10QSB

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________

FORM 10-QSB

(Mark One)

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities

Exchange Act of 1934

For the quarterly period ended September 30, 2006

OR

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities

Exchange Act of 1934

Commission file number 333-131275

ZION OIL & GAS, INC.

(Name of Small Business Issuer as Specified in Its Charter)

Delaware
(State or other Jurisdiction
of Incorporation or Organization) 20-0065053
(I.R.S. Employer
Identification No.)

6510 Abrams Rd., Suite 300
Dallas, TX 75231
(Address of Principal Executive Offices)

(214) 221-4610
(Issuer's Telephone Number, Including Area Code)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     X        No _____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes _____     No     X    

The issuer had 8,041,888 shares of common stock outstanding as of November 17, 2006.

Transitional Small Business Disclosure Format (Check one): Yes__ No X

1

PART I--FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS
	Balance Sheets -September 30, 2006 (unaudited) and December 31, 2005 (as restated).	4
	Statements of Operations for the three months and nine months ended September 30, 2006 and 2005, and period from April 6, 2000 (inception) to September 30, 2006.	5
	Statements of Changes in Stockholders' Equity for the nine months ended September 30, 2006, and period from April 6, 2000 (inception) to September 30, 2006.	6
	Statements of Cash Flows for the nine months ended September 30, 2006 and 2005, and period from April 6, 2000 (inception) to September 30, 2006 (as restated).	12
	Notes to Financial Statements	14
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION	29
ITEM 3.	CONTROLS AND PROCEDURES	31

PART II--OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	32
ITEM 2.	CHANGES IN SECURITIES
	Recent Sales of Unregistered Securities (as of June 30, 2006)	32
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	33
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	33
ITEM 5.	OTHER INFORMATION	33
	Notice of Annual Meeting of the Shareholders	33
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	33
	Reports on Form 8-K	33
	Exhibit Index	33

2

ZION OIL & GAS, INC.

(A Development Stage Company)

INTERIM FINANCIAL STATEMENTS

FOR

THE NINE MONTHS ENDING

SEPTEMBER 30, 2006

INDEX TO INTERIM FINANCIAL STATEMENTS

                                                  Page

Balance Sheets - September 30, 2006 and December 31, 2005.................................................................................. 4

Statements of Operations for the three months and nine months ended September 30, 2006 and 2005............ 5

Statements of Changes in Stockholders' Equity......................................................................................................... 6

Statements of Cash Flows for the nine months ended September 30, 2006 and 2005..........................................12

Notes to Financial Statements......................................................................................................................................14

3

ZION OIL & GAS, INC.
(A Development Stage Company)
Balance Sheets
		September 30,	December 31,
ASSETS		2006	2005
		(Unaudited)	(Audited)
Current assets
Cash and cash equivalents		$       80,984	$  1,141,029
Inventories		149,801	149,801
Prepaid expenses and other		11,402	25,396
Deferred offering costs		346,308	126,030
Deferred financing costs		-	19,695
Refundable value added tax		1,271	29,401
	Total current assets	589,766	1,491,352
Unproved oil and gas properties, full cost method		8,330,083	7,692,500
Property and equipment
Net of accumulated depreciation of $16,191 and $5,843		48,793	48,852
Other assets
Assets held for severance benefits		11,093	6,544
	Total assets	$ 8,979,735	$ 9,239,248
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to related parties		$ 81,000	$ 81,000
Notes payable to other parties		69,500	-
Accounts payable		201,244	619,257
Accrued liabilities		302,905	292,001
Deferred officers compensation		1,561,132	-
	Total current liabilities	2,215,781	992,258
Notes payable to related parties less current maturities		27,000	31,000
Provision for severance pay		59,708	48,318
Deferred officers compensation		-	929,007
Stockholders' equity
Common stock, par value $.01; 20,000,000 shares authorized;
September 30, 2006 - 8,036,288 shares; December 31, 2005 - 7,705,288 shares issued and outstanding		80,363	77,053
Additional paid in capital		12,887,466	11,991,988
Deficit accumulated in development stage		(6,290,583)	(4,830,376)
	Total stockholders' equity	6,677,246	7,238,665
	Total liabilities and stockholders equity	$ 8,979,735	$ 9,239,248
The accompanying notes are an integral part of these unaudited interim financial statements.

4

ZION OIL & GAS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS (Unaudited)
					Period from
					April 6, 2000
					(inception to)
	Three months ended September 30		Nine months ended September 30,		September 30,
	2006	2005	2006	2005	2006
				As restated*
Revenue	$            -	$            -	$            -	$            -	$               -
General and administrative expenses
Legal and professional	133,548	42,351	406,707	283,493	2,401,502
Salaries	283,194	46,151	720,593	330,168	2,182,611
Other	79,570	57,344	304,140	302,949	1,012,287
	496,312	145,846	1,431,440	916,610	5,596,400
Loss from operations	(496,312)	(145,846)	(1,431,440)	(916,610)	(5,596,400)
Other income (expense)
Termination of initial public offering	-	-	-	-	(507,380)
Interest expense, net	(6,953)	(25,503)	(28,767)	(45,888)	(186,803)
Loss before income taxes	(503,265)	(171,349)	(1,460,207)	(962,498)	(6,290,583)
Income tax	-	-	-	-	-
Net loss	$ (503,265)	$ (171,349)	$(1,460,207)	$ (962,498)	$(6,290,583)
Net loss per share of common stock -
Basic and diluted	$        (0.06)	$        (0.02)	$        (0.19)	$        (0.15)	$         (1.43)
Weighted-average shares outstanding -
Basic and diluted	8,029,363	7,060,886	7,878,735	6,567,546	4,384,459
* Restated (see Note 3)
The accompanying notes are an integral part of these unaudited interim financial statements.

5

ZION OIL & GAS, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
						Deficit
						Accumulated
					Additional	in
	Preferred Stock		Common Stock		Paid-in	Development
	Shares	Amount	Shares	Amount	Capital	Stage	Total
Balances, April 6, 2000	-	$      -	-	$        -	$        -	$        -	$        -
Issued for cash ($0.001 per share)	-	-	2,400,000	240	2,160	-	2,400
Issuance of shares and warrants in a private
offering which closed in January 2001
($1 per share)	-	-	100,000	10	99,990	-	100,000
Costs associated with the issuance of shares	-	-	-	-	(24,090)	-	(24,090)
Waived interest on conversion of debt	-	-	-	-	233	-	233
Value of warrants granted to employees	-	-	-	-	1,840	-	1,840
Net loss	-	-	-	-	-	(5,597)	(5,597)
Balances, December 31, 2000	-	-	2,500,000	250	80,133	(5,597)	74,786
Issuance of shares and warrants in a private
offering which closed in January 2001
($1 per share)	-	-	135,000	13	134,987	-	135,000
Issuance of shares and warrants in a private
offering which closed in September 2001
($1 per share)	-	-	125,000	12	124,988	-	125,000
Payment of accounts payable through
issuance of shares and warrants	-	-	40,000	4	39,996	-	40,000
Payment of note payable through
issuance of shares and warrants	-	-	25,000	3	24,997	-	25,000
Issuance of shares and warrants in a private
offering which closed in November 2001
($1 per share)	-	-	175,000	18	174,982	-	175,000
Costs associated with the issuance of shares	-	-	-	-	(85,461)	-	(85,461)
Waived interest on conversion of debt	-	-	-	-	843	-	843
Value of warrants granted to employees	-	-	-	-	37,503	-	37,503
Value of warrants granted to
directors and consultants	-	-	-	-	3,128	-	3,128
Net loss	-	-	-	-	-	(206,707)	(206,707)
Balances, December 31, 2001	-	-	3,000,000	300	536,096	(212,304)	324,092
(Continued on following page)
The accompanying notes are an integral part of these unaudited interim financial statements.

6

ZION OIL & GAS, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Continued)
						Deficit
						Accumulated
					Additional	in
	Preferred Stock		Common Stock		Paid-in	Development
	Shares	Amount	Shares	Amount	Capital	Stage	Total
Change in par value of common shares
from $0.0001 per share to $0.01 per share	-	-	-	29,700	(29,700)	-	-
Issuance of shares and warrants in
a private offering which closed in
January 2002 ($1 per share)	-	-	20,000	200	19,800	-	20,000
Issuance of shares and warrants in
a private offering which closed in
November 2002 ($10 per share)	25,400	254	21,500	215	253,531	-	254,000
Payment of accounts payable through
issuance of preferred shares and warrants	12,700	127	-	-	126,873	-	127,000
Payment of accounts payable through
issuance of common shares and warrants	-	-	111,000	1,110	131,390	-	132,500
Payment of note payable through
issuance of shares and warrants	5,000	50	-	-	49,950	-	50,000
Payment of accounts payable to employee
through issuance of shares upon
exercise of warrants	-	-	400,000	4,000	76,000	-	80,000
Costs associated with the issuance of shares	-	-	-	-	(159,449)	-	(159,449)
Waived interest on conversion of debt	-	-	-	-	2,963	-	2,963
Deferred financing costs on debt
conversions/modifications	-	-	-	-	20,800	-	20,800
Value of warrants granted to employees	-	-	-	-	537	-	537
Value of warrants granted to
directors and consultants	-	-	-	-	12,998	-	12,998
Net loss	-	-	-	-	-	(403,114)	(403,114)
Balances, December 31, 2002	43,100	431	3,552,500	35,525	1,041,789	(615,418)	462,327
(Continued on following page)
The accompanying notes are an integral part of these unaudited interim financial statements.

7

ZION OIL & GAS, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Continued)
						Deficit
						Accumulated
					Additional	in
	Preferred Stock		Common Stock		Paid-in	Development
	Shares	Amount	Shares	Amount	Capital	Stage	Total
Issuance of shares in connection
with executive employment	-	-	50,000	500	49,500	-	50,000
Issuance of shares on warrants exercise	-	-	165,000	1,650	31,350	-	33,000
Issuance of dividend shares to
record holders as of December 31, 2002	4,310	43	-	-	(43)	-	-
Issuance of shares and warrants in
a private offering which closed in
February 2003 ($10 per share)
for cash consideration	10,500	105	-	-	104,895	-	105,000
for reduction of accounts payable	4,554	46	-	-	45,494	-	45,540
Issuance of shares and warrants as
compensation for extension of
$100,000 line of credit	1,000	10	-	-	9,990	-	10,000
Payment of account payable through
issuance of shares and warrants	100	1	-	-	999	-	1,000
Conversion of preferred shares to common
shares in reincorporation merger	(63,564)	(636)	762,768	7,628	(6,992)	-	-
Issuance of shares in a private offering
which closed in July 2003 ($3 per share)
for cash consideration	-	-	33,000	330	98,670	-	99,000
for reduction of accounts payable	-	-	3,000	30	8,970	-	9,000
Issuance of shares upon
exercise of options and warrants:
for cash consideration	-	-	25,000	250	24,750	-	25,000
for reduction of accounts payable	-	-	124,083	1,241	142,217	-	143,458
Issuance of shares upon
exercise of warrants for cash consideration	-	-	63,500	635	82,115	-	82,750
Payment of account payable through
issuance of shares	-	-	80,000	800	139,200	-	140,000
Costs associated with the issuance of shares	-	-	-	-	(58,484)	-	(58,484)
Value of warrants granted to employees	-	-	-	-	47,008	-	47,008
Deferred financing costs on debt
conversions/modifications	-	-	-	-	(9,812)	-	(9,812)
Net loss	-	-	-	-	-	(873,310)	(873,310)
Balances, December 31, 2003	-	-	4,858,851	48,589	1,751,616	(1,488,728)	311,477
(Continued on following page)
The accompanying notes are an integral part of these unaudited interim financial statements.

8

ZION OIL & GAS, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Continued)
				Deficit
				Accumulated
			Additional	in
	Common Stock		Paid-in	Development
	Shares	Amount	Capital	Stage	Total
Issuance of shares on warrants exercise	122,500	1,225	182,525	-	183,750
Issuance of shares and warrants in
a private offering	251,250	2,512	1,002,488	-	1,005,000
Payment of officer salaries through
issuance of shares and warrants	46,250	463	184,537	-	185,000
Payment of accounts payable to officers and
consultants upon exercise of warrants	80,186	802	98,644	-	99,446
Payment of director honorariums through
issuance of shares and warrants	11,250	112	44,888	-	45,000
Payment of account payable through
issuance of shares and warrants	12,500	125	49,875	-	50,000
Payment of bridge loan through
issuance of shares and warrants	125,000	1,250	498,750	-	500,000
Payment of bridge loan interest and commitment
fee through issuance of shares and warrants	7,500	75	29,925	-	30,000
Payment of bridge loan finders fee through
issuance of shares and warrants	2,500	25	7,475	-	7,500
Payment of service bonus through issuance
of shares and warrants	20,000	200	19,800	-	20,000
Costs associated with the issuance of shares	-	-	(59,000)	-	(59,000)
Value of warrants granted to employees	-	-	40,625	-	40,625
Deferred financing costs on debt
conversions/modifications	-	-	30,383	-	30,383
Net loss	-	-	-	(1,736,934)	(1,736,934)
Balances, December 31, 2004	5,537,787	55,378	3,882,531	(3,225,662)	712,247
(Continued on following page)
The accompanying notes are an integral part of these unaudited interim financial statements.

9

ZION OIL & GAS, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Continued)
				Deficit
				Accumulated
			Additional	in
	Common Stock		Paid-in	Development
	Shares	Amount	Capital	Stage	Total
Issuance of shares on warrants exercised:
for cash	493,167	4,932	872,319	-	877,251
for payment of deferred officer salaries	17,334	173	20,827	-	21,000
for exchange of shares of common stock	120,000	1,200	(1,200)	-	-
Issuance of shares and warrants in a private
offering that closed in March 2005:
for cash	518,750	5,188	2,069,812	-	2,075,000
for payment of deferred officer salaries	10,000	100	39,900	-	40,000
for payment of accounts payable	6,250	62	24,938	-	25,000
Issuance of shares and warrants in a private
offering that closed in June 2005:
for cash	259,000	2,590	1,292,410	-	1,295,000
for payment of directors honoraria	14,000	140	69,860	-	70,000
for payment of accounts payable	3,000	30	14,970	-	15,000
Issuance of shares in a private
offering that closed in October 2005:
for cash	584,000	5,840	2,914,160	-	2,920,000
for payment of deferred officer salaries	40,000	400	199,600	-	200,000
for payment of accounts payable	22,000	220	109,780	-	110,000
Issuance of shares in a private
offering that closed in December 2005	80,000	800	439,200	-	440,000
Shares to be issued for services
provided by a director	-	-	41,666	-	41,666
Value of warrants and options granted to employees	-	-	215,845	-	215,845
Value of warrants granted to directors
and consultants	-	-	16,500	-	16,500
Deferred financing costs on debt
conversions/modifications	-	-	43,968	-	43,968
Costs associated with the issuance of shares	-	-	(275,098)	-	(275,098)
Net loss	-	-	-	(1,607,714)	(1,607,714)
Balances, December 31, 2005	7,705,288	77,053	11,991,988	(4,830,376)	7,238,665
(Continued on following page)
The accompanying notes are an integral part of these unaudited interim financial statements.

10

ZION OIL & GAS, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Continued)
				Deficit
				Accumulated
			Additional	in
	Common Stock		Paid-in	Development
	Shares	Amount	Capital	Stage	Total
Issuance of shares on warrants exercised:
for cash	39,500	395	137,105	-	137,500
Issuance of shares and warrants in a private
offering that closed in March 2006:
for cash	66,000	660	362,340	-	363,000
for payment of accounts payable	2,500	25	13,725	-	13,750
Shares issued for services
provided by a director	200,000	2,000	185,500	-	187,500
Issuance of shares and warrants in a private
offering that closed in September 2006
For cash	23,000	230	126,270	-	126,500
Value of options granted to employees	-	-	130,158	-	130,158
Costs associated with the issuance of shares	-	-	(59,620)	-	(59,620)
Net loss	-	-	-	(1,460,207)	(1,460,207)
Balances, September 30, 2006	8,036,288	$80,363	$12,887,466	($6,290,583)	$6,677,246
The accompanying notes are an integral part of these unaudited interim financial statements.

11

ZION OIL & GAS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Unaudited)
				Period from
		Nine-month	Nine-month	April 6, 2000
		period ended	period ended	(inception) to
		September 30, 2006	September 30, 2005	September 30, 2006
			As restated*
Cash flow from operating activities
Net Loss		$ (1,460,207)	$    (962,498)	$ (6,290,583)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation		10,348	8,515	16,191
Officer, director and other fees, paid via common stock		317,658	353,950	1,495,754
Interest paid through issuance of common stock		-	-	17,500
Write-off of costs associated with public offering		-	-	507,380
Changes in assets and liabilities, net:
Increase in inventories		-	-	(149,801)
Prepaid expenses and other		13,994	(48,828)	(11,402)
Increase in deferred offering costs		(220,278)	(46,490)	(346,308)
Refundable Value-Added tax		28,130	(71,771)	(1,271)
Severance pay		6,841	8,770	48,615
Accounts payable		(404,263)	(299,169)	806,212
Accrued liabilities		10,905	383,192	302,906
Increase in deferred officers' compensation		632,125	692,264	1,561,132
	Net cash used in operating activities	(1,064,747)	17,935	(2,043,675)
Cash flows from investing activities
Acquisition of property and equipment		(10,289)	(35,426)	(64,984)
Investment in oil and gas properties		(637,583)	(6,107,927)	(8,328,812)
	Net cash used in investing activities	(647,872)	(6,143,353)	(8,393,796)
Cash flows from financing activities
Deferred financing cost on debt conversions, net		19,694	20,063	89,377
Loan proceeds-related parties		-	37,000	258,620
Loan principal repayments-related party		(4,000)	(63,000)	(113,160)
Loan proceeds - other		69,500	-	569,500
Proceeds from sale of stock		627,000	6,172,275	10,563,151
Financing costs of issuing stock		(59,620)	(214,713)	(822,033)
	Net cash provided by financing activities	652,574	5,951,625	10,518,455
Net increase (decrease) in cash		(1,060,045)	(173,793)	80,984
Cash - beginning of period		1,141,029	468,409	-
Cash - end of period		$     80,984	$    294,616	$      80,984
(Continued on following page)
*Restated (see Note 3)
The accompanying notes are an integral part of these unaudited interim financial statements.

12

ZION OIL & GAS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
					Period from
		Nine-month	Nine-month		April 6, 2000
		period ended	period ended		(inception) to
		September 30, 2006	September 30, 2005	September 30, 2006
			As Restated*
SUPPLEMENTAL INFORMATION
	Cash paid for interest	$       15,641	$       5,090		$       56,118
	Cash paid for income taxes	-	-		-
	Non-cash operating and financing activities:
	Payment of accounts payable through
	issuance of preferred and common stock	13,750	40,000		950,218
	Payment of note payable through issuance
	of common stock	-	-		575,000
	Payment of accounts payable through
	issuance of note payable	-	-		34,678
	Financing costs paid through issuance of
	common stock	-	-		25,000
	Increase in accounts payable for financing costs	-	-		381,549
	Waived interest on debt conversion	-	-		4,039
	Shares issued for services provided by director	187,500	-		229,165
	Value of warrants and options granted to employees	130,158	22,950		473,516
	Value of warrants granted to directors
	and consultants	-	-		32,626
	Deferred financing costs on debt conversions	19,694	21,488		85,338
*Restated (see Note 3)
The accompanying notes are an integral part of these unaudited interim financial statements

13

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

Effective July 9, 2003, Zion Oil & Gas, Inc., a Florida corporation ("Zion Florida") was merged into its wholly owned Delaware subsidiary, Zion Oil & Gas, Inc. (the Company), the purpose of which was solely to reincorporate from Florida to Delaware in anticipation of a public offering. Upon the reincorporation, all the outstanding shares of common stock in Zion Florida were converted into common stock of the Company on a one-to-one basis and all the outstanding shares of preferred stock in Zion Florida were converted into common stock of the Company at the ratio of twelve shares of common for each share of preferred stock. All of the outstanding warrants and options of Zion Florida were converted into equivalent warrants and options of the Company.

The Company holds a petroleum exploration license on approximately 98,100 acres of unproved properties in north-central Israel called the "Ma'anit-Joseph License", issued to the Company by the State of Israel. The term on the license expires April 30, 2007 and it contained a commitment to drill or reenter a well on or before April 30, 2005.

On April 10, 2005 the Company commenced the reentry of the Ma'anit #1 and deepening of the well. On July 19, 2005 the well reached a depth of 15,482 feet and testing and completion began thereafter. During drilling and completion operations, the well had numerous significant oil and gas shows in different zones. At present, completion operations on the Ma'anit #1 well have been temporarily suspended and the drilling rig has been released. On March 15, 2006 the terms of the license were amended to provide that the Company commence the drilling of a new well to a depth of at least 4,400 meters or reenter the Ma'anit #1 well on or before March 1, 2007. The Company's engineers are designing a comprehensive completion procedure using a smaller and less expensive completion rig for the purpose of reentering the Ma'anit #1 well.

Declaration of a commercial discovery on the Ma'anit-Joseph License prior to the end of the license term, as may in certain circumstances be extended, will entitle the Company to receive a 30-year lease (extendable on certain conditions for an additional 20 years) subject to compliance with a field development work program and production.

Effective August 1, 2005, the Company received formal notification and documentation from the Minister of National Infrastructures and the Petroleum Commissioner granting the Company's application for a Preliminary Permit with Priority Rights for an area covering approximately 121,100 acres abutting on and immediately to the north of the Ma'anit-Joseph License. The permit is designated the "Asher" Permit and covers lands on Israel's coastal plain and Mt. Carmel range. The Asher Permit is for an 18-month period and is subject to a work program, with an estimated total cost as adjusted for the amended work program of $265,000, which requires the Company to perform certain geological and geophysical work. Upon satisfactory performance in accordance with the work program, as amended on May 16, 2006, the Company will have priority rights for the grant of an exploration license for a period of up to seven years for a portion of the Asher Permit area not to exceed 400,000 dunam (approximately 9 8,800 acres), subject to the fulfillment of the requirements of the Petroleum Law. Work on the program is in progress.

Operations in Israel are conducted through a branch office and the License and Permit are each held directly in the name of the Company. At present it is expected that all future income will be derived from Israeli operations.

Basis of Presentation

The unaudited interim financial statements have been prepared on a going concern basis, which contemplates realization of assets and liquidation of liabilities in the ordinary course of business. Since the Company is in the development stage, it has limited capital resources, no revenue, and a loss from operations. The appropriateness of using the going concern basis is dependent upon the Company's ability to obtain additional financing or equity capital to finance its current operations and, ultimately, to achieve profitable operations. The uncertainty of these conditions has created substantial doubt about the Company's ability to continue as a going concern. The unaudited interim financial statements do not include any adjustments that might result from the outcome of this uncertainty.

14

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (CONTINUED)

Basis of Presentation (Continued)

The accompanying unaudited interim financial statements were prepared in accordance with U.S. generally accepted accounting principles for the preparation of interim financial statements and, therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles used in annual financial statements. All adjustments, which are, in the opinion of management, of a normal recurring nature and are necessary for a fair presentation of the interim financial statements, have been included. Nevertheless, these financial statements should be read in conjunction with the financial statements and related notes included in the Company's annual financial statements for the year ended December 31, 2005. The results of operations for the period ended September 30, 2006 are not necessarily indicative of the results that may be expected for the entire fiscal year or any o ther interim period.

Management Presentation and Liquidity

On February 17, 2004, the registration statement with the Securities and Exchange Commission was declared effective to offer 7,000,000 shares of the Company's common stock to the public. The minimum offering requirement of $6,500,000 was not subscribed by the offering termination date of August 30, 2004. As a result, no securities were sold to the public, all agreements representing a total amount of approximately $3.7 million of subscriptions and commitments to subscribe, and the funds received in escrow pursuant to those agreements, that were received relating to the offering were returned to the subscribers by the Company and the escrow agent, and the Company removed from registration the 7,000,000 shares of the Company's common stock. Since then Management raised capital through debt and private offerings and on January 25, 2006 filed a registration statement for a public offering with a lower minimum of $2,450,000 (350,000 shares at $7 per share) and a maximum of $14,000,000 (2,000,00 0 shares at $7 per share). The Company's registration statement filed with the Securities and Exchange Commission for an Initial Public Offering was declared effective on September 26, 2006. Under the terms of the offering, the minimum subscription of $2,450,000 must be reached by December 26, 2006 (subject to extension for an additional 30 days if approved by the American Stock Exchange). The Company si in the process of accepting subcsriptions. In addition, under the Company's registration statement, the Company registered 521,200 shares of its common stock underlying warrants outstanding on September 26, 2006 that expire on December 31, 2006 with a total exercise price of $2,511,000. In the opinion of management, all adjustments considered necessary for a fair presentation of financial position, results of operations, and changes in financial position have been included.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Statements in United States Dollars

The currency of the primary economic environment in which the operations of the Company are conducted is the United States dollar ("dollar"). Therefore, the dollar has been determined to be the Company's functional currency. Non-dollar transactions and balances have been translated into dollars in accordance with the principles set forth in Statement of Financial Accounting Standards (SFAS) No. 52 "Foreign Currency Translation" (SFAS No. 52).

Transactions in foreign currency (primarily in New Israeli Shekels - "NIS") are recorded at the exchange rate as of the transaction date except for activities relating to balance sheet items which are recorded at the appropriate exchange rate of the corresponding balance sheet item. Monetary assets and liabilities denominated in foreign currency are translated on the basis of the representative rate of exchange at the balance sheet date. Non monetary assets and liabilities denominated in foreign currency are translated at historical exchange rates. All exchange gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as they arise.

Cash

The Company maintains its cash balance at two banks with one bank located in the United States and one bank located in Israel. For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

15

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Inventories

Inventories include equipment and materials to be used in future drilling and completion operations and are stated at the lower of cost or market value. Cost is determined by the weighted average method.

Oil and Gas Properties

The Company follows the full-cost method of accounting for oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized.

All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is included in income from continuing operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.

Abandonment of properties are accounted for as adjustments to capitalized costs with no loss recognized. During the six months ended June 30, 2006 and the year ended December 31, 2005 no unproved property was found to be impaired. The net capitalized costs are subject to a "ceiling test" which limits such costs to the aggregate of the estimated present value of future net revenues from proved reserves discounted at ten percent based on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties. The recoverability of amounts capitalized for oil and gas properties is dependent upon the identification of economically recoverable reserves, together with obtaining the necessary financing to exploit such reserves and the achievement of profitable operations.

The company has no economically recoverable reserves and no amortization base. Unproved oil and gas properties consist of capitalized exploration costs (all of which are excluded from the amortization base) of $637,583 and $6,107,928 for the nine month periods ended September 30, 2006 and 2005, respectively, and $8,330,083 for the period from inception (April 6, 2000) to September 30, 2006.

Property and Equipment

Property and equipment other than oil and gas property and equipment is recorded at cost and depreciated over their estimated useful lives of three to fourteen years.

Costs Associated With Public and Private Offerings

Costs associated with each specific private or public offering are accumulated until either the closing of the offering or its abandonment. If the offering is abandoned, the costs are expensed in the period the offering is abandoned. If the offering is completed and funds are raised, the accumulated costs are recorded as a reduction to the paid-in capital attributable to the offering. Financing costs not attributable to any specific offering are charged to expense as incurred.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates.

16

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Adoption of Recently Issued Accounting Standards

SFAS 123R - Share Based Payments: Prior to January 1, 2006, the Company applied the fair-value based method of accounting for all of its stock-based compensation plan in accordance with the provisions of Financial Accounting Standards Board's Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123").

The fair value of stock-based compensation granted to employees and directors prior to July 15, 2003, the date of the Company's first filing with the U.S. Securities and Exchange Commission, in connection with its IPO, was estimated on the date of grant using the minimum-value method as permitted for private entities under Statement No. 123.

The fair value of stock-based compensation granted to employees and directors subsequent to July 15, 2003, is measured according to the Black Scholes option-pricing model and recognized over the requisite service period.

As of January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) "Share-Based Payments" ("SFAS 123R") using the modified prospective method, which requires measurement of compensation cost for all stock-based awards based upon the fair value on date of grant and recognition of compensation over the service period for awards expected to vest. Under this method, the Company will recognize compensation cost for awards granted beginning January 1, 2006, based on the Black Scholes option-pricing model.

The value of stock options, as noted, is recognized as compensation expense on a straight-line basis, over the requisite service period of the entire award, net of estimated forfeitures. On adoption of the modified prospective method in adopting SFAS 123R, the Company did not need to adjust the corresponding amounts included in these financial statements.

The adoption of SFAS 123R has had no effect on the Company's balance sheet or results of operations.

SFAS 151 - Inventory Costs, an Amendment of Accounting Research Bulletin ("ARB") No. 43: In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment of Accounting Research Bulletin No. 43, Chapter 4" ("SFAS 151"). The amendments made by SFAS 151 clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.

The adoption of this SFAS 151 has had no effect on the Company's balance sheet or results of operations.

SFAS 153 - Exchanges of Nonmonetary Assets, an Amendment of Accounting Principles Bulletin (APB) Opinion No. 29, "Accounting for Nonmonetary Transaction": In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment of Accounting Principles Bulletin (APB) Opinion No. 29, Accounting for Nonmonetary Transactions" ("SFAS 153"). The guidance in APB Opinion No. 29 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in Opinion No. 29, however, included certain exceptions to that principle. SFAS 153 amends Opinion No. 29 to eliminate the exception for nonmonetary assets exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result o f the exchange.

The adoption of SFAS 153 has had no effect on the Company's balance sheet or results of operations.

17

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Adoption of Recently Issued Accounting Standards (Continued)

SFAS 154 - Accounting Changes and Errors Corrections: In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Errors Corrections" ("SFAS 154"). SFAS 154 replaces APB Opinion No. 20, "Accounting Changes", and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements", although it carries forward some of their provisions. SFAS 154 requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. A change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets will be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 is effective for changes in accounting principle made in fiscal years beginning after December 15, 2005.

The adoption of SFAS 154 has had no effect on the Company's balance sheet or results of operations.

FIN 48 - Accounting for Uncertainty in Income Taxes: In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation 58 "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This interpretation is effective for fiscal years beginning after December 15, 2006 (January 1, 2007 for the Company). Any adjustments required upon the adoption of this interpretation must be recorded directly to retained earnings in the year of adoption and reported as a change in accounting principle.

The Company does not expect the adoption of FIN 48 to have a material effect on its balance sheet or statement of operations.

Recent Accounting Pronouncements

SFAS 157 - Fair Value Measurements (SFAS 157): In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS No. 157). This Standard defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. In addition, SFAS No. 157 disallows the use of block discounts and supercedes the guidance in EITF 02-3, which prohibited the recognition of day-1 gains on certain derivative trades when determining the fair value of instruments traded in an active market. With the adoption of this Standard, these changes will be reflected as a cumulative effect adjustment to the opening balance of retained earnings.

The Company does not expect the adoption of SFAS 157 to have a material effect on its balance sheet or statement of operations.

SFAS No. 158 - Employer's Accounting for Defined Benefit Pensions and Other Postretirement Benefits: In September 2006, the FASB issued (SFAS No. 158). In accordance with SFAS No. 158, effective December 31, 2006, the Company must record the funded status of each of its defined benefit pension and postretirement plans on its balance sheet with the corresponding offset, net of taxes, recorded in Accumulated Other Changes in Equity From Nonowner Sources within Stockholders' Equity.

The Company does not expect the adoption of SFAS No. 158 to have a material effect on its balance sheet or statement of operations.

SAB No. 108 - Quantification of Financial statement misstatements: In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB No. 108) regarding the quantification of financial statement misstatements. SAB No. 108 requires a "dual approach" for quantifications of errors using both a method that focuses on the income statement impact, including the cumulative effect of prior years' misstatements, and a method that focuses on the period-end balance sheet. SAB No. 108 will be effective as of January 1, 2007.

The adoption of this standard is not expected to have a material impact on the Company.

18

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

3. RESTATEMENT OF PRIOR FINANCIAL STATEMENTS

The financial statements for the nine months ended September 30, 2005 have been restated to reflect additional expenses related to stock warrants issued to employees and non-employees during the above mentioned period and compensation cost with respect to equity awards provided with new debt issuances and/or debt modification.

Statement of Operations

Period ended September 30, 2005
As previously	Adjustments	As restated
reported	(1)

Revenues	$            -	$            -	$            -
General and
administrative expenses
Legal and professional	250,543	32,950	283,493
Salaries	330,168	-	330,168
Other	295,466	7,483	302,949
	876,177	40,433	916,610
Loss from operations	(876,177)	(40,433)	(916,610)
Other income (expense)
Termination of initial
public offering	-	-	-
Interest expense, net	(25,727)	(20,161)	(45,888)
Loss before income taxes	(901,904)	(60,594)	(962,498)
Income tax	-	-	-
Net loss	$(901,904)	$ (60,594)	$(962,498)
Net loss per share of
common stock - basic
and diluted	$       (0.14)	$        (0.01)	$        (0.15)
Weighted-average shares
outstanding - basic and
diluted	6,567,546	-	6,567,546

19

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

3. RESTATEMENT OF PRIOR FINANCIAL STATEMENTS (CONTINUED)

Statement of cash flows

Nine months ended September 30,
As previously
reported	Adjustments	As restated

Cash flows from operating activities:
Net loss	$ (901,904)	$     (60,594)	$ (962,498)
Adjustments required to reconcile net loss to net cash
used in operating activities:
Depreciation	8,515	-	8,515
Officer, director and other fees, paid via common stock	-	353,950	353,950
Change in assets and liabilities, net:
Prepaid expenses and other	-	(48,828)	(48,828)
Increase in deferred offering costs	-	(46,490)	(46,490)
Refundable Value-Added Tax	-	(71,771)	(71,771)
Severance pay, net	(454)	9,224	8,770
Accounts payable	-	(299,169)	(299,169)
Accrued liabilities	1,214,410	(831,248)	383,192
Increase in other liabilities	(13,826)	13,826	-
Increase in deferred officer's compensation	(619,327)	1,311,591	692,264
Net cash provided by (used in) operating activities	(312,556)	330,491	17,935
Cash flows from investing activities:
Acquisition of property and equipment	(35,426)	-	(35,426)
Assets held for severance benefits	(6,109,199)	1,272	(6,107,927)
Net cash used in investing activities	(6,144,625)	1,272	(6,143,353)
Cash flows from financing activities:
Deferred financing cost on debt conversions, net	-	20,063	20,063
Loan proceeds - related party	-	37,000	37,000
Loan principal repayments - related party	(1,000)	(62,000)	(63,000)
Proceeds from sale of stock	6,375,190	(202,915)	6,172,275
Financing costs of issuing stock	(90,802)	(123,911)	(214,713)
Net cash provided by financing activities	6,283,388	(331,763)	5,951,625
Net increase (decrease) in cash	(173,793)	-	(173,793)
Cash - beginning of period	468,409	-	468,409
Cash - end of period	$ 294,616	$             -	$ 294,616

20

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

3. RESTATEMENT OF PRIOR FINANCIAL STATEMENTS (CONTINUED)

Statement of cash flows

Nine months ended September 30,
As previously
reported	Adjustments	As restated

SUPPLEMENTAL INFORMATION
Cash paid for interest	$ 5,090	$             -	$ 5,090
Cash paid for income taxes	-	-	-
Non-cash operating and financing activities:
Payment of accounts payable through
issuance of preferred and common stock	336,001	(296,001)	40,000
Financing costs paid through issuance of
common stock	45,000	(45,000)	-
Increase in accounts payable for financing costs	8,612	(8,612)	-
Value of warrants and options granted to employees	-	22,950	22,950
Deferred financing costs on debt conversions	-	21,488	21,488

4. PROVISION FOR SEVERANCE PAY

Israeli law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. The following principal plans relate to the employees in Israel:

• The liability in respect of certain of the company's employees is discharged in part by participating in a defined contribution pension plan and making regular deposits with recognized pension funds. The deposits are based on certain components of the salaries of the said employees. The custody and management of the amounts so deposited are independent of the company's control and accordingly such amounts funded (included in expenses on an accrual basis) and related liabilities are not reflected in the balance sheet.
• Part of the liability is discharged by deposits made with severance pay funds.
• The liability for severance pay is calculated on the basis of the latest salary paid to each employee multiplied by the number of years of employment. The liability is covered by the amounts deposited including accumulated income thereon as well as by the unfunded provision.
• The expenses in respect of severance pay for the three month period ended September 30, 2006 and for the year ended December 31, 2005 and the period from April 6, 2000 to June 30, 2006 amounted to $6,841, $10,457, $48,615 respectively.
• Withdrawals from the funds may be made only upon termination of employment.

21

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

4. PROVISION FOR SEVERANCE PAY (CONTINUED)

• As of September 30, 2006 and December 31, 2005, the Company has a provision for severance pay of $59,708 and $48,318, respectively. As of September 30, 2006 and December 31, 2005 the Company has $11,093 and $6,544 respectively, deposited in funds managed by major Israeli banks which are earmarked to cover severance pay liability. Such deposits are not considered to be "plan assets" and are therefore included in other assets.

5. UNPROVED OIL AND GAS PROPERTIES-FULL COST METHOD

Comprised as follows:

As of
September 30,
            2006 As of
December 31,
            2005

Drilling operations, completion costs and other related costs	$ 6,981,729	$ 6,642,101
Capitalized salary costs	635,268	512,109
Legal costs and license fees	437,867	284,186
Other costs	275,219	254,104
	$ 8,330,083	$ 7,692,500

6. STOCKHOLDERS' EQUITY

The Company has reserved 805,825 shares of common stock as of September 30, 2006 for the exercise of warrants and options. These warrants and options have been excluded from earnings per share calculations because they are anti-dilutive for all periods presented. These warrants and options could potentially dilute basic earnings per share in future years. The warrants and options exercise prices and expiration dates are as follows:

	Exercise Price	Number
	Per Share ($)	of Shares	Expiration Date
To non-employees
	3.00	10,000	December 31, 2006
	5.00	10,000	December 31, 2008
To employees and directors
	4.00	75,000	December 31, 2006
	5.00	135,000	December 31, 2008
	5.00	120,000	December 31, 2010
To investors
	5.00	439,700	December 31, 2006
	5.50	19,625	December 31, 2008
		805,825

22

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

6. STOCKHOLDERS' EQUITY (CONTINUED)

The warrant and option transactions since April 6, 2000 (inception) are shown in the table below:

	Weighted
Number of	average
shares	exercise price

Granted from April 6, 2000 (inception) to December 31, 2004 to:
Employees, officers and directors	1,460,936	1.10
Others	816,667	2.06
Expired/canceled	(300,000)	1.00
Exercised	(1,000,269)	0.67
Outstanding, December 31, 2004	977,334	2.37

Granted to:
Employees, consultants, officers and directors as part of compensation	120,000	4.79
Private placement investors	281,700	5.02
Expired/canceled	(40,333)	1.39
Exercised	(670,501)	1.58
Outstanding, December 31, 2005	668,200	4.78
Granted to:
Employees and directors	170,000	5.00
Private placement investors	7,125	5.50
Exercised	(39,500)	3.48
Outstanding, September 30, 2006	805,825	4.89
Exercisable, September 30, 2006	531,200	4.82

The following table summarizes information about stock warrants and options outstanding as of September 30, 2006:

Shares underlying outstanding				Shares underlying outstanding
warrants and options (nonvested)				warrants and options (all fully vested)
		Weighted				Weighted
		average	Weighted			average	Weighted
Range of		remaining	average	Range of		remaining	average
exercise	Number	contractual	exercise	exercise	Number	contractual	exercise
price ($)	outstanding	life (years)	price ($)	price ($)	outstanding	life (years)	price ($)
-	-	-	-	3.00	10,000	0.50	3.00
-	-	-	-	4.00	75,000	0.50	4.00
-	-	-	-	5.00	591,200	0.81	5.00
5.00	110,000	4.25	5.00	5.50	19,625	2.25	5.50
5.00	110,000	4.25	5.00	5.50	695,825		4.88

23

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

6. STOCKHOLDERS' EQUITY (CONTINUED)

Fair Value of Warrants and Options

Granted to employees

The following table sets forth information about the weighted-average fair value of warrants granted to employees and directors during the periods indicated, using the Black Scholes option-pricing model and the weighted-average assumptions used for such grants:

	Nine month	Period from April 6,
	Period ended	2000 (inception) to
	September 30,	September 30,
	2006	2006
Weighted-average fair value of underlying stock at grant date	$5.50	$3.00 - 5.50
Dividend yields	-	-
Expected volatility	40.0%	28.2% - 40.0%
Risk-free interest rates	5.15%	2.1% - 5.15%
Expected lives	4.49 years	1.74 - 5.00 years
Weighted Average grant date fair market value	$2.43	$0.76 - 2.43

Granted to non-employees

The following table sets forth information about the weighted-average fair value of warrants granted to non-employees during the periods indicated, using the Black Scholes option-pricing model and the weighted-average assumptions used for such grants:

	Period from April 6,
	2000 (inception) to
	30,
	September 30, 2006
Weighted-average fair value of underlying stock at grant date	$1.00 - 5.00
Dividend yields	-
Expected volatility	32.2% - 99.8%
Risk-free interest rates	2.8% - 4.42%
Contractual lives	0.56 - 3.17 years
Weighted Average grant date fair market value	$0.68

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the options.

The expected life represents the weighted average period of time that options granted are expected to be outstanding. The expected life of the options granted to employees and directors during the nine months of 2006 is calculated based on the Simplified Method as allowed under Staff Accounting Bulletin No. 107 (SAB 107), giving consideration to the contractual term of the options and their vesting schedules. The expected life of the option granted to non-employees equals their contractual term.

Due to the lack of sufficient history of the Company's own stock volatility, the Company estimates its own expected stock volatility based on the historic volatility for other oil exploration companies.

24

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

6. STOCKHOLDERS' EQUITY (CONTINUED)

Private Placement Offerings

During 2000, John Brown purchased 2,400,000 shares at the then current par value ($0.001 per share) on his behalf and on behalf of 25 other founding shareholders. Between January 1, 2001 and December 31, 2004, the Company raised $3,125,540 in private placements from the sale (adjusted for the reincorporation merger on July 9, 2003) of 1,830,298 shares of common stock and: (i) warrants with an original expiration date of December 31, 2004 to purchase 275,833 shares of common stock at $1.00 per share; (ii) warrants with an original expiration date of December 31, 2004 to purchase 411,770 shares of common stock at $1.50 per share; and (iii) warrants with an original expiration date of December 31, 2006 to purchase 181,500 shares of common stock at $5.00 per share. The December 31, 2004 warrant expiration date was extended to January 31, 2005, by which date the warrants were converted.

Between January 1, 2005 and March 31, 2005, the Company raised $2,140,000 through the sale of 535,000 shares of common stock and warrants to purchase 214,000 shares of the Company's common stock in a private placement offering. The warrants are exercisable at $5.00 per share, expire December 31, 2006 and are designated "E Warrants." Between April 22 and June 10, 2005, the Company raised $1,380,000 through the sale of 276,000 shares of common stock and 55,200 E warrants. Between June 20, 2005 and October 24, 2005, the Company raised $3,230,000 through the sale of 646,000 shares of common stock.

During December 2005, the Company raised $440,000 from the sale of 80,000 shares of common stock and warrants to purchase 12,500 shares of common stock at $5.50 per share at any time from July 1, 2007 (as may be deferred by the Company for up to six months) through December 31, 2008 such warrants being designated as "G warrants".

Between January 1, 2006 and September 30,2006 the Company (i) raised $489,500 from the sale of 89,000 shares of common stock and 7,125 G warrants; (ii) issued 2,500 shares of common stock for $13,750 in services; and (iii) issued 9,500 shares of common stock for $47,500 upon the exercise of E warrants; and (iv) issued 30,000 shares of common stock for $90,000 upon the exercise of $3.00 warrants.

Compensation Costs for Warrant and Option Issuances

The compensation cost of warrant and option issuances for the period ended September 30, 2006 and the year ended December 31, 2005, and for the period ended September 30, 2005 (as restated) and for the period from April 6, 2000 (inception) to September 30, 2006 amounted to $164,700, $343,358, $22,950 and $508,058, respectively.

As of September 30, 2006, there was $126,545 of unrecognized compensation cost related to nonvested stock options granted under the Company's various stock option plans. That cost is expected to be recognized as follows:

	Amount
October 1 - December 31, 2006,	$ 31,802
For the year ended December 31, 2007	67,959
For the year ended December 31, 2008	26,784
	$126,545

2005 Stock Option Plan

During 2005, a stock option plan (the "Plan") was adopted by the Company, pursuant to which 1,000,000 shares of common stock are reserved for issuance to officers, directors, employees and consultants. The Plan will be administered by the Board of Directors or one or more committees appointed by the board (the "Administrator").

25

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

6. STOCKHOLDERS' EQUITY (CONTINUED)

2005 Stock Option Plan (Continued)

The Plan contemplates the issuance of stock options by the Company both as a private company and as a publicly traded company and will be available to residents of the United States, the State of Israel and other jurisdictions as determined by the administrator. The award of stock options under the Plan will be made pursuant to an agreement between the Company and each grantee. The agreement will, among other provisions, specify the number of shares subject to the option, intended tax qualifications, the exercise price, any vesting provisions and the term of the stock option grant, all of which shall be determined on behalf of the Company by the Administrator. The Plan will remain in effect for a term of ten years unless terminated or extended according to its provisions.

On July 5, 2006, options were awarded under the 2005 Stock Option Plan as follows: (a) to two directors for the purchase of 50,000 shares of common stock at $5.00 per share through December 31, 2008 at a value of $58,647; (b) to one employee for the purchase of 80,000 shares of common stock at $5.00 per share through December 31, 2010 (these options will vest in three equal tranches of 26,667 shares each on January 1, 2007, on January 1, 2008 and on January 1, 2009 at a value of $193,600 that will be charged according to the vesting periods, and the options may not be exercised prior to July 1, 2007, subject to deferral by the Company for a period of up to six months); and (c) to one employee for the purchase of 40,000 shares of common stock at $5.00 per share through December 31, 2010 (these options will vest in four equal tranches of four vesting periods of 10,000 shares each, on the grant date, on October 1, 2006, on October 1, 2007 and on October 1, 2008 at a value of $96 ,800 that will be charged according to the vesting period, and the options may not be exercised prior to July 1, 2007, subject to deferral by the Company for a period of up to six months). Although these options were issued in July 2006 the service period for the options preceded the grant date and the value of the options were initially accounted for during December 2005. Compensation expense was recorded during December 2005 based on the fair value of the options at that time. This expense was adjusted at each subsequent period end to reflect the fair value of the options at period end.

7. RELATED PARTY TRANSACTIONS

Cimarron Resources, Inc.

Notes payable to related parties includes $33,000 under a loan facility with Cimarron Resources, Inc. (Cimarron) a company owned by the CEO of the Company. Cimarron obtained the monies to lend to the Company through a loan facility with Bank One. The note accrues interest at Bank One's Prime Rate plus 2.5%. The terms of Cimarron's loan facility to Zion are a 100 month term loan repayable monthly commencing December 1, 2003 in $500 increments, with Cimarron having the option commencing January 15, 2005 to call the loan in whole or in $5,000 increments on 30 days notice, which call option has subsequently been deferred until July 31, 2007.

Rappaport Loan

Notes payable to related parties includes a $75,000 note payable under a line of credit loan agreement with a shareholder of the Company. Pursuant to agreement of the parties until amended on July 31, 2006 as noted below, any outstanding balance was able to be converted at the election of the lender to shares of common stock in increments of $5,000 at $4.00 per share. Through July 31, 2006, outstanding balances accrued interest at 10% per annum. At the direction of the shareholder, a commitment fee of $10,000 was paid to two children of the shareholder in the form of 12,000 shares of common stock and warrants to purchase 5,000 shares of the Company's common stock. On July 31, 2006, the Rappaport loan was further extended to a date 15 days following the initial closing of a public offering. In connection with this extension the interest rate on the facility was increased to 12% per annum and Ms. Rappaport's option to convert monies outstanding under the facility to equity securities wa s cancelled by mutual agreement of the parties.

Robert E. Render

During the eight months ended August 31, 2006, Mr. Render provided $20,000 of consulting services to the Company. Commencing September 1, 2006, Mr. Render no longer provides consulting services to the Company.

26

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

7. RELATED PARTY TRANSACTIONS (CONTINUED)

Richard J. Rinberg

In connection with arranging the $300,000 in loans to the Company in February 2004, prior to his becoming a director in the Company, Mr. Richard J. Rinberg received a $7,500 fee paid in 2,500 shares of common stock.

In October 2005 Mr. Richard J. Rinberg was elected President of the Company effective November 1, 2005, and entered into a two year Retention and Management Agreement with the Company (teh "Retention Agreement"). Pursuant to the Retention Agreement, Mr. Rinberg was awarded 200,000 shares of common stock of the Company valued at $500,000 as compensation for his services during the two year period beginning November 1, 2005, subject to restrictions and vesting requirements. The Company received a valuation from an independent appraisal firm supporting this valuation. The Rinberg shares are subject to repurchase by the Company at $0.01 per share if Mr. Rinberg leaves his position with the Company prior to October 31, 2007, such repurchase rights being pro-rated over the 24-month period beginning November 1, 2005. In May 2006, the Company issued 200,000 shares of common stock to a trust company for the benefit of Richard Rinberg.

Other issuances

In respect of issuances to John Brown (related party) see Note 6.

8. COMMITMENTS AND CONTINGENCIES

Environmental Matters

The Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to the drilling of oil and gas wells in the operation thereof. Although environmental assessments are conducted on all purchased properties, in the Company's acquisition of existing or previously drilled well bores, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated.

Should it be determined that a liability exists with respect to any environmental clean up or restoration, the liability to cure such a violation could fall upon the Company. No claim has been made, nor is the Company aware of any contingent demands relating thereto. Liabilities for expenditures are recorded when environmental assessment and/or remediation is probable and the costs can be reasonably estimated.

Royalty Commitments

The Company is obligated, according to the Israeli Petroleum Law, 5712-1952 (the "Petroleum Law"), to pay royalties to the Government of Israel on the gross production of oil and gas from the oil and gas properties of the Company located in Israel (except those reserves serving to operate the wells and related equipment and facilities). The royalty rate stated in the Petroleum Law is 12.5% of the produced reserves. At September 30, 2006, the Company did not have any outstanding obligation in respect to royalty payments, since it is at the "exploration stage" and, to this date, no proved reserves have been found.

Long Term Incentive Plan

The Company has initiated the establishment of a long-term management incentive plan for key employees whereby a 1.5% overriding royalty or equivalent interest in the Ma'anit-Joseph license and such other oil and gas exploration and development rights as may in the future be acquired by the Company shall be assigned to key employees.

27

ZION OIL & GAS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Charitable Trusts

The Company has initiated the establishment of two charitable trusts based in Israel and in the United States for the purpose of supporting charitable projects and other charities in Israel and the United States. A 3% overriding royalty or equivalent interest in the Ma'anit-Joseph License and such other oil and gas exploration and development rights as may in the future be acquired by the Company shall be assigned to each charitable organization (6% overriding interest in the aggregate).

Notes Payable to Other Parties

During the second and third quarters 2006, the Company borrowed $69,500 from five other parties. The notes payable are for a one-year period and bear interest at the rate of 8.00% per annum.

9. SUBSEQUENT EVENTS

Following the balance sheet date, the Company (i) issued 5,600 shares of common stock upon the exercise of E warrants in consideration of $28,000, $10,500 of which was cash and $17,500 debt conversion; (ii) received $79,500 cash for exercise of D and E Warrants for 16,500 shares of common stock to be issued and (iii) borrowed $50,000 for a term of one-year, subject to pre-payment at an interest rate of 8.00% per annum.

28

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Introduction

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE RELATED NOTES TO THOSE STATEMENTS INCLUDED IN THIS FORM 10-QSB. SOME OF OUR DISCUSSION IS FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR INFORMATION REGARDING RISK FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, REFER TO THE RISK FACTORS SECTION OF OUR ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2005 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

Overview

We are engaged in oil and natural gas exploration upon 219,000 acres of preliminary permit and license areas in the State of Israel. On October 4, 2006, our work program for our Ma'anit-Joseph license was revised to defer until February 1, 2007, the date by which we need to sign a drilling contract to either reenter our Ma'anit #1 well or commence the drilling of a new well to a depth of at least 4,400 meters. Under the current terms of the license, we must commence reentry or drilling operations by March 1, 2007.

During the six years and six months between our formation and September 30, 2006, we have issued equity securities of a value, net of issuing costs, of $12,967,829 and have incurred total liabilities of $2,302,489 in order to operate our company and satisfy our work commitments under our agreements with the State of Israel. As of September 30, 2006, our officers and key employees have deferred the majority of their salaries and other compensation due, through July 2007. They have all exchanged portions of the deferred compensation from time to time for our equity securities, which (with four exceptions relating to employment stock options) have all been priced at the same price as the sales of our private equity capital.

On January 25, 2006, we filed a Registration Statement with the Securities and Exchange Commission for a public offering of 2,000,000 shares of the company's common stock at $7 a share with a minimum offering requirement of $2,450,000 (350,000 shares). Also registered in the offering were 521,200 shares underlying certain of our warrants with a final exercise date of December 31, 2006, which warrants have a total exercise price of $2,511,000. Our Registration Statement was declared effective by the Securities and Exchange Commission on September 26, 2006. The final date by which the minimum offering must be reached is December 26, 2006 (which date may be extended by us for up to an additional 30 days if approved by the American Stock Exchange). Our common stock has been conditionally accepted for listing on the American Stock Exchange, subject to timely closing of the offering. We are currently in the process of taking subscriptions for shares in the offering. Funds received in connection w ith the subscriptions are maintained in an escrow account at Sterling Trust Company for release to us on closing, or if the minimum amount necessary to close is not met in a timely fashion, for return to the subscribers. If the minimum offering is closed in a timely fashion, the offering may remain open through March 26, 2007 (subject to extension in certain circumstances to May 26, 2007) or such earlier time as either the maximum offering of $14,000,000 (2,000,000 shares) is placed or as we may in our discretion decide.

Neither our common stock nor our warrants are listed or traded on any stock exchange or organized market, and there is therefore no market for them.

Going Concern Basis

Our unaudited interim financial statements for the period ended September 30, 2006 have been prepared on a going concern basis, which contemplates realization of assets and liquidation of liabilities in the ordinary course of business. Since Zion is in the development stage, we have limited capital resources, insignificant revenue, and a loss from operations. The appropriateness of using the going concern basis is dependent upon our ability to obtain additional financing or equity capital and, ultimately, to achieving profitable operations. The uncertainty of these conditions raises substantial doubt about our ability to continue as a going concern. The unaudited financial statements do not include any adjustments that might result from the outcome of this uncertainty.

29

Liquidity and Capital Resources

Working capital deficit (current liabilities minus current assets) was ($1,626,015) at September 30, 2006, working capital (current assets minus current liabilities) was $499,094 at December 31, 2005. The reduction in working capital is largely due to the classification of the deferred officers' compensation as a current liability as of September 30, 2006. Following successful completion of our public offering, this deferred compensation will be paid out over such time as our board of directors deems appropriate in the circumstances as advised by management.

Net cash provided by financing activities was $652,574 and $5,951,625 for the nine months ended September 30, 2006 and 2005, respectively, of which $576,380 in 2006 and $5,957,562 in 2005 was from the sale of equity securities, net of equity sales costs. The remainder was provided by loans (less repayments of loans). Net cash used in investing activities was $647,872 and $6,143,353 for the nine months ended September 30, 2006 and 2005, respectively, virtually all of which was used for capitalized exploration costs on the license.

On September 30, 2006, we had cash and cash equivalents in the amount of $80,984.

As discussed above, our Registration Statement was declared effective on September 26, 2006 with a minimum of $2,450,000 that must be reached no later than December 26, 2006 (subject to possible extension through January 26, 2007). While we are currently in the process of accepting subscriptions, the minimum has not yet been reached. If we meet the minimum by December 26, 2006 then we will have funds to meet the company's needs through the second quarter of 2007 and be able to meet our minimum work program requirements under our Ma'anit-Joseph License. We believe that we will succeed in raising the minimum before December 26, but there is no assurance that we will. In addition, assuming that the initial closing of the offering will occur before December 26 and that the market price remains at or about the offering price of $7.00 through December 31, 2006, then based on our prior experience and the fact that the warrant exercise price is $4.00 and $5.00 per share, we anticipate the receipt o f between $1.5 and $2 million before the end of the year from the exercise of outstanding warrants that terminate December 31, 2006. Of this amount, we anticipate that we will receive approximately $100,000 before the initial closing.

If these expectations are met, this will enable us to meet our needs through to the end of 2007. If not, we will need to seek loans and/or seek joint venture partners in our petroleum interests prior to the expiry of our license and, to the extent necessary, further defer officer compensation. If none of these are successful and we are not able to meet in a timely fashion the minimum work program requirements under our license, our license will terminate on April 30, 2007 impairing the value of our unproved properties; in which event, we intend to apply for a new license on some or all of the same acreage. On October 31, 2006 we had cash and cash equivalents ofapproximately$41,000. See the discussion above in this Item 2 at "Going Concern Basis", page 29.

Results of Operations

We have no revenue generating operations as we are still an exploration stage company; however, drilling operations on the Ma'anit #1 commenced on April 10, 2005 and the rig was released seven months later. Almost all of our net loss for the nine months ended September 30, 2006, comes from general and administrative expenses. Such expenses totaled $1,431,440, consisting of $406,707 for legal and professional costs, $720,593 for salaries, most of which is deferred compensation (a non-cash expense) of our directors, officers and key employees, and other costs in the amount of $304,140.

Forward-Looking Statements

The preceding discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this Form 10-QSB. Certain statements made in this discussion are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may materially differ from actual results.

Forward-looking statements can be identified by terminology such as "may", "should", "expects", "intends", "anticipates", "believes", "estimates", "predicts", or "continue" or the negative of these terms or other comparable terminology and include, without limitation, statements regarding:

• exploration, development, and drilling plans;
• future general and administrative expenses;

30

• future growth;

• future exploration;

• future geophysical and geological data;

• generation of additional properties, reserves;

• new prospects and drilling locations;

• future capital expenditures;

• sufficiency of working capital;

• ability to raise additional capital;

• projected cash flows from operations;

• drilling plans;

• timing or results of any wells;

• interpretation and results of seismic surveys or seismic data;

• future production or reserves;

• petroleum license and permit rights;

• potential participation of operating and joint venture partners;

• any other statements regarding future operations, financial results, opportunities, growth, business plans, and strategies.

Because forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. We undertake no duty to update any forward-looking statements after the date of this report to conform such statements to actual results

ITEM 3. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that Zion files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Securities and Exchange Commission. As of the end of the quarterly period covered by this report, our chief executive officer and our chief financial officer conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, as described below, our chief executive officer and our chief financial officer concluded that there were material weaknesses in our internal control over financial reporting controls and procedures as of September 30, 2006.

In June 2006, during the completion of the audit for 2005, our chief executive officer, our chief financial officer and our audit committee concluded that we needed to restate certain of our financial statements to correct errors in the application of accounting principles with respect to the accounting for equity instruments issued to employees and non-employees: (i) for services rendered; and (ii) in consideration for debt issuances and modifications, for the period from inception (April, 2000) until December 31, 2005. As a result, we restated our previously audited financial statements for the year ended December 31, 2004, our previously unaudited financial statements for the year ended December 31, 2005 and our financial statements for the quarter ended March 31, 2006 (both of which unaudited financial statements were filed in a Form SB-2/A dated May 24, 2006).

31

The restatements for 2004 and 2005 are described in more detail in Note 3 to the financial statements included in our Form 10-KSB/A filed on September 19, 2006. The restatements for March 31, 2006 are described in more detail in Note 3 to the financial statements included in Form 10-QSB/A filed on September 19, 2006.

Included in Note 3 to the financial statements in this form 10-QSB is a restatement of our previously issued unaudited financial statements for the nine-month period ended September 30, 2005.

Controls over the application of accounting policies are within the scope of disclosure controls. Therefore, our chief executive officer and our chief financial officer determined during the quarterly period that ended on June 30, 2006, that there were material weaknesses in our internal control over financial reporting.

A material weakness in internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our chief executive officer and our chief financial officer identified the following material weaknesses in internal control over financial reporting during the period that ended on June 30, 2006:

• We did not have adequate financial personnel to identify and properly apply U.S. generally acceptedaccountingprinciples to equity instruments issued to employees and non-employees, and
• We did not maintain effective policies and procedures governing the financial close and reporting process. This deficiency resulted in a lack of management oversight and review procedures over preparation of our financial statements

We believe that the material weaknesses related to the issues described above are in the process of being remedied as a result of procedures that have been implemented commencing in the period that ended on June 30, 2006, including: (i) direct participation of our new chief financial officer in the financial close and reporting process; and (ii) initiation by our new chief financial officer of new policies and procedures governing the financial close and reporting process.

Other than the changes reported above, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting during the quarter ended September 30, 2006.  

PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 2. CHANGES IN SECURITIES

Recent Sales of Unregistered Securities (as of September 30, 2006)

1. Exercise of Outstanding Warrants. During the three months ended September 30, 2006, one of our shareholders exercised his rights under currently outstanding E Warrants to purchase 3,500 shares of common stock for cash consideration of $17,500. The sale of these securities was made in reliance upon Section 4(2) of the Securities Act, which provides exemptions for transactions not involving a public offering. The purchaser was an existing shareholder of Zion and the shares purchased were purchased by way of warrants held by the shareholder that were acquired in connection with his prior purchase or purchases of common stock. The certificates evidencing the securities purchased bear legends stating that the shares are not to be offered, sold or transferred other than pursuant to an effective registration statement under the Securities Act or an exemption from such registration requirements.

2. Issuance of Common Stock to Non-U.S. Residents. On July 15, 2006 and on September 25, 2006, we sold a total of 15,000 shares of our common stock to two investors for a total consideration of $82,500 in cash. The sales of these securities were made in reliance upon Regulation S promulgated pursuant to the Securities Act, which provides an exemption for offers deemed to occur outside of the United States. The investors were non-U.S. residents. We determined that the purchasers of the securities described above were sophisticated investors who had the financial ability to assume

32

the risk of their total investment, acquired them for their own account and not with a view to any distribution thereof to the public. The certificates evidencing all the securities above bear legends stating that the shares are not to be offered, sold or transferred other than pursuant to Regulation S, an effective registration statement under the Securities Act, or an exemption from such registration requirements

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None

ITEM 5. OTHER INFORMATION.

Notice of Annual Meeting of Shareholders

Following the period subject of this report, by Notice of Annual Meeting of Shareholders, dated October 27, 2006, and an accompanying Proxy Statement, the company gave notice of the convening on November 16, 2006, of the annual meeting of the shareholders of the Company. The sole matter on the agenda for shareholder action is the reelection of the four currently serving Class I directors of the company: Messrs. John M. Brown, Forrest A. Garb, Robert Render and James A. Barron.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

Reports on Form 8-K

A report on Form 8-K was filed on September 27, 2006. The events reported were:

• Item 4.02: Non-Reliance on Previously Issued Financial Statements or Related Audit Reports.

Exhibit Index

10	License 298/"Ma'anit-Joseph - Change in Work Program, letter from Israel Petroleum Commissioner dated 4 October 2006
20.1	Notice of Annual Meeting of Shareholders
20.2	Chairman's Letter to Shareholders
20.3	Proxy Statement and Proxy
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Exchange Act
31.2	Certification of the Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Exchange Act
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Principal Financial Officer

33

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

ZION OIL & GAS, INC. (Registrant)
By:	/s/ Eugene A. Soltero Eugene A. Soltero Chief Executive Officer (Principal Executive Officer)	By:	/s/David Patir David Patir, Senior Vice-President (Principal Financial and Accounting Officer)
Date:	November 20, 2006	Date:	November 20, 2006

34

EX-10

EXHIBIT 10.1

MA'ANIT-JOSEPH LICENSE

The pages which follow are free translations from the Hebrew of the documents setting forth the granting of License No. 298 / "Ma'anit-Joseph":

Document A: Original License 298 "Ma'anit" granted on May, 2000.

Document B: Cover letter dated January 1, 2003 from the Commissioner of Petroleum Affairs changing the name to "Ma'anit-Joseph" and extending the term of the license.

Document C: Notice dated January 1, 2003 from the Minister of National Infrastructures officially changing the boundaries of the License.

Document D: Official notice and annex dated January 1, 2003 from the Commissioner of Petroleum Affairs with the new boundaries.

Document E: Extension letter from the Commissioner of Petroleum Affairs setting the new dates by which a drilling contract is to be signed (July 1, 2004) and the first well is to begin (October 1, 2004).

Document F: Extension letter dated October 17, 2004 from the Commissioner of Petroleum Affairs setting the new dates by which a drilling contract is to be signed (November 10, 2004) and funds have to be available to drill the first well is to begin (March 1, 2005).

Document G: Extension letter dated April 10, 2005 from the Commissioner of Petroleum Affairs setting the new termination date of the license at April 30, 2007.

Document H: Notice dated August 1, 2005 from the Minister of National Infrastructures officially changing the boundaries of the License.

Document I: Official annex dated August 1, 2005 from the Commissioner of Petroleum Affairs with the new boundaries.

Document J: Official notice dated October 4, 2006 from the Commissioner of Petroleum Affairs approving the change in work program.

(Document A)

STATE OF ISRAEL

LICENSE

License No. 298 / "Ma'anit"

This License is granted to-Zion Oil & Gas, Inc. - 100%

This License is granted--with respect to the area described in the first Annex

This License is granted-subject to the provisions of the Petroleum Law, 5712-1952, and the Regulations issued pursuant thereto, and to the special conditions detailed in the Secon Annex. The first and Second Annex are an integral part of this License.

Granted in Jerusalem, on-26 Nissan, 5770 May 1, 2000.

s/Dr. Yehezkel Drukman

Dr, Yehezkel Drukman

Commissioner of Petroleum Affairs

This License was registered in the Petroleum Registry on 26 Nissan, 5770 May 1, 2000.

STATE OF ISRAEL

License No. 298 / "Ma'anit"

F I R S T A N N E X

Description of the Area

From N.Z. 148.0/212.0 thence East

To N.Z. 158.0/212.0 thence North-East

To N.Z. 162.0/216.0 thence East

To N.Z. 169.1/216.0 thence South-West along the green line

To N.Z. 155.7/204.0 thence West

To N.Z. 148.0/204.0 thence North and back.

To N.Z. 148.0/212.0

(The coordinates are based on the Israeli Grid.)

Total area is 115,200 Dunam (115.2 square kilometers)

The area of the License is defined by the N.Z. grid points stated above. In the event of a discrepancy between maps submitted by the Licensee and the above description, the N.Z. grid points control.

Granted in Jerusalem on

26 Nissan 5760

1^st May 2000

s/Dr. Yehezkel Drukman

Dr. Yehezkel Drukman

Commissioner of Petroleum Affairs

STATE OF ISRAEL

License No. 298 / "Ma'anit"

S E C O N D A N N E X

SPECIAL CONDITIONS

During the period of the License, the Licensee shall conduct the following work program:

1. Execution of a contract with a geophysical contractor for a new seismic survey within one month of granting of the License.
2. Execution and processing of a new seismic survey of at least 15 kilometers and the re-processing of about 40 kilometers of existing seismic lines and the submission of a report within 6 months of the granting of the License.
3. Preparation of a drilling prospect and execution of a contract with a drilling contractor within 12 months of the granting of the License.
4. Commencement of a well to the Jurassic and Triassic formations, not later than 18 months from the granting of the License.
5. Presentation of a continuation exploration program not later than 4 months following the completion of the well, or relinquishment of the License.

No originl geophysical materials, magnetic tapes etc. shall be taken out of the country, rather copies only.

Granted in Jerusalem on

26 Nissan 5760

1^st May 2000

s/Dr. Yehezkel Drukman

Dr. Yehezkel Drukman

Commissioner of Petroleum Affairs

(Document B)

STATE OF ISRAEL

MINISTRY OF NATIONAL INFRASTRUCTURES

Petroleum Unit
27 Tevet 5763
1 January 2003

Neft 483-2002

To
Mr. Elisha Roih
Zion Oil & Gas, Inc.
Ya'acov Meridor 23/11
Tel Aviv - 69411

Dear Sirs,

Re: Extension of Term of License 298/"Ma'anit - Joseph"

Pursuant to Section 65 of the Petroleum Law, 5712-1952, please take notice that I have extended the term of License 298/"Ma-anit" to 21 Nissan 5765 (30 April 2005).

Please note also that at your Company's request, I have changed the name of the License to "Ma'anit-Joseph".

In the extended term, the Company shall implement the following work program:

1. The prospects that were prepared in the context of the Ma'anit License and Joseph Preliminary Permit shall be ranked and the first prospect to be drilled shall be chosen.

2. Not later than July 1, 2004, the Licensee shall commence a well to a depth of at least 4,000 meters.

3. Not later than April 1, 2004, the Licensee shall sign a contract with a drilling contractor for drilling the well. A copy shall be presented to Petroleum Commission.

Very truly yours,

/s/---

Dr. Yehezkel Druckman

Commission of Petroleum Affairs

(Document C)

MINISTER OF NATIONAL INFRASTRUCTURES

Notice in the Matter of Change in

Boundaries of a Petroleum License

pursuant of the Petroleum Law, 5712-1952

I hereby give notice that, in accordance with my authority pursuant to section 49 of the Petroleum Law, 5712-1952, and following consultation with the Petroleum Commission, on 27 Tevet 5763 (1 January 2003), I amended the boundaries of License 298/"Ma'anit" such that its new boundaries on the New Israeli grid are as follows:

From	N.Z.	187.200/687.000	thence North
To	N.Z.	187.000/698.000	thence North-East along the Mediterranean Sea coast
To	N.Z.	188.500/704.000	thence North-East
To	N.Z.	194.400/711.000	thence East
To	N.Z.	204.000/711.000	thence North-East
To	N.Z.	208.000/712.000	thence East
To	N.Z.	210.000/712.000	thence North East
To	N.Z.	213.000/715.000	thence East
To	N.Z.	218.000/715.000	thence South-West along the Green Line
To	N.Z.	207.400/707.000	thence South-West
To	N.Z.	203.000/704.000	thence South-West
To	N.Z.	200.000/687.000	thence West
To	N.Z.	197.000/687.000	thence South
To	N.Z.	197.000/686.000	thence South-West
To	N.Z.	194.000/684.000	thence North-West
To	N.Z.	181.200/687.000	thence West and back
To	N.Z.	187.200/687.000

Total approximately 387,700 dunam.

/s/-

Ephraim Eitam

Minister of National Infrastructures

27 Tevet 5763

1^st January 2003

(Document D)

STATE OF ISRAEL

MINISTRY OF NATIONAL INFRASTRUCTURES

Notice in the Matter of Extension of Term of

a Petroleum Right under the

Petroleum Law, 5712-1952

____________

In accordance with section 65 of the Petroleum Law, 5712-1952, I give notice that I have extended the term of License 298/"Ma'anit" through 21 Nissan 5765 (30 April 2005).

At the request of the Company, I have changed the name of the License to "Ma'anit - Joseph".

/s/ ----

Yehezkel Druckman

Commissioner of Petroleum Affairs

27 Tevet 5763

1 January 2003

STATE OF ISRAEL

License No. 298/"Ma'anit - Joseph"

(following amendment of boundaries)

FIRST ANNEX

Description of the Area

From	N.Z.	187.200/687.000	thence North
To	N.Z.	187.000/698.000	thence North-East along the Mediterranean Sea coast
To	N.Z.	188.500/704.000	thence North-East
To	N.Z.	194.400/711.000	thence East
To	N.Z.	204.000/711.000	thence North-East
To	N.Z.	208.000/712.000	thence East
To	N.Z.	210.000/712.000	thence North-East
To	N.Z.	213.000/715.000	thence East
To	N.Z.	218.000/715.000	thence South-West along the Green Line
To	N.Z.	207.400/707.000	thence South-West
To	N.Z.	203.000/704.000	thence South-West
To	N.Z.	200.000/687.000	thence West
To	N.Z.	197.000/687.000	thence South
To	N.Z.	197.000/686.000	thence South-West
To	N.Z.	194.000/684.000	thence North-West
To	N.Z.	181.200/687.000	thence West and back
To	N.Z.	187.200/687.000

Total area of 387,700 Dunam (387.7km²).

The coordinates are based on the New Israeli Grid.

The area of the License is defined by the N.Z. grid points stated above. In the event of a discrepancy between maps submitted by the Licensee and the above description, the N.Z. grid points control.

Granted in Jerusalem on 27 Tevet 5763    

1^st January 2003

/s/-

Dr. Yehezkel Druckman

Commissioner of Petroleum Affairs

(Document E)

STATE OF ISRAEL
MINISTRY OF NATIONAL INFRASTRUCTURES

Petroleum Unit
16 Shevat 5764
8 February 2004

Neft 36-2004

To:
Mr. Philip Mandelker, Adv.
Zion Oil & Gas, Inc.
Adam Law Offices
3 Daniel Frisch St.
Tel-Aviv 64731

Dear Mr. Mandelker,

Re: License 298 / "Ma'anit - Joseph"

In light of your February 3, 2004 letter in which you detailed the bureaucratic delays being experienced in approval of the public issuance of the Company's shares, I defer the implementation of the work program by three months.

Accordingly, your client will be required to present to the Petroleum Commissioner a contract with a drilling contractor no later than July 1, 2004 and commence the drilling of a well to Triassic formations no later than October 1, 2004.

Very truly yours,

s/Dr. Yehezkel Druckman
Dr. Yehezkel Druckman
Commissioner of Petroleum Affairs

cc: Mr. Elisha Roih

(Document F)

S T A T E O F I S R A E L

MINISTRY OF NATIONAL INFRASTRUCTURES

Petroleum Unit

2 Heshvan 5765

17 October 2004

Petroleum 2004 - 242

Mr. Glen Perry

Zion Oil & Gas, Inc.

Yair Stern St.

Herzelia 46412

Dear Sir,

Re: Petroleum Exploration License 298/Ma'anit-Joseph

Further to your request, I shall extend the term of the referenced license issued to Zion Oil & Gas, Inc. (hereinafter - "Zion") through 30 April 2006 on the fulfillment of all the following conditions:

1. No later than 10 November 2004, Zion shall sign a contract with a drilling contractor for the drilling of a well to at least 4,000 meters (the Mohilla structure) (hereinafter - the "Well");

2. Not later than 1 March 2005, Zion shall prove to my satisfaction one of the following:

(a) that Zion has on deposit in its account an amount which, together with amounts previously paid on account of the Well, will be sufficient to cover the costs of drilling the Well and conducting the customary tests (the expected cost of the Well as fixed in the AFE for these purposes) (hereinafter - the "Drilling Funds"); or

(b) if Zion has submitted an application to transfer a portion of its rights in the License or in the Well to a third party, that there is in the accounts of Zion and the third party collectively an amount equal to the Drilling Funds.

For the purposes of clause 2, the term "in the account" includes a deposit in a bank or a securities account, a bank guarantee, letter of credit or other form satisfactory to me.

You have informed me that you intend to use the drilling rig that prior to use by you will be serving Givot Olam. If this drilling rig will be released a sufficient time prior to the end of the License's current term (being 30 April 2005), I shall amend the schedule of the work program so that you shall be required to commence the Well by the later of (1) 45 (forty five) days following the release of the drilling rig by Givot Olam and the confirmation of the owner of the rig (Lapidoth) that it is available for your use or (2) 1 March 2004.

Very truly yours,

/s/ -

Dr. Ya'acov Mimran

Commissioner of Petroleum Affairs

cc. Dr. Avi Honigstein, Deputy Petroleum Commissioner

Ilana Levine, Adv.

(Document G)

S T A T E O F I S R A E L

MINISTRY OF NATIONAL INFRASTRUCTURES

Petroleum Unit

1 Nissan 5765

10 April 2005

Petroleum 2005-96

Mr. E. Roih

Zion Oil & Gas, Inc.

Yair Stern St.

Herzelia 46412

Dear Sir,

Re: Extension of Term of License 298/"Ma'anit-Joseph"

Your letter of 7 April 2005

Further to your request in the above-referenced letter, I hereby extend the term of License 298/"Ma'anit-Joseph" for an additional two years, i.e. through 30 April 2007.

During the period of the extension the company shall deepen the Ma'anit #1 well at least to the Mohilla formation and will perform the required tests. Not later than 4 months after the completion of the drilling, the company shall present a plan satisfactory to the Commissioner for the continuation of exploration in the License area.

Very truly yours,

/s/ -

Dr. Ya'acov Mimran

Commissioner of Petroleum Affairs

(Document H)

MINISTRY OF NATIONAL INFRASTRUCTURES

1 August 2005

25 Tamuz 5765

Petroleum 2005-190

Mr. Elisha Roih

Zion Oil & Gas, Inc.

9 Yair Stern St.

Herzelia 46412

Dear Sir,

Re: Addition of Lands under License 298/ "Ma'anit - Joseph"

Pursuant to the Petroleum Law, 5712-1952

Please be informed that pursuant to the authority vested in me under Section 49 of the Petroleum Law, 5712-1952, and following consultation with the Petroleum Commission in accordance with the said law, I approved, on 25 Tamuz 5765 (August 1, 2005), the addition of lands under License 298/ "Ma'anit - Joseph". The new boundaries of the License will be:

From Map point 188.5/704.0 thence North East

To Map point 194.4/711.0 thence East

To Map point 204.0/711.0 thence North East

To Map point 208.0/712.0 thence East

To Map point 210.0/712.0 thence North East

To Map point 213.0/715.0 thence East

To Map point 218.0/715.0 thence North West along the

international border

To Map point 207.4/707.0 thence North West along the

international border

To Map point 203.0/704.0 thence North West along the

international border

To Map point 200.0/687.0 thence East

To Map point 200.5/687.0 thence South West

To Map point 200.0/685.0 thence West

To Map point 198.5/685.0 thence South West

To Map point 194.0/684.0 thence North West

To Map point 181.2/687.0 thence West

To Map point 187.2/687.0 thence North West

To Map point 187.2/698.0 thence North East along to

coast line and back

To Map point 188.5/705.0

Total area is approximately 397,000 Dunam

Sincerely,

/s/ (-)

Binyamin Ben Eliezer,

Minister of National Infrastructure

(Document I)

STATE OF ISRAEL

Petroleum Law, 5712 - 1952

License No. 298/"Ma'anit-Joseph" (after change in lands)

F I R S T A N N E X

DESCRIPTION OF THE AREA:

From Map point 188.5/704.0 thence North East

To Map point 194.4/711.0 thence East

To Map point 204.0/711.0 thence North East

To Map point 208.0/712.0 thence East

To Map point 210.0/712.0 thence North East

To Map point 213.0/715.0 thence East

To Map point 218.0/715.0 thence North West along the

International border

To Map point 207.4/707.0 thence North West along the

International border

To Map point 203.0/704.0 thence North West along the

International border

To Map point 200.0/687.0 thence East

To Map point 200.5/687.0 thence South West

To Map point 200.0/687.0 thence West

To Map point 198.5/685.0 thence South West

To Map point 194.0/684.0 thence North West

To Map point 181.2/687.0 thence West

To Map point 187.2/687.0 thence North West

To Map point 187.2/698.0 thence North East along to

coast line and back

To Map point 188.5/705.0

Total area is approximately 397,000 Dunam (397.0 km²)

The coordinates are based on the new Israeli Grid/

The lands subject of the License are defined by the Map points set forth above only. It is specifically declared hereby in the event of a discrepancy between the maps submitted by the Licensee and the above description, the Map points shall control.

Granted in Jerusalem, on 25 Tamuz 5765

1 August 2205

/s/ (-)

Dr. Yaacov Mimran

Commissioner of Petroleum Affairs

(DOCUMENT J)

STATE OF ISRAEL

MINISTRY OF NATIONAL INFRASTRUCTURES

NATURAL RESOURCES LICENSING ADMINISTRATION

Petroleum Unit

12 Tishrei 5767

4 October 2006

Pet 2006-248

Mr. Glen Perry

Zion Oil and Gas, Inc.

15 Bareket St., Industrial Park

Caesarea 38900

Dear Sir,

Re: License 298/"Ma'anit-Joseph" - Change in Work Program

Your letter of 28.09.06

In response to your request in the referenced letter, I hereby approve changes in the work program as follows:

1. Notification to the Petroleum Commissioner on the election between two options: - drilling of a new well to a depth of 4,400 meters or reentry of the Ma'anit 1A - by January 1, 2007.

2. Entry into a contract with a drilling contractor for the elected option - by February 1, 2007.

3. Commencement of the new well or the reentry of the Ma'anit 1A - by March 1, 2007.

With wishes for the New Year,

/s/ -----

Dr. Ya'acov Mimran

Petroleum Commissioner

EX-20.I

Exhibit 20.1

ZION OIL & GAS, INC.

October 27, 2006

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To be held on November 16, 2006

To Our Shareholders:

Notice is hereby given that the 2006 Annual Meeting of Shareholders of Zion Oil & Gas, Inc., (The "Company") will be held on Thursday, November 16, 2006, at 10:00 a.m. (Dallas local time) at the offices of Zion Oil & Gas Inc, 6510 Abrams Road, Suite 300, Dallas, Texas to:

1. Elect John M. Brown, Forrest A. Garb, Robert Render and James A. Barron as directors to serve three-year terms expiring at the 2009 Annual Meeting of Shareholders or until their successors are duly elected and qualified; and

2. Transact any other business that may properly come before the meeting.

A proxy statement and proxy card are enclosed.

The Board of Directors has determined that owners of record of the Company's common stock at the close of business on November 1, 2006 are entitled to notice of and to vote at the annual meeting, subject to certain voting agreements described in the proxy statement. As of the date of this Notice, there were 8,040,888 shares of common stock outstanding.

A complete list of shareholders entitled to vote at the meeting will be available for examination at the offices of the Company at 6510 Abrams Road, Suite 300, Dallas, Texas 75231, for ten (10) days prior to the meeting. This Notice of Annual Meeting of Shareholders is first being mailed to shareholders entitled to notice of, and to vote at, the meeting on or around October 27, 2006.

By Order of the Board of Directors,

Eugene A. Soltero

Chief Executive Officer

Your Vote Is Important

To be sure your shares are represented at the meeting, please complete, date, sign, and return your proxy form in the enclosed postage-paid envelope as soon as possible. You may vote in person at the meeting even if you send in your proxy form unless you have given an irrevocable proxy to another person.

EX-20.II

EXHIBIT 20.2

CHAIRMAN'S LETTER TO SHAREHOLDERS

October 27, 2006

Dear Shareholder,

You are cordially invited to attend the 2006 Annual Meeting of Shareholders of Zion Oil & Gas, Inc. The meeting will be held on Thursday, November 16, 2006, at 10:00 a.m. (Dallas local time) at the offices of Zion Oil & Gas Inc, 6510 Abrams Road, Suite 300, Dallas, Texas.

The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement describe the items of business that will be discussed and voted upon during the meeting. A copy of the Company's audited financial statements for 2005 is contained in the Company's Prospectus issued in connection with our public offering, which was mailed to you a few weeks ago. A copy of the Company's reviewed financial statements for the period ending June 30, 2006 was also included in the Prospectus. The Prospectus, our audited financial statements for 2005, and our reviewed financial statements for June 30, 2006 are also available on our website at http://www.zionoil.com/news/financials.html, as are our annual report filed with the SEC for 2005 and our quarterly reports filed with the SEC for the quarters ended March 31 and June 30, 2006.

We are happy to inform you that on September 26, 2006, the SEC granted final approval of our registration statement, and we began our Initial Public Offering of a minimum of 350,000 shares up to a maximum of 2,000,000 shares of our common stock at a price of $7.00 per share. Depending on the amount of money raised, we intend to (i) drill a new appraisal/deep exploratory well (to be designated the Ma'anit-Rehoboth #2 well) to an anticipated depth of between 5,000 meters (16,400 feet) and 5,500 meters (18,045 feet) at a location approximately 650 meters from our existing Ma'anit #1 well, and/or (ii) design and engineer a program to complete and establish production from the Ma'anit #1 well.

We finished re-entering and deepening the Ma'anit #1 well on July 14, 2005, following which we logged the well and attempted completion operations. These activities were suspended and the rig released on November 10, 2005, after we experienced considerable difficulties during the completion program, as described under "Plan of Operation and Management's Discussion" on pages 9 and 10 of the Prospectus. Notwithstanding those difficulties, as we have reported in our Prospectus, based on a number of different indicators, we have what appears to be a discovery of both oil and gas in a number of zones over an interval of 2,100 feet in the Ma'anit #1 well. Since releasing the rig, we have conducted extensive analysis and evaluation of the results of the Ma'anit #1, on the basis of which we have developed a plan for further completion operations and chosen the location of the Ma"anit #2-Rehoboth appraisal/deep exploratory well. We have also been conducting extensive geological interpretative a nd mapping activities on our Asher Permit and developing potential drilling prospects on that permit.

It is important that you vote your shares whether or not you plan to attend the meeting. To be sure your vote is counted, we urge you to carefully review the Proxy Statement and to vote your choices. Please sign, date, and return the enclosed proxy form in the accompanying envelope as soon as possible. You may also fax it to us at 214-221-6510. If you attend the meeting and wish to vote in person, subject to certain voting agreements described in the Proxy Statement, the ballot you submit at the meeting will supersede your proxy. If you have executed and are subject to a voting agreement, it is noted on your enclosed proxy form.

On behalf of the management and directors of Zion Oil & Gas, Inc., I want to thank you for your continued support and confidence. (Prov. 16:9) In his heart a man plans his course but the Lord determines his steps. "I am the Lord your God, who teaches you what is best for you, who directs you in the way you should go." (Isa 48:17b) NIV I look forward to seeing you at the meeting.

Sincerely,

John M. Brown

Chairman of the Board

EX-20.III

EXHIBIT 20.3

PROXY STATEMENT

VOTING PROCEDURES

This proxy statement and the accompanying proxy form are being mailed to the shareholders (the "Shareholders") of Zion Oil & Gas, Inc., a Delaware corporation (the "Company") beginning on or about October 27, 2006 in connection with the 2006 Annual Meeting of Shareholders to be held on November 16, 2006 at 10:00 a.m. local time, at the executive offices of the Company (6510 Abrams Rd., Dallas, TX 75231) and any adjournments thereof (the "2006 Meeting"). All references in this proxy statement to "the Company," "we," "us," and "our" refer to Zion Oil & Gas, Inc.

Only Shareholders of record at the close of business November 1, 2006 are entitled to notice of and to vote at the 2006 Meeting. There were 8,040,888 shares of common stock of the Company (the "Common Stock") outstanding at the close of business on October 27, 2006. Holders of shares of Common Stock (the "Common Shareholders") are entitled to one vote per share held of record in their names on the record date on all matters, subject to any applicable voting agreements. The election of each director and approval of each proposal described herein require a majority of the votes cast. Votes withheld will be deemed not to have been cast.

The enclosed proxy is solicited on behalf of our Board of Directors. The giving of a proxy does not mean that you cannot vote in person if you attend the meeting and decide that you wish to vote personally. You have an unconditional right to revoke your proxy at any time prior to its exercise, either by filing with the Company's Assistant Secretary (William H. Avery) at the Company's principal executive offices a written revocation or a properly completed and signed proxy bearing a later date or by voting in person at the meeting, subject to any applicable voting agreements. Attendance at the meeting without casting a ballot will not, by itself, constitute revocation of a proxy.

All shares of Common Stock represented at the meeting by properly executed proxies received prior to or at the meeting, unless previously revoked, will be voted at the meeting in the manner described on the proxies. Unless other instructions are given, proxies will be voted FOR the election of John M. Brown, Forrest A. Garb, Robert Render and James A. Barron as Class I directors with a separate vote to be taken for each of the four nominees.

When considering a motion to adjourn the meeting to another time and/or place (including, without limitation, for the purpose of soliciting additional proxies), the persons named in the enclosed form of proxy and acting by the authority in the proxy generally will have discretion to vote on adjournment using their best judgment.

No persons have been authorized to give any information or to make any representation other than those contained in this proxy statement in connection with the solicitation of proxies made hereby and, if given or made, such information or representation should not be relied upon as having been authorized by the Company.

ELECTION OF DIRECTORS

The Board of Directors currently consists of eleven directors, divided into three classes: Class I (four directors), Class II (four directors), and Class III (three directors). Only the Class I positions are due for nomination and election at the 2006 Meeting. The Class II and Class III positions will be due for nomination and election at the annual shareholders' meetings to be held in 2007 and 2008, respectively.

John M. Brown, Forrest A. Garb, Robert Render and James A. Barron have been nominated to stand for election by the Board of Directors and to hold office as Class I directors for a three-year term expiring at the annual shareholders' meeting to be held in 2009 or until their respective successors are duly elected and qualified. Each nominee currently serves as a director of the Company.

ITEM 1---ELECTION OF JOHN M. BROWN

The intention of the persons named in the enclosed proxy, unless the proxy specifies otherwise, is to vote the shares represented by such proxy for the election of John M. Brown as a Class I director. Certain information regarding Mr. Brown is set forth below.

John M. Brown, age 66, is the founder of Zion and has been a director and chairman of the board of directors of Zion since its organization in April 2000. He also served as president of Zion until October 2001, when Mr. Soltero was elected to that position, and as chief executive officer of Zion until September 2004, when Mr. Soltero was elected to that position. Mr. Brown has extensive management, marketing and sales experience, having held senior management positions in two Fortune 100 companies - GTE Valenite, a subsidiary of GTE Corporation and a manufacturer of cutting tools, where he was employed from 1966-86, and Magnetek, Inc., a manufacturer of digital power supplies, systems and controls, where he was employed from 1988-89. Mr. Brown was a director and principal stockholder in M&B Concrete and Construction, Inc., from 1996 until its dissolution in October, 2003. Until his relocation to Dallas in July, 2003, Mr. Brown was responsible for supervising the day-to-day adm inistration and financial operations as an officer and director of M&B Concrete, Inc., (which was dissolved in November, 2003), M&B Contracting Inc., and M&B Poured Wall, Inc. (now RMB Poured Wall, Inc.). M&B Contracting, Inc., and RMB Poured Wall, Inc., are located in Waterford, Michigan and primarily provide cement walls and floors for industrial buildings, office buildings and home developers throughout Michigan. Prior to founding Zion, Mr. Brown had been actively pursuing a license for oil and gas exploration in Israel for many years. He led the efforts leading to Zion obtaining in May 2000 the Ma'anit License in the Joseph Project. Mr. Brown holds a BBA degree from Fullerton College.

ITEM 2---ELECTION OF FORREST A. GARB

The intention of the persons named in the enclosed proxy, unless the proxy specifies otherwise, is to vote the shares represented by such proxy for the election of Forrest A. Garb as a Class I director. Certain information regarding Mr. Garb is set forth below.

Forrest A. Garb, age 75, was appointed a director of Zion effective November 1, 2005 to replace Sheldon Fink, who resigned in October 2005. Mr. Garb is petroleum engineer well known in the petroleum industry for providing independent consulting services for more than 45 years. His consulting career began with H.J. Gruy and Associates, Inc. and its successors, where he served as a vice president for four years, executive vice-president for ten years, and president for fifteen years, until leaving in 1986, following Gruy's merger into a public company. In his capacity as president, Mr. Garb contracted, performed and supervised over 12,500 projects ranging from simple evaluations to sophisticated reservoir simulations. In 1988, Mr. Garb founded Forrest A. Garb & Associates, Inc. a privately-owned petroleum consulting firm, where he served as chairman and chief executive officer until his retirement in 2003 and sale of his interests in the company to its key employees. Prior t o entering into consulting, Mr. Garb was educated in petroleum engineering at Texas A&M University (BSc and Professional MSc) and received his early training at Socony Mobil Oil Company in Kansas, Texas, Louisiana and Venezuela. Mr. Garb is a member of the Society of Petroleum Engineers and is a past President of the Society of Petroleum Evaluation Engineers. He is a member of the Association of Computing Machinery, the American Arbitration Association, the Petroleum Engineers Club of Dallas, the Dallas Geological Society, and is a member of the AAPG. He is a charter member of The American Institute of Minerals Appraisers. He is a registered professional engineer in the state of Texas.

ITEM 3---ELECTION OF ROBERT RENDER

The intention of the persons named in the enclosed proxy, unless the proxy specifies otherwise, is to vote the shares represented by such proxy for the election of Robert Render as a Class I director. Certain information regarding Mr. Render is set forth below.

Robert Render, age 76, was appointed a director in September 2004. Mr. Render served from 1994 to 2002 as Chairman and CEO of the Green Thumb Companies and Milburn Peat, manufacturers and distributors of peat moss, soils and mulches for the lawn and garden industries. Prior thereto, from 1985 to 1992, he was a director of and consultant to Hyponex Corporation (NASDAQ) and thereafter, from 1992 to 1994, he was a consultant to the Scotts' Corporation (NYSE), the controlling shareholder of Hyponex. Between 1978 and 1985, Mr. Render served as Chairman, President and Chief Executive Officer of Hyponex Corporation (NASDAQ) previously known as Old Fort Industries. From 1964 until its acquisition by Old Fort Industries in 1969, Mr. Render served as President of Anderson Peat Company and, from 1969 to 1978, he served as Executive Vice President of Old Fort Industries. From 1952 to 1963, Mr. Render served as Vice President of Sales and Marketing for Sno-Bol Company. In 1957 he found ed Render Associates, a national sales company specializing in lawn and garden products which later merged into Anderson Peat Company. In 1962-1963 Mr. Render was President of the Christian Businessmen's Club in Pontiac, Michigan and in 1964-1965, he served as Chairman of the Industrial Group of the United Fund in Pontiac. In 1967-1968, Mr. Render was a member of the Executive Committee of the American Society of Testing and Materials and in 1969-1970, he served as President of the U.S. Peat Producers Association.

ITEM 4---ELECTION OF JAMES A. BARRON

The intention of the persons named in the enclosed proxy, unless the proxy specifies otherwise, is to vote the shares represented by such proxy for the election of James A. Barron as a Class I director. Certain information regarding Mr. Barron is set forth below.

Dr. James (Andy) Barron, age 46, was appointed a director in April 2005. He has been in private practice in orthodontics since 1991. Dr. Barron is board certified by the American Board of Orthodontists and has served as president of the Central Texas Dental Society and president of the Texas Association of Orthodontists. Dr. Barron represents the Southwestern Association of Orthodontists as a representative to the Council of Orthodontic Practice to the American Association of Orthodontists. Dr. Barron has lectured on orthodontics for the University of Texas, the University of Tel-Aviv, the Hebrew University in Jerusalem and the University of Manipur, India. Prior to entering the orthodontic field, Dr. Barron worked in his family's publishing company while at the same time representing a Fortune 500 company in marketing. He currently is president of JlivesNMe Workplace Ministries which sponsors conferences for couples to learn how to bring the gospel into the workplace. He ser ves on the board of Christian Farms Rehabilitation Center and serves on the advisory board of American Family Radio in Waco, Texas. The D.A.R.E. program in Temple, Texas (Drug Assistance Resistance Education) recognized Dr. Barron for his contributions in 1995 with an award of appreciation. Dr. Barron has a degree in Chemistry form Texas Tech University, a Master of Science Degree in Biology from University of Missouri at Kansas City, a Doctoral Degree in Dentistry from Baylor College of Dentistry, a certificate of specialization in Pediatric Dentistry from University of Missouri at Kansas City and a certificate of specialization in Orthodontic Dentistry from the University of Texas at Houston. As a resident Dr. Barron won the Albert Westphall award of the Southwestern Society of Orthodontists.

Required Vote for Items 1 through 4.

Approval of any single nominee requires the affirmative vote of a majority of the shares of Common Stock entitled to vote on such Item present in person or by proxy at the Annual Meeting.

If you do not wish your shares to be voted for any particular nominee, you may so indicate on the proxy form. If any of these nominees for director becomes unavailable to serve as a director, then the persons named in the accompanying proxy may vote for any alternate designated by the present Board of Directors or the number of directors may be reduced. The Company has no reason to believe that any of the above nominees are, or will be, unavailable to serve as a director.

Recommendation of the Board.

The Board Of Directors Recommends A Vote "For" Each Of The Above Nominees.

Additional Information about the Board of Directors.

For informational purposes only, following are biographies of the Company's Class II and Class III directors. (Positions and experience with the Company include positions and experience with our predecessor company, Zion Oil & Gas, Inc., a Florida corporation.)

Class II Directors

Richard Rinberg, age 53, was appointed a director in November 2004 and elected president of Zion in October 2005. Since 1996, Mr. Rinberg has been a private investor and manager of his own and his family funds. From 1979 through 1996, he served as Managing Director of the Rinberg Group, a corporate group based in England active in the casting of precious metals for the jewelry industry, jewelry manufacturing, property development and securities trading. In the early 1980s Mr. Rinberg was elected a Member of the London Diamond Bourse and in 1987 he was elected an Underwriting Member at Lloyd's of London Insurance Market. Between 1975 and 1978, Mr. Rinberg was on the staff of Spicer & Pegler (Chartered Accountants); and in 1978 he was admitted as a Member of The Institute of Chartered Accountants in England and Wales. Mr. Rinberg holds a Bachelor of Science Honors Degree in Mathematics from the University College, University of London. He is currently a member of the International Executive Committee of Beit Issie Shapiro, a charitable organization based in Ra'anana, Israel that helps developmentally disabled children.

Glen H. Perry, age 63, has been executive vice president of Zion since April 2000 and was elected a director in November 2000. He first started working with Mr. Brown and the Joseph Project in September 1999. During 1998 and 1999 Mr. Perry was a consultant to Delek Drilling Ltd., with respect to its participation in the major gas discoveries offshore Israel. From 1993-98 he worked for National Petroleum Limited, an international oil and gas company with representative offices in Geneva, Switzerland. In this capacity, Mr. Perry served as manager of project development, seeking viable projects and negotiating contracts in the C.I.S. Republics, and general director of an oil and gas project in the Republic of Georgia. Previously, he was an officer and director of Prairie Producing Company ("Prairie"), an independent oil company operating mainly in Louisiana and Texas, from 1985 until Prairie was sold in 1990 to UNOCAL for approximately $330 million. While with Prairie, Mr. Perry ha d responsibility for design, construction and operation of all operational projects, including production facilities, pipelines, and plants. In addition to all engineering, drilling and production functions, he also had responsibility for marketing. Mr. Perry joined Prairie in December 1976 as a production engineer, was appointed chief engineer in October 1979, and served as vice-president, production and operations from 1985-89, and senior vice president from 1989-90. Prior to joining Prairie, Mr. Perry's experience was in drilling and production for Exxon Company, USA (now ExxonMobil Corporation) and Energy Reserves Group (now BHP). Mr. Perry holds a Masters in Petroleum Engineering from the University of Texas and a Bachelor of Science from the University of Tennessee.

Philip Mandelker, age 60, has been general counsel of Zion since April 2000 and was elected as director in June 2001. He was elected secretary of Zion in February 2002. He holds a Doctor of Jurisprudence degree (1971, cum laude) from Columbia University School of Law and was of counsel to I. Amihud Ben-Porath, Hamou and Company, a law firm in Tel-Aviv, Israel, from May 2000 through April 2003, a position he also held in 1994-96. He is currently of counsel to ADAM Law Offices in Tel-Aviv. Mr. Mandelker is admitted to practice in both the United States and Israel. He has practiced in New York, Jerusalem and Tel-Aviv and has extensive experience with the oil and gas exploration industry in both the United States and Israel. While at the Israeli Ministry of Finance (1974-76), Mr. Mandelker acted inter alia as Legal Advisor to the Israeli Petroleum Commissioner and represented the Israeli Government in negotiating the Petroleum Concessions and Production Sharing Agreements in the Sinai Peninsula and Gulf of Suez. In New York between 1981 and 1993, as counsel to the firm of Rosenman and Colin (now Katten Muchin Rosenman LLP), Mr. Mandelker advised oil and gas exploration companies and sponsors of oil and gas drilling programs in structuring public and private investment vehicles; he has also advised investors in such programs. From 1992-94, Mr. Mandelker served as an advisory director of Aztec Energy Corp., then an independent oil and gas exploration and production company listed on NASDAQ. He has published and lectured on subjects related to investment in oil and gas exploration activities in Israel and in the United States. As Deputy and then Acting Legal Advisor to the Military Government of the Judea and Samaria Area (1978-80), he drafted a model oil and gas exploration and production concession agreement for use in the Area. From 1997-99, Mr. Mandelker was Chief Legal Advisor of United Mizrahi Bank, Ltd., a major Israeli banking group headquartered in Tel-Aviv. Mr. Mandelker has been associated with Mr. Brown and the Joseph Project since February 2000.

Kent S. Siegel, age 50, was appointed a director in November 2003. Mr. Siegel has served as president and chief operating officer of Siegel and Siegel, P.C. since 1984. Siegel and Siegel is a firm of certified public accountants and attorneys at law based in Farmington Hills, Michigan, at which Mr. Siegel practices as a tax and bankruptcy attorney and CPA. Mr. Siegel holds a Bachelor of Business Administration from Michigan State University School of Business, a Juris Doctor from Wayne State University School of Law and a Bachelor of Science in Electrical Engineering from Lawrence Technological University School of Engineering. He currently serves as chairman at the Temple Israel School Board Fund Raising Committee.

Class III Directors

Eugene A. Soltero, age 63, has been a director of the Company since June 2001, and was elected as president in October 2002, a position in which he served until October 2005. In September 2004, Mr. Soltero was elected chief executive officer. Previously, he was a financial consultant to the Company since June 2000 and served as the company's treasurer from March through December 2002. Mr. Soltero is also president and chief executive officer of Cimarron Resources, Inc., an independent private energy production and consulting company he formed in 1985. He also served, during the period 1995-1999, as a director, chairman and chief executive officer of Cotton Valley Resources Corporation, which is now Aspen Group Resources Corporation. During 1991-1994, he was chairman of the board, president and chief executive officer of Aztec Energy Corporation and during 1989-1991 he was president and chief operating officer of American International Petroleum Corporation. Mr. Soltero has served as chief operating officer and/or chief executive officer for private and public oil and gas exploration and production companies for the past 20 years, including directing the formation and growth of a number of start-up companies. Early in his career, he was trained at Sinclair Oil Corporation in exploration and production management, served as manager of Planning for Texas International Petroleum Corporation, and Petroleum Economist for DeGolyer and MacNaughton, petroleum consultants. For nine years he managed all the oil and gas subsidiaries of Moore McCormack Resources. Mr. Soltero is a member of the Society of Petroleum Engineers, and a former director of the Independent Petroleum Association of America and the Texas Independent Producers and Royalty Owners. He has also served as a director of the Independent Petroleum Refiners Association of America. He is a master's graduate of the Massachusetts Institute of Technology in business (where he was awarded the Sinclair Research Fellowship in Petroleum Econ omics) with an undergraduate bachelor of engineering degree from The Cooper Union. Mr. Soltero is a registered professional engineer in the State of Texas. He currently serves as chairman of the board of trustees of The Wendy Arts Foundation, a charity dedicated to making arts activities available to children and young adults.

Dr. Yehezkel (Charlie) Druckman, age 67, has been a director of Zion Oil since November 1, 2005. Dr. Druckman was Petroleum Commissioner for the State of Israel from 1995 until his retirement in 2004, during which time he supervised the licensing of petroleum rights in the onshore and offshore Israel. These efforts led to the discovery of 1.5 trillion cubic feet of gas in the Israeli offshore Mari B and other smaller fields during 1999-2000. Since 1965 he has been a member of the professional staff of the Geological Survey of Israel, where he headed the Mapping, Stratigraphy and Oil Division during 1982-1985 and 1991-1994. He was also affiliated with the Louisiana State University at Baton Rouge as Research Associate in Geology during 1978-1980 and 1989-1990. He was awarded in 1974 the Israel Geological Society's Perez Grader award. He is an active member of the American Association of Petroleum Geologists and the Geological Society of Israel (where he served as presid ent in 1982, and for a number of years on the Society's editorial board). He also served as member of the Israeli National Petroleum Commission and Board of Directors of Oil Exploration (Investments) Ltd., an Israeli government company. Dr. Druckman graduated from the Hebrew University in Jerusalem where he was awarded BSc, MSc and PhD degrees in geology.

Paul Oroian, age 56, was appointed a director in November, 2003. Since its founding in 1983, he has served as president and managing director of Oroian, Guest & Little, P.C., a certified public accounting and consulting firm based in San Antonio, Texas. From 1980-1983, Mr. Oroian was a tax senior in the San Antonio offices of Arthur Young and Company. Mr. Oroian holds a Bachelors of Science - Business Administration from Bryant College. He has served as a board member of the Technology Oversight Committee and the IRS Regional Liaison Committee of the Texas Society of Certified Public Accountants and was vice president and a director of the San Antonio CPA Society between 1992-1998. He currently serves as treasurer of the Good Samaritan Center in San Antonio.

Independence and Meetings

Since the 2005 Annual Meeting of the Shareholders on December 20, 2005, the Board met three times by telephone conference and acted by unanimous written consent on eight separate occasions. Every member of the Board has attended at least one of the meetings. The Board does not have a formal policy with respect to Board members attendance at annual stockholder meetings, though it encourages directors to attend such meetings. Seven of the then serving directors attended the Annual Meeting in 2005, and the Company expects that at least six of its current serving directors, including its Chairman of the Board, Chief Executive Officer and President, will attend the 2006 Annual Meeting, either in person or by telephone conferencing connection.

The Board of Directors has determined that Kent S. Siegel, Paul Oroian, Robert Render, Dr. James A. Barron, Dr. Yehezkel Druckman, and Forrest Garb are independent as defined in the listing standards of the American Stock Exchange.

Audit Committee

The members of the Audit Committee are currently Paul Oroian, Kent S. Siegel and Forrest A. Garb, each of whom meets the independence standards of the American Stock Exchange for audit committee membership. Mr. Oroian is the chairman of the Audit Committee. The Board has determined that Mr. Oroian is an "audit committee financial expert" as defined by the rules of the Securities and Exchange Commission. The Audit Committee met three times by telephone conference and acted by unanimous written consent on two separate occasions since the 2005 Annual Meeting of the Shareholders.

The Board has adopted a charter governing the duties and responsibilities of the Audit Committee. A copy of the charter can be found at the company's website at http://www.zionoil.com/company/auditcharter_rev0706.pdf. The principal function of the Audit Committee is to assist the Board in monitoring (1) the integrity of the financial statements of the Company, (2) compliance by the Company with legal and regulatory requirements, (3) the independent auditor's qualifications and independence, (4) performance of the Company's independent and, upon establishment of such function, internal auditors, and (5) the business practices and ethical standards of the Company. The Committee is also directly responsible for the appointment, compensation, retention and oversight of the work of the Company's independent auditors. The Audit Committee had also been appointed by the Board to discharge the responsibilities of a qualified legal compliance committee.

Compensation Committee

The Compensation Committee is currently comprised of three directors, two of whom, James Barron and Robert Render, satisfy AMEX independence criteria. The other member is John Brown. The Board charged the Compensation Committee with the following responsibilities: (i) the review and recommendation to the Board of the terms of compensation, including incentive compensation and employee benefits of the directors and senior officers of the Company; and (ii) the determination of the terms of employee benefit plans (including stock incentive and stock option plans), the granting of awards under the plans and the supervision of plan administrators. The Compensation Committee acted by unanimous written consent on one occasion since the 2005 Annual Meeting of the Shareholders.

The Board has adopted a charter governing the duties and responsibilities of the Compensation Committee. A copy of the charter is available on our website at www.zionoil.com/company/compensationcharter_rev0706.pdf.

Technical Committee

The Board established a technical committee composed of four directors, two of whom (Forrest Garb and Yehezkel Druckman) meet AMEX independence criteria. The other directors are Glen Perry (chairman) and Eugene Soltero. The technical committee is charged with reviewing, on behalf of the whole Board, proposed technical recommendations of management for exploration and development of the Company's Joseph Project in Israel. The committee met one time since the 2005 Annual Meeting of the Shareholders.

Code of Business Ethics and Conduct

The Company has adopted a Code of Business Ethics and Conduct (the "Code of Conduct") that applies to all of its directors, officers and employees. The text of the Code of Conduct can be found at the company's website at http://www.zionoil.com/company/ethicscode.pdf.

Stockholder Communications with the Board of Directors

Although the Company does not have formal procedures for stockholder communication, stockholders of the Company are encouraged to communicate directly with the members of the Board. Persons interested in communicating with the independent directors their concerns or issues may address correspondence to a particular director, or to the independent directors generally in care of the Chairman of the Board, Mr. John Brown. If no particular director is named, letters will be forwarded, depending on the subject matter, to the Chair of the Audit Committee. Company personnel will not screen or edit such communications and will forward them directly to the intended member of the Board.

ADDITIONAL INFORMATION REGARDING VOTING PROCEDURES

Voting Agreements.

As of October 27, 2006, shareholders currently holding approximately 56.11% of the outstanding shares of our Common Stock and of the total voting rights of the Company have entered into one or more voting agreements whereby such shareholders have granted irrevocable proxies to Mr. John M. Brown (who has named Mr. Eugene A. Soltero, the Chief Executive Officer of the Company, as a substitute proxy in Mr. Brown's absence), Mr. Eugene A. Soltero, Mr. Richard J. Rinberg, Mr. Ralph F. DeVore (or Brenda DeVore in Mr. DeVore's absence), Mr. Philip Mandelker, and Mr. Glen H. Perry to vote their shares at any shareholders meeting. Messrs. Brown, Soltero, Rinberg, Mandelker and Perry, who hold shares not subject to voting agreements representing approximately 12.43% of the total voting rights of the Company and hold proxies under voting agreements to vote shares accounting for approximately 49.57% of the total voting rights of the Company (62% in total), have advised the Company that they inten d to vote all shares owned by them and for which they hold proxies in favor of each of the proposals contained in this proxy statement. The Company has not been informed whether or how Mr. DeVore intends to vote shares owned by him and for which he controls the voting rights and shares for which he holds irrevocable proxies to vote (which represent in total approximately 8.62% of the voting rights of the Company). Assuming Messrs. Brown, Soltero, Rinberg, Mandelker and Perry vote their shares (62%) in favor of such proposals, the proposals for the election of the Class I directors will be approved.

Quorum Required.

A quorum of the Company's Shareholders is necessary to have a valid meeting of Shareholders. For the purpose of the votes on Proposals (Items) 1, 2, 3 and 4 (the election of directors), a quorum shall consist of a majority of the shares of Common Stock of the Company issued and outstanding and entitled to vote on the record date in person or by proxy at the annual meeting. It is expected that Mr. John M. Brown and other officers and directors of the Company will attend in person or by proxy and that the shares owned by and for which they hold a proxy will constitute a quorum at the meeting.

Revoking Proxies.

Except for the irrevocable proxies granted in the Voting Agreements, Shareholders of record may revoke their proxies for the 2006 Meeting at any time prior to the time their proxies are voted at the 2006 Meeting. Proxies may be revoked by written notice, including by facsimile, to the Assistant Secretary of the Company, by a later dated proxy signed and returned by mail or facsimile or by attending the annual meeting and voting in person. Attendance at the annual meeting will not in and of itself constitute a revocation of a proxy. Any written notice of a revocation of a proxy must be sent so as to be delivered before the taking of the vote at the annual meeting to:

Zion Oil & Gas, Inc.

6510 Abrams Road, Suite 300

Dallas, Texas 75231 USA

Facsimile: (214)221-6510

Attention: Mr. William H. Avery, Assistant Secretary

Other Business; Adjournments

We are not aware of any other business to be acted upon at the 2006 Meeting. If, however, other matters are properly brought before the meeting, or any adjourned meeting, your proxies will have discretion to act on those matters or to adjourn the meeting, according to their best judgment. Adjournment of the annual meeting may be made for the purpose of, among other things, soliciting additional proxies. Any adjournment may be made at any time by Shareholders representing a majority of the votes present in person or by proxy at the meeting, whether or not a quorum exists, without further notice other than by an announcement made at the meeting.

Proxy Solicitation

The cost of solicitation of proxies will be paid by the Company. In addition to solicitation by mail, the directors, officers, and employees of the Company may also solicit proxies from Shareholders by telephone, facsimile, electronic mail, or in person.

ADDITIONAL INFORMATION

At the 2002 Meeting, the Shareholders authorized the Board of Directors to (a) establish two charitable trusts, one to be established in Israel and dedicated to supporting social, educational, and rehabilitative projects for the restoration and advancement of the Jewish people in Israel, and the other to be established and operated outside of Israel and be dedicated to supporting social, educational and rehabilitative projects in the United States and internationally, in such legal form and upon the terms and conditions approved by the Board, (b) assign to each of the trusts certain interests in various leases and permits owned by the Company, and (c) establish an employees incentive fund into which certain interests would be assigned. Neither the charitable trusts nor the employees incentive fund has yet been established. The Board of Directors shall retain its discretion to establish the charitable trusts and employees incentive fund when appropriate and in the Company's best interest an d will keep the Shareholders informed on these matters. The Board of Directors will seek approval from the Shareholders where necessary.

By Order of the Board of Directors

Eugene A. Soltero

Chief Executive Officer

Dallas, Texas

October 27, 2006

PROXY

ZION OIL & GAS, INC.

The undersigned hereby appoints John M. Brown and Eugene A. Soltero, together or either of them acting individually, as proxy, with power of substitution, and hereby authorizes each of them to represent and to vote, as designated below, all shares of voting stock of Zion Oil & Gas, Inc. (the "Company") standing in the name of the undersigned at the 2006 Annual Meeting of Shareholders to be held at 10:00 a.m. local time on November 16, 2006, at the offices of Zion Oil & Gas, Inc., 6510 Abrams Road, Suite 300, Dallas, Texas, and especially to vote on the items of business specified below, as more fully described in the Notice of the Annual Meeting and the Proxy Statement accompanying the same, receipt of which is hereby acknowledged.

You may be subject to the terms of a voting agreement, in which event you are required to comply with the terms of such agreement with respect to all votes taken at the 2006 Annual Meeting of Shareholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.

1.	For ( )	Against ( )	Abstain ( )	The election of John M. Brown as a Class I director of the Company.
2.	For ( )	Against ( )	Abstain ( )	The election of Forrest A. Garb as a Class I director of the Company.
3.	For ( )	Against ( )	Abstain ( )	The election of Robert Render as a Class I director of the Company.
4.	For ( )	Against ( )	Abstain ( )	The election of James A. Barron as a Class I director of the Company.
5.	In his discretion, each proxy is authorized to vote upon such other business or matters as may properly come before the meeting or any adjournment thereof.

THIS PROXY, SUBJECT TO THE TERMS OF ANY APPLICABLE VOTING AGREEMENT, WHEN DULY EXECUTED AND RETURNED, WILL BE VOTED IN THE MANNER DESIGNATED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF THIS PROXY IS DULY EXECUTED AND RETURNED, BUT WITHOUT A CLEAR VOTING DESIGNATION, IT WILL BE VOTED FOR ITEMS 1 through 4.

Except as otherwise provided by any applicable voting agreement, the undersigned hereby revokes any proxy or proxies heretofore given to represent or vote such shares and hereby ratifies and confirms all actions that said proxies, their substitutes, or any of them, may lawfully take in accordance with the terms thereof.

Date: _______________________, 2006

______________________________________

Signature of Shareholder

This proxy must be signed exactly as the printed name appears hereon. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signor is a corporation, please sign full corporate name by any authorized officer, giving full title as such. If signor is a partnership, please sign in partnership name by an authorized person.

PLEASE COMPLETE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE OR FAX IT TO (214) 221-6510.

EX-31.I

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Eugene A. Soltero, Chief Executive Officer of Zion Oil & Gas, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Zion Oil & Gas, Inc. (the "Registrant");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
2. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
3. Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
4. Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors:

1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: November 20, 2006

/s/ Eugene A. Soltero
Eugene A. Soltero, Chief Executive Officer

EX-31.II

EXHIBIT 31.2

CERTIFICATION OF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, David Patir, Senior Vice-President of Zion Oil & Gas, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Zion Oil & Gas, Inc. (the "Registrant");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
2. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
3. Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
4. Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors:

1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: November 20, 2006

/s/ David Patir
David Patir, Senior Vice-President

EX-32.I

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. 1350)

The undersigned, Eugene A. Soltero, Chief Executive Officer of Zion Oil & Gas, Inc. (the "Company"), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company's Quarterly Report on Form 10-QSB for the nine months ended September 30, 2006 (the "Report").

The undersigned hereby certifies that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned has executed this certification as of the 20th day of November, 2006.

/s/ Eugene A. Soltero
Eugene A. Soltero
Chief Executive Officer

EX-32.II

EXHIBIT 32.2

CERTIFICATION OF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. 1350)

The undersigned, David Patir, senior vice-president of Zion Oil & Gas, Inc. (the "Company"), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company's Quarterly Report on Form 10-QSB for the nine months ended September 30, 2006 (the "Report").

The undersigned hereby certifies that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned has executed this certification as of the 20th day of November, 2006.

/s/ David Patir
David Patir
Senior Vice-President