Israel Opportunity – Energy Sources Limited Partnership Periodic

Transcription

Israel Opportunity – Energy Sources
Limited Partnership
Periodic Report for 2014
Name:
No. in Companies Registry:
Address:
Telephone:
Fax:
Balance Sheet Date:
Report Date
Israel Opportunity – Energy Sources – Limited Partnership
550236822
2 Ben Gurion Street, Ramat-Gan, 52573
03-6116111
03-6116110
31 December 2014
16 March 2015
The Partnership is a "small corporation" as this term is defined in Regulation 5c of the
Securities Regulations (Periodic and Immediate Reporting) 1970, and accordingly, can
implement the easements for small corporations that were approved as part of the Securities
Regulations (Periodic and Immediate Reporting) (Amendment) 2014 (The Easements). At this
stage, the Partnership does not intend to implement all or some of the easements.
Table of Contents
Chapter A: Description of the Corporation's Business
Part A – Description of the General Development of the Limited Partnership
1.1 LP Activity and Business Development
Part B – Other Information
1.2 Financial information about the Partnership's area of operations
1.3 General environment and impact of external factors on the Limited Partnership's
operations
Part C – Description of the Limited Partnership's business based on area of operation
1.4 General information about the Limited Partnership's area of operation
1.5 The Limited Partnership's oil assets
Part D – Issues pertaining to the Partnership's Operations
1.6 Operator services
1.7 Recognized profits (losses) for tax purposes
1.8 Competition
1.9 Human capital
1.10
Raw material and suppliers
1.11
Investment
1.12
Insurance
1.13
Working capital
1.14
Financing
1.15
Taxation
1.16
Environmental risks and management
1.17
Restrictions and regulation of the Limited Partnership's operations
1.18
Regulatory changes
1.19
Business restrictions
1.20
Material agreements
1.21
Royalties
1.22
Legal proceedings
1.23
Business goals and strategy
1.24
Projected developments for the ensuing year
1.25
Risk factors
Part E - Miscellaneous
1.26
Professional terms
Appendixes
Appendix A – Confirmation of Netherland, Sewell & Associates, Inc. regarding the Resources
Report in the Royee License
Appendix B – Confirmation of Ryder Scott Company, L.P. regarding the resources reports in
the Pelagic licenses
Appendix C – Confirmation of Netherland, Sewell & Associates regarding the resources report
in the Oz license
Chapter B – Board of Directors Statement on the Position of Corporate Affairs
Chapter C – Financial Statements for 31 December 2014
Chapter D: Additional Information about the Corporation
Regulation 10a – Summary of the Quarterly Statements of Income
Regulation 10c – Use of the consideration for securities with reference to the consideration's
goals based on the prospectus recently published prior to the date of the statement.
Regulation 20 – Trading on the Stock Exchange
Regulation 21 – Payments to controlling shareholders and senior officers
Regulation 21a – Control of the Partnership
Regulation 22 – Transactions with controlling shareholder
Regulation 24 – Holdings of interested parties and officers
Regulation 24a – Registered capital, issued capital and convertible securities
Regulation 24b – Shareholders Registry
Regulation 25b – Address and telephone numbers
Regulation 26 – The Corporation's Directors
Regulation 26a – Senior Officers
Regulation 26b – Independent Authorized Signatories as set forth by the Corporation
Regulation 27 – The Corporation's Accountant
Regulation 28 – Changes in the memorandum or regulations
Regulation 29 – Directors' recommendations and decisions
Regulation 29a – Company decisions
Chapter E: Annual Statement regarding the Assessment of the Board of Directors and
Management of the effectiveness of internal controls
Chapter A
Description of the Corporation's Businesses
For the Year ending 31 December 2014
Chapter A – Description of the Corporation's Business
Chapter A –Description of the General Development of the Limited Partnership
1.1 The Limited Partnership's Operations and Business Development
1.1.1 Introduction
The Partnership, which specializes in oil and gas exploration in Israel, was founded
under a limited partnership agreement signed on February 10, 2010 between the
Trustee, as a Limited Partner, on the one hand and the General Partner on the other.
The Partnership was registered on February 24, 2010 in accordance with the
Partnerships Ordinance (New Version) 1975 (Hereinafter: The Partnerships
Ordinance). In accordance with Section 61(a) of the Partnerships Ordinance, the
Limited Partnership Agreement constitutes the articles of the Limited Partnership, as
amended from time to time.
The Partnership is a 'small corporation, as this term is defined in Regulation 5c of the
Securities Regulations (Periodic and Immediate Reporting) 1970 (Hereinafter The
Regulations). As of the report date, the Partnership does not intend on implementing
all or some of the easements included in the Regulations.
The Partnership is managed through a General Partner under the supervision of the
Commissioner, CPA Ilan Olscar.
The Limited Partnership serves as trustee and holds the Partnership's units (which
entitled the participants rights to the Limited Partner in the Partnership) and option
deeds that can be exercised into participation units, which it issued in trust for the
said security holders.
Below is a diagram of the Partnership's structure:
General Partner
1.1.2
Israel
Opportunity – Oil and Gas Exploration Ltd.
1.2
Partnership Agreement
0.01%
99.99%
The Limited Partnership
Israel Opportunity –
Energy Sources
Limited Partner / Trustee
Israel Opportunity – Oil and
Gas Exploration Trusteeship
Ltd.
Public that holds the participation units that
grant the right to participate in the Limited
Partner's rights in the Partnership and option
deeds that can be exercised to participation
units (including the General Partner)
Trusteeship Agreement
Appointment of a
Single Director
Commissioner
CPA Ilan Olscar
1.1.2 The Partnership's Areas of Operation
The Partnership engages in one activity, oil and gas exploration in Israel.
As of the report date, according to the Limited Partnership agreement, the purpose of
the Limited Partnership is to participate in the oil and/or gas explorations on
geographical areas included in Licenses 370 / "Ishai", 371 / "Aditya", 372 / "Lela",
1
373/ "Yahav", 374 / "Yoad" (Hereinafter The Pelagic Licenses), 398/Neta
2
(Hereinafter Neta License), 399 / Royee (Hereinafter Royee License) and 394/Oz
(Hereinafter Oz License), whether these apply to the said oil assets or whether
holdings or licenses or preliminary permits issued to the Partnership in lieu of them
apply, as well as areas adjacent to the area of the said oil assets that will be included
in said oil assets due to the change in their border, with the change in border being
due to local geographical reasons.
Furthermore, the Limited Partnership will be entitled to carry out other projects in oil
and/or gas exploration to be defined specifically in the Limited Partnership
Agreement following the initial listing of the participation units of the Limited
Partnership and whose amendment to the Partnership Agreement will be approved
by the general meeting of shareholders in its entirety.
1
On 1.9.2013, the validity of licenses 371/Aditya, 372/Lela, 373/Yahav and 374/Yoad expired. In
January, April and September 2013, a request was made to the Petroleum Commissioner in the
Ministry of National Infrastructures, Energy and Water (Hereinafter The Commissioner) on behalf to
the partners in these licenses to change the borders in said licenses, in accordance with Section 49 of
the Petroleum Law in a manner so that after the proposed change in borders. The government would
regain licenses 371/Aditya, 372/Lela and 373/Yahav while one license – license 374/Yoad (within the
new borders as requested in the said application) – will be extended and an updated work plan will be
approved (see Section 1.5.2.1 below). The Commissioner informed the partners in the licenses that the
Petroleum Council, in its meeting on 22.10.2013, recommended approving the change in borders, so
that the partners in the licenses will relinquish License 374/Yoad in the borders that were requested by
the partners in the Licenses (while relinquishing three licenses). At the same time, as of the date of the
report, a new license has not yet been received.
2
The Partnership in the licenses submitted to the Commissioner a request to change the borders in the
Royee License including by way of transferring areas from the Neta License to the Royee License and
by subtracting other areas. The areas to be subtracted from the Royee License and the areas of the Neta
License areas that were not added to the Royee License – will be returned. As of the report date, no
response form the Commissioner has been received with regards to said request.
Oil Assets in which the Partnership has Interests, as of the Report Date, are
Name of the Oil Asset
Type of Right
370/Yishai
3
371/Aditya
4
372/Lela
5
373/Yahav
6
374/Yoad
398/Neta
399/Royee
394/Oz
License
License
License
License
License
License
License
License
Rights
of
the
Limited
Partnership in the Oil Asset
10%
10%
10%
10%
10%
10%
10%
10%
The rights to said oil assets are in accordance with the license deeds received from
the Commissioner and in accordance with the share in the rights as listed in the Oil
Registry that is managed in accordance with the Petroleum Law 1952 (Hereinafter
The Petroleum Law). Every holder of an oil right, is entitled at its discretion, and
subject to the provisions of the law, and to the specified in the Partnership Agreement
and/or in the Joint Operating Agreement that applies to the oil right area (if any), to
return its share in the oil right to the Commissioner or to transfer it to a third party.
In addition to the aforementioned, on 13.8.2014, the Partnership submitted, in
conjunction with the other partners (Zerach Oil and Gas Explorations – Limited
Partnership, Ginko Oil Exploration – Limited Partnership, Ashtrom Group Ltd. and Dr.
Rosenberg and Partners Ltd.), a request to the Commissioner to obtain a land
license in the Halamish areas, located in the Judean Desert, between Arad and
Sdom. In accordance with the request, the Partnership will hold 25% (of 100%) of
this license. On 28.9.2014, the Partners replaced said request with an updated
request in which C.O. Cyprus Opportunity Energy Public Company Limited
(Hereinafter Cyprus Opportunity), which is a company controlled by the General
Partner in the Partnership, another party was added to the request. The Partnership
will hold the same percentage in this license subject to the Commissioner's approval.
As of the report date, the Commissioner's response to the request has not been
issued.
With regards to the submission of said requests, the parties to the request engaged
in a memorandum of understanding, a summary of the main provisions was included
in the immediate reports published by the Partnership on 14.8.2014 (Reference
2014-01-133803) and on 28.9.2014 (Reference 2014-01-164829). The information
appearing in said reports is introduced here by way of reference.
Below is a map of the oil assets in which the Partnership has an interest
3
As of the date of this report, the license has expired. See Footnote 1 above.
As of the date of this report, the license has expired. See Footnote 1 above
5
6
4
1.1.3
Addition of additional partners
The Limited Partnership will be entitled, pursuant to Commissioner's written
expressed approval, and subject to the approvals required by the law, including the
Petroleum Law, to transfer some of the rights in the oil and gas assets and in
consideration, to receive some of the revenue if oil or gas is to be found. The addition
of additional partners to the rights in the oil assets of the Limited Partnership will
necessarily result in a dilution of the Limited Partnership's share in oil and gas
revenue, if any revenue is generated.
It should be noted that the offshore oil and gas explorations are generally performed
in conjunction with several partners, since these are capital-intensive activities and in
order to spread the risk resulting from said activities among several partners. When
there are several partners in an oil asset, the relationship between them are
customarily arranged through a joint venture agreement and/or joint operating
agreement. In these agreements, it is standard to include provisions in the event that
one of the partners fails to comply with the terms set forth by the Commissioner with
regards to the oil asset and/or if one of the partners fails to comply with the provisions
of the Agreements.
During oil explorations with the other participants, there is a possibility that the
withdrawal of one of the participants, with the other participants not taking over the
share (at an expense not yet approved) in the exploration, will result in the
termination of the exploration prior to completion of the plan set forth in the
transaction and the return of the oil assets subject to the explorations. Furthermore,
in the event of non-payment by any of the participants, the operator is generally
entitled in accordance with the joint operating agreement to demand that the other
partners that are not in arrears of payment make relative payment, each according to
its share, of said sums, in order to ensure that the approved work plan as it was at
that time will not be affected by any delay.
According to the Petroleum Law, the Commissioner is entitled to revoke the oil right if
an holder of an oil right fails to comply with any of the provisions of the Petroleum
Law and its regulations and/or fails to comply with any of the stipulations applicable
to the oil right and/or fails to act in accordance with the work plan that it submitted or
was delayed in implementing it in accordance with the performance timetable or
failed to invest in the oil explorations the sums it undertook to invest to implement the
work plan.
1.1.4
Investments with the Capital of the Limited Partnership and its Securities
Transactions
(a) Below are the details of the capital introduced to the Limited Partnership in 2014,
less accrued losses:
Capital provided by
the Limited
Partnership
Balance on 31.12.2013
Movement
For public
in
the offering
period
Loss
for
between
the period
1.1.2014
between
and
1.1.2014
31.12.2014 until
31.12.2014
Financing
Expenses
Capital provided by
the General Partner
Total
30,094
-
Dollars in Thousands
4
-
30,098
-
(5,079)
(1)
(5,080)
Capital provided by
the Limited
Partnership
Capital provided by
the General
Partner
Trustee
(50)
(*)
Balance on 31.12.2013
24,965
3
(*) Represents sum less than one thousand dollars
Total
(50)
24,968
(b) To the best of the knowledge of the General Partner, during 2014 and until this
report date, the interested parties in the Partnership did not carry out any
transactions involving securities of the Partnership outside the stock exchange,
with the exception of the following transactions:
Date
8.9.2014
Interested Party
7
Rony Halman
Transaction
Acquisition
27.10.2014
Rony Halman
Acquisition
24.11.2014
Rony Halman
Acquisition
30.11.2014
Rony Halman
Acquisition
4.12.2014
Rony Halman
Acquisition
17.12.2014
Rony Halman
Acquisition
23.12.2014
Rony Halman
Acquisition
12.1.2015
Rony Halman
Acquisition
13.1.2015
Rony Halman
Acquisition
14.1.2015
Rony Halman
Acquisition
19.1.2015
Rony Halman
Acquisition
8.2.2015
Rony Halman
Acquisition
1.1.5
7
Quantity and Type
600,000
Participation units
650,000
Participation units
250,000
Participation units
500,000
Participation units
500,000
Participation units
250,000
Participation units
500,000
Participation units
250,000
Participation units
500,000
Participation units
250,000
Participation units
250,000
Participation units
250,000
Participation units
Rate in Ag.
9.6
9.8
9.35
9.05
8.85
8.6
7.6
7.3
7.33
7.05
7.03
7.1
Profit Sharing
For more information about profit sharing, see Note 8(a)3e of the Financial
Statements.
Chairman of the Board of Directors of the General Partner and its controlling shareholder
Part C – Other Information
1.2
Financial information about the Partnership's Area of Operation
For more information about the financial information regarding the Partnership's area of
operation, see Sections 2 and 3 of the Partnership's Board of Directors report.
1.3
General Environment and the Impact of External Factors on Limited Partnership
Operations
Recent years have seen significant changes in Israel's energy market. Within several
years, natural gas has become a main component in the fuels basket for electricity
production and a significant source of energy for industry. With the start of flow of
natural gas from the Tamar reservoir, use of natural gas expanded among private
electricity producers and large customers from the industrial sector as well. The Ministry
of National Infrastructures, Energy and Water (Hereinafter The Ministry of Energy and
Water) reports that in 2013, Israel recorded a record level in natural gas consumption in
the amount of 6.91 BCM, a 170% increase in consumption in comparison with 2012 and
a 30% increase in comparison with 2010 (the last y ear in which no restrictions were in
place on production for demand).
Based on the assessment of the reference scenario of the committee report on
reviewing government policy on Israel's natural gas market and its future development
(Hereinafter The Tzemach Committee), the percentage of natural gas consumption is
expected to increase by 85% by 2015, to 13.3 BCM by 2020 and to 20.6 BCM by 2030,
87% of which designated to generate electricity and for industry. In accordance with the
Tzemach Committee assessment, the total projected demand for 2013-2040 is 501
BCM. The projected demand for natural gas is based, inter alia, on the continued
growth of multi-year average electricity consumption of 3.1%, increased demand for gas
by 1.3% per year (following assignment of the natural gas industry in ensuing years),
average demand in transportation and construction of methanol and ammonia plants in
2021 (with fixed consumption of 0.7 BCM per year).
The primary macroeconomic factors affecting this sector are (for more information on
risk factors that might materially affect the Partnership's activities and business results,
see Section 1.25 below):
a.
Fluctuating prices in oil and alternative fuel prices (including natural gas) –
fluctuations in oil and alternative fuel prices, particularly the price of Brent crude, in
US CPI, in other parallel international standards such as the GCC, Henry Hub, WTI
and in the electricity production rate as to be determined from time to time by the
Public Utilities Authority – Electricity, might affect prices that the Partnership may
receive from its customers for oil and/or natural gas that it will sell, if any, and/or
affect the feasibility of future explorations as well as the feasibility of production from
new reservoirs that will be discovered, if any, as well as decisions on whether the
development of a reservoir is feasible, and decisions pertaining to final investment
in development of said reservoir.
In addition, in order to determine oil and natural gas reserve data, the entities
involved in this areas (generally reservoir engineering consultants) take into account
the feasibility of development and production. Changes in oil and gas prices alters
the feasibility of the project. Subsequently, the assessments of the natural gas and oil
reserves that should be produced changes. It should further be noted that
fluctuations in oil prices affect the value of oil assets.
With regards to this matter, since June 2014, oil prices have plunged (over the
course of several months, oil prices dropped from $110 per barrel to $50 per barrel).
In Q1 2015, oil prices began to show some recovery.
b.
Increased demand for service providers and equipment –significant increase in oil
and gas prices is generally accompanied by increased demand for service providers
in exploration and production, which results in a significant increase in operating
costs in the industry and a drop in availability of contractors and necessary
equipment.
8
c.
Oil and natural gas prices, as well as input for oil and gas explorations as well as
their development are set in dollars. It should be noted that the Partnership Is
engaged in payment agreements set in dollars for the General Partner, the
Commissioner and the Trustee. Subsequently, fluctuations in the shekel/dollar
exchange rate affects revenue and expenses of the Limited Partnership. For this
matter, it should be noted that in the second half of 2014, the dollar/shekel
exchange rate sharply rose.
d.
Drillings performed by the Partnership and its partners involved obtaining various
approvals from different authorities.
e.
Regulation – explorations and production of oil and natural gas are subject to
industry regulation. Negative changes in existing legislation, if any (such as
changes to the Petroleum Law and applicable tax laws for this sector, regulatory
demands to receive oil and natural gas exploration and production rights, royalties,
environmental arrangements, anti-trust regulations, conditions for reservoir
development, construction of a transmission infrastructure, connection to the power
plants and other factories that use oil and natural gas, rules on granting, transferring
and encumbering oil rights, changes in requirements to provide guarantees, as well
as requirements to prove technical and financial abilities, etc.) might negatively
impact the Partnership and its business, as well as on the feasibility of performing
additional explorations. In light of the multiple discoveries and transactions to sell oil
rights that were made in recent years in Israel, regulation has significantly increased
in this area. For more information about restrictions and regulation of oil and/or
natural gas exploration in Israel, see Section 1.17 below.
f.
In June 2012, the Minister of National Infrastructures, Energy and Water
(Hereinafter Minister of Infrastructures), in accordance with the authorities
granted to him, announced that all offshore areas and underground areas near the
short, inside and outside of the territorial waters whose depth allows the use of the
natural resources, for which there is no oil right or preliminary permit with valid
preliminary right – will be closed to oil exploration and production.
g.
In October 2011, an interministerial committee was appointed to review government
policies in Israel's natural gas market and its future development, including the
possibility of natural gas exports (Tzemach Committee). The Tzemach Committee
conducted an in-depth, comparative review of policies adopted in the world's natural
gas markets, in order to recommend to the Israeli government natural gas policies
for the Israeli market, to encourage and spur exploration, while balancing five goals:
(a) Israel's need for energy security in light of its unique geopolitical and economic
characteristics (b) the existence of competition in the local market in its various
segments (c) economic and political benefits (d) leverage of environmental
advantages of natural gas use and (e) review of the ideal policies for protecting
local reserves for local consumption and gas export. The Partnership submitted its
positions and even presented them to the Committee on 29.8.2012 the Committee
8
published the main points of its recommendations . In June 2013, the government
decided to adopt the Tzemach Committee recommendations. Below are the
principle report findings of the government decision:
1. To ensure energy consumption for the local Israel market including,
determining the guarantee for the local market 540 BCM of natural gas
(Hereinafter Minimum Quantity for Local Market), which would allow the
supply of the natural gas demand among energy consumers in the market
for 29 years, from the date of the government decision.
http://energy.gov.il/Subjects/NG/Documents/NGSummaryAug12.pdf
2. To determine that natural gas exports will require approval from the
Commissioner, subject to ensuring the Minimum Quantity for the Local
Market.
3. To establish an obligation among all holders to connect every natural gas
field in the holding area to the local market, at a timing and scope to be
determined, as part of the holding, in accordance with the terms to be
established.
4. To ensure that planning, allocation and construction of land and offshore
infrastructures for natural gas transmission and management for the local
economy will take place with government involvement, if necessary.
5. A gas export facility will be in territory controlled by the State of Israel,
including its exclusive economic territory, unless otherwise decided as part
of a bilateral agreement between countries.
6. To require all existing and potential holders of rights in the reservoirs, based
on their size, to allocate at least some of the gas in their possession to the
local market at rates to be determined (Hereinafter Domestic Market
Supply Obligation)
7. To determine that the holder of a right in a developed reservoir will be
entitled to replace the export quota against the Domestic Market Supply
Obligation in accordance with its size and established rates, and subject to
approval of the Commissioner and the Anti-trust Commissioner, after
having considered all relevant factors, including the need to incentivize and
encourage small reservoirs.
8. To impose on the Natural Gas Authority Director, along with the
Commissioner, to review the issuing of regulatory instructions to the seller
separately.
9. Despite the aforementioned, a reservoir developed prior to the government
decision will be entitled to export 50% of the amount that the holders in it
prior to their undertaking to the domestic market on the date of this
decision, subject to ensuring the minimum quantity to the domestic market.
At the same time, the Prime Minister and Minister of Infrastructures are
entitled to approve the supply of natural gas, immediately, for an amount
that does not exceed 20BCM of the said reservoir in this section, and within
the confines of 50% of the amount permitted to be exported from said
reservoir in this Section.
10. The Minister of Infrastructures will review, upon consultation with the Prime
Minister, Minister of Finance and Minister of Economics, the need to
establish rules regarding the sale of natural gas to consumers in the
domestic market designated for manufacturing export products, in which
natural gas constitutes a key manufacturing element, that would be
considered as an export.
11. In order to increase the reliability of natural gas supply and to increase the
amount supplied to the domestic market, to act to construct a natural gas
transmission pipeline from the Tamar reservoir to the Ashkelon region,
including a natural gas treatment facility, and to establish that the Mary B
reservoir will be an active storage reservoir.
12. To require the Minister of Finance to act, within 120 days, to submit
legislative amendments necessary to ensure that the public receives the full
amount of natural gas resources in the event of natural gas exports.
Said government decisions will be reviewed by the government at the end of 5 years
from the date of its approval in order to make any necessary changes regarding
policies pertaining to the findings that will be recognized by the Commissioner 5
years after the date of the government decision, in accordance with the needs of the
domestic market and taking into account the natural gas supply.
1.3.1 Oil and Gas Explorations – General Review
1.3.1.1 Oil and gas explorations in a certain region requires the following conditions
listed below:
a. The presence of organic source rock, that as a result of pressure, heat
and bacterial as well as radioactive activity created oil or gas
(hydrocarbons)
b. The presence of reservoir rocks where hydrocarbons flow to from the
9
source rocks, and from which oil or gas can be produced.
c. Impermeable cap rock that prevents hydrocarbons from leaking out of
the reservoir rock upwards and evaporate on the ground.
d. Suitable underground conditions for trapping hydrocarbons in the
reservoir in amounts that makes it economically feasible to produce.
1.3.1.2 The site at which hydrocarbons accumulate without possibility of dispersal is
known as a reservoir or trap. Reservoirs can be found in any sedimentary
rock formation on earth, i.e. in shallow strata at depths of several hundred
meters and in deep strata located thousands of meters deep.
1.3.1.3 The simplest composition of hydrocarbons is methane gas. With the increase
in the number of carbon and hydrogen atoms, hydrocarbons gradually
transform into liquefied state, i.e. crude oil. In general, the quality of the oil is
10
determined by its specific weight , and its viscosity. The lighter the oil, the
better its quality since the relative amount of benzene obtained at a later stage
in the refinery process is higher. Light oil has low viscosity, i.e. it flows more
easily, and the supply of wells that will produce it will be larger. Furthermore,
these properties are used to measure the quality of the oil, inter alia, even with
regards to the amount of sulfur found in oil. Sulfur levels that exceed a certain
standard requires that the oil be separated from the sulfur.
1.3.1.4 The hydrocarbon exploration process involves several stages. In the first stage,
information is compiled and analyzed. This stage is generally performed in the
field and is the basis for the issuing of the preliminary permit.
1.3.1.5 The underground structure and presence of reservoirs is determined through
geophysical methods, the main one that is currently used to identify reservoirs
is the seismic method, which is based on the transmission of acoustic energy
(sound waves) underground. The sound waves are created through use of
explosives near the ocean bottom or by causing the ground to shake with the
use of trucks. The sound waves penetrate the ground, striking the various
rocky stratified layers. Some of the sound waves rebound to the surface and
are picked up by a special device and recorded. The intervals of time required
for waves to make their down and back up, and the intensity of the rebounded
waves, from any point underground, provide an estimate of the depth, shape
and characteristics of the underground geological structures.
1.3.1.6 The seismic method is constantly being developed and refined, in terms of data
compilation and in terms of processing. For example, a two-dimensional
seismic survey performed along several direct routes on the surface, and the
information obtained from the survey, is used to build a three-dimensional
image. A three-dimensional seismic survey, which is more reliable, allows a
more direct three-dimensional image to be obtained. Old seismic information
can now be enhanced using new processing technologies.
1.3.1.7 The seismic method does not allow for direct detection of hydrocarbons.
Hydrocarbon detection requires drilling into the reservoir in order to determine
the presence or absence of hydrocarbons.
9
A reservoir rock is characterized by pores that are a criteria for the volume of space in the rock and
the amount of fluid that the rock can store, and conduction, which is a criteria for the degree of
movement of the fluid and their flow capacity in the reservoir rock. Accordingly, the greater the pores
and the better the conductivity the better quality the reservoir rock.
10
The specific weight of oil is measured in units of API. The higher the specific weight of the oil, the
lower the number of API units.
1.3.1.8 The information obtained as stated above is processed and serves as a basis
for the preparation of the structural map of the prospect. Based on this map,
the optimal location of the first exploratory drilling will be determined.
Based on the processing of the information compiled as aforementioned, a
map of the geological structure is drawn, and a decision is made on the
potential reservoir (Hereinafter Prospect). Based on the overall information,
the location of the first exploratory drilling is set. Occasionally, no suitable site
is found for drilling, eliminating the feasibility of preparing a Prospect for drilling.
1.3.1.9 The second stage in hydrocarbon exploration is exploratory drilling. Exploratory
drilling aims to detect the presence of hydrocarbons, their composition and the
content of liquid flowing in the geological strata that they infiltrated, i.e. whether
they contain hydrocarbons. The exploratory drilling is generally carried out in
the area for which the license was given.
1.3.1.10 The currently adopted method is continuous testing of samples from the
cutting samples that are raised with the drilling mud that is raised to the
surface. Occasionally, when no conclusion can be drawn based on the drill
test, a cylinder of reservoir rock is found that provides accurate information
about the presence or absence of hydrocarbons and on the porosity of the
strata and its infiltration. In addition, various special equipment are lowered into
the drill hole that continuously record and indicate the various physical
properties of the rocks. These are the geophysical logs. The logs accurately
identify the strata thickness, composition, porosity and fluid content.
1.3.1.11 The last and decisive stage of oil and/or gas exploration is the production
test. Into the drilling, protective tubes are inserted that seal the strata, and
segments that potentially contain hydrocarbons are marked. The protective
tubes are then drilled in the desired segment to open a conduit through which
fluids can flow. A think production tube is then lowered into the protective tube
through which the fluid can flow to the surface.
1.3.1.12 In general, hydrocarbon identification requires several test wells, depending
on the nature of the reservoir.
1.3.1.13 One a reservoir has been identified, the next stage is development and
production. Several wells, known as development wells, are generally required.
This number can occasionally reach dozens, depending on their production
capacity. An abandoned well, i.e. one in which no oil or natural gas is
produced, occurs when production expenses for the oil or natural gas exceeds
the revenue obtained from their sale. The wells can flow on their own,
particularly during the initial stages, but when the reservoir pressure declines,
the oil or natural gas can be artificially raised e.g. through special pumps). In
accordance with the Petroleum Law, the commercial production stage is
carried out in areas that can be reinforced.
1.3.1.14 Drillings are generally performed vertically. Recent years have witnessed the
development of methods that allow for slant and horizontal drilling. These
drillings are performed, inter alia, under the following circumstances:
a. In offshore drilling that is highly expenses, many slant wells can be drilled
from one drilling rig, significantly reducing drilling and production expenses.
b. Offshore field found in shallow waters, can be developed through the
drilling of slant wells on land that are slanted towards the sea, and these
will be less expensive than offshore wells.
c. In the event that a technical obstacle cannot be overcome and the drilling
must be abandoned, the obstacle can be bypassed through slant drilling.
d. If several strata that are saturated with hydrocarbons are to be tested in
one test drilling, rather than conducting several drillings for several targets.
e. If the drilling process reveals that the drilling must be slanted to another
direction, instead of conducting a new drilling.
f. When the reservoir is in direct contact with the sea water to prevent
preliminary eruption of water into the vertical wells without the reservoir
being used, horizontal drilling can be tried.
g. In the event that vertical drilling towards the reservoir is not possible for a
variety of reasons, such as the presence of a nature reserve, training
fields, municipal areas, etc.
1.3.1.15 The technique for slant drilling has been available for many years in Israel,
and will be applied at several sites. The horizontal drilling technique is relatively
new, and has been commercially available worldwide for the past 20 years.
1.3.1.16 The stages detailed above do not cover all of the stages of exploration,
development and production of a certain project that, due to the nature and
quality, might include only some of these stages and/or other stages and/or
stages in a different order.
1.3.1.17 Furthermore, the length of time for performing each of these stages varies,
based on the nature of the project. It is difficult to indicate whether the
exploration, development and production project will involve all of the stages
sequentially in the order described above, and without any changes or
unexpected events.
1.3.1.18 Onshore and offshore oil and gas exploration and production are
fundamentally similar, the main difference centering around technology,
timetables and performance costs. Costs are significantly higher for offshore
exploration and production that it is for onshore, inter alia, since offshore
exploration and production requires special equipment capable of deep water
drilling under high pressure (offshore drilling can be performed through a rig or
drilling vessel based on the conditions conducive for drilling).
1.3.1.19 It should be noted that the commerciality of oil and/or gas finds are complex,
and depend on numerous and various factors. In this context, there are
material differences between offshore finds whose development requires
special financial input and technologies capable of deep water drilling under
high pressure (offshore drilling can be performed through a rig or through a
drilling vessel based on the conditions conducive for drilling), and onshore
finding, and between development of a natural gas reservoir designated for
export to the international market, which requires large financial, logistical and
technological input that is far higher than that required for the development and
production of natural gas reservoir designated for domestic consumption.
Another key parameter is demand and prices in the target markets.
Development of large-scale project is difficult when demand and natural gas
prices do not support project funding.
Furthermore, significant technological, marketing and economic differences
exist between oil reservoirs and natural gas reservoirs. For example, the
feasibility of a natural gas reservoir is derived from the ability to market it to an
attractive market, due to the fact that natural gas, unlike oil, is not a commodity
traded at similar prices around the world. It should also be noted that the
commerciality of an oil reservoir is strongly affected by world oil prices. For
example, a reservoir that is not commercial when the price for a barrel of oil is
X dollars might become commercial when the price of a barrel of oil exceeds
1.5X dollars, and vice versa. Based on the aforementioned, it is understood
that oil and/or gas reservoirs that are not commercial under certain market
conditions can become, due to material changes in market conditions,
commercial reservoirs and vice versa.
Part C – Description of the Partnership's Business Based on Areas of Operation
1.4
General Information on the area of operation of the Limited Partnership
1.4.1 Structure of the Area of Operation and Changes that have Taken Place in it
The oil and natural gas explorations and production is a complex and dynamic
operation that involves significant costs and tremendous uncertainty regarding
exploration costs, timetables, presence of oil or natural gas and the abilitgy to
produce them while maintaining economic feasibility. As a result, despite the
significant investment, the drillings frequently do not achieve positive results or
generate any revenue, or result in loss of most or all of the investment.
Exploration, drilling and production of oil and natural gas are generally performed
as part of a joint transactions between several partners known as a joint
operating agreement or JOA in which one of the Partners is appointed operator
of the joint agreement. The oil and/or natural gas exploration and production
process in any area may involve, inter alia, the following stages:
1. Initial analysis of available geological and geophysical data for
potential areas for oil and gas exploration.
2. Formulation of an initial concept for drilling (lead).
3. Performance of seismic surveys that help identify geological
structures that may contain hydrocarbons (oil and/or gas), as well
as the processing and analysis of the data.
4. Review of the geological structures and preparation of a prospect
for exploratory drillings.
5. Decision to conduct exploratory drilling, implementation of
preparations ahead of the drilling.
6. Engagements with contractors to perform the drilling and receipt of
ancillary services.
7. Execution of the exploratory drilling including logs and other tests.
8. Production tests (in certain cases).
9. Final analysis of drilling results, and in the event of a find, based
on the initial estimate of reservoir characteristics and quantity of oil
and/or natural gas reserves, an analysis of economic data
(including market value) and physical data as well as an initial
structure assessment and development costs, other seismic
surveys,
confirmation drillings and appraisal wells may be
conducted in order to formulate a better assessment of the
reservoir characteristics and of the quantity of oil and/or natural
gas reserves.
10. Formulation of a development plan as well as preparation of a
detailed economic plan for the project.
11. Final analysis of data and decision on whether the discovery is
commercial.
12. Development and production of the commercial discovery.
13. Production of the commercial discovery.
The stages detailed above do not cover all of the stages of the exploration and production
process in a certain project, which, due to the nature and quality, may include only some of
the aforementioned stages and/or other stages and/or a different order of stages.
A theoretical exploration and development process may be schematically presented as
introduced below:
Initial analysis of the available data for selecting
potential exploration areas
Formulation of initial concept for drilling (lead)
Seismic surveys + processing and analysis
Formulation of a prospect for exploratory drilling
Performance of the exploratory drilling (including
logs and other tests)
Production tests (in certain cases)
No signs of significant
oil and/or natural gas –
dry drill
Insignificant signs and/or
quantities of oil or gas
Dry drill
Significant production of oil and/or natural gas in tests
Discovery
Supplementary seismic surveys (when necessary) + processing and
analysis
Confirmation drilling and appraisal wells (when necessary)
Final analysis of data (including oil and/or natural gas reserves,
reservoir characteristics, development and production costs and
economic assessment of the project)
Decision on commercial discovery
Development of commercial discovery
Production from commercial discovery
Disappointing results –
decision that discovery is
not commercial
It should be emphasized that the above scheme is a general scheme only
introduced to demonstrate the concept. Some of the stages appearing in the
diagram might not be included in the process and/or will be removed. Stages
that do not appear in the above diagram may also be carried out.
It is not possible to establish fixed rules for the breakdown of various costs
involved in oil and gas exploratory drilling, since a large number of variables
such as drilling depth, underground structure, type of rock in the strata to be
faced in the drilling, etc. are involved.
Occasionally, simultaneous with the aforementioned actions, and particularly
in the event of a commercial discovery, explorations continue in adjacent
fields.
Occasionally, no suitable structures are found for drilling, making it not
feasible to prepare a drilling prospect. Subsequently, the process is
terminated. Occasionally, an oil and/or natural gas discovery is revealed to be
non-commercial, making development and production not feasible. The length
of time needed for each of the stages changes based on the nature of the
project, making it difficult to indicate whether an exploration, development and
production project in which all of the said stages are performed in sequence
in the order described above, with no changes and unexpected events will
take place.
1.4.2
Restrictions, Legislation, Regulations
Applicable to the Area of Operation
and
Special
Constraints
1.4.2.1 The Oil Law
Oil and gas exploration and production in Israel is primarily regulated
through the Petroleum Law and subsequent regulations by virtue of the
Natural Gas Sector Law – 2002 (Hereinafter The Gas Law). For more
information about the applicable laws and regulations pertaining to the
Partnership's area of operations, see Section 1.17.2 below.
1.4.2.2 Restrictions and Constraints
As specified in detail in this report, oil and gas exploration depends, inter
alia, on obtaining various permits and approvals from different regulatory
authorities, on compliance with environmental protection laws in Israel
and on compliance with international conventions to which Israel is party,
in presenting economic ability and in providing securities. Oil and gas
explorations also depends on the availability of drilling contractors and
contractors for geophysical work, as well as on the availability of suitable
drilling tools. For more information, see Section 1.17 below.
1.4.3 Changes in the scope of activity in the area of operation
In 2014, and as of the report date, no change has occurred in the
Partnership's holdings in oil assets.
1.4.3.1
On 28.12.2014, Frendum Investments Limited (Hereinafter
Frendum), which holds 33.5% of the working interests in the Pelagic
licenses and 21.5% in the Oz license, announced that Norisha
Holdings Limited (Hereinafter Norisha)11, which is controlling
shareholder in the Genesis Energy Group Limited (Hereinafter
Genesis), which wholly owns Frendum, engaged in an agreement with
Eden Energy Discoveries Ltd. (Hereinafter Eden), also a Genesis
shareholder, in which Eden acquired from Norisha control of Genesis
(and indirectly of Frendum), and that Frendum and Placida
Investments Ltd. (Hereinafter: Placida)12, engaged in an agreement in
which Frendum would sell to Placida all of its shares in the Oz license.
Pursuant to Frendum's notification, the Partnership informed Norisha
and Frendum as follows: (a) that it was exercising its right of first
refusal granted to it, in accordance with the Joint Operating Agreement
that applies to the Pelagic Licenses field (Hereinafter in this section the
JOA), to acquire some of Frendum's rights in the Pelagic licenses, in
accordance with the proportional share in the Pelagic licenses, and
that it also wishes to acquire additional share in Frendum's rights in the
Pelagic licenses, pursuant to the other partners in the Pelagic licenses
not exercising their right of first refusal granted to them13. (2) That in its
opinion, completion of the transaction between Norisha and Eden
constitutes a breach of the JOA and that it reserves its rights in this
matter.
In response, Norisha informed the Partnership and Nammax that it
rejected their demands to exercise right of first refusal to acquire some
of the working interests of Frendum in the Pelagic licenses, since it
believes that the right of first refusal is with regards to the rights in
Genesis, which was sold by Norisha to Eden and did not pertain to the
working interests of Frendum in the Pelagic licenses.
The Partnership and Nammax informed Frendum that they reject said
position, and consider Frendum's actions and defaults with regards to
a change of control in Genesis, including non-compliance with its
relative share in the guarantees to the Ministry of National
Infrastructures, Energy and Water (Hereinafter Ministry of Energy
and Water) with regards to the Pelagic licenses in accordance with the
guidelines for issuing securities (for more information on this matter,
see Section 1.17.3.5 below), non-payment of its relative share in the
work plan budget in the Pelagic licenses, which was approved by all
partners in the Pelagic licenses, including Frendum, and the fact that it
11
To the best of the Partnership's knowledge, is a private company ultimately controlled by a trustee on
behalf of Mr. Teddy Sagi.
12
behalf of Mr. Teddy Sagi
13
To the best of the Partnership's knowledge, Nammax Oil & Gas Limited (Hereinafter Nammax),
which holds 42.5% of the Pelagic licenses, announced that it would also exercise its right of first
refusal granted to it in the JOA, to acquire some of Frendum's rights in the Pelagic licenses whereas
AGR Petroleum Services Holdings AS, which holds 5% of the Pelagic Licenses, announced that it had
no intention of exercising its right of first refusal granted to it.
is failing to honor the exercise of right of first refusal, as specified
above, a breach of the JOA and are demanding that it honor their
announcement regarding the exercise of first refusal.
As of the report date, the Partnership and Nammax are in discussions
on reaching a settlement with Eden in which Frendum would agree to
transfer to the Partnership and Nammax some of its rights in the
Pelagic licenses in a manner that would after the transfer leave
Frendum holding 10% of the rights to the Pelagic licenses.
It should be noted that Frendum's rights in the Pelagic licenses,
including Frendum's working interests that will be transferred to the
Partnership if and when said settlement is reached, are subject by
virtue of the settlement agreement between the partners in the Pelagic
licenses and Western Breeze Holdings Limited14 (Hereinafter WB),
Frendum's rights, Daden Investment Ltd. (which holds 9% of the
working interests in the Pelagic Licenses) (Hereinafter Daden) and WB
to participate in the profits of the party holding these rights, from the
Pelagic Licenses.
It is hereby clarified that talks between the parties have yet to result in
a binding agreement, since no percentage of rights in the Pelagic
Licenses that would be transferred to the Partnership has yet to be
determined in which if and when said settlement is signed, and there is
no certainty that conditions will result in a binding agreement in the
aforementioned format or in any other format, and that at this stage,
the chances of success cannot be estimated.
1.4.3.2
On 13.8.2014, the Partnership, in conjunction with the other
partners, submitted a request with the Commissioner to obtain an
onshore license in the Halamish area, which is located in the Judean
Desert, between Arad and Sdom. In accordance with the request, the
holding percentage of the Partnership in this license will be 25% (of
100%). Obtaining the rights in this license is subject to the
Commissioner's approval, which, as of the date of this report, has not
yet been received. For more information regarding said request, and
the updated request submitted thereinafter, see Section 1.1.2 above.
1.4.4 Material Technological Changes
In recent decades, technological changes have occurred in oil and
natural gas exploration and production with regards to seismic tests,
drilling and production methods and export technology. These changes
have improved the quality of data available to oil and gas explorers
while also facilitating more advanced identification of potential oil and
14
See the Immediate Report of the Partnership dated 10.11.2014, Reference 2014-01-191328
gas reservoirs (with regards to gas, under certain conditions, direct
indication of the presence of gas may be obtained), which might also
reduce risks entailed in drilling.
In addition, these changes will improve drilling and production. In light
of the technological improvements, operations can be carried out
under more difficult conditions than had been possible in the past
(offshore in deeper waters). Accordingly, oil an natural gas exploration
companies can channel their exploration efforts in areas that had
previously been unavailable for drilling, or in which drilling would have
incurred far greater costs and more risks. In addition to the
technological changes in the production and marketing segment of
natural gas, such as technologies used to transform natural gas into
liquid natural gas (LNG), to compressed natural gas (CNG) and to gas
to liquids (GTL), possibly easing transport and facilitating more efficient
commerce of natural gas.
1.4.5 Critical Success Factors in Areas of Operation and Changes
Below are the critical success factors in the area of operation:
a. A critical success factor in oil exploration is the presence of
geological conditions that enable the presence of oil or gas.
b. Identification and obtaining exploration rights (acquisition and or
membership) in areas with potential commercial discovery.
c. Ability to canvass significant financial resources.
d. Cooperation with experienced international companies that operate
in the field for drilling and/or complex development plans, relying on
their professional knowledge, and participation in investment costs.
e. Successful exploration and development.
f. Use of state-of-the-art equipment and technologies (such as 3D
seismic surveys and advanced information processing) in order to
identify and prepare drilling prospects, to diagnose the quality of the
reservoir rock, reservoir properties and oil or gas content in the
reservoir rock, and formulation of an offshore development plan.
g. In the event of discovery of natural gas, engagement in long-term
agreements to sell gas in commercial quantities and conditions that
justify the development.
h. Availability of engineering, technical, financial and commercial
knowledge, experience and ability to manage drilling projects as
well as to develop natural gas and oil reservoirs involving financial
scope of billions of dollars, including the construction of production
and export infrastructures.
1.4.6 Main Entry and Exit Barriers in the Area of Operation and Changes
a. The main entry barriers in the Limited Partnership's area of
operations is the need to obtain permits and licenses to conduct the
explorations, development and production of oil and natural gas
from the relevant authorities in the country, compliance with the
guidelines and criteria established by the Commissioner for the
transfer / acquisition of working interests in oil assets, including
proof of the applicant's financial soundness and technical ability of
the operator for the purpose of contracting as well as significant
financial investment and relatively high risk level required to
perform oil activities (for this purpose, see also Section 1.17 below).
b. There are no significant exit barriers in the Limited Partnership's
area of operation with the exception of the obligation to
disassemble the production facilities before abandoning the oil
asset areas, sealing the wells and drilling in compliance with
Commissioner instructions and restoring the area to what it was
prior, in accordance with authority guidelines on environmental
protection.
c. The Partnership is subject to the TASE regulations and its
guidelines, and to the Limited Partnership's agreement that restricts
the Partnership from performing actions that are not oil and gas
explorations as specified in the joint agreement. According to the
TASE regulations, the TASE's Board of Directors is, in certain
cases, entitled to suspend trading of securities in the Partnership
(see Section 1.25.21 below).
d. Recently, the Ministry of Energy and Water has been advancing
amendments to its regulations that tighten the conditions for
submitting applications to receive, lien and transfer rights in oil
assets in accordance with the Petroleum Law. In addition, in
September 2014, the Ministry of Energy and Water published
guidelines for providing securities with regards to oil rights. These
regulations may serve as a significant entry and exit barrier in the
sector. For more information, see Section 1.17.3.5 below.
1.4.7 Alternatives to the Products in the Area of Operations
Natural gas and oil are used as combustibles, and are sold to industrial
and private customers. There are alternatives to natural gas, such as
diesel oil, jet fuel and petroleum as well as oil and gas alternatives
such as coal, nuclear energy, oil shale, hydroelectric energy, solar
energy, wind, biofuels, etc. Each one of these materials has their own
advantages and disadvantages, and are subject to price fluctuations.
The transition form using one type of energy to another generally
involves large investments.
The main advantages of natural gas over coal and liquid fuels is the
high salvage value and relatively limited pollution, as well as potential
availability of significant amounts of natural gas at attractive prices visà-vis other petroleum products.
1.4.8 Structure of Competition in the Sector
a. In Israel, several main entities have been operating for many years
in oil and natural gas exploration. The entities involved in oil and
gas exploration and production are potential competition to the
Partnership. Competition in this sector comes from two main areas:
first, competition on obtaining licenses to conduct explorations15.
Second, competition in the sale of oil or natural gas, if any is found.
b. In the actual marketing of natural gas in Israel, there are currently
operating are the partners in Tamar Holdings and Yam Thetis, i.e.
Noble Energy Mediterranean Ltd. (Noble), Delek Drilling Limited
Partnership (Delek Drilling), Avner Oil and Gas Exploration Limited
Partnership (Avner), Dor Gas Explorations Limited Partnership and
Isramco-Negev 2, Limited Partnership.
In addition, to the best of the knowledge of the General Partrner,
the partners of the Leviathan reservoir, i.e. Nobel, Avner, Delek
Drillings, Ratio Oil Explorations (1992) Limited Partnership
(Hereinafter Ratio Partnership) are working to develop and market
natural gas from the Leviathan reservoir.
In addition, to the bets of knowledge, the British Gas group
(hereinafter BG) discovered off the coast of the Gaza Strip natural
gas reservoirs in similar quantities as the findings of Yam Thetis,
and may operate in the future to market natural gas to the Israel
market.
With regards to gas production and marketing – the main
competition is the holders of the rights in which commercial
discoveries were announced in recent years off the coast of Israel
(Tamar, Dalit, Shimshon, Leviathan, Dolphin, Tanin and Karish)
expected to be significant suppliers of natural gas to the Israeli
market.
c. The Partnership believes, based on the terms of the licenses
issued by the Commissioner to a large number of entities, several
test drillings are expected to take place in the future. The more that
said drillings will be carried out and result in natural gas findings of
significant scales, the greater the competition in natural gas supply
in the Israeli market.
d. Furthermore, with regards to gas consumption by the Electric
Company, natural gas suppliers compete with coal suppliers (the
alternate fuel for electricity production), and the level of
consumption and price of gas may be affected by coal prices. In
addition, since the end of 2012, LNG has been imported to the
Israeli market through the LGN receptor facility in Hadera
(Hereinafter The Facility). The facility allows gas supply to the
Israeli market in the short term, and manufactures for the Israeli
market strategic advantages in general, particularly for the Electric
Company.
15
The stricter conditions for applications to obtain oil assets and for the transfer of rights in oil assets in
accordance with the Petroleum Law, as well as the Minister of Infrastructure's announcement that
offshore areas for which there is no oil right or valid preliminary permit will be closed to oil
exploration and production – See Sections 1.3 above and Section 1.17.3 below.
e. Oil sales are less restricted to local customers, and can be done on
the international market. Hence the broader competition but also
the possibility of more sales. Concurrently, oil is a "commodity"
whose price is set by fluctuating supply and demand around the
world. Competition with oil producing companies is not expected to
materially affect the Partnership if the latter produces and sells oil.
1.5 Oil Assets of the Limited Partnership
1.5.1 Licenses 398/ Neta (Hereinafter Neta License) and 399/ Royee
(Hereinafter Royee License) (Hereinafter in Section 1.5.1
jointly: The Licenses and/or The Neta and Royee Licenses)16
1.5.1.1 Presentation of the Oil Asset
General Details of the Oil Assets
398/Neta and 399/Royee
Mediterranean17
Neta license – approximately 274,100 dunam
Royee license – approximately 400,000
dunam18
Type of oil asset
Licenses
Original granting date of oil asset
15.4.2013
Original date of expiration of oil asset 14.4.2016
Dates of decisions to extend the oil
asset period
Current expiration date of oil asset
14.4.2015
Note whether there is another option There is an option according to the law (in
to extend the oil asset period; if so – accordance with the Petroleum Law).
for how long
In accordance with the Petroleum Law, the
period can be extended for up to seven years
from the original date of issue of the license
with the option of extending for another two
years in case of discovery.
Name of oil asset
Location
Area
16
The Neta and Royee licenses occupy some of the area of the Gal permit, which was held by the Ratio
Partnership in the past. The Partnership was added to the application to receive the Neta and Royee
licenses that was submitted to the Commissioner by the Ratio Partnership, along with Italian company
Edison International S.p.a (Hereinafter Edison) on 29.11.2014 (this application replaces the previous
application on the same matter dated 14.8.2011). Said licenses were granted by the Commissioner on
15.4.2013.
17
Each of the license letters notes that the license area are included in Israel's economic waters whose
borders have not yet been finalized. If during the license period or in the period of each oil right to be
given as a result (license or holding), area or areas will be subtracted from the license area, the license
area or any other right will be reduced accordingly with no compensation to the holder of the right.
18
In February 2015, the partners in the license submitted a request to the Commissioner, in accordance
with Sections 48 and 49 of the Petroleum Law to change the borders of the Royee license, including by
way of transfer of territories from the Neta license to the Royee license and by way of subtracting other
areas. The areas that will be subtracted from the Royee license and the areas of the Neta license that
will not be added to the Royee license will be returned so that the partners in the licenses will be left
with only one license – the Royee license with new borders. As of the report date, the Commissioner's
response to the said request has not yet been issued.
List the name of the operator
List the names of the direct partners
in the oil asset and their direct share
in the oil asset and to the best of the
knowledge of the General Partner,
the names of the controlling
shareholders in the said partners:
Edison
(1) the Ratio Partnership (to the best of the
knowledge of the General Partner, Ratio
Ltd.19, which is a general partner in Ratio, is
controlling
shareholder
in
the
Ratio
Partnership) – 70%; (2) Edison (to the best of
knowledge of the General Partner, Edison is
part of the Edison Group, which is controlled
by the EDF Group (Electricite de France) –
20%.
General Details on the Partnership's Share in the Oil Asset
For holding in the oil asset that was
acquired – note the date of
acquisition:
Description of the nature and manner The Partnership holds 10% of the rights in the
of the Partnership's holding in the oil license.
asset (including chain of possession)
Note the actual share attributed to the The actual share attributed to holders of the
holders of the capital rights of the capital rights in the revenue from oil asset –
Partnership in revenue from the oil 7.15% to a return on investment and 6.95%
asset:
after the return on investment.
Actual share in the right to participate in the
revenue – 7.15% up to the return on
investment and 6.95% after the return on
investment.
Actual share in right to receive royalties – 0%
Total share of holders of capital rights As of the date of the financial statements
of the Partnership in the aggregate dated 31.12.2014, the Partnership participated
investment in the oil asset in the five in investments in the oil asset in the amount of
years that preceded the report date $1,909 thousand, in accordance with the
(whether recognized as an expense agreement dated 2.3.2010 signed with the
or
entered
in
the
financial Ratio Partnership.
statements):
19
Ratio Oil Explorations Ltd. (Hereinafter: Ratio Ltd.). To the best of the knowledge of the General
Partner, Ratio Ltd. is a jointly owned company of DLIN Ltd. (34%), Hiram Landau Ltd. (34%), Yona
Tzafriri (8.5%), Eitan Eisenberg Ltd. (8.5%), Adv. Boaz Ben Tzur and Adv. Eli Zohar in trust for Mr.
Shlomo Shukron (15%).
1.5.1.2 Map of the Neta and Royee Licenses20
20
As stated above, in February 2015, the partners in the licenses submitted an application with the
Commissioner, in accordance with Sections 48 and 49 of the Petroleum Law to change the borders of
the Royee License, including by way of transfer of areas from the Neta license to the Royee license and
to subtract other areas. The areas that will be subtracted from the Royee license and areas of the Neta
license that will not be added to the Royee license will be returned, in a manner that would allow the
partners in the license to remain with only one license – the Royee license with the new borders. As of
the report date, no response from the Commissioner has been received.
1.5.1.3 Actions prior to holding in the oil asset
Below is a description, to the best of the General Partner's
knowledge, of material past operations in the areas of the Neta and
Royee licenses before the Partnership came into possession of
them.
Identity of the
Party Performing
the Action
Horizon
Period in which
operation
was
performed
1983
TGS
2001
Sepctrum
Geo
Ltd. (Hereinafter
Spectrum)21
Pelagic
2001
Ratio Partnership
2010
Ratio Partnership
2010
Ratio Partnership
2011-2013
2008
Summary
Operation
of
2D
seismic
survey
(in
eastern part of
the Gal permit
area)
2D
seismic
survey
2D
seismic
survey
2D
seismic
survey
Acquisition of all
seismic lines of
the survey of
Spectrum in the
Gal permit are
and
initial
integration
and
re-processing of
the lines
Performed
3D
survey
of
approximately
505 square km
and
initial
processing
Data processing
and analysis of
the 3D seismic
survey
Summary of the
results of the
operation
-
-
-
-
-
1.5.1.4 Compliance with the work plan
To the best of the General Partner's knowledge, until the
date of this report, there has been full compliance with the
work plan in the licenses.
21
Spectrum is a British company specializing in seismic line processing and holding in hits library of
seismic lines from around the world, in addition to processing of said lines.
1.5.1.5 Actual and Planned Work Plan
\
Below is a summary of the main operations actually
performed in the Neta and Royee licenses from the date of
their issue and until the report date, as well as a summary
description of the planned operations, noting the estimated
budget for performance of every operation, and the actual
share of the holders of the capital rights of the Partnership in
this budget. It is emphasized that the estimated costs and
timetable are based on general estimates only and can
include significant deviations. It should further be noted that
the estimated work plan, costs and timetables may change
due to any results.
It is clarified that the data below and the projections
regarding the operations, costs and timetables for
performing the various operations are forward-looking
information that is not definitive and based on information
available to the General Partner as of the report date, and
includes the General Partner's assessments or intention
regarding performance of said operations as of the report
date that might change, based on any new findings obtained
(including as part of the surveys and/or stages of drilling to
be performed), as well as restrictions and/or outside
influences such as change in the terms of the oil assets (by
the Commissioner), delays in receiving the necessary
approvals and permits for performing various operations,
dependency on contractors, etc. Subsequently, the
operations actually performed and their cost might materially
differ from the estimated or assessed targets.
Neta License:
Period
2013
Summary
of
operations
actually performed for the
period / summary of the
planned
work
plan
(distinguishing
between
operations approved by the
Partners and operations that
are not yet approved)
 Processing of seismic
data of 3D survey that
was performed in the
Gal Permit and all 2D
seismic
lines
from
available surveys in the
license
area.
The
processing
included
Estimated overall
budget for the
operation on the
oil asset level
(dollars in
thousands)
Scope of actual
participation of
the holders of the
capital rights of th
Partnership in the
budget (dollars in
thousands)
1,447
156
2014


2015


22
pre-stack
depth
migration (PSDM) and
additional
processing
for DHI identification22
subject to quality of the
seismic material
Continued
data
processing of the 3D
seismic survey in the
license
area.
This
included
a. 3D
pre-stack
seismic inversion,
with emphasis on
lithological
definition
b. Modeling of the
AVO phenomenon
(3D pre-stack AVO
modeling)
c. Spectral analysis
(3D
pre-stack
Spectral
Decomposition)
All processing data was
transferred on tape and
the processing reports
and all accompanying
material
for
data
processing
to
the
national archives, as
defined in the Ministry
of Energy and Water
guidelines
Analysis was updated
and a drilling prospect
was
submitted
that
includes a description of
the
drilling
goals,
geological
projection
and engineering plan.
A resources report was
submitted for goals
defined in the prospect
in
accordance
with
Petroleum Resources
Management
System
(PRMS) requirements
1,722
185
Not yet
determined
Not yet
determined
Direct Hydrocarbon Indicator, seismic indicator of the presence of hydrocarbons




2016

Submission
of
a
detailed drilling plan and
signed contract with the
drilling contractor to
perform the drilling in
the license areas – by
15.6.2015.
Conduction of a risk
assessment survey at
the drilling site and
transfer of geophysical
data
and
summary
report to the Ministry of
Energy and Water – by
15.7.2015.
Submission
of
an
environmental
document
in
accordance
with
Ministry of Energy and
Water guidelines – by
15.9.2015.
Start of drilling in the
license
area
in
accordance with the
approved drilling plan,
with transfer of all
geological
and
engineering reports as
of Energy and Water
guidelines
–
by
15.12.2015.
Submission
of
the
summary
report
of
drilling (End of Well
Report) and transfer of
all findings including
drilling
samples,
electrical logs, cores
and test results (if
performed) as well as
other tests performed
during the drilling as
of Energy and Water
guidelines –within three
month from the end of
drilling.
Not yet
determined
Note yet
determined
Royee License
Period
2013
2014
Summary
of
operations
planned
work
plan
(distinguishing
between
 Processing of seismic
data of 3D survey that
was performed in the
Gal Permit and all 2D
seismic
lines
from
available surveys in the
license
area.
The
processing
included
pre-stack
depth
migration (PSDM) and
additional
processing
for DHI identification
subject to quality of the
seismic material
 Continued
data
seismic survey in the
license
area.
This
included
d. 3D
pre-stack
seismic inversion,
with emphasis on
lithological
definition
e. Modeling of the
AVO phenomenon
(3D pre-stack AVO
modeling)
f.
Spectral analysis
(3D
pre-stack
Spectral
Decomposition)
 All processing data was
transferred on tape and
the processing reports
and all accompanying
material
for
data
processing
to
the
national archives, as
Estimated overall
budget for the
operation on the
oil asset level
(dollars in
thousands)
1,447
Scope of actual
participation of
the holders of the
capital rights of
the Partnership in
the budget
(dollars in
thousands)
156
1,721
185
2015






of Energy and Water
guidelines
Analysis was updated
and a drilling prospect
was
submitted
that
includes a description of
the
drilling
goals,
geological
projection
and engineering plan.
A resources report was
submitted for goals
defined in the prospect
in
accordance
with
Petroleum Resources
Management
System
(PRMS) requirements
(see Section 1.5.1.11
below)
Submission
of
a
detailed drilling plan and
signed contract with the
perform the drilling in
the license areas – by
15.6.2015.
Conduction of a risk
assessment survey at
the drilling site and
transfer of geophysical
data
and
summary
report to the Ministry of
Energy and Water – by
15.7.2015.
Submission
of
an
environmental
document
in
accordance
with
15.9.2015.
license
area
in
accordance with the
approved drilling plan,
with transfer of all
geological
and
engineering reports as
of Energy and Water
guidelines
–
by
Not yet
determined
Not yet
determined

2016
15.12.2015.
Submission
of
the
summary
report
of
drilling (End of Well
Report) and transfer of
all findings including
drilling
samples,
electrical logs, cores
and test results (if
performed) as well as
other tests performed
during the drilling as
of Energy and Water
guidelines –within three
month from the end of
drilling.
Not yet
determined
Note yet
determined
1.5.1.6
Disclosure of actual participation rate in expenses and income
in Neta and Royee Licenses
Below is a summary of the actual rate attributed to holders of the
capital rights of the Partnership in the Neta and Royee Licenses, as
well as the revenue and expenses including projections related to the
Neta and Royee licenses.
Participation
Rate
Rate
actually
attributed to
holders
of
capital rights
of
the
Partnership
in the Neta
and Royee
Licenses
Rate
actually
attributed to
holders
of
capital rights
of
the
Partnership
in the Neta
and Royee
Licenses
Percent
Up
to
reimbursement
of expenses
10%
After
reimbursement
of expenses
10%
7.15%
6.95%
Rate gross up to 100%
Up to
After
reimbursement reimbursement
of expenses
of expenses
100%
100%
71.5%
69.5%
Explanatio
See
calculation
in
Sectio
1.5.1.7
below
Actua
participation
rate
of
holders
of
capital rights
of
the
Partnership
in expenses
involving
exploration,
development
or
production in
the Neta and
Royee
Licenses
10.75%
10.75%
107.5%
107.5%
1.5.1.7
Calculation of the actual rate attributed to holders of capital
rights of the Partnership in revenue from Neta and Royee Licenses
given a future scenario of discovery of gas or oil in the Neta and Royee
Licenses, including for the period following materialization of this
scenario
Item
Percent
Brief explanation of
how the royalties or
payments are
calculated (including
deduction of
expenses and others)
(and reference to a
summary description)
Projected
annual
100%
income of the oil
asset
following
discovery (%)
List royalties or payment (derived from revenue following discovery) on an oil
asset level
The government
(12.5%)
Section 32(e) of the
Petroleum Law
establishes minimum
sums that the holder
of the holding must
pay per year. The
effect of effective
revenue on the
Partnership cannot be
quantified at this
stage.
The operator
-
See
calculation
in
Sectio
1.5.1.8
below
Seller of oil right
Geologist or other
service provider
Revenue neutralized
on oil asset level
The share attributed
to holders of the
capital rights of the
Partnership
in
neutralized oil asset
revenue:
Total shares of the
holders of the capital
rights
of
the
Partnership at the
actual rate of revenue
on the oil asset level
(before
other
payments
on
the
Partnership level):
=======
87.5%
10%
8.75%
87.5%x10%
List of royalties or payments (derived from revenue following discovery) with
regards to an oil asset on the Partnership level:
Up to
After
reimbursement reimbursement
of Partnership
of Partnership
expenses
expenses
Percentage
of
(0.6%)
(0.8%)
10%x6%-0.6%23
holders of capital
rights
of
the
Partnership
in
payments to the
other
service
provider
that
derives payment on
the
Partnership
level
Percentage
of
(1%)
10%x10%24
23
Royalty agreements are with Ratio Ltd. and geologist Eitan Eizenberg, each of whom is entitled to
3% of the oil to be produced and used from the permit, until reimbursement of expenses spent by the
Partnership for oil exploration, and 4% after reimbursement of the Partnership's expenses (see Section
1.5.1.10 (b) below.
24
As part of the Limited Partnership agreement between the Partnership and the General Partner, the
Partnership will pay the General Partner royalties from every Partnership share in the oil and/or gas
and/or other valuable materials to be produced and used from the oil assets that currently exist or that
will exist in the future. The Limited Partnership has an interest (based on the calculation and on the
same basis that will be applicable for payment of royalties to the government in accordance with the
Petroleum Law) (before deduction of royalties of any kind but after deduction of oil that will be used
for the production itself), at a rate of 10%.
holders of capital
rights
of
the
Partnership
in
payment to the
General Partner
Total
Percentage
of
holders of capital
rights
of
the
Partnership
in
revenue due to
receipt of additional
royalties from the
asset:
Actual percentage
attributed
to
holders of capital
rights in revenue
from the oil asset:
========
7.15%
-
========
6.95%
-
7.15%
6.95%
1.5.1.8
Calculation of the actual percentage attributed to holders of
capital rights of the Partnership in exploration, development and
production expenses in the Neta and Royee Licenses
Item
Percent
Brief explanation of how
the royalties or
payments are
calculated and
reference to a summary
description)
Theoretical
expenses
100%
as part of the oil asset
(without said royalties)
List of payments (derived from expenses) on the oil asset level:
The operator
Since a joint operating
agreement has not yet
been arranged, the
operator fee percentage
is still not known.
The General Partner
Seller of the oil right
Total actual percentage
100%
of expenses on the oil
asset level:
Percentage of holders
10%
of capital rights of the
Partnership in oil asset
expenses (in chain)
=======
10%
10%x100%
of holders of capital
rights of the Partnership
in expenses, on the oil
asset level (and before
other payments on the
Partnership level)
Partnership in receipt of
payment derived from
expenses
by
the
Partnership
=========
On the Partnership Level
List of payments (derived from expenses) with regards to the oil asset and
Partnership level:
Operator
in
the
Partnership
The General Partner
Actual
percentage
attributed
to
the
holders of capital
rights
of
the
Partnership,
in
expenses attributed
to
exploration,
development
or
production in an oil
asset.
0.75%
========
10.75%
10%x7.5% = 0.75%25
1.5.1.9
Royalties and payments paid during the exploration,
development and production operations in an oil asset (dollars in
thousands)
Item
Total percentage
of holders of
capital rights of
the Partnership in
investment
during this period
in the Neta and
Royee Licenses
-
Of
which,
percentage
of
holders of capital
rights
of
the
Partnership
in
payments to the
General Partner
Actual
budget
invested in 2012
(including
said
payments)
Actual
budget
(*)
27
invested in 2013
(including
said
payments)
Actual
budget
369
26
invested in 2014
(including
said
payments)
(*) includes past expenses in the amount of $85 thousand.
25
Of
which,
percentage
of
holders of capital
rights
of
the
Partnership
in
payments to the
government
0
0
0
In accordance with the |Limited Partnership Agreement between the Partnership and the General
Partner, the Partnership will bear the 7.5% of the operator fees for the General Partner of all direct
expenses of the Partnership for oil exploration and/or development and/or production fro all oil assets
in which the Partnership has working interests.
1.5.1.10
Description of the material agreements between the Partners in
the Neta and Royee Licenses
(a) General Background
On 2.3.2010, the Partnership engaged in an agreement with the
Ratio Partnership to transfer 10% (of 100%) of the working interests
in the Gal permit (or in the license or in the licenses that would be
issued to the Ratio Partnership, if any, until the date of registration
of rights to the areas in the Gal Permit), subject to the terms and
obligations anchored in the Agreement, including the undertaking to
royalties to the government and royalties to Ratio Ltd. and Eitan
Rosenberg Ltd.26 that the Partnership assumed to pay with regards
to said rights, the undertaking to assume the permit expenses (and
every oil asset that will be given in lieu), based on the proportional
share in permit expenses (including payment for past expenses and
carried interests that the Partnership assumed), and signing on the
Joint Operations Agreement. On 28.6.2010, an amendment to said
agreement was signed.
On 14.8.2011, the Ratio Partnership, in conjunction with the other
partners, filed an application with the Commissioner to obtain the
Neta and Royee licenses. The application included two options.
According to one option, the Partnership would not receive the
working interests in the licenses. According to the second option,
the Partnership would hold 10% (of 100%) of the working interests
in the licenses.
In November 2012, the Ratio Partnership informed the Partnership
that the said application was not approved by the Commissioner,
approval that was a contingent term to the agreement to transfer
rights dated 2.3.2010, and the licenses were not granted.
Furthermore, according to the Ratio Partnership, the Anti-trust
Authority had reservations about the arrangement between the
parties to the application and believed that it constituted a cartel
that required its approval, an approval that also constituted a
contingent term and that was not accepted.
Furthermore, according to the Ratio Partnership, other contingent
terms, which were allocated on the dates that had already passed,
were not met as well. According to the Ratio Partnership, under
these circumstances, there was no other choice but to identify an
operator with an international reputation that had not rights in the
licenses in Israel, which would allow the Ratio Partnership to
exercise its rights in the preliminary permit. Subsequently, the Ratio
26
To the best of the General Partner's knowledge, Eitan Rosenberg Ltd. is a company owned by Eitan
Rosenberg, an interested party in Ratio Oil Explorations Ltd. in the Ratio Partnership.
Partnership announced that it had engaged in a farmout agreement
with Edison, which agreed to serve as operator of the licenses,
subject to Commissioner approval and pursuant to the granting of
the licenses, in order to submit a new application to the
Commissioner to receive the licenses.
As part of said notice, the Ratio Partnership further added that in
light of the aforementioned, it considered the agreement from
2.3.2010 to be null and void.
In response to the notice by the Ratio Partnership, the Partnership
informed the Ratio Partnership that it vehemently rejected it claim in
which the agreement is null and void, and that it expected the Ratio
Partnership to honor the agreement between the parties. The
Partnership further announced that it was also reviewing with its
consultants the implications and ramifications of said notice.
(b) Principle agreement and new application to the Commissioner to
receive licenses under the name Neta and Royee
In continuation of the specified in Section (a) above, on 29.11.2012,
the Partnership engaged in a memorandum of understanding with
the Ratio Partnership with regards to the Gal permit and licenses
(Hereinafter The Memorandum of Understanding).
In accordance with the provisions of the Memorandum of
Understanding, the Ratio Partnership will sell to the Partnership
and the Partnership will acquire from the Ratio Partnership 10% (of
100%) of unspecified working interests in the preliminary permit
and/or licenses (Hereinafter The Mixed Rights), with them being
clear and free of any debt, encumbrance, lien, and options on
behalf of another, rights to royalties and other burdens, and from
any rights and other benefits of any kind on behalf of other(s), with
the exception of royalty on behalf of the State of Israel and royalty
to Ratio Ltd.27 and Eitan Eizemberg Ltd.28 that the Partnership
assumed to pay with regards to the mixed rights (hereinafter
Transfer of Rights Agreement).
It was agreed that the Memorandum of Understanding replaces and
revokes the agreement from 2.3.2012 (and its amendments), as
well as any other agreement and/or understanding that exists
between the Parties shortly before the signing of the Memorandum
of Understanding, with regards to the permit and/or licenses and/or
27
3% Overriding Royalty before payout from oil to be produced and used from the permit (or from any
oil asset to be granted therein) until reimbursement of expenses incurred by the Ratio Partnership for
oil exploration (prior to deduction of royalties of any kind but less the oil used for the production
itself), and 4% after reimbursement of Ratio expenses (4% overriding Royalty after Payout).
28
% Overriding Royalty before payout from oil to be produced and used from the permit (or from any
oil asset to be granted therein) until reimbursement of expenses incurred by the Ratio Partnership for
oil exploration (prior to deduction of royalties of any kind but less the oil used for the production
itself), and 4% after reimbursement of Ratio expenses (4% overriding Royalty after Payout).
any other matter related or derived from, directly or indirectly, from
the aforementioned, and that only provisions of the Memorandum
of Understanding will be binding for the parties with regards to the
permit and/or licenses and/or transfer of rights agreement.
In accordance with the Memorandum of Understanding, the
Partnership joined the new application submitted on 29.11.2012 by
the Ratio Partnership in conjunction with Edison to the
Commissioner (The New Application), and that replaced the
previous application dated 14.8.2011. The structure of the holdings
in the licenses that were presented in the new application is as
follows:
Ratio Partnership – 70%.
Edison – 20%
The Partnership – 10%.
For more information about the principles of the Memorandum of
Understanding, see the Immediate Report dated 2.12.2012
(Reference 2012-01-297444). The information appearing in said
report is introduced here by way of reference.
(c) Approval of the Anti-trust Commissioner
In accordance with the Memorandum of Understanding described
in Section (b) above, the Transfer of Rights Agreement was
contingent on the Partnership receiving approval from the Anti-trust
Commissioner (Hereinafter The Anti-trust Commissioner) of its
addition as a partner in the licenses, and if not, the Partnership will
be required to withdraw from the new application.
On 13.12.2012, the Partnership's offices received the decision form
the Anti-trust Commissioner regarding the issuing of an exemption
in the terms of the cartel between the Partnership, the Ratio
Partnership and Edison. On 11.4.2013, and on 16.10.2013, the
Partnership received additional decisions from the Anti-trust
Commissioner, each of which amending and revoking the previous
decision.
For information about the Anti-trust Commissioner's approval and
conditions, see the Immediate Reports from 16.12.2012 (Reference
2012-01-310836), from 14.4.2013 (Reference 2013-01-035062)
and from 16.10.2013 (Reference 2013-01-167040). The information
appearing in said reports are introduced here by way of reference.
(d) Commissioner approval to grant licenses in accordance with the
new application
On 1.2.2013, the Commissioner informed the Ratio Partnership that
it was approving the granting of the licenses and the transfer of
rights in accordance with the new application and the structure of
the holdings specified above, subject to compliance with the terms
specified below:
1. The Partnership will transfer to the Commissioner within 30
days notice in which it clarifies that there is not legal
restriction (including in light of the decisions of the Anti-trust
Commissioner) on its ability to hold rights as long as they are
valid.
2. As part of the holding, to the extent possible, the
Commissioner can condition other stipulations, including
stipulations not set forth in the license.
3. Any change in holdings in licenses or in holdings in the
holdings of licenses, including the Operator, will be subject
to Commissioner approval, in accordance with Section 76 of
the Petroleum Law, and guidelines that are issued therein
and any secondary legislation to be enacted in the future.
(e) Joint Operating Agreements in each of the Neta and Royee
Licenses:
On 16.6.2013, the Ratio Partnership announced that on 13.6.2013,
it signed a JOA with Edison in each of the Neta and Royee licenses
(hereinafter Joint Operating Agreements) in which, inter alia,
Edison was appointed Operator of the licenses. On 8.7.2013, the
Partnership joined said Joint Operating Agreements.
The Joint Operating Agreements that were signed in the licenses
are identical. For more information about the Joint Operating
Agreements, see Section 1.5.1.10(e) of the Partnership's periodic
report for 2013, which was published on 19.3.2014 (Reference
Number 2014-01-018732). The information appearing in said report
is introduced here by way of reference.
1.5.1.11
Discovery of contingent and prospective resources in the Royee
License
On 14.12.2014, the Partnership published an immediate report
with regards to the prospective gas resources assessment
report as of 30 November 2014 in the Royee Prospect in the
area of the Neta and Royee licenses, that was prepared by
Netherland, Sewell & Associates, Inc., an expert, certified and
independent reserves assessor (Hereinafter NSAI) in
accordance with the Petroleum Resources Management
System (SPE-PRMS).
For information, see the Immediate Report form 14.12.2014
In Appendix A of this report is attached the NSAI document for
inclusion of said resources report in the report and NSAI
approval in light of the time that passed since the report date.
1.5.2 Licenses 370/Ishai (Hereinafter Ishai License), 371/ Aditya
(Hereinafter Aditya License), 372 / Lela (Hereinafter Lela License),
373/Yahav (Hereinafter Yahav License) and 374/Yoad (Hereinafter
Yoad License) (Herein jointly: The Licenses or the Pelagic
Licenses)
1.5.2.1
Name of oil asset
Location
Area
Type of oil asset
Original granting
date of oil asset
Original date of
expiration of oil
asset
Dates
of
decisions
to
extend the oil
asset period
Current
expiration date of
oil asset
Note
whether
there is another
option to extend
the
oil
asset
period; if so – for
how long
List the name of
the operator
List the names of
the
direct
partners in the oil
asset and their
direct share in
the oil asset and
29
Presentation of the oil assets
370/Ishai
Mediterranean
400,000
License
1.3.2009
371/Aditya
372/Lela
Mediterranean Mediterranean
373/Yahav
Mediterranean
374/Yoad
Mediterranean
29.2.2012
2.2.2012
3.9.2013
29.9.2014
29.2.2016
There is an option in accordance with the law (in accordance with the Petroleum
law). In accordance with the Petroleum Law, the period can be extended for an
additional seven years form the original date of issue of the license with the option
of extending it for an additional two years in case of discovery.
AGR Petroleum Services Holdings AS29
Nammax30 (42.5%); Frendum31 (33.5%), DADEN INVESTMENT LIMITED
(Hereinafter Daden)32 (9%), AGR (5%)
AGR Petroleum Services Holdings AS (Hereinafter AGR), to the best of the General Partner's
knowledge, AGR is a private company that incorporated in Norway, controlled by the AGR Group
ASA, which is a public company that incorporated in Norway, that is indirectly controlled by the Altor
Fund, which is a Private Equity fund that specializes in investments in the Nordic region.
30
Formerly Scorpio Gas and Oil Explorations Ltd.. To the best of the General Partner's knoweldgbe,
Nammax is a company controlled by Binyamin Steinmetz.
31
To the best of the General Partner's knowledge, Frendum is a company controlled by Teddy Sagi.
32
To the best of the General Partner's knowledge, Frendum is a company controlled by Teddy Sagi.
to the best of the
knowledge of the
General Partner,
the names of the
controlling
shareholders in
the said partners:
For holding in the
oil asset that was
acquired – note
the
date
of
acquisition:
Description of the
nature
and
manner of the
Partnership's
holding in the oil
asset (including
chain
of
possession)
Note the actual
share attributed
to the holders of
the capital rights
of the Partnership
in revenue from
the oil asset:
Total share of
holders of capital
rights
of
the
Partnership in the
aggregate
investment in the
oil asset in the
five years that
preceded
the
report
date
(whether
recognized as an
expense
or
entered in the
financial
statements):
6.9.2010
6.9.2010
6.9.2010
6.9.2010
6.9.2010
The Partnership holds 10% of the rights in the license.
The effective share attributed to holders of the capital rights in revenue from oil
asset – 7.25%.
Effective share in the right to participate in revenue – 7.25%
Effective share in the right to receive royalties – 0%
As of the date of the financial statements of the Partnership on 31.12.2014, the
Partnership paid a total of $2,500 thousand for the rights in the licenses and a
total of $12,035 thousand for the operations in the licenses.
On 1.9.2013, the validity of licenses 371/Aditya, 372/Lela,
373/Yahav and 374/Yoad expired in January, April and
September 2013. A request was made to the
Commissioner on behalf of the partners in these licenses
to change the borders of said licenses in accordance with
Section 49 of the Petroleum Law (hereinafter Request to
change borders) so that after the proposed change in
borders, the government would regain licenses
371/Aditya, 372/Lela and 373/Yahav while for one
license – 374/Yoad (in the new borders as was requested
in said request) – the updated work plan will be extended
and approved.
The request for a change in borders was submitted in
order to better reflect the geological and geophysical
understanding of said license areas as a result of various
operations performed by the partners in said licenses
since the licenses were first granted in March 2009,
which include, inter alia, 3D survey, processing and
analysis, analysis of the 2D surveys and Aphrodite-2
drilling in the Ishai license area. In order to streamline
expenses of the work plan in each of the said licenses.
As part of the request to change the borders, a change in
the overall area of said licenses was not requested but
only a change in the internal parcellation between them.
No change was requested with regards to the Ishai
license.
The Commissioner informed the partners in the licenses
that the Petroleum Council, in its meeting on 22.10.2013,
recommended approval of the change in borders, so that
the partners in the license would relinquish license
374/Yoad within the borders that were requested by the
partners in the licenses (while relinquishing three
licenses). At the same time, as of the date of this report,
a new written licenses has yet to be received.
1.5.2.2
Map of the Pelagic Licenses
1.5.2.3
Pre-holding operations in the Oil Asset
The Partnership has no information pertaining to past
material operations performed in the license areas, if any,
prior to the Partnership's acquisition of the rights to the
licenses.
1.5.2.4
Compliance with the Work Plan
To the best of the General Partner's knowledge, as of the
date of this report, the work plan in the Ishai license was
fully complied with, Advanced processing of seismic
material / AVO software tests and engineering analysis of
the Aphrodite region and submission of a summary
report. A request was submitted with the Commissioner
on behalf of the Partners in the license to defer the
milestone dates in the work plan. As of the date of the
report, the Commissioner's response to the request was
not received.
1.5.2.5
Actual and Planned Work plan
Below is a summary description of the main operations
actually performed in the Pelagic licenses from 1.1.2012
and until the report date, as well as a summary
description of the operations planned in the Ishai
License, noting the estimated budget for performing
every operation and the actual share of the holders of
the capital rights of the partnership in this budget. It is
emphasized that the estimated costs and timetables are
based on general estimates only and can involve
significant deviations. It should further be noted that the
estimated work plan, costs and timetables may change
due to any findings that may be discovered.
It is clarified that the data below and projections
regarding operations, costs and timetables for performing
the various operations constitutes forward-looking
information that is not definite and is based on
information available to the General Partner on the report
date, and includes the General Partner's assessments or
intentions regarding performance of the operations as of
the report date that might change based on new findings
that become available (including as part of the surveys
and/or stages of drilling to be carried out), as well as
numerous restrictions and/or external influences such as
change in the terms of the oil assets (by the
Commissioner), delay in obtaining the necessary
approvals and permits for performing the various
operations,
dependency
on
contractors,
etc.
Subsequently, the operations to actually be performed
and their cost may be materially different than the
estimated goals or estimates.
Ishai License
Period
2012
Summary
of
operations
planned
work
plan
(distinguishing
between
 On
15.4.2012,
the
Partnership announced
AGR's notice that it had
engaged with Noble
International
Limited
(Hereinafter:
Drilling
Contractor)
in
an
agreement to receive
drilling
rig
services
Noble Homer Ferrington
(Hereinafter The Rig) to
carry out the drilling in
the license area.
 On
14.6.2012,
the
Partnership submitted a
contingent
and
prospective resources
Estimated overall
budget for the
operation on the
oil asset level
(dollars in
thousands)
Scope of actual
participation of
the holders of the
capital rights of
the Partnership in
the budget
(dollars in
thousands)
520 (for all
Pelagic licenses)
59





assessment report in
accordance with the
requirements of the
Petroleum Resources
Management
System
(PRMS)
On 30.7.2012, a drilling
prospect was submitted
that
includes
the
proposed location of the
drilling
points,
a
geological
and
geophysical description
of the target and the
initial engineering plan.
On
30.7.2012,
an
environmental
document
was
submitted
in
accordance
with
Water guidelines.
On 30.8.2012, a drilling
plan was submitted
including
detailed
geological
and
engineering
planning
and including a site risk
assessment
(Site
Survey)
End
of
in-depth
processing
of
3D
seismic data (PSDM),
transfer of all processed
seismic
cubes,
processing report and
all ancillary material as
of Energy and Water
guidelines,
end
of
seismic data analysis,
preparation of depth
maps and submission of
summary geophysical
report – by 1.10.2012.
On
2.11.2012,
exploratory
drilling
began in the Aphrodite2
(hereinafter
The
Drilling) in the Ishai
350
39
500
56
3,300
373
1,200 (for all
Pelagic licenses)
136
90,292
9,504
2013

2014


License.
Based
on
information provided to
the Partnership in the
license
from
the
Operator, the drilling
reached a depth of
approximately
5,652
meters
off
shore
(including water depth
of 1,707 meters). Based
on
the
Operator's
reports,
which are
based
on
tests
performed during and
after the drilling, the
Partnership concluded
that in the sands in the
Lower Miocene era,
there were significant
signs
of
petroleum
(natural gas) – for more
information about the
drilling, see Immediate
Report from 2.1.2013
(Reference
2013-01003531).
The
information appearing in
said report is introduced
here
by
way
of
reference.
On
11.4.2013,
the
Partnership published a
resources assessment
report contingent on the
license – for more
information see Section
1.5.2.11 below.
A report was submitted
summarizing
the
operations in the license
A contract was signed
with seismic contractor
to perform the AVO
survey data in the
license area using the
data from the Aphrodite2 drilling.
End of AVO processing
and transfer of all
750
84
-
-
60
7



processed
material
including the cubes of
the seismic properties,
assessment of reservoir
rock
volume
and
summary
report
in
accordance
with
Commissioner
guidelines.
Conduction
of
a
comprehensive
biostratigraphy analysis
of the cutting samples
and cores from the
Aphrodite-2
drilling
including generation of
distribution
plates,
investment
environments
and
expansive correlation as
well as submission of
products
in
the
summary report.
Acceptance
of
all
geological
and
geophysical
material
received from the area
of Block 12 (Cyprus) in
accordance with the
information
exchange
agreement between the
Israeli
and
Cypriot
government,
the
classification,
testing
and loading to the work
stations. Processing of
3D seismic survey data
on both sides of the
borders of the economic
waters to adapt the
seismic characteristics,
production
of
consolidated cubes and
transfer of cubes with
the report that outlines
the data processing that
was carried out.
Analysis and integrative
deciphering
of
geological
and
40
5
67
8
geophysical data from
the Aphrodite structure
in the license areas and
in Block 12, including a
detailed review of the
findings of all drillings
carried out in this
structure, analysis of
seismic horizons and
fault lines on both sides
of the border and
production of a report
on time maps, depth
and thickness for main
signs.
2015
33

Advanced processing of
3D seismic data from
the license and Block
12 for a qualitative
assessment
of
the
reservoir
properties.
The first stage will
include
processing,
classification
and
loading of the Pre-Stack
Migrated
Gathers,
representing a review of
the
AVO
analysis
software and seismic
inversion. If the results
in terms of feasibility will
be
positive,
the
advanced
data
processing
will
be
expanded to all 3D
seismic surveys on both
side of the border. Upon
conclusion
of
the
processing, the seismic
cubes
will
be
transferred along with
the report describing the
data processing to the
Commissioner.
By
1.3.2015.33
130
A request was submitted to the Commissioner on behalf of the partners to the license to defer the
milestone dates in the work plan. As of the date of the report, the Commissioner's response to this
request has not been received.
15




34
Basin analysis of the
Aphrodite
structure
including a review of the
geological and terminal
history of the basin as
well as the conditions
for the formation and
migration
of
hydrocarbons in the
Backstripping method,
using all geological and
geophysical
material
available. The results of
the basin analysis will
be summarized in a
summary report to be
sent
to
the
Commissioner.
By
34
1.3.2015.
Completion and update
of the findings based on
the results of the
advanced
data
processing and basin
analysis, as well as
preparation
of
a
geological
and
geophysical report that
summarizes
the
Aphrodite
structure.
The results will be
described in a report to
be
sent
to
the
Commissioner.
By
1.7.2015.
Preparation of this final
resources report for the
Aphrodite structure in
accordance with the
Petroleum Resources
Management
System
(PRMS) and its delivery
to the Commissioner.
By 1.9.2015.
Submission
of
a
conceptual
15
2
30
3
Not yet
established
Not yet
established
request has not been received
development plan for
the Aphrodite structure
including, inter alia,
initial
engineering
planning and review of
the economic feasibility
for field development.
The plans will be sent to
the Commissioner. By
1.12.2015.
At the time of the extension of the Ishai license validity by 29.2.2016, the
Commissioner noted the following:
1. Section 2 of the agreement regarding the signing of the exclusive
economic zone between Israel and Cyprus signed on 17.12.2010
stated that "In the event of natural resources, including hydrocarbon
reservoir that stretches from the exclusive economic zone to the
exclusive economic zone of the other party, both parties will cooperate
to reach a framework agreement regarding merging operations in the
joint development and production of said natural resources."
2. Negotiations between the parties for the signing of said framework
agreement is still in effect and may include arrangements to divide the
joint reservoirs between the parties. If a framework agreement is
signed, it will apply to the holders of the Ishai License, if any joint
reservoirs are discovered in the Ishai License area.
3. The agreement may include numerous sections that will apply to the
license holders on both sides and, inter alia, sections that require both
license holders to reach a unitization agreement subject to the terms
and in accordance with the timetables that will be established in the
framework agreement that will be signed between Israel and Cyprus.
4. It is hereby clarified that the agreements that will ultimately be signed
with the Cypriote government will be binding for the holders of the Ishai
License and will constitute some of the terms of the License, and an
extension of the validity of the Ishai License as specified involves and
is contingent upon the work plan being amended in accordance with
the arrangements derived from the provisions of the framework
agreement to be signed.
Aditya License
Period
2012
Summary
of
operations
planned
work
plan
(distinguishing
between
On 14.6.2012, the Partnership
submitted a contingent and
Estimated overall
budget for the
operation on the
oil asset level
(dollars in
thousands)
Included in the
table above
Scope of actual
participation of
the holders of the
capital rights of
the Partnership in
the budget
(dollars in
thousands)
Included in the
table above
prospective
resources
assessment
report
in
accordance
with
the
requirements of the Petroleum
Resources
Management
System (PRMS)
End of in-depth processing of
3D seismic data (PSDM),
seismic cubes, processing
report and all ancillary material
as defined in the Ministry of
Energy and Water guidelines,
end of seismic data analysis,
preparation of depth maps and
submission
of
summary
geophysical report – by
1.10.2012.
2013
Submission of a detailed
agreement signed with the
drilling contractor that includes,
inter alia, a time framework for
performing the drilling – by
1.2.2013
Submission of a drilling
prospect that will include the
drilling points, a geological and
geophysical description of the
target
and
the
initial
engineering plan.
Submission
of
an
environmental document in
accordance with Ministry of
Energy and Water guidelines –
at lest three months prior to
the planned drill date in the
license area.
Submission of a drilling plan
that
includes
detailed
geological and engineering
planning and including a site
risk assessment (Site Survey)
– at least one month prior to
the planned drilling.
Drilling in the license – by
1.9.2013
Submission
of
a
report
summarizing the operations in
regarding the
Ishai License
regarding the
Ishai License
Included in the
table above
regarding the
Ishai License
Included in the
table above
regarding the
Ishai License
-
-
-
-
-
-
-
-
-
-
-
-
the license – by 1.9.2013
The license expired on 1.9.2013
The Commissioner noted the following:
1. Section 2 of the agreement regarding the signing of the exclusive
economic zone between Israel and Cyprus signed on 17.12.2010
stated that "In the event of natural resources, including hydrocarbon
reservoir that stretches from the exclusive economic zone to the
exclusive economic zone of the other party, both parties will cooperate
to reach a framework agreement regarding merging operations in the
joint development and production of said natural resources."35
2. Negotiations between the parties for the signing of said framework
agreement is still in effect and may include arrangements to divide the
joint reservoirs between the parties. If a framework agreement is
signed, it will apply to the holders of the Ishai License, if any joint
reservoirs are discovered in the Ishai License area.
3. The agreement may include numerous sections that will apply to the
license holders on both sides and, inter alia, sections that require both
license holders to reach a unitization agreement subject to the terms
and in accordance with the timetables that will be established in the
framework agreement that will be signed between Israel and Cyprus.
4. It is hereby clarified that the agreements that will ultimately be signed
with the Cypriote government will be binding for the holders of the Ishai
License and will constitute some of the terms of the License, and an
extension of the validity of the Ishai License as specified involves and
is contingent upon the work plan being amended in accordance with
the arrangements derived from the provisions of the framework
agreement to be signed.
Lela License
Period
2012
35
Summary
of
operations
planned
work
plan
(distinguishing
between
prospective
resources
assessment
report
in
accordance
with
the
Resources
Management
System (PRMS)
Estimated overall
budget for the
operation on the
oil asset level
(dollars in
thousands)
Included in the
table above
regarding the
Ishai License
Scope of actual
participation of
the holders of the
capital rights of
the Partnership in
the budget
(dollars in
thousands)
Included in the
table above
regarding the
Ishai License
To the best of the Partnership's knowledge, an exchange of information agreement was recently
signed between the countries with regards to information about the Ishai License in Israel and
information about Block 12 in Cyprus. At the same time, there is uncertainty regarding the merger of
operations and on the issue of unitization of reservoirs.
submission
of
summary
1.10.2012.
2013
Included in the
table above
regarding the
Ishai License
1.2.2013
target
and
the
initial
engineering plan.
Submission
of
an
license area.
that
includes
detailed
1.9.2013
Submission
of
a
report
Included in the
table above
regarding the
Ishai License
-
-
-
-
-
Yahav License
Period
Summary
of
operations
Estimated overall
Scope of actual
2012
2013
planned
work
plan
(distinguishing
between
prospective
resources
assessment
report
in
accordance
with
the
Resources
Management
System (PRMS)
submission
of
summary
1.10.2012.
1.2.2013
target
and
the
initial
engineering plan.
Submission
of
an
license area.
that
includes
detailed
budget for the
operation on the
oil asset level
(dollars in
thousands)
Included in the
table above
regarding the
Ishai License
participation of
the holders of the
capital rights of
the Partnership in
the budget
(dollars in
thousands)
Included in the
table above
regarding the
Ishai License
Included in the
table above
regarding the
Ishai License
Included in the
table above
regarding the
Ishai License
-
-
-
-
-
-
-
-
1.9.2013
Submission
of
a
report
-
,
Yoad License
Period
2012
2013
Summary
of
operations
planned
work
plan
(distinguishing
between
prospective
resources
assessment
report
in
accordance
with
the
Resources
Management
System (PRMS)
submission
of
summary
1.10.2012.
1.2.2013
Estimated overall
budget for the
operation on the
oil asset level
(dollars in
thousands)
Included in the
table above
regarding the
Ishai License
Scope of actual
participation of
the holders of the
capital rights of
the Partnership in
the budget
(dollars in
thousands)
Included in the
table above
regarding the
Ishai License
Included in the
table above
regarding the
Ishai License
Included in the
table above
regarding the
Ishai License
-
-
-
-
target
and
the
initial
engineering plan.
Submission
of
an
license area.
that
includes
detailed
1.9.2013
Submission
of
a
report
-
-
-
1.5.2.6
Disclosure with regards to the actual participation rate in
expenses and revenue in the Pelagic Licenses
Below is a summary of the actual percentage attributed
to holders of capital rights of the Partnership in Pelagic
Licenses, as well as revenue and expenses including
projections related to Pelagic Licenses.
Participation rate
Percent
The effective share
attributed to holders
Partnership in Pelagic
Licenses
The effective share
Partnership in Pelagic
Licenses
The
effective
participation
percentage of holders
of capital rights in
expenses involved in
exploration,
development
or
production
in
the
Pelagic Licenses
1.5.2.7
Explanations
10%
Percent grossed
up to 100%
100%
7.25%
72.5%
See calculation in
Section 1.5.2.7
below
10.75%
107.5%
See calculation in
Section 1.5.2.7
below
Calculation of the actual rate attributed to holders of
capital rights of the Partnership in revenue from Pelagic
Licenses given a future scenario of discovery of gas or oil
in the Pelagic Licenses, including for the period following
materialization of this scenario
Item
Percent
the royalties or
payments are
calculated (including
deduction of expenses
and others) (and
description)
Projected
annual
100%
income of the oil asset
following discovery (%)
List royalties or payment (derived from revenue following discovery) on an oil
asset level
The government
(12.5%)
The operator
Seller of oil right
Geologist
or
service provider
-
other
Revenue neutralized on
oil asset level
The share attributed to
in neutralized oil asset
revenue:
Total shares of the
rights
of
the
Partnership
at
the
actual rate of revenue
on the oil asset level
(before other payments
on
the
Partnership
level):
Petroleum Law
establishes minimum
sums that the holder of
the holding must pay
per year. The effect of
effective revenue on the
quantified at this stage.
=======
87.5%
10%
8.75%
87.5%x10%
List of royalties or payments (derived from revenue following discovery) with
regards to an oil asset on the Partnership level:
Percentage
of
holders of capital
rights
of
the
Partnership
in
payments to the other
service provider that
derives payment on
the Partnership level
Percentage
of
36
(0.5%)
(1%)
5%x10%
Maximal royalty
based on transfer of
rights agreement
between the
Partnership and
Pelagic (see Section
1.2.2.10 (a) below)
10% x 10%36
As part of the Limited Partnership's agreement between the Partnership and the General Partner, the
and/or other valuable material to be produced and used from the oil assets in which the Limited
Partnership has or will have in the future an interest (based on the calculation and on the same basis
that will be applicable for payment of the royalty to the government in accordance with the Petroleum
Law (prior to deduction of royalties of any kind but after the subtraction of oil that will be used for the
production itself) at a rate of 10%.
holders of capital
rights
of
the
Partnership
in
payment
to
the
General Partner
Total
Percentage
of
holders of capital
rights
of
the
Partnership
in
revenue
due
to
receipt of additional
royalties from the
asset:
Actual
percentage
of capital rights in
revenue from the oil
asset:
-----------------(1.5%)
0%
7.25%
1.5.2.8
Calculation of the percentage actually attributed to the
holders of capital rights of the Partnership in exploration,
development and production expenses in the Pelagic
Licenses
Item
Percent
the royalties or
payments are
calculated and
description)
Theoretical
expenses
100%
as part of the oil asset
The operator
0%
Since a joint operating
agreement has not yet
been arranged, the
operator fee percentage
is still not known.
The General Partner
100%
asset level:
10%37
37
It should be noted that in the commercial agreement signed between the partners in the Pelagic
Licenses, which included provisions regarding the financing (carry) AGR's share in the Pelagic
expenses (in chain)
Partnership level)
expenses
by
the
Partnership
=======
10%
10%x100%
-
=========
Total
10%
Partnership level:
Operator
in
the
Partnership
The General Partner
0.75%
7.5% x 10%38
========
Actual
percentage
10.75%39
attributed
to
the
holders of capital
rights
of
the
Partnership,
in
expenses attributed
to
exploration,
development
or
asset.
Licenses, it was determined, inter alia, that the Partnership would assume the carried interest for its
relative share in AGR's share in these licenses, for a limited period until the occurrence of certain
events as specified in the commercial agreement – see section 1.5.2.10(c) below.
38
In accordance with the Limited Partnership agreement between the Partners and the General Partner,
the Partnership will assume of the operator's fee for the General Partner at a rate of 7.5% of all of the
Partnership's direct expenses for oil exploration and/or development and/or production for all oil assets
in which the Partnership has working interests.
39
This part does not include the Partnership's share in carried interest for its relative share in AGR's
share in the licenses. Taking into account said carried interest, the effective part attributed to the
holders of capital rights of the Partnership, in expenses incurred from exploration, development or
production in the oil assets is 11.3%.
1.5.2.9
Royalties and payments paid during the exploration,
development and production in an oil asset (dollars in
thousands)
Item
Actual
budget
invested in 2012
(including
said
payments)
Actual
budget
invested in 2013
(including
said
payments)
Actual
budget
invested in 2014
(including
said
payments)
1.5.2.10
Total percentage
of holders of
capital rights of
the Partnership in
investment
during this period
in the Pelagic
Licenses
8,718
Of
which,
percentage
of
holders of capital
rights
of
the
Partnership
in
payments to the
General Partner
Of
which,
percentage
of
holders of capital
rights
of
the
Partnership
in
payments to the
government
608
-
2,054
143
-
41
3
-
Description of the material agreements between the
Partners in the Oil Assets
(a) Transfer of rights agreement in the Pelagic Licenses
On 6.9.2010, the Partnership engaged in an agreement with
Pelagic Exploration Company (Hereinafter: Pelagic) to
transfer 10% (of 100%) of the rights in the Pelagic Licenses
(Hereinafter The Transferred Rights). For more information
on the main provisions of the agreement, see the Immediate
Report from 6.9.2010 (Reference 2010-01-614949).
On 17.1.2011, the terms to complete were fulfilled and the
transaction to acquire the transferred rights was completed.
On 7.11.2011, said transfer of rights was approved by the
Commissioner and said rights were registered under the
Partnership's name in the Petroleum Registry.
(b) Agreement to Arrange the Rights in the Pelagic Licenses
On 26.5.2011, Pelagic, ,Nammax, Daden, Frendum and
AGR (in this section: The Parties) engaged in an agreement
to arrange the rights in the Pelagic Licenses following a
request by Pelagic to the Commissioner for the transfer of all
of its rights in said licenses (100%) (Hereinafter The
Transferred Rights) to the other parties in the Agreement.
For a description of the main provisions of said agreement,
see Section 1.5.2.10(b) of the Partnership's Periodic Report
for 2013 that was published on 19.3.2014 (Reference
Number 2014-01-018732). The information appearing in
said report is introduced here by way of reference.
(c) Joint management and Operating Agreements of the Pelagic
Licenses
On 11.4.2012, several agreements were signed between the
Partnership, Nammax, Frendum, Daden and AGR (The
Operator) pertaining to the joint operation and management
of the Pelagic Licenses.
Said agreements include a framework agreement that states
that the parties will manage all Pelagic licenses jointly as
one block despite a separate joint operating agreement
(JOA) having been signed for each license; and a
commercial agreement, which includes provisions pertaining
to financing (carry) of AGR's share in the Pelagic licenses.
For a description of the highlights of said agreements, see
Section 1.5.2.10(c) of the Partnership's Periodic Report for
2013 that was published on 19.3.2014 (Reference Number
2014-01-018732).
For more about the provisions in the framework agreement,
see the Immediate Report from 15.4.2012 (Reference 201201-100245), for more about the provisions of the Joint
Operating Agreement, see the Immediate Report from
15.4.2012 (Reference 2012-01-100245) and for more about
the provisions of the commercial agreement, see the
Immediate Report from 15.4.2012 (Reference 2012-01100245).
The information appearing in said reports are introduced
here by way of reference.
In February 2015, the Partnership and Nammax sent Default
Notices by virtue of the Joint Operating Agreement that
applies to the Ishai License, as follows: (1) To Frendum,
since it failed to provide its relative share of the guarantees
to the Ministry of Energy and Water with regards to the Ishai
License, in accordance with the guidelines for providing
securities (for this matter, see Section 1.17.3.5 below) and
because if failed to pay its relative share in the work plan
budget in the Ishai license that was approved by the
Partners in the Ishai License, including Frendum. (2) To
Daden for failing to provide its relative share of the
guarantees to the Ministry of Energy and Water with regards
to the Ishai License, in accordance with the guidelines for
providing securities (for this matter, see Section 1.17.3.5
below).
1.5.2.11
Discovery of Contingent and Prospective Resources at
the Aphrodite site in the Ishai License
On 3.6.2012, the Partnership published an Immediate
Report with regards to the Contingent and Prospective
Resources Assessment in the Pelagic Licenses that was
prepared by Ryder Scott Company, L.P., an expert,
certified and independent reserves assessor (Hereinafter
in this section: The Assessor) in accordance with the
rules of the Petroleum Resources Management System
(SPE-PRMS).
For information, see the Immediate Report from 3.6.2012
(Reference 2012-01-144864). The information appearing
in said report is introduced here by way of reference.
On 11.4.2013, the Partnership published an Immediate
Report with regards to the Contingent Resources
Assessment Report in the Aphrodite reservoir in the Ishai
License that was prepared in accordance with the
Petroleum Resources Management System (SPEPRMS).
For information, see the Immediate Report from
11.4.2013 (Reference 2013-01-034843). The information
appearing in said report is introduced here by way of
reference.
In Appendix B of this report is attached the Assessor's
consent to include said resources report in the Statement
and the Assessor's approval in light of the time that
passed since the report date.
1.5.3
License 394/Oz (Hereinafter The Oz License)
Name of oil asset
394/Oz (Formerly Binyamin-Darom)
Location
Offshore oil asset located on the continental
shelf 50-65km west of the Israeli coast, on the
Tel-Aviv line, as presented as in the oil map
asset (see below).
Area in dunam:
Approximately 400,000
Type of oil asset
License
Original granting date of oil asset
20.12.2011
Original date of expiration of oil asset 19.12.2014
Date on which the decision was 10.11.2014
made to extend the oil asset period
Current expiration date of oil asset
Note whether there is another option
to extend the oil asset period; if so –
for how long
30.6.2016
There is an option in accordance with the law
(in accordance with the Petroleum Law)
In accordance with the Petroleum Law, the
period can be extended for up to seven years
from the original issue date of the license with
an option to extend another two years if a
discovery is made.
List the name of the operator
Caspian Drilling Company Limited (Hereinafter
CDC)40
List the names of the direct partners Fendum41-21.5%42
in the oil asset and their direct share Placida Investments Limited (Hereinafter
in the oil asset and to the best of the Placida)43 – 10%
knowledge of the General Partner, Lapidot-Heletz
Limited
Partnership
44
the names of the controlling (Hereinafter Lapidot-Heletz) - 41.5%45
shareholders in the said partners:
Coleridge Gas & Oil Exploration Israel L.P.
(Hereinafter Coleridge) – 12%
CDC-5%
For holding in the oil asset that was 14.2.2012
acquired – note the date of
acquisition:
Description of the nature and manner The Partnership holds 10% of the rights in the
of the Partnership's holding in the oil license.
asset (including chain of possession)
Note the actual share attributed to the Actual share attributed to holders of the capital
holders of the capital rights of the rights in the revenues of the oil asset – 7.5%
Partnership in revenue from the oil Actual share in the working interest in revenue
asset:
– 7.5%
40
To the best of the General Partner's knowledge, CDC is a foreign company registered in Azerbaijan,
and is a subsidiary of Socar, Azerbaijan's national oil company,.
41
To the best of the General Partner's knowledge, Frendum is a company registered in BVI, and is on
the report date, wholly owned by the Solidenergy trust, and holds rights to the oil asset for trust Teddy
Sagi
42
With regards to the options agreement to replace rights granted to Frendum that apply to Frendum's
rights in the Oz license, see Section 9.4 of Part B of the Immediate Report from 3.4.2012 (Reference
2012-01-093666). The information appearing in said report is introduced here by way of reference.
With regards to the obligation to transfer 1% of the interests in the license, which also apply to the
Partnership in accordance with its relative share, see Section 9.8(b) of Pat B of the Immediate Report
from 3.4.2012 (Reference 2012-01-093666). The information appearing in said report is introduced
43
To the best of the General Partner's knowledge, Placida is a company registered in BVI, and is on the
report date, wholly owned by the Solidenergy trust, and holds rights to the oil asset for trust Teddy Sagi
44
To the best of the General Partner's knowledge, Lapidot-Heletz is a limited partner that incorporated
in Israel whose securities are listed on the Tel-Aviv Stock Exchange whose General Partner is a
company controlled by Mr. Yaakov Luxenburg.
45
To the best of the General Partner's knowledge, Coleridge is an Israeli limited partner whose general
partner and limited partner are wholly owned by the foreign limited partner Coleridge Gas & Oil
Exploration LLP (Israel), which is registered in the United States, and is controlled by Mr. Larry Mizel
and his family.
Total share of holders of capital rights
of the Partnership in the aggregate
investment in the oil asset in the five
years that preceded the report date
(whether recognized as an expense
or
entered
in
the
financial
statements):
Actual share in the right to receive royalties –
0%
As of the date of the Partnership's financial
statements for 31.12.2014, the Partnership
paid a total of $4,564 thousand for the
operations in the licenses (see also Section
1.5.3.9 below)
1.5.3.2 Map of the Oz License
1.5.3.3 Operations in the Oz License area that were carried out before
the Partnership engaged in an agreement to acquire the rights in
the Oz License.
Below is a table that includes, to the best of the General Partner's
knowledge, based on information provided by Frendum, a
description of past material operations carried out in the field on
which the Oz License is located prior to the engagement in the
agreement to acquire the rights to the Oz License.
Identity of the
Performing Party
Period in which
operation
was
performed
Summary
description of the
operation
Petromed
Corporation
(Hereinafter
Petromed) and
East
Mediterranean
Exploration
Company
(Hereinafter
EastMed)
Petromed
and
EastMed
2008
Obtaining
an
preliminary
permit Binyamin
in an area that
included,
inter
alia,
the
Oz
license.
2008
Petromed
and
EastMed
via
Western Geco
2009
Compilation
of
available
geological
and
geophysical
information
3D
seismic
survey
Summary
description of the
results of the
operation
Compilation
of
geological
and
geophysical
material available
As part of the 3D
survey,
information was
compiled in an
area of 1,360
square km. The
survey
underwent fasttrack processing
at Western Geco
1.5.3.4 Compliance with the terms of the work plan in the Oz License as
of the report date
To the best of the General Partner's knowledge, as of the date of
this report, the work plan in the license has been fully complied
with. Presentation of the agreements with contractors to carry out
environmental surveys and monitoring plan in compliance with
Ministry of Energy and Water guidelines. A request was submitted
to the Commissioner on behalf of the Partners in the license to
defer the milestone dates in this work plan. As of the report date,
the Commissioner has not responded to the request.
1.5.3.5 The Work Plan in the Oz License
Below is a summary description of the main operations
actually performed in the Oz License from the date of
engagement in the rights acquisition agreement (1.4.2012)
and until the report date, as well as a summary description of
the planned operations, noting the estimated budget
required for each operation and the actual share of the
holders of the capital rights of the Partnership in this budget.
It is emphasized that the estimated costs and timetable are
based on general estimates only and can include significant
deviations. It should further be noted that the estimated work
plan, costs and timetables may change due to any results.
It is clarified that the data below and the projections
regarding the operations, costs and timetables for
performing the various operations are forward-looking
information that is not definitive and based on information
available to the General Partner as of the report date, and
includes the General Partner's assessments or intention
regarding performance of said operations as of the report
date that might change, based on any new findings obtained
(including as part of the surveys and/or stages of drilling to
be performed), as well as restrictions and/or outside
influences such as change in the terms of the oil assets (by
the Commissioner), delays in receiving the necessary
approvals and permits for performing various operations,
dependency on contractors, etc. Subsequently, the
operations actually performed and their cost might materially
differ from the estimated or assessed targets
Period
2012
2013
2014
Summary
of
operations
planned
work
plan
(distinguishing
between
 Processing
of
the
seismic survey data in
the prospective field
and preparation of a
report
 Acquisition of available
2D seismic surveys that
cover the license area
 On
24.4.2012,
an
agreement was signed
to conduct a 3D seismic
survey in the Oz license
field with a geophysics
contractor
 Conduction of a 3D
offshore seismic survey
between 19.6.2012 and
5.7.2012, based on
information provided to
the Partnership, the
survey covered 403.65
square km
 Processing
and
analysis of the seismic
survey. In November
2013,
the
data
processing and analysis
ended of the data
compiled during the
survey.
 In
April
2014,
a
prospective resources
assessment report was
submitted in the license
 Presentation of the
agreements
with
contractors to conduct
environmental survey
and monitoring plan
based on Ministry of
Estimated overall
budget for the
operation on the
oil asset level
(dollars in
thousands)
Approximately
209.36 (actual
cost)
Scope of actual
participation of
the holders of the
capital rights of
the Partnership in
the budget
(dollars in
thousands)
0 (the partnership
did not
participate in the
costs)
-
-
3,739
(*) approximately
1,875
1,246
(*) 159
54
(*) 7
-
-
2015





Energy
and
Water
guidelines
–
by
30.12.201446
Submission
of
a
complete environmental
document based on
15.5.2015
Submission of a signed
agreement
with
a
conduct drilling in the
license – by 31.8.2015.
Preparation
of
a
detailed
engineering
plan for drilling in the
license
area
and
submission of a request
to conduct drilling in the
license area – by
30.10.2015.
license in accordance
with
the
approved
drilling
plan
–
immediately after end of
drilling in license 395/
Arie
Submission of a report
summarizing the results
and findings of the
drilling – no later than 3
months
following
completion of the drilling
Not yet
determined
Not yet
determined
Not yet
determined
Not yet
determined
Not yet
determined
Not yet
determined
Not yet
determined
Not yet
determined
Not yet
determined
Not yet
determined
(*) Note that in accordance with the agreement to transfer the rights in
the Oz license from Frendum to the Partnership (Section 1.5.3.10 (1)
below), by the date of completion of the analysis of the seismic survey
data in the area of the Oz license and preparation of a comprehensive
report on the license area (CPR), the Partnership will assume all
approved costs that will be offset for Frendum's share and Placida's
share. In addition, according to the MOU between Lapidot-Heletz and
CDC that existed in the Oz license, as of the date of the Partnership's
engagement in the transfer of rights agreement (Section 1.5.3.10(2)
below), until completion of the test and review stage until a decision if
46
request has not been received
and where to drill, CDC will be entitled to the operators fee at a rate of
15% of the expenses of completing said stage. For information about the
request for arbitration before an arbitration court for international
arbitration in London that was received in the Partnership's offices on
13.7.2014 and that was submitted by CDC against the Partnership and
the other partners in the license regarding payments in accordance with
the interim agreement specified in Section 1.5.3.10(5) below and the
settlement agreement signed as a result, see Note 17f3 of the
Partnership's financial statements. See also in this matter the Immediate
Report from 18.12.2014 (Reference 2014-01-225066). The information
appearing in said report is introduced here by way of reference.
1.5.3.6 Disclosure of actual participation rate in expenses and income
in the Oz License
Below is a summary of the actual rate attributed to holders of the
capital rights of the Partnership in the Oz License, as well as the
revenue and expenses including projections related to the Oz License.
Participation Rate
Rate actually attributed
to holders of capital
in the Oz License
Rate actually attributed
to holders of capital
in the Oz License
Actua participation rate
in expenses involving
exploration,
development
or
production in the Oz
License
Percent
Rate gross up to 100%
10%
100%
7.5%
75%
12.03%-12.77%
120.2%-127.7%
Explanations
See
calculation
in
Section
1.5.3.7
below
See
calculation
in
Section
1.5.3.8
below
1.5.3.7 Calculation of the actual percentage attributed to holders of
capital rights of the Partnership in revenue from the Oz License,
given a future scenario of finding gas or oil in the Oz license,
including during the period following materialization of this
scenario
Item
Percent
Explanation
Projected annual income of
100%
the
oil
asset
following
discovery (%)
List royalties or payment (derived from revenue following discovery) on an oil asset level
The government
(12.5%)
The operator
Seller of oil right
Geologist or other service
provider
(2.5%)
Revenue neutralized on oil
asset level
The share attributed to
holders of the capital rights of
the Partnership in neutralized
oil asset revenue:
Total shares of the holders of
the capital rights of
the
Partnership at the actual rate
of revenue on the oil asset
level (before other payments
on the Partnership level):
Petroleum Law establishes
minimum sums that the
holder of the holding must
pay per year. The effect of
effective revenue on the
quantified at this stage.
There are agreements in
place between the
Partnership in the license and
a third party with regards to
payments of the overriding
royalty, with the Partnership
being subject to these
agreements and pursuant to
the percentage of the
overriding royalty not
exceeding 2.5% (see also
Section 1.5.3.10 (3) below)
=======
85%
10%
8.5%
85%x10%
On the Partnership level:
Percentage of holders of
capital
rights
of
the
Partnership in payments to
the other service provider
that derives payment on
the Partnership level
Percentage of holders of
47
-
(1%)
10%x10%47
As part of the Limited Partnership agreement between the Partnership and the General Partner, the
and/or other valuable materials to be produced and used from the oil assets that currently exist or that
will exist in the future. The Limited Partnership has an interest (based on the calculation and on the
capital
rights
of
the
Partnership in payment to
the General Partner
Total
Actual
percentage
attributed to holders of
capital rights in revenue
from the oil asset:
-----------------(1%)
7.5%
same basis that will be applicable for payment of royalties to the government in accordance with the
Petroleum Law) (before deduction of royalties of any kind but after deduction of oil that will be used
for the production itself), at a rate of 10%.
1.5.3.8 Calculation of the actual percentage attributed to holders of
capital rights of the Partnership in exploration, development and
production expenses in the Oz License
Item
Percent
Explanation
Projected expenses as
100%
part of the oil asset
The operator
7.5%-15%
For information
regarding the method of
calculating the operator
fees, see Section
1.5.3.10(2) below.
The General Partner
===========
107.5%-115%
asset level:
10%
expenses (in chain)
=======
10.75%-11.5%
107.5%x10% of holders of capital
115%x10%
Partnership level)
Obligation to assume
0.52%
5%x10.5% (10.5% is
the operator's share so
the Partnership's
that the Partnership's
relative share in the oil
relative share in the oil
asset without the
asset:
operator)
For information
regarding this
obligation, see Section
1.5.3.10 (20 below.
Assuming that an
assignation of economic
rights with regards to
4% of the CDC to the
Partnership in the
license will not be
allowed. For
information, see Section
n1.5.3.10(2) below.
expenses
by
the
Partnership
-
=========
Total
11.27%-12.02%
Partnership level:
The General Partner
0.75%
7.5%x10%48
========
Actual
percentage
12.02% - 12.77%
attributed
to
the
holders of capital
rights
of
the
Partnership,
in
expenses attributed
to
exploration,
development
or
asset.
1.5.3.9 Royalties and Payments Made during the Exploration,
Development and Production Operations in the Oz License
(Dollars in Thousands)
Item
Actual
budget
invested in 2012
(including
said
payments)
Actual
budget
invested in 2013
48
Total percentage
of holders of
capital rights of
the Partnership in
investment
during this period
in the Oz License
(*)
886
Of
which,
percentage
of
holders of capital
rights
of
the
Partnership
in
payments to the
General Partner
Of
which,
percentage
of
holders of capital
rights
of
the
Partnership
in
payments to the
government
23
-
2,310
161
-
In accordance with the Limited Partnership agreement between the Partnership and the General
Partner, the Partnership will assume the cost of the operator's fees to the General Partner at the rate of
7.5% of all of the Partnership's direct expenses attributed to the exploration and/or development and/or
production operations for the oil assets in which the Partnership has working interests.
(including
said
payments)
Actual
budget
invested in 2014
(including
said
payments)
3,883
271
-
(*)(*) Note that in accordance with the agreement to transfer the rights in
the Oz license from Frendum to the Partnership (Section 1.5.3.10 (1)
below), by the date of completion of the analysis of the seismic survey
data in the area of the Oz license and preparation of a comprehensive
report on the license area (CPR), the Partnership will assume all
approved costs that will be offset for Frendum's share and Placida's
share. In addition, according to the MOU between Lapidot-Heletz and
CDC (section 1.5.3.10(2) below) in which until completion of the test and
review stage until a decision if and where to drill, CDC will be entitled to
the operators fee at a rate of 15% of the expenses of completing said
stage. The listed sum also includes the operator's fee to the CDC as
specified and past expenses paid by the Partnership in the amount of
$550 thousand.
For information about the request for arbitration before an arbitration
court for international arbitration in London that was received in the
Partnership's offices on 13.7.2014 and that was submitted by CDC
against the Partnership and the other partners in the license regarding
payments in accordance with the interim agreement specified in Section
1.5.3.10(5) below and the settlement agreement signed as a result, see
Note 17f3 of the Partnership's financial statements. See also in this
matter the Immediate Report from 18.12.2014 (Reference 2014-01225066). The information appearing in said report is introduced here by
way of reference.
1.5.3.10 Description of the Material Agreements between the Partners in
the Oz License
(1) Agreement to transfer rights in the Oz License from Frendum
to the Partnership
On 1.4.2012, the Partnership engaged in an agreement with
Frendum to transfer 10% ( of 100%) of the working interests in
the Oz License (Hereinafter Transfer of Rights Agreement).
For information regarding the Anti-trust Commissioner's
approval with regards to the transfer of rights in the license to
the Partnership and the terms, see the Immediate Report from
appearing in this report is introduced here by way of reference.
For information regarding the main provisions of the Transfer of
Rights Agreement, see Part A of the Immediate Report from
appearing in this report is introduced here by way of reference).
(2) Agreements that had been in place in the Oz License as of the
date of the Partnership's engagement in the Transfer of Rights
Agreement
For information regarding the agreements that had been in
effect in the Oz License as of the date of the Partnership's
engagement in the Transfer of Rights Agreement, see Part B of
the Immediate Report dated 3.4.2012 (Reference 2012-01093666). The information appearing in this report is introduced
(3) Agreement that arranges the relationship between the
Partnership, Frendum, Placida and Lapidot-Heletz with regards
to the granting of Overriding royalty to the Consultant
On 11.11.2012,an agreement was signed between the
Partnership, Frendum, Placida and Lapidot-Heletz and a third
party (Hereinafter: The Consultant) regulating the relationship
between the parties with regards to the granting of a overriding
royalty to the Consultant and revokes past agreements entered
into between the parties with regards to the overriding royalty.49.
For information about the said agreement, see Section
1.5.3.10(3) of the Partnership's Periodic Report for 2013
published on 19.3.2014 (Reference Number 2014-01-018732).
(4) Joint Operating Agreement (JOA) based on the AIPN2002
model
The Partners in the Oz License intend to sign a Joint Operating
Agreement that will apply to the license area. As of the report
date, no such agreement has been signed.
(5) Interim Agreement with the Operator in the Oz License
On 23.5.2012, an agreement was signed between the
Partnership, Frendum, Placida, Lapidot-Heletz and Coleridge
and CDC (Hereinafter in this section The Operator), intended to
regulate the Operator's activity aimed at carrying out the Oz
License work plan over the course of the period until the signing
49
In accordance with the agreement from 17.5.2010, Lapidot-Helezt undertook to the Consultant to
grant the Consultant overriding royalty at 3% of the value of any gas, oil or any other petroleum to be
produced in the license area to be granted to Lapidot-Heletz (on its own or with others if LapidotHeletz submits the request with others), in consideration of consulting services, as defined in the
Agreement, with regards to the engagement between Lapidot-Heletz and the CDC, assistance in
negotiations with CDC ahead of the signing of the Memorandum of Understandings and in finding a
replacement for CDC should a relevant agreement with the CDC not be signed, within 60 days from
the date of the written request. For information, see Section 9.8 of Part B of the Immediate Report from
3.4.2012 (Reference 2012-01-093666). The information appearing in said report is introduced by way
of reference.
of final agreements (Joint Operation Agreement and other
associated agreements) pertaining to the Oz License.
For information on the main provisions of th Agreement, see the
Immediate Report from 23.5.2012 (Reference 2012-01-133668).
The information appearing in said report is introduced here by
way of reference.
For information about the request for arbitration before an
arbitration court for international arbitration in London that was
received in the Partnership's offices on 13.7.2014 and that was
submitted by CDC against the Partnership and the other
partners in the license regarding payments in accordance with
the interim agreement specified in Section 1.5.3.10(5) below
and the settlement agreement signed as a result, see Note 17f3
of the Partnership's financial statements. See also in this matter
the Immediate Report from 18.12.2014 (Reference 2014-01225066). The information appearing in said report is introduced
1.5.3.11 Discovery of Prospective Resources in the Oz License
On 27.4.2014, the Partnership published a projected resources
report (prospective) in the Oz license, that was prepared
byNetherland, Sewell & Associates, Inc., an external
independent expert assessor (The Assessor) in accordance
with the rules of the Petroleum Resources Management System
(SPE-PRMS).
For information, see the Immediate Report from 27.4.2014
In Appendix C of this report is attached the Assessor's consent
to include said resources report in the Statement and the
Assessor's approval in light of the time that passed since the
report date.
Part D – Issues pertaining to the Partnership's Operations
1.6
Operator Services
The General Partner or any of its agents will be the party responsible
for management and performance of all oil exploration operations,
including development and/or production with in the confines of the oil
assets in which the Limited Partnership has an interest (Hereinafter
The Operator), and he or any of its agents is entitled to be appointed
as Operator within the confines of the oil assets in which it will have an
interest in the future.
The General Partner or any of its agents will be entitled with regards to
all oil assets in which the Partnership has working interests, even if it
does not act as operator of the oil assets, the "Operator Fees" at a rate
of 7.5%50 (plus VAT) of total direct expenses of the Partnership (on a
dollar basis) for oil explorations and/or development and/or production
(not including expenses fro management fees included in the
Partnership Agreement), which will be calculated and adjusted every
month on an aggregate basis.
With regards to each oil asset in which the Partnership has working
interests, in which the Partnership will incur expenses for construction
work and/or installation of oil production facilities (not including drilling
expenses), the General Partner will bring to the approval of the general
assembly of participation unit holders, using the approval mechanism
set forth in the Trusteeship Agreement, a proposal for a rate of
Operators Fees that will apply for the construction work and/or
installation of oil production facilities in the oil asset. If the general
assembly fails to approve the Operator's Fee proposed by the General
Partner as specified or any other rate to be agreed upon with the
General Partner, within 90 days from the date on which the General
Partner brought to the assembly for approval said Operator's Fee, will
be the rate for Operator's Fees with regards to construction work
and/or installation of oil production facilities in said oil asset 5% of the
expenses (on a dollar basis).
Said Operator Fees will be paid in every period in which the
Partnership exists and in which it has oil assets, for Operator actions in
all oil assets of the Limited Partnership in geographical areas in which
it has operated to date, regardless of whether other assets will be
added or removed. To remove any and all doubt, it is hereby clarified
that the Operator Fees will not be paid for current operating expenses
of the Limited Partnership and will not be paid for reimbursement of
past expenses.
The General Partner will be entitled to receive said Operator Fees
even if other partners are added to the oil assets. In this case, the
Limited Partnership and its additional partners will determine how the
debts will be distributed amongst themselves.
The General Partner will be entitled to perform all or some of its
functions as Operator, via an operator or secondary operator, at its
discretion, but this does not derogate from its responsibilities.
1.7
50
Profits (losses) recognized for tax purposes
Below is a list of the profits (losses) for tax purposes as attributed to
the holder of one participation unit between 2012-2014:
7.5% is the standard rate for Operator Fees in oil and gas exploration sector.
Income Tax Authority audit for 2012-2013 has not yet ended. Hence,
the sum of the recognized loss for income tax purposes has not yet
been established for the eligible holder due to the Partnership's holding
of the participation unit for the 2012-2013 tax years. Once the Tax
Authority audit has been completed, and the sum of the loss
recognized for tax purposes has been established for the eligible
holder for the 2012 and 2013 tax years, a certificate will be issued to
calculate the loss recognized for tax purposes to the eligible holder and
an Immediate Report will be issued accordingly.
In accordance with the clarifications received from the Tax Authorities,
the eligible holder who filed an income tax report, the eligible holder
who filed the tax report for 2013 and unp to 31.12.2104 (Hereinafter:
The Original Filing Date) with no details regarding his share in the
Partnership's loss due to the lack of said certificate, and within 30 days
after the issuance of said certificate, will file an amended report, the
original filing date will be considered as the date on which the report
was filed.
Profit (loss) recognized for tax purposes for 2014 will only be
established after an appraisal has been submitted and approved by the
Tax Authority.
Year
2012 (estimate)
2013 (estimate)
2014 (estimate)
1.8
Profits (losses) recognized for tax
purposes attributed to the holder of
one participation unit of NIS 1 n.v. per
unit (in NIS)
(0.0697)
(0.0241)
0.0007
Competition
See Section 1.4.8 above.
1.9 Human Capital
The Partnership assumes some of the cost of employment (40% and
33.3% respectively) of two employees working on Partnership affairs –
the internal legal consultant (valid from 1.6.2014) and the investor
relations director (valid since 27.7.2014) (attributed to matter handled by
them for the Partnership) and who are employed, for convenience
purposes, via the General Partner.
In accordance with the Partnership Agreement, the General Partner
manages the Limited Partnership's business. The General Partner
provides the Partnership with managerial services that include, inter alia,
managers (directors of the General Partner) and office services.
In addition not the General Partner managers, the Partnership is helped
by consultants (inter alia, lawyers and financial advisors), for as long as
said consultation is required (it should be noted that within the confines of
the operating agreement in project with several partners, the project
operator (the Operator) employees personnel for project management
and operation. The Partnership leases from time to time the services of
professional service providers specializing in the oil exploration sector.
Mr.Eyal Shuker serves as CEO of the General Partner. CPA Gil Sultan
serves as CFO of the General Partner.
1.10 Raw Material and Suppliers
Recent years have seen a significant increase in metal prices, which are
a significant factor in exploration and development costs.
Furthermore, in recent years, demand for service providers in the energy
sector has risen, resulting in a significant increase in operating costs in
the sector as well as in the availability of contractors and necessary
equipment.51
1.11 Investments
In 2012, 2013 and 2014, the Partnership incurred expenses for oil and
gas explorations as follows:
2012
(dollars in
thousands)
(*) 3,368
2013
(dollars in
thousands)
-
2014
(dollars in
thousands)
-
Investment in oil
and gas assets
Capitalized
8,112
2,269
4,007
expenses for oil
and gas assets
Total for the year
11,480
2,269
4,007
(*) Constitutes payments made for the share of the Partnership, Frendum
and Placida in the Oz License, $550 thousand of which attributed to past
expenses.
For more information on the projected costs of the planned operations in
each of the oil assets in which the Partnership has an interest, see
Sections 1.5.1.5, 1.5.2.5 and 1.5.3.5 above.
1.12 Insurance
1.12.1 Oil exploration operations are subject to operating risks as
specified in Section 1.25.2 below.
1.12.2 Against some of these risks, the Operator in the oil asset field
acquires standard insurance policies for the oil and gas
exploration sector while complying with the requirements of the
law, terms of license, scope of Partnership operations and its
exposure
carries to the start date of the operation that
entails the aforementioned risks. The insurance coverage for loss
of control risks at the well and third party liability is acquired as
part of the Operator's insurance plan. The scope of coverage is
the Operator's responsibility and changes from one drilling site to
51
In every 'drilling project' in which the Partnership has rights, a project operator is appointed. The
Operator engages with professional contractors and holders of the equipment needed for every project.
Israel does not currently have contractors to carry out drillings and offshore seismic surveys.
Subsequently, the Operators of offshore operations engage foreign contractors to perform said work.
The leading drilling tools from around the world in accordance with availability, type of project and
unique needs of each project. The rise in crude oil prices worldwide has resulted in increased demand
for service providers, and subsequently to a significant increase in project costs as well as decreased
availability of contractors and necessary equipment. When the Partnership is not the Operator, the
Partnership does not generally engage directly with the suppliers or professional contractors and the
engagement is between them and the project operators. Significant raw material in the operations and
in the exploration and production facilities is metal designated for constructing the pipeline, for drilling
and platform structures. Recent years have seen a surge in metal prices around the world.
the next, and does not necessarily provide full coverage to
exposures attributed to the drilling activity.
1.12.3 The Partnership independently acquired senor officer liability
insurance for the Partnership and for the General Partner, for a
period that begins on 1.7.2014 and ends on 30.6.2015. The
definition of an officer in the policy was expanded to include the
supervisor of the Partnership. The limits of liability and legal
expenses - $10 million per incident and period. The annual
premium for the Partnership is $5,355.
1.12.4 It should be noted that the Partnership periodically reviews the
scope of insurance acquired based on exposure, with regards to
insurance costs and insurance supply for the energy sector. As a
result, the Partnership can decide to change the coverage
acquired and/or change the insurance sum acquired and/or not
purchase any insurance for any particular risk.
1.13 Working Capital
Current assets
Current liabilities
Surplus current
assets
over
current liabilities
Sum included in Adjustments (for
the
financial a period of 12
statements
months)
(dollars
in
thousands)
24,024
251
23,772
-
Total
24,024
251
23,773
1.14 Financing
1.14.1
1.14.2
1.14.3
1.15 Taxes
The General Partner is entitled to receive, at its discretion,
written approval in advance from the Commissioner, credit on
behalf of the Limited Partnership for the purposes of the Limited
Partnership, for the operation and development of the Limited
Partnership's oil assets, and to lien for this purpose the Limited
Partner's assets.
Tax Authority approval issued to the Partnership states that the
Partnership will not take out loans in amounts that exceed 3% of
the sum to be raised by investors in the Partnership without the
expressed written consent of the Income Tax Commissioner.
As of the report date, the Partnership's financing was done
through money derived from the Limited Partner's investments
in Partnership capital.
For information regarding the applicable tax laws as pertaining to the
Partnership and/or various tax issues, see Note 10 of the Financial
Statements.
The tax issued associated with the activity of the Limited Partnership
have not yet been discussed by the court in Israel, and there is no way of
foreseeing or determining how the courts will rule if and when the said
legal issues are given for their decision. In addition, for some of the legal
issues, there is no way of foreseeing the tax authorities' position.
Whereas a unique tax regime applies to the activity of the Partnership
which includes tax benefits, the changes that will be caused following the
amendments to the law, the ruling or the position of the water authority
as said, there may be significant implications to the tax regime applied to
the Partnership.
On 13.4.2010, the Ministry of Finance issued notice announcing the
Minister of Finance's appointment of a committee to review fiscal policy
pertaining to Israel's oil and gas resources (the committee was charged
with reviewing the fiscal system adopted in Israel as it pertains to oil and
gas resources, and to propose an updated fiscal policy) (Hereinafter The
Sheshinsky Committee). As a result of the committee' final conclusions,
on March 30, 2011, the Knesset passed the Oil Profits Taxation Law
2011. For information, see Note 10a of the Financial Statements. The
Partnership believes that implementation of the law might significantly
increase the tax burden on the Partnership and on other corporations in
the sector vs. the state on the eve of enactment of the law.
1.16 Environmental Risks and Management
1.16.1
Drilling entails risk of environmental damage that might be
attributed, inter alia, to eruptions and/or oil spills and/or gas
leaks, combustion in equipment and/or in work procedures
and/or to unexpected events. The severity of the risks varies
from one incident to the next. As a result, their management and
treatment varies as well. The Petroleum Law and its regulations
require that when drilling, precautionary measures be adopted
to prevent liquids and gases from permeating the soil
uninhibitedly, and prevent them from infiltrating one geological
strata to another. The regulations also prohibit abandonment of
a well without sealing it in compliance with the Commissioner's
instructions.
1.16.2
Prior to the start of drilling, the Operator generally acquires, if
possible, insurance to cover environmental damage caused by
an uncontrolled eruption of oil and/or gas.
1.16.3
In March 2011, the Ministry of Environmental Protection
published initial guidelines on environmental protection, from the
test drilling to the announcement of a discovery, the
development drilling stage to the onshore drilling production
1.16.4
1.16.5
stage (including a serious of existing drillings) in order to
prevent to the extent possible environmental pollution, including
pollution of the ground and water sources. The guidelines set
forth, inter alia, that approval from the Ministry of Environmental
Protection must be obtained in accordance with the guidelines.
The document includes guidelines for preventing pollution of the
underground and underground water, including with regards to
chemicals permitted for use, drilling, removal of waste onshore,
whether the drillings were onshore or offshore, pools to collect
drilling mud temporarily, storage for diesel and crude oil, and
requirements for removal sites as well as quality of the drilling
liquids that are cleared and the quality of drill chips and the
procedure for managing spills and leaks. At this stage, the full
impact that these guidelines may have on costs and on the way
the Partnership operates cannot be fully assessed.
On March 22, 2011 and on April 29, 2013, a private draft law
was tabled on the Knesset known as the Petroleum Draft Law
(Amendment – Environmental Protection-2011, which pertains
to establishing essential environmental regulatory and control
mechanisms with regards to oil and gas exploration and
production. Said draft law anchors representation of the
environmental officials, headed by the Minister of Environmental
Protection, as legal entities and anchors the obligation to take
environmental considerations into account during decisions
made in accordance with the Petroleum Law. The draft law sets
forth, inter alia, that restrictions can be imposed on the terms of
license or in the preliminary permit designed to prevent and
minimize environmental damage, and that it will adopt measures
against any license holder or anyone with rights to oil that
causes or that might cause environmental damage. At this
stage, the possible implications of Partnership operations in the
event of approval of said draft law, in its current version, cannot
be fully assessed.
On 14.12.2011, The Ministry of Environmental Protection issued
a letter to the holders of the oil rights pertaining to the
environmental arrangement of the offshore oil and gas
exploration, drilling and production through various facilities,
including regulation and control of all said facilities as well as
offshore monitoring. Holders of the oil rights were asked to file
by 1.2.2012, if necessary and in accordance with the law, a
request for an offshore flow /levy permit (which, if given, the
format and scope of the offshore monitoring, if needed, will be
determined by the Ministry of Environmental Protection),
information and documents regarding the use of poisons whose
use requires a poisons permit and a request for said permit, a
detailed plan of the gas or oil transmission pipeline whose
holdings and underwater facilities they own or they intend to
deploy as well as the operating plan to manage offshore oil
pollution events. Said holders of the rights who own the offshore
facility that is a vessel, were asked to coordinate with the
1.16.6
Ministry of Environmental Protection an inspection to examine
compliance with the provisions of the MARPOL convention.
The Petroleum Regulations (Authorization to Deviate from the
Provisions of the Planning and Building Law) 2012 (Hereinafter
The Authorization Regulations) include an organized planning
process that will apply to the oil and natural gas drilling in Israel.
The regulations set forth that the holder of the oil right seeking
to carry out a drilling by deviating from the provisions of the
Planning and Building Law and its regulations, must submit a
request for authorization to act with the relevant district
committee, to which will join a representative of the Minister of
Infrastructure.
The request must include, inter alia, an environmental
document. The environmental document will be prepared in
accordance with the Ministry of Energy and Water guidelines
upon consultation with the Ministry of Environmental Protection,
and will list the environmental impacts, including storage and
conveyance of the products of these actions, a review of
options, location and technology as well as recommendations
with regards to the required guidelines and measures to
minimize any potential impact of the exploration, as well as
provisions with regards to restoration of the site upon
completion of the applicant's operations in the field.
In addition, the request will include a text description of the
requested actions, a map in a scale of 1:50,000, as well as a
diagram of the area of drilling activity, which includes the drilling
site, accompanying infrastructures and all access roads and
streets used to transport oil, as well as the buildings and
facilities in its area, on a scale of at least 1:2,500. The borders
of the site will include the area subject to the restrictions as a
result of site activity, with regards to the approved land
designation.
The district committee will convene a discussion of the request
within 45 days from the date of its receipt but no earlier than 14
days from the date of transfer of the opinion regarding the
environmental document issued by the representative of the
Minister of Environmental Protection or from the date of
submission of said opinion. Said opinion will be submitted within
30 days from the date of submission of the environmental
document to the committee. The committee is entitled to decide
to continue the discussion of the request at another meting if
necessary, at its discretion.
The Authorization Regulations distinguish between the
temporary stage of exploration drilling and the commercial stage
of production. During the temporary stage, prior to the
exploratory drilling takes place, a request will be submitted with
the district committee that will not include the change in land
designation and the approval process will include committee
discussions and will incorporate public objections. During the
commercial stage, during which commercial production will take
place, a detailed plan will be submitted to the committee that will
include a request for change in land designation as well as
details fro all systems that the license holder wishes to construct
at the site.
Preparation of the environmental document and request
approval process may take several months.
1.16.7
Holders of the oil rights are required, in accordance with the
Petroleum Law, the regulations that by virtue of which and the
Petroleum Law to transfer to the Commissioner reports of the oil
exploration activity in the oil rights areas, notice of their intention
to carry out test drillings and development as well as an
obligation to prepare an environmental document. The
requirement to prepare an environmental document that
accompanies the license is also anchored in the second
addendum to the license, as a special stipulation that comprises
an integral part of the license and the work plan, and is
mandatory for the holder of the right.
1.16.7.1 Environmental Guidelines for Onshore Oil and Natural Gas
Drillings
On 1.8.2013, the final version of environmental guidelines
were published that were designed to prevent, or minimize to
the extent possible, environmental damage that might result
during the exploration and production of oil and natural gas,
and to formulate rules so that the work involved in this activity
will be safer. Within the confines of the work plan that will be
attached to the license, the holder of the oil right will be
required to act in compliance with said guidelines. In addition,
the guidelines are based on the environmental demands that
must be met, and on the appendices that detail the guidelines
for example that will be adapted to every oil right on an
individual basis. As a condition for receiving approval to drill,
the license holder will submit a request for drilling approval
accompanied by an environmental document on the
authorization regulations. In addition, as part of the request,
the document will include an environmental impact report on
the operations.
1.16.7.2 Environmental Guidelines for Offshore Oil and Natural Gas
Drillings
On 1.12.2013, the Ministry of Energy and Water published
draft environmental guidelines for offshore oil and natural gas
exploration and production for public review. The guidelines
were designed to prevent, or minimize to the extent possible,
environmental damage that might occur during the offshore oil
and natural gas exploration and production operations, and to
formulate rules so that the work involved in these activities will
be carried out in the safest manner possible. In addition, the
guidelines were designed to instruct the holders of the
offshore rights, of the operations and documents they need to
prepare in order to optimally clarify management and
preparedness to prevent and minimize environmental damage
that might occur as a result of the offshore oil and natural gas
exploration and production. As of the report date, the final and
binding version of said guidelines have not yet been
published.
Within the confines of the work plan that will be attached to
the license, the holder of the oil right will be required to act in
compliance with said guidelines. Furthermore, the guidelines
are based on environmental requirements that apply to the
holders of the rights, and their appendixes that detail the
guidelines, e.g. that will be adapted to every oil right
individually.
In the activities as part of the license that is given in Israel's
territorial waters, the license holder will submit, as part of the
conditions for obtaining drilling approval, a request for
Commissioner approval that includes the following
documents:
Environmental document in accordance with the Authorization
Regulations that includes a background monitoring plan for
the offshore environment; an operational contingency plan to
manage offshore oil spills to be submitted for approval to the
Ministry of Environmental Protection's Marine and Coastal
Division. The environmental document to be submitted as part
of the request will include an environmental impact report of
the activities.
Said environmental guidelines may affect cots as well as the
Partnership's operations. At this stage, the impact of these
guidelines on Partnership operations cannot be fully
assessed.
1.16.8
On 15.1.2013, the opinion of Adv. Avi Licht, Deputy Legal
Advisor to the Government (economic-physical) was published
directed at the government's legal advisors on the applicable
law for offshore areas that are outside Israel's territorial waters,
and that are included in Israel's 'exclusive economic zone' or
'continental shelf' (Hereinafter in this section The Offshore
Areas). The opinion claims that according to the current law,
and until legislation of a specific law with regards to these
Offshore Areas, Israeli regulation in gas and oil, environmental
protection laws and physical laws of Israel applicable to the
Offshore Areas, for both the bottom of the ocean and
underground of the designated facilities for searching for natural
resources and their production from the ocean floor and any
designated exploration, production and transmission of natural
resources from the ocean floor. These opinions ostensibly
reveal that all Partnership operations are subject to existing
regulatory arrangements pertaining to environmental protection
in Israel, including environmental protection laws and Ministry of
Environmental Protection guidelines. Said arrangements may
affect costs and Partnership operations the scope of which, as
of the date of the report, cannot be fully assessed. The
Partnership intend to study the opinion and its implications, and
will review its steps in this area.
1.16.9
It should be noted that policy regarding environmental risk
management in projects in which the Partnership is involved,
are implemented, regulated and managed by the Operator in
each of the projects. As of the report date, the Partnership does
not serve as the Operator in any of the projects in which it is
partner.
1.16.10 As of the report date, and to the best of the General Partner's
knowledge, no legal and/or administrative proceeding is being
carried out against the Partnership and/or any of the officers in
the General Partner with regards to environmental protection.
To the best of the General Partner's knowledge, the Partnership
is in compliance with the requirements of the law in this area.
1.17 Restrictions and Regulations on Limited Partnership Operations
1.17.1
Every one of the Partnership's participation units grants its
holders working interests in the Limited Partner's rights in the
Partnership, held and operated by the Trustee, in a trust on
behalf of the holders of the participation units and under the
supervision of the Commissioner appointed in accordance with
the Trusteeship Agreement from 10.2.2010 signed between the
Trustee and the Commissioner (Hereinafter The Trusteeship
Agreement) as amended.
The Trusteeship Agreement grants the Commissioner
regulatory authorities over the Limited Partnership's
management by the General Partner, designed to protect the
rights of the unit holders and prevent their discrimination. In
addition, the Trusteeship Agreement grants the Commissioner
regulatory authorities over compliance of the Limited Partner
and Trustee's obligations to the unit holders.
1.17.2
Specific Legislation
Exploration and production are subject to the Petroleum Law
and its amendments. Gas transmission and marketing are
subject to the Gas Law.
a. The Petroleum Law
Oil exploration in Israel are primarily regulated in the
Petroleum Law (in this section The Law) and the Petroleum
Regulations and the offshore regulations (as specified in
subsection b and c below).
The law prescribes, inter alia, that individuals will not search
for oil but in accordance with an "preliminary permit",
"license" or "Holding Note" (as defined in the Law) and will
not produce oil except in accordance with the license or
holding note.
The conduction of preliminary tests (that do not include test
drilling) in any area in order to detect any changes for
discovering oil, including the conduction of seismic surveys,
in the area is contingent on obtaining the preliminary permit.
The Law allows pre-emptive right to the holder of the
preliminary permit to receive oil right in the area for which
the preliminary permit was given if he undertakes to perform
the preliminary test and investments regarding oil
explorations to be determined by the authorized
representatives of the government in this matter.
"License" grants its holders, subject to the provisions of the
Law and the terms of the license, primarily the right to
search for oil in the license area, in accordance with a plan
submitted to the Petroleum Commissioner and in
accordance with the Petroleum Law, and the exclusive right
to conduct test drills and development drilling in the license
area and to produce oil. The license will be granted for an
open area only, for a period not exceeding 3 years with an
option for extension, under the terms prescribed by law, for
up to 7 years from the date of its issuing. In addition, no
individual will have more than twelve licenses, and will not
have licenses for total area that exceeds four million dunams
without the expressed written consent of the Advisory
Council in accordance with the Petroleum Law. A license
holder must begin oil explorations within four months from
the date on which the license was issued and must continue
for the duration of the license. In addition, the license holder
must begin the test drilling on the date prescribed in the
terms of the license and no later than the end of two years
following the issue of the license, and must continue until a
discovery is made. Should a license holder identify said
discovery, he will be obligated (in the absence of a counter
point) to produce oil, establish the borders of the oil field and
to develop it.
Where the license holder has made a discovery in the
licensed area, the Commissioner shall extend the term of the
license for such time as will give the licensee a sufficient
period, not exceeding two years, within which to define the
petroleum field. Subject to the provisions of this Law, a lease
confers upon the license holder the exclusive right to explore
for and produce petroleum in the area of the license so long
as the license is valid.
No license area shall be granted for an area exceeding two
hundred and fifty thousand dunams. Save with the prior
approval of the Authority, no person shall hold leases for an
area exceeding three million dunams. The term of a lease
shall be thirty years from the date of the grant thereof, except
that where a lease is granted pursuant to a license extended
after a discovery in the licensed area, the said term shall run
from the date on which the license would have expired but
for such extension. Where a license holder has complied
with his obligations, his lease shall be renewable for an
additional term of twenty years on reasonable terms fixed by
the Commissioner after consultation with the Authority.
Where a lessee has not within the first three years from the
grant of the lease produced petroleum from the leased area
in commercial quantities and the Minister after expiration of
the said period has given him notice requiring production in
commercial quantities to be commenced within a stated
period of not less than sixty days, the lease shall expire at
the end of the stated period unless production is commenced
as required by the notice.
The Petroleum Law mandates, inter alia, that the lessee (or
license holder) that is producing oil pay the government a
royalty of one-eighth of the quantity of oil produced from the
leased area and used, with the exception of a quantity of oil
used by the lessee to operate the leasing area, but in any
case, the royalty will not be less than the minimum royalty
prescribed by the Law.
The Law mandates the keeping of a petroleum register,
which shall be open to the public for inspection. In this
register shall be recorded, in such detail as may be
prescribed by the regulations, all applications for petroleum
rights submitted and all licenses, leases and surface leases
granted under this law; Any transfer of a petroleum right or
an interest therein or any charge on such a right or interest
shall be registered in the petroleum register, in a manner and
upon payment of a registration fee to be prescribed by the
regulations; no such transaction shall be valid before it has
been so registered.
The Commissioner (as defined by the Law) may cancel a
petroleum right or priority right if the holder thereof - fails to
comply with any of the provisions of this Law or any
regulation or order made thereunder; fails to comply with any
condition of his petroleum right or preliminary permit; or fails
to act in accordance with the plan of operations submitted by
him or lags behind the time-table for its implementation or
fails to invest in petroleum exploration the amounts he has
undertaken to invest towards the implementation of the plan
of operations, notwithstanding written notice given him by the
Commissioner sixty days previously calling upon him to
adhere to that provision, condition or undertaking and
warning him that non-adherence may entail the cancellation
of his petroleum right or priority right.
b. The Petroleum Regulations – 1953 (Hereinafter The Oil
Regulations)
The Petroleum Regulations focus, inter alia, on the
preliminary permit sand preemptive rights in licenses and
holdings (Hereinafter The Rights) and establishes the
manner of submission of applications to obtain rights, the
submission of periodic reports, fees to be paid, conditions
regarding underwriting and mapping of lease and production
areas, provisions regarding the granting of rights by way of
competition and provisions regarding payments of royalties
in accordance with the Petroleum Law.
c. Offshore Regulations (Principles for Offshore Oil
Explorations and Production) 2006 (Hereinafter The
Offshore Regulations)
The Offshore Regulation establish certain terms for proving
the competency of the applicant of offshore oil rights or any
of the applicant's agents for position of the contractor to
perform certain work as specified in the Offshore
Regulations, based on the type of right requested
(Contractor – anyone who performs for the holder of the oil
right work plans or a planner and supervisor of
implementation of the work plans). Inter alia, previous
experience is required in offshore seismic mapping or in
offshore deep-water drilling, in accordance with the specified
in the Offshore Regulations. The Offshore Regulations also
prescribe that the Applicant of offshore rights prove to the
satisfaction of the relevant authority, its financial soundness
and ability to finance the estimated cost of implementation of
the work plan.
d. The Gas Law
The Gas Law and its regulations establish provisions
regarding the setting up and operation of a natural gas
transmission, marketing and supply system.
On the other hand, the Gas Law requires obtaining licenses
from the Minister of Infrastructures (Hereinafter in this
section The Minister) to setup and operate a natural gas
transmission system, natural gas distribution system, the
setting up an operation of a LNG installation and the setting
up and operation of storage installations. The transmission
license will only be granted to a company that incorporated
in Israel in accordance with the Companies Law.
In the license granted by the tender, the Minister, with the
consent of the Finance Minister, is entitled to mandate
payment of royalties or license fees as well as methods of
their calculation and payment. A mandate to pay royalties
can be established for a license holder whose license was
not issued by tender. A transmission license will be granted
by tender to be published by the government, for a period to
be determined by the government. The Minister can
establish an exclusivity period pursuant to the license period
and exclusivity not exceeding 30 years. The Minister is not
entitled to impose time limit on the distribution license.
The Minister may, upon consultation with the Director,
establish in the license terms to ensure compliance with the
goals of the Gas Law and compliance with the provisions
therein including terms that must be met prior to the start of
operations in the license.
Furthermore, the Law states that the following parties, inter
alia, will not be involved in the sale and marketing of natural
gas: (1) the holder of the transmission license; (2) the
electricity provider and anyone involved in Israel in oil
refinery at a rate that exceeds 10% of all refined oil in Israel.
In accordance with the law, involvement in the sale and
marketing of natural gas does not require a license but it will
be at the discretion of the Minister with regards to the terms
prescribed by the law to determine, with the consent of the
Finance Minister and with the approval of the Knesset's
Economic Committee, that for a period to be determined, the
marketing of natural gas will require a license.
Should an applicant apply for more than one license, the
Minister, upon consultation with the Director, will be entitled
to stipulate the licenses on terms, including that the
operations in accordance with each license will be managed
in a separate company and in a manner that establishes
managerial and financial separation between the companies,
and is entitled to imposed said stipulations at any time
following the granting of the licenses.
A storage license and LNG license will be granted by tender
or in any other public process but the Minister is entitled,
with consent of the Finance Minister and consultation with
the Council (as defined in the Gas Law) to decide that the
storage license or LGN license will be granted without a
tender or any other public process, to a holder of a
transmission license in accordance with Section 9 of the
Law. Despite the aforementioned, the holder of the lease is
entitled, for as long as the lease is valid, to store gas
produced by it in the reservoir in the lease area. Despite the
aforementioned in this paragraph, the Minister is entitled to
grant to the lease holder, not in a tender or any other public
process and as long as the lease is valid, a license to store
gas not produced by it in a reservoir in the lease field. The
period of the license will be determined and will not exceed
the balance of the lease period. The Minister is entitled to
instruct the lease holder, for as long as the lease is valid, to
provide storage services in the reservoir in the lease field to
others, and to establish the terms for provision of said
services, once the lease holder has been given the
opportunity to plead his case; should said instruction be
issued, the lease holder will be considered the holder of the
storage license and will be subject to the provisions of the
Gas Law.
The Law sets restrictions on additional involvement by the
license holder but the Minister is entitled to grant the license
holder permit to work in other occupations, if he deems that
said operations do not prejudice its operations in accordance
with the license or in the supervision on compliance with his
obligations in accordance with the Gas Law, and is entitled,
after having granted the license holder the opportunity to
plead his case, to stipulate the permit on the conditions.
The Law allows the Minister, with government approval, to
instruct government company acquiring over half the amount
of natural gas during a period to be decided upon, in the
transmission system, to purchase natural gas from the
holder of the residual lease. Said provisions will include
reference to the period to the quantity to be purchased from
the lease holder and to the price and terms of purchase that
will be identical to the price and terms at which the Company
purchases or can purchase natural gas from other suppliers
at that time.
The Director, upon consultation with the Council and with
Minister approval, and after having given the license holder
the opportunity to plead his case, is entitled to revoke at any
time, the license, under any of the following circumstances:
(1) the license holder failed to disclose to the tenders
committee or to the minister information that must be
disclosed regarding participation in the tender or in the
license application, or provided inaccurate information, with
regards to a material matter; (2) the license holder had
reservations regarding receipt of the license or ceased to
comply with any of the terms of competency required in
accordance with this Law and/or in accordance with the
terms of the license, and this was not amended within the
period of time set forth by the Director in the notice sent to
the license holder; (3) an order of dissolution was issued to
the license holder or a receivership was appointed to him
and the order or appointment is not cancelled within the
period of time set forty by the Director in the notice sent to
the License Holder; (4) the license holder failed to comply
with the provision to amend defects or perform actions
granted to him in accordance with Section 72 of the Gas Law
(notice of defects) or violated any of the material provisions
in the license and said violation cannot be repaired, and if
the vioollation can be repaired, was not repaired within the
period of time set froth by the Director or the party in the
notice sent to the license holder; (5) the license holder
violated, continues to violate a provision of the Gas Law or
license or terms of the license; (6) any other cause set forth
in the license as cause for cancellation.
All or some of this license cannot be transferred, liened or
encumbered, in any manner.
The license holder must provide its services, through the gas
installations it set up and in accordance with their capacity,
to any consumer and to anyone requesting to be a
consumer, in accordance with the terms of the license; the
services will be given without prejudice.
The rates to be collected by the license holder, and any
update of said rates, will be determined by the Council, in
accordance with the rules to be set forth in the license, and
with regards to the operations for which the license was
given by tender, the Council will establish the rates in
accordance with the terms of the tender. The Council will be
entitled to establish criteria or provisions regarding the level,
nature and quality of the services that the license holder
must provide the consumers, and to ensure their continuity
for the duration of the license period.
The Law states that the gas to be sold by a natural gas
supplier to a private electricity manufacturer as defined in the
Electricity Sector Law is a commodity subject to the
Commodities and Services Prices (Control) Law 1996
(Hereinafter The Control Law) and the level of control that
will apply will involve setting the prices in accordance with
Chapter E of the Control Law.
e. The Partnership Order
On 21 January 2014, a draft law to amend the Partnership
Order (No. 5) (Corporate Governance in Public Limited
Partnerships) 2014 (Hereinafter The Draft Law) was
published.
The explanations of the draft law noted, inter alia, that the
draft law is being introduced in light of the significant
increase in recent years in the raising of public capital
through the Tel-Aviv Stock Exchange Ltd. by partnerships
involved in oil and gas explorations. The explanation further
noted that the rules of corporate governance apply to listed
limited partnership by virtue of the provisions of the
Partnership Order, Stock market Articles and Trusteeship
Agreements, are lacking, outdated and do not provide
sufficient protection of the interests of the investor public. In
light of this, the draft law states that it is designed to expand
and update the mechanisms of corporate governance in
limited partnerships that offered the public participation units
and ensure satisfactory protection of the interests of the
public that owns the participation units.
On 10.2.2014, the draft law passed the Knesset during the
first call, and on 16.2.2015, the Knesset ratified the draft law
during the second and third call.
On 16.2.2014, the Knesset ratified during the second and
third call the Partnership Order Amendment (No. 5) Law –
2015 (Hereinafter The Amendment) and on 23.2.2015, the
amendment was published in Reshumot.
The provisions of the Amendment state that it will go into
effect within two months from the date of publication in
Reshumot, i.e. on 23.4.2015, with longer transition periods
with regards to several issues addressed by the
Amendment.
The Amendment is essentially a new chapter that
increments the Partnership Order [New Version] 1975
(Hereinafter The Partnership Order), and applies only to
public limited partnerships, i.e. limited partnerships whose
participation units or rights of the limited partner are listed on
the stock exchange or offered to the public according to the
prospectus.
The main purpose of the amendment is to institute rules of
corporate governance in public partnerships and regulate
corporate governance, with a large percentage of the
amendment being implemented by way of adoption of
arrangements through the Companies Law 1999
(Hereinafter The Companies Law with the necessary
changes and adjustments. The Amendment set forth, inter
alia:
-
-
-
-
-
-
Mandatory appointment of an audit committee.
Mandatory appointment of a compensation committee
Mandatory approval of compensation policies in the General
Partner and Partnership.
Mandatory appointment of outside directors.
Obligation of the General Partner and officers therein to duty
of care and duty of fidelity towards the Partnership and
prioritization of the best interests of the Partnership over the
General Partner.
The Partnership will be subject to exemption, indemnification
and insurance regulations that apply to a public company.
The controlling shareholder in the General Partner and the
shareholders of the General Partner must demonstrate
fairness with the Partnership.
The holder of the participation units who knows that his vote
will be the deciding vote in a general assembly resolution –
must act fairly.
The holder of the participation units obligation to act in good
faith and in the acceptable manner, and must prevent abuse
of power against other holders, the General Partner and the
Partnership.
Mandatory appointment of an internal auditor.
Mandatory appointment of a financial statement approval
committee.
Regulation of the oversight institution where, in certain
cases, authorities were expanded.
Mandatory convening of annual general assembly once a
year and no later than 15 months after the last annual
general assembly.
The procedure for approving interested party and controlling
shareholder transactions in the General Partner and in the
Partnership, similar to a public company. Accordingly, in
accordance with the Amendment, a deviating transaction of
the Partnership with a controlling shareholder or when a
controlling shareholder has a vested interest – approval of
said transaction is required every 3 years (with the exception
of initiation fees defined in the Amendment as any asset
given by the Partnership to the General Partner or to its
controlling shareholders, in accordance with the Partnership
Agreement, "derived from assets, revenue or profits of the
Partnership, either in cash or in any other manner").
1.17.3
Petroleum Commissioner Guidelines and Draft Petroleum
Regulations (Transfer of Petroleum Rights) 2011
1.17.3.1 On 9.3.10, the Ministry of Energy and Water published notice
on behalf of the Commissioner, that includes guidelines
regarding the submission of applications for a discussion at
the Petroleum Council Session No. 2/10 (Hereinafter The
Guidelines or March 2010 Guidelines), which tighten the
criteria for submitting applications to obtain oil assets and
transfer of rights in oil assets in accordance with the
Petroleum Law, whose main points are as follows:
a) Applications must include all of the information and
documents required in accordance with the
Petroleum Law, Petroleum Regulations and with
regards to applications pertaining to offshore areas,
must comply with the offshore regulations without
derogating
from
the
generality
of
the
aforementioned, on applications to obtain rights
(including preliminary permits) must include, inter
alia:
A list of coordinators in the new Israeli network and
a map of the requested area; a description of the
geophysical / geological background of the
application; work plan with a milestone timetable;
assessment of performance cost.
The
team's
professional
background:
the
composition of the group applying for an oil asset
must include (a) a company or group which has at
least one person educated in the following fields:
geology,
geophysics,
exploration,
drilling
engineering, reservoir engineering and production
engineering and at least 10 years of experiencein
the field; (b) an operator (company or group) with
experience in the management and performance of
at least one project in the field of exploration or
production of oil or gas on a scale of 10 million
dollars for an oil right on land and 100 million dollars
for an oil right at sea.
The group must present agreements signed
between all of the partners to the application and
that includes an undertaking to implement the
project that is the subject of the application, and to
present the partners consent on an operator from
among the group members.
The Group must present a letter of intent to engage
the geophysical contractor (when a geophysical
survey is required in the work plan), and if
necessary to conduct the drilling – to present a letter
of intent to engage a drilling contractor.
Proof of financial soundnessand proof of financial
sources available to the applicant must be
presented. Below is a list of the financial criteria
required:
1. The license or preliminary permit with onshore preemptive
rights – full cost of implementation of the work plan plus 50%
of the cost of the drilling. The average estimated cost of
onshore drilling is $10 million.
2. The license or preliminary permit with preemptive right
offshore – proof must be provided of the financial
soundnessas specified in the Offshore Regulations (which
prescribe that the applicant for a preliminary permit with
preemptive right offshore must prove, to the satisfaction of
the relevant authority, financial capacity sufficient to fully
finance the estimated cost of implementation of the work
plan to be approved, and half o the estimated cost for
conducting one drill in the permit area, and the applicant for
an offshore license must prove, to the satisfaction of the
relevant authority, financial soundness to finance half of the
estimated cost of the work plan approved for the license).
The average estimated cost for an offshore drill is $100
million.
3. The applicant company or group will be considered as
having suitable financial capacity if it is in possession of
liquid assets (cash, deposits, securities) in the amounts
specified in sub-section 1 or 2 above and equity in the value
of said amounts.
4. In reviewing the financial soundnessof the applicant, to be
deducted from the assets and equity presented will be the
current liabilities for licenses, permits or any other right
granted in accordance with the Petroleum Law, and any
other contingent liabilities to be discovered during the review
of the financial statements. Also taken into account will be
additional applications that were submitted ahead of the
Council discussion.
Application for licenses will include a drilling prospectus for the
requested area.
Applications for preemptive rights will include an undertaking to
implement the work plan and investment of the sum required for
oil explorations in accordance with Section 7a of the Petroleum
Law.
b) Applications in accordance with Section 76 of the
Petroleum Law will clearly specify the type of
application and its background. The application will
be signed by the parties transferring the rights and
the recipients of the rights and will include, inter alia,
original confirmation of the signatory rights of the
applicants (the transferer and transferee, the party
requesting the lien and the party subject to the lien,
etc. based on the type of application). If the
application involves one of the partners to the right,
approval of the other partners that there is no
obstacle preventing them from implementing the
application must be attached.
c) Applications to transfer rights in accordance with the
Petroleum Law will include a review of the
professional and financial soundnessof the group
holding the right, based on the new proposed
composition following the transfer, and accordingly,
all of the necessary documents must be attached to
prove professional and financial ability, as if this was
a first application to obtain a right.
d) With regards to applications for approval of liens –
to be attached is the lien agreement (signed
agreement
contingent on the Commissioner's
approval, or final draft approved by the bank) and a
list of lien terms. It is hereby clarified that approval
of the lien does not constitute approval of disposal
of the lien.
e) The guidelines state that the aforementioned in
these guidelines do not derogate from any
requirement of the law even if said requirement is
not explicitly mentioned in the guidelines.
f) If several applications are submitted for rights to
overlapping areas, the applications will be reviewed
based on the criteria below, in order to achieve
optimal results from the right:
1. The experience of the applicant companies or
groups;
2. Applicant
history
of
compliance
with
implementation of work plans for rights in
accordance with the Petroleum Law;
3. Work plan, including geological background,
timetable, scope (area and depth), and
intensity of planned surveys and level of
investment;
4. Consideration of the interest of the market,
including competition.
The guidelines specify that submission of
applications do not require the Petroleum Council
to discuss any application, if the Commissioner
decided, by virtue of his authority, that the
application should not be discussed, or if the
applicant group fails to meet the minimum financial
capacity or the professional requirements
mentioned above.
1.17.3.2 As part of the guidelines for submitting applications published
by the Commissioner in January 2011, August 2011 and in
November 2011 (ahead of the discussions convened by the
Petroleum Council in March 2011, September 2011 and in
December 2011, respectively) it was noted that in addition to
the March 2010 Guidelines, the applications must be
submitted in accordance with the clarifications specified in
said guidelines, the main points being:
a) With regards to applications for licenses by virtue of
preemptive rights, applications to transfer rights in
accordance with Section 76 of the Petroleum Law,
whose overall work plan with regards to the area that
is the subject of the right being requested (including
drillings) costs in excess of one million dollars, the
Group that will own the right will be required to include
an Operator, as defined below, that will be partner to
the requested oil right at a rate of at least 5%.
Operator – a corporation experienced in the
management, supervision and implementation of oil
explorations. The Operator will be responsible for
implementing all professional operations related to oil
explorations in this right in which it is partner. The
Operator will be required to coply with the terms listed
below: the Operator, with regards to onshore rights,
will have experience in performing oil explorations in
the scope of at least $10 million in one oil field
onshore within the past 5 years.
The Operator with regards to offshore right will have
experience in two of the following: (1) in conducting oil
explorations with expenses of at lest $100 million in
one oil field within the past 5 years; (2) in managing
and regulating drilling in water depths that correspond
to that mentioned here in which it serves as Operator,
based on the following distribution: up to 500 meters,
up to 1000 meters and over 1000 meters. For this
purpose, water depth will be determined based on the
deepest part of the requested area.
b) In the application for licenses by virtue of the
preemptive right, in applications for transfer fo rights
in accordance with Section 76 of the Petroleum Law
and in the applications for added area in accordance
with Section 49 of the Petroleum Law, the financial
soundness will be reviewed based on the relative
share of each holder in the license and compliance
with the requirements listed in the guidelines will be
required. Also required will be presentation of a letter
or undertaking to comply with the financial
requirements. Proof of compliance with the financial
requirements can be done through one partner in the
requested right that will hold a minimum of 10%.
c) In applications that include an Operator that is a
registered corporation in a foreign country, completed
questionnaires must be submitted regarding foreign
and trade relations with foreign countries, which
should be obtained from the Commissioner's office.
d) In addition, the Commissioner guidelines published in
August 2011 and in November 2011 (ahead of the
discussions conducted in the Petroleum Council in
September 2011 and December 2011, respectively)
stated that applications in accordance with Section 75
of the Petroleum Law will be discussed in light of the
principles detailed in the draft regulations (as defined
in Section 1.17.3.3 below), and said applications must
be submitted in accordance with the provisions
pertaining to this matter in the draft regulations, and
attach all documents indicating compliance with the
requirements specified in the draft regulations and
March 2010 guidelines, even if not explicitly stated.
1.17.3.3 On 8.11.2011, the Ministry of Energy and Water published an
updated draft of the Petroleum Regulations (Transfer of Oil
Rights) 2011 designed to regulate the procedure for
submitting applications for the transfer of oil rights while
establishing criteria by which the Commissioner is entitled to
accept said application, and to stipulate it on different
conditions or to reject it (Hereinafter Draft Regulations).
According to the draft regulations, the regulations will apply to
a transfer52 of the oil right53 and any benefit with regards to
the oil right54 for which the application for transfer will be
submitted following publication of the Regulations. Should the
application for the transfer of the oil right or of any benefit with
regards to the oil right remain pending on the date of
publication of the Regulations, and no decision has been
issued, the Applicants are entitled to ask that the Regulations
apply to it. Below are the main points of the provisions of the
Draft Regulations:
a. Details of the application and its documents: an
application for permission from the Commissioner in
accordance with Section 76 of the Petroleum Law to
transfer the oil right or benefit pertaining to the oil right will
include the following: (1) oil right or benefit pertaining to
the oil right and the percentage that is being asked to
transfer; (2) The background to the application and the
reasons; (3) information regarding the transferee as
specified in Paragraphs (1) through (8) and (11) in
Regulation 6 of the Petroleum Regulations, with the
obligatory changes; (4) information regarding the financial
soundness of the Group55, if required to prove compliance
with the terms set forth in Paragraphs (4) and (5) in
Regulation 5 of the Draft Petroleum Regulations.
In addition, if the transferring party is a member of the
Group, consent to application given by the other group
members must be attached, and an agreement between
the transferee and the other group members whose
validity is contingent upon Commissioner approval in
accordance with Section 76 of the Petroleum Law and
52
In accordance with the Draft Regulations, Transfer is defined as the transfer in any manner, with the
exception of inheritance, for a consideration or for no consideration, including any of the following: (1)
transfer of oil right among members in a group by virtue of an agreement between them; (2) transfer or
allocation of means of control jointly or severally with means of control jointly or severally with
previous means of control held the transfer grants the transferee or anyone allocated the means of
control, as the case may be, a benefit with regards to oil rights; (3) granting of an option to obtain any
of these. For the purpose of transfer of control, including transfer of means of control that jointly with
means of control that the transferee had prior to the transfer grants it control.
53
According to the Draft Regulations, Oil Right is defined as a preliminary permit, license or lease, or
an of these, as the case may be.
54
According to the Draft Regulations, Benefit with regards to the Oil Right, Benefit with regards to
the Preliminary Permit, Benefit with regards to the License and Benefit with regards to the lease
are defined as follows: (1) control in a corporation or in a group in which the holder of the preliminary
permit, holder of the license or holder of the lease, as the case may be; (2) possession of more than
25% of a certain type of means of control in a corporation or in a group that holds the preliminary
permit, license or lease, as the case may be; (3) Right to receive profits, royalties or information from
the holder of the preliminary permit, license or lease, as the case may be, directly or indirectly, but not
by virtue of control or possession of means of control or possession of the right to participate in the
profits or right to some of the balance of the assets upon liquidation. For this purpose, 'information' is
defined as information that comes into the possession of the holder of the oil right as a result of actions
in accordance with the oil right or the oil right that preceded it.
55
According to the Draft Regulations, Group with regards to oil rights with more than one owner
means all holders of oil rights.
Draft Regulations
Application).
(Hereinafter
Consent
to
the
b. Decision in the application: according to the Draft
Regulations, the Commissioner, upon consultation with
the Petroleum Council, is entitled according to Section 75
of the Petroleum Law, to allow the transfer subject to the
provisions of the Petroleum Law and the provisions of the
Draft Regulations, and to stipulate it due to the terms that
it deems satisfactory or to deny the application.
c. Transfer of the preliminary permit: The transfer of the
preliminary permit for which preemptive right was issued
as defined in Section 7a of the Petroleum Law, or benefit
pertaining to said preliminary permit, will be permitted only
under the following circumstances: (1) to anyone who is
controlled56 by the party controlling the permit holder, or
among members in the group, pursuant to the conditions
set forth in sub-section (d) below are met, with the
obligatory changes; if carried out within one year from the
date of publication of the Regulations that are the subject
of the draft Regulations in order to comply with the terms
for obtaining a license that are applicable on the date of
submission of the application.
d. Terms for transferring the license prior to a finding: as long
as the license holder has not mad ea finding in the license
field, the license and the benefit pertaining to the license
56
According to the Draft Regulations, "Control of a corporation" is defined as the ability, either
severally or with others who regularly cooperate, to orient the actions of the corporation, with the
exception of an ability attributed solely to a director's filling his position or another officer in the
corporation; without derogating from the aforementioned, a person controls a corporation (1) if he
controls half or more of a certain type of means of control in the corporation; (2) if he has the ability to
make decisions pertaining to the exercise of the oil right for the corporation, or prevent said decisions
in the corporation, by virtue of a provision in the Articles of Association or agreement; Control of the
group – means the ability, either alone or with others who regularly cooperate with the Group, to orient
the Group's activities, with the exception of the ability of an individual derived from his job description
in the group or the position of director or other officer in one of its members, and with the exception of
an ability derived solely from filling the position of operator; without derogating from the generality of
the aforementioned, possession that a person controls in a group (1) if he owns half or more of the oil
rights of the group or if he holds half or more than half of the means of control in a group; (2) if he is
capable of making decisions for the group that pertain to operations with regards to the oil right and the
activities to perform it, or prevent said decisions in the group. possession for the purposes of control in
a corporation or group and with regards to means of control in a corporation or group is defined,
directly or indirectly, including through other means, including trust or extension, or through the right
granted to it in accordance with the Agreement or in any other manner, either on its own or in
conjunction with others who regularly cooperate with it; for these purposes, possession of the
corporation will also be considered possession by anyone who controls it, directly or indirectly. Means
of Control in a corporation is defined as any of the following: (1) voting right in the general assembly
of the company or its counterpart in another corporation; (2) the right to appoint a director in the
company or officers in another corporation or its general manager; and in a corporation that is a limited
partnership – any of the said rights in a corporation that is a general partner.
can be transferred, pursuant to all of the following
conditions having been met:
(a) The application was submitted after at least one year
passed since the issue date of the license, and until the
date of submission of the application the license holder
has complied with the provisions as required by all
sections of the work plan, including submission of a
specification to conduct the drilling (prospect) to the
Commissioner, but excepting drillings note required by
said date in accordance with the work plan; (b) experience
in oil exploration and development that will be available to
the Group following the transfer meets the criteria for the
issuing of the license that are valid on the date of
submission of the application; (c) if the Transferor is an
Operator57 and as a result of the transfer, ceases to serve
as Operator, including due to a decrease in its share in the
license below the minimum percentage required of an
operator – the Transferee meets all other criteria required
of an Operator that are valid on the date of submission of
the application; (d) the financial soundness of the Group
following the transfer meets the criteria for obtaining the
license that are valid on the date of submission of the
application; (e) whether the Transferor provided the
Commissioner with a financial undertaking to prove
financial soundness of other group members as well, the
group following the transfer meets the criteria specified in
subsection (d) above and if necessary, will present a
relevant financial liability to prove it (f) On the date of
submission of the application, the Transferor was holder of
the right being transferred for at least one year; (g) on the
date of submission of the application, the length of time
remaining until expiration of the license's validity exceeds
three months; (h) if the license and preliminary permit that
preceded it were granted at no charge to the government
–the consideration for the transfer, if it exceeds twice the
real expenses of the Transferor in the acquisition of rights
to the license or benefits of the license and in the
performance of the operations in accordance with the
license and preliminary permit that preceded it, will be
used to continue performance of the operations in
accordance with the license.
e. In accordance with the Draft Regulations, if submitted on
one date, or on adjacent dates, more than one application
for the transfer of the license, the Commissioner is entitled
57
In accordance with the Draft Regulations, an Operator is defined as a member of the Group that has
the experience in conducting oil explorations and production, in management and regulation, and has
been appointed by the Group to be in charge of performance of all professional operations related to oil
exploration and production with regards to the Group's oil right, and pursuant to Commissioner
approval of said part as the Group's operator.
to review compliance with said terms taking into account
all requested transfers, if all of the applicants failed to
agree to this.
f. The terms for transferring a license following a find and
transfer of lease prior to commercial production: In
accordance with the draft regulations, the license and the
benefit pertaining to the license can be transferred once
the license holder has made a finding in the license area,
and transfer of the lease and of the benefit pertaining to
the lease, pursuant to the holder of the lease not having
begun oil production in commercial quantities in the lease
area, pursuant to compliance with all of the terms listed
below:
(a) by the date of submission of the application, the holder
of the right has complied with the provisions in accordance
with the Petroleum Law and the terms of the license or
lease, as the case may be, including implementation of the
work plan as required; (b) the Group's financial
soundness, as well as prior experience in oil exploration
and development that will be available to the Group, and
previous experience in oil exploration and development
that will be available to the Group following the transfer
that meets with the criteria for the license or lease, as the
case may be; (c) if the Transferor is the Operator who
after the transfer ceases to be the Operator, including due
to a decrease in its share in the right below the minimum
required percentage for an operator – the Transferee
meets all of criteria of an Operator that are valid on the
application submission date; (d) following the transfer, the
Group can comply with all of the provisions according to
the Petroleum Law and the license or lease, as the case
may be, including implementation of the development plan
approved by the Commissioner, if such plan exists, in
order to produce oil in commercial quantities as early as
possible.
g. In accordance with the Draft Regulations, if one
application was submitted on one date or on close dates
to transfer the license following a finding and for the
transfer of a lease prior to commercial production, the
Commissioner is entitled to review compliance of said
terms taking into account all requested transfers, pursuant
to consent of all applicants.
h. Terms for transferring a lease following the start of
commercial production
In accordance with the Draft Regulations, a transfer of a
lease and of the benefit pertaining to the lease after the
start of oil production in commercial quantities in the lease
area is possible, pursuant to compliance with the following
terms: (a) by the date of submission of the application, the
Group has met the terms of the lease; (b) the Group's
ability following the transfer complies with the provisions of
the Petroleum Law and lease, as it will be on the date of
the transfer, will not derogate from its ability prior to the
transfer.
i.
Terms for transferring the right granted according to
competition: the Draft Regulations prescribe, and without
derogating from any of the other criteria set forth therein,
that with the Petroleum Right granted in accordance with
competition and the competitive process established
threshold criteria or priority was given to applicants based
on the mentioned criteria, including previous experience
and financial soundness, the transfer of said oil right or
benefit pertaining to the oil right is contingent on the
Group's meeting the same threshold criteria and same
level of compliance with the aforementioned criteria and at
the same level of compliance mentioned above will be
permitted as was on the date of receipt of the oil right.
j.
Transfer of rights in a small scale: in accordance with the
Draft Regulations, in each of the circumstances listed
below, the transfer will be allowed even if not all of the
terms listed in subsection d(a) through d(i9 or e above are
met, as the case may be, pursuant to the transfer of the
license or benefit pertaining to the license, and the license
and preliminary permit that preceded it was given free of
charge to the government, compliance with said terms in
subsection d(g) above: (a) as a result of the transfer, the
Transferee will receive no more than 5% of the license or
lease and/or means of control in the corporation or group
that are the holders of the license or control, whether on
one occasion or on more than one occasion within the
course of any 6 months, either from one Transferor or
more than one Transferor.
k. Transfer under special circumstances: In accordance with
the Draft Regulations, the transfer of the license or lease
or benefit pertaining to the license or lease will be
permitted even if not all of the terms stipulated in
subsection d or e above, as the case may be, are met, if
the Commissioner, following consultation with the
Petroleum Council, was convinced that special
circumstances exit that justify the move, and that the
transfer will materially strengthen the group in terms of the
aspects reviewed at the time of the granting of said right,
and its ability to comply with all of the provisions in
accordance with the Petroleum Law or license or lease, as
the case may be.
l.
The draft regulations further prescribe that the transfer of
control in a corporation that is holder of a preliminary
permit, holder of a license or holder of a lease, as the case
may be, or transfer of a lease of 25% or more of a certain
type of means of control in said corporation, can be
allowed even if not all of the terms specified in subsection
c,d or e above, as the case may be, are met, if the
Commissioner, following consultation with the Petroleum
Council, is convinced that special circumstances exit that
justify such as move. In accordance with the draft
regulations, a situation in which the preliminary permit or
license or lease, as the case may be, is not a material part
of the assets or businesses of the Transferor, and a
situation in which said party controls the Transferor and
Transferee are situations that can be deemed special
circumstances for these purposes.
m. Furthermore, the draft regulations prescribe that if said
party controls the Transferor and Transferee, there is no
need for said terms specified in subsection d(a) through
(g) and subsection e, f and g above, as the case may be.
n. In accordance with the draft regulations, the transfer of the
right to receive profits, to receive royalties or to receive
information provided by the holder of the oil right as a
result of actions in accordance with the oil right or previous
oil right is permissible, even if not all of the terms specified
in subsection c, d,e , f or g above are met, as the case
may be.
o. In accordance with the draft regulations, pre-approval can
be granted during or after the license is granted, under
terms that will include forms of transfers of the license or
any of the benefits pertaining to the license between
members of the group.
p. Approval to grant option: the draft regulations prescribe
that with regards to the granting of option to transfer of an
oil right between members of the group by virtue of the
agreement between them or the granting of the option to
transfer or allocate means of control that, on its own or in
combination with previous means of control by the
Transferee grants the Transferee or the party to whom
means of control was transferred, as the case may be,
benefit pertaining to the oil right, whose terms were
explicitly contingent on their materialization, requires
Commissioner's pre-approval, will be subject to the
following provisions: (a) the application will be submitted
based on the specified in subsection (a)(1) and (2) and
attached the consent to the application and the document
that include said terms. In addition, The Commissioner is
entitled to request additional information and documents;
(b) if the Commissioner failed to request additional
information or documents, and did not announce his
objection within 30 days from the date of submission of the
application, the application will be deemed as having been
approved; (c) if the Commissioner requested additional
information or documents within 30 days from the date of
submission of the application, and the Commissioner
failed to note his objection within 30 days from the date of
its submission, the application will be deemed as having
been approved.
q. In accordance with the draft regulations, the
Commissioner will not allow the transfer of the oil right and
of the benefit pertaining to the oil right if he believes one of
the following: (a) the transfer might materially prejudice
competition in the exploration and production sector; (b)
the transfer might harm national security or foreign
relations; (c) the Transferee or the controlling party in it
has violated the provisions according to the Petroleum
Law with regards to another oil right that it has or had, or
any of the conditions of said oil right, or has acted with
regards to said oil right in an ineffective or irresponsible
manner, and as a result, is not deserving to own the oil
right; (d) the Transferee or its controlling shareholder is an
officer convicted of a crime that due to its severity or
circumstances makes it undeserving of holding the oil
right; (e) other special circumstances are in place that
makes the transfer not in the best interests of the public
and energy market in Israel.
r. Lien on the license or lease: In accordance with the draft
regulations, an applicant seeking a lien on a license or
lease or a lien on the benefit pertaining to the license or
lease, will attach to his application the lien agreement that
is contingent on Commissioner approval, and other data
and documents to be requested by the Commissioner.
The draft regulations prescribe that the lien of the license
or lease can be allowed prior to the start of commercial
production, if said lien is designed to serve as collateral for
these purposes; (a) to obtain a loan to finance the
operations that the license holder or lease holder, as the
case may be, is required to perform according to the
Petroleum Law, terms of the license or lease, and the
work plan; (b) to ensure right to receive royalties. In
addition, the draft regulations prescribe that a lien on a
lease may be allowed once commercial production has
started, and a lien on the benefit pertaining to the license
or lease, may be allowed if the lien is to be used as
collateral for these purposes, and for another purpose if
the Commissioner, after having consulted with the
Petroleum Council, did not consider this to impair the
ability of the license holder or lease holder, as the case
may be, to comply with the provisions in accordance with
the Petroleum Law and license or lease, as the case may
be.
Furthermore, the draft regulations clarify that permission to
lien does not constitute permission to transfer the liened
right, and if the conditions exist for disposing the lien, the
license or lease or benefit pertaining to the license or
lease will not be transferred to the holder of the lien or to
any other party unless the Commissioner imposed
difficulties of the transfer to the Transferee, in advance
and in writing, and in accordance with the terms of the
authorization.
The Partnership believes that approval of the regulations
regarding the transfer of rights in their current version, if
any is to be approved, might negatively impact operations
in Israel's oil and production sector, including Partnership
operations.
1.17.3.4 Guidelines for submitting and transferring data from
operations in oil rights
In 2013, the Ministry of Energy and Water issued new,
updated guidelines pertaining to the transfer of reports and to
the performance of oil explorations in the licenses and leases.
These guidelines specify the requirements in the three types
of actions:
a) Submission of applications for drilling58
b) Transfer of data from the drilling.59
c) Transfer of data from seismic surveys.60
1.17.3.5 On 17.9.2014, the Ministry of Energy and Water, after hearing
public comments, published guidelines on the provision of
securities with regards to the oil rights (Hereinafter: The
Guidelines). The notice mentioned that the Commissioner
would act in accordance with the guidelines from the date of
their publication. Below is a summary of the main points of the
guidelines:\
Bank Guarantees
58
http://energy.gov.il/Subjects/OilSearch/Pages/GxmsMniOilSearchDrilling.aspx
http://energy.gov.il/Subjects/OilSearch/Pages/GxmsMniOilSearchPublicationsWells.aspx
60
http://energy.gov.il/Subjects/OilSearch/Pages/GxmsMniOilSearchSeismic.aspx
59
New Licenses
New licenses – applicants for new land licenses will act in
compliance with the specified in the Petroleum
Commissioner's guidelines for applications for oil exploration
licenses on land (Guidelines for applications for land
licenses) that were published by the Ministry and that posit,
inter alia, that the winner of the land license must provide a
bank guarantee in the amount of 10% of the cost of the
proposed work plan.
The Guidelines prescribe that the rules regarding the
guarantees for new offshore license will be determined as
part of the arrangement of the process for graining offshore
licenses.61
(a) Holders of existing land oil licenses that did not
deposit a guarantee in accordance with the
guidelines for applications for land licenses will
deposit with the Oil Division Ministry a guarantee in
the amount of $500,000.
(b) The guarantee will be deposited as follows:
$250,000 – by 30.11.1204
$250,000 – by 31.3.205.
(c) The holder of the right whose approved work plan
for the right includes or will include drilling prior to
the aforementioned dates, will issue a basic
guarantee in full before the drilling approval is
granted. The drilling approval will be contingent on
the provision of the guarantee.
(d) Should
the
Commissioner
find
unusual
circumstances to justify this, such as the quality of
the work plan and the nature of the potential
damages, he will be entitled to demand a different
sum of guarantee than the sum listed in subsection
(a) above and can deviate from the dates set forth
in subsection (b) above.
Existing Offshore Licenses _ Basic Guarantee
(a) The holders of existing offshore licenses will deposit
with the Oil Division offices a guarantee in the amount
of $2,500,000.
(b) The guarantees will be deposited as follows:
$1,250,000 – by 30.11.2014.62
61
The Commissioner's notice stated that as of the report date, applications for licenses for offshore oil
explorations and production was not possible. With the regulation on the process for granting license,
and once notice is given to the opening of ocean to licenses, the requirements regarding the guarantees
will be regulated.
62
The Partners in the Oz license and in the Ishai license issued a request to the Commissioner to
exempt them from provision of the bank guarantee in accordance with the guidelines for these licenses.
The Commissioner's response stated that no unusual circumstances were found that justify the granting
of an exemption from providing the guarantee. Concurrently, a one-month deferment was granted to
provide the guarantee by 31.12.2014. The Partners in the licenses, with the exception of Frendum
$1,250,000 – by 31.3.2015.63
(c) The holder of the right whose approved work plan for
the right includes or will include drilling prior to the
aforementioned dates, will issue a basic guarantee for
the full amount prior to the drilling approval being
issued. Drilling approval will be contingent on
presentation of the guarantee.
(d) Should the Commissioner find unusual circumstances
to justify this, such as the quality of the work plan and
the nature of the potential damages, he will be entitled
to demand a different sum of guarantee than the sum
listed in subsection (a) above and can deviate from
the dates set forth in subsection (b) above.
New and Existing Licenses – Additional Guarantee
(a) Prior to the drilling, the holders of the licenses will be required to
submit an additional guarantee as specified below:
(b) Upon receipt of the application for drilling approval, to which will be
attached the drilling plan, the Commissioner will set the amount of
the additional guarantee based on the based on the characteristics
of the drilling and drilling plan, and will issue written notice to the
holder of the licenses, and the holder of the license will deposit the
additional guarantee in the offices of the Oil Division.
(c) The sum of the additional guarantee for the land licenses will not
be less than $250,000 and the sum of the additional guarantee for
the offshore licenses will not be less than $5,000,000.
(d) The guarantee based on the Commissioner decision will be
deposited for each drilling on a separate basis, and at minimum at
least 14 days prior to the start of the drilling,
(e) Should the Commissioner find unusual circumstances to justify this,
such as the quality of the work plan and the nature of the potential
damages, he will be entitled to demand a guarantee in an amount
less than that listed in sub-section (c) above.
Validity of the Guarantees
(a) The initial validity of the basic guarantee for new land
licenses will be three months after the expiration of the
(which provided a guarantee for only 10%) and Dadan, which holds 33.5% and 9% (respectively) of
the rights in tehIshai License, provided its relative share in the guarantee as required by said
Commissioner's notice. On 5.2.2014, Nammax and the Partnership issued notice of violation to
Frendum and Dadan, by virtue of the JOA that applies to the Ishai License, since they failed to provide
their relative share of the required guarantees.
63
Pursuant to the application submitted as specified above by the Partners in the Neta and Royee
licenses to change the borders of the Royee license, including by way of transferring areas from the
Neta license to the Royee license and by removing other areas, I a manner that leaves the Partners in
the licenses with only one license – the Royee license with the new borders, a request was made of the
Commissioner on behalf of partners in the licenses to cancel his demand to deposit an additional bank
guarantee for the Neta license and to order the return of the bank guarantees that were deposited for the
Neta license. As of the report date, the Commissioner has not responded to the said request.
license, in accordance with the Commissioner of Petroleum
Affair's guidelines on submitting applications for land oil
exploration licenses.
(b) The validity of the basic guarantee and the additional
guarantee for existing land and offshore licenses will be one
year from the date prescribed in the guidelines, and said
guarantees will be updated in accordance with the specified
in the guidelines for a period to be determined by the
Commissioner. The holder of the right will renew the
guarantee each time until otherwise decided by the
Commissioner.
(c) The guarantees that were granted in accordance with the
guidelines will remain valid even after their right for which it
was granted expired, as long as the Commissioner
announced that there is no need for them, but no more than
seven years after expiration of the right for which it was
granted.
(d) The guarantees will be returned as follows:
1) The additional guarantee will be returned to the holder of
the right in full only after obtaining the necessary
approvals from the Commissioner (engineering approval
and environmental approval) indicating that the holder of
the right has properly sealed the drill that it set up in the
field and that it has restored the area to its previous
condition as required, but not before the end of 12
months from the date of the sealing.
2) The basic guarantee will be waived by the
Commissioner, unless the Commissioner otherwise
stated, but no more than 7 years after the expiration of
the right for which it was given.
(e) If the holder of the license has made a discover and received
a lease, the basic guarantee and the additional guarantee
against submission of a new guarantee will be returned in
accordance with the terms of the lease.
Oil Leases
(a) The Commissioner will set the amount of the guarantees in
the leases, taking into account, inter alia, the development
plans, the characteristics of the lease, the stage of the
project and the size of the oil field.
(b) The minimum amount of the guarantees will not be less than
$1,500,000 for the land lease and $7,500,000 for the
offshore lease.
(c) The guarantees for the new leases will be deposited once
the lease has been granted, for a period to be determined by
the Commissioner.
(d) The holders of the existing leases will deposit the
guarantees in the offices of the Oil Division within 45 days
from the date of notice from the Commissioner regarding the
guarantees.
(e) Should the Commissioner believe that due to a change in
circumstances, inter alia, due to approval of changes in the
development plan or due to the nature of the potential
damages, the guarantees should be updated, the
Commissioner will order an update of the amount of the
guarantee, and the holder of the lease will deposit the
guarantee in accordance with the Commissioner's
instructions within 45 days from receipt of notice of the
update of the guarantee.
The guidelines include provisions regarding the update of the
sum of the guarantee and its extension.
The Commissioner is entitled to forfeit guarantees that were not
renewed in accordance with guidelines.
The guidelines include provisions regarding forfeiture of
guarantees as well as general provisions with regards to the
guarantees.
Insurance policy
In addition to the provisions regarding the guarantees, the guidelines
include requirements form holders of the oil rights regarding
requirements for insurance for the duration of the oil right. The
guidelines state that if a holder of an oil right fails to comply with said
guidelines, or if it is revealed that the guarantee or insurance taken out
was cancelled or terminated for any reason, and the holder of the oil
right failed to renew it, the Commissioner will be entitled to forfeit the
existing guarantee with regards to the right and act to reduce the
potential damages at the expense of the holder of the right. In addition,
the Commissioner will be entitled to view this as a failure to comply
with the work plan and provisions and act according to the provisions of
the Petroleum Law.
As of the report date, the Partnership is studying and reviewing the
guidelines with its advisors and its potential impact on its activities.
1.18 Regulatory Changes
For information regarding regulatory changes that have taken place with
regards to operations in recent years, see Section 1.17 of the
Partnership's Periodic Report for 2013 published on 19.3.2014
(Reference No. 2014-01-018732). The information appearing in said
Furthermore, in 2014 and until the report date, other regulatory changes
have taken place with regards to the Partnership's operations, as follows:
a. As previously stated, on 16.2.2015, the draft amendment to the
Partnership Ordinance (No. 5) 2015 was approved in the
second and third call in the Knesset. For information, see
Section 1.17.2(e) above.
b. In September 2014, the Ministry of Infrastructures published
guidelines on providing guarantees with regards to oil rights. For
information, see Section 1.17.3.5 above.
c. According to the reports of Delek Drilling and Avner from
23.12.2014, the Anti-trust Commissioner informed Delek
Drilling, Avner and Nobel of the Anti-trust Authority decision
(Hereinafter Anti-trust Authority) not to file the consensual
decree that was signed between the Anti-trust Authority and
Delek Drillings, Avner and Nobel with regards to the natural gas
reservoir Karish, which is located in license area 366/ Alon C,
and natural gas reservoir Tanin, which is located in license area
364/ Alon A with the Court, and that the Antitrust Commissioner
was reconsidering issuing a decision whereby the Delek Drilling,
Avner, Nobel and Ratio Partnership, jointly, the Partnership in
the Leviathan Reservoir, which is located in lease area I/14
Levitahtan South and I/15 Leviathan North, are party to a
restrictive trade arrangement not duly authorized by the
.Antitrust Court. This notice by the Anti-trust Commissioner had
numerous impacts on Israel's oil and gas exploration sector as
well as on the entities operating in the sector, including, inter
alia, in light of the regulatory uncertainty that it creates and the
impact on the decision-making of international entities that are
examining the feasibility of investing in this sector in Israel.
d. On 7.9.2014, the Council on Natural Gas Sector Affairs
published its decision regarding the financing of export projects
through the national transmission system. The decision states
that the transmission rates to apply on the transfer of Israeli
natural gas through the national transmission system to
neighboring countries or to the Palestinian Authority as well as
the financing of segments of the transmission system
designated for the export of natural gas, as specified. The
decision sets forth the following principles:
(a) The exporter (the entity selling or marketing the natural gas
for export) will sign with the holder of the transmission
license a transmission agreement to be approved in advance
in writing by the Director of the Natural Gas Authority. The
exporter will pay the holder of the transmission license the
transmission rate that will be the regular transmission rate
applicable to Israeli consumers as will be in effect from time
to time.
(b) The exporter will bear full construction costs of the segment
of the transmission system designated for export only
(Hereinafter The Designated Export Segment) as well as
the construction costs for the additional transmission line
adjacent to the existing segment (Hereinafter The Double
Segment), plus 2% management fee.
(c) As long as the transmission agreement between the exporter
and the holder of the transmission license is valid and
another consumer will be required in the future for the
designated export segment, the Director of the Natural Gas
Authority will determine the cost attributed to the additional
consumer from the total cost of construction of the
designated export segment, based on the capacity ratio of
the additional consumer from the total capacity that can be
transmitted in the designated export segment. The exporter
will be credited in the sum the cost to be attributed to the
additional consumer.
(d) If a certain segment in the transmission system that leads to
the designated export segment may serve Israeli
consumers, but the segment leading to the designated
export segment will not be doubled by the time it is set up if
not for export of natural gas through the transmission
system, the exporter will pay (in addition to the construction
costs of the designated export segment as specified above)
the relative share regarding the doubling of the designated
export segment. The Council will determine the distribution
of costs between the exporter and the holder of the
transmission license.
(e) If the Director of the Natural Gas Authority believes that
there is sufficient capacity in the transmission system at the
time of the signing of the agreement between the holder of
the transmission license and the exporter but that it is likely
that in the ten years after the start date for natural gas flow,
there will be insufficient capacity for consumers of the Israeli
transmission system in the segment that leads to the
designated export segment, then at the time of the signing of
the transmission agreement, the expert will select one of the
following options: (1) pay the holder of the transmission
license 50% of the future double budget of the relevant
segment of the transmission system, and this sum will not be
returned to the exporter, even if said segment is not doubled;
(2) not pay this sum and in the event of the doubling of the
segment, the provisions of sub-section (d) above will apply.
(f) The Director of the Natural Gas Authority will determine for
each separate case where in the transmission system the
start of the segment that leads to the designated export
segment is, and this point will be explicitly listed in the
transmission agreement. With regards to the designated
export segment that exits the north segment, the start of the
segment that leads to the designated export segment will be
the Tel-Kashish station.
(g) Although the construction costs (all or some) are assumed
by the exporter, the segment will not be owned by the
exporter and the exporter will have no affiliation of any kind
with this segment.
(h) This decision will not apply to the export transmission
agreements that will be signed with the holder of the
transmission license until 2.11.2014.
(i) On 10.11.2014, a draft law on offshore areas. The proposed
law seeks to establish the legal framework that applies to
offshore areas (including offshore areas beyond the
country's borders), the rights of the State of Israel has to
these areas and the limits of jurisdiction that it is entitled to
apply with regards to operations performed there. The
proposed law in its current format might affect the
Partnership's operations and costs, the scope of which, as of
the date of publication of this report, cannot be estimated.
The Partnership intends to study the proposed law and its
implications, and review its next steps in this area. In this
context, see also the opinion of the deputy attorney general
to the government from January 2013 as specified in Section
1.16.8 above.
1.19 Business Restrictions
See Section 1.5.1.10 (c) and 1.5.3.10 (1) above.
1.20 Material Agreements
Below are the material agreements signed by the Limited Partnership
within the two years that preceded the report date and every material
agreement that is still binding for the Limited Partnership with the
exception of the agreements through the normal course of business:
1.20.1 Partnership agreement – for the text of the partnership agreement,
see Immediate Report from 18.8.2014 (Reference 2014-01136572). The information appearing in said report is introduced
1.20.2 Trusteeship agreement - for the text of the partnership agreement,
see Immediate Report from 14.2.2013 (Reference 2013-01040017). The information appearing in said report is introduced
1.20.3 Agreement in Principle to receive 10% (of 100%) of the rights in
the Neta and Royee licenses located in the area of the Gal permit
mentioned in Section 1.5.1.10(b) above.
1.20.4 Joint Operating Agreement in the Neta and Royee licenses
mentioned in Section 1.5.1.10 (e) above.
1.20.5 Agreement to transfer rights in the Pelagic Licenses mentioned in
Section 1.5.2.10(a) above.
1.20.6 The Operating and Transfer of Rights Agreement in the Pelagic
Licenses mentioned in Section1.5.2.10 (b) above.
1.20.7 The Joint Management and Operating Agreement of the Pelagic
Licenses (framework agreement, Joint Operating Agreement and
Commercial Agreement) mentioned in Section 1.5.2.10 (c) above.
1.20.8 The agreement to transfer rights in the Oz license mentioned in
Section 1.5.3.10(1) above.
1.20.9 The interim agreement with the operator in the Oz license
mentioned in Section 1.5.3.10(5) above.
1.20.10 The settlement agreement signed as a result of the request for
arbitration submitted by CDC and with regards to the interim
agreement with the operator in the Oz license – see Note 7(i)(3) of
the Partnership's Financial Statements. See for this matter also
1.20.11 Memorandum of Understanding with regards to the request to
receive a land license in the Halamish area mentioned in Section
1.1.2 above.
1.21 Royalties
Below is a list of royalties that the Partnership undertook to pay:
Name of party entitled
to receive the royalty
State of Israel
Details on the Royalty
The General Partner
Royalties from every share of
the Partnership in oil and/or
gas and/or other valuable
substances to be produced
and used from oil assets in
which the Limited Partnership
has or will have in the future an
interest
(based
on
the
calculation and on the same
basis that will be applicable for
payment of royalty to the
government in accordance with
the Petroleum Law) (before
deduction of royalties of any
kind but less the oil to be used
for the purposes of production
itself), at a rate of 10%.
Overriding royalty at 3% (3%
overriding
Royalty
before
Payout) from the Partnership's
share in the oil to be produced
and used from the permit (or
Ratio Ltd.
Royalties at the rate set forth in
the Petroleum Law.
Source of obligation to
pay royalty
Petroleum Law (see
Section
1.17.2(a)
above)
The
Partnership
Agreement
Memorandum
of
Understanding in the
Gal Permit mentioned in
Section 1.5.1.10 (b)
above
Eitan Eizenberg Ltd.
Third Parties
from any oil asset to be given
accordingly),
up
to
reimbursement of expenses
the Ratio Partnership incurred
for oil explorations (before
kind but less the oil used for
the production itself), at a rate
of 4% after repayment of the
Ratio Partnership's expenses
(4% Overriding Royalty after
Payout)
Overriding royalty at 3% (3%
overriding
Royalty
before
Payout) from the Partnership's
share in the oil to be produced
and used from the permit (or
from any oil asset to be given
accordingly),
up
to
reimbursement of expenses
the Ratio Partnership incurred
for oil explorations (before
kind but less the oil used for
the production itself), at a rate
of 4% after repayment of the
Ratio Partnership's expenses
(4% Overriding Royalty after
Payout)
Overriding royalty of 5%, inter
alia, to the previous owners of
Pelagic.
Memorandum
of
Understanding in the
Gal Permit mentioned in
Section 1.5.1.10 (b)
above
Transfer
of
Rights
Agreement
in
the
Pelagic
Licenses
mentioned in section
1.5.2.10 (a) above
Overriding royalty at an Transfer
of
rights
aggregate rate of up to 2.5% to agreement in the Oz
the consultant to Lapidot- license mentioned in
Heletz with regards to the Oz Section
1.5.3.10(1)
License.
above
and
the
agreement with said
consultant as specified
in Section 1.5.3.10(3)
above.
1.22 Legal Proceedings
For information regarding legal proceedings, see Note 8(d) of the
Partnership's financial statements.
1.23 Business Goals and Strategies
The Partnership will continue to focus on oil and gas explorations in
Israel, including in areas in which it holds rights. The Partnership reviews
from time to time obtaining rights to new and/or existing oil assets, based
on the available options in its area of operations.
It should be noted that the considerations and factors that guide the
General Partner in the formulation of the Partnership's strategy including
with regards to the Partnership's oil assets, are, inter alia, (a) geological
and geophysical factors based on tests and drillings conducted by the
Partnership; (b) geological and geophysical factors based on tests and
drillings conducted by others in the area of the Partnership's oil assets
and an assessment of the potential for an oil and gas find; (c) geological
and geophysical factors based on tests and drillings conducted by others
in the area of potential oil assets and assessment of a potential oil and
gas find; (d) availability of areas that are not included in the area of the oil
assets of others; (e) Assessment of the operating costs required vs.
potential for a gas and oil find.
The Partnership intends to continue its soil and gas explorations within
the confines of joint ventures in which it is partner.
Said goals and strategies are part of the general plans and goals that
include forward-looking information that is based on information
available to the Partnership on the report date, its assessments and
plans, and that might not materialize if the following conditions are not
met:
a.
Compliance with the work plans set forth by the Commissioner
under the terms of the oil assets in the established timetables.
b.
Employment of drilling contractors and relevant drilling
equipment in a manner that would enable the planned drilling within
the approved budget.
c.
The Partnership's undertaking to participate in all rights (100%)
in said operations (which means participation in the relative share of
the operating costs) or issuance of a SOLE RISK notice.
d.
Whenever relevant, obtaining approval from various officials to
conduct the explorations under terms and/or restrictions that will be
acceptable to the parties in the Partnership in the oil assets and
external contractors that are performing the work.
Said goals may be affected, inter alia, by regulatory changes, tax laws,
priorities of the Partnership and its partners in the oil assets in which it
is involved (due to results of surveys and drillings), in the ability to raise
funds, in the global market as well as risk factors specified in Section
1.25 below.
As of the report date, no goals have been set for the Limited
Partnership's operations beyond those described in this report.
1.24 Projected Developments for the Ensuing Year
The Partnership plans on operating in accordance with the work plan for
the various oil assets in which the Partnership has an interest, as to be
updated from time to time.
The Partnership's future plans, as specified in this section, is
forward-looking information based on the
Partnership's
assessments that are based on information available to it at the
time of the report. In light of the fact that the Partnership's goals are
affected by changes in said external factors, the Partnership's
intentions may change. Furthermore, implementation of the
Partnership's intentions is contingent upon it having sufficient
funds to finance the various operating budgets.
1.25 Risk Factors
Investment in the Partnership's securities involves a tangible risk of loss
of all investment within a what may be a relatively short period of time.
The risk factors detailed below characterize the oil and gas exploration
industry, including the Partnership's activities. It should be noted that
these risk factors are based on previous experience, in Israel and around
the world, in the oil and gas exploration sector, and are risk factors that
the General Partner believes that the Partnership is exposed or may be
exposed to. These facts are validated with regards to offshore oil
exploration and production.
1.25.1
Risks generally involved in oil exploration
Oil exploration and development of oil discoveries involves
tremendous financial expenses, and high financial risk. These
explorations and development always involves genuine risk of
loss of full investment sums.
Currently available research methods do not provide sufficient
level of accuracy in projections with regards to location and/or
presence of oil reservoirs, their dimensions or the possibility of
commercial production of their content.
Expenses incurred in exploration and development are under
conditions of uncertainty, inter alia, due to the scope of the
expense involved in all of the planned operations, and in terms
of the timetable compliance and results of the exploration and
development, and involves tremendous financial risk.
1.25.2
Operating Risks
Oil and gas explorations and production are subject to
numerous risks that generally accompany oil and gas
exploration and production, such as uncontrolled eruption from
the well, explosions, well collapse and combustion, tools falling
into the drill hole, tools in the drilling hole that makes continued
drilling impossible or that involves tremendous expenses, flareups of gas and oil, each of which might result in the destruction
or damage to the oil and gas wells, production installations,
exploration equipment, body and property.
If said events should occur offshore, the results might be even
worse, and might result in heavier damage. There is also a risk
of liability for damages caused by environmental pollution
attributed to an uncontrolled eruption and/or oil spill and/or gas
leak. Offshore drilling also involves existing marine risks to
every vessel (Marine Perils) as well as a risk of marine pollution
due to oil and gas explorations and production that are rather
common. Ocean pollution due to the Partnership's operations
might result in extremely large expenses to repair the damage
caused and result in heavy fines. Malfunctions might occur
during the drilling that would force modification of the drilling
plans, which might involve increasing the cost of the drilling
above and beyond the additional cost attributed to the delay
caused by the malfunction and attempts to resolve the problem.
There is no guarantee that the insurance required to cover
these risks can be obtained, and that the coverage given by the
insurance policy will be sufficient to cover all types and extents
of damage. There are risks for which insurance cannot be
purchased and/or the premium is too high to the point of being
unrealistic.
Insurance policies that are acquired and/or will be acquired by
the Partnership do not cover all of the possible damages,
including any damage caused by pollution or the full financial
scope that the damages might cause, that cannot be estimated
in advance, including sums for which the Partnership might be
liable to third parties as a result of said risks, with regards to
potential loss of income, loss of control of the well, damage to
property of any kind in the well and construction costs of the
production system in the event of an event that results in
damage to the production system (if any). Furthermore, with
regards to certain insurance policies, the General Partner might
decide to not acquire them.
It should be noted that the decision regarding the scope and
type of insurance is generally determined separately for each
drilling, taking into account, inter alia, the type of prospect that is
being drilled, insurance costs, nature and scope of proposed
coverage and potential risks. With regards to certain insurance
policies, the operator of a certain project may decide not to do
them. In addition, there is no certainty that suitable policies can
be acquired in the future under reasonable terms or at all.
1.25.3
Dependency on Contractors
With regards to conduction of preliminary tests on land,
including seismic test, the Partnership will be, if it has working
interests in the onshore oil assets, dependent on one contractor
– the Geophysical Institute of Israel, which is the only institution
in Israel that performs this type of work.
Not every equipment or employee is suitable to conduct specific
procedures in oil and gas exploration and tests in Israel, or can
be reserved in short time. Subsequently, the need to order
professional personnel and equipment services from overseas
frequently arises, which causes significant increase in delays
and costs of operations.
The geographical area of the Neta and Royee, Pelagic licenses
and the Oz license are all offshore. Oil and gas explorations,
drillings, development work and offshore seismic surveys are
performed by foreign contractors, as there is no such contractor
in Israel who performs oil explorations and geophysical work
offshore. Neither does Israel have offshore drilling equipment
between shallow drilling and deep-water drilling. Furthermore,
the number of rigs and other vessels capable of offshore drilling
in general, and particularly in deep water, is relatively limited in
comparison with the tremendous demand and there is no
certainty that suitable vessels will be found to perform the
drillings on the scheduled dates. Subsequently, oil explorations
might involve higher costs due to shipping and insurance and/or
cause unexpected and significant delays in the timetable and
that will be scheduled for implementation of all or some of the
work. Not every equipment or employee is suitable to conduct
specific procedures in oil and gas exploration and tests in Israel,
or can be reserved in short time. Subsequently, the need to
order professional personnel and equipment services from
overseas frequently arises, which causes significant increase in
delays and costs of operations. Furthermore, engagements
with foreign contractors to perform offshore oil and gas
exploration, development and production, including seismic
surveys as well as maintenance and repair work, might
encounter difficulties due to Israel's political and security
situation. Unexpected delays or postponements in the timetable
might occur that might cause stagnation in the oil explorations,
which might result in increased oil exploration costs and even
expiration of the oil right should the oil rights be contingent on
performance of said activities by a certain date.
Should the Partnership decide to employ the services of a
foreign contractor, this might incur additional expenses due to
the contractor's lack of experience in performing the work in
Israel.
1.25.4
Risks of exploration and reliance on partial or estimated data,
assumptions and assessments
Oil exploration is not an exact science. As such, it involves a
high degree of financial risk, since failure in exploration, or even
if a non-commercial discovery is made that cannot be feasibly
developed and produced, might result in the loss of the entire
investment. Geological and geophysical measures ad
techniques do not provide a sufficiently accurate projection of
location, characteristics, shape or size of the oil or gas reservoir,
making the establishment of exploration goals largely based on
partial geological and geophysical data or estimates and
unproven assumptions. There can be no guarantee that the
results of these explorations will involve a discovery of oil or
gas, or oil reserves from which commercial quantities can be
produced and used.
Exploration and development plans of the participants in the
licenses in which the Partnership has established rights to the
geological assessments of the participants and of the operator.
There is no guarantee that said assessments are accurate and
if they are revealed to be inaccurate, might prove damaging to
these plans' economic feasibility.
Furthermore, there is insufficient direct geological and
geophysical information regarding some of the offshore areas of
the Partnership's oil assets, due, inter alia, to the limited number
of drillings carried out in these areas and the limited information
that can be obtained from them. In addition, based on the
aforementioned, there might be no change in the estimates
regarding the proven scope of the oil and gas reserves in the
reservoirs.
1.25.5
Estimated costs and timetables
Estimated costs and timetables for explorations and
development is based on general estimates only and might
include significant deviations. Exploration and development
expenses are based on the uncertainty, inter alia, regarding the
scope of the expense for each planned activity, compliance with
the timetable and the results of all exploration and development,
as well as tremendous financial risk.
The estimated work plans as specified in this report, and the
work plans in the future, may significantly differ as a result of
findings obtained during the course of the operations that are
the subject of said plans, and might result in significant
deviations in the estimated timetable and costs. Errors during
the surveys or during the drilling as well as other factors might
result in a prolonged timetable and much higher actual
expenses than planned. In addition, the proposed explorations,
particularly offshore development and drilling, will involve
financial costs that the Limited Partnership might be unable to
cover.
Subsequently, if during the explorations, the funds prove to be
insufficient, and the Partnership is unable to raise capital
needed to complete it, the General Partner may use funds
designated in this report for other explorations or to complete
said explorations. In this case, the General Partner might act to
raise additional capital (either through offering of additional
securities or by adding additional participants to the plans, etc.).
If additional capital is not raised, the General Partner might
waive implementation of some of the activities scheduled to be
performed as specified in this report and the Partnership might
lose its rights in the oil assets in which the exploration is being
carried out.
In accordance with the JOA used in oil and gas exploration
sector, a party's failure to pay the approved budget for
implementation of the approved work plan constitutes a violation
that might result in loss of its rights in the oil asset (s) that are
subject to the JOA. Due to the responsibility of each party to the
JOA to pay their relative share on time, if other parties fail to pay
said sums in violation of the Agreement, the other parties might
be required to pay sums that are significantly higher than their
relative share based on their rate of participation in the asset(s)
that are the object of the violation, and if they fail to make these
payments on time – will risk, as specified above, losing their
rights to these asset(s). Due to the particularly high cost of
offshore development and drilling, the deviations (expected and
unexpected) might result in the Partnership being unable to
meet its financial obligations, and result in their losing their
rights.
1.25.6
Possible lack of sufficient funds to conduct the activities to the
point of loss of oil assets
The possibility exists that the explorations planned by the
Partnership will continue longer than planned and/or the
exploration costs will be higher than planned and/or the
Partnership will choose to increase its share in said operations,
and if this occurs, the Partnership may require additional funds.
In addition, the proposed explorations will involve financial
expenses for which the Partnership is unable to cover. In
accordance with the Joint Operating Agreement, failure to pay
on time the Partnership's share in the approved budget for
implementing the approved work plan constitutes a violation that
might result in loss of the Partnership's rights in the oil asset/s
that are subject to the operating agreement/s.
In addition, due to the responsibility of each party to the JOA in
the licenses their relative share, if other parties fail to pay said
sums in violation of the Agreement, the other parties might be
required to pay sums that are significantly higher than their
relative share based on their rate of participation in the asset(s)
that are the object of the violation, and if they fail to make these
payments on time – will risk, as specified above, losing their
rights to these asset(s). Due to the particularly high cost of
offshore development and drilling, the deviations (expected and
unexpected) might result in the Partnership being unable to
meet its financial obligations, and result in their losing their
rights.
The General Partner can act to obtain additional funding
required to continue the explorations by raising capital through
an offering (market conditions permitting) or by obtaining credit
for the Partnership, subject to expressed written approval of the
Commissioner, or might have to waive or reduce some of the
explorations, which might result in a loss of the Partnership's
rights to its oil assets. Furthermore, the Partnership will be
exposed to risk in which the Partnership's securities will be
delisted, and, in certain cases, in the absence of funds, might
result in the dissolution of the Partnership.
1.25.7
Development and Production, Participation in Additional
Explorations and Possible Economic Unfeasibility
The decision-making process, of whether an investment should
be made in the development of the field and in the commercial
production as well as in interim actions until commercial
production, as well as development and commercial production
(if the decision is made to invest) might take a long time and
involve significant financial expenditure.
In case of a discovery, several confirmation drillings need to be
conducted to determine the size of the reservoir, in order to
determine whether it is a commercial discovery. In case of a
commercial discovery, for which a decision was made to
produce, several development drillings must be carried out to
optimize the draining of the reservoir. Confirmation and
development drillings involve significant financial cost.
Furthermore, production in extremely deep water is extremely
complicated and requires technology to construct special
production installations.
If a commercial discovery is made as a result of the
explorations, the Limited Partnership might need additional
funds for investment for development and production. These
sums might be higher and the said operations involved more
risky, including operating risks. Even if the discovery may
provide Limited Partnership with a valuable asset, there is no
guarantee that the lien on this asset will be enough to allow the
Limited Partnership to obtain credit for development and
production.
It should be noted that the General Partner retains exclusive
authority and discretion to make decisions on behalf of the
Limited Partner regarding participation in the production and/or
continuation of production, and only if this involves additional
expenses beyond the balance of funds already introduced to the
Limited Partnership's capital as stated above, does not delay
distribution of profits and will not increase the Limited
Partnership's capital except in the ways prescribed in the
Partnership Agreement.
1.25.8
Addition of additional participants, dependency on other
partners and dilution of the Partnership's share in revenue
The Limited Partnership will be entitled to transfer some of the
rights in the oil assets to other parties that undertake to assume
the costs involved in the oil explorations, and in consideration,
will receive some of the revenue if oil is discovered. The
addition of additional parties to the oil asset rights of the Limited
Partnership will necessarily reduce the Limited Partnership's
share in oil revenue, if any is generated.
The oil explorations with the other participants include the
possibility of withdrawal of one of the participants, with the other
participants not assuming the share (of the expenses not yet
approved) for the explorations, might result in the end of the
exploration before the plan established during the transaction
has been completed and a return of the oil assets that were
subject to the explorations. Furthermore, in the event of nonpayment by any of the partners, the operator is generally
entitled, in accordance with the JOA, to demand that the other
partners who are not in arrears I payment pay relative to each
share, the said sums, in order to ensure that the approved work
plan as it is at that time is not affected by the delay.
During oil explorations with the other participants, there is a
possibility that the withdrawal of one of the participants, with the
other participants not taking over the share in the exploration,
will result in the termination of the exploration prior to
completion of the plan set forth in the transaction and the return
of the oil assets subject to the explorations. Another risk
involves the possibility that one of the partners will not pay, for
any reason, its relative share in the joint operating expenses.
1.25.9
Possibility of cancellation or expiration of the Partnership's Oil
Assets
In accordance with the Petroleum Law, oil assets in which the
Limited Partnership is involved are allotted for a certain period
of time and conditions. Extension of the validity of the oil asset
is generally at the discretion of the relevant authorities in
accordance with the Petroleum Law and are also entitled to
renew only some or condition the renewal on other terms. In the
event of non-compliance with the terms, the oil right can be
revoked or reduced.
The Commissioner is entitled to revoke the oil right or
preemptive right under one of the following circumstances (and
pursuant to notice having been issued as to the possible
revocation of the right within 60 days prior to the actual
revocation):
1) Failure to comply with the provisions of the law or terms
of the oil right or preliminary permit.
2) Actions that deviate from the work plan submitted or
delay in performance
3) Discrepancy between promised investments and actual
investment
4) Preliminary permit, license and lease are individual and
cannot be, not them and not to any benefit pertaining to
any of them, liened or transferred in any manner – except
through inheritance – without the expressed written
consent of the Commissioner, following consultation with
the Petroleum Council.
5) With regards to the right or obligation involved in the
preliminary permit, license or lease – no individual other
than the individual explicitly listed in the permit, license or
lease, or any party that obtained them through
inheritance, will be recognized. If a preliminary permit,
license or lease was transferred, the transferee will
assume all of the debts that were imposed on the
Transferor if not for the transfer, and will benefit from all
rights that the Transferor would have enjoyed if not for
the transfer.
The ability to use oil assets is contingent, inter alia, on the
Limited Partnership and its partners, and the partners in the
licenses, being capable and willing to finance the various
operations as well as the presence of suitable equipment and
personnel that are available in Israel. The absence of equipment
or personnel might increase expenses or even impede
compliance with the terms of the permits and licenses, or
prevent or lower their validity or even result in their cancellation.
Non-compliance with the terms set forth in the oil rights might
result in loss of rights and all funds invested in these rights
might be wasted.
1.25.10 Dependency on the General Partner and Limits of Liability
Full control of management of the Partnership and its
businesses will be retained by the General Partner. The Limited
Partner will not participate in any manner in management of the
Partnership or its businesses and will not take, on behalf of the
Partnership, any legal proceeding. The actions of the Limited
Partner will not be binding on the Partnership.
Certain actions require the Commissioner's consent as specified
in the Partnership Agreement.
1.25.11 Tax Risks
Tax issues that arise in the transactions described in this report,
including the tax in accordance with the Petroleum Profit
Taxation Regulations, have yet to be discussed in the Israeli
court ruling and it is not possible to predict or determine how the
court will rule if and when said legal issues are brought before it
for a ruling. In addition, with regards to some of the legal issues,
it is not possible to predict the tax authority's position, in light of
the limited rulings and professional orders issued by the tax
authorities. There are no other orders and guidelines on issues
related to the transactions described in this report. Whereas the
Partnership's activities are subject to a unique tax law that
includes tax benefits, changes attributed to legislative
amendments, rulings or change in the position of the tax
authority, can materially impact the tax laws that apply to the
Partnership and holders of its units. For more information, see
Note 10 of the Financial Statements.
1.25.12 Rate Fluctuations
The Limited Partnership's liabilities will likely be in foreign
currency or in foreign-currency linked shekels. Hence, exchange
rate fluctuations might affect the Limited Partnership's ability to
maintain a sufficient scope of assets needed for full compliance
with its obligations. On the other hand, a small percentage of
the Limited Partnership's expenses are listed in NIS, and as
such, the shekel/dollar rate increases the percentage of these
expenses in dollars. With regards to this matter, it should be
noted that since August 2014, the dollar rate has been trending
upwards.
1.25.13 Lack of suitable short-term investments
To the best of the General Partner's knowledge, as of the date
of this report, the array of short-term interim investments that
generated a return sufficient enough to maintain the value of the
money was limited and perhaps even negative.
1.25.14 Decisions to develop the field in the event of a discovery
It should be noted that the decision-making process of whether
an investment should be made to develop the field and on
commercial production as well as interim actions until
commercial production, in addition to commercial development
and production (if a decision is made to do so) may take a
prolonged period of time, and will involve significant financial
expenses that might result in a non-commercial discovery and
not deserving to be developed or produced.
It should be noted that the commerciality of an oil and/or natural
gas discovery is complex, and depends on numerous and
various factors. Significant differences exist between an
onshore discovery and an offshore discovery, which is more
technically, operationally complex as well as more complicated
in terms of investment required.
1.25.15 Dependency on Obtaining Permits and Approvals
To the best of the General Partner's knowledge , in order to
conduct geological, geophysical and drilling operations in areas
in which the Partnership has an interest, permits and approvals
must be obtained according to the Petroleum Law and Gas Law,
as well as permits to enter the field from the authorities, such as
the Ministry of Defense, IDF, Civil Airline Administration,
Ministry of Agriculture – Fishing Division, Nature Preservation
Authority, local authority, planning and building committees, port
authority, shipyards in the Ministry of Transportation, and in
onshore oil assets, from the holders of the rights to the land.
There is no guarantee that all of the permits and approvals will
be granted.
In addition, said permits may be contingent on several
stipulations, which might result in a postponement of the
exploration plan and/or increased exploration costs, including
exceeding the designated budget by the Partnership, and/or
result in its termination.
1.25.16 Liability for the Limited Partners' Debts
Section 63(b) of the Partnerships Ordinance states that a limited
partner is not entitled, for the duration of the Partnership, to
withdraw or receive, directly or indirectly, any part of its
investment, and if it did so, will be required to restitute to the
Partnership the sums withdrawn or received.
If the Partnership generates profits and distributes these profits
with the partners (and through them to the holders of the units),
the claim can be made that the initial profits that will be
distributed to the sum invested by the Limited Partner invested
in the Partnership, constitutes a reimbursement of the
investment and as such, an investor who received said profits
may, as a result, be liable for the Partnerships' debts in the
amount of the sums received, despite being a holder of the
participation units through the limited partner. This issue has not
been discussed in any court ruling in Israel and it is not possible
to know how a court would rule.
1.25.17 Fluctuations in Oil Prices
Oil in its various forms is a commodity, the prices of which are
set on world stock markets, and is subject to fluctuations due to
political and economic factors that the Partnership is unable to
influence and/or predict. Oil prices are a key factor affecting the
feasibility of investing in oil explorations. When the price of
crude oil drops, as has occurred this past year, situations may
arise in which even if a discovery is made, its production is not
economically feasible.
1.25.18 Difficulties in finding buyers for natural gas and export
restrictions
The ability to market natural gas (including LNG) and supply it to
various consumers depends, inter alia, on its quality, quantity to
be produced and the feasibility of production. In addition,
marketing and supply involve the existing facilities designated
for natural gas sue as well as the construction and/or
conversion of production installations. Subsequently, gas supply
is contingent, in addition to its quality, to its ability to offer longterm continuous supply in accordance with consumer demand.
Gas prices are set during negotiations with gas consumers and
is, in addition to the aforementioned, primarily affected by other
energy sources to natural gas, as well as alternative energy
sources such as oil or diesel. A drop pi prices will result in a
drop in gas prices as well.
The size of the domestic market with regards to gas
consumption is limited. The gas reservoirs detected during the
Tamar-1, Dalit-1, Leviathan, Tanin, Dolphin and Shimshon 1
drillings are significantly larger than the potential market in
Israel. In light of the existing competition as a result of the large
discoveries in said drillings, and the engagements that have
already been made or that will be made with large consumers,
there is no guarantee that the Partners in the oil assets,
including the Partnership, will find suitable buyers in the
domestic market for the natural gas that will be found, if any.
This competition might trigger a decrease in prices, thereby
harming the Partnership's ability to market the gas reserves that
are discovered, if any, by it in the future.
Also to be taken into account is that although there are several
large factories across the country that use natural gas, the
necessary distribution (pipeline) system for marketing natural
gas to consumers still does not exist.
To the best of the Partnership's knowledge, the current
assessments are that the natural gas reservoirs currently known
are sufficient for the projected consumption in Israel for many
years. Estimates regarding export of natural gas from Israel may
require government involvement as it was involved in the
necessary preparations for the giant resources (e.g.
construction of a LNG installation to enable its delivery in gas
tank trucks and an internal transmission system to the said
facility). The Partnership does not currently know if the
government will make these preparations.
Other elements in Israel have natural gas reservoirs that,
according to newspaper reports, contain vast amounts. These
elements are in advanced negotiations to reach a long-term
engagement with potential large customers in this sector.
Another consideration that must be taken into account is the
construction of a transmission (pipeline) system that must
connect the future natural gas reservoir to the national
transmission system. As of the report date, there is uncertainty
regarding the completion date for the system.
The provisions in the Gas Law establish, inter alia, actions that
require license, including natural gas transmission in
accordance with the law. A transmission license may grant
exclusivity. The provisions of the law restrict, inter alia, the
possibility of a natural gas supplier from obtaining a
transmission license but Section 10 of the law states that the
Minister of Infrastructures is entitled, upon consultation with the
Commissioner, to grant the natural gas supplier a license not
through a tender (under the terms set forth in the Law and under
the terms that the is authorized to set) that will be limited to the
construction and operation of the pipelines and related gas
installations that will be used solely for the purpose of
transferring its natural gas and that of other natural gas
suppliers to the gas processing facility or to the connection point
to the transmission system of the holder of another transmission
license. These provisions might create a dependency of the
Partnership on an external party, if the Partnership does
produce natural gas.
1.25.19 The Gas Law
As previously stated, at the beginning of 2002, the Gas Law
went into effect. The Gas Law aims to create conditions for the
development of Israel's natural gas industry through private gas
and competition. In accordance with the government's economic
and energy policies, regulation of activities in the natural gas
sector in a manner that would allow investments and the
provision of quality, reliable and available services, while
emphasizing cost and security regarding activities in the natural
gas sector.
The regulations set forth in the Gas Law might affect the
Partnership's rights. The Petroleum Law sets forth various
provisions regarding the right of the holder of an oil right to
exercise its rights to the oil and/or natural gas it produces. The
Petroleum Law posits that with regards to issues regulated by
the Gas Law, the provisions of the Gas Law will apply in lieu of
the provision of the Petroleum Law.
The Petroleum Law established, inter alia, provisions regarding
the rights of the holder of the lease to import petroleum and
petroleum products to Israel, to refine petroleum, to process
petroleum and petroleum products, to deliver them, to export
and trade them and is entitled for these purposes to construct
installations and make other necessary arrangements, as well
as build a pipeline based on the plans approved by the Director
of Petroleum Affairs and subject to the Planning and Building
Law.
In accordance with the Petroleum Law, a lease in an oil property
grants its owners exclusive right to explore and produce oil in
the lease area for the duration of the lease. "Oil Production" is
defined in the Petroleum Law as the production of oil from an oil
field and all actions involved therein, including its treatment and
transfer to containers, pipes or refinery in or around the oil field.
On the other hand, the Gas Law requires the obtaining of
licenses for the construction and operation of the natural gas
transmission system, of a distribution grid for natural gas, for
construction and operation of liquefied natural gas installation
and for the construction and operation of a storage facility.
As previously mentioned, the arrangements set forth in the Gas
Law supersede the arrangements set forth in the Petroleum
Law, in the event of any discrepancy between them. Hence,
there is concern that publication of the Gas Law, the rights of
the holder of the lease in accordance with the Petroleum Law
will be rejected or significantly reduced, inter alia, in light of the
restrictions regarding the granting of said licenses.
1.25.20 Reservoir Overflow
The oil and natural gas reservoirs that might be discovered in
the areas in which the Limited Partnership has rights might
'overflow' (in terms of the geological structure and size of the
reservoir) into other areas in which the Partnership has no
rights, and vice versa. Should the reservoir overflow into areas
in which other parties have rights, agreements might be needed
between the partners (or partnership and its partners in any oil
asset, as the case may be) and the holders of the rights in the
oil asset that borders the oil asset territory of the Partnership,
regarding joint use and production of the reservoir (unitization)
in order to efficiently maximize the resources. There is the
possibility that the holders of the rights to the oil asset that
borders the Partnership's oil asset will not cooperate with the
Partnership (and/or the Partnership and its partners) in this
matter.
1.25.21 TASE Guidelines regarding Suspension and Delisting
In addition to the reasons set forth in the Tel-Aviv Stock
Exchange Articles regarding suspension of trade of securities
and delisting, in accordance with the TASE articles known as of
the date of publication of this report, the TASE's board of
directors is entitled to suspend trade of the Partnership's
securities and to delist them from trade under the following
circumstances:
(1) The Partnership ceased to be employed, for a period of
time and under the conditions set forth in the
guidelines, in the area of operation it established in the
registration for trade (for this matter, the TAAE
guidelines established that the Partnership would be
construed as having ceased involvement in oil
explorations if most of its expenses over the course of 9
consecutive months are not exploration and
development expenses as these terms are defined in
the Income Tax Regulations (Deductions from Income
(2)
(3)
from Holders of Rights to Oil) 1956. The trustee will be
responsible for reporting on this matter.
The Partnership began working in areas of operation
that are not related to its exclusive area of operation.
The Partnership began working in projects other than
those it undertook to work on in the Partnership
agreement prior to first listing or those defined in the
Partnership agreement following the first listing and
amendment of the Partnership contract in its entirety
was approved by the general assembly of holders of
units.
The procedures pertaining to suspension from the TASE and
delisting as stated above will be identical to the procedures
regarding suspension and delisting in the Limited Partnership
based on the section in the TASE Articles that discusses
suspension and delisting.
1.25.22 Regulatory Changes
As part of the Limited Partnership's area of operations,
numerous regulatory approvals are required from different
relevant authorities (Ministry of Defense, Ministry of Justice, Tax
Authority, Ministry of Energy and Water, Ministry of
Environmental Protection, Anti-trust Authority, Securities
Authority, Stock exchange, Ministry of Foreign Affairs and
various planning and building committees). Dependency on
obtaining approvals from the regulatory authorities as specified
may create uncertainty in the Partnership's area of operation
with regards to the validity of the oil assets, their terms and
restrictions to be imposed on their holders.
In addition, in recent years, various regulatory authorities raised
several proposals for amending the law and relevant regulations
in the Limited Partnership's area of operation. New legislative
provisions and guidelines were created, inter alia, through
legislation, sub-legislation, guidelines, etc. including new rules
and procedures that were set forth by the Commissioner to
grant oil rights and restrictions on transfer of rights in oil assets,
whose implementation might negatively impact the Partnership's
operations. Tighter regulation with regards to development and
production, deposit of guarantees, terms of natural gas supply,
natural gas export, taxation from oil and gas profits, rules for
transferring and liening oil rights, restrictive practices, regulation
of gas prices, etc. might negatively impact the Partnership's
existing businesses.
1.25.23 Dependency on an Operator
The Partnership largely relies on operators of various oil assets
who have working interests, in light of the provisions of the joint
operating agreement, and as a result of accumulated
experience among operators in conducting projects of similar
sizes in other areas around the world, and the relative
inexperience of the Partnership in these types of projects. The
departure of an operator from any project or from other licenses
in which the Partnership holds or change in the status that
results in its termination as operator of the project might affect
the Partnership's ability to meet its obligations in accordance
with the work plan for the oil assets and might affect project
development and production.
1.25.24 Arrear in Payments in Joint Ventures
In accordance with the agreements with the other partners in
the Limited Partnership's oil assets, a party to the agreement
that does not make full payment of the sums it owes might, in
accordance with the provisions of the Agreements, lose its
rights in the oil assets subject to the agreement with no
compensation.
1.25.25 Minority Interest
In transactions in which the Partnership is party to and the
Partnership holds a low participation percentage, and
subsequently a low voting percentage, since decisions are
made by majority opinion (at a percentage defined in the JOA),
the Partnership cannot cause the passage of decisions it wants
and/or prevent decisions that it does not prefer. In addition, in
said transactions, there is the possibility that the withdrawal of
one of the participants, with the other participants not assuming
its share (for unapproved expenses) in the exploration, might
result in the termination of explorations before the plan set forth
in the transaction has been completed and oil assets in which
the explorations took place are returned.
1.25.26 Absence of means to develop and produce, and participate in
the operations
Commercial discoveries and production will require the Limited
Partnership to invest significant funds that might exceed the
sums currently available to them. These sums, particularly in the
case of an offshore discovery, are extremely high, and said
operations will involve risks, including operating risks.
Even though in the case of commercial discovery, the Limited
Partnership will have a highly valuable asset, there is no
guarantee that a lien of this asset will be enough to allow the
Limited Partnership to obtain credit for development and
production. It should be noted that due to the mandatory
payment of royalties by the Limited Partnership to Israel, to the
General Partner and to others, as specified, there is no
guarantee that a discovery that can be defined as a commercial
discovery will include development of the oil or gas field and
well, and oil production subject to financing, as well as the
economic feasibility for the Limited Partnership. The feasibility of
production for the Limited Partnership can negatively impact
and significantly increase production expenses, negatively
impact the tax burden, other regulation or significantly impact oil
and gas prices.
1.25.27 Dependency on weather and ocean conditions
Marine conditions and inclement weather might cause delays in
the timetable set forth in the Partnership's work plan for offshore
activity and extend the performance time. These delays might
result in increased expenses and possibly non-compliance with
the Partnership's timetable.
The geographical area of the Neta and Royee licenses, the
Pelagic licenses and the Oz license are entirely offshore.
Hence, successful conduction of seismic surveys and drilling is
contingent on the sea being calm. As long as the ocean is
stormy, the timetable set forth in the work plan will be delayed
and an extension of the performance period or, alternatively,
when performance of the work cannot be delayed and/or when
the work is ongoing, there is a risk that the results of the actions
will not be successful. These delays might result in increased
cost and even non-compliance with the timetable set forth
above.
1.25.28 Offshore Drilling and Engineering Difficulties
The length of time that passes form the discovery to onshore
drilling is relatively brief. On the other hand, an offshore
discovery creates greater technical and engineering challenges
and needs longer time for planning, for field development, for
deployment of production platforms as well as for the
construction of the infrastructures needed including with regards
to LNG installations. For the entire duration between discovery
and to production, the Partnership might be required to invest
vast sums without generating any income.
The costs involved in underwater drilling and production far
exceed the cost of onshore drilling and production and entails
greater risks including with regards to production technologies
and operating risks.
It should be noted that offshore drillings are primarily conducted
off floating rigs. Demand for these rigs has significantly
increased in recent years, making it difficult to track down a rig
to perform the offshore drilling. The cost of operating these rigs
makes the exploration costs more expensive.
Below is a list of risk factors broken down by nature and degree of impact,
according to the Limited Partnership, with regards to the limited joint ventures:
Risk
Fluctuating oil prices
Risks generally involved in
oil exploration
Operating risks
Dependency
on
Contractors
Exploration
risks
and
reliance on partial or
estimated data, and on
assumptions
and
assessments
Estimated
costs
and
timetables
Development
and
production, participation in
additional explorations and
possible lack of economic
feasibility
Addition
of
other
participants; dependency
on other partners, dilution
of Partnership's share in
revenue
Decisions to develop the
field in the event of a
discovery
Dependency on obtaining
permits and approvals
Difficulties in finding buyers
for the natural gas and
export restrictions
The Gas Law
TASE
guidelines
with
regards to suspension and
delisting
Regulatory changes
Lack of means to develop
and
produce
and
participation in operations
Dependency on weather
Tremendous
Moderate
Impact
Impact
Macro Risks
X
Sector Risks
X
Minor Impact
X
X
X
X
X
X
X
X
X
X
X
X
X
X
and marine conditions
Offshore
drilling
and
X
engineering difficulties
Special Risks to the Partnership
Potential insufficient funds
X
to perform the operations
to the point of loss of oil
assets
Possible cancellation or
X
expiration of oil assets of
the Partnership
Dependency
on
the
General Partner and limits
of liability
Tax risks
Rate of change
Lack of suitable short-term
X
investments
Liability for the debts of the
Limited Partnership
Reservoir overflow
X
Dependency
on
the
X
operator
Arrear in payments in joint
ventures
Minority interest
For exposure to market risks and management – see Section 7
of the Board of Directors report below.
For information on management of financial risks, see Note 17a
of the Partnership's financial statements.
X
X
X
X
X
X
Part E - Miscellaneous
1.26 Professional Terminology
SPEE – Society of Petroleum Evaluation Engineers
SPE – Society of Petroleum Engineers
AVO Analysis – AVO analysis is a method used by geophysicists to
determine the thickness of the rock strata, porosity, density, speed,
lithology and fluid content of rocks.
Exploration – operations related to oil and gas searches
Levant Basin – the geological basin in the eastern Mediterranean
LNG – Liquefied Natural Gas
Dollar – US Dollar
Stock Exchange – Tel-Aviv Stock Exchange Ltd.
Hydrocarbons – overall name for oil and gas that are composed of a
complex compound made of carbon and hydrogen.
Preliminary Permit – as defined in the Petroleum Law.
WPC – World Petroleum Council
The Commissioner or Commissioner of Petroleum Affairs – The
Commissioner of Petroleum Affairs in the Ministry of National
Infrastructures, Energy and Water, appointed in accordance with the
Petroleum Law.
Oil Production – oil production from the oil field, and all operations that
this entails, including displacement, treatment and transfer to containers,
pipes or refinery in the oil field or in the adjacent areas.
Participation right (Working Interest) interest in an oil asset that provides
its holders with the right to participate, relative to their share, in the use of
the oil asset for the purpose of oil explorations, development and
production subject to its participation in the relative share of expenses
incurred, following acquisition of the working interest.
Oil right – license or lease as defined in the Petroleum Law.
Preemptive Right to a License –as defined in the Petroleum Law.
The Petroleum Law – The Petroleum Law 1952.
The Gas Law – The Natural Gas Sector Law 2002
The Securities Law – Securities Law 1968.
Lease – as defined in the Petroleum Law.
Oil Exploration (1) test drilling
(2) any other action involving search for oil, including
geological, geophysical, geochemical and other tests
and trials, as well as drilling for the sole purpose of
obtaining geological data.
Commercial Quantities – sufficient quantities of oil that allow it to be
produced on a commercial basis
Logs – Electric logs that are kept during the drilling to continuously record
the rock property and content, and designed to identify the strata that
may potentially contain oil and/or gas reservoirs.
SPE-PRMS – Petroleum Resources Management System (2007) as
published by the Society of Petroleum Engineers (SPE), the American
Association of Petroleum Geologists (AAPG), the World Petroleum
Council (WPC) and the Society of Petroleum Evaluation Engineers
(SPEE), as to be amended from time to time.
Oil Assets – the possession, directly or indirectly, of the preliminary
permit, license or lease; in another country – the possession, directly or
indirectly, of the right that is similar in nature to that granted to it by the
relevant authority. The oil asset will be considered a right to receive
benefits derived from possession, directly or indirectly, of the oil asset or
a right of a similar nature (as the case may be).
Petroleum - any petroleum fluid, whether liquid or gaseous and includes
oil, natural gas, natural
gasoline, condensates and related fluid
hydrocarbons and also asphalt and other solid petroleum hydrocarbons
when dissolved in and producible with fluid petroleum;
Seismic Survey – method that produces (onshore or offshore) an image
of the underground and detection of geological structures. The survey
uses seismic waves to penetrate the subterranean to obtain reflections
form the various horizons located in the cross-section being tested.
Currently, 2D (two-dimensional) and 3D(three-dimensional) seismic
surveys are primarily used. The 2D surveys are primarily used to gain
initial familiarity with the subterranean structure in the surveyed area and
to detect any structures that may potentially serve as petroleum traps.
The 3D surveys are conducted in areas that have been identified as
promising in the 2D surveys (and that are more expensive than a 2D
survey. Its data and results are of better quality). The image obtained is
more detailed and allows, inter alia, for detection of the optimal location
for drilling and for a more accurate assessment of the structure size.
Petroleum, Prospective Resources, Discovered, Discovery, Reserves,
Contingent Reserves, Proved Reserves, Probable Reserves, Possible
Reserves, Low Estimate, Best Estimate, High Estimate, Contingent
Resources in Category 1C, 2C, 3C (1C, 2C, 3C); On Production,
Approved for Development, Justified for Development, (Pending)
Development; Development Unclarified or on Hold; Well Abandonment,
Development not viable; Condensate, Dry Hole; Reserves in Category
1P/2P/3P (1P/2P/3P) – as these terms are defined in the SPE-PRMS
system.
Development – drilling and equipping the oil field territory to determine its
production capacity, to produce and market oil.
Condensate – hydrocarbon compound in gaseous state under reservoir
conditions, but become liquid in the transfer from the reservoir to the
surface. A condensate is used as a supplement in the production of oil
distillates or as combustible material in the heavy industries (e.g. cement
industry) or as raw material in the production of oil distillates.
Test Drilling – test well drilling to find oil or to determine the size or
borders of the oil field.
Diagonal Drilling – slant drilling performed at a directional angle to the
target strata, in contrast with regular drilling, which is vertical.
Appraisal Well – well drilling performed as part of the evaluation drilling
plan designed to establish the physical size, resources and reasonable
production rate of the field.
License – as defined in the Petroleum Law.
Miocene Strata – the strata of rock from the Miocene era (name of
geological period) that formed 5 million years ago to 24 million years ago.
Discovery – oil field discovery.
BCF – Billions of Cubic Feet, which is 0.001 TCF or approximately
0.0283 BCM.
BCM – Billions of Cubic Meter
Mmcf/D – Millions of Cubic Feet per Day
TCF – Trillions of Cubic Feet, which is 1,000 BCF or approximately 28.32
BCM.
MMCF – Millions of Cubic Feet, which is 0.001 BCF or approximatleyh
0.00003 BCM.
MMBBL – Millions of Barrels
MMBOE – Millions of Barrels of Oil Equivalent
Below are the conversion coefficients for units used in the report:
BCM
BCF
MMCF
1
35.107
35310.7
BCF
1
MMCF
1000
BCM
0.0283
MMCF
1
BCF
0.001
BCM
0.00003
Terms not specified above and that are specified and defined in the
Petroleum Law will be defined as they appear in the Petroleum Law.
Appendix A
Approval of Netherland, Sewell & Associates, Inc.
With regards to the Resources report in the Royee License
Appendix B
Approval of Ryder Scott Company, L.P. with regards to Resources
Report for the Pelagic Licenses
Appendix C
Approval of Netherland, Sewell & Associates, Inc. with regards to
the Resources Report for the Oz License
Israel Opportunity – Oil and Gas Explorations
Ltd.
Chapter B – Board of Directors Report on the State of Corporate
Affairs
Ltd.
Report of the Board of Directors on the State of Corporate Affairs
For the Period ended 31 December 2014
Israel Opportunity – Energy Sources, Limited Partnership / Israel Opportunity – Oil and Gas
Explorations Ltd. Derech Ben Gurion 2, Ramat-Gan 52573
info@oilandgas.co.il / www.oilandgas.co.il / Tel: 06-6116111 / Fax: 03-6116110
Israel Opportunity – Energy Resources , Limited Partnership
Board of Directors Report of the General Partner on the State of Partnership Affairs
For the Period from 1 January 2014 and until 31 December 2014
The Board of Directors of the General Partner, Israel Opportunity – Oil and Gas Explorations
Ltd., is hereby submitting the Board of Directors report on the State of Affairs of the Limited
Partnership Israel Opportunity – Energy Resources (Hereinafter: The Partnership) for 31
December 2014 (Hereinafter: The Date of the Statement on Financial Position) and for the
period of nine months ended on 31 December 2014 (Hereinafter: The Report Period) in
accordance with the Securities Regulations (Periodic and Immediate Reports) 5730-1970.
The financial statements for 31 December 2014 are prepared in accordance with International
Accounting Standards (IFRS).
The Partnership is a limited partnership that is exclusively involved in the participation in oil
and gas explorations.
1. Main Data on the Partnership's Businesses
Below are the main activities of the Partnership during the Report Period:
Oil assets in which the Limited Partnership had an interest on this Report Date as specified
below:
ID No
Name
Type
of
Right
Offshore
/ Land
Asset
Area in
Dunam
Right
valid
64
until
398
Neta(**)
Licens
e
Offshore
374,10
0
14.4.2016
Share of
the
Partnersh
ip
10%
399
Royee(**
)
Offshore
10%
Ishai(*)
Aditya(*)
Lela(*)
Yahav(*
)
Yoad(*)
(***)
400,00
0
400,00
0
400,00
0
400,00
0
400,00
0
400,00
0
14.4.2016
370
371
372
373
374
Licens
e
Licens
e
Licens
e
Licens
e
Licens
e
Licens
e
10%
10%
Licens
e
Offshore
29.02.201
4
01.09.201
3
(***)
01.09.201
3
(***)
01.09.201
3
(***)
01.09.201
3
(***)
30.06.201
6
394
Oz (**)
64
Offshore
Offshore
Offshore
Offshore
Offshore
400,00
10%
10%
Additional Holders
Operator
Ratio Oil Explorations (1992) –
Limited Partnership (Hereinafter:
Ratio Partnership) – 70%
Edison International SPA (Edison)
– 20%
Ratio Partnership – 70%
Edison – 20%
Nammax Oil and Gas Ltd.-42.5%
Frendum Investments Limited –
33.5%
Daden Investments Limited – 9%
AGR Petroleum Services Holdings
AS – 5%
Edison
Frendum Investments Limited –
21.5%
Placida Investments Limited – 10%
Coleridge Gas & Oil Exploration
Israel LP – 12%
Lapidot Heletz Limited Partnership
– 41.5%
Caspian Drilling Company Limited
– 5%
Caspian
Drilling
Company
Limited
Edison
AGR
Petroleum
Services
Holdings
AS
10%
10%
Subject to compliance with the terms in the Law and in the Oil Regulations and/or that are set forth
in the terms of the oil right.
(**)The Partnership in the licenses submitted to the Commissioner a request
to change the borders in the Royee License including by way of transferring
areas from the Neta License to the Royee License and by subtracting other
areas. The areas to be subtracted from the Royee License and the areas of
the Neta License areas that were not added to the Royee License – will be
returned. As of the report date, no response form the Commissioner has been
received with regards to said request
(***)The Partnership in the licenses submitted a request to the Petroleum
Commissioner in the Ministry of National Infrastructures, Energy and Water
(Hereinafter The Commissioner) to change the borders in said licenses, in
accordance with Section 49 of the Petroleum Law 1952 in a manner so that
after the proposed change in borders the government would regain three of
the four licenses while one license – license 374/Yoad (within the new
borders as requested in the said application) – will be extended and an
updated work plan will be approved. The Petroleum Council, in its meeting on
22.10.2013, recommended approving the change in borders, so that the
partners in the licenses will relinquish License 374/Yoad in the borders that
were requested by the partners in the Licenses (while relinquishing three
licenses). As of the report date, the validity of licenses 371/Aditya, 372/Lela,
373/Yahav and 374/Yoad expired and Commissioner approval of the change
in borders and extension of the validity of license 374/Yoad has yet been
received.
As of 31 December 2014, the total aggregate costs invested in said oil assets
are as follows: licenses 398/Neta and 399/Royee - $1,909 dollars, Pelagic
licenses (as defined below) - $14,535 thousand, Oz license – $4,564
thousand.
a. Pelagic Joint Transaction
1. The Partnership engaged in an Agreement signed on 6 September
2010 with PELAGIC Exploration Company (Hereinafter Pelagic or
Pelagic Company) to purchase the Partnership's rights at a rate of 10%
in six offshore licenses for oil and gas exploration in 370/Ishai,
371/Aditya, 372/Lela, 373/Yahav, 374/Yoad (Hereinafter
Pelagic
Licenses). Said agreement also applied to the Ila license that expired in
2012.\
The licenses are located in the Mediterranean Sea, approximately
170km west of Haifa, and bordering on the Royee license and located
northeast of it, and the licenses known as Ratio Sea and is located
west o f them. The area of each of these licenses is 400,000 dunam.
2. The Pelagic licenses project is managed through a joint transaction for
oil and gas explorations. The joint transaction activity is managed
under a joint operating and management agreements (JOA) signed
between the Partnership in Pelagic licenses on 11 April 2012. For
information on the JOA, see the immediate report published by the
Partnership on 15 April 2012, Reference 2012-01-100245. The
information appearing in the immediate report was included in this
report by way of reference.
3. As previously stated, the original validity of the Pelagic licenses is until
1 September 2013, with the exception of the Ishai license, whose
validity was extended until 29 February 2016. On 1 September 2013,
the partners in the Pelagic licenses contacted the Commissioner with
an amended request in which following the proposed change in
borders, the country will regain three of the four licenses – 371/Aditya,
372 / Lela, 373/Yahav and 374/Yoad, whereas one license 374/Yoad
(in its new borders as was requested as part of said application) will be
extended and the updated work plan approved. On 23 October 2013,
the Oil Council recommended the approval of the change of borders as
specified so that the Partnership would retain licenses 374/Yoad (in its
new borders as was requested as part of the said application) but
Commissioner approval has not yet been received.
b. Neta and Royee Licenses
1. The Partnership engaged in an agreement to purchase non-specific
participation rights at 10% of the early permit Gal, which was signed on
2 March 2010 and amended on 28 June 2010 between the Partnership
and Ratio Partnership. The Gal permit was valid until 15 August 2011
and expired on this date.
2. On 15 April 2013, the Commissioner granted the licenses 398/Neta
and 399/Royee (in the early permit areas of Gal) for the Partnership
(10%), Ratio Partnership (70%) and Edison (20%). The licenses were
granted for a period of 3 years until 14 April 2016 under special
conditions for each of the licenses determined that during the license
period, a work plan must be implemented for each license.
3. On 8 July 2013, the Partnership joined the joint operating agreement
with the Ration and Edison Partnership. For information about the joint
operating agreements, see immediate report published by the
Partnership on 8 July 2013, Reference 2013-01-087696. The
information appearing in the said immediate report was included in this
4. On 11 February 2015, the Partnership in the Royee and Neta licenses
submitted a request to the Commissioner for a change of borders in
the Royee license by way of by way of transferring areas from the
398/Neta License to the 399/Royee License and by subtracting other
areas. The areas to be subtracted from the 399/ Royee License and
the areas of the 398/Neta License areas that were not added to the
399/Royee License – will be returned in a manner that would allow the
Partnership in the licenses to remain with only one license – the Royee
license with its new borders.. As of the report date, no response form
the Commissioner has been received with regards to said request.
c. Oz License
1. On 1 April 2012, the Partnership signed an agreement with Frendum
Investments Ltd. (Frendum) for the purchase of 10% participation rights
(of 100%) in the offshore license for oil and gas explorations 394/Oz
(Oz License).
2. On 23 May 2012, the Partnership signed a waiver of the Partnership in
the Oz license in the interim agreement (until the signing of the JOA)
with the operator (CASPIAN DRILLING COMPANY LTD).
3. The Partnership and Frendum submitted to the Commissioner an
application to approve the transfer of rights from Frendum to the
Partnership in accordance with the Petroleum Law. On 22 July 2014,
approval of the Petroleum Commissioner with regards to the transfer of
said rights was received.
2. Financial
Position
For 31 December 2014
2014
2013
Dollars in Thousands Dollars in Thousands
Cash and cash equivalents
Deposits in banking corporations
Financial assets measured at fair value through profit
or loss
For sale oil and gas assets
Accounts receivable
Deposits in banking corporations restricted
Investment in oil and gas assets
Accounts receivable
Fixed and other assets, net
Total Assets
Accounts payable
Partnership capital
Total Liabilities and Capital
10.021
8,520
5,195
5,896
13,843
6,855
288
514
671
10
25,219
251
24,968
25,219
95
527
3,368
211
12
30,807
709
30,098
30,807
Partnership assets on 31 December 2014 amounted to $25,219 thousand vs.
$30,807 thousand on 31 December 2013.
Cash and cash equivalents and bank deposits amounted to $18,541 thousand
vs. $19,739 thousand on 31 December 2013.
Negotiable securities amounted to $288 thousand, vs. $527 thousand on 31
December 2013. The reduction is primarily attributed to the disposal of
securities in the first quarter of 2014.
Accounts receivable amounted to $288 thousand, vs. $6,855 thousand on 31
December 2013. The reduction is primarily attributed to a decrease in
receivables for joint transactions in the amount of $317 thousand, increased
prepaid expenses of $71 thousand and an increase on other net receivables
in the amount of $7 thousand.
Long-term deposits amounted to $514 thousand, and is made up of restricted
deposits for guarantees in accordance with Commissioner guidelines for the
Partnership's share in the Oz, Neta, Royee and Ishai licenses.
Long-term receivables amounted to $671 thousand. The balance is composed
of $663 thousand for payment of Frendum's and Placida's share in the
guarantee in accordance with the guidelines for granting guarantees with
regards to petroleum rights required by the joint venture Oz. And a total of $8
thousand resulting from payment of the Partnership's share in the guarantee
for the request of a new license Hatrutrim. In 2013, the balance derived from
the advance for payment at the expense of the Operator fees to the General
Partner that were recognized as expenses in 2014 due to registration of rights
in the Oz license with the Partnership.
There is no investment in oil and gas assts in the period ended 31 December
2014, vs. investment of $3,368 thousand as of 31 December 2013. During the
report period, the Statement of Comprehensive Income recorded expenses in
the amount of $3,611 for the Oz license and $663 thousand in long-term
receivables for the Oz license guarantee. Classification was made following a
transfer of oil rights in the Oz license on behalf of the Partnership by the
Commissioner of Petroleum Affairs in the Ministry of National Infrastructures,
Energy and Water in the third quarter.
Accounts payable amounted to $251 thousand, vs. $709 thousand as of 31
December 2013. The reduction is primarily attributed to payments to suppliers
in the Pelagic joint transaction.
The Partnership equity amounted to $24,968 thousand vs. $30,098 thousand
on 31 December 2013. The change is attributed to a loss for the period of
$4,756 thousand, and a transfer of $50 thousand to cover trustee expenses.
Below is a breakdown of the Partnership's liquid assets:
Deposits in bank corporations
Financial assets measured at fair value through profit and
loss
Total
10,021
8.520
5,195
%
42.22
35.89
21.89
23,736
100
Below is a breakdown of investments in negotiable securities
Dollar-linked corporate bonds rating AA+
Total
3. Analysis of Operating Expenses
5,195
5,195
%
100
100
Below is a breakdown of the Partnership's operating expenses (dollars in thousands) :
31 December
2014
Amortization of oil and gas assets
Oil and gas exploration expenses
Administrative and general expenses
4,007
1,049
31 December
2013
1,738
531
964
Operating Loss
(Revenue) expenses from financing, net
Total comprehensive loss for the period
5,056
24
5,080
3,233
(288)
2,945
The amortization of oil and gas assets reflects amortization of the 370/Ishai
License that amounted in the parallel period last year to $1,738 thousand. The
sum primarily includes costs for the Aphrodita 2 drilling in License 370 Ishai,
that was recorded as an expense due to the provision for impairment.
The oil and gas exploration expenses for 2014 include expenses amount to
$39 thousand for the joint Pelagic transaction, $3,611 for the 394/Oz license
that had been previously recorded as oil and gas assets and its classification
in the third quarter to other comprehensive income in the amount of 4344
thousand for licenses 398/Neta and 399/Royee and an amount of $13
thousand for expenses for application for a new license Hatrutrim.
Administrative and general expenses primarily include management fees for
the General Partner in the amount of $444 thousand, operator cost fees for
the General Partner in the amount of $300 thousand and legal and
professional service fees in the amount of $196 thousand. The increase
against the parallel period last year is primarily attributed to payment of the
operator fees from costs accrued for the current period due to the 370/Oz
license.
Net financing revenue in the amount of $24 thousand, including net revenue
from investment in bank deposit sin the amount of $124 thousand, less
financing revenue that primarily include income from interest from investment
in bank deposits in the amount of $79 thousand, profit from securities and
interest in the amount of $21 thousand. The decrease in comparison with the
parallel period last year is primarily attributed to the dollar at the end of 2014.
4.
Partnership Capital
Partnership capital as of 31 December 2014 amounted to $24,968 thousand.
The movement in capital for the twelve month period ended on 31 December
2014 includes a comprehensive loss for the period of $5,080 thousand and
net financing expenses in the amount of $50 thousand that was offset directly
to equity..
The Stock Exchange rate for working interest for 31 December 2014 is 7.5
agorot.
5.
The Partnership's Cash Flows and Sources of Financing
The Partnership finances its activities through money from the consideration
of the issuing in July 2010 and exercise of the issued warrants.
The Partnership's policy is to invest the issuing funds, used for investment in
oil and gas explorations, in solid and liquid investments, prior to their
designation for investment in oil and gas explorations.
6.
Corporate Donations
The Partnership did not establish donation policies and did not donate funds
in the report period.
7. Exposure to and management of market risks
a. The party responsible for managing market risks in the Partnership
The party responsible for managing the market risks in the corporation
is Eyal Shuker, CEO of the General Partner.
b. Description of the Main Market Risks to which the Partnership is
Exposed
Most of the Partnership's expenses are listed in US dollars, and
devaluation of the shekel exchange rate against the dollar affects the
Limited Partnership's expenses that are listed in NIS. As part of the
Limited Partnership's market risk management policy, most of the
Partnership's liquid assets will be held in dollar-linked deposits. These
investments will be affected by changes in interest rates in the market
and by inflation. At the same time, not all of the Limited Partnership's
liquid assets will be invested in dollar-linked deposits. These will be
affected by the US dollar/ NIS exchange rate.
Fluctuations in TASE rates – the Partnerships is exposed to risk due
to its holdings of capital instruments due to its investments that are
categorized in the balance sheets as financial instruments at fair value
through profit or loss. The Partnership is not exposed to risk due to
commodity prices. The Partnership diversifies its holdings portfolio in
order to manage the price risk resulting from investment in capital
instruments. The holdings portfolio is diversified in accordance with the
restrictions imposed by the Partnership.
c. Partnership Policies on Market Risk Management
The Limited Partnership will regularly review the makeup of its
investments and the yield generated by the financial assets portfolio as
well as the option of changing the composition of the portfolio based
on the Limited Partnership's needs (index-linked or US-dollar linked) in
order to maintain the real value of the Limited Partnership's assets. In
light of the scope of Limited Partnership activity as of the report date,
and in light of the lack of complexity in market risk management, no
fixed dates were set for said review, and no decision was made
regarding events that would necessitate the need for said review.
Up to use of the Limited Partnership's funds for the purposes for which
they were designated, the General Partner will invest the Partnership's
funds in solid investments, at its sole discretion, will maintain to the
extent possible the real value of the funds and the availability of cash
for use for the purposes of the Limited Partnership (although it is not
certain as of the report date, that these investments will be able to
maintain the real value of the funds). The Partnership's financial
management will be conducted independently by the General Partner.
"Solid Investments" for this purpose will be considered bank deposits,
government bonds and short-term corporate bonds grade A or higher.
The General Partner will not invest said funds in securities of
corporations controlled by the controlling shareholders of the General
Partner or whose controlling shareholders in the General Partner are
interested parties.
As of the report date, the Partnership does not plan to activate financial
derivatives with regards to protection of said invested funds, with the
exception of protection from currency exposure, if such a decision is
made at the General Partner's discretion, in order to maintain the value
of the money in a better manner at its sole discretion and base don
advice it receives from its investment managers.
The director of the Partnership's investment policy, if any is appointed,
is Mr. Eyal Shuker, CEO of the General Partner. Partnership decisions
pertaining to said investment policies are made through a convening of
the General Partner's board of directors from time to time, during which
the director will present the performance of the Partnership's
investment policies and the Partnership's current investment policies
as well as the considerations behind the actual investment. Following
the discussion, the Board of Directors of the General Partner will make
a decision regarding the investment policy for the near future. The
General Partner's Board of Directors sets said investment policies,
taking into account the state of the markets and the liquidity
requirements of the Partnership for the ensuing 12 months, subject to
the updated investment policies. In every quarterly report, the
Partnership will present the breakdown of the investment portfolio base
don channels for the last day of the reported quarter.
d. Linkage-base Report (Dollars in Thousands) for 31 December 2014
In
dollar
dollar-linked
or
In NIS
Not linked
Non-financial
Total
Current Assets
Deposits in bank corporations
Financial assets at fair value through profit and
loss
Accounts receivable
Total current assets
9,156
8,520
5,195
865
-
-
10,021
8,520
5,195
243
23,114
45
910
-
288
24,024
Non-current Assets
Restricted bank deposits
Fixed assets and other assets
Accounts receivable
Total non-current assets
Total assets
514
671
1,185
24,299
-
10
-
910
10
514
10
671
1,195
25,219
Current Liabilities
Accounts payable
112
139
Total Liabilities
112
139
Total balance sheet balance, net
24,187
771
10
e. Sensitivity Tests to Changes in Shekel/Dollar Exchange Rates (Dollars in
Thousands)
Increase
(decrease)
exchange rate
Accounts receivable
in
Profit (Loss) from the Change
10%
5%
(87)
(5)
(43)
(2)
Fair Value
865
46
(5%)
(10%)
43
2
87
5
251
251
24,968
Accounts payable
14
f.
7
(139)
(7)
(14)
Sensitivity Test to Changes in Stock Exchange Rates (Dollars in Thousands)
Increase
(decrease)
in
exchange rate
Financial Assets in Fair Value
through Profit and Loss
10%
5%
520
260
Fair Value
5,195
(5%)
(10%)
(260)
(520)
g. Positions in Derivatives
The Partnership has no open positions in derivatives.
8. Critical Accounting Estimates
Preparation of the financial statements in accordance with GAAP
requires management to conduct assessments and estimates that
affect the reported value of the assets, liabilities, income and expenses
as well as disclosure of contingent assets and liabilities. Management
bases the estimates and assessments on past experience and on other
factors that it believes are relevant taking into account the
circumstances of the matter. Actual expenses can differ form these
estimates under various premises or conditions.
Impairment of assets – in accordance with the provisions of the
standard accounting standards, the Partnership will review on every
balance sheet date whether events occurred or changes occurred in
the circumstances indicating a change in the impairment in one or
more of the non-cash assets of the Partnership. If there are signs of an
impairment, the Partnership will review whether the sum presented by
the investment in the asset can be restored through cash flows
predicted from said asset, and if necessary, will record a provision for
impairment up to the sum that can be restored.
Upon determining the cash flow estimates, the Partnership will rely on,
inter alia, past experience and valuations of the assets, and fair market
value of the assets established by transactions with third parties.
9. Approval of Financial Statements
The Board of Directors of the General Partner is the organ responsible
for overall control of the Partnership.
As part of the approval of the Partnership's financial statements by the
General Partner's board of directors, a draft of the financial statements
and a draft of the Board of Directors report are sent to member of the
Board of Directors and the Partnership's Commissioner for review prior
to the date of the meeting set for approval of the statements. During
the Board of Directors meeting in which the financial statements are
discussed and approved, the main points of the financial statements,
financial expenses, financial position and cash flows of the Partnership
are reviewed and data is presented on the Partnership's activities and
compared to previous periods.
During the Board of Directors meeting in which the financial statements
are discussed and approved, the Partnership's auditor is invited and
participates in the meeting, and this auditor also provides a review of
the financial statements and is available to the members of the board
to answer any question and clarification regarding the statements prior
to their approval. Following said discussion, a vote is carried out to
approve the financial statements.
The Board of Directors meeting to approve the financial statements
convened on 16 March 2015 at the offices of the General Partner on
Ben Gurion Street 2 in Ramat-Gan.
During the report period, the Partnership came to an agreement with
the Income Tax Authorities regarding submission of the Tax Reports
for 2011. As of the date of the signing of the financial statements, the
tax report process for this year ended and a certificate was issued for
the purpose of calculating the recognized expenses for tax purposes
for the holder of the participation unit. In addition, the Partnership's
books are being audited by the Income Tax Authority to issue
certificates for the 2012 tax year and 2013 tax year.
10. Directors with Accounting and Financial Expertise
In accordance with the Companies Regulations (Conditions and
Criteria for Directors with Accounting and Financial Expertise and for
Directors with Professional Expertise) -2005, the General Partner
determined that taking into account the limited scope of the
Partnership's business and financial activities, that it was sufficient that
one director with accounting and financial expertise sit on the General
Partner's Board of Directors. The Directors of the General Partner,
Rony Halman, Uri Aldubi and Menachem Marder have said accounting
and financial expertise.
11. Internal Auditors
Name: Ronen Artzi
Start date of term: 16.5.2013
Compliance with the terms of Section 3(a) and 8 of the Internal Audit
Law and the provisions of Section 146(b) of the Companies Law: Yes.
Auditor's holding of Partnership securities: None
Material ties with the Audited party or its affiliate: None
The internal auditor provides services to the Partnership via Shiff
Hazenfratz & co. and does not fill nay other role in the General Partner
Appointment of the Auditor
Appointment of the internal auditor was approved on 16.5.2014, the
General Partner's Board of Directors made this decision after having
reviewed the education, skills and experience of the auditor.
Auditor's authorities: a. obtain any information required to perform his
job. B. obtain access to anywhere that is needed to perform his job. C.
Invitation to every Board of Directors meeting pertaining to the
Partnership.
The Company believes that the internal auditor is capable of the
obligations, authorities and positions imposed on him, inter alia, taking
into account the type of corporation, size as well as scope and
complexity of operations.
The Work Plan
The work plan for the internal audit is annual.
The General Partner's management, the General Partner's board of
directors and the Supervisor of the Partnership are regularly involved in
the work plan with the Partnership while taking into account the
recommendations of the internal auditor. The work plan is approved by
the supervisor of the Partnership and the Board of Directors of the
General Partner.
The work plan allows the internal auditor discretion to deviate from the
plan whenever necessary.
The scope of the internal auditor's work includes 157 work hours in
2014. The General Partner's Board of Directors believes that the scope
of the transaction is reasonable under the circumstances taking into
account the size and complexity of the Partnership.
Professional Standards
The internal audit is prepared in compliance with the standard internal
audit standards used in Israel and around the world, and in compliance
with the professional guidelines for internal audits and in compliance
with the Internal Audit Law.
The Board of Directors is satisfied that the internal auditor complies
with the criteria specified above in accordance with the internal
auditor's notice.
Internal Auditor's Report
The internal auditor's report was submitted in writing.
The audit reports were submitted and discussed by the Board of
Directors of the General Partner on the following dates:
The audit report on investments was submitted to the General Partner's
management and Partnership Supervisor on 14 July 2014 and was
presented to the Board of Directors on 18 August 2014.
The audit report on administrative enforcement was submitted to the
General Partner's management and the Partnership supervisor on 8
March 2015, and was presented to the Board of Directors on 16 March
2015.
The audit report on financial system was submitted to the General
Partner's management and the Partnership supervisor on 6 January
2015, and was presented to the Board of Directors on 16 March 2015.
Access to Information
The internal auditor has full, unrestricted and direct access to the
corporation's information systems, including financial data for the
purpose of the audit in accordance with Section 9 of the Internal Audit
Law.
The Board of Directors' Assessment of the Internal Auditor's Activities
According to the General Partner, the scope, nature and continuity of
actions and work plan of the internal auditor are reasonable, taking into
account the structure and activities of the Partnership and does satisfy
the purposes of the internal audit.
Compensation
The internal auditor is entitled to compensation from the Partnership for
every audit hour.
12. Independent Auditor
Name: Kost, Forer, Gabbai and Kasierer
Below is an itemization of the retainer for the independent auditor:
For
audit
services,
related to the
audit and tax
services
For
other
services
Total
2014
NIS in
NIS in
Thousands
Thousands
144
733
2013
NIS in
NIS in
Thousands
Thousands
139
713
50
132
-
-
194
865
139
713
Entities that approved the CPA retainer: Partnership supervisor and the
General Partner's Board of Directors
13. Other Events during the Report Period
a. On 10 March 2014, the Partnership updated that in accordance
with Regulation 5e(a)(1) of the Securities Regulations (Periodic
and Immediate Reports) 5730-1970 (Immediate Reports
Regulations), the Partnership is considered a 'small corporation'
as this term is defined in Regulation 5c of the regulations for
immediate reports and in accordance with its ability to
implement, beginning from the periodic report for 2013, the
easements for small corporations that were approved as part of
the Securities Regulations (Periodic and Immediate Report)
(Amendment) – 2014 (The Easements). Concurrently, the
Partnership does not intend to implement all or part of the
easements at this point in time.
b. On 7 April 2014, the Petroleum Council convened and on the
meeting on this date, recommended the approval of the
application to transfer the rights acquired in the 394/Oz license
from Frendum to the Partnership. On 22 July 2014, the
Commissioner approved the transfer of the participation rights
as specified and their registration under the Partnership's name
in the Petroleum Registry.
c. On 24 April 2014, the Partnership published a predicted
resources report (prospective) in the 394/Oz license, that was
prepared by an external assessor, Netherland, Sewell &
Associates, Inc. in accordance with the rules of the Petroleum
Resources Management System (SPE_PRMS). For the full
resources report, see the Partnership publication dated 27.4.14
(Reference3 No. 2014-01-050472).
d. Pursuant to the Partnership's notice from 21 January 2013
(Reference No. in the notice to the Securities Authority 2013-01019911) regarding negotiations with Modiin Energy – Limited
Partnership regarding the addition of the Partnership as a
partner holding 10% (of 100%) of the rights to license
e.
f.
g.
h.
i.
j.
k.
378/Gabriella, the Partnership updated in the Board of Directors
report for the first quarter of 2014 that the said negotiations
ended without an agreement.
On 5 June 2014, the Petroleum Commissioner approved a
change in the work plan in the Ishai license in a manner that the
date of implementation of the milestone that includes analysis of
the backstripping method and transfer of the results of the
summary report was deferred.. The Commissioner asked to
include this milestone in the new work plan for the license that
will be submitted by the Partners in the license once the
information with this regards is obtained for the Aphrodita field in
Cyprus. For this matter, see also Section 13l below.
On 10 July 2014, Ms. Sivan Weizman completed her term as
CFO of the General Partnership, and Mr. Gil Soltan was
appointed to replace her.
For information about the request for arbitration before an
arbitration court for international arbitration in London that was
received in the Partnership's offices on 13.7.2014 and that was
submitted by CDC against the Partnership and the other
partners in the license regarding payments in accordance with
the interim agreement specified in Section 1.5.3.10(5) below and
the settlement agreement signed as a result, see Note 17f3 of
the Partnership's financial statements. See also in this matter
In accordance with the request of the Partnership in the Neta
and Royee licenses, on 27 July 2014, approval was received to
update the work plans in the licenses. For more information
regarding the updated work plans in the area of the licenses
398/Neta and 399/Royee, see Note 7e4 of the financial
statements and see the Immediate Report published by the
Partnership on 27 July 2014, Reference No. 2014-01-121284.
The information appearing in the Immediate report above is
included in this report by way of reference.
On 28 September 2014, the Partnership submitted to the
Commissioner, along with other partners, a request to obtain a
land license Hatrurim, in the Halamish area. For more
information about the request and the Memorandum of
Understanding, note 7g and the Immediate Report published by
the Partnership on 14 August 2014, Reference No. 2014-01133803 and the Immediate Report published by the Partnership
on 28 September 2014, Reference No. 2014-02-164829. The
information appearing in the said immediate reports are included
in this report by way of reference.
On 28 August, the Partnership published a shelf prospectus.
After the Ministry of National Infrastructures, Energy and Water
published several deferments in the applicability of the
guidelines on providing securities with regards to oil rights for
validity from February 2014, on 17 September 2014, new
updated guidelines were published on providing securities with
regards to oil rights. For information regarding the updated
guidelines, see Section 1.17.3.5 of Part A of the Periodic Report
and Note 7c of the Financial Statements.
l.
m.
n.
o.
p.
On 28 September 2014, and following a query by the
Partnership in the Ishai License, the Commissioner informed the
Partnership pin the license on an extension of license validity
until 29.2.2016 subject to implementation of the work plan and
conditions. For information on the work plan in the license and
conditions, see the Immediate Report published by the
|Partnership on 28 September 2014 Reference 2014-01164925. The information appearing in the Immediate Report was
included in the report by way of reference.
In accordance with the request by the Partnership in License
394/.Oz on 10 November 2014, the Commissioner announced
that he is approving the extension of the validity of the Oz
license until 30 June 2016, subject to the law and subject to
implementation of the work plan. For details on the detailed work
plan see Note 7f2 of the Financial Statements, and the
Immediate Report published by the Partnership on 10 November
2014 (Reference 2014-01-191508). The information appearing
in the Interim Report was included in this report by way of
reference.
As specified in Note 8d1 of the Financial Statements, on 9
November 2014, the parties in the claim filed in the Tel-Aviv
district court by Western Breeze Holdings Limited on 16 April
2012 including counterclaims for this purpose reached a
settlement with regards to the various claims raised in the claim
and counterclaim. The parties agreed to reject the claim and
counterclaim. According to the settlement agreement, the
Partnership is not required to pay and/or assume any other
benefit towards any of the parties of the settlement agreement.
On 11 November 2014, the Tel-Aviv District Court approved said
settlement agreement.
On 26 November 2014, the Commissioner responded to the
request of the Partnership in License 394/Oz that it did not find
unusual circumstances that justified a significant postponement
of the guarantees in accordance with the guidelines as defined
in Section 14 below. Concurrently, a one-month postponement
was granted to issue the first part of the guarantee in
accordance with the guidelines by 31 December 2014.
Accordingly, on 31 December 2014, the Partnership in the
license provided the first part of the guarantees.
On 26 November 2014, the Commissioner responded to the
request of the Partnership in License 370/Ishai that it did not find
unusual circumstances that justified a significant postponement
of the guarantees in accordance with the guidelines as defined
in Section 14 below. Concurrently, a one-month postponement
was granted to issue the first part of the guarantee in
accordance with the guidelines by 31 December 2014.
Accordingly, on 31 December 2014, the Partnership in the
license provided the first part of the guarantees.
q. On 14 December 2014, the Partnership published a predicted
(prospective) resources report in the Royee prospect in the area
of licenses 398/Neta and 399/Royee. For this matter, see also
Section 1.5.1.11 of Chapter A of the Periodic Statement. For the
full resources report, see the Partnership's publication from
24.12.14 (Reference No. 2014-01-220548). The information
appearing in the said Immediate Report was included in this
r. On 28.12.2014, Frendum Investments Limited (Hereinafter
Frendum), which holds 33.5% of the working interests in the
Pelagic licenses and 21.5% in the 394/Oz license, announced
that Norisha Holdings Limited (Norisha) which is controlling
shareholder in the Genesis Energy Group Limited (Genesis),
which wholly owns Frendum, engaged in an agreement with
Eden Energy Discoveries Ltd. (Hereinafter Eden), also a
Genesis shareholder, in which Eden acquired from Norisha
control of Genesis (and indirectly of Frendum), and that
Frendum and Placida Investments Ltd. (: Placida), engaged in
an agreement to sell all of its holdings in 394/Oz license to
Placida Investments Ltd. (Placida).
For information on pending lawsuits and/or against the Partnership,
see Note 8d.
14. Legislative Restrictions
See Periodic Report for 2013 published on 19.3.2014 (Reference No.
2014-01-018732). The information appearing in said report is
introduced here by way of reference.
During the report period and after the balance sheet date, the following
legislative restrictions were published:
a. Guidelines for granting securities with regards to petroleum
rights (The Guidelines) – for information see Section 1.17.3.5 of
Chapter A of the Periodic Report and Note 7c of the Financial
Statements.
b. The Partnerships Ordinance Amendment Law (No. 5) 2015 – for
information, see Section 1.17.2 of Chapter A of the Periodic
Report.
15. Events After the Balance-Sheet Date
a. Pursuant to Section 13c of the Board of Directors Report of the
General Partner on the State of the Partnership's Affairs for the
period ended 31 December 2014, on 7 January 2015, the
Partnership filed a financial claim in the amount of NIS
6,030,875 with the Tel-Aviv District Court against Frendum,
Placida and Lapidot-Heletz, Limited Partnership
that are
Partners in license 394/Oz. For more information about the
lawsuit, see Note 8d3 of the Financial Statements.
b. Pursuant to the specified in Section 13r above, for information
about the exercise of the right of first refusal in the Pelagic
license, notice of violation to Frendum and Daden Investments
Ltd. pertaining to License 370/Ishai and negotiations between
Eden and the partnership and Nammax Oil and Gas Limited
regarding the distribution of Frendum's holdings in the Pelagic
licenses, see Sections 1.4.3.1 and 1.5.2.10(c) of Chapter A of
the Periodic Statements.
c. On 19 January 2015, the Partnership in license 370/Oz
requested an extension of the short dates in the work plan in the
license area. As of the report date, the Commissioner's
response to said request has not been received.
d. On 11 February 2015, the Partnership in the Royee and Neta
licenses submitted a request to the Commissioner for a change
of borders in the Royee license by way of by way of transferring
areas from the 398/Neta License to the 399/Royee License and
by subtracting other areas. The areas to be subtracted from the
399/ Royee License and the areas of the 398/Neta License
areas that were not added to the 399/Royee License – will be
returned in a manner that would allow the Partnership in the
licenses to remain with only one license – the Royee license
with its new borders.. As of the report date, no response form
the Commissioner has been received with regards to said
request.
On behalf of the General Partner – Israel Opportunity – Oil and Gas Explorations Ltd.
_________________________________________
Rony Halman, Chairman of the Board of Directors
In the General Partner
________________________________________
Eyal Shuker, CEO
In the General Partner
Date: 16.3.15
Chapter C – Financial Statements for 31 December 2014
Israel Opportunity – Energy Resources, Limited Partnership
Financial Statements for 31 December 2014
In US$ in Thousands
Unaudited
Table of Contents
Independent Auditor's Report – Internal control of Financial Statements
Independent Auditor's Report – Annual Financial Statements
Statements of Financial Position
Statements of Comprehensive Income
Statements of Changes in Partnership Capital
Statements of Cash Flows
Notes to the Interim Financial Statements
Interim Financial Statements for 30 September 2014
In US$ in Thousands
Unaudited
Table of Contents
Review of Interim Financial Statements
Statements of Financial Position
Statements of Comprehensive Income
Statements of Changes in Partnership Capital
Notes to the Interim Financial Statements
Kost Forer Gabbay & Kasierer
3 Amindov St.
Tel-Aviv 6706703
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
Auditors’ Report
to the partners of Israel Opportunity - Energy Resources, (Limited
Partnership)
on the audit of components of internal control over financial reporting
in accordance with Section 9B(c) of the Securities Regulations (Periodic
and Immediate Reports), 1970
We have audited components of internal control over financial reporting of
Israel Opportunity - Energy Resources, (Limited Partnership) (hereafter - “the
Limited Partnership”) as of December 31, 2014. These control components
were determined as explained in the following paragraph. The Board of
Directors and management of the General Partner in the Limited Partnership
are responsible for maintaining an effective internal control over financial
reporting and for the assessment of the effectiveness of components of
internal control over financial reporting, which is attached to the periodic
report as of said date. Our responsibility is to express an opinion on
components of the internal control over financial reporting of the Limited
Partnership based on our audit.
Components of internal control over financial reporting that we have audited
were determined in accordance with Auditing Standard No. 104 of the Institute
of Certified Public Accountants in Israel, “Audit of Components of the Internal
Control over Financial Reporting”, as amended (hereafter - “Auditing Standard
104”). These components are: (1) entity level controls, including controls over
the editing and closing of financial reporting and general controls over IT
systems; (2) investments in oil and gas assets; (3) management of cash and
investments.
We conducted our audit in accordance with Auditing Standard 104. According
to this Standard, we are required to plan and perform the audit to identify the
Audited Control Components and to obtain reasonable assurance that such
control components have been effectively maintained in all material respects.
Our audit included comprehension of the internal control over financial
reporting, identification of the Audited Control Components, assessment of
the risk of the existence of a material weakness in the Audited Control
Components, as well as the assessment and evaluation of the effective
planning and operation of those control components, on the basis of the risk
assessment Our audit, as relating to those control components, also included
the performance of additional procedures that we found to be necessary
under the circumstances. Our audit related only to the Audited Control
Components, as opposed to internal audit of the overall material processes in
connection with the financial reporting. Accordingly, our opinion relates solely
to the Audited Control Components. Furthermore, our audit did not address
interactions between the Audited Control Components and unaudited
components. Accordingly, our opinion does not take into consideration such
possible interactions. We believe that our audit provides a reasonable basis
for our opinion in the context set out above.
In view of inherent limitations, the internal control over financial reporting in
general and components thereof in particular, may not prevent or identify
misstatement. Additionally, the drawing of conclusions with respect to the
future based on any current assessment of effectiveness is exposed to the
risk that controls may become inadequate due to changes in circumstances or
that the degree of compliance with the policies or the procedures may change
for the worse.
In our opinion, the Limited Partnership has effectively maintained, in all
material respects, the Audited Control Components as of December 31, 2014.
We have also audited, in accordance with auditing standards generally
accepted in Israel, the financial statements of the Limited Partnership as of
December 31, 2014 and 2013 and for each of the three years in the period
ended December 31, 2014 and our report, dated March 16, 2015, included an
unqualified opinion on said financial statements.
Tel-Aviv
16 March 2015
Kost, Forer, Gabbi and Kaiserer
Certified Public Accountants
Kost Forer Gabbay & Kasierer
3 Amindov St.
Tel-Aviv 6706703
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
Auditors’ Report
To the partners of Israel Opportunity - Energy Resources, (Limited
Partnership)
We have audited the accompanying statements of financial position of Israel
Opportunity - Energy Resources, L.P. (hereafter - “the Partnership”) as of
December 31, 2014 and 2013, and the statements of comprehensive income,
changes in partners’ equity and cash flows for each of the three years in the
period ended December 31, 2014. These financial statements are the
responsibility of the Board of Directors and management of the General
Partner. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Israel, including those prescribed by the Israeli Auditors' (Mode of
Performance) Regulations, 1973. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by the Board of Directors and management of
the Partnership, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Partnership as of December 31,
2014and 2011, and the results of its operations, the changes in its equity and
its cash flows for each of the three years in the period ended December 31,
2014, in conformity with International Financial Reporting Standards (IFRS)
and with the provisions of the Israeli Securities Regulations (Annual Financial
Statements), 2010.
We have also audited, in accordance with Auditing Standard No. 104 of the
Institute of Certified Public Accountants in Israel, “Audit of Components of the
Internal Control over Financial Reporting”, components of internal control over
financial reporting of the Limited Partnership as of December 31, 2014, and
our report dated March 16, 2014 included an unqualified opinion on the
effective maintenance of such components.
Tel-Aviv
16 March 2015
Kost, Forer, Gabbi and Kaiserer
Certified Public Accountants
Statements
Position
of
Financial
For 31 December
2014
Note
Current Assets
Deposits in banking corporations
Financial assets measured at fair value through profit or
loss
Oil and gas assets designed for sale
Accounts receivable
Non-current Assets
Restricted bank deposits
Accounts receivable
3
4
4, 7c
7
7b
Fixed assets and other assets, net
Current Liabilities
Accounts payable
9
11
Partnership Equity
10,021
8,520
5,195
5
6a
2013
5,896
13,843
288
24,024
6,855
95
527
27,216
514
671
10
3,368
211
12
1,195
25,219
3.591
30,807
251
251
709
24,968
30,098
709
25,219
30,807
Total liabilities and equity
The accompanying notes are an integral part of the interim financial statements.
Israel Opportunity – Oil Exploration
And Gas – The General Partnership, by:
________________
________________
Rony Halman
Eyal Shuker
Gil Soltan
Chairman of the
CEO of the General
CFO of the General
Board of Directors
Partnership
Partnership
of the General
Partnership
16 March 2015
Date of Approval of the Financial Statements
Statements
of
Income
Comprehensive
For the Year Ended 31 December
2014
Note
Amortization of oil and gas assets
Oil and gas exploration expenses
Administrative and general expenses
Operating loss
7
12
13
Financing income
Financing expenses
14
14
2013
2012
(with the exception of loss data for participating
units)
1,738
7,648
4,007
531
464
1,049
964
1,497
5,056
3,233
9,609
(100)
124
(289)
1
(740)
46
Loss for the period
24
5,080
(288)
2,945
(694)
8,915
Total comprehensive loss
5,080
2,945
8,915
*)
*)
0.01195
746,342,673
746,333,057
646,138,395
Financing expenses (income), net
Loss for Participation Unit (in Dollars)
Basic and diluted
Weighted average of equity of participation units used
in the calculation of loss per participation unit:
Basic and diluted:
15
* represents sum less than 0.01 dollars
The accompanying notes are an integral part of the financial statements.
Statements of Changes in Partnership
Capital
Balance on 31 December
2012
Movements in the year ended
31 December 2013
Total comprehensive loss
Exercise of Options, Net
(Series 2)
Exercise of Options, Net
(Series 3)
Expiration of option warrants
(Series 2 and 3)
(Series 2 and 3)
Issuance of option warrants
(Series 5)
2012
31 December 2013
Distribution to Trustee
Total Comprehensive Loss
Exercise of option warrants,
net (Series 5)
(Series 5)
2014
31 December 2013
Total Comprehensive Loss
2014
The Limited Partnership – Israel
The General Partnership – Israel
Opportunity – Oil and Gas
Opportunity – Oil and Gas
Exploration Trustees Ltd.
Explorations Ltd.
Retained Investment Warrants Retained Investments Warrants
Loss
in
Loss
in
Partnership
Partnership
Equity
Equity
(6,613)
37,039
8,475
(1)
4
2
Total
Capital
38,906
(8,914)
-
3,900
(807)
(1)
-
*)
*)
(8,915)
3,093
-
5
*)
-
*)
*)
5
-
3,743
(3,743)
-
*)
*)
-
-
3,929
(3,929)
-
*)
*)
-
-
(756)
756
-
*)
*)
-
(15,527)
47,860
752
(2)
4
(2)
33,089
(50)
(2,945)
-
4
*)
*)
*)
-
*)
*)
(50)
(2,945)
4
-
752
(752)
-
2
-
-
(18,522)
48,616
-
(2)
6
(50)
(5,079)
(23,651)
48,616
-
*)
(1)
(3)
6
* represents sum less than 0.01 dollars
The accompanying notes are an integral part of the financial statements.
30,098
-
(50)
(5,080)
24,968
For the year ending
31 December
2013
2014
Cash Flows from Current Activities
Net cash derived from (used for) current activities (a)
Cash flows from Investment Activities
Change in deposits in banking corporations, net
Consideration from sale of negotiable securities at fair
value through profit and loss
Acquisition of fixed and other assets
Decrease (increase) in long-term accounts receivable
Decrease (increase) in accounts receivable
Consideration from sale of oil and gas assets
designated for sale
Net cash derived from (used for) investment activities
Cash Flows from Financing Activities
Repayment of loan in a joint transaction for oil and
gas explorations
Consideration from exercise of warrants
Net cash used for financing activities
2012
(1,178)
696
(3,061)
4,809
(7,944)
(2,883)
1,679
(882)
449
1,309
3,935
(23)
(1,309)
(4,923)
95
(677)
393
(4,120)
(8,832)
5,473
(6,427)
(17,970)
(50)
-
-
________
(50)
________
(481)
4
_________
(477)
________
481
3,098
________
3,579
________
Rate differentials between cash and cash equivalents
(120)
54
Decrease (increase) in cash and cash equivalents
4,245
(6,208)
Balance of cash and cash equivalents for start of
5,896
12,050
period
________
________
Balance of cash and cash equivalents for end of
5,896
period
10,021
(28)
(17,452)
29,530
________
12,050
For the year ending
31 December
2013
2014
(a) Net Cash Derived from (Used for) Current
Activities
Loss for the period
2012
(5,080)
(2,945)
(8,915)
3,611
-
-
(19)
120
2
-
(120)
(54)
8
68
(302)
28
2
-
-
1,644
7,317
-
94
331
Decrease in Accounts payable
342
(154)
________
2,309
(308)
________
(2,015)
493
________
Net cash provided by (used in) operating activities
(1,178)
========
696
========
(3,061)
========
Adjustments to the Profit and Loss Items:
Non-cash oil and gas exploration expenses
Profits from change in fair value of financial assets
measured in fair value through profit and loss
Exchange differences on cash and cash equivalents
Depreciation expenses
Loss on sale of oil and gas assets designated for sale
Provision for impairment due to investment in oil and
gas assets
Provision for impairment of oil and gas assets
designated for sale
Changes in assets and liability items:
Decrease (increase) in accounts receivable
(b) Additional information on cash flows
98
82
Interest received
377
Notes to the Financial Statements
Note 1 – General
a. Definitions
The Partnership or The Limited Partnership –
The General Partner The Limited Partner or Trustee Dollar -
Israel Opportunity – Energy Resources,
Limited Partnership
Ltd.
Trustees Ltd.
US Dollar
b. The Limited Partnership was founded in accordance with the Limited Partnership
foundation agreement that was signed on 10 February 2010 (and that was amended
on 3 March 2010, 16 June 2010, 27 June 2010, 11 October 2010, 5 January 2011, 24
August 2011, 15 April 2012, 14 February 2013 and 18 August 2014)) between the
General Partner on the one hand and the Limited Partner on the other. The Limited
Partnership was registered on 24 February 2010 in accordance with the Partnership
Ordinance (New Version) 5735-1975 (Hereinafter – The Partnership Ordinance). In
accordance with Section 61(a) of the Partnership Ordinance, the partnership
agreement constitutes the Limited Partnership statutes.
The Partnership is a public partnership that incorporated in and a resident of Israel.
The registered address of the office of the Partnership is Derech Ben Gurion 2,
Ramat-Gan.
The first stock exchange in which the Partnership's participation units were listed
beginning on 14 July 2010 is the Tel-Aviv Stock Exchange.
c.
The General Partner in the Partnership holds approximately 0.01% of the
participation units. The General Partner focuses on the management of the Limited
Partnership. The Limited Partner in the Partnership holds approximately 99.99% of
the Partnership capital as of 30 December 2014. The Limited Partner serves as
Trustee for the owners of the participation units.
d. The Partnership specializes in oil and/or gas explorations in geographical areas
included in licenses 370/Ishai, 371/Aditya, 372/Lela, 373/Yahav, 374/Yoad
(Hereinafter: The Pelagic Licenses), 398/Neta, 399/Royee and 394/Oz, whether they
are subject to the aforementioned oil assets or subject to early holdings or licenses or
permits that will be issued to the Partnership in stead, and areas adjacent to the
aforementioned oil asset area that will be included in said oil assets as a result of a
change in their border, with a change in border being attributed to local geographical
reasons (See Note 7 of the Annual Financial Statements). The Partnership submitted
to the Petroleum Commissioner in the Ministry of National Infrastructures, Energy and
Water a request to return the Aditya, Lela and Yahav licenses, and approval of a
change in the limits of the Yoad license and to extend the validity by two years of its
work plan. The Petroleum Council recommended approval of the change of borders
as specified but the Commissioner's approval is still pending.
Notes to the Financial Statements
NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES
The accounting policies described below have been consistently applied in
the financial statements for all of the periods presented, unless stated
otherwise.
a. Basis of presentation of the financial statements
The financial statements have been drawn up in accordance with International
Financial Reporting Standards (hereafter - “IFRS”). Furthermore, the financial
statements have been prepared in conformity with the Israeli Securities
Regulations (Annual Financial Statements), 2010.
The financial statements of the Partnership have been prepared on a cost
basis, except for financial assets and financial liabilities that are presented at
fair value through profit or loss.
The Partnership has elected to present the profit or loss items using the
nature of operations method
b. Joint Ventures
A joint venture is a contractual arrangement, under which two or more parties
undertake an economic activity for the exploration of oil and gas in a jointly
controlled asset. Joint ventures often involve joint operations of the venture
participants in one or more assets that have been invested in as part of the
joint venture. Arrangements that do not formally require the unanimous
consent of the parties to the arrangement do not meet the definition of joint
control under IFRS 11. Nevertheless, the examination of such arrangements
shows that the arrangements themselves do not hold any rights to the assets,
nor do they enter into commitments in the name of the participants. Every
participant may pledge its rights to the assets and every participant is entitled
to the economic benefits from the venture. Consequently, the participants hold
a proportionate share of the assets and liabilities attributable to the joint
venture. In respect of the interest of the Partnership in the operations of the
joint ventures, the Partnership recognized in its financial statements:
1. Its share in the assets of the joint venture.
2. Any liabilities that it has assumed.
3. Its share in any liabilities incurred jointly in relation to the joint venture.
4. Any income that it has derived in respect of its interest in the joint venture.
5. Any expenses that it has incurred in respect of its interest in the joint
venture.
Where the Partnership has transferred cash calls to an operator in a joint
venture, which have not yet been used by said operator, the Partnership
recognizes its share in the transferred cash calls under accounts receivable,
as such amounts do not qualify as cash and cash equivalents.
c. Functional currency, presentation currency and foreign currency
1. Functional currency and presentation currency
The presentation currency of the financial statements in the dollar.
The functional currency of the Partnership is the dollar, which is the
currency that reflects the primary economic environment in which
the Partnership operates.
NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
2. Transactions, assets and liabilities in foreign currency
Transactions denominated in foreign currency are recorded upon initial
recognition at the exchange rate on the date of the transaction. Subsequent to
initial recognition, monetary assets and liabilities that are denominated in
foreign currency are translated into the functional currency on every reporting
date at the exchange rate on such date. Exchange differences, other than
those that are capitalized to qualifying assets or carried to equity under hedge
transactions, are recognized in profit or loss. Non-monetary assets and
liabilities that are denominated in foreign currency and presented at cost are
translated at the exchange rate on the date of the transaction. Non-monetary
assets and liabilities that are denominated in foreign currency and presented
at fair value are translated into the functional currency using the exchange
rate prevailing at the date when the fair value was determined.
e. Oil and gas exploration expenses
International Financial Reporting Standard No. 6, Exploration for and
Evaluation of Mineral Resources (hereafter - “the Standard”), provides for
the accounting treatment of gas and oil exploration expenses. The
Partnership implements the successful efforts method.
1. Successful efforts method
a. Participation expenses in respect of geological and seismic tests and
surveys that result in a conclusion as to the continuation of the
exploration plan are carried to profit or loss as incurred.
b. Drilling-stage investments in oil and gas drilling in respect of reserves
for which the production of oil or gas has not yet been established or
that have not yet been determined as non-commercial, are classified
as exploration and evaluation assets and presented in the balance
sheet at cost under “investment in oil and gas assets”.
c. Investments in oil and gas drilling in respect of reserves that have been
proven to be dry and were abandoned or that have been determined as
noncommercial or for which there are no pending development plans in
the near term are fully written off from “investment in oil and gas assets
(including exploration and evaluation assets)” to profit or loss.
2. Investments in reserves for which the production of gas or oil is
technically feasible and commercially viable (which are reviewed in
relation to a various events and circumstances, pertaining primarily to
obtaining the approval of the reserve as a commercial discovery by the
Petroleum Commissioner and/or obtaining of a deed of lease for the
license area from the Petroleum Commissioner) are classified as oil
and gas assets and carried from “exploration and evaluation assets” to
“oil and gas assets” and presented in the balance sheet at cost. Oil and
gas assets as above are written down to profit or loss based on the
ratio of the quantity produced to the total proven reserves of gas or oil
in such asset, as assessed by the expert.
3. Expenses in respect of wells that have been determined to contain
proven reserves of gas or oil are included in the balance sheet at cost
and written down to profit or loss based on the ratio of the quantity
produced to the total proven reserves of gas or oil in such asset, as
assessed by the expert.
4. Exploration and evaluation assets are tested for impairment whenever
facts and circumstances indicate that the carrying amount of an
exploration and evaluation asset may be higher than its recoverable
amount. When facts and circumstances indicate that the carrying
amount exceeds the recoverable amount, the Partnership recognizes
impairment losses in accordance with International Accounting
Standard No. 36
5. Farm-in agreements in the stages of exploration and evaluation
Farm-in transactions usually take place during the stage of exploration
or development and are characterized by the waiver by the farmor of
future economic benefits, in the form of reserves, in consideration for
the reduction of future financing obligations. Under the farm-in
agreement, the farmor transfers to the farmee all of the risks and
rewards pertaining to the portion transferred in return for an
undertaking by the farmee to finance certain costs.
Farm-in agreements:
Farm-in is the acquisition of part of a right in an oil and/or gas field in
return for the consent of the owner (hereafter - “the farmor”) to the sale
of part of the rights to the farmee.
Accordingly, as the costs are incurred, the farmee recognizes an
expense or an asset, as appropriate, in respect of its share in the gas
and oil assets and in respect of the rights remaining in the hands of the
farmor, this in consistency with its policy in accounting for exploration
and evaluation assets.
The farmee reports a farm-in arrangement as follows:


The farmee recognizes its share in expenses under the farm-in
agreement, including those expenses relating to the portion that
has been allocated to the farmee by the farmor under the farmin agreement.
The farmor recognizes expenses under the farm-in agreement in
the same manner that it accounts for directly incurred
exploration and evaluation costs.
e. Cash equivalents
All highly liquid investments, which include short-term bank deposits with an
original maturity that does not exceed three months and that are not restricted
by pledge, are considered to be cash equivalents
f. Short-term deposits
Short-term bank deposits with an original maturity of more than three months.
The deposits are presented based on their terms.
g. Oil and gas assets
The “oil and gas assets” balance sheet item includes costs accumulated in
respect of proven oil and gas assets and pending exploration and evaluation
assets of the Partnership. These costs, which include costs of acquisition of
rights in marine fields, exploration drilling, engineering planning, development
drilling, acquisition and setting up of production facilities and pipelines for the
conduction of the gas to the shore and the setting up of a receiving station are
presented in the balance sheet at cost and written down to profit or loss by the
depletion method, based on the ratio of the actual quantity produced to the
total proven reserves as assessed by an expert.
h. Interest income
Interest income in respect of financial assets that are measured at
amortized cost and interest-bearing financial assets that are classified as
held-for-sale is recognized on the accrual basis using the effective interest
method.
i. Impairment of non-financial assets
The Partnership evaluates the need to test non-financial assets for
impairment whenever events or changes in circumstances suggest that the
carrying value may not be recoverable.
If the carrying value of the non-financial assets exceeds their recoverable
amount, the assets are written down to their recoverable amount. The
recoverable amount is the greater of fair value less costs to sell and value in
use. In assessing the value in use, the anticipated cash flows are discounted
at a pre-tax discount rate that reflects the risks that are specific to each asset.
For an asset that does not generate independent cash flows, the recoverable
amount is determined in relation to the cash-generating unit to which the
asset belongs. Impairment losses are recognized in profit or loss.
Impairment loss on an asset is reversed only to the extent that there has been
a change in the estimates used to determine the asset’s recoverable amount
since the last impairment loss was recognized. The reversal of such loss is
limited to the lesser of the impairment amount previously recorded for the
asset (less depreciation or amortization) or the recoverable amount of the
asset.
The following particular criteria are applied in testing the following specified
assets for impairment:
1. Determining the recoverable amount of oil and gas assets
The recoverable amount of oil and gas assets is usually determined by
independent external appraisers using economic valuations that involve
valuation techniques and assumptions as to the anticipated future cash flows
from the asset and the estimated discount rate applicable to such cash flows.
To the extent possible, fair value is determined based on recent transactions
in assets with similar characteristics and location to that of the valued asset.
In determining the recoverable amount of oil and gas assets, the appraisers
and management of the General Partner in the Partnership are required to
use certain assumptions with respect to anticipated costs and investments,
the feasibility of development plans, the quantity of resources in the reserve,
anticipated selling prices, implications of the Oil Profits Levy Law,
determination of discount rates etc., for the purpose of assessing the future
cash flows from the assets. A change in such assumptions and estimates
could significantly affect the recoverable amount of oil and gas assets.
2. Impairment in value of investments in oil and gas assets (including
exploration and evaluation assets)
Oil and gas assets (including exploration and evaluation assets) are not
systematically depreciated, but are tested for impairment whenever facts and
circumstances may indicate that their carrying value exceeds the recoverable
amount that is attributed to them. Determining the recoverable amount of the
investment in oil and gas investments (including exploration and evaluation
assets) that is performed through capitalization of contractual cash flows,
including various discounts and estimates regarding the projected sales
prices, amount in the wells used for production, production costs, Sheshinsky
levy, corporate tax and establishing the capitalization rate. A change in said
assumptions and estimates might affect the recoverable amount of the
various exploration and evaluation assets.
j. Financial instruments
1. Financial assets
Financial assets that are within the scope of IAS 39 are initially recognized
at fair value with the addition of direct transaction costs, with the exception
of financial assets that are measured at fair value through profit or loss, for
which transaction costs are carried directly to profit or loss.
Subsequent to initial recognition, the accounting treatment of financial
assets is based on their classification, as follows:
1. Financial assets at fair value through profit or loss
This group comprises financial assets that are held for trading and
financial assets that were designated upon initial recognition to be
presented at fair value through profit or loss.
2. Loans and receivables
Loans and receivables are investments with fixed or determinable
payments that are not traded on an active market. Subsequent to initial
recognition, loans are presented at cost based on their terms, taking
into consideration direct transaction costs, using the effective interest
method and less an impairment provision. Short-term credit is
presented based on its terms, ordinarily at nominal value.
2. Financial Liabilities
All liabilities are initially recognized at fair value. Loans are presented
net of direct transaction costs. The Partnership determines the
classification of the liability upon initial recognition. Subsequent to initial
recognition, the accounting treatment of financial liabilities is based on
their classification, as follows:
a) Financial liabilities measured at amortized cost
Subsequent to initial recognition, loans are presented at cost based
on their terms, less direct transaction costs, using the effective
interest method.
b) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include
financial liabilities held for trading and financial liabilities designated
upon initial recognition to be presented at fair value through profit or
loss. Financial liabilities are classified as held for trading if they
were acquired to be sold in the near term. Gains or losses on
liabilities held for trading are carried to profit or loss.
3. Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is
presented in the balance sheet if there is a legally enforceable right to
set off the recognized amounts and there is an intention either to settle
the asset and the liability on a net basis or to realize the asset and
settle the liability simultaneously.
The right to offset must be legally enforceable not just through the
course of regular business of the parties to the contract but also in the
event of bankruptcy or insolvency of any of the parties. In order for the
right to offset to immediately exercised, it cannot be dependent on a
future event and there must be no periods of time at which it is not
applicable, or if there were events that caused its expiration.
4. Derecognition of financial instruments
a) Financial assets
Financial assets are derecognized when the contractual rights to
the cash flows from the financial asset expire, or the Partnership
transfers the contractual rights to receive the cash flows from
the financial asset or undertakes to pay the full amount of the
cash flows received to a third party, without significant delay.
If the Partnership transfers its rights to receive cash flows from
the asset but does not effectively transfer or retain the risks and
benefits associated with the asset and does not transfer the
control of the asset, a new asset is recognized based on the
continuing involvement of the Partnership in the asset.
b) Financial liabilities
A financial liability is derecognized when it is extinguished, i.e.
the liability is discharged, canceled or expires. A financial liability
is extinguished when the debtor (the Partnership) discharges the
liability by paying in cash, other financial assets, goods or
services or is legally released from the liability. Where an
existing financial liability is exchanged with another liability from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is accounted for as a derecognition of the original
liability and the recognition of a new liability. The difference
between the balances of the two aforesaid liabilities in the
financial statements is carried to profit or loss. If the exchange or
modification is immaterial, it is accounted for as a change in the
terms of the original liability and no gain or loss is recognized
from the exchange on such date. In determining the materiality
of a change in the terms of an existing liability, the Partnership
takes into account qualitative and quantitative considerations.
5. Impairment of financial assets
The Partnership examines at each reporting date the existence of
objective evidence of impairment in the value of a financial asset or a
group of financial assets, as follows:
Financial assets carried at amortized cost
Objective evidence of impairment is deemed the occurrence of one or
more events that had an adverse effect on the estimated future cash
flows from the asset after the date of recognition. The amount of the
loss that is recognized in profit or loss is calculated as the difference
between the carrying amount of the asset and the present value of
estimated future cash flows (excluding future credit losses not yet
incurred), which are discounted at the original effective interest rate of
the financial asset. If the financial asset bears variable interest, the
discount rate is the current effective interest rate. In subsequent
periods, an impairment loss is reversed if the recovery of the value of
the asset is objectively attributable to an event that took place after the
recognition of the loss.
k. Income (loss) per participation unit
Income (loss) per participation unit is calculated by dividing the net
income (loss) attributable to the holders of the participation units by the
actual weighted number of participation units during the period.
l.
Fair value measurement
Fair value is the price that would be received on the sale of an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date.
The measurement of fair value is based on the assumption that the
transaction takes place in the principal market of the asset or the
liability or, in the absence of a principal market, in the most
advantageous market.
The fair value of an asset or a liability is measured based on the
assumptions that market participants would use when pricing the asset
or liability, assuming that market participants act in their economic best
interest.
Fair value measurement of non-financial assets takes into account the
ability of a market participant to derive economic benefits from the
optimal use of the asset or from its sale to another market participant
that will make optimal use of the asset
The Partnership uses evaluation techniques that are compatible with
the circumstances and for which there is sufficient data that can be
obtained to measure fair value, while maximizing use of relevant
prospective data and minimizing the use of non-prospective data.
m. Provisions
A provision under IAS 37 is recognized when the Partnership has a
present obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of economic resources will be required to
settle the obligation and the amount of the obligation can be reliably
estimated. If the Partnership anticipates that all or part of the
expenditure will be reimbursed to the Partnership, as in the case of an
insurance contract, the reimbursement will be recognized as a
separate asset, only when it is virtually certain that the asset will be
received. The expenditure will be carried to profit or loss net of the
reimbursed amount.
n. Significant judgments, estimates and assumptions used in the
preparation of the financial statements
In implementing the significant accounting policies in the financial
statements, the Partnership exercised discretion and made judgments
with respect to the following issues, which have a material effect on the
amounts recognized in the financial statements:
Presented below are the key assumptions that were applied to the use
of material accounting estimates in preparing the financial statements
of the Partnership, the formulation of which required management of
the General Partner in the Partnership to make assumptions as to
circumstances and events involving significant uncertainty.
- Claims
The Partnership examines every claim filed and with the assistance of
its legal counsel, based on its and their past experience, concludes
whether a provision should be included in the financial statements.
-
Determining the recoverable amount of oil and gas assets
The recoverable amount of oil and gas assets is usually determined by
independent external appraisers using economic valuations that
involve valuation techniques and assumptions as to the anticipated
future cash flows from the asset and the estimated discount rate
applicable to such cash flows. To the extent possible, fair value is
determined based on recent transactions in assets with similar
characteristics and location to that of the valued asset. In determining
the recoverable amount of oil and gas assets, the appraisers and
management of the General Partner in the Partnership are required to
use certain assumptions with respect to anticipated costs and
investments, the feasibility of development plans, the quantity of
resources in the reserve, anticipated selling prices, implications of the
Oil Profits Levy Law, determination of discount rates etc., for the
purpose of assessing the future cash flows from the assets. A change
in such assumptions and estimates could significantly affect the
recoverable amount of oil and gas assets.
o. Disclosure of new IFRS Standards during the period Prior to Implementation
1. Amendments to IFRS 11 Joint Arrangements, regarding the acquisition
of rights to joint activities that constitute a business as defined in IFRS
3
On 6 May 2014, the IASB published amendments to IFRS 11
Joint Arrangements (Hereinafter – The Amendments) that
discuss the accounting regarding the acquisition of rights to joint
activities that constitute a business as defined in IFRS 3.
The amendments prescribe that the acquired rights in said
transaction will be handled as attachment of businesses in
accordance with IFRS 3 and other relevant regulations,
including measurement of assets and liabilities identified in
accordance with fair value, recognition of deferred taxes
resulting from this measurement, handling of the costs of the
transaction and recognition of goodwill or profit from an
opportunistic acquisition.
The amendments will be implemented from hereon in from the
financial statements for the annual periods beginning on 1
January 2016 or later. Early adoption possible.
Although the Partnership's investment in the licenses does not
constitute a joint arrangement subject to IFRS 11 of said
amendment, it might materially affect the accounting of the
membership transactions. The Partnership is continuing to
review the effect of the amendment on its financial statements.
2. IFRS 9 Financial Instruments
The IASB issued the first part of Phase 1 of IFRS 9 - Financial
Instruments. IFRS 9 (hereafter - the Standard) focuses primarily
on the classification and measurement of financial assets and
applies to all financial assets that are within the scope of IAS 39.
The Standard determines that, upon initial recognition, all
financial assets are to be measured at fair value. In subsequent
periods, debt instruments will be measured at amortized cost
only if the two following cumulative criteria are met:
- The asset is held within the framework of a business model
that is designated to hold the assets for the purpose of collecting
the contractual cash flows deriving from them.
- Pursuant to the contractual terms of the financial asset, the
Partnership is entitled, on certain dates, to receive cash flows
that constitute solely principal payments and interest payments
on the principal amount.
Notwithstanding the aforesaid, a partnership may, upon initial
recognition, designate a debt instrument that meets the two
aforesaid criteria at fair value through profit or loss if this
eliminates or significantly reduces an accounting mismatch in
measurement or recognition that would have resulted otherwise.
The subsequent measurement of all the remaining debt
instruments and other financial assets will be at fair value.
Financial assets that are equity instruments will be measured in
subsequent periods at fair value and the differences will be
carried to profit or loss or to other comprehensive income (loss),
based on the accounting policy elected by the Partnership for
each individual instrument (amounts recognized in other
comprehensive income will not be subsequently transferred to
profit or loss).
Equity instruments that are held for trading must be measured at
fair value through profit or loss.
The final standard will be implemented retrospectively, subject
to certain easements set forth in it, beginning with the financial
statements for the annual periods beginning on 1 January 2018
or later. Early adoption is possible. The Partnership believes that
the amendments to IFRS 9 will not materially affect the financial
statements
Note 3 – Cash and Cash Equivalents
Interest Rate
31 December
2014
%
In Dollar
31 December
2014
2013
153
1,645
Cash in banks
Deposits in banks
In foreign
currency
Cash in banks
Deposits in banks
0.17-0.32
Prime – 1.63
8,863
________
9,016
________
3,508
________
5,153
________
141
864
________
1,005
________
10,021
________
249
494
________
743
________
5,896
_________
Note 4 – Deposits in Banking Corporations
Interest Rate
31 December
2014
%
31 December
2014
2013
In Dollar
Short term
Deposits in banks
[0.4-09
8,520
________
13,843
________
Liened
Cash in banks
Deposits in banks
0-0.7
514
________
________
Note 5 – Financial Assets Measured At Fair Value through Profit or Loss
Investment in negotiable dollar-linked
corporate bonds
31 December
2014
2013
5,195
6,855
________
________
Note 6 – Accounts receivable
31 December
Joint operator (*)
Prepaid expenses
Receivables for joint ventures
Institutions and others
2014
2013
484
73
3
167
48
40
________
________
288
527
========
========
(*) Monetary balance with Pelagic joint operator to finance its activities
b. Long-term Accounts Receivable
31 December
Advance at expense of operator in Oz
License
Guarantee for Oz license (**)
Guarantee for request for Hatrurim license
(***)
2014
2013
663
8
________
671
========
211
________
211
========
Note 7: Investments in oil and gas assets
31 December
For Oz license (section f below)
For Pelagic joint venture (section d below)
Less amortization of oil and gas assets
(section d below)
2014
2013
3,368
9,386
(9,386)
________
________
3,368
========
========
b. Below are the ooil and gas assets of the Partnership as of 31 December
2014
Asset
No.
Asset
Name
Type of
right
Area in
dunams
Right valid
through
License
License
Offshore
/
onshore
asset
Offshore
Offshore
370
374
Ishai
Yoad
398
400,000
400,000
Neta
License
Offshore
374,100
399
Royee
License
Offshore
400,000
394
Oz
License
Offshore
400,000
29/02/2016 AGR
(*
AGR
01/09/2013
14/04/2016 Edison
International
SPA
14/04/2016 Edison
International
SPA
30/06/2016 Caspian
Drilling
Company
Limited
(*) See Note 7d below
Operator
e. Guidelines for Granting Securities With Regards to Oil Rights
In September 2014, the Commissioner, in accordance with Section
57 of the Petroleum Law, issued guidelines for granting securities
with regards to oil rights. According to which the holders of existing
offshore licenses must deposit a bank guarantee in the amount of
$2.5 million of reach license ($1.25 million by 30 November 2014
and $1.25 million by 31 March 2015). (2) Prior to drilling, the
holders of the licenses must submit another bank guarantee in an
amount to be determined by the Commissioner, with the sum of the
additional guarantee for the offshore licenses not being less than an
amount equivalent to $5 million, unless the Commissioner decided
that special circumstances existed that justified the demand for a
lower amount of guarantee (3) in the oil leases the Commissioner
will determine the sum of the bank guarantee to be deposited but in
any case the guarantee will not be less than a sum equivalent to
$7.5 million for the offshore lease.
The owners of the existing holdings will deposit the guarantees with
the Oil Division offices within 45 days from the date of notification
from the Commissioner regarding the guarantees. (4) Said
guarantees will be valid even after expiration of the right for which it
was given, as long as the Commissioner has not stated otherwise,
but no more than 7 years after expiration of said right.
In the event of non-compliance with the provisions of the guidelines,
the Commissioner will be entitled to seize the guarantee issued to it
and will be entitled to consider said non-compliance with the work
plan.
In the aforementioned publication, the Commissioner also included
statements regarding insurance that must be taken out for existing
onshore and offshore licenses as well as leases. The
Commissioner required the holder of the right in a license and/or
lease to take out insurance every year but the Commissioner
determined that the content of the summary and the way it will be
submitted will be established in future guidelines to be published in
this matter, but have not yet been published.
It is the belief of the General Partner that as a result of the new
requirements specified in the guidelines as currently worded, the
Partnership must provide performance guarantees in the total
amount of $776 thousand for its share in the oil and gas assets in
which it holds participation rights (Ishai, Oz, and Royee).
As of the date of the signing of the financial statements, the
Partnership's compliance with the guarantees in the total amount of
$514 thousand that covers its liabilities in accordance with the
guidelines as follows:
1. On 31 December 2014, a guarantee was provided to
the Commissioner by the Partners of license 394/Oz in
the amount of $1,250 thousand. The Partnership's
share in the guarantee is $132 thousand. See also Note
17(4) below.
the Commissioner by the Partners of license 370/Ishai
in the amount of $132 thousand. As of the report date
of the financial statements, some of th partners in the
license have not yet provided their share of the
guarantee, in accordance with the Commissioner's
guidelines. Failure to provide guarantees constitutes a
violation of the law that might result in the
Commissioner terminating the rights in the license. See
also Note 18 below.
the Commissioner by the Partners of license 398/Neta
and 399/Royee in the amount of $250 thousand.. See
also Note 7e(6) below.
f. Pelagic Joint Venture
1. On September 6, 2010, the Partnership entered into an
agreement with Pelagic Explorations Company (hereafter “Pelagic”) for the acquisition of participation interest at the rate
of 10% in six marine licenses for the exploration of oil and gas:
Ishai/370, Aditya/371, Lela/372, Yahav/373, Yoad/374 and
Ayala/375 (the Ayala license expired on February 29, 2012)
(hereafter - “the Pelagic Licenses” or “the Licenses”).
In consideration for the transferred rights, on March 22, 2011,
the Partnership paid Pelagic US$ 2.5 million in respect of past
expenses.
As of December 31, 2013, the participants in the venture are:
Name of Participant
Israel opportunity – energy resources LP
Frendum investments Ltd.
Nammax Investments Ltd.
Daden Investments Ltd.
AGR Petroleum Services *
-
%
10
33.5
42.5
9
5
________
100
========
*) AGR Petroleum Service AS serves as the operator of the
licenses of the joint venture (hereafter - “AGR”).
The original expiration date of the Pelagic Licenses was
September 1, 2013.
2. On September 1, 2013, the partners in the Pelagic Licenses
submitted an amended application to the Commissioner,
pursuant to which subsequent to the proposed modification of
the boundaries, three of the four licenses will be returned to the
State of Israel (Lela/372, Yahav/373 and Aditya/371), while one
license (Yoad/374 in its new boundaries, as requested under
said application) will be extended and approved under an
updated work plan.
On 22 October 2013, the Petroleum Council recommended
approving the change in borders, so that the partners in the
licenses will relinquish License 374/Yoad in the borders that
were requested by the partners in the Licenses (while
relinquishing three licenses). As of the report date, the validity
of licenses 371/Aditya, 372/Lela, 373/Yahav and 374/Yoad
expired and Commissioner approval of the change in borders
and extension of the validity of license 374/Yoad has yet been
received
3. On 5 June 2014, the Petroleum Commissioner in the Ministry of
National Infrastructures, Energy and Water approved a change
in the work plan in the Ishai license.
On 28 September 2014, the Commissioner approved the
extension of the validity of the license until 29 February 2016.
a. The Commissioner announced that the license and its extension
are subject to implementation of the provisions of the law,
including the Petroleum Law 1952 (Hereinafter The Petroleum
Law) and its regulations, and subject to implementation of the
work plan and conditions specified below including the specified
in section 2 below:
1. Acceptance of all geological and geophysical material
received from the area of Block 12 (Cyprus) in
accordance with the information exchange agreement
between the Israeli and Cypriot government, the
classification, testing and loading to the work stations.
Processing of 3D seismic survey data on both sides of
the borders of the economic waters to adapt the
seismic characteristics, production of consolidated
cubes and transfer of cubes with the report that outlines
the data processing that was carried out. Deadline for
completion was set for 1 November 2014 and submitted
to the Commissioner.
2. Analysis and integrative deciphering of geological and
geophysical data from the Aphrodite structure in the
license areas and in Block 12, including a detailed
review of the findings of all drillings carried out in this
3.
4.
5.
6.
7.
structure, analysis of seismic horizons and fault lines on
both sides of the border and production of a report on
time maps, depth and thickness for main signs.
Deadline for completion was scheduled by 15
December 2014 and submitted to the Commissioner.
Advanced processing of 3D seismic data from the
license and Block 12 for a qualitative assessment of the
reservoir properties. The first stage will include
processing, classification and loading of the Pre-Stack
Migrated Gathers, representing a review of the AVO
analysis software and seismic inversion. If the results in
terms of feasibility will be positive, the advanced data
processing will be expanded to all 3D seismic surveys
on both side of the border. Upon conclusion of the
processing, the seismic cubes will be transferred along
with the report describing the data processing to the
Commissioner. By 1 March 2015.
Basin analysis of the Aphrodite structure including a
review of the geological and terminal history of the
basin as well as the conditions for the formation and
migration of hydrocarbons in the Backstripping method,
using all geological and geophysical material available.
The results of the basin analysis will be summarized in
a summary report to be sent to the Commissioner. By 1
March 2015.
On 23 February 2015, after the balance sheet date, a
request was submitted to the Commissioner to
postpone the date of submission until 1 May 2015. As
of the date of the signing of the financial statements,
the Commissioner has not yet issued a response.
Completion and update of the findings based on the
results of the advanced data processing and basin
analysis, as well as preparation of a geological and
geophysical report that summarizes the Aphrodite
structure. The results will be described in a report to be
sent to the Commissioner. By 1 July 2015.
Preparation of this final resources report for the
Aphrodite structure in accordance with the Petroleum
Resources Management System (PRMS) and its
delivery to the Commissioner. By 1.September 2015.
Submission of a conceptual development plan for the
Aphrodite structure including, inter alia, initial
engineering planning and review of the economic
feasibility for field development. The plans will be sent
to the Commissioner. By 1 December 2015.
b. In addition to the aforementioned, the Commissioner noted that:
1. Section 2 of the agreement regarding the signing of the
exclusive economic zone between Israel and Cyprus signed on
17.12.2010 stated that "In the event of natural resources,
including hydrocarbon reservoir that stretches from the
exclusive economic zone to the exclusive economic zone of the
other party, both parties will cooperate to reach a framework
agreement regarding merging operations in the joint
development and production of said natural resources."
2. Negotiations between the parties for the signing of said
framework agreement is still in effect and may include
arrangements to divide the joint reservoirs between the parties.
If a framework agreement is signed, it will apply to the holders of
the License, if any joint reservoirs are discovered in the License
area.
3. The agreement may include numerous sections that will apply to
the license holders on both sides and, inter alia, sections that
require both license holders to reach a unitization agreement
subject to the terms and in accordance with the timetables that
will be established in the framework agreement that will be
signed between Israel and Cyprus.
4. It is hereby clarified that the agreements that will ultimately be
signed with the Cypriote government will be binding for the
holders of the Ishai License and will constitute some of the
terms of the License, and an extension of the validity of the Ishai
License as specified involves and is contingent upon the work
plan being amended in accordance with the arrangements
derived from the provisions of the framework agreement to be
signed.
4. Engagement in Joint Operating Agreements (Hereinafter JOA)
On 12 April 2012, several agreements were signed between the
partners in the Pelagic licenses pertaining to the joint operation
and management of the licenses. The agreements include a
framework agreement, which states that the parties will manage
the Pelagic licenses jointly as one block despite a separate
operating agreement being signed for each license. In addition,
five joint operating agreements (JOA) were signed – one for
each license, with identical working on each license. Also signed
were commercial agreements that included provisions pertaining
to financing (carry) of AGR that will serve as the operator of the
Pelagic licenses.
5. On 17 October 2012, the General Partner's Board of Directors
decided, based on the recommendation of AGR Petroleum
Services Holdings AS (Hereinafter The Operator), as presented
to the partners in the Ishai license, to approve the participation
of the Partnership in the exploration drilling Aphrodite-2 in the
license (Hereinafter The Drilling).
The drilling in the Ishai license began on 2 November 2012, and
lasted for approximately 3 months with an overall budget of $87
million (the Partnership's share amounted to $9.2 million).
On 11 April 2013, the Partnership announced that it received the
contingent resources evaluation report for the Ishai license
prepared by an expert, qualified and independent reserves
evaluation that complied with SPE_PRMS. The resources report
revealed, inter alia, negligible amounts of gas found in the gas
strata that were tested.
Accordingly, in 2013, the Partnership
recognized in the
provision for impairment an amount of $1,738 thousand and for
2012, an amount of $7,648 thousand for costs accumulated for
the Aphrodite-2 drilling in the Ishai license, which was included
as part of the Statement of Comprehensive Income in the
amortization of oil and gas assets item.
6. Change in the holdings of the Partnership in Oil Assets
On 28.12.2014, Frendum Investments Limited (Hereinafter
Frendum), which holds 33.5% of the working interests in the
Pelagic licenses and 21.5% in the 394/Oz license, announced
that Norisha Holdings Limited (Norisha) which is controlling
shareholder in the Genesis Energy Group Limited (Genesis),
which wholly owns Frendum, engaged in an agreement with
Eden Energy Discoveries Ltd. (Hereinafter Eden), also a
Genesis shareholder, in which Eden acquired from Norisha
control of Genesis (and indirectly of Frendum). See also Note 18
below.
Note 7: Investment in Oil and Gas Assets (continued)
e. Neta and Royee Licenses
1. On 15 April 2013, the Commissioner granted the licenses 398/Neta
and 399/Royee (in the early permit areas of Gal) for the Partnership
(10%), Ratio Partnership (70%) and Edison (20%). The licenses were
granted for a period of 3 years until 14 April 2016 under special
conditions for each of the licenses determined that during the license
period, a work plan must be implemented for each license In special
terms of each of the licenses, it was determined that during the license
period, a work plan must be formulated for each license subject to the
timetables that were updated at the end of April 2014. See Section 4
below.
2. On 8 July 2013, the Partnership joined the joint operating agreement
(Hereinafter JOA) with the Ration and Edison Partnership in ach of the
licenses, Edison was appointed license operator (Hereinafter The
Operator). The Joint Operating Agreements that were signed in the
licenses are identical and regulate, inter alia, the following:
establishment of rights and obligations of the parties with regards to
operations in the license areas, method of accounting between the
parties, rights and obligations of the operator, establishment of an
operating committee to make decisions and approve special actions
with regards to the license, including submission of work plans and
budgets.
In addition, the JOA specifies the sanctions to be imposed on the
partners and the method of transferring rights in the licenses.
3. In 2013 and 2014, seismic surveys were carried out in the Neta and
Royee licenses and the results were analyzed.
4. On 27 July 2014, approval was obtained from the Commissioner of
Petroleum Affair Petroleum Affairs in the Ministry of National
Infrastructures, Energy and Water to update the work plan in the
licenses.
Below are the main changes in the work plan:
a. Continued processing of the data from the 3D seismic survey in
the area of the licenses and transfer of all processed data and
processing reports and all accompanying material to the data
processing to the National Archive as defined in the guidelines
of the Ministry of National Infrastructures, Energy and Water.
Deadline was 15 December 2014. and was submitted to the
Commissioner.
b. Update of the analysis and submission of the prospect for
drilling that will include a description of the goals of drilling,
geological prediction and engineering plan by 15 February 2015
and was submitted to the Commissioner..
c. Submission of a report on resources for the purposes defined in
the prospect in accordance with the Petroleum Management
System Requirements – PRMS by 15 February 2015 –
submitted. See section 5 below. Submission of a detailed drilling
plan and signed contract with a drilling contractor to perform the
drilling in the license areas by 15 June 2015.
d. Conduction of a risk survey at the drilling site and transfer of the
geophysical data and summary report to the Ministry of National
Infrastructures, Energy and Water by 15 July 2015.
e. Submission of the environmental document in accordance with
the Ministry of National Infrastructures, Energy and Water by 15
September 2015.
f. Start of drilling in the license areas in accordance with the
approved drilling plan and while transferring all geological and
engineering reports as defined in the guidelines of the Ministry
of National Infrastructures, Energy and Water by 15 December
2015.
g. Submission of the summary report of drilling (End of Well
Report) and the delivery of all findings including cutting samples,
core electrical logs and test results (if any were carried out), and
other tests performed during drilling as defined in the Ministry of
National Infrastructures, Energy and Water guidelines, three
months from the end of the drilling.
5. On 13 December 2014, a predicted (prospective) gas resources
evaluation report was received as of 30 November 2014 (Hereinafter
The Resources Report) in the Royee Prospect in the license area that
was prepared by prepared by Netherland, Sewell & Associates, Inc., an
expert, certified and independent reserves assessor (Hereinafter NSAI)
in accordance with the Petroleum Resources Management System
(SPE-PRMS).
It is hereby clarified that the resources report did not evaluate other
prospects that are found in the license areas, whose analysis and
deciphering have not yet been completed and that may contain certain
types of hydrocarbons. The resources report addresses the Royee
prospect only, which is the prospect designated for the first exploratory
drilling in the license areas. The resources report mentions an
evaluation of the gas resources only was carried out.
As of the report date, and prior to the exploratory drilling, the
Partnership is unable to provide a statistical assessment of the
probability of development of the licenses for commercial production.
6. On 11 February 2015, after the balance sheet date, the Partnership in
the Royee and Neta licenses submitted a request to the Commissioner
for a change of borders in the Royee license by way of by way of
transferring areas from the Neta License to the Royee License and by
subtracting other areas. The areas to be subtracted from the Royee
License and the areas of the 398/Neta License areas that were not
added to the Royee License – will be returned in a manner that would
allow the Partnership in the licenses to remain with only one license –
the Royee license with its new borders.. As of the report date, no
response form the Commissioner has been received with regards to
said request.
Pursuant to the request that was filed as mentioned above, a request
was prepared for the Commissioner on behalf of the partners in the
licenses to cancel his demand to deposit an additional bank guarantee
for the Neta license and to order a return of the bank guarantee that
was deposited for the Neta license.
Note 7: Investment in Oil and Gas Assets (continued)
g. License 394/ Oz
1. On 1 April 2012, the Partnership signed an Agreement with
Frendum on the transfer of 10% of the participation rights (of
100%) in the offshore oil and gas exploration license 394 / Oz
(Hereinafter The License). In consideration of the acquired
rights, the Partnership would pay Frendum, within 7 days from
date of approval of the agreement by the General Meeting of
Holders of Participation Units of the Partnership (The Meeting)
$550 thousand for past expenses in the Oz license (Hereinafter
The Consideration).
2. The participants in the transaction as of 31 December 2014 are:
Name of Participant
%
Israel opportunity – energy resources 10
LP
Lapidoth Heletz Limited Partnership
41.5
Frendum investments Ltd. (**)
21.5
Coleridge Gas & Oil Exploration Israel 12
LP
Plasida Investments Limited (**)
10
Caspian Drilling Company Limited (*)
5
________
100
========
(*) Caspian Drilling Company Limited (Hereinafter CDC) serves as the
operator of the licenses of the joint transaction
(**) See also Note 7f(5) below.
It was further established in the agreement described above that subject to
the meeting approval, the Partnership will bear, from the date of the signing of
the Agreement and later, in relative share (10%) the cost of expenses, to be
approved by the Partners in the license with regards to the license based on
the work plan that applies to said license, the joint operating agreement
(Hereinafter JOA) and other agreements that will go into effect between the
partners in the Oz license commencing on the date of the agreement and
onward (Hereinafter The Approved Costs and the Partnership's Relative
Share in the Approved Expenses, respectively). Subject to Meeting approval,
in addition to the Partnership's relative share in the approved expenses, the
Partnership will bear, commencing on the date of the Agreement, all
Approved Costs ,including provision of financial guarantees, which will be
credited for Frendum's share (following the transfer of rights acquired for the
Partnership) an of Placida Investments Ltd. (Hereinafter Placida), which owns
participation rights in the Oz license (following completion of the transaction,
Frendum and Placida will hold jointly 31.5% of the participation rights in the
Oz License) (Hereinafter Carried Interest), until the date of completion of the
analysis of the seismic survey data in the Oz license field, and preparation of
a comprehensive report on the Oz license field (Hereinafter End Date for the
Carrry), as specified in Milestone No. 8 in the approved work plan for the
license, and pursuant to the total sum of the Carried Interest not exceeding
$3,450 thousand (Hereinafter the Carried Interest Ceiling).
On 24 April 2012, the Participants in the Oz license engaged with a third party
to conduct a 3D seismic survey in the area of license 394/Oz (Hereinafter The
Survey).
By the end of 2013, the Partnership paid a total of $2,818 thousand for its
relative share and for the share of Frendum and Placida the cost of the survey
subject to the Agreement (described in Section 1 above). In Jun 32014, the
Partnership transferred to Frendum the final balance of payment in the
amount of $323 thousand plus VAT at the expense of the acquisition of rights
to the Oz license in accordance with the Agreement between them.
On 22 July 2014, approval was obtained from the Commissioner of
Petroleum Affairs in the Ministry of National Infrastructures, Energy and Water
for the transfer of the acquired rights and their registration under the
Partnership's name in the Petroleum Registry. As a result of said approval,
the Partnership surged in 2014 to profit including oil and gas exploration
expenses in the amount of $3.6 million that was included in 2013 in the
investments in oil and gas assets item, in accordance with the accounting
policies pertaining to seismic survey expenses, and $211 thousand paid to the
General Partner as operator fee for said expenses (see also Note 8d(3)
below).
2. In January 2014, a request was made on behalf of the Partnership to the
Commissioner to update the work plan approved on 22 May 2013 and to
postpone the dates in the Oz license field as follows:
a. Submission of a prospective resources report in the license in
accordance with the PRMS requirements by 31 March 2014.
On 24 April 2014, a report was received on the assessment of
prospective resources in the license that was prepared by a
certified, independent specialist reserves assessor. The
resources report was prepared in compliance with the rules of
the Petroleum Resources Management System (SPE – PRMS).
According to the resources report, a statistical estimate of the
probability of development of the licenses for commercial
development cannot yet be issued. At the same time, the
resources report notes that based on the development of similar
fields, assuming that they are found, the resources predicted in
the category of best assessment of quantities presented in the
resources report have a reasonable chance of becoming
economically valuable.
b. Submission of an environmental document in accordance with
Ministry of Energy and Water guidelines by 31 August 2014.
c. Submission fo a signed agreement with a drilling contractor by
19 December 2014.
The request to update, as specified, was approved by the
Commissioner.
On 7 September 2014, the Partnership submitted in the Oz
Transaction to the Commissioner of Petroleum Affairs a request to
extend the validity of the 394/Oz license. On 10 November 2014,
the Commissioner announced his approval of the extension of
validity of the license until 30 June 2016. This extension is subject
to implementation of the law and regulations, and subject to
implementation of the work plan as follows:
a. Presentation of documents with contractors to perform the
environmental survey and monitoring plan in accordance
with Ministry of National Infrastructures, Energy and Water
guidelines by 30 December 2014.
b. Submission of a signed agreement with a drilling contractor
to perform the drilling in the license area by 31 August 2015.
c. Preparation of a detailed engineering plan for drilling in the
license area and submission of an application to drill in the
license area in accordance with Ministry of National
Infrastructures, Energy and Water guidelines by 30 October
2015.
d. Start of drilling in the license area in accordance with the
drilling plan approved immediately upon completion of the
drilling in the 395/Arye license.
e. Submission of a report summarizing the results and findings
of the drilling (EOW Report) no later than three months from
the date of its completion.
On 11 March 2015, after the balance sheet date, the Partnership
in the Oz trnsaction requested an extension of the short dates in
the work plan in the license area. As of the report date, the
Commissioner's response to said request has not been received
b. On 13 July 2014, after the balance sheet date, the Partnership's
office received a request for arbitration before the international
arbitration court in London filed by Caspian Drilling Company Ltd.
(Hereinafter: "CDC"), the operator in the Oz license against the
Partnership and other partners in the license (Hereinafter – "The
Request").
According to the Request, in accordance with the interim agreement
between the Partners in the license in May 2012, CDD is entitled to
payment of 15% of the work cost with regards to conduction,
processing and analysis of the seismic survey. With the exception
of payment of $250 thousand that was paid by the partners in the
license as an advance to CDC.
Subsequently, the main remedy that the CDC is claiming is
payment of the difference between 15% of payment made to third
parties with regards to the work performed in the license and $250
thousand, in addition to interest and payment of arbitration
expenses.
On 18 December 2014, the Partners in the license including CDC
signed a settlement agreement to resolve the disputes between
them, the main ones being:
Final and absolute settlement of claims and lawsuits made by CDC
in the request for arbitration, while reserving rights, the Partners in
the license will pay CDC an amount of $654 thousand plus VAT and
plus 40.2 thousand Sterling Pounds for participation in legal
expenses incurred by CDEC with regards to the request for
arbitration (Hereinafter The Settlement Amount). Deducted from
said amount will be $250 thousand for advance already paid to the
CDC. As of the report date, the sum in full has been paid. Subject to
execution of said payments, the CDC absolutely and irrevocably
waive any claims and lawsuits raised in the request for arbitration.
The parties will submit an accepted motion with the arbitration court
in London in which the request for arbitration was filed, to approve
the settlement agreement and to conclude the arbitration
proceedings.
4. Pursuant to Note 7c above, in March 2014, the Partnership transferred to
the Oz joint venture account a sum of $873 thousand for provision of full
amount of the guarantee required in the Oz license in accordance with
Commissioner's guidelines, $663 thousand of which for Frendum Placida
share, in accordance with the agreement to acquire the rights in the Oz
License from 1 April 2012 between the Partnership and Frendum
Investments Limited (Hereinafter – The Purchase Agreement), see also
Note 8d(3) below.
5. On 28 December 2014, Frendum announced that Norisha, which is
controlled by Genesis, which wholly owns Frendum, engaged in an
agreement with Eden Energy Discoveries Ltd. (Hereinafter Eden), also a
Genesis shareholder, in which Eden acquired from Norisha control of
Genesis (and indirectly of Frendum), and that Frendum and Placida
Investments Ltd. (Hereinafter: Placida)65, engaged in an agreement in
which Frendum would sell to Placida all of its shares in the Oz license
g. On 13 August 2014, the Partnership submitted to the Commissioner of
Petroleum Affairs, along with other partners, an application to receive a
land license in the Halamish area known as Hatrurim.
The holding of the partners in the license will be as follows:
Name of Participant
The Partnership
Zerach Oil and Gas Exploration Limited
Partnership (Zerach)
Ginco Oil and Gas Explorations Limited
Partnership
Ashtrom Group Ltd.
Dr. E. Rosenberg & Co. Ltd.
65
-
%
25
28.75
-
28.75
-
10
2.5
behalf of Mr. Teddy Sagi
Cyprus Opportunity*)
-
5
________
100
========
*C.O. Cyprus Opportunity Energy Company Limited is a company controlled
by Israel Opportunity – Oil and Gas Explorations (Hereinafter Cyprus
Opportunity)
Note 7 – Investments in Oil and Gas (continued)
With regards to the submission of said application, the parties engaged in an
application for a memorandum of understanding (Hereinafter – MOU), which
determined the following:
1. Ashtrom would provide proof of economic ability with
regards to the Partnership's share in the license.
2. The General Partner in Junco would serve as project
operator in the license field and will be entitled to operator
fee of 2%-5% of the expenses.
3. An operating committee will be appointed that will be
composed of representatives of the parties (and their
alternates) who hold at least 15% of the participation rights
in the license, and every said representative will have
voting right (i.e. one vote each regardless of holding
percentage). The decisions of the operating committee will
be based on a majority vote of participants in the
committee and pursuant to said majority including Zerah or
Junco, with the exception of decisions on certain issues in
which a unanimous decision is required.
4. The parties agree, with the exception of Ashtrom, to pay
the operator a sum of NIS 450,000, which will be paid as
follows: NIS 100,000 upon submission of the application,
with each of the parties, with the exception of Ashtrom,
bearing its relative share, derived from the percentage of its
holdings in the license, and with regards to the Partnership,
Zerach and Junco, plus said relative share (derived from
the percentage of its holdings in the license less the shares
of Ashtrom and Rosenberg Ltd.) in Ashtrom's share in the
license; NIS 350,000 within 10 days from the date of the
granting of the license and registration of rights in the
license under the name of the parties in the Petroelum
Registry, with each of the parties, with the exception of
Ashtrom, bearing its relative share, derived from the
percentage of its holdings in the license and with regards to
the Partnership less the shares of Ashtrom and Rosenberg
Ltd.) in Ashtrom's share in the license.
5. As of the date of the granting of the license and registration
of rights in the license on behalf of the parties in the
Petroleum Registry and until the decision on performance
of the first drilling to be carried out by the parties in the
license field (Hereinafter the Carry Period), the parties, with
the exception of Ashtrom, hereby agree to bear all costs
and expenses involved in implementation of the work plan
in the license (Hereinafter – The Joint Activities), with each
of the parties, with the exception of Ashtrom bearing its
relative share of said expenses, which are derived from the
percentage of its holdings in the license, and with regards
to the partnership, Zerach and Junco, in addition to the said
relative share (derived from the percentage of its holdings
in the license less the share of Ashtrom and Rosenberg
Ltd.) in Ashtrom's share of the license. Ashtrom will not be
required to bear its relative share in costs and expenses
during the Carry Period.
6. Rosenberg Ltd. is entitled to a 2% royalty from the oil, and
other valuable materials to be actually produced and used
from the license.
It is hereby clarified that the obtaining the rights in the license is subject to
Commissioner approval. As of the date of the signing of the financial
statements, the Commissioner's approval has not yet been obtained and the
license has not yet been granted.
Note 8 – Engagements and Contingent Liabilities
a. The Limited Partnership Agreement
1. Purpose of the partnership – see Note 1d above
2. Limited Partnership's capital – see Note 11 below.
3. Participation in Revenue, Expenses and Losses
The Limited Partner will be entitled to 99.99% of the revenue
and will bear 99.99% of the expenses and losses of the Limited
Partnership.
The General Partner will be entitled to 0.01% of the revenue and
will be charged with 0.01% of the expenses and losses of the
Limited Partnership. Furthermore, the General Partner will be
entitled to payments and will assume the following expenses:
a)
Royalties
The Partnership will pay the General Partner royalties
from each portion of the Partnership in oil and/or gas
and/or other valuable substances produced and used
from the oil assets in which the Limited Partnership has
or will have in the future an interest (according to the
calculation and on the same basis that will apply to
royalties payment to the State according to the Oil Law,
before deduction of royalties of any kind but after
deducting the oil that is used for production purposes), for
a rate of 10%.
The said right to royalties will be linked to the
Partnership's portion in each of the oil assets in which it
has an interest or its portion in the drilling, if its interest in
a certain drilling is lower than its portion in the oil asset,
accordingly.
b)
Management Fees
1. The General Partners will be entitled to receive from the Limited
Partnership from the date of first registering the Partnership's
securities for trading, management fees for the sum of 37,000
dollars with added VAT, each month. The General Partner will
carry from and to the amount of management fees received the
following expenses: salaries of the General Partner's managers
and directors and office and rental expenses of the General
Partner.
2. The remaining expenses of the Limited Partnership will be paid
by the Limited Partnership as part of its budget divided as
determined by the General Partner.
3. In addition, the Partnership shall have an expense derived from
responsibility for insuring the directors and officers of the
General Partner and certain service providers to the General
Partner and the Partnership.
c)
Operator, Operating Fees and Expenses
The General Partner or whoever on its behalf will be responsible
for managing and performing all oil exploration operations
including development and/or production of the oil assets in
which the Limited Partnership has interest and it or whoever on
its behalf will be entitled to appointment as operator of the oil
assets in which the Limited Partnership may have interest in the
future.
The General Partner or whoever on its behalf will be entitled
concerning all oil assets in which the Partnership has
participation rights, even if not serving as operator of the oil
assets, to "operating fees" for the rate of 7.5% (plus VAT) of the
total direct expenses of the Partnership (on dollar basis) for oil
exploration and/or development and/or production activity, which
will be calculated and adjusted each month on accrued basis.
If the Limited Partnership has expenses incurred by construction
works and/or installation of oil production facilities (not including
drilling expenses) for an amount higher than a million US
dollars, the operating fees will be determined by negotiation
between the parties and approved by the Commissioner.
d)
Marketing
The General Partner will have right of appointment as the
exclusive marketing agent for the Limited Partnership for the
wholesale marketing of the oil and/or gas produced by the
Limited Partnership from the oil assets it owns. Appointment of
the General Partner as marketing agent is subject to it providing
the Limited Partnership with the required marketing services at
the quality, efficiency, price and terms as approved by the
Commissioner that are not inferior to those the Limited
Partnership can receive from others. The right period has no
time limit.
e)
Profit Sharing
In accordance with the Partnership Agreement, the Limited
Partner will be entitled to 99.99% of the revenue and will
assume 99.99% of the expenses and losses of the Limited
Partnership.
All of the Limited Partnership's gains will be shared between the
Partnership's partners according to their rights each accounting
year. For purpose of this section, "profits" are gains worthy of
sharing by the partners by law and according to accepted
accounting principles, deducted of amounts (not taken into
account for determining the gains) required for the Partnership
at the discretion of the General Partner, for or related to the
Limited Partnership's existing liabilities (including contingencies),
including amounts required according to the General Partner for
unforeseen expenses the total amount of which will not exceed
250,000 dollars. Said provision up to said amount will be
determined by the General Partner and approved by the
Commissioner. Calculation of the profits will always be annual
(or periodical) ending on December 31, based on the audited
financial statements.
Amounts held by the Limited Partnership and not shared with
the partners as said above (including the Limited Partnership
equity and its gains that are not shared) , the General Partner
will be entitled, if it deems fit at its sole discretion, to invest, until
use thereof for their intended purposes, in a manner it deems fit,
and will also be entitled to engage on behalf of the partners in
agreements for the management of solid investments as defined
in the prospectus for the Partnership by an interested party or by
whoever the General Partner deems fit, and provided that the
said investments and agreements are made to safeguard,
inasmuch as possible, the real value of the monies and their
availability for performing the Partnership's objectives.
Management of the Partnership's funds will be done
independently by the General Partner at its sole discretion.
Except for the above said, all the gains of the Limited
Partnership will be shared soon after conclusion of the year
ended in the report year (i.e. the year ended 31 December) for
each of the years such are shared, immediately upon
clarification of the amount. To remove any and all doubt, it is
hereby clarified that the General Partner is entitled without
requiring approval of the general assembly of shareholders in a
special resolution, or Commissioner approval that was accepted
with regards to jurisdiction, to prevent distribution or profits or to
delay distribution of profits in order to perform development,
production and participation in the other exploration activities
that are outside the scope of the plans that were included in the
prospectus based on which the units are issued or will be issued
to the public.
Despite the above said it is hereby clarified that gains will not be
shared if the Trustee or the Commissioner are of the opinion
there is doubt that receipt by the Limited Partner will be
considered withdrawal of its investment or part thereof, as
meant by section 63(b) of the Partnerships Ordinance (New
Version) 1975. In any event of such doubt, there will be no
sharing unless by court approval. If the court approves the
sharing will not impose any charge on the unit owners, the gains
will be shared according to the approval terms.
The opinion of the accountant of the Limited Partnership (who
was appointed to the Limited Partnership simultaneous with the
signing of the Limited Partnership agreement or the accountant
that replaces him) with regards to determining the sum of the
gains that should be distributed as gains (with the exception to
establishment of the sums of the provision as specified in this
section above) and in calculating the Partners share in
accordance with the Limited Partnership agreement on revenue,
expenses and losses of the Partnership, will be final and
decisive. If for any reason the position of accountant becomes
available, another accountant will be appointed in lieu by the
General Partner, pursuant to the appointment having been
granted expressed written approval from the Commissioner.
All of the gains paid by the Partnership to the Limited Partner for
its share in the Limited Partnership (with the exception of the
sums required to pay trustee expenses that were approved in
writing and in advance by the Commissioner) will be distributed
by the date of their receipt from the Limited partnership to the
holders of the participating units who will be registered in the
registry of holders of units on 31 December of the year for which
they were distributed. All units have the right to participate
equally, in every profit sharing relative to their nominal value.
The Commissioner will act so that all profits will be distributed
on the scheduled date. The Commissioner will not grant his
consent to avoid distribution of revenue or to delay its
distribution except with special approval from the General
Assembly of holders of the participation units or with court
approval, at the request of the Commissioner, that explanations
be submitted that are based on the best interests of the holders
of the participation units.
Whenever a provision of the Limited Partnership agreement
required profit sharing, the Commissioner's consent (due to
doubt whether the profit sharing to the Limited partner will be
considered as withdrawal of his investment or part of it – as
defined in Section 63(b) of the Partnerships Ordinance – the
Commissioner does not grant his consent to the profit sharing
except after having initially attempted to obtain court orders in
this matter and the court confirmed the distribution.
f) The General Partner
The General Partner will have complete control over
management of the Limited Partnership's businesses. The
General Partner will have full authority and power to do or
cause to be done actions it deems necessary and/or beneficial
for performing the objectives of the Limited Partnership. The
General Partner or whoever on its behalf will not be
responsible to the Limited Partnership or the Limited Partner
for any action, including fault, made for the Limited Partnership
according to the authority vested in the General Partner by the
Limited Partnership agreement or thereby or by any law unless
such actions were in fraud or in malice.
The Limited Partnership and/or Limited Partner will indemnify
the General Partner and each of its employees and/or
manager and/or directors for any loss, expense or damage
that they or their representative may carry or be required to
carry, directly or indirectly, for any action or omission made on
behalf of the Limited Partnership according to the authority
invested in the General Partner by the Limited Partnership
Agreement or by law.
To dispel any doubts it is clarified that the said indemnification
will not apply to any loss, expense or damage that the General
Partner, its employees or managers are responsible for as said
above. Indemnification liability as said in this section above will
apply:
1. For any financial liability if and inasmuch as may be
imposed on the General Partner and any of its
employees and/or managers and/or directors in Israel
and/or abroad in favor of another person and/or entity
by law, including any judgment given in compromise or
arbitration ruling approved by the court;
2. Reasonable litigation expenses, including lawyers' fees,
expended by the General Partner and any of its
employees and/or managers and/or directors following
any investigation or proceeding managed against it by
any authority authorized to run an investigation or
procedure and which ended without submitting any
indictment and without any financial liability being
imposed as an alternative to any criminal proceeding, or
that ended without an indictment but with the imposition
of a financial liability as an alternative to a criminal
proceeding for an offense that does not require proof of
criminal intent; in this paragraph.
Completion of a proceeding without an indictment on a
criminal investigation – means the closing of a case
according to section 62 of the Criminal Procedure Law
[combined version] 1982 (hereinafter in this sub-section
– the Criminal Procedure Law) or a delay in
proceedings by the Attorney General of Israel according
to section 231 of the Criminal Procedure Law.
"Financial liability as an alternative to criminal
proceeding" – financial liability imposed by law as an
alternative to criminal proceeding, including an
administrative fine according to the Administrative
Offenses Law 1985, a fine for an offense determined as
a fine offense according to the directives of the Criminal
Procedure Law, monetary sanction or forfeit;
3. For all the reasonable litigation expenses including
lawyers' fees, that the General Partner and any of its
employees and/or managers and/or directors expended
or was charged by the court, for a procedure issued
against it by the Partnership or on its behalf or by
another person and/or entity, or for exonerated criminal
charge, or for an indictment charged as an offence that
does not require proof of criminal intent.
Note 8 – Engagements and Contingent Liabilities (continued)
g)
The Limited Partner
The Limited Partner will not participate in any manner
whatsoever in the management of the Limited
Partnership or its businesses and will not perform any
legal actions on behalf of the Limited Partnership. The
actions of the Limited partner will not oblige the Limited
Partnership. The Limited Partner will not be responsible
for charges to the Limited Partnership above the amounts
entered into the equity of the Limited Partnership.
b. Trust Agreement
The rights of the trustee in the Partnership will be held in trust in
favor of the participation units' owners according to the
directives and terms of the trust indenture. In fulfilling the duties
according to the trust indenture, the trustee will act subject to the
law or by approval of special decision taken by a general
assembly of the unit owners or a general assembly of the
warrants owners (if any) (on matters pertaining to warrants
owners) or by court approval.
c. Regulation
1. Committee to review government policy in Israel's
natural gas sector
In October 2011, a committee was established to
examine government policy on the subject of natural
gas in Israel and its future development headed by Mr.
Shaul Zemach, General manager of the Energy and
Water Ministry (hereinafter – the Zemach Committee),
with the following objectives: (1) examination of
government policy models for the natural gas economy
in countries with similar characteristics, taking into
account the unique geopolitical features of Israel; (2)
examination and analysis of local supply and demand
based on various scenarios; (3) examination of the
desired policy to encourage the exploration of natural
gas and development of the natural gas market in Israel
and to maintain reserves for supplying local
requirements and for exporting natural gas.
The Committee published the draft conclusions to public
comments on 5 April 2012 and its recommendations in
a final report on 29 August 2012.
On 23 June 2013, the Israeli government adopted the
Zemach Committee's recommendations (Hereinafter –
The Government Resolution), subject to the principles
and several changes specified in the government
decision, the main one being the increased quantity of
natural gas designated for the domestic market to 540
BCM. As of the date of the signing of the annual
financial statements, the General Partner is unable to
assess the impact of the government decision on the
Partnership's business.
2. Draft Petroleum Regulations Regarding Transfer of
Rights
On 8.11.2011, the Ministry of Energy and Water
published an updated draft of the Petroleum Regulations
(Transfer of Oil Rights) 2011 designed to regulate the
procedure for submitting applications for the transfer of oil
rights while establishing criteria by which the
Commissioner is entitled to accept said application, and
to stipulate it on different conditions or to reject it
(Hereinafter Draft Regulations). According to the draft
regulations, the regulations will apply to a transfer of the
oil right and any benefit with regards to the oil right for
which the application for transfer will be submitted
following publication of the Regulations.
In accordance with the draft regulations, the
Commissioner will not allow the transfer of the oil right
and of the benefit pertaining to the oil right if he believes
one of the following: (a) the transfer might materially
prejudice competition in the exploration and production
sector; (b) the transfer might harm national security or
foreign relations; (c) other special circumstances are in
place that makes the transfer not in the best interests of
the public and energy market in Israel.
The Partnership believes that approval of said
regulations in their current format, if passed, might
negatively impact operations in oil and/or gas exploration
and production in Israel, and subsequently Partnership
operations.
3. The Partnerships Ordinance
On 21 January 2014, a draft law to amend the Partnership
Order (No. 5) (Corporate Governance in Public Limited
Partnerships) 2014 (Hereinafter The Draft Law) was
published.
The explanations of the draft law noted, inter alia, that the
draft law is being introduced in light of the significant
increase in recent years in the raising of public capital
through the Tel-Aviv Stock Exchange Ltd. by partnerships
involved in oil and gas explorations. The explanation further
noted that the rules of corporate governance apply to listed
limited partnership by virtue of the provisions of the
Partnership Order, Stock market Articles and Trusteeship
Agreements, are lacking, outdated and do not provide
sufficient protection of the interests of the investor public.
In light of this, the draft law states that it is designed to
expand and update the mechanisms of corporate
governance in limited partnerships that offered the public
participation units and ensure satisfactory protection of the
interests of the public that owns the participation units.
The Amendment is essentially a new chapter that
increments the Partnership Order [New Version] 1975
(Hereinafter The Partnership Order), and applies only to
public limited partnerships, i.e. limited partnerships whose
participation units or rights of the limited partner are listed on
the stock exchange or offered to the public according to the
prospectus.
The main purpose of the amendment is to institute rules of
corporate governance in public partnerships and regulate
corporate governance, with a large percentage of the
amendment being implemented by way of adoption of
arrangements through the Companies Law 1999
(Hereinafter The Companies Law with the necessary
changes and adjustments. The Amendment set forth, inter
alia:
-
-
-
-
-
Mandatory appointment of an audit committee.
Mandatory appointment of a compensation committee
Mandatory approval of compensation policies in the General
Partner and Partnership.
Mandatory appointment of outside directors.
Obligation of the General Partner and officers therein to duty
of care and duty of fidelity towards the Partnership and
prioritization of the best interests of the Partnership over the
General Partner.
The Partnership will be subject to exemption, indemnification
and insurance regulations that apply to a public company.
The controlling shareholder in the General Partner and the
shareholders of the General Partner must demonstrate
fairness with the Partnership.
The holder of the participation units who knows that his vote
will be the deciding vote in a general assembly resolution –
must act fairly.
The holder of the participation units obligation to act in good
faith and in the acceptable manner, and must prevent abuse
of power against other holders, the General Partner and the
Partnership.
Mandatory appointment of an internal auditor.
Mandatory appointment of a financial statement approval
committee.
Regulation of the oversight institution where, in certain
cases, authorities were expanded.
Mandatory convening of annual general assembly once a
year and no later than 15 months after the last annual
general assembly.
-
The procedure for approving interested party and controlling
shareholder transactions in the General Partner and in the
Partnership, similar to a public company. Accordingly, in
accordance with the Amendment, a deviating transaction of
the Partnership with a controlling shareholder or when a
controlling shareholder has a vested interest – approval of
said transaction is required every 3 years (with the exception
of initiation fees defined in the Amendment as any asset
given by the Partnership to the General Partner or to its
controlling shareholders, in accordance with the Partnership
Agreement, "derived from assets, revenue or profits of the
Partnership, either in cash or in any other manner").
The Partnership plans on studying the provisions of the law
and reviewing its implications for the Partnership.
4. Draft Guidelines regarding Environmental Protection
In December 2013, the Ministry of Energy in conjunction
with the Ministry of Environmental Protection and other
government ministries published draft guidelines for public
review by 7 March 2014, that aims to regulate the
environmental aspects of offshore oil and natural gas
exploration and production. These guidelines are designed
to instruct holders of offshore oil rights of the actions and
documents that they must prepare as part of their
operations in their lease areas, in order to prevent or
minimize to the extent possible environmental damage that
might occur during the exploration, development and
production of oil and natural gas. As of the date of
publication of the report, a binding/ final version has not
been published. The guidelines may affect cost and the
manner in which the Partnership operates that as of the
date of publication of the report, the scope of which cannot
be assessed.
d. Lawsuits
1. In April 2012, Western Breeze Holdings Limited
(Hereinafter The Plaintiff) filed a lawsuit against the
Partnership, the General Partner, Frendum, Daden,
Nammax and AGR (Hereinafter in this section: The
Defednants). The lawsuit was primarily a declaratory
order (as well as registration of rights) stating that the
Plaintiff is the owner of super royalties of 1% of all oil
produced, saved and marketed with regards to the
Pelagic licenses, as well as lease rights and all
exploration, extraction or production rights that will be
granted with regards to these areas, as of the date of
the issuance of said rights, subject to Pelagic licenses
(Hereinafter in this section Overriding royalty).
On 5 November 2014, the parties reached a settlement
agreement in which the lawsuit and the countersuit would
be denied, and the Partnership would not be required to
pay or assume any benefit towards any of the parties to
this Agreement. The settlement agreement was
submitted with the Tel-Aviv District Court on 9 November
2014, with a motion to ratify the settlement agreement
with a ruling. On 11 November 2014, the Tel-Aviv District
Court approved the settlement agreement, and also set
forth that the agreement would not apply and would not
be binding to parties that were not signatory to the
agreement. The settlement agreement had no effect on
the financial statements.
Note - Engagements and Contingent Liabilities (continued)
2. On July 1, 2012, Garren (Gary) J. Junco, James M.
Peck, Marc L. Abels, Michael C. Nicols and TGSNOPEC Geophysical Company ASA (hereafter
collectively - “the Plaintiffs”) filed with the Tel Aviv
District Court a claim for the issue of a declaratory
order, mandatory injunctions and a permanent
prohibitive order against the Partnership, the General
Partner, Frendum, Daden, Nammax and AGR
(hereafter collectively - “the Defendants”).
The claim is for the issue of orders and decrees to the
Defendants, as follows: (a) a declaratory order,
stipulating that each of the Plaintiffs is entitled to
Overriding Royalties at the rate specified in the
statement of claim, and collectively at a an aggregate
rate of 4% of any (100%) oil produced, stored and
marketed from the Pelagic Licenses areas (hereafter –
“the Overriding Royalties”), all in accordance with the
provisions as set out in an Overriding Royalty
Agreement allegedly signed on August 16, 2010
between Pelagic and the Plaintiffs (hereafter - “the
Overriding Royalty Agreement”); (b) a mandatory
injunction requiring each of the Defendants severally
and all jointly - (1) to cooperate with the Plaintiffs in
order to obtain the approval of the Commissioner to the
Overriding Royalties to which, as argued in the claim,
each of the Defendants is entitled in proportion to its
share (as set out in the statement of claim) in
accordance with the provisions and terms of the
Overriding Royalty Agreement), and to register in the
name of each of the Defendants its share in the
Overriding Royalties; (2) to sign and submit to the
Commissioner, jointly with the Plaintiffs, an application
to approve the Overriding Royalties and the registration
thereof in its name, as well as to sign any document as
may be requested by the Commissioner for said
approval to be granted; (c) a mandatory injunction
obligating the Defendants, jointly and severally, to
provide full disclosure of the alleged entitlement of the
Plaintiffs to Overriding Royalties, including the content
of the Overriding Royalty Agreement and the content of
the claim and this to third parties with which all or some
of the Defendants may enter into an agreement in
relation to their rights in the Licenses, or to third parties
that may provide financing in connection with their rights
in the Licenses, including within the framework of public
offering; (d) a permanent prohibitive order obligating
each of the Defendants severally and all jointly to refrain
from conducting negotiations or entering into any
agreement with any third party in connection with the
Pelagic Licenses, including additionally from an offering
or issue of securities the investment in which constitutes
a direct or indirect investment in the Pelagic Licenses or
financing in connection with the Pelagic Licenses or
actions therein, as well as to refrain from pledging any
interest or creating any third-party interest in the Pelagic
Licenses, all without disclosing the alleged right of the
Plaintiffs to Overriding Royalties, to any such third party;
(e) to allow the Plaintiffs to split their remedies.
As part of the claim, the Plaintiffs argue that the
Defendants acquired their rights in the Pelagic Licenses
from Pelagic, subject to the rights of the Plaintiffs to
Overriding Royalties while being aware of and
acknowledging the rights of the Plaintiffs to the
Overriding Royalties and that the Defendants refuse to
cooperate with the Plaintiffs in applying to the
Commissioner to obtain his approval, as required by the
Oil Law, and in the registration of the Overriding
Royalties in the name of the Plaintiffs.
The Partnership filed its statement of defense,
requesting the Court to dismiss the claim, inasmuch as
directed against the Partnership, arguing, inter alia, that
the Partnership has never entered into any agreement
with the Plaintiffs, nor has it undertaken to pay any
overriding royalties to the Plaintiffs, the Plaintiffs were
not a party to the agreement for the acquisition by the
Partnership of its rights in the Licenses (hereafter - “the
Acquisition Agreement”), neither the Acquisition
Agreement nor the operating agreement that was
signed subsequent to the signing of the Acquisition
Agreement mention any alleged rights of the Plaintiffs to
Overriding Royalties , the alleged rights of the Plaintiffs
were never duly registered in the Petroleum Registry
and that in any event they do not and cannot maintain
any validity.
In March 2014, a pretrial hearing was held in the case
and it was decided to further postpone it in an attempt
to reach an agreement on the preliminary issues as
recommended by the Court while continuing to advance
the mediation proceeding.
In the opinion of the legal counsel of the Partnership
and in view of the preliminary stage of the proceedings,
the chances of the claim cannot be estimated.
3. On 7 January 2015, after the balance sheet date, the
Partnership filed a financial lawsuit against Frendum,
Placida and Lapidoth-Heletz Limited Partnership
(Hereinafter Lapidoth) (Hereinafter The Defendants).
The grounds for the lawsuit centered around money that
was transferred by the Partnership to the bank account
of the joint venture in the license, in the amount of
$1,518 thousand, $1,152 thosuand of which for
Frendum's and Placida's share in accordance with the
agreement from 1 April 2012 in which the Partnership
acquired the rights in the license from Frendum, with
regards to Cash Call in 2012 and from March 2014.
According to the Partnership, these funds were raised
for specific and predefined purposes, and in accordance
with the agreements reached and obligations given in this
regard, and since these goals did not materialize, at all
and as of the date scheduled with regards to their share,
the funds must be returned to the Partnership, and no
other use should be made of them.
The Partnership approached the defendants, who had
signatory rights to the joint bank account for the license
and who began to use said funds in an unauthorized
manner, with a demand to recover the sums, but these
approaches were not answered and the Partnership had
no choice but to file a lawsuit to insist on its rights.
On 11 January 2015, after the balance sheet date,
Lapidoth announced that it vehemently rejected the
allegations raised against it.
On 22 February 2015, Lapidoth filed a countersuit.
The proceedings are ongoing and the chances in the
lawsuit cannot be estimated.
e. In January 2013, the Partnership entered into negotiations with
Modiin Energy - Limited Partnership for adding the Partnership,
with a 10% interest (out of 100%) to the Gabriela/378 license
(hereafter - “the License”). The License is a marine license with
an area of some 390,000 sq.m. in the Mediterranean Sea, about
10 kilometers from the coastline and with underwater depth of
about 150 meters.
In May 2014, the Partnership updated that said negotiations
ended without an agreement.
f. The Partnership assumes some of the cost of employment (40%
and 33.3% respectively) of two employees working on
Partnership affairs – the internal legal consultant (valid from
1.6.2014) and the investor relations director (valid since
27.7.2014) (attributed to matter handled by them for the
Partnership) and who are employed, for convenience purposes,
via the General Partner.
Note 9 – Accounts Payable
Related Party – the General Partner
(see also note 16)
Related Party – the Limited Partnership
(see also note 16)
Payable due to joint ventures
Accrued expenses and other payables
31 December
2014
2013
122
8
9
15
47
73
________
251
========
686
________
709
========
Note 10: Tax Aspects
a. Taxation of Oil Profits Law, 2011 (hereafter - “the Law”)
The Taxation of Oil Profits Law, 2011 was passed on March 30,
2011 and published in the official gazette on April 10, 2011.The
implementation of the provisions of the Law will change the
taxation principles that are applicable to the income of the
Partnership, including, inter alia, cancellation of the depletion
deduction (see section b. below) and institution of a levy on oil
profits based on the mechanism that is prescribed in the Law,
including transitional provisions concerning yielding ventures or
ventures that commence production by 2014
b. Presented below are details of the principal taxation principles
and arrangements in effect as of balance sheet dat:
1. The Limited Partnership was approved by the Income Tax
Commissioner for purposes of the Income Tax Regulations
(Principles for the Calculation of Tax for the Holding and Sale
of Participation Units in an Oil Exploration Partnership),
1988. The effective period of the regulations was extended
annually, most recently until December 31, 2014. A further
extension of the regulations has not yet been announced.
2. Due to the effective period of the aforesaid regulations not
being extended, the process of the submission of the
Partnership’s tax returns for the years 2012-2013 to the Tax
Authority has not yet been completed. Consequently, the
completion of the audit of said years by the Income Tax
Authority is pending. Once the aforesaid audit is completed
and the amount of income and expenses for tax purpose is
determined, an eligible holder will be issued an eligible
holder certificate accordingly.
3. According to Section 19 of the Oil Profits Taxation Law,
2011, for purposes of Section 63A(1) of the Partnerships
Ordinance, the income and expenses of the partnership are
attributable to an “eligible holder”, this in proportion to his
share as calculated on the basis of the number of units that
he holds at year-end.
4. It is further determined that the general partner will be
required to submit a report on the taxable income of the
Partnership or its losses, in accordance with the provisions
set out by the Administration, and upon submitting the
annual return of the partnership, the general partner will pay
the amount of tax emanating there from on account of the tax
that is payable by the partners in the partnerships in the tax
year to which the tax return relates, in accordance with the
principles set out in the Law.
5. The tax issues relating to the operations of the Limited
Partnership have not yet been addressed in Israeli court
rulings and it is impracticable to anticipate or determine the
ruling of the court if and when the aforesaid legal issues are
brought before the courts. Additionally, with respect to some
of the legal issues, the position of the tax authorities cannot
be anticipated. Since the operations of the Partnership are
subject to a specific tax regime that incorporates tax benefits,
the changes that will ensue from the amendment of the law,
a ruling or a change in the position of the Water Authority, as
above, could have material implications on the tax regime
that is applicable to the Partnership. To the date of signing of
the annual financial statements, the Partnership.
Note 11: Equity of the Partnership
a. As of 31 December 2014, 746,342,673 participation units were issued
with a n.v. of NIS 1 per unit, granting participation right in the Limited
Partner's rights in the Partnership.
b. On 30 March 2014, the Board of Directors of the General Partner
authorized the management of the General Partner to take all
necessary measures to prepare a shelf prospectus (Hereinafter The
Prospectus) for the Partnership and to obtain approval from the
Securities Authority and the Tel-Aviv Stock Exchange. The purpose of
the prospectus is to prepare for fast raising of funds to exercise the
Partnership's needs, and to take advantage of the opportunities in the
market, in accordance with the strategy set forth by the Partnership on
the date of first issue to the public. On 28 August 2014, the Partnership
published a shelf prospectus.
Note 12 – Oil and Gas Exploration Expenses
For 31 December
2013
2014
Note
for the Pelagic licenses
For the Neta and Royee licenses
For the Oz licenss
For the request for the Hatrurim License
7d
7e
7f
7g
2012
38
345
3,611
13
4,007
172
359
=
531
========
464
=
=
464
========
Note 13 – Administrative and General Expenses
For 31 December
2013
2014
2012
Management and Operator Fees to the General Partner
(see also Note 16)
Professional services
Other
744
197
108
602
266
96
1,102
288
107
1,049
========
964
========
1,497
========
Note 14 – Expenses (Income) from Financing, Net
Financing Income
For 31 December
2013
2014
2012
Profits from change in fair value of financial assets
measured at fair value through profit or loss, net
Exchange differences
Interest income from short-term bank deposits
Total financing income
Financing Expenses
Exchange differences
Bank commissions
Total financing expenses
Financing expenses (income) net
21
79
________
100
________
154
54
81
________
289
________
338
402
________
740
________
120
4
124
24
========
1
1
(288)
========
7
39
46
(694)
========
Note 15 – Loss per Participation Unit
a. Basic
The basic loss per participation unit is calculated by dividing the loss that is
attributable in the Partnership to the holders of the participation units by the
weighted average number of participation units in issue.
b. Diluted
The diluted loss per participation unit is calculated by adjusting the weighted
average number of participation units in circulation, including all potential
dilutive participation units.
The option warrants were not taken into account since potential participation
units are only included in the calculation if their effect is dilutive. The basic
loss per participation unit is identical to the diluted loss per participation unit,
as the option warrants are not dilutive.
2014
For the year ended
31 December
2013
2012
Loss attributable to the holders of the participation units
Weighted average number of participation units in issue
Basic and diluted loss per participation unit (dollars)
5,080
========
746,342,67
3
========
0.00682
========
2,945
========
8,915
========
746,333,057
========
0.00394
========
746,138,395
=-=======
0.01195
========
Note 16 - TRANSACTIONS AND BALANCES WITH INTERESTED AND
RELATED PARTIES
The key management personnel of the Partnership (which, together with other
functions, are included in the definition of “related parties” as per IAS 24)
include the members of the Board of Directors and management of the
General Partner.
a. The Limited Partnership Agreement entitles the General Partner to
royalties, management fees and operator fees from the Partnership, see
note 4a above.
b. The General Partner shall have the right to be appointed as an exclusive
agent for the marketing of oil and gas that are produced from the
Partnership’s oil assets, see note 8a above.
c. The Partnership bears the expenses pertaining to the insurance of the
General Partner and its representatives, see 8a above.
d. As to the indemnification of the General Partner by the Limited
Partnership, see note 8a(f) above.
e. On January 3, 2013, the General Partner purchased on the Stock
Exchange 3,500,000 participation units of the Limited Partnership.
f. Following are details of transactions with interested and related parties:
2014
For the year ended
31 December
2013
2012
Management fees to the General Partner
Operator Fees to the General Partner
Payroll expenses to the Limited Partner
444
========
300
========
1
========
444
========
158
========
1
========
444
========
658
=-=======
2
========
2.
31 December
Accounts receivable - advance on
account of operator fees to the General
Partner
Accounts receivable - the Limited
Partner
Accounts payable and accruals - the
Limited Partner
Accounts payable and accruals - the
General Partner
2014
2013
211
========
========
========
9
========
122
========
========
15
========
8
========
Note 16: TRANSACTIONS AND BALANCES WITH INTERESTED AND
RELATED PARTIES (continued)
3.
31 December
Highest current accounts receivable of
interested party
2014
2013
54
192
========
========
Note 17 - FINANCIAL INSTRUMENTS AND MANAGEMENT OF FINANCIAL
RISKS
a. Management of financial risks
1. Financial risk factors
The operations of the Partnership expose it to various financial
risks: market risks (including currency risks, cash flow risk in
respect of interest rates and price risk in respect of its investments
in financial instruments), credit risks and liquidity risks. The overall
risk management plan of the Partnership focuses on the
unpredictable behavior of the financial markets and on working to
minimize possible adverse effects on the financial performance of
the Partnership. The Partnership uses financial instruments to
protect itself against the exposure to such risks.Risk management
is conducted by the finance department of the Partnership, in
accordance with the policy approved by the Board of Directors of
the General Partner.
a) Market Risks
Exchange Rate Risks
As part of its operations, the Partnership is exposed to
foreign currency risks arising from exposure to the NIS.
Foreign currency risk arises from future commercial
transactions and assets or liabilities that are
denominated in a currency other than the functional
currency. Management of the Partnership established a
policy that requires the management of the foreign
currency risk in relation to its functional currency. The
Partnership holds cash balances and investments in
securities that are designated to diminish the foreign
currency risk.
The revaluation or devaluation of the dollar by 5% in
relation to the NIS, assuming all other variables remain
constant, would have changed the loss for the year as
follows:
Effect on equity
Effect on the loss of the
Partnership
2014
5% increase
5% decrease
(46)
46
46
(46)
2013
Effect on equity
Partnership
5% increase
5% decrease
(32)
32
32
(32)
The changes result primarily from gains/losses on changes in exchange rates
in respect of the translation of balances of cash and cash equivalents,
accounts receivable and accounts payable.
b) Price Risk
The Partnership is exposed to this risk in respect of its holdings in equity
instruments, due to the classification of its investments in the statement of
financial position as financial assets at fair value through profit or loss. The
Partnership is not exposed to risks in respect of commodity prices. The
Partnership diversifies its holdings portfolio for the purpose of managing the
price risk stemming from investments in equity instruments. The diversification
of the holdings portfolio is subject to the restrictions prescribed by the
Partnership.
The table below summarizes the effect of the increase/decrease in the prices
of securities on the Partnership’s loss for the year and its equity. The analysis
is based on the assumption of a 5% increase/decrease in stock indexes, while
all other variables remain constant and any fluctuations in the prices of the
Partnership’s equity instruments correspond to the changes in the index:
2014
Effect on equity
Partnership
5% increase
5% decrease
260
(260)
(260)
260
2013
Effect on equity
Partnership
5% increase
5% decrease
342
(342)
(342)
342
c) Interest Risk
The Partnership invests its cash balances both in deposits and in bonds
bearing variable interest, since the Partnership does not hold securities for
redemption but rather to maintain the value of money, and the General
Partner invests, in the name of the Partnership, in bonds with a short average
duration in order to reduce the exposure to spikes in the interest rate. The
Partnership is not exposed to interest rate risks.
Note 17 - FINANCIAL INSTRUMENTS AND MANAGEMENT OF FINANCIAL
RISKS (continued)
d) Liquidity Risk
Management of the Partnership prepares the cash flow projection.
Management of the Partnership regularly monitors forecasts of liquidity
requirements in the Partnership to ensure the existence of sufficient funds for
the operating needs.
Surplus cash held by the Partnership is invested in interest-bearing
investment channels, such as current accounts, term deposits, bonds and
other solid channels. These investment channels are selected based on their
term to maturity or the extent of their liquidity, so as to ensure that the
Partnership has sufficient cash balances in accordance with the aforesaid
projections. The Partnership does not customarily obtain credit from banks,
but rather finances its activities by raising capital.
2. Management of capital risks
The capital risk management objectives of the Partnership are to maintain the
ability of the Partnership to continue operating as a going concern for the
purpose of granting the holders of the participation units a return on their
investments and benefits to other interested parties, as well as to maintain an
optimal capital structure in order to reduce capital costs.
The Partnership may take various actions to maintain or adjust its capital
structure, including changing the amounts of capital recovery to the holders of
participation units and issuing new units and/or option warrants and/or
amending the terms of option warrants.
3. Fair value estimates
Financial instruments that are measured at fair value through profit or loss are
categorized using valuation techniques. The various tiers are defined as
follows: - Quoted prices (unadjusted) in an active market for identical assets
and liabilities (Tier 1).
- Inputs other than quoted market prices included within Tier 1 that are
observable for the asset or the liability either directly (i.e. as prices) or
indirectly (i.e. derived from the prices) (Tier 2)
. - Inputs with respect to the asset or the liability that are not based on
observable market information (unobservable inputs) (Tier 3).
The fair value of the financial assets at fair value through profit or loss,
amounting to US$ 5,195 thousand, is measured under Tier 1 of the fair value
hierarchy
The fair value of other financial instruments, such as cash and cash
equivalents and accounts receivable, is a reasonable approximation of their
carrying amount.
Note 17 - FINANCIAL INSTRUMENTS AND MANAGEMENT OF
FINANCIAL RISKS (continued)
3. Financial Instruments
Financial instruments by groups
The accounting policy for the treatment of financial instruments has been
applied to the following items:
Loans
and Assets at fair Total
Receivables
value
through
profit or loss
Assets
Cash
and
cash
equivalents
Accounts receivable
Financial assets at fair
value through profit or
loss
Dollar bank deposits
Restricted dollar bank
deposits
Total
Liabilities(*)
Accrued expenses
Related parties
10,021
-
10,021
959
-
5,195
959
5,195
8,520
514
________
20,014
========
________
5,195
========
8,520
514
________
25,209
========
Other financial
liabilities
73
178
________
Total
251
========
31 December 2013
Loans
and Assets at fair Total
Receivables
value
through
profit or loss
Assets
Cash
and
cash
equivalents
Accounts receivable
Financial assets at fair
value through profit or
loss
Dollar bank deposits
Total
5,896
-
5,896
738
-
6,855
738
6,855
13,843
________
20,477
========
________
6,855
========
13,843
________
27,332
========
Other financial
liabilities
Liabilities(*)
Accrued expenses
Related parties
Total
686
23
________
709
========
(*) The above liabilities have a maturity of up to three months.
Note 18 – Subsequent Events
Pursuant to the specified in Note 7d(6), on 11 January 2015, the Partnership
informed Norisha and Frendum as follows:
1. That it was exercising the right of first refusal granted to it in accordance
with the JOA, to acquire some of Frendum's rights in the Pelagic
licenses, in accordance with the proportional share in the Pelagic
licenses, and that it also wishes to acquire additional share in Frendum's
rights in the Pelagic licenses, pursuant to the other partners in the
Pelagic licenses not exercising their right of first refusal granted to them.
That in its opinion, completion of the transaction between Norisha and
Eden constitutes a breach of the JOA and that it reserves its rights in this
matter.
Nammax Oil & Gas Limited (Hereinafter Nammax), which holds 42.5%
of the Pelagic licenses, announced that it would also exercise its right of
first refusal granted to it in the JOA, to acquire some of Frendum's rights
in the Pelagic licenses, based on their relative share in the licenses.
2. AGR Petroleum Services Holdings AS, which holds 5% of the Pelagic
Licenses, announced that it had no intention of exercising its right of first
refusal granted to it.
On 2 February, 2015 Norisha informed the Partnership and Nammax
that it rejected their demands to exercise right of first refusal to acquire
some of the working interests of Frendum in the Pelagic licenses, since it
believes that the right of first refusal is with regards to the rights in
Genesis, which was sold by Norisha to Eden and did not pertain to the
working interests of Frendum in the Pelagic licenses.
The Partnership and Nammax informed Frendum that they reject said
position, and consider Frendum's actions and defaults with regards to a
change of control in Genesis, including non-compliance with its relative
share in the guarantees to the Ministry of National Infrastructures,
Energy and Water with regards to the Pelagic licenses in accordance
with the guidelines for issuing securities, non-payment of its relative
share in the work plan budget in the Pelagic licenses, which was
approved by all partners in the Pelagic licenses, including Frendum, and
the fact that it is failing to honor the exercise of right of first refusal, as
specified above, a breach of the JOA and are demanding that it honor
their announcement regarding the exercise of first refusal.
On 5 February 2015, the Partnership announced that it and Nammax
sent Default Notices by virtue of the JOA agreement that applies to
license 370/Ishai as follows:
1. As Frendum failed to provide its relative share of the guarantees, and
as it failed to pay its relative share in the budget for 2015 work plan in
the license, which was approved by all of the partners to the license
including Frendum.
2. Daden Investment Ltd., which holds 9% of the participation rights in
the license, since it failed to provide its relative share in the
guarantees.
On 24 February 2015, the Partnership and Eden announced that
along with Nammax, they were holding talks to reach a settlement
regarding the rights in the Pelagic licenses, in which Frendum would
agree to transfer to Israel Opportuniy and to Nammax part of its rights
in the Pelagic licenses so that following the transfer, Frendum would
hold 10% of the total guarantee required in the righs in the Pelagic
license.
It should be noted that Frendum's rights in the Pelagic licenses,
including Frendum's working interests that will be transferred to the
Partnership if and when said settlement is reached, are subject by
virtue of the settlement agreement between the partners in the Pelagic
licenses and Western Breeze Holdings Limited, Frendum's rights,
Daden Investment Ltd. and WB to participate in the profits of the party
holding these rights, from the Pelagic Licenses.
It is hereby clarified that talks between the parties have yet to result in
a binding agreement, since no percentage of rights in the Pelagic
Licenses that would be transferred to the Partnership has yet to be
determined in which if and when said settlement is signed, and there is
no certainty that conditions will result in a binding agreement in the
aforementioned format or in any other format, and that at this stage,
the chances of success cannot be estimated.
On 2 March 2015, Frendum paid $132 thousand for the guarantee,
which comprises 10.0526% of the total guarantee required.
Chapter D - Additional Information about the Corporation
Regulation 10a – Summary of the Quarterly Statement of Income
(Dollars in thousands)
1-3/2014
4-6/2014
7-9/2014
102014
12/2014
Expenses
Oil and gas
150
123
3,663
71
4,007
exploration
expenses
Administrative and
223
128
471
227
1,049
General Expenses
________ _________ _________ _________ ________
Total Expenses
373
373
4,134
298
5,056
Financing expenses
(49)
(43)
90
26
24
(income) net
________ _________ ________ ________ ________
Loss (Gain) for the
324
208
4,224
324
5,080
Period
_________ _________ ________ _________ _________
Regulation 10c – Use of the consideration of securities while addressing the
goals of the consideration according to the prospectus published recently
before the report date
The Partnership published a prospectus on 6.7.2010 (Hereinafter The First
Prospectus) as well as a shelf prospectus on 16.11.2012 (Hereinafter 2012
Shelf Prospectus). The consideration from the Partnership's offering (net)
including money received as a result of disposal of option warrants and less
sums designated to cover current expenses for current management, was
used and is designated for use to participate in oil and/or gas explorations and
for the development of oil assets in the geographical area included in the oil
asset territory in which the Partnership has participation rights, regardless of
whether said oil assets are subject to leases or licenses or preliminary permits
to be issued to the Partnership in lieu, and areas adjacent to the oil assets
that will be included in said oil asset due to a change in border, with said
change of border being attributed to local geographical reasons.
In2014, the Partnership incurred expenses in the amount of $4,007 thousand,
for oil and gas explorations and amortization of oil and gas assets as follows:
Pelagic joint venture
Neta and Royee joint venture
Oz joint venture
Expenses for license in Hartrurim
Total
38
345
3,611
13
4,007
Regulation 20 – Trading on the Stock Exchange
On 18.8.2014, trading in securities of the Partnership was suspended briefly due to
publication of the Q2 2014 reports.
Regulation 21 – Payments to interested parties and senior officers
To date, the Limited Partnership does not employ employees or
officers. At the same time, in accordance with the Limited Partnership
Agreement and/or Trust Agreement, the Limited Partnership undertook
to pay the General Partner the following payments:
1) management fee in the amount of $37,000 per month plus VAT.
2) For annual premium for insurance policy, to the General
Partner's insurance and senior officers and employees, as well
as certain service providers, subject to the expressed written
approval of the Supervisor of the policy and of its scope.
3) Royalty of 10% of every share of the Limited Partnership in oil
and/or gas and/or any other valuable substance to be produced
and used from the oil assets or future assets in which the
Limited Partnership has an interest (based on the calculation
and on the basis that it will pay a royalty to the government in
accordance with the Petroleum Law).
4) With regards to the Partnership's oil assets, the General Partner
or any of its agents will be entitled to an Operator Fee at a rate
of 7.5% (plus VAT) of total Partnership expenses (dollar based)
for oil exploration and/or development and/or production,.
5) $40,000 for assistance in managing the preparation of each
offer in which framework a gross sum of at least $500 thousand
was raised.
b. In accordance with the Trust Agreement, the Supervisor will be entitled
to receive from the Trustee, from the Trustee assets and/or Limited
Partnership assets, a monthly salary at a sum equivalent on the date of
payment to US$2,200 per month (plus VAT).
Furthermore, should the offer in which a gross sum of at least US$500
thousand was raised, the Supervisor will be entitled to an addition
salary for the extra work involved in the offering. The additional salary
will be paid for actual work performed based on the rates per hour
generally accepted by the Supervisor (in a sum equivalent to US$75
(plus VAT) per work hour) and up to a sum equivalent to US$ 10,000
(plus VAT) plus reimbursement of expenses based on the rate for
maintaining one offering, or a higher sum to be approved in the general
meeting of holders of units via special decision.
a.
c.
In accordance with the Trust Agreement, the Supervisor will be entitled
to an addition salary for the extra work involved in the offering. The
additional salary will be paid for actual work performed based on the
rates per hour generally accepted by the Supervisor (in a sum
equivalent to US$75 (plus VAT) per work hour) and up to a sum
equivalent to US$ 10,000 (plus VAT) plus reimbursement of expenses
based on the rate for maintaining one offering, or a higher sum to be
approved in the general meeting of holders of units via special decision
d. In accordance with the Trust Agreement, the trustee will be entitled to
receive from the trust assets a salary equivalent to $1,000 per year
(plus VAT) for every year in which he serves as trust (or a relative
share of this sum for part of the year)
e. In accordance with the Limited Partnership Agreement, the Limited
Partnership paid the General Partner in 2014 a sum of $444 thousand
for management fees and in 2015, as of the report date, a sum of $74
thousand for management fees.
f. In accordance with the Limited Partnership agreement, the Limited
Partner paid the General Partner in 2014, a sum of $300 thousand for
operator fees and in 2015, as of the report date, $0 dollars.
g. In accordance with the Trustee Agreement, the Supervisor was paid,
from the Trust Assets in 2014, an annual salary of $27 thousand and
in 2015, as of the report date, a sum of $5 thousand.
Regulation 21a – Control of the Partnership
The controlling shareholder in the Partnership is Israel Opportunity Oil and
Gas Explorations Ltd – The 'General Partner in the Partnership.
General Partner shares are held by Capernaum Finance SA (Hereinafter
Capernaum) (35.30%), Halman-Aldubi Energy Ltd. (30.08%), Rony Halman
(Chairman of the Board of Directors of the General Partner) (1.31%), Uri
Aldubi (director in the General Partner) (1.31%), Halman-Aldubi Holdings Ltd.
(2.62%) (Halman-Aldubi Energy Ltd and Halman Aldubi Holdings Ltd. are
jointly owned companies, directly and through companies, equally by Rony
Halman and Uri Aldubi) (Halman-Aldubi Energy Ltd., Rony Halman and Uri
Aldubi will jointly be known as the Halman Aldubi Group) and by several
other shareholders. Between Capernaum and the Halman-Aldubi Group is a
signed shareholders agreement that refers to both the companies controlled
by the Halman-Aldubi Group as authorized transferees, as defined in the
agreement) that regulates the relationship between them as shareholders in
the General Partner.
Regulation 22 – Shareholder Transactions
See Regulation 29a below.
Regulation 24 – Holdings of Interested Parties and Officers
For a description of the state of holdings of interested parties in Partnership
securities as of 28.2.2015, see the Immediate Report from 3.3.2015 regarding
the status of the interested party holdings (Reference 2015-01-042877). The
information appearing in said report is introduced here by way of reference.
Regulation 24a – Registered Capital, Issued Capital and Convertible
Securities
As of the date of the signing of the report, there are 746,342,673 participation
units of NIS 1 n.v. per unit.
Regulation 24b – Shareholders Registry
The Shareholders registry of the Partnership as of the report date, see
Immediate Report from 31.12.2013 (Reference 2013-01-115051). The
information appearing in said report is introduced here by way of reference.
Regulation 25a – Address and Telephone Numbers
Email:
maya_g@oilandgas.co.il
Telephone:
03-6116111
Fax:
03-6116110
Regulation 26 – Corporate Directors
The Limited Partnership does not have directors and is managed by the
General Partner. Below is a list of the members of the Board of Directors of
the General Partner in the Limited Partnership
Name
1
2
ID No.
Position in General Partner
022013569
Director
Menachem
Marder
051644219
Director
3
4
Date of Birth
Mailing address
documents
5
6
Citizenship
Member
on
Board
of
Directors Committee
Outside director
If so, does he have the
accounting
or
financial
expertise or professional
competency
If so, is he an expert outside
director
If not, is he competent to be
appointed as an independent
director
Does he work with the
General Partner, subsidiary
or is an interested party
Start date of position as
director
Education
Israeli
No
16.9.1965
2 Ben Gurion St.
Ramat
Gan
52572
Israeli
No
9.2.1953
21
Professor
Shor Street, TelAviv 6296124
Israeli
No
No
No
No
No
No
No
No
No
No
No
No
No
7
8
9
10
Rony Halman
for
059796276
Chairman of the
Board of Directors
3.6.1965
legal 2 Ben Gurion St.
Ramat Gan 52572
Uri Aldubi
Director in Halman- CEO and Director No
Aldubi Energy Ltd.
at Halman-Aldubi
Energy Ltd.
7.2.2010
7.2.2010
22.4.2013
Ph.D – Faculty of
Management , TelAviv
University:
Specialization:
Agent cost and
psychology
of
financial markets
MBA in Business
Administration
with
specialization in
financing,
TelAviv University
BA
in
BA in Economics
and Accounting,
Tel-Aviv
University
MBA in Business
Administration,
specialization in
11
12
MA in Business
Administration,
specialization
in
financing
and
accounting,
TelAviv University
Graduated
with
honors
BA in math and
computer science,
Tel-Aviv University,
with honors
Occupation over past five Founder and owner
years
of the HalmanAldubi Group
Former Chairman
of the Board of
Directors
of
Halman-Aldubi
Provident
and
Pension Fund Ltd.
Former Chairman
of the Board of
Directors of the
Halman-Aldubi
Mutual Funds Ltd.
Former
CEO
Halman-Aldubi
Provident
Funds
Ltd.
Chairman of the
Pension
Funds
Association
in
Israel
Other corporations in which Halman-Aldubi
he serves as director
Provident
Funds
Ltd., Halman-Aldubi
Finance
Ltd,
Halman-Aldubi
Energy
Ltd.,
Halman
Backup
Sites Ltd. Halman
Investments
Ltd,
ERM
Gal
Consulting
and
Trade
Ltd.
CO
Cyprus Opportunity
Energy
Public
Company
Management and financing Tel-Aviv
Economics, Tel- University
Aviv University
Founder
and
owner
of
the
Halman-Aldubi
Group
Former CEO and
currently
Chairman
of
Halman-Aldubi
Finance Ltd.
Former
CEO
Halman-Aldubi
Pension
Funds
Ltd.
Chairman of the
Association of Oil
and
Gas
Exploration
Industries
in
Israel
Provision
of
consulting
and
management
services
Halman-Aldubi
Provident
and
Pension
Funds
Ltd.;
HalmanAldubi
Finance
Ltd.,
HalmanAldubi
Pension
Insurance Agency
2005)
Ltd.
Halman-Aldubi
Holdings
Ltd.,
Hadas
Arazim
Pension
Insurance Agency
(2008) Ltd.
Atid
Ventures
Ltd.,
HalmanAldubi
Energy
Ltd.,
Aldubi
Holdings
Ltd,
ERM
Gal
Mamter Business
Consultants Ltd,
Garam Maatafot
Ichut
Ltd.,
Menora
Underwriters and
Management
Ltd., Kamor Ltd.,
Agri Invest Ltd.
13
14
Is he a relative of an No
interested party in the
General Partner
Doles the General Partner Yes
see him as having accounting
and financial expertise for
compliance with the minor
number set forth by the Board
of Directors in accordance
with Article 92(a)(120 of the
Companies Law, 1999
Consulting
CO
Cyprus
Opportunity
Energy
Public
Company
No
NO
Yes
Yes
Regulation 26a Senior Officers
The Limited Partnership the Limited Partnership does not employ employees
or officers. At the same time, in accordance with the Limited Partnership
Agreement (for information about the directors of the General Partner in the
Limited Partnership, see Regulation 26 above)
Rony Halman serves as Chairman of the Board of Directors of the General
Partner (for information see Regulation 26 above).
Eyal Shuker serves as CEO of the General Partner, Gil Soltan as CFO of the
General Partner and Ronen Artzi as internal auditor of the General Partner.
Below are the details
Name
ID No.
Date of Birth
Start date of position
Interested
party
in
the
corporation or relative of senior
officer or interested party in the
corporation
Posiiton
Eyal Shuker
033901307
22.03.1977
7.2.2010
No
CEO
General
Partner
Education
MBA in Business
Administration,
specializing
in
finance,
Bar-Ilan
University
BA in Economics
and
Business
Administration, BarIlan University
Business experience over past Investment manager
5 years
–
Halman-Aldubi
Provident
and
Pension Funds Ltd.
Manager
of
the
Trade Department –
Halman
Aldubi
Group
Head of the Vietnam
Desk – HalmanAldubi Group
Gil Soltan
024490898
15.7.1969
10.7.2014
No
Ronen Artzi
54127055
5.11.1957
16.5.2013
No
CFO
of
the
General Partner
BA in Accounting
and
secondary
specialization
in
financing, College
of Management
CPA
Internal auditor
Manager of the
accounting form
of Gil Sultan
Partner manager
Internal Audit and
Risk Management
Department Schef
Hezenfretz,
consulting, control
since 2011
Manager
of
internal
audit,
manager
of
internal
audit
department 20052010
Certified internal
auditor,
Haifa
University
Graduate
study
work
Tel-Aviv
University
Regulation 26 – Independent Authorized Signatories as to be set forth
by the Corporation
None
Regulation 27 – Corporation's Accountant
Kost Forer Gabbai and Kaiserer, Aminadav 3, Tel-Aviv
Regulation 28 – Changes in the MOU or Articles
The articles of association of the Limited Partnership are:
Limited Partnership agreement signed between Israel Opportunity - Oil and
Gas Exploration Ltd. as a General Partner in the Limited Partnership between
Israel Opportunity – Oil and Gas Explorations Ltd. as a limited partner in the
Limited Partnership on 10.2.2010, and its amendments (Hereinafter The
Partnership Agreement)
The Trust Agreement signed between Israel Opportunity – Oil and Gas
Exploration Ltd. – the Limited partner in a Limited Partnership and the
Commissioner on 10.2.20120 and its amendments (Hereinafter The Trust
Agreement).
Regulation 29 – Director Recommendation and Decisions
Below are recommendations by the Board of Directors of the General Partner
before the general assembly, as well as Board of Director Decisions for the
General partner, that do not require approval of the general assembly, as
pertains to the following:
a. Payment of dividend (final and interim) and distribution of bonus shares
none
b. Changes in registered or issued capital of the corporation\
None
c. Change in MOU or Articles of Incorporation of the Corporation
The Limited Partnership's articles of association are the Partnership
Agreement and Trust Agreement.
In 2014, no changes were made to said documents.
d. Redemption of shares
None
e. Early redemption of bonds
None
f. Business not in the regular course of business between the corporation
and interested party
None
g. General Assembly resolutions on the aforementioned issues – that
were not accepted in accordance with the recommendations of the
board
None
h. Special general assembly resolutions
None
Regulation 29a – Company Decisions
For information on liability insurance for directors and senior officers,
see Note 4 of the Financial Statements.
Date 16.3.2015
_______________________________________________
Israel Opportunity – Energy Sources, Limited Partnership
______________________________________________________
Rony Halman, Chairman of the Board of Directors, General Partner
______________________________
Uri Aldubi, Director, General Partner
i.
Chapter E
Annual Report on Assessment of the Board of Directors and Management on the
Effectiveness of Internal Control
Hereby attached is a quarterly report regarding the effectiveness of internal control over
financial reporting and of disclosure in accordance with Regulation 9b) of the Securities
Regulations (Periodic and Immediate Reports) 5730-1970 for the second quarter 2014:
Management in regulation of the Board of Directors of the General Partner in Israel
Opportunities – Energy Resources, Limited Partnership (Hereinafter: The General Partner
and the Partnership, respectively), is responsible for establishing and complying with
satisfactory internal control over the financial reporting and on disclosure in the Partnership.
For this purpose, the members of management in the General Partnership are:
1. Rony Halman, Chairman of the Board of Directors The General Partnership
2. Eyal Shuker, CEO of the General Partnership
3. Gil Soltan, CFO of the General Partnership
Internal control over financial reporting and of disclosure includes existing controls and
regulations in the Partnership that were planned by the CEO and highest ranking officer in
finance or under its supervision, or by anyone who actually performs said positions, under the
supervision of the board of directors of the General Partner, that is designed to provide
reasonable assurance of the credibility of the financial reporting, and the preparation of the
reports in accordance with the provisions of the law, and to ensure that the information that
the Partnership is required to disclose and publish in accordance with the provisions of the
law are compiled, processed, summarized and reported on time and in the format as
prescribed by law.
The internal control includes, inter alia, controls and regulations that were designed to ensure
that this information that that Partnership is required to disclose, as specified, was compiled
and processed for the management of the General Partnership, including the CEO, and for
the highest ranking officer in finance or anyone who actually performs said positions, in order
to enable decisions to be made on time, with regards to the requirements for disclosure.
Due to its structural limitations, the internal control of financial reporting and on disclosure is
not designed to provide absolute security that misrepresentation or omission of information in
the reports will be prevented or discovered.
Management, under the supervision of the Board of Directors, conducted ad review and
assessment of the internal control over financial reporting and on disclosure in the corporation
and of its effectiveness.
The assessment of the effectiveness of internal control of financial reporting and disclosure
that was conducted by management under the supervision of the Board of Directors:
components of internal control that management assessed under the supervision of the Board
of Directors as part of the assessment of the effectiveness of internal control included
management of cash and short-term investments, preparation and finalization of financial
statements, investment in gas and oil assets, ITGC (information systems) and ELC (control
on the organizational level).
Based on the assessment of the effectiveness conducted by management under the
supervision of the Board of Directors as specified above, the Board of Directors and
management of the General Partner concluded that the internal control over financial
reporting and disclosure in the Partnership as of 30 June 2014 is effective.
As of the date of the report, no event or matter was brought to the attention of the Board of
Directors and Management that could change the assessment of the effectiveness of the
internal control as introduced as part of the annual report regarding internal control in the
organization.
As of the report date, based on the assessment of effectiveness of internal control in the
annual report regarding internal control in the organization, and based on the information
introduced to management and the Board of Directors, as specified above, the internal control
is effective.
Managers Declaration
(A)Declaration of the General Manager in accordance with Standard
38c(d)(1)
Declaration of the Chief Executive Officer
I, Eyal Shuker, do hereby declare that:
1. I reviewed the quarterly report of Israel Opportunity – Energy Resources, Limited
Partnership (Hereinafter: The Partnership) for the second quarter of 2014
(Hereinafter: The reports).
2. In my opinion, the reports do not include any material misstatement of fact and did
not omit any material fact needed in said presentations, in light of the circumstances
in which they were included in the presentations, there will be no material
misstatement for the report period.
3. In my opinion, the financial statements and other financial information that is included
in the report accurately reflect, in every material respect, the financial position,
operational results and cash flows of the Partnership for the dates and periods
referred to in the reports.
4. I disclosed to the auditor of the Partnership and to the Board of Directors of the
General Partner in the Partnership, based on my updated assessments regarding
internal control of financial reporting, and on the disclosure:
a. All material deficiencies and material weaknesses in the establishment or
implementation of the internal control of financial reporting and on disclosure
that might reasonably negatively affect the Partnership's ability to compile,
process, summarize or report financial information that might place in doubt
the credibility of the financial reports and preparation of financial reports in
accordance with the provisions of the law, and
b. Any fraud, material or immaterial, that involved the CEO or any of its
subordinates, directly or that involved other employees who play a significant
role in internal control of financial reports, and on disclosure;
5. I, alone or with others in the General Partner, in the Partnership:
a. Established controls and regulations, or made sure of their establishment and
implementation f controls and regulations under my supervision, designed to
ensure the material information that refers to the Partnership is brought to my
attention and to the attention of others of the General Partner in the
Partnership, particularly during the preparation of the reports; and
b. Established controls and regulations, or made sure of the establishment and
implementation of controls and regulations under my supervision, designed to
reasonably assure the credibility of the financial reports and preparation of
the financial statements in accordance with the provisions of the law,
including in accordance with generally accepted accounting principles.
c. I assessed the effectiveness of the internal control of financial reporting and
disclosure, and presented in this report the conclusions of the Board of
Directors and Management regarding the effectiveness of the internal control
as of the report date.
The aforementioned does not derogate from my responsibility or the responsibility of any
other individual, in accordance with the law.
______________________
16 March 2013
_______________________
Eyal Shuker CEO
Of the General Partner in the Partnership
(A) Declaration of the Senior officer in accordance with Standard
38c(d)(2)
Declaration of the Highest Ranking Officer in Finance
I, Gil Soltan, do hereby declare that:
1. I reviewed the quarterly report of Israel Opportunity – Energy Resources, Limited
Partnership (Hereinafter: The Partnership) for the second quarter of 2014
(Hereinafter: The reports).
2. In my opinion, the reports do not include any material misstatement of fact and did
not omit any material fact needed in said presentations, in light of the circumstances
in which they were included in the presentations, there will be no material
misstatement for the report period.
3. In my opinion, the financial statements and other financial information that is included
in the report accurately reflect, in every material respect, the financial position,
operational results and cash flows of the Partnership for the dates and periods
referred to in the reports.
4. I disclosed to the auditor of the Partnership and to the Board of Directors of the
General Partner in the Partnership, based on my updated assessments regarding
internal control of financial reporting, and on the disclosure:
a. All material deficiencies and material weaknesses in the establishment or
implementation of the internal control of financial reporting and on disclosure
that might reasonably negatively affect the Partnership's ability to compile,
process, summarize or report financial information that might place in doubt
the credibility of the financial reports and preparation of financial reports in
accordance with the provisions of the law, and
b. Any fraud, material or immaterial, that involved the CEO or any of its
subordinates, directly or that involved other employees who play a significant
role in internal control of financial reports, and on disclosure;
5. I, alone or with others in the General Partner, in the Partnership:
a. Established controls and regulations, or made sure of their establishment and
implementation f controls and regulations under my supervision, designed to
ensure the material information that refers to the Partnership is brought to my
attention and to the attention of others of the General Partner in the
Partnership, particularly during the preparation of the reports; and
b. Established controls and regulations, or made sure of the establishment and
implementation of controls and regulations under my supervision, designed to
reasonably assure the credibility of the financial reports and preparation of
the financial statements in accordance with the provisions of the law,
including in accordance with generally accepted accounting principles.
c. I assessed the effectiveness of the internal control of financial reporting and
disclosure, and presented in this report the conclusions of the Board of
Directors and Management regarding the effectiveness of the internal control
as of the report date.
The aforementioned does not derogate from my responsibility or the responsibility of any
other individual, in accordance with the law.
______________________
16 March 2015
_______________________
Gil Soltan - CFO
Of the General Partner in the Partnership

Israel Opportunity – Energy Sources Limited Partnership Periodic

Transcription

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