Ratio Petroleum Energy - Limited Partnership Notes to the Interim Financial Statements (Unaudited) As of June 30, 2017

Transcription

1 Ratio Petroleum Energy - Limited Partnership Notes to the Interim Financial Statements (Unaudited) As of June 30, 2017 Ratio Petroleum Energy - Limited Partnership ("Partnership") is a "Small Entity" as this term is defined by Article 5 C of Securities Regulations (Periodic and Immediate Reports), 1970 ("Regulations") and accordingly can apply the relief for small entities, available under Securities Regulations (Periodic and Immediate Reports) (Amendment), 2014 to the extent relevant or will be relevant to the Partnership. This report is a translation of Ratio Petroleum Energy - Limited Partnership's Hebrew-language financial statements. It is prepared solely for convenience purposes. Please note that the Hebrew version constitutes the binding version, and in the event of any discrepancy, the Hebrew version shall prevail.

2 Ratio Petroleum Energy - Limited Partnership Notes to the Interim Financial Statements (Unaudited) As of June 30, 2017 Contents Page Consolidated Condensed Financial Statements Expressed in US Dollars (Thousands): Consolidated Condensed Statements of Financial Position 2 Consolidated Condensed Statements of Comprehensive Income 3 Consolidated Condensed Statements of Changes in Partners' Equity 4 Consolidated Condensed Statements of Cash Flows 5-6 Notes to the Financial Statements 7-20

3 Ratio Petroleum Energy - Limited Partnership Consolidated Condensed Statements of Financial Position As of June 30, 2017 June 30, December 31, US Thousands Assets: Current Assets: Cash and cash equivalents 26,245 - * Receivables: Ratio Petroleum Energy Trust Ltd.- Trustee - current account 57 * - Ratio Petroleum Ltd. - General Partner - current account - * - Other receivables Total Current Assets 26,720 * * Non-Current Assets: Fixed Assets, net Investments in exploration and evaluation properties 6, Total Non-Current Assets 6, Total Assets 33,577 * * Liabilities and Partners' Equity Current liabilities: Payables: Ratio Petroleum Ltd. - General Partner - current account * Expenses payable Total current liabilities * Commitments and contingent liabilities Partners' Equity 33,261 * * Total Commitments and Partners' Equity 33,577 * * ** Represents an amount less than $ 1,000. Approved by Ratio Petroleum Ltd. General Partner: Ligad Rotlevy Chairman of the Board of Directors and Senior Officer Responsible for Financial Affairs Itay Raphael (Tabibzada) Chief Executive Officer Date of Financial Statements Approval by the Board of Directors of the General Partner: August 3, 2017 The Accompanying Notes are an Integral Part of the Financial Information. 2

4 Ratio Petroleum Energy - Limited Partnership Consolidated Condensed Statements of Comprehensive Income For the Six Month Period Ended June 30, 2017 Six Months Ended June 30, 2017 For the Period from June 8, 2016 * and up June 30, 2016 US Thousands For the Period from June 8, 2016 * and up to December 31, 2016 Oil and gas exploration expenses General and administrative expenses Operating loss (1,117) - - Financing income 1, Financial expenses (12) (**) (**) Net financing income 1,744 (**) (**) Total income and comprehensive income for the period 627 (**) (**) Earnings per participation unit (expressed in US Dollars (basic and diluted) * Date of partnership formation ** Represents an amount less than $ 1,000. The Accompanying Notes are an Integral Part of the Financial Information. 3

5 Ratio Petroleum Energy - Limited Partnership Consolidated Condensed Statements Of Changes in Partners' Equity For the Six Month Period Ended June 30, 2017 Partners' Equity Retained Earnings (Accumulated Warrants Deficit) US Thousands Total Equity Balance, January 1, 2017 Changes in the six months ending June 30, 2017: ** - (**) ** Issuance of participation units and warrants (series 1 and series 2), net *** 26,546 6,088-32,634 Income and comprehensive income for the period Balance, June 30, ,546 6, ,261 Balance, June 8, 2016 * ** - - ** Changes in the period from June 8, 2016 * to June 30, 2016 Loss and comprehensive loss for the period - - (**) (**) Balance, June 30, 2016 ** - (**) ** Balance, June 8, 2016 * ** - - ** Changes in the period from June 8, 2016 * to December 31, 2016 Loss and comprehensive loss for the periods - - (**) (**) Balance, December 31, 2016 ** - (**) ** * Date of partnership formation ** Represents an amount less than $ 1,000 *** Net of issuance expenses of $1,500 thousand. The Accompanying Notes are an Integral Part of the Financial Information. 4

6 Ratio Petroleum Energy - Limited Partnership Consolidated Condensed Statements of Cash Flows For the Six Month Period Ended June 30, 2017 Six Months Ended June 30, 2017 For the Period from June 8, 2016 * and up June 30, 2016 US Thousands For the Period from June 8, 2016 * and up to December 31, 2016 Cash flows from operating activities - Total net cash used in operating activities, Appendix A (3,525) - (**) Cash flows from investing activities: Purchase of fixed assets (5) - - Acquisition of a subsidiary that does not constitute a business combination, Appendix C, Proceeds, in respect of a Farmout Agreement, see Note 5 B Net cash used for investment activities Cash flows from financing activities: Repayment of a loan from a related party (1,967) - - Proceeds from the issuance of participation units and warrants (series 1 and series 2), net 29,577 - ** Net cash provided by financing activities 27,610 - ** Increase in cash and cash equivalents 24,535 - ** Balance of cash and cash equivalents, beginning of the period ** - - Gain (loss) from exchange rate differences in respect of cash and cash equivalents 1,710 - (**) Balance of cash and cash equivalents, end of the period 26,245 - ** * Date of partnership formation ** Represents an amount less than $ 1,000. The Accompanying Notes are an Integral Part of the Financial Information. 5

7 Ratio Petroleum Energy - Limited Partnership Consolidated Condensed Statements of Cash Flows For the Six Month Period Ended June 30, 2017 Six Months Ended June 30, 2017 For the Period from June 8, 2016 * and up June 30, 2016 US Thousands For the Period from June 8, 2016 * and up to December 31, 2016 (A) Appendix to the condensed statements of cash flows - net cash provided by (used for) operations: Income (loss) for the period 627 (**) (**) Adjustments for: Depreciation ** - - Income and expenses not involving cash flow: Loss (gain) from exchange rate differences in respect of cash and cash equivalents (1,710) - ** (1,083) - (**) Changes in assets and liabilities - operations: Increase in receivables: Other receivables (279) - - Ratio Petroleum Energy Trust Ltd. (35) ** (**) Decrease in other payables (2,276) - - Expenses payable 148 ** (**) Change in balance with Ratio Petroleum Ltd. - the general partner (2,442) - (**) Net cash used for operating activities (3,525) - (**) B) Information regarding activity not involving cash flows: Fair value of participation units issued to the previous shareholders of a subsidiary (3,205) - - C) Acquisition of a subsidiary that does not constitute a business combination (for further details, see Note 4 A ): January 24, 2014 (US Dollars Thousands) Other receivables (109) Loan from a related party 1,767 Payables 2,444 Investment in exploration and evaluation assets (7,307) (3,205) Fair value of participation units issued to the previous shareholders of a subsidiary 3,205 - * Date of partnership formation ** Represents an amount less than $ 1,000. The Accompanying Notes are an Integral Part of the Financial Information. 6

8 NOTE 1 - GENERAL: A. Ratio Petroleum Energy - Limited Partnership ("partnership") was established on the basis of the partnership agreement signed on May 16, 2016, as amended and to be amended from time to time ("partnership agreement") between Ratio Petroleum Ltd., as the general partner ("general partner") and Ratio Petroleum Energy Trustees Ltd., as limited partner ("limited partner" and / or "trustee"). The general partner is a private company owned by D.L.I.N. Ltd. ("Dalin") and Hiram Landau Ltd. ("Hiram"), each holding 50% of the issued share capital of the general partner and each holding 34% of the issued share capital of Ratio Oil Exploration Ltd. ("Ratio Ltd."), the general partner in Ratio Oil Explorations (1992) - Limited Partnership ("Ratio Partnership). The partnership was established in Israel and is domiciled there. The address of the registered office of the partnership is 85 Yehuda Halevy Street, Tel Aviv. The partnership was registered on June 8, 2016 under the Partnerships Ordinance (New Version), 1975 ("Partnerships Ordinance" and / or "Ordinance"). Pursuant to Section 61 (A) of the Partnerships Ordinance, the partnership agreement is the partnership regulations, as to be amended from time to time. As from January 26, 2017, the partnership is a public partnership. Its participation units and warrants are traded on the Tel Aviv Stock Exchange Ltd. (for additional details regarding the issue to the public, see Note 5 C to the financial statements). B. The general partner and the limited partner hold 0.1% and 99.9% of the partnership's capital, respectively. The limited partner serves as trustee for the participation unit holders. C. The objective of the partnership is to engage, by itself and/or through investee entities, in the exploration and/or development of hydrocarbons and/or their production outside the State of Israel, in the area of oil properties listed below, and to act as an operator in the exploration for hydrocarbons and/or their development and/or their production: Area 5 in Malta, Block B ("Kaieteur Block") in Guyana, license with an option right (No. 16/28) in Ireland as well as in areas adjacent to said oil property areas, that will be included in said oil properties following border changes therein, or for which the limited partnership will receive (directly or through entities owned by it) oil rights, all of which will be issued because of border changes or if said rights will be given because of local geological reasons. Regarding proceedings for oil and gas exploration privileges in the Philippines, Suriname, and in the North Sea, see Note 6 below. D. Ratio Gibraltar: Ratio Petroleum Limited ("Ratio Gibraltar") is a private company incorporated under the laws of Gibraltar on April 15, Ratio Gibraltar holds 100% of the issued share capital and voting rights of Ratio Malta Limited ("Ratio Malta"), Ratio Guyana Limited ("Ratio Guyana"), Ratio Suriname ("Ratio Suriname"), and Ratio North Sea ("Ratio North Sea"). For further details, see Note 6 below. As of report date, the possibility of converting Ratio Gibraltar, Ratio Guyana and Ratio Malta, all private companies registered in Gibraltar, to limited partnerships registered in Gibraltar is being considered. NOTE 2 - BASIS OF PREPARATION OF THE CONDENSED FINANCIAL STATEMENTS: A. Basis of preparation of the condensed financial statements: 1) The financial information of the Group as of June 30, 2017 and for the six-month interim period ended on that date ("interim financial information") was prepared in accordance with International Accounting Standard 34 - "Interim Financial Reporting" ("IAS 34"), and in accordance with Securities Regulations (Periodic and Immediate Reports),

9 NOTE 2 - BASIS OF PREPARATION OF THE CONDENSED FINANCIAL STATEMENTS (CONTINUED): The interim financial information does not include all information and disclosures required for annual financial statements. The financial information for the interim period should be read in conjunction with the 2016 annual financial statements and accompanying notes, which comply with International Financial Reporting Standards, which are standards and interpretations published by the International Accounting Standards Board ("IFRS") and include the additional disclosure required in accordance with Securities Regulations (Annual Financial Statements), The interim financial information is reviewed and not audited. The partnership's operating cycle is 12 months. 2) On March 30, 2017, Securities Regulations (Periodic and Immediate Reports) (Amendment), 2017 ("Regulations") were published, and include, inter alia, relief whereby a reporting entity that complies with the definition of a "small exempt entity", as this term is defined by the Regulations, may publish its financial statements as of 2017 on a semi-annual basis. in lieu of on a quarterly basis. The partnership, which complies with the definition of a "small exempt entity", has elected to adopt said relief, commencing with these interim financial statements, and accordingly, the Group reports on a semi-annual basis. B. Translation of balances and transactions in foreign currency: 1) Functional currency and presentation currency: Items included in the financial statements of each of the Group's companies are measured in the currency of the principal economic environment in which the Group operates ("functional currency"). The consolidated financial statements are reported in US Dollars ("Dollar") which is the functional and presentation currency of the partnership. 2) Transactions and balances: Transactions in a currency other than the functional currency ("foreign currency") are translated into the functional currency using exchange rates in effect on the dates of the transactions. Exchange rate differences resulting from the settlement of such transactions and the translation of monetary assets and liabilities denominated in foreign currency at exchange rates at the end of report period are charged to profit and loss. C. Estimates: The preparation of interim financial statements requires Group management to exercise judgment and requires the use of accounting estimates and assumptions, which affect application of the Group's accounting policies and reported amounts of assets, liabilities, income, and expenses. Actual results may differ from those estimated. In the preparation of these condensed consolidated interim financial statements, the significant considerations used by management in applying the Group's accounting policies and the uncertainties involved in the critical estimates were consistent with those used for the annual financial statements. NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES: A. Consolidated financial statements: A subsidiary is an entity controlled by the partnership. The partnership controls an entity when it has influence over the investee, has exposure or rights to variable returns from its involvement in the entity, and has the ability to use its influence on the investee to affect the returns that it will derive from that entity. A subsidiary is fully consolidated from the date that control is achieved by the partnership. Consolidation ceases when control ceases. 8

10 NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Inter-group balances and transactions, including income and expenses in respect of transactions between Group companies, have been eliminated. The accounting policies adopted by the subsidiaries have been adopted in such a manner as to ensure consistency with the accounting policy adopted by the partnership. B. The significant accounting policies and calculation methods applied in the preparation of the interim financial information are consistent with those used in the preparation of the 2016 annual financial statements. NOTE 4 - COMMITMENTS AND CONTINGENT LIABILITIES: A. Ratio Gibraltar Investment Agreement: On January 3, 2017, the partnership contracted with Ratio Gibraltar, the shareholders of Ratio Gibraltar and Itay Rafael (Tabibzada) in an agreement ("allocation and transfer agreement"), the main points of which are as follows: 1) After finalization of the public offering, and prior to listing the partnership's securities for trading ("listing"), Ratio Gibraltar allocated to the partnership 999,000 shares of 1 par value each of Ratio Gibraltar each, which will constitute, after allocation, approximately 99.9% of the issued share capital of Ratio Gibraltar ("share allocation"). 2) Along with the shares allocation 1,000 shares of Ratio Gibraltar, 1 par value each held in trust for the shareholders of Ratio Gibraltar (which constitute 100%, before allocation, of the issued share capital of Ratio Gibraltar) were transferred to the partnership, at par value ("shares transfer"). 3) After allocation and transfer of the shares on January 24, 2017, the partnership holds 100% of the issued share capital of Ratio Gibraltar. 4) After finalization of the public offering, the partnership invested in Ratio Gibraltar $ 2.5 million from the proceeds of the issuance in accordance with the prospectus ("initial investment amount"). The initial investment amount is partly comprised of a payment in respect of the par value of the shares of Ratio Gibraltar, which was allotted to the partnership, as per A (1) above ( 999,000). In addition, Ratio Gibraltar repaid, from the initial investment amount, a shareholder loan (denominated in Dollars, without interest), of $ 2 million granted to Ratio Gibraltar by Landlan Investments Ltd. (a company jointly held by Dalin and Hiram, controlling interest holders of the general partner), for the purpose of financing its operations and the operations of the entities held by it (see Note 6 below), from the start of operations of Ratio Gibraltar until the date of the prospectus, in the absence of financial means. 5) On January 24, 2017, prior to listing of the securities offered under the prospectus, and concurrently with the transfer and allotment of the shares of Ratio Gibraltar as noted above, on January 24, 2017, Eitan Eisenberg, Shibolet, Merom and Itay Rafael (Tabibzada) were allocated 11,745,916 participation units of the partnership, NIS 1 par value each, 5,872,958 warrants (series 1) and 5,872,958 warrants (series 2), against shares of Ratio Gibraltar which transferred by them to the partnership (and in relation to Itay Rafael (Tabibzada) in accordance with his rights as one of the promotors.). Said securities (including the units deriving from the exercise of warrants (series 1) and warrants (Series 2), are blocked according to terms of the Tel Aviv Stock Exchange Ltd. ("TASE"). B. On January 24, 2017, and prior to listing for trading, the general partner was allotted securities of the partnership (see Note 7 below). 9

11 NOTE 4 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED): C. On January 3, 2017, the partnership signed agreements with Ratio Gibraltar, Ratio Malta and Ratio Guyana, according to which it will grant each of them, effective from the date of finalization of the public offering, consultation and assistance services in all matters relating to the exploration and development of its oil properties, and in any other matter as to be agreed by the parties, from time to time, against a consideration of $ 3,000 per month, that each of said companies will pay the partnership, as noted, on a quarterly basis. D. The transaction was treated in the consolidated financial statements as an acquisition of assets and liabilities (primarily, the acquisition of exploration rights in Guyana and Malta) and not as a business combination, as the acquired companies did not reach "business" status. Regarding the balance of assets and liabilities acquired at acquisition date, see Appendix C to the cash flow statement. NOTE 5 PARTNERS' EQUITY: A. The partnership capital is composed of NIS 1,000, of which NIS 999 was invested by the limited partner and NIS 1 by the general partner. B. The general partner and the limited partner will be entitled to 0.1% and 99.9%, respectively, of the income will bear and will be entitled to 0.1% and 99.9%, respectively, of the partnership's expenses and losses. The limited partner shall not be liable for the partnership's obligations exceeding the amounts it shall invest in the partnership capital as noted. C. Issuance of securities: On January 23, 2017, the partnership published the results of the public offering as follows: The price of the bundle in the tender is NIS 2,431 ("price per bundle set in the tender"): 1) Issued to the public, 50,058,000 participation units, 25,029,000 warrants (series 1) and 25,029,000 warrants (series 2). The total immediate (gross) proceeds from the issue to the public amounted to NIS 60.8 million (approximately $16 million), and issuance expenses totaled NIS 5.7 million (approximately $1.5 million). 2) Pursuant to the undertaking as per Note 7 H below, prior to listing for trade of the partnership's securities, the general partner purchased, for cash, from the limited partner, 9,872,480 participation units, 4,936,240 warrants (series 1) and 4,936,240 warrants (series 2) at a price identical to the price at which they were allotted to the public. The immediate gross proceeds totaled NIS 12 million. 3) In accordance with the agreement between the partnership and the Ratio Partnership, as per Note 7 I below, prior to the listing of the partnership's securities, Ratio purchased and was allotted 22,936,448 participation units, 11,468,224 warrants (series 1) and 11,468,224 warrants (series 2) in consideration for NIS 23.6 million. 4) In accordance with the agreement between the partnership and the Delek Group ("Delek"), as per Note 7 J below, prior to the listing of the partnership's securities for trading, Delek purchased and was allotted 20,069,392 participation units, 10,034,696 warrants (series 1) and 10,034,696 warrants (series 2) in consideration for NIS 20.7 million. 5) As per Note 4 A 5 above, before the listing for trading of the partnership's securities, 11,745,916 participation units, 5,872,958 warrants (series 1) and 5,872,958 warrants (series 2) were allotted to the promotors. In total, the immediate gross proceeds received by the partnership from the offer to the public and from the allocation to the general partner, the Ratio Partnership, Delek and the promotors, as noted, totaled NIS million (approximately $ 31 million). Trading in securities began on January 26,

12 NOTE 5 PARTNERS' EQUITY (CONTINUED): D. Warrant terms are as follows: 1) Warrants (series 1): Warrants (series 1) are registered in name, exercisable into participation units on each trading day from the date of registration for trading until July 15, 2019, inclusive, such that each warrant (series 1) is exercisable into one participating unit of NIS 1 par value, against a cash payment upon exercise of NIS 1.42 linked to the latest representative exchange rate of the Dollar as published by the Bank of Israel, known at the date of publication of the supplementary notice (as defined below) published on January 16, 2017, which is $ 1 = NIS (warrants (series 1)). Any warrant (series 1) that is not exercised by July 15, 2019 will expire, will be canceled, and will not confer upon the holder any right whatsoever. As of financial statements signing data, no warrants (series 1) have been exercised. 2) Warrants (series 2): Warrants (series 2) are registered in name, exercisable into participation units on each trading day from the date of listing them for trading until January 14, 2021, inclusive, such that each warrant (series 2) is exercisable into one participating unit of NIS 1 par value, against a cash payment upon exercise of NIS 1.64 linked to the latest representative exchange rate of the Dollar as published by the Bank of Israel, known at the date of publication of the supplementary notice (as defined below) published on January 16, 2017, which is $ 1 = NIS (warrants (series 2)), Any warrant which will not be exercised by January 14, 2021, will expire, will be canceled and will not confer upon the holder any right whatsoever. As of financial statements signing date, no warrants (series 2) have been exercised. E. Profit distributions: 1) All profits of the partnership, which are legally distributable by the partnership, as profits, net of amounts (not considered for purposes of determining profits) required by the partnership at the discretion of the general partner for the purpose or in connection with the partnership's existing or future commitments, known or estimated, (as well as the amounts required to repay loans. if relevant) including amounts required in the opinion of the general partner for compliance with unforeseen expenses (the amount of which shall not exceed $ 250,000) ("profits") shall be distributed to the partners, in accordance with their rights, as noted above and subject to the provisions of Section 10 below, in the following manner - once a year, immediately prior to the end of the year, the general partner shall, in consultation with the partnership's accountants, an estimate of the partnership's annual taxable income. Based on this assessment, the general partner will determine the amount for the first distribution, taking into account, inter alia, the required amount, according to the assessment, for the purpose of complying with the partnership's liability under a tax collection agreement that will be signed (if signed) between the partnership on the one hand, and the tax authorities on the other hand or compliance with terms to be provided by the tax authorities with the approvals that they will grant to the partnership for issues of units or other securities or otherwise ("amount for the first distribution). The amount for the first distribution will be published by the general partner before the end of the year and will be distributed to the partners in accordance with their rights as noted above. 2) The balance of the retained earnings (if any) for that year shall be determined by the general partner and shall be published shortly after the publication of the audited financial statements of the partnership for that year and thereafter distributed to the partners in accordance with their rights as noted (amount for the second distribution). 3) It is noted, that if, following the second distribution, and following a change in circumstances, it becomes clear that additional amounts may be distributed in respect of that year, the general partner may make further distributions in respect of that year ("additional distributions") and the general partner will be required to do so if the additional distributable amounts shall be in excess of $ 3 million. 11

13 NOTE 5 PARTNERS' EQUITY (CONTINUED): 4) Calculation of profits will always be made for the year ending December 31. 5) It is hereby clarified that no profits shall be distributed if their acceptance by the limited partner shall be considered to be a withdrawal of investments or part thereof, as defined by Section 63 (B) of the Ordinance. 6) Amounts which will be held by the partnership and which will not be distributed to the partners in accordance with the above said (including those deriving from the partnership's capital and its unallocated profits ), the general partner may, if he finds it at his sole discretion as suitable, to invest them until they are exercised for the purposes for which they were deemed appropriate, provided that such investments are made for the purpose of preserving, to the fullest extent, the "real" value of the funds and the availability of the funds for the purpose of carrying out the objectives of the partnership. 7) Notwithstanding that said, the general partner shall be entitled to refrain from distributing profits or to delay the distribution of profits for the purpose of participating in exploration, development and production activities in the fields of oil properties, in which the partnership, including its investee companies, has interests or for the purpose of financing activities which were included in any prospectus or shelf prospectus, or a shelf offering, pursuant to which other units or securities will be issued, including securities that confer a right to purchase units or for other operations approved by the supervisor. Notwithstanding the above, the general partner may not - without the approval of the general meeting of the unitholders or with the approval of the supervisor who has received the Court's consent - refrain from distributing profits or delaying the distribution of profits for the purpose of development and production work and participating in additional exploration operations if the partnership and/or its investees have interests in oil properties. 8) It is hereby clarified that in the event of an incorrect assessment of the profits or in the event that following the provisions of Section 63 (B) of the Ordinance, and the provisions set out above, regarding said, it will become clear that any distribution, in whole or in part, was prevented even after the amount of the distribution has been published, the general partner shall be exempt from any liability, unless he acted in breach of the obligation of trust towards the partnership and/or in breach of the duty of care in the distribution. 9) Without derogating from that said, it is hereby clarified that the general partner may, at its discretion, make use of the proceeds of the profits and for this purpose to avoid their distribution and to take on behalf of the partnership for the purpose of obtaining credit, liabilities regarding restrictions on the distribution of profits and liens on the partnership's assets, including any obligation as noted, all for the purpose of financing (whether immediate financing needs and for future financing needs, as well as between known financing needs and possible financing needs) of activities and expenses which the general partner will decide on in any area of the partnership in which he believes there is a discovery or in any other area, to finance activities which were included in a prospectus or in a shelf prospectus or a shelf report, as noted, or for the purpose of financing other activities for which the supervisor has given approval for this purpose. 10) Notwithstanding that said, it is hereby clarified that no distribution of any kind shall be made, including as stated in this Section E, unless the Board of Directors of the general partner has had an appropriate opportunity to determine, prior to its execution, that the distribution is not a prohibited distribution within the meaning of this term in Section 301 of the Companies Law It is further clarified that no profits shall be distributed if, in the opinion of the supervisor, there is doubt that their acceptance by the limited partner will be considered to be a withdrawal of his investment or part thereof, as defined in Section 63 (B) of the Ordinance. In any case where such doubt exists, the distribution shall not be effected except with the consent of the supervisor, or with the approval of the Court. If the Court confirms that the distribution does not impose a charge on the holders of the units, the profits will be distributed according to the terms of the approval. 12

14 NOTE 5 PARTNERS' EQUITY (CONTINUED): 11) The opinion of the accountant of the partnership (or an accountant who will replace him) with respect to determining the amount of profits available for distribution as profits and calculating the partners' share under the partnership agreement of revenue, expenses and losses of the partnership will be final and decisive. NOTE 6 - INVESTMENT IN EXPLORATION AND EVALUATION ASSETS: A. Ratio Malta: Ratio Malta is a private company and was incorporated under the laws of Gibraltar on January 8, 2015 for participation in oil and gas explorations in Malta. On February 4, 2015, Ratio Malta, a company 100% controlled by Ratio Gibralter, signed an Exploration Study Agreement ("Agreement") with the Government of Malta, which was amended on November 11, 2016, pursuant to which the Government of Malta granted Ratio Malta rights to explore for oil on the continental shelf of Malta, in an area known as "Area 5" Ratio Malta holds 100% of the oil property. Further to Note 5 A to the annual financial statements, the company is in compliance with the work plan. Data from the 3D survey held during the last quarter of 2016 is now in the initial processing phase. The processing work is expected to be completed by the end of B. Ratio Guyana: Ratio Guyana is a private company and was incorporated under the laws of Gibraltar on April 15, 2013, for participation in oil and gas explorations in Guyana. On April 28, 2015, Ratio Guyana, along with a company owned by a local partner ("local partner") signed a Petroleum Agreement with the Government of Guyana, according to which the Government of Guyana granted Ratio Guyana and the local partner rights for the exploration, development and production of oil on the continental shelf of Guyana, in an area known as Block B, or alternatively, the Kaieteur Block ("Guyana Agreement", "Guyana Approval" or "Kaieteur Block", respectively). On July 25, 2016, a Farmout Agreement ("Transfer Agreement") was signed for the transfer of rights in connection with the Kaieteur Block. Subject to agreement finalization, Esso Exploration and Production Guyana Limited ("Esso") (a subsidiary of ExxonMobil) will be appointed operator of the Kaieteur Block, in lieu of Ratio Guyana, and will receive a 50% interest in the Kaieteur Block, and the remaining 50% of said Block will be held by Ratio Guyana and a local partner, in equal shares. On February 17, 2017, the parties announced compliance with the conditions precedent included in said agreement, and therefore the participation rights in the Kaieteur Block are held as follows: Esso 50% Local partner 25% Ratio Guyana 25% On March 1, 2017, in accordance with the transfer agreement, Esso paid $ 455,000 to Ratio Guyana and $ 350,000 to the local partner, said payments reflecting a partial reimbursement of past expenses vis-à-vis the Kaieteur Block of each of the transferees. Further to Note 5 B to the annual financial statements after all approvals required from the authorities in Guyana were received, on May 15, 2017, Esso announced the start of a 3D survey in the Block area ("The survey"). The survey is planned to cover an area of 5,700 square kilometers. During and after the survey, processing will be ongoing, and when completed, the results will be analyzed and evaluated. 13

15 NOTE 6 - INVESTMENT IN EXPLORATION AND EVALUATION ASSETS (CONTINUED): In addition, and accordingly, on July 7, 2017, and after report date, the Guyana Agreement (including the accompanying letter to the Guyana Agreement) was updated as follows: 1) The initial agreement period of 4 years will begin on February 2, ) The waiver of 20% of the license area (as required by the Guyana Agreement in its original version) will be at the end of four years. 3) The letter accompanying the Guyana Agreement will remain in force for the area north of the area where the 3D survey was approved. On July 30, 2017, the partnership announced that Esso had approached its partners in the Kaieteur Block, including the partnership, for their approval of an Farmout Agreement with Hess Corporation (Esso-Hess agreement) through a company under its control ("Hess"). Under the terms of the Esso-Hess agreement, Esso will transfer to Hess 15% of the rights in the Kaieteur Block. Said rights will be transferred to Hess along with all Esso's obligations to the partnership in accordance with the existing agreement between them. Esso is also guarantor of all its obligations to the partnership even after completion of the Esso-Hess agreement. The partnership and the local partner have confirmed to Esso that they will sign the necessary documents to complete the Esso-Hess agreement. The Esso-Hess Agreement, and the transfer of the rights under it, are subject to receipt of all necessary regulatory approvals in Guyana. It should be noted that even after finalization of the transaction, Esso will continue to serve as operator in the Kaieteur Block. After completion of the Esso-Hess agreement, the partners in the Kaieteur Block and their percentage holdings will be as follows: Esso - 35% Hess - 15% Local Partner - 25% Ratio Guyana - 25% C. Ireland: On June 3, 2016, Ratio Gibraltar received notice from the Minister of Communications, Energy, and Natural Resources of Ireland, following a request submitted to it, of receipt of a license, along with an option, (licensing option) (number 16/28), covering an area of 1,562 square kilometers, as part of a tender for licenses with an option in Ireland in which Ratio Gibraltar participated in this tender (approval of the Minister and the Irish right, respectively) in the course of September The Minister's approval stipulates the conditions under which this right came into effect, from July 1, 2016, for two years, that is until June 30, In accordance with the work plan, seismic material of the area was purchased during the period. As of report date, no decision has been made whether the holdings will be through Ratio Gibraltar or a subsidiary. D. Philippines: During June 2015, Ratio Gibraltar applied for rights to a marine property known as "Area 4" off the Philippine coast, under a tender published by the Philippine Department of Energy. On April 25, 2017, the General Meeting of the holders of the partnership's participation units approved, through a subsidiary of the partnership, or a subsidiary of Ratio Gibraltar, an exploration and production agreement with the Government of the Republic of the Philippines (through the Philippine Ministry of Energy), vis-à-vis Area 4 off the Philippine coast. As of report date, Ratio Gibraltar has received notice that it has complied with the conditions of the tender and is awaiting the approval of the Philippine President for an exploration and production agreement with the Philippine Ministry of Energy, in a manner agreed between the parties. 14

16 NOTE 6 - INVESTMENT IN EXPLORATION AND EVALUATION ASSETS (CONTINUED): E. Suriname: Further to Note 5 E to the annual financial statements, Ratio Suriname is a private company incorporated under the laws of Gibraltar on July 25, 2017 for the participation in oil and gas exploration activities in Suriname. As of report date, and following the approval of the General Meeting of the partnership's participation unit holders on August 2, 2017, Ratio Suriname entered into a Farmout agreement with Tullow Suriname B.V., a subsidiary of Tullow Oil Plc., to acquire 20% of Tullow's rights in Block 47, located in Suriname's economic waters. Completion of the agreement is subject to approval of the Suriname regulatory authorities. F. North Sea: Ratio North Sea is a private company incorporated under the laws of Gibraltar on July 25, 2017 for the participation in oil and gas exploration activities in the North Sea. As of report date, and further to the approval of the General Meeting of the partnership's participation unit holders on August 2, 2017, Ratio North Sea is expected to sign a Farmout agreement with Azinor Catalyst Limited for the purchase of 15% of the rights in license number P and 5% of the rights in license number P (and 10% of the rights in the drilling expected in this license area), located in the North Sea, in the economic waters of the United Kingdom. Completion of the agreement is subject to approval of the United Kingdom regulatory authorities, and the consent of third parties to join the existing licenses. NOTE 7 - TRANSACTIONS WITH INTERESTED PARTIES: A. Commitments with interested and related parties deriving from the partnership agreement: Partnership management and operator fees (operation and management): 1) The general partner will manage the partnership, and it or anyone acting on its behalf will be responsible for the management and execution of all oil exploration activities, including development and/or production within the framework of the oil properties in which the partnership and/or its investee entities have an interest. In consideration for said services, the general partner or anyone acting on its behalf will be entitled, vis-à-vis all oil properties which the partnership has and/or will have, and /or its investee entities an interest, even if there is another operator, to a royalty of 7.5% (plus VAT) of the total exploration expenses and the amounts attributed to their relative share of the expenses of the operations of the joint ventures during the period of exploration (which will be expended by it or by the investee entities), but not less than $ 40,000 per month (plus VAT) during the exploration and/or development and/ production period. 2) The calculation of operator fees shall be made once each quarter, on a Dollar basis, and shall be paid once a quarter. 3) The general partner shall be entitled to receive an operator's fees at such rates also from other participants, if any. 4) The general partner shall bear from said operator's fee, the remuneration to be paid to the directors of the general partner who are the controlling shareholders of the general partner or their relatives, in respect of their service as directors and in respect of current services to be provided to the general partner in the operating areas of the partnership, on the basis of their positions. The other partnership expenses will be paid by the partnership. 5) The partnership may directly employ employees and/or officers who will provide services to the partnership, and in such case, the partnership will bear the full cost of their salaries. 15

17 NOTE 7 - TRANSACTIONS WITH INTERESTED PARTIES (CONTINUED): B. Obligation to pay royalties: 1) The partnership undertook, through an irrevocable undertaking, to cause it and any entity held and/or to be held by it, that is an owner of oil rights, as the case may be, to grant, on the date of receiving an oil right, the right to receive an overriding royalty, to the persons and/or entities detailed below, and at the rates specified below (overriding royalty"). This undertaking is the result of a commitment undertaken by the partnership's holding entities vis-à-vis the following persons and/or entities as of the date of their establishment: Party Entitled to an Overriding Royally DALIN % Hiram % Eitan (Gibraltar) Ltd. 4% Overriding Remarks Royalty Percentage 2 Of the controlling shareholders of the general partner. Was awarded as part of an overriding royalty agreement between the partners and DALIN. 2 Of the controlling shareholders of the general partner. Was awarded as part of an overriding royalty agreement between the partners and Hiram. * A company wholly owned by Eitan Eisenberg, one of the initiators of the partnership's operations. Serves as a geological advisor to the partnership and the Ratio Partnership. Was awarded as part of an overriding royalty agreement between the partnership and Eitan (Gibraltar) Ltd. Itay Raphael (Tabibzada) 0.5 % CEO of the partnership, as of October 2, 2016, and one of the initiators of the operations and establishment of the partnership, an officer of the Ratio partnership and companies controlled by the controlling shareholders of the general partner and advisor to the Ratio partnership. Was awarded as part of an overriding royalty agreement between the partnership and Itay Raphael (Tabibzada). * Eitan (Gibraltar) Ltd., is a foreign private company controlled by Mr. Eitan Eisenberg ("Eitan Gibraltar"). Eitan Gibraltar notified the partnership that it had assigned to Dr. Gal Hartman ("Gal"), who provides geophysical consultancy services to its partnership and investee entities, parts of the overriding royalties to which it is entitled, as noted, under the conditions set out below, and instructed it to pay Gal the royalties that it will receive as noted directly: Of any current or future property of the partnership and any entity held and/or to be held by it, in respect of which Eitan Gibraltar is entitled to royalties at the rate of 4% (out of 100% of the property), except for Area 5 in Malta and the Kaieteur Block in Guyana (for which Gal will not be entitled to royalties), will assign to Gal an overriding royalty of 0.5%, so that in respect of said property, Eitan Gibraltar will be entitled to overriding royalties at the rate of 3.5%. Gal shall be entitled to such royalties only in respect of properties in which the partnership and / or its investee entities received the rights (granting the right and/or signing an agreement granting the right and/or the acquisition of the right, etc.) during the period when Gal provided or will provide geophysical consulting services to the partnership and to entities held by it, as noted. In order to remove any doubt, it is hereby clarified that in respect of properties in which the partnership and/or its investee entities received their rights to said after the termination of said services by Gal, Gal will not be entitled to any royalty. If for any reason the overriding royalty rate to which Eitan Gibraltar is entitled in respect of any specific property of the partnership and / or its investee entities falls below 4% (out of 100% of the property), the overriding royalty to Gal will be reduced in respect of that property, such that in any event, the overriding royalty rate to Eitan Gibraltar will not be less than 3.5% as a result of assignment of the overriding royalty to Gal. If for any reason the overriding royalty rate to which Eitan Gibraltar is entitled in respect of a certain property of the partnership and / or its investee entities exceeds 4% (out of 100% of the asset), the royalty to Gal in respect of the property will increase by the difference between 3.5% and the royalty rate to which Eitan Gibraltar is entitled, in respect of that property even if as a result, the rate of royalties to Gal exceeds 0.5%. In this section, "those entitled to royalties", including those who assigned and/or will be transferred to it, as far as the right to an overriding royalty will be assigned and/or will be transferred. 2) Those entitled to the royalties will be entitled to receive the overriding royalties from the quantities or value as detailed below, of the oil and / or gas and/or other valuable materials that will be produced and exploited from the oil property and / or the oil properties in which the partnership and any entity held by it and/or to be held by it, any interest, before deduction of royalties and / or levies and / or any other obligation for payment of any kind, but after the reduction for any oil that will be used for the production itself ("oil production"). 3) For the avoidance of doubt, it is clarified that those entitled to royalties will be entitled, subject to obtaining the approvals required by law, to assign and transfer their rights to the overriding royalty, in whole or in part, and to make such transactions without limitation, without the consent of the partnership or the investee entities. 16

18 NOTE 7 - TRANSACTIONS WITH INTERESTED PARTIES (CONTINUED): 4) The overriding royalty shall be paid by the entity which it has an interest in the oil property as noted. 5) Such entities shall undertake to pay to those entitled, overriding royalties in accordance with the provisions of this section, and the partnership shall be responsible for making such payment by all of its investee entities. 6) The right to overriding royalties on said will be valid as long as the oil property, including any oil property granted by virtue thereof, is in force. 7) The right to overriding royalties on said will be linked to the share of the partnership or its investee entity, as the case may be, in each of the oil properties in which they were granted an interest and at the rate granted. If the partnership and / or its investee entity will transfer their rights to an oil property in which the entitled parties to the overriding royalties have a right, they will be transferred provided that the transferee assumes all obligations to pay the overriding royalty as noted above. 8) The parties entitled to the royalties will be entitled to receive said overriding royalty or part of it in kind, that is, to receive part of the oil production in kind (up to the rate noted above). If the parties eligible for the overriding royalties are entitled to receive said overriding royalty or part thereof in kind, the manner, and dates on which such overriding royalty in kind shall be received shall be determined, so that oil or gas included in the overriding royalties shall be delivered to those entitled to royalties at the wellhead. 9) If the parties entitled to the overriding royalties will not choose to receive the overriding royalties in kind, they will be paid to those entitled to, royalties at the wellhead value of such overriding royalties. 10) In the case of oil production, the payment will be made according to the price of selling the oil at the wellhead. 11) Said payment will be made once every month (on the 5th of each month in respect of the oil sold in the previous month) in US Dollars. The measurement of the quantities of oil and/or gas and/or other valuable materials that will be produced and utilized from the oil properties for the purpose of calculating the overriding royalties payable to those entitled to royalties, shall be in accordance with the principles agreed upon in that country in which the oil right is registered. 12) The partnership will cause the investee entities to keep full and accurate records of the oil and/or gas and/ or other valuable materials that will be produced and exploited from the oil properties in which they have an interest. Those entitled to royalties shall be entitled to appoint an accountant who shall be entitled to inspect, examine, and copy, during the regular working hours, the partnership or investee entities' records held, as the case may be, and any other documents and records relating to the right to overriding royalties, as noted. 13) The partnership will cause the investee entities, to the fullest extent in that country, to take all actions necessary for their registration in the books in which the oil properties are registered under the laws of the country in which the oil property is located, of the right of those entitles to overriding royalties, as noted in this section above, to the fullest extent, concurrently with their registration in said register as holders of oil rights or as owners of an interest in an oil property. 14) The parties entitled to the royalties shall bear any tax applicable to the receipt of the overriding royalty, to the extent required by law to deduct tax at source in respect of the payment of overriding royalties. The royalty payer shall withhold tax as noted at source unless the party entitled to the royalties shall provide an exemption from withholding tax from the relevant tax authority. 15) Insofar as Value Added Tax applies to the payment of the overriding royalty, the overriding royalty will be paid with the addition of Value Added Tax against a tax invoice that will be issued to the payer by the party entitled to the royalties. 17