ZION OIL & GAS INC
For the period ended Jun 30, 2024. Filed Aug 6, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 6, 2024
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-08.
0001213900-24-040902
Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-06.
0001213900-24-065697
Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 75 previous paragraphs and 80 current paragraphs.
52 unchanged; 16 reworded; 10 added; 7 removed; 0 previous and 2 current paragraphs rearranged.
Tables are not compared: 23 previous and 25 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (10)
Current report
Field operations remain on schedule, and our rig is now positioned over the MJ-01 wellbore. Repairs and maintenance, as well as the inspection of the rig, have all been completed successfully. All necessary wireline equipment for the project has been mobilized with additional essential items from India, China, Romania and Greece currently in transit for the final stages of operation.
Current report
The initial phase of the MJ-01 recompletion project involves drilling out the plugs and nearly 625 meters (approximately 2,050 feet) of cement in the well. Following the drilling out of the cement plugs, we will next run a series of wireline tests and casing integrity tests to ensure that the wellbore has withstood the past six years of high temperatures.
Current report
The next phase of the MJ-01 recompletion project, provided all goes as expected from the initial phase, involves perforating, stimulating and well testing previously identified zones of interest.
Current report
For the three and six months ended June 30, 2024, approximately $5,896,000 and $9,453,000 were raised under the DSPP program, respectively. The $5,896,000 and $9,453,000 figures were reduced by $947,000 and $1,763,000, respectively, in equity issuance costs to an outside party resulting in net cash provided of $4,949,000 and $7,690,000, respectively.
Current report
For the three and six months ended June 30, 2024, approximately $985,000 and $985,000 were recorded under the Company’s Statement of Changes in Stockholders’ Equity as Subscriptions Receivables.
Current report
*General and administrative expenses.*General and administrative expenses (“G&A expenses”) for the three and six months ended June 30, 2024 were $1,201,000 and $2,376,000, respectively, compared to $1,271,000 and $2,774,000, respectively, for the three and six months ended June 30, 2023. This expense grouping includes salaries, benefits, stock option expenses and professional fees. G&A expenses decreased $70,000, or 5.5%, during the most recent quarter versus the prior year primarily due to lower salaries expenses and expenses associated with stock option grants. G&A expenses decreased $398,000, or 14.3%, during the first six months of 2024 as compared to the six months of 2023, primarily due to lower expenses associated with stock option grants.
Current report
*Other expense.*Other expenses during the three and six months ended June 30, 2024 were $882,000 and $1,481,000, respectively, compared to $1,016,000 and $1,599,000, respectively, for the three and six months ended June 30, 2023. Other general and administrative expenses are comprised of non-compensation and non-professional expenses incurred. Other expenses decreased by $134,000, or about 13.2%, and by $118,000, or about 7.4%, for the three and six months ended June 30, 2024, respectively. Zion incurred lower annual meeting and insurance premium expenses, but this was partially offset by higher marketing and investor relations expenses.
Current report
Other expense (income), net. Other expenses (income) during the three and six months ended June 30, 2024 were ($19,000) and ($31,000), respectively, compared to ($1,000) and $7,000, respectively, for the three and six months ended June 30, 2023. The expenses in this category are comprised of foreign currency exchange costs, primarily the New Israeli Shekel (NIS) to the US dollar, and the financial expenses/income.
Current report
Net Loss. Net loss for the three and six months ended June 30, 2024 were $2,064,000 and $3,826,000 compared to $2,334,000 and $4,473,000 for the three and six months ended June 30, 2023.
Current report
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. 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.
Removed paragraphs (7)
Previous report
We have begun working on visa applications for our rig crew in preparation for their entry into Israel. Upon the completion of the work visa process, the crew will travel to Israel and begin inspecting the rig to make sure it conforms to industry requirements for workover operations. Afterwards, the crew will rig down, slide the drilling rig over several meters and rig up on the MJ-01 well location. The crew will then open the well and continue to follow the approved work plan in conjunction with the selected service providers. This should occur toward the end of Q2 or early Q3 depending on subsurface conditions encountered during the reopening phase and contractor scheduling availability.
Previous report
We have made strategic adjustments to control both cost and time. Despite the typical delays during Passover, which this year began on the evening of April 22nd and ended on the evening of April 30th, we have satisfied all regulatory requirements necessary to commence operations, including, as previously mentioned, approval by the Supervisory Committee. We are ready and moving forward.
Previous report
*General and administrative expenses.*General and administrative expenses for the three months ended March 31, 2024 were $1,175,000, compared to $1,503,000 for the three months ended March 31, 2023. This is a variance of $328,000 or 28%. The decrease in General and administrative expenses during the three months ended March 31, 2024 is primarily attributable to lower non-cash expenses recorded in connection with stock option grants.
Previous report
*Other expense.*Other expense during the three months ended March 31, 2024 was $599,000 compared to $583,000 for the three months ended March 31, 2023. This is a variance of $16,000 or 3%. Other general and administrative expenses are comprised of non-compensation and non-professional expenses incurred. The increase in other expenses is an immaterial difference compared to 2023.
Previous report
*Other (income) expense, net.*Other (income) expense, net for the three months ended March 31, 2024 was ($12,000), compared to $8,000 for the three months ended March 31, 2023. This is a variance of $20,000 or 167%. The decrease in these expenses in 2024 is primarily attributable to exchange rate of the NIS fluctuations to the USD.
Previous report
*Net Loss.*Net loss for the three months ended March 31, 2024 was $1,762,000 compared to $2,139,000 for the three months ended March 31, 2023. This is a variance of $377,000 or 21%. The primary driver of the lower net loss in 2024 compared to 2023 is the lower non-cash expenses recorded in connection with stock option grants in 2024.
Previous report
The outbreak of the coronavirus has to date significantly disrupted business operations and resulted in significantly increased unemployment in the general economy. The extent to which the coronavirus impacts our operations, specifically our capital raising efforts, as well as our ability to continue our exploratory efforts, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.
Reworded paragraphs (16)
Previous wording
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED 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, 2023, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
Current wording
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, 2023, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
Previous wording
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. As previously announced, Zion is deploying new technologies and stimulation methods for its planned re-entry into the MJ-01 well with the objective of potentially unlocking hydrocarbon flows in several identified key zones. Zion has begun tendering service contractors and ancillary items required for efficient operations.
Current wording
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. As previously announced, Zion is deploying new technologies and stimulation methods for its current re-entry into the MJ-01 well with the objective of potentially unlocking hydrocarbon flows in several identified key zones.
Previous wording
Map 1. Zion’s New Megiddo Valleys 434 License as of March 31, 2024.
Current wording
Map 1. Zion’s New Megiddo License 428 as of June 30, 2024.
Previous wording
For the three months ended March 31, 2024, and 2023, approximately $3,557,000, and $792,000 were raised under the DSPP program, respectively. The $3,557,000 figure was reduced by $816,000 in equity issuance costs to an outside party resulting in net cash provided of $2,741,000.
Current wording
For the three and six months ended June 30, 2023, approximately $1,761,000, and $2,553,000 were raised under the DSPP program, respectively. The $2,553,000 figure is net of $173,000 in equity issuance costs to an outside party.
Previous wording
There is uncertainty as to how long the war inside the Gaza strip will last and whether the war will expand to other hostile parties in the region. While we acknowledge that uncertainty and its potential adverse effects on Zion’s business, the Company is moving forward with its planning and logistics activities. We are working with our international service providers on projected availability timelines and other details. All of these key vendors have expressed willingness to assist Zion in its exploration activities. It is important to note that Zion’s license area is not located near any current combat zones.
Current wording
There is uncertainty as to how long the war inside the Gaza strip will last and whether the war will expand to other hostile parties in the region. While we acknowledge that uncertainty and its potential adverse effects on Zion’s business, the Company is moving forward with its re-completion activities at the MJ-01 wellsite. It is important to note that Zion’s license area is not located near any current combat zones.
Previous wording
During the three months ended March 31, 2024, and 2023, respectively, the Company recorded nil and $45,000 post-impairment charges.
Current wording
During the three months ended June 30, 2024, and 2023, respectively, the Company recorded $nil and $48,000 in post-impairment charges.
Previous wording
The total net book value of our unproved oil and gas properties under the full cost method is $16,943,000 and $16,637,000 at March 31, 2024 and at December 31, 2023, respectively.
Current wording
The total net book value of our unproved oil and gas properties under the full cost method is $17,815,000 and $16,637,000 at June 30, 2024 and at December 31, 2023, respectively.
Previous wording
*Operating costs and expenses.*Operating costs and expenses for the three months ended March 31, 2024 were $1,774,000 compared to $2,131,000 for the three months ended March 31, 2023.
Current wording
*Operating costs and expenses.*Operating costs and expenses for the three and six months ended June 30, 2024 were $2,083,000 and $3,857,000, respectively, compared to $2,335,000 and $4,466,000, respectively, for the three and six months ended June 30, 2023. Operating costs and expenses for the three months ended June 30, 2024 were $252,000 (10.8%) lower compared to the three months ended June 30, 2023. Operating costs for the six months ended June 30, 2024 were $609,000 (13.6%) lower compared to the six months ended June 30, 2023.
Previous wording
*Impairment of unproved oil and gas properties.*Impairment of unproved oil and gas properties expenses during the three months ended March 31, 2024 was nil compared to $45,000 for the three months ended March 31, 2023. The expenses recorded in 2023 are post impairment charges to the impairment recorded during 2022 related to the MJ-2 well.
Current wording
*Impairment of unproved oil and gas properties.*Impairment of unproved oil and gas properties expenses during the three and six months ended June 30, 2024 were $nil and $nil compared to $48,000 and $93,000 for the three and six months ended June 30, 2024. The expenses recorded in 2023 are post impairment charges to the impairment recorded during 2023 related to the MJ-2 well.
Previous wording
Liquidity is a measure of a company’s ability to meet potential cash requirements. As discussed above, we have historically met our capital requirements through the issuance of common stock as well as proceeds from the exercise of warrants and options to purchase common shares.
Current wording
Liquidity is a measure of a company’s ability to meet potential cash requirements. As discussed above, we have historically met our capital requirements through the issuance of common stock as well as proceeds from the exercise of warrants and options to purchase common shares. As disclosed on our Balance Sheet, the company has 1,200,000,000 shares of authorized common stock and 818,873,764 shares issued as of June 30, 2024. We are considering increasing our authorized shares during the next proxy season in 2025. However, we are presently engaged on our MJ-01 re-entry project and, pending the discovery of hydrocarbons later this year, may decide to forego increasing authorized shares if our ZNOG share price increases sufficiently so as to reduce the monthly issuance of common shares. In the event of a hydrocarbon discovery, the company would consider raising capital outside of our DSPP program.
Previous wording
Our ability to continue as a going concern is dependent upon obtaining the necessary financing to complete further exploration and development activities and generate profitable operations from our oil and natural gas interests in the future. Our current operations are dependent upon the adequacy of our current assets to meet our current expenditure requirements and the accuracy of management’s estimates of those requirements. Should those estimates be materially incorrect, our ability to continue as a going concern will be impaired. Our financial statements for the three months ended March 31, 2024 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have incurred a history of operating losses and negative cash flows from 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.
Current wording
Our ability to continue as a going concern is dependent upon obtaining the necessary financing to complete further exploration and development activities and generate profitable operations from our oil and natural gas interests in the future. Our current operations are dependent upon the adequacy of our current assets to meet our current expenditure requirements and the accuracy of management’s estimates of those requirements. Should those estimates be materially incorrect, our ability to continue as a going concern will be impaired. Our financial statements for the six months ended June 30, 2024 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have incurred a history of operating losses and negative cash flows from 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.
Previous wording
At March 31, 2024, we had approximately $1,115,000 in cash and cash equivalents compared to $615,000 at December 31, 2023, which does not include any restricted funds. Our working capital (current assets minus current liabilities) was $559,000 at March 31, 2024 and ($349,000) at December 31, 2023.
Current wording
At June 30, 2024, we had approximately $2,461,000 in cash and cash equivalents compared to $615,000 at December 31, 2023, which does not include any restricted funds. Our working capital (current assets minus current liabilities) was $2,000,000 at June 30, 2024 and ($349,000) at December 31, 2023.
Previous wording
As of March 31, 2024, we provided bank guarantees to various governmental bodies (approximately $944,000) and others (approximately $87,000) in respect of our drilling operation in the aggregate amount of approximately $1,031,000. 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.
Current wording
As of June 30, 2024, we provided bank guarantees to various governmental bodies (approximately $970,000) and others (approximately $89,000) in respect of our drilling operation in the aggregate amount of approximately $1,059,000. 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.
Previous wording
During the three months ended March 31, 2024, and 2023, cash used in operating activities totaled $2,003,000, and $917,000, respectively. Cash provided by financing activities during the three months ended March 31, 2024, and 2023, was $2,838,000, and $800,000, respectively, and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan (the “DSPP” or “Plan”). Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was $324,000 and $838,000 for the three months ended March 31, 2024, and 2023, respectively.
Current wording
During the six months ended June 30, 2024, cash used in operating activities totaled $3,775,000. Cash provided by financing activities during the six months ended June 30, 2024 was $6,547,000 and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan (the “DSPP” or the “Plan”). Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was $882,000 for the six months ended June 30, 2024.
Previous wording
Accounting standards require management to evaluate our ability to continue as a going concern for a period of one year subsequent to the date of the filing of this Form 10-Q. We expect to incur additional significant expenditures to further our exploration and development programs. While we raised approximately $1,959,000 during the period April 1, 2024 through May 7, 2024, we will need to raise additional funds in order to continue our exploration and development activities in our license area. Additionally, we estimate that, when we are not actively drilling a well, our expenditures are approximately $600,000 per month excluding exploratory operational activities. However, when we are actively drilling a well, we estimate an additional minimum expenditure of approximately $2,500,000 per month. The above estimates are subject to change. Subject to the qualifications specified below, management believes that our existing cash balance, coupled with anticipated proceeds under the DSPP, will be sufficient to finance our plan of operations through July 2024.
Current wording
Accounting standards require management to evaluate our ability to continue as a going concern for a period of one year subsequent to the date of the filing of this Form 10-Q. We expect to incur additional significant expenditures to further our exploration and development programs. While we raised approximately $1,797,000 during the period July 1, 2024 through August 6, 2024, we will need to raise additional funds in order to continue our exploration and development activities in our license area. Of this amount, approximately $1,122,000 represents cash received for receivables on our books at June 30, 2024. The difference of $675,000 represents new investments during July and August 2024. Additionally, we estimate that, when we are not actively drilling a well, our expenditures are approximately $600,000 per month excluding exploratory operational activities. However, when we are actively drilling a well, we estimate an additional minimum expenditure of approximately $2,500,000 per month. The above estimates are subject to change. Subject to the qualifications specified below, management believes that our existing cash balance, coupled with anticipated proceeds under the DSPP, will be sufficient to finance our plan of operations through October 2024.
Previous wording
Even if we raise the needed funds, there are factors that can nevertheless adversely impact our ability to fund our operating needs, including (without limitation), the potential impact of the Israel-Hamas war, unexpected or unforeseen cost overruns in planned non-drilling exploratory work in existing license areas, the costs associated with extended delays in undertaking the required exploratory work, and plugging and abandonment activities which is typical of what we have experienced in the past.
Current wording
Even if we raise the needed funds, there are factors that can nevertheless adversely impact our ability to fund our operating needs, including (without limitation), the potential impact of the Israel-Hamas war, the potential actions of other hostile parties in the region, unexpected or unforeseen cost overruns in planned non-drilling exploratory work in existing license areas, the costs associated with extended delays in undertaking the required exploratory work, and plugging and abandonment activities which is typical of what we have experienced in the past.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
During the six months ended June 30, 2024, and 2023, respectively, the Company recorded $nil and $93,000 post-impairment charges.
Current report — wording carried from elsewhere
During the six months ended June 30, 2023, cash used in operating activities totaled $2,392,000. Cash provided by financing activities during the six months ended June 30, 2023 was $2,565,000 and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan (the “DSPP” or the “Plan”). Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was $1,729,000 for the six months ended June 30, 2023.