Avner Oil - Annual Report 2011 - Delek Energy Systems

AVNER OIL EXPLORATION (LIMITED PARTNERSHIP)NOTES TO THE FINANCIAL STATEMENTSNote 7 – Net Investments in Oil and Gas Properties (Continued):4. "Noa" Developments:On June 12, 2011, the Supervisor of Oil Affairs ("Supervisor") informed Noble that he had approved the start ofdevelopment work on the northern section of the "Noa" field ("Noa North"). In addition, the Supervisor limited theoverall volume of gas to be extracted from said, estimated by the operator at 1.2 BCM, in order to prevent any claim ofgas extraction from part of the reservoir that is located outside of the holding area.On July 31, 2011, the "Noa" holding's partners announced that they had approved the "Noa North" (located in the "Noa"holding) reservoir's budget and development plan, in accordance with a plan submitted by the operator.Development of the "Noa North" reservoir is geared to allow for additional supplies of natural gas to the Israeli market,primarily to customers who have signed natural gas supply agreements with the partnership, until the start of natural gassupplies from the "Tamar" project (see paragraph C). The development plan includes, primarily, two diagonal extractiondrillings – "Noa 2" and "Noa 3" – to a planned vertical depth (including water depth of 800 meters) of 1,880 meters.The drillings will be completed by subsea completion, which will allow, in Noble's opinion, a total extraction (for thetwo drillings) of 100 million cubic feet per day. The natural gas will flow by pipeline, to the "Mari B" reservoir'sextraction platform, for handling, and onwards through an existing 30-inch pipeline to the "Yam Tethys" project'sAshdod receiving station.On October 2, 2011, Noble reported that the "Noa 2" and "Noa 3" extraction drillings that had started at the end of July2011, using the Noble Homer Ferrington drill rig were successful. In Noble's opinion, development of the "Noa North"reservoir is expected to be completed during September 2012. The overall cost of development (100% of the rights) isestimated at $212 million.Up to reporting date, $75 million (partnership's share - $17 million) has been invested.Based on a report prepared by NSAI, as at December 31, 2011, the volume of proved and undeveloped natural gasreserves at the "Noa" is 1 BCM.In addition to the NSAI report, as at December 31, 2011 the "Noa" field has contingent resources ranging between 0.6BCM (lowest estimate) and 1.9 BCM (highest estimate).It should be noted that as part of the process of approving the development plan for the "Noa North" reservoir and inaccordance with provisions of a financing agreement for "Yam Tethys" that was signed between the Israeli partners andthe bank consortium, the partners have split the joint operating agreement, from binding on the "Ashkelon" holding andon the "Noa" holding, to two separate joint operating agreements which include, in general, the same terms (withchanges as relevant), such that the joint operating agreement binding today will be binding on each of the holdingsseparately.5. Said estimates of natural gas reserves at the "Mari" and "Noa" reservoirs and contingent resources of the "Noa"holding, are considered professional estimates and assumptions only, as prepared by NSAI, however, there is noassurance of said. These estimates may be updated as additional information becomes available and/or as a result of anumber of factors related to natural gas exploration and extraction projects, including further analysis of the drillingfindings.6. In a letter dated July 12, 2011, the Director of the Natural Gas Authority informed the partners of the "Yam Tethys"project, that on the basis of his authority under the Natural Gas Economy Law, that the Minister of Energy and WaterResources intends to require the partners to store, at the "Mari B" reservoir, in favor of Israel Electric, a volume ofnatural gas equal to 5 BCM, that Israel Electric will require on the basis of an agreement of July 2009 between the two,from the date of issuing the notice, and up to the end of the agreement term. The Director also noted that any breach ofthe terms of this notice, would be considered a breach of the warehousing license that was issued based on said law, anda breach of the terms of the "Ashkelon" holding. On August 3, 2011, the partners of the "Yam Tethys" projectsubmitted their comments to the Supervisor and asked for a cancellation of the draft provisions referred to in the letter,inter alia, because of it being unreasonable and without basis.-21-