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of owning a drilling rig, related equipment and spare parts, and on January 31, 2020, the Company incorporated another wholly owned subsidiary, |
Zion Drilling Services, Inc., a Delaware corporation, to act as the contractor providing such drilling services. When the Company is |
not using the rig for its own exploration activities, Zion Drilling Services may contract with other operators in Israel to provide drilling |
services at market rates then in effect. The |
New Megiddo License 428 (“NML 428”) was initially awarded on December 3, 2020 for a six-month term and was extended several |
times before expiring on February 1, 2023. Zion Oil & Gas, Inc. filed an amended application with the Israel Ministry of Energy for |
a new exploratory license on January 24, 2023 covering the same area as its License No. 428, which expired on February 1, 2023. However, |
its original application to replace License No. 428 was filed on May 11, 2022, and a revised application was filed on August 29, 2022. On |
September 14, 2023, the Israel Ministry of Energy approved a new Megiddo Valleys License 434, allowing for oil and gas exploration on |
approximately 75,000 acres or 302 square kilometers. This Exploration License 434 will be valid for three years until September 13, 2026 |
with four 1-year extensions for a total of seven years until September 13, 2030. This NMVL 434 effectively supersedes our previous NML |
428. We |
continue our exploration focus here based on our studies as it appears to possess the key geologic ingredients of an active petroleum |
system with significant exploration potential. Zion |
is deploying new technologies, focusing on new stimulation methods for MJ-01, and aiming to potentially unlock hydrocarbon flows in several |
identified key zones. Zion has already procured service contractors and ancillary items required for efficient operations. Zion must |
receive approval of its work plan from the Ministry of Energy prior to commencing its re-completion activities. Israel declared war on |
Hamas in mid-October 2023 following the October 7, 2023 unprovoked attack on Israeli citizens by Hamas. Israel has formed an emergency |
unity government in partial response to the attack. It is not known how long this war with Hamas will continue nor any specific timetable |
for when Zion may resume its exploration activities. The projected costs to perform the anticipated |
re-completion activities for NMVL is expected to be $4,000,000 to $5,000,000 and require from three to six months. I-35 |
Drilling Rig & Associated Equipment Nine-month period ended September 30, 2023 I-35 Drilling Rig Rig Spare Parts Other Drilling Assets Total US$ thousands US$ thousands US$ thousands US$ thousands December 31, 2022 5,225 619 437 6,281 Asset Additions - - - - Asset Depreciation (476 ) - (94 ) (570 ) Asset Disposals for Self-Consumption - (11 ) - (11 ) September 30, 2023 4,749 608 343 5,700 Zion’s |
ability to fully undertake all of these aforementioned activities is subject to its raising the needed capital from its continuing offerings, |
of which no assurance can be provided, as well as the resumption of our activities following the war with Hamas. 36 Map |
1. Zion’s Megiddo Valleys 434 License as of September 30, 2023. 37 Onshore |
Licensing, Oil and Gas Exploration and Environmental Guidelines The |
Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental |
cleanup of well sites or other environmental restoration procedures and other obligations as they relate to the drilling of oil and gas |
wells or the operation thereof. Various guidelines have been published in Israel by the State of Israel’s Petroleum Commissioner, |
the Energy Ministry, and the Environmental Ministry in recent years as it pertains to oil and gas activities. Mention of these guidelines |
was included in previous Zion Oil & Gas filings. We |
acknowledge that these new regulations are likely to increase the expenditures associated with obtaining new exploration rights and drilling |
new wells. The Company expects that additional financial burdens could occur as a result of the Ministry requiring cash reserves that |
could otherwise be used for operational purposes. Capital |
Resources Highlights We |
need to raise significant funds to finance the continued exploration efforts and maintain orderly operations. To date, we have funded |
our operations through the issuance of our securities and convertible debt. We will need to continue to raise funds through the issuance |
of equity and/or debt securities (or securities convertible into or exchangeable for equity securities). No assurance can be provided |
that we will be successful in raising the needed capital on terms favorable to us (or at all). The |
Dividend Reinvestment and Stock Purchase Plan On |
March 13, 2014 Zion filed a registration statement on Form S-3 that is part of a replacement registration statement that was filed with |
the SEC using a “shelf” registration process. The registration statement was declared effective by the SEC on March 31, 2014. |
On February 23, 2017, the Company filed a Form S-3 with the SEC (Registration No. 333-216191) as a replacement for the Form S-3 (Registration |
No. 333-193336), for which the three year period ended March 31, 2017, along with the base Prospectus and Supplemental Prospectus. The |
Form S-3, as amended, and the new base Prospectus became effective on March 10, 2017, along with the Prospectus Supplement that was filed |
and became effective on March 10, 2017. The Prospectus Supplement under Registration No. 333-216191 describes the terms of the DSPP and |
replaces the prior Prospectus Supplement, as amended, under the prior Registration No. 333-193336. On |
March 27, 2014, we launched our Dividend Reinvestment and Stock Purchase Plan (the “DSPP”) pursuant to which stockholders |
and interested investors can purchase shares of the Company’s Common Stock as well as units of the Company’s securities directly |
from the Company. The terms of the DSPP are described in the Prospectus Supplement originally filed on March 31, 2014 (the “Original |
Prospectus Supplement”) with the Securities and Exchange Commission (“SEC”) under the Company’s effective registration |
Statement on Form S-3, as thereafter amended. Please |
see Footnote 3D (“Dividend Reinvestment and Stock Purchase Plan (“DSPP”)), which is a part of this Form 10-Q filing, |
for details about specific stock purchase and unit programs, dates, and filings during the years 2016 through 2023. For |
the three and nine months ended September 30, 2023, approximately $1,805,000, and $4,358,000 were raised under the DSPP program, |
respectively. The $4,358,000 figure is net of $610,000 in equity issuance costs to an outside party. For |
the three and nine months ended September 30, 2022, approximately $3,477,000, and $16,740,000 were raised under the DSPP program, |
respectively. The |
warrants balances at December 31, 2022 and transactions since January 1, 2023 are shown in the table be Warrants Exercise Price Warrant Termination Date Outstanding Balance, 12/31/2022 Warrants Issued Warrants Exercised Warrants Expired Outstanding Balance, 9/30/2023 ZNWAA $ 2.00 01/31/2024 1,498,804 - - - 1,498,804 ZNWAD $ 1.00 05/02/2023 243,853 - - (243,853 ) - ZNWAE $ 1.00 05/01/2023 2,144,099 - - (2,144,099 ) - ZNWAF $ 1.00 08/14/2023 359,435 - - (359,435 ) - ZNWAG $ 1.00 01/08/2024 240,068 - - - 240,068 ZNWAH $ 5.00 04/19/2023 372,400 - - (372,400 ) - ZNWAI $ 3.00 06/29/2023 640,710 - (100 ) (640,610 ) - ZNWAJ $ 1.00 10/29/2023 545,900 - - - 545,900 ZNWAK $ 0.01 02/25/2023 424,225 - (9,050 ) (415,175 ) - ZNWAL $ 2.00 08/26/2023 517,875 - - (517,875 ) - ZNWAM $ 0.05 12/31/2023 4,376,000 - - - 4,376,000 ZNWAN $ 1.00 05/16/2023 267,760 - (75 ) (267,685 ) - ZNWAO $ 0.25 06/12/2023 174,660 - - (174,660 ) - ZNWAQ $ 0.05 12/31/2023 23,428,348 - - - 23,428,348 ZNWAV $ 0.05 06/28/2023 - 288,500 (167,730 ) (120,770 ) - ZNWAW $ 0.05 07/13/2023 - 199,000 (151,500 ) (47,500 ) - ZNWAX $ 0.05 07/31/2023 - 818,500 (458,750 ) (359,750 ) - ZNWAY $ 0.05 09/10/2023 17,450 (3,700 ) (13,750 ) - ZNWAZ $ 0.25 07/17/2024 - 153,500 - - 153,500 Outstanding warrants 35,234,137 1,476,950 (790,905 ) (5,677,562 ) 30,242,620 38 Principal |
Components of our Cost Structure Our |
operating and other expenses primarily consist of the followin ● Impairment |
of Unproved Oil and Gas Properti Impairment expense is recognized if a determination is made that a well will not be commercially |
productive. The amounts include amounts paid in respect of the drilling operations as well as geological and geophysical costs and |
various amounts that were paid to Israeli regulatory authorities. ● General |
and Administrative Expens Overhead, including payroll and benefits for our corporate staff, costs of managing our exploratory |
operations, audit and other professional fees, and legal compliance is included in general and administrative expenses. General and |
administrative expenses also include non-cash stock-based compensation expense, investor relations related expenses, lease and insurance |
and related expenses. ● Depreciation, |
Depletion, Amortization and Accreti The systematic expensing of the capital costs incurred to explore for natural gas and oil |
represents a principal component of our cost structure. As a full cost company, we capitalize all costs associated with our exploration, |
and apportion these costs to each unit of production, if any, through depreciation, depletion and amortization expense. As we have |
yet to have production, the costs of abandoned wells are written off immediately versus being included in this amortization pool. Going |
Concern Basis Since |
we have limited capital resources, no revenue to date and a loss from operations, our consolidated financial statements have been prepared |
on a going concern basis, which contemplates realization of assets and liquidation of liabilities in the ordinary course of business. |
The appropriateness of using the going concern basis is dependent upon our ability to obtain additional financing or equity capital and, |
ultimately, to achieve profitable operations. Therefore, there is substantial doubt about our ability to continue as a going concern |
for one year from the date the financials were issued. The consolidated financial statements do not include any adjustments that |
might result from the outcome of this uncertainty. The |
Impact of COVID-19 During March 2020, a global |
pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). |
The pandemic significantly impacted the economic conditions in the United States and Israel, as federal, state and local governments reacted |
to the public health crisis, creating significant uncertainties in the United States, Israel and world economies. In the interest of public |
health and safety, jurisdictions (international, national, state and local) where we have operations, restricted travel and required workforces |
to work from home. As of the date of this report, the Company adopted a hybrid model whereby many of our employees are working from corporate |
office two to three days per week and then working remotely two to three days per week. The |
full extent of COVID-19’s impact on our operations and financial performance depends on future developments that are uncertain |
and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets and any new information |
that may emerge concerning the severity of the virus, its spread to other regions as well as the actions taken to contain it, among others. The |
main area in which Zion has experienced COVID-19’s impact has been in supply chain and/or logistics. We have worked with several |
suppliers worldwide for the procurement of oil and gas parts, inventory items and related labor for our ongoing operations for the MJ-02 |
well. Production delays, factory shutdowns and heavy demand by oil and gas operators worldwide for spare parts has created some challenges |
in obtaining these items in a timely fashion. The Impact of the Israel-Hamas War Please see Part II, Item 1a |
for a discussion of the Israel-Hamas war and its effect on Zion’s exploration program. Critical |
Accounting Policies Management’s |
discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, |
which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation |
of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of |
assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and |
the reported amounts of revenues and expense during the reporting period. We |