Thoughts on the June 7, 2023 ASM
Technical
- MJ02 is close to MJ01, but on the other side of a fault line so it has different geology.
-MJ02 formation had three issues:
1. low permeability - potentially solvable with stimulation/fracking - but fracking operation was not successful in the three zones of interest at least partly due to Halliburton equipment failures, but it sounded like the formation was not particularly amenable either. It would be interesting to hear Zion say if MJ01 was successful whether the MJ02 side of the fault line has potential.
2. low porosity - not "solvable" i.e. the formation with have low recoverable oil for a given volume of reservoir rock.
3. low pressure - solvable by lowering well bore pressure with gas - N2 was used and was probably successful.
- MJ02 was fracked with a new technology proppant that does not require intensive water to deploy. Further, produced water from the well (saline) can be used which eliminates fresh water from being hauled in. Very cool. The new proppant has reportedly been used successfully in deep and hot wells. Sounds like Dunn does not want to use the "frack" word due to negative connotations from a large footprint operation that consumes a large magnitude of fresh water. They did frack though.
- MJ01 well bore was damaged by a lubricant added to the mud. A deep penetration technology will be used to reach out horizontally from the well bore into the formation past the damaged area around the well bore. This is likely not high risk.
- After deep penetration, MJ01 will have the new fracking technology applied. Zion believes that the MJ01 formation is better suited for fracking than the MJ02 formation was and therefore has a higher chance of success. Still, this is likely high risk.
- The fracking technology with the microproppant was not available 5 years ago when MJ01 was being tested. This is reasonable as there are constant innovations in oil/gas recovery. Its encouraging that the Ministry approved a fracking technology. If this technology proves to work in MJ01, then it will probably open up other targets in Israel.
Business
- Zion's operations reported to not be impeded by geopolitical events (for now anyway).
- New government is once again favorable to Zion due to Zion's track record and the Ministry's more realistic view on the necessity of hydrocarbons.
- Taking a very long time to approve the new license though - target is beginning of 3Q (July) and operations will start shortly thereafter. Would have been better for the new license to have been announced at the ASM. Just shows that the Ministry moves at its own pace even taking into account that they not able to start working on reviewing/approving the license until mid-January.
- Cash good through August which gives Zion time to announce that MJ01 reentry operations have started and a new Units program to fund the project.
Investor Communications
- Zion is trying to improve, but a lot of the information provided on MJ01 could have been provided many years ago. And the info on MJ02 certainly has been available for several months. I know the point at the ASM was to make the connection/contrast between MJ01 reentry with the MJ02 experience, but the information has been slow coming.
- I agree that the 3D itself should remain Zion proprietary as Dunn stated in the Q&A. But, I don't think that is what most investors mean when they ask if the 3D will be released. What they mean is will the P50 of the reservoir size as indicated by the 3D be released. And it should be released as this communicates what the opportunity is if all the drilling/stimulating operations are successful. Zion is very backwards in believing investors should put their hard earned cash into a risky venture without having any idea what the successful outcome would be. Yes, I know Zion has a vision that is compelling to many. But, that vision is no substitute for providing the business opportunity. As I have said in many posts, I believe the reservoir size reachable from the MJ01 pad is very modest, even with horizontal drilling. Zion would manage expectations much better by providing the reservoir size - i.e. Zion drives speculation by not providing the reservoir size. And I do not think they will see an uptick in the DSPP until the reservoir size they are pursuing is announced.
- Interesting that Dunn said a commercial well could be 200 to 300 BOPD. This is in alignment with my expectations for many reasons that I have posted before. This is indicative that the reservoir is not large. The reservoir size is more important than the BOPD from the first well, but generally the formation characteristics that provide a high BOPD also provide a large reservoir. In any event, 200 to 300 BOPD is a successful start for the reason's Dunn stated.
Summary
A. Zion is a one trick company - reentry of MJ01.
B. Reentry of MJ01 has a reasonable basis for its success, but it is high risk.
C. Points A and B infer that investing in Zion is high risk.
D. Zion does itself and its investors no favors by not disclosing the potential reservoir size reachable from the MJ01 pad.
E. Potential reservoir size is likely modest, but a good start if commercial.
F. If motivated by either the vision or the potential upside, Zion could be an interesting investment but DO NOT INVEST WHAT YOU CAN NOT AFFORD TO LOSE!
G. I know some think Zion is a scam. I don't - just think exploration is a tough business and they have had a tough time with several issues out of their control. However, they create a lot of their own problems by not timely/thoroughly communicating conditions in the oil patch.
