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):F. "Tzuk Tamrur 3" and "Tzuk Tamrur 4" Joint Ventures – "Zerach" License:These joint ventures were formed to locate and extract oil in the "Tzuk Tamrur" enclave, an enclave located within the321/"Zerach" license holding, near the Dead Sea.Further to expiry of the license on December 31, 2010, and the Supervisor's decision not to recognize the drillings asdiscoveries under the Petroleum Law, during 2010 the license partners recorded a provision for impairment of valueagainst the entire investment in the "Tzuk Tamrur 3" and "Tzuk Tamrur 4" drillings, totaling $8 million, which wasincluded in the 2010 statement of comprehensive income.It should be noted that the partners have appealed to the Minister of Energy and Water Sources against the Supervisor'sdecision. However, the appeal was rejected and during November 2011, the "Zerach" partnership, holder of the rights tothe license, appealed to the Supreme Court of Appeals, which has not yet rendered its decision.It should also be noted that on February 7, 2012 (after reporting date), the "Zerach" partnership stated that the State hadreplied to Supreme Court of Appeals, claiming that the request should be rejected, as it is not a "discovery", as claimed,and there is no reason for involvement by the Supreme Court of Appeals in the decision of the Minister.In the position of the State, in essence, the "Zerach" partnership has not successfully proven that the drillings at thedrilling site are a "discovery," as the term is defined by Petroleum Law, and accordingly, there is no possibility to grantthe partnership a holding in the area. In addition, according to the position of the State, it is not possible to extend thelicense beyond the maximum time frame provided by Petroleum Law - seven years, notwithstanding that the State notedthat in the past it had given permission beyond the seven year time frame as required by law.G. Seismic Studies - "Alon," "Ruth," "Avia" and "Keren" Licenses:During the reporting year, the analysis of the 3-D seismic survey that was undertaken during September 2010 by thePGS Company for parts of the "Alon," "Ruth," "Avia," and "Keren" license areas was completed.The survey covered an additional part of the partnership's work plan, covering 2,550 meters of the "Alon," "Ruth,""Avia," and "Keren" license areas, as well as drilling areas in the "Tamar" and "Dalit" holdings.The overall cost of the 3 D seismic study ("Alon" and Ruth" licenses), analysis of data and any additional work, was$19 million, of which the partnership's share was $4.9 million (during 2011 - $0.5 million).The overall cost of the 3 D seismic study ("Avia" and "Keren" licenses), analysis of data and any additional work, was$2.75 million, of which the partnership's share was $1.4 million (during 2011 - $0.2 million).See paragraph H on conditional agreements for the transfer of rights to some of said licenses, and if finalized, theholdings will be reduced to 12.5%.H. Partnership's Rights to Oil and Gas Properties – Additional Details:1. The "Ashkelon" Holding:The I/10 "Ashkelon" deed holding was awarded during June 2002. The holding covers an area of 250 km, and includesthe "Mari" gas field. The deed was awarded subject to terms of the Petroleum Law, 5712-1952 and to terms set out inthe holding deed.2. The "Noa" Holding:The I/7 "Noa" deed holding was awarded during February 2000. The holding covers an area of 250 km. The deed wasawarded subject to terms of the Petroleum Law, 5712-1952 and to terms set out in the holding deed.-31-