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Note - the information in this report was current as of November 4, 2008

WesternZagros Resources Ltd. (TSXV.WZR)
November 4th close - $0.73
O/S shares - 207.5 million FD
Market cap - $124.142 million
Cash as of June 30th $181 million

We’ve been watching the progress of WesternZagros for some time now. Initially we were confused when Western Oil Sands announced the addition of Kurdistan assets as most oil sands investors were looking for stability. WesternZagros as a wholly owned subsidiary of Western Oil Sands didn’t fit in. It wasn’t long before Marathon Oil stepped up to buy Western Oil Sands and WesternZagros was spun out of as well funded international explorer.

WesternZagros has a 2120 km2 Production Sharing Contract (PSC) with Kurdistan Regional Government (KRG) in northern Iraq and they have a staggeringly well funded treasury (~$180 million) that will let them complete a 6 well program over the next 3 years.

In June they announced that Talisman Energy Inc. would become a Third Party Participant in the PSC. Talisman paid WesternZagros $50.7 million in costs and Talisman will fund its 40% share of costs going forward.

There aren’t many places in the world where you can have a shot at finding a billion barrel oilfield. Indeed, WesternZagros President, Simon Hatfield’s eyes light up when asked why he’s exploring for oil in Kurdistan.

The answer is evident if you check out the neighborhood that WesternZagros’ PSC is in. It is surrounded by fields like:

• Bai Hassan - 2.2 billion bbls
• Taq Taq - 600 million bbls
• Kirkuk - 25 billion bbls
• Naft Khaneh - 430 million bbls.

Hatfield has been working in Iraq since 1995 and patiently put together the deal that led to the creation of WesternZagros.

Their first well, Sarqala #1 is located on a reef trend with stacked seismically defined structures. Structures are nice but there is no guarantee that oil will be contained in them. Most of the adjacent giant fields consist of stacked reservoirs (ie oil in more than one zone). We take comfort in the fact that the Sarqala #1 ran into drilling problems at a depth of ~2300 m when overpressures were encountered. A likely source of these overpressures is the vertical migration of hydrocarbons from deeper depths (The target horizons for Sarqala are at depths closer to 4000 m).

WesternZagros announced their well control problems on September 8, 2008 and Simon Hatfield then stated:

Despite the drilling challenges encountered in this well, we have seen nothing which changes our enthusiasm for the prospectivity of this block and the reservoirs we are targeting.

More importantly AFTER this announcement, Hatfield purchased 87,000 and Executive Chairman, Fred Dyment, purchased 200,000 shares on the open market.

We don’t have a crystal ball. Even the analysts that were predicting a financial meltdown have been unable to help their clients profit meaningfully. In a market where losing less is a tout-able achievement, we remain cautious. However, we see outstanding quality and value in WesternZagros.

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