What is Zion?

Zion Oil & Gas, Inc. is a Delaware corporation formed in 2000. We explore for oil and gas in Israel. Our principal assets are petroleum rights issued by the Ministry of National Infrastructures of the State of Israel, specifically two exploration licenses currently covering approximately 162,000 acres in northern Israel.

What is the history behind the formation of Zion Oil and Gas, Inc.?

In 1983, during a visit to Israel, John M. Brown (our Founder and Chairman) became inspired and dedicated to finding oil and gas in Israel, and he started the process that led to the Joseph Project. During the next sixteen years he made several trips each year to Israel, hired oil and gas consultants in Israel and Texas, met with Israeli government officials, made direct investments with local exploration companies, and assisted Israeli exploration companies in raising money for oil and gas exploration in Israel. This activity led Mr. Brown to form Zion Oil & Gas, Inc. in April 2000 in order to receive the award of a small onshore petroleum license from the Israeli government.

What are the terms of the Joseph License?

The License is a petroleum right granted by the State of Israel which allows the oil and gas operator to drill on the territory of the License. Zion’s Joseph License covers approximately 83,000 acres. It was granted on October 11, 2007 and has an initial term of 3 years, extendable for up to 7 years. The License is convertible into a production lease if commercial quantities of oil or gas are found.

What are the terms of the Asher-Menashe License?

The License is a petroleum right granted by the State of Israel which allows the oil and gas operator to drill on the territory of the License. Zion’s Asher-Menashe License covers approximately 81,000 acres. It was granted on June 10, 2007 and has an initial term of 3 years, extendable for up to 7 years. The License is convertible into a production lease if commercial quantities of oil or gas are found.

What is ‘wildcat drilling’?

Wildcat drilling refers to exploratory drilling in areas where there are very few wells already drilled to the same depth a company might be targeting.

Who did all the research on location, exploration, etc.?

The primary technical (geo-scientific) research was organized by Dr. Eliezer Kashai, Mr. Glen Perry and Mr. Stephen Pierce together with specialized consultant geologists, geophysicists and engineers in Israel, Texas and Canada.

What sort of measures will be taken to secure and protect the drilling site?

The locations will be fenced and access will only be possible through a guarded gate on a limited-access road. There will be infrared sensors located outside the fence at key points and the sites are close to active Israeli military installations.

What rig will be used for drilling?

In September 2008 we signed a drilling contract with Aladdin Middle East (AME) for the importation into Israel of a completely refurbished and updated 2,000 horsepower drilling rig (and crews). The rig shipped to Israel in April 2009, rigged-up and started drilling the Ma’anit-Rehoboth #2 well in May 2009. You can view pictures here.

What were the results of Zion’s earlier drilling?

Zion drilled one exploratory well, the Ma’anit #1, to a depth of 15,482 feet, to the Triassic formation, with encouraging, but inconclusive results. However, notwithstanding these results, due to the mechanical condition of the well-bore, we determined that the well was incapable of producing oil or gas in commercial quantities. As a result, in June 2007 we abandoned the well. In September 2008, we signed a drilling contract to import a 2,000 horsepower drilling rig into Israel. The rig shipped to Israel in April 2009, rigged-up and started drilling the Ma’anit-Rehoboth #2 well in May 2009. You can view pictures here.

What is ‘casing’?

Casing is the pipe installed into the hole drilled in the ground that keeps the sides from falling in.

What is the Triassic Age?

The Triassic Age is the geologic time between 250 million and 205 million years ago when most of the plant and vegetable life on Earth was in simple form and just before the Jurassic Age, when dinosaurs roamed the Earth.

What is the Permian Age?

The Permian Age is the uppermost (shallowest) formation of the Paleozoic age – the geologic time between 570 million and 250 million years ago. The Permian Age (290 million to 250 million years ago) is one of the most prolific oil and gas producing horizons around the world.

What is the ‘full cost’ method of accounting?

The ‘full cost’ method of accounting concerns the accounting treatment of oil and gas drilling expenditures in financial statements. All exploration costs and drilling costs for a company’s activities within an accounting region (sometimes a country or a larger area, but frequently smaller geographic areas) are capitalized as assets, subject to being reduced when a calculated accounting value of the oil and gas reserves in the region falls below the accumulated cost.

Why hasn’t there already been a major discovery of oil in Northern Israel

Exploration for oil in the deep formations of Northern Israel (i.e. 13,500 feet +), is in its infancy. Only one deep well has been drilled for every 350,000 acres of land and of the nine wells drilled, only six have been true exploration wells. Two of the six wells gave very strong indications of the presence of commercial hydrocarbons, before being abandoned for mechanical reasons; three became the basis for Givot Olam’s purported new field discovery. The sixth was Zion’s Ma’anit #1 well, the results of which indicate what appears to be a discovery of both oil and gas in a number of different zones between 12,500 and 14,600 feet deep. No well has yet been drilled to the Permian formation in Northern Israel. It should be noted that the Permian formation is a prolific hydrocarbon producing formation throughout the world.

Who set the compensation level of the management team?

The salaries for the senior executives were established by Zion’s Board of directors after a full review by independent economic consultants, Thomas Roney LLC. The individual experience of each executive was taken into account, as was the expected value of their service to the company. The salaries are in line with salaries paid to senior executives of small and mid-size U.S. and Israeli public oil and gas companies with international operations.

Why do some of Zion’s emails contain the word ‘G-d’ – spelled with a dash instead of the letter ‘o’?

Jewish tradition, out of respect and reverence, treats G-d’s name with unusual care. As the Bible forbids erasing or defacing the name of G-d, a dash is inserted in the middle of G-d’s name, allowing the paper it is written on to be discarded, if required. It is not a problem to type G-d’s Name into a computer, but if the email is printed out, it becomes a permanent form. So, Jewish tradition advises that one should avoid writing the Name properly and, instead, use the form ‘G-d’.

Please comment regarding ‘insider sales’. What is an ‘insider’? Have Zion ‘insiders’ been buying or selling significant numbers of shares?

In Zion’s case ‘insiders’ include:

(a) directors

(b) management

(c) staff

(d) a particular voting group. Zion’s publicly filed 2007 Annual Report noted: “…certain voting agreements covering approximately 12.9% of the currently outstanding voting shares between Mr. Brown and persons not members of management.” (Please note that those voting agreements terminated on July 8, 2008.)

If you review ‘insider sales’ since Zion stock first began trading on January 3, 2007, until June 30, 2008, you can note the following:

(1) No director who remained a member of Zion’s Board throughout the period has sold any stock. However, there have been a number of open market stock purchases by directors. For example, on May 11, 2007 Glen Perry purchased $154,000 worth of Zion stock and on May 25, 2007, John Brown purchased $50,000 worth of Zion stock.

(2) With regard to management and staff, the sales have been modest. During the early years of Zion, management and staff received all or part of their remuneration in the form of stock-based compensation. There are many reasons why an ‘insider’ may have wanted to sell shares – including personal cash needs and portfolio diversification.

(3) With regard to the voting group (which ceased to exist on July 8, 2008), all sales had to be reported, but voting group members were not privy to any ‘inside information’, and no director or member of management had the ability to influence their decisions with respect to the purchase or sale of stock.

(4) With regard to Zion’s former CEO, Mr Eugene Soltero, he was an insider only due to his membership in a voting group headed by John Brown, our chairman. As the voting agreements terminated on July 8, 2008, the voting group has now dissolved. A review of stock sales by Mr Soltero based on his filed Form 4 reports, shows that for the period since he resigned from Zion in March 2007 until 30 June 2008, he sold just over 48,000 shares but he still retained 435,000 shares i.e. Mr Soltero still retained the vast majority of his Zion stock.

So, for the 18 month period to 30 June 2008, an analysis of Zion’s ‘insider’ purchases and sales indicates that the directors, staff and management who work for Zion were not selling significant percentages of their stock.

For the period from 1 July 2008 to the current date, directors, staff and management who work for Zion have also not been selling significant percentages of their stock.

We believe that this is because they believe in the long term success of Zion Oil & Gas, Inc.