ZNOG-ZION OIL AND GAS exploration
HYDROCARBON EXPLORATION IN ISRAEL
ZNOG-ZION OIL AND GAS INC.
Zion oil and gas (ZNOG) incorporated was founded in Florida, USA, in the year 2000. It was later reincorporated in Delaware in 2003. Its sole mission is the exploration (and successful production) of hydrocarbons in the lands of Israel.
The founder of the organization, John Brown, a deeply spiritual individual, believes that it was by divine inspiration that the corporation was formed. Israel’s dependence on oil from its neighbours in the middle east has put it at a disadvantaged position given the ongoing geopolitics in the region and long-term strife existing between them for centuries.
The energy crisis of the 70’s revealed how vulnerable countries are to due lack of oil and are basically held hostage by Oil producing nations.
‘Black gold’ as oil has been termed, runs the entire planet. It is the lifeline of humanity and as such, the global economy rises and falls with the hydrocarbon industry. Cognisant to this reality, Israel initiated massive efforts to explore for its reserves and become self-reliant to its energy needs.
Exploration efforts began right after its independence in 1947 and continues to date. For over half a century 170 wells have been drilled ranging from a shallow 1,500 feet to deep 21,000 feet wells.
Zion joined the scene in early 2000 after numerous efforts had been ongoing. Industry giants like Exxon Mobil, Shell and the Superior oil company worked with the government of Israel continually on the exploration efforts.
Studies conducted were promising and many wells showed prospect. Lewis Weeks, former Chief geologist at Exxon projected that there was an estimate of about 5 million to 2 billion barrels of oil reserves in the entire lands of Israel.
Despite such claims, only very scant quantities of oil had been found up to the turn of the new century in 2000. Reserves that had been discovered from 1950 to 2000 were not commercially viable for production. But not all efforts were in vain as a substantial amount of natural gas has been found and even scaled to successful production.
All the while, it is believed that the founder of Zion was conducting research prior to its entrance in the industry. From 2000 to 2005, the structuring and funding of the organization was taking place, it is reported that it took about 160 to 170 million dollars to formally equip and start the organisation.
Zion’s exploring operations
Zion got its first licence and rights to drill the Ma’anit Rehoboth well in 2005. Their reports show that the operation was a great prospect with oil and gas shows of 21000-foot interval. This first success was vital and oil reserves were found at the well.
In 2007, Zion went public on the NASDAQ index, raising 8 million US dollars from its IPO (Initial public offering).
The victory was short-lived as four years later the well dried up and was discovered to be only a puddle. The well was written off for about 9 million US dollars. This setback did not discourage Zion’s team and they went on to raise more funds from their stock sales to continue exploration.
Zion held on to their dream and it took them nearly half a decade to explore for the next well. Ma’anit Rehoboth’s successor, Ma’anit Rehoboth 2, was pursued by Zion. Promising results of hydrocarbon reserves around the nation helped propel Zion’s efforts. Reports by Zion showed that the second well could have a higher success of reserves. The well was written off four months later as it was once again declared dry for a cost of 22 million US dollars.
Zion’s situation (moreover for private investors: the backbone of keeping Zion oil and gas alive) went from bad to worse, when another well, known as Elijah 3 encountered a technical glitch of a stuck pipe hence the projected depth could not be achieved. Together with another well (Ma’anit Joseph 3), they were written off for 44 million dollars.
The Meggido-Jezreel (MJ) wells
After a series of unfruitful exploration, Zion managed to shift their focus to a new area, Meggido-Jezreel. Confident that this new well would be their break, they acquired an exploration licence in 2013 and spudded the well in June 2017. The MJ1 well lies in the Jezreel valley.
Research began by the Zion team of geoscientists. 2D seismic surveys was conducted and mudlogging was carried out. Zion’s limited funds could not permit 3D seismic surveys and combination of other geophysical techniques to more efficiently map the reservoir.
3D seismic surveys cost fourfold the amount of a 2D seismic survey, but would have better revealed the subsurface conditions of the reservoir. The MJ1 signalled strong shows of hydrocarbons. Trace amounts were initially discovered and showed signs of a huge find. This saw Zion’s stock rise significantly. The MJ1 was drilled to a total depth of 16,600 feet.
After a year of investigation, Zion finally came out in April 2018 and released a statement that it completed then testing program of the MJ1 well. The test results concluded that the MJ1 well was commercially infeasible due to scarce quantities of hydrocarbons in the well. Operations on MJ1 well consequently ceased and Zion recorded a non-cash impairment charge of 30.906 million dollars.
Zion believes that it learned a great deal of information from the MJ1 well. Key of which were the geological factor not accurately captured by seismic surveys. These included: subsurface temperatures, nature of the source rock and thickness/depth of the reservoir. 3D seismic surveys were carried out of a sample remnant of the MJ1 well. In light of better exploration methods, the survey from MJ1 triggered Zion to adapt 3D seismic survey in their next phase of exploration, the MJ2 well.
The MJ2 well, professionally licenced as the new Meggido licence 428 (“NML 428”) replaced the MJ1 license and was awarded to Zion on December 3rd 2020.
Despite the large 3D area, Zion decided to drill MJ2 on the same site as the MJ1 well.
Zion’s resilience and optimism is seen in this new endeavour after failed attempts to drill five dry wells. The MJ2 well lies onshore, south and west of galilee where exploration efforts are currently ongoing. The ministry of energy has granted Zion an extension of the MJ2 licence until 1st August 2022.
Considering Zion’s activities in a span of over 21 years, begs the question, will Zion eventually be successful? Given that it is on the brink of collapse and has so far not yet realized a meaningful gain.
Hydrocarbon exploration is a challenging and nearly impossible feat. Only 10% of oil reserves prospects are successfully drilled to economically viable levels. Israel’s location in the middle east, next to the Persian Gulf which accounts for majority of the world’s oil reserves (61%), would generally lead to the assumption that it has a high likelihood to contain feasible amounts of hydrocarbons.
It is also a semi arid land and shares similar physical conditions to its oil endowed neighbours. However, this is not the case as oil formation is subject to variation due to forces of the universe (plate tectonics).
Israel might have impressive amounts of natural gas, but that could not necessarily translate to crude oil.
Zion’s reputation and standing
Zion’s licensed exploration area is shown above and the team spudding the MJ2 well. Zion maintains a small team of about 28 people.
Zion’s core beliefs are based on biblical faith principles and that Israel will be blessed with riches beneath its lands, as foretold by the prophets of old. It has religious affiliations with most of the people who follow them i.e. Zion’s shareholders.
Despite this though, the numbers don’t lie and the success rate of Zion has so far been extremely low. Given that the MJ2 is a follow up on the MJ1 well, of which Zion says to have observed interesting results, then there could be something Zion is going for. If the past is anything to go by, Zion has been so far unsuccessful in all of its five drilled wells. Drilling a sixth well could be their last chance to fulfil the long-awaited promise to its investors and the general public. Failure could mean that Zion cease operations for good, leaving a trail of frustrated investors.
Zion financial standing is not very solid. It is typical for oil companies to go for decades in order to achieve fiscal dependence. Currently Zion operates on a negative balance sheet, reports indicate a -28.23% in net income, -35.02% in operating income and -143.04% in net change.
Zion’s primary source of funding is from stock and warrant sales. Zion is a junior resource exploration company therefore limitations in funding mean they cannot access more sophisticated equipment.
On January 2022, Zion’s CEO released a statement saying and I quote, ‘‘After reviewing these logs, our third-party engineering group has recommended bringing in specialized completion liners for the next steps and for the indicated zones of potential production’’. The pandemic had a serious impact on Zion, as shipping of machinery became increasingly difficult. It can still be argued that the desired depths to drill in the reserves have not been achieved.
Will they strike oil?
The greatest question remains whether quantifiable reserves will be found on the MJ2 well. To accurately forecast this is a precarious task, given the only data to consider is Zion’s history in exploration and the suitable geology of the lands.
Hydrocarbons have been found in four major areas: Artic areas, deserts, river deltas and offshore (continental margin) reserves. Majority Israel is located in arid and semi-arid land. Oil and gas form when microorganisms decompose in low oxygen environments for a long period of time (millions of years). Natural gas can exist in large cracks of overlying rock -without oil (conventional natural gas), or conversely it can be found with oil (associated natural gas).
Israel currently produces a lot of natural gas that meets 99% of its energy demands. Offshore gas reserves explored in the past two decades have yielded fruitful results, so much so that Israel now exports natural gas. However, oil reserves have been proven over time to be of negligible amounts.
Research conducted by geologists in the middle east show that the greatest reserves are found in a triangular area of the Persian Gulf. Any exploration outside this region has been rendered futile. Carbonates and sandstone located in the gulf have been credited with the accumulation abundant crude oil. Despite several decades of exploration only small pockets of oil have been found in surrounding areas outside the gulf, of which Israel is located.
One Israeli prime minister once jokingly remarked that Moses took them to the only place in the middle east without oil. Although geologists only offer proxies and not absolute blueprints for oil exploration, the data is proven over a long period of time. Sound judgment can therefore be drawn from the data.
Zion has not revealed its Seismic data to the public as it termed it as ‘proprietary’. This could offer more probable ways to analyse their reserves. Many have slated Zion’s operation for being unproductive and only beneficial to its executives.
Zion is convinced that they will locate oil onshore and have never undertaken an offshore project. Zion’s stock has seen massive volatility and is recently below its all-time lows. Both historical and geological datum indicate that Zion’s exploits could be in vain.
Zion’s resilience is plausible and if they strongly believe they could find oil, it will largely be due to partnership to get better equipment to force the oil up by fracking.
But by far and large, Zion has the odds stacked against them, considering hydrocarbon deposits are declining all over the globe. Technically, Zion does still have a 10% chance which it hopes to capitalize and make the most out of it.
Only time will tell if they are to drill yet another bust.
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