arcee-ai/sec-data-full · Datasets at Hugging Face

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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 June 30, 2023, and December 31, 2022, the Company accrued $ nil and $ nil for license regulatory matters. E.
Bank Guarantees As
of June 30, 2023, the Company provided Israeli-required bank guarantees to various governmental bodies (approximately $ 930,000 ) and others
(approximately $ 88,000 ) with respect to its drilling operation in an aggregate amount of approximately $ 1,018,000 . The (cash) funds backing
these guarantees are held in restricted interest-bearing accounts in Israel and are reported on the Company’s balance sheets as
fixed short-term bank deposits – restricted. 32 Zion
Oil & Gas, Inc. Consolidated
Condensed Notes to Financial Statements (Unaudited) Note 6 - Commitments and Contingencies (cont’d) F.
Risks Market
risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes
may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. In the
normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest
rates. Foreign
Currency Exchange Rate Risks. A portion of our expenses, primarily labor expenses and certain supplier contracts, are denominated
in New Israeli Shekels (“NIS”). As a result, we have significant exposure to the risk of fluctuating exchange rates with
the U.S. Dollar (“USD”), our primary reporting currency. During the period January 1, 2023 through June 30, 2023, the USD
has fluctuated by approximately 5.1 % against the NIS (the USD strengthened relative to the NIS). Also, during the period January 1, 2022
through December 31, 2022, the USD fluctuated by approximately 13.2 % against the NIS (the USD strengthened relative to the NIS). Continued
strengthening of the US dollar against the NIS will result in lower operating costs from NIS denominated expenses. To date, we have not
hedged any of our currency exchange rate risks, but we may do so in the future. Interest
Rate Risk. Our exposure to market risk relates to our cash and investments. We maintain an investment portfolio of short-term bank
deposits and money market funds. The securities in our investment portfolio are not leveraged, and are, due to their very short-term
nature, subject to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of the short-term maturities
of our investments, we do not believe that a change in market interest rates would have a significant negative impact on the value of
our investment portfolio except for reduced income in a low interest rate environment. At June 30, 2023, we had cash, cash equivalents
and short-term bank deposits of approximately $ 1,558,000 . The weighted average annual interest rate related to our cash and cash equivalents
for the three and six months ended June 30, 2023, exclusive of funds at US banks that earn no interest, was approximately 4.18 % and 3.21 %,
respectively. The
primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, we invest our excess cash in short-term bank deposits and money market funds that may invest
in high quality debt instruments. Note 7 - Subsequent Events (i) Approximately $921,000 was collected through the Company’s DSPP program during the period July 1 through August 8, 2023. 33 ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD
BE READ IN CONJUNCTION WITH OUR UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES TO THOSE STATEMENTS
INCLUDED IN THIS FORM 10-Q. SOME OF OUR DISCUSSION IS FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR INFORMATION REGARDING
RISK FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, REFER TO THE DISCUSSION OF RISK FACTORS IN THE “DESCRIPTION
OF BUSINESS” SECTION OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2022, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. Forward-Looking
Statements Certain
statements made in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements may materially differ from actual results. Forward-looking
statements can be identified by terminology such as “may”, “should”, “expects”, “intends”,
“anticipates”, “believes”, “estimates”, “predicts”, or “continue” or the
negative of these terms or other comparable terminology and include, without limitation, statements regardin ● The
going concern qualification in our consolidated financial statements; ● our
ability to obtain new license areas to continue our petroleum exploration program; · ● our
liquidity and our ability to raise capital to finance our overall exploration and development activities within our license area; ● our
ability to continue meeting the requisite continued listing requirements by OTCQX; ● business
interruptions from COVID-19 pandemic; ● interruptions,
increased consolidated financial costs and other adverse impacts of the coronavirus pandemic on the drilling and testing of our petroleum
exploration program and our capital raising efforts; ● our
ability to explore for and develop natural gas and oil resources successfully and economically within a license area; ● our
ability to maintain the exploration license rights to continue our petroleum exploration program; ● the
availability of equipment, such as seismic equipment, drilling rigs, and production equipment as well as access to qualified personnel; ● the
impact of governmental regulations, permitting and other legal requirements in Israel relating to onshore exploratory drilling; ● our
estimates of the time frame within which future exploratory activities will be undertaken; ● changes
in our exploration plans and related budgets; 34 ● the
quality of existing and future license areas with regard to, among other things, the existence of hydrocarbon reserves in economic
quantities; ● anticipated
trends in our business; ● our
future results of operations; ● our
capital expenditure program; ● future
market conditions in the oil and gas industry ● the
demand for oil and natural gas, both locally in Israel and globally; and ● the
impact of fluctuating oil and gas prices on our exploration efforts All
references in this Quarterly Report to the “Company”, “Zion”, “we”, “us”, or “our”,
are to Zion Oil and Gas, Inc., a Delaware corporation, and its wholly-owned subsidiaries, Zion Drilling, Inc. and Zion Drilling
Services, Inc. described below. Current
Exploration and Operation Efforts Zion
Oil and Gas, Inc., a Delaware corporation, is an oil and gas exploration company with a history of 23 years of oil and gas exploration
in Israel. We were incorporated in Florida on April 6, 2000 and reincorporated in Delaware on July 9, 2003. We completed our initial
public offering in January 2007. Our common stock, par value $0.01 per share (the “Common Stock”) currently trades on the
OTCQX marketplace of OTC Markets, Inc. under the symbol “ZNOG” and our Common Stock warrant under the symbol “ZNOGW.”
On January 24, 2020, the Company incorporated a wholly owned subsidiary, Zion Drilling, Inc., a Delaware corporation, for the purpose
of owning a drilling rig, related equipment and spare parts, and on January 31, 2020, the Company incorporated another wholly owned subsidiary,
Zion Drilling Services, Inc., a Delaware corporation, to act as the contractor providing such drilling services. When the Company is
not using the rig for its own exploration activities, Zion Drilling Services may contract with other operators in Israel to provide drilling
services at market rates then in effect. The
New Megiddo License 428 (“NML 428”) was initially awarded on December 3, 2020 for a six-month term and was extended several
times before expiring on February 1, 2023. Zion Oil & Gas, Inc. filed an amended application with the Israel Ministry of Energy for
a new exploratory license on January 24, 2023 covering the same area as its License No. 428, which expired on February 1, 2023. However,
its original application to replace License No. 428 was filed on May 11, 2022, and a revised application was filed on August 29, 2022. Prior
to the filing of our last Quarterly Report, we received initial administrative approval from various departments within the Israel Ministry
of Energy which puts us in an excellent position to obtain final approval of our license. We
continue our exploration focus here based on our studies as it appears to possess the key geologic ingredients of an active petroleum
system with significant exploration potential. We have finalized the technical and operational preparations for our
re-entry of the MJ-01 well. I-35
Drilling Rig & Associated Equipment Six-month period ended June 30, 2023 I-35 Drilling Rig Rig Spare Parts Other Drilling Assets Total US$ thousands US$ thousands US$ thousands US$ thousands December 31, 2022 5,225 619 437 6,281 Asset Additions - - - - Asset Depreciation (317 ) - (63 ) (380 ) Asset Disposals for Self-Consumption - (11 ) - (11 ) June 30, 2023 4,908 608 374 5,890 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. 35 Map
1. Zion’s New Megiddo License 428 as of June 30, 2023. 36 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

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 June 30, 2023, and December 31, 2022, the Company accrued $ nil and $ nil for license regulatory matters. E.

Bank Guarantees As

of June 30, 2023, the Company provided Israeli-required bank guarantees to various governmental bodies (approximately $ 930,000 ) and others

(approximately $ 88,000 ) with respect to its drilling operation in an aggregate amount of approximately $ 1,018,000 . The (cash) funds backing

these guarantees are held in restricted interest-bearing accounts in Israel and are reported on the Company’s balance sheets as

fixed short-term bank deposits – restricted. 32 Zion

Oil & Gas, Inc. Consolidated

Condensed Notes to Financial Statements (Unaudited) Note 6 - Commitments and Contingencies (cont’d) F.

Risks Market

risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes

may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. In the

normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest

rates. Foreign

Currency Exchange Rate Risks. A portion of our expenses, primarily labor expenses and certain supplier contracts, are denominated

in New Israeli Shekels (“NIS”). As a result, we have significant exposure to the risk of fluctuating exchange rates with

the U.S. Dollar (“USD”), our primary reporting currency. During the period January 1, 2023 through June 30, 2023, the USD

has fluctuated by approximately 5.1 % against the NIS (the USD strengthened relative to the NIS). Also, during the period January 1, 2022

through December 31, 2022, the USD fluctuated by approximately 13.2 % against the NIS (the USD strengthened relative to the NIS). Continued

strengthening of the US dollar against the NIS will result in lower operating costs from NIS denominated expenses. To date, we have not

hedged any of our currency exchange rate risks, but we may do so in the future. Interest

Rate Risk. Our exposure to market risk relates to our cash and investments. We maintain an investment portfolio of short-term bank

deposits and money market funds. The securities in our investment portfolio are not leveraged, and are, due to their very short-term

nature, subject to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of the short-term maturities

of our investments, we do not believe that a change in market interest rates would have a significant negative impact on the value of

our investment portfolio except for reduced income in a low interest rate environment. At June 30, 2023, we had cash, cash equivalents

and short-term bank deposits of approximately $ 1,558,000 . The weighted average annual interest rate related to our cash and cash equivalents

for the three and six months ended June 30, 2023, exclusive of funds at US banks that earn no interest, was approximately 4.18 % and 3.21 %,

respectively. The

primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly

increasing risk. To achieve this objective, we invest our excess cash in short-term bank deposits and money market funds that may invest

in high quality debt instruments. Note 7 - Subsequent Events (i) Approximately $921,000 was collected through the Company’s DSPP program during the period July 1 through August 8, 2023. 33 ITEM

2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD

BE READ IN CONJUNCTION WITH OUR UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES TO THOSE STATEMENTS

INCLUDED IN THIS FORM 10-Q. SOME OF OUR DISCUSSION IS FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR INFORMATION REGARDING

RISK FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, REFER TO THE DISCUSSION OF RISK FACTORS IN THE “DESCRIPTION

OF BUSINESS” SECTION OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2022, FILED WITH THE SECURITIES AND EXCHANGE

COMMISSION. Forward-Looking

Statements Certain

statements made in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation

Reform Act of 1995. These statements may materially differ from actual results. Forward-looking

statements can be identified by terminology such as “may”, “should”, “expects”, “intends”,

“anticipates”, “believes”, “estimates”, “predicts”, or “continue” or the

negative of these terms or other comparable terminology and include, without limitation, statements regardin ● The

going concern qualification in our consolidated financial statements; ● our

ability to obtain new license areas to continue our petroleum exploration program; · ● our

liquidity and our ability to raise capital to finance our overall exploration and development activities within our license area; ● our

ability to continue meeting the requisite continued listing requirements by OTCQX; ● business

interruptions from COVID-19 pandemic; ● interruptions,

increased consolidated financial costs and other adverse impacts of the coronavirus pandemic on the drilling and testing of our petroleum

exploration program and our capital raising efforts; ● our

ability to explore for and develop natural gas and oil resources successfully and economically within a license area; ● our

ability to maintain the exploration license rights to continue our petroleum exploration program; ● the

availability of equipment, such as seismic equipment, drilling rigs, and production equipment as well as access to qualified personnel; ● the

impact of governmental regulations, permitting and other legal requirements in Israel relating to onshore exploratory drilling; ● our

estimates of the time frame within which future exploratory activities will be undertaken; ● changes

in our exploration plans and related budgets; 34 ● the

quality of existing and future license areas with regard to, among other things, the existence of hydrocarbon reserves in economic

quantities; ● anticipated

trends in our business; ● our

future results of operations; ● our

capital expenditure program; ● future

market conditions in the oil and gas industry ● the

demand for oil and natural gas, both locally in Israel and globally; and ● the

impact of fluctuating oil and gas prices on our exploration efforts All

references in this Quarterly Report to the “Company”, “Zion”, “we”, “us”, or “our”,

are to Zion Oil and Gas, Inc., a Delaware corporation, and its wholly-owned subsidiaries, Zion Drilling, Inc. and Zion Drilling

Services, Inc. described below. Current

Exploration and Operation Efforts Zion

Oil and Gas, Inc., a Delaware corporation, is an oil and gas exploration company with a history of 23 years of oil and gas exploration

in Israel. We were incorporated in Florida on April 6, 2000 and reincorporated in Delaware on July 9, 2003. We completed our initial

public offering in January 2007. Our common stock, par value $0.01 per share (the “Common Stock”) currently trades on the

OTCQX marketplace of OTC Markets, Inc. under the symbol “ZNOG” and our Common Stock warrant under the symbol “ZNOGW.”

On January 24, 2020, the Company incorporated a wholly owned subsidiary, Zion Drilling, Inc., a Delaware corporation, for the purpose

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. Prior

to the filing of our last Quarterly Report, we received initial administrative approval from various departments within the Israel Ministry

of Energy which puts us in an excellent position to obtain final approval of our license. 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. We have finalized the technical and operational preparations for our

re-entry of the MJ-01 well. I-35

Drilling Rig & Associated Equipment Six-month period ended June 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 (317 ) - (63 ) (380 ) Asset Disposals for Self-Consumption - (11 ) - (11 ) June 30, 2023 4,908 608 374 5,890 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. 35 Map

1. Zion’s New Megiddo License 428 as of June 30, 2023. 36 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