Kibbutz Ma’anit Agreement Paves Way for Zion’s M-J#3 Well

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According to company CEO Richard Rinberg, Zion plans to start drilling the Ma’anit-Joseph #3 (MJ#3) in August. Zion signed an agreement with the land owner, Kibbutz Ma’anit, for access to the well site and continues the permitting process with various Israeli state agencies.

Rinberg wrote Zion share holders in his May 28 update:

“Further to our ongoing exploration work on the Ma’anit geological structure, we are moving forward with the required permitting and planning for the M-J #3 well (targeted for the ‘deep’ Permian geologic structure). (Deut. 33:13-16)
We are well underway in the process of assembling the various product and service suppliers needed to drill this new well. As reported last time, we instituted a bidding and selection process designed to ensure that we use the best available resources, offering Zion the most favorable overall value. Based on early vendor indications, we anticipate a strong response to our RFQs (Request For Quotes) and have already begun receiving price quotes. All price quotes are expected by month-end and the final vendor selection will follow shortly thereafter.
Permitting for the new well continues to proceed favorably with the recent achievement of a very significant milestone: agreement with Kibbutz Ma’anit granting us access to Kibbutz land where we desire to drill the MJ-3 well.
In Israel, ‘permitting a well’ is a very lengthy and complicated process, as permits are required from various authorities, including the: Water, Fire, Health, Military, District Planning Commission, Environmental Protection, Israel Land, National Infrastructure, Civil Aviation and National Transport Authorities… and of course, the owner of the land.
With the Kibbutz agreement now secured, we are fine-tuning the well site layout and beginning preliminary plans for construction of the site.
The layout and construction of the well site is a project in of itself, as it involves the careful placement of storage containers, offices and living quarters, equipment and liquid storage facilities, power units, and piping all efficiently arranged around the drilling rig and large liquid containment (“mud”) pits while allowing adequate space for the safe movement of personnel and heavy equipment.
As the M-J #3 well site is near residential and commercial areas, we are working diligently with local and governmental groups, to ensure the site will meet (or in some cases exceed) all applicable environmental and safety requirements.
Actual well site construction can begin once we have received all necessary permits. Depending on weather and equipment availability, we anticipate site construction to be completed within one month after being started. Given the progress we are making in both planning and permitting for the M-J #3 well, we remain optimistic that drilling will begin this summer.”

Plans for the new Ma’anit-Joseph #3 well were initiated in April after production testing determined that commercial quantities of gas and oil were not present in Zion’s nearby Ma’anit-Rehoboth #2 well.

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 Oil 2009 Annual Report

Zion Oil & Gas, Inc. filed is 2009 annual report with the SEC on March 16. Among the company’s operation plans for 2010 listed in the 104 page document are plan’s for a fourth well and another possible stock offering.

After CEO Richard Rinberg’s obligatory “Forward Looking Statements” statement (events that haven’t happened yet, haven’t happen and there’s no way of guaranteeing that they will happen, therefore statements about operational plans for the future are ‘forward looking’) the report states:

“As the Ma’anit-Rehoboth #2 well did not reach the Permian geological formation beneath the Joseph license area, we are currently planning to drill a subsequent well, to be named the “Ma’anit-Joseph #3 well”. The Ma’anit-Joseph #3 well is currently anticipated to be drilled in the vicinity of the Ma’anit-Rehoboth #2 well in order to try and reach the Permian target.“

“We believe that our currently available cash resources will be sufficient to finance our plan of operations, as described, through the end of 2010, including the drilling of the planned Ma’anit-Joseph #3 well. To carry out further drilling and maintain operations as presently conducted, we will need to raise additional funds.”

“In order to support our operations and drilling program beyond fiscal year 2010, on January 28, 2010, we filed with the SEC a registration statement on Form S-3 for a shelf offering. As of the filing of this annual report on Form 10-K, the registration statement has not been declared effective. When declared effective by the SEC, Zion will have the option to offer and sell, from time to time in one or more offerings, up to $50 million of common stock, debt securities, warrants to purchase any of these securities, or any combination of such securities. The securities may be offered in one or more offerings, and at prices subject to prevailing market conditions to be set forth in a supplemental prospectus filing with the SEC at the time of such offering, should such an offering occur. We do not currently have any commitments to sell securities.”

A copy of Zion Oil’s complete 2009 Annual Report can be downloaded by clicking here: Zion Oil 2009 Annual Report