Avner Oil - Annual Report 2011 - Delek Energy Systems

The Natural Gas Sector Law and its regulations sets parameters for storage, transmission,distribution and marketing of natural gas in Israel, including the establishment and operation of thetransmission system, distribution network, liquid natural gas ""LNG") facility and storage facility fornatural gas in Israel, which require a license from the Minister of Energy.For information about regulation in Israel, including the Petroleum Profits Tax Law, seesections ‎7.23.1 to ‎7.23.6 below. For information about regulation in Cyprus, see section ‎7.23.7below. Moreover, the main terms of the licenses or leases, as relevant, for the operations aredescribed for each oil asset below.7.1.3 Changes in the volume of activity and profitFor information about the scope of the Partnership's operations, see sections ‎7.2 to ‎7.8 below.7.1.4 Market developments or changes in the characteristics of customersAt the date of the report, the Partnership's customers for natural gas are as follows: IEC, PazAshdod Refineries Ltd, ("Paz Ashdod"), IPP Delek Ashkelon Ltd. ("Delek Ashkelon"), Hadera PaperLtd. (Hadera Paper") and subsidiaries of Israel Chemicals Group Ltd. ("the ICL Group") and OilRefineries Ltd. ("ORL"). In addition, in 2011, the Yam Tethys project partners supplied natural gasto other customers on an occasional basis, mainly to Nesher Commerce (Cement Marketing) Ltd.and Makhteshim Agan Industries Ltd.In 2012, the Partnership signed agreements for supply of natural gas from the Tamar reservoir,which is expected to start commercial production in 2013.For a description of the Partnership's agreements with its main customers, see sections ‎7.11.3and ‎7.11.4 below.In view of the limited demand for natural gas in Israel and the significant quantity of reservesalready discovered on Israel's coast, mainly the Tamar, Leviathan and Tanin reservoirs, it appearsthat alongside supply of the demand for natural gas in Israel, part of the reserves will be targetedfor export, mainly to Europe and Asia.7.1.5 Significant technological changesIn the past decades, there have been technological changes in oil and natural gas exploration andproduction, relating to testing as well as drilling and production methods. These changes haveimproved the quality of data available to oil and gas exploration companies and allow moreadvanced identification of potential oil and gas reservoirs, which might also reduce the risksinvolved in drilling. These technological improvements will also improve drilling and productionworks and allow operation under far more difficult conditions than in the past, further offshore andat a greater water depth. Accordingly, oil and gas exploration companies are able to investexploration efforts in areas where drilling used to be impossible, or was only possible at a very highcost and much greater risk.7.1.6 Critical success factorsThe critical success factors are:(A)(B)(C)(D)(E)(F)(G)Locating and obtaining exploration rights (purchase or participation) in areas where there ispotential for commercial discoveriesThe ability to raise considerable financial resourcesThe use of advanced technologies (such as 3D seismic surveys and advanced dataprocessing technologies) to locate and prepare drilling prospects and to formulate anoffshore development plan.Partnering with international entities operating in the sector, to carryout complex drilling,using their professional knowledge and participation in the cost of the investmentSuccessful exploration and development workIf natural gas is found, signing agreements for the sale of the gas in satisfactory quantitiesand at good pricesThe existence of knowledge, experience and engineering, technical, finance and commercialability to manage projects on a scale of billions of dollars, including construction ofproduction and export infrastructure.7.1.7 Changes in raw materials and suppliersA-12