Zion Moving Rig Back to Ma’anit Rehoboth #2

DALLAS and CAESAREA, Israel, Feb 5, 2010 (GlobeNewswire) –Zion Oil & Gas, Inc. (Nasdaq:ZN) announced today that the Company is mobilizing its drilling rig, currently situated at the Elijah #3 well, to resume production testing operations on the Ma’anit-Rehoboth #2 well as soon as possible within approximately two weeks.

Zion drilled the Ma’anit-Rehoboth #2 well to a depth of 17,913 feet (5,460 meters). The well penetrated a number of geologic formations that have been preliminarily deemed to have hydrocarbon potential and a small quantity of crude oil has been recovered and analyzed.

Zion completed drilling the Ma’anit-Rehoboth #2 well in September 2009 and decided, based on the best information then available, to move its drilling rig to begin drilling its Elijah #3 well. Zion’s intention was to attempt to test and complete the Ma’anit-Rehoboth #2 well with a small workover rig. In December 2009, as planned, the Company brought in a small workover rig to conduct swabbing operations on the Ma’anit-Rehoboth #2 well.

Due in part to personnel transitions and a shortage of adequate equipment in Israel to conduct satisfactory completion operations on the Ma’anit-Rehoboth #2 well, the Company was not planning to resume testing operations on the Ma’anit-Rehoboth #2 well until sometime in March or April of 2010.

However, given previously reported operational challenges on the Elijah #3 well, Bill Ottaviani, Zion’s newly appointed President and Chief Operating Officer, decided that a temporary suspension of operations at the Elijah #3 was a prudent course of action in order to expedite production testing at the Ma’anit-Rehoboth #2 well.

Mr. Ottaviani commented, “Following the drilling of our Ma’anit-Rehoboth #2 well, we have continued to observe evidence of reservoir pressure and the presence of hydrocarbons at the surface. Our geologists have identified several potential hydrocarbon-bearing intervals from the diagnostic data acquired when the Ma’anit-Rehoboth #2 well was drilled. We are currently fine-tuning our plans for production testing these intervals and are looking forward to resuming operations at the Ma’anit-Rehoboth #2 well. As we have stated in the past, we are unsure as to whether we have made a discovery of any hydrocarbon reservoir or, if such a reservoir exists, whether it would be commercially viable.”

Zion’s Chief Executive Officer, Richard Rinberg, said today that, “We have every expectation to resume activity on the Elijah #3 well in the not-too-distant future, once we conclude on the best course of action for this well. Based on our current geologic assessment, we remain excited about the hydrocarbon potential in this license area and look forward to ‘making hole’ once again at this location. While we temporarily step back from one well to reconfigure our next steps, we are quickly ramping-up activity at another, as we continue to implement our multi-well strategy.”

Zion’s common stock trades on the NASDAQ Global Market under the symbol “ZN” and Zion’s warrants trade under the symbol “ZNWAW”.

Zion Oil & Gas, a Delaware corporation, explores for oil and gas in Israel in areas located on-shore between Haifa and Tel Aviv. It currently holds 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 and the Issachar-Zebulun Permit Area, adjacent to and to the east of Zion’s Asher-Menashe license area, covering approximately 165,000 acres. Zion’s total petroleum exploration rights area is approximately 327,000 acres.

Zion Licenses Fit Israeli Gas Infrastructure

Yesterday a friend reminded me of Israel’s gas pipeline infrastructure. That’s important now that Israel has discovered natural gas. There must be some infrastructure in place to get gas from the well site to where it will be used for energy (mostly power plants).
The Tamar #1 discovery (5 trillion cubic feet) is 80 kilometers off the coast of Haifa. That means in order to bring that gas to market, a pipeline will have to be built from the offshore rig to Haifa and then to the existing Israeli pipeline infrastructure. Noble Energy, primary partner in the Tamar discovery estimates it will be three years before gas from the discovery actually reaches the market. Others in the industry estimate longer.

But then a light went on in my head. I remembered seeing a map of Zion Oil’s license areas and Israel’s existing and planned natural gas pipelines. Here’s the map:

Israel’s existing natural gas pipeline runs north just off the Mediterranean coast. The reason for its current location is to supply fuel for power plants along the coast. Construction is underway for a trunk line to the Hagit and Alon Tavor power plants inland. Another trunk line is planned for this year, running from the coast to the area of Zion’s Ma’anit #l well site. Remember, Zion’s immanent Ma’anit Rehoboth #2 well will use the same wellbore as the Ma’anit #1 – it’s in the same location. Should Zion find gas instead of oil or gas and oil in the Ma’anit #2 well, they would have a built in pipeline infrastructure. In the event of a discovery, they could be supplying natural gas to Israel before the offshore discovery comes on line!

I asked a friend and very high placed source of mine from Israel today about the pipeline. He confirmed what I just laid out and went a step further. There’s a manufacturing plant a few hundred yards from the Ma’anit Rehoboth well site. This plant currently uses diesel fuel to fire its boilers. It has requested to be first in line to buy any gas produced at the Ma’anit Rehoboth site. So there you have it! The greatest natural gas discovery in Israel’s history and Zion, God willing, may beat them to the market. But remember this is all just speculation. Zion has to find the gas first. And, of course, they could find oil – which is what we’ve been looking for all along.

Israel Discovers Natural Gas: Is Oil far Behind?

Last month Delek-Noble an energy exploration partnership, announced a massive natural gas discovery off Israel’s northern coast. According to reports, they may have enough natural gas to supply Israel’s needs for fifteen years.

In the energy exploration world it’s generally understood that where you find gas, you find oil and vice-versa. Zion Oil and Gas, founded by John Brown received its first onshore exploration license in 2000. Brown came to Israel in the 1980′s with the belief that a massive oil discovery for Israel was predicted in the pages of the Bible. With nothing but his Bible and his faith John Brown began his quest for Israel’s oil. The company now holds 162,000 acres under license in Northern Israel and is planning to drill its second well next month.

Last week I asked Zion CEO Richard Rinberg if Delek-Noble’s recent offshore discovery affects Zion’s chances of discovering oil and gas onshore, how the current world economy is playing into their exploration efforts and about Zion’s drilling plan.

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Steve Spillman: Delek and Noble Energy announced a massive natural gas discovery off the coast of Haifa earlier this month. How has this news affected the optimism of Israel’s citizens about the country’s energy future? How has it affected optimism for onshore oil and gas exploration?

Richard Rinberg: Due to the size of the offshore discovery, there’s little doubt that optimism in oil and gas exploration, both offshore and onshore, has increased.

At Zion Oil we are delighted, as this discovery is very good for Israel and we believe validates our belief that significant oil and gas reserves can be found in Israel.

The discovery also reinforces the decision by the Government of Israel to continue building the gas pipeline infrastructure and electric generating plants powered by natural gas.

Due to the high cost of developing this new field, surprisingly, the result may well be higher gas prices.

For years, the Israel Electric Company (IEC) has purchased gas at prices below the normal international market price. But with declining production from the Yam Tethy’s field, their reliance on natural gas to power five generating plants (with two more under construction),  and the uncertainty of Egyptian supply, IEC may no longer be in a position to ensure that the price that they pay for natural gas is below normal international market prices. If the price isn’t reasonable, then the owners of the new discovery can export their produced gas.

We believe that the market will be able to absorb any new gas finds and, as a result of this discovery, any natural gas that Zion may discover and produce could be worth more than estimated before this discovery.

SS: Do you think this discovery may have any direct relevance to what you expect to find in the Joseph and Asher license areas?

RR: There is no direct relevance to our exploration in terms of a continuation in a geological structure. Our expectation is unchanged – we are still very optimistic.

SS: The world economy has been pretty shaken up over the past several months. Oil prices have plummeted. How do the world economic situation and oil prices affect Zion’s exploration plans?

RR: In 2008, we implemented a $10-unit public offering and raised over $6.4 million in cash, in order to fund our drilling plans in Israel. The offering was certainly a success, but we were hoping to gather significantly more funds than we did. The world financial crisis had its negative effect on us, just as on everyone else.

Perhaps surprising to the person in the street, the fall in the price of oil is actually good for Zion’s drilling plans, as we will have cost savings of $500,000 to $700,000 as a result of lower shipping and transport costs and lower fuel costs during drilling. We are very happy to ‘suffer’ a low oil price during our drilling operations.

Of course, at a later stage… well let’s save that for another day.

SS: The Dow Jones Industrial Average has lost about forty percent of its value in the last year. Other world markets, including Israel’s have fared the same or worse. Zion just completed a public follow-on offering in which it raised more than $6.6 million and even though the company has yet to produce any oil; its stock value is higher now than when the company first went public. How do you account for a successful public offering and Zion’s stock value in the middle of the current economic meltdown?

RR: There are a number of different answers I could give, but perhaps the truth is ‘all of the answers, at the same time’.

Everyone who works at Zion believes in the uniqueness of our company and our goal to help Israel by finding oil and gas, onshore in Israel. I believe that the vast majority of our stockholders also recognize that Zion is not just another company. They purchased the stock to support our work and hold; it’s not just another trade.

Simply put, those who work at Zion or support Zion by owning stock have faith that all will eventually work out, in the Lord’s good time. Those who hold the stock just don’t want to let it go.

From a business standpoint, our goal is to build value into the company and, of course, success with our exploration work would inevitably be reflected by a higher stock price.

SS: Zion has contracted with the Turkish oil drilling company AME, for a 2,000 horsepower drilling rig. AME’s rig is bigger – can go deeper than any drilling rig currently available in Israel. My understanding is that the Israeli rig Zion used to drill the Ma’anit #1 well in 2005 wasn’t mechanically able to reach a depth beyond 15,500 feet. And it’s your opinion that the Ma’anit #1 failed to produce simply because the well wasn’t deep enough. Is that correct?

RR: We drilled the Ma’anit #1 well to a depth of 15,842 feet, to the Triassic formation, with encouraging results. However, due to the mechanical condition of the well-bore, in June 2007, we decide to abandon the well. The well failed to produce due to mechanical problems and not, we believe, because of the absence of oil and gas.

You are correct that the rig that we used back then was not capable of drilling any deeper than we actually did.

The whole reason for bringing a 2,000 horsepower rig into Israel is to enable us to ‘explore the deep’ and drill down to the Permian geological formation.

This time we have all the extensive knowledge gained during the drilling of the Ma’anit #1 well, so we are better prepared to deal with the mechanical problems than before.

SS: When is the AME rig expected to arrive at the Ma’anit Rehoboth #2 site? When do you expect to be drilling?

RR: We currently expect the drilling rig to arrive in Israel, rig-up and commence drilling in March 2009.

SS: Is the $6.6 million Zion raised in the follow-on offering enough to complete the project?

RR: Oil and gas exploration is a very expensive business and our project has much work ahead of it. There are many wells to be drilled on our license areas. So, we will proceed with our operational work, while at the same time keeping a weather eye on our cash reserves. At some stage, we hope and believe, Zion will become (very) cash-positive.

SS: What are Zion’s exploration plans beyond the Ma’anit Rehoboth #2 well?

RR: We are already planning our third well, the Elijah #3 well and have further plans that are, as yet, not in the public domain, so we cannot discuss them at present.

SS: Zion’s mission is to produce oil and gas in Israel. A major oil discovery in Israel will certainly have a significant economic impact on the country. Do you think the implications of Zion Oil & Gas accomplishing its mission will reach beyond economics?

RR: Without a doubt. Zion’s Founder and Chairman, John Brown, came to this project due to an idea planted in his mind by your father, Jim Spillman, and his book. John became convinced that the Holy Bible contained clear references to oil in Israel and the location where that oil may be found.

Over a number of years, John gathered a group of geologists and oil and gas professionals together, including Zion’s President and Chief Operating Officer, Glen Perry. Glen is an oil and gas professional who will readily tell you that this project is the most exciting he has ever been involved with in his long and successful career.

With success, John will say “See, the Book is true!” And for those who hear Zion’s story, there will certainly be much contemplation that something truly historical has occurred – perhaps even a spiritual awakening and the dawning of a new age.