ZION OIL & GAS INC

Previous wording

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Current wording

ITEM 2. MANAGEMENT**’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Previous wording

Zion Oil and Gas, Inc., a Delaware corporation, is an oil and gas exploration company with a history of 24 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 OTCQB marketplace of OTC Markets, Inc. under the symbol “ZNOG” and our Common Stock warrant under the symbol “ZNOGW.” On January 24, 2020, Zion 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, Zion incorporated another wholly owned subsidiary, Zion Drilling Services, Inc., a Delaware corporation, to act as the contractor providing such drilling services. When Zion 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.

Current wording

Zion Oil and Gas, Inc., a Delaware corporation, is an oil and gas exploration company with a history of 25 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 OTCQB marketplace of OTC Markets, Inc. under the symbol “ZNOG” and our Common Stock warrant under the symbol “ZNOGW.” On January 24, 2020, Zion 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, Zion incorporated another wholly owned subsidiary, Zion Drilling Services, Inc., a Delaware corporation, to act as the contractor providing such drilling services. When Zion 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.

Previous wording

After six years of inactivity in a well over three miles deep, the MJ-01 wellbore presents a challenging environment. The crew appears to have experienced elastic and partial collapse of the casing in some areas. This led to the bottom hole assembly (“BHA”) becoming stuck over 4,000 meters from surface. Attempts to overpull the BHA were unsuccessful, and the crew completed a backoff operation which left over 500 meters of the BHA remaining downhole. This is not an uncommon occurrence with oil and gas drilling operations, but we do need to recover the fish to resume operations. The crew was unsuccessful in retrieving the remaining BHA with the tools that were on location and will require specialized tools and techniques to recover the entire fish. The specialized tools we need are not in Israel, but have been sourced, but not approved for mobilization due to the active conflict in Israel.

Current wording

After six years of inactivity in a well over three miles deep, the MJ-01 wellbore presented a challenging environment. The wellbore appears to have experienced elastic and partial collapse of the casing in some areas. This led to the bottom hole assembly (“BHA”) becoming stuck over 4,000 meters from surface. Attempts to overpull the BHA were unsuccessful, and the crew completed a backoff operation which left over 500 meters of the BHA remaining downhole. This is not an uncommon occurrence with oil and gas drilling operations, and the crew was unsuccessful in retrieving the remaining BHA with the tools that were on location.

Previous wording

An even further delay has been created by many of our rig crew members reaching the limit of their work visas. This requires us to reset visas, which is not a simple process, and it adds another layer of delay and complexity. Moreover, the recent changes to visa eligibility have further complicated the process, as Israel, in just the last few months, has changed their 90-day visa renewals from resetting at the end of the year to resetting after six months after expiration. We are working with the Ministry of Interior on this issue. As a side note, the crew had to enter Israel under 90 day visas and not six month or 12 month visas in order to comply with the labor law requirements in place at the time the operation commenced.

Current wording

An even further delay was created by many of our rig crew members reaching the limit of their work visas. This requires us to reset visas, which is not a simple process, and it adds another layer of delay and complexity. Moreover, the recent changes to visa eligibility have further complicated the process, as Israel, in just the last few months, has changed their 90-day visa renewals from resetting at the end of the year to resetting after six months after expiration. We are working with the Ministry of Interior on this issue. As a side note, the crew had to enter Israel under 90-day visas and not six month or visas in order to comply with the labor law requirements in place at the time the operation commenced.

Previous wording

In light of the combination of downhole, logistical, and crew challenges, as well as holidays, and the one-year remembrance of October 7, we have temporarily paused active operations. This is a necessary step to ensure the safety of our personnel and to ensure proper engineering and tools are brought to location to avoid lengthy delays waiting for additional tools should any be required once the job resumes. We anticipate that once we have the necessary tools and renewed visas for our crews, we can resume operations in Q4 2024 or Q1 2025. This is, of course, subject to the realities of the present geopolitical environment. The conflict in Israel, while not directly impacting our operations on a daily basis, creates uncertainties that could affect our schedule at any time.

Current wording

In light of the combination of downhole, logistical, and crew challenges, as well as holidays, and the one-year remembrance of October 7, we temporarily paused active operations during Q4 2024. This was a necessary step to ensure the safety of our personnel and to ensure proper engineering and tools are brought to location to avoid lengthy delays waiting for additional tools should any be required once the job resumes. We anticipate that once we have the necessary tools and renewed visas for our crews, we can resume operations in Q1 2025. This is, of course, subject to the realities of the present geopolitical environment. The conflict in Israel, while not directly impacting our operations on a daily basis, creates uncertainties that could affect our schedule at any time.

Previous wording

Map 1. Zion’s New Megiddo License 428 as of September 30, 2024.

Current wording

Map 1. Zion’s New Megiddo License 434 as ofMarch 31, 2025**.**

Previous wording

Due to Russia’s invasion of Ukraine, which began in February 2022, and the resulting sanctions and other actions against Russia and Belarus, there has been uncertainty and disruption in the global economy. Although the Russian war against Ukraine did not have a material adverse impact on the Company’s financial results for the year ended December 31, 2023, at this time the Company is unable to fully assess the aggregate impact the Russian war against Ukraine will have on its business due to various uncertainties, which include, but are not limited to, the duration of the war, the war’s effect on the global economy, future energy pricing, its impact to the businesses of the Company and actions that may be taken by governmental authorities related to the war.

Current wording

Due to Russia’s invasion of Ukraine, which began in February 2022, and the resulting sanctions and other actions against Russia and Belarus, there has been uncertainty and disruption in the global economy. Although the Russian war against Ukraine did not have a material adverse impact on the Company’s financial results for the year ended December 31, 2024, and the quarter ended March 31, 2025, at this time the Company is unable to fully assess the aggregate impact the Russian war against Ukraine will have on its business due to various uncertainties, which include, but are not limited to, the duration of the war, the war’s effect on the global economy, future energy pricing, its impact to the businesses of the Company’s, and actions that may be taken by governmental authorities related to the war.

Previous wording

During the three months ended September 30, 2024, and 2023, respectively, the Company recorded $nil and $36,000 in post-impairment charges.

Current wording

During the three months ended March 31, 2025, and 2024, respectively, the Company recorded $nil and $nil in post-impairment charges.

Previous wording

The total net book value of our unproved oil and gas properties under the full cost method is $21,033,000 and $16,637,000 at September 30, 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 $22,449,000 and $21,682,000 at March 31, 2025 and at December 31, 2024, respectively.

Previous wording

*Operating costs and expenses.*Operating costs and expenses for the three and nine months ended September 30, 2024 were $1,775,000 and $5,632,000, respectively, compared to $1,747,000 and $6,213,000, respectively, for the three and nine months ended September 30, 2023. Operating costs and expenses for the three months ended September 30, 2024 were $28,000 (1.6%) higher compared to the three months ended September 30, 2023. Operating costs for the nine months ended September 30, 2024 were $581,000 (9.4%) lower compared to the nine months ended September 30, 2023.

Current wording

*Operating costs and expenses.*Operating costs and expenses for the three months ended March 31, 2025 were $1,700,000 compared to $1,774,000 for the three months ended March 31, 2024. Operating costs and expenses for the three months ended March 31, 2025 were $74,000 (4.2%) lower compared to the three months ended March 31, 2024.

Previous wording

*General and administrative expenses.*General and administrative expenses (“G&A expenses”) for the three and nine months ended September 30, 2024 were $1,143,000 and $3,519,000, respectively, compared to $1,332,000 and $4,106,000, respectively, for the three and nine months ended September 30, 2023. This expense grouping includes salaries, benefits, stock option expenses and professional fees. G&A expenses were lower by $189,000, or 14.2%, 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 were lower by $587,000, or 14.3%, during the first nine months of 2024 as compared to the nine months of 2023, primarily due to lower expenses associated with stock option grants.

Current wording

*General and administrative expenses.*General and administrative expenses (“G&A expenses”) for the three months ended March 31, 2025 were $1,101,000 compared to $1,175,000 for the three months ended March 31, 2024. This expense grouping includes salaries, benefits, stock option expenses and professional fees. G&A expenses were lower by $74,000, or 6.3%, during the most recent quarter versus the prior year primarily due to lower expenses associated with stock option grants.

Previous wording

*Other expense.*Other expenses during the three and nine months ended September 30, 2024 were $632,000 and $2,113,000, respectively, compared to $379,000 and $1,978,000, respectively, for the three and nine months ended September 30, 2023. Other general and administrative expenses are comprised of non-compensation and non-professional expenses incurred. Other expenses increased by $253,000, or about 66.8%, and by $135,000, or about 6.8%, for the three and nine months ended September 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 wording

*Other expense.*Other expenses during the three months ended March 31, 2025 were $599,000 compared to $599,000 for the three months ended March 31, 2024. Other general and administrative expenses are comprised of non-compensation and non-professional expenses incurred.

Previous wording

Other expense (income), net. Other expenses (income) during the three and nine months ended September 30, 2024 were $16,000 and ($15,000), respectively, compared to ($4,000) and $3,000, respectively, for the three and nine months ended September 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 wording

Other (income), net. Other (income) during the three months ended March 31, 2025 were ($25,000) compared to ($12,000) for the three months ended March 31, 2024. 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.

Previous wording

Net Loss. Net loss for the three and nine months ended September 30, 2024 were $1,791,000 and $5,617,000 compared to $1,743,000 and $6,216,000 for the three and nine months ended September 30, 2023.

Current wording

Net Loss. Net loss for the three months ended March 31, 2025 were $1,675,000 compared to $1,762,000 for the three months ended March 31, 2024.

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. As disclosed on our Balance Sheet, the company has 1,200,000,000 shares of authorized common stock and 880,562,128 shares issued as of September 30, 2024. We are considering increasing our authorized shares during the next proxy season in 2025.

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 1,027,404,758 shares issued as of March 31, 2025. We are planning to increase our authorized shares during the next proxy season in 2025.

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 nine months ended September 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.

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 three months ended March 31, 2025 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 September 30, 2024, we had approximately $779,000 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 $337,000 at September 30, 2024 and ($349,000) at December 31, 2023.

Current wording

At March 31, 2025, we had approximately $5,058,000 in cash and cash equivalents compared to $2,272,000 at December 31, 2024, which does not include any restricted funds. Our working capital (current assets minus current liabilities) was $5,392,000 at March 31, 2025 and $1,702,000 at December 31, 2024.

Previous wording

As of September 30, 2024, we provided bank guarantees to various governmental bodies (approximately $971,000) and others (approximately $91,000) in respect of our drilling operation in the aggregate amount of approximately $1,062,000. 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 March 31, 2025, we provided bank guarantees to various governmental bodies (approximately $971,000) and others (approximately $91,000) in respect of our drilling operation in the aggregate amount of approximately $1,062,000. 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 cash and cash equivalents - restricted.

Previous wording

During the nine months ended September 30, 2024, cash used in operating activities totaled $5,102,000. Cash provided by financing activities during the nine months ended September 30, 2024 was $9,703,000 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 $4,389,000 for the nine months ended September 30, 2024.

Current wording

During the three months ended March 31, 2025, cash used in operating activities totaled $2,457,000. Cash provided by financing activities during the three months ended March 31, 2025 was $6,041,000 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 $798,000 for the three months ended March 31, 2025.

Previous wording

During the nine months ended September 30, 2023, cash used in operating activities totaled $3,909,000. Cash provided by financing activities during the nine months ended September 30, 2023 was $4,370,000 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 $2,045,000 for the nine months ended September 30, 2023.

Current wording

During the three months ended March 31, 2024, cash used in operating activities totaled $2,003,000. Cash provided by financing activities during the three months ended March 31, 2024 was $2,838,000 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 $324,000 for the three months ended March 31, 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 $1,319,000 during the period October 1, 2024 through November 6, 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 December 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 $6,816,000 during the period April 1, 2025 through May 7, 2025, which includes collection of the $212,000 stock subscription receivable at March 31, 2025, 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 December 2025.

Previous wording

Similar uncertainties are posed by the Israel-Hamas war, as well as the Israel-Hezbollah war. The duration of both wars and its impact on the region and world is not fully known at this point in time. As stated previously in this report, our operations are paused, and our rig crew workers are safely out of Israel and at home.

Current wording

Similar uncertainties are posed by the Israel-Hamas war, as well as the Israel-Hezbollah war. The duration of both wars and its impact on the region and world is not fully known at this point in time.

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, the Israel-Hezbollah 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.

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 Israel-Hezbollah war, the potential actions of other hostile parties in the region, unexpected or unforeseen cost overruns in 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.