This is a fun one to start off the week with — Christian DeHaemer, who writes the Crisis and Opportunity newsletter that got us all so gaga over Mongolia early this year has a new pick to tease for us that he calls “God’s Chosen Investment” (that Mongolian oil push continues, by the way, my latest note on it was here and I also shared some thoughts on Mongolia in my latest note to the Irregulars on Friday).

This time, as he has so often for similar teasers in the past, DeHaemer is looking at a war-torn or unstable area of the world to find a small cap resource company. That has sometimes worked quite well, as for his suggestion of Dragon Oil in Turkmenistan a couple years ago and, so far, of Mongolia’s Petro Matad, and sometimes it blows up in your face, as with his older Somali oil idea, Range Resources (the Australian one, not the Marcellus Shale gas company).

So what is it this time around? Here’s the gist, in his words from the teaser:

“The Bible predicts that Israel would discover oil…

“The Torah also proclaims that Israel would ‘suck honey out of the rock, and oil out of the flinty rock… ‘

“That Zebulun and Issachar ‘shall suck of the abundance of the seas, and of treasures hid in the sand… ‘ (Deut 33:19)

“And that Asher would ‘dip his foot in oil’ (Duet 33:24).

“And oil they found…

“The U.S. Geological Survey estimates 122 trillion cubic feet of undiscovered, recoverable natural gas located in the Levant Basin Province in the Eastern Mediterranean region.

“The oil lies in the coastal areas near Israel, Lebanon, and Syria, and can be recovered using modern technology.

“This bullish report is the first by the USGS to identify viable resources in this basin…”

So … oil in Israel. As if they don’t have enough to fight about in that little sliver of the world. To DeHaemer’s credit, he does note a couple of the risks involved with Israeli oil, in that they have territorial disputes, which everyone knows about, and that their oil and gas regulations may not exactly be firm just yet. Here’s how he puts it:

“There are two risks to profiting from this new energy mega-find…

“The first is that Israel is revisiting its oil and gas regulation last updated in 1952, an attempt to extract more money from the oil and gas companies.

“Oil and natural gas production is an expensive process that takes years to pay off. Companies don’t put billions down if they think the rules are going to change midstream…

“The second risk is the lack of official boundaries with Lebanon. Israel is still officially at war with that country; part of the Levant find is over the line, and Hezbollah doesn’t seem to need a reason to blow stuff up.”

He also goes on to talk about the leading company in Israeli oil exploration, Noble Energy (NBL), which is already producing gas offshore Israel and doing much of the offshore exploration in newer fields (most of the Levant Basin is offshore, in Israeli waters). But of course, Noble Energy is fairly well known and is a big, profitable company … which is to say, it’s boring, and it’s not going to go “to the moon” based on Israeli drilling results.

But DeHaemer teases a different stock, one that he gave a buy report on to his readers about a week ago — this one is onshore.

“One of the men who compiled the data in the USGS report used to be a researcher for the Geophysical Institute of Israel. Today, he owns a small company that just announced it has started drilling for undiscovered oil on land.”

So that’s probably enough of a clue for anyone who has looked into Israeli oil investments in the past, but there’s a bit more:

“This company has a $105 million market cap and has exploration rights within the Levant Basin. Part of the reason that this company it is so cheap is that the CEO believes and professes that the Torah says they are preordained to strike oil, and quotes the verses in the first paragraph.

“MBA/investment types don’t go in for that sort of stuff and dismiss this company with a smirk.

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“But I think there’s a lot more value here than meets the eye. They started drilling two weeks ago; there’s plenty of upside, little downside, and nice catalyst to spark a rally.

“If these guys hit oil, this stock it will launch.”

So who is it? This mus be Zion Oil and Gas (ZN)

I wrote about this one ages ago, when it was twice the price and being teased by Ian Wyatt.

And yes, they are currently drilling in their license area in northwestern Israel at the Ma’anit-Joseph #3 site in what they call the Joseph Field (most oil and gas production both onshore and offshore in Israel, which has been pretty limited in general, is in the southern half of the country) — you can read their basic story of the Joseph Field exploration and background here. The last update came on Friday, when they announced that the current hole they’re drilling is at 3,900 feet and they’re compiling logs and doing well casing. They’re pretty good about updating investors with info about their drilling, so if you want to keep an eye on what’s happening you can do so here (though I’m sure there will also be a splashier press release announcement if something notable happens).

So far, they’ve not exactly had a Spindletop moment in 3+ years of drilling, but I don’t know that anyone was expecting that — they’re going deeper with this next well (aiming for 19,000 feet+) and have previously said that the drilling should last about six months, which would mean they should finish in February. News could obviously come at any time, either good or bad, but that’s all I’ve seen about timing.

This is a pretty new area for oil exploration in the Northern part of the country, with the only real excitement of late being Zion’s own previous wells (which were disappointing — Ma’anit #1 suspended drilling and was abandoned, Ma’anit #2 failed to find a commercial discovery and is being at least temporarily abandoned) and the purported discovery of a large field by Givat Olam, (this partnership trades in Tel Aviv — the pink sheets ticker is GOOXF, but trading is halted due largely, from what I read, to incomprehensible filings). Zion’s other drilling project to date appears to still be halted pending more seismic data, after their drill got stuck in some kind of volcanic rock.

I’m not sure what investors expect at this point, but it is true that the company was founded by Christian Zionist John Brown, who has written books about the experience, with what you’d pretty much have to call a “mission” in the religious sense of the word — he visited Israel in the mid-1980s and soon after dedicated his life to Israeli oil exploration, leading up to the founding of Zion Oil and Gas about ten years ago. Here’s how Brown puts it:

“As a Christian Zionist and New Covenant believer, I received the calling to render assistance to the Jewish people and Nation of Israel and to aid them in the Restoration of the Land by providing the oil and gas necessary to maintain their political and economic independence.”

And yes, the company’s goal is basically to find the oil that the Bible says is there — which, you’ll be unsurprised to hear, does put off the more analytical oil investor crowd and attract a more faith-based investing group to the message boards. They definitely have a “half wacko” reputation among investors, but they also have a lot of committed followers, and the Levant Basin is real and has shown at least some signs of oil in their prior drilling for the Joseph Project, and the company does employ geologists (which isn’t to say that they’ll find oil, lots of companies doing wildcat exploratory drilling without guidance from the Bible fail to find oil, too).

I’d hate to think that faith was behind investors losing their money in these shares to this point, but if so, perhaps that faith will be rewarded if they strike a substantial oil reserve. I have no idea how likely that might be, though if they have gangbuster results one imagines that skeptics would overlook the bible verses and buy the oil company. And really, the sentiment here shouldn’t be out of place — Wildcatters in Texas have certainly been known to drill on faith as well, and it’s a business where hope and prayer are to be found in abundance, it’s just that most folks don’t take their drilling directions quite so directly from the Bible.

DeHaemer also noted in this tease that …

“One of the men who compiled the data in the USGS report used to be a researcher for the Geophysical Institute of Israel. Today, he owns a small company that just announced it has started drilling for undiscovered oil on land.”

That’s not John Brown, who, not surprisingly, is the largest individual shareholder in Zion Oil and Gas, but it could be Yehezekel Druckman, whose prior studies were cited in the USGS Report [pdf file]. Dr. Druckman is a director and was formerly Petroleum Commissioner for Israel and a longtime staffer at the Geological Survey of Israel, so he would have taken part in much of the earlier study of Israel’s petroleum prospects. He does own a small piece of Zion as a director (about 12,000 shares), all of it, as far as I can tell, gained from an options exercise.

There is, of course, abundant room for caution, though DeHaemer sees some opportunity and I imagine he’s taken a closer look at this company than I have — Zion has been around for a while and raised money many times, with several rights offerings lately to sell shares to current investors and generate funds to pay for drilling and seismic studies. Overall I think they’ve raised about $70 million and spent it all, (most recently to buy 51% ownership of the drilling rig they’re using so they don’t have to rely on an outside contractor). They have a market cap of just over $100 million now with a share price around $5.60, so certainly news that is bad or good could easily move the shares.

So what do you think? This stock usually inspires a strong response from people, and their religious commentary and strong media presence certainly get them more attention than most $100 million exploration companies would receive. I can’t say that I’ve ever been tempted by this stock, but I do love a good story. Feel free to toss your comments on the fire by entering them into the friendly little box below.

And if you’ve ever subscribed to Dehaemer’s Crisis and Opportunity, please share your thoughts by clicking here — you could be the first to review this newsletter. (Or if you go back a ways and subscribed to his older Crisis Trader newsletter, which I don’t think exists any longer, feel free to review that one if you prefer — we don’t have any reviews of that on file yet, either).