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Zion Oil & Gas, Inc. (NASDAQ:ZN) Is A Fantastic Story

Zion Oil & Gas, Inc. (NASDAQ:ZN) Is A Fantastic Story
Written by
Jim Bloom
Published on
September 18, 2017
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Recent reports by the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) painted a rosy outlook for the energy sector in terms of demand outlook for oil and gas.Zion Oil & Gas, Inc. (NASDAQ:ZN), an oil and gas company undertaking exploration and drilling activities in Israel, appears to have particularly intriguing potential in light of the industry reports we’ve seen.In this review, we expose the fantastic story that is building up in ZN. But before we get into the details, take a look at the stock’s price action. ZN Daily ChartFor readers not familiar with ZN, here’s a little background about the company. ZN explores for oil and gas in Israel. The company’s operations are focused on the onshore Megiddo-Jezreel License (MJL), which comprises about 99,000 acres south and west of the Sea of Galilee.Recent developmentsOn August 9, ZN issued a press release titled “Zion Oil & Gas Continues Drilling in Israel”. The release provided an update on the drilling operations at its Megiddo-Jezreel #1 well (MJ#1). ZN said that drilling at the well was progressing nicely and that it had reached a depth of about 5,850 feet, or approximately 1,785 meters. The company aimed to drill the well up to a depth of about 15,000 feet.A few weeks later, ZN issued another press release titled “Zion Oil & Gas Management Travel to Israel for Upcoming Well Operations” on August 22. This new release talked about obtaining wireline logs and casing the next well interval at a depth of about 2,000 meters (or approximately 6,560 feet).Zion President, Dustin Guinn, explained that they had decided to case the interval at a shallower depth than had been anticipated in order to safety and well integrity because formation characteristics.The formation characteristics that led to the earlier than usual interval casing at MJ#1 well is actually something to be excited about. This is what ZN’s Senior Geoscience Advisor, Dr. Lee Russell, said about it:

"Recent drilling over the last few hundred meters suggests the possible existence of a highly fractured carbonate section in the Jurassic, which presents optimism for potential reservoir characteristics. Carbonate reservoirs are prominent in the Middle East, with around 70% of oil and 90% of gas reserves held within these reservoirs.”

Source:ZN’s Megiddo-Jezreel License area sits entirely within Israel’s Levant Basin. Consulting firm Beicip-Franlab carried out a study of Levant Basin and published a very revealing report in 2015. In that report, Beicip-Franlab said that 6.6 billion barrels of oil could be found in the Levant Basin.With the forgoing, ZN is saying that its drilling activities in Israel have the potential for yielding massive amounts of oil and gas that could dramatically transform its financial fortunes. ZN doesn’t generate revenue yet. But its balance sheet showed $5.9 million at the end of 2Q17, against long-term debt of less than $2.0 million.Coordinated efforts to stabilize oil prices With ZN’s massive production potential exposed, the next question is whether the company can actually profit from its drilling activities. For investors in oil and gas sector, a concern has always centered on price deterioration because of oversupply. But this risk is no longer as dreadful as it may have been in the past years.Since at least 2014, oil and gas companies have learned their lesson about the futility of output arms race, if you may. This is why we are seeing coordinated efforts by oil and gas producers to avoid flooding the market with the commodities to levels that could destroy prices as it happened in the period between 2014 and 2016.What this means is that ZN is gearing to enter the market when there is a little more price stability – and seemingly pent up demand for oil and gas.In its report released on September 13, the International Energy Agency (IEA) said global oil demand will post its strongest growth this year since 2015. It cited stronger-than-expected demand for oil in Europe and the US as the reason for the bullish forecast. IEA further said that global oil supplies fell in August, marking the first such decline in four months and adding to the bullish out for oil and gas companies.The IEA report followed shortly after the OPEC also released a positive industry report. According to OPEC, oil production by its members fell by 79,000 barrels a day in August – for the first time since March.Declining oil and gas output and falling or slowing inventory buildup lead to higher prices that in turn impact the stocks of drillers positively.ConclusionGiven the bright projections for the oil and gas industry and the cash it has to continue its well development, ZN could enter a long bullish run. This makes it a fantastic energy story for savvy investors looking to pick up profits along the way.We will be updating our subscribers as soon as we know more. For the latest updates on ZN, sign up below!Disclosure: We have no position in ZN and have not been compensated for this article.

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