Production Sharing Contracts

WesternZagros holds two Production Sharing Contracts (“PSCs”) with the Kurdistan Regional Government (“KRG”) in the Kurdistan Region of Iraq.

Garmian Block: WesternZagros holds a 40 percent interest in the Garmian Contract Area. Gazprom Neft Middle East B.V. is the co-venturer on the Garmian Block with a 40 percent working interest. Pursuant to the terms of the Garmian PSC, operatorship was transitioned from WesternZagros to Gazprom Neft on February 29, 2016.

Kurdamir Contract Area: WesternZagros holds a 40 percent interest in the Kurdamir Contract Area and has Repsol as operator.

The KRG retains a 20% working interest in both Blocks.

Under the current PSC terms, the WesternZagros portion of “Profit Oil” is based on a sliding scale from 35% to 16% depending on the R-Factor. The R-Factor is established by reference to the ratio of WesternZagros’s cumulative revenues over cumulative costs. When the ratio is below one, WesternZagros is entitled to 35% of the Profit Oil. WesternZagros’s percentage is then reduced on a linear sliding scale to a minimum of 16% at a ratio of two or greater.

The KRG has been committed to negotiating equitable terms. WesternZagros is pleased to have worked with the government to attain PSCs that are both fair and balanced. The Company believes its early entry into the region has created advantages compared to other international oil and gas companies in the area. Such PSC terms have created a win-win-win relationship: a win for the KRG, a win for the various stakeholders and a win for WesternZagros shareholders.