Zion Oil & Gas (ZN) unleashed a gusher … not in a good way … when the company announced “very exciting news” of spotting “free-flowing hydrocarbons.”
The stock blasted upward by 86% in hours. The stock reeled in a bit until a new pump occurred yesterday.
Now this oil exploration company that’s never made a dime in two decades carries a stock market valuation of an unconscionable ~$250 million.
But it’s not pure oil at play here. It’s pure promotion … and prayer.
The company has not responded to our request for comment but Zion’s viewpoint is here. Meanwhile, consider why we believe this stock price is unsustainable and poised for a sudden drop to reality.
*1. Pure Promotion: Recoverable Oil Has Not Been Struck
The first big stock rally began last week after Zion issued a promotional announcement.
The company announced it “encountered free-flowing hydrocarbons” in some drilling mud. Spotting a trickle of oil in mud does not translate to discovering recoverable oil in Zion’s one and only oil prospect.
Really, that promotion was rather insulting. Unfortunately, enough people bought into it and fueled the stock price jump.
Company SEC filings are required to truthfully lay out the situation: there are “no economically recoverable reserves.”
Yet the promotions continue …
*2. More Misinterpreted News
The luster of that promotion dulled somewhat, but Zion got a boost yesterday, February 20, when something new popped up.
Zion was mentioned in a Dallas Morning News story focused on a real Texas oil company called Noble Energy. Zion’s website links to the story and it went viral.
But in reality, the story suggests Zion has pointed to some odd reasons for hope: Noble, the “free-flowing hydrocarbons” promotion and Bible scriptures.
The story is not exactly a ringing endorsement of Zion. Anything but.
Now, let’s drill down into Zion’s use of religion …
*3. Using God’s Name To Draw Investors
We believe in God and prayer, too. But we also believe it’s not right to use scripture and religion to draw in unwary investors.
That’s exactly what Zion does.
The company uses scripture in virtually every press release and all over the website. The last press release ended with the following:
This practice leads to inexperienced investors basing their investment decisions on emotion and faith. This is rather misleading because people don’t look beyond the window dressing to see that, since inception, Zion has delivered nothing but prayer and promotions.
Here are some comments on Zion’s website:
*4. Historically Promotional, Riding Others’ Coattails … “For Sure It Will Happen”
For the past five years or so, Zion has used the holy word and other companies’ successes as a good reason for people to invest in the company.
Below is a snapshot from a June 2013 release posted on Zion’s website. The piece is headlined, “Good News From Zion: Prophecy being fulfilled right before our very eyes.”
Note that the oil discovery has nothing whatsoever to do with Zion.
But that doesn’t matter.
Zion urges people to believe that the other company has been blessed with oil and probably Zion will be, too.
Zion further pushes the boundaries by stating: “But for sure it will happen someday!”
“Dear friends of Zion,
As you can plainly see by THIS ARTICLE, that Givot Olam is now fulfilling Bible Prophecy (Deuteronomy 33: 13-16) right before our very eyes. So far, the Meged 5 has produced 300,000 barrels of oil and now they are planning on drilling another well named the Meged 6.
These actual physical signs in Israel should be reasons enough that Bible prophecy teachers should be focusing on what the scriptures are saying today to the Body of Christ and we should pray that God will open their eyes (Deuteronomy 29: 1-4)!
God said that Ephraim would be blessed before Manasseh (Genesis 48: 11-20). Now whether that means that God will bless Zion Oil next by us discovering oil/gas in our Elijah # 3 re-entry I can’t say or maybe it will be a new well that is to be drilled in a new license on our (not yet approved) Jezreel/Megiddo License. But for sure it will happen someday (Habakkuk 2: 2, 3)!”
*5. Promotional Comments: What A Joke
Meanwhile, more recent promotional efforts are coming from chat rooms and twitter, spreading positive comments about Zion made by Stock News Journal.
But skimming the headlines and following the advice of this “journal” may not be a fabulous idea.
The Feb. 16, 2017 promotion by this outfit suggests Zion and another stock are undervalued. The author of the piece is not a seasoned stock analyst. His bio states he is a veterinarian.
Veterinarian and independent essayist, with an extraordinary enthusiasm for making science/drug available to the general population. Nine years of involvement in sidekick creature veterinary practice has outfitted me with both restorative information and relational abilities. I would love to use these aptitudes to make content for your site, book, magazine, or other production. I am a clear ‘science geek’ (with far-running hobbies outside of veterinary drug!) and have an energy for teaching others (exhibited through 4+ years of experience as a test-prep teacher preceding starting my veterinary profession).
This “journal” has published 24 Zion promotions just since June 20, 2017. While not all pieces are highly aggressive, we could find no disclosure stating who paid for these pieces.
The Feb. 15, 2018 promotion by Stock News Journal is headlined: Analyst’s Bullish on these two stock Following meeting with Industry: Zion Oil & Gas, Inc. (ZN), Merck & Co., Inc. (MRK).
This promotional piece doesn’t mention a meeting, despite the headline.
Again, the author of this piece is not a seasoned stock expert. The bio says he deals in online networking and implies he may be trying to find work:
Demonstrated essayist, duplicate editorial manager and online networking expert intrigued by land, urban financial and business improvement, and open arrangement. Over five years of counseling work in these territories of skill, consolidated with a special foundation that helps me to in exceed expectations in a more extensive scope of regions. Needs of mine incorporate pivoting content rapidly, productively and considering the customer’s objectives.
Curiously, these pieces, combined with Zion’s “free-flowing hydrocarbons” comments, seem to have helped drive up the stock.
But Zion’s boring, required SEC filings disclose what independent studies say about the company’s true chances of hitting oil …
*6. Geoscientists Report Dry Holes
The experts hired to assess the property’s potential have filed a report that Zion would rather not hear.
Forrest A. Garb & Associates Inc. writes of oil and gas exploration wells drilled in Zion’s location.
The report (here) shows experts classify Zion’s prospect as “carrying a high risk factor.”
The report also states:
“Wells in the area which have evidence of oil shows, all of which were dry holes.”
*7. 18 Years … Only Dry Holes
Indeed, the company’s sole oil prospect is in Israel, where it has tried to pull oil from the ground for 18 years.
No luck. No revenue. Not ever.
Just dry holes.
The company has plugged all of its exploratory wells and still has to pay huge abandonment costs.
Meanwhile, Zion has already spent over $160 million in investors’ money … all while using scripture as “inspiration.”
This snapshot from Zion’s home page indicates how the company that states it is “drilling for Israel’s political and economic independence” taps into religious beliefs.
But, in our view, what Zion is really drilling for is dollars. Investors’ dollars …
*8. Tick-Tock, Time’s Running Out
Right there on the website’s front page, Zion calls the faithful to invest in Zion…
Again, on the front page, Zion uses blatantly promotional material geared toward people of faith:
Zion is pumping the stock because the company’s nearly broke.
The company hears the tick-tick-tick of time running out on the $5 million fund-raising unit purchase program set to end this month.
But even if they reach the $5 million goal, Zion will soon have to reel out yet another raise. Once again, Zion will put current stockholders at substantial risk of getting their shares watered down… here’s why…
*9. Cash: Drying Up
The company’s cash has dried up to somewhere around $3 million – which can barely cover costs for another quarter.
September ended with minimal cash; quarterly costs have been around $2.17 million.
And if Zion actually drills … against the advice of its hired experts … the minimum costs will jump by at least $2.5 million PER MONTH.
“We expect to incur additional significant expenditures to further our exploration program. We estimate that, when we are not actively drilling a well, our expenditures are approximately $530,000 per month excluding exploratory operational activities. However, when we are engaged in active drilling operations, as we currently are drilling in the MJL license area, we estimate an additional minimum expenditure of approximately $2,500,000 per month. The above estimates are subject to change.”
That means stockholders will watch some $12.5 million per quarter get chewed up. Zion simply does not have the money.
*10. Institutions Say, “No, Thanks”
Additionally, stock ownership by institutions such as big banks and retirement funds can sometimes validate a person’s stock purchase. But Zion’s ownership is paltry …
It can be a comforting sign when there’s at least 35% institutional ownership. But Zion’s 6.6% institutional ownership is very, very low.
Zion Oil has carried people along on promotions, prayer and stock sales since the beginning back in 2000.
But investors will soon realize they are once again staring down one gigantic dry hole. With that realization, we expect this stock to suddenly unwind by at least 50%.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in ZN and stand to profit on any future declines in the stock price.
* Editor’s Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to email@example.com.