Delek : Tau Drilling Resources Report

Title Update on Prospective Resources Report for Trial well Tau-1

Tel Aviv, June 30, 2019. Delek Group (TASE: DLEKG, US ADR: DGRLY) ("the Company") further to what was stated in section 1.8.6(c)(2) of the Company's 2018 Periodic Report that was published on March 31, 2019 (ref. no. 2019-01-029344),the Company's Immediate Report dated May 13, 2019 (ref. no. 2019-01-2019) concerning the exploratory well for the Tau prospect in Blocks 336 and 351 in the Ship Shoal area in the Gulf of Mexico, a Prospective Resources Report of the Tau rights in the areas where the Tau prospect is located ("the Rights" and "Tau Prospect", respectively) following the end of drilling operations at this time at the Tau-1Well1.

The attached Prospective Resources Report is based inter alia on data from the Tau-1 well, where drilling has now been stopped, from the results of reprocessing (2018) of the seismic survey, data from nearby oil and gas fields and wells, and on geological and engineering information from the region and around the world. On account of these the targets of the Tau prospect have been redefined and re-characterized.

According the report the Company has received from Netherland, Sewell & Associates Inc. ("NSAI" or "the Appraiser"), which was prepared according to the SPE-PRMS rules, as of June 1, 2019 and which is attached as appendix A to this report ("NSAI Report"). The prospective resources in the rights in which the Tau Prospect is located, including six main target layers, as detailed below:

Target

Total Oil Asset (Gross)

Total share of Company 2 (Net)

layer

Low

Best

High

Low

Best

High

Estimate

Estimate

Estimate

Estimate

Estimate

Estimate

(1U)

(2U)

(3U)

(1U)

(2U)

(3U)

M1

Oil

2.8

8.3

19.0

2.1

6.2

14.3

MMBBL

Lower

Gas

4.7

14.1

32.3

3.5

10.5

24.2

BCF

MMBOE

3.6

10.7

24.4

2.7

8.0

18.3

1. On June 6, 2019 the well operator, Gulf Slope Energy, ("the Operator") completed all the (temporary) plugging works at the well and the Ralph Coffman drilling platform left the drilling area and the rental contract for it was terminated. The formal name of the well is SS336-1.
2. The calculation is made at the participation percentage of 75%.

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Target

Total Oil Asset (Gross)

Total share of Company 2 (Net)

layer

Low

Best

High

Low

Best

High

Estimate

Estimate

Estimate

Estimate

Estimate

Estimate

(1U)

(2U)

(3U)

(1U)

(2U)

(3U)

	Oil
	MMBBL
M1A	Gas
	BCF
	MMBOE
	Oil
	MMBBL
M3	Gas
	BCF
	MMBOE
	Oil
	MMBBL
M4	Gas
	BCF
	MMBOE
	Oil
	MMBBL

M5 Gas

BCF

MMBOE

Oil

MMBBL

M6	Gas
	BCF

MMBOE

	9.0			28.1		74.2		6.7		21.1		55.6
	15.3			47.7		126.1		11.4		35.8		94.6
11.6			36.1		95.2		8.6		27.1		71.4
	8.5			29.1		71.2		6.4		21.8		53.4
	14.4			49.5		121.1		10.8		37.1		90.8
	10.9			37.4		91.4		8.2		28.0		68.5
	4.6			18.0		51.2		3.5		13.5		38.4
	7.9			30.7		87.1		5.9		23.0		65.3
5.9			23.1		65.7		4.5		17.3		49.3
	11.0			48.3		151.7		8.3		36.2		113.8
	18.7			82.1		258.0		14.1		61.6		193.5
	14.1			65.0		194.7		10.7		46.5		146.1
	13.4			53.0		163.3		10.1		39.8		122.5
	22.8			90.1		277.6		17.1		67.6		208.2
17.2			68.0		209.6		13.0		51.1		157.2

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1. The Resources Report was prepared inter alia based on data from the Tau-1 well, the D3 seismic survey carried out in 2003-2005 by TGS, which were reprocessed in 2018, and based on data from nearby production fields and wells, and on geological and engineering information from the area and around the world.
2. Below are the basic parameters for calculating the various scenarios:

Parameter

Area (acres)

Average Net

Porosity (decimal)

Thickness (Feet)

	Low	High
	Estimate	Estimate
M1 Lower	377	1,026

Low

Estimate

25

High	Low	High
Estimate	Estimate	Estimate
75	0.28	0.32

M1A		311		1,254		100		250		0.27		0.31
M3		551		1,380		50		250		0.23		0.27
M4		271		1,102		50		250		0.23		0.27
M5		672		3,831		50		250		0.21		0.25
M6		813		4,009		50		250		0.21		0.25

	Parameter	Saturation		Formation Volume	Recovery Factor
		(decimal)		Factor (RB/STB)3	(decimal)
		Low	High	Low	High	Low	High
		Estimate	Estimate	Estimate	Estimate	Estimate	Estimate
	M1 Lower	0.70		0.80	1.77	1.77	0.15	0.45
	M1A	0.70		0.80	1.76	1.76	0.15	0.45
	M3	0.70		0.80	1.76	1.76	0.15	0.45
	M4	0.70		0.80	1.76	1.76	0.15	0.45
	M5	0.70		0.80	1.76	1.76	0.15	0.45
	M6	0.70		0.80	1.76	1.76	0.15	0.45

3 The ratio between the volume of a barrel at the field and the volume of a barrel at the surface.

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1. Material risks associated with continuation of the process
   The material risks involved in this stage of operations in the rights are related to the risks that the rights will not be extended by the regulator, since the partners in the rights will decide for various reasons not to continue with the exploratory and development process in them, and/or will not succeed to meet the timetable required to retain the rights. In addition, if a decision is taken to carry out additional drilling in the rights, there are technical and operative risks, including those related to problems in the drilling. If the technical and operational actions will be completed, the risks in the continuation of the process required to reach commercial findings are, inter alia, that the features of the field and/or the oil and gas in it, if found, will not be high enough to allow a commercially viable flow, costs of developing the prospect, and others.
2. Estimated probability of success of each of the risk factors involved in the oil exploration process, and the probability of overall geological success, according to the Appraiser's report, are as follows:

Target

layer

M1

M1A

M3

M4

M5

M6

Parameter / Probability of success (in %)			Total
									probability
Trap		Reservoir		Source		Timing
Integrity		Quality		Evaluation		/Migration			of success
70		90		100		80		50
70		90		100		80		50
65		70		100		80		36
70		70		100		80			39
50		60		100		70		21
50		60		100		70		21

5. Estimate of the probability of development for commercial production:

AS of this report date, the Company cannot provide a reliable statistical estimate of the probability of developing the Tau Prospect for commercial production. Furthermore, in the Resources Report it is stated that assuming there will be a discovery in the drilling and based upon the development of similar oil and gas fields in the area and around the world, the prospective resources in the Best Estimate category have a reasonable chance of becoming commercially viable. The potential market for these resources is mainly the local market (USA) and also the international one, and therefore the Company will assess in the future, if there will be drilled at the Prospect an additional well in which oil and natural gas will be discovered in commercial quantities, various alternatives to commercialize the findings. It should be noted that as part of assessing the potential for commercial production, if and when there shall be such, the possibility of combining development of the discovery, if there will be

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one, together with the development of nearby oil and gas fields will be assessed.

1. Reasons of the Company concerning the basis for the basic parameters employed in the calculation of the scenarios:
   The parameters used in the calculation of the various estimates are based, inter alia, on the results of the Tau-1 Well, where drilling has been stopped at this time at a depth of 15,254 feet, on the recommendation of the Operator of the Well, Gulf Slope Energy, on the 2018 seismic survey and the results of the reprocessing, on data from nearby oil and gas wells, and on geological and engineering information from the area and around the world.
   Warning - there can be no certainty that any part of the prospective resources mentioned will be discovered. If they are discovered, there is no certainty that it will be possible commercially to produce anything from the resources. The prospective information is not an assessment based on reserves and contingent resources that will only be able to be assessed after a test drilling, if at all.
2. Comparison between details about the prospective resources reported in the NSAI report of January 4, 2018 ("the Previous Report") and the details provided in this report
   Based on an analysis of the results from the Tau-1 well and based on the reprocessing (2018) of the seismic survey, whose results were received during drilling works at the Tau-1 well, the targets of the Tau prospect have been redefined and re-characterized:
   Target M1 has been divided into two parts, upper and lower, with the upper part having been drilled at the Tau-1 Well and found not to contain oil and gas in quantities that justify commercial production. Therefore, the quantity of prospective resources in the lower part (M1 Lower), which have not yet been drilled, is 3.6 MMBOE at the low estimate, 10.7 MMBOE at the best estimate (1U), 10.7 MMBOE at the best estimate (2U), and 24.4 MMBOE at the high estimate (3U), as compared with the values of 15.4, 55.9 and 136.6 MMBOE that were reported for the entire target MI (upper and lower) in the Previous Report.

The area of target M1A has been significantly reduced on account of the findings of the processing of the seismic survey and the drilling; having said which, the quality of sands discovered at the Tau-1 Well was better than expected. Accordingly, the quantity of prospective resources in the lower estimate (1U) has been reduced from 13.4 to 11.6 MMBOE, but has grown from 34.1 to 36.1 MMBOE in the better estimate (2U), and has grown from 76.3 to 95.2 MMBOE in the high estimate (3U).

The area of target M3 has been significantly reduced on account of the findings of the processing of the seismic survey and the drilling; having said which, the quality of sands discovered at the Tau-1 Well was better than expected. Accordingly, the quantity of prospective resources in the lower estimate

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