Avner Oil - Annual Report 2011 - Delek Energy Systems

(F)(G)(H)committee of the joint venture. In return for its services, Avner Oil & Gas is entitled tomonthly operator's fees of USD 20,000 (plus VAT).Operating committeeUnder the agreement, the parties established an operating committee, which has theauthority to approve and oversee the joint operations that are required to fulfill the terms ofthe oil assets for which the JOA applied, for exploring and using the areas of the oil assetsaccording to the agreement and in a way that is appropriate in the circumstances. Theoperating committee is composed of representatives of the parties (and their substitutes) andeach representative will have a right equal to the participation right of the party it represents.The agreement determines the order of proceedings and procedures for convening meetingsof the operating committee and the agenda and it includes proceedings and procedures fordecision making.Unless otherwise explicitly determined in the JOA, all decisions, approvals and otheroperations of the operating committee in respect of any proposal that is presented, will beresolved by an affirmative vote in favor of the proposal of two or more parties (which are notrelated or associated parties), holding together at the time of the vote at least 51% of thetotal participation rights in the area of the oil asset ("the Effective Majority") 179 .Work plans and budgetsThe JOA establishes a procedure for submission and approval of work plans, budgets andauthorizations for expenditure (AFE) for operations in areas covered by the JOA.The operator is required, if practical, to issue tenders for contracts where the considerationexceeds USD 100,000, however, priority will be granted to a party to the JOA if the operatorbelieves that its offer is superior or is not significantly different from the best offer submittedby other bidders. Any agreement with a company associated with the operator, whose valueis expected to exceed USD 100,000, requires the approval of the operating committee.Before an expenditure or undertaking exceeding USD 250,000 for each item in the approvedwork plan and budget, the operator will submit an AFE to the other parties, including anevaluation of the sums required for the operation, the estimated time for the expense, and atthe discretion of the operator, any other information required to support the request.Notwithstanding the aforesaid, the operator is not required to submit an AFE to the partiesbefore undertaking any expense in respect of a workover if the workover is part of theapproved work plan and budget.All AFEs are for information purposes alone, provided the labor and funds for implementationwere approved in the routine work plan and budget and the operator does not requireapproval for the AFE prior to commencement of the work. However, this is provided that (i)the costs described in AFE do not exceed the amounts of the items in the approved workplan by more than the deviation permitted according to the JOA (see below); and (ii) all thematerial technical specifications in the AFE that were not approved in the work plan andbudget are appropriate and supported by available data pertaining to the drilled layers.The operator may deviate without the approval of the operating committee, by up to 10% ofthe amount approved for that item, provided the cumulative total of deviations in a calendaryear does not exceed 5% of the approved work plan and budget. If the operator believes thatthe deviation will exceed these limits, it will submit another AFE to the operating committeefor approval. The operator may, without submitting an AFE, spend and undertake to spendup to USD 100,000 in each calendar year for items that are not included in the approvedwork plan and budget, provided these expenses are not for items that were previouslyrejected by the operating committee.Sole risk operationsOperations in which not all the parties participate (defined in the agreement as exclusiveoperations, and which are commonly known as sole risk operations in the oil explorationsector) will not be carried out if they contradict the joint operations of all the partners. TheJOA provides a general framework for these operations179For this purpose, "related party/associate" is defined in the JOA as a company, partnership or other legal entity("corporation") that controls or is controlled by a party to the JOA (or is controlled by a corporation that controls aparty to the JOA); and "control" means direct or indirect ownership of more than 50% of the voting rights of thecorporation.A-171