Zion Oil & Gas Inc (ZNOG)

[RobertLoblaw]

Zion Oil & Gas is undeserving of its investor loyalty, to say the least, especially when one looks at its executive compensation.

First, Zion Oil promotes itself, in some ways, almost as if it was a kind of charity, as if supporting Zion Oil through stock purchases is like supporting Israel. Supporting Zion Oil through stock purchases (and repurchases, and repurchases) does not support Israel. It supports the operation of Zion Oil & Gas, Inc., and the salaries of its employees, period. There are no indications that Zion Oil will ever significantly contribute to Israel's energy independence. There are far better Israeli energy plays, with companies doing serious exploration and development, which do much more towards respecting investors and generating revenues.

Second, Zion Oil's executive management rewards itself very, very generously, especially considering the lack of any revenues. The last proxy statement provides an interesting look at how Zion Oil bigwigs justify their generous salaries, bonuses, and stock benefits. They chose nine companies as a "comp set," a set of comparable companies, with which to arrive at a guide for compensation. The "comparability" criteria? Market Cap. In other words, as long as Zion succeeds in selling stock like the others, it deserves the same executive compensation as the others.

One key problem with the comparison, though. All of the other companies in the comp set have revenues and proven reserves of hydrocarbons; Zion Oil has neither! Therefore, as long as Zion Oil's share-selling machine keeps printing and selling more shares, their top executives demand high salaries and bonuses. Talk about executives milking the cash cow of investor largesse. Brilliant.

Third, and perhaps the icing on the cake. CEO Richard Rinberg has been awarded a special allowance for... get this... maintaining a home office. On top of his salary, benefits, and bonuses (for selling stock). Rinberg gets an additional $4,500 per month to work from his home, which I understand is not terribly far away from Zion Oil's offices (; Israel is quite a small country). That's enough to purchase two new computers every month. It is effectively an additional salary of $50,000 and it is disgusting. Disgusting, because of the many ordinary people, who are not wealthy, investing in Zion out of a love for Israel. Disgusting because of the theatrical way the execs describe their involvement as some religious calling. Outrageous because at some point enough investors will see how Zion Oil's executives reward themselves, not from revenues but from stockholder capitalization - all in return for ever-diluted shares.

The SEC filings indicate that some top executives have deferred parts of their salaries. But these deferments are "rolling." While the execs are deferring part of this year's salary, they're getting the deferment of last year's salary in full! In effect, the top execs gave Zion a one year loan, so that they could, year after year, boast of their "consideration" to the company's bottom line.

Clearly the company manages operations. I know from people who visited the drilling site that the company is exploring. But the management is making itself wealthy before bringing the company to profitability, or even indications of potential profitability. With this, I take issue.