Delek Energy Provides Update on the Drilling at Leviathan 1 Well

Wednesday, Sep 01, 2010

Delek Group (TASE: DLEKG ; OTCQX: DGRLY) subsidiaries Delek Energy Ltd., Delek Drilling L.P. and Avner Oil & Gas Exploration L.P. published yesterday, August 29, 2010, the following immediate report:

In accordance with the business strategy and exploratory program of the Partners, following the agreement signed with Noble Energy Mediterranean Ltd. (hereinafter: “Noble”) in 2009, for the rental of the Sedco Express drilling rig, following to the seismic research conducted from 2009, and following the immediate report dated June 3, 2010, on August 26, 2010 a meeting was held between the partners of the Ratio- Yam Licenses (Rachel, Amit, Hannah, David, and Eran). During the meeting, the operator of the licenses, Noble, presented the partners with a final budget and plan for drilling the first exploration well on the "Leviathan" Prospect, which is located in the Rachel and Amit Licenses. The partners endorsed the plan and budget as described below.

Drilling of "Leviathan 1" is planned on the Rachel License, about 135 km west of Haifa in a water depth of about 1,634 meters. Drilling is planned to 3 targets as follows:

A. The main target – Prospect NG10

The main objective in drilling "Leviathan 1" is a gas target located in Tertiary - Oligocene age sands (the equivalent sand layer identified during the drilling of the Tamar well called NG10) to a depth of about 5,095 meters (including water depth).

As previously reported, Noble estimates, based on seismic information in its possession, that the Gross Unrisked Mean Resource potential of natural gas in the NG10 prospect is about 16 TCF (about 453 BCM). This estimate does not account for the geologic probability of the existence of hydrocarbons in this prospect (Pg), which is estimated to be 50%.

B. Secondary objectives – Leviathan Deep Prospects Targets

After completing electric logs and other evaluations on the NG10 interval in the well, the drilling will be deepened for the purposes of collecting and testing of engineering and geological information, for the secondary goals which are listed below. It should be emphasized that the current information is significantly less than that which exists for the prospect NG10, and therefore very difficult to assess whether these targets may contain oil and/or gas and what would be their corresponding resource potential of the hydrocarbons in the prospect, and the probability of their existence. Based on the above it is stressed that it is highly unlikely that commercial quantities of oil and/or gas will be found.

This prospect is of the Lower Oligocene Age, at a total depth of about 5,800 meters, including water depth. Noble estimates based on seismic information in its possession, that the prospect’s Gross Unrisked Mean Resource is equivalent to about 3 billion barrels of oil. However, the probability does not include the geological probability of finding hydrocarbons in this prospect. The geologic probability of finding hydrocarbons at this prospect (Pg) is estimated at 17%.

The partners intend to continue drilling to Lower Cretaceous age layers, to a depth of about 7,200 meters (including water depth). Noble estimates based on seismic information in its possession, that the Gross Unrisked Mean Resource potential of oil or natural gas reserves is approximately equivalent to 1.2 billion barrels of oil. However, the probability does not include the geological probability of finding hydrocarbons in this prospect. The geologic probability of finding hydrocarbons at this prospect (Pg) is estimated at 8%.

Drilling is scheduled to begin during October 2010, using the Sedco Express drilling rig, and is anticipated to last five months. This well is planned to be the deepest well ever drilled into the sea off the coast of Israel, and there is limited data about pressure, reservoir and hydrocarbon source conditions that exist at the depths of the secondary targets.

In light of the above, or due to other technical considerations, the drilling rig may be replaced during the drilling of the deeper section with the Pride North America, which would continue to carry out the drilling operations. The Sedco Express drilling rig is expected to complete drilling for the Tamar development after it finishes drilling “Leviathan 1”.

It should be noted that in the event the Early Cretaceous layers are lower than anticipated or due to other drilling difficulties, it may be impossible to complete drilling the deeper targets using either of these rigs due to their technical limitations.

Upon completion of drilling, the partners may decide to implement production tests in case of a discovery in the well, and the Pride North America is designated to perform these tests.

The total budget approved by partners to carry out drilling "Leviathan 1" is $150 million (including the anticipated cost of mobilizing the drilling rigs). This does not include the cost of performing production tests, which would be approved by the partners in a separate budget.

Source: Delek Energy