Nov. 27–Zion Oil & Gas, a Dallas company powered by prayer and direct-to-public stock sales, is facing a growing existential threat.
The faith-based company announced just before Thanksgiving that its latest oil well in Israel wasn’t commercial viable. Company officials had previously said that Zion had only enough money to operate through the end of January.
“We believe that the drilling and testing of this well carried out the testing objectives we previously outlined and may support further evaluation and potential further exploration,” company officials said in a statement last week. “Those efforts will obviously take time and support and additional financial resources, which we will need to raise, but we are confident that it will be time and resources well spent to deliver on Zion’s mission.”
Zion was founded by evangelical Christian John M. Brown after he interpreted Bible passages as saying there were crude oil reserves in Israel. The 18-year-old company’s sole mission is to find oil in the Holy Land as a way to “bless” Israel and “share the gospel of Jesus Christ.” There is no significant oil production in Israel.
After news broke last week of Zion’s latest miss, the stock price plunged. But supporters — often buoyed by Christian faith — rallied on the company’s Facebook page.
“We will stand with Zion Oil because standing with them is an act of faith for us,” one supporter wrote.
Another said: “My purchase of stock in ZN is based on faith in the Word of God, and not ‘sight.’ “
While most commenters were positive, company critics — some of them short sellers — gloated. “So when does the next scam dry well start?” one person wrote.
Even with a base of true believers, it’s not certain whether Zion would be able to raise the millions of dollars it needs to drill more wells on its 99,000-acre lease in Israel. The company’s finances rely entirely on issuing new stock and then selling shares directly to the public.
That business model took a hit when the bad news about the Megiddo-Jezreel #1 well was announced. This latest dry hole caused Zion’s stock price to drop as low as 42 cents, down from a high in the spring of $5.80.
The company’s most recent stock sale, which included options to buy some shares later at $1 per share, raised about $5.3 million. The stock price then was a little more than $1 per share, but there was still confidence among many supporters that the latest well would be a gusher.
This is the latest in a string of serious blows to Zion. The Securities and Exchange Commission notified company officials in June that Zion was under investigation. And that led to four shareholder lawsuits against Zion, although one was dropped.
One lawsuit accused Zion officials of false or misleading statements about whether the company was under SEC investigation. Two others also made similar accusations and also said company executives are “improperly over-compensated.”
Company officials have said that they were unaware Zion was under investigation until they received an SEC subpoena. Andrew Summey, a Zion spokesman, previously said the company was cooperating with the investigation and described the lawsuits as “frivolous.”
Zion has spent at least $500,000 defending the company against the lawsuits, according to a November SEC filing.
It wasn’t immediately clear how the news about the company’s latest well would affect spending. Expenses could be lower, although the company is still required to plug the well.
Zion’s expenditures are about $600,000 per month when the company isn’t actively drilling a well, according to an SEC filing. When the company is drilling, testing or completing a well, that cost is about $1.6 million monthly.
The company lost $9.8 million last year and posted a loss of $6.7 million through the first three quarters of 2018.
Zion’s tumultuous summer and fall also included the August resignation of CEO Victor Carrillo, former Texas Railroad Commission chairman. He said it was unrelated to the company’s courtroom and regulatory troubles.
“I believe that God led me to Zion and that it was a part of my mission to help guide the company to drill this key, deep well,” Carrillo wrote in a letter to employees. “That goal having now been accomplished, it is time for me to move on to pursue other personal interests.”
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