WesternZagros Resources’ (WZR:TSXV) stock has been hammered in recent weeks due, in part, to ongoingunrest involving ISIS near its oil and gas exploration blocks in northern Iraq.
WesternZagros‘ stock price dipped initially from the $1.15 range to below a dollar in mid-June, but then rebounded to $1.25. It has since resumed its slide andclosed at its lowest level in more than three months Tuesday.
WesternZagros Resources – 3 Month Chart
When news broke in June that ISIS, the Islamic State of Iraq, had begun taking over cities in Iraq and heading north towards WesternZagros’ oil blocks, some investors in the well-established oil company sold shares.
ISIS has been utilizing social media in a way never before seen by radical terrorist groups to achieve a desired result: fear.
To say it is working would be an understatement as thousands flee to avoid persecution and murder. The group has stricken fear into all who oppose them in Iraq and Syria as the predominantly Sunni jihadist group has beheaded ‘infidels’, buried many of their victims alive and even murdered children.
Investors with large stakes in certain Iraqi assets, including those in WesternZagros, have been paralyzed with fear, opting to watch from the sidelines. It remains unclear whether or not the US will step in and take a more aggressive role to secure the oil production in Iraq, OPEC’s second largest producer.
Key fact: Iraq has averaged 3.3 million barrels of oil production per day in recent months.
WesternZagros has working interests in two oil and gas exploration blocks in the Kurdistan region of northern Iraq.
WesternZagros, through its wholly-owned subsidiaries, holds a 40 percent working interest in two Production Sharing Contracts with the Kurdistan Regional Government in the Kurdistan Region of Iraq.
In a May 21st press release, the company’s most recent, it announced that as of March 31, 2014, WesternZagros had $70.0 million in working capital, which is sufficient for funding the completion of its exploration and appraisal activities on the Garmian and Kurdamir Blocks.
On the company’s website, it explains they now have evidence that supports the Kurdamir structure is part of a giant structure that extends into the neighbouring exploration block to the north, which is also operated by WesternZagros’s co-venturer, Talisman (Block K44) B.V.
The Kurdamir Block is located north of the Garmian Block. Audited contingent resource estimates on WesternZagros’s Kurdamir Block total 976 million barrels of oil, gas and condensate (541 million barrels of oil) and prospective resource estimates of 1.6 billion barrels of oil, gas and condensate (recoverable).
Its operational joint venture on the Garmian Block has led to increased optimism and speculation from market participants of late. It, along with the exploration potential at Kurdamir has still supported a market cap of more than $428 million at the close Tuesday.
With no updates in the form of press releases since late May, investors may be wondering what the next step will be for the wells involved.
In respect to the Sarqala development plan, the company announced in May that a workover commenced in March 2014 on the Sarqala-1 well to increase the production capability above the current capacity of 5,000 barrels of oil per day (“bbl/d”) up to 10,000 bbl/d. Upon approval of the development plan, the Company anticipates commencing oil sales into the domestic market or into the export market via the new Kurdistan Region-Turkey pipeline.
What progress the company has made on this front will likely go a long way to quelling fears of any ISIS disruption.
Increase in Volume
For whatever reason, perhaps driven by heightened chaos and uncertainty in Iraq, volume has picked up of late for WesternZagros.
On July 31st, volume in WesternZagros spiked as 2.19 million shares traded. Since then, 11 million shares have traded in just 7 trading sessions.
In the 10 trading days prior, from July 17th to July 30th, only about 2.6 million shares traded hands.
In the company’s last news release from May 21st, it explains its current focus:
“WesternZagros is evaluating a range of funding options available to the Company while it progresses these development plans. In connection therewith, the Board of Directors has established a Special Committee to review all financing and strategic alternatives available to the Company with a view to enhancing shareholder value. In addition, the Company has retained Citigroup Global Markets Inc. (“Citi”) to act as its financial advisor. One of the alternatives that the Special Committee is exploring is a possible corporate transaction and is in discussions with certain parties to determine whether such a transaction would deliver additional value to shareholders. Notwithstanding this, the Special Committee continues to consider all available alternatives for enhancing shareholder value, which may include, but are not limited to, a potential sale of the Company, a merger or other business combination, the sale of some or all of the assets of the Company in one or more transactions, the completion of a rights offering or other equity or debt financing or any combination of these alternatives.”
And finally that,
“The review process is ongoing and WesternZagros does not intend to disclose developments with respect to the review process until the Board of Directors has approved a specific transaction, action plan or otherwise determines that disclosure is necessary or appropriate.”
Click here to read the company’s latest press release.
With these potential outcomes providing ample uncertainty in WesternZagros’ market, its share price has declined to within 16 cents of its 52-week low of $0.74 per share.
WesternZagros closed at $0.90 per share Monday, but its bid at $0.88 had diminished to just 8,000 shares after 4 PM EST. The stock is off nearly 50% from its highs of late last year.