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Agreement with Dalia Power Energies Ltd. for the Sale of Natural Gas

Tuesday, Jan 10, 2012

Delek Group (TASE: DLEKG, OTCQX: DGRLY) (“the Company”) announced that the following report was published by its Delek Drilling – Limited Partnership and Avner Oil Exploration subsidiaries:

We hereby announce that on January 8, 2012, an agreement for the supply of natural gas was signed between the partnership and other partners of the “Tamar” lease [“sellers” or “Partners” and “Tamar project” respectively] and Dalia Power Energies Ltd. [“Dalia”], under which Dalia will purchase, from the sellers, natural gas for the purpose of operating a power station which it plans to construct [“supply agreement”].

According to the supply agreement, the sellers are committed to supply Dalia with up to 1.38 BCM [billion cubic meters] per year of natural gas for a period of 17 years, starting from the beginning of commercial operation of the power plant that Dalia plans to build [“basic agreement period”], or until Dalia has consumed the volume of gas provided by the agreement, the earlier of the two. The parties have the right to extend the supply agreement period, by up to two more years, if up to said date, not all volumes as provided by the agreement have been consumed.

Dalia is committed to “take or pay,” an annual minimum volume of gas, in a volume and in accordance with a formula provided by the supply agreement.

The price of gas provided by the agreement will be determined according to a formula that is based primarily on the cost of generating electricity, as fixed, from time to time, by the Public Services Authority-Electricity, including a “floor price” for the price of gas.

The “Tamar” project partners estimate that total revenue from the sale of gas to Dalia [vis à vis 100% of the rights to the “Tamar” project], during the basic agreement period [on the basis of estimates prepared by the partners for gas prices over the supply period], may reach US$ 5 billion. It should be noted that actual revenue is a function of many factors, including the volume of gas that will be actually purchased by Dalia, and the cost of generating electricity.

The supply agreement includes a number of conditional terms, primarily – the closure of the financing of Dalia, financing of part of the partners share of the “Tamar” project [including the Partnership], and approval by the Antitrust Authority [if said will be required].

Based on this contract and as estimated by the Partnerships, gas supply is estimated to begin in the second half of 2014.

Source: Delek Group

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