ZION OIL & GAS INC

Previous wording

All references in this Quarterly Report to the “Company”, “Zion”, “we”, “us”, or “our”, are to Zion Oil and Gas, Inc., a Texas corporation, and its wholly-owned subsidiaries, Zion Drilling, Inc. and Zion Drilling Services, Inc. described below.

Current wording

All references in this Quarterly Report to the “Company”, “Zion”, “we”, “us”, or “our”, are to Zion Oil and Gas, Inc., a Texas corporation, and its wholly-owned subsidiaries, Zion Drilling, Inc., Zion Drilling Services, Inc., and Zion Drilling Israel Ltd., are described below.

Previous wording

Zion Oil and Gas, Inc., a Texas 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. The shareholders of Zion Oil & Gas, Inc. approved the re-domestication of its incorporation to Texas on June 4, 2025. 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, Zion incorporated a wholly owned subsidiary, Zion Drilling, Inc., as 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. On May 14, 2025, Zion Drilling, Inc. and Zion Drilling Services, Inc. were re-domesticated and converted from Delaware corporations to Texas corporations pursuant to plans of conversion approved unanimously by the directors and shareholders of each corporation. On October 19, 2022, Zion incorporated a wholly owned subsidiary in Israel, Zion Drilling Israel Ltd, for the purpose of owning a drilling rig and related equipment and spare parts. On this date, the entity was created as a placeholder only. A bank account was created in November 2024 and a tax file was created in January 2025. Zion Drilling Israel Ltd did not have any activities during the six months ended June 30, 2026.

Current wording

Zion Oil and Gas, Inc., a Texas corporation, is an oil and gas exploration company with a history of 26 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. The shareholders of Zion Oil & Gas, Inc. approved the re-domestication of its incorporation to Texas on June 4, 2025. 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, Zion incorporated a wholly owned subsidiary, Zion Drilling, Inc., as 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. On May 14, 2025, Zion Drilling, Inc. and Zion Drilling Services, Inc. were re-domesticated and converted from Delaware corporations to Texas corporations pursuant to plans of conversion approved unanimously by the directors and shareholders of each corporation. On October 19, 2022, Zion incorporated a wholly owned subsidiary in Israel, Zion Drilling Israel Ltd, for the purpose of owning a drilling rig and related equipment and spare parts. On this date, the entity was created as a placeholder only. A bank account was created in November 2024 and a tax file was created in January 2025. Zion Drilling Israel Ltd did not have any activities during the nine months ended September 30, 2026.

Previous wording

On September 14, 2023, the Israel Ministry of Energy approved a new Megiddo Valleys License 434 (“NMVL 434” or “Exploration License 434”), allowing for oil and gas exploration on approximately 75,000 acres or 302 square kilometers. This Exploration License 434 is valid for three years until September 13, 2026 with four potential 1-year extensions for a total of seven years until September 13, 2030. This NMVL 434 effectively supersedes our previous NML 428. On May, 18, 2026, the Israel Ministry of Energy extended NMVL 434 until September 13, 2027.

Current wording

On September 14, 2023, the Israel Ministry of Energy approved a new Megiddo Valleys License 434 (“NMVL 434” or “Exploration License 434”), allowing for oil and gas exploration on approximately 75,000 acres or 302 square kilometers. This Exploration License 434 is valid for three years until September 13, 2026 with four potential 1-year extensions for a total of seven years until September 13, 2030. On May 18, 2026, the Israel Ministry of Energy extended NMVL 434 until September 13, 2027. This NMVL 434 effectively supersedes our previous NML 428.

Previous wording

As of June 10, 2026, field operations commenced for the planned sidetrack phase of the Megiddo-Jezreel #2 well in Israel. As expected, Zion re-entered the well, drilled out the temporary plug, conditioned the wellbore downhole, and has proceeded with the planned horizontal sidetrack drilling. Drilling activities are ongoing as of the date of this report. Additionally, our drilling rig has been recertified and recommissioned in accordance with regulatory requirements, and in a fitting tribute, the rig has officially been renamed JB-1 in honor of Zion’s late founder, John Brown.

Current wording

As of June 10, 2026, field operations commenced for the planned sidetrack phase of the Megiddo-Jezreel #2 well in Israel. As expected, Zion re-entered the well, drilled out the temporary plug, conditioned the wellbore downhole, and proceeded with the planned horizontal sidetrack drilling. Additionally, our drilling rig has been recertified and recommissioned in accordance with regulatory requirements, and in a fitting tribute, the rig has officially been renamed JB-1 in honor of Zion’s late founder, John Brown.

Previous wording

It is also noteworthy that various components and systems on the rig will be subject to certifications by the manufacturer to ensure that the rig is maintained at optimal levels. Per standard practice in upstream oil and gas, each certification performed on our drilling rig increases the useful life of the rig by five years. The costs of each certification will be added to the drilling rig account, and our straight-line amortization will be adjusted accordingly.

Current wording

It is also noteworthy that various components and systems on the rig will be subject to certifications by the manufacturer to ensure that the rig is maintained at optimal levels. Per standard practice in upstream oil and gas, each certification performed on our drilling rig increases the useful life of the rig by five years. The costs of each certification will be added to the drilling rig account, and our straight-line amortization will be adjusted accordingly. As noted above, we have recently completed that recertification and recommissioning of our rig in accordance with regulatory requirements.

Previous wording

During the six months ended June 30, 2026, Zion added approximately $1,302,000 in costs associated with its drilling rig, approximately $372,000 in rig spare parts and approximately $556,000 in other drilling assets, for total combined additions of $2,230,000. We also recorded approximately $240,000 in self-consumption of rig spare parts.

Current wording

During the nine months ended September 30, 2026, Zion added approximately $1,591,000 in costs associated with its drilling rig, approximately $477,000 in rig spare parts and approximately $556,000 in other drilling assets, for total combined additions of $2,624,000. We also recorded approximately $607,000 in self-consumption of rig spare parts.

Previous wording

For the six months ended June 30, 2026, approximately $208,000 were recorded under the Company’s Statement of Changes in Stockholders’ Equity as Subscriptions Receivables. These funds were later received in July 2026

Current wording

For the nine months ended September 30, 2026, approximately $59,000 were recorded under the Company’s Statement of Changes in Stockholders’ Equity as Subscriptions Receivables. These funds were later received in October 2026

Previous wording

For the six months ended June 30, 2025, approximately $179,000 were recorded under the Company’s Statement of Changes in Stockholders’ Equity as Subscriptions Receivables. These funds were later received in July 2025.

Current wording

For the nine months ended September 30, 2025, approximately $359,000 were recorded under the Company’s Statement of Changes in Stockholders’ Equity as Subscriptions Receivables. These funds were later received in October 2025.

Previous wording

For the three and six months ended June 30, 2026, approximately $3,385,000 and $11,394,000, respectively, were raised under the DSPP program.

Current wording

For the three and nine months ended September 30, 2026, approximately $5,864,000 and $17,258,000, respectively, were raised under the DSPP program.

Previous wording

For the three and six months ended June 30, 2025, approximately $7,740,000 and $13,780,000, respectively, were raised under the DSPP program.

Current wording

For the three and nine months ended September 30, 2025, approximately $4,791,000 and $18,571,000, respectively, were raised under the DSPP program.

Previous wording

In early March 2026, Hezbollah joined the war against Israel by launching daily attacks, primarily missiles, into northern Israel. Israel responded by launching its own missiles into Beirut and southern Lebanon and moving ground forces into southern Lebanon. These active border hostilities peaked in intensity in late March and early April 2026, resulting in significant defensive maneuvers to establish a security buffer zone in southern Lebanon. A 10-day cessation of hostilities was instituted on April 16, 2026, which underwent consecutive diplomatic extensions through May. Sporadic field skirmishes persisted and a regional truce framework was negotiated on June 19, 2026. Israel stated that they will abide by the truce on a strict "quiet for quiet" basis.

Current wording

In early March 2026, Hezbollah again began launching daily attacks, primarily missiles, into northern Israel. Israel responded by launching its own missiles into Beirut and southern Lebanon and moving ground forces into southern Lebanon. These active border hostilities peaked in intensity in late March and early April 2026, resulting in significant defensive maneuvers to establish a security buffer zone in southern Lebanon. A 10-day cessation of hostilities was instituted on April 16, 2026, which underwent consecutive diplomatic extensions through May. Sporadic field skirmishes persisted and a regional truce framework was negotiated on June 19, 2026. Israel stated that they will abide by the truce on a strict "quiet for quiet" basis.

Previous wording

All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is included in income from continuing operations before income taxes, and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.

Current wording

All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is included in loss from operations before income taxes.

Previous wording

The total net book value of our unproved oil and gas properties under the full cost method is $33,199,000 and $27,673,000 at June 30, 2026 and at December 31, 2025, respectively.

Current wording

The total net book value of our unproved oil and gas properties under the full cost method is $38,383,000 and $27,673,000 at September 30, 2026 and at December 31, 2025, respectively.

Previous wording

We follow ASC 820, “Fair Value Measurements and Disclosures,” as amended by Financial Accounting Standards Board (FASB) Financial Staff Position (FSP) No. 157 and related guidance. Those provisions relate to the Company’s financial assets and liabilities carried at fair value and the fair value disclosures related to financial assets and liabilities. ASC 820 defines fair value, expands related disclosure requirements, and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, assuming the transaction occurs in the principal or most advantageous market for that asset or liability.

Current wording

We follow ASC 820, “Fair Value Measurements and Disclosures.” Those provisions relate to the Company’s financial assets and liabilities carried at fair value and the fair value disclosures related to financial assets and liabilities. ASC 820 defines fair value, expands related disclosure requirements, and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, assuming the transaction occurs in the principal or most advantageous market for that asset or liability.

Previous wording

Other expenses (income), net. Other expenses (income) during the three and six months ended June 30, 2026 were ($10,000) and ($49,000), respectively, compared to ($85,000) and ($110,000), respectively, for the three and six months ended June 30, 2025. The income in this category is comprised of foreign currency exchange costs, primarily the New Israeli Shekel (NIS) to the US dollar, and the financial expenses/income. Zion earned higher interest income during the three and six months ended June 30, 2026, due to higher average cash balances.

Current wording

Other expenses (income), net. Other expenses (income) during the three and nine months ended September 30, 2026 were ($34,000) and ($83,000), respectively, compared to $26,000 and ($84,000), respectively, for the three and nine months ended September 30, 2025. The income in this category is 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 losses for the three and six months ended June 30, 2026 were $2,050,000 and $4,133,000, respectively, compared to $1,911,000 and $3,586,000, respectively, for the three and six months ended June 30, 2025.

Current wording

Net Loss. Net losses for the three and nine months ended September 30, 2026 were $1,784,000 and $5,917,000, respectively, compared to $1,719,000 and $5,305,000, respectively, for the three and nine months ended September 30, 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 in doubt. Our financial statements for the six months ended June 30, 2026 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.

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 in doubt. Our financial statements for the nine months ended September 30, 2026 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.

Previous wording

At June 30, 2026, we had approximately $9,608,000 in cash and cash equivalents compared to $8,313,000 at December 31, 2025, which does not include any restricted funds. Our working capital (current assets minus current liabilities) was $9,729,000 at June 30, 2026 and $9,271,000 at December 31, 2025.

Current wording

At September 30, 2026, we had approximately $6,998,000 in cash and cash equivalents compared to $8,313,000 at December 31, 2025, which does not include any restricted funds. Our working capital (current assets minus current liabilities) was $8,804,000 at September 30, 2026 and $9,271,000 at December 31, 2025.

Previous wording

As of June 30, 2026, and December 31, 2025, the Company provided Israeli-required bank guarantees to various governmental bodies (approximately $1,461,000 and $1,424,000, respectively) and others (approximately $118,000 and $109,000, respectively) with respect to its drilling operation in an aggregate amount of approximately $1,579,000 and $1,533,000, respectively. 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.

Current wording

As of September 30, 2026 and December 31, 2025, the Company provided Israeli-required bank guarantees to various governmental bodies (approximately $1,447,000 and $1,424,000, respectively) and others (approximately $115,000 and $109,000, respectively) with respect to its drilling operation in an aggregate amount of approximately $1,562,000 and $1,533,000, respectively. 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 six months ended June 30, 2026, cash used in operating activities totaled $3,673,000. Cash provided by financing activities during the six months ended June 30, 2026 was $11,463,000 and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan. Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was $6,440,000 for the six months ended June 30, 2026.

Current wording

During the nine months ended September 30, 2026, cash used in operating activities totaled $5,569,000. Cash provided by financing activities during the nine months ended September 30, 2026 was $17,244,000 and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan. Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was $12,936,000 for the nine months ended September 30, 2026.

Previous wording

During the six months ended June 30, 2025, cash used in operating activities totaled $3,141,000. Cash provided by financing activities during the six months ended June 30, 2025 was $13,467,000 and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan. Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was $3,977,000 for the six months ended June 30, 2025.

Current wording

During the nine months ended September 30, 2025, cash used in operating activities totaled $4,613,000. Cash provided by financing activities during the nine months ended September 30, 2025 was $18,126,000 and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan. Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was $5,392,000 for the nine months ended September 30, 2025.

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 $1,115,000 during the period July 1, 2026 through August 6, 2026, which includes collection of the $237,000 stock subscription receivable at June 30, 2026, 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 2026.

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 $1,080,000 during the period October 1, 2026 through November 5, 2026, which includes collection of the $59,000 stock subscription receivable at September 30, 2026, 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 January 2027.