10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

MARK ONE

☒     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the Quarterly Period ended September 30, 2015; or

☐    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from ________ to ________

COMMISSION FILE NUMBER: 001-33228

ZION OIL & GAS, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-0065053
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

6510 Abrams Rd., Suite 300
Dallas, Texas	75231
(Address of principal executive offices)	Zip Code

(214) 221-4610

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☒

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

As of October 22, 2015, Zion Oil & Gas, Inc. had outstanding 38,014,949 shares of common stock, par value $0.01 per share.

INDEX PAGE

PART 1 – FINANCIAL INFORMATION

	Page
Item 1 – Financial Statements – Unaudited	1
Balance Sheets – September 30, 2015 and December 31, 2014	1
Statements of Operations for the three and nine months ended September 30, 2015 and 2014	2
Statements of Changes in Stockholders' Equity for the nine months ended September 30, 2015	3
Statements of Cash Flows for the nine months ended September 30, 2015 and 2014	4
Notes to Financial Statements	5
Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	30
Item 4 – Controls and Procedures	31
PART II — OTHER INFORMATION
Item 1 – Legal Proceedings	31
Item 1A – Risk Factors	32
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3 – Defaults upon Senior Securities	32
Item 4 – Mine Safety Disclosures	32
Item 5 – Other Information	32
Item 6 – Exhibits	33
Exhibit Index	33
SIGNATURES	34

Zion Oil & Gas, Inc.

Balance Sheets as of (Unaudited)

	September 30 2015			December 31 2014
	US$ thousands			US$ thousands
Current assets
Cash and cash equivalents		4,214			5,344
Fixed short term bank deposits - restricted		1,299			1,298
Fixed short term time deposits		—			531
Prepaid expenses and other		165			280
Other receivables		398			181
Total current assets		6,076			7,634
Unproved oil and gas properties, full cost method		4,460			3,891
Property and equipment at cost
Net of accumulated depreciation of $458 and $412		147			186
Other assets
Assets held for severance benefits		201			169
Total assets		10,884			11,880
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		123			132
Asset retirement obligation		445			163
Accrued liabilities		1,765			870
Total current liabilities		2,333			1,165
Provision for severance pay		231			195
Total liabilities		2,564			1,360
Commitments and contingencies (see Note 5)
Stockholders’ equity
Common stock, par value $.01; Authorized: 200,000,000 and 100,000,000 shares at September 30, 2015 and December 31, 2014 respectively: Issued and outstanding: 37,760,706 and 35,755,304 shares at September 30, 2015 and December 31, 2014 respectively		378			358
Additional paid-in capital		149,228			144,958
Accumulated deficit		(141,286	)		(134,796	)
Total stockholders’ equity		8,320			10,520
Total liabilities and stockholders’ equity		10,884			11,880

The accompanying notes are an integral part of the unaudited interim financial statements.

1

Zion Oil & Gas, Inc.

Statements of Operations (Unaudited)

	For the three months						For the nine months
	ended September 30						ended September 30
	2015			2014			2015			2014
	US$ thousands			US$ thousands			US$ thousands			US$ thousands
General and administrative		1,579			770			4,441			2,590
Other		405			430			2,013			2,513
Loss from operations		(1,984	)		(1,200	)		(6,454	)		(5,103	)
Other income (expense), net
Foreign exchange gain		(14	)		(48	)		(11	)		(46	)
Financial expenses, net		(5	)		(2	)		(25	)		(8	)
Loss before income taxes		(2,003	)		(1,250	)		(6,490	)		(5,157	)
Income taxes		—			—			—			—
Net loss		(2,003	)		(1,250	)		(6,490	)		(5,157	)
Net loss per share of common stock – basic and diluted (in US$)		(0.05	)		(0.04	)		(0.18	)		(0.15	)
Weighted-average shares outstanding – basic and diluted (in thousands)		37,441			35,226			36,764			34,829

The accompanying notes are an integral part of the unaudited interim financial statements.

2

Zion Oil & Gas, Inc.

Statements of Changes in Stockholders’ Equity (Unaudited)

	Common Stock				Additional paid-in		Accumulated
	Shares		Amounts		Capital		deficit			Total
	thousands		US$ thousands		US$ thousands		US$ thousands			US$ thousands
Balances as of December 31, 2014		35,755		358		144,958		(134,796	)		10,520
Funds received from sale of DSPP units and shares, net		1,516		15		3,002		—			3,017
Funds received from option exercises		490		5		42		—			47
Value of options granted to employees, directors and others		—		—		1,226		—			1,226
Net loss		—		—		—		(6,490	)		(6,490	)
Balances as of September 30, 2015		37,761		378		149,228		(141,286	)		8,320

The accompanying notes are an integral part of the unaudited interim financial statements.

3

Zion Oil & Gas, Inc.

Statements of Cash Flows (Unaudited)

	For the nine months ended September 30
	2015			2014
	US$ thousands			US$ thousands
Cash flows from operating activities
Net loss		(6,490	)		(5,157	)
Adjustments required to reconcile net loss to net cash used in operating activities:
Depreciation		46			64
Share-based compensation		1,132			275
Interest on short term bank deposits		13			14
Change in assets and liabilities, net:
Prepaid expenses and other		115			138
Other receivables		(217	)		(97	)
Severance pay, net		4			(5	)
Accounts payable		22			13
Accrued liabilities		961			(3	)
Asset retirement obligation		282			(204	)
Net cash used in operating activities		(4,132	)		(4,962	)
Cash flows from investing activities
Investment in short term bank deposits		517			(150	)
Acquisition of property and equipment		(7	)		(29	)
Investment in unproved oil and gas properties		(572	)		(1,323	)
Net cash used in investing activities		(62	)		(1,502	)
Cash flows from financing activities
Proceeds from sale of stock and exercise of options, net		3,064			2,476
Net cash provided by financing activities		3,064			2,476
Net decrease in cash and cash equivalents		(1,130	)		(3,988	)
Cash and cash equivalents – beginning of period		5,344			10,414
Cash and cash equivalents – end of period		4,214			6,426
Non-cash investing and financing activities:
Cost of options capitalized to oil & gas properties		94			3
Unpaid investments in oil & gas properties		34			45

The accompanying notes are an integral part of the unaudited interim financial statements.

4

Zion Oil & Gas, Inc.

Notes to Financial Statements (Unaudited)

Note 1 - Nature of Operations and Basis of Presentation

A. Nature of Operations

Zion Oil & Gas, Inc., a Delaware corporation (“we,” “our,” “Zion” or the “Company”) is an oil and gas exploration company with a history of more than 15 years of oil and gas exploration in Israel. As of September 30, 2015, the Company had no revenues from its oil and gas operations.

Exploration Rights/Exploration Activities

Zion currently holds one active petroleum exploration license onshore Israel, the Megiddo-Jezreel License (“MJL”), comprising approximately 99,000 acres. The Company has selected the specific drill pad location from which to drill its next exploration well, which it plans to spud within the first quarter of 2016. The spudding and drilling of this well to the desired depth is subject to the Company raising sufficient funds from the current rights offering scheduled to terminate on January 15, 2016.

Depending on the results of the planned exploratory well and having adequate cash resources, multiple wells could be drilled from this pad site as several subsurface geologic targets can be reached using directional well trajectories.

Megiddo-Jezreel Petroleum License (“MJL”)

The Megiddo-Jezreel License (“MJL”) was awarded on December 3, 2013 for a three-year primary term through December 2, 2016, with the possibility of additional one-year extensions up to a maximum of seven years. The MJL is onshore, south and west of the Sea of Galilee.

Under the terms of this license, the Company had until July 1, 2015 to identify and submit a drilling prospect. The license terms also called for it to enter into a drilling contract by October 1, 2015 and begin drilling or “spud” a well by December 1, 2015. The Company applied for an extension/revision of the current MJL terms on September 3, 2015 (see below).

On March 29, 2015, the Company received from the Energy Ministry final approval of its application to merge the southernmost portion of its former Jordan Valley License into the MJL, which the Company had filed on April 10, 2014.

In late June 2015, the Company entered into drilling contract negotiations with Viking Services, BV (“Viking”), and Viking’s Israeli subsidiary, for use of a land-based oil and gas rig with deep drilling capacity and certain other oilfield services for exploration activities within Zion’s MJL area in Israel. Subject to finalization and execution of definitive agreements, Viking would commit to use Rig I-35 to drill Zion’s Megiddo-Jezreel #1 well after full regulatory approval is granted by the State of Israel and regional and local governing bodies.

However, given the current depressed petroleum exploration business conditions worldwide, the Company is considering alternatives to using Viking’s drilling rig, including exploring options of using the rig and services of an Israeli company in an attempt to minimize overall drilling costs and time associated with importing an appropriate rig into Israel.

On September 3, 2015, the Company submitted its Application for Extension of Drilling Date (Megiddo-Jezreel License No. 401). Based on regulatory and other delays that preclude Zion from spudding the well by December 1, 2015, Zion sought an extension of Special Conditions No. 14, 15, and 16 as shown below. The application was approved (see Note 6).

No.	ACTIVITY DESCRIPTION	TO BE CARRIED OUT BY:
14	Sign contract with drilling contractor, and provide commissioner with contractor agreement	1 December 2015
15	Submit detailed engineering plan for performing the drilling	1 December 2015
16	Spud a well within the license area	1 March 2016

5

Zion Oil & Gas, Inc.

Notes to Financial Statements cont’d (Unaudited)

Zion’s Former Asher-Menashe License and Former Joseph License

The Company has plugged all of its previously drilled exploratory wells but acknowledges its obligation to complete the abandonment of these well sites in accordance with guidance from the Environmental Ministry and local officials.

B. Basis of Presentation

The accompanying unaudited interim financial statements of Zion Oil & Gas, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals necessary for a fair statement of financial position, results of operations and cash flows, have been included. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The year-end balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

To date, the Company has not achieved a discovery of either oil or gas in commercial quantities. The Company incurs cash outflows from operations and all exploration activities and overhead expenses to date have been financed by way of equity financing. The recoverability of the costs incurred to date is uncertain and dependent upon achieving significant commercial production.

The Company’s ability to continue as a going concern is dependent upon obtaining the necessary financing to undertake further exploration and development activities and ultimately generating profitable operations from its oil and natural gas interests in the future. The Company’s current operations are dependent upon the adequacy of its current assets to meet its current expenditure requirements and the accuracy of management’s estimates of those requirements. Should those estimates be materially incorrect, the Company’s ability to continue as a going concern may be impaired. The 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. During the nine months ended September 30, 2015, the Company incurred a net loss of approximately $6.5 million and had an accumulated deficit of approximately $141.3 million. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The Company expects to incur additional significant expenditures to further its exploration programs. Management is of the opinion that its currently available cash resources are sufficient to finance its plan of operations through January 2016.

To carry out further planned operations beyond that date, the Company must raise additional funds through additional equity and/or debt issuances. There can be no assurance that this capital will be available through the current rights offering or otherwise and if it is not, the Company may be forced to curtail or cease exploration and development activities, including the drilling of the planned MJL exploratory well. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

6

Zion Oil & Gas, Inc.

Notes to Financial Statements cont’d (Unaudited)

Note 2 - Summary of Significant Accounting Policies

A. Net Loss per Share Data

Basic and diluted net loss per share of common stock, par value $0.01 per share (the “Common Stock”), is presented in conformity with ASC 260-10 “Earnings Per Share.” Diluted net loss per share is the same as basic net loss per share as the inclusion of 5,617,811 and 3,812,778 Common Stock equivalents in the nine month period ended September 30, 2015 and 2014 respectively, would be anti-dilutive.

B. Use of Estimates

The preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of unproved oil and gas properties, deferred tax assets, asset retirement obligations and legal contingencies. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity, foreign currency, and energy markets have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

C. Oil and Gas Properties and Impairment

The Company follows the full-cost method of accounting for oil and gas properties.  Accordingly, all costs associated with geological and geophysical data 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 loss from operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.

The Company’s oil and gas property represents an investment in unproved properties. These costs are excluded from the amortized cost pool until proved reserves are found or until it is determined that the costs are impaired. All costs excluded are reviewed at least quarterly to determine if impairment has occurred. The amount of any impairment is charged to expense since a reserve base has not yet been established. Impairment requiring a charge to expense may be indicated through evaluation of drilling results, relinquishing drilling rights or other information (see Note 4).

Currently, the Company has no economically recoverable reserves and no amortization base. The Company’s unproved oil and gas properties consist of capitalized exploration costs of $4,460,000 and $3,891,000 as of September 30, 2015 and December 31, 2014, respectively.

D. Recently Adopted Accounting Pronouncements

We do not believe that the adoption of any recently issued accounting pronouncements in 2015 had a significant impact on our financial position, results of operations, or cash flow.

7

Zion Oil & Gas, Inc.

Notes to Financial Statements cont’d (Unaudited)

Note 3 - Stockholders’ Equity

A. Authorized Common Shares

The Company’s Amended and Restated Certificate of Incorporation was amended effective June 11, 2015 to increase the number of shares of Common Stock that the Company is authorized to issue from 100 million to 200 million shares.

B. 2005 Stock Option Plan

During the nine months ended September 30, 2015, the Company granted the following options from the 2005 Stock Option Plan, to purchase:

i.	128,500 shares of Common Stock to senior officers, other staff members, and service providers at an exercise price of $1.38. The options vested upon grant and are exercisable through January 2, 2025. The fair value of the options at the date of grant amounted to approximately $106,000.
ii.	25,000 shares of Common Stock to a senior officer at an exercise price of $1.38. The options have a par value of $.01. The options vested as scheduled on June 30, 2015 and are exercisable through January 1, 2025. The fair value of the options at the date of grant amounted to approximately $21,000 and,
iii.	123,500 shares of Common Stock to directors, senior officers, other staff members, and service providers at an exercise price of $0.01. The options vested upon grant and are exercisable through April 17, 2025. The fair value of the options at the date of grant amounted to $220,000.
C.	2011 Non-Employee Directors Stock Option Plan

In June 2015, the Company’s stockholders approved an increase in the number of shares of Common Stock available under the 2011 Non-Employee Directors Stock Option Plan, reserving for issuance thereunder an additional two million shares of Common Stock for a total of three million shares of Common Stock available thereunder.

During the nine months ended September 30, 2015, the Company granted the following options from the 2011 Non-Employee Directors Stock Option Plan, to purchase:

i.	108,000 shares of Common Stock to non-employee directors at an exercise price of $1.38. The options vested upon grant and are exercisable through January 2, 2021. The fair value of the options at the date of grant amounted to approximately $68,000; and
ii.	25,000 shares of Common Stock to a non-employee director at an exercise price of $2.03. The options have a par value of $.01. The options vested upon grant and are exercisable through May 1, 2021. The fair value of the options at the date of grant amounted to approximately $23,000.

8

Zion Oil & Gas, Inc.

Notes to Financial Statements cont’d (Unaudited)

Note 3 - Stockholders’ Equity (cont’d) 

D. 2011 Equity Incentive Stock Option Plan

In June 2015, the Company’s stockholders approved an increase in the number of shares of Common Stock available under the 2011 Equity Incentive Plan for employees and consultants reserving for issuance thereunder an additional four million shares of Common Stock for a total of six million shares of Common Stock available thereunder.

During the nine months ended September 30, 2015, the Company granted the following options from the 2011 Equity Incentive Plan for employees and consultants, to purchase:

i.	10,000 shares of Common Stock to one senior officer at an exercise price of $0.01. The options vest in equal quarterly instalments over four consecutive quarters, beginning with the quarter ended June 30, 2015 and are exercisable through April 2, 2025. The fair value of the options at the date of grant amounted to approximately $18,000.
ii.	360,000 shares of Common Stock to staff members and service providers at an exercise price of $0.01. The options vested upon grant and are exercisable through August 3, 2025. The fair value of the options at the date of grant amounted to approximately $630,000.
iii.	100,000 shares of Common Stock to one senior officer at an exercise price of $0.01. The options vested upon grant and are exercisable through September 3, 2025. The fair value of the options at the date of grant amounted to approximately $143,000.

E. Stock Options

The stock option transactions since January 1, 2015 are shown in the table below:

				Weighted average
	Number of shares			exercise price
				US$
Outstanding, December 31, 2014		3,089,693			1.99
Changes during 2015 to:
Granted to employees, officers, directors and others		880,000			0.47
Expired/Cancelled/Forfeited		(62,500	)		2.39
Exercised		(490,000	)		0.10
Outstanding, September 30, 2015		3,417,193			1.87
Exercisable, September 30, 2015		3,412,193			1.87

9

Zion Oil & Gas, Inc.

Notes to Financial Statements cont’d (Unaudited)

Note 3 - Stockholders’ Equity (cont’d) 

The following table summarizes information about stock options outstanding as of September 30, 2015:

Shares underlying outstanding options (non-vested)								Shares underlying outstanding options (fully vested)
Range of exercise price		Number outstanding		Weighted average remaining contractual life (years)		Weighted Average Exercise price		Range of exercise price		Number Outstanding		Weighted average remaining contractual life (years)		Weighted Average Exercise price
US$						US$		US$						US$
	0.01		5,000		9.51		0.01		0.01		2,500		9.51	0.01
	—		—		—		—		0.01		42,000		9.55	0.01
	—		—		—		—		0.01		20,000		8.70	0.01
	—		—		—		—		0.01		45,000		8.50	0.01
	—		—		—		—		0.01		43,500		8.12	0.01
	—		—		—		—		0.01		20,000		4.34	0.01
	—		—		—		—		0.01		164,500		9.85	0.01
	—		—		—		—		1.38		108,000		5.26	1.38
	—		—		—		—		1.38		149,750		9.27	1.38
	—		—		—		—		1.67		390,000		5.01	1.67
	—		—		—		—		1.67		514,443		9.01	1.67
	—		—		—		—		1.70		358,500		7.23	1.70
	—		—		—		—		1.70		132,500		3.23	1.70
	—		—		—		—		1.73		25,000		3.28	1.73
	—		—		—		—		1.82		25,000		1.70	1.82
	—		—		—		—		1.86		25,000		3.18	1.86
	—		—		—		—		1.95		25,000		4.51	1.95
	—		—		—		—		1.96		25,000		3.93	1.96
	—		—		—		—		2.03		25,000		5.59	2.03
	—		—		—		—		2.28		25,000		3.78	2.28
	—		—		—		—		2.61		200,000		2.18	2.61
	—		—		—		—		2.61		1,006,500		6.18	2.61
	—		—		—		—		4.45		25,000		0.32	4.45
	—		—		—		—		4.55		15,000		0.34	4.55
	0.01		5,000				0.01		0.01-4.55		3,412,193			1.87

Granted to employees

The following table sets forth information about the weighted-average fair value of options granted to employees and directors during the nine months ended September 30, 2015 and 2014, using the Black Scholes option-pricing model and the weighted-average assumptions used for such grants:

10

Zion Oil & Gas, Inc.

Notes to Financial Statements cont’d (Unaudited)

Note 3 - Stockholders’ Equity (cont’d) 

	For the nine month ended September 30,
	2015			2014
Weighted-average fair value of underlying stock at grant date	$	1.62		$	1.96
Dividend yields		—			—
Expected volatility		68%-70	%		77%-82	%
Risk-free interest rates		0.97%-1.60	%		1.70%-1.74	%
Expected lives (in years)		3.00-5.50			5.00-5.50
Weighted-average grant date fair value	$	1.31		$	1.95

Granted to non-employees

The following table sets forth information about the weighted-average fair value of options granted to non-employees during the nine months ended September 30, 2015 and 2014, using the Black Scholes option-pricing model and the weighted-average assumptions used for such grants:

	For the nine month ended September 30,
	2015			2014
Weighted-average fair value of underlying stock at grant date	$	1.74		$	2.08
Dividend yields		—			—
Expected volatility		72%-74	%		75	%
Risk-free interest rates		1.87-2.23	%		2.65	%
Expected lives (in years)		10.00			10.00
Weighted-average grant date fair value	$	1.71		$	2.07

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 is calculated based on the Simplified Method as allowed under Staff Accounting Bulletin No. 110 (“SAB 110”), giving consideration to the contractual term of the options and their vesting schedules, as the Company does not have sufficient historical exercise data at this time. The expected life of the option granted to non-employees equals their contractual term. In the case of an extension of the option life, the calculation was made on the basis of the extended life.

11

Zion Oil & Gas, Inc.

Notes to Financial Statements cont’d (Unaudited)

Note 3 - Stockholders’ Equity (cont’d) 

F. Compensation Cost for Option Issuances

The following table sets forth information about the compensation cost of all option issuances recognized for employees and directors:

For the nine month ended September 30,
2015		2014
US$		US$
	961,000		209,000

The following table sets forth information about the compensation cost of all option issuances recognized for non-employees:

For the nine month ended September 30,
2015		2014
US$		US$
	265,000		69,000

As of September 30, 2015, there was approximately $4,000 of unrecognized compensation cost, related to non-vested stock options granted under the Company’s various stock option plans. That cost is expected to be recognized during the remaining periods of 2015 and 2016.

G. Dividend Reinvestment and Stock Purchase Plan (“DSPP”)

On March 27, 2014, the Company launched its Dividend Reinvestment and Stock Purchase Plan (the “DSSP”) pursuant to which stockholders and interested investors can purchase shares of the Company’s Common Stock as well as units of the Company’s securities. The terms of the DSPP are described in the Prospectus Supplement originally filed on March 31, 2014 with the Securities and Exchange Commission (“SEC”) under the Company’s effective registration Statement on Form S-3, as thereafter amended (the “Original Prospectus Supplement”). On January 13, 2015, the Company amended the Original Prospectus Supplement (“Amendment No. 3”) to provide for a new unit option (the “Unit Option”) under the DSPP comprised of one share of Common Stock and three (3) Common Stock purchase warrants with each unit priced at $4.00. Each warrant affords the investor or stockholder the opportunity to purchase the Company’s Common Stock at a warrant exercise price of $1.00. Each of the three warrant series have different expiration dates that have been extended.

On July 29, 2015, Amendment No. 5 to the Original Prospectus Supplement was filed extending the Unit Option through December 31, 2015 with the same terms and conditions in place.

12

Zion Oil & Gas, Inc.

Notes to Financial Statements cont’d (Unaudited)

Note 3 - Stockholders’ Equity (cont’d) 

All of the warrant series will first become exercisable and tradable on January 31, 2016, which is the 31^st day following the new Unit Option’s scheduled termination date of December 31, 2015, and continue to be exercisable through January 31, 2017 for ZNWAB (1 year), January 31, 2018 for ZNWAC (2 years) and January 31, 2019 for ZNWAD (3 years), respectively, at a per share exercise price of $1.00.

The Company filed an application with NASDAQ to list the three warrant series on the NASDAQ Global Market under the symbols “ZNWAB,” “ZNWAC,” and “ZNWAD;” however, no assurance can be provided that the warrants will be approved for listing on the NASDAQ Global Market.

Through the nine months ended September 30, 2015, approximately $2,164,000 has been raised under the DSPP program. As a result, the Company issued approximately 964,000 shares of its Common Stock during the same period. Additionally, warrants for approximately 639,000 shares of Common Stock were issued during the nine months ended September 30, 2015 (approximately 213,000 each of ZNWAB, ZNWAC, and ZNWAD). The total amount of funds received from the DSPP inception date to September 30, 2015 is approximately $8,028,000.

H. Rights Offering (July-September 2015)

On July 6, 2015, the Company filed with the SEC the Prospectus Supplement dated as of July 6, 2015 relating to the Company’s rights offering of non-transferable subscription rights to the holders of the Company’s Common Stock as of record date of June 19, 2015 to purchase up to approximately 7,280,000 of subscription rights described below of the Company’s securities.

Under the rights offering, the Company distributed, at no cost to stockholders, non-transferable subscription rights (each “Right” and collectively the “Rights”) to purchase its Common Stock to persons who owned shares of its Common Stock on June 19, 2015 (the “record date”), with each Right consisting of four (4) shares of Common Stock. Each shareholder that participated received 0.20 of a subscription right for each share of Common Stock owned as of close of business on the record date (i.e., ONE subscription right for each FIVE shares).

Each whole subscription right represented the right to purchase four (4) shares of the Company’s Common Stock at a per Right price of $7.00, or an average purchase price of $1.75 per share. The rights offering also included an over-subscription privilege.

On September 30, 2015, the rights offering terminated as scheduled. The gross proceeds from the rights offering of approximately $966,000, less fees and expenses incurred in connection with the rights offering, will be used by the Company to further its drilling efforts and as otherwise provided in the prospectus. As a result of the rights offering, the Company issued approximately 551,000 shares of Common Stock. Following the issuance of the shares subscribed in the rights offering, the Company had outstanding approximately 37,761,000 shares of its Common Stock as of September 30, 2015. The company had an accounts receivable of approximately $314,000 at September 30, 2015, and this balance was collected in full during the period October 1-5, 2015.

13

Zion Oil & Gas, Inc.

Notes to Financial Statements cont’d (Unaudited)

Note 3 - Stockholders’ Equity (cont’d) 

I. Warrant Descriptions

The price and the expiration dates for the series of warrants to investors are as follows:

	Period of Grant	US$		Expiration Date
ZNWAA Warrants	March 2013 – December 2014		2.00	January 31, 2020

On February 2, 2015, the ZNWAA listed warrants began trading on the NASDAQ Global Market but on February 11, 2015, NASDAQ halted trading on the ZNWAA warrants pending the Company’s response to NASDAQ's request for additional information. On April 9, 2015, NASDAQ resumed trading on Zion’s ZNWAA warrants.

Note 4 - Unproved Oil and Gas Properties, Full Cost Method

Unproved oil and gas properties, under the full cost method, are comprised as follows:

	September 30, 2015		December 31, 2014
	US$ thousands		US$ thousands
Excluded from amortization base:
Inventory, and other operational related costs		895		895
Capitalized salary costs		1,135		916
Legal costs, license fees and other preparation costs		2,430		2,080
		4,460		3,891

Note 5 - Commitments and Contingencies

A. Litigation

From time to time, the Company may be subject to routine litigation, claims, or disputes in the ordinary course of business. The Company defends itself vigorously in all such matters. However, the Company cannot predict with certainty the outcome or effect of any such litigation or investigatory matters or any other pending litigation or claims. There can be no assurance as to the ultimate outcome of any such lawsuits and investigations (see note 5C).

B. Environmental and Onshore Licensing Regulatory 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 and other obligations as they relate to the drilling of oil and gas wells or the operation thereof.

14

Zion Oil & Gas, Inc.

Notes to Financial Statements cont’d (Unaudited)

Note 5 - Commitments and Contingencies (cont’d) 

In July 2013, the Environmental Ministry published: “Environmental Guidelines for the preparation of an environmental document supplementary to a license for searching – experimental drilling and land extraction tests.” This document extensively details the requirements for a supplemental environmental document to an oil and gas exploration plan. On January 21, 2015, the Company formally submitted its Environmental Impact Assessment (“EIA”) document for our upcoming Megiddo-Jezreel #1 well to Israel’s Energy Ministry and thereafter, on January 25, 2015, to the Environmental Ministry. This key milestone is required by the MJL work plan as well as by Israeli law and regulations.

On December 3, 2013, the State of Israel’s Petroleum Commissioner awarded the Company the Megiddo-Jezreel Petroleum Exploration License No. 401. Subsequently, the Company secured a bank guarantee from an Israeli based bank in the amount of $930,000, in accordance with the performance guarantee guidelines. Consequently, Zion believes it has met the requirements of the June 2012 onshore exploratory licensing guidelines and the October 2012 performance guarantee guidelines.

On February 6, 2014, the Energy Ministry issued proposed guidelines for bank guarantees and insurance requirements with respect to oil and gas rights. Under these guidelines, applicants for and existing holders of exploration rights will be required to submit certain bank guarantees and insurance policies that were not previously required.

On September 17, 2014, the proposed guidelines became effective and the Energy Ministry issued a guidance document entitled “Instructions for the Giving of Guarantees with respect to Oil Rights.” As it relates to existing onshore license holders like Zion, the Instructions call for the Company to obtain a new Base Bank Guarantee in the amount of $500,000, per each existing license area, split into two deposit dates as follows: (1) $250,000 by November 30, 2014 and (2) $250,000 by March 31, 2015.

Furthermore, prior to the start of drilling, an additional bank guarantee of $250,000 will be required at least 14 days before the spud date. In summary, this is a potential cumulative total of $750,000 that is separate and apart from the Company’s existing Bank Guarantees discussed below in Section D.

The Petroleum Commissioner has discretion to raise or lower those amounts or may also forfeit a Company’s existing guarantee and/or cancel a petroleum right under certain circumstances.

In addition, new and extended insurance policy guidelines were added. The Petroleum Commissioner may also view non-compliance with the new insurance provisions as breaching the work plan and the rights granted and act accordingly.

Due to the Petroleum Commissioner’s discretion in the matter, the Company has not provided bank guarantees based on the September 2014 guidelines as it has not had a request from the Commissioner. As of September 30, 2015, the Company has not received a specific request seeking payment and therefore, has not yet provided any of the additional bank guarantees called for in the new guidelines.

On January 11, 2015 the Energy Ministry issued revised guidelines (initially issued in February 2012) for onshore wellbore abandonment that are based on US regulations on well abandonment found in 43 CFR, Section 3162.3-4; applicable Texas Railroad Commission guidelines; and Well Abandonment and Inactive Well Practices for U.S. Exploration and Production Operations found in API Bulletin E3. This guideline is effective April 1, 2015.

On February 12, 2015, the Energy Ministry issued guidance for preparation and submission of the drilling program (first presented on April 29, 2014), describing types of and purposes of production tests depending on the stage of development of a reservoir. This guideline is effective April 1, 2015.

15

Zion Oil & Gas, Inc.

Notes to Financial Statements cont’d (Unaudited)

Note 5 - Commitments and Contingencies (cont’d) 

On April 27, 2015, the Energy Ministry issued guidelines for well testing, establishing procedures and minimum requirements for pressure testing, production flow testing, fluid analyses testing, etc.

On August 13, 2015, the Energy Ministry issued a new guideline for hydraulic fracturing design and operations that are based on Canadian regulations per Directive 083. This guideline is effective November 21, 2015. The procedures seek to prevent impacts on water wells, non-saline aquifers and prevent surface impacts.

On September 9, 2015, the Energy Ministry issued information relating to application forms for exploration drilling, detailing certain operator requirements prior to drilling, including required submission of an Application for Permit to Drill (APD) and Supplemental APD Information Sheet - Casing Design, both due 30 days prior to commencement of work. In addition, an Application for Permit to Modify (APM) form is provided relating to changes to and modifications of already-approved drilling programs and other actions that were omitted from the original application such as production testing, abandonment, etc. Also, an End of Operation Report (EOR) form is provided to report the end of drilling or a temporary or a final end of operations.

The Company believes that these new regulations will significantly increase the expenditures associated with obtaining new exploration rights and drilling new wells, coupled with the heavy financial burden of “locking away” significant amounts of cash that could otherwise be used for operational purposes. Finally, this will also considerably increase the time needed to obtain all of the necessary authorizations and approvals prior to drilling.

C. Former Drilling Contract with AME/GYP

On March 4, 2014, the Company received from the International Court of Arbitration in Paris, France (“ICA”) a request for arbitration in London filed by Guyney Yildizi Petrol UuretimSondajMut, ve Tie A.S. (“GYP”) over the $550,000 rig demobilization fee.

On May 1, 2014, prior to Zion’s answer date deadline, Zion filed an answer in which it denied GYP’s claim for payment of the demobilization fee, and in addition it asserted a Counterclaim against GYP.

In the preliminary procedural stage, Zion challenged GYP’s standing to assert its claim on the basis that there was no assignment of the Drilling Contract from Aladdin Middle East (“AME”) to GYP pursuant to the provisions of the Drilling Contract. GYP challenged Zion’s right to assert any issue not related to the demobilization fee, including Zion’s counterclaim. On December 19, 2014, the appointed arbitrator communicated to the ICA that she was denying each party’s preliminary challenges, and the arbitration would proceed on the basis of the primary claims and counterclaims raised by the parties.

On February 9, 2015, Zion and GYP each filed submissions on Stage 1 issues, to which rebuttals were due on March 5, 2015. 

On April 29, 2015, the arbitrator issued her Partial Award ordering Zion to pay GYP the demobilization fee of $550,000 plus interest in the amount of approximately $237,000, which continues to accrue at the rate of $180.82 per day until paid. However, any Final Award sum is not determinable until the issuance of the Final Award after resolution of Stage 2 of Zion’s fraud and other tort counterclaims against GYP. The Company recorded a provision in the amount of $910,000 to cover the Company's potential liability.

On June 22, 2015, the arbitrator set an evidentiary hearing on the Stage 2 issues for the week of December 7, 2015 in London. 

Beginning in August 2015, Zion and GYP have been negotiating the resolution of the arbitration and disputes presented therein in a mutually beneficial way. The parties are currently examining the potential tax issues raised by any such possible resolution. No assurance can however be provided that the parties will in fact successfully conclude any resolution.

In light of the ongoing negotiations, the evidentiary hearing set for December 7, 2015, has been removed from the docket and will be re-set, if necessary, as the parties may agree.

D.  Bank Guarantees

As of September 30, 2015, the Company provided bank guarantees to various governmental bodies (approximately $1,164,000) and others (approximately $66,000) in respect of its drilling operation in an aggregate amount of approximately $1,230,000. The funds backing these guarantees and additional amounts added to support currency fluctuations as required by the bank are held in interest-bearing accounts and are reported on the Company’s balance sheets as “restricted cash.”

16

Zion Oil & Gas, Inc.

Notes to Financial Statements cont’d (Unaudited)

Note 5 - Commitments and Contingencies (cont’d) 

E.  Asset Retirement Obligations

The Company currently estimates that the costs of plugging and decommissioning of the exploratory wells drilled to date in the its former Asher-Menashe and Joseph License areas to be approximately $500,000 based on current cost rather than Net Present Value. Liabilities for expenditures are recorded when environmental assessment and/or remediation is probable and the timing and costs can be reasonably estimated.

Changes in Asset Retirement Obligations were as follows:

	September 30,			December 31,
	2015			2014
	US$ thousands			US$ thousands
Asset Retirement Obligations, Beginning Balance		163			483
Liabilities Settled		(71	)		(320	)
Revision of Estimate		353			—
Retirement Obligations, Ending Balance		445			163

Liabilities of approximately $71,000 were settled for the nine months ended September 30, 2015; those liabilities were related to Joseph License areas.

Approximately $353,000 were accrued for the nine months ended September 30, 2015, and were primarily due to changes in estimated costs for future Plug & Abandonment activities related to the Asher-Menashe and Joseph License areas.

Note 6 - Subsequent Events

(i) On October 1, 2015, the Company granted options from the 2011 Equity Incentive Plan for employees and consultants, to purchase 225,000 shares of common stock to senior officers, and other staff members at an exercise price of $0.01. The options vested upon grant and are exercisable through September 30, 2025. The fair value of the options at the date of grant amounted to approximately $311,000.

(ii) On October 1, 2015, the Company granted options from the 2011 Non-Employee Directors Stock Option Plan, to purchase 150,000 shares of common stock to non-employee directors at an exercise price of $0.01. The options vested upon grant and are exercisable through September 30, 2025. The fair value of the options at the date of grant amounted to approximately $207,000.

(iii) On October 13, 2015, the Company received a formal letter from Israel’s Petroleum Commissioner granting the drilling date extension request as well other work plan terms as follows:

No.	ACTIVITY  DESCRIPTION	TO BE CARRIED OUT BY:
1	Sign contract with drilling contractor, and provide commissioner with contractor agreement	1 December 2015
2	Submit detailed engineering plan for performing the drilling	1 December 2015
3	Spud a well within the license area	1 March 2016
4	Submit final report on drilling results	15 October 2016
5	Submit plan for continued work in license area	15 November 2016

17

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED INTERIM FINANCIAL STATEMENTS AND THE RELATED NOTES TO THOSE STATEMENTS INCLUDED IN THIS FORM 10-Q. 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 DISCUSSION OF RISK FACTORS IN THE “DESCRIPTION OF BUSINESS” SECTION OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2014, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

Forward-Looking Statements

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:

● our ability to explore for and develop natural gas and oil resources successfully and economically;

● our liquidity and our ability to raise capital to finance our exploration and development activities;

● the quality of our license areas with regard to, among other things, the existence of reserves in economic quantities;

● the likelihood of being granted new or revised petroleum exploration rights by Israeli authorities;

● the availability of equipment, such as drilling rigs, oil transport trucks, and transportation pipelines;

● the impact of governmental regulations, permitting and other legal requirements in Israel relating to onshore exploratory drilling and production;

● our estimates of the timing and number of exploratory wells we expect to drill and other exploration activities and planned expenditures and the time frame within which they will be undertaken;

● changes in our drilling plans and related budgets;

● anticipated trends in our business;

● our future results of operations;

● our capital expenditure program;

● future market conditions in the oil and gas industry; and

● demand for oil and natural gas, both locally in Israel, regionally, and globally.

18

Overview 

Zion Oil and Gas, Inc., a Delaware corporation, is an oil and gas exploration company with a history of over 15 years of oil and gas exploration in Israel. We were incorporated in Florida on April 6, 2000 and reincorporated in Delaware on July 9, 2003. We completed our initial public offering in January 2007. Our common stock, par value $0.01 per share (the “Common Stock”) currently trades on the NASDAQ Global Market under the symbol “ZN” and our Common Stock warrant under the symbol “ZNWAA.”

Zion currently holds one active petroleum exploration license onshore Israel, the Megiddo-Jezreel License (“MJL”), comprised of approximately 99,000 acres. The Company is currently focusing its exploration strategy on the MJL as merged with the southern portion of the former Jordan Valley License area. We have selected the specific drill pad location from which to drill our next exploratory well, which we plan to spud within the first quarter of 2016. Subject to post drilling test results and adequate cash resources, multiple wells could be drilled from this pad site as several subsurface geologic targets can be reached using directional well trajectories.

At present, we have no revenues or operating income. Our ability to generate future revenues and operating cash flow will depend on the successful exploration and exploitation of our current and any future petroleum rights or the acquisition of oil and/or gas producing properties, and the volume and timing of such production. In addition, even if we are successful in producing oil and gas in commercial quantities, our results will depend upon commodity prices for oil and gas, as well as operating expenses including taxes and royalties.

Our executive offices are located at 6510 Abrams Road, Suite 300, Dallas, Texas 75231, and our telephone number is (214) 221-4610. Our branch office’s address in Israel is 9 Halamish Street, North Industrial Park, Caesarea 3088900, and the telephone number is +972-4-623-8500. Our website address is: www.zionoil.com.

Current Exploration and Operation Efforts 

Megiddo-Jezreel Petroleum License

We were awarded the Megiddo-Jezreel License, No. 401 (“MJL”) on December 3, 2013 for a three-year primary term through December 2, 2016 with the possibility of additional one-year extensions up to a maximum of seven years. The MJL is onshore, south and west of the Sea of Galilee.

Under the terms of this License, we had until July 1, 2015 to identify and submit a drilling prospect, enter into a drilling contract by October 1, 2015, and begin drilling or “spud” a well by December 1, 2015. We applied for an extension/revision of the current MJL terms on September 3, 2015, as further discussed below.

On January 21, 2015, the Company formally submitted its Environmental Impact Assessment (“EIA”) document for our upcoming Megiddo-Jezreel #1 well to Israel’s Ministry of National Infrastructures, Energy and Water Resources (“Energy Ministry”) and thereafter, on January 25, 2015, to the Ministry of Environmental Protection (“Environmental Ministry”). 

On March 22, 2015, the Company formally submitted its EIA document for our upcoming Megiddo-Jezreel #1 well to the Northern District Committee in Nazareth. On May 18, 2015, the Northern District Committee held a formal meeting and discussed, reviewed, and suggested modifications to the EIA document. On July 8, 2015, the Company’s EIA reply documents addressing the issues the Northern District Committee raised during their meeting of May 18, 2015, were officially submitted. 

19

On March 29, 2015, the Company received from the Energy Ministry final approval of our application to merge the southernmost portion of our Jordan Valley License into our MJL, which we had filed on April 10, 2014 (See Figure 1).

 

 Figure 1. Zion’s Megiddo-Jezreel License with Approved Annexation

(Shaded relief map of MJL area illustrating key physiographic features)

On June 1, 2015 the Company submitted its MJL Seismic Interpretation Report as required by its license terms. In July, the Company received correspondence from Dr. Michael Gardosh of the Energy Ministry informing that the company's June 1, 2015 MJL Seismic Interpretation Report needed additional clarification and revision and that such revisions were due by September 1, 2015. On July 9, 2015, the Company submitted its Megiddo-Jezreel #1 Well Drilling Prospect Report in compliance with the terms of its license. On August 25, the Company submitted its MJL corrected Seismic Interpretation Report of five main horizons (time and depth maps).

In late June 2015, we entered into drilling contract negotiations with Viking Services, BV (“Viking”), and Viking’s Israeli subsidiary, for use of a land-based oil and gas rig with deep drilling capacity and certain other oilfield services for exploration activities within Zion’s MJL area in Israel. Subject to finalization and execution of definitive agreements, Viking would commit to use Rig I-35 to drill Zion’s Megiddo-Jezreel #1 well after full regulatory approval is granted by the State of Israel and regional and local governing bodies. The parties anticipate a spud date for the first well in the 1st quarter of 2016. The rig is capable of drilling to 5,000 meters (~16,400 feet).

However, given the current depressed petroleum exploration business conditions worldwide, we are considering alternatives to using Viking’s drilling rig, including exploring options of using the rig and services of an Israeli company in an attempt to minimize overall drilling costs and avoid any delays that may be associated with importing an appropriate drilling rig into Israel.

20

On August 23, 2015, the Company formally submitted to the Northern District Committee a further revised and updated EIA document for the Company's upcoming Megiddo-Jezreel #1 well, which has now been formally approved by Israel's Energy and Environmental Ministries.  The Northern District Committee has now reviewed and authorized a 60-day public comments period for our drilling plans.  The 60-day period commenced on September 20, 2015, and will not end until November 19, 2015 (see also Note 6).  Zion's final approval to drill cannot be granted until expiration of the 60 days, and a formal meeting is held by the Northern District Committee.  We will not be authorized to begin well site construction until we have a final drilling permit in hand, so it increasingly looks like we will not be able to spud our well until the first quarter of 2016.

On September 3, 2015, we submitted to the Petroleum Commissioner our Application for Extension of Drilling Date (Megiddo-Jezreel License No. 401). The current MJL contains 18 Special Provisions of which we have fulfilled the first 13. Based on regulatory delays that preclude Zion from spudding the well by December 1, 2015, Zion sought an extension of Special Conditions No. 14, 15, and 16 as shown below:

No.	ACTIVITY  DESCRIPTION	TO BE CARRIED OUT BY:
14	Sign contract with drilling contractor, and provide commissioner with contractor agreement	1 December 2015
15	Submit detailed engineering plan for performing the drilling	1 December 2015
16	Spud a well within the license area	1 March 2016

On October 13, 2015, the Company received a formal letter from Israel’s Petroleum Commissioner granting the drilling date extension request as well other work plan terms as follows:

No.	ACTIVITY  DESCRIPTION	TO BE CARRIED OUT BY:
1	Sign contract with drilling contractor, and provide commissioner with contractor agreement	1 December 2015
2	Submit detailed engineering plan for performing the drilling	1 December 2015
3	Spud a well within the license area	1 March 2016
4	Submit final report on drilling results	15 October 2016
5	Submit plan for continued work in license area	15 November 2016

Zion’s Former Jordan Valley License

On April 10, 2014, Zion filed an application to merge the southernmost portion of the Jordan Valley License into the MJL and on March 29, 2015, this application was formally approved. The Jordan Valley License (~ 55,845 acres) expired in April 2014 as Zion did not seek an extension beyond its three-year primary term. The geologic and geophysical knowledge obtained in evaluating the Jordan Valley License over the last several years (seismic data acquisition, processing, reprocessing, gravity/magnetic surveys, etc.) was instrumental in guiding us to the most prospective areas in which to explore. Based on seismic and other exploratory activities that we undertook over the past years, we believe that there is significant exploration potential in this geologically linked petroleum system that overlaps the former boundaries between the Megiddo-Jezreel and Jordan Valley Licenses. Accordingly, we have focused our exploration strategy on the section of MJL containing the merged southern portion of the former Jordan Valley License.

21

Zion’s Former Asher-Menashe License and Former Joseph License

The Joseph License expired on October 10, 2013, after our final extension. The Asher-Menashe License expired on June 9, 2014 as its full seven year term ended. We have plugged all of the exploratory wells on those Licenses areas, but acknowledge our obligation to complete the abandonment of these well sites in accordance with guidance from the Energy Ministry, Environmental Ministry and local officials. We continue to make significant progress toward fully abandoning all these sites.   

Onshore Licensing, Oil and Gas Exploration and Environmental Guidelines 

Zion 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 and other obligations as they relate to the drilling of oil and gas wells or the operation thereof.

In July 2013, the Environmental Ministry published: “Environmental Guidelines for the preparation of an environmental document supplementary to a license for searching – experimental drilling and land extraction tests.” This document extensively details the requirements for a supplemental environmental document to an oil and gas exploration plan. On January 21, 2015, Zion formally submitted its Environmental Impact Assessment (“EIA”) document for our upcoming Megiddo-Jezreel #1 well to Israel’s Energy Ministry and thereafter, on January 25, 2015, to the Environmental Ministry. This key milestone is required by the MJL work plan as well as by Israeli law and regulations.

On December 3, 2013, the State of Israel’s Petroleum Commissioner awarded Zion the Megiddo-Jezreel Petroleum Exploration License No. 401. Subsequently, we secured a bank guarantee in the amount of $930,000 from an Israeli based bank in accordance with the performance guarantee guidelines. Consequently, Zion believes it has met the requirements of the June 2012 onshore exploratory licensing guidelines and the October 2012 performance guarantee guidelines.

On February 6, 2014, the Energy Ministry issued proposed guidelines for bank guarantees and insurance requirements with respect to oil and gas rights. Under these guidelines, applicants for and existing holders of exploration rights will be required to submit certain bank guarantees and insurance policies that were not previously required.

On September 17, 2014, the proposed guidelines became effective and the Energy Ministry issued a guidance document entitled “Instructions for the Giving of Guarantees with respect to Oil Rights.” As it relates to existing onshore license holders like Zion, the above referenced instructions required us to obtain a new Base Bank Guarantee in the amount of $500,000 per each existing license area, split into two deposit dates as follows: (1) $250,000 by November 30, 2014 and (2) $250,000 by March 31, 2015.

Furthermore, prior to the start of drilling, an additional bank guarantee of $250,000 will be required at least 14 days before the spud date. In summary, this is a potential cumulative total of $750,000 that is separate and apart from Zion’s existing Bank Guarantees discussed below in Liquidity and Capital Resources section. The Petroleum Commissioner has discretion to raise or lower those amounts or may also forfeit a company’s existing guarantee and/or cancel a petroleum right under certain circumstances.

On January 11, 2015 the Energy Ministry issued revised guidelines (initially issued in February 2012) for onshore wellbore abandonment that are based on US regulations on well abandonment found in 43 CFR, Section 3162.3-4; applicable Texas Railroad Commission guidelines; and Well Abandonment and Inactive Well Practices for U.S. Exploration and Production Operations found in API Bulletin E3. This guideline is effective April 1, 2015.

On February 12, 2015, the Energy Ministry issued guidance for preparation and submission of the drilling program (first presented on April 29, 2014), describing types of and purposes of production tests depending on the stage of development of a reservoir. This guideline is effective April 1, 2015.

On April 27, 2015, the Energy Ministry issued guidelines for well testing, establishing procedures and minimum requirements for pressure testing, production flow testing, fluid analyses testing, etc.

22

On July 8, 2015, the Energy Ministry issued revised draft guidance for “Transfer or Lien of Oil Rights,” section 76 of the petroleum law, for comments to August 6. The effective date has not yet been published.

On August 13, 2015, the Energy Ministry issued a new guideline for hydraulic fracturing design and operations that are based on Canadian regulations per Directive 083. This guideline is effective November 21, 2015. The procedures seek to prevent impacts on water wells, non-saline aquifers and prevent surface impacts.

On September 9, 2015, the Energy Ministry issued information relating to application forms for exploration drilling, detailing certain operator requirements prior to drilling, including required submission of an Application for Permit to Drill (APD) and Supplemental APD Information Sheet - Casing Design, both due 30 days prior to commencement of work.

An Application for Permit to Modify (APM) form is now provided relating to changes to and modifications of already-approved drilling programs and other actions that were omitted from the original application such as production testing, abandonment, etc. An End of Operation Report (EOR) form is also provided to report the end of drilling or a temporary or a final end of operations. 

Due to the Petroleum Commissioner's discretion in the matter, as of September 30, 2015, Zion has not provided the additional bank guarantees based on the September 2014 guidelines, as it has not had a specific request for same from the Commissioner.  In addition, the Commissioner has discretion to raise or lower those amounts or may also forfeit a company's existing guarantee and/or cancel a petroleum right under certain circumstances.

In addition, new and extended insurance policy guidelines were added. The Petroleum Commissioner may also view non-compliance with the new insurance provisions as breaching the work plan and the rights granted and act accordingly.

We believe that these new regulations will significantly increase the expenditures associated with obtaining new exploration rights and drilling new wells, coupled with the heavy financial burden of “locking away” significant amounts of cash that could otherwise be used for operational purposes. Finally, this will also considerably increase the time needed to obtain all of the necessary authorizations and approvals prior to drilling. 

Capital Resources Highlights

We need to raise significant funds on an immediate basis in order to finance the drilling and testing of our next exploratory well and maintain orderly operations. To date, we have funded our operations through the issuance of our securities. We will need to continue to raise funds through the issuance of equity and/or debt securities (or securities convertible into or exchangeable for equity securities). No assurance can be provided that we will be successful in raising the needed equity on terms favorable to us (or at all).

The  Dividend Reinvestment and Stock Purchase Plan

On March 13, 2014, we filed an S-3/A that is part of a replacement registration statement that was filed with the Securities and Exchange Commission (the “SEC”) using a “shelf” registration process. The registration statement was declared effective on March 27, 2014. From time to time, we may offer up to an aggregate of approximately $119,850,000 of any combination of the securities described in this prospectus, either individually or in units.

On March 31, 2014, we filed with the SEC the prospectus supplement and accompanying base prospectus, both of which were dated March 27, 2014 (collectively, the “DSPP Prospectus Supplement”) relating to Zion’s Dividend Reinvestment and Stock Purchase Plan (“DSPP” or the “Plan”).

23

Pursuant to the DSPP, stockholders and interested investors can purchase shares of Zion’s Common Stock as well as units of our securities. The terms of the DSPP are described in the DSPP Prospectus Supplement.

On January 13, 2015, the Company amended the DSPP Prospectus Supplement (“Amendment No. 3”) to provide for a unit option (the “Unit Option”) under the DSPP comprised of one share of Common Stock and three Common Stock purchase warrants at a per Unit purchase price of $4.00. Each warrant affords the investor or stockholder the opportunity to purchase additional shares of our Common Stock at a warrant exercise price of $1.00. Each of the three warrant series included in the unit has different expiration dates that have been extended. The Unit Option began on February 2, 2015 and was scheduled to terminate May 4, 2015, but was extended for an additional 90-day period through August 3, 2015 and, subsequently, further extended through December 31, 2015.

All of the warrant series are scheduled to first become exercisable and tradable on January 31, 2016, which is the 31^st day following the new Unit Option Termination Date (i.e., on December 31, 2015) and continue to be exercisable through January 31, 2017 for ZNWAB (1 year), January 31, 2018 for ZNWAC (2 years) and January 31, 2019 for ZNWAD (3 years), respectively, at a per share exercise price of $1.00.

We have raised through the DSPP approximately $2,164,000 in the nine months ended September 30, 2015. As a result, we issued approximately 964,000 shares of our Common Stock during the same period. Additionally, warrants for approximately 639,000 shares of Common Stock were issued during the nine months ended September 30, 2015 (approximately 213,000 each of ZNWAB, ZNWAC, and ZNWAD). The total amount of funds received from the DSPP inception date to September 30, 2015 is approximately $8,028,000.

Rights Offering (July-September 2015)

On July 6, 2015, we filed with the SEC a prospectus supplement relating to our rights offering of non-transferrable subscription rights to the holders of our Common Stock as of the record date of June 19, 2015, to purchase up to 7,280,000 subscription rights, with each subscription right consisting of four (4) shares of Common Stock. Each shareholder that participated received 0.20 of a subscription right for each share of Common Stock owned as of close of business on the record date (i.e., ONE subscription right for each FIVE shares). Each whole subscription right represented the right to four (4) shares of our Common Stock at a subscription price of $7.00, or an average purchase price of $1.75 per share. The rights offering also included an over-subscription privilege.

On September 30, 2015, the rights offering terminated as scheduled. As a result of the rights offering, we issued approximately 551,000 shares of Common Stock. The gross proceeds from the rights offering were approximately $966,000 less fees and expenses of approximately $113,000 incurred in connection with the rights offering.

Current Rights Offering (October 21, 2015 – January 15, 2016)

On October 21, 2015, we filed with the SEC a prospectus supplement for a new rights offering. Under the new rights offering we distributed at no cost, 360,000 non-transferable subscription rights to subscribe for, on a per right basis, two (2) 10% Convertible Senior Bonds par $100 due 2021 (the “Notes”), representing up to an aggregate of $72,000,000 in principal amount of Notes, to persons who owned shares of our Common Stock on October 15, 2015, the record date for the offering. Each whole subscription right entitles the participant to purchase two (2) convertible bonds at a purchase price of $100.00 per bond.

Effective October 21, 2015, we executed a Supplemental Indenture, as issuer, with the American Stock Transfer & Trust Company, LLC, a New York limited liability trust company (“AST”), as trustee for the Notes (the “Indenture”). The offering is scheduled to terminate on January 15, 2016. The Notes will be issued on February 15, 2016, the 31^st day following termination of the Offering. AST serves as the trustee and depositary under the Indenture.

The Notes mature February 15, 2021. No ‘sinking fund” is provided for the bonds, so that we are not required to retire the bonds periodically. Interest is payable in arrears on February 15 of each year, commencing February 15, 2017. Interest and principal may be repaid, at our option, in shares of our Common Stock at a rate specified in the Indenture. At any time, the Notes are convertible at the option of the holder into shares of our Common Stock at a specified rate. Under certain conditions, the Notes holders can require us to re-purchase the Notes for cash in an amount equal to the outstanding principal and all accrued and unpaid interest. Following the second anniversary of their issuance, we are entitled to redeem for cash the outstanding Notes at an amount equal to the outstanding principal and accrued and unpaid interest. The Company evaluated the conversion feature for an embedded derivative and beneficial conversion feature.

24

Principal Components of our Cost Structure

Our operating and other expenses primarily consist of the following:

● Impairment of Unproved Oil and Gas Properties:  Impairment expense is recognized if a determination is made that a well will not be able to be commercially productive.  The amounts include amounts paid in respect of the drilling operations as well as geological and geophysical costs and various amounts that were paid to Israeli regulatory authorities.

● General and Administrative Expenses: Overhead, including payroll and benefits for our corporate staff, costs of managing our exploratory operations, audit and other professional fees, and legal compliance are included in general and administrative expenses. General and administrative expenses also include non-cash stock-based compensation expense, investor relations related expenses, lease and insurance and related expenses.

● Depreciation, Depletion, Amortization and Accretion: The systematic expensing of the capital costs incurred to explore for natural gas and oil represents a principal component of our cost structure. As a full cost company, we capitalize all costs associated with our exploration, and apportion these costs to each unit of production, if any, through depreciation, depletion and amortization expense. As we have yet to have production, the costs of abandoned wells are written off immediately versus being included in this amortization pool.

Going Concern Basis

Since we have limited capital resources, no revenue to date and a loss from operations, our 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.  The appropriateness of using the going concern basis is dependent upon our ability to obtain additional financing or equity capital and, ultimately, to achieve profitable operations. Therefore, there is substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 Critical Accounting Policies

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period.

Impairment of Oil and Gas Properties

We follow 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.

25

Our oil and gas property represents an investment in unproved properties. Oil and gas property in general is excluded from the amortized cost pool until proved reserves are found or until it is determined that the costs are impaired. All costs excluded are reviewed at least quarterly to determine if impairment has occurred. The amount of any impairment is charged to expense since a reserve base has not yet been established. Impairment requiring a charge to expense may be indicated through evaluation of drilling results, relinquishing drilling rights or other information.

Abandonment of properties is accounted for as adjustments to capitalized costs. 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 total net book value of our unproved oil and gas properties under the full cost method is $4,460,000 at September 30, 2015.

Asset Retirement Obligation

We record a liability for asset retirement obligation at fair value in the period in which it is incurred and a corresponding increase in the carrying amount of the related long lived assets. 

RESULTS OF OPERATIONS

	For the three months ended September 30				For the nine months ended September 30
	2015		2014		2015		2014
	(US $ in thousands)				(US $ in thousands)
Operating costs and expenses:
General and administrative expenses		1,579		770		4,441		2,590
Other		405		430		2,013		2,513
Subtotal Operating costs and expenses		1,984		1,200		6,454		5,103
Other expense, net		19		50		36		54
Net loss		2,003		1,250		6,490		5,157

Revenue. We currently have no revenue generating operations.

Operating costs and expenses. Operating costs and expenses for the three and nine months ended September 30, 2015 were $1,984,000 and $6,454,000, respectively, compared to $1,200,000 and $5,103,000 for the three and nine months ended September 30, 2014. The increase in operating costs and expenses during the three months ended September 30, 2015 compared to 2014 is primarily attributable to increase in general and administrative expenses during the three months ended September 30, 2015, compared to the corresponding period in 2014. The increase in operating costs and expenses during the nine months ended September 30, 2015 compared to 2014 is primarily attributable to increase in general and administrative expenses, partially offset by decrease in other expenses, during the nine months ended September 30, 2015, compared to the corresponding period in 2014.

General and administrative expenses. General and administrative expenses for the three and nine months ended September 30, 2015 were $1,579,000 and $4,441,000, respectively, compared to $770,000 and $2,590,000 for the three and nine months ended September 30, 2014. The increase in general and administrative expenses during the three months ended September 30, 2015 compared to 2014 is primarily attributable to higher non-cash expenses recorded in connection with stock option grants. The increase in general and administrative expenses during the nine months ended September 30, 2015 compared to 2014 is primarily attributable to an increase in legal and other professional fees related to the increased utilization of legal services primarily in connection with GYP and the expenses we recorded in connection with a provision in the amount of $910,000 to cover our liability under the partial award in the arbitration proceeding, and higher non-cash expenses recorded in connection with stock option grants.

26

Other expenses. Other expenses during the three and nine months ended September 30, 2015 were $405,000 and $2,013,000, respectively, compared to $430,000 and $2,513,000 for the three and nine months ended September 30, 2014. Other general and administrative expenses are comprised of non-compensation and non-professional expenses incurred. The decrease in other general and administrative expenses during the three and nine months ended September 30, 2015 compared to the corresponding three and nine month periods in 2014 is primarily attributable to operational expenses incurred during the nine months ended September 30, 2014 in regard to re-entry and testing of the Elijah #3 well.

Other expense, net. Other expense, net for the three and nine months ended September 30, 2015 was $19,000 and $36,000 compared to $50,000 and $54,000 for the three and nine months ended September 30, 2014.

Net Loss. Net loss for the three and nine months ended September 30, 2015 was $2,003,000 and $6,490,000 compared to $1,250,000 and $5,157,000 for the three and nine months ended September 30, 2014. 

Liquidity and Capital Resources

Liquidity is a measure of a company’s ability to meet potential cash requirements. As discussed above, we have historically met our capital requirements through the issuance of our securities as well as proceeds from the exercise of warrants and options to purchase common equity.

Our ability to continue as a going concern is dependent upon obtaining the necessary financing to complete further exploration and development activities and generate profitable operations from our oil and natural gas interests in the future. Our current operations are dependent upon the adequacy of our current assets to meet our current expenditure requirements and the accuracy of management’s estimates of those requirements. Should those estimates be materially incorrect, our ability to continue as a going concern will be impaired. Our unaudited interim financial statements for the nine months ended September 30, 2015 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have incurred a history of operating losses and negative cash flows from operations. Therefore, there is substantial doubt about our ability to continue as a going concern.

At September 30, 2015, we had approximately $4,214,000 in cash and cash equivalents compared to $5,344,000 at December 31, 2014. Our working capital (current assets minus current liabilities) was $3,743,000 at September 30, 2015 and $6,469,000 at December 31, 2014.

As of September 30, 2015, we provided bank guarantees to various governmental bodies (approximately $1,164,000) and others (approximately $66,000) in respect of our drilling operation in the aggregate amount of approximately $1,230,000. The funds backing these guarantees and additional amounts added to support currency fluctuations as required by the bank, are held in interest-bearing accounts and are reported on Zion’s balance sheets as “restricted cash.”

During the nine months ended September 30, 2015, cash used in operating activities totaled $4,132,000. Cash provided by financing activities during the nine months ended September 30, 2015 was $3,064,000 and is primarily attributable to proceeds received from the DSPP. Net cash used in investing activities such as unproved oil and gas properties, other assets and restricted bank deposits was $62,000 for the nine months ended September 30, 2015.

27

We expect to incur additional significant expenditures to further our exploration programs. We estimate that, when we are not actively drilling a well, our expenditures are approximately $419,000 per month excluding exploratory and operational activities. However, when we become engaged in active drilling operations, we estimate an additional minimum expenditure of approximately $2,500,000 per month. In addition, we have recorded a provision in the amount of $910,000 in respect of the pending arbitration proceeding referred to in Note 5C of the financial statements, which further constrains our available cash resources. Management believes that our existing cash resources, coupled with anticipated proceeds under the DSPP, will be sufficient to finance our plan of operations through January 2016. These figures do not assume any minimum proceeds derived from our current rights offering.

We need to raise funds on an immediate basis in order to drill our next exploratory well to the desired depth and to conduct any post drilling testing that may be required. No assurance can be provided that we will be able to raise the needed operating capital through our current rights offering that is continuing through January 2016.

Even if we raise the needed funds from the current rights offering, there are factors that can nevertheless adversely impact our ability to fund our operating needs, including (without limitation), unexpected or unforeseen cost overruns in planned non-drilling exploratory work (e.g., drilling and environmental permit acquisition costs, etc.) in existing license areas and the costs associated with extended delays in undertaking the required exploratory work, which is typical of what we have experienced in the past, or plugging and abandonment activities.

On March 13, 2014 Zion filed an S-3/A Form that is part of a replacement registration statement that was filed with the SEC using a “shelf” registration process. The registration statement was declared effective by the SEC on March 27, 2014. From time to time, we may offer up to $119,850,000 of any combination of the securities described in this prospectus, in the form of common stock, debt securities, warrants, and/or units.

The Dividend Reinvestment and Stock Purchase Plan

On March 31, 2014, we filed with the SEC the prospectus supplement dated as of March 27, 2014 and accompanying base prospectus dated March 27, 2014 (collectively, the “DSPP Prospectus”) relating to the DSPP.

An Amendment No. 3 to the DSPP Prospectus was filed on January 13, 2015, which provided for the Unit Option.

On July 29, 2015, Amendment No. 5 to the DSPP Prospectus was filed extending the Unit Option under our DSPP through December 31, 2015. The prior Unit Option ended on December 31, 2014. Zion’s Unit Option began on February 2, 2015, under Amendment No. 3 to the DSPP Prospectus and was scheduled to terminate May 4, 2015. This extended Unit Option enables participants to purchase Units of our securities where each Unit (priced at $4.00) is comprised of one share of Common Stock and three Common Stock purchase warrants. Each warrant affords the investor or stockholder the opportunity to purchase one share of the Company’s Common Stock at a warrant exercise price of $1.00. Each of the three warrant series per Unit will have a different expiration date.

28

The Company filed an application with NASDAQ to list the three warrant series on the NASDAQ Global Market under the symbols “ZNWAB,” “ZNWAC,” and “ZNWAD;” however, no assurance can be provided that the warrants will be approved for listing on the NASDAQ Global Market.

All of the warrant series will first become exercisable and tradable on January 31, 2016, which is the 31^st day following the new Unit Option Termination Date (i.e., on December 31, 2015) and continue to be exercisable through January 31, 2017 for ZNWAB (1 year), January 31, 2018 for ZNWAC (2 years) and January 31, 2019 for ZNWAD (3 years), respectively, at a per share exercise price of $1.00. 

Rights Offering (July-September 2015)

On July 6, 2015, we filed with the SEC a prospectus supplement relating to our rights offering of non-transferrable subscription rights to the holders of our Common Stock as of the record date of June 19, 2015, to purchase up to 7,280,000 subscription rights, with each subscription right consisting of four (4) share of Common Stock. Each shareholder that participated received 0.20 of a subscription right for each share of Common Stock owned as of close of business on the record date (i.e., ONE subscription right for each FIVE shares). Each whole subscription right represented the right to exercise one subscription right at a price of $7.00 for an average purchase price of $1.75 per share. The rights offering also included an over-subscription privilege.

On September 30, 2015, the rights offering terminated as scheduled. As a result of the rights offering, we issued approximately 551,000 shares of Common Stock. The gross proceeds from the rights offering were approximately $966,000 less fees and expenses incurred in connection with the rights offering.

Current Rights Offering (October 21, 2015 – January 15, 2016)

On October 21, 2015 we filed with the SEC a prospectus supplement for a new rights offering. Under the new rights offering we distributed at no cost, 360,000 non-transferable subscription rights to subscribe for, on a per right basis, two (2) 10% Convertible Senior Bonds par $100 due 2021 (the “Notes”), representing up to an aggregate of $72,000,000 in principal amount of Notes, to persons who owned shares of our Common Stock on the record date of October 15, 2015, the record date for the offering. Each whole subscription right entitles the participant to purchase two (2) convertible bonds at a purchase price of $100.00 per bond.

Effective October 21, 2015, we executed a Supplemental Indenture, as issuer, with the American Stock Transfer & Trust Company, LLC, a New York limited liability trust company (“AST”), as trustee for the Notes. The offering is scheduled to terminate on January 15, 2016. The Notes will be issued on February 15, 2016, the 30^th day following termination of the Offering. AST serves as trustee and depositary for the Notes.

The Notes mature February 15, 2021. No ‘sinking fund” is provided for the bonds, so that we are not required to retire the bonds periodically. Interest is payable in arrears on February 15 of each year, commencing February 15, 2017. Interest and principal may be repaid, at our option, in shares of our Common Stock at a rate specified in the Indenture. At any time, the Notes are convertible at the option of the holder into shares of our Common Stock at a specified rate. Under certain conditions, the Notes holders can require us to re-purchase the Notes for cash in an amount equal to the outstanding principal and all accrued and unpaid interest. Following the second anniversary of their issuance, we are entitled to redeem for cash the outstanding Notes at an amount equal to the outstanding principal and accrued and unpaid interest. The Company evaluated the conversion feature for an embedded derivative and beneficial conversion feature.

Off-Balance Sheet Arrangements

We do not currently use any off-balance sheet arrangements to enhance our liquidity or capital resource position, or for any other purpose.

Recently Issued Accounting Pronouncements

We do not believe that the adoption of any recently issued accounting pronouncements in 2015 had a significant impact on our financial position, results of operations, or cash flow.

29

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. In the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates.

Foreign Currency Exchange Rate Risks.

A portion of our expenses, primarily labor expenses and certain supplier contracts, are denominated in New Israeli Shekels (“NIS”). As a result, we have significant exposure to the risk of fluctuating exchange rates with the U.S. Dollar (“USD”), our primary reporting currency.

Since December 2012, the NIS has experienced a revaluation of approximately (5.1%) against the USD. Continued revaluation of the NIS (against the USD) should result in lower operating costs for us from NIS denominated expenses. Since December 31, 2014 and 2013 to September 30, 2015, the USD has fluctuated by approximately 0.9% and 13.0% respectively against the NIS. Continuing devaluation of the US dollar against the NIS will result in higher operating costs from NIS denominated expenses. To date, we have not hedged any of our currency exchange rate risks, but we may do so in the future.

Interest Rate Risk.  Our exposure to market risk relates to our cash and investments. We maintain an investment portfolio of short term bank deposits and money market funds. The securities in our investment portfolio are not leveraged, and are, due to their very short-term nature, subject to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of the short-term maturities of our investments, we do not believe that a change in market interest rates would have a significant negative impact on the value of our investment portfolio except for reduced income in a low interest rate environment. At September 30, 2015, we had cash, cash equivalents and short-term bank deposits, restricted inclusive of approximately $5,513,000.  The weighted average annual interest rate related to our cash and cash equivalents for the nine months ended September 30, 2015, was approximately 0.15%.

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest our excess cash in short-term bank deposits and money market funds that may invest in high quality debt instruments.

ITEM 4.  CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. As of September 30, 2015, 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, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2015.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2015, there were no changes made in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

30

PART II—OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

From time to time, we may be subject to routine litigation, claims, or disputes in the ordinary course of business. We defend our company vigorously in all such matters. However, we cannot predict with certainty the outcome or effect of any of the litigation or investigatory matters or any other pending litigation or claims. There can be no assurance as to the ultimate outcome of these lawsuits and investigations.

Dispute with AME/GYP

On March 4, 2014, the Company received from the International Court of Arbitration in Paris, France (“ICA”) a request for arbitration in London filed by Guyney Yildizi Petrol UuretimSondajMut, ve Tie A.S. (“GYP”) over the $550,000 rig demobilization fee.

On May 1, 2014, prior to Zion’s answer date deadline, Zion filed an answer in which it denied GYP’s claim for payment of the demobilization fee, and in addition it asserted a Counterclaim against GYP.

In the preliminary procedural stage, Zion challenged GYP’s standing to assert its claim on the basis that there was no assignment of the Drilling Contract from Aladdin Middle East (“AME”) to GYP pursuant to the provisions of the Drilling Contract. GYP challenged Zion’s right to assert any issue not related to the demobilization fee, including Zion’s counterclaim. On December 19, 2014, the appointed arbitrator communicated to the ICA that she was denying each party’s preliminary challenges, and the arbitration would proceed on the basis of the primary claims and counterclaims raised by the parties.

On February 9, 2015, Zion and GYP each filed submissions on Stage 1 issues, to which rebuttals were due on March 5, 2015. 

On April 29, 2015, the arbitrator issued her Partial Award ordering Zion to pay GYP the demobilization fee of $550,000 plus interest in the amount of approximately $237,000, which continues to accrue at the rate of $180.82 per day until paid. However, any Final Award sum is not determinable until the issuance of the Final Award after resolution of Stage 2 of Zion’s fraud and other tort counterclaims against GYP. The Company recorded a provision in the amount of $910,000 to cover the Company's potential liability.  

On June 22, 2015 the arbitrator set an evidentiary hearing on the Stage 2 issues for the week of December 7, 2015 in London. 

Beginning in August, 2015, Zion and GYP have been negotiating the resolution of the arbitration and disputes presented therein in a mutually beneficial way. The parties are currently examining the potential tax issues raised by any such possible resolution. No assurance can however be provided that the parties will in fact successfully conclude any resolution.

In light of the ongoing negotiations, the evidentiary hearing set for December 7, 2015, has been removed from the docket and will be re-set, if necessary, as the parties may agree.

ITEM 1A. RISK FACTORS

During the quarter ended September 30, 2015, there were no material changes to the risk factors previously reported in our Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURES

None. 

ITEM 5. OTHER INFORMATION:

On October 13, 2015, the Company received a formal letter from Israel’s Petroleum Commissioner granting the drilling date extension request as well other work plan terms as follows

No.	ACTIVITY  DESCRIPTION	TO BE CARRIED OUT BY:
1	Sign contract with drilling contractor, and provide commissioner with contractor agreement	1 December 2015
2	Submit detailed engineering plan for performing the drilling	1 December 2015
3	Spud a well within the license area	1 March 2016
4	Submit final report on drilling results	15 October 2016
5	Submit plan for continued work in license area	15 November 2016

31

ITEM 6. EXHIBITS

Exhibit Index:

3(i).1	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Zion Oil & Gas, Inc., as of June 11, 2015 (incorporated by reference to the Current report on Form 8-K filed on June 11, 2015).
3(ii).1	Amended and Restated Bylaws of Zion Oil & Gas, Inc. as of June 11, 2015 (incorporated by reference to the Current report on Form 8-K filed on June 11, 2015).
10.1	Office Lease Agreement, dated as of September 10, 2015, by and between Zion Oil & Gas, Inc., as lessee and Hartman Income REIT Property Holdings, LLC, a Delaware limited liability company, d/b/a North Central Plaza I, as lessor.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 under the Exchange Act
31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 under the Exchange Act
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished only)
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished only)
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase

* Furnished herewith, XBRL (Extensible Business Reporting Language) information is furnished and not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934 and otherwise not subject to liability under these sections.

32

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ZION OIL & GAS, INC.
(Registrant)
By:	/s/ Victor G. Carrillo	By:	/s/ Ilan Sheena
	Victor G. Carrillo		Ilan Sheena
	Chief Executive Officer		Chief Financial Officer
	(Principal Executive Officer)		(Principal Financial Officer)
Date:	November  10, 2015	Date:	November 10, 2015

33

EX-10.1

Exhibit 10.1

OFFICE LEASE AGREEMENT

SECTION 1

BASIC TERMS

LANDLORD	Hartman Income REIT Property Holdings, LLC, a Delaware limited liability company, d/b/a North Central Plaza I
TENANT	Zion Oil & Gas, Inc. a Delaware corporation
PREMISES RENTABLE AREA (RSF)	Approximately 7,276 square feet
PROPORTIONATE SHARE (%)	3.667%
PREMISES SUITE #	1000
LEASE COMMENCEMENT DATE	December 1, 2015
LEASE TERM (MONTHS)	Sixty five (65) months
LEASE EXPIRATION DATE	April 30, 2021
BASE RENT (MONTHLY)	12/01/15   TO   04/30/16          $0.00 per month + Electricity 05/01/16   TO   04/30/17   $7,882.33 per month + Electricity 05/01/17   TO   04/30/18   $8,185.50 per month + Electricity 05/01/18   TO   04/30/19   $8,488.67 per month + Electricity 05/01/19   TO   04/30/20   $8,791.83 per month + Electricity 05/01/20   TO   04/30/21   $9,095.00 per month + Electricity
BASE YEAR	2016
TENANT PARKING SPACES #	Twenty nine (29) unreserved covered and seven (7) reserved parking spaces.
SECURITY DEPOSIT	$9,095.00
PREPAID RENT	$7,882.33

SECTION 2

PREMISES AND TERM

2.1. Lease of Premises. Landlord leases the Premises to Tenant, and Tenant leases the Premises from Landlord, on the terms and conditions set forth in this Lease. A floor plan of the Premises is attached as Exhibit B (the "Premises"). The Premises are part of that building known as North Central Plaza I (the "Building") located at 12655 N. Central Expressway, Dallas, Texas 75243 (the "Land"). The Building and the Land are collectively referred to as the "Project".

2.2. Lease Term. The Lease Term shall be for the period stated in Section 1, unless earlier terminated as provided in this Lease.

2.3. Lease Year. "Lease Year" means any calendar year within which fails any part of the Lease Term or any renewals or extensions of the Lease Term. Accordingly, the "First Lease Year" means the calendar year 2016.

2.4. Commencement Date. The Commencement Date of this Lease shall be December 1, 2015.

2.5. Rentable Areas. The Rentable Area of the Building is 198,374 RSF. The Rentable Area of the Premises is 7,276 RSF. Rentable Areas of the Premises and the Building are final, conclusive and controlling for all purposes.

2.6. Pronortionate Share. Tenant's Proportionate Share is a fraction, the numerator of which is the Rentable Area of the Premises (7,276 RSF) and the denominator of which is the Rentable Area of the Building (198,374 RSF). Tenant's Proportionate Share is 3.667%.

2.7. Initial Physical Condition of Premises. Tenant accepts the Premises, the Building and the Project in their current AS IS condition, and acknowledges that Tenant is not relying on any representations or warranties by any person regarding the Premises or the Building except as set forth in the Construction Rider attached hereto as Exhibit "I".

SECTION 3

BASE RENT, ELECTRICITY COSTS, OPERATING EXPENSES AND OTHER SUMS PAYABLE

3.1. Tenant Payments. Tenant agrees to pay Base Rent, Electricity Costs and Operating Expenses and any other sum payable under this Lease to Landlord when due without demand, deduction, credit, adjustment or offset of any kind. All such payments shall be in lawful money of the United States and shall be paid to Landlord or to Manager or to such other place as Landlord may from time to time designate in writing.

1

3.2. Base Rent. On execution of this Lease, Tenant shall prepay to Landlord the Base Rent for the 1st month of the Lease Term. Future monthly installments of Base Rent shall be paid, without demand and in advance, on or before the first day of each calendar month during the Lease Term. The monthly Base Rent installment for any partial month at the beginning or end of the Lease Term shall be prorated.

3.3. Electricity Costs. "Electricity Costs" shall mean the costs of all electricity used on or at the Project, together with any taxesa nd any maintenance charges thereon. On the first day of each calendar month during the Lease Term, Tenant agrees to reimburse Landlord for Tenant's Proportionate Share of the monthly Electricity Costs pursuant to invoices sent to Tenant from Landlord. The initial monthly Electricity Costs invoices shall be based on Tenant's Proportionate Share of estimated Electricity Costs as reasonably determined by Landlord and shall be increased or decreased by Landlord to reflect the actual Electricity Costs. If for any time period in question the Building is less than 95% occupied, for purposes of determining Tenant's Proportionate Share of Electricity Costs, Landlord may increase those elements of Electricity Costs that vary based primarily on the occupancy rate of the Building, as though the Building were 95% occupied. The Electricity Costs payments due from Tenant shall be adjusted by Landlord to the amount that Landlord reasonably believes they would have been if 95% of the Rentable Area of the Building had been occupied. In addition, Tenant shall, within 30 days of receipt of an invoice from Landlord, pay for any extraordinary or after Normal Business Hours use of Electricity Costs as requested by Tenant and as reasonably determined by Landlord.

3.4. Operating Expenses. In addition to monthly Base Rent and Electricity Costs, Tenant will pay Tenant's Proportionate Share of the increase in Operating Expenses over the Operating Expenses for the Base Year (the "Base Year Operating Expenses");

(a)          Subject to the exclusions and adjustments set out below "Operating Expenses" means any and all actual and reasonable costs, expenses and disbursements of every kind which Landlord incurs, pays or becomes obligated to pay during any Lease year in connection with the ownership, operation, maintenance, repair, replacement, and security of the Project or the related appurtenances including but not limited to the following:

(i)                 wages, salaries and other costs of retaining the employees directly engaged in the operating, maintenance, repair, replacement and security of Project;

(ii)                all supplies and materials used in the operating, maintenance, repair, replacement, and security of the Project;

(iii)               the cost of all utilities other than electricity supplied to the Project;

(iv)              the cost of management, maintenance and service agreements with third parties, including agreements for security, alarm service and elevator maintenance for Project;

(v)               the cost of casualty and liability insurance applicable to the Project; and

(vi)              the cost of all taxes assessed against the Project or imposed upon the Landlord as owner of the Project. For the purposes hereof, the term "Taxes" shall mean all taxes and governmental and private assessments which are levied, assessed, imposed or become due and payable with respect to the Project and associated improvements and any gross margin taxes attributed to the Project, its rental or operation, which may be assessed against Landlord, including fees for attorneys, court costs, tax consultants, arbitrators, appraisers, experts and other witnesses, incurred by Landlord in contesting any taxes or the assessed valuation of all or any part of the Project. If at any time during the Term of this Lease, any other tax or assessment (including without limitation any gross margin tax) is imposed on Landlord as the owner of the Project, or the occupancy, rents or income from the Project in substitution for, such other tax or assessment, computed as if the Project were Landlord's sole asset, shall be included within the term "Taxes". Notwithstanding any provision in this Paragraph to the contrary, the definition of the term "Taxes" shall not include any estate, inheritance, successor, transfer, excise, gift or income tax, or any late fees or penalties, imposed on Landlord.

(b)           Notwithstanding the foregoing, Operating Expenses will not include the costs of improvements made or related to the premises of another tenant or expansion of the Project.

(c)           For each Lease Year (or portion thereof) during the Lease Term after 2016, Tenant agrees to pay to Landlord, as additional Rent, in monthly installments, Tenant's Proportionate Share of the amount (if any) by which Operating Expenses for such Lease Year (or portion thereof) exceed the Base Year Operating Expenses (or similar portion thereof) (the "Operating Expense Increase"). In the event that Operating Expenses in any Lease Year decrease below the amount of the Base Year Operating Expenses, the Operating Expenses Increase for such Lease Year shall be deemed to be zero, it being understood that Tenant shall not be entitled to any credit or offset if Operating Expenses decrease below the Base Year Operating Expenses. Payments of Operating Expenses Increase shall be made as follows:

(i)                 during January of each Lease Year after 2016, or as soon thereafter as practical, Landlord will give Tenant written notice of its most recent estimate of the Operating Expense Increase which will be due under this Lease for the then current Lease Year. Such estimate will reflect on any pro-ration required by the preceding paragraph for the first and final Lease Years. On or before the first day of each month thereafter, until Tenant receives a new estimate pursuant to this subparagraph, Tenant will pay Landlord an amount (in addition to the Base Rent) equal to such estimated Operating Expense Increase divided by the number of calendar months that fall within the Term in the then current Lease Year.

2

(ii)               within ninety (90) days after the close of each Lease Year, or as soon after such ninety (90) days period as reasonably possible, Landlord will deliver a statement to Tenant of the actual Operating Expense Increase for the then preceding Lease Year, computed as described in subparagraph (b) above. If the statement shows that the actual Operating Expense Increase for such Lease Year is less than any estimated payments made by Tenant under subsection (i) above, Landlord will credit the overpayment against the next amounts due from Tenant under this Section 3 or, to the extent there is no set-off or anticipated set-off against amounts then due or to become due from Tenant, then Landlord will refund the overpayment to Tenant. If the statement shows that the actual Operating Expense Increase for such Lease Year is more than any estimated payments previously made by Tenant, Tenant must pay the deficiency to Landlord within ten (10) days after delivery of this statement. This Section 3.4 shall survive the termination of the Lease.

(iii)             Notwithstanding the foregoing, controllable Operating Expenses shall be capped on a cumulative and compounding basis at five percent (5%) per calendar year increases, which shall be defined as all expenses except Taxes and Insurance.

(d)           CALCULATION OF CHARGES: Landlord and Tenant agree that each provision of this Lease for determining charges and amounts payable by Tenant, including provisions related to the reconciliation of Tenant's Proportionate Share of the Operating Expenses Increase, as set forth in this Section 3.4, is commercially reasonable and, as to each such charge or amount, constitutes a statement of the amount of the charge or a method by which the charge is to be computed for purposes of Section 93.012 of the Texas Property Code.

3.5. Security Deposit. Tenant has deposited with Landlord or Manager the sum set forth in the blank opposite the words Security Deposit in Section I of this Lease ("Security Deposit") to secure Tenant's performance of this Lease. If Tenant defaults in any payment or performance due under this Lease, Landlord, in its absolute discretion and without prejudice in its other rights or remedies, may apply the Security Deposit, in whole or in part, to the payment of sums due from Tenant as a result of such default. If such application cures the default, Tenant shall within ten (10) days from demand, deposit with Landlord the sum necessary to restore the Security Deposit to the specified amount. If Tenant has fully performed under this lease, the remainder of the Security Deposit shall be repaid to Tenant, without interest, within sixty (60) days after the expiration of this Lease.

3.6. Late Charge. If Tenant fails to make any payment of Base Rent, or other amount when due under this Lease within 5 business days of when due, a late charge is then immediately due and payable by Tenant equal to 10 percent (10%) of the amount of any such payment but Landlord will waive the late charge for the first such failure occurring during any calendar year during the Lease Term. Landlord and Tenant agree that this charge compensates Landlord for the administrative costs caused by the late payment.

3.7. Default Rate. Any Base Rent or other sum payable under this Lease which is not paid when due shall bear interest at a rate equal to the lesser of: (a) the published prime or reference rate then in effect at a national banking institution designated by Landlord (the "Prime Rate"), plus two (2) percentage points, or (b) the maximum rate of interest per annum permitted by applicable law (the "Default Rate").

SECTION 4

SERVICES UTILITIES AND REPAIRS

4.1. Landlord Services and Repairs. Subject to the Section 5.9 ("Damage or Destruction") and Section 5.10 ("Condemnation"), Landlord shall furnish the following services and repairs in a manner and scope as reasonably determined by Landlord. Landlord shall select the company or companies providing such services.

● HVAC (heating, ventilation and air-conditioning services) will be provided to the Premises and the Common Area of the Building during Normal Business Hours. If Tenant desires HVAC service other than during Normal Business Hours, Tenant shall make advance arrangements with Landlord and shall pay Landlord's usual and customary charge of $75.00 per hour for such additional services. Landlord shall repair and maintain the HVAC systems serving the Common Area and Premises.

● Elevator Service from the 1^st floor to the 10^th floor of the Building.

● Janitor Service will be provided to the Common Area and Premises as specified on Exhibit D.

● Replace Premises light bulbs and ballasts in fixtures which are standard to the Building.

3

● Repairs and maintenance to the Common Area required, in Landlord's reasonable judgment, for comfortable use of the Common Area.

● Engage a third party contractor to provide full time off site monitoring of the fire sprinkler system serving the Building.

● Maintenance and repairs to: (i) the parking areas and sidewalks associated with the Project, (ii) the grass, shrubbery, landscape sprinkler and other landscape treatments on the Project, (iii) the exterior of the Building including the walls and exterior glass, (iv) exterior lights on the Project, (v) Building roof, and (iv) the Building fire sprinkler system and sewage lines.

4.2. Utilities. Landlord shall arrange with the public utility companies serving the Project to furnish the following utilities to the Project. Landlord shall select the company or companies providing such utility services.

● Electricity and Gas. Electrical services will be supplied to a panel box designated for each floor of the Building and will have the capacity to meet Tenant's demand in the Premises for the purposes specified in this Lease so long as such demand is usual and customary for such purposes. Gas shall be supplied to the Building HVAC units installed by Landlord.

● Water and Sewer. Water and sewage drain services for the Common Area restrooms and any break rooms. Water and sewage drain services at the points now existing in the Premises. Water for the landscape irrigation areas of the Project.

● Telecommunication Services. Landlord will provide a suitable connection for usual and customary voice telephone and fiber for internet service at the locations in the Building designated by Landlord (at the "demarc"). All connection, installation, usage charges, maintenance and repair charges for such telephone service shall be Tenant's responsibility. Installation of Telecommunication Facilities beyond those specified as Landlord's responsibility under the first sentence shall be the responsibility of Tenant. "Telecommunication Facilities" are defined as equipment, apparatus, installations, facilities and other materials utilized for the purposes of electronic communication, whether wireless or wired, including cable, switches, conduit, sleeves and wiring. Telecommunication Facilities installed by Tenant, shall if requested by Landlord in writing be removed by Tenant at Tenant's expense upon the expiration of the Lease Term. Tenant acknowledges that space on the Building rooftop and in Building risers, equipment rooms and equipment closets is limited. Unless otherwise required by law, neither Tenant nor a provider of telecommunication services to Tenant shall be entitled to locate or install Telecommunication Facilities in, on or about the Building without (a) first obtaining Landlord's advance, written consent (given in its reasonable discretion) and (b) the advance execution by Landlord and Tenant of a satisfactory agreement granting a license to Tenant for such purposes. The agreement referred to in clause (b) of the previous sentence shall be incorporated in and become part of this Lease.

4.3. Normal Business Hours. "Normal Business Hours" are defined as 7:00 AM to 6:00 PM (Monday thru Friday) and 8:00 AM to 1:00 PM (Saturday) excluding Holidays and Sundays.

4.4. Interruption. Landlord shall in no case be liable or in any way be responsible for damages (including consequential damages) or the loss to Tenant of utilities or other services arising from the failure of, diminution of or interruption of any kind to the Premises caused by Landlord's negligence or otherwise, unless such interruption in, deprivation of or reduction of any such service was caused by the gross negligence or willful misconduct of Landlord or its agents. To the extent that Landlord bears specific responsibility for the foregoing, Landlord's responsibility and Tenant's remedy shall be limited to an abatement in the portion of Base Rent associated with the value of the interrupted service, as reasonably determined by Landlord, for the period beginning with the day which is four (4) calendar days after the date on which Tenant delivers written notice to Landlord of such interruption, deprivation or reduction and ending on the date such interruption, deprivation or reduction ceases.

4.5. Maintenance and Repairs by Tenant. Except for reasonable wear and tear, Tenant shall keep the Premises in good condition and repair. Tenant agrees to notify Landlord immediately if any damage or defects are discovered in the Premises or Building and to allow Landlord to evaluate and make recommendations and/or take appropriate corrective action. Tenant shall use reasonable best efforts to protect the Project from waste or damage and shall, subject to Landlord's reasonable direction and schedule, repair any damage caused by Tenant, its agents, employees, contractors or invitees.

4.6. Security. Landlord has no duty or obligation to provide any security services in, on or around the Project and Tenant recognizes that security services, if any, provided by Landlord are not for the exclusive benefit of Tenant.

4

SECTION 5

OCCUPANCY AND USE PROVISIONS

5.1. Use and Conduct of Business. The Premises are to be used only for general business office uses (the "Permitted Uses") and Tenant agrees that the number of employees or other personnel working with or for Tenant occupying the Premises shall not exceed the number of Tenant Car Spaces specified in Section 1 of this Lease without Landlord's prior written consent. Tenant shall, at its own cost and expense, obtain and maintain any and all licenses, permits, and approvals necessary or appropriate for its use, occupation and operation of the Premises for the Permitted Uses. Tenant shall not permit or cause any act to be done in or about the Premises that is unlawful or that will increase the existing rate of insurance on the Land or Building. Tenant shall not commit or allow to be committed or exist: (a) any waste upon the Premises, (b) any public or private nuisance, (c) the use or storage of any hazardous or other materials in violation of any environmental laws or regulations, or (d) any act or condition which disturbs the quiet enjoyment of any other tenant in the Building, violates any of Landlord's contracts affecting any or all of the Land or Building, or interferes in any unreasonable way with the business of Landlord or any other tenant in the Building.

5.2. Reasonable Access. Tenant shall have access to the Building seven (7) days per week, twenty-four (24) hours per day, fifty- two (52) weeks a year. After Normal Business Hours access to the Building shall be available via a card access system. Landlord shall initially provide Tenant with twenty nine (29) access cards. Replacement access cards shall be available to Tenant at a rate of $15/access card. Tenant shall be responsible for promptly notifying Landlord of any lost or stolen access cards. Tenant shall return all access cards to Landlord upon the expiration of the Lease Term. Tenant shall permit Landlord and Landlord's designated representatives to enter into the Premises at any time on reasonable notice (except in case of emergency in which case no notice shall be required) for the purposes of inspection or for the purpose of repairing, altering or improving the Premises or the Building. When absolutely necessary, Landlord may temporarily close Building or Land entrances, Building doors or other facilities, but Landlord shall minimize disruption to Tenant's business and to provide continued access to the Premises. Landlord shall have the right on reasonable notice to enter the Premises during the Lease Term for the purpose of showing the Premises to prospective tenants.

5.3. Compliance with Governmental Requirements. Tenant shall comply with all Governmental Requirements relating to its use, occupancy and operation of the Premises and shall observe such reasonable rules and regulations as may be adopted and published by Landlord from time to time. "Governmental Requirements" are any and all statutes, ordinances, codes, laws, rules, regulations, orders and directives, including environmental Iaws and regulations, of any Governmental Agency as now or later amended, promulgated or issued and all current or future final orders, judgments or decrees of any court with jurisdiction interpreting or enforcing any of the foregoing. A "Governmental Agency" is the United States of America, the state in which the Land is located, any county, city, district, municipality or other governmental subdivision, court or agency or quasi-governmental agency with jurisdiction and any board, agency or authority associated with any such governmental entity.

5.4. Rules and Reeulations. Tenant shall comply with the rules and regulations of the Building which are attached hereto as Exhibit C. Landlord may, from time to time, reasonably change such rules and regulations for the safety, care or cleanliness of the Building and related facilities including the Common Area and parking area, provided that such changes are applicable to all tenants ofthe Building and will not materially interfere with Tenant's use ofthe Premises and provided that Landlord notifies Tenant in writing. Tenant shall be responsible for the compliance with such rules and regulations by its employees, agents and invitees. Any conflicts between the rules and regulation exhibit and this Lease shall be controlled by the Lease.

5.5. Parking. Tenant shall have the right to use the number of non-reserved car spaces in the parking areas of the Project "Tenant Parking Spaces" as specified in Section 1. The Tenant Parking Spaces include Tenant's Proportionate Share of (i) visitor spaces "Visitor Spaces" for use by Tenant and other tenants of the Building and (ii) handicap spaces "Handicap Spaces" for use by Tenant and other tenants of the Building. All parking facilities and Tenant Parking Spaces furnished by Landlord shall be subject to the reasonable control and management of Landlord who may from time to time, establish, modify, and enforce reasonable rules and regulations with respect thereto. Landlord reserves the right at any time to assign specific parking spaces for Tenant Parking Spaces and Tenant shall thereafter be responsible to insure that the users of such assigned Tenant Parking Spaces park in the specifically designated parking spaces. Tenant shall if requested by Landlord furnish to Landlord a complete list of the license plate numbers of all vehicles operated by Tenant, Tenant's employees and agents. Landlord shall not be liable for any damage of any nature to, or any theft of, vehicles or contents thereof, in on or about the parking facilities on the Land. Tenant and its employees, guests and invitees shall not be allowed to park in areas of the Project designated by Landlord as reserved or on the public streets surrounding the Building and the Land with the exception of Tenant's reserved parking spaces. Landlord shall not be responsible for enforcing Tenant's parking rights against any third parties.

5

5.6. Tenant Alterations. Tenant shall not make or permit to be made any alterations, additions, improvements or installations in or to the Premises (including Telecommunication Facilities), or place signs or other displays visible from outside the Premises (individually and collectively "Tenant Alterations"), without first obtaining the consent of Landlord which may not be unreasonably withheld in Landlord's sole discretion. Tenant shall deliver to Landlord complete plans and specifications for any proposed Tenant Alterations and, if consent by Landlord is given, all such work shall be performed at Tenant's expense by Landlord or, with Landlord's consent, by Tenant. Tenant shall be authorized to perform Tenant Alterations only to the extent and under such terms and conditions as Landlord, in its reasonable discretion, shall specify.

5.7. Surrender of Possession. Tenant shall, at the expiration or earlier termination of this Lease, surrender and deliver the Premises to Landlord in as good condition as when received by Tenant from Landlord or as later improved, reasonable use and wear excepted, and free from any tenancy or occupancy by any person.

5.8. Removal of Property. Upon the expiration or earlier termination of this Lease, Tenant may remove its personal property, office supplies and office furniture and equipment if such items are readily moveable and are not attached to the Premises; such removal is completed prior to the expiration or earlier termination of this Lease; and Tenant immediately repairs all damage caused by or resulting from such removal. All Tenant Alterations shall become the property of Landlord and shall remain upon and be surrendered with the Premises, unless Landlord requires their removal. If removal is required, Tenant shall, at its sole cost and expense, remove all (or such portion as Landlord shall designate) of the Tenant Alterations, repair any damages resulting from such removal and return the Premises to the same condition as existed prior to such Tenant Alterations.

5.9. Damage or Destruction. If the Premises are damaged by fire, earthquake or other casualty ("Casualty"),Tenant shall give immediate written notice to Landlord. If Landlord estimates that the damage can be repaired to meet Tenant's business needs within one hundred eighty (180) days after Landlord is notified by Tenant of such damage and if there are sufficient insurance proceeds available to repair such damage, then Landlord shall proceed with reasonable diligence to restore the Premises to substantially the condition which existed prior to the damage and this Lease shall not terminate. If neither circumstance described in the previous sentence exists, Landlord may elect, in its absolute discretion, to either: (a) terminate this Lease in which case Tenant's obligations under this Lease shall also terminate or; (b) restore the Premises to the condition which existed prior to the damage and this Lease will continue. Notice of Landlord's election shall be delivered to Tenant within forty five (45) days after the date Landlord receives written notice of the damage. Failure to deliver notice within the specified period shall be treated as election not to restore. Tenant agrees to look to the provider of Tenant's insurance for coverage for the loss of Tenant's use of the Premises and any other related losses or damages incurred by Tenant during any reconstruction period following a Casualty. If the Building is damaged by Casualty and more than fifty percent (50%) of the Building is rendered untenantable, without regard to whether the Premises are affected by such damage, Landlord may, in its absolute discretion, elect to terminate this Lease by notice in writing to Tenant within thirty (30) days after the date Landlord receives written notice of the damage. Such notice shall be effective twenty (20) days after delivery to Tenant unless a later date is set forth in Landlord's notice.

5.10. Condemnation. If more than fifty percent (50%) of the Premises, or such portions of the Building as may be required for the Tenant's reasonable use of the Premises, are taken by eminent domain or by conveyance in lieu thereof, this Lease shall automatically terminate as of the date the physical taking occurs, and all Base Rent and other sums payable under this Lease shall be paid to that date. In the case of a taking of a part of the Premises or a portion of the Building not required for the Tenant's reasonable use of the Premises, this Lease shall continue in full force and effect and the Base Rent shall be equitably reduced based on the proportion by which the floor area of the Premises is reduced, such reduction in Base Rent to be effective as of the date the physical taking occurs. Electricity Costs and Operating Expenses payments may be re-determined as equitable under the circumstances. Landlord reserves all rights to damages or awards for any taking by eminent domain relating to the Building, Land and the unexpired term of this Lease. Tenant assigns to Landlord any right Tenant may have to such damages or award and Tenant shall make no claim against Landlord for damages for termination of its leasehold interest or interference with Tenant's business. Tenant shall have the right, however, to claim and recover from the condemning authority compensation for any loss to which Tenant may be entitled for Tenant's loss of use of the Premises, moving expenses or other relocation costs if they are awarded separately to Tenant in the eminent domain proceedings.

5.11. Liens. Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon the interest of Landlord or Tenant in the Premises or against Landlord's interests under this Lease for any Claims in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. If any such lien or encumbrance is filed or recorded, Tenant shall cause it to be released or otherwise removed within five (5) days by a means or method approved by Landlord.

5.12. Estoppel Certificate. On Landlord's request, Tenant shall within 5 days of a request by Landlord complete, sign and delivera certificate to an addressee designated by Landlord stating the material terms of this Lease, whether any default currently exists under the Lease, and such other information as may reasonably be requested.

6

5.13. Relocation. Intentionally Deleted.

5.14. Expansion. Intentionally Deleted.

5.15. Holdover. Tenant is not authorized to hold over beyond the expiration or earlier termination of the Lease Term. No payment of money by Tenant to Landlord after the expiration or termination of this Lease reinstates, continues or extends the Lease Term and no extension of this Lease after the termination or expiration is valid unless agreed in writing by Landlord and Tenant. If, for any reason, Tenant retains possession of the Premises after (i) the expiration or termination of this Lease or (ii) if Tenant fails to complete any repairs required hereby, unless the parties hereto otherwise agree in writing, such possession shall establish a month to month tenancy, which shall be subject to termination by either Landlord or Tenant at any time upon not less than ten (10) days advance written notice, and provided all of the other terms and provisions of this Lease shall be applicable during such period, except that Tenant shall pay Landlord from time to time, upon demand, as rental for the period of such possession, an amount computed on a daily basis equal to 150 % of the Base Rent in effect on the termination date

5.16. Common Area. The Building entry areas, lobby, associated hallways, restrooms, utility rooms, and Conference Center are known as the "Common Area". The lobby conference room on the 1^st floor is known as the "Conference Center", The access and use of the Conference Center by Tenant and other tenants of the Building shall be reasonably determined by Landlord. Landlord shall have the right to modify the Common Area, provided such changed Common Area provides substantially the same function to Tenant as the existing Common Area. The Common Area shall be under Landlord's management and control. Tenant shall have the right, subject to the rights of other Tenants and Landlord, to use such Common Area in accordance with the terms of this Lease and any reasonable rules adopted by Landlord regarding such use.

5.17. Mortgage. This Lease shall be subject and subordinate to any mortgages and/or deeds of trust now or at any time hereafter constituting a lien or charge upon the Premises or the improvements situated thereon or the Building of which the Premises are a part. This paragraph shall be self-operative. No further instrument is required to effect the subordination of this Lease to any such mortgage or deed of trust. In confirmation of the subordination, however, Tenant agrees, within ten (10) business days after request by Landlord, to execute, acknowledge and deliver any instruments, certificates, releases or other documents that may be reasonably required by any mortgagee that evidences the subordination of this Lease to the lien of any such mortgage. Tenant agrees to attorn to any mortgagee, trustee under a deed of trust or purchaser at a foreclosure sale or trustee's sale, as Landlord under this Lease, if such successor to Landlord's interest elects to keep this Lease in effect. Notwithstanding anything to the contrary contained herein, attached hereto as Exhibit "L" is Lender's standard Subordination and Non-Disturbance Agreement ("SNDA"). If Tenant chooses, Tenant may submit an SNDA to Landlord for execution by Lender.

SECTION 6

INSURANCE AND INDEMNIFICATION

6.1. Indemnification. Tenant shall indemnify, defend and hold harmless Landlord and Landlord's Affiliates and the property manager of the Building from and against any and all Claims made against such persons, arising out of (a) the possession, use or occupancy of the Premises or the business conducted in the Premises, (b) any act, omission or actionable neglect of Tenant or Tenant's Affiliates, or (c) any breach or default under this Lease by Tenant or by any Tenant's Affiliates. Tenant's obligations under the previous sentence shall not apply if the Claim arose from default under this Lease by Landlord by or actionable neglect of Landlord or Landlord's Affiliates. "Landlord's Affiliates" are all officers, managers, members, contractors, employees, and invitees of Landlord. "Tenant's Affiliates" are all officers, partners, contractors. employees and invitees of Tenant. "Claims" is an individual and collective reference to any and all claims, demands, damages, injuries, losses, liens, liabilities, penalties, fines, lawsuits, actions, and other proceedings and expenses (including attorneys' fees and expenses incurred in connection with the proceeding, whether at trial or on appeal).

6.2. Tenant Insurance. Tenant shall, throughout the Lease Term, at its own expense, keep and maintain in full force and effect each and every one of the following policies, each of which shall be endorsed as needed to provide that the insurance afforded by these policies is primary and that all insurance carried by Landlord is strictly excess and secondary and shall not contribute with Tenant's liability insurance:

● A policy of commercial general liability insurance, including a contractual liability endorsement covering Tenant's obligations under the paragraph captioned "Indemnification", insuring against claims of bodily injury and death or property damage or toss with a combined single limit at the Lease Commencement Date of this Lease of not less than One Million Dollars ($1,000,000.00) per occurrence and Two Million Dollars ($2,000,000.00) general aggregate, which policy shall be payable on an "occurrence" rather than a "claims made" basis. Tenant shall include Landlord and Landlord's lender as additional insureds.

7

● Intentionally Deleted.

● "Special Form" property insurance (which is commonly called "all risk") covering business interruption, Tenant Alterations, and any and all furniture, fixtures, equipment, inventory, improvements and other property in or about the Premises which is not owned by Landlord, for the then, entire current replacement cost of such property.

● A policy of worker's compensation insurance if and as required by applicable law and employer's liability insurance with limits of no less than One Million and No/100 Dollars ($1,000,000.00).

● All insurance policies required under this paragraph shall be with companies having a rating according to Best's Insurance Key Rating Guide for Property — Casualties of no less than A- Class VIII. Each policy shall provide that it is not subject to cancellation, lapse or reduction in coverage except after thirty (30) days' written notice to Landlord. Tenant shall deliver to Landlord, prior to the Commencement Date and, from time to time thereafter, certificates evidencing the existence and amounts of all such policies and, on Landlord's request, copies of such insurance policies. Deductibles under policies procured must be reasonable and customary.

● If Tenant fails to acquire or maintain any insurance or provide evidence of insurance required by this Section 6.2, Landlord may, but shall not be required to, obtain such insurance or evidence and the costs associated with obtaining such insurance or evidence shall be payable by Tenant to Landlord on demand.

6.3. Landlord's Insurance. Landlord shall, throughout the Lease Term, keep and maintain in full force and effect:

● Commercial general liability insurance, insuring against claims of bodily injury and death or property damage or loss with a combined single limit at the Commencement Date of not less than One Million Dollars ($1,000,000.00) per occurrence and Two Million Dollars ($2,000,000.00) general aggregate, which policy shall be payable on an "occurrence" rather than a "claims made" basis.

● "Special Form" property insurance (which is commonly called "all risk") covering the Building and Landlord's personal property, if any, located on the Land for the then, current replacement value of such property.

Landlord may, but shall not be required to, maintain other types of insurance as Landlord deems appropriate.

6.4. Waiver of Subrogation. Notwithstanding anything in this Lease to the contrary, Landlord and Tenant each waive and release the other from any and all Claims or any loss or damage that may occur to the Land, Building, Premises, or personal property located on or in the described Premises, by reason of Casualty, but only to the extent of deductibles specified in the insurance policies plus the insurance proceeds paid to such party under its policies of insurance or, if it fails to maintain the required policies, the insurance proceeds that would have been paid to such party if it had maintained such policies.

SECTION 7

ASSIGNMENT AND SUBLETTING

7.1. Assignment and Subletting by Tenant. Tenant shall not have the right, directly or indirectly (by change of control or otherwise) to assign, transfer, mortgage or encumber this Lease in whole or in part, nor sublet the whole or any part of the Premises, nor allow the occupancy of all or any part of the Premises by another, without first obtaining Landlord's prior written consent. No sublease or assignment, including one to which Landlord has consented, shall release Tenant from its obligations under this Lease.

7.2. Recapture. Intentionally Omitted

7.3. Assignment by Landlord. Landlord shall have the right to transfer and assign, in whole or in part, its rights and obligations under this Lease and in any and all of the Land or Building. If Landlord sells or transfers any or all of the Building, Landlord and Landlord's Affiliates shall, upon consummation of such transfer be released automatically from any liability under this Lease for obligations to be performed or observed after the date of the transfer. After the effective date of the transfer, Tenant must look solely to Landlord's successor-in-interest.

SECTION 8

DEFAULTS AND REMEDIES

8.1. Events of Default The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Tenant ("Event of Default"):

● vacation or abandonment of all or any portion of the Premises without continued payment when due of Base Rent and other sums due under this Lease;

● failure by Tenant to make any payment of Base Rent or any other sum payable by Tenant under this Lease within ten (10) days after its due date, or, in the case of the first such failure during a calendar year of the Lease Term, within ten (10) days after notice to Tenant of such failure;

8

● failure by Tenant to observe or perform any covenant or condition of this Lease, other than the making of Base Rent and other payments, where such failure continues for a period of twenty (20) days after written notice from Landlord; or if failure cannot be cured within said twenty (20) days, the failure of Tenant to diligently pursue such cures.

● the failure of Tenant to surrender possession of the Premises at the expiration or earlier termination of this Lease in the condition required by this Lease;

● the making by Tenant of any general assignment or general arrangement for the benefit of creditors; the filing by or against Tenant of a petition in bankruptcy, including reorganization or arrangement, unless, in the case of a petition filed against Tenant, it is dismissed within sixty (60) days; the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located in the Premises or of Tenant's interest in this Lease; any execution, levy, attachment or other process of law against any property of Tenant or Tenant's interest in this Lease, unless it is dismissed within sixty (60) days; or adjudication that Tenant is bankrupt. If a petition in bankruptcy is filed by or against Tenant, and if this Lease is treated as an "unexpired lease" under applicable bankruptcy law, then Tenant shall neither attempt nor cause any trustee to attempt to extend the time period specified by the Bankruptcy Act for the assumption or rejection of this Lease.

8.2. Remedies. If any Event of Default occurs, Landlord may at any time after such occurrence, with or without notice or demand except as stated in this paragraph, and without limiting Landlord in the exercise of any other right or remedy which Landlord may have by reason of such Event of Default, exercise the rights and remedies, either singularly or in combination, specified or described as follows:

(1) Terminate this Lease and pursue Tenant for actual damages; and/or

(2)  Enter upon and take possession of the Premises without terminating this Lease; and/or

(3)  Alter all locks and other security devices at the Premises with or without terminating this Lease, deny access to Tenant and pursue, at Landlord's option, one or more remedies pursuant to this Lease.

● Upon the occurrence of any Event of Default, Tenant shall, immediately upon receipt of written notice or demand from Landlord, surrender the Premises to Landlord and if Tenant fails so to do, Landlord, without waiving any other remedy it may have, may enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying such Premises or any part thereof, without being liable for prosecution or any claim of damages therefore.

● If Landlord repossesses the Premises without terminating the Lease, Tenant, at Landlord's option, shall be liable for and shall pay Landlord on demand all Base Rent and other payments owed to Landlord hereunder, accrued to the date of such repossession, plus all amounts required to be paid by Tenant to Landlord until the date of expiration as such sums become due and payable hereunder without acceleration. Actions to collect amounts due by Tenant to Landlord under this paragraph may be brought from time to time, on one or more occasions, without the necessity of Landlord's waiting until expiration of the Lease Term.

● Upon an Event of Default, in addition to any sum provided to be paid herein, Tenant also shall be liable for and shall pay the costs of removing and storing Tenant's property; the costs of repairing, altering, remodeling or otherwise putting the Premises into the condition required by this Lease as if the Lease had expired and all reasonable expenses incurred by Landlord in enforcing or defending Landlord's rights and/or remedies.

● If Landlord relets the Premises without terminating this Lease, Landlord shall apply the revenue from such re-letting to Landlord's costs and Tenant's obligations in such order as Landlord deems appropriate. Should revenue from letting during any month be less than the sum of the Base Rent and other sums payable under this Lease and Landlord's expenditures for the Premises during such month, Tenant shall be obligated to pay such deficiency to Landlord as and when such deficiency arises.

● All sums payable by Tenant under this Lease shall be considered rent and all rights and remedies available pursuant to law for non-payment of rent shall apply.

8.3. Right to Perform. If Tenant shall fail to pay any sum of money, other than Base Rent, Electricity Costs or Operating Expenses, required to be paid by it under this Lease or shall fail to perform any other act on its part to be performed under this Lease, and such failure shall continue for ten (10) days after written notice of such failure by Landlord, Landlord may, but shall not be obligated to, and without waiving or releasing Tenant from any obligations, make such payment or perform such other act on Tenant's part to be made or performed as provided in this Lease. Landlord shall have all rights and remedies for recovery of any sum or for the cost of such performance as specified in this Lease.

8.4. Landlord's Default. Landlord shall not be in default under this Lease unless Landlord fails to perform obligations required of Landlord within twenty (20) days after written notice is delivered by Tenant to Landlord specifying the obligation which Landlord has failed to perform; provided, however, that if the nature of Landlord's obligation is such that more than the specified period required for performance, then Landlord shall not be in default if Landlord commences performance within such period and thereafter diligently prosecutes it to completion. Tenant shall not have the right to place a lien upon the property of Landlord.

9

8.5. Limitation on Recourse. Liability with respect to the entry and performance of this Lease by or on behalf of Landlord or any other obligation of Landlord, however it may arise, shall be asserted and enforced only against Landlord's estate and equity interest in the Building. Any and all personal liability, if any, beyond that which may be asserted under this paragraph, is expressly waived and released by Tenant and by all persons claiming by, through or under Tenant.

SECTION 9

MISCELLANEOUS PROVISIONS

9.1. Notices. All notices, demands, consents, approvals, statements and communications required or permitted under this Lease shall be in writing and shall be addressed to a party at the addresses set forth opposite that party's signature, or to such other address as either party may specify by written notice, given in accordance with this paragraph. Unless otherwise specified opposite Tenant's signature, Tenant's notice address shall be changed to the address of the Premises after the Commencement Date. All such communications shall be transmitted by personal delivery, reputable express or courier service, or United States Postal Service, postage prepaid. AlI such communications shall be deemed delivered and effective on the earlier of (a) the date received or refused for delivery, or (b) five (5) calendar days after having been mailed by certified mail, return receipt requested, with the United States Postal Service, postage prepaid.

9.2. Attorney's Fees and Expenses. In the event that either party requires the services of an attorney in connection with enforcing the terms of this Lease, suit is brought for the enforcement of this Lease or the exercise of rights and remedies afforded by this Lease or under law, or proceedings are held in bankruptcy, then the prevailing party shall be entitled to a reasonable sum for attorney's and paralegal's fees, expenses and court costs, including those relating to any appeal.

9.3. Successors; Joint and Several Liability. All of the covenants and conditions contained in this Lease shall apply to and be binding upon Landlord and Tenant and their respective heirs, executors, administrators, permitted successors and permitted assigns. In the event that more than one person or organization is included in the term "Tenant" then each such person or organization shall be jointly and severally liable for all obligations of Tenant under this Lease.

9.4. Choice of Law. This Lease shall be construed and governed by the laws of the state in which the Land is located.

9.5. Offer to Lease. The submission of this Lease in a draft form to Tenant or its broker or other agent does not constitute an offer to Tenant to lease the Premises. This Lease shall have no force or effect until it is executed and delivered by both Tenant and Landlord.

9.6. Force Majeure. Landlord shall be excused for the reasonable period of any delay in its performance when such delay is beyond Landlord's reasonable control. Except for payment of Base Rent and all other sums due from Tenant, Tenant shall be excused for the reasonable period of any delay in its performance when such delay is beyond Tenant's reasonable control.

9.7. Interpretation. Headings or captions shall in no way define, limit or otherwise affect the construction or interpretation of this Lease. Whenever a provision of this Lease uses the terms "include" or "including", that term shall not be limiting but shall be construed as illustrative. This Lease shall be given a fair and reasonable interpretation of the words contained in it without any weight being given to whether a provision was drafted by one party or its counsel. Unless otherwise specified, whenever this Lease requires a consent or approval, the decision shall be reached in good faith discretion of'the party entitled to give such consent or approval.

9.8. Prior Agreement and Amendments. This Lease contains all of the agreements of the parties to this Lease with respect to any matter covered or mentioned in this Lease. No prior agreement, understanding or statement pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties to this Lease.

9.9. Time of Essence. Time is of the essence with respect to the performance of this Lease.

9.10. Survival of Obligations. To the extent permitted in Chapter 93 of the Texas Property Code, any and all obligations of either party accruing prior to the expiration or termination of this Lease shall survive the expiration or earlier termination of this Lease, and either party shall promptly perform all such obligations whether or not this Lease has expired or terminated.

9.11. Holidays. Holidays are nationally recognized bank holidays generally practiced in Dallas, Texas.

9.12. Authority. Tenant represents and warrants to Landlord that Tenant is duly organized, validly existing, and in good standing under the laws of the state of its organization, and is duly qualified to transact business in Texas.

9.13. No Representations. Neither Landlord nor Landlord Affiliates made any representations or promises with respect to the Leased Premises or the Project except as expressly set forth in this Lease. No rights, easements, or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in this Lease.

10

9.14. Binding Effect. This Lease is binding upon the respective heirs, personal representatives, successors, and, to the extent assignment is permitted, assigns of Landlord and Tenant.

9.15. Exhibits. All exhibits attached to this Lease are incorporated into and made a part of this Lease as if set forth in the body of this Lease.

9.16. Counterparts. This Lease may be executed in two or more counterparts, each of which is deemed an original and all of which together constitute one and the same instrument.

9.17. Effective Date. Effective Date or similar references shall be deemed to refer to the last date, in point of time, on which all parties hereto have executed this Lease.

9.18. Tenant Audit Clause. Landlord shall maintain, at its corporate offices in Harris County, Texas, true and accurate records, in accordance with Generally Accepted Accounting Principles "GAAP"), consistently applied, showing all Operating Expenses, including property taxes and insurance, and any other expenses charged to Tenant by Landlord and agrees that Tenant, or its authorized representative, may, during reasonable business hours upon ten (10) business days written notice, from Tenant to Landlord, examine and audit such records for the purpose of verifying the annual statements submitted by Landlord concerning such expenses; provided, however, in no event may Tenant: (I) audit more than ninety (90) days after expense adjustment for the previous calendar year; or (2) engage the services of any person or firm who is compensated in whole or part on a contingent fee arrangement, i.e. whose compensation is based in part or wholly on the amount of expenses or charges deemed by Tenant or its authorized representative to be subject to review or resulting in a credit to Tenant's account. In the event the audit results shows that Tenant's statement was in error of Tenant's share of Operating Expenses, the Landlord shall credit Tenant the overcharges and Landlord shall reimburse the reasonable cost Tenant's audit, provided such cost does not exceed $2,000.00.

9.19. Signage. Tenant shall have the right to install eyebrow building signage and monument signage, at Tenant's sole cost and expense, for an additional monthly fee of twenty five ($25.00) for monument signage for the term of the Lease Agreement if permitting space is available. Tenant wilt bear entire responsibility to determine if the sign complies with applicable sign ordinances. The size and style of Tenant's sign shall conform to Landlord specifications and all local land use ordinances. The eyebrow signage may be paid by using the Tenant Improvement allowance. The eyebrow signage will be located on the South side, tenth floor upon final approval plans by Landlord.

9.20. Renewal Option. Provided that Tenant is not in default hereunder, Tenant (but not any assignee or sublessee) shall have the right and option (the "Renewal Option") to renew this Lease, by written notice delivered to Landlord, no earlier than twelve (12) months and no later than three months prior to the expiration of the initial Lease Term, for an additional term (the "Renewal Term") of sixty (60) months under the same terms, conditions and covenants contained in the Lease, except that (a) no abatements or other concessions, if any, applicable to the initial Lease Term shall apply to the Renewal Term; (b) the Base Rental shall be equal to the "Fair Market Value Rental" (defined herein, (c) Tenant shall have no option to renew this Lease beyond the expiration of the Renewal Term; and (d) all leasehold improvements within the Premises shall be provided in their then existing condition (on an "As Is" basis) at the time the Renewal Term commences. Failure by Tenant to timely give Landlord notice in writing of Tenant's election to exercise the Renewal Option herein granted shall constitute a waiver of such Renewal Option. In the event Tenant elects to exercise the Renewal Option as set forth above, Landlord shall, within 15 days thereafter, notify Tenant in writing of the proposed Base Rental, CAM Charges, Taxes and Insurance, water charges and any signage rental for the Renewal Tenn (the "Proposed Renewal Rental"). Tenant shall within 10 days following delivery of the Proposed Renewal Rental by Landlord notify Landlord in writing of the acceptance or rejection of the Proposed Renewal Rental. If Tenant accepts Landlord's proposal, then the Proposed Renewal Rental shall be the rental rate in effect during the Renewal Term. Failure of Tenant to respond in writing during the aforementioned 10 day period shall be deemed a rejection by Tenant of the Proposed Renewal Rental. Should Tenant reject Landlord's Proposed Renewal Rental during such ( I0 day period, then Landlord and Tenant shall negotiate during the 10 day period commencing upon Tenant's rejection of Landlord's Proposed Renewal Rental to determine the rental for the Renewal Term. In the event Landlord and Tenant are unable to agree to a rental for the Renewal Term during said 10 day period, then the Renewal Option shall terminate and the Lease shall, pursuant to its terms and provisions, terminate at the end of the original Lease Term. Upon exercise of the Renewal Option by Tenant and subject to the conditions set forth hereinabove, the Lease shall be extended for the period of such Renewal Term without the necessity of the execution of any further instrument or document, although if requested by either party, Landlord and Tenant shall enter into a written agreement modifying and supplementing the Lease in accordance with the provisions hereof. Unless Tenant and Landlord have previously agreed to extend the Lease Term, during the last three months prior to the expiration of the original term, in addition to the other rights of Landlord as set forth herein, Landlord reserves the right to show the Premises to prospective tenants during normal business hours.

"Fair Market Value Rental Rate" shall be that rate charged for space of comparable size and condition in comparable office buildings within a five (5) mile radius of the area immediately surrounding the building, taking into consideration the location, quality and age of the building, floor level, extent of leasehold improvements, rental abatements lease takeovers/ assumptions, moving expenses and other concessions, term of lease, extent of services to be provided, distinction between "gross" and "net lease" base year or other amounts allowed for escalation purposes (expense stop), the time the particular rental rate under consideration became or is to become effective, or any other relevant tem or condition.

11

9.21. Right of First Refusal. Provided Tenant is not in default of any of the provisions of this Lease, Tenant shall have an ongoing right of First Refusal and/or option on remaining vacancy of Suite 1025 ("Option Space") located contiguous to the Leased Premises upon the earlier to occur of (i): such time as Tenant leases said space (ii) a third party tenant leases said space, upon Tenant's failure or refusal to respond as hereinafter set forth; (iii) the expiration of 33 months after the Effective Date hereof. At such time as Landlord has a bonafide prospect for the Option Space, Landlord shall so notify Tenant and Tenant shall have the right to lease said space on the same terms and conditions offered to the prospective tenant, or on such terms as are agreeable by both the Landlord and Tenant. This right terminates after the 33^rd month. Tenant shall respond to Landlord's offer within ten (10) business days from receipt of the Lease. Should Tenant fail to comply to the time frames set forth above, or should Tenant refuse Landlord's offer to lease Option Space, Landlord shall have no further obligation to offer said space to Tenant and this Right of First Refusal and/or option shall be declared null and void as it relates to that certain third party tenant. If Tenant exercises the Right of First Refusal and/or option or expands into the space within the first twenty four (24) months of the lease, it will be at the same terms of the original lease. Landlord's obligations under this paragraph shall also be conditioned and contingent upon all obligations of Tenant under this lease.

9.22. Early Access. Tenant shall be granted, upon the execution of this Lease Agreement, the right to access the Lease Premises, (hereinafter "Early Access") for the purposes of installing Tenant's Fixtures, Furniture and Equipment (hereinafter "FF&E") and Telecommunication Facilities. Tenant may also grant Early Access to the Lease Premises to contractors, service vendors and the like for the purpose of installing telecommunication fines and equipment and such other service equipment as maybe necessary for Tenant to conduct its business. Tenant and Tenant's contractor shall indemnify and hold Landlord harmless from all fines, suits, costs and liability of every kind arising out of this Early Access because of: (i) any violation or nonperformance by Tenant of any representation or covenant contained in the Lease Agreement; (ii) any bodily injury, death and/or damage to property occurring in or resulting from any occurrence in the Premises during the period of this Early Access; and (iii) any bodily injury, death and/or property damage that is incident to, arises out of, or is in any way caused by the acts or negligent omissions of Tenant or any of its agents, employees, contractors or licensees. The Early Access clause herein shall expire the day upon which Tenant take possession of the Leased Premises and Base Rent commences December 1, 2015.

9.23. List of Exhibits

EXHIBIT A (Legal Description)

EXHIBIT B (Premises)

EXHIBIT C (Rules and Regulations)

EXHIBIT D (Janitor Service)

EXHIBIT E (Parking Rules and Regulations)

EXHIBIT F (Special Provisions)

EXHIBIT G (Security Notification)

EXHIBIT H (Guaranty-Intentionally Omitted)

EXHIBIT I (Construction Rider)

EXHIBIT J (Commencement)

EXHIBIT K (Early Occupancy Authorization)

EXHIBIT L (SNDA)

12

Designated Address for Landlord:	LANDLORD:
Hartman Income REIT	Hartman Income REIT Property Holdings, LLC
Attn: Office of General Counsel	a Delaware limited liability company
2909 Hillcroft, Suite 420	d/b/a North Central Plaza
Houston, Texas 77057
	By:	/s/ Allen R. Hartman
		Allen R. Hartman
		Manager
	Date: 9/10/15

Designated Address for Tenant:	TENANT:
12655 N. Central Expwy, Suite 1000	Zion Oil & Gas, Inc.
Dallas, TX 75243
	By:	/s/ Victor G. Carrillo
	Name:	Victor G. Carrillo
Notice Address for Tenant:	Title:	CEO
6510 Abrams Rd Ste 505
Dallas, Texas 75231
	Date:	August 28, 2015

13

EX-31.1

EXHIBIT 31.1

 CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

I, Victor G. Carrillo, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Zion Oil & Gas, Inc.;

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: 

a.	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;
b.	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;
c.	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
d.	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 (or persons performing the equivalent functions): 

a.	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
b.	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 10, 2015

/s/ Victor G. Carrillo

Victor G. Carrillo, Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

I, Ilan Sheena, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Zion Oil & Gas, Inc.;

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: 

a. 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;

b. 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;

c. 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

d. 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 (or persons performing the equivalent functions): 

a. 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 issuer’s ability to record, process, summarize and report financial information; and

b. 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 10, 2015

/s/ Ilan Sheena

Ilan Sheena, Chief Financial Officer

(Principal Financial and Accounting Officer) 

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Zion Oil and Gas, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2015 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, I, Victor G. Carrillo, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

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

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the Report.

/s/ Victor G. Carrillo

Victor G. Carrillo

Chief Executive Officer

(Principal Executive Officer)

November 10, 2015

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Zion Oil and Gas, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2015 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, I, Ilan Sheena, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

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

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the Report.

/s/ Ilan Sheena

Ilan Sheena

Chief Financial Officer

(Principal Financial and Accounting Officer)

November 10, 2015

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

XML

Unproved Oil and Gas Properties, Full Cost Method (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Excluded from amortization base:
Inventory, and other operational related costs	$ 895	$ 895
Capitalized salary costs	1,135	916
Legal costs, license fees and other preparation costs	2,430	2,080
Total unproved oil and gas properties, full cost method	$ 4,460	$ 3,891

XML

Stockholders' Equity

9 Months Ended

Sep. 30, 2015

Stockholders' Equity [Abstract]

Stockholders' Equity

Note 3 - Stockholders’ Equity

A. Authorized Common Shares

The Company’s Amended and Restated Certificate of Incorporation was amended effective June 11, 2015 to increase the number of shares of Common Stock that the Company is authorized to issue from 100 million to 200 million shares.

B. 2005 Stock Option Plan

During the nine months ended September 30, 2015, the Company granted the following options from the 2005 Stock Option Plan, to purchase:

i.	128,500 shares of Common Stock to senior officers, other staff members, and service providers at an exercise price of $1.38. The options vested upon grant and are exercisable through January 2, 2025. The fair value of the options at the date of grant amounted to approximately $106,000.
ii.	25,000 shares of Common Stock to a senior officer at an exercise price of $1.38. The options have a par value of $.01. The options vested as scheduled on June 30, 2015 and are exercisable through January 1, 2025. The fair value of the options at the date of grant amounted to approximately $21,000 and,
iii.	123,500 shares of Common Stock to directors, senior officers, other staff members, and service providers at an exercise price of $0.01. The options vested upon grant and are exercisable through April 17, 2025. The fair value of the options at the date of grant amounted to $220,000.
C.	2011 Non-Employee Directors Stock Option Plan

In June 2015, the Company’s stockholders approved an increase in the number of shares of Common Stock available under the 2011 Non-Employee Directors Stock Option Plan, reserving for issuance thereunder an additional two million shares of Common Stock for a total of three million shares of Common Stock available thereunder.

During the nine months ended September 30, 2015, the Company granted the following options from the 2011 Non-Employee Directors Stock Option Plan, to purchase:

i.	108,000 shares of Common Stock to non-employee directors at an exercise price of $1.38. The options vested upon grant and are exercisable through January 2, 2021. The fair value of the options at the date of grant amounted to approximately $68,000; and
ii.	25,000 shares of Common Stock to a non-employee director at an exercise price of $2.03. The options have a par value of $.01. The options vested upon grant and are exercisable through May 1, 2021. The fair value of the options at the date of grant amounted to approximately $23,000.

D. 2011 Equity Incentive Stock Option Plan

In June 2015, the Company’s stockholders approved an increase in the number of shares of Common Stock available under the 2011 Equity Incentive Plan for employees and consultants reserving for issuance thereunder an additional four million shares of Common Stock for a total of six million shares of Common Stock available thereunder.

During the nine months ended September 30, 2015, the Company granted the following options from the 2011 Equity Incentive Plan for employees and consultants, to purchase:

i.	10,000 shares of Common Stock to one senior officer at an exercise price of $0.01. The options vest in equal quarterly instalments over four consecutive quarters, beginning with the quarter ended June 30, 2015 and are exercisable through April 2, 2025. The fair value of the options at the date of grant amounted to approximately $18,000.
ii.	360,000 shares of Common Stock to staff members and service providers at an exercise price of $0.01. The options vested upon grant and are exercisable through August 3, 2025. The fair value of the options at the date of grant amounted to approximately $630,000.
iii.	100,000 shares of Common Stock to one senior officer at an exercise price of $0.01. The options vested upon grant and are exercisable through September 3, 2025. The fair value of the options at the date of grant amounted to approximately $143,000.

E. Stock Options

The stock option transactions since January 1, 2015 are shown in the table below:

				Weighted average
	Number of shares			exercise  price
				US$
Outstanding, December 31, 2014		3,089,693			1.99
Changes during 2015 to:
Granted to employees, officers, directors and others		880,000			0.47
Expired/Cancelled/Forfeited		(62,500	)		2.39
Exercised		(490,000	)		0.10
Outstanding, September 30, 2015		3,417,193			1.87
Exercisable, September 30, 2015		3,412,193			1.87

The following table summarizes information about stock options outstanding as of September 30, 2015:

Shares underlying outstanding options (non-vested)								Shares underlying outstanding options (fully vested)
Range of exercise price		Number outstanding		Weighted average remaining contractual life (years)		Weighted Average Exercise price		Range of exercise price		Number Outstanding		Weighted average remaining contractual life (years)		Weighted Average Exercise price
US$						US$		US$						US$
	0.01		5,000		9.51		0.01		0.01		2,500		9.51	0.01
	—		—		—		—		0.01		42,000		9.55	0.01
	—		—		—		—		0.01		20,000		8.70	0.01
	—		—		—		—		0.01		45,000		8.50	0.01
	—		—		—		—		0.01		43,500		8.12	0.01
	—		—		—		—		0.01		20,000		4.34	0.01
	—		—		—		—		0.01		164,500		9.85	0.01
	—		—		—		—		1.38		108,000		5.26	1.38
	—		—		—		—		1.38		149,750		9.27	1.38
	—		—		—		—		1.67		390,000		5.01	1.67
	—		—		—		—		1.67		514,443		9.01	1.67
	—		—		—		—		1.70		358,500		7.23	1.70
	—		—		—		—		1.70		132,500		3.23	1.70
	—		—		—		—		1.73		25,000		3.28	1.73
	—		—		—		—		1.82		25,000		1.70	1.82
	—		—		—		—		1.86		25,000		3.18	1.86
	—		—		—		—		1.95		25,000		4.51	1.95
	—		—		—		—		1.96		25,000		3.93	1.96
	—		—		—		—		2.03		25,000		5.59	2.03
	—		—		—		—		2.28		25,000		3.78	2.28
	—		—		—		—		2.61		200,000		2.18	2.61
	—		—		—		—		2.61		1,006,500		6.18	2.61
	—		—		—		—		4.45		25,000		0.32	4.45
	—		—		—		—		4.55		15,000		0.34	4.55
	0.01		5,000				0.01		0.01-4.55		3,412,193			1.87

Granted to employees

The following table sets forth information about the weighted-average fair value of options granted to employees and directors during the nine months ended September 30, 2015 and 2014, using the Black Scholes option-pricing model and the weighted-average assumptions used for such grants:

	For the nine month ended September 30,
	2015			2014
Weighted-average fair value of underlying stock at grant date	$	1.62		$	1.96
Dividend yields		—			—
Expected volatility		68%-70	%		77%-82	%
Risk-free interest rates		0.97%-1.60	%		1.70%-1.74	%
Expected lives (in years)		3.00-5.50			5.00-5.50
Weighted-average grant date fair value	$	1.31		$	1.95

Granted to non-employees

The following table sets forth information about the weighted-average fair value of options granted to non-employees during the nine months ended September 30, 2015 and 2014, using the Black Scholes option-pricing model and the weighted-average assumptions used for such grants:

	For the nine month ended September 30,
	2015			2014
Weighted-average fair value of underlying stock at grant date	$	1.74		$	2.08
Dividend yields		—			—
Expected volatility		72%-74	%		75	%
Risk-free interest rates		1.87-2.23	%		2.65	%
Expected lives (in years)		10.00			10.00
Weighted-average grant date fair value	$	1.71		$	2.07

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 is calculated based on the Simplified Method as allowed under Staff Accounting Bulletin No. 110 (“SAB 110”), giving consideration to the contractual term of the options and their vesting schedules, as the Company does not have sufficient historical exercise data at this time. The expected life of the option granted to non-employees equals their contractual term. In the case of an extension of the option life, the calculation was made on the basis of the extended life.

F. Compensation Cost for Option Issuances

The following table sets forth information about the compensation cost of all option issuances recognized for employees and directors:

For the nine month ended September 30,
2015		2014
US$		US$
	961,000		209,000

The following table sets forth information about the compensation cost of all option issuances recognized for non-employees:

For the nine month ended September 30,
2015		2014
US$		US$
	265,000		69,000

As of September 30, 2015, there was approximately $4,000 of unrecognized compensation cost, related to non-vested stock options granted under the Company’s various stock option plans. That cost is expected to be recognized during the remaining periods of 2015 and 2016.

G. Dividend Reinvestment and Stock Purchase Plan (“DSPP”)

On March 27, 2014, the Company launched its Dividend Reinvestment and Stock Purchase Plan (the “DSSP”) pursuant to which stockholders and interested investors can purchase shares of the Company’s Common Stock as well as units of the Company’s securities. The terms of the DSPP are described in the Prospectus Supplement originally filed on March 31, 2014 with the Securities and Exchange Commission (“SEC”) under the Company’s effective registration Statement on Form S-3, as thereafter amended (the “Original Prospectus Supplement”). On January 13, 2015, the Company amended the Original Prospectus Supplement (“Amendment No. 3”) to provide for a new unit option (the “Unit Option”) under the DSPP comprised of one share of Common Stock and three (3) Common Stock purchase warrants with each unit priced at $4.00. Each warrant affords the investor or stockholder the opportunity to purchase the Company’s Common Stock at a warrant exercise price of $1.00. Each of the three warrant series have different expiration dates that have been extended.

On July 29, 2015, Amendment No. 5 to the Original Prospectus Supplement was filed extending the Unit Option through December 31, 2015 with the same terms and conditions in place.

All of the warrant series will first become exercisable and tradable on January 31, 2016, which is the 31^st day following the new Unit Option’s scheduled termination date of December 31, 2015, and continue to be exercisable through January 31, 2017 for ZNWAB (1 year), January 31, 2018 for ZNWAC (2 years) and January 31, 2019 for ZNWAD (3 years), respectively, at a per share exercise price of $1.00.

The Company filed an application with NASDAQ to list the three warrant series on the NASDAQ Global Market under the symbols “ZNWAB,” “ZNWAC,” and “ZNWAD;” however, no assurance can be provided that the warrants will be approved for listing on the NASDAQ Global Market.

Through the nine months ended September 30, 2015, approximately $2,164,000 has been raised under the DSPP program. As a result, the Company issued approximately 964,000 shares of its Common Stock during the same period. Additionally, warrants for approximately 639,000 shares of Common Stock were issued during the nine months ended September 30, 2015 (approximately 213,000 each of ZNWAB, ZNWAC, and ZNWAD). The total amount of funds received from the DSPP inception date to September 30, 2015 is approximately $8,028,000.

H. Rights Offering (July-September 2015)

On July 6, 2015, the Company filed with the SEC the Prospectus Supplement dated as of July 6, 2015 relating to the Company’s rights offering of non-transferable subscription rights to the holders of the Company’s Common Stock as of record date of June 19, 2015 to purchase up to approximately 7,280,000 of subscription rights described below of the Company’s securities.

Under the rights offering, the Company distributed, at no cost to stockholders, non-transferable subscription rights (each “Right” and collectively the “Rights”) to purchase its Common Stock to persons who owned shares of its Common Stock on June 19, 2015 (the “record date”), with each Right consisting of four (4) shares of Common Stock. Each shareholder that participated received 0.20 of a subscription right for each share of Common Stock owned as of close of business on the record date (i.e., ONE subscription right for each FIVE shares).

Each whole subscription right represented the right to purchase four (4) shares of the Company’s Common Stock at a per Right price of $7.00, or an average purchase price of $1.75 per share. The rights offering also included an over-subscription privilege.

On September 30, 2015, the rights offering terminated as scheduled. The gross proceeds from the rights offering of approximately $966,000, less fees and expenses incurred in connection with the rights offering, will be used by the Company to further its drilling efforts and as otherwise provided in the prospectus. As a result of the rights offering, the Company issued approximately 551,000 shares of Common Stock. Following the issuance of the shares subscribed in the rights offering, the Company had outstanding approximately 37,761,000 shares of its Common Stock as of September 30, 2015. The company had an accounts receivable of approximately $314,000 at September 30, 2015, and this balance was collected in full during the period October 1-5, 2015.

I. Warrant Descriptions

The price and the expiration dates for the series of warrants to investors are as follows:

	Period of Grant	US$		Expiration Date
ZNWAA Warrants	March 2013 – December 2014		2.00	January 31, 2020

On February 2, 2015, the ZNWAA listed warrants began trading on the NASDAQ Global Market but on February 11, 2015, NASDAQ halted trading on the ZNWAA warrants pending the Company’s response to NASDAQ's request for additional information. On April 9, 2015, NASDAQ resumed trading on Zion’s ZNWAA warrants.

XML

Subsequent Events (Narrative) (Details) - Subsequent Event [Member]	Oct. 01, 2015 USD ($) $ / shares shares
2011 Equity Incentive Plan [Member] | Senior officers, and other staff members [Member]
Subsequent Event [Line Items]
Shares granted under Equity Incentive Plan (in shares) | shares	225,000
Exercise price of common stock	$ 0.01
Fair value of stock options | $	$ 311,000
Description of options vesting	The options vested upon grant and are exercisable through September 30, 2025.
2011 Non-Employee Directors Stock Option Plan [Member] | Non-employee director [Member]
Subsequent Event [Line Items]
Shares granted under Equity Incentive Plan (in shares) | shares	150,000
Exercise price of common stock	$ 0.01
Fair value of stock options | $	$ 207,000
Description of options vesting	The options vested upon grant and are exercisable through September 30, 2025.

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2015

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 2 - Summary of Significant Accounting Policies

A. Net Loss per Share Data

Basic and diluted net loss per share of common stock, par value $0.01 per share (the “Common Stock”), is presented in conformity with ASC 260-10 “Earnings Per Share.” Diluted net loss per share is the same as basic net loss per share as the inclusion of 5,617,811 and 3,812,778 Common Stock equivalents in the nine month period ended September 30, 2015 and 2014 respectively, would be anti-dilutive.

B. Use of Estimates

The preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of unproved oil and gas properties, deferred tax assets, asset retirement obligations and legal contingencies. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity, foreign currency, and energy markets have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

C. Oil and Gas Properties and Impairment

The Company follows the full-cost method of accounting for oil and gas properties.  Accordingly, all costs associated with geological and geophysical data 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 loss from operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.

The Company’s oil and gas property represents an investment in unproved properties. These costs are excluded from the amortized cost pool until proved reserves are found or until it is determined that the costs are impaired. All costs excluded are reviewed at least quarterly to determine if impairment has occurred. The amount of any impairment is charged to expense since a reserve base has not yet been established. Impairment requiring a charge to expense may be indicated through evaluation of drilling results, relinquishing drilling rights or other information (see Note 4).

Currently, the Company has no economically recoverable reserves and no amortization base. The Company’s unproved oil and gas properties consist of capitalized exploration costs of $4,460,000 and $3,891,000 as of September 30, 2015 and December 31, 2014, respectively.

D. Recently Adopted Accounting Pronouncements

We do not believe that the adoption of any recently issued accounting pronouncements in 2015 had a significant impact on our financial position, results of operations, or cash flow.

XML

Balance Sheets (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Current assets
Cash and cash equivalents	$ 4,214	$ 5,344
Fixed short term bank deposits - restricted	$ 1,299	1,298
Fixed short term time deposits		531
Prepaid expenses and other	$ 165	280
Other receivables	398	181
Total current assets	6,076	7,634
Unproved oil and gas properties, full cost method	4,460	3,891
Property and equipment at cost Net of accumulated depreciation of $458 and $412	147	186
Other assets
Assets held for severance benefits	201	169
Total assets	10,884	11,880
Current liabilities
Accounts payable	123	132
Asset retirement obligation	445	163
Accrued liabilities	1,765	870
Total current liabilities	2,333	1,165
Provision for severance pay	231	195
Total liabilities	$ 2,564	$ 1,360
Commitments and contingencies (see Note 5)
Stockholders' equity
Common stock, par value $.01; Authorized: 200,000,000 and 100,000,000 shares at September 30, 2015 and December 31, 2014 respectively: Issued and outstanding: 37,760,706 and 35,755,304 shares at September 30, 2015 and December 31, 2014 respectively	$ 378	$ 358
Additional paid-in capital	149,228	144,958
Accumulated deficit	(141,286)	(134,796)
Total stockholders' equity	8,320	10,520
Total liabilities and stockholders' equity	$ 10,884	$ 11,880

XML

Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Cash flows from operating activities
Net loss	$ (6,490)	$ (5,157)
Adjustments required to reconcile net loss to net cash used in operating activities:
Depreciation	46	64
Share-based compensation	1,132	275
Interest on short term bank deposits	13	14
Change in assets and liabilities, net:
Prepaid expenses and other	115	138
Other receivables	(217)	(97)
Severance pay, net	4	(5)
Accounts payable	22	13
Accrued liabilities	961	(3)
Asset retirement obligation	282	(204)
Net cash used in operating activities	(4,132)	(4,962)
Cash flows from investing activities
Investment in short term bank deposits	517	(150)
Acquisition of property and equipment	(7)	(29)
Investment in unproved oil and gas properties	(572)	(1,323)
Net cash used in investing activities	(62)	(1,502)
Cash flows from financing activities
Proceeds from sale of stock and exercise of options, net	3,064	2,476
Net cash provided by financing activities	3,064	2,476
Net decrease in cash and cash equivalents	(1,130)	(3,988)
Cash and cash equivalents - beginning of period	5,344	10,414
Cash and cash equivalents - end of period	4,214	6,426
Non-cash investing and financing activities:
Cost of options capitalized to oil & gas properties	94	3
Unpaid investments in oil & gas properties	$ 34	$ 45

XML

Stockholders' Equity (Compensation Cost of Warrant and Option Issuances Recognized) (Details) - USD ($)	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation cost of warrant and option issuances	$ 1,132,000	$ 275,000
Employees and Directors [Member] | Warrants and Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation cost of warrant and option issuances	961,000	209,000
Non Employee [Member] | Warrants and Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation cost of warrant and option issuances	$ 265,000	$ 69,000

XML

Stockholders' Equity (Narrative) (Details) - USD ($)		1 Months Ended		9 Months Ended
	Jun. 19, 2015	Jun. 30, 2015	Mar. 27, 2014	Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock, par value				$ 0.01	$ 0.01
Common stock, Authorized				200,000,000	100,000,000
Unrecognized compensation cost related to non vested stock				$ 4,000
Common stock shares issued	7,280,000
Gross proceeds of rights offering	$ 966,000
Average purchase price of shares	$ 1.75
Share price	$ 0.20					$ 7.00
Warrants issued				639,000
Amount of funds received from DSPP				$ 8,028,000
Accounts receivable				$ 314,000
ZNWAB Warrants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrants issued				213,000
ZNWAC Warrants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrants issued				213,000
ZNWAD Warrants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrants issued				213,000
Warrant [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrant termination date description				All of the warrants will first become exercisable and tradable on January 31, 2016, which is the 31st day following the new Unit Option's scheduled termination date of December 31, 2015, and continue to be exercisable through January 31, 2017 for ZNWAB (1 year), January 31, 2018 for ZNWAC (2 years) and January 31, 2019 for ZNWAD (3 years), respectively, at a per share exercise price of $1.00.
Amount collected from DSPP				$ 2,164,000
Common stock shares issued				964,000
Warrants issued				551,000
Amount of funds received from DSPP				$ 37,761,000
Stock Option Plan 2005 [Member] | Senior officers, other staff members, and service providers [Member] | January 2, 2025 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares purchased under option plan (in shares)				128,500
Shares purchased under option plan price per share				$ 1.38
Shares purchased under option plan				$ 106,000
Stock option plan, expiration date				Jan. 02, 2025
Stock Option Plan 2005 [Member] | Senior officer one [Member] | January 1, 2025 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares purchased under option plan (in shares)				25,000
Shares purchased under option plan price per share				$ 1.38
Shares purchased under option plan				$ 21,000
Stock option plan, expiration date				Jan. 01, 2025
Equity instrument par value				$ 0.01
Stock Option Plan 2005 [Member] | Directors, senior officers, other staff members, and service providers [Member] | April 17, 2025 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares purchased under option plan (in shares)				123,500
Shares purchased under option plan price per share				$ 0.01
Shares purchased under option plan				$ 220,000
Stock option plan, expiration date				Apr. 17, 2025
Stock Option Plan 2011 [Member] | Senior officer one [Member] | April 2, 2025 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares purchased under option plan (in shares)				10,000
Shares purchased under option plan price per share				$ 0.01
Shares purchased under option plan				$ 18,000
Stock option plan, expiration date				Apr. 02, 2025
Stock Option Plan 2011 [Member] | Senior officer one [Member] | August 3, 2025 (Member)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares purchased under option plan (in shares)				360,000
Shares purchased under option plan price per share				$ 0.01
Shares purchased under option plan				$ 630,000
Stock option plan, expiration date				Aug. 03, 2025
Stock Option Plan 2011 [Member] | Senior officer one [Member] | September 3, 2025 (Member)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares purchased under option plan (in shares)				100,000
Shares purchased under option plan price per share				$ 0.01
Shares purchased under option plan				$ 143,000
Stock option plan, expiration date				Sep. 03, 2025
Stock Option Plan 2011 [Member] | Non-employee director [Member] | January 2, 2021 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares purchased under option plan (in shares)				108,000
Shares purchased under option plan price per share				$ 1.38
Shares purchased under option plan				$ 68,000
Stock option plan, expiration date				Jan. 02, 2021
Stock Option Plan 2011 [Member] | Non-employee director [Member] | May 1, 2021 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares purchased under option plan (in shares)				25,000
Shares purchased under option plan price per share				$ 2.03
Shares purchased under option plan				$ 23,000
Stock option plan, expiration date				May 01, 2021
Equity instrument par value				$ 0.01
Stock Option Plan 2011 [Member] | Employee And Consultants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional shares authorized for plan		4,000,000
Shares authorized for plan		6,000,000
Dividend Reinvestment and Stock Purchase Plan [Member] | December 31, 2015 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option plan, expiration date			Dec. 31, 2015
Equity instrument par value			$ 4.00
Equity instrument exercise price			$ 1.00

XML

Nature of Operations and Basis of Presentation

9 Months Ended

Sep. 30, 2015

Nature of Operations and Basis of Presentation [Abstract]

Nature of Operations and Basis of Presentation

Note 1 - Nature of Operations and Basis of Presentation

A. Nature of Operations

Zion Oil & Gas, Inc., a Delaware corporation (“we,” “our,” “Zion” or the “Company”) is an oil and gas exploration company with a history of more than 15 years of oil and gas exploration in Israel. As of September 30, 2015, the Company had no revenues from its oil and gas operations.

Exploration Rights/Exploration Activities

Zion currently holds one active petroleum exploration license onshore Israel, the Megiddo-Jezreel License (“MJL”), comprising approximately 99,000 acres. The Company has selected the specific drill pad location from which to drill its next exploration well, which it plans to spud within the first quarter of 2016. The spudding and drilling of this well to the desired depth is subject to the Company raising sufficient funds from the current rights offering scheduled to terminate on January 15, 2016.

Depending on the results of the planned exploratory well and having adequate cash resources, multiple wells could be drilled from this pad site as several subsurface geologic targets can be reached using directional well trajectories.

Megiddo-Jezreel Petroleum License (“MJL”)

The Megiddo-Jezreel License (“MJL”) was awarded on December 3, 2013 for a three-year primary term through December 2, 2016, with the possibility of additional one-year extensions up to a maximum of seven years. The MJL is onshore, south and west of the Sea of Galilee.

Under the terms of this license, the Company had until July 1, 2015 to identify and submit a drilling prospect. The license terms also called for it to enter into a drilling contract by October 1, 2015 and begin drilling or “spud” a well by December 1, 2015. The Company applied for an extension/revision of the current MJL terms on September 3, 2015 (see below).

On March 29, 2015, the Company received from the Energy Ministry final approval of its application to merge the southernmost portion of its former Jordan Valley License into the MJL, which the Company had filed on April 10, 2014.

In late June 2015, the Company entered into drilling contract negotiations with Viking Services, BV (“Viking”), and Viking’s Israeli subsidiary, for use of a land-based oil and gas rig with deep drilling capacity and certain other oilfield services for exploration activities within Zion’s MJL area in Israel. Subject to finalization and execution of definitive agreements, Viking would commit to use Rig I-35 to drill Zion’s Megiddo-Jezreel #1 well after full regulatory approval is granted by the State of Israel and regional and local governing bodies.

However, given the current depressed petroleum exploration business conditions worldwide, the Company is considering alternatives to using Viking’s drilling rig, including exploring options of using the rig and services of an Israeli company in an attempt to minimize overall drilling costs and time associated with importing an appropriate rig into Israel.

On September 3, 2015, the Company submitted its Application for Extension of Drilling Date (Megiddo-Jezreel License No. 401). Based on regulatory and other delays that preclude Zion from spudding the well by December 1, 2015, Zion sought an extension of Special Conditions No. 14, 15, and 16 as shown below. The application was approved (see Note 6).

No.	ACTIVITY DESCRIPTION	TO BE CARRIED OUT BY:
14	Sign contract with drilling contractor, and provide commissioner with contractor agreement	1 December 2015
15	Submit detailed engineering plan for performing the drilling	1 December 2015
16	Spud a well within the license area	1 March 2016

Zion’s Former Asher-Menashe License and Former Joseph License

The Company has plugged all of its previously drilled exploratory wells but acknowledges its obligation to complete the abandonment of these well sites in accordance with guidance from the Environmental Ministry and local officials.

B. Basis of Presentation

The accompanying unaudited interim financial statements of Zion Oil & Gas, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals necessary for a fair statement of financial position, results of operations and cash flows, have been included. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The year-end balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

To date, the Company has not achieved a discovery of either oil or gas in commercial quantities. The Company incurs cash outflows from operations and all exploration activities and overhead expenses to date have been financed by way of equity financing. The recoverability of the costs incurred to date is uncertain and dependent upon achieving significant commercial production.

The Company’s ability to continue as a going concern is dependent upon obtaining the necessary financing to undertake further exploration and development activities and ultimately generating profitable operations from its oil and natural gas interests in the future. The Company’s current operations are dependent upon the adequacy of its current assets to meet its current expenditure requirements and the accuracy of management’s estimates of those requirements. Should those estimates be materially incorrect, the Company’s ability to continue as a going concern may be impaired. The 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. During the nine months ended September 30, 2015, the Company incurred a net loss of approximately $6.5 million and had an accumulated deficit of approximately $141.3 million. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The Company expects to incur additional significant expenditures to further its exploration programs. Management is of the opinion that its currently available cash resources are sufficient to finance its plan of operations through January 2016.

To carry out further planned operations beyond that date, the Company must raise additional funds through additional equity and/or debt issuances. There can be no assurance that this capital will be available through the current rights offering or otherwise and if it is not, the Company may be forced to curtail or cease exploration and development activities, including the drilling of the planned MJL exploratory well. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

XML

Balance Sheets (Parenthetical) (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Balance Sheets [Abstract]
Property and equipment, accumulated depreciation	$ 458	$ 412
Common stock, par value	$ 0.01	$ 0.01
Common stock, Authorized	200,000,000	100,000,000
Common stock, Issued	37,762,000	35,755,000
Common stock, outstanding	37,762,000	35,755,000

XML

Nature of Operations and Basis of Presentation (Narrative) (Details) $ in Thousands		3 Months Ended		9 Months Ended
	Dec. 03, 2013	Sep. 30, 2015 USD ($) a	Sep. 30, 2014 USD ($)	Sep. 30, 2015 USD ($) a	Sep. 30, 2014 USD ($)	Dec. 31, 2014 USD ($)
Nature of Operations and Basis of Presentation [Line Items]
Net loss		$ (2,003)	$ (1,250)	$ (6,490)	$ (5,157)
Accumulated deficit		$ (141,286)		$ (141,286)		$ (134,796)
Megiddo-Jezreel License [Member]
Nature of Operations and Basis of Presentation [Line Items]
Area of land | a		99,000		99,000
Initial length of lease	3 years
Megiddo-Jezreel License [Member] | Maximum [Member]
Nature of Operations and Basis of Presentation [Line Items]
Length of lease, additional term	7 years
Megiddo-Jezreel License [Member] | Minimum [Member]
Nature of Operations and Basis of Presentation [Line Items]
Length of lease, additional term	3 years

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Oct. 22, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	ZION OIL & GAS INC
Entity Central Index Key	0001131312
Trading Symbol	zn
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Sep. 30, 2015
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2015
Entity Filer Category	Smaller Reporting Company
Entity Common Stock Shares Outstanding		38,014,949

XML

Summary of Significant Accounting Policies (Narrative) (Details) - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Summary of Significant Accounting Policies (Textual)
Common stock equivalents excluded from EPS as the inclusion would be anti-dilutive	5,617,811	3,812,778
Common stock, par value	$ 0.01		$ 0.01
Capitalized exploration costs	$ 4,460		$ 3,891

XML

Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Statements of Operations [Abstract]
General and administrative	$ 1,579	$ 770	$ 4,441	$ 2,590
Other	405	430	2,013	2,513
Loss from operations	(1,984)	(1,200)	(6,454)	(5,103)
Other income (expense), net
Foreign exchange gain	(14)	(48)	(11)	(46)
Financial expenses, net	(5)	(2)	(25)	(8)
Loss before income taxes	$ (2,003)	$ (1,250)	$ (6,490)	$ (5,157)
Income taxes
Net loss	$ (2,003)	$ (1,250)	$ (6,490)	$ (5,157)
Net loss per share of common stock - basic and diluted (in US$)	$ (0.05)	$ (0.04)	$ (0.18)	$ (0.15)
Weighted-average shares outstanding - basic and diluted (in thousands)	37,441	35,226	36,764	34,829

XML

Subsequent Events

9 Months Ended

Sep. 30, 2015

Subsequent Events [Abstract]

Subsequent Events

Note 6 - Subsequent Events

(i) On October 1, 2015, the Company granted options from the 2011 Equity Incentive Plan for employees and consultants, to purchase 225,000 shares of common stock to senior officers, and other staff members at an exercise price of $0.01. The options vested upon grant and are exercisable through September 30, 2025. The fair value of the options at the date of grant amounted to approximately $311,000.

(ii) On October 1, 2015, the Company granted options from the 2011 Non-Employee Directors Stock Option Plan, to purchase 150,000 shares of common stock to non-employee directors at an exercise price of $0.01. The options vested upon grant and are exercisable through September 30, 2025. The fair value of the options at the date of grant amounted to approximately $207,000.

(iii) On October 13, 2015, the Company received a formal letter from Israel’s Petroleum Commissioner granting the drilling date extension request as well other work plan terms as follows:

No.	ACTIVITY  DESCRIPTION	TO BE CARRIED OUT BY:
1	Sign contract with drilling contractor, and provide commissioner with contractor agreement	1 December 2015
2	Submit detailed engineering plan for performing the drilling	1 December 2015
3	Spud a well within the license area	1 March 2016
4	Submit final report on drilling results	15 October 2016
5	Submit plan for continued work in license area	15 November 2016

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2015

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 5 - Commitments and Contingencies

A. Litigation

From time to time, the Company may be subject to routine litigation, claims, or disputes in the ordinary course of business. The Company defends itself vigorously in all such matters. However, the Company cannot predict with certainty the outcome or effect of any such litigation or investigatory matters or any other pending litigation or claims. There can be no assurance as to the ultimate outcome of any such lawsuits and investigations (see note 5C).

B. Environmental and Onshore Licensing Regulatory 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 and other obligations as they relate to the drilling of oil and gas wells or the operation thereof.

In July 2013, the Environmental Ministry published: “Environmental Guidelines for the preparation of an environmental document supplementary to a license for searching – experimental drilling and land extraction tests.” This document extensively details the requirements for a supplemental environmental document to an oil and gas exploration plan. On January 21, 2015, the Company formally submitted its Environmental Impact Assessment (“EIA”) document for our upcoming Megiddo-Jezreel #1 well to Israel’s Energy Ministry and thereafter, on January 25, 2015, to the Environmental Ministry. This key milestone is required by the MJL work plan as well as by Israeli law and regulations.

On December 3, 2013, the State of Israel’s Petroleum Commissioner awarded the Company the Megiddo-Jezreel Petroleum Exploration License No. 401. Subsequently, the Company secured a bank guarantee from an Israeli based bank in the amount of $930,000, in accordance with the performance guarantee guidelines. Consequently, Zion believes it has met the requirements of the June 2012 onshore exploratory licensing guidelines and the October 2012 performance guarantee guidelines.

On February 6, 2014, the Energy Ministry issued proposed guidelines for bank guarantees and insurance requirements with respect to oil and gas rights. Under these guidelines, applicants for and existing holders of exploration rights will be required to submit certain bank guarantees and insurance policies that were not previously required.

On September 17, 2014, the proposed guidelines became effective and the Energy Ministry issued a guidance document entitled “Instructions for the Giving of Guarantees with respect to Oil Rights.” As it relates to existing onshore license holders like Zion, the Instructions call for the Company to obtain a new Base Bank Guarantee in the amount of $500,000, per each existing license area, split into two deposit dates as follows: (1) $250,000 by November 30, 2014 and (2) $250,000 by March 31, 2015.

Furthermore, prior to the start of drilling, an additional bank guarantee of $250,000 will be required at least 14 days before the spud date. In summary, this is a potential cumulative total of $750,000 that is separate and apart from the Company’s existing Bank Guarantees discussed below in Section D.

The Petroleum Commissioner has discretion to raise or lower those amounts or may also forfeit a Company’s existing guarantee and/or cancel a petroleum right under certain circumstances.

In addition, new and extended insurance policy guidelines were added. The Petroleum Commissioner may also view non-compliance with the new insurance provisions as breaching the work plan and the rights granted and act accordingly.

Due to the Petroleum Commissioner’s discretion in the matter, the Company has not provided bank guarantees based on the September 2014 guidelines as it has not had a request from the Commissioner. As of September 30, 2015, the Company has not received a specific request seeking payment and therefore, has not yet provided any of the additional bank guarantees called for in the new guidelines.

On January 11, 2015 the Energy Ministry issued revised guidelines (initially issued in February 2012) for onshore wellbore abandonment that are based on US regulations on well abandonment found in 43 CFR, Section 3162.3-4; applicable Texas Railroad Commission guidelines; and Well Abandonment and Inactive Well Practices for U.S. Exploration and Production Operations found in API Bulletin E3. This guideline is effective April 1, 2015.

On February 12, 2015, the Energy Ministry issued guidance for preparation and submission of the drilling program (first presented on April 29, 2014), describing types of and purposes of production tests depending on the stage of development of a reservoir. This guideline is effective April 1, 2015.

On April 27, 2015, the Energy Ministry issued guidelines for well testing, establishing procedures and minimum requirements for pressure testing, production flow testing, fluid analyses testing, etc.

On August 13, 2015, the Energy Ministry issued a new guideline for hydraulic fracturing design and operations that are based on Canadian regulations per Directive 083. This guideline is effective November 21, 2015. The procedures seek to prevent impacts on water wells, non-saline aquifers and prevent surface impacts.

On September 9, 2015, the Energy Ministry issued information relating to application forms for exploration drilling, detailing certain operator requirements prior to drilling, including required submission of an Application for Permit to Drill (APD) and Supplemental APD Information Sheet - Casing Design, both due 30 days prior to commencement of work. In addition, an Application for Permit to Modify (APM) form is provided relating to changes to and modifications of already-approved drilling programs and other actions that were omitted from the original application such as production testing, abandonment, etc. Also, an End of Operation Report (EOR) form is provided to report the end of drilling or a temporary or a final end of operations.

The Company believes that these new regulations will significantly increase the expenditures associated with obtaining new exploration rights and drilling new wells, coupled with the heavy financial burden of “locking away” significant amounts of cash that could otherwise be used for operational purposes. Finally, this will also considerably increase the time needed to obtain all of the necessary authorizations and approvals prior to drilling.

C. Former Drilling Contract with AME/GYP

On March 4, 2014, the Company received from the International Court of Arbitration in Paris, France (“ICA”) a request for arbitration in London filed by Guyney Yildizi Petrol UuretimSondajMut, ve Tie A.S. (“GYP”) over the $550,000 rig demobilization fee.

On May 1, 2014, prior to Zion’s answer date deadline, Zion filed an answer in which it denied GYP’s claim for payment of the demobilization fee, and in addition it asserted a Counterclaim against GYP.

In the preliminary procedural stage, Zion challenged GYP’s standing to assert its claim on the basis that there was no assignment of the Drilling Contract from Aladdin Middle East (“AME”) to GYP pursuant to the provisions of the Drilling Contract. GYP challenged Zion’s right to assert any issue not related to the demobilization fee, including Zion’s counterclaim. On December 19, 2014, the appointed arbitrator communicated to the ICA that she was denying each party’s preliminary challenges, and the arbitration would proceed on the basis of the primary claims and counterclaims raised by the parties.

On February 9, 2015, Zion and GYP each filed submissions on Stage 1 issues, to which rebuttals were due on March 5, 2015. 

On April 29, 2015, the arbitrator issued her Partial Award ordering Zion to pay GYP the demobilization fee of $550,000 plus interest in the amount of approximately $237,000, which continues to accrue at the rate of $180.82 per day until paid. However, any Final Award sum is not determinable until the issuance of the Final Award after resolution of Stage 2 of Zion’s fraud and other tort counterclaims against GYP. The Company recorded a provision in the amount of $910,000 to cover the Company's potential liability.

On June 22, 2015, the arbitrator set an evidentiary hearing on the Stage 2 issues for the week of December 7, 2015 in London. 

Beginning in August 2015, Zion and GYP have been negotiating the resolution of the arbitration and disputes presented therein in a mutually beneficial way. The parties are currently examining the potential tax issues raised by any such possible resolution. No assurance can however be provided that the parties will in fact successfully conclude any resolution.

In light of the ongoing negotiations, the evidentiary hearing set for December 7, 2015, has been removed from the docket and will be re-set, if necessary, as the parties may agree.

D.  Bank Guarantees

As of September 30, 2015, the Company provided bank guarantees to various governmental bodies (approximately $1,164,000) and others (approximately $66,000) in respect of its drilling operation in an aggregate amount of approximately $1,230,000. The funds backing these guarantees and additional amounts added to support currency fluctuations as required by the bank are held in interest-bearing accounts and are reported on the Company’s balance sheets as “restricted cash.”

E.  Asset Retirement Obligations

The Company currently estimates that the costs of plugging and decommissioning of the exploratory wells drilled to date in the its former Asher-Menashe and Joseph License areas to be approximately $500,000 based on current cost rather than Net Present Value. Liabilities for expenditures are recorded when environmental assessment and/or remediation is probable and the timing and costs can be reasonably estimated.

Changes in Asset Retirement Obligations were as follows:

	September 30,			December 31,
	2015			2014
	US$ thousands			US$ thousands
Asset Retirement Obligations, Beginning Balance		163			483
Liabilities Settled		(71	)		(320	)
Revision of Estimate		353			—
Retirement Obligations, Ending Balance		445			163

Liabilities of approximately $71,000 were settled for the nine months ended September 30, 2015; those liabilities were related to Joseph License areas.

Approximately $353,000 were accrued for the nine months ended September 30, 2015, and were primarily due to changes in estimated costs for future Plug & Abandonment activities related to the Asher-Menashe and Joseph License areas.

XML

Stockholders' Equity (Schedule of Warrants Description) (Details) - ZNWAA Warrants [Member]	9 Months Ended
	Sep. 30, 2015 $ / shares
Class of Warrant or Right [Line Items]
Warrant name	ZNWAA
Equity instrument exercise price	$ 2.00
Warrant expiration date	Jan. 31, 2020
Beginning Date [Member]
Class of Warrant or Right [Line Items]
Warrant period of grant	Mar. 31, 2013
Ending Date [Member]
Class of Warrant or Right [Line Items]
Warrant period of grant	Dec. 31, 2014

XML

Stockholders' Equity (Stock Option Transactions) (Details) - Employee Stock Option [Member]	9 Months Ended
	Sep. 30, 2015 $ / shares shares
Number of shares
Outstanding, Beginning balance | shares	3,089,693
Granted to employees, officers, directors and others | shares	880,000
Expired/Cancelled/Forfeited | shares	(62,500)
Exercised | shares	(490,000)
Outstanding, Ending balance | shares	3,417,193
Number of shares Exercisable | shares	3,417,193
Weighted average exercise price
Outstanding, Beginning balance	$ 1.99
Granted to employees, officers, directors and others	0.47
Expired/Cancelled/Forfeited	2.39
Exercised	0.10
Outstanding, Ending balance	1.87
Weighted Average exercise price Exercisable	$ 1.87

XML

Unproved Oil and Gas Properties, Full Cost Method (Tables)

9 Months Ended

Sep. 30, 2015

Unproved Oil and Gas Properties, Full Cost Method [Abstract]

Schedule of unproved oil and gas properties, under the full cost method

	September 30, 2015		December 31, 2014
	US$ thousands		US$ thousands
Excluded from amortization base:
Inventory, and other operational related costs		895		895
Capitalized salary costs		1,135		916
Legal costs, license fees and other preparation costs		2,430		2,080
		4,460		3,891

XML

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2015

Summary of Significant Accounting Policies [Abstract]

Net Loss per Share Data

A. Net Loss per Share Data

Basic and diluted net loss per share of common stock, par value $0.01 per share (the “Common Stock”), is presented in conformity with ASC 260-10 “Earnings Per Share.” Diluted net loss per share is the same as basic net loss per share as the inclusion of 5,617,811 and 3,812,778 Common Stock equivalents in the nine month period ended September 30, 2015 and 2014 respectively, would be anti-dilutive.

Use of Estimates

B. Use of Estimates

The preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of unproved oil and gas properties, deferred tax assets, asset retirement obligations and legal contingencies. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity, foreign currency, and energy markets have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Oil and Gas Properties and Impairment

C. Oil and Gas Properties and Impairment

The Company follows the full-cost method of accounting for oil and gas properties.  Accordingly, all costs associated with geological and geophysical data 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 loss from operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.

The Company’s oil and gas property represents an investment in unproved properties. These costs are excluded from the amortized cost pool until proved reserves are found or until it is determined that the costs are impaired. All costs excluded are reviewed at least quarterly to determine if impairment has occurred. The amount of any impairment is charged to expense since a reserve base has not yet been established. Impairment requiring a charge to expense may be indicated through evaluation of drilling results, relinquishing drilling rights or other information (see Note 4).

Currently, the Company has no economically recoverable reserves and no amortization base. The Company’s unproved oil and gas properties consist of capitalized exploration costs of $4,460,000 and $3,891,000 as of September 30, 2015 and December 31, 2014, respectively.

Recently Adopted Accounting Pronouncements

D. Recently Adopted Accounting Pronouncements

We do not believe that the adoption of any recently issued accounting pronouncements in 2015 had a significant impact on our financial position, results of operations, or cash flow.

XML

Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2015

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Warrant and Option Transactions

				Weighted average
	Number of shares			exercise  price
				US$
Outstanding, December 31, 2014		3,089,693			1.99
Changes during 2015 to:
Granted to employees, officers, directors and others		880,000			0.47
Expired/Cancelled/Forfeited		(62,500	)		2.39
Exercised		(490,000	)		0.10
Outstanding, September 30, 2015		3,417,193			1.87
Exercisable, September 30, 2015		3,412,193			1.87

Stock Warrants and Options Outstanding

Shares underlying outstanding options (non-vested)								Shares underlying outstanding options (fully vested)
Range of exercise price		Number outstanding		Weighted average remaining contractual life (years)		Weighted Average Exercise price		Range of exercise price		Number Outstanding		Weighted average remaining contractual life (years)		Weighted Average Exercise price
US$						US$		US$						US$
	0.01		5,000		9.51		0.01		0.01		2,500		9.51	0.01
	—		—		—		—		0.01		42,000		9.55	0.01
	—		—		—		—		0.01		20,000		8.70	0.01
	—		—		—		—		0.01		45,000		8.50	0.01
	—		—		—		—		0.01		43,500		8.12	0.01
	—		—		—		—		0.01		20,000		4.34	0.01
	—		—		—		—		0.01		164,500		9.85	0.01
	—		—		—		—		1.38		108,000		5.26	1.38
	—		—		—		—		1.38		149,750		9.27	1.38
	—		—		—		—		1.67		390,000		5.01	1.67
	—		—		—		—		1.67		514,443		9.01	1.67
	—		—		—		—		1.70		358,500		7.23	1.70
	—		—		—		—		1.70		132,500		3.23	1.70
	—		—		—		—		1.73		25,000		3.28	1.73
	—		—		—		—		1.82		25,000		1.70	1.82
	—		—		—		—		1.86		25,000		3.18	1.86
	—		—		—		—		1.95		25,000		4.51	1.95
	—		—		—		—		1.96		25,000		3.93	1.96
	—		—		—		—		2.03		25,000		5.59	2.03
	—		—		—		—		2.28		25,000		3.78	2.28
	—		—		—		—		2.61		200,000		2.18	2.61
	—		—		—		—		2.61		1,006,500		6.18	2.61
	—		—		—		—		4.45		25,000		0.32	4.45
	—		—		—		—		4.55		15,000		0.34	4.55
	0.01		5,000				0.01		0.01-4.55		3,412,193			1.87

Schedule of Warrants Description

	Period of Grant	US$		Expiration Date
ZNWAA Warrants	March 2013 – December 2014		2.00	January 31, 2020

Non Employee [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Assumptions Used to Estimate Fair Value of Warrants Granted Using Black-Scholes Option Pricing Model

	For the nine month ended September 30,
	2015			2014
Weighted-average fair value of underlying stock at grant date	$	1.74		$	2.08
Dividend yields		—			—
Expected volatility		72%-74	%		75	%
Risk-free interest rates		1.87-2.23	%		2.65	%
Expected lives (in years)		10.00			10.00
Weighted-average grant date fair value	$	1.71		$	2.07

Non Employee [Member] | Warrants and Options [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of Compensation Cost of Warrant and Option Issuances

For the nine month ended September 30,
2015		2014
US$		US$
	265,000		69,000

Employees and Directors [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Assumptions Used to Estimate Fair Value of Warrants Granted Using Black-Scholes Option Pricing Model

	For the nine month ended September 30,
	2015			2014
Weighted-average fair value of underlying stock at grant date	$	1.62		$	1.96
Dividend yields		—			—
Expected volatility		68%-70	%		77%-82	%
Risk-free interest rates		0.97%-1.60	%		1.70%-1.74	%
Expected lives (in years)		3.00-5.50			5.00-5.50
Weighted-average grant date fair value	$	1.31		$	1.95

Employees and Directors [Member] | Warrants and Options [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of Compensation Cost of Warrant and Option Issuances

For the nine month ended September 30,
2015		2014
US$		US$
	961,000		209,000

XML

Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2015

Commitments and Contingencies [Abstract]

Schedule of Changes in Asset Retirement Obligations

	September 30,			December 31,
	2015			2014
	US$ thousands			US$ thousands
Asset Retirement Obligations, Beginning Balance		163			483
Liabilities Settled		(71	)		(320	)
Revision of Estimate		353			—
Retirement Obligations, Ending Balance		445			163

XML

Stockholders' Equity (Assumptions Used to Estimate Fair Value of Warrants Granted Using Black-Scholes Option Pricing Model) (Details) - Stock Options [Member] - $ / shares	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-average fair value of underlying stock at grant date	$ 1.62	$ 1.96
Dividend yields
Expected volatility, minimum	68.00%	77.00%
Expected volatility, maximum	70.00%	82.00%
Risk-free interest rates, minimum	0.97%	1.70%
Risk-free interest rates, maximum	1.60%	1.74%
Weighted-average grant date fair value	$ 1.31	$ 1.95
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected lives (in years)	3 years	5 years
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected lives (in years)	5 years 6 months	5 years 6 months
Non Employee [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-average fair value of underlying stock at grant date	$ 1.74	$ 2.08
Dividend yields
Expected volatility, minimum	72.00%
Expected volatility, maximum	74.00%
Expected volatility		75.00%
Risk-free interest rates, minimum	1.87%
Risk-free interest rates, maximum	2.23%
Risk-free interest rates		2.65%
Expected lives (in years)	10 years	10 years
Weighted-average grant date fair value	$ 1.71	$ 2.07

XML

Commitments and Contingencies (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Commitments and Contingencies [Abstract]
Asset Retirement Obligations, Beginning Balance	$ 163	$ 483
Liabilities Settled	(71)	(320)
Revision of Estimate	353
Retirement Obligations, Ending Balance	$ 445	$ 163

XML

Statements of Changes In Stockholders' Equity (Unaudited) - 9 months ended Sep. 30, 2015 - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Deficit
Beginning Balances at Dec. 31, 2014	$ 10,520	$ 358	$ 144,958	$ (134,796)
Beginning Balances (in shares) at Dec. 31, 2014		35,755
Funds received from sale of DSPP units and shares, net	3,017	$ 15	3,002
Funds received from sale of DSPP units and shares, net (in shares)		1,516
Funds received from option exercises	47	$ 5	42
Funds received from option exercises (in shares)		490
Value of options granted to employees, directors and others	1,226		$ 1,226
Net loss	(6,490)			$ (6,490)
Ending Balances at Sep. 30, 2015	$ 8,320	$ 378	$ 149,228	$ (141,286)
Ending Balances (in shares) at Sep. 30, 2015		37,761

XML

Unproved Oil and Gas Properties, Full Cost Method

9 Months Ended

Sep. 30, 2015

Unproved Oil and Gas Properties, Full Cost Method [Abstract]

Unproved Oil and Gas Properties, Full Cost Method

Note 4 - Unproved Oil and Gas Properties, Full Cost Method

Unproved oil and gas properties, under the full cost method, are comprised as follows:

	September 30, 2015		December 31, 2014
	US$ thousands		US$ thousands
Excluded from amortization base:
Inventory, and other operational related costs		895		895
Capitalized salary costs		1,135		916
Legal costs, license fees and other preparation costs		2,430		2,080
		4,460		3,891

XML

Commitments and Contingencies (Narrative) (Details) - USD ($)					9 Months Ended	12 Months Ended
	Apr. 29, 2015	Sep. 17, 2014	Mar. 04, 2014	Dec. 03, 2013	Sep. 30, 2015	Dec. 31, 2014
Commitments And Contingencies [Line Items]
Existing onshore license holders for performance guarantee guidelines requirement				$ 930,000
Bank guarantees to government					$ 1,164,000
Bank guarantees to others					66,000
Aggregate guarantee amount					1,230,000
Settlement amount	$ 550,000		$ 550,000
Interest accrued	237,000
Provision for company's liability	910,000
Asset retirement obligation					500,000
Liabilities settled to Elijah License area					71,000	$ 320,000
Asset obligation					$ 353,000
Interest On Debt [Member]
Commitments And Contingencies [Line Items]
Interest rate per day	$ 180.82
New Israeli Shekel [Member]
Commitments And Contingencies [Line Items]
On shore license holders base guarantee value		$ 500,000
On shore license holders base guarantee additional value		250,000
On shore license holder base guarantee cumulative amount		750,000
New Israeli Shekel [Member] | November 30, 2014 [Member]
Commitments And Contingencies [Line Items]
On shore license holders base guarantee value		250,000
New Israeli Shekel [Member] | March 31, 2015 [Member]
Commitments And Contingencies [Line Items]
On shore license holders base guarantee value		$ 250,000

XML

Stockholders' Equity (Stock Options Outstanding) (Details)	9 Months Ended
	Sep. 30, 2015 $ / shares shares
Unvested [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 0.01
Shares underlying outstanding options Number outstanding | shares	5,000
Shares underlying outstanding options Weighted Average Exercise price	$ 0.01
Unvested [Member] | Range Exercise Price 0.01 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 0.01
Shares underlying outstanding options Number outstanding | shares	5,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	9 years 6 months 4 days
Shares underlying outstanding options Weighted Average Exercise price	$ 0.01
Vested [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options Range of exercise price, lower range	0.01
Shares underlying outstanding options Range of exercise price, upper range	$ 4.55
Shares underlying outstanding options Number outstanding | shares	3,412,193
Shares underlying outstanding options Weighted Average Exercise price	$ 1.95
Vested [Member] | Range Exercise Price 0.01 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 0.01
Shares underlying outstanding options Number outstanding | shares	2,500
Shares underlying outstanding options Weighted average remaining contractual life (years)	9 years 6 months 4 days
Shares underlying outstanding options Weighted Average Exercise price	$ 0.01
Vested [Member] | Range Exercise Price 0.01 Second [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 0.01
Shares underlying outstanding options Number outstanding | shares	42,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	9 years 6 months 18 days
Shares underlying outstanding options Weighted Average Exercise price	$ 0.01
Vested [Member] | Range Exercise Price 0.01 Third [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 0.01
Shares underlying outstanding options Number outstanding | shares	20,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	8 years 8 months 12 days
Shares underlying outstanding options Weighted Average Exercise price	$ 0.01
Vested [Member] | Range Exercise Price 0.01 Four [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 0.01
Shares underlying outstanding options Number outstanding | shares	45,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	8 years 6 months
Shares underlying outstanding options Weighted Average Exercise price	$ 0.01
Vested [Member] | Range Exercise Price 0.01 Five [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 0.01
Shares underlying outstanding options Number outstanding | shares	43,500
Shares underlying outstanding options Weighted average remaining contractual life (years)	8 years 1 month 13 days
Shares underlying outstanding options Weighted Average Exercise price	$ 0.01
Vested [Member] | Range Exercise Price 0.01 Six [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 0.01
Shares underlying outstanding options Number outstanding | shares	20,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	4 years 4 months 2 days
Shares underlying outstanding options Weighted Average Exercise price	$ 0.01
Vested [Member] | Range Exercise Price 0.01 Seven [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 0.01
Shares underlying outstanding options Number outstanding | shares	164,500
Shares underlying outstanding options Weighted average remaining contractual life (years)	9 years 10 months 6 days
Shares underlying outstanding options Weighted Average Exercise price	$ 0.01
Vested [Member] | Range Exercise Price 1.38 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 1.38
Shares underlying outstanding options Number outstanding | shares	108,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	5 years 3 months 4 days
Shares underlying outstanding options Weighted Average Exercise price	$ 1.38
Vested [Member] | Range Exercise Price 1.38 Second [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 1.38
Shares underlying outstanding options Number outstanding | shares	149,750
Shares underlying outstanding options Weighted average remaining contractual life (years)	9 years 3 months 7 days
Shares underlying outstanding options Weighted Average Exercise price	$ 1.38
Vested [Member] | Range Exercise Price 1.67 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 1.67
Shares underlying outstanding options Number outstanding | shares	390,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	5 years 4 days
Shares underlying outstanding options Weighted Average Exercise price	$ 1.67
Vested [Member] | Range Exercise Price 1.67 Second [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 1.67
Shares underlying outstanding options Number outstanding | shares	514,443
Shares underlying outstanding options Weighted average remaining contractual life (years)	9 years 4 days
Shares underlying outstanding options Weighted Average Exercise price	$ 1.67
Vested [Member] | Range Exercise Price 1.70 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 1.7
Shares underlying outstanding options Number outstanding | shares	358,500
Shares underlying outstanding options Weighted average remaining contractual life (years)	7 years 2 months 23 days
Shares underlying outstanding options Weighted Average Exercise price	$ 1.7
Vested [Member] | Range Exercise Price 1.70 Second [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 1.7
Shares underlying outstanding options Number outstanding | shares	132,500
Shares underlying outstanding options Weighted average remaining contractual life (years)	3 years 2 months 23 days
Shares underlying outstanding options Weighted Average Exercise price	$ 1.7
Vested [Member] | Range Exercise Price 1.73 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 1.73
Shares underlying outstanding options Number outstanding | shares	25,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	3 years 3 months 11 days
Shares underlying outstanding options Weighted Average Exercise price	$ 1.73
Vested [Member] | Range Exercise Price 1.82 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 1.82
Shares underlying outstanding options Number outstanding | shares	25,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	1 year 8 months 12 days
Shares underlying outstanding options Weighted Average Exercise price	$ 1.82
Vested [Member] | Range Exercise Price 1.86 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 1.86
Shares underlying outstanding options Number outstanding | shares	25,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	3 years 2 months 5 days
Shares underlying outstanding options Weighted Average Exercise price	$ 1.86
Vested [Member] | Range Exercise Price 1.95 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 1.95
Shares underlying outstanding options Number outstanding | shares	25,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	4 years 6 months 4 days
Shares underlying outstanding options Weighted Average Exercise price	$ 1.95
Vested [Member] | Range Exercise Price 1.96 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 1.96
Shares underlying outstanding options Number outstanding | shares	25,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	3 years 11 months 5 days
Shares underlying outstanding options Weighted Average Exercise price	$ 1.96
Vested [Member] | Range Exercise Price 2.03 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 2.03
Shares underlying outstanding options Number outstanding | shares	25,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	5 years 7 months 2 days
Shares underlying outstanding options Weighted Average Exercise price	$ 2.03
Vested [Member] | Range Exercise Price 2.28 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 2.28
Shares underlying outstanding options Number outstanding | shares	25,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	3 years 9 months 11 days
Shares underlying outstanding options Weighted Average Exercise price	$ 2.28
Vested [Member] | Range Exercise Price 2.61 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 2.61
Shares underlying outstanding options Number outstanding | shares	200,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	2 years 2 months 5 days
Shares underlying outstanding options Weighted Average Exercise price	$ 2.61
Vested [Member] | Range Exercise Price 2.61 Second [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 2.61
Shares underlying outstanding options Number outstanding | shares	1,006,500
Shares underlying outstanding options Weighted average remaining contractual life (years)	6 years 2 months 5 days
Shares underlying outstanding options Weighted Average Exercise price	$ 2.61
Vested [Member] | Range Exercise Price 4.45 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 4.45
Shares underlying outstanding options Number outstanding | shares	25,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	3 months 26 days
Shares underlying outstanding options Weighted Average Exercise price	$ 4.45
Vested [Member] | Range Exercise Price 4.55 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Shares underlying outstanding options range of exercise price	$ 4.55
Shares underlying outstanding options Number outstanding | shares	15,000
Shares underlying outstanding options Weighted average remaining contractual life (years)	4 months 2 days
Shares underlying outstanding options Weighted Average Exercise price	$ 4.55