    Exploration Well
 (remaining)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Second             Additional Two      Additional Two      Additional Two
 Exploration       Years               Years               Years
 Sub-Period
----------------------------------------------------------------------------
Exploration        Two Exploration     One Appraisal       One Exploration
 Obligation        Wells               Well                Well
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Other Extensions   Two One Year        Six Month           One Year
                   Extensions          Extension           Extension
----------------------------------------------------------------------------
Economic Terms     10% Royalty Oil,    Unchanged           Unchanged
                   remainder
                   available for
                   Cost Recovery and
                   Profit Oil
----------------------------------------------------------------------------
PSC Payments       $ 5 Million         Additional          Additional
                   Signature Bonus     Capacity Building   Capacity Building
                   $40 Million         Support Payment     Support Payment
                   Capacity Building   payable equal to    payable equal to
                   Support Payment     3% of               3% of
                   $ 1.1 Million       WesternZagros       WesternZagros
                   Annual Payments     Profit Oil.         Profit Oil.
                                       Continuation of     Annual payments
                                       previous annual     50% of previous
                                       payments.           payments.
----------------------------------------------------------------------------
Operator           WesternZagros       Talisman            WesternZagros
----------------------------------------------------------------------------
Ownership          WesternZagros 40%   WesternZagros 40%   WesternZagros 40%
                   Talisman 40%        Talisman 40%        Unassigned TPPI
                   KRG 20% (i)         KRG 20% (i)         40%(ii)
                                                           KRG 20% (i)
----------------------------------------------------------------------------
Contract Area      2,120 km2           340 km2             1,780 km2
----------------------------------------------------------------------------

(i) WesternZagros funds 20% of the KRG costs. Ultimately to be recovered by WesternZagros through KRG's share of Cost Recovery Oil. For the Garmian Block, the current PSC requires that the third party participant will be required to pay for half of the KRG's carried share. This will be confirmed once the TPPI is assigned.

(ii) WesternZagros initially funds the 40% of the costs for the third party participant until it is assigned by the KRG. The amounts funded by WesternZagros for the TPPI will be repaid upon assignment of this interest.

As at September 30, 2011, the Company estimates expenditures of approximately $52 million to meet its remaining commitments for the first exploration sub-periods under the PSCs. This estimate includes the Company's current 100 percent funding requirement for the remaining costs associated with drilling the Mil Qasim-1 commitment well by December 31, 2011; the Company's 60 percent funding requirement of costs for drilling the Kurdamir-2 commitment well by June 30, 2012; the associated supervision and local office support costs related to both drilling operations; the Company's annual funding requirements for certain technological, logistical, recruitment and training support under its PSCs; and other commitments related to Kurdamir Block activities.

B. Other commitments

The Company has entered into various exploration-related contracts, including contracts for drilling equipment, services, tangibles and consulting service contracts. The following table summarizes the estimated commitments in relation to these exploration-related contracts relating to the Garmian PSC and other contractual obligations at September 30, 2011:

                                 For the Years Ending December 31,
                       2011      2012      2013      2014    2015+     Total
----------------------------------------------------------------------------
Exploration        $  1,437         -         -         -        -  $  1,437
Office             $    162  $    602  $    559  $    456        -  $  1,779
----------------------------------------------------------------------------
                   $  1,599  $    602  $    559  $    456        -  $  3,216
----------------------------------------------------------------------------
----------------------------------------------------------------------------

C. Contingencies

i. Litigation

From time to time, the Company may become involved in legal or administrative proceedings in the normal conduct of business. The Company is currently in disputes with two contractors, one is related to compensation owing to a contractor under a terminated agreement and the other is over a potential breach of contract by a contractor related to services provided to the Company. Although there has been no formal claim of monetary damages to date in either of the matters, the Company does not currently expect that the matters, individually or in aggregate, would have a material impact on the Company's financial position. The Company continues to pursue resolution of these disputes, and will enforce its contractual rights through arbitration if necessary. Notice of arbitration has been received by the Company with respect to one of these disputes. Given the early stage of the disputes, there is no certainty as to the ultimate outcome of such proceedings. Amounts involved in such matters are not reasonably estimable due to uncertainty as to the final outcome.

ii. Regulatory

Oil and gas operations are subject to extensive controls and regulations imposed by various levels of government that may be amended from time to time. The Company's operations may require licenses and permits from various governmental authorities in the countries in which it operates. Under the Garmian and Kurdamir PSCs, the KRG is obligated to assist in obtaining all permits and licenses from any government agencies in the Kurdistan Region and from any other government administration in Iraq. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration and development of its projects.

The political and security situation in Iraq is unsettled and volatile. The Kurdistan Region is the only "Region" of Iraq that is constitutionally established pursuant to the Iraq Constitution, which expressly recognizes the Kurdistan Region. The political issues of federalism and the autonomy of the Regions of Iraq are matters about which there are major differences between the various political factions in Iraq. These differences could adversely impact the Company's interest in the Kurdistan Region including the ability to export any hydrocarbons as a result of our activities.

23. Subsequent events

Subsequent to September 30, 2011, WesternZagros completed a private placement of common shares in which 74 million common shares were issued to the Abu Dhabi National Energy Company PJSC at a price of Cdn $0.63 per share. Total gross proceeds received were Cdn $46.6 million. Also subsequent to September 30, 2011, WesternZagros sold its first oil produced from the Sarqala-1 extended well test. WesternZagros has executed two sales contracts for total delivery of approximately 66,500 barrels of oil and has received payments totaling $3.8 million in advance of delivery for this test production. Deliveries under these sales agreements to November 17, 2011 have totaled approximately 47,000 barrels of oil.

24. Explanation of transition to IFRS

These condensed consolidated interim financial statements present the Company's financial results of operations and financial position, prepared in accordance with IFRS, as at and for the three and nine months ended September 30, 2011, in respect of the Company's first annual reporting date under IFRS of December 31, 2011. Previously the Company prepared its consolidated annual and consolidated interim financial statements in accordance with Canadian generally accepted accounting principles. In accordance with IFRS 1, First Time Adoption of IFRS, certain disclosures relating to the transition to IFRS are given in this note. These disclosures are prepared under IFRS as set out in the basis of preparation in Note 2.

IFRS 1 allows first time adopters of IFRS to utilize a number of voluntary exemptions from the general principal of retrospective restatement. The Company has utilized the following exemptions:

A. IFRS 3 Business combinations

This standard has not been applied to acquisitions that occurred before January 1, 2010, the Company's transition date.

B. Full-cost book value as deemed costs

In July 2009, the IASB published an amendment to IFRS 1, Additional Exemptions for First-Time Adopters, to allow a first time adopter that had previously utilized full-cost accounting for oil and gas activities under previous GAAP to elect to measure exploration and evaluation assets at the date of transition at the book value amount determined under the adopter's previous GAAP. The Company did follow a full cost approach under previous GAAP and has elected to utilize this exemption to measure E&E expenditures on a deemed cost basis at the date of transition to IFRS.

C. Reconciliation of equity from Canadian GAAP to IFRS as at the date of IFRS transition - January 1, 2010 (United States dollars thousands):

                                                   Effect of
                                    Canadian   transition to
                         Notes          GAAP            IFRS           IFRS
----------------------------------------------------------------------------
Assets
Current assets
 Cash and cash
  equivalents                      $  76,708       $       -      $  76,708
 Trade and other
  receivables                          6,880               -          6,880
 Prepaid expenses                        183               -            183
 Income tax recoverable                1,738               -          1,738
 Future income tax
  assets                     a           231            (231)             -
----------------------------------------------------------------------------
 Total current assets                 85,740            (231)        85,509

Non-current assets
 Property, plant and
  equipment                  b       154,911        (154,097)           814
 Exploration and
  evaluation
  expenditures               b             -         154,097        154,097
 Deposits held in trust                  420               -            420
 Deferred tax assets         a             6             365            371
----------------------------------------------------------------------------
 Total non-current
  assets                             155,337             365        155,702
----------------------------------------------------------------------------
Total assets                       $ 241,077       $     134      $ 241,211
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities
Current liabilities
 Accounts payable and
  accrued liabilities              $  18,297       $       -      $  18,297
----------------------------------------------------------------------------
 Total current
  liabilities                         18,297               -         18,297

Non-current liabilities
 Provision for
  decommissioning
  obligations                c           175             257            432
 Deferred tax
  liabilities                a             -             134            134
----------------------------------------------------------------------------
 Total non-current
  liabilities                            175             391            566
----------------------------------------------------------------------------
Total liabilities                     18,472             391         18,863
----------------------------------------------------------------------------

Equity
Share capital                        253,583               -        253,583
 Contributed surplus         d         8,749             905          9,654
 Deficit                     e       (39,727)         (1,162)       (40,889)
----------------------------------------------------------------------------
 Total equity                        222,605            (257)       222,348
----------------------------------------------------------------------------
Total equity and
 liabilities                       $ 241,077       $     134      $ 241,211
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Explanation of the effect of transition to IFRS (United States dollars thousands):

a. Reclassification of the current portion of future income tax assets recognized under previous GAAP to non-current assets in accordance with IAS 12, Income Taxes. Net effect was a decrease in current future income tax assets of $0.2 million. In addition, the presentation of net deferred tax assets and liabilities are based on a separate legal entity basis which resulted in a net increase of $0.4 million in deferred tax assets and an increase of $0.1 million in deferred tax liabilities. The net overall change to deferred taxes was NIL.

b. Reclassification of E&E expenditures previously classified as property, plant and equipment under previous GAAP in accordance with IFRS 1, First Time Adoption of IFRS. The Company utilized the exemption under IFRS 1 that allows entities following a full-cost approach under previous GAAP to recognize exploration and evaluation assets on a deemed cost basis upon transition to IFRS. Net effect was a decrease in property, plant and equipment of $154.1 million with a corresponding increase in exploration and evaluation assets.

c. Upon adoption of IAS 37, Provisions, Contingent Liabilities, and Contingent Assets, the provision for decommissioning obligations (previously referred to as "asset retirement obligation") was increased due to a change in the discount rate utilized for the present value calculation of these obligations. Under previous GAAP a credit adjusted risk-free rate was utilized, but under IFRS a non-credit adjusted risk-free rate is utilized in the valuation of the discounted cash flows associated with estimated future abandonment costs. Net effect was an increase in the provision for decommissioning liabilities of $0.3 million, with a corresponding increase in the accumulated deficit.

d. Upon adoption of IFRS 2, Share Based Payments, the expense relating to options granted to employees was recognized over the vesting period for each individual vesting tranche, as opposed to previous GAAP which recognized the expense on a straight-line basis over the total vesting period of the entire grant. Upon transition to IFRS this resulted in an accelerated recognition of the expense associated with share-based payments, but was partially offset by a reduction in expense due to estimated forfeitures associated with unvested options not previously estimated under GAAP. Net effect was an increase in contributed surplus of $0.9 million, with a corresponding increase in the accumulated deficit.

e. The cumulative effect of these transition adjustments on the accumulated deficit as at the date of transition to IFRS is based on the combination of items (c) and (d). The net effect was an increase in the accumulated deficit of $1.2 million.

D. Reconciliation of equity from Canadian GAAP to IFRS as at the end of the prior year comparative interim period - September 30, 2010 (United States dollars thousands):

                                                     Effect of
                                         Canadian   transition
                                Notes        GAAP      to IFRS         IFRS
----------------------------------------------------------------------------
Assets
Current assets
 Cash and cash equivalents             $   30,100   $        -   $   30,100
 Trade and other receivables               10,739            -       10,739
 Insurance recoveries
  receivable                        a      21,270      (20,108)       1,162
 Prepaid expenses                             225            -          225
 Income tax recoverable                     2,155            -        2,155
 Future income tax assets           b         127         (127)           -
----------------------------------------------------------------------------
 Total current assets                      64,616      (20,235)      44,381

Non-current assets
 Property, plant and equipment      c     169,519     (169,148)         371
 Exploration and evaluation
  expenditures                      c           -      188,373      188,373
 Deposits held in trust                       420            -          420
 Deferred income tax assets         b           -          225          225
----------------------------------------------------------------------------
 Total non-current assets                 169,939       19,450      189,389
----------------------------------------------------------------------------
Total assets                           $  234,555   $     (785)  $  233,770
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities
Current liabilities
 Accounts payable and accrued
  liabilities                          $   14,011   $        -   $   14,011
----------------------------------------------------------------------------
 Total current liabilities                 14,011            -       14,011

Non-current liabilities
 Provision for decommissioning
  obligations                       d         186          339          525
 Deferred tax liabilities           b          42           98          140
----------------------------------------------------------------------------
 Total non-current liabilities                228          437          665
----------------------------------------------------------------------------
Total liabilities                          14,239          437       14,676
----------------------------------------------------------------------------

Equity
 Share capital                            253,583            -      253,583
 Contributed surplus                e      10,284          (86)      10,198
 Deficit                            f     (43,551)      (1,136)     (44,687)
----------------------------------------------------------------------------
 Total equity                             220,316       (1,222)     219,094
----------------------------------------------------------------------------
Total equity and liabilities           $  234,555   $     (785)  $  233,770
----------------------------------------------------------------------------
----------------------------------------------------------------------------