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increases or decreases within the next twelve months. No interest or penalties have been accrued. The Company has not received final tax assessments |
since incorporation. In accordance with the US tax regulations, the U.S. federal income tax returns remain subject to examination for |
the years beginning in 2019. . The Israeli branch has not received final tax |
assessments since incorporation. In accordance with the Israeli tax regulations, tax returns submitted up to and including the 2017 tax |
year can be regarded as final. F- 42 Zion Oil & Gas, Inc. Notes to Consolidated Financial Statements Note 8 - Right of use leases assets and leases |
obligations The Company is a lessee in several non-cancellable |
operating leases, primarily for transportation and office space. The table below presents the operating lease |
assets and liabilities recognized on the balance sheets as of December 31, 2022 and 2021: December 31, 2022 December 31, 2021 US$ thousands US$ thousands Operating lease assets $ 202 $ 327 Operating lease liabiliti Current operating lease liabilities $ 196 $ 203 Non-current operating lease liabilities $ 12 $ 169 Total operating lease liabilities $ 208 $ 372 The depreciable lives of operating lease assets |
and leasehold improvements are limited by the expected lease term. The Company’s leases generally do not provide |
an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. |
The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an |
amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The Company |
used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date. The Company’s weighted average remaining |
lease term and weighted average discount rate for operating leases as of December 31, 2022 December 31, 2022 December 31, 2021 Weighted average remaining lease term (years) 0.9 1.8 Weighted average discount rate 4.3 % 5.9 % The table below reconciles the undiscounted future |
minimum lease payments (displayed by year and in the aggregate) under non-cancellable operating leases with terms of more than one year |
to the total operating lease liabilities recognized on the condensed balance sheets as of December 31, 2022: US$ thousands 2023 200 2024 12 2025 - 2026 - Thereafter - Total undiscounted future minimum lease payments 212 L portion representing imputed interest ( 4 ) Total undiscounted future minimum lease payments 208 Operating lease costs were $ 274,000 and |
$ 264,000 for the years ended December 31, 2022, and 2021, respectively. Operating lease costs are included within general and administrative |
expenses on the statements of income. Cash paid for amounts included in the measurement |
of operating lease liabilities was $ 285,000 and $ 288,000 for the years ended December 31, 2022, and 2021, respectively, and |
this amount is included in operating activities in the statements of cash flows. Right-of-use assets obtained in exchange for |
new operating lease liabilities were $ 136,000 and $ 128,000 for the years ended December 31, 2022, and 2021, respectively. F- 43 Zion Oil & Gas, Inc. Notes to Consolidated Financial Statements Note 9 - Commitments and Contingencies A. Securities and Exchange |
Commission (“SEC”) Investigation As previously disclosed by the Company, on June |
21, 2018, the Fort Worth Regional Office of the SEC informed Zion that it was conducting a formal, non-public investigation and asked |
that we provide certain information and documents in connection with its investigation. Since that date, we have fully cooperated with |
the SEC on an on-going basis in connection with its investigation. Investigations of this nature are inherently uncertain and their results |
cannot be predicted with certainty. Regardless of the outcome, an SEC investigation could have an adverse impact on us because of legal |
costs, diversion of management resources, and other factors. The investigation could also result in reputational harm to Zion and may |
have a material adverse effect on Zion’s current and future business and exploratory activities and its ability to raise capital |
to continue our oil and gas exploratory activities. B. Litigation From time to time, the Company may be subject |
to routine litigation, claims or disputes in the ordinary course of business. The Company defends itself vigorously in all such matters. |
However, we cannot predict the outcome or effect of any of the potential litigation, claims or disputes. The Company is not subject to any litigation |
at the present time. F- 44 Zion Oil & Gas, Inc. Notes to Consolidated Financial Statements Note 9 - Commitments and Contingencies (cont’d) C. Asset Retirement The Company currently estimates that the costs |
of plugging and decommissioning of the exploratory wells drilled to date in the former Joseph License area and the present New Megiddo |
License 428 to be approximately $ 571,000 based on current cost rather than Net Present Value. The Company expects to incur such costs |
during 2023. Liabilities for expenditures are recorded when environmental assessment and/or remediation is probable and the timing and |
costs can be reasonably estimated. Changes in Asset Retirement Obligations were |
as follows: December 31, December 31, 2022 2021 US$ thousands US$ thousands Asset Retirement Obligations, Beginning Balance 571 571 Liabilities Settled - - Revision of Estimate - - Retirement Obligations, Ending Balance 571 571 D. Environmental and |
Onshore Licensing Regulatory Matters The Company is engaged in oil and gas exploration |
and production and may become subject to certain liabilities as they relate to environmental clean-up 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 and Energy and Environmental Ministries as it pertains |
to oil and gas activities. Mention of these older guidelines was included in previous Zion filings. The Company believes that these regulations will |
result in an increase in the expenditures associated with obtaining new exploration rights and drilling new wells. The Company expects |
that an additional financial burden could occur as a result of requiring cash reserves that could otherwise be used for operational purposes. |
In addition, these regulations are likely to continue to increase the time needed to obtain all of the necessary authorizations and approvals |
to drill and production test exploration wells. As of December 31, 2022 and 2021, the Company |
accrued nil and nil for license regulatory matters. E. Charitable Foundations Two charitable foundations were established, |
one in Israel and one in Switzerland, for the purpose of supporting charitable projects and other charities in Israel, the United States |
and internationally. A 3 % royalty or equivalent interest in any Israeli oil and gas interests as may now be held or, in the future be |
acquired, by the Company was assigned to each charitable organization ( 6 % interest in the aggregate). At December 31, 2022 and 2021, |
the Company did not have any outstanding obligation in respect of the charitable foundations, since to this date, no proved reserves |
have been found. F- 45 Zion Oil & Gas, Inc. Notes to Consolidated Financial Statements Note 9 - Commitments and Contingencies (cont’d) F. Office and Vehicle |
Leases (i) On September 10, 2015, the Company signed a new lease agreement with Hartman Income REIT Property Holdings, LLC (“Hartman”) for new premises containing 7,276 square feet. The lease term was for 65 months (about 5.5 years) from December 1, 2015 to April 30, 2021. Rent was abated for the first five (5) month beginning in December 2015 and extending through April 2016. Beginning in May 2016 and extending through April 2017, rent was paid on a monthly basis in the base amount of $ 7,882 per month. Beginning in May 2017 and extending through April 2018, rent was paid on a monthly basis in the base amount of $ 8,186 per month. Beginning in May 2018 and extending through April 2019, rent was paid on a monthly basis in the base amount of $ 8,489 per month. Beginning in May 2019 and extending through April 2020, rent was paid on a monthly basis in the base amount of $ 8,792 per month. Beginning in May 2020 and extending through April 2021, rent was paid on a monthly basis in the base amount of $ 9,095 per month. The Company was also obligated to pay its pro-rated portion of all taxes, utilities, and insurance during the lease term. On June 14, 2016, the Company and Hartman signed |
a First Amendment to Lease Agreement whereby the premises were expanded to include approximately 1,498 square feet, for a new total of |
approximately 8,774 square feet. The first amendment commencement date was July 1, 2016 and the payment of monthly rent was revised. |
Beginning in July 2016 and extending through November 2016, rent was paid on a monthly basis in the base amount of $ 7,882 per month. |
Beginning in December 2016 and extending through May 2017, rent was paid monthly in the base amount of $ 9,505.17 per month. Beginning |
in June 2017 and extending through May 2018, rent was paid monthly in the base amount of $ 9,870.75 per month. Beginning in June 2018 |
and extending through May 2019, rent was paid monthly in the base amount of $ 10,236.33 per month. Beginning in June 2019 and extending |
through May 2020, rent was paid monthly in the base amount of $ 10,601.92 per month. Beginning in June 2020 and extending through May |
2021, rent was paid monthly in the base amount of $ 10,967.50 per month. This lease is treated as an operating lease. On May 14, 2021, the Company and Hartman signed |
a letter agreement (“Renewal Letter”) whereby the Lease extends from June 1, 2021 through May 31, 2022. The monthly basic |
rent is to be paid for $10,967.50 and a monthly electricity expense of approximately $1,279.54. On May 4, 2022, the |
Company and Hartman signed a letter agreement (“2 nd Renewal Letter”) whereby the Lease extended from June 1, 2022 |
through May 31, 2023. The monthly basic rent is to be paid in the amount of $11,333.08 and a monthly electricity expense of approximately |
$1,703.62. (ii) On August 14, 2017, the Company and David McDavid Plano Lincoln Mercury (as Lessor) signed a motor vehicle lease agreement for a 2017 Lincoln MKZ. The first payment of $873.87 was due on August 14, 2017 and this was paid on or around that date. The lease calls for 38 additional payments of $873.87 so that the sum of all 39 payments is $34,080.93. At the inception of the lease, and in addition to the sum of the 39 payments, a one-time payment of $5,000 was made. The value at the end of the lease has a residual value of $18,565.70 per the terms of the lease agreement. Additionally, the Company must pay to the Lessor $.20 cents per mile for each mile in excess of 82,081 miles. This lease was treated as an operating lease. The Lincoln MKZ was returned to the dealership |
in November 2020 and the lease was effectively terminated without any payment for excess mileage. (iii) On November 13, 2020, the Company and GM Financial (as Lessor) signed a motor vehicle lease agreement for a 2020 Chevy Equinox. The first payment of $447.77 was due on November 13, 2020 and this was paid on or around that date. The lease calls for 38 additional payments, from December 2020 through January 2024, of $447.77 so that the sum of all 39 payments is $17,463.03. At the inception of the lease, and in addition to the sum of the 39 payments, lease signing bonuses provided an initial $1,500 reduction of the lease cost on November 13, 2020. The value at the end of the lease has a residual value of $15,193.60 per the terms of the lease agreement. Additionally, the Company must pay to the Lessor $.25 cents per mile for each mile in excess of 20,000 annual miles. This lease is treated as an operating lease. At December 31, 2022, and continuing through |
the date of this Form 10-K report, all payments have been paid on time to the Lessor, and the Company is in good standing with regard |
to this lease agreement. F- 46 Zion Oil & Gas, Inc. Notes to Consolidated Financial Statements Note 9 - Commitments and Contingencies (cont’d) (iv) The Company’s field office in Caesarea |
Israel consists of 6,566 square feet. The lease term was five years from February 1, 2014 to January 31, 2019. Rent was paid on |
a monthly basis in the base amount of approximately NIS 37,800 per month (approximately $ 10,740 ) per month at the exchange rate in effect |
on the date of this report and is linked to an increase (but not a decrease) in the CPI. The Company was also obligated to pay all related |
taxes, utilities, insurance and maintenance payments during the lease term. Pursuant to the lease, two years from the commencement of |
the lease term, the Company may terminate the agreement upon three months’ notice provided the Company secures a replacement lessee |
approved by the lessor at its discretion. The Company has an option to renew the lease |
for another five years, provided it is not in breach of the agreement, where it is required as well to furnish a notice of intent |
to exercise the option six months prior to termination of lease, and it furnishes a bank guarantee and insurance confirmation prior |
to commencement of the option period. The Company exercised the above-mentioned option |
on September 25, 2018. Rent is to be paid on a monthly basis in the base amount of approximately NIS 43,500 per month (approximately |
$ 12,300 ) at the exchange rate in effect on the date of this report and is linked to an increase (but not a decrease) in the CPI. The |
Company has an option to renew the lease for another five years from February 1, 2024 to January 31, 2029, provided it is not in breach |
of the agreement, where it is required as well to furnish a notice of intent to exercise the option six months prior to termination |
of lease, and it furnishes a bank guarantee and insurance confirmation prior to commencement of the option period. In the event that |
the Company does not exercise the option to renew the lease, the Company would pay the lessor an amount of approximately NIS 94,000 (approximately |
$ 26,800 ) at the exchange rate in effect on the date of this report and is linked to an increase (but not a decrease) in the CPI. Under the lease agreement, the Company is authorized |
to further sublease part of the leased premises to a third party that is pre-approved by the sub-lessor. Rent and its related taxes, |
utilities, insurance and maintenance expenses for 2022, and 2021 were $ 400,000 and 369,000 respectively. The future minimum lease payments as of December |
31, 2022, are as follows: US$ thousands 2023 200 2024 12 2025 - 2026 and thereafter - 212 G. Bank Guarantees As of December 31, 2022, the Company provided |
Israeli-required bank guarantees to various governmental bodies (approximately $ 1,278,000 ) and others (approximately $ 79,000 ) with respect |
to its drilling operation in an aggregate amount of approximately $ 1,357,000 . The (cash) funds backing these guarantees are held in restricted |
interest-bearing accounts and are reported on the Company’s balance sheets as fixed short-term bank deposits – restricted. F- 47 Zion Oil & Gas, Inc. Notes to Consolidated Financial Statements Note 9 - Commitments and Contingencies (cont’d) H. Recent Market Conditions |
– Coronavirus Pandemic 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 has significantly impacted the economic conditions in the United States and Israel, as federal, state and local governments react |
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. However, as of the date of this report, most of our employees are working at our physical offices, but have the ability |
to work from home as needed. While there are various uncertainties to navigate, the Company’s business activities are continuing. |
The situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently. We cannot predict |
whether, when or the manner in which the conditions surrounding COVID-19 will change including the timing of lifting any restrictions |
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