Biblical oil firm’s CEO steps down
Former state regulator insists departure not related to SEC probe.
Victor Carrillo, once Texas’ top oil and gas regulator, is out as chief executive of Zion Oil and Gas, a Dallas-based firm that looks to the Bible for clues about where to drill for oil in Israel.
Carrillo told the American-Statesman that it was “just time for me to move on,” but his departure comes as the company is under investigation by the U.S. Securities and Exchange Commission. At least a decade into operations, the company has yet to strike a producing well, and stock prices have recently tumbled.
Carrillo’s last day at the firm was Aug. 31, when he submitted a resignation letter. In comments to the Statesman, he ranked guiding the company through the acquisition of its 99,000-acre license to drill as his top accomplishment.
“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,” he wrote in his resignation letter.
In its vision, shepherding the company to the brink of greatness, the claim has a Moses-like quality to it, one that reflects the company’s biblical orientation. Citing Genesis and Deuter- onomy and biblical prom- ises of treasure buried deep, Zion officials have said discovering oil in Israel would be another sign of the imminent return of the Christian Messiah.
Carrillo, who earned a master’s degree in geology before putting himself through law school, served as commissioner on the Texas Railroad Commission, the state’s oil and gas regulator, from 2003 to 2011. In 2016, he told the Statesman his job as Zion’s chief executive officer was to “bring the geology that informs the theology.”
make our plans for how and where to drill, but ultimately, the outcome, that’s in God’s hands,” Car- rillo said.
But so far, the Promised Land has been richer in milk and honey than in oil.
That hasn’t stopped Zion from asking the biblically minded to invest, raising money through stock offer- ings to pay salaries, office leases and drilling costs.
Its website has an “invest now” button that includes testimonials: “Zion’s shareholders are unique. They are more interested in benefiting Israel than they are to make a quick dollar,” says its general counsel. “I recognize and empathize for your unwavering belief and support of Zion Oil & Gas. I recognize and empathize with your patience in a process that, while arduous at times, is outlined by God’s timing,” its president says.
Zion Oil and Gas has been coming under more and more scrutiny. “For a company with no product to sell, Zion is unusual in that it records substantial marketing expenses,” the Financial Times observed in June.
The company has spent tens of millions of dollars on investor relations.
Its founder, John Brown, calls himself a Christian Zionist, or one who believes that establishing the state of Israel was a prerequisite for the return of Christ.
Once a manufacturing executive in Michigan and a self-described alcoholic, Brown had a religious awak- ening in the early 1980s and moved to Texas, determined to start an oil company after hearing a sermon suggesting the Bible revealed that a massive oil field lies beneath Israel. After losing so much of his savings that he resorted to cleaning toilets at his Bap- tist church, he founded Zion in 2000.
“This is a faith company, created by faith, created by God,” Brown, who remains chairman of the board, said in a promotional video for Zion.
In a June 30 filing with the SEC, the company noted that it has no revenue from oil and gas operations and debt of $168 million.
“These factors raise substantial doubt about the com- pany’s ability to continue as a going concern,” the company noted in an SEC filing. “The company needs further financing for exploration and development activities.”
In 2017, Carrillo earned $448,902, according to company filings. Carrillo told the Statesman his departure “had absolutely nothing to do with (the) SEC inquiry.”
Carrillo still “has a good friendship with the com- pany,” said Andrew Summey, the company’s vice president for marketing and investor relations.
The stock was trading at $1.32 a share Monday, down from its year-to-date high of $5.53 in March.
In July, the company disclosed to investors that it had received a subpoena in June from the SEC to produce documents, “inform- ing Zion of the existence of a non-public, fact-finding inquiry into the company.” The filing said “the SEC stated that ‘the investi- gation and the subpoena do not mean that we have concluded that (Zion) or anyone else has violated the law.’”
Summey said the com- pany has submitted the documents the SEC requested, Reported Zion to the SEC but he would not disclose what the documents were.
SEC spokesman Chris Carofine said the agency doesn’t comment on ongoing investigations.
The issuance of a subpoena suggests that an “investigation has progressed to the point that senior enforce- ment officials have taken a look and think there’s good reason to arm the staff with a compulsory process,” said Jason Rodgers, a former SEC enforcement attorney who is now a defense attorney with Jackson Walker in Fort Worth.
Summey said, “Internally, we were not overly surprised (by the SEC investigation) because of the unique character of the company.” Summey described the compa- ny’s work as “extreme explo- ration.”
“We see this as an ongoing miracle and a great amount of faith by our investors to continue with a wildcat expe- dition in this way,” he said.
He said that many of the company’s investors “almost have a donor mentality: They understand they might just lose it. They put the money in as if they’re approaching a nonprofit.”
But not all investors or would-be investors believe investing in the company should be a matter of faith.
Yolanda Holtzee, who lives in Seattle, told the Statesman she reported the company to the SEC because she suspected it of affinity fraud, which involves calling on a class of investors that have a similar ethnic, religious or other background.
“I don’t like to see naive investors get fleeced,” said Holtzee, who said she has not invested in Zion and described herself as a religious person. “On and off 10 years, I’ve tried to make the SEC aware of what’s going on. Innocent until proven guilty, but — whether it’s Jesus, Hashem, Buddha, Muhammad — I don’t like to see God’s name evoked this way.”
Though not commenting on the details of the Zion case, Rodgers said that affinity fraud is not a violation in itself, but “there’s a heightened betrayal of trust than in a typical scam, because the perpetrators are appealing to individuals as members of a group and holding themselves out as like-minded, when in reality they’re targeting a group of people in a single scam.”
Gunmen stormed the headquarters of Libya’s national oil company in Tripoli on Monday, setting off explosions, taking hostages and spraying gunfire, leaving several people dead or wounded before forces aligned with the government took control of the building. The identity and motives of the assailants were not clear.
The oil company said two of its employees had been killed and there were reports of two gunmen killed, putting the total number of dead at four. But an employee who escaped the assault said he believed that as many as six people had been killed, including three of the assail- ants.
The attack follows a month of escalating violence among rival militias competing for control of Tripoli, the capital, where a U.N.-backed government has its headquarters but remains largely powerless. Last week, clashes killed more than 60 people.
Any attack on the national oil company is significant because petroleum is the lifeblood of the Libyan econ- omy and competition for control of the country’s vast oil reserves is at the heart of the often violent struggle for power there. Cuts in oil revenue because of the fighting have driven Libya into a severe financial crisis with the government failing to meet public payrolls, long lines forming at banks and inflation soaring.
The employee who escaped, Baha Elddin, said six men armed with “machine guns” had fought their way into the building. Three had blown themselves up, he said, and three oth- ers had climbed the stairs to the upper floors.
Elddin said that local mili- tia fighters had responded to the incursion by besieging the building and that their gunfire may have caused the most casualties.
“They started shooting at the assailants inside while the assailants threw grenades down on them from the second floor,” Elddin said in a telephone interview. “I think that most injuries happened because the respondents were shooting in.”
On Facebook, a government-aligned militia described the assault as a “terrorist attack” and the assailants as “suicide bomb- ers.”
Speaking in the early afternoon in Tripoli, Elddin said that the battle had ended with as many as 10 employees injured and that it was unclear whether the three assailants who had climbed the stairs had escaped from the scene. He and the militia both described the attackers as dark-skinned, suggesting they could be from ethnic groups native to Libya or from other African countries.
There was no immediate claim of responsibility for the attack.
The chairman of the state oil company, Mustafa Sanal- lah, escaped unharmed and experts said it was unlikely that the attack would directly affect Libya’s oil production. But the events demonstrated that the country’s oil infrastructure remains vulnerable.
“It’s a reminder that the country remains at risk,” said Riccardo Fabiani, a geopolitical analyst at Energy Aspects, a market research firm. “There is still a backdrop of violence and instability that could again cut production at anytime in the future.”
Libya has descended into chaos in the seven years since the NATO-backed overthrow of Moammar Gadhafi. The United Nations and Western powers have tried to set up a government based in Tripoli.
But so far, power in Tripoli and Western Libya remains divided among rival local or Islamic militias. A would-be strongman, Gen. Khalifa Hifter, dominates the eastern area around Benghazi, thanks in part to the backing of Egypt and the United Arab Emirates.
The Islamic State group had controlled its own beachhead around the coastal city of Sirte until it was driven out by Western airstrikes and local militias in 2016. Many of its fighters have fled into the sparsely populated desert regions.
‘I don’t like to see naive investors get fleeced . ... I’ve tried to make the SEC aware of what’s going on.’