Avner Oil - Annual Report 2011 - Delek Energy Systems

3. Estimate of proved gas and oil reservesThe estimate of proved and developed oil and gas reserves is used to determine the rate ofdepreciation of assets used in operations during the reporting period.Amortization of investments related to the discovery and production of roved and developed gas andoil reserves is by the depletion method, i.e. in each accounting period the proved and developed oiland gas reserves are amortized at a percentage determined by the number of units of gas and barrelsof oil actually produced, divided by the estimated remaining proved and developed oil and gasreserves. The estimated quantity of gas and oil in oil- and gas-producing reserves is updated one ayear. Assessment of the proved and developed oil and gas reserves according to the above principlesis a subjective process, and different exerts are likely to give significantly different assessments. Inview of the significance of amortization expenses, the changes described above could materiallyimpact the results of operations and the financial condition of the Partnership.Part V – Projected Cash Flow (in USD millions)Projected cash flow was prepared on the basis, inter alia, of the principal assumptions set out below. Itis noted that these assumptions include expenses for development of the Tamar and Noa projects, butdo not include any development expense for the Leviathan and/or other projects.Expected resources Net cash flow from sales of gas in the Yam Tethys project – based on an assessment of theoperator of the transaction which was received shortly prior to publication of this report. Thiscash flow is stated net of royalties to the State and overriding royalties, payments to theoperator and payment of a levy imposed pursuant to the Oil Profits Taxation Law. The cashflow also includes the production of gas from the Mari and Noa reservoirs only. To beconservative, it was assumed that in the years referred to, the Partnership will have norevenues from the Pinnacles. Net cash flow from sales of gas in the Tamar project – based on the NSAI report of March20, 2012 (attached) in the Proved category, before corporate tax and after the oil and gasprofits levy. To be conservative, revenues from the project were not included in the projectedcash flow for 2013, since it was assumed that no withdrawals would be made fromencumbered accounts for financing the project until December 31, 2013. (See Note 9B to thefinancial statements at December 31, 2011.) Bank loans for the Yam Tethys project – based on the finance agreements signed on June 7,2011 (see Note 9C to the financial statements). Bank loans – including Leviathan finance (see Note 9D to the financial statements). Bank loans for the Tamar project – assumes that the long-term project finance will be paidduring 2012. Raising finance and/or capital – including loans from Delek Energy and raising rights.Expected usesNoa project development costs – development costs are based on the forecast receivedfrom the project operator.Tamar project development costs - development costs are based on the forecast receivedfrom the project operator.Additional drilling expenses in the Partnership's licenses – based on a preliminaryassessment of the General Partner for cash flow purposes only, stating that exploratoryboreholes will be drilled and assessed in the Partnership's assets. This assessment will beupdated if the drillings are approved by the partners in the various projects.Repayment of a short-term bank loan.Repayment of a bank loan for the Tamar project – repayment of the bridge loan extended tothe Partnership.Repayment of a bank loan for the Yam Tethys project – Quarterly payments to banks inaccordance with the terms of the loan received for the project.B-19