Filed
pursuant to Rule 433
Registration
Statement No. 333-164563
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Zion Oil
& Gas Newsletter
October
15, 2010
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Dear
Shareholder and/or Friend of Zion
KPMG
visit the Ma'anit-Joseph #3 wellsite on October 7, 2010
Since our
last update to you at the beginning of October, we have been very busy on a
number of fronts.
Most
importantly, last week, our operations staff overcame a problem that occurred
during the drilling of the Ma'anit-Joseph # 3 well. The preliminary incident
analysis indicates that a drilling “jar” prematurely fired, causing a separation
of the drill string assembly. As you can read below, we had to go fishing for
the 'junk in the hole' (i.e. the bottom portion of the drill string assembly,
which fell to the bottom of the well).
Happily,
we were
successful in retrieving all of the drilling equipment and, as I write,
we are drilling deeper.
We are
currently drilling at a depth of approximately 1,790 meters (5,873
feet).
The Knesset (Israel's
Parliament)
Zion's
CEO, Richard Rinberg, at the Knesset
On
Tuesday, October 5, 2010, on behalf of Zion, I attended a meeting at the
Knesset.
The
Knesset Economics Committee met to discuss proposals to increase the oil &
gas royalty from the current 12.5% rate. Some Knesset members feel that the
current rate is too low, as it was set in the 1950s. However, oil & gas
industry representatives argued that it would be wrong to change the royalty
rate for those licenses that have already been granted, as Israel would appear
to international businesses as an unreliable partner.
So far,
the result of the Knesset Economics Committee hearing has been a declaration
opposed to retroactive increases and a declaration that higher royalties should
only be considered for future exploration agreements.
Media
Journalist
Friederike Ott visits the Ma'anit-Joseph #3 wellsite
On
Wednesday, October 6, 2010, German journalist Friederike Ott visited our office,
as she is writing an article about Zion Oil & Gas that will hopefully soon
be published in Der Spiegel, a German weekly news magazine with a circulation of
approximately one million copies per week. The online edition is also available
in English. As you can see above, Friederike also visited the
wellsite.
Sundry
Questions
During
the past week, I was asked the following questions and as I believe the answers
may be of interest to you, I am setting them down here:
(a) Regarding
Zion's finances, what do we spend our funds on?
We take
great care in filing accurate financial statements and they are all available on
our website at www.zionoil.com/sec-reports.
Please review those reports as they contain much information that can answer
queries regarding Zion's use of funds.
(b) Is the
proposed subsidiary 'Zion Drilling, Inc.' still part of our
plans?
Yes - we
still plan to establish a subsidiary that will have control over the drilling
rig that we currently use, but as we stated previously, our plans are subject to
certain conditions, including raising sufficient funds to finance the purchase
of the drilling rig and negotiating and executing appropriate agreements with
Aladdin Middle East Ltd., the current owner of the drilling rig.
(c) Regarding
the seismic acquisition, why did Zion acquire 2D seismic rather than
3D?
Reflection
seismic is a method that allows us to image changes in the subsurface geology by
inducing an acoustic wave from near the surface of the earth and listening for
the echoes from deeper stratigraphic boundaries (much like ultra-sound is used
to create pictures of unborn babies in their mother’s wombs).
2D
seismic is recorded using straight lines of receivers crossing the surface of
the earth. 3D essentially conforms to the same methods as 2D, but uses a dense
array of geophones to provide a much more detailed set of seismic information.
Often, 3D seismic information allows geologists to obtain a significantly better
view of the underground topography of an area.
But the
better information comes at a much higher cost -
the cost of 3D surveys is considerably higher than for 2D surveys - and 3D is
not always better than 2D. So, it is often prudent to initially run a
2D survey for a preliminary assessment of subsurface geology before determining
if a 3D acquisition program is cost-effective.
In
addition to cost, there may be geographic or other factors that constrain the
use of 3D seismic. The 2D seismic line we acquired in our Issachar-Zebulun
permit area was taken in the Jordan River Valley which lies very close to the
Israel-Jordan border. Here, 3D seismic acquisition in the area of interest would
have required running a portion of the survey in Jordan. While international
cooperation in such matters is not uncommon, the time and resources needed to
secure all necessary approvals is often quite extensive, making 2D seismic
acquisition, in this case, more attractive.
Drilling Operations at the
Ma'anit-Joseph #3 Wellsite
On August
26, 2010, drilling operations began on the Ma'anit-Joseph #3 well, in our Joseph
License area, onshore Northern Israel.
During
the past two weeks, we developed a problem during routine well operations when
it seems a drilling jar prematurely fired, causing a separation of the drilling
string assembly. A “jar” is a common piece of equipment included in
the pipe string when drilling a well. Its purpose is to help dislodge
pipe that may get stuck during the drilling process. The jar has a means of
storing energy; when fired or activated, its energy is released, causing a
sudden movement of the pipe. This jarring action is repeated until the stuck
pipe is freed, allowing drilling operations to continue.
When the
jar activated in the Ma’anit-Joseph #3 well, operations were proceeding
normally; that is, we did not have any stuck pipe. The result of the
jar activation was a separation of our drill string, resulting in a ‘fish’ at
the bottom of the well.
Our
initial attempt at recovering the fish was successful in retrieving all but a
portion of the drill bit. The portion of the drill bit that remained
in the well was the three semi-spherical cones that do the work in cutting
through rock layers during drilling operations. Retrieving these
three cones took one part patience and two parts ingenuity by our rig crew, but
ultimately we were successful in recovering all fish from the hole.
Our
investigation of the root cause behind this fishing incident
continues. We are working with several of our drilling equipment
suppliers to understand why this situation occurred and, more importantly, how
to ensure it will be prevented in the future.
We
resumed normal drilling operations after recovering the fish, drilling ahead a
12-1/4” hole. While we did fall behind our drilling plan schedule due
to the fishing incident, we are now drilling through a portion of the hole that
should allow us to gain back some of this lost time. As of today (Friday,
October 15, 2010) we continue to drill a 12-1/4” hole at a depth of
approximately 1,790 meters (5,873 feet).
On a
final note, as part of our drilling operations, we have committed ourselves to
being responsive to the communities around us. So when we received
word that some in the surrounding community were concerned about the sound
levels coming from the drilling rig, we took action to address this
concern. We contacted a company in the United States that specializes
in equipment sound suppression and ordered a customized acoustic suppression
system for the drilling rig.
This
system now complements the large acoustic wall previously constructed around a
portion of the drillsite to provide a double layer of sound mitigation for the
surrounding population.
Rights
Offering
As you
may know, Zion is holding a Rights Offering for every stockholder who held Zion
stock on September 28, 2010.
For full
details of the rights offering please review the prospectus supplement (which
contains a description of the rights offering and other information) that was
filed with the SEC on September 29, 2010.
Under the
rights offering, Zion has distributed (at no cost to stockholders)
non-transferable subscription rights to holders of Zion's common stock on the
close of business on the record date of September 28, 2010, to purchase their
pro rata portion of approximately 3.8 million Units of Zion's securities Unit at
a purchase price of $5.00 per Unit.
ONE UNIT = ONE SHARE (of Zion's
common stock) + ONE
WARRANT
The
Warrant will allow the purchase of an additional share of Zion's common stock at
an exercise price of $4.00 and will be exercisable for a two year period
beginning after the offering expires.
We have
mailed to all eligible stockholders a copy of the prospectus supplement,
subscription materials and other items necessary for exercising the rights.
Shareholders who hold their shares in a bank or broker name will have received
the rights offering material from their bank or broker.
You may
wish to review the Frequently Asked Questions (FAQs) on our website
at:
www.zionoil.com/investor-center
"In
your good pleasure, make Zion prosper..."
Psalm
51:18
Thank you
for your support of Zion and Shalom from Israel
Richard
Rinberg
CEO of
Zion Oil & Gas, Inc.
www.zionoil.com
FORWARD LOOKING STATEMENTS: Statements
in this communication that are not historical fact, including statements
regarding Zion's planned operations, anticipated attributes of geological strata
being drilled, the presence or recoverability of hydrocarbons, the sufficiency
of cash reserves, ability to raise additional capital, the successful
establishment of the drilling subsidiary and the negotiation and execution of
definitive agreements with the current owner of the drilling rig with respect
thereto, timing and potential results thereof and plans contingent thereon are
forward-looking statements as defined in the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995. These forward looking
statements are based on assumptions that are subject to significant known and
unknown risks, uncertainties and other unpredictable factors, many of which are
described in Zion's periodic reports filed with the SEC and are beyond Zion's
control. These risks could cause Zion's actual performance to differ materially
from the results predicted by these forward-looking statements. Zion can give no
assurance that the expectations reflected in these statements will prove to be
correct and assumes no responsibility to update these
statements.
NOTICE:
Zion Oil & Gas, Inc. has filed a
registration statement (including a prospectus) with the SEC for the offering to
which this communication relates. Before you invest, you should read the
prospectus in that registration statement and other documents the issuer has
filed with the SEC for more complete information about Zion Oil & Gas and
its offering. You may get these documents for free by visiting EDGAR on the SEC
website at www.sec.gov. Alternatively, Zion Oil & Gas will send you the
prospectus if you request it by calling toll free 1-888-TX1-ZION
(1-888-891-9466).
Contact
Information
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
More
information about Zion is available at www.zionoil.com or by contacting Mike
Williams at Zion Oil & Gas, Inc., 6510 Abrams Rd., Suite 300, Dallas, TX
75231; telephone 214-221-4610.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~