Friday, December 09, 2022 8:36:34 PM
Nothing to say about MJ-2 being non-commercial other than the bears were right and the longs are disappointed. Since I am very long in both time and shares, it is very disappointing to me.
Notice the timing of the news: the PR was 2 days after the technical analysis was complete. This is not evidence that Zion is stretching out a known bad result for nefarious reasons.
The 3D said there was a structure and the logs said hydrocarbons were present in the structure, but the permeability can't be determined until after stimulation. The target was stimulated and tested, but the tight permeability was not solved by the stimulation. Apparently, Zion has some hope of a different stimulation in the future, so they got approval from the Ministry to temporarily plug the well. It would be very instructional to know what the static wellhead pressure of MJ-2 was. If high, then that is a strong indicator that further stimulation could work. If low, then stimulation does not help so much with a low drive force.
Interesting that water was not mentioned, so the packer probably did the job in isolating the high water flow from the upper zone.
This is an interesting twist: usually learning from the first well is applied to the second well. Now Zion is talking about learning from the 2nd well being applied to the 1st. Perhaps what they learned from stimulating MJ-2 could give insight in how to stimulate MJ-1. Of the two zones of interest in MJ-2 that were stimulated, both stimulations were a failure: stimulation probably caused excessive water flow in the upper zone (improved permeability, but that enabled the wrong liquid to flow), and stimulation did not improve permeability in the lower zone enough to enable hydrocarbons to flow. With learning from those two experiences and with MJ-1 being higher in elevation (above the water?), then perhaps MJ-1 could be stimulated with success.
Two things are required to continue exploring:
1. Energy Ministry extend the exploration license, and
2. Funding.
The statement "We will continue to explore" without a qualifier saying the exploration is contingent on having both a license and funding can be interpreted a couple of different ways. Some who do not trust anything Zion says will think they are blowing smoke to keep the show going. I tend to believe what they say, so I think their confidence in the active petroleum system is in alignment with their belief that the Ministry will grant an extension and that funding will be available. If they don't announce an extension sometime in Jan (license expires Feb 1) and/or they are begging for funds in Jan (funds projected to last through Feb), then their confidence was misplaced. Assuming good communications with the Ministry throughout the project, Zion probably already knows where the Ministry stands. And they probably already know where THE Whale stands as that has been the source of funding for several years. Hence they "will continue to explore" the "active petroleum system".
To all the longs: I share your pain. I'm not as let-down as much on this one as I was on MJ-1; got too emotionally wrapped up in it then. A commercial announcement would have been a great Christmas present, but it's more important to remember the reason for the season.
I might sell shares for a year-end tax loss, or might hold. Depends on how much the price drops next week. If I get out, I will get back in again if there is a license extension and Zion does not beg for funding at single cents per share; continue playing the long game even though it is very loooooong. As usual, everyone perform your due diligence and own your decision to buy or sell.
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