Gas Subsidiaries Update

The following updates are based on information released by Delek Group gas subsidiaries, Delek Energy Systems Ltd., Avner Oil & Exploration L.P and Delek Drilling L.P. All financial and business information is given only for the convenience of the reader. The only official financial and business information, is that which is included in the officially published immediate reports and financial reports of Delek Group and its gas subsidiaries, to the Israeli Securities Authority and the Tel Aviv Stock Exchange, in Hebrew. In the event of any conflict between financial and business information given on this site and the Hebrew published immediate reports, the Hebrew published immediate reports shall prevail. More on Delek Group's disclaimer.

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Leviathan 1 Exploration Well in Rachel/349 License
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Tel Aviv, May 05, 2012. Delek Group (TASE: DLEKG, OTCQX: DGRLY) ("the Company") subsidiaries, Delek Drilling L.P. and Avner Oil Exploration L.P. (together "the partnerships") published the following immediate report;
Further to:

  1. Section 7.5.4 of the Annual Reports of the partnerships dated 31.12.2011 that were published on 29.3.2012 (reference numbers: 2012-01-084516 and 2012-01-084726 respectively);
  2. Immediate reports dated 15.1.2012 (reference numbers 2012-01-014952 and 2012-01-015015 respectively) with regard to continuation exploration drilling works in Leviathan 1 ("Leviathan 1 drilling" or "drilling") in the 349/Rachel License, its deepening and completion;
  3. Immediate report dated 29.1.2012 (reference numbers 2012-01-026889 and 2012-01-026946 respectively) ("deepening reports"); to immediate reports dated 2012-01-039105 and 2012-01-039144 respectively) on contingent gas resources estimation in the Leviathan natural gas reservoir; and
  4. Following on from the important information received by the partnerships from the operator, Noble Energy Mediterranean Ltd ("Noble" or the "Operator"),

The partnerships announce as follows:

1. Deepening Leviathan 1 well

  1. As stated in the partnerships immediate reports dated 15.1.2012, the Operator resumed drilling towards the lower layers in the Leviathan 1 well, after it had been temporarily suspended due to technical and operational reasons ("well deepening"). The well deepening was supposed to, as reported in the reports, drill to the targeting layers as detailed below (in their top-to-bottom order):
    1. Lower oligocene targeting layer;
    2. Middle cretaceous targeting layer;
    3. Lower cretaceous targeting layer.

  2. On May 2, 2012, the Operator of the drill announced to the partners that the well deepening has been suspended before the primary targeting layers were reached - middle cretaceous and lower cretaceous, and the drill reached a final depth of 6,500 meters below sea level. It is noted that this depth is the deepest that has ever been drilled at the Levant Basin. At the lower Oligocene targeting level (the layer where the probability of geological success for the discovery of hydrocarbons and the estimate of prospective resources, as stated in the deepening reports, was the lowest among the three) no hydrocarbons were found. In addition the Operator advised the partners that due to high pressure at the layers that were drilled, and the mechanical limits of the wellbore, that was originally planned as an exploration well of the Leviathan natural gas reservoir, resulted in the suspension of drilling operations before reaching the final depth level as originally planned and the primary targeting layers - middle cretaceous and lower cretaceous.

  3. It is noted that the well deepening results have no impact on the resources estimation in the Leviathan natural gas reservoir, as reported in the immediate reports that were published by the partnerships dated 12.02.2012 (reference numbers: 2012-01-039105 and 2012-01-039144 respectively).

  4. The Operator provided the partners in the drilling with the following information:

    Over the course of deepening the well, the Operator obtained valuable geologic and engineering data about the basin and its hydrocarbons potential. As per the Operator data, the well encountered, at approximately 6,300 meters below sea level, a zone where natural gas was detected. It is emphasized that this layer is not considered to be a natural gas reservoir and not as a natural gas discovery, inter alia, due to the characteristics of the rock. However, as was advised by the Operator as mentioned above, the composition of the natural gas that was located at this layer, was composed of heavy natural gas which may indicate the existence of alleged active hermogenic hydrocarbons system in the deeper layers. In addition, the high pressure that were registered at lower depths of the well may indicates the possibility of an overlying seal which is a necessary (but not sole) condition for a hydrocarbons reservoir to existe below this layer. This information may affect later evaluations of the probability of finding hydrocarbons in the deep targets.

  5. It is the intention of the operator to gather and analyze the information that has been gathered during the drill within the next two months, including the logging data that took place during the drill (electric, radio-active and seismic) and from the samples of cutting and cores that were taken from the drill. The above mentioned information will enable new analysis of the potential of oil and natural gas within the deeper layers of the well. Therefore, it is the operator's intention to check the possibility of carrying out an additional drill to the deeper layers, via a rig with the necessary capabilities to reach the deeper layers under the anticipated pressures at these targets.
  6. The updated budget for the drill (100%) is approximately $270 million including approximately $100 million to deepen the well.

2. Execution of Production Testing at the Natural Gas Reservoir, Leviathan
In accordance with the recommendation of the operator, the Partners decided on 2nd May 2012, as did the rest of the partners in the Leviathan reservoir, to perform production testing on the Leviathan natural gas reservoir (see the immediate report from 12th February 2012 as published by the Partners that announces an evaluation of the resources), that is expected to begin in the coming days and to continue for three weeks. The production testing will be executed by the Homer Ferrington platform and will include the flow of gas from the layers of the reservoir and different rates, in order to measure the pressure within the reservoir and to analyze the composition of the natural gas. The operator commented to the Partners that they estimate the rate of production that is anticipated from the production testing will be up to 40 MMSCFD. The expected budget for the production testing is approximately $30 million (100%) which is in addition to the $27million for the equipment that is assigned as well as waiting for the date to carry out the testing. The effective portion of the Partner's is approximately $13 million.

Warning with regard to "forward-looking statements" - the estimates and the information provided above with regard to Leviathan 1 well drilling, including the data that was obtained over the course of the well and their meaning, schedules, budget, examined alternatives including the possibility of further drilling at deeper layers, the effect on the assessment of probability of finding hydrocarbons in deeper targets, the non-impact of the above on conditional resource estimation in Leviathan reservoir, the technical aspects of production tests and other aspects relating to drilling and production testing, based on estimates and assumptions that are received from the operator which considered to be forward-looking information as defined as defined under the Israel Securities' Law. These estimates and assumptions are based, in part, on engineering, economic, geological, geophysical and other information, as received from the Operator and for which there is no certainty. The partnerships have not conducted estimates or independent evaluations of these said estimates and information and they express no position regarding the accuracy; these estimates are expected to be updated as more information is accumulated and / or as a result of a complex of factors associated with projects of exploration and production of oil and natural gas.

This is a convenience translation of the recent HEBREW immediate report issued to the Tel Aviv Stock Exchange by the Partnerships on May 05, 2012.

About The Delek Group

The Delek Group, Israel's dominant integrated energy company, is the pioneering leader of the natural gas exploration and production activities that are transforming the Eastern Mediterranean's Levant Basin into one of the energy industry's most promising emerging regions. Having discovered Tamar and Leviathan, two of the world's largest natural gas finds since 2000, Delek and its partners are now developing a balanced, world-class portfolio of exploration, development and production assets with total gross natural gas resources discovered since 2009 of approximately 33 TCF .
In addition, Delek has built an extensive network of global downstream assets, including 1,900 gas stations and convenience stores in the U.S., Europe and Israel, and petroleum refineries in the U.S. Delek also holds significant interests in leading water desalination, power generation, insurance and automotive companies .
In 2011, the Company's revenues were NIS 59 billion. Delek Group's shares are traded on the Tel Aviv Stock Exchange (TASE: DKLG) as part of the TA25 Index.


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