This has to be the biggest undervalued play in the sector ! A series of project milestones and share price catalysts could revitalise WesternZagros (), the occasionally forgotten oil company in Kurdistan’s production growth story.
Attention in recent months has largely focused on Norway’s DNO and London listed Genel – which together deliver more than 300,000 barrels daily (bopd) into Kurdistan’s export pipeline.
Gulf Keystone’s trials and tribulations have also taken much of the spotlight.
But, in the coming months things could quickly get interesting for Toronto quoted WesternZagros and its assets, which are on-trend to the south of Kirkuk down in Kurdistan’s south-eastern territory.
For those already invested, unfortunately, there’s no getting away from what’s happened to the price, or the material uncertainties in the region.
In the past 18 months, WesternZagros shares have dropped more than 90% to around 11 Canadian cents in the face of low oil prices, the rise of ISIS and uncertainties emanating from decades old political tensions between the Kurdistan region and federal Iraq.
At the same time, investors shouldn’t overlook progress that has been made on the ground and how material are the group’s assets.
It could be on the verge of large scale development at the Garmian and Kurdamir fields and it has a reserve and resources base potentially in excess of 2bn barrels of oil.
In Gazprom and , it has partnerships with two of the largest oil companies in the world.
And with those partners taking the operational reins the company will be free to pursue new opportunities – with Kurdistan and other parts of the Middle East targeted.
Production currently stands at around 5,000 barrels per day, coming from Garmian’s Sarqala-1 well.
Currently all the group’s output is sold into Kurdistan’s domestic market.
At the end of the third quarter, 30 September, the company had $133mln in cash and cash equivalents.
During the three month period, the group generated US$4.9mln of revenue, at a realized oil price of $41.71/bbl, giving field netback of $3.8mln.
Shortly, Gazprom will become the operator of Garmian and the production ramp-up to 25,000 bopd is expected to accelerate.
Gazprom is expected to make the formalised transition to project operator during the first quarter and it will mark the first in a series of milestones as the project advances.
The full Garmian field development plan is currently being reviewed by the Kurdistan authorities and it is anticipated that the approval should also come in the early part of 2016 and that in turn allows the drilling of the Sarqala-2 well.
For Kurdamir, operated by , WesternZagros says the partners are working actively with the Kurdistan Regional Government (KRG) to advance to a finalised field development plan, expected in the first quarter of 2016 also.
With these two key projects apparently on verge of development it is worth noting that for all the well documented challenges, the business of producing oil and gas from the semi-autonomous region has proven to be resolute.
Some 600,000 barrels per day reportedly flow out of the area overseen by the semi-autonomous government, with more than 400,000 bopd said to be coming from KRG controlled fields.
At that level it is estimated that monthly export revenues would amount to about US$750mln.
Uncertainties over payments to oil producers have been a key concern for investors – and for the companyies for that matter – though recent changes have seen those worries ease somewhat.
The KRG began what it pledged would be regular payments to oil producers in September.
Such payments have initially been aimed at allowing companies to cover their costs, though larger payments are promised through 2016 in order to address arrears and encourage new investment.
Clearly, Kurdistan remains a very high risk and potentially high reward proposition.
And while the WesternZagros share price may tell one story, the outlook already appears significantly better than it did a number of months ago.
Should everything fall into line, sooner or later the Toronto-quoted shares will start to catch-up.