Zion Oil & Gas Inc (ZNOG)

[KyOil]

Blessings to all on the board. I've not been on the board since last fall when ZN announced a drilling delay in order to upgrade "well control". At that time, I stated that the well control upgrade was an indication that a high pressure well had been found, and therefore with that conviction, increased my long position as high pressure means at least gas and probably oil. And now, wow, 7,500 psi with oil flowing to the surface when circulating mud! What great news! Apparently, ZN had to go the North Sea suppliers (Scotland) to get at least a 10,000 psi BOP last fall.

A thought on what that pressure means for a 16,600 foot deep well. Its true that the static (no moving fluids) pressure at the bottom of the hole when filled with salt water is almost 7,500 psi, which would come close to "shutting in" the well. However, when gas/oil/water mix is moving up through the well, the specific gravity of the mix is considerably lighter than either oil or salt water. The wellbore fluid pressure exerted on the formation is a function of the volume displaced by each of gas, water, and oil. We do not know those ratios, but from my experience with "gas lift" wells there should be plenty of head room to bring the oil to the surface free flowing. If true, the MJ#1 will have natural gas lift and will therefore not need expensive artificial lift (until the pressure drops with time). Even with only a slightly higher formation pressure of 7,500 psi above the static wellbore fluid pressure (7,300 psi maybe with a 16,600 ft column of salt water), the gas will start flowing to the surface and lower the pressure the wellbore fluid column exerts on the formation. This will lead to increased flow and lower still opposing pressure, and therefore a need for valves at the surface to restrict flow to avoid a run away condition. In the depleted fields of KY we do not have that advantage, but have to inject gas to move the liquids to the surface.

I really appreciated the insights shared from the board members who attended the shareholder meeting. Your comments confirmed many conclusions I had already come to, and offered new insights that I had not thought of. I remain very long and am looking forward to great news being announced in the next few weeks.