What is Zion?
Zion Oil & Gas, Inc. is a Delaware corporation formed in 2000, publicly traded on the NASDAQ Global Market under the symbol ZN. We explore for oil and gas in Israel. At present, our principal assets are petroleum rights issued by the Ministry of National Infrastructures of the State of Israel: specifically, two petroleum exploration licenses, the Joseph and the Asher-Menashe Licenses, between Netanya, in the south, and Haifa, in the north, covering a total of approximately 162,000 acres. As of February, 2011, Zion has applied to the Israel Petroleum Commissioner for the following:
1) Jordan Valley License comprised of ~ 82,000 acres south of the Sea of Galilee along the Jordan River Valley;
2) Zebulun Permit comprised of ~ 157,000 acres. (Taken together, the Jordan Valley License and Zebulun Permit areas comprise substantially the area of Zion’s previous Issachar-Zebulun Permit area);
3) Dead Sea License comprised of ~ 75,000 acres west of the Dead Sea. Hydrocarbons have been mentioned around the Dead Sea area since Biblical times. After earthquakes, asphalt can be found floating on the Dead Sea and asphalt seeps are well known in the nearby area. Zion’s geologists have identified the Dead Sea area as one worthy of exploration and we believe that it is now appropriate to seek to explore in the area.
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 17 years he made numerous trips 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. In April 2000, this activity led Mr. Brown to form Zion Oil & Gas, Inc., in order to receive the award of a small onshore petroleum license from the Israeli government.
Zion’s vision, as exemplified by its Founder and Chairman, John Brown, of finding oil and/or natural gas in Israel, is Biblically inspired. The vision is based, in part, on Biblical references alluding to the presence of oil and/or natural gas in territories within the State of Israel that were formerly within certain ancient Biblical tribal areas. While John Brown provides the broad vision and goals for our company, the actions taken by the Zion management as it actively explores for oil and gas in Israel, are based on modern science and good business practice. Zion’s oil and gas exploration activities are supported by appropriate geological, geophysical and other science-based studies and surveys typically carried out by companies engaged in oil and gas exploration activities.
Today, Zion Oil & Gas is a public company traded on NASDAQ Global Market (stock symbol: ZN).
What are the terms of the Joseph License?
The 83,000 acre Joseph License had an initial three-year term that ran from October 10, 2007 through October 10, 2010, and has now been extended for an additional one-year period ending October 10, 2011. At the option of the Israeli Petroleum Commissioner, the Joseph License may be extended for additional one-year periods up to 2014. Zion holds a 100% Working Interest in the Joseph License and in the event of a discovery, Zion will be entitled to convert the relevant portions of its licenses to 30-year production leases, extendable to 50 years.
What are the terms of the Asher-Menashe License?
The 79,000 acre Asher-Menashe License had an initial three-year term that ran from June 10, 2007 through June 9, 2010, and has now been extended for an additional one-year period ending on June 9, 2011. At the option of Israel’s Petroleum Commissioner, the Asher- Menashe License may be extended for additional one-year periods up to 2014. Zion holds a 100% Working Interest in the Asher-Menashe License and in the event of a discovery, Zion will be entitled to convert the relevant portions of its licenses to 30-year production leases, extendable to 50 years.
What is ‘wildcat drilling’?
Wildcat drilling refers to exploratory drilling in areas where there are very few wells already drilled to the same depth that a company might be targeting. For example, Zion is engaged in wildcat drilling in Israel, since there are only approximately 500 total wells drilled in Israel with the vast majority of wells drilled shallower than 15,000 feet. Zion’s recent wells, including the currently drilling Ma’anit-Joseph #3 well is proposed to be drilled to a total depth of approximately 19,300 feet.
What sort of measures will be taken to secure and protect the drilling site?
The locations will be fenced with razor wire and access will only be possible through a guarded gate on a limited-access road.
What were the results of Zion’s prior drilling?
To date, Zion has drilled three exploratory wells and is currently drilling a fourth.
The first well, the Ma’anit #1, was drilled to a depth of 15,482 feet, to Triassic-age formations, with encouraging, but inconclusive results. However, notwithstanding these results, due to the mechanical condition of the wellbore, 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 May 2009, the Company commenced drilling the second well, the Ma’anit-Rehoboth #2 well to a depth of approximately 17,913 feet, utilizing a 2,000 horsepower drilling rig. The Company completed drilling and logging the well in September 2009. During the drilling of this well, we reported that we had positive indications that the well contained hydrocarbon-bearing zones and we identified several such ‘zones of interest’. In December 2009, using a workover rig, swabbing and preliminary completion testing took place. During the preliminary completion testing, small quantities of crude oil were produced, but further testing established that commercial quantities of hydrocarbons were not present in the Ma’anit-Rehoboth #2 well and we suspended drilling operations.
On October 20, 2009, Zion commenced drilling the third well, the Elijah #3 well, on the Asher-Menashe License, drilling toward the Triassic-age formation and planning to continue drilling to Permian-age formations, down to a proposed total depth below 17,000 feet. As of January 15, 2010, we had drilled the Elijah #3 well to a depth of 10,938 feet. In early February 2010, we temporarily suspended drilling operations in the well, following unsuccessful efforts to retrieve a stuck pipe. We later acquired approximately 15 miles of new seismic data to help resolve certain questions regarding the geology of the area surrounding the Elijah #3 well. By the end of 2010, the new seismic line was processed and interpreted. Analysis of the newly acquired data helped us to redefine the geologic model of the area and indicated that the Asher volcanics section in which the well was stuck was greater (i.e. thicker and deeper) than originally predicted. Further engineering work is needed to determine if the Elijah #3 well can be successfully re-drilled through this thick volcanic section.
In late August, 2010, Zion commenced drilling of the Ma’anit-Joseph #3 well to a proposed depth of approximately 19,300 feet on the Joseph License. We anticipate reaching the target depth to the Permian-age formations in late April 2011, assuming that we do not encounter additional technical issues.
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 ‘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 been a major discovery of oil or gas in onshore Northern Israel, as yet?
Exploration for oil and gas in the deep formations of Northern Israel (i.e. 13,500 feet +), is still in its infancy. Exploratory drilling involves enormous risks, including the risk that no commercially productive oil or natural gas reservoirs will be discovered. Typically, onshore seismic data in Israel is generally of poor to fair quality and difficult to interpret. Geologic and geophysical methods are only tools used to assist geoscientists in trying to identify subsurface structures and hydrocarbon indicators. They do not allow the interpreter to know conclusively if hydrocarbons are present or economically available. Additionally, Zion is typically engaged in drilling very deep onshore wildcat wells in Israel where only approximately 500 total wells have ever been drilled, the vast majority of which are substantially shallower. No well has yet been drilled to Permian-age formations in Northern Israel. As such, exploration risks are inherently very high but Zion is working diligently to find substantial quantities of oil and/or gas onshore in Israel.
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’.
Zion’s securities are traded on the NASDAQ Stock Exchange but not on TASE (Tel Aviv Stock Exchange). Do you plan to list on the TASE?
Zion Oil & Gas, Inc. is a Delaware corporation and has been publicly traded in the USA since January 2007. A ‘Dual listing’ on both NASDAQ and TASE raises many issues that would need to be carefully considered. These include compliance with reporting and other regulation of Israeli regulatory authorities, the prospect of nearly around the clock trading in Zion securities and the effect on the primary markets where our stock is principally traded. While our management will continue to study the matter, we have no immediate plans to list on the TASE, but it is possible that we will do so in the future.
