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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Rights in Cyprus
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Tel Aviv, February 12, 2013. Delek Group (TASE: DLEKG, OTCQX: DGRLY) is pleased to announce that on February 11, 2013, each of the partnerships subsidiaries, Delek Drilling – L.P. and Avner Oil Exploration – L.P., signed the Production Sharing Contract which is originally dated October 24, 2008 (the "PSC"), granting exploration rights, appraisal, development and production of oil and/or gas in the territorial waters of the Republic of Cyprus, the area known as Block 12, and were granted search license rights – as per the PSC (the "License"). With the above mentioned signature, the transfer of 30% of Noble Energy International Ltd ("Noble Cyprus") rights to the Partnerships was completed, so the Partnerships are now part of the PSC and each one of them holds directly a 15% interest in the License .

Below is a copy of the immediate report published by Delek Energy Systems Ltd.

Quote:
”Delek Energy Systems Ltd (“Delek Energy” or the “Company”) is pleased to announce further to section 7.26.10 (c) of the Company's Annual Report for 2011, as amended on March 4, 2012 (Ref. 2012-01-093339), that on February 11, 2013, each of the partnerships subsidiaries, Delek Drilling – L.P. and Avner Oil Exploration – L.P. (collectively, "the Partnerships"), signed the Production Sharing Contract which is originally dated October 24, 2008 (the "PSC"), granting exploration rights, appraisal, development and production of oil and/or gas in the territorial waters of the Republic of Cyprus, the area known as Block 12 area (the "Block 12") and were granted search license rights – as per the PSC (the "License"). With the above mentioned signature, the transfer of 30% of Noble Energy International Ltd ("Noble Cyprus") rights to the Partnerships was completed, so the Partnerships are now part of the PSC and each one of them holds directly a 15% interest in the license .

As a condition of the transfer, the Cypriot government required, under the terms of the PSC [1], that an unlimited guarantee will be issued for the Republic of Cyprus to ensure compliance with all obligations under the PSC (the "Guarantee"), to be issued by the parent company, i.e. – the Company.

Following the approval of the Audit Committee and Board of Directors, the Company signed a guarantee in return for a payment of a guarantee fee by the Partnerships and the main terms are listed as follows [2]:

A. Starting from the date that the Guarantee is granted, and as long as the Guarantee is in force, the Partnerships will not approve content/s of new planned work/s in Block 12 and / or in connection with any other activity in Block 12 under the joint operating agreement with Nobel Cyprus (the "Work Plan in Block 12") [3], in absence of: (1) insurance against pollution risks of the activities of the Partnerships in Block 12, to the Company’s satisfaction (insurance loss of control of the well and the responsibility towards third parties), (2) approval of authorized organs at the Partnerships as per the law in terms of engagement with the Company, as described above and below and arrangements concerning the payment of fees guaranteed by the Partnerships to the Company;

B. In addition, the Partnerships have committed that starting from the date the Guarantee is granted and that the Guarantee provisions shall apply are as follows:

  1. In the event that the Partnerships sell their rights in Block 12, the Partnerships will act to release the Company from the Guarantee, or its relative portion (in the case of a partial sale of rights) as part of such a sale, subject to the provisions of the PSC and the decisions of the Cypriot authorities on the matter. It should be noted that partial sale of Block 12 will be allowed only subject to local distribution of liability and indemnification interact with potential buyer of the partial rights as mentioned above, in respect of its share;
  2. The Company shall have the right to demand from the Partnerships, by a written notice, at any time and at its discretion, that the Company will bring for its liberation from the Guarantee. In case of such a request, the Partnerships have committed to make the necessary arrangements for the release of the Company from the above mentioned Guarantee, including if and as long as required, selling rights, in whole or in part, in Block 12 and/or waiver of them, without the need to obtain additional approvals at the Partnerships. In the case of such a requirement, the Partnerships have committed that within 12 months from the date of the written notice they will bring to the Company’s liberation from the Guarantee or alternatively sign an agreement to sell the rights in Block 12. In the case of such a sale, the Partnerships undertook to complete the sale within six months from the date the sale agreement is signed;
  3. The Partnerships will indemnify the Company for damages of any kind and/ or expenses of any kind and/or fees incurred to the Company (including the expenses and/or attorneys fees and /or experts fees), in respect to the exercise of the Guarantee and/or claim and/or demand, which relates to the Guarantee and/or exercise, without any limitation of the amount. Without limiting the foregoing, the Company has committed to advise the Partnerships without any delay of such notice of claim filing and/or demand as mentioned above as soon as received and allow the Partnerships and / or whoever will act on their behalf to manage the legal protection as appropriate and as necessary to the best knowledge of the Partnerships’, under the circumstances, against any demand and/or such claim and/or negotiating for settlement, and/or to reduce the damage as that will occur;
  4. Since each of the Partnerships and Noble Cyprus liabilities as per the PSC are jointly and severally, the Partnerships shall act, best as they can, together with Noble Cyprus and the parent company of Noble Cyprus, Noble Energy Inc. (The "Nobel Inc."), which issued the Guarantee, as stated, for its subsidiary, Noble Cyprus, under the PSC, in an attempt to reach agreements to divide responsibility and mutual indemnity between the Partnerships and the Company and Noble Cyprus and Noble Inc. regarding activities in Block 12 according to their working interest in Block 12, within 45 days of signing. The partnerships will keep the Company updated with any actions taken in order to formulate such agreement;
  5. The Partnerships will issue to the Company a copy of any decision and/or notification of the Cypriot authorities with regards to the PSC and/or Guarantee, and will act to inform the Company about any event that may, to the best of their knowledge, lead to realization of the Guarantee;
  6. If no approval is obtained at the general meetings of the Partnerships with regards to the detailed conditions in this report and the arrangements concerning the payment of Guarantee fee to the Company, the Partnerships have committed to make the necessary arrangements in order to release the Company from the Guarantee, as mentioned in section B. (2) above. Until the release of the Company from the Guarantee, the Partnerships have committed that they will not approve the Work Plan in Block 12 in the absence of insurance as provided in section A above;

It is clarified that the Partnerships have committed to the government of Cyprus that if the government of Cyprus shall, within 90 days of issuing the Guarantee, that the Guarantee of the Company be found not sufficient by the PSC, the Partnerships will work to provide to the government of Cyprus a guarantee of Delek Group Ltd., the parent company of the Company (hereinafter "Alternative Guarantee") within 30 days. Accordingly, the Partnerships have committed to the Company that the terms of the contract as described above will continue to apply even if the guarantee will be replaced by the Alternative Guarantee, in accordance to the requirements of the authorities in Cyprus, and in this case the agreement will be between the Partnerships and Delek Group Ltd.

Percentage holdings in the Block 12 License with the completion of the conversion are as follows:

Noble Cyprus

70%

Avner Oil Exploration - Limited Partnership

15%

Delek Drilling - Limited Partnership

15%

Further to the Company's immediate reports dated May 13, 2012, and November 15, 2012 (Reference number: 2012-01-000091 and 2012-01-279966, respectively), on the proposal submitted as part of a consortium that includes the Partnerships at the tender published by the government of Cyprus acquisition of exploration rights and production of oil and/or natural gas territorial waters of Cyprus, the Partnerships announced that the Cyprus government publications indicate that the license that the Partnerships in the tender were bidding for was awarded to others and, therefore, the Partnerships believe that their bid is not accepted.“

Unquote

This is a convenience translation of the recent HEBREW immediate report issued to the Tel Aviv Stock Exchange by the Company on February 12, 2013.

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.

Contact

Dalia Black / Dina Vince
Investor Relations
Delek Group
Tel: +972 9 863 8444
Email: investor@delek-group.com

Ehud Helft / Kenny Green
International Investor Relations
CCG Investor Relations
Tel: (US) 1 646 201 9246
E-mail: delek-group-ir@ccgisrael.com

[1] Guarantee as mentioned was required, in accordance with the PSC, from each owner of the rights in the license. Nobel Cyprus also issued such a Guarantee from its parent company. For details of the actions taken in an attempt to reach agreements and indemnification division of responsibility between the owners of the rights, see section B. (4) below.

[2] The above mentioned engagement between the Partnerships and Delek Energy is subject to the approval of the general meeting of the unit holders in each of the Partnerships except for the conditions as noted in paragraphs B. (3) and C. below.

[3] The Partnerships will notify Delek Energy in advance on any intention to approve a Work Plan in Block 12.

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