“The Last Undiscovered Oil in the Middle East”

by Travis Johnson, Stock Gumshoe | April 13, 2009 10:35 am

This ad is for a newsletter that I’ve never looked at before, the TradeMaster service from Ian Wyatt[1] — it’ll cost you $495 a year (“on sale”, naturally), and apparently they send out daily alerts with a focus on swing trading. We’ve looked at some Ian Wyatt stuff before, particularly for his Growth Report[2] service, with uninspiring results so far (to be fair, almost everyone has been “uninspiring” lately).

But this time around, apparently the pick is for an oil[3] company that provides a short term opportunity for traders “because it’s on the verge of technical breakout that should move it at least 29% higher.”

As we’ll see in a moment, I think the past week or so has been a bit unkind to these shares — so it might not exactly be “on the verge” anymore if a breakout was what you were looking for. But regardless, it’s an interesting story — let’s have a look.

The pitch is that this country is geologically similar to its neighbors in the Middle East[4], and that this means there should be oil to find.

“The Last Undiscovered Middle East Oil Field

“Right now, there’s just one publicly traded company seriously looking for oil in this country. Just one. But this company has the exploration rights to 219,000 potentially oil-rich acres. And it just applied for the rights to another 245,000 acres.

“It could be nothing. The unique geology that produced billions of dollars of oil wealth in Saudi Arabia, Iran or Kuwait might simply stop at the borders of those countries…

“Or it might not.”

Obviously, the bet is “not” for this company. So who are they? We get a few other clues …

“$12 A Share, 464,000 Potentially Oil-Rich Acres

“I was amazed to find out this company only drilled its first well in 2005. And in the area where it’s drilling, only one test drilling has been conducted for every 350,000 acres.

“In other words, the area this company controls has been virtually unexplored, even though geologic patterns–showing the high likelihood of tremendous amounts of oil–are consistent with other oil-bearing regions.

“Right now, this company is valued at $124 million dollars. One sniff of oil and this $12 stock doubles overnight.

“But this company doesn’t even need to find oil for you to make money form it. Because it’s on the verge of technical breakout that should move it at least 29% higher. I’ve got the details on this stock in a Special Opportunity Report called Two Top Energy Stocks for the Economic Recovery.”

So who is this?

Well, I mentioned that the “breakout” they were looking for might no longer be in the cards, since the shares are no longer at $12 (they’ve dipped down a hair below $10), but this company is …

Zion Oil & Gas

Zion is one of the few companies looking for oil in Israel[5], so I guess it’s an appropriate company to look at on the day after Easter — and yes, Israel is the country that Wyatt teases as being a likely oil giant someday. That’s certainly the argument of Zion Oil & Gas, though it’s far from being proven likely — and Zion bases their exploration activity largely on biblical clues about oil in Israel, not necessarily on the geologic similarity to Saudi Arabia and Iraq[6].

Israel has seen its share of oil explorers in the last fifty years — many have been convinced that there must be oil, since it’s in the Middle East (that’s an exaggeration, but not a huge one), some have been led on their search by scripture, and there has also been a political imperative to find oil — after all, if you think it’s bad that the US imports most of its oil and depends in part on fundamentalist Islamic states, how do you think Israel feels about effectively doing the same thing?

There have been lots of small oil discoveries in Israel, but not much production — the few producing oil wells all tapped out pretty quickly after being found. They have had a little bit better luck offshore in the Mediterranean, mostly with natural gas[7], but that’s not the push .

That’s not necessarily completely shocking — Jordan and Lebanon, Israel’s closest neighbors, are also oil importers, and Syria, the only significant oil producer in the immediate neighborhood, apparently has been seeing production declines for quite some time. Egypt, on the other hand, has been a substantial oil producer (though production has declined there for many years, too), and one of their major petroleum areas is the Sinai Peninsula, which is also one of the places that Israel had more success with in oil exploration, during the years that Israel held the Sinai before the Camp David Accords 30 years ago.

There remains oil exploration in Israel, both onshore and offshore, but despite the improved seismic exploration and the increased governmental push for a coherent exploration strategy, it doesn’t seem like anyone’s on the verge of capping a gusher in the Holy Land. Zion is hoping to change that.

Now, I mentioned the biblical connection — and that’s important, because several of the companies exploring for oil in Israel in the past have used biblical clues to target their drilling activity. I have no idea whether this is brilliant or kooky (I have my suspicions, but I don’t know enough about it to be judgemental) — there are some interesting articles about this if the concept is new to you, including one from 2005 where Zion’s CEO says “The Bible spells out where the oil is[8];” an older one about some earlier bible-led exploration[9]; and a fun article about the bigger picture from Mother Jones last year[10]. As I said, I don’t know much about this stuff, but you should have at least a little understanding of it if you’re going to place a bet with ZN.

In a more traditional exploration note, offshore Israel exploration has gotten a boost lately — Noble Energy[11] made a big gas discovery there earlier this year. So perhaps there’s some hope, but I have no idea whether Zion Oil & Gas will ever bring similarly good news to Israel.

Of late, the only substantial news seems to be that they’ve applied for that additional acreage, as teased, and that they’ve got a drilling rig coming in from Turkey[12] that should be ready to start working later this month. What they’ll find, that’s anyone’s guess — and there may be more news about them that’s relevant, I haven’t dug very deep on this one yet.

The shares had a nice spike over $15 back in February, which gave them close to a double on the year, but though they did hover around $12 for several weeks after that the shares have since fallen under $10. I don’t know what the “breakout” indicator was that TradeMaster was looking for, or if they’re still excited about this one today (the first copy of the ad I saw was from March 31, when the shares were just a hair under $12 and starting their 20% drop that puts them at about $9.50 as I type).

So what do you think? Will the bible, or modern technology, lead to a big oil discovery in Zion’s exploration zones in Israel? Prefer the more traditional promise of Noble’s offshore gas platforms? Or do you think it’s all a bunch of hooey? I know from past comments and questions that there are at least a few folks in the great Gumshoe readership who are interested in these guys … let us know what you think with a comment below.

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