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 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

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.

Oil Discovery at the Ma’anit-Rehoboth #2?

Earlier this month Zion Oil & Gas, Inc. brought the company’s first oil discovery to the surface at the Ma’anit-Rehoboth #2 well. At this point Zion isn’t saying exactly what this discovery means because, frankly, they don’t know; more testing needs to be done to determine whether or not the well is commercially viable (enough oil to make a commercially productive well).

One thing Zion Oil, and now the world, does know – there’s oil at the bottom of the Ma’anit-Rehoboth #2 well; even if it’s just the bottle Zion Oil Drilling Manager John McKenny is holding in the photo released soon after the ‘discovery.’ Zion, however, would have to be awfully lucky to drill nearly three and a half miles into the earth and hit the only quart of oil in Northern Israel. Chances are there’s more down there than the sample in the photos. How much more is yet to be determined.

In his recent company newsletter Zion Oil & Gas CEO Richard Rinberg announced that, ‘we retrieved a small quantity of crude oil‘ during swabbing operations at the Ma’anit-Rehoboth #2. Rinberg stated that they believe the oil samples came from the ‘uncased’ portion of the well, below 4,825 meters (15,830 ft.). According to the December 18 newsletter, “… as we do not have zonal isolation in the open hole section of the well, we released the workover rig during the past week and are now evaluating the next steps that we can or should take in order to test the zones of interest individually.”

What can we take away from what’s been stated in company newsletters in the last few months?

1. The Ma’anit-Rehoboth #2 contains three zones below 15,830 feet that “warrant completion testing” (Zion newsletter 11/08/2009).

2. The Ma’anit #1 was only drilled to a depth of 15,500 feet, making the three zones below 15,830 feet at a depth previously not explored by Zion during the Ma’anit #1 operation.

2. The oil samples announced on December 11 came from the area of those three deep zones, but since the well is only cased to 15,830 feet Zion doesn’t know which zone(s) of interest the samples originated from (Zion newsletter December 18).

3. Zion has released the workover (testing) rig at the Ma’anit-Rehoboth #2 site (Zion newsletter December 18).

4. Zion is “now evaluating the next steps that we can or should take in order to test the zones of interest individually.” (Zion newsletter December 18)

5. According to Rinberg: “It is currently anticipated that we will not resume testing procedures on the Ma’anit-Rehoboth #2 well until after March 2010.” (Zion newsletter December 18)

6. Out of an available 327,000 acres of exploration area, Zion’s next planned drilling location is within the Ma’anit structure, just a kilometer from the Ma’anit-Rehoboth #2. (Zion newsletter 12/11/2009)

Translation?

Zion “retrieved a small quantity of crude oil” during swabbing operations below 15,830 feet in an uncased section of the well that contains three zones that “warrant completion testing.” Because the hole is ‘open’ (uncased) they can’t isolate which zone(s) the oil they’ve brought to the surface originated. They’re “now evaluating the next steps that we can or should take in order to test the zones of interest individually.” But they’ve released the testing rig and don’t plan to resume testing until after March of next year. The next well is planned for the same structure on which the Ma’anit-Rehoboth #2 sits.

(We’re crossing over into a little speculation on my part here … not much, but a little. My analysis comes only from the information Zion has given given us in their public documents, as I’ve listed above).

Whatever Zion has ‘discovered’ at the bottom of the Ma’anit-Rehoboth #2, it isn’t (in their minds) a ‘gusher’, at least not yet. If Zion had what they believed conclusively to be a ‘major discovery’, they would have announced it to the world the day it happened. They’re more eager for a ‘major discovery’ than any of us, when it happens they’ll be the first to tell us. Whatever Zion has ‘discovered’ at the bottom of the Ma’anit-Rehoboth #2 is positive enough to warrant plans to isolate the three open hole zones below 15,830 feet.

The company has released the completion rig that was set up at the Ma’anit-Rehoboth #2 site and they don’t plan to resume testing until after March 2010. Three possible explanations come to mind; either the current rig is incapable of the next planned phase of completion testing (casing the ‘open hole’ beyond the deepest ‘zone of interest’, for example), or it had an appointment elsewhere, or “evaluating the next steps” is going to take more than three months.  I don’t know the answer, but only one of those explanations seem plausible to me.

That’s enough speculation for one week; lets get back to two things we know. Last month Zion hadn’t discovered even a drop of oil; this month we know they’ve produced at least a quart. That’s something. The second thing we know is something Richard Rinberg reminded us of in his October 30 newsletter, “The end of the matter is better than its beginning, and patience is better than pride” (Ecc. 7:8)

Yossi Langotsky, Israel’s Unlucky Oil Man

On November 30 the Wall Street Journal printed the story of Yossi Langotsky, an Israeli who has been searching for oil in the Promised Land for fifty years. The WSJ story focuses on Yossi’s involvement in Israel’s recent off-shore gas discovery and how he was left behind in its reward.

I met Yossi almost five years ago and learned about his role in the search for Israel’s oil. It was early April, 2005; Elaine and I had been invited to the Zion Oil & Gas  ‘Ma’anit #1′ spudding (beginning drilling operations) ceremony; the company’s first oil well drilling project in Northern Israel. Before the ceremony we were introduced to Mr. Langotsky, and then aside, we learned the unfortunate story of Yossi’s relationship to the Ma’anit #1.  The hole in which Zion Oil was to begin drilling in the spring of 2005 was, at that time, already 7,661 feet deep. This spudding ceremony wasn’t the first for the Ma’anit #1; in 1995 and Yossi headed the first drilling of the Ma’anit #1, but at 7,661 feet the project had run out of money and the hole was abandoned. Zion Oil & Gas reopened the Ma’anit #1 in 2005, drilled to 15,500 feet and then abandoned the well due to mechanical problems. Earlier this year, Zion re-opened the Ma’anit #1, now dubbed the ‘Ma’anit-Rehoboth #2′ and drilled directionally to a total depth of 17,913 feet.

Today seven zones of the Ma’anit-Rehoboth #2 are being tested for hydrocarbon (oil and gas) potential.  According to Zion CEO Richard Rinberg, in his October 30 newsletter, “With regard to our log analysis, an independent log analyst noted that the Ma’anit-Rehoboth #2 well does have a specified amount of potential ‘net pay’.” Although he was quick to warn readers, “You will appreciate that, until such time as we recover hydrocarbons at the surface (or not), we are not able to give any estimates of what (if anything) we believe we may recover.”

At this point,  whether or not the Ma’anit-Rehoboth #2 becomes a productive well, no one knows. Whatever happens, Yossi Langotski, the man who chose the location and drilled the first 7,661 feet, once again, will have his share of the bragging rights but not the profits. Below is the WSJ story.

For One Man, Israel’s Big Gas Find Is Bittersweet Victory

Wall Street Journal

By CHARLES LEVINSON

HERZLIYA, Israel — Two natural-gas fields in Israel’s Mediterranean waters were found in January to contain enough resources to meet Israel’s energy needs for 20 years — a huge find after more than half a century of lackluster carbon exploration here.

But for Yossi Langotsky, who for 10 years has been the driving force behind the project, the gusher was a bittersweet victory. He has been drilling holes in the Promised Land for nearly four decades, in a mostly futile search for energy. A month before drilling started on what would become the largest find in Israeli history, his financial backer pulled out. That forced him to relinquish his stake — today valued at an estimated $350 million.

“After 60 years of no success in oil exploration here in Israel, a miracle took place, and I lost out 30 days before it happened,” says Mr. Langotsky, 75 years old.

The pivotal role played by Mr. Langotsky in the historic discovery is undisputed. The two fields are named for his daughter, Dalit, and granddaughter, Tamar.

The fields, which won’t start producing gas until 2014, are relatively modest by Mideast standards. But they have already triggered a frenzy in the country’s quiet energy industry.

Since January, Israeli oil companies’ stocks have soared, some rising as much as tenfold. In 2009, oil companies have invested between five and 10 times as much in Israel exploration as at any point in the country’s history, says Yaakov Mimron, head of Israel’s Petroleum Commission.

In recent weeks, two international companies, including Houston-based Noble Energy Inc., which led the team that made the gas find in January, separately began extensive and costly 3D seismic surveys of more offshore prospects. A Noble spokesman said they expect to drill new wells next year.

In the past 60 years, oil companies have drilled about 450 wells, but choked out just 20 million barrels of oil, less than Saudi Arabia churns out in three days.

Israel’s dearth of oil in a region awash in it became a national joke. “My closest friends laughed at me,” says Mr. Langotsky.

Many Israeli oil geologists quit the profession. Many of those who stayed are a touch unconventional by industry standards. The two exploration companies currently drilling for oil onshore in Israel are both run by pious prospectors, one an Orthodox Israeli Jew and the other a born-again evangelical Christian from Texas. They both use a combination of biblical prophecy and sound geological data to decide where to drill.

Mr. Langotsky began his oil career as a graduate student in the late 1950s, studying oil prospects along the Dead Sea. He left the profession when he was called on to serve in the army. He played a prominent role commanding an elite reconnaissance unit that helped capture Jerusalem from the Jordanians in the 1967 war.

After leaving the army in 1979, Mr. Langotsky returned to the oil business. For most of the next two decades he roamed Israel, drilling as many as 60 wells.

In the 1990s, Mr. Langotsky and a handful of others began looking offshore. Israel’s fortunes started to turn with a series of moderate-size gas finds in waters off the coast of southern Israel and Gaza.

It was then that Mr. Langotsky first turned his attention to a vast tract of territory deep underwater in the Mediterranean Sea, farther offshore than others were looking.

He pitched the prospect to about 100 top international oil firms, he says. They all turned him down, except for Britain’s BG Group PLC, which agreed to form a partnership with Israeli companies to study the site. The site was set to drill in 2002, but then the project snagged.

Drilling costs in such deep waters nearly 60 miles offshore would likely reach hundreds of millions of dollars, and the partner firms started squabbling about who would shoulder what percentage of the risk. There were also technical problems. Many international oil companies were wary of working in Israel, for fear of alienating oil-rich Arab governments.

Companies started dropping out, including, in 2005, BG itself. The company said the project wasn’t one of its drilling priorities at the time. Eleven different companies were in and out of the project at various times in the nine years it took to start drilling.

At last, in 2007, Noble, a midsize Texan oil company, agreed to buy a 35% stake and take over operations.

Since the project’s conception in 1999, Mr. Langotsky remained its public face. He convinced new firms and investors to join whenever one dropped out, and lobbied the Israeli government.

“If Yossi had not been there, then things would be looking quite different today,” says Charlie Druckman, Israel’s petroleum commissioner until 2004.

Early in the project, BG offered Mr. Langotsky the chance to buy a 5% stake. Unable to finance the stake himself, he brought in Israeli billionaire diamond and real-estate magnate Benny Steinmetz, who agreed in 1999 to buy the stake and give Mr. Langotsky one-fifth of his share, Mr. Langotsky said.

But in the summer of 2008, amid the global financial crisis, another infusion of cash was needed to start drilling, and Mr. Steinmetz balked, according to Mr. Langotsky. He said he would no longer invest in the project, relinquishing his 5% stake — including the share pledged to Mr. Langotsky, according to Mr. Langotsky. Other investors in the project took over the stake.

Mr. Langotsky still had the option to buy a 5% stake, but couldn’t find an investor to back him. Soon after, Noble announced the big find at Tamar, followed by the smaller Dalit field — finds amounting to nearly 1.2 billion barrels of oil equivalent. Mr. Langotsky was left with nothing but bragging rights.

Mr. Langotsky has captured some sympathy from industry colleagues and in the Israeli media. In the Israeli media’s portrayal of the situation, Mr. Steinmetz has been vilified. In September, Israel’s leading economic newspaper named him most in need of forgiveness for Yom Kippur, the Jewish day of atonement, for leaving Mr. Langotsky in the cold.

Supporters of Mr. Steinmetz say it didn’t make sense to continue with a risky, capital-intensive oil venture at a time of global economic uncertainty.

Mr. Langotsky remains defiantly upbeat. The son of early Zionist pioneers who valued duty to country over self, he insists his passionate search for oil was never about the money. “I’m very proud; I feel great,” he says. “I am totally disappointed that I failed to keep my rights, but this discovery is one of the greatest achievements of my life.”

Write to Charles Levinson at charles.levinson@wsj.com

Oh Christmas Tree!

Since the holidays are quickly approaching I thought I’d include a short article on Christmas trees. Normally, you’d think Christmas trees and Israel wouldn’t go together. But there’s a Christmas tree already up at Zion Oil’s Ma’anit-Rehoboth #2 site. It’s not green (it’s kind of a dirty gray) and it doesn’t have needles, but there are a good many valves.

The Ma’anit-Rehoboth #2 Christmas tree is installed on the wellhead. I’ll leave it to Wikipedia to explain why it’s there and what it does.

From: http://en.wikipedia.org/wiki/Christmas_tree_(oil_well)

Note that a tree and wellhead are separate pieces of equipment not to be mistaken as the same piece. For clarity, a wellhead must be present in order to utilize a Christmas Tree and a wellhead is used WITHOUT a Christmas Tree during drilling operations, and also for riser tie-back situations which would then have a tree included at riser top. Producing surface wells that require pumps (pump jacks, nodding donkeys, etc.) frequently do not utilize any tree due to NO pressure containment requirement.

Tree complexity has increased over the last few decades. They are frequently manufactured from blocks of steel containing multiple valves rather than made from multiple flanged valves.

The primary function of a tree is to control the flow into or out of the well, usually oil or gas. A tree often provides numerous additional functions including chemical injection points, well intervention means, pressure relief means (eg annulus vent), tree and well monitoring points (such as pressure, temperature, corrosion, erosion, sand detection, flow rate, flow composition, valve and choke position feedback, connection points for devices such as down hole pressure and temperature transducer (DHPT), etc.

When the operator, well, and facilities are ready to produce and receive oil or gas, valves are opened and the release of the formation fluids is allowed to flow into and through a pipeline. The pipeline then leads to a processing facility, storage depot and or other pipeline eventually leading to a refinery or distribution center (for gas).

A tree may also be used to control the injection of gas or water injection application on a producing or non-producing well in order to sustain economic “production” volumes of oil from other well(s) in the area (field).

On producing wells, injection of chemicals or alcohols or oil distillates to prevent and or solve production problems (such as blockages) may be used.

A typical sophisticated surface tree will have at least four or five valves, normally arranged in a crucifix type pattern (hence the endurance of the term “Christmas tree”). The two lower valves are called the master valves (upper and lower respectively) because they lie in the flow path, which well fluids must take to get to surface. The lower master valve will normally be manually operated, while the upper master valve is often hydraulically actuated, allowing it to be a means of well control while an actuated wing valve is normally the primary well remotely (from control room or control panel) controlled valve. Hydraulic tree wing valves are usually built to be fail safe closed, meaning they require active hydraulic pressure to stay open.

If you’re lucky enough to visit Zion’s well site one day, you’ll know why that complicated combination of valves and gauges is there and what it’s called – a Christmas tree!

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!

Zion Oil October 2, 2009 Company Update

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Zion Oil & Gas Newsletter

October 2, 2009

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Dear Shareholder and/or Friend of Zion…

Here is an update of our progress during the past week.

Operations on the Ma’anit-Rehoboth #2 Well

In last week’s update (dated September 25, 2009) I wrote:

“We have decided, for the present, not to drill any deeper in this well and are now analyzing and establishing the priorities of the seven zones that warrant completion testing.   The well bore is in excellent condition and it is also possible that we will drill this well deeper in the future.  Next week, I will comment further.”

The Ma’anit-Rehoboth #2 well was planned as a deep well in order to test the Permian geological formation and the original planned target depth was 5,500 meters (18,040 feet).

During the planning of the well, our geologists, basing their opinion on the available seismic and other data, believed that drilling to the planned target depth of 5,500 meters (18,040 feet) would result in us testing the Permian geological layer.

In September 2009, when our drilling reached a depth of 5,460 meters (17,913 feet), we had reached a depth less than 1% away from the original target depth.

However, during drilling, it became apparent that we were, in fact, drilling into a ‘fault line’. (This means that the rock on one side of the fracture had moved with respect to the rock on the other side.) To make matters more complicated, there did not seem to have been just one fault line but more likely a ‘fault zone’.

Due to the presence of the fault zone, the geological formation in which we were drilling required much more analysis.

After carrying out that analysis, we decided that, almost certainly, we were still in the Triassic geological layer and could not determine how much further we would have to drill to reach the Permian geological layer.

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. However, at a later stage, if we decide to, we can drill this well deeper.

Not only did we have the benefit of our internal experts, Dr. Druckman, Dr. Kashai and Stephen Pierce who between them have over 100 years of professional experience, but we also received input from external organizations and experts, such as the ‘The Geophysical Institute of Israel’ and Dr. Dorit Korengrin and Dr. Brian Conway of ‘The Geological Survey of Israel’.

The Geophysical Institute of Israel specializes in the application of geophysical methods for mapping the structure and characteristics of the subsurface; their website address is:

http://www.gii.co.il/index.php?page_id=1&lang_action=change_lang&to_lang=en

The Geological Survey of Israel is involved in earth science research and development; their website address is: http://www.gsi.gov.il/eng/

Preparations at the site of the Elijah #3 Well

This coming week, we plan to start rigging down (at the Ma’anit site) and start moving the drilling rig and equipment to the site of the Elijah #3 well.

We have initiated our security on the area and equipment has now started to arrive on site.

We have set the ‘conductor pipe’; that is, a short length of pipe, driven into the ground. Conductor pipe is run because the initial shallow section of the well is drilled in unconsolidated soil rather than consolidated strata (i.e. solid formations) encountered deeper.

We estimate that we will start drilling in approximately the middle of October 2009.

Rights Offering

This week, on October 1, 2009, in response to comments received from the Securities and Exchange Commission (SEC), Zion filed an additional amendment to the registration statement.

As amended, the proposed Rights Offering will offer a maximum of 3.6 million shares of stock at $5.00 for each share of stock. Should the rights offering be fully subscribed, the company will receive gross proceeds of $18 million.

Under the (amended) rights offering, stockholders have the right to purchase twenty three (23) shares of stock for every one hundred (100) shares of common stock owned on the (to be determined) record date.  This is identical to 0.23 subscription rights for each share of common stock owned on the record date.

If you were among the many hundreds of our stockholders who did not receive as many $5.00 shares as you subscribed for in the earlier rights offering, this is your ‘second chance’ opportunity. Obviously, this offer is open to everyone who is a stockholder of record on the (as yet undetermined) record date.

The offering can only ‘go effective’ (or in plain language, ‘begin’) when the SEC has completed its review, so we patiently wait.

CBN NEWS Interview

On Wednesday of this week, as you can see in the photographs, Chris Mitchell, the Middle East Bureau Chief of CBN NEWS visited us, in order to interview John Brown and visit the site of the Ma’anit-Rehoboth #2 well.

John explained his vision, gave Chris Mitchell an understanding of the history of Zion Oil & Gas and then I gave CBN NEWS a guided tour of our operations. It transpired that some members of the CBN NEWS photographer’s family were enthusiastic Zion shareholders. I’ll let you know when the article has been published and/or broadcast.

The CBN NEWS website address is: http://www.cbn.com/cbnnews/

“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, 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.

NOTICE

Zion Oil & Gas, Inc. has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about Zion Oil & Gas and its offering. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, Zion Oil & Gas will send you the prospectus if you request it by calling toll free 1-888-TX1-ZION (1-888-891-9466 ).

Contact Information

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

Drilling Complete on Ma’anit-Rehoboth #2

Zion Oil CEO Richard Rinberg announced to shareholders today in his weekly drilling update that drilling of the Ma’anit-Rehoboth #2 well has been completed at 17,913 feet; 131 feet short of its intended target depth. From company reports, it still isn’t clear whether or not the bottom of the Ma’anit-Rehoboth #2 is in an upper Permian or lower Triassic stratum.

Rinberg stated that, “There were a number of factors that influenced our decision not to drill deeper.” But the only factor he gave stockholders was the increased risk of loosing the well from a cave-in due to a long section of ‘open hole’ (uncased) at the bottom of the well. Given the fact that the distance between the drill bit and the motor was nearly 3.4 miles, losing the well due to a cave-in or other catastrophic failure is a very real concern. Whatever the other factors influencing the decision to stop drilling were, they weren’t stated by Rinberg – so we’ll have to leave any other reasons to speculation.

Speculation, however, is something Zion’s managers can’t do – at least not publicly. Because the company is publicly held and in the process of another stock offering, SEC regulations prohibit Zion’s management from any form of public ‘speculation’ that could be construed as an attempt to paint a picture of the company’s future prospects in way that might not be a 100% factual projection at the moment. The SEC calls these “Forward Looking Statements”. That means Zion’s management is pretty much limited to telling us what they ‘know’ they’ve got in the Ma’anit-Rehoboth #2 well and not what they ‘think’ they’ve got. Which, at this point, doesn’t make for much news.

So if you’re going to draw conclusions, you can draw some of them from what’s not said :

1. The Ma’anit Rehoboth #2 isn’t a gusher (“Gusher” is an old term for a self pressurized free-flowing oil well). If oil was flowing out of the top of the well, it would be a fact, not a “Forward Looking Statement.” Zion shareholders (and the rest of the world) would know about it.
2. There’s no definite agreement as to whether or not the bottom of the Ma’anit-Rehoboth #2 is in the Permian.
3. The Ma’anit Rehoboth #2 hasn’t suffered any sort of catastrophic failure. As sparing as Zion’s management has been with potential good news, to their credit, they’ve always been forthcoming in reporting any bad news. If any sort of trend can be discerned, as far as Zion is concerned, no news is more likely good news than bad … or simply, no news.
4. If you follow the general energy exploration news coming out of Israel as closely as I do (that’s pretty close), then you may have discerned by now that Israel is in the beginnings of an energy ‘gold -rush’. The HUGE natural gas discovery off the Haifa coast has insured Israel’s energy (gas and electric) needs in the foreseeable future. Givot Olam has reported, and the state of Israel has accepted, that they have nearly a billion barrels of oil under the ground just south of Zion’s license area; they just haven’t been able to get it to the surface yet (by the way – they’re drilling as I write).  Oil discoveries in the Dead Sea region (not huge, but there) are being reported and same companies involved in the off shore discovery are now buying into the Dead Sea exploration. Translation: Oil and gas discoveries in Israel aren’t a future possibility, they’re a present reality.

Now let’s draw some conclusions from what has been said:

1. The Ma’anit-Rehoboth #2 well is at 17,913 feet (2071 feet deeper than the Ma’anit #1).
2. Their are “seven zones that warrant completion testing” (I can’t locate documentation, but I believe there were three to five “zones that warranted testing” in the Ma’anit #1).
3. What’s been concluded is the “drilling phase”. The determination as to whether or not the well will produce commercial hydrocarbons comes in the “completion phase.”
4. The rig will soon be moved to the next drilling site, at the ‘foot of Asher.’ Zion Oil & Gas is a professional oil exploration company with multiple leases and multiple drilling prospects in the nation of Israel. Zion Oil is not a ‘one hole wildcatter.’ There is absolutely no reason to give up on the Ma’anit-Rehoboth #2 at this point, the well hasn’t even been tested yet. But regardless of how much or how little oil and/or gas the Ma’anit-Rehoboth #2 produces, Zion will continue drilling for oil and gas in northern Israel.

Now let’s look at the big picture:

1. Zion Oil owns most of the exploration license area in northern Israel – 327,000 acres.
2. The Ma’anit-Rehoboth #2 is among the deepest wells ever drilled, in one of the most promising locations, drilled with the best equipment, manned by the most adept crew, tested with the most sophisticated equipment that onshore Israel has ever seen. That’s not hyperbole, it’s fact.
3. Geology and recent experience have proven – natural gas and oil lie beneath the land (and offshore) of Israel.
4. If you want big picture, here’s the biggest – Zion Oil, Noble Energy, Delek, Givot Olam and the rest didn’t promise Israel’s children “The blessings of the deep that lies beneath.” Israel’s God did (Genesis 49:25). From where I sit, it looks like He’s keeping His promise. We’ll find out more about the Ma’anit-Rehoboth specifically as Zion begins their “completion phase”.
5. Just as a reminder, I’ve dug up a photo taken at the Ma’anit #1 in 2005. That’s a hydrocarbon flare from the well – it’s down there.

Keep the faith.

Zion Logs the Ma’anit Rehoboth #2

Last week, Zion Oil conducted logging operations (gathering data inside the wellbore) down to a depth of 17,040 feet. Results from the logging operations will help Zion geologists determine if and where potential hydrocarbons exist in the well and how to proceed with drilling or possible production.

Below is a synopsis of last week’s efforts by Zion CEO Richard Rinberg:

An important part of our geological work during drilling is to continually examine the rock cuttings from the well bore (brought up to the surface by the circulating drilling mud) and match that physical evidence against the ‘expected’ rock cuttings. In our database of scientific information, we maintain a computer model of the expected rock strata.

As more information is gathered, the computer model is amended and in the event of a material difference between the ‘actual’ and the ‘expected’, it may be highly desirable to obtain further information by ‘logging’.

You may remember (from our previous logging) that the definition of ‘logging’ is: ‘to test and evaluate the well, using electrical wireline well logs’.

The ‘sonde’ is lowered down the hole on a ‘wireline’ and various measurements are recorded.

The ‘sonde’ is a cylinder filled with instruments that can sense the electrical, radioactive and sonic properties of the rocks (and their fluids) and the diameter of the wellbore.

The ‘wireline’ is an armored cable with steel cables surrounding conductor cables in insulation. It is reeled out from a drum in the back of the logging truck.

The data from the sonde is transmitted up the cable to instruments in the logging truck and recorded.

Using state-of-the-art Baker Atlas logging equipment, we are able to obtain very high-quality data. This past week, we logged an interval of approximately 500 meters; from a depth of approximately 4,825 meters down to approximately 5,325 meters.

The logging will enable us to make decisions based on scientific evaluation rather than hunches and guesstimates.

So, this past week, we are still at a depth of approximately 17,470 feet (5,325 meters), close to our final target of approximately 18,040 feet (5,500 meters).

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