Friday, June 23, 2006

Land of Milk, Honey -- and Oil?

By Sonja Ryst, Business Week

Land of Milk, Honey -- and Oil? A Texas Christian wants to take his Zion
Oil & Gas public to finance energy exploration in Israel. Will investors
hear the call? John Brown, a born-again Christian who believes the Bible
will guide him to oil and gas in Israel, is planning to test the faith of
investors in the U.S. in the next few weeks. The Texas-based novice oilman
who founded Zion Oil & Gas is aiming to raise between $2.45 million and $14
million in an initial public offering, tentatively slated for July, to fund
drilling at a kibbutz northeast of Tel Aviv. God, Brown says, "has promised
in the Bible to bless Israel with one of the world's largest oil and gas

It may take some Divine help for him to pull the venture off. Hundreds of
wells have been drilled in Israel in the past 60 years, but none has yielded
significant production. Explorers turned up natural gas off the southern
coast in recent years, but British Gas walked away from its drilling rights
there in recent years. And locals are dubious. "The Israelis are skeptical,"
says Eldad Weiss, founder and board member of an Israeli oil and gas
services provider, Paradigm. He cites "a great history of disappointment for
oil and gas companies in Israel."

Financially, Brown may also be pushing his cause uphill. He tried to raise
money in an IPO two years ago, but couldn't collect the $6.5 million
required by the American Stock Exchange. He scrapped the deal and returned
most of the $3.7 million he collected from hundreds of investors. He did
eventually collect $8.8 million, largely through private placements, to pay
part of the costs for drilling a well.

EVANGELICAL INTEREST. But he's now betting that high interest in oil, along
with hints that his experts say suggest they're on to something, will once
again woo investors. He claims that some 6,000 people—many probably U.S.
evangelicals—contacted Zion about buying shares. "We can tell from the way
they communicated that some are Christian evangelical ones that believe
those who help Israel will be blessed," says Zion Chief Executive Officer
Eugene Soltero. Less than a hundred of the prospective investors, he says,
are from Israel.

Zion filed paperwork for the IPO in January, hopes to price it at $7 a
share, and is awaiting regulatory clearance. Brown hopes to do the offering
as soon as July. "Market conditions have a lot do with it," says Michael
Zarraga, vice-president of Network 1 Financial Securities, underwriter on
the planned offering.

Brown's vision of where to drill might not convince most hard-boiled oilmen.
Indeed, Amit Mor, chief executive officer of Israel-based consulting firm
Eco Energy, argues: "there are places in Israel that are more promising."
But Brown relies on a passage in Deuteronomy that refers to Asher, a son of
the patriarch Jacob, dipping his foot in oil. His Web site,,
features a map showing the company's well, Ma'anit #1, in relation to the
Biblical land Asher controlled.

ON AN OIL MISSION. Brown, 66, had worked as a manager at an agricultural
and automotive toolmaking company until he had a religious awakening while
visiting Israel in 1983. He says he had "an experience with the Lord" while
reading the Bible and coming across a passage about a helpful "stranger" who
hailed from afar. Brown felt he was that stranger and his mission was oil.

Brown, who now owns a building contractor in Dallas, attracted experienced
oilmen. One is 59-year-old Philip Mandelker, general counsel of Zion Oil &
Gas, who represented the Israeli government in negotiating the oil pacts in
the Sinai peninsula and Gulf of Suez during the 1970s. And CEO Soltero, 63,
had formed the independent private energy outfit Cimarron Resources in 1985.

His experts maintain there is real reason for encouragement. Last spring,
the team found luminescence in some of the rock they had fetched, suggesting
it contained hydrogen and carbon—though that could amount to either natural
gas or just tar. Still, they also saw gas bubbling up as they drilled. "Our
sense is that the hydrocarbon is oil and gas," says Soltero. "We don't know
how much and whether or not we can produce it economically."

LAST DAYS. Certainly, Israel could use both and oil and gas. Eco Energy's
Mor says the country will need about 4.5 trillion cubic feet of natural gas
between now and 2020, and its gas reserves amount to just about 1.3 trillion
cubic feet. Egypt last year agreed to fill most of the gap for the next
decade, but Israel would like to meet its own needs. As for oil, Israel
needs about 220,000 barrels a day, which it gets primarily from Russia.

Brown says the big oil and gas field he's looking for will be discovered in
the last days before the Messiah returns. Just what kind of a return his
investors will get then isn't all that clear.



Posted by Dr. Mike Cohen