My apologies for not posting yesterday evening. I was away at a considerable distance for my son's soccer game.
The PR was disappointing because commercial hydrocarbons were not proven to exist as was hoped. There remains testing to be done in MJ#1 and commercial hydrocarbons may yet be found. As I posted yesterday before the PR, the biggest risk ZN faces is running out of cash before all testing avenues have been exhausted. This was true before the PR and is amplified now.
There are three paths for further MJ#1 evaluation if funds allow, listed in order of how I would rank them:
1. Testing for oil in the Jurassic and/or Cretaceous.
2. Testing for gas in the Triassic, Jurassic and/or Cretaceous.
3. Fracking the tight formation in the Triassic to improve flow.
ZN was focused on testing the Triassic for oil because of the existence theorem from Givot Olam that oil was there. And oil shows were encouraging in the Triassic while drilling. The high temperature in the Triassic caused testing difficulties by reducing packer life. Given the low permeability of the Triassic, it will need to be fracked to be productive. Fracking does not always work and would be very expensive in Israel. Therefore, I would rank further oil exploration in the Triassic as a lower priority than the other paths available in MJ#1.
The Jurassic (circa 2000 meters) was where high pressure gas with heavy components was encountered after penetrating through the cap rock and into a fractured carbonate rock. Those are all good signs. That zone has not yet been tested and still holds considerable promise for oil and/or gas.
The Cretaceous had several zones of interest identified during drilling. They are shallow and the temperature is not extreme, so would be faster to test than was the Triassic.
Achieving first revenue is a critical juncture for any new company. I would suggest that is what ZN should focus on now. Set aside for the near term meeting the goal of supplying Israel with 1/4 million barrels of oil per day. Just focus on the lowest risk path for producing hydrocarbons at a level that would sustain operations. Perhaps that is in a US play, but I would suggest that first the MJ#1 possibilities should be explored.
Getting very practical, it would only take 5,000 bopd at $20 profit per barrel to fund continued drilling at $3 million per month. That is 2% of the amount needed to supply Israel and would correlate to a 10 million to 20 million barrel reserve. This would be preferable over gas since oil can be trucked to the sales point and gas needs a pipeline which would take considerable time to construct. And time is the enemy right now. Gas could be added later if available.
As the PR stated, a petroleum system exists. A path to explore the system before running out of cash must be found. Certainly more seismic, including 3D, would better identify targets for offset wells. But we don't need a new well right now, even one drilled from the same pad as MJ#1. What we need ASAP is identification of a zone in the Jurassic or Cretaceous that can provide oil from MJ#1. Then the additional seismic and learnings from MJ#1 can be used to locate directional offset wells to round out the 5,000 bopd needed.
In the context of supplying Israel with 1/4 million bopd, only 5,000 bopd doesn't sound like much. But it would fund exploration while the production rate is ramped up. And, the corresponding 20 million barrel reserve would justify a market cap of circa $200 million. Which is in the neighborhood of where it has been the last few months.
On a personal note, I will remain long on ZN and trust G-d to provide for both my household and ZN. But, I will have to trim my ZN position in the near term to take care of some things mentioned in previous posts. Yes, I will likely be selling over the next few weeks at a price that is lower than that of the past few weeks, but that is the decision I made to be in the position for upside had commercial oil been announced. Upside is not available unless risk is taken. In the future I will participate in the DSPP as funds are available.
AI
