Very, Very, Good News From Zion Oil … we think

Zion Oil & Gas sent out a Press Release late Wednesday entitled “Zion Oil & Gas Announces Successful Re-entry Operations at its Elijah #3 Well in Northern Israel.”

The language of the Press Release was couched in a lawyer/geologist kind of mumbo-jumbo, but I highlighted what I thought I understood as significant. Here is the Press Release in its entirety (without Zion’s Contact information)  - my highlights are in red:

Zion Oil & Gas Announces Successful Re-Entry Operations at its Elijah #3 Well in Northern Israel

Dallas, Texas and Caesarea, Israel – August 8, 2012 – Zion Oil & Gas, Inc. (NASDAQ GM: ZN) announced the successful end of field operations at its Elijah #3 wellsite within its 78,824 acre Asher-Menashe License in northern Israel.

In July 2012, Zion re-entered the existing wellbore of its temporarily suspended Elijah #3 well and acquired an electric wireline log suite that had not been acquired when the well was originally drilled in 2010. A Formation Evaluation Log (an advanced petrophysical evaluation analysis) was then derived from the newly acquired log suite and Zion subsequently obtained approximately 48 sidewall core samples from key zones in the previously drilled wellbore. During the re-entry operations, Zion also obtained vertical seismic profile (VSP) data.  Zion was assisted in this project by Baker Hughes, the Geophysical Institute of Israel, NuTech Energy Alliance (“NuTech”), Core Labs, and Bedrock Petroleum Consultants.

A preliminary review of the NuTech Formation Evaluation Log indicates the presence of a series of carbonates over two thousand feet thick, with the possibility of interspersed zones of developed fair to good porosity and permeability with oil shows (up to a combined several hundred feet thick) at depths shallower than 9,350 feet. When the sidewall core samples were retrieved, dark brown hydrocarbon stains were noted on some sidewall core samples. The core samples have been sent to Houston, Texas for further analysis and both Baker Hughes and the Geophysical Institute of Israel are processing the VSP data. Zion estimates that the analysis of the core samples and the VSP processing and analysis will take at least one month.

Zion’s Chief Executive Officer, Richard Rinberg, said, “After successfully completing this exploratory work, initial indications are positive; however, much analysis needs to be carried out during the coming weeks and months.”

Zion’s President and Chief Operating Officer, Victor G. Carrillo, said: “We are excited about the potential of this relatively shallow, stacked carbonate with a possible Jurassic oil column in our Elijah #3 wellbore.  The combination of old data and newly acquired geophysical and geological data represents the most extensive dataset Zion has ever had, as the Company has never previously obtained VSP or sidewall core data. I believe this combination of data will give us a better subsurface image of the hydrocarbon potential in proximity to this wellbore.”

The primary purpose of the re-entry operation was to obtain additional geologic and geophysical data and to better understand the hydrocarbon potential of a zone through which Zion drilled while drilling the Elijah #3 well in late 2009 and early 2010. The Elijah #3 well, originally planned to drill to below 17,000 feet, to test both Triassic and Permian-aged geological formations, was temporarily suspended in 2010 after encountering technical issues at a total depth of approximately 11,000 feet. In the recently completed field operations, the rig arrived at the Elijah #3 wellsite on July 15, 2012, and was released by the Company on August 8, 2012.

Zion Oil & Gas, a Delaware corporation, explores for oil and gas in Israel in areas located onshore between Haifa and Tel Aviv. It currently holds three petroleum exploration licenses: the Joseph License (on approximately 83,272 acres) and the Asher-Menashe License (on approximately 78,824 acres) between Netanya, in the south, and Haifa, in the north, and the Jordan Valley License (on approximately 55,845 acres), just south of the Sea of Galilee. The total license area amounts to approximately 218,000 acres.

FORWARD LOOKING STATEMENTS: Statements in this communication that are not historical fact, including statements regarding Zion’s planned operations, geophysical and geological data and interpretation, anticipated time frame of the completion of testing and analysis, anticipated attributes of geological strata being drilled, drilling efforts and locations, the presence or recoverability of hydrocarbons, sufficiency of cash reserves, timing and potential results thereof and plans contingent thereon are forward-looking statements as defined in the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements are based on assumptions that are subject to significant known and unknown risks, uncertainties and other unpredictable factors, many of which are described in Zion’s periodic reports filed with the SEC and are beyond Zion’s control. These risks could cause Zion’s actual performance to differ materially from the results predicted by these forward-looking statements. Zion can give no assurance that the expectations reflected in these statements will prove to be correct and assumes no responsibility to update these statements. 

Let’s define, or give significance to a few terms:

successful: “accomplishing an aim or purpose” (Oxford Dictionary)

carbonates: “It is estimated that more than 60% of the world’s oil and 40% of the world’s gas reserves are held in carbonate reservoirs. The Middle East, for example, is dominated by carbonate fields, with around 70% of oil and 90% of gas reserves held within these reservoirs.” (Schlumberger)

porosity and permeability:  “Porosity and permeability are related properties of any rock or loose sediment… Porosity of a rock is a measure of its ability to hold a fluid…. The permeability of a rock is a measure of the resistance to the flow of a fluid through a rock.”  (Introduction to Petroleum Geology)

oil column: “The difference in elevation between the highest and lowest portions of various producing zones of an oil-producing formation.” (McGraw-Hill Dictionary of Scientific & Technical Terms)

oil show: “Hydrocarbons occur in the subsurface in four modes: (1) continuous phase oil or gas, (2) isolated droplets of oil or gas, (3) dissolved hydrocarbons, and (4) associated with kerogenous rocks. All of these modes of occurrence can result in what is described as a subsurface hydrocarbon “show.” (Interpretation of Subsurface Hydrocarbon Shows)

So what do I understand from the Press Press Release?

“The primary purpose of the re-entry operation was to obtain additional geologic and geophysical data and to better understand the hydrocarbon potential.” … and … Zion reported a “successful end of field operations.” Zion is happy enough with what they found that  they’re considering the re-rentry “successful.”

What did they find? “ …the presence of a series of carbonates over two thousand feet thick, with the possibility of interspersed zones of developed fair to good porosity and permeability with oil shows (up to a combined several hundred feet thick) … and … “dark brown hydrocarbon stains were noted on some sidewall core samples” … and … “a possible Jurassic oil column.”

Words of warning:

Here are a few more important terms from the Press Release we can’t ignore: “preliminary review”; “core samples have been sent to Houston, Texas for further analysis“; “analysis of the core samples and the VSP processing and analysis will take at least one month“; “much analysis needs to be carried out during the coming weeks and months.” 

And here’s the biggee: Statements in this communication that are not historical fact, including statements regarding Zion’s planned operations, geophysical and geological data and interpretation, anticipated time frame of the completion of testing and analysis, anticipated attributes of geological strata being drilled, drilling efforts and locations, the presence or recoverability of hydrocarbons, sufficiency of cash reserves, timing and potential results thereof and plans contingent thereon are forward-looking statements as defined in the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements are based on assumptions that are subject to significant known and unknown risks, uncertainties and other unpredictable factors, many of which are described in Zion’s periodic reports filed with the SEC and are beyond Zion’s control. These risks could cause Zion’s actual performance to differ materially from the results predicted by these forward-looking statements. Zion can give no assurance that the expectations reflected in these statements will prove to be correct and assumes no responsibility to update these statements.

Bottom line? From what I understand of the Press Release, Zion found signs of oil in the Elijah #3 well and the rock formations necessary for oil to reside and flow. They also completed the testing necessary to determine their next move regarding this discovery. The results of the testing will take “at least one month.”

I’ll put it on my calendar ….