Dallas' faith-based Zion Oil & Gas had reason to celebrate this past year. The company's stock price hit all-time highs as it inched closer to finding oil in Israel, the company's primary mission.
Now, Zion's most serious challenge could come from the courtroom and stock market rather than Middle East geology.
The publicly-traded company is now facing two shareholder lawsuits and an investigation by the Securities and Exchange Commission. The company's stock price recently cratered; a financial blow since all its revenue comes from stock sales. And Zion CEO Victor Carrillo stepped down last month; he said it's unrelated to recent challenges.
Company officials are still hoping that their current well in Israel will produce oil in commercial quantities. But so far, they've had to acknowledge that "drilling and testing on this well was much more costly than we expected, and as of today cannot be considered commercially successful."
Andrew Summey, a Zion spokesman, acknowledged that these are difficult times for the company but not the first ones. The 18-year-old company was created as a Christian mission to find oil in Israel but has yet to succeed. So far, Zion's quest has cost investors at least $170 million dollars.
"Some of the old timers say, 'Hey, we've been here before,'" he said. "Maybe God doesn't want us to do it, and then, the next thing happens. They almost talk about it like it's a miracle."
Summey said he couldn't elaborate on company finances since the SEC requires written disclosure of those details. But the company launched another round of stock sales last month to raise money for testing of its Megiddo-Jezreel #1 well. Company officials said they found some hydrocarbons there, but more testing is needed to determine if it's commercially viable.
Company founder John M. Brown was inspired by Bible passages — and sometimes end times prophesies — to seek oil in Israel. That singular focus on making Israel energy independent means that until the company strikes oil, it has to raise all its funds through direct stock sales.
In the latest offering, Zion investors could buy $250 worth of stock and receive warrants to buy 25 shares in the future at $1 each. With Zion stock closing Wednesday at $1.09, that offer looks riskier than it would have earlier this summer when the price was around $4.
Besides well testing costs, the company will also have additional expenses to comply with the SEC subpoena and defending the company against two federal lawsuits. Summey said he could say little about the litigation other than describing the lawsuits as "frivolous."
Carrillo, the former Zion CEO, couldn't immediately be reached for comment. But in a letter to company employees, he wrote: "I believe that God led me to Zion and that it was a part of my mission to help guide the company to drill this key, deep well. That goal having now been accomplished, it is time for me to move on to pursue other personal interests, effective September 1, 2018."
He told the Austin American-Statesman that his resignation was unrelated to the SEC investigation. Dustin Guinn, Zion's president and chief operations officer, was named the new CEO. After the announcement, Brown wrote an email that "God has chosen Zion's New CEO."
The first of two lawsuits against Zion was filed in August by Robert and Cindy Peak against Carrillo and chief financial officer Michael Crosswell Jr. They are seeking class-action status, which would allow them to represent a larger group of Zion shareholders.
The lawsuit said company officials made false or misleading statements about whether "Zion was either already or was likely to soon become the subject of an SEC investigation." The lawsuit pointed out that Zion's stock price fell by 11 percent the day after the investigation was publicly disclosed.
Before the SEC investigation was made public, there were questions about whether federal investigators were looking into the company. An anonymous short seller said in the spring that an SEC response suggested the agency was withholding records due to an investigation.
At the time, Zion officials denied the existence of an investigation on Twitter and in an SEC filing.
In mid-May, Probesreporter.com, which covers SEC investigations and corporate disclosures, said that it had confirmation of an SEC investigation.
Zion disclosed the investigation on July 11. Company officials said they were unaware of the investigation until they received an SEC subpoena.
A second lawsuit, filed Monday by Keith Smith, also accuses company officials of withholding information about the SEC investigation and that they were "improperly over-compensated."
"Zion is losing and expending many millions of dollars" to defend against the earlier lawsuit, according to the newest lawsuit.
The SEC investigation is pending but little is known about that inquiry. The agency doesn't publicly comment on ongoing investigations.
"We're cooperating," Summey said. "We're sending over everything they request. And we do feel fine about it as far as in the end being vindicated."
Now, Zion's most serious challenge could come from the courtroom and stock market rather than Middle East geology.
The publicly-traded company is now facing two shareholder lawsuits and an investigation by the Securities and Exchange Commission. The company's stock price recently cratered; a financial blow since all its revenue comes from stock sales. And Zion CEO Victor Carrillo stepped down last month; he said it's unrelated to recent challenges.
Company officials are still hoping that their current well in Israel will produce oil in commercial quantities. But so far, they've had to acknowledge that "drilling and testing on this well was much more costly than we expected, and as of today cannot be considered commercially successful."
Andrew Summey, a Zion spokesman, acknowledged that these are difficult times for the company but not the first ones. The 18-year-old company was created as a Christian mission to find oil in Israel but has yet to succeed. So far, Zion's quest has cost investors at least $170 million dollars.
"Some of the old timers say, 'Hey, we've been here before,'" he said. "Maybe God doesn't want us to do it, and then, the next thing happens. They almost talk about it like it's a miracle."
Summey said he couldn't elaborate on company finances since the SEC requires written disclosure of those details. But the company launched another round of stock sales last month to raise money for testing of its Megiddo-Jezreel #1 well. Company officials said they found some hydrocarbons there, but more testing is needed to determine if it's commercially viable.
Company founder John M. Brown was inspired by Bible passages — and sometimes end times prophesies — to seek oil in Israel. That singular focus on making Israel energy independent means that until the company strikes oil, it has to raise all its funds through direct stock sales.
In the latest offering, Zion investors could buy $250 worth of stock and receive warrants to buy 25 shares in the future at $1 each. With Zion stock closing Wednesday at $1.09, that offer looks riskier than it would have earlier this summer when the price was around $4.
Besides well testing costs, the company will also have additional expenses to comply with the SEC subpoena and defending the company against two federal lawsuits. Summey said he could say little about the litigation other than describing the lawsuits as "frivolous."
Carrillo, the former Zion CEO, couldn't immediately be reached for comment. But in a letter to company employees, he wrote: "I believe that God led me to Zion and that it was a part of my mission to help guide the company to drill this key, deep well. That goal having now been accomplished, it is time for me to move on to pursue other personal interests, effective September 1, 2018."
He told the Austin American-Statesman that his resignation was unrelated to the SEC investigation. Dustin Guinn, Zion's president and chief operations officer, was named the new CEO. After the announcement, Brown wrote an email that "God has chosen Zion's New CEO."
The first of two lawsuits against Zion was filed in August by Robert and Cindy Peak against Carrillo and chief financial officer Michael Crosswell Jr. They are seeking class-action status, which would allow them to represent a larger group of Zion shareholders.
The lawsuit said company officials made false or misleading statements about whether "Zion was either already or was likely to soon become the subject of an SEC investigation." The lawsuit pointed out that Zion's stock price fell by 11 percent the day after the investigation was publicly disclosed.
Before the SEC investigation was made public, there were questions about whether federal investigators were looking into the company. An anonymous short seller said in the spring that an SEC response suggested the agency was withholding records due to an investigation.
At the time, Zion officials denied the existence of an investigation on Twitter and in an SEC filing.
In mid-May, Probesreporter.com, which covers SEC investigations and corporate disclosures, said that it had confirmation of an SEC investigation.
Zion disclosed the investigation on July 11. Company officials said they were unaware of the investigation until they received an SEC subpoena.
A second lawsuit, filed Monday by Keith Smith, also accuses company officials of withholding information about the SEC investigation and that they were "improperly over-compensated."
"Zion is losing and expending many millions of dollars" to defend against the earlier lawsuit, according to the newest lawsuit.
The SEC investigation is pending but little is known about that inquiry. The agency doesn't publicly comment on ongoing investigations.
"We're cooperating," Summey said. "We're sending over everything they request. And we do feel fine about it as far as in the end being vindicated."