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Exploration and Operation Efforts Megiddo-Jezreel |
Petroleum License The |
Company currently holds one active petroleum exploration license onshore Israel, the New Megiddo License 428 (“NML 428”), |
comprising approximately 99,000 acres – See Map 1. Under Israeli law, Zion has an exclusive right to oil and gas exploration |
in our license area in that no other company may drill there. In the event we drill an oil or gas discovery in our license area, current |
Israeli law entitles us to convert the relevant portions of our license to a 30-year production lease, extendable to 50 years, subject |
to compliance with a field development work program and production. 35 The |
New Megiddo License 428 was awarded on December 3, 2020 for a six-month term with the possibility of an additional six-month extension. |
On May 30, 2021, the Ministry of Energy approved our request for extension to December 2, 2021. On November 29, 2021, the Ministry of |
Energy approved our request for extension to August 1, 2022. The New Megiddo License 428 area is the same area as the Megiddo-Jezreel |
License 401 area and lies onshore, south and west of the Sea of Galilee and 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. The MJ-02 drilling plan was approved by the Ministry of Energy on July |
29, 2020. On |
January 6, 2021, Zion officially spudded its MJ-02 exploratory well. On November 23, 2021, Zion announced via a press release that it |
completed drilling the MJ-02 well to a total depth of 5,531 meters (~18,141 feet) with a 6-inch open hole at that depth. A |
full set of detailed and comprehensive tests including neutron-density, sonic, gamma, and resistivity logs were acquired in December |
2021, as a result of which we identified an encouraging zone of interest. All of the well testing equipment and personnel are secured |
for the MJ-02 well. We have re-entered our MJ-02 wellbore and are progressing to production testing. This work is expected to take several |
weeks. I-35 |
Drilling Rig & Associated Equipment Three-month |
period ended March 31, 2022 I-35 Drilling Rig Rig Spare Parts Other Drilling Assets Total US$ |
thousands US$ |
thousands US$ |
thousands US$ |
thousands December |
31, 2021 5,859 643 332 6,834 Asset |
Additions - 5 117 122 Asset |
Depreciation (159 ) - (25 ) (184 ) Asset |
Disposals for Self-Consumption - (13 ) - (13 ) March |
31, 2022 5,700 635 424 6,759 36 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. Map |
1. Zion’s New Megiddo License 428 as of March 31, 2022. Zion’s |
Former Joseph License Zion |
has plugged all of its exploratory wells on its former Joseph License area, and the reserve pits have been evacuated, but acknowledges |
its obligation to complete the abandonment of these well sites in accordance with guidance from the Energy Ministry, Environmental Ministry |
and local officials. 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 3F (“Dividend Reinvestment and Stock Purchase Plan (“DSPP”)), which is a part of this Form 10-Q filing, |
for details about specific unit programs, dates, and filings during the years 2016 through 2022. For |
the three months ended March 31, 2022, and 2021, approximately $11,427,000, and $2,849,000 were raised under the DSPP program, respectively. 38 The |
warrants balances at December 31, 2021 and transactions since January 1, 2022 are shown in the table be Warrants Exercise Price Warrant Termination Date Outstanding |
Balance, 12/31/2021 Warrants Issued Warrants Exercised Warrants Expired Outstanding |
Balance, 03/31/2022 ZNWAA $ 2.00 01/31/2023 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 01/08/2023 240,068 - - - 240,068 ZNWAH $ 5.00 04/19/2023 372,400 - - - 372,400 ZNWAI $ 3.00 06/29/2023 640,730 - - - 640,730 ZNWAJ $ 1.00 10/29/2023 545,900 - - - 545,900 ZNWAK $ 0.01 02/25/2023 431,655 - (1,750 ) - 429,905 ZNWAL $ 2.00 08/26/2023 517,875 - - - 517,875 ZNWAM $ 1.00 07/15/2023 4,376,000 - - - 4,376,000 ZNWAN $ 1.00 05/16/2023 267,660 - - - 267,660 ZNWAO $ 0.25 06/12/2023 174,970 - - - 174,970 ZNWAP $ 0.25 06/02/2022 439,916 - - - 439,916 ZNWAR $ 0.25 06/23/2023 1,020,000 - - - 1,020,000 Outstanding |
warrants 13,273,365 - (1,750 ) - 13,271,615 According |
to the warrant table, the Company could potentially raise up to approximately $16,408,000 if all outstanding warrants were exercised |
by its holders. 2018 |
Subscription Rights Offering Please |
see Footnote 3G (“Subscription Rights Offering”), which is a part of this Form 10-Q filing, for a description of and details |
about the Subscription Rights Offering. 39 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. |
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 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 |
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