Zion Drilling Venture in Israel Signals New Era

Zion Oil & Gas, Inc. announced last week that it had signed a Memorandum of Understanding with Turkish drilling contractor Aladdin Middle East Ltd. to purchase AME’s 2,000 horsepower drilling rig (currently located at Zion’s Ma’anit-Rehoboth #2 wellsite, in Israel). The proposed new company, Zion Drilling, Inc. (a subsidiary of Zion Oil & Gas, Inc.), will own and operate the drilling rig in Israel.

What the new company will mean for Zion Oil & Gas is that they will no longer need to rely on third party drilling contractors on future exploration wells. What the new company will mean for the State of Israel, now experiencing a gas and oil exploration boom, is that a rig, twice the size as has ever operated onshore in Israel, will now be permanently ‘in-country’ and possibly available for other (besides Zion Oil & Gas) Israeli exploration efforts. And that the rig will be owned and controlled by a company solely invested on Israeli oil and gas exploration.

During Zion’s drilling of the Ma’anit #1 well in 2005 operations were frustrated by the rig contracted for project. The Israeli owned 1,000 horsepower Ideco Super 7-11 (at that time the biggest in the country) just wasn’t up to the task of drilling to Zion’s estimated 18,000 foot Permian depth. Fearing they would lose the hole due to mechanical problems, Zion stopped drilling the Ma’anit #1 at 15,842 feet. Although they tested several zones above 15,842, noen produced commercial quantities of oil or gas. The well was abandoned and Zion went on the hunt for a rig capable of drilling to a depth greater than 18,000 feet.

After a year of searching, they discovered a rig owned by Aladdin Middle East in Turkey. The rig required refurbishment and transport to Israel, but at 2,000 horsepower it had the mechanical ability to drill beyond 18,000 feet. Zion brought the rig to Israel in the spring of 2009 and immediately began drilling the Ma’anit-Rehoboth #2. In October of 2009 the AME rig was moved to Zion’s Asher license to begin the Elijah #3 well. Then in February of this year, Zion moved the rig back to the Ma’anit-Rehoboth #2 site to conduct completion testing. Zion’s next well, the Ma’anit-Joseph #3, will be in close proximity to the Ma’anit-Rehoboth #2.

Zion Drilling will purchase AME’s drilling rig for an initial payment of US$ 7 million and a series of US$ 1 million additional payments that are anticipated to coincide with our drilling seven additional wells in Israel over the next few years. As the funds for the purchase of the rig are to be provided by Zion Oil & Gas, our plans are subject to a number of events, including due diligence, the raising of additional capital and the establishment of Zion Drilling.

Zion currently has seven new exploration wells planned and the establishment of a new drilling subsidiary signals not only a long term stability and commitment in Zion’s exploration efforts, but a substantial move forward in Israel’s deep onshore exploration capability and security.

Zion CEO Richard Rinberg’s comment as he announced plans of the new drilling venture speaks not only for Zion’s intention for future oil and gas exploration but can reasonably express the nation of Israel’s oil and gas exploration future as well: “We have both the patience and the firm resolve… and now, we expect to soon have the right tool to finish the job – a 2,000 Horsepower drilling rig in Israel on a permanent basis.”

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 Oil Jan 15 Update

Zion Oil & Gas Newsletter

January 15, 2010

Dear Shareholder and/or Friend of Zion…

There has been quite some discussion by our staff regarding Zion’s weekly updates, as not every week contains ‘news to report’ on every part of our exploration license and permit areas.

The general feeling was that if there is nothing new to report then we should simply state that fact. There will be weeks with much to report and there will be weeks with little to nothing new to report.

Turning to the Book of Ecclesiastes (1:9-10), there is the well known comment:
What has been will be again, what has been done will be done again; there is nothing new under the sun.

Is there anything of which one can say, “Look! This is something new”? It was here already, long ago; it was here before our time.
So, I am not going to continually repeat information that has already been sent to you. Where there is ‘no news to report this week’, I will write just that. But you can be certain that we are doing our best to move Zion’s exploration program forward… every day of every week.

This past week, Zion’s Founder and Chairman, John Brown, visited Israel together with Bill Ottaviani, a Petroleum Engineer who spent 25 years (1982 to 2007) working for Chevron Corporation in various countries and then two years (2007-2009) as Chief Operating Officer of Rex Energy, helping to build up Rex Energy in the USA. John Brown invited Bill Ottaviani to visit Israel as a prospective candidate for Zion’s Board and to review our operations and help advise us regarding some of the recommendations currently under technical evaluation.

Also, this week, we were visited by a team from ‘Halman-Aldubi Group’ one of Israel’s leading institutional Investment Management groups. Halman-Aldubi is the only company in Israel that deals with the management of provident funds on behalf of the public and is completely independent.

There was some Israeli Oil & Gas news released in Israel, this week. On Wednesday, January 13, 2010, the Jerusalem Post noted that Prime Minister Binyamin Netanyahu has ordered work to begin, this month, on a natural gas pipeline that will run from Dor Beach, south of Haifa, up to the oil refineries in Haifa. The significance of the Israeli government continuing to build the onshore natural gas pipeline infrastructure is that, in the event that we are successful in finding and producing commercial quantities of natural gas, the supply and distribution of that natural gas should be possible through the onshore pipeline system.

Here is this week’s operations update.

Drilling Operations at the Elijah #3 Well

The Elijah #3 site L to R: Bill Ottaviani, Richard Rinberg (Zion’s CEO), John Brown (Zion’s Founder and Chairman), Eyal Shuker (Investment Manager at Halman-Aldubi), Sandra Green (Zion’s CFO) and two analysts from Halman-Aldubi

The Elijah #3 well has been cased from the surface down to 6,706 feet (2,044 meters).

For the period from ‘spudding’ the well (that is ‘beginning drilling operations’) to December 31, 2009, we drilled to a depth of approximately 9,186 feet (2,800 meters), at an average rate of penetration of approximately 131 feet (40 meters) per day.

As of this morning, the Elijah #3 well has been drilled to a depth of approximately 10,938 feet (3,334 meters).

Both last week and this week, we have been drilling in the Asher Volcanic Complex, composed of tuffs, weathered basalts, non-weathered basalts, red shales and red and tan mudstones.

The Ma’anit-Rehoboth #2 Well

The Ma’anit-Rehoboth #2 Well Site, showing the well head
No additional news to report this week.

The Ma’anit-Rehoboth #2 well was drilled 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 we retrieved a small quantity of crude oil. We are awaiting analysis of that oil and are evaluating recommendations by our engineering staff regarding further testing and possible completion procedures.

The Issachar-Zebulun Permit Area

No additional news to report this week.

We have been reprocessing all of the existing seismic and are planning to acquire, in March 2010, approximately 30 kilometers of field seismic, in the permit area.

Finally, I’ll note that we have begun preliminary discussions with Aladdin Middle East Ltd regarding the drilling of an additional well, in order to progress and implement our multi-well program.
“In your good pleasure, make Zion prosper…”
Psalm 51:18
Thank you for your support of Zion, and

Shalom from Israel

Richard Rinberg

CEO of Zion Oil & Gas, Inc.

www.zionoil.com

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 attributes of geological strata being drilled, drilling efforts and locations, the presence or recoverability of hydrocarbons, timing and potential results thereof and plans contingent thereon and rights offering 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.

Contact Information

More information about Zion is available at www.zionoil.com or by contacting Michael Williams at Zion Oil & Gas, Inc., 6510 Abrams Rd., Suite 300, Dallas, TX 75231; telephone 1-214-221-4610; email: dallas@zionoil.comhone: 1-888-891-9466

Zion Oil Oversells Stock Offering by $19 Million

Asher’s Shoes of Iron and Brass?

I just stumbled on something fascinating regarding the mention of Asher’s ‘shoes’ in Deuteronomy. 33:25, “Thy shoes shall be iron and brass; and as thy days, so shall thy strength be.” (KJV). My father, Jim Spillman, as you may know, was the man who first publicly theorized that Jacob’s Blessing contained a promise of a massive oil discovery in Israel in his book, The Great Treasure Hunt. Part of his thesis included Deuteronomy 33:24 “And of Asher he said, Let Asher be blessed with children; let him be acceptable to his brethren, and let him dip his foot in oil.” That scripture was only a small part of the evidence linking Jacob’s Blessing to an Israeli oil discovery.

The passage directly following “let him dip his foot in oil” (Deuteronomy33:25, above) states that Asher’s “shoes shall be iron and brass”. The working components of oil rigs are constructed of a combination of iron and brass in order to prevent sparking, in order to prevent oil fires. Dad always believed that Asher’s ‘shoes’ being iron and brass referred to oil rigs being constructed of iron and brass components and thus, a further fulfillment of prophecy.

Dad studied the Bible in Hebrew and Greek but the English translation he preferred was the King James Version. Something that bothered me was that other English Bible versions translated “shoes” as “bars” (ESV) or “bolts of your gates” (NIV). So I searched out the Hebrew word all these versions were translating.

Here’s what I found: The Hebrew word translated ‘shoes’ in the KJV is ‘man’al’ – Strong’s literal meaning in English is “a bolt: – shoe” The definition didn’t sink in at first because I was a little bothered about something else I discovered – this was the only time in the Bible that the Hebrew word ‘man’al’ was used as ‘shoes’. Every other mention of ‘shoe’ or ‘shoes’ in the Bible was the Hebrew word ‘na’al’ which was the common term meaning a ‘shoe’ one would wear on his foot. So clearly, there was a difference between Asher’s ‘shoes’ in Deut. 33:25 and all the other ‘shoes’ mentioned in the Bible.

I found that ‘man’al’ (bolt/shoe) and ‘na’al’ (common term for shoe) had the same root, ‘nâ’al’ (different pronunciation than ‘na’al’) – meaning ‘to fasten up’. Both the Hebrew words for ‘bolt’ and ‘shoe’ come from the same root, ‘to fasten up’, because both are ‘fastened’. Only the Deut. 33:25 word ‘man’al’ carries the double meaning of bolt and shoe!

So it looks like old Dad was righter than he thought. Asher’s ‘shoes/bolts’ will be iron and brass!

A final note: When the Zion Oil crew is finished with the hole at Elijah #3, they will most likely install a heavy, cylindrical section of steel filled with concrete at the end of the casing string. This is to prevent the casing string from hanging up in the hole. The proper term for the heavy steel section at the end of the casing? The guide shoe.

“Thy shoes shall be of iron and brass …” Amazing!

“After snuffing, the wellhead must be ‘capped’ to stop the flow of fuel. During this time, the fuel and oxygen required to create another inferno is present in copious amounts. At this perilous stage, one small spark (perhaps from a steel or iron tool striking a stone) or other heat source might re-ignite the fuel. To prevent re-ignition, brass or bronze tools, which do not strike sparks, or paraffin coated tools are used during the capping process.” (From: “Fire at the Wellhead”)

Zion Oil Begins Drilling Elijah #3

According to Zion CEO Richard Rinberg’s ‘Zion Oil & Gas Newsletter’, Zion Oil began drilling the Elijah #3 well last week and by last Friday’s report, drilling depth on the Elijah #3 had reached 400 feet.

The Elijah #3 well site is located on northern Israel’s coastal plain near Mount Carmel, between Caesarea and Haifa, in Zion’s ‘Asher/Menashe” license area. Zion Oil’s Elijah #3 isn’t the first oil well to be drilled in this area and Zion Oil isn’t the first company to come to this region, known in the Bible as the ‘foot of Asher’, seeking the fulfillment of an ancient Bible prophecy. “And of Asher he said, Let Asher be blessed with children; let him be acceptable to his brethren, and let him dip his foot in oil.‘” (Deuteronomy 33:24)

Wesley Hancock

In 1961, Bible believing Californian, Wesley Hancock was awarded an exploration license area of 97,000 acres including Mount Carmel and extended into parts of the Jezreel Valley, known as the “Valley of Megiddo,” site of the prophesied last days battle of Armageddon. Armed with a report forecasting Israel’s oil potential, and his Asher passage in Deuteronomy 33, Wesley went looking for Asher’s oil. On September 19, 1963 Wesley spudded the Asher #1, north and east of Mount Carmel near Haifa. Asher #1 had reached a depth of 7,800 feet when the drill head twisted off, taking seven drill collars with it. After the twist-off, chances of drilling any deeper were nil. By January of 1964, testing in the hole above 7,800 feet revealed that the Asher #1 was dry. In 1965 Wesley commissioned a hydrocarbon survey of his license area. This was the first petroleum survey of its kind in Northern Israel. The survey results led to choosing his location for the Asher #2 well. Hancock drilled the Asher #2 to a depth of 4,300 feet and core samples showed traces of oil. The Asher #2, however, was shut down; Hancock, without any other investors, had run out of money and was unable to continue drilling.

Gilman Hill

In 1979 Gilman Hill, an American evangelical Christian, came to Israel looking for Asher’s oil. According to Hill, God directed him to drill for oil and showed him the well’s location during a 1978 tour of Mount Carmel. Gill had completed preliminary geological surveys and fulfilled permit requirements to begin drilling by 1980.
Hill’s well, Elijah #1, was planned to be drilled to the upper Triassic strata, a depth of 15,000 to 16,000 feet. At 8,900 feet Gilman halted the drilling. According to Hill, God gave him the message, “circumstances have changed,” Gil was convinced that he was to cease drilling until further notice from God. Gil continued his geologic research for another six years waiting for a Divine release to resume drilling. The release never came. After spending $6 million of his own money on Mount Carmel, drawn by the Bible’s promise that Asher would “dip his foot in oil,” Gilman Hill had failed to find the elusive flow.

Andy SoRelle

About the same time Hill started drilling Elijah #1, a Texas oil man named Andy SoRelle was busy preparing to drill the Atlit #1 well near Haifa, known as the Asher Project. SoRelle’s well was spudded in February 1981, the same year Jim Spillman’s book, The Great Treasure Hunt,  was released. Spillman and SoRelle were mutual supporters, each understandably interested in the work of the other. Throughout the Asher Project  SoRell updated Spillman on the progress of the well they both believed would strike the oil God had promised.
At 9,400 feet the drill bit hit volcanic rock.  They drilled down through another 7600 feet before finally coming into limestone again. The drill bit, now at 17,296 feet was way beyond the rig’s capacity. Fearing he would lose the hole, Atlit’s drilling supervisor shut down the operation until a larger rig could be brought in.
December 28, 1982 a new drill rig, rated at 26,000 feet was installed over the original hole. This new phase, dubbed the Atlit #II was planned to bring the well as deep as 23,000 feet. By February of 1983 the well had been cleaned out and depth had been increased to 18,000 feet.
Drilling continued without incident until, at 20,570 feet Atlit II struck oil! What oil experts call “very good shows” came to the surface; graded as light oil at 35 to 40 degrees API. SoRelle continued to a final depth of 21,431 feet. The zone of oil bearing rock, was estimated at 470 feet, from 20,570 to 21,309 feet. Two years after spudding, the drilling phase of the Atlit well was finally complete!
During development problems emerged again. Financing for the project had been on a shoe-string at best. The crew had stopped casing the well at 13,772 feet.  Not having funds for additional casing and reasoning that the volcanic rock they had struggled through was stable enough to hold the hole open the crew had continued drilling in “open hole.”

As the crew was cleaning the hole in preparation for the production casing, drill collars stuck at 18,669 ft and two weeks of jarring would not break them loose. Special equipment was flown to retrieve the string (130 ft. in length) and, while cleaning the hole to “fish” with the new equipment they stuck again at the 17,772 ft mark. After ten more days of trying to break loose, they came out leaving another 8 ½ foot fish in the hole.

August 24, 1983, more than two and a half years after spudding, Andy SoRelle called it quits for the Atlit hole.  Having spent more than $25 million, his own money and that of his investors, Andy gave up on the Atlit well.

The history of the search for Asher’s oil doesn’t seem very promising. But if God said of Asher, ‘… let him dip his foot in oil …’ then I’m convinced He’ll keep His promise in His own time. One thing I do know; the oil is down there. Hancock saw it and SoRelle saw it. That Asher’s oil exists is a fact, when it will be brought to the surface is the only question.

Zion Oil Begins ‘Completion Testing’ of Ma’anit Rehoboth #2

According to Zion CEO Richard Rinberg in last week’s ‘Zion Oil & Gas Newsletter’: “In the light of the uncertainty regarding the depth of the Permian geological layer at our well site and knowing that we have found seven zones that warrant completion testing, we decided that the prudent course, for the present, was to stop drilling on this well and (i) test the seven zones mentioned, as well as (ii) carry out further analysis on the geology, using the drilling and logging data obtained in the last weeks.”

With as many questions as I receive about Zion’s progress, there seems to be a general assumption that producing oil and gas is simply a matter of drilling a hole and letting the hydrocarbons bubble out … that’s what I thought. I’ve learned it’s more involved that that. With Zion Oil in the ‘completion testing’ phase of the Ma’anit-Rehoboth #2 well, now might be a good time to explain what that is and how a ‘hole in the ground’ becomes a producing well.

Most of text below comes from the United States Department of Labor website.

Once the design well depth is reached, the formation must be tested and evaluated to determine whether the well will be completed for production, or plugged and abandoned. To complete the well production, casing is installed and cemented and the drilling rig is dismantled and moved to the next site. A service rig is brought in to perforate the production casing and run production tubing. If no further pre-production servicing is needed, the christmas tree is installed and production begins.

Well completion activities include:

Conducting Drill Stem Test: To determine the potential of a producing formation, the operator may order a drill stem test (DST). The DST crew makes up the test tool on the bottom of the drill stem, then lowers it to the bottom of the hole. Weight is applied to the tool to expand a hard rubber sealer called a packer. Opening the tool ports allows the formation pressure to be tested. This process enables workers to determine whether the well can be produced.

Setting Production Casing: Production casing is the final casing in a well. It can be set from the bottom to the top. Sometimes a production liner is installed. This casing is set the same as other casings, then cemented in place.

Installing Production Tubing: A well is usually produced through tubing inserted down the production casing. Oil and gas is produced more effectively through this smaller-diameter tubing than through the large-diameter production casing. Joints of tubing are joined together with couplings to make up a tubing string. Tubing is run into the well much the same as casing, but tubing is smaller in diameter and is removable.

Starting Production Flow: Production flow is started by washing in the well and setting the packer. Washing in means to pump in water or brine to flush out the drilling fluid. Usually this is enough to start the well flowing. If not, then the well may need to be unloaded. This means to swab the well to remove some of the brine. If this does not work the flow might be started by pumping high-pressure gas into the well before setting the packer.

If the well does not flow on its own, well stimulation or artificial lift may need to be considered.

Beam Pumping Units: If the well doesn’t produce adequately, a beam pumping unit may be installed. There are four basic types of beam pumping units. Three involve a walking beam, which seesaws to provide the up and down reciprocating motion to power the pump. The fourth reciprocates by winding a cable on and off a rotating drum. The job of all four types is to change the circular motion of an engine to the reciprocating motion of the pump.

The explanation above depicts, very simply,  the completion program for most wells. Much more activity and many processes such as acidising, fracturing and nitrogen circulation may take place before the well is actually ready for production. My goal was to let you know the kind of activities that must take place before a ‘hole in the ground’ becomes a well.

When we built our house I was so excited when the framing and the roof were complete; when the contractors installed the siding and I saw the house from the outside I thought, “Wow, this baby is just about finished!” I had no idea how much time and work was involved in building the inside of the house.

I’m learning that ‘building’ an oil well is similar. There’s a lot more to it than the hole. Zion Oil is in the middle of ‘down-rigging’ now; they’re disassembling the drilling rig at the Ma’anit-Rehoboth #2 so they can move it to the Elijah #3. While they work on ‘building the inside of the house’ at the Ma’anit-Rehoboth #2, they’ll begin work on the ‘outside of the house’ at the Elijah #2 site. That’s goods news!

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.

*****

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.