Approval for Provision of a Guarantee – Block 12
Tel Aviv. Delek Group (TASE: DLEKG, OTCQX: DGRLY) further to section 1.11.10 in the Company’s Periodic Report for 2011 (Ref. 2012-01-088431), the Company hereby gives notice that on March 21, 2013 its Board of Directors approved provision of an unlimited performance guarantee in favor of the Republic of Cyprus, to secure all the undertakings of the subsidiary partnerships, Avner Oil Exploration LP and Delek Drilling LP (together: “the Partnerships”), pursuant to the Production Sharing Contract of October 24, 2008 (“PSC”), which grants oil and/or gas exploration, assessment, development and production rights in the economic waters zone of the Republic of Cyprus, in the area known as “Block 12” ("Block 12”).
Provision of the guarantee was approved on the demand of the Republic of Cyprus, following the Partnerships’ execution of the PSC on February 11, 2013 and the receipt by each of them of 15% of the rights in the exploration license in Block 12 (“the License ” ).
As a condition for assign of the License the government of Cyprus demanded, in accordance with the terms of the PSC , that an unlimited performance guarantee be provided in favor of the Republic of Cyprus, to secure fulfillment of the all the undertakings made in the PSC (“the Guarantee”), to be provided by the parent company. On the date of assignment of the rights as aforesaid, the Guarantee was provided by the subsidiary Delek Energy Systems Ltd. (“Delek Energy”), and the Partnerships undertook towards the government of Cyprus that that if the government of Cyprus should determine that the Guarantee of Delek Energy is insufficient according to the PSC, the Partnerships would ensure that the Republic of Cyprus was provided with a guarantee of the Company. Following assignment of the rights, a demand was received from the Republic of Cyprus for replacement of the guarantee of Delek Energy with a guarantee of the Company by April 20, 2013 .
As noted, the Board of Directors of the Company approved provision of the Guarantee in consideration of a guarantee commission by the Partnerships and on certain terms, principally these :
1. In consideration of provision of the Guarantee, the Partnerships will pay the Company a commission on an annual basis, commencing on the date on which the Company provides the Guarantee and as long as the Guarantee is in force. The annual commission to be paid in respect of the Guarantee in the first year will be USD 494,000 (Avner Partnership’s share – USD 270,000, and the Drilling Partnership’s share – USD 224,000), decreasing gradually over the life of the project. The commission was set in accordance with an evaluation of the Guarantee made by an external independent surveyor .
*1Such a guarantee is required, pursuant to the Concession Agreement, from each of the holders of rights in the License. Noble Cyprus also provided such a guarantee from its parent. For details about actions being taken in an attempt to arrive at liability- and indemnity-sharing arrangements among the rights holders, see section B(4) below.
*2The agreement between the Partnership and the Company is subject to the approval of a general meeting of the units in each of the Partnerships, excluding the terms noted in sections B(3) and C below.
2. Should the percentage of the Partnerships’ holding in Block 12 decrease, then the amount of the Guarantee commission will decrease proportionately. It was also agreed that if the Company is released entirely from the Guarantee, whether owing to identification of a substitute guarantor or owing to sale of the rights in Block 12 by the Partnerships, payment of the Guarantee commission will be halted immediately and the parties will turn to an independent assessor for calculation of the value of the Guarantee commission in respect of the early termination of the Guarantee .
3. Commencing on the date of provision of the Guarantee and as long as it remains in force, the Partnerships shall not approve a new work plan/s in Block 12 and/or in connection with any other activity in Block 12 by virtue of the Joint Operation Agreement with Noble Cyprus (“Work Plan in Block 12”), in the absence of (1) insurance covering takeover expenses of a well in which control was lost, including cover for personal injury and property damage and cleaning expenses stemming from accidental contamination risks in connection with the activities of the Partnerships in Block 12 to the satisfaction of the Company (loss of control of the well and third party liability); (2) proper approval of the competent organs of the Partnerships for the terms of the engagement with the Company, as noted above and below, and for the arrangements in the matter of payment of the Guarantee commission by the Partnerships to the Company .
4. In addition, the Partnerships undertook that commencing on the date of provision of the Guarantee and as long as it remains in force, the following provisions shall apply :
-1. The Partnerships will notify the Company in advance of any intention to approve a Work Plan in Block 12 .
-2. If the Partnerships sell their rights in Block 12, they will act to release the Company from the Guarantee or from its proportionate part (in the event of partial sale of the rights) as part of the sale, all subject to the provisions of the PSC and the decisions of the authorities in Cyprus on the matter. It is noted that sale of part of the rights in Block 12 will be possible only subject to mutual liability- and indemnity-sharing arrangements with the potential buyer of part of the rights, in respect of its proportionate part .
-3. The Company shall be entitled to demand of the Partnerships, by written notice at any time and at its discretion, that they ensure the release of the Company from the Guarantee. In the event of such a demand, the Partnerships undertook to take all requisite actions for release of the Company from the Guarantee, including, if and insofar as required of them for the Company’s release as aforesaid, the sale and/or waiver of all or part of their rights in Block 12, without need for further approvals in the Partnerships. In the event of such a demand, the Partnerships undertook that within 12 months of the date of the written demand, they will ensure the release of the Company from the Guarantee or alternatively, they will sign an agreement for the sale of the rights in Block 12. In the event of such a sale, the Partnerships undertook to complete the sale within six months of the date of execution of the sale agreement .
-4. The Partnerships will indemnify the Company for damages of any kind and/or expenses of any kind and/or payments borne by the Company (including legal expenses and/or fees and/or fees for experts), in respect of any claim or under demand Guarantee, the cause of which is related to the Guarantee and/or its realization, in an unlimited amount. Without derogating from the aforesaid, the Company undertook to deliver to the Partnerships, without delay, notice of the filing of such claim and/or demand as soon as it receives it, and to enable the Partnerships and/or whoever acts on their behalf to conduct a worthy legal defense as required in the opinion of the Partnerships, in the circumstances, against any such demand and/or claim and/or negotiations for a settlement, and/or to minimize the damages to the extent possible .
-5. Since the undertakings of each of the Partnerships and Noble Cyprus under the PSC are joint and several, the Partnerships will use their best efforts vis-à-vis Noble Cyprus and the parent of Noble Cyprus, Noble Energy Inc. (“Noble Inc.”), which provided a guarantee for its subsidiary, Noble Cyprus, pursuant to the PSC, to try to arrive at mutual liability- and indemnity-sharing arrangements between the Partnerships and the Company and Noble Cyprus and Noble Inc., in everything relating to operations in Block 12 and to the percentages of the holdings of rights in Block 12, and will brief the Company on all the actions being taken for the formulation of such an agreement .
-6. The Partnerships will submit to the Company a copy of any decision and/or notice of the Cypriot authorities relating to the PSC and/or the Guarantee, immediately after such decision is made and/or such notice is given, and will ensure that the Company is advised of any event that could, to the best of their knowledge, lead to realization of the Guarantee .
-7. In the event that the general meetings in the Partnerships do not give their approval for the Partnerships’ engagement with the Company on the terms described in this report and for the arrangements concerning payment of a guarantee commission to the Company, the Partnerships undertook to take the actions required for release of the Company from the Guarantee. Until the Company’s release from the Guarantee, the Partnerships undertook that they would not approve a Work Plan in Block 12 in the absence of insurance as noted above .
The partners in Block 12 and the percentage of their holdings in the license :
Noble Cyprus - 70%
Avner Oil Exploration - Limited Partnership - 15%
Delek Drilling - Limited Partnership - 15%
This is a convenience translation of the recent HEBREW immediate report issued to the Tel Aviv Stock Exchange by the Company on March 24, 2013.
About The Delek Group
The Delek Group, Israel’s dominant integrated energy company, is the pioneering leader of the natural gas exploration and production activities that are transforming the Eastern Mediterranean’s Levant Basin into one of the energy industry’s most promising emerging regions. Having discovered Tamar and Leviathan, two of the world’s largest natural gas finds since 2000, Delek and its partners are now developing a balanced, world-class portfolio of exploration, development and production assets with total gross natural gas resources discovered since 2009 of approximately 33 TCF .
In addition, Delek has built an extensive network of global downstream assets, including 1,900 gas stations and convenience stores in the U.S., Europe and Israel, and petroleum refineries in the U.S. Delek also holds significant interests in leading water desalination, power generation, insurance and automotive companies .
In 2012, the Company’s revenues were NIS 72 billion ($ 19 billion). Delek Group’s shares are traded on the Tel Aviv Stock Exchange (TASE: DLEKG) as part of the TA25 Index.
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