Zion Oil & Gas, Inc. (ZN 2.44%) stock is falling on Wednesday and was down more than 16% at 10:45 a.m. EST. That sell-off is mainly due to profit-taking after shares in the Israel-focused oil driller skyrocketed yesterday when it announced that it struck oil while drilling in the country.
On Tuesday, Zion Oil & Gas announced that it encountered "free-flowing hydrocarbons" while it was working on its Megiddo-Jezreel #1 well. There was "a continued and significant increase in gas followed by clear evidence of oil in our circulated mud from the bottom of the well," according to Chief Operations Officer Dustin Guinn. "This is obviously very exciting news," said Guinn, and as a result, the company will drill another 230 feet to keep testing the reservoir.
This news sent shares up more nearly 110% yesterday, though they closed roughly 90% higher. However, the stock has retreated more today as investors seek to lock in some profit since the presence of hydrocarbons doesn't guarantee this will be a commercial well for Zion. The company won't know that until it drills further and examines the data it collects.
Zion Oil & Gas is at the upper end of the risk spectrum. It's a tiny company that currently doesn't produce a drop of oil, and there is a distinct possibility that it never will. Because of that, this stock remains highly speculative and isn't suitable for most investors. Those who want to invest in an oil stock should instead consider one built to last.