Exhibit 10.1

 

Drilling Agreement

 

between

 

Zion Oil & Gas, Inc.

(“Operator”)

 

and

 

S.C. Daflog S.R.L.

(“Contractor”)

 

 

 

 

Table of Contents           Clause
Number   Heading   Page           1.   Definitions    3 2.   Further Wells    4
3.   Further Assurances and Headings    5 4.   Work to be Done, Location, Depth
and Commencement Date.    5 5.   Labour, Equipment, Materials, Special Tools,
Supplies and Services    5 6.   Sums Payable to Contractor    6 7.   Time of
Payment    7 8.   Stoppage of Work    8 9.   Right of Operator in Event of
Default by Contractor    8 10.   Casing Program    8 11.   Drilling methods and
practices    9 12.   Coring and cuttings   10 13.   Reports to be furnished by
Contractor   10 14.   Insurance and indemnity   10 15.   Taxes and Claims   14
15A   Value Added Tax   15 16.   Responsibilities and indemnity for loss of or
damage to equipment or hole   15 17.   Independent Contractor Relationship   17
18.   Compliance with Laws   17 19.   Force Majeure   18 20.   Information
Confidential   18 21.   Ingress and Egress to Location   19 22.   Conflicts and
Waivers   19 23.   Term   19 24.   Assignment and Sub-Letting   20 25.   Notices
  21 26.   Governing Law   21 27.   Patents and Licences   21 28.   Safety,
Health and Welfare   21 28A.   Environmental Protection   23 29.   Safety   24
30.   Right of Audit   25 31.   Amicable Settlement and Arbitration   25 32.  
Not used   26 33.   Suspension of Operations   26

 

Annexure I :   Drilling Order   28 Annexure II :  Rig and Rate Schedule   39
Annexure III : Drilling Program   41 Annexure IV : Rig Equipment Inventory   46
Annexure V :  Insurance Policy   57 Annexure VI : Rig Acceptance Test   60

 

 

 

 

Drilling Agreement

 

This Agreement made as of the 6th day of October 2016 (“Signing Date”)

 

Between

 

Zion Oil & Gas, Inc., a Delaware corporation exploring for oil and gas in
Israel, whose principal place of business is at 12655 North Central Expressway,
Suite 1000, Dallas, Texas 75243 (“Operator” and/or “Zion”)

 

and

 

S.C. DAFLOG S.R.L., a trading company incorporated and functioning according to
Romanian laws, whose registered office is at 17 Garii Street, Mediaş, Sibiu
county, Romania, with fiscal code RO 16418795, represented by Mr. Emanuel
Popescu, in his capacity as General Manager, and its Israeli Branch
(“Contractor”).

 

WHEREAS Operator is the owner of certain interests on properties on which it
desires to have a well or wells drilled, deepened and/or completed in search of
oil or gas and has requested Contractor to provide services for this purpose;

 

WHEREAS SC DAFORA S.A., a trading company incorporated and functioning in
insolvency according to Romanian laws, (“Dafora”), whose registered office is at
Str. Garii de Marfuri 17 551010 Medias, Romania, is the owner of certain oil or
gas well drilling equipment, including, but not limited to, Rig F-400 as
referenced in Annexure IV, of which certain components are currently located in
the State of Israel, and represents that it has adequate equipment in good
working order and fully trained personnel capable of efficiently operating such
equipment and represents that such equipment and personnel when contracted as
provided for hereunder to Operator shall be able to provide such drilling
services limited to the provisions and according to Contract No. 991 dated
October 6th 2016 exclusively for and on behalf of Operator in accordance with
Good Oil Field Practice (hereinafter defined), relevant laws and as hereinafter
provided; and

 

WHEREAS Dafora represents that it has the legal right under all applicable laws
to enter into, and it has entered into, Contract No. 991 dated October 6th 2016
with Contractor, by which the Rig (hereinafter defined), related equipment and
personnel identified and described in the Annexures attached hereto shall be and
is exclusively leased, rented or otherwise made available to and timely
delivered to Contractor to enable it to perform and fulfill each and all of its
obligations herein for the benefit of Zion limited to the provisions and
according to Contract No. 991 dated October 6th 2016 and as a potential third
party beneficiary of the present Contract.

 

NOW IT IS HEREBY MUTUALLY AGREED as follows:

 

1.Definitions

 

1.1“Agreement" means this Agreement including the Annexures I, II, III, IV, V
and VI.

 

1.2"Contract Drilling Depth" – as detailed under the Drilling Program;

 

1.3“Drilling Order” means the document annexed hereto as Annexure I.

 

1.4“Drilling Program” means the drilling program annexed hereto as Annexure III.

 

1.5“Option Drilling Program” means a program referred to in clause 2 which has
been executed by both parties.

 

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1.6"Good Oil Field Practice" means the practices, methods and acts engaged in by
professional and experienced producers of oil and natural gas in established
producing regions internationally, that would be expected to accomplish the
desired result in a manner consistent with law, regulation, reliability, safety,
environmental protection, economy and expedition. Good Oil Field Practice is not
intended to be limited to the optimum practice or method to the exclusion of all
others, but rather to be a spectrum of reasonable industry practices, methods
and acts, and includes, when referenced to operational matters, taking all the
professional steps to:

 

(a)provide adequate and appropriate materials, resources and supplies to meet
the needs of the operation, the Drilling Program and anticipated abnormal
conditions;

 

(b)provide sufficient operating personnel who are experienced and trained to
operate the equipment properly, efficiently and taking appropriate account of
manufacturers’ guidelines and specifications and are capable of responding to
abnormal conditions; The contractor is responsible to obtain any certifications
and/or authorizations required by any state authority in regard to the operating
personnel.

 

(c)conduct preventative, routine and non-routine maintenance and repairs on a
basis aimed at achieving the Drilling Program and reliable long-term and safe
operation taking account of manufacturers’ recommendations by knowledgeable,
trained and experienced personnel utilising appropriate equipment, tools and
procedures;

 

(d)conduct appropriate monitoring and testing to check that equipment is
functioning as designed and that equipment will function properly under both
normal and abnormal conditions; and

 

(e)operate equipment in a manner safe to workers, the general public, the
environment, plant and equipment and with regard to defined limitations.

 

1.7The “Indemnified Persons” means Operator and any joint venture participant
with Operator in any venture or joint venture for which Contractor is performing
services.

 

1.8“Net Cost” means only the cost incurred and paid directly by Contractor and
shall exclude any profit to or overhead of Contractor. In determining the Net
Cost on any item Contractor shall take advantage of all available cash trade and
other discounts, sales tax exemptions, allowances, refunds and commissions.

 

1.9“Rig and Rate Schedule” means the document annexed hereto as Annexure II and
includes any amendment to that document agreed to by the parties.

 

1.10“Rig” or “Drilling Rig” means the rig specified in Annexures II and IV.

 

1.11“Services” mean the services to be undertaken by Contractor pursuant to this
Agreement.

 

1.12“Mobilization Date” means the day on which the first loads of the Rig
Equipment are loaded onto trucks and depart the Contractor’s commissioning base
in Israel, for transport to the Operator’s first drilling location in Israel.

 

2.Term & Further Wells

 

2.1The term of this Agreement shall be for one well with up to two optional
wells at the sole discretion of the Operator. Prior to the execution of an
option well, Operator shall present a drilling plan (the “Option Drilling
Program”) with no less than thirty (30) days notice prior to the exercise of the
Option Drilling Program. Such Option Drilling Program shall set forth the
location, the depth to be drilled, specifications and all other necessary and
relevant conditions under which the well or wells are to be drilled and
completed.

 

2.2Such Option Drilling Program, if approved by Contractor, shall then become a
part of this Agreement and shall govern and control the drilling and completing
of the additional well or wells by Contractor for Operator.

 

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2.3Contractor shall not refuse to execute an Option Drilling Program, provided
that Option Drilling Program is provided to Contractor a minimum of 30 days
prior to the rig being released from the last well provided in the Drilling.
Subject to clause 18 of Annexure I, Operator has the option to require up to a
maximum of two (2) additional wells under the same terms and conditions as this
Agreement.

 

3.Further Assurances and Headings

 

3.1Each party shall perform the acts and execute and deliver the documents and
give the assurances necessary to give effect to the provisions of this
Agreement.

 

3.2The paragraph headings shall not be considered in interpreting the text of
this Agreement.

 

4.Work to be Done, Location, Depth and Commencement Date.

 

4.1Contractor agrees to drill and complete the designated wells at the site in
accordance with Good Oil Field Practice and all the provisions of this
Agreement.

 

4.2All work performed by Contractor shall be on the basis stipulated in the
Drilling Order, the Drilling Program and any Option Drilling Program which upon
execution thereof is made a part hereof. Unless otherwise provided, this shall
include drilling, coring and reaming of cored hole and all other work performed
on order of Operator.

 

5.Labour, Equipment, Materials, Special Tools, Supplies and Services

 

5.1Contractor shall furnish and use the drilling rig and equipment described in
the Drilling Order.

 

5.2All labour, equipment, materials, special tools, supplies and services
necessary or proper for the operation or maintenance of Contractor’s rig and
equipment and the drilling and completion of the well or wells shall be
furnished at the well site or sites by the party designated in the relevant
section of the Drilling Order.

 

5.3If Operator requests Contractor to provide certain labour, equipment,
materials, special tools, supplies or services which it is the responsibility of
Operator to provide as set out in the Drilling Order and Contractor agrees to
provide the same, Contractor shall be reimbursed by Operator for Contractor’s
actual landed cost of providing such requested equipment or services (as
appropriate) at the well site or sites plus ten (10) percent and ownership of
such equipment shall pass to Operator upon reimbursement of this cost. For
providing additional casual and roustabout labour in addition to what is
outlined in Annex II, Contractor’s actual landed cost at well site plus ten (10)
percent shall apply.

 

5.4Upon termination of this Agreement, Contractor shall return to Operator any
of Operator’s goods, chattels or equipment which are at that time in
Contractor’s possession in the same condition which they were in when received,
reasonable wear and tear excepted.

 

5.5Operator may at any time require Contractor to increase or decrease the
number of Contractor’s personnel used for the work or change the equipment used
for the work and the relevant rates provided therefore shall be adjusted
hereunder.

 

5.6Contractor shall nominate in writing one or more of its personnel as
Contractor’s representative who shall be in charge of Contractor’s personnel and
activities and who shall have full authority on behalf of Contractor to resolve
all day to day matters which arise between Operator and Contractor. Changes to
Contractor’s representative shall be notified to Operator in writing a minimum
of seven (7) days prior to when such changes are to be made.

 

5.7Contractor shall remove and replace in a reasonable time any of Contractor’s
personnel if Operator can show reasonable grounds for such a request and if
Operator so requests in writing.

 

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5.8Contractor shall be responsible at its own cost for maintaining adequate
stock levels of Contractor’s items and replenishing the same as necessary. The
provisions of Subclause 5.3 above shall apply accordingly.

 

5.9Should Contractor have fewer personnel on the Rig at any time than the number
specified as the minimum in the Drilling Order, as amended under the provisions
of Subclause 5.5 above, then Contractor shall give Operator short manning
credits as provided in Subclause 17(d) of the Drilling Order.

 

5.10Providing Personnel

 

Contractor shall have its personnel available at the proper drilling location or
at a mutually agreed place ready to conduct operations hereunder provided that
both Parties shall work together to obtain all visas, work permits and all other
government authorization or documentation required in connection with the entry
to, presence at and/or exit of Contractor’s Personnel from the Country of
Operating Area [Israel] ("Permits"). Except as hereinafter provided, Contractor
shall bear the costs related thereof, and Contractor shall be solely responsible
for and shall meet all costs incurred in connection with all other matters
relating thereto, including but not limited to the legal fees and bank
commissions resulting from the bank guarantees required to obtain the work
permits. Subject to prior notice to and approval by Operator, Operator agrees to
provide the bank guarantees as required by the Ministry of Labor, in connection
with such work permits. Contractor cannot be held responsible for any delay of
receiving the work permits after submitting the required documents to the
Operator, if such documents are submitted in a timely manner. Unless otherwise
agreed by both parties in writing beforehand, the Drilling Rig will not be
mobilized or rigged up on Meged 8 until the work permits for the required
personnel are in place.

 

6.Sums Payable to Contractor

 

6.1Subject to all of the other provisions of this Agreement, Operator agrees to
pay Contractor for the work performed, services rendered and the materials,
equipment and supplies furnished by Contractor as set out in this clause 6.
Fifty (50) percent of the lump sum for the Rig Commissioning specified in
Annexure I shall be paid by the Operator to the Contractor within five (5)
business days of receiving the Contractor’s confirmation, via a bill of lading
and confirmed ship manifest, of the Rig Equipment that is being shipped from
Romania to the rig commissioning site. Receipt of an original copy of the Bill
of Lading, detailing shipment departure for Israel, will be accepted by the
Operator as receipt of the above mentioned Contractor’s confirmation. The
remaining fifty (50) percent of the Rig Commissioning Fee shall be paid by the
Operator to the Contractor within five (5) working days after the Rig has
completed the Rig Acceptance Test on the first well to be drilled.

 

For work performed on a day work basis, the day work rate per twenty-four (24)
hour day shall be as set out in the Rig and Rate Schedule.

 

6.2If it is necessary to shut down the Rig for repairs while Contractor is
performing work on a day work basis, Contractor shall be allowed compensation in
the manner set out in clause 17(b) of the Drilling Order.

 

6.3When the Rig is shut down although in readiness to resume operations and
Contractor is awaiting orders of Operator or materials, services or other items
which Operator is obliged to furnish, Operator agrees to pay Contractor the
stand-by rate specified in section 2.E or 2.F of the Rig and Rates Schedule, as
applicable.

 

6.4The term “day work” as used in this Agreement refers to the work Contractor
is to perform at the stipulated sum per day (one day = 24 working hours). Unless
otherwise provided herein or in the Drilling Order, this shall include drilling,
coring and reaming of cored hole, drill stem testing, electric logging or
similar operations and all other work performed on order of Operator until
Operator releases the Rig.

 

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6.5The term “Shabbat Rate” as used in this Agreement refers to the time that
work is suspended in observance of the weekly Jewish Shabbat, other Holy Days
and Yom Kippur. Shabbat Rate shall commence 2 hours before the commencement time
of Shabbat and will terminate 2 hours after the end time of Shabbat as published
for the Tel Aviv area in the Jerusalem Post.

 

6.6For day work comprising less than a twenty-four (24) hour day Contractor
shall be paid the proper fractional part of the amount specified in the Rig and
Rate Schedule for a twenty-four (24) hour day. In determining the fractional
part of the day fractional parts of hours will be rounded to the nearest whole
half-hour.

 

6.7Notwithstanding any other provision of this Agreement, Operator shall not be
liable to pay Contractor any amount whatsoever during any period of delay which
may arise from the absence from the site of operations of any article of
equipment, personnel, materials or of any services which under the provisions of
this Agreement are to be furnished by Contractor. If events outside of
Contractor’s control, such as force majeure events, prohibit proper fulfilment
by Contractor of its obligations under this Agreement, Force Majeure, as defined
in this agreement, shall govern ongoing obligations of the Parties.

 

6.8Operator shall pay Contractor the Rig Commissioning and Demobilization fees
referenced in Subclauses 17(j) and 17(k) of the Drilling Order.

 

6.9The rates set out in the Rig and Rate Schedule are subject to escalation in
accordance with clause 18 of the Drilling Order.

 

7.Time of Payment

 

7.1Subject to compliance by Contractor with all the terms and conditions of this
Agreement, Operator agrees to make the payment to Contractor as set out in this
clause 7.

 

7.2Payment shall be due and payable by Operator of the amount of Contractor’s
invoice within thirty (30) days of receipt of Contractor’s invoice covering the
work performed and Services rendered by Contractor in accordance with the
relevant provisions of this Agreement. Invoices shall be submitted by Contractor
within ten (10) days of the end of the preceding month. Invoices are to have
adequate documentation including logs, timesheets and other relevant records
signed by Operator’s Representative, where applicable, and are to show the
appropriate address and other relevant details for payment. Operator has the
right to question invoices and require the correction of errors for up to one
(1) year after this Agreement is terminated (this provision complements the
audit rights specified in this Agreement). Interest shall be payable on overdue
invoices at five (5) percent per annum.

 

(a)If Operator in good faith disputes any item or part of an item shown on an
invoice, then Operator may withhold payment of such amount, provided that
Operator shall within twenty (20) working days from the receipt of Contractor’s
invoice give Contractor written notice of the dispute in details.

 

(b)Upon receipt of the notice of the dispute, Contractor will within three (3)
working days, provide such information as Operator will require to verify the
invoice.

 

(c)Within three (3) working day of the receipt of the information referred to in
clause 7.2(b), the parties will communicate with each other in a bona fide
attempt to resolve the dispute prior to the due date for the payment of the
invoice.

 

(d)If the dispute is resolved in favour of Operator, then Contractor will issue
an amended invoice within a further two (2) working days, and the Operator will
pay that invoice in full.

 

(e)When the dispute is resolved, whether by agreement or otherwise, the disputed
amount will be adjusted and payment made to give effect to the adjustment within
five (5) working days.

 

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8.Stoppage of Work

 

Operator shall have the right to direct the stoppage of work at any time prior
to reaching the depths specified in the Drilling Order. Operator shall have the
further right to require any well to be completed or abandoned at any depth in
any stratum within the Contract Drilling Depth. As soon as practicably possible
after the receipt of instructions from Operator, Contactor will discontinue the
drilling of any well and abandon or complete the same as Operator may direct. A
stoppage of work under this clause does not of itself constitute a termination
of this Agreement.

 

Operator shall not be liable to Contractor for any loss of anticipated profits
or damages for or on account of, or arising out of, any stoppage of work in
accordance with the provisions of this clause 8. Contractor shall only be paid
for services performed up to the date of the stoppage of work and, for the
subsequent period when work is thus suspended, with Standby with Crew Rate
unless otherwise specified in writing by the Operator.

 

9.Right of Operator in Event of Default by Contractor

 

In the event that Operator is dissatisfied on reasonable grounds with the
performance of Contractor, Operator shall give Contractor at least seven (7)
days written notice specifying in detail the matter complained of and, if the
case, providing relevant documents in order for the Contractor to take all
required steps to remedy the problem.

 

Should Contractor without reasonable cause fail or refuse to take all required
steps to remedy the matters complained of within the time afforded to Contractor
in such written notice or fail or refuse to continue thereafter to diligently
proceed with such remedy so as to complete the remedy within the notice period,
Operator shall have the right to terminate this Agreement.

 

In the event that any well drilled does or in Operator’s opinion is likely to
blowout, catch fire, or in any manner get out of control, Operator may if it so
elects, assume complete control and supervision of all work required to prevent
such blowout or fire or associated with bringing said well under control or of
putting out such fire and for that purpose Operator shall have the use of all of
Contractor’s facilities, equipment and personnel at the well giving necessary
instructions to the Contractor.

 

9.1During times when either Contractor or Operator is engaged in bringing a well
under control or in putting out a fire Contractor shall be entitled to
compensation for work done hereunder at the relevant day rates included in
Annexure II: Rig and Rate Schedule.

 

10.Casing Program

 

10.1The casing program shall be supplied to Contractor as provided in section 10
of the Drilling Order. The planned setting depth of each string of casing, the
amount of cement and the process to be used in cementing shall be specified by
Operator at the time of each casing setting. If Operator requires a variation in
the casing program requiring the use of additional handling tools, same will be
furnished by Operator at Operator’s expense.

 

10.2Contractor shall run all strings of casing and shall be compensated
therefore at rates as specified in clause 17(a) of the Drilling Order.

 

10.3Contractor shall be under no liability to Operator (other than when there is
gross negligence or willful misconduct on the part of Contractor its employees,
agents or subcontractors) for loss or damage resulting from casing joints being
knocked off in the hole as a result of defective pipe, faulty casing seat,
faulty cementing or operating practice directed by Operator or its designated
representative during the running of casing.

 

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11.Drilling methods and practices

 

11.1Subject to all specific obligations and requirements laid down in Subclause
6.1 above having been duly satisfied by the Operator, Contractor agrees to
perform all work to be conducted by it under the terms of this Agreement with
due diligence and care and in a good and workmanlike manner and in accordance
with Good Oil Field Practice. Contractor shall comply with all current Israeli
laws, regulations and governmental directions, approvals and authorisations
covering Contractor’s operation of the Rig and equipment and personnel.
Contractor shall maintain at all times, at the drill site, list of contractor
personnel and documents as required by law.

 

Contractor represents that the Rig will be capable of drilling to the depth
specified in the Rig and Rate Schedule. Any drill pipe, drill collars or
substitutes in excess of that furnished by Contractor specified in the relevant
section of the Rig Equipment Inventory (Annexure IV) shall be supplied by
Operator.

 

All drill pipe supplied by the Contractor under this Agreement shall be of
Premium grade as specified under API RP7G and certified independent pipe
inspection company.

 

11.2Contractor agrees to maintain the drilling fluid system in a manner
satisfactory to Operator. The drilling fluid shall be maintained in accordance
with specifications set out in the Drilling Order.

 

11.3Contractor agrees to save and label samples of such formations as Operator
may require. Contractor agrees to promptly notify Operator whenever any oil
and/or gas bearing formation is found.

 

11.4Contractor agrees that every effort will be made to drill a straight hole
and that it will make diligent efforts to maintain any deviation within the
allowable limits in the specifications described in section 12 of the Drilling
Order. All drilling will be conducted in accordance with Good Oil Field
Practice. Contractor agrees to take such deviation measurements as are
reasonable or as may be reasonably required by Operator.

 

11.5In the event of any difficulty arising which precludes either drilling ahead
under reasonably normal procedures or the performance of any other operations
planned for the well, Contractor may suspend the work in progress whilst
exerting reasonable efforts consistent with Good Oil Field Practice, to overcome
the difficulty, and in such event Contractor shall immediately notify the
Operator's representative of the difficulty.

 

11.6Subject to the provisions of clause 9, Contractor shall be solely
responsible for the operation of the Rig and equipment including, without
limitation, supervising moving operations and positioning the Rig at locations
as required by Operator as well as such operations at the drill site as may be
necessary or desirable for the safety of the drilling. Operations under this
Agreement, other than Rig moves will be performed on a twenty-four (24) hour per
day basis.

 

11.7Contractor shall comply with all instructions of Operator consistent with
the provisions of this Agreement and Good Oil Field Practice including without
limitation drilling, well control, environmental and safety instructions. Such
instructions shall, if Contractor so requires, be confirmed in writing by the
authorised representative of Operator. However, Operator shall not issue any
instructions which would be inconsistent with Good Oil Field Practice.

 

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12.Coring and cuttings

 

12.1Contractor agrees to take cores as requested by Operator under section 13 of
the Drilling Order. All coring shall be paid for at applicable rates. Operator
is to furnish containers for the cores.

 

12.2Rotary cuttings will be sampled by Contractor as and when required by
Operator who will furnish containers for the same.

 

13.Reports to be furnished by Contractor

 

13.1Contractor shall keep and furnish to Operator a daily drilling report in
English showing depth of the hole and such other data as may be required by
Operator. Drilling report forms shall be furnished or specified by Operator but
otherwise Contractor shall use the standard IADC form of Contractor’s Report.

 

13.2Accident Reporting – see Section 29 “Safety”

 

13.3Delivery dockets covering any materials or supplies furnished by Operator or
furnished by suppliers for which Operator is obliged to reimburse Contractor
shall be handed over as received with the daily drilling report. The quantity,
description and condition of materials and supplies so furnished shall be
verified and checked by Contractor, and such delivery dockets shall be properly
certified as to receipt by Contractor’s designated representative.

 

13.4All labour, materials, special tools, supplies or services furnished by
Contractor for which Operator is obliged to reimburse Contractor shall be
recorded as provided on the daily drilling report and/or individual dockets
which must be approved by Operator’s on-site representative. Payment shall be
made only in respect of items so recorded. Contractor will be under no
obligation to take over Operator’s surplus items on completion of operations.

 

14RESPONSIBILITY FOR LOSS OR DAMAGE, INSURANCE, INDEMNITY AND RELEASE OF
LIABILITY

 

14.1 Contractor shall assume liability at all times for damage to or destruction
of Contractor's surface equipment, regardless of when or how such damage or
destruction occurs, and Contractor shall release Operator and /or Kibbutz Sde
Eliyahu or anyone on the kibbutz behalf of any liability for any such loss,
except loss or damage under the provisions of Paragraph 10 or Subparagraph 14.3.

 

14.2 Contractor shall release Operator and /or Kibbutz Sde Eliyahu or anyone on
the kibbutz behalf of any liability for, and shall protect, defend and indemnify
Operator from and against all claims, demands, and causes of action of every
kind and character, without limit and without regard to the cause or causes
thereof or the negligence of any party or parties, arising in connection
herewith in favor of Contractor's employees or Contractor's subcontractors of
any tier (inclusive of any agent or consultant engaged by Contractor) or their
employees, or Contractor's invitees, on account of bodily injury or death.
Contractor's indemnity under this Paragraph shall be without regard to and
without any right to contribution from any insurance maintained by Operator
pursuant to Paragraph 14.

 

14.3 Notwithstanding anything to the contrary contained herein, it is understood
and agreed by and between Contractor and Operator that the responsibility for
pollution or contamination shall be as follows:

 

Except as otherwise provided herein, Contractor shall assume all responsibility
for, including control and removal of, and shall protect, defend and indemnify
Operator from and against all claims, demands and causes of action of every kind
and character arising from pollution or contamination, which originates above
the surface of the land or water including but not limited to spills of fuels,
lubricants, motor oils, pipe dope, paints, solvents, ballast, bilge and garbage.
Contractor shall release Operator and its suppliers, contractors and
subcontractors of any tier of any liability for the foregoing.

 

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14.4Contractor shall at all times during the term of this Agreement effect and
maintain through a duly licensed and reputable insurance company, subject to
approval by Operator which approval will not be unreasonably withheld, the
insurance coverage described below and as may be additionally required in
Exhibit V, at Contractor’s own cost and expense and require all sub-contractors
to maintain similar cover with limits not less than those set forth and name
Operator as an additional insured on such policies. Copies of the certificates
of insurance shall be provided prior to the spud date.

 

(a) Employers Liability

 

Employers Liability with the limits as described in Exhibit V per occurrence and
in the aggregate.

 

Workers Compensation with a minimum limit of $1,000,000 (USD one million) per
person with a $2,000,000 (USD two million) aggregate for employees of foreign
jurisdiction.

 

(b) Compulsory Third Party Bodily Injury

 

Compulsory Third Party Bodily Injury Insurance covering registered motor
vehicles as required by law for all registered vehicles engaged under this
Agreement.

 

(c) Automobile Bodily Injury and Property Damage Liability

 

Automobile Bodily Injury Gap and Property Damage Liability insurance covering
all motor vehicles engaged under this Agreement with an overall limit of
$5,000,000 (USD five million) per occurrence and in the aggregate per vehicle.

 

(d) Public Liability

 

Public Liability insurance with an overall limit of $5,000,000 (USD five
million) per occurrence and in the aggregate covering death, bodily injury,
damage to property arising out of the operations covered by, or not otherwise
described in this Agreement and accidental, negligent or intentional
environmental damage.

 

(e) General Property

 

General Property insurance covering all risks of physical loss of or damage
covering all the equipment owned by the Contractor or in his care, custody or
control at full reinstatement value including machinery breakdown.

 

This policy shall also cover expenses incurred in the removal of debris of the
property covered.

 

14.5The Contractor is obligated to include in any contractual agreements with
subcontractors and/or other service providers with connection to all services
under this agreement, a clause stating that all service providers will obtain
the appropriate insurance coverage for their activities, as set forth in Clause
14 and 14.4 above, for as long as they are under contract with the Contractor
and with regards to their Professional Liability, for any other period, after
their working relationship with the Contractor has ended, and as long as they
have liability and/or until the end of the limitation period. For the avoidance
of any doubt, the sole responsibility for the obtaining and/or lack of the
appropriate insurance coverage of the other above mentioned service providers,
rests on the Contractor.

 

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14.6The insurance coverage referred to in clause 14.4(c), (d) and (e) shall be
obtained in the Contractor's name and shall contain a "Waiver of Subrogation
Clause" stating that the insurer waives all rights of subrogation against the
Operator and directors, officers and employees of Operator and Contractor in
respect of which the work under this Agreement relates, provided that this
“Waiver of Subrogation” will not apply in the event of any of the above
mentioned persons’ willful misconduct, gross negligence or breach of any
relevant rules or regulations. In the liability insurance coverage, (clauses
14.4(a), (c), (d)) the Indemnified Persons shall be added to the name of the
insured subject to a "Cross Liability Clause" stipulating that the insurance
coverage shall apply as if a separate policy had been issued to each insured.

 

The insurance policies under this Agreement shall be exclusive to the Drilling
Operations and the Optional Drilling Operations referenced in clause 2 hereunder
and shall not cover any other Drilling activities of Contractor in Israel.

 

14.7Contractor shall prior to commencing the work forward to Operator
certificates of insurance or other evidence of insurance coverage all in a form
satisfactory to Operator confirming that all of the required insurance policies
are in force. As per Operators request, Contractor shall deliver to Operator
copies of all the policies referred to in clause 14.

 

14.8The effecting and keeping in force of insurance as required by this clause
14 shall not in any way limit the liabilities, responsibilities and obligations
of Contractor under other provisions of this Agreement.

 

14.9If Contractor fails to effect or keep in force any of the insurance coverage
which it is required by this Agreement to effect, Operator may effect and keep
in force such insurance and pay such premiums as may be necessary for that
purpose and may recover as a debt from Contractor the amount so paid or Operator
may refuse payment of any sum due to Contractor until satisfied that such
insurance has been effected.

 

14.10If Contractor becomes aware that any insurance policy which it holds for
the purposes of this Agreement will be cancelled or changed, then Contractor
will immediately notify the Operator of that cancellation or change together
with full details of the cancellation or change and immediately act to restore
such coverage.

 

14.11The policies specified in clause 14 shall include a provision stating they
are primary and take precedence over any insurance affected by the Operator or
on his behalf.

 

14.12Contractor shall give immediate written notice to Operator of any accident
or damage likely to form the subject of an insurance claim and shall give all
information and assistance in respect thereof that Operator may reasonably
request.

 

14.13In the event that any demand and/or claim is made to Contractor, it shall
promptly notify the Operator and convey any information pertaining to such
demand and/or claim and the alleged cause for such demand and/or claim. If such
demand and/or claim may also be brought against Operator and/or the Indemnified
Person (together with Contractor and/or separately), then Contractor shall not
negotiate, pay, settle, admit or repudiate any insurance claim in relation to
the insurance coverage required hereunder without the written consent of
Operator (which consent shall not be unreasonably withheld), and Contractor
shall permit Operator and any Indemnified Person to take proceedings in the name
of Contractor to recover compensation or secure an indemnity from any third
party in respect of any of the matters covered by the said required insurance
coverage. In any event Contractor shall not negotiate, pay, settle, admit or
repudiate any insurance claim in relation to insurance coverage required
hereunder unless any and all demands and claims regarding the cause for such
demand and/or claim are simultaneously and unconditionally waived, in writing,
against Operator and the Indemnified Person.

 

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14.14Contractor hereby indemnifies the Indemnified Persons and Kibbutz Sde
Eliyahu and agrees to hold and save them all harmless from and to keep them all
indemnified against all actions, proceedings, suits, claims, demands, damages,
losses, costs, charges and expenses arising in any way related to this Agreement
in respect of:

 

a)injury to or death of any subcontractor of Contractor or any employee or agent
of Contractor or of any of its subcontractors or damage to or destruction of
property of any such person, corporation or firm howsoever caused except to the
extent that such damage arises directly as a result of an action of an
Indemnified Person as a result of an Indemnified Person’s willful misconduct or
gross negligence;

 

b)damage to or destruction of any materials or equipment furnished by Contractor
hereunder or any other materials or equipment owned by or rented to Contractor
howsoever caused except to the extent that such damage arises directly as a
result of gross negligence or willful misconduct of Indemnified Persons, and
except as otherwise provided in Clause 16;

 

c)injury to or death of any other person or damage to or destruction of any
other property (including but not limited to employees of the Indemnified
Persons and property of the Indemnified Persons) in any way sustained or alleged
to have been sustained except to the extent that such damage arises directly as
a result of an action of an Indemnified Person as a result of an Indemnified
Person’s willful misconduct or gross negligence; and

 

d)liability, damages, claims, demands, costs, charges, losses and expenses of
whatsoever nature including fines or sanctions imposed by government authorities
resulting from failure on the part of Contractor or its subcontractors to comply
with Clauses 11, 18, 28, 28A or 29 or from gross negligence or willful
misconduct by Contractor its employees, agents or subcontractors.

 

14.15Notwithstanding any contrary provisions of this Agreement, Contractor will
not be responsible for injury, death or property damage to the extent caused
directly by gross negligence or willful misconduct of an Indemnified Person or
their employees.

 

14.16Unless otherwise specifically provided herein, Sub-clause 14.12 shall not
affect any rights which Operator may have under applicable Israeli law.

 

14.17Operator agrees to indemnify and hold Contractor harmless against claims
for damages as follows:

 

(a)claims resulting from failure of Operator to obtain valid permits where
required under this Agreement; and

 

(b)to the extent that those claims arise directly as a result of gross
negligence or willful misconduct of Operator.

 

14.18Subject to the provisions of sub-clause 14.12 above and unless otherwise
mentioned elsewhere in this agreement, Operator shall indemnify Contractor and
hold it harmless against all civil liability arising from damage to productive
formation, damage to or loss of oil or gas or other underground damage or from
the use of radioactive material or damage to or loss of the hole itself except
where it can be established that Contractor or any person and/or entity on its
behalf acted or failed to act in a manner establishing gross negligence and/or
willful misconduct and that such damage arose as a result of the same.

 

14.19Subject to the provisions of sub-clause 14.12 above, Operator shall
indemnify, defend and hold harmless Contractor from and against all civil
liability for any loss or damage resulting from fire, blowout, cratering or any
other loss of control of the hole during or subsequent to the conduct of
operations except where it can be established that Contractor or any person
and/or entity on its behalf acted or failed to act in a manner establishing
gross negligence and/or willful misconduct and that such damage arose as a
result of the same.

 

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14.20Contractor hereby indemnifies the Israeli Ministry of Defense and agrees to
hold and save them harmless from and to keep them indemnified against all
actions, proceedings, suits, claims, demands, damages, losses, costs, charges
and expenses arising in any way related to this Agreement in respect of:

 

a)injury to or death of any subcontractor of Contractor or any employee or agent
of Contractor or of any of its subcontractors or damage to or destruction of
property of any such person, corporation or firm howsoever caused;

 

b)damage to or destruction of any materials or equipment furnished by Contractor
hereunder or any other materials or equipment owned by or rented to Contractor
howsoever caused.

 

c)Without derogating from the above, the insurance coverage referred to in
clauses 14.1(c), (d) and (e) shall contain a “Waiver of Subrogation Clause”
stating that the insurer waives all rights of subrogation against the Israeli
Ministry of Defense.

 

The requirements of this Contract as to insurance are not intended to and shall
not in any manner limit or qualify the liabilities and obligations of Contractor
under this Contract. Notwithstanding the foregoing, the Parties acknowledge and
agree than any and all coverage, indemnification or other requirements herein
shall be subject to applicable law.

 

15. Taxes and Claims

 

15.1Unless otherwise expressly provided herein, Operator shall not be liable to
pay or reimburse Contractor in respect of taxes and Contractor shall indemnify
and keep indemnified Operator and any other Indemnified Persons from and against
any liability for their taxes.

 

Notwithstanding anything herein contained, Operator shall not be liable to
Contractor for any sum which would otherwise be payable to Contractor that
Operator has withheld from payment or paid to the person or authority entitled
thereto in accordance with any law or regulation. For the purpose of this Sub
clause 15.1 the production of any notice of payment, receipt or any duplicate or
facsimile thereof shall be conclusive proof of such payment as between Operator
and Contractor.

 

Whenever necessary, the Contractor shall notify in writing the Operator, and the
Operator shall procure as a result of such notification that all reasonable
steps are taken and all reasonable assistance is given to the Contractor for the
purpose of obtaining all necessary documents in Israel which are required under
the relevant jurisdiction of the Contractor in order to apply and enjoy the
benefit of the fiscal credit in accordance with the favourable taxation
treatment instituted under the applicable double taxation treaties (e.g. tax
residency certificates).

 

15.2Contractor agrees to reimburse Operator on written demand accompanied by
relevant supporting documents for all such taxes or governmental charges which
Operator may be required to pay on account of employees and/or equipment of
Contractor or its sub-contractors. Contractor agrees to furnish Operator with
the information required to enable it to make the necessary reports and to pay
such taxes or charges. At its option Operator is authorised to deduct based on
relevant supporting documents all sums so paid for such taxes and governmental
charges from such amounts as may be or become due to Contractor hereunder.

 

15.3Contractor agrees to the extent expressly required under the applicable
jurisdiction, to pay all claims for labour, materials, services and supplies
furnished by Contractor hereunder (other than labour, materials, services or
supplies to be paid for by Operator) and agrees to allow to the extent permitted
by the relevant laws and regulations no lien or charge to be fixed upon any
licence, authority or lease of any well or the land on which any well is to be
drilled or other property of Operator.

 

Contractor agrees to indemnify, protect and hold Operator harmless from and
against all such claims and liens.

 

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15.4In the event that the Contractor shall receive a claim (or claims) in
connection with its activities in Israel hereunder (labour, materials,
equipment, services or supplies or for injuries to any person or persons or
property not covered by insurance) while payments are owed by Operator to
Contractor and Operator deems on reasonable and properly justified grounds
communicated in writing to the Contractor, that such claim(s) may affect the
Operator then Operator may set-off from future payments to Contractor any or all
owed amounts until such time all such claims are satisfied (at which time all
such amounts set aside shall be promptly paid to Contractor).

 

15A Value Added Tax

 

15A.1Notwithstanding clause 15.1, the Operator must pay to the Contractor, to
the extent required under the relevant laws and regulations, any amount which is
payable by the Contractor on account of value added tax or any other like tax
("VAT") as a consequence of any supply made to the Operator under this Agreement
("VAT Amount").

 

15A.2Such VAT Amount will be payable, to the extent required under the relevant
laws and regulations, at the same time and in the same manner as payment of the
amount upon which the VAT Amount is calculated. The obligation of a party to pay
any VAT Amount will be conditional upon such party receiving a tax invoice from
the party making the relevant supply. The party making such supply must do all
things reasonably requested by the recipient of such supply to enable the
recipient of such supply to obtain any input tax credit to which it is entitled.

 

15A.3If at any time an adjustment is made as between the Contractor and the
relevant taxing authority of an amount paid on account of VAT on any supply made
to the Operator under this Agreement, a corresponding adjustment must be made as
between the Contractor and the Operator and any payments required to give effect
to the adjustment must be made. If the Contractor is entitled to an adjustment
by way of refund, the Contractor must notify the Operator and apply for the
refund if requested to do so by the Operator.

 

15A.4If the Operator makes any supply to the Contractor as a consequence of any
matter arising under or in connection with this Agreement, the Contractor must
pay to the Operator, to the extent required under the relevant laws and
regulations, an amount equal to any VAT payable in relation to that supply such
that any consideration for the supply available to the Operator remains the same
whether VAT applies or not and the obligations imposed under sub-clauses
15A.1-15A.3 will be read as applying to the Contractor.

 

15A.5Despite any other provision of this Agreement, if either party is required
to reimburse to the other any cost, expense or other amount (or part) that the
other party has incurred in connection with this Agreement, the amount to be
reimbursed must be reduced by the amount of VAT included, to the extent required
under the relevant laws and regulations, in such cost, expense or other amount
and which has been incurred by the party being reimbursed.

 

15A.6The parties agree, for the avoidance of doubt, that any sum payable or
amount to be used in the calculation of a sum payable expressed elsewhere in
this Agreement has been determined without regard to, and does not include,
amounts to be added on under this clause on account of VAT.

 

16. Responsibilities and indemnity for loss of or damage to equipment or hole

 

16.1Contractor shall be liable at all times for damage to or destruction of
Contractor’s surface equipment including all drilling tools, machinery and
appliances for use above the surface, and for any other type of equipment
including in-hole equipment when such in-hole equipment is above the surface
regardless of when or how such damage or destruction occurs. Operator shall be
under no liability to reimburse Contractor for any loss, except loss or damage
caused by gross negligence or willful acts or omissions of Operator or
Operator’s agents, servants or employees.

 

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16.2All machinery, tools, materials and equipment furnished by Operator shall,
at the completion or abandonment of the well, be returned to Operator in as good
condition as when received by Contractor, ordinary wear and tear excepted.
Contractor shall not be liable to Operator for any loss or damage to such
equipment, except that due to the negligence or willful misconduct of or
material breach of this Agreement by Contractor its agents, representatives,
employees, or subcontractors.

 

16.3In the event that the hole is lost or damaged while Contractor is working
only on a day work basis or as the result of work performed on a day work basis,
and provided that such work was at all times performed in accordance with Good
Oil Field Practice and there was no gross negligence or willful misconduct on
the part of Contractor, its employees, agents or subcontractors, Operator shall
be responsible for such loss or damage to the hole.

 

16.4Except where otherwise provided herein, Contractor shall indemnify and hold
the Indemnified Persons harmless from and against all claims, actions,
proceedings, damages, demands, losses, charges, costs and expenses arising out
of the loss of or damage to any of Contractor’s property or property in which it
has an interest or that of its contractors, sub-contractors, employees, invitees
or agents howsoever arising and howsoever caused except to the extent that such
damage is caused directly by the gross negligence or willful misconduct of an
Indemnified Person, except that:

 

(a)Operator shall to the extent that Contractor’s insurance does not compensate
Contractor therefore, be responsible at all times for damage to or destruction
of Contractor’s equipment caused by exposure to unusually and unexpected
corrosive substances not provided for in this Agreement which are introduced
into the completion fluids from sub-surface formations or the use of corrosive
additives in the fluid.

 

(b)Operator shall to the extent Contractor’s insurance does not compensate
Contractor therefore be responsible for any damage to or loss of Contractor’s
drilling string and down hole tools, and shall reimburse Contractor the full
landed replacement cost of the item or items at site less straight line
depreciation of 10% (ten per cent) per year based on the price and date
originally paid for lost item(s).

 

This compensation shall not apply if the loss or damage is a direct result of a
failure of Contractor’s surface equipment. In such case Operator will not be
liable for any costs as defined in this sub-clause.

 

(c)In the event that Operator elects to use an oil base mud and/or introduce oil
into the mud system at any time, then prior to commencement of such operations
Contractor and Operator shall, upon Contractor's request, mutually agree upon a
basis by which the day rate shall be increased during such operations and/or
Contractor shall be fully reimbursed for the damage to or loss of Contractor’s
equipment as a result of such operations.

 

(d)If Operator elects to pressure test Contractor’s annular blowout equipment in
excess of the manufacturer’s recommended closing pressures and procedures, then
the cost to replace the blowout prevention equipment and associated parts
damaged during the continuance of this Agreement as a result of this testing
programme will be at the expense of Operator.

 

(e)Where Operator's Drilling Program stipulates the use of air or air/mist as a
circulating medium or unusually low pH drilling fluids or fluids with an
unusually corrosive content Contractor shall be additionally reimbursed at rates
to be mutually agreed. Cost of repair of equipment so damaged or replacement of
equipment so damaged beyond repair shall be at Operator’s expense to the extent
Contractor’s insurance does not compensate Contractor therefore unless otherwise
stipulated in the Drilling Order.

 

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16.5Operator agrees to observe drill stem design operating limits and
recommended practices contained in API Bulletin RP7G, and these will not be
exceeded during the course of operations. If Operator elects to exceed these
limits or depart from these practices, Operator agrees to accept full
responsibility for loss or damage to the drill stem (including any excessive
wear, deterioration or fatigue damage) and will properly compensate Contractor
for same in accordance with Clause 16.4(b).

 

16.6Operator shall be liable for the cost of regaining control of any
uncontrolled well. During such time as is taken in regaining control of any
well, Contractor shall be paid the applicable rates as herein specified unless
Operator notifies Contractor on reasonable grounds that the circumstances arise
out of or in connection with any failure by the Contractor to perform the work
in accordance with Good Oil Field Practice, any material breach by Contractor of
this Agreement or negligence or willful misconduct of Contractor, its employees
agents or sub-contractors in which event if Operator establishes the breach of
this Agreement, negligence or willful misconduct alleged in its notice under
this Clause 16.6, Contractor shall promptly repay all amounts paid by Operators
under this Clause 16.6.

 

16.7Contractor agrees to visually inspect all material furnished by Operator
before using same and to notify Operator of apparent defects therein. Contractor
shall not be liable for any loss or damage resulting from the use of materials
furnished by Operator unless the loss or damage is caused by any failure by the
Contractor to perform the work in accordance with Good Oil Field Practice, by
any negligence, willful misconduct of or breach of this Agreement by Contractor
its employees, agents or subcontractors.

 

17. Independent Contractor Relationship

 

17.1Contractor shall be an independent contractor with respect to performance of
all work hereunder, and neither Contractor nor anyone employed by Contractor
shall be deemed for any purpose to be the employee, agent, servant or
representative of Operator in the performance of any work or service or any part
thereof in any manner dealt with hereunder. Contractor shall pay all the taxes,
fees and all other payments as per the provisions of this Agreement and in
accordance with the governing law. Operator shall have no direction or control
of Contractor or its employees and agents except as mentioned in this Agreement.
The work contemplated herein shall be such as to meet the approval of Operator
and be subject to the general right of inspection herein provided for Operator
to secure the satisfactory completion thereof.

 

17.2The actual performance and supervision of all work hereunder shall be by
Contractor, however Operator’s designated representative shall have unlimited
access to the site of any well to determine whether work is being performed by
Contractor in accordance with Operator’s reasonable instructions and with all
the provisions of this Agreement and the Drilling Order. Such representative
shall be empowered to act for Operator in all matters relating to Contractor’s
performance of the work being undertaken.

 

For avoidance of doubt in the event that Contractor deems instruction provided
hereunder as unreasonable, then Contractor shall immediately notify Operator and
explain the reasoning for Contractor's disagreement. In the event that Operator
persists on said instructions, Operator shall provide the instructions in
writing, and Contractor must abide by the same. The above notwithstanding,
Contractor shall not abide by instructions which may result in imminent bodily
damage to any person.

 

18. Compliance with Laws

 

In the performance of its obligations under this Agreement, Contractor will
comply with all laws decrees and regulations of the State of Israel and with all
applicable rules, regulations, decrees, licenses, permits, approvals,
authorisations, conditions and requirements of government authorities, agencies
and statutory bodies having jurisdiction over any well site, Operator,
Contractor or any matter in connection with the work under this Agreement and
will ensure compliance therewith by Contractor’s employees and agents engaged in
the work under this Agreement and by all subcontractors performing any part of
such work. It is specifically noted that noise compliance is a sensitive issue
and will be rigidly enforced when operating near houses or public buildings.

 

Without limiting the generality of this clause Contractor shall comply with the
terms of all permits and approvals (if any) annexed to this Agreement.

 

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19. Force Majeure

 

19.1Except as otherwise provided in this clause 19, each party to this Agreement
shall be excused from complying with the terms of this Agreement (other than the
failure to pay any money due and payable hereunder) if and for so long as such
compliance is materially hindered or prevented by riots, strikes (which are
widespread and not limited to the oil and gas drilling industry or any other
specific industry), wars against countries (declared or undeclared),
dispositions or order of government authority, acts of God, inability to obtain
equipment, supplies or fuel which is reasonably beyond the control of the
affected party, such causes being herein sometimes called “Force Majeure”. If
any failure to comply is caused by a Government law, rule, regulation,
disposition or order as aforesaid and the affected party is operating with Good
Oil Field Practice in the relevant area of operation and is using all possible
endeavours to comply with such law, rule, regulation, disposition or order, that
matter shall be deemed beyond the control of the affected party.

 

In the event that either party hereto is rendered unable (wholly or in part) to
carry out its obligations because of a Force Majeure event under this Agreement,
it is agreed that such party shall give notice and details of Force Majeure in
writing to the other party as promptly as possible after its occurrence. In such
cases the obligations of the parties shall be suspended during the continuance
of such inability. During periods of suspension Operator shall not incur any
liability to make any payment whatsoever to Contractor with the exception of the
payments referred to in Clauses 19.2 and 19.3. The Operator and the Contractor
will do all within their power to fulfil their obligations according to this
agreement as soon as the Force Majeure will end.

 

19.2During the continuance of any period of suspension by reason of Force
Majeure declared in accordance with Clause 19.1 hereof, Operator shall pay to
Contractor the appropriate daily standby rate (with or without crew); provided,
however, that the daily rate payable pursuant to this Clause for any period of
suspension in excess of fourteen (14) days per well shall be reduced to nil
(zero).

 

19.3Operator shall be liable for reasonable additional costs incurred by
Contractor in transporting Contractor’s personnel from and to the site if it is
necessary to enter into extraordinary transportation arrangements, in order to
overcome a Force Majeure.

 

19.4Any Party may terminate this agreement by notice to the other where an event
of Force Majeure has caused the suspension of this Agreement for a continuous
period of twenty (20) calendar days or more. Termination pursuant to this clause
shall not prejudice rights of parties accrued prior to such termination.

 

20. Information Confidential

 

Contractor shall keep secret and confidential and shall not disclose to any
third party without the prior written consent of Operator any information, data
testing, surveying specifications, reports, accounts or other documents or
information obtained in the course of drilling operations or as a consequence of
this Agreement, and the Contractor is aware of the obligations the Operator, as
a public company, has, and will therefore take or cause to be taken all
precautions as may be necessary to maintain secrecy and confidentiality and
prevent disclosure. The obligations of the parties under this Clause 20 shall
survive the termination of this Agreement and shall be enforceable at any time
in law or in equity.

 

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21. Ingress and Egress to Location

 

21.1Operator shall secure to Contractor rights of ingress and egress to and from
the site on which any well is to be drilled, Operator shall advise Contractor of
any limitations or restrictions affecting ingress and egress, and Contractor
shall abide by and shall have its servants, agents, employees and
sub-contractors abide by such limitations or restrictions. Should Contractor be
unreasonably denied free access to any site for any reason not within the
reasonable control of Contractor, time lost by such denial shall be paid for at
an applicable rate in keeping with the stage of operations at the time in
accordance with this Agreement.

 

21.2Operator shall prepare and maintain drilling locations with, inter alia
access roads, fencing, sewage, drainage, water supply and adequate space (as
relevant) so as to enable Contractor to install and operate properly the
drilling rig at the drilling locations. Operator agrees at all times to maintain
the access road and location in such a condition that will give free access and
movement to and from the drilling site to an ordinarily equipped highway type
vehicle carrying loads which comply with appropriate regulations. If Contractor
is required to use bulldozers, tractors or any other specialised transportation
equipment for the movement of necessary personnel, machinery or equipment over
access roads or on the drilling location, then Operator shall furnish them at
Operator’s expense without cost to Contractor.

 

21.3Operator shall prepare a sound location capable of properly supporting the
Rig and shall install a suitable conductor pipe program adequate to prevent soil
and subsoil wash out. If the knowledge of the location and access routes to the
location of drilling operations assumes relevance and is within the knowledge of
either party, such party shall advise the other of any known sub-surface
conditions or obstructions (including but not limited to mines, caverns, sink
holes, streams, pipelines, power lines and telephone lines) which might be
encountered while en route to the location or during operations under this
Agreement. In the event of sub-surface related loss or damage to the rig, its
associated equipment, or personnel resulting there from, such knowing party
shall without regard to other provisions of this Agreement reimburse the other
party to the extent not covered by such other party’s insurance for all such
loss or damage including payment of standby rates during repair or
demobilization if applicable.

 

22. Conflicts and Waivers

 

22.1In the event that there is a conflict between the provisions of this
Agreement and any papers or documents which may have been executed or passed
between the parties in connection with the subject matter of this Agreement, the
provisions of this Agreement shall prevail.

 

If there is a conflict between the provisions of the main body of this Agreement
and those of its Annexures, the following order of precedence shall apply:

 

(a)The Drilling Order and/or the Rig and Rate Schedule shall prevail;

 

(b)The stipulations of the main body of this Agreement shall supersede over all
other annexures other than those stipulated under sub-clause 22.1(a) above and
Annexure or Exhibit V;

 

22.2None of the requirements of this Agreement shall be waived by either party
unless the same is done in writing and duly executed by both parties.

 

22.3This Agreement supersedes and replaces any oral or written communication,
negotiation and/or agreement made between the parties relating to the subject
matter of this Agreement.

 

23. Term

 

23.1The parties shall be bound by this Agreement until termination in accordance
with its terms.

 

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23.2Subject to Clause 23.1 this Agreement shall terminate on the first to happen
of the following events:

 

(a)immediately if the Rig becomes a total effective or constructive loss; or

 

(b)the Services are completed on any Well being drilled under this Agreement
with regard to such Well.

 

(c)If Contractor fails to commence Daily Rate activities on the first well
hereunder within five (5) days from the date by which the Company accepts the
rig on the MJ#1 location and all acceptance tests as referenced in Annexure VI
have been approved by a Company representative, provided however that all
conditions and obligations laid down in Subclause 6.1 above have been duly,
timely and completely satisfied/discharged by the Operator, the Contractor shall
pay to Operator as agreed upon compensation the sum of two hundred and fifty
thousand dollars (USD 250,000) in addition to a return of any Rig Commissioning
or Mobilization payments made to date, without any requirement from Operator to
demonstrate damages. The parties attest that said amount reflects to the best of
their understanding the entire amount of damages to Operator as foreseen by the
parties at the time of this Agreement.

 

(d)At Operator's will in the event that Operator is dissatisfied with
Contractor's performance and/or in the event that Contractor is in breach of the
essential obligations undertaken under this Agreement which shall include, inter
alia, performance of any of Contractor's undertakings hereunder in a manner that
contravenes Good Oil Field Practice and Contractor fails to remedy such breach
within 14 days from receipt of Operator’s notice.

 

23.3Notwithstanding Clauses 23.2(b), 23.2(c) and/or 23.2(d), Operator shall have
the right to terminate this Agreement at any time, upon written notice to
Contractor, however, such termination shall be subject to payment as following:

 

(a)If termination is more than 30 days prior to the mobilization date of the
Contractor’s equipment, then compensation to Contractor shall be in the agreed
amount as included in Clause 2 of Annexure II, Rig and Rate Schedule;

 

(b)If termination is less than 30 days prior to the mobilization date of the
Contractor’s equipment, then compensation to Contractor shall be in the agreed
amount as included in Clause 2 of Annexure II, Rig and Rate Schedule;

 

23.4Notwithstanding any early termination of this Agreement, the parties shall
continue to be bound by the provisions of this Agreement that reasonably require
some further action or forbearance by either party.

 

24. Assignment and Sub-Letting

 

24.1Operator may employ other contractors to perform any of the operations or
services to be provided or performed by it under this Agreement. Contractor may
not assign this Agreement or any of the work or other obligation to be performed
under it without the prior written approval of Operator. Upon written notice and
approval of the Operator, the Contractor may assign this Agreement to any of its
affiliates, the Operator’s consent to such assignment not being unreasonably
withheld, conditioned or delayed. If Contractor shall cause any part of the
Services hereunder to be performed by an affiliate, Contractor shall remain
liable for all of its obligations hereunder. Under no circumstances shall any
affiliate, or its agents, servants, or employees be considered employees of
Operator.

 

24.2In the event of a permitted assignment, this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the assigning party
and assignment does not extend the term of this Agreement.

 

24.3The Contractor agrees that if for any reason the Operator wishes to allow
another operator a working window in the work scope of this Agreement, the
Contractor will co-operate with this other operator with regards to financial
and working issues associated with the other operator’s program. However, it is
fully understood by the Contractor that the Operator shall have no
responsibility or liability whatsoever for any services provided by the
Contractor to another operator during the provision of any such services.

 

20 | Page

 

 

25. Notices

 

Any notice shall be deemed to have been properly given and delivered to the
party to which it was directed if it is delivered in person, sent by confirmed
or read receipt email, sent by pre-paid registered mail or by facsimile to such
party at the address specified in this Agreement or to such other person and /or
address as such party or its designated representative may notify the other
party in writing. If any notice is given by pre-paid registered mail such notice
shall not be effective until three (3) days after it has been mailed. If any
notice is given by facsimile it shall be deemed to be received immediately after
the time at which it was successfully sent.

 

26. Governing Law

 

This Agreement shall be governed by the laws of the State of Israel.

 

The parties shall attempt to resolve any unresolved dispute arising herefrom or
in connection hereto by arbitration pursuant to Clause 31.

 

27. Patents and Licences

 

In addition to the indemnifying provisions contained in this Agreement,
Contractor represents and warrants that the use or construction of any and all
tools and equipment furnished by Contractor and used in the work provided for in
this Agreement does not infringe any licence or patent which has been issued or
applied for and Contractor agrees to indemnify and hold Operator harmless from
any and all claims, demands and causes of action of every kind and character in
favour of or made by any patentee, licensee or claimant of any right or priority
to any such tool or equipment or the use or construction thereof which may
result from or arise out of the furnishing or use of any such tool or equipment
by Contractor in connection with the work under this Agreement.

 

28. Safety, Health and Welfare

 

28.1Contractor shall ensure that the Israeli law in respect to Safety, Health
and Welfare are fulfilled, including the provisions of the Organization of Labor
Inspection Law-1954 and the Safety at Work Ordinance -1970 and that Contractor’s
employees shall adhere to the Operator’s HSE plan.

 

The Contractor shall ensure that all Contractor’s employees at the site are
adequately and physically suitable to perform their duties irrespective of the
location or environment.

 

Contractor shall in respect of each person employed or engaged by Contractor
ensure so far as is practicable that that person, while at work, is safe from
injury and risks to health and in particular:

 

(a)shall provide and maintain so far as is reasonably practicable:

 

(i)a safe working environment;

 

(ii)safe systems of work;

 

(iii)plant and substances in a safe condition.

 

(b)shall provide facilities which comply with all legal requirements and conform
with the requirements of Good Oil Field Practice.

 

21 | Page

 

 

(c)shall provide such information, instruction, training and supervision as are
reasonably necessary to ensure that each employee is properly trained in the use
of equipment and aware of all relevant risks to health.

 

(d)shall monitor the health and welfare of all employees in its employment
insofar that monitoring is relevant to the prevention of work related injuries.

 

(e)Make sure all necessary Contractor employees have current IWCP or Well Cap
well control certificates as appropriate to the position which the employee
holds.

 

(f)Fully comply with the Safety Work Regulations ( Working at Heights ) 2007

  

28.2Contractor shall take all measures necessary or proper to provide safe
working conditions and procedures during the carrying out of any drilling or
other operations pursuant to this Agreement.

 

28.3Contactor shall provide a suitable experienced full-time Safety and Training
Officer, acceptable to Operator to supervise the occupational health and safety
performance of the Contractor's personnel. Contractor shall submit a summary of
each Safety and Training Officer’s training and oilfield experience for
Operator’s approval before each Safety and Training Officer first goes out to
Rig.

 

The Safety and Training Officer shall perform the following duties under the
direction of Contractor’s tool pusher:

 

(a)actively participate in the pre-spud meeting; observe methods of work and
occupational health and safety procedures in the work place and correct unsafe
and/or inefficient work procedures;

 

(b)observe and train inexperienced crewman where necessary;

 

(c)conduct training lectures for Contractor’s employees on site;

 

(d)inspect equipment for suitability and safe operating condition;

 

(e)prepare and submit a report to Contractor for transmission to Operator which
specified the activities performed by Contactor’s Safety and Training Officer
and which contains any recommendations made for increasing safety and improving
occupational health and efficiency in the work place.

 

The Safety and Training Officer shall spend the majority of his or her working
time around the rig and the rig floor and shall not be used as a labourer or
replacement worker.

 

The Safety and Training Officer shall be provided by the Contractor in addition
to the minimum full rig crew detailed in section 5 of the Rig and Rate Schedule
at no additional cost to Operator.

 

28.4Contactor shall at all times give due consideration to the interest of
property owners and occupiers wherever involved and all carry out the work in a
manner causing the least possible inconvenience and injury to those owners and
occupiers, and to the environment and the ecology. Contactor shall properly
protect the property of Operator and others at the site or adjacent to the work.

 

28.5Both parties shall take all steps to prevent accidents or injuries to
employees and other persons or damage to property and shall provide and maintain
so far as practicable for their respective employees a working environment that
is safe and which does not expose them to unreasonable risks to health.

 

28.6Contractor will comply with the reasonable requirements of Operator with
respect to Occupational Health Safety and Environment.

 

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28A. Environmental Protection

 

28A.1Contractor acknowledges Operator’s commitment to conduct its operations in
a manner which complies with all relevant approvals, authorisations and
environmental protection and pollution control legislation of Israel and also
ensures that such operations do not cause environmental damage or pollution.

 

Contractor agrees to perform the work under this Agreement in a manner
consistent with Good Oil Field Practice and in such a way as to avoid (or where
some environmental damage or pollution is unavoidable, minimise) environmental
damage or pollution.

 

28A.2 (a) Prior to commencing the work under this Agreement, Contractor shall
review and familiarise itself with all relevant approvals, authorisations and
environmental guidelines and reports submitted to it by Operator.

 

(b)Contractor shall comply with and shall ensure that its employees, agents and
subcontractors comply with the conditions, requirements and guidelines referred
to in Clause 28A.2(a) throughout the term of this Agreement to the extent that
the same are applicable to the work under this Agreement.

 

28A.3If during Contractor’s performance of the work under this Agreement,
Operator is of the reasonable opinion supported by relevant written documents
and/or factual background that Contractor is either not performing such work in
compliance with all applicable environmental protection laws, rules and
regulations, approvals, authorisations and conditions issued or imposed by
relevant state or local governments and all environmental guidelines and
procedures furnished by Operator to Contractor from time to time or is
conducting the work in such a way as to endanger the environment or in such a
way as to risk being in breach of any laws, rules or regulations, approvals,
authorisations or conditions relevant to the performance of the work, then
Operator shall notify Contractor in writing of the breach involved, and
Contractor shall forthwith rectify the breach so notified.

 

28A.4In the event that Contractor does not rectify a breach notified in
accordance with Clause 28A.3 within 48 hours of the said notification, or an
earlier period if so ordered by any Governmental and/or municipal authority
and/or any court order, Operator may direct Contractor to suspend the work under
this Agreement until such time as Contractor satisfies Operator that such work
will be resumed in conformity with all applicable environmental protection
provisions.

 

28A.5During periods of suspension referred to in Clause 28A due to environmental
cause, Operator shall not be required to make any payment whatsoever to
Contractor and in the event that Contractor fails to rectify the breach, or if
Contractor’s performance of such work has involved recurring breaches of
environmental protection provisions, then Operator may terminate this Agreement
immediately and shall pay Contractor for work performed in addition to any costs
to which the contract allows to be rebilled to Operator, up to the date of
suspension but without prejudice to any entitlement of Operator to damages or
any indemnity provided in this Agreement.

 

28A.6Contractor shall not allow any tank waste, oil, drilling cuttings,
hazardous chemicals, radioactive material or other pollutants to be discharged
or allowed to escape from materials brought onto Operator’s site by Contractor
or its subcontractors or from materials under Contractor’s or any of its
subcontractors’ control. Contractor shall notify Operator immediately of any act
of pollution or potentially polluting event. For each and every such event
Contractor shall deliver a completed report to Operator forthwith.
Notwithstanding any other provision of this Agreement, Contractor shall, at its
own expense, clean up any pollution from its equipment or subcontractor’s
equipment.

 

23 | Page

 

 

29. Safety

 

29.1Contractor shall take all measures necessary or proper to provide safe
working conditions and procedures for the performance of the Services.
Contractor shall comply with relevant Israeli regulations and any other Codes of
Practice and Regulations insofar as they can be applied.

 

29.2Contractor shall not permit smoking or any open flame in any area within 45
metres of wellbore. No welding operations during the course of drilling or
completion operations are to be undertaken within 45 metres of wellbore without
prior authorisation from the Operator’s Representative and only after all
appropriate precautions have been taken.

 

29.3If during performance of the Services Operator’s Representative is of the
opinion that Contractor is either:

 

(i)not conducting the Services in compliance with Operator’s or Contractor’s
Safety Procedures all applicable safety rules and regulations imposed by law and
all safety rules and procedures furnished by Operator to Contractor from time to
time; or

 

(ii)is conducting the Services in such a way as to endanger the safety of
Contractor’s personnel or visitors or Operator’s contractor’s personnel or
visitors as well as operator's plant, equipment or materials,

 

then Operator’s Representative shall notify Contractor in writing of the breach
of safety involved, and Contractor shall immediately rectify that breach of
safety so notified.

 

29.4In the event that Contractor does not rectify the breach of safety notified
in accordance with Clause 29.3, Operator’s Representative may direct Contractor
to suspend the Services until such time as Contractor satisfies Operator’s
Representative that the Services will be resumed in conformity with all
applicable safety rules, regulations, laws and procedures. Operator may
terminate this Agreement immediately and shall pay Contractor for work performed
in addition to any costs which the contract allows to be rebilled to Operator,
up to the date of suspension but without prejudice to any entitlement of
Operator to damages or any indemnity provided in this Agreement.

 

29.5During periods of suspension referred to in Clause 29.4 above, Operator
shall not incur any liability to make any payment whatsoever to Contractor.

 

29.6Contractor shall ensure that all of its sub-contractors, agents and
employees wear protective clothing and other apparel which conforms with the
Israeli Standards and all relevant Acts and Regulations.

 

Contractor shall ensure that notices and warning signs are displayed and
maintained in accordance with relevant statutory requirements.

 

Each person present at the site shall comply with Operator’s Occupational Health
and Safety Policy and shall at all times:

 

(a)Wear a hard hat of a type approved by the relevant authorities in hard hat
areas, as designated.

 

(b)Wear appropriate safety clothing and safety footwear.

 

(c)Wear eye protection and other apparel for hazardous operations as required by
any statutory instrument of a standard approved by the relevant authorities.

 

29.7All first aid provisions shall comply with all relevant statutory Acts and
Regulations of the State of Israel. Contractor shall ensure that sufficient
members of its staff are trained to administer first aid. Contractor shall
supply and maintain first aid equipment and facilities appropriate for the
number of employees engaged in the work and the types of work being performed.

 

24 | Page

 

 

29.8Contractor shall ensure that all equipment and machinery engaged in
performing the Services is safe for its intended use and shall install all
necessary barriers, guard rails and other safety devices necessary for the safe
performance of the Services. Operator retains the right to monitor, inspect or
audit work systems, machinery and equipment used by Contractor to perform the
work and to stop any work which it considers to be unsafe or environmentally
damaging. Unless otherwise approved in writing by Operator’s Representative,
Contractor shall remain responsible for and shall rectify any work system,
machinery or equipment at its own expense where such action is required under
this Clause.

 

29.9Contractor agrees to maintain well control equipment in good operating
condition at all times and shall use all reasonable endeavours to control and
prevent fires and/or blowouts and to protect the hole, personnel and Operator’s
equipment.

 

Operational checks on the Blowout Preventer equipment shall be made by the
Contractor in accordance with procedures described in the Drilling Program and
as directed by Operator’s Representative. In any event such checks shall be
carried out by Contractor before drilling out from under surface casing on each
well and thereafter as directed by Operator’s Representative. All Blowout
Preventers shall be of the type size and pressure rating as agreed with
Operator.

 

29.10Contractor shall immediately report to Operator’s Representative and
directly to Operator’s Drilling Manager any death or serious injury to any
person resulting from an accident or event on the well site.

 

All accidents must be recorded in accordance with relevant legislation. All
accidents should have a first incident report filled out and delivered to
Operator within 24 hours. Depending on severity of incident and risk taken, a
root cause analysis should be performed by Contractor and signed off on by
Operator as deemed necessary by Operator.

 

Contractor shall ensure that current copies of the Regulations under the
Petroleum Act, Occupational Health Safety and Welfare Act and Joint Code of
Environmental Practice are available at the well site at all times.

 

30. Right of Audit

 

30.1Operator’s duly authorised representatives shall have access at all
reasonable times during the continuance of this Agreement and for a period of
two (2) years thereafter to all of Contractor’s and its subcontractor’s and
agent’s personnel books, records, correspondence, instructions, plans, drawings,
receipts, vouchers and memoranda of every description pertaining to the work
under this Agreement for the purpose of auditing and verifying that the charges
presented by Contractor to Operator for payment are in accordance with this
Agreement. Operator’s representatives shall have the right to copy any of the
aforesaid documents. Contractor shall preserve and shall cause its
sub-contractors and agents to preserve all the aforesaid documents for a period
of two (2) years after the completion and acceptance or termination of the work.

 

30.2Contractor shall ensure that any subcontract entered into by the Contractor
and/or agent retained in relation with the performance of the Services confers
upon Operator the same audit rights in relation to such subcontractor and/or
agent as are conferred upon Operator by Clause 30.1.

 

31. Amicable Settlement and Arbitration

 

31.1Any and all contractual or other disputes or claims arising out of or in
connection with this Agreement, including but not limited to any questions
regarding its existence, performance, breach, validity or termination thereof
(the “Dispute”) shall be resolved by amicable discussions between the parties
whenever possible.

 

25 | Page

 

 

31.2In the event of a Dispute, either party shall serve a written notice upon
the other party (the “Dispute Notice”) proposing that the parties seek to
resolve the Dispute by amicable negotiation.

 

31.3If a Dispute is not amicably settled within 30 (thirty) days as of the
receipt of the Dispute Notice, the parties shall seek to resolve such Dispute by
negotiation between their representatives. The representative of each party, who
has the authority to negotiate the settlement of a Dispute for a party, shall
either participate by phone conferences or meet at a mutually acceptable time
and place to exchange relevant information in an attempt to resolve the Dispute.
In the case of any dispute or matter under this Agreement referred explicitly
and directly to this Clause 31.3, such agreed decision of both the
representatives of the parties shall be final.

 

31.4Without prejudice to either party’s rights under the applicable laws to
follow a summary judgment procedure before the courts of law in order to obtain
payment of amounts of money which are not disputed by the other party (for
example, payment summons procedures), if a Dispute is not amicably settled
within 60 (sixty) days as of the receipt of the Dispute Notice, such Dispute
shall at the request of either party, to the exclusion of the ordinary courts be
referred to and finally resolved through arbitration under Israeli Rules of
Arbitration by three (3) arbitrators, unless agreed differently by parties.

 

31.5The place of arbitration shall be Tel Aviv, Israel. The language of
arbitration shall be English, including oral hearings, written evidence and
correspondence. The award of the arbitrators will be final, binding and
enforceable for both parties.

 

31.6The Dispute shall be decided solely by the arbitrators (including the
allocation of any costs), and any award rendered by the arbitrator or
arbitrators shall be final and binding upon the parties and may if necessary be
enforced by any court having jurisdiction or application may be made to such
court for a judicial acceptance of the award and an order of enforcement, as the
case may be.

 

31.7The provisions of this Agreement relating to arbitration shall continue in
force notwithstanding the termination of this Agreement.

 

32. Not used

 

33. Suspension of Operations

 

33.1Operator may at any time suspend operations under this Agreement for such
period of time as it may desire by giving to Contractor a two (2) day period
notice in writing to that effect.

 

33.2At any time following the giving of such notice by Operator but prior to the
suspension of operations, Operator may rescind the notice, and in that event
Contractor shall continue the drilling or other operations under this Agreement
as if the said notice had not been given by Operator.

 

33.3Following receipt by Contractor of a notice under Clause 33.1, Contractor
may within a period of ten (10) days request Operator to exercise its powers to
terminate this Agreement under Clause 23, and if Operator agrees, the said
notice shall be treated as if it were a notice given by Operator pursuant to the
provisions of Clause 23.

 

33.4At any time during the period of suspension Operator may give to Contractor
a further notice in writing requiring Contractor to resume drilling and other
operations under the terms of this Agreement.

 

33.5During the period of suspension the rights, duties and obligations of the
parties shall be suspended for such period of time as the period of suspension
shall operate and without limiting the generality of the foregoing, Operator
shall not be liable for any payments which might otherwise have been payable
under this Agreement except for those stipulated under Sections 17 (n) and 17
(o) of Annexure I to this Agreement as well as any other reasonable payments
relating to expenses necessarily incurred in demobilising the crews at the start
of the suspension period and remobilising the crews on resumption of operations
hereunder

 

--The rest of this page is left intentionally blank --

 

 

26 | Page

 

 

Executed as an Agreement on the Signing Date.

  

Signed for and on behalf of   Signed for and on behalf of Zion Oil & Gas, Inc.  
S.C. Daflog SRL by its duly authorised representative   by its duly authorised
representative in the presence of:   in the presence of:       /s/ John M. Brown
  /s/ Pocean Cristina Signature of witness   Signature of witness       /s/ John
M. Brown   /s/ Pocean Cristina Name of witness   Name of witness       /s/
Dustin L. Guinn   /s/ Emanuel Popescu        

Dustin L. Guinn, President & COO

  

S.C. Dafora S.A., as designated subcontractor, hereby confirms the statements
and representations set forth in the recitals on page 3 hereinabove limited to
the provisions and according to Contract No. 991 dated October 6th 2016. 

 

Emanuel Popescu, Director General

Name of authorised representative

   

Signed for and on behalf of

S.C. Dafora S.A.

by its duly authorised representative

in the presence of: 

      /s/ Peter Egon Dorner,  

/s/ Gheorghe Calburean Senior Partner, Judicial Administrator CITR   Signature
of authorised representative    

Signed for and on behalf of

CITR (Transylvania House of Insolvency)

)

)

by its duly authorised representative ) /s/ Gheorghe Calburean in the presence
of: )  Gheorghe Calburean, Special Administrator

 

 

27 | Page

 

 

Annexure I: Drilling Order

 

Description of Work and Site of Wells

 

1.Commencement Date    

2.Not Used    

3.Number of Wells    

4.Depth    

5.Not Used    

6.Completion of Wells    

7.Drilling Rig and Equipment to be furnished by Contractor

 

7.1.The Drilling Rig

 

This shall be in accordance with the detailed Rig Equipment Inventory attached
as Annexure IV. The rig shall be capable of drilling up to depth specified in
the Rig and Rate Schedule and to carry out the required Drilling Program.

 

7.2.Transport Equipment and Motor Vehicles

 

TBA

 

7.3.Camp and Equipment

 

TBA

 

7.4.Personnel to be furnished by Contractor

 

All personnel and supervision necessary to satisfactorily operate the Rig on a
twenty-four (24) hours a day six (6) days a week basis shall be furnished by
Contractor as detailed in Section 4.0 of the Rig and Rate Schedule. Reference
Clause 6.6 of the Agreement.

 

8.Not Used

 

28 | Page

 

 

9.Labour, Equipment & Services to be provided at the Well Site or Sites

All machinery, equipment, tools, materials, supplies, instruments, services and
labour listed in the following numbered items shall, subject to the other
provisions of this Agreement, be furnished as and when necessary by and/or at
the expense of the party hereto designated by “X” in the appropriate column as
follows:

  

    Supplied by Expense of     Contractor Operator Contractor Operator   9.1 All
personnel and supervision necessary to operate the drilling rig, equipment and
services on a 24 hour 7 days-a week basis.

 

X

 

 

X

    9.2 a)     Transport of all Contractor’s personnel from point of hire to
drill site and return. X   X     b)     Transports of all Contractor’s personnel
for rest leave away from drilling location. X   X     c)     Transport of crew
to drilling rig. X   X     d)     All transportation equipment for Contractor’s
Toolpusher on drilling Location. X   X     e)     Utility forklift of 6 tonne
capacity for use on or around drilling location while drilling. Forklift to be
equipped with pallet forks, single point lifting frame and bucket attachments. X
  X     9.3 Rat hole & mouse hole drilled and cased. X   X     9.4 Conductor
pipe.   X   X   9.5 a)     Flow pipe and risers. X   X     b)     Lines. X   X  
  9.6 Rig matting boards. X   X     9.7 a)     Electricity supply for drilling
rig and accessories and Operator’s building (240 volt 50 cycle single phase
7.5kVA) X   X     b)     Electric light fixtures and bulbs X   X     c)
    Electricity supply for mud logging units 440V, 3 phase, 50/60 cycle,
15 kVA.  Maximum spiking limitation + 40 volts. X   X     9.8 a)     Fuel
storage. X   X     b)     Maintaining Rig fuel supply. X X X X   9.9 Mud storage
in addition to suction pits as per Rig Equipment Inventory. X   X     9.10
Cleaning solvents for Contractors Equipment. X   X  

 

29 | Page

 

 

    Supplied by Expense of     Contractor Operator Contractor Operator   9.11
Soft rope, rags, etc. X   X     9.12 a)     Fishing tools (taps, jars,
overshots, junk baskets, magnets) necessary to fish for all Contractor supplied
drill pipe and drill collars. X   X     b)     Replacement and repair of
Contractor’s down the hole tools damaged as a result of  fishing (see also
Clauses 14 and 16.   X   X     9.13 Rig Maintenance. X   X     9.14 Drill pipe
casing protectors.   X   X   9.15 Drill pipe wipers. X   X     9.16 Casing and
tubing tools (tongs, power tongs, casing spider, elevator and slips) for
13-3/8”, 9-5/8”, 7”, 5-1/2” casing/tubing.   X   X   9.17 Automatic Drilling
Time Recorder 5 Pen. X   X     9.18 Welding for Contractor's; operations and
equipment, excluding high pressure welding X   X     9.19 a)     Furnish and
maintain adequate roadway to location, right of way, including rights of way for
fuel and water lines, river crossings, gates and cattle guards.  

X

 

  X   b)     Stake location, clear and grade location, and provide turnaround
including surfacing when necessary.   X   X   9.20 Site preparation including
digging of waste pit and grading location   X   X   9.21 Excavation, if
necessary, for mud suction pit or tank.   X   X   9.22 Radio and/or telephone at
rig for communication with Contractor’s base. X   X     9.23 Permanent or
special radio and/or telephone installation, for Operator’s use   X   X   9.24

Clean Up:

a)     Contractor’s supplies and rubbish..

 

X

 

 

X

    b)     Operator’s supplies and rubbish. Sump, pits and site   X   X

 

30 | Page

 

 

    Supplied by Expense of     Contractor Operator Contractor Operator   9.25
All tubular goods, hangers packers, etc in connection with formation, testing
and flow testing.   X   X   9.26 Casing, shoes, float collars, basket,
scratchers, centralisers and other permanent casing accessories.  

X

 

  X   9.27 Wellhead connections and all equipment to be installed in or on well
or on the premises for use in connection with drilling, testing, completion and
operation of well.   X   X       9.28 Crossover spools from Operator’s wellhead
equipment to Contractor’s BOP. X   X     9.29 a)     Cement.   X   X   b)
    Cementing Services.   X   X   9.30 Materials or service for any permanent
installation which will remain part of well.   X   X   9.31 Water Storage pits
(earthen).   X   X   9.32 a)     Rig water supple to within 60 metres of cellar
(includes Dam).   X   X   b)     Potable camp water supply delivered   X   X  
9.33 a)     Incidental maintenance water lines within 60 metres of cellar. X   X
    b)     Water pit pump. X   X     9.34 Water well pump, if necessary.   X   X
  9.35 Fuel for water pump and miscellaneous Operator usage at Contractor’s
invoice price with no premium for handling.   X   X       9.36 Operations and
incidental maintenance of water well pump, water lines and water well air
compressor outside 60 metres of the wellhead.   X   X   9.37 a)     Oil and
greases for rig and associated equipment. X   X     b)     Oil and greases for
Contractor’s oilfield vehicles including lease truck and/or forklift truck.

X

 

  X     c)     Oil and greases for Contractor’s crew cars X   X  

 

31 | Page

 

 

    Supplied by Expense of     Contractor Operator Contractor Operator   9.38
Mud and chemicals.   X   X   9.39 Fuel oil for oil base or oil emulsion muds.

X

(Operator’s

X

Option)

  X   9.40 Disposal of Drilling fluid.   X   X   9.41 Lost circulation
materials.   X   X   9.42

Mud storage for special muds other than specified in well programmes. Tarpaulin
cover for mud stocks.

  X   X   9.43

Casing or tubing thread lubricant,

 

X

(Operator’s

X

Option)

  X   9.44

Transportation at day work rates, of Contractors’ drilling equipment to site or
between sites,

 

  (Mutual option)   X   9.45

Demobilization of Contractor’s drilling equipment and rig from the site at
Agreement completion,

 

X     X (per terms of Agreement)   9.46 a)     Pit level recorder.   X   X   b)
    Flowshow.   X   X   9.47 a)     Stabilisers for production hole.   X   X  
b)     Stabilisers for surface hole.   X   X   c)     Near bit reamer for
production hole.   X   X   d)     Shock Sub.   X   X   e)     Replacement parts
for above (a), (b), (c) & (d).   X   X   9.48 Drilling bits.   X   X   9.49 Core
barrel and associated equipment.   X   X   Conventional diamond or PDC core
heads.   X   X   Replacement parts for coring equipment.   X   X

 

32 | Page

 

 

    Supplied by Expense of     Contractor Operator Contractor Operator   9.50
Special fishing tools and services.   X   X   9.51 Formation testing, hydraulic
fracturing, acidising and other related services.   X   X   9.52 Test tanks with
pipe and fitting.   X   X   9.53 Separator with pipe and fittings.   X   X  
9.54 Additional labour if needed to connect and disconnect test tanks and
separator.   X   X   9.55 Additional labour if needed to connect and disconnect
and clean test tank and separator.   X   X   9.56 Gun or jet perforating
services.   X   X   9.57 Explosives and shooting devices.   X   X   9.58 Mud
logging services. X     X   9.59 Sidewall coring services.   X   X   9.60
Oilfield Body Gin Pole Truck and suitable equivalent for rigging-up and
rigging-down, load out:

 Not Applicable

  9.61 Local transportation of Contractor’s equipment for maintenance only. X  
X     9.63 Handling of Operators equipment and materials at the well site other
than in accordance with 9.62 (a), (b) or (c). X   X     9.64 a)     Electric and
Gamma-Neutron Logging Services.   X   X   b)     Directional, calliper and other
special services (other than Totco type directional survey).   X   X   9.65 Swab
rubbers, swab mandrel and supplies for 3-1/2” 2-3/8” and 2” tubing (as and when
considered necessary by Operator, notice thereof to be given to Contractor). X  
  X   9.66 Repairs to tools rented by Contractor at Operator’s request. X     X
  9.67 Overtime paid to non-staff drilling personnel working in excess of normal
working hours in any one day while engaged in cementing, running casing, lost
circulation jobs, etc. X     X   9.68 Roustabout labour in accordance with
Clause 8(d) of this Drilling Order to handle Operator’s supplies, materials and
equipment, etc. X   X  

 

33 | Page

 

 

    Supplied by Expense of     Contractor Operator Contractor Operator   9.69
Provision of road transportation to move Contractor’s personnel, spare parts and
perishables (as per Drilling Order). X   X     9.70 Provision of road
transportation to move Operator’s personnel, spare parts, material or
equipment.     X   X   9.71 Corrosion rings. X   X     9.72 a)     Oxygen and
hydrogen sulphide scavenging chemicals.   X   X   b)     Equipment for efficient
injection of chemicals. X X   X   9.73

Drill pipe and drill collar and subs inspection in accord with API RP7G – IADC
classification standards by approved inspection service (including full-length
ultrasonic):

a)     Prior to commencement of work on the first well in this Agreement.

X   X     b)     Thereafter before each subsequent well for drill collars, subs
and associated handling equipment and before every second well for drill pipe. X
  X     c)      More frequently than in (a) and (b) above if requested by
Operator.   X   X   9.74 Mud Engineer, if required (but Contractor will carry
out routine mud testing and treatment).   X   X   9.75 Any geological services.
  X   X   9.76 Directional drilling equipment.   X   X   9.77 Any drill pipe and
drill collars, kellys or subs in addition to those furnished by Contractor under
Section 8 of Drilling Order including required handling tools (additional to
9.16 of this Annexure).

X

(Operator’s option)

X   X   9.78 Stab valve (Ball type). X   X     9.79

Blowout Preventer Test Equipment.

a)      Cup tester.

X   X     b)      Cup tester rubbers (new). X     X

 

34 | Page

 

 

    Supplied by Expense of     Contractor Operator Contractor Operator   9.80

Shaker screens as specified by Operator.

(after first set will be charged to Operator)

X     X   9.81 Deviation Survey instrument (Dual Shot Plus Spare Clock). X   X  
  9.82 Torque gauges for drill collar make up and. X   X     9.83 First Aid
Equipment and trained First Aid person. X   X     9.84 Welding and cutting
services for welding bottom joints of casing, guide shoe, float collar and in
connection with landing casing and installing of wellhead equipment. X   X    
9.85 High Pressure welding services as required by Operator.   X   X

 

10. Casing and cementing program

 

As directed by Operator and set out in Drilling Program

 

11. Mud program

 

12. Straight hole specifications

 

13. Proposed coring program

 

As required by Operator.

 

14. Proposed wire line surveys

 

As per Operator’s Drilling Program.

 

15. Proposed fluid production test

 

If required by Operator, however it is not planned to test the wells with the
drilling rig.

 

16 Designated representative

 

17. Payments to Contractor

 

  a) Except as hereinafter provided, for all work performed on a day work basis,
with a full crew, as herein defined, Contractor shall be paid at a rate for each
twenty-four (24) hour day with effect from the spud in date of the first well
until termination of the Agreement as detailed in Sections 2.C and 2.D of the
Rig and Rates Schedule.

 

35 | Page

 

 

  b) The Repair Rate per section 2.D of the Rig and Rate Schedule, will be
payable for all periods when the Rig is not operating and Contractor is
conducting repairs on the Rig.

 

Provided however that:

 

  (i) For repairs in relation to which Operator gives notice on reasonable
grounds and properly documented that the repairs are necessary as a result of
the gross negligence, willful misconduct or breach of this Agreement by
Contractor, its employees, agents or subcontractors:

 

  (A) Operator shall if Contractor disputes Operator’s notice, pay Contractor
50% of all sums which would have otherwise been payable by Operator to
Contractor hereunder; and

 

  (B) If Operator establishes pursuant to a final ruling delivered by the
arbitrator, the breach of this Agreement, negligence or willful misconduct
alleged in its notice under this section 17(b)(i) of the Drilling Order,
Contractor shall promptly repay all amounts paid by Operator under subparagraph
(A) of this section 17(b)(i);

 

  (ii) Should the repair period total more than eight (8) hours on any one
occasion or more than eighteen (18) hours cumulatively in any calendar month,
prorated as necessary for partial months, all costs incurred in excess of this
period will be paid by Contractor without further charge to Operator hereunder;

 

  (iii) Contractor is required to keep the Rig at all times in good operating
condition at its own expense, but in the event of repairs being necessary,
Contractor will use diligence in effecting such repairs, replacements or
maintenance in a good and workmanlike manner and will familiarise itself with
the location of rentable replacements for Contractor's items.           Daily
Rig greasing and lubricating time shall not be classified as "repair time" and
Contractor will be reimbursed for no more than a ½ hour per day at the rate
prevailing at the time these services are conducted. Contractor shall advise
Operator’s Representative of intended maintenance schedule prior to such
maintenance being commenced.           For convenience of tracking and
invoicing, the repair rate for the first calendar month is to be pro-rata the
monthly time allowance as detailed in clause 17(b)(ii) above, then the full
monthly repair rate allowance can be applied thereafter. The same pro-rata
allowance also to be applied to the last period of services performed under this
Agreement.

  

  c) The standby rates per Sections 2.E and 2.F of Rig and Rate Schedule will be
payable:

 

  (i) During any period of delay when Contractor is unable to proceed with
Drilling because of heavily stormy weather, or any act or omission of Operator
including, without limitation, the failure of any of Operator’s items, or the
failure of Operator to issue instructions, Operator provided items or Operator
services; or

 

  (ii) From the moment Contractor could have spudded, after all pre-spud
inspections and endurance tests were completed and signed off by both Parties,
in a well had it not been delayed by Operator until the day rate with pipe first
becomes payable.

 

  d) A full drilling crew shall consist of (26) twenty-six men.

 

For each man the crew is short, Contractor's day rates shall be reduced by the
daily rate of pay for such a man for the relevant classification of worker. This
will not apply to the standby without crew rate or the repair rate which will
reduce in accordance with the Agreement.

 

Drilling rates are based on Contractor providing the following minimum full rig
crew on site detailed in section 3 of the Rig and Rate Schedule.

 

A full tour crew is detailed in Clause 3 of the Rig and Rate Schedule (and
inclusive table of personnel).

 

36 | Page

 

 

  e) Camp Services

 

The Contractor will provide camp and messing services or other accommodations as
required for Contractor’s own personnel and sub-contractors.

 

  (f) Day Rate Payments.

 

Day rate payments on any well to be drilled under this Agreement will commence
immediately after Contractor has mobilised and assembled the Rig and Personnel
on the first or subsequent Operator’s locations and the Rig Acceptance Test as
detailed in Annexure VI has been completed and signed off by the Operator’s
representative.

 

Day rate payments on any well to be drilled under this Agreement will cease
immediately after all the Contractor’s drill pipe and BOP’s have been laid down
and the mud tanks cleaned.

 

  (g) Not Applicable

 

  (h) Payment to Contractor for rig moves shall be on the basis that Contractor
shall move between locations (Inter-Wells) at rates per Annexure II of the Rig
and Rates Schedule for distances up to 40 km. This rate shall include rig rates,
crews and all trucking and associated equipment expenses.

 

For distances in excess of 40 km, the rate shall be negotiated prior to move.

  

  (i) Not used.

 

37 | Page

 

 

  (j) Rig Commissioning

 

Contractor shall be paid a flat lump sum to:

 

- fully assemble the rig at the Contractor’s maintenance facility in Israel,
function test all mechanical, electrical and the mud systems and inspection test
all load points, including but not limited to the mast, by a certified
independent inspection company as approved by the Operator.

 

Contractor further undertakes without any further charge to the Operator, to
transport the Rig and all equipment detailed in the Rig Equipment Inventory to
the first drilling location in Israel, position the Rig and rig up to commence
drilling on the first location as per Section 2.A of the Rig and Rates Schedule.

 

Commencement of payments to Contractor per this Drilling Order Sections 17(a) to
17(i) will be from the date upon which Contractor is rigged up, Rig Acceptance
Test is completed and the rig and personnel are ready to spud the first well
pursuant to this Agreement.

 

  (k) Demobilization

 

Upon termination of this Agreement, and unless otherwise agreed in writing by
the parties, Contractor shall be entitled to a flat lump sum payment to remove
its Rig and equipment out of the area of operations as per Section 2.B of the
Rig and Rates Schedule. Unless agreed in writing by both parties beforehand,
Contractor’s equipment must be fully removed from the Operator’s last site of
services under this Agreement within thirty (30) days of cessation of day rate
operations on that well. If for any event, the Rig is not removed from the
location within 30 days, the Operator, at its sole discretion, may elect to
remove the Rig and related equipment to another location of the Operator’s
choosing. In the event that the Operator removes the Rig, it shall offset any
cost it may incur against the demobilization fee in Annex II. Contractor shall
indemnify and hold Operator harmless from and against any and all claims,
damages, costs and/or expenses that may result from such Rig removal or occur to
Contractor’s Rig and/or equipment during this period.

  

  (l) Not Used

  

  (m) Miscellaneous Equipment provided by Contractor as described in Section 6.0
of the Rig and Rates Schedule will be charged at rates detailed in that Section
in accordance with Section 9 of the Drilling Order.

 

  (n) If the operation of this Agreement is suspended by the Operator pursuant
to the provisions of Clause 33, the Operator shall:

 

  (aa) pay to Contractor following the commencement of the period of suspension
and until operations are resumed or Agreement is terminated in accordance with
the provisions of Clause 33 thereunder, the Standby Rate (with Crew) set out in
Section 2.F of the Rig and Rates Schedule and all other costs and expenses
incurred by the Contractor pursuant to the provisions of Clause 33 of the
Agreement;

 

  (o) If following such suspension Operator gives notice to Contractor requiring
Contractor to resume operations under this Agreement, Contractor shall do so in
accordance with any conditions set out in the notice and Operator shall:

 

  (aa) pay to Contractor for a period of thirty-six (36) hours only:

 

the Standby Rate (with crew) set out in Section 2.E of the Rig and Rates
Schedule.

 

  

 

 

(p) The payments under sections 17(n) and (o) of the Drilling Order shall be in
addition to the payment due to Contractor under Section 3 of the Rig and Rates
Schedule to move the Rig to the site of the first well to be drilled following
the re-commencement of operations after the periods of suspension, provided that
if the reason for the suspension is established by Operator to be negligence,
willful misconduct or breach of this Agreement by Contractor, its employees,
agents or subcontractors, then Contractor shall promptly repay to Operator all
monies paid pursuant to section 17(n) and (o) of the Drilling Order.

 

  (q) Rig Move Between Wells of the Operator if Option Drilling Program has been
executed, Contractor shall be paid a flat lump sum to:

 

- dis-assemble the Rig at the completion of day rate Services on an existing
well of the Operator

 

- transport Rig and all equipment detailed in the Rig Equipment Inventory to the
next drilling location as advised by the Operator

 

- and position the Rig and rig up to commence drilling on the location as per
Section 2.A of the Rig and Rates Schedule.

 

Commencement of payments to Contractor per this Drilling Order Sections 17(a) to
17(j) will be from the date upon which Contractor is rigged up, Rig Acceptance
Test is completed and the rig and personnel are ready to spud any such
subsequent well pursuant to this Agreement.

  

18. Escalation of Rates

  

All of the rates of payment set out in this Agreement will remain fixed for a
period of one (1) year from the commencement of day rate operations on the first
well under this Agreement, however such rates and payments for a well on which
day rate operations have commenced prior to the above anniversary date will not
be subject to adjustment until the completion of that well.

38 | Page

 

 

Annexure II: Rig and Rate Schedule

 

Rig Commissioning

 

  USD 384,000 if rigged up on Meged 8 prior to mobilization to MJ#1. USD319,000
if only rigged up on MJ#1.       Mobilisation To First Well of the Operator  
(included in Rig Commissioning)       Move between wells of the Operator  

$100,000 if on same location.

      Cancellation by Operator more than 30 days prior to mobilization  

USD 250,000

 

      Cancellation by Operator less than 30 days prior to Mobilisation Date  
USD 250,000 + incurred mobilisation freight expenses + incurred freight
demobilisation expenses back to point of origin for equipment that was shipped
to Israel for MJ#1 well.

 

Demobilisation at Completion:

  a) To Point of Origin (Romania) USD 350,000 , which will be directly set off
by any mobilization fee paid by a new Operator           b) Directly to another
Operator

USD 270,000 (if in Israel), which will be directly set off by any mobilization
fee paid by new Operator

          c) To dry-stack in Israel (at Contractors own site) USD 270,000

 

Operating Daily Rate  USD 23,340 Repair Rate  USD 21,000 Standby with Crew  USD
19,839 Standby without Crew
Shabbat Rate  USD 17,505
USD 19,839 Camp/billeting  Not Applicable Excess Meal Cost  Not Applicable
Excess Bed Cost  Not Applicable

39 | Page

 

2.Personnel to be furnished by Contractor

 

Drilling Personnel  On Duty   Off Duty  Assigned Total 

Position

Daily Cost

  Project Manager   1    0   1          Safety Officer   1    1   2        
Senior (day)Toolpusher   1    1   2      Night Toolpusher   1    1   2     
Driller   2    2   4      Assistant Driller   2    2   4      Derrickman   2  
 2   4      Floorman   8    8   16      Chief Electrician   1    1   2     
Electrician   2    2   4      Chief Mechanic   1    1   2      Mechanic   3  
 3   6      Welder   1    1   2      TOTAL   26    25   51     

 

Personnel crew changes are to be regulated so that no personnel is onsite longer
than 8 weeks without a minimum 2 weeks break.

 

The Senior Toolpusher, Night Toolpusher, drillers and assistant drillers must
have valid and current well control certificates issued by IWCP or Well-Cap.

 

3.            Transport/Materials Handling Equipment Rates

 

  A. Forklift per hour Not Applicable   B. Pole Truck per hour Not Applicable

 

4.            Miscellaneous equipment provided by Contractor

 

  A. To be Included as Applicable

 

40 | Page

 

 

Annexure III: Drilling Program

 

Drilling Program Management Summary

Well Information Summary

 

Well Name: Megiddo-Jezreel #1(“MJ1”) License: Megiddo-Jezreel License 401
Operator: Zion Oil & Gas, Inc. Ground Elevation: -187 meters Surface
Coordinates: X = 248546.9468   Y = 703.770.4468   Latitude 32o 25’ 39.62" N  
Longitude 35o 30’ 48.88" E Seismic Line: Shot Point 292 on Seismic line ZI-5128
Planned Total Depth: TVD 4500 meters Objective Formations: 1) Cretaceous (Yagur
Fm.) between 1700 and 1900 meters TVD   2) Cretaceous (Hatira Fm.) between 2250
and 2370 meters TVD.   3) Mid to Late Jurassic (Haifa Fm.) between 2470 and 2800
meters TVD.   4) Lower Jurassic (Qeren / Nirim Fm.) between 3010 and 4270 meters
TVD.   5) Triassic (Mohilla Fm.) between 4270 and 4500 meters TVD.     Coring
requirements: Rotary sidewall cores optional Deviation:None, a pendulum BHA will
be run on each hole section to maintain a straight hole and to avoid doglegs

 

Casing Program Summary

 

Hole size  Depth  OD   Weight   Grade   Coupling  TOC   Comments 26”   300m 
 24”    171.9 ppf    X-52 LP   Welded   Surf   Contingent casing 22”   580m 
 18-5/8” @1638
meters    87.5 ppf    K-55   Butt   Surf   Surface casing 14-3/4”   1700m 
 13-3/8”    68.0 ppf    N-80   Butt   500m  Intermediate casing 12-1/4”   2800m 
 9-5/8”    47.0 ppf    L-80    LTC   2500   Intermediate Liner 8-1/2”   4500m 
 7”    26.0/ 29.0 ppf    L-80 / P-110   LTC / Butt   2700   Production Liner

 

41 | Page

 

  

Mud Program Summary

 

Hole size  Mud type   Density  26” and 22”  Low Solids Non-Dispersed (“LSND”) 
 8.4 – 8.5 ppg  17-1/2”  LSND with PAC   8.4 – 8.7 ppg  12-1/4”  LSND with PAC 
 8.7 – 9.2 ppg  8-1/2”  LSND with polymers, calcium carbonate   9.5 – 10.0 ppg 

 

Logging Program Summary

 

Hole size  Proposed Logs 26”  SP, Gamma Ray, Dual Laterolog, Caliper 22”  SP,
Gamma Ray, Dual Laterolog, Caliper 17-1/2”  Dual Laterolog, SP, Gamma Ray,
Caliper    Compensated Neutron/Lithology-Density    Compensated Sonic 12-1/4” 
Dual Laterolog, SP, Gamma Ray, Caliper    High Resolution Induction  (optional)
   Nuclear Magnetic Resonance (optional)    Micro-Spherically Focused
Resistivity    Compensated Neutron/Lithology-Density    Di-pole Sonic (optional)
   Formation Imaging Tool with dipmeter (optional)    VSP 8-1/2”  Dual
Laterolog, SP, Gamma Ray, Caliper    High Resolution Induction (optional)   
Nuclear Magnetic Resonance  (Optional)-    Micro-Spherically Focused Resistivity
   Compensated Neutron/Lithology-Density    Di-pole Sonic    Formation Imaging
Tool with dipmeter    VSP

 

42 | Page

 

 

Possible Drilling Problems

 

Hole size  Problem 26”  Loss of circulation or artesian flow, high torque in
fractured rocks, sloughing volcanics, hole cleaning, washouts 22”  Loss of
circulation or artesian flow, high torque in fractured rocks, hole cleaning,
washouts 17-1/2”  Loss of circulation or artesian flow, high torque in fractured
rocks 12-1/4”  Seepage, minor loss of circulation, CO2, chert beds, high torque
8-1/2”  Seepage, minor loss of circulation, CO2, chert beds, high torque

 

Proposed Bit Program

 

No.

  

Size

(in.)

  Type 

Out

(m)

  

Drld

(m)

  

Time

(hrs)

  

ROP

(m/hr)

  

WOB

(Mtn)

  RPM   Remarks   1    26   GTX-20       300    270    90    3.0   15-30 
 50-80    (IADC 515)   2    22   GTX-C11H   580    280    70    4.0   15-30 
 50-80    (IADC 435)   3    17-1/2   GTX-G20   860    280    73.5    3.8  
15-30   50-80    (IADC 515)   4    17-1/2   GTX-G33   1140    280    80    3.5  
15-30   50-80    (IADC 535)   5    17-1/2   GTX-G33   1420    280    80    3.5  
15-30   50-80    (IADC 535)   6    17-1/2   GTX-G33   1700    280    80    3.5  
15-30   50-80    (IADC 535)   7    12-1/4   GTX-G20H   1980    280    56  
 5.0   15-25   70-90    (IADC 515)   8    12-1/4   GTX-G20H   2260    280  
 56    5.0   15-25   70-90    (IADC 517)   9    12-1/4   GX-38CH   2440    180  
 52    3.5   15-25   70-90    (IADC 517)    10    12-1/4   GX-38CH   2620  
 180    52    3.5   15-25   70-90    (IADC 547)    11    12-1/4   GX-38CH 
 2800    180    52    3.5   15-25   70-90    (IADC 547)   12    8-1/2   GX-38CH 
 2980    180    52    3.5   15-22   70-90    (IADC 547)   13    8-1/2   GX-38CH 
 3160    180    52    3.5   15-22   70-90    (IADC 547)   14    8-1/2   GX-38CH 
 3340    180    52    3.5   15-22   70-90    (IADC 547)   15    8-1/2   GX-38CH 
 3520    180    52    3.5   15-22   70-90    (IADC 547)   16    8-1/2   HC408Z 
 3870    350    70    5.0   10-18   90-120    (IADC M433)   17    8-1/2 
 HC408Z   4220    350    70    5.0   10-18   90-120    (IADC M433)   18  
 8-1/2   HC408Z   4500    350    70    5.0   10-18   90-120    (IADC M433) 

 

43 | Page

 

 

Estimated Pore and Fracture Pressures

 

[ex10i_001.jpg]

 

44 | Page

 

  

Anticipated Well Lithology

Megiddo -Jezreel #1 PROPOSED SCHEMATIC

 

 [ex10i_002.jpg]

 

45 | Page

 

 

Annexure IV: Rig Equipment Inventory

 

F 400-DEC - EQUIPMENT LIST

   

REF   EQUIPMENT DESCRIPTION   OFFERED           1   RIG DATA     1.1   Rig name
and type   Dafora Rig #16/ F400 DEC 1.2   Year of Construction/ Last Major
Refurbishment & TPI   1989/ 2013 1.3   Loads required to move Rig and Rig   59
1.4   Hook load capacity (tonnes)   400 1.5   Recommended Drilling depth range
(5.1/2" / 4.1/2" DP)    5,000 - 7,000 m           2   RIG STORAGE CAPABILITIES  
  2.1   Liquid mud (m3)   315 2.2   Waste oil (m3)   2 2.4   Pipe racks (for 9
5/8" casing) (m)   2500           3   DRAWWORKS     3.1   Make   UPETROM 3.2  
Type   TF-44-E 3.3   Max. intake power (HP)   3,000 3.4   Number of speeds    4
+ 2 reverse 3.5   Max. single pull line capacity (tonnes)    44 w/ 12 lines; 38
w/ 10 lines 3.6   Hoisting drum grooved for line OD (in inch)   35 mm (1-3/8")
3.7   Drilling line guide (type)   UPETROM 3.8   Make-up cathead (make)  
UPETROM 3.9   Break-out cathead (make)   UPETROM 3.10   Low drum clutch (type)  
AD-2  950 3.11   Low drum clutch torque capacity (kgf)   2,900 3.12   High drum
clutch (type)   AVB 1120x300 3.13   High drum clutch torque capacity (kgf)  
17,550 3.14   Brake (type)   BULL WHEEL BRAKE BAND 3.15   Electromagnetic brake
(make/type)   UPETROM/ FE 1400 3.16   Torque capacity at 50 RPM (daNm)   7,000
3.17   Brakes cooling system capacity (m3)   18 3.18   Cooling fluid   water
3.19   Automatic drilling control (type)   DAAS 3.20   Crown-O-matic device
(type)   UPETROM 3.21   Quantity of drilling engines installed   2 3.22  
Drilling engines make   ELECTROPUTERE  CRAIOVA 3.23   Drilling engines type  
MCF 850 3.24   Engines rated power (HP)   1140 each

 

46 | Page

 

 

4   MAST     4.1   Make   UPETROM 4.2   Type   MA 400-2 4.3   Total height from
rig floor (m)   44 4.4   Total height from ground level (m)   50.9 4.5   Max.
hookload capacity (tonnes)   400 w 12 lines 4.6   Racking capacity 4.1/2" /
5.1/2" DP, triple stands (m)   9,000/ 7,200           5   CROWN BLOCK     5.1  
Make    UPETROM 5.2   API rated capacity (tonnes)   500 5.3   Number of sheaves
  7 5.4   Sheaves grooved for OD line   35 mm (1-3/8")           6  
SUBSTRUCTURE     6.1   Make and type   UPETROM 6.2   Rig floor dimension (m x m)
  11.2 x 10.9 6.3   Rig floor set-back capacity (tonnes)   250 6.4   Rig floor
rotary cap. (tonnes)   400 6.5   Rig floor height (m)   6.9 6.6   Clear height
to rotary beams (m)   5.5           7   TRAVELLING BLOCK     7.1   Make  
6-35-MC-500 7.2   Type   UPETROM 7.3   Rated capacity (tons)   500 7.4   Number
of sheaves   6 7.5   Sheaves grooved for OD line   35 mm (1-3/8")           8  
HOOK BLOCK     8.1   Make    UPETROM 8.2   Type    Integral with travelling
block 8.3   Rated capacity (tonnes)   500           9   UTILITY AIR WINCHES    
9.1   Quantity   3 9.2   Type    1 x TP3000; 2 x TP1200 9.3   Rated capacity
(tonnes)   1 x 3; 2 x 1.2 9.4   Installation site    Rig floor, catwalk end;
monkeyboard

 

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10   DRILLING LINE     10.1   Make   Mechel 10.2   size   35 mm (1-3/8") 10.3  
Type   Seal 6x19 10.4   Breaking strength (tonnes)   45           11   DEADLINE
ANCHOR     11.1   Make   NATIONAL 11.2   Type   131T 11.3   Rated static
capacity (kN)   333.61 11.4   With OD drilling line   35 mm (1-3/8")          
12   AIR NAVIGATIONAL MARKINGS   Derrick top blinking red light           13  
ROTARY TABLE     13.1   Make   UPETROM 13.2   Type   MRL 275 13.3   Rated
capacity (tonnes)   500 13.4   Max. opening   27-1/2" 13.5   Driven by   Cardan
shaft 13.6   Motor (make)   ELECTROPUTERE CRAIOVA 13.7   Type   MCF 850 13.9  
Continuous power (HP)   1140           14   MASTER BUSHING     14.1   Make  
UPETROM 14.2   Type   27-1/2" 14.3   Insert bowl size for all casing sizes   yes
          15   SWIVEL     15.1   Make   UPETROM 15.2   Type   CH400 15.3   Rated
static capacity (tonnes)   400 15.4   Working pressure (bar)   350           16
  TOP DRIVE     16.1   Make   TESCO Corp. 16.2   Type   500 HCI 750 Hydraulic
16.3   Rated power (HP)   750 16.4   Rated capacity (tonnes)   500 16.5  
Working pressure (bar)   350 16.6   Max. drilling torque (lb-ft)   29,476 16.7  
Max. break out torque (daNm)   33,687 16.8   Max. make up torque   29,476 16.9  
Max. speed (RPM)   180 16.10   Power unit engine   1 x CAT 3412 V12 16.11  
Power unit pumps (number installed)   4 16.12   Power unit pumps max. pressure
(PSI)   4,000

 

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17   MUD PUMP NO: 1     17.1   Make   UPETROM 17.2   Type   Triplex 3PN1300 17.3
  Rated power (HP)   1300 17.4   Max. WP (bar)   350 17.5   Fluid end type  
SIMPLE ACTION 17.6   Pulsation dampeners type   AP-350 17.7   Reset relief valve
  UPETROM 17.8   Stroke counter (make)   Martin Decker 17.9   Powered by
electric engines (make)   ELECTROPUTERE CRAIOVA 17.10   Number of engines
installed   2 17.11   Type   MCF 550 KW 17.12   Engines output power (HP)   737
each 17.13   Supercharging pump (make)   UPSS Botosani 17.14   Powered by
electric engine (HP)   40           18   MUD PUMP NO. 2     18.1   Make  
UPETROM 18.2   Type   Triplex 3PN1300 18.3   Rated power (HP)   1300 18.4   Max.
WP (bar)   350 18.5   Fluid end type   SIMPLE ACTION 18.6   Pulsation dampeners
type   AP-350 18.7   Reset relief valve   UPETROM 18.8   Stroke counter (make)  
Martin Decker 18.9   Powered by electric engines (make)   ELECTROPUTERE CRAIOVA
18.10   Number of engines installed   2 18.11   Type   MCF 550 KW 18.12  
Engines output power (HP)   737 each 18.13   Supercharging pump (make)   UPSS
Botosani 18.14   Powered by electric engine (HP)   40           19   MUD PUMP
NO. 3     19.1   Make   UPETROM 19.2   Type   Triplex 3PN1000 19.3   Rated power
(HP)   1000 19.4   Max. WP (bar)   350 19.5   Fluid end type   SIMPLE ACTION
19.6   Pulsation dampeners type   AP-350 19.7   Reset relief valve   UPETROM
19.8   Stroke counter (make)   Martin Decker 19.9   Powered by electric engines
(make)   ELECTROPUTERE CRAIOVA 19.10   Number of engines installed   1 19.11  
Type   MCF 850 KW 19.12   Engine output power (HP)   1080 19.13   Supercharging
pump (make)   UPSS Botosani 19.14   Powered by electric engine (HP)   40

 

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20   MUD PUMP SUCTION LINES     20.1   Mud suction lines (No.)   3 20.2   Size
(in inch)   10 20.3   Suction line dampeners (No.)   3 20.4   Suction line
dampeners (Make)    UPETROM           21   MUD DISCHARGE LINES (each pump has
separate line)     21.1   Numbers   3 21.2   Size (inch)   4 21.3   Flexible
line section (type)    JUMPING HOSE 21.4   Working pressure (bar)   350        
  22   STAND PIPE MANIFOLD     22.1   Connection ends (type)    4”LP 22.2  
Valves (type)    CAMEROON 22.3   Inside diameter and W.P. (inch x bar)    4’’ X
350 bar           23   STAND PIPE     23.1   How many    DOUBLE 23.2   Length
(m)   16 23.3   Inside diameter and WP (inch x bar)    4’’ X 350 bar          
24   ROTARY HOSE / CIRCULATING HOSE     24.1   Number   2 24.2   Rotary hoses
make/size   Continental Phoenix / 3-1/2" 24.3   Length (m)   22 24.4   Pressure
(bar)   350           25   DIESEL ENGINE GENERATOR SETS     25.1   Number   3
25.2   Diesel engines make   CATERPILLAR 25.3   Diesel engine type   CAT 3512B
DITA SCAC 25.4   Maximum continuous power (KW)   1,090 25.5   At speed of (RPM)
  1,500

 

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26   AC GENERATORS     26.1   Number   3 26.2   Make   CATERPILLAR 26.3   Type  
SR4B 26.4   Maximum continuous power (KW)   1,090 26.5   Power factor   0.7 26.6
  Output (Volts)   600 26.7   Frequency (Hertz)   50 26.8   At speed of (RPM)  
1,500         27   SCR CONVERSION SYSTEM     27.1   Make   ICPE ACTEL Bucharest
27.2   SCR Type    SCRN 3*850 / 4*550 27.3   SCR No.   1 27.4   Maximum
continuous power (kW)   4,550 27.5   Output (Volts)   690           28  
EMERGENCY GENERATOR     28.1   Make    CATTERPILLAR 28.2   Number of units   1
28.3   Type    GEP500 28.4   Max. continuous power (KW)   500 28.5   Output
voltage (Volts)   400 28.6   Frequency (Hz)   50           29   AIR COMPRESSORS
    29.1   Make   INGERSOLL RAND 29.2   Number installed   2 29.3   Type(s)  
RAND 37kW 29.4   Max. flow rate (m3/min)   6,5 29.5   Air pressure service   10
        30   AIR SPARE TANKS     30.1   Type   GPA8 30.2   Volume (m3)   8      
    31   MUD TANKS GENERAL     31.1   Total mud tanks installed (No.)   5 31.2  
Total mud system capacity (m3)   315 31.3   Total usable volume (m3)   270

 

51 | Page

 

 

32   Mud tank No. 1 - capacity (m3)   45 32.1   Used for:   shakers tank 32.2  
Electrical agitators (No.)   1 32.3   Electrical agitators (make and type)  
Neptun SA / 2NB16-VO5 32.4   Powered by electric motor (HP)   10           33  
Mud tank No. 2 - capacity (m3)   60 33.1   Used for:   cleaning tank 33.2  
Electrical agitators (No.)   3 33.3   Electrical agitators (make and type)  
Neptun SA / 2NB16-VO5 33.4   Powered by electric motor (in HP)   10           34
  Mud tank No. 3 - capacity (m3)   70 34.1   Used for:   mud tank 34.2  
Electrical agitators (No.)   3 34.3   Electrical agitators (make and type)  
Neptun SA / 2NB16-VO5 34.4   Powered by electric motor (in HP)   10 34.5  
Bottom guns (No.)   3           35   Mud tank No. 4 - capacity (m3)   70 35.1  
Used for:   mud tank 35.2   Electrical agitators (No.)   3 35.3   Electrical
agitators (make and type)   Neptun SA / 2NB16-VO5 35.4   Powered by electric
motor (in HP)   10 35.5   Bottom guns (No.)   3           36   Mud tank No. 5 -
capacity (m3)   70 36.1   Used for:   reserve tank 36.2   Electrical agitators
(No.)   3 36.3   Electrical agitators (make and type)   Neptun SA / 2NB16-VO5
36.4   Powered by electric motor (in HP)   10 36.5   Bottom guns (No.)   3      
    37   MIXING PUMPS (No)   2 37.1   Make   UPSS Botosani 37.2   Type   BPG150
37.3   Driven by motor (type)   electric 37.4   Motor (HP)   100           38  
SHALE SHAKER     38.1   Number of Shakers   3 38.2   Make   MI SWACO 38.3   Type
  ALS II 38.4   Screens (make)    MI SWACO

 

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39   MUDCLEANER     39.1   Make   SWACO 39.2   Type   2-12/6T4 ALS II 39.3  
Number of cones and size (No. x inch)   D-silter 12 cones x4" / D-sander 2 cones
x12" 39.4   Centrifugal pump (make)   AVERSA BUCURESTI 39.5   Type   AG 150 39.6
  Number installed   2 39.7   Driven by electric engine (HP)   100         40  
VACUUM DEGASSER     40.1   Type    Upetrom 40.2   Gas discharge line running to
   Out of site 40.3   Mud rate (l/s)   53 40.4   Gas rate (m3/ min)   1.6 40.5  
Charging pump capacity (m3/h)   200 40.6   Vacuum pump capacity (m3)   100      
  41   MUD GAS SEPARATOR (POOR BOY)     41.1   Size OD / height (m)   0.8 / 7.5
41.2   Gas vent line running to   up to mast ODS 41.3   Mudleg height (m)   3.3
41.4   Vent line size (inch)   8 41.5   Mud discharge line size (inch)   8 41.6
  Feeding line size (inch)   4 41.7   Trip tank (capacity-m3)   12 41.8   Level
indicator visible from driller's site   yes 41.9   Feeding pump (type)    AG150
41.10   Mud pit level indicator (make)   UZTEL 41.11   Indicator (type)  
 RULLER           42   DRILLING CONSOLE     42.1   Make    MARTIN DECKER 42.2  
Type   AWE6K 42.3   WEIGHT INDICATOR     42.4   Make   MARTIN DECKER 42.5   Type
   E 42.6   Dead-line load    YES 42.7   MUD PUMP PRESSURE GAUGES     42.8  
Make   MARTIN DECKER 42.9   Type    GM6A - 255 42.10   Pressure range (bar)  
350 42.11   ROTARY SPEED TACHOMETER     42.12   Make   MARTIN DECKER 42.13  
Reading range (RPM)    0-200 42.14   TONG TORQUE INDICATOR     42.15   Make  
MARTIN DECKER 42.16   Type   H6DP 42.17   reading range (lb)    0-11000 42.18  
MUD PUMP STROKE INDICATOR     42.19   Quantity (No.)   2 42.20   Make   MARTIN
DECKER

 

53 | Page

 

43   DRILL. PARAMETER RECORDER     43.1   Make    MARTIN DECKER 43.2   Model
(type)   SIX PENS 43.3   Parameter recorded-WOB    YES 43.4   Parameter
recorded-ROP    YES 43.5   Parameter recorded-RPM    YES 43.6   Parameter
recorded-SPM 1/SPM 2    YES 43.7   Parameter recorded-Pump pressure    YES      
    44   WATER PUMPS     44.1   No.   2 44.2   Make    UPSS BOTOSANI 44.3   Type
   CERNA 44.4   Driven by (type)    ELECTRIC ENGINE 44.5   Rated power (HP)   10
          45   MISCELLANEOUS     45.1   Warehouse (No.)   2 45.2   Workshop
(No.)   2 45.3   Muster point tent   1           46   COMPENSATION UNIT     46.1
  Voltage   690 - 720 V / AC 46.2   Frequency (Hz)   50           47   WIRELINE
UNIT     47.1   Make   NOV 47.2   Wireline OD / length (mm / m)   2.3 / 7,620
47.3   Max speed (m/min)   365 47.4   Max pull (kg)   650           48   SURVEY
UNIT     48.1   Make   MD TOTCO           49   PROPOSED DRILL STRING   Quantity
(no.) 49.1   5 1/4" Square Kelly     49.2   Kelly spinner     49.3   5 1/4" high
torque kelly bushing     49.4   5 1/4" kelly Cock     49.5   9 1/2" DC   12 49.6
  8" DC   18 49.7   6 1/2" DC   24 49.8   5 1/2" HW DP   12 49.9   5" DP   475
49.10   Subs   30

 

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50   BOP stack     50.1   21 1/4“ 2M annular   1 50.2   20 3/4" 3M double ram
preventer   1     Rams - blind, 5"   1     Side outlets for kill/choke
connections - 4 1/16" 3M flanges + 2.1/16 3M   1 50.3   20 3/4" 3M single ram  
1 50.4   Side outlets for kill/choke connections - 4 1/16" 3M flanges + 2.1/16
3M   1 50.5   13 5/8" 5M annular preventer     50.6   13 5/8" 5M double ram    
50.7   13 5/8" 10M single ram     50.8   Manual gate valves, 4.1/16" 5M, 2.1/16"
5M   4 50.9   HCR valve, 4.1/16" 5M, 2.1/16" 5M   2 50.10   Check valve, 2.1/16"
5M   1 50.11   Kill hoses, 3" 5M   2           51   SPOOLS & ADAPTORS     51.1  
Spacer spool, 21 1/4" 2M - 20.3/4" 3M   1 51.2   Spacer spool, 20 3/4" 3M   2
51.3   Mud cross, 20 3/4" 3M   1     Side outlets for kill/choke connections - 4
1/16" 3M flanges, 2.1/16" 3M   1 51.4   Spacer spool 15 5/8" 5M x 13 5/8 10M   1
51.5   DSA 13 5/8" X 13 5/8 X 5M   1 51.6   DSA 13 5/8" X 13 5/8 X 10M   1      
    52   CHOKE MANIFOLD & ACCUMULATOR     52.1   3" 10M choke manifold with 1
manual and 1 hydraulic choke   1 52.2   1 drillers remote hydraulic choke
control panel   1 52.3   Accumulator, 6 station koomey unit, API sized for BOP's
  1           53   KILL MANIFOLD     53.1   2.1/16' 10M kill manifold   1

 

55 | Page

 

54   PROPOSED DRILLING TOOLS     54.1   1 set DDs and 1 set SDDs rotary tongs  
2 54.2   1 Bloom& Voss SSW10 pipe spinner   1 54.3   1 EZ torque, 100,000 ft-lb
capacity   1 54.4   1 mud bucket for 3 1/2" and 5" drill pipe   1 54.5   1
basket complete with all crossovers, lift subs for all tubulars   1 54.6  
Elevators for all sizes requested   2 for each size 54.7   Drill collar slips
for all sizes requested   2 for each size 54.8   Drill pipe slips for all sizes
requested   2 for each size 54.9   Safety clamps for all sizes requested   2 for
each size           55   PROPOSED FISHING TOOLS     55.1   Reverse Circulation
Junk Basket 17 1/2"   1 55.2   Reverse Circulation Junk Basket 11"   1 55.3  
Reverse Circulation Junk Basket 7. 7/8"   1 55.4   Safety Joint 8"   1 55.5  
Safety Joint 6.1/4"   1 55.6   Overshot 11.3/4"   1 55.7   Overshot 7.7/8"   1
55.8   Fishing Magnet 7"   1 55.9   Fishing Magnet 5.1/2"   1

 

56 | Page

 

 

ANNEXURE V - INSURANCE POLICY

EXHIBIT “V”

ADDITIONAL INSURANCE REQUIREMENTS

 

Insurance Carried by the Contractor

 

1.During the life of this Contract, Contractor shall at Contractor's expense
maintain, with an insurance company or companies, approved by Operator who are
authorized to do business in Israel or who have a rating of at least A- by S&P
or equivalent, insurance coverage of the kind and in the amount set forth
herein, insuring the liabilities specifically assumed by Contractor in Paragraph
14 of this Contract. Contractor shall procure from the company or companies
writing said insurance a certificate or certificates that said insurance is in
full force and effect and that the same shall not be cancelled or materially
changed without ninety (90) days prior written notice to Operator and the
Petroleum Commissioner. The insurance shall be endorsed to provide that the
Insurers waive their right of subrogation against Operator, Operator's
associated and/or related and/or affiliated and/or subsidiary companies or
corporations, firms or organizations and/or their respective shareholders and/or
directors and/or officers and/or employees and/or servants and/or
representatives and/or agents for their respective rights and interests and
other parties designated by Operator, including any party the Operator may be
obligated to indemnify for waiving such right of subrogation, the State of
Israel and any of its authorities. The waiver of subrogation shall exclude
security companies, engineers and inspectors not employed by Operator and/or
whoever caused the damage with wilful intent. The Contractor will endorse the
polices to include The State of Israel and the Commissioner as additional
insureds. The policies shall include a provision according to which
noncompliance with the duties imposed upon the insured and/or a breach of any of
the policies conditions in good faith will not prejudice the rights of the
Operator and/or the other additional insured parties to receive indemnity. All
per the new Israeli Ministry of Infrastructure Energy and Water guidelines (SEP
2014 and after).

 

2.Employer’s Liability Insurance with limits of NIS 20,000,000 any one employee
and NIS 20,000,000 per occurrence and in the aggregate. The insurance shall be
extended to indemnify the Operator and/or any person and/or entity which the
Operator has written obligation to indemnify and/or the Additional Insured
Parties and/or any party acting on their behalf in the event that they are
construed to be the employer of the employees of Contractor.

 

3.Third Party Liability Insurance with limits of NIS 20,000,000 any one
occurrence and in the aggregate. The Operator's and/or the Additional Insured
Parties property shall be considered as third party and no limitation will apply
regarding property being worked upon and/or in the possession and/or care and/or
control and/or custody of Contractor excluding the part specifically worked
upon.

 

4.Property Insurance on an "All Risks Basis" or "fire extended" (including
burglary up to NIS 20,000,000, natural disaster, malicious damage) to cover all
property brought to the drilling site by Contractor or anyone on its behalf, on
a full reinstatement basis. The Insurance as herein required shall cover transit
risks including loading and unloading. The Contractor will be entitled not to
arrange this insurance regarding earthquake peril. In case that the Contractor
will not arrange a cover for earthquake peril he will exempt the Operator and/or
the State of Israel and/or Israel Land Administration (if applicable) for any
loss to damage due to earthquake. The Contractor hereby releases Kibbutz Sde
Eliyahu and /or anyone on its behalf from any and all liability, and finally and
irrevocably waives any claim from any of the above, in respect of any loss or
damage for which it is, or would have been, entitled to indemnity pursuant to
the above Property Insurances, were it not for the deductibles specified in the
policy (or its failure to obtain and maintain valid Property Insurances),
provided that such waiver shall not apply to those who caused the damage
maliciously.

 

57 | Page

 

 

5.Compulsory Third Party Bodily Injury Insurance covering registered motor
vehicles (including owned, hired, leased, non-owned or rental equipment) as
required by law for all registered vehicles engaged under this Contract,
Property Damage Liability not less than NIS 500,000 per vehicle, Comprehensive
automobile insurance covering all motor vehicles engaged under this agreement
and all risk- heavy mechanical equipment insurance.

 

6.Compulsory Motor Insurance covering registered motor vehicles (including
owned, hired, leased, non-owned or rental equipment) as required by law for all
registered vehicles engaged under this Contract, Auto Third Party Property
Damage Liability not less than NIS 100,000 per vehicle, Comprehensive automobile
insurance covering all motor vehicles engaged under this agreement and all risk-
heavy mechanical equipment insurance.

 

7.General Conditions: The wordings of the policies mentioned above, other than
the policies mention on clause 4, shall not be inferior to the policy wordings
known as “BIT 2012” or any other wordings replacing them.

 

8.The policies mentioned in clauses 2-5 above shall include the Operator and/or
Operator's employees and/or managers and/or any person and/or entity which the
Operator, or any one on its behalf, has written obligation to include and/or the
Additional Insured Parties as additional insured parties, subject to a cross
liability clause.

 

9.The policies mentioned above shall include a waiver of subrogation against
Operator and/or any person and/or entity which Operator, and/ or Operator's
employees and/or managers/ directors have written obligation to waive any rights
of recourse or claim against it and/or Additional Insured Parties including any
person acting on their behalf, excluding security companies not employed by
Operator and/or whoever caused the damage with willful intent.

 

10.The policies mentioned above shall include a provision according to which
they shall not be cancelled or materially changed during the period of the
insurance without the insurer providing the Operator and/or the Additional
Insured Parties ninety (90) days prior written notice by registered mail.

 

11.The policies mentioned above shall include a provision according to which
noncompliance with the duties imposed upon the insured in good faith and/or a
breach of any of the policies conditions in good faith will not prejudice the
rights of the Operator and/or Additional Insured Parties to receive indemnity.

 

12.Contractor undertakes to make payments to the National Insurance Institute
(Bituach Leumi) in respect of all workers employed and ensure that all vehicles
used in the project are covered under a valid mandatory Third Party Liability
insurance (bodily injury caused by the use of motor vehicles) as required under
law.

 

58 | Page

 

 

13.Additional Insurance Requirements

 

Additional Insured’s to be added to Contractor policies:

 

●Zion Oil & Gas, Inc. and its ISR branch.     ●State of Israel     ●Ministry of
Energy- MOIEW     ●Ministry of Environment -MOEP     ●ILA (Israel Lands
Authority)     ●Kibbutz Sde Eliyahu     ●Kibbutz Tirat Zvi

 

Operator’s Insurance

 

1.Operator’s Extra Expense (OEE) insurance, including Control of Well insurance,
in an amount not less than $10 million dollars.

 

2.Employer’s Liability Insurance with limits of USD 1,000,000 any one employee
and USD 1,000,000 per occurrence and USD 5,000,000 in the aggregate.

 

3.Third Party Insurance with limits of USD 5,000,000 any one occurrence and in
the aggregate.

 

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Annexure VI: Rig Acceptance Test

 

LAND RIG AND PLATFORM RIG

 

Objective:To inform the Rig Management and Staff of the upcoming survey and
tests to be conducted. This includes planning of these activities to the mutual
benefit of our client and the rig owner (by combining certain inspections with
major PM tasks which are due) and without disturbing the ongoing operations for
the rig’s present client.

 

The following list includes most of the items that we would expect to be
performed by the rig crew with oversight and review by Zion management and/or
3rd part representatives.

 

5.0           Drilling Equipment

 

05.1         Drawworks:

 

●Prepare to open the front cover of the drawworks for a drum & brake systems
inspection. ●Prepare to open the gearbox for an intrusive inspection of the
transmission. ●Prepare and test the crown-o-matic, floor saver devices and
anti-collision systems. ●Provide the following documents:

 

-Major overhaul reports. -NDT inspection reports

 

05.2.1       Rotary Table:

 

●Prepare to remove the top cover to inspect the rotary table, drive systems and
gear box. ●Prepare to remove the master bushing for inspection. ●Provide the
following documents:

 

-Major overhaul reports. -NDT inspection reports.

 

05.3          Top drive:

 

●Prepare to remove the inspection cover to inspect the bull gear. ●Prepare to
open the DC electric drive motor for inspection. ●Prepare to test the
lubrication oil & purge air alarms on the top drive and control panels. ●Provide
the following documents:

 

-Major overhaul reports. -Main shaft removal for inspection reports. -NDT
inspection reports. -Six monthly inspection reports (API RP 8B). -Top drive
DROPS survey. -Verify that all top drive safety alerts & bulletins have been
actioned where applicable.

 

05.4          Swivel:

 

●Prepare for access to the swivel for a visual inspection. ●Provide the
following documents:

 

-Two year disassembly and internal inspection report (API RP 8B, Sect 5.3.3).
-Thrust bearing clearances. -NDT inspection reports.

 

05.7         Crown block:

 

●Prepare for access to carry out a visual inspection. ●Prepare to carry out a
wobble test on the sheaves should it be required. ●Provide the following
documents:

 

-Major overhaul reports. -Certification for the hang off lines. -NDT inspection
reports.

 

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05.8          Travelling block:

 

●Prepare for access to carry out a visual inspection. ●Provide the following
documents:

 

-Major overhaul. -NDT inspection reports.

 

05.9          Hook:

 

●Prepare for access to carry out a visual inspection. ●Provide the following
documents:

 

-Link ear inspection 6 monthly and 5 yearly (API RP 8B section 5 table 1). -NDT
inspection reports.

 

Drilling instruments:

 

-Test all alarms. -Purge air alarm. -Elmagco brake alarms.

 

05.10:       Drilling instrumentation:

 

●Testing of all alarms including purge air alarm and brake alarm. ●Provide the
following documents:

 

-Calibration record of the weight indicator. -Calibration records of the
critical instruments. -NDT inspection report of the dead line anchor.

 

05.11        Derrick:

 

●Prepare for access to carry out a visual inspection. ●Provide the following
documents:

 

-Certification for the raising wire ropes. -Procedure for raising the mast. -NDT
inspection reports. -“DROPS” survey.

 

05.12       Casing stabbing board:

 

●Prepare and function test all the safety devices. ●Provide the following
documents:

 

-Certification for the wire rope -Certification of load test. -NDT inspection
reports.

 

05.13        Tuggers and sheaves:

 

●Provide the following documents:

 

-Wire rope certification. -Last NDT inspection.

 

05.13.1    Man riding winches & sheaves:

 

●Prepare to function test all safety devices. ●Provide the following documents:

 

-Certification of the wire ropes. -Certification for man riding. -NDT inspection
reports.

 

05.14       Survey Line:

 

●Prepare to function test and a visual inspection.

 

05.15:      Pipe spinning wrench:

 

●Prepare to function test and a visual inspection ●Provide the following
documents:

 

-NDT inspection reports.

 

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05.17.8:    Finger board:

 

●Prepare to function test and a visual inspection. ●Provide the following
documents:

 

-“DROPS” survey. -NDT inspection reports.

 

05.18:       Iron roughneck:

 

●Prepare to function test and a visual inspection. ●Provide the following
documents:

 

-NDT inspection reports.

 

Racking system: Full function test and audit NDT inspection records.

 

05.19:      Pipe racking system:

 

●Prepare to function test and a visual inspection. ●Provide the following
documents:

 

-Last NDT inspection.

 

06            Mud Systems:

 

06.1         Mud pumps:

 

●Prepare for load and/or endurance test. ●Prepare to open the power end of a mud
pump for inspection. ●Prepare to open the fluid ends of a mud pump for
inspection. ●Prepare to open a suction and discharge strainers for inspection.
●Provide the following documents:

 

-Major overhaul reports. -Hydrostatic pressure tests of the pulsation dampers.
-Wall thickness checks of the pulsation dampers. -Calibration and certification
of the PRV’s (pressure relief valves). -NDT inspection reports.

 

06.2         Shale shakers:

 

●Visual inspection ●Prepare to carry out a function test.

 

06.3         Mud cleaner:

 

●Visual inspection ●Prepare to carry out a function test.

 

06.4         Desilter:

 

●Visual inspection ●Prepare to carry out a function test.

 

06.5         Desander:

 

●Visual inspection ●Prepare to carry out a function test.

 

06.6         Degasser:

 

●Visual inspection ●Prepare to carry out a function test.

 

06.8         Mud agitators:

 

●Visual inspection ●Prepare to carry out a function test.

 

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Centrifugal pumps: Visual inspection as per checklist.

Trip tanks: Visual inspection as per checklist.

 

06.9         Mud mixing systems:

 

●Prepare to open several mud pits for internal inspection.

 

06.10         Standpipe manifold.

 

●Prepare to open several valves for inspection. ●Prepare to test several valves.
●Provide the following documents:

 

-Wall thickness reports. -Pressure test reports. -Calibration of the pressure
gauges. -Inspection report of the rotary and cement hoses. -Certification for
the rotary and cement hose.

 

06.10.1    Cement manifold:

 

●Provide the following documents:

 

-Wall thickness reports. -Pressure test reports. -Calibration of the pressure
gauges.

 

07            Well Control Equipment

 

07.1         Ram type preventers:

 

●Prepare to open the ram preventers for internal inspection. ●Prepare to take
wear measurements ●Prepare to carry out random function testing. ●Prepare to
function test the ram locks. ●Prepare to pressure-test the operating systems
(open and closing sides) to maximum operating pressure. ●Provide the following
documents:

 

-Three to five yearly major service report (API RP53). -Elastomers components
changes out dates. -Pressure test reports. -API certification. -Hose
certification. -Verify the suitability for use with H2s. -NDT inspection reports
of the pistons, hubs, bonnet bolts and ram blocks.

 

07.2.1      Annular type preventers:

 

●Prepare to open the annular preventer for internal inspection. ●Prepare to
carry out function tests. ●Prepare to pressure-test the operating system to
1,500 psi on open and close sides ●Provide the following documents:

 

-Three to five yearly major service report (API RP53). -Record of when the
element was changed out. -Pressure test reports. -Hose certification. -Verify
the suitability for use with H2s.

 

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07.3         Gate valves:

 

●Prepare to function test several valves. ●Prepare to pressure-test the
fail-safe operations and test the fail-safe function. ●Prepare to open several
valves for inspection. ●Provide the following documents:

 

-Three to five yearly major service report (API RP53). -Wall thickness reports.
-Pressure test reports.

 

Cameron-type clamps: To be MPI-inspected as per Cameron Product Alert of 19 May
1989 if this has never been done and the equipment has reached the limits.    
Diverter system: Visual inspection + testing control system and valves.

 

07.4.1      Choke manifold:

 

●Prepare to function test several valves. ●Prepare to flush lines ●Prepare to
open a valve for inspection. ●Prepare to open both remote chokes. ●Provide the
following documents:

 

-Wall thickness reports. -Pressure test reports. -Calibration of the pressure
gauges.

 

07.4.1.1   Coflex hoses:

 

●Provide the following documents:

 

-Hose Installation date. -Hose certification. -External and internal borescope
inspection reports according to OEM. -Pressure test reports.

 

07.4.2      Mud gas separator:

 

●Prepare to open the mud gas separator for inspection. ●Provide the following
documents:

 

-Wall thickness reports. -Hydrostatic pressure test. -NDT inspection reports.

 

07.4.4       Choke control:

 

●Prepare to carry out function tests. ●Prepare to carry out function tests from
the remote panels. ●Prepare to test the back-up systems.

 

07.7         Surface hydraulic BOP control:

 

●Prepare to carry out function tests. ●Prepare to carry out an accumulator
pre-charge test. ●Prepare to carry out an accumulator capacity test. ●Prepare to
test the backup systems, safety devices and alarms. ●Provide the following
documents:

 

-Hydrostatic pressure tests of accumulators (Every 10 years). -Certification and
calibration of the pressure PRV’s (Pressure relief valves). -Calibration of the
critical gauges (to within 1%).

 

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Engine Room Equipment

 

Main and camp engines: Test alarms/shutdowns   Test remote shutdown from drill
floor, etc.   Run on load.     Emergency generator:     Test alternative start
system. Check alarms.     Air compressors: Service, high-pressure, start-air and
cold-start compressors to be run under load.     Electrical Equipment       Main
alternators: Visual inspection.     Emergency alternator: Internal
inspection.  Megger test.     DC motors: Visual inspection.     AC motors: Spot
check megger readings.  Fire pumps, ballast pumps.  BOP control triplex pump,
etc.     Transformers: Visual inspection.     Elmagco brake: Megger-test each
individual coil.       Battery back-up system, voltage drop test.     Fire, gas
and H2S alarms: Spot checks.     Pressurization alarms: Function test.

 

Warehouse

 

BOP rubber goods. Verify that they are OEM-manufactured or OEM-approved.

 

Records

 

●MPI lifting gear ●Stabbing board wire certification and installation dates ●BOP
certification ●Coflex (choke and kill) hoses certification and inspection
reports. ●High-pressure mud hoses certification ●Rotary hoses certification
●Check inspection records of:

 

-drill string -Subs -fishing tools -drilling tools -MPI: drawworks brakes,
deadline anchor, travelling block, crown block, IBOP, swivel, hook, Top Drive
shaft, IBOP, tongs, slips, elevators, elevator links, tong back-up posts, BOP
lifting gear, BOP stress points

 

●Emergency procedures manual ●Operations manual ●Wall thickness survey:

 

-High-pressure mud and cement lines

 

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●Mud pump daily record book. ●Maintenance records:

 

-Top Drive; also check bulletins. -Travelling block, crown block, drawworks, rig
specific brake. -Mud pumps, swivel, Well control equipment. -Main engines.
-Pressure relief valves inventory. -Lubrication oil samples of engines, swivel,
TDS, mud pumps, etc.

 

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Safety

 

All systems and alarms will be tested, all inspection reports and certification
of the equipment and system will be reviewed.

 

Fire detection systems:   Location and layout of sensors will be evaluated.
System and alarms will be function-tested (if applicable).       CO2 systems:  
System will be inspected and alarms and ventilation shut-downs tested.
Inspection reports will be evaluated (if applicable).       Fixed fire-fighting
systems:   Inspection of fire-fighting stations, Halon, CO2, foam systems,
deluge systems and sprinkler systems and to be function-tested (if applicable).
Function test of fire pumps and emergency fire pump.       Portable
extinguishers:   Evaluation of location number, type and inspection procedures
of all extinguishers and fire-fighting equipment.       Gas detection system:  
Evaluation of location and number of sensors for H2S and CH detection. Systems
and alarm levels will be function-tested.       Drilling facilities:   General
safety of drilling equipment, safety equipment in mixing areas. Remote
shut-downs. Hazardous zones, chemical storage and handling etc. will be
evaluated.       General safety items:   Availability of safety signs and
procedures. Personal protection gear, and drills. Testing of remote-control
stations and evaluation of gas bottles and systems.       Emergency procedures:
  Evaluation of all written procedures covering emergency situations and the
contractor policy regarding these emergencies. Test of PA and alarm systems.    
  Lifting and handling:   Evaluation of lifting-gear inspection reports.
Inspection if proper and sound lifting gear is used on the rig.      
Accommodation:   Layout and cleanliness of accommodation. Fire protection and
safety equipment in accommodation, galley and stores.       Work permits:  
Evaluation of permit-to-work system with lock-out and tag-out procedures.

 

“I will bless those who bless you, And I will curse him who curses you; And in
you all the families of the earth shall be blessed.”

 

Genesis 12:3

 

 

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