10-K: Zion Oil & Gas Navigates Geopolitical Headwinds, Advances Israel Exploration

Zion Oil & Gas reports continued net losses and going concern doubt for 2025, while advancing its Megiddo Valleys exploration in Israel amidst regional conflicts and significant capital requirements.

Summary

• The company incurred a net loss of $7,627,000 for the year ended December 31, 2025, an increase from $7,343,000 in 2024.
• Operating costs and expenses increased by 5% to $7,731,000 in 2025, with general and administrative expenses growing 6% to $4,943,000.
• Successfully completed perforation and stimulation operations at the MJ-01 well, observing gas at the surface with characteristics consistent with a productive reservoir.
• Planning to sidetrack the well and drill a lateral section from the MJ-02 well, located 7.5 meters from MJ-01, to enable multi-stage stimulation across multiple zones.
• Secured key services such as drilling, mud, and cementing despite challenging logistics in Israel's onshore market.
• The rig crew arrived in Israel in January 2026 to begin a new phase of operations, including maintenance, re-entry into MJ-01, and subsequent horizontal drilling from MJ-02.
• Raised approximately $21,479,000 in 2025 and $16,257,000 in 2024 through the Dividend Reinvestment and Stock Purchase Plan (DSPP).
• Working capital improved to $9,463,000 at December 31, 2025, from $1,702,000 at December 31, 2024.
• The New Megiddo Valleys License 434 (NMVL 434) is valid for three years until September 13, 2026, with four potential 1-year extensions for a total of seven years until September 13, 2030.
• A new office lease for 8,006 rentable square feet in Dallas, Texas, commenced January 1, 2026, for a term of three years and five months, including five months of abated rent.
• The field office lease in Caesarea, Israel, was renewed for seven years, from February 1, 2024, through January 31, 2031, at approximately NIS 46,500 per month.
• A lawsuit in the Superior Court of California, County of Los Angeles, under the state's Trap and Trace law, was dismissed without prejudice against the company on March 9, 2026.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a highly speculative investment due to persistent net losses, significant going concern doubt, and substantial operational risks exacerbated by ongoing geopolitical conflicts in the region. While there are positive operational steps, the financial viability remains highly uncertain.

Positives

• Successful perforation and stimulation operations at the MJ-01 well resulted in gas observed at the surface, showing characteristics consistent with a productive reservoir.
• The New Megiddo Valleys License 434 (NMVL 434) was approved for three years until September 13, 2026, with potential for four 1-year extensions, totaling seven years until September 13, 2030.
• Working capital significantly improved to $9,463,000 at December 31, 2025, from $1,702,000 at December 31, 2024.
• The company successfully raised substantial capital through its Dividend Reinvestment and Stock Purchase Plan (DSPP), with $21,479,000 in 2025 and $16,257,000 in 2024.
• The 'Trap and Trace' lawsuit in California Superior Court was dismissed without prejudice against the company on March 9, 2026.
• Key services such as drilling, mud, and cementing have been secured, and recent visa reforms along with progress in ministry approvals are noted as positive steps forward for operations.

Negatives

• The company incurred increased net losses of $7,627,000 in 2025, compared to $7,343,000 in 2024.
• The independent registered public accounting firm included an explanatory paragraph in its report, raising substantial doubt about the company's ability to continue as a going concern.
• A significant portion of DSPP funding is concentrated among a few participants (60% from two in 2025, 57% from one in 2024), posing a concentration risk.
• Ongoing geopolitical conflicts, including the Israel-Hamas, Israel-Hezbollah, Israel-Iran, and Russia-Ukraine wars, create significant operational risks, potential delays, and increased costs.
• Logistics in Israel's onshore market remain challenging, requiring imported services and equipment with added time and cost.
• Active operations were temporarily paused during Q4 2024 due to a combination of downhole, logistical, and crew challenges, as well as holidays and the October 7 remembrance.
• Visa eligibility changes for rig crew members have complicated and delayed operations.
• The company currently has no revenues or operating income, with future revenues entirely dependent on successful exploration.
• A significant deficiency in controls and procedures was identified related to a $30,000 hardship loan to an executive vice president in March 2025, with $7,500 still outstanding as of December 31, 2025.

Risks

• The company's ability to continue as a going concern is dependent on obtaining significant external financing and the ultimate success of its petroleum exploration efforts in onshore Israel, neither of which can be assured.
• Significant capital is required to realize the business plan; current cash resources are insufficient to undertake exploratory activities through March 31, 2027, without anticipated DSPP proceeds.
• Substantial reliance on a few participants for DSPP proceeds (60% from two in 2025, 57% from one in 2024) creates a concentration risk, where cessation of funding from these participants could delay exploration.
• Operations are directly influenced by political, economic, and military conditions in Israel, including ongoing wars (Israel-Hamas, Israel-Hezbollah, Israel-Iran) and wider regional hostilities, which could cause delays, increased costs, security concerns, and inability to obtain services/equipment.
• Exploratory well drilling locations may not yield oil or natural gas in commercially viable quantities, and exploration is an inherently risky business, especially for deep onshore wildcat wells in Israel.
• The company is subject to increasing Israeli governmental regulations and environmental requirements, potentially leading to substantial incremental costs and/or delays in drilling programs and license extensions, including requirements for performance bank guarantees (10% of drilling cost) and environmental damage coverage.
• Lack of diversification, with a business focus solely on oil and gas exploration in a limited number of properties in Israel, increases investment risk.
• The company currently has no proved reserves or current production of oil or gas, and there is no assurance of future commercial production.
• A substantial and extended decline in oil or natural gas prices could adversely impact future growth rate and the carrying value of unproved oil and gas assets.
• Exposure to fluctuating exchange rates between the U.S. Dollar and New Israeli Shekel (NIS) for expenses may adversely impact results of operations and cash flows.
• Insurance coverage may be insufficient to cover all risks, leading to significant financial exposure from natural disasters, unplanned events, or political developments.
• Increased activism against oil and gas exploration could lead to delays, denials of permits, restrictions, legal challenges, and increased costs.
• Changes in the Petroleum Law, new energy sector legislation, and policies affecting foreign companies in Israel could negatively affect market value.
• Dependence on limited contractors, equipment, and professional services available in Israel may result in increased costs and material delays in the work schedule.
• Significant disruptions of information technology systems or security breaches could adversely affect the business, leading to data loss, financial, legal, and reputational harm.
• Future issuance of additional common stock or securities convertible into or exchangeable for common stock would dilute the ownership interests of existing stockholders.
• The likelihood of paying cash dividends on common stock is remote, requiring stockholders to rely solely on appreciation of common stock for gains.
• The company's stock price and trading volume may be volatile, which could result in losses for stockholders.

Future Outlook

The company plans to continue its exploration focus on the MJ-02 well, aiming to sidetrack and drill a lateral section into the identified target interval to enable multi-stage stimulation across multiple zones. The rig crew arrived in Israel in January 2026 to begin a new phase of operations, which will include routine rig repair and maintenance, re-entry into MJ-01 for cleanup and re-establishment of the water monitoring well, followed by mandatory five-year recertification before transitioning to horizontal drilling from MJ-02. The ability to fully undertake these activities is subject to raising the needed capital from continuing offerings.

Management Comments

• Our Chief Financial Officer briefs the executive leadership team, the Board, and the Audit Committee regarding cybersecurity risks, strategy, and management at least annually.
• Our technical objective remains unchanged, which is to sidetrack the well and drill a lateral section into the identified target interval to enable multi-stage stimulation across multiple zones.
• Starting from MJ-02 allows us to begin in larger casing, use larger-diameter tools, and execute a two-stage drilling plan providing greater flexibility to manage downhole contingencies and improving our chance of operational success.
• Logistics remain challenging in Israel's onshore market, where most services and equipment must be imported with added time and cost.
• Despite providers being heavily contracted, we have secured key services such as drilling, mud, and cementing. Recent visa reforms and progress with ministry approvals are also positive steps forward.
• Management believes that our existing cash balance, coupled with anticipated proceeds under the DSPP, will be sufficient to finance our plan of operations through March 31, 2027.

Industry Context

StockSavvy.ai notes that Zion Oil & Gas operates in a highly specialized and politically sensitive region, the Eastern Mediterranean, which historically has not been a major focus for large international oil and gas companies onshore. The company's reliance on imported services and equipment, coupled with geopolitical instability, highlights the unique challenges compared to more established and stable oil and gas exploration regions. The recent gas discoveries in the offshore Levant Basin (Tamar and Leviathan) have somewhat changed the perception of Israel's hydrocarbon potential, but onshore exploration still faces significant hurdles.

Comparison to Industry Standards

• The company's full-cost method of accounting for oil and gas properties is a recognized industry practice, but its application without proved reserves means all costs are capitalized until impairment or production, which represents a higher risk profile than companies with established reserves.
• The combined 18.5% royalty rate (12.5% government royalty + 6% charitable contributions) on gross production, if commercial quantities are found, is a significant revenue share compared to some global benchmarks, potentially impacting profitability.
• The requirement for performance bank guarantees (10% of drilling cost) and environmental damage coverage for new exploration licenses is a specific regulatory burden that may exceed standard requirements in less politically sensitive or environmentally stringent jurisdictions.
• The reliance on a few key participants for capital raises through the DSPP, with 60% from two participants in 2025, indicates a concentration risk in funding sources that is not typical for larger, more diversified exploration companies.

Management Changes

Corporate Governance

Legal Proceedings

• A lawsuit in the Superior Court of California, County of Los Angeles, under the state's Trap and Trace law, was dismissed without prejudice against the company on March 9, 2026. Approximately $25,000 in legal expenses were recognized in 2025.

Related Party Transactions

• A hardship loan of $30,000 was given to an executive vice president in March 2025, with monthly repayments of $2,500 beginning in April 2025. The balance owed to Zion was $7,500 as of December 31, 2025, with the last scheduled repayment in March 2026.

Stakeholder Impact

• Shareholders face significant dilution risk from ongoing equity raises and potential loss of investment due to going concern doubt and exploration risks. Stock price volatility is a concern.
• Employees and contractors may experience impacts on employment stability and work schedules due to operational delays stemming from visa issues and geopolitical conflicts.
• The Government of Israel stands to receive a 12.5% royalty on gross production if commercial quantities of hydrocarbons are found, and benefits from the company's compliance with environmental and safety regulations.
• Two charitable foundations (Bnei Joseph Foundation and Abraham Foundation) will receive a combined 6% of gross sales revenue from production if commercial quantities of hydrocarbons are found.
• Suppliers and vendors face challenges due to difficult logistics in Israel and potential delays in payments if capital raising efforts are insufficient.

Next Steps

• Rig crew to re-enter MJ-01, complete cleanup of the wellbore, install a seal below the water aquifer zone, and re-establish the mandated water monitoring well.
• Conduct mandatory five-year recertification and inspection process for the rig to ensure compliance with IADC and national standards.
• Rig up over MJ-02, plug and abandon the lower sections of that wellbore, set the direction, and begin the planned horizontal drilling operation into the target reservoir zone.
• Continue to raise needed capital from continuing offerings to fund exploration and development activities.
• Work with the Ministry of Interior on visa issues for rig crew members.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by recurring net losses and a going concern qualification from its auditors. Its operations are entirely dependent on speculative exploration in a highly volatile geopolitical region, with no current revenues or proved reserves. Significant capital raises are continuously required, leading to substantial shareholder dilution. The concentration of funding from a few participants and ongoing operational delays further exacerbate the risk profile. The combination of high operational risk, financial instability, and external geopolitical factors makes this a highly speculative and unfavorable investment.

Keywords

Oil and Gas, Exploration, Israel, Megiddo Valleys, MJ-01, MJ-02, Drilling, Energy, SEC Filing, 10-K, Financials, Geopolitical Risk, Capital Raise, Warrants, Stock Options, Going Concern, Petroleum Law, Texas Corporation, OTCQX