General and Administrative Expenses (G&A):

For the first quarter of 2009, WesternZagros Resources incurred $1.3 million in general and administrative expenses compared to $1.9 million in the year-ago quarter. G&A expenses were higher in the first quarter of 2008 mainly because of higher one-time costs related with the set up of WesternZagros Resources. The company capitalized a larger portion of its G&A expenses because of the raised resources dedicated to exploration initiatives compared to the previous year period.

Depreciation, Depletion and Amortization (DD&A):

For the first quarter of 2009, the company had $0.2 million of depreciation associated to certain administrative assets compared to $0.06 million for the year-ago quarter. No depletion on oil and gas related assets are recorded because WesternZagros Resources has yet to determine whether proved reserves are attributable to the PSC lands.

Foreign Exchange

WesternZagros Resources adopted the US dollar as its measurement and reporting currency ever since the majority of its expenses are or will be directly or indirectly denominated in US dollars and to make possible a more direct comparison to other international crude oil and natural gas exploration and development companies.

The company holds more than 95% of its cash and cash equivalents and short term investments in US dollar accounts and US dollar priced government of Canada bonds; however, the company has certain assets and liabilities in currencies other than the US dollar, mainly Canadian dollars, and converts these to US dollars at the end of each period resulting in foreign exchange gains and losses. In the first quarter of 2009, WesternZagros Resources recorded a foreign exchange gain of $0.06 million compared to a foreign exchange loss of $0.7 million in the year-ago quarter relating to these conversions.

Income Tax

In the first quarter of 2009, WesternZagros Resources had an income tax recovery of $1.0 million, included of $1.3 million of existing income tax recovery and decreased by $0.3 million of future income tax expense. The existing tax recovery relates to the anticipated recovery of taxes incurred in 2008 on realized foreign exchange gains and losses in WesternZagros Resources’ wholly-owned Canadian subsidiary through the utilization of loss carry forwards and the associated G&A costs incurred by the subsidiaries.

The future income tax expense results from the utilization of loss carry forwards and share issuance costs in the existing year to recover a portion of the current income tax expense. WesternZagros Resources expects recovering the majority of the current income tax expense incurred in 2008 through the utilization of the tax assets and as it continues to incur G&A and related expenditures through exploration.

Net Loss

The decrease in net loss is due largely to the recovery of income taxes paid.

Capital Expenditures

For the first quarter of 2009, capital expenditures were $16.9 million, comprising $8.8 million of drilling related costs and pre-spud costs related to Kurdamir-1 and $0.9 million of supervision and local office costs in support of drilling operations. Included in the drilling related costs are $6.9 million for Sarqala-1 (the estimated final well cost of Sarqala-1 is $46.5 million gross), $1.8 million for long-lead items and pre-spud costs for Kurdamir-1 and $0.1 million for tangible items for subsequent wells and consumables for testing operations.

In the year-ago quarter, WesternZagros Resources’ capital expenditures were $26.6 million. The year-over-year decrease is mainly the result of the decreased funding requirement for the company’s associated with the operations on the PSC block after Talisman was chosen by the KRG.

WesternZagros Resources’ share of capital expenditures were 100% of the costs to June 30, 2008, prior to the allocation of the 40% third party working interest to Talisman by the KRG, and 60% of the costs subsequent to June 30, 2008, representing WesternZagros’ 40% working interest and its obligation to fund the KRG’s 20% working interest.

In the first quarter of 2008, WesternZagros Resources also incurred expenditures related to its seismic operations and the company did not incur similar expenditures in the first quarter of 2009. WesternZagros Resources capitalized $0.5 million in G&A and stock-based compensation costs directly related to exploration activities for the three month period ended March 31, 2009 compared to $0.6 million in the year-ago quarter.

Contract Obligations and Commitments

The PSC contemplates two exploration sub-periods of three years and two years, correspondingly, with two possible one-year extensions. The first exploration sub-period ends December 31, 2010. During such time the contractor group (WesternZagros Resources, the KRG and Talisman) is required to complete a minimum of 1,150 kilometers of seismic surveying (which has been concluded), drill three exploration wells and commit a minimum of $75 million in the aggregate on these activities.

At the end of the first exploration sub-period, WesternZagros Resources and the other parties to the PSC may hand over the entire contract area (other than any discovery or development areas), or carry on additional exploration operations during the second exploration sub-period which ends December 31, 2012.

The PSC also comprises capacity building support payments, payable by WesternZagros Resources over a 15 month period (these payments concluded in April 2009) and funding for certain technological, logistical, recruitment and training during the first exploration sub-period, and any consequent sub-periods. The company estimates its remaining commitments under the PSC as at March 31, 2009 to be about $50 million to $60 million which represents WesternZagros Resources’ 60% funding requirement.

This commitment comprises the remaining costs related with drilling two more exploration commitment wells by December 31, 2010 (the end of the first exploration sub-period), the associated supervision and local office costs in support of drilling operations and the remaining PSC payments.

WesternZagros Resources remaining costs associated with drilling two additional exploration wells to total depth are anticipated to be in the range of about $30 million to $40 million (net), which comprises the costs for drilling Kurdamir-1 and the third exploration well, earlier to the costs of any testing required.

WesternZagros Resources anticipated that its share of costs to test these wells, if required, could range between $3 million and $6 million per well, depending on the number of potential zones that are required to be tested.

During the second exploration sub-period, the contractor group, or those parties that have chosen to take part in further exploration, is required to complete a minimum of 575 kilometers of seismic surveying, drill at least two exploration wells and commit a minimum of $35 million on these activities.

At the end of the second exploration sub-period, WesternZagros Resources, and the other parties to the PSC who have chosen to join in the second exploration sub-period, may relinquish the entire contract area (other than any discovery or development areas) or carry on further exploration operations during two one-year extension periods, which would extend the total exploration period to December 31, 2014.

At the end of the second exploration sub-period, and at the end of each following extension period, the PSC requires WesternZagros Resources, and other parties who have chosen to take part, to relinquish 25% of the remaining undeveloped area within the PSC lands or the entire contract area (other than any discovery or development areas).