Avner Oil - Annual Report 2011 - Delek Energy Systems

(D)(E)Subject to the terms of the oil assets and the approved budget, the operator will determinethe number and identity of the workers and contractors, their work hours and the salary thatwill be paid to them regarding the joint operations.The operator, as instructed by the committee, will inform the parties immediately of anymaterial claims and other claims filed as a result of the joint operations and/or relating to thejoint operations. The operator will represent the parties and will defend against these claims.The operator may, at its sole discretion, settle any claim or series of claims for up to USD75,000 (including legal fees), and will request the approval of the operations committee forany amount exceeding this amount. Each party will be entitled, at its expense, to berepresented by its own lawyer in any settlement or defense in the claims. None of the partieswill reach a settlement in respect of its proportionate share in any claim without first provingto the operating committee that it is able to do so without impairing the interests of the jointoperations.Each party that is not an operator will notify the other parties immediately of any claimagainst that party made by a third party, arising from the joint operations or that could affectthe joint operations, and the party that is not the operator will defend itself or settle the claimas instructed by the operating committee. Expenses and damages incurred in respect of thedefense or settlement and which are attributable to the joint operations will be charged to thejoint account.The operator is not liable towards the other parties to the Agreement for any claim, liability,loss or damage that may be caused, directly or indirectly, and whether by virtue of theagreement (including negligence) or any other reason that may arise from the jointoperations or in its respect unless the claim, liability, loss or damage is the result of the willfulmisconduct by the operator or failure to obtain the required insurance (unless the operatorinvested all reasonable effort to obtain this insurance cover and notified the parties of such),and in any case will not be responsible for consequential damages, including but not limitedto inability to produce oil, production loss or loss of profits. The aforesaid does not exemptthe operator from liability for its share according to the rate of participation in any suchdamage, loss or liability.Operating committeeA joint operating committee was set up (“the committee) to supervise and issue guidelinesrelating to the joint operations in the areas covered by the leases. The committee’s authorityincludes decision-making for policy, procedures and operating methods, approval of allpublications relating to the joint agreement or operations, approval of all plans and requestsfor budgets, determining the timetable, location and depth for drilling wells and all relatedissues, decision-making regarding applications for licenses and leases and replacement ofthe operator. Each partner has one representative on the committee, with voting rightsaccording to the appointing partner’s share in the leases. The operator’s representativeserves as chairman of the committee.The committee's resolutions will be passed by a vote of two or more of the partners, holdingtogether at least 68% of the rights in the lease (related parties as defined in the agreementwill be considered as one party). 182 To pass a resolution regarding termination of the lease orwaiver of any part of the lease area, a vote in favor is required by all the parties.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.Exploration plan: Before any expenditure or undertaking of over USD 250,000 for any item inthe approved work plan and budget, the operator will send all other parties an AFE includingan estimation of the amounts required to perform the operation, the estimated time for theexpense and at the operator's own discretion, any further information required to support theapplication. Notwithstanding the foregoing, the operator is not obligated to submit an AFE tothe parties before committing to any expense concerning renovation of wells if it is carriedout according to the work plan and budget approved for production.In the event of a discovery, the operator will submit to the parties, subject to a decision bythe Committee and as soon as possible after that decision has been taken, a work plan and182The Partnership and Delek Drilling hold together less than 68% in the licenseA-175