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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Updated Report on Assessment of Contingent Resources Following the Leviathan 4 Appraisal Well
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Tel Aviv, May 2, 2013. Delek Group (TASE: DLEKG, OTCQX: DGRLY) further to section 1.11.5(i)(1) of the Periodic Report of the Company for 2012 published on March 24, 2013 (Ref. 2013-01-016789) (the "Periodic Report"), concerning the Leviathan 4 appraisal well in license area 349/Rachel ("Leviathan 4 Drilling"), the Company is filing this immediate report on an update of the assessment of the contingent resources in the Leviathan natural gas reservoir in the areas of the 349/ Rachel and 350/Amit licenses (the "Reservoir" or "Leviathan Reservoir").

1. Contingent resources in Leviathan Reservoir

A. Quantity figures
According to a report received by the Company from Netherland Sewell and Associates Inc. (the "Assessor" or "NSAI"), prepared in accordance with the guidelines detailed in the Petroleum Resources Management System (SPE-PRMS), the contingent resources of natural gas and of condensate in Leviathan Reservoir, which are classified as Development Pending, as of March 31, 2013, are these:


Target

Probability

Total (100% in oil asset

Company's part

 

 

Natural gas (gross BCF)

Condensate (gross) million barrels

In natural gas (net) (BCF)

In condensate (net) million barrels

Sands A

Low estimate

11,639.4

21.0

2,606.7

4.7

 

Best estimate

14,015.3

25.2

3,140.2

5.6

 

High estimate

16,800.3

30.2

3,765.6

6.8

Sands B

Low estimate

1,780.7

3.2

399.9

0.7

 

Best estimate

2,474.4

4.5

555.7

1.0

 

High estimate

3,396.2

6.1

762.7

1.4

Sands C

Low estimate

1,472.6

2.7

330.7

0.6

 

Best estimate

2,421.0

4.4

543.7

1.0

 

High estimate

3,944.6

7.1

885.8

1.6

B. NSAI noted in the resources report, inter alia, a number of assumptions and qualification, including these:

  1. The appraisals were not adjusted to reflect development risks;
  2. NSAI did not visit the oil field or check the mechanical operation or condition of the wells;
  3. NSAI did not consider possible exposure stemming from environmental issues. However, it noted that as of the date of the resources report, it is unaware of any possible environmental liability that could have a material impact on the quantity of the contingent resources as assessed in the resources report.
  4. The contingent resources are at an undeveloped site, and therefore the appraisal is based on estimated reservoir volume and efficiencies recovery, analogous to reservoirs with similar geological and reservoir characteristics.
C. In view of the significant volume of the assessed resources in Leviathan Reservoir, the potential markets for those resources are the domestic and/or the international market. For a description of the potential market for such resources, see section E below, and for details of a review of possible export of the gas, see section 1.11.29(f) in the Periodic Report.
D. Classification of the contingent resources in the Leviathan project as reserves depends, inter alia, on approval of a development and commercialization plan for the natural gas and the condensate from the reservoir and a reasonable expectation for sales of natural gas and/or condensate. In addition, the resources report does not include an economic analysis of the oil asset, and based on the development of similar reservoirs, it is likely that the contingent resources in the best estimate category will be economically viable
E. As of the date of publication of the report, a plan is being considered for development of the reservoir that consists mainly of supply to the domestic market and a project for exporting the natural gas, as described in section 1.11.5(i)(1)C in the Periodic Report.
F. As of the date of publication of the report, an estimated timetable cannot be set for formulating and/or implementing a development plan for Leviathan Reservoir until completion of a review of the possibilities noted above, a plan is formulated for development and commercialization of the reservoir, the Antitrust Commissioner grants exemption from a cartel arrangement among the Leviathan partners as noted in section 1.11.25(c) of the Periodic Report, and an export policy is designed to enable optimal economic development of Leviathan Reservoir.
G. It is clarified that as of the date of this report, there is no change in the prospective resources appraisal in the deep targets in the Leviathan 1 drilling in license area 349/Rachel.
Warning – There is no certainty that it will be commercially possible to produce any percentage of the contingent resources.
Forward-looking information – The estimates of NSAI concerning the contingent resources and the condensate in Leviathan Reservoir are forward-looking information as defined in the Israeli Securities Law. These estimates are based, inter alia, on geological, geophysical and other information received from the operator, from the drillings in the reservoir and from drillings in adjacent reservoirs, and are the professional estimates and assumptions only of NSAI, for which there is no certainty. Quantities of natural gas and/or condensate that will actually be produced could differ from these estimates and assumptions, inter alia, due to technical and operational conditions and/or regulatory changes and/or the supply and demand situation in the natural gas and/or condensate market and/or actual performance of the reservoir. The estimates and assumptions may be revised if additional information becomes available and/or as a result of a range of factors related to oil and natural gas exploration and production projects.

 

2. Glossary
Contingent Resources – Defined by the PRMS as quantities of hydrocarbons which on a given date can be produced from known reservoirs by the implementation of development plans but which are not yet considered economically producible as a result of one or more conditions.

Project Maturity Sub-Class of Development Pending – Defined by the PRMS as those found in a reservoir in which there are circumstances justifying their economic development in the foreseeable future.

Front-End Engineering and Design – Full preliminary engineering planning of the project, including definition of the project, timetable and budget.
Pores (porosity) – The relative volume of voids in the range.

Gas saturation – The relative amount of gas in the pores.

Gross Rock Volume – The volume (gross) of layers of rock trapped in a given geological structure above the contact with the gas – water.

Average Gross Thickness – The average (gross) thickness of the trapped rock layers in the structure over the entire geological structure.

Net-to-Gross – The ratio of reservoir layers to non-reservoir layers trapped in a given geological structure.

Reservoir – A layer or layers of rock characterized by porosity and relatively high permeability, enabling acceptance and flow of liquids and gas. Sometimes used also to describe an oil and/or gas field.

Gas Formation Volume Factor – The volume of a standard cubic foot of natural gas in the pressure and temperature conditions of the reservoir.

Gas Recovery Factor or Recovery Efficiencies – The ratio of the volume of producible gas from the reservoir to the total volume of gas in place.

3. Adjustment between the report data and the data in prior reports relating to the oil asset
The quantities of gas and condensate in the contingent resources report are greater than those in the resources report incorporated in the Periodic Report. These quantity differences stem primarily from analysis of the findings of the Leviathan 4 drilling, which indicate significant improvement in the quantity and quality of the sand in the reservoir layers, and from the mapping of the seismic material and its integration with the drillings done at the reservoir.

4. A. The Company declares that all of the above data were prepared in compliance with SPE-PRMS methods.
B. Assessor's opinion
Attached to this report is the contingent resources report for Leviathan Reservoir updated to March 31, 2013, as prepared by NSAI, by way of reference to the contingent resources report attached as an appendix to the immediate report of Delek Drilling published on May 1, 2013 (Ref. 2013-01-050788). Also attached is the assessor's consent to the inclusion of that report in this one.
The partners in the Leviathan project and their holdings:


Noble Energy Mediterranean Ltd.

39.66%

Delek Drilling – Limited Partnership

22.67%

Avner Oil Exploration – Limited Partnership

22.67%

Ratio Oil Exploration (1992) – Limited Partnership

15%


This is a convenience translation of the recent HEBREW immediate report issued to the Tel Aviv Stock Exchange by the Company on May 2, 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 2012, the Company's revenues were NIS 72 billion ($ 19 billion). Delek Group's shares are traded on the Tel Aviv Stock Exchange (TASE: DLEKG) 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

 

The resources report does not mention the Company's net share, but rather, the Partnership's gross share. The Company's share as shown in the table is after receipt of royalties (at their rate after return on the investment) and assuming that the investment will be returned after the sale of a total quantity (in respect of 100% of the rights in the oil asset) of approximately 1,057 BCF and of 1.4 million barrels of condensate. Since the time of return on the investment is affected by gas and/or condensate prices, production pace, production costs and royalties rates, and since a production array has not yet been set up and agreements for the sale of natural gas and/or condensate have not yet been signed, the date of return on the investment could differ significantly from the above.

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