Pan American Energy LLC, Argentine Branch
Translation from the original prepared in Spanish for publication in Argentina
PAN AMERICAN ENERGY LLC
(ARGENTINE BRANCH)
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2007
AND COMPARATIVE INFORMATION
CONTENTS Page
-----------
Review report on interim financial statements 2
Corporate information 4
Balance sheet 5
Statement of income 6
Statement of cash flows 7
Notes to financial statements 8
Exhibits A, B, C, D, E, F, G, H and I 24
Reporting summary 39
Supplementary information required by the 44
Buenos Aires Stock Exchange
REVIEW REPORT ON INTERIM FINANCIAL STATEMENTS
To the Legal Representative of
Pan American Energy LLC (Argentine Branch)
Av. Leandro N. Alem 1180 - 11th Floor
Buenos Aires
C.U.I.T.: 30-69554247-6
We reviewed the accompanying balance sheet of Pan American Energy LLC (Argentine
Branch) as of September 30, 2007, and the related statements of income and cash
flows, notes 1 to 15 and exhibits A, B, C, D, E, F, G, H and I for the
nine-month period then ended, comparative with the same period of the prior
year, and in the case of the balance sheet and the related notes and exhibits,
with the financial statements as of December 31, 2006. The preparation of these
financial statements is the responsibility of the Legal Representative of the
Branch.
We conducted our review in accordance with auditing standards generally accepted
in the Republic of Argentina applicable to the limited scope review of interim
financial statements. A review of interim financial information consists
principally in applying analytical procedures to the accounting data and making
inquiries of the individuals responsible for its preparation. As a review is
substantially less in scope than an audit of annual financial statements, we do
not express an opinion on the financial position of the Branch as of September
30, 2007, nor on the results of its operations and the cash flows for the
nine-month period then ended.
In relation to the financial statements as of December 31, 2006, presented for
comparative purposes, we issued an unqualified opinion on March 9, 2007. In
addition, on August 11, 2006, we issued an unmodified review report on the
financial statements as of June 30, 2006, also presented for comparative
purposes.
Based on our review, we report that the financial statements as of September 30,
2007 referred to in the first paragraph consider all the significant facts and
circumstances of which we became aware during our review and in relation to them
we have no significant observations.
In compliance with rules and regulations in force, we report that:
a)the financial statements comply with the provisions of the
Corporations Law and the regulations on accounting documentation
of the National Securities Commission, they are transcribed in the
Inventory Book and they derive from the accounting records of the
Branch maintained in the Republic of Argentina timely authorized
by the Inspection Board of Legal Entities (IGJ). Following its
submission of the special report required by section 287 of
Resolution 7/2005 of the IGJ, the Branch has not received the
certification from such authorities acknowledging compliance.
The information systems used to process the financial information
included in the financial statements are maintained under the
security and integrity conditions based on which they were
authorized;
b)we read the reporting summary (sections "Balance sheet items",
"Income statement items", "Statistical data" and "Ratios") and the
supplementary information to the financial statements required by
section 68 of the regulations of the Buenos Aires Stock Exchange
and, based on our review as far as it relates to our area of
responsibility, we have no observations, and
c)as of September 30, 2007, the accrued liability for pension
contributions arising from the accounting records amounted to
$ 3,704,511, no amounts being due as of that date.
Buenos Aires, November 9, 2007
SIBILLE
Graciela C. Laso
Partner
FINANCIAL STATEMENTS as of September 30, 2007 for the nine-month period
beginning January 1, 2007 and ended September 30, 2007 and comparative
information
Stated in pesos
Legal address of the Branch: Av. Leandro N. Alem 1180 - 11th floor - Buenos
Aires
Main activity of the Branch: Oil and gas exploration and production
Date of registration with the Public Registry of Commerce: October 17, 1997
Registration number with the Inspection Board of Legal Entities: 1868, Book 54,
Volume B of Foreign Companies
Capital registered with the Inspection Board of Legal Entities: $ 200,000,000
under number 1257, Book 57, Volume B of Foreign Companies, and $ 21,779,007
under number 2106, Book 58, Volume B of Foreign Companies (Note 8)
Date of registration of capital with the Inspection Board of Legal Entities:
$ 200,000,000 on July 11, 2003 and $ 21,779,007 on December 12, 2005
Subscribed capital (paid in full): $ 221,779,007
HEAD OFFICE
Name: Pan American Energy LLC
Legal address: The Corporation Trust Company, Trust Corporation Center, 1209
Orange Street, Wilmington, Delaware - 19801 - United States of America
Main activity: Oil and gas exploration and production
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
BALANCE SHEET as of September 30, 2007 and as of December 31, 2006 (in
pesos)
09/30/2007 12/31/2006
------------- -------------
ASSETS
CURRENT ASSETS
Cash on hand and in banks (Note 4 a) 29,139,494 34,350,572
Investments (Exhibit C) 410,123,691 215,056,665
Accounts receivable (Note 4 b) 574,485,809 737,519,309
Other receivables (Note 4 c) 105,151,782 117,891,798
Inventories (Note 4 d) 136,309,803 130,809,611
------------- -------------
Total current assets 1,255,210,579 1,235,627,955
------------- -------------
NON CURRENT ASSETS
Other receivables (Note 4 e) 28,307,648 28,915,445
Investments (Exhibit C) 9,898,827 8,719,558
Property, plant and equipment (Exhibit A) 6,877,962,402 5,870,488,156
Intangible assets (Exhibit B) 502,501 1,918,767
------------- -------------
Total non current assets 6,916,671,378 5,910,041,926
------------- -------------
Total assets 8,171,881,957 7,145,669,881
============= =============
LIABILITIES
CURRENT LIABILITIES
Accounts payable (Note 4 f) 683,162,998 661,464,349
Loans (Note 4 g) 459,491,984 877,022,350
Payroll and social security contributions 31,697,838 32,833,398
Taxes payable (Note 4 h) 229,830,099 465,157,941
Provision for future compensation of
personnel (Exhibit D) 2,018,028 1,968,408
------------- -------------
Total current liabilities 1,406,200,947 2,038,446,446
------------- -------------
NON CURRENT LIABILITIES
Accounts payable (Note 4 i) 58,668,462 32,579,735
Loans (Note 4 j) 2,985,507,000 2,265,642,982
Other liabilities (Note 3.2.j) 114,216,919 97,036,602
Deferred tax (Note 3.2.h and 11) 391,128,457 441,951,134
Provision for future compensation of
personnel (Exhibit D) 11,599,540 9,797,018
Provision for environmental remediation
(Exhibit D) 108,912,084 122,553,250
Accruals (Exhibit D) 21,935,293 19,903,786
------------- -------------
Total non current liabilities 3,691,967,755 2,989,464,507
------------- -------------
Total liabilities 5,098,168,702 5,027,910,953
Account with Head Office (Note 7) 2,612,474,248 1,656,519,921
Capital allocated to the Branch (Note 8) 221,779,007 221,779,007
Capital adjustment 239,460,000 239,460,000
------------- -------------
Total 8,171,881,957 7,145,669,881
============= =============
The accompanying notes and exhibits are an integral part of these
financial statements.
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
STATEMENT OF INCOME for the period beginning January 1 and ended
September 30, 2007 comparative with the same period of the prior year
(in pesos)
2007 2006
(9 months) (9 months)
--------------------------------------------------------
Sales 3,999,481,289 4,002,097,366
Cost of sales
(Exhibit E) (1,964,404,681) (1,749,613,593)
--------------- ---------------
Gross profit 2,035,076,608 2,252,483,773
Administrative
expenses
(Exhibit G) ( 204,238,922) ( 163,278,464)
--------------- ---------------
Operating
income 1,830,837,686 2,089,205,309
Financial
results
Generated by
assets
Interest 27,417,126 45,063,238
Exchange
gains
(losses) 17,885,579 30,318,370
Other
financial
results ( 374,417) 44,928,288 845,506 76,227,114
------------- -------------
Generated by
liabilities
Interest (195,209,659) (120,057,375)
Exchange
gains
(losses) ( 77,003,694) ( 52,121,112)
Other
financial
results ( 36,756,414)( 308,969,767) ( 7,632,635) ( 179,811,122)
------------- -------------
Other income
and expenses
- net ( 48,567,708) ( 36,853,241)
--------------- ---------------
Income before
income tax 1,518,228,499 1,948,768,060
Income tax
expense -
current (Note
3.2.h and 11) ( 578,842,019) ( 727,581,754)
Income tax
benefit -
deferred
(Note 3.2.h
and 11) 50,822,677 45,461,507
--------------- ---------------
Net income
(Note 7) 990,209,157 1,266,647,813
=============== ===============
The accompanying notes and exhibits are an integral part of these
financial statements.
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
STATEMENT OF CASH FLOWS for the period beginning January 1 and ended
September 30, 2007 comparative with the same period of the prior year
(in pesos)
2007 2006
--------------- ---------------
(9 months) (9 months)
Cash provided by operations:
Net income 990,209,157 1,266,647,813
Adjustment to reconcile net income
with the cash generated by
operations
Depreciation of property, plant and
equipment 570,488,735 481,912,961
Amortization of intangible assets 1,483,656 1,444,304
Income tax expense 578,842,019 727,581,754
Net increase in the allowance for
bad debtors 12,706,287 10,536,261
Gain (loss) on property, plant and
equipment 12,286,188 1,450,260
Net increase (decrease) in the
accrual for lawsuits 2,091,351 ( 2,930,955)
Increase in the provision for future
compensation of personnel 3,529,800 -
Net increase in the provision for
environmental remediation 3,066,661 7,462,644
Net increase (decrease) in the
allowance for obsolescence of
materials 175,391 ( 3,877)
Other non-cash items (1) 155,200,083 99,003,960
Changes in assets, liabilities and
account with Head Office:
Decrease (increase) in accounts
receivable 150,327,213 ( 229,573,626)
(Increase) decrease in inventories ( 5,675,583) 1,952,342
Decrease (increase) in other current
receivables 12,740,016 ( 40,690,717)
Decrease in other non current
receivables 607,797 43,902,486
Increase in accounts payable,
payroll and social security
contributions,
taxes payable less provisions and
other liabilities 79,874,253 159,453,055
Compensation paid to personnel due
to defined benefit plans ( 1,677,658) ( 1,445,421)
Payments related to lawsuits ( 59,844) ( 275,565)
Income tax paid ( 830,211,981) ( 634,898,424)
--------------- ---------------
Net cash generated by operations 1,736,003,541 1,891,529,255
=============== ===============
Cash used in investing activities:
Increase in non current investments ( 1,179,269) ( 1,680,541)
Acquisitions of property, plant and
equipment (1,619,452,383) (1,220,589,858)
Additions to intangible assets ( 67,390) ( 466,891)
Collection due to the sale of
property, plant and equipment 12,495,387 883,332
--------------- ---------------
Cash used in investing activities (1,608,203,655) (1,221,853,958)
--------------- ---------------
Cash generated by (used in) financing
activities:
Increase in loans (net) 96,310,892 1,016,577,445
Remittances made to Head Office
(net) ( 34,254,830) (1,578,473,978)
--------------- ---------------
Cash generated by (used in)
financing activities 62,056,062 ( 561,896,533)
--------------- ---------------
Net increase in funds 189,855,948 107,778,764
Cash at the beginning of period (2) 249,407,237 383,294,098
--------------- ---------------
Cash at the end of period (2) 439,263,185 491,072,862
=============== ===============
(1) It is made up of
Exchange (gains) losses
and other financial results
relating to loans and other 206,022,760 144,465,467
Deferred income tax benefit ( 50,822,677) ( 45,461,507)
Total 155,200,083 99,003,960
(2) Cash and banks plus investments the maturity date of which is
lower than three months.
The accompanying notes and exhibits are an integral part of these
financial statements.
NOTES TO FINANCIAL STATEMENTS as of September 30, 2007 and comparative
information (in pesos)
NOTE 1 - THE BRANCH
Pan American Energy LLC (Argentine Branch) is engaged in the exploration,
development and production of hydrocarbons.
On October 30, 1997, a definitive agreement for the transfer of assets and
liabilities was entered into between Amoco Argentina Oil Company (Argentine
Branch) and Pan American Energy LLC (Argentine Branch) hereinafter "the Branch",
whereby Amoco Argentina Oil Company (Argentine Branch) transferred its business
consisting of assets and liabilities to the Branch, effective on October 8,
1997.
On May 1, 1998 a definitive agreement for the transfer of assets and liabilities
was entered into between Pan American Continental S.R.L. and the Branch, whereby
Pan American Continental S.R.L. transferred to the Branch its business
consisting of assets and liabilities except for the name Pan American
Continental.
NOTE 2 - OPERATIONS OF THE BRANCH
The following table summarizes the main operations, blocks and joint ventures in
which the Branch is involved for the nine-month period ended September 30, 2007.
Main blocks/ Ownership Branch's
Activity operations interest participation
Oil and gas production Cerro Drag�n Operator
and development 100,00%
Piedra Clavada 100,00% Operator
Koluel Kaike 100,00% Operator
Lindero Operator
Atravesado 62,50%
Anticlinal Operator
Funes 80,00%
Acambuco 52,00% Operator
Aguada Pichana 18,18% Non operator
San Roque Non operator
16,47%
Estancia La Non operator
Escondida (1) 25,00%
Oil and gas exploration Acambuco "B" Operador
and development 100,00%
Bandurria 18,18% Non operator
Costa Afuera Non operator
Argentina
"CAA-40" 50,00%
Costa Afuera Non operator
Argentina
"CAA-46" 50,00%
Explanations:
(1) The Joint Venture agreement (UTE) governing the relationships
between the holders of concession states that their
participating interests in rights, obligations and interests
inherent in the property including production, will be
distributed based on the depth from which production is
obtained: in the deep area, the Branch has a 75% interest and
the co-holder has the remaining 25%; in the shallow area from
which current total production is obtained, the Branch has a
25% interest and the co-holder the remaining 75%; and in the
area "Descubrimiento El Zanj�n", both parties hold a 50%
interest. The average interest described grants the Branch a
50% interest in the rights over the property, regardless the
percentage thereof in the concession.
NOTE 3 - ACCOUNTING PRINCIPLES
3.1 Reporting currency
In accordance with Decree 664/2003 and General Resolution No. 441/2003 of the
National Securities Commission (the "Comisi�n Nacional de Valores" or CNV), the
Branch discontinued the application of currency restatement as from March 1,
2003.
From January 1, 2002 to February 28, 2003, the Branch applied the restatement
methodology set forth by Technical Resolution No. 6, amended by Technical
Resolutions Nos. 17 and 19 of the Argentine Federation of Professional Councils
of Economic Sciences (FACPCE) and by the Professional Council of Economic
Sciences of the City of Buenos Aires (CPCECABA), using indexes derived from the
Internal Wholesale Price Index.
3.2 Valuation and presentation principles
a) Presentation
The financial statements are presented in accordance with the presentation
principles established by the accounting standards generally accepted in the
City of Buenos Aires and pursuant to the provisions of the CNV.
Investments to become due or to be realized in the short term (3 months) are
considered a cash equivalent in the statement of cash flows.
For comparative purposes, necessary reclassifications were made on prior-year
financial statements in order to present the figures on a consistent basis.
b) Participating interest in joint ventures
The Branch is engaged in exploration and production activities in certain areas
through its participation in joint ventures with other companies. The account
balances reflecting the joint ventures' assets, liabilities, income and expenses
are proportionately consolidated in these financial statements.
c) Foreign currency
Assets and liabilities denominated in foreign currency as listed in Exhibit F
have been stated in Argentine Pesos at the exchange rate prevailing at the end
of each period. The resulting exchange gains or losses are presented in the
financial results line (provided by either assets or liabilities, as applicable)
of the Statement of Income.
d) Inventories
Crude oil is stated at reproduction cost.
Spare parts, materials and raw materials are stated at the latest acquisition
cost.
Goods in transit are stated at acquisition cost plus import expenses.
Advances to suppliers are valued at the amounts actually incurred.
The carrying value of inventories, taken as a whole and after considering the
allowance for obsolescence (see Note 3.2.g), does not exceed their recoverable
value.
e) Property, plant and equipment
Property, plant and equipment is stated at acquisition cost as indicated in Note
3.1 less the related accumulated depreciation. The acquisition cost includes all
the necessary costs incurred in order to put the assets in working condition.
Depreciation is calculated by applying the straight-line method over the
estimated useful lives of the assets and/or the duration of the contracts, as
applicable, except for production wells, equipment and services, which are
depreciated per the units of production method.
The pre-operating costs of the properties in the exploration stage, except for
geology and geophysics related expenses that are charged to the Statement of
Income as incurred, remain capitalized for a given period based on the
characteristics of each property, without exceeding five years considered as
from the completion of the exploration stage or, if applicable, as from
production interruption, unless:
1. it is expected that explored areas will proceed to the commercial production
stage, in which case the referred costs remain capitalized, or
2. during the referred five year period, management estimates that commercial
production will not be feasible, in which case, the referred costs are expensed.
For property, plant and equipment existing as of January 6, 2002, the
acquisition or construction of which resulted in outstanding liabilities
denominated in foreign currency as of July 28, 2003, date on which Resolution CD
87/2003 of the CPCECABA was published, exchange gains/losses resulting from
restating such liabilities totaling $1,832,303,600 were capitalized pursuant to
specific accounting principles, based on the determination of the direct or
indirect ratio between the assets subject to capitalization and the outstanding
liabilities in foreign currency. The assets or group of assets eligible for the
capitalization of exchange gains/losses have remained unchanged. Such
capitalization of exchange gains/losses was performed in proportion to the
balance of the original value of the referred assets not subject to
depreciation. Additionally, exchange gains and losses were capitalized up to the
limit arising from the comparison between the replacement or reproduction cost
of the assets and their recoverable value.
For the purposes of presenting the financial statements in restated currency
(see Note 3.1), the capitalized exchange gains/losses amounting to $
1,832,303,600 are considered an anticipated currency restatement until such
differences are absorbed thereby. The excess of capitalized exchanges losses
over the restated amounts totals $ 85,358,131 as of September 30, 2007.
The Branch considers that the net carrying value of property, plant and
equipment, taken by group of assets of similar characteristics, does not exceed
their estimated value in use based on the information available as of the date
of issuance of these financial statements.
f) Intangible assets
These are pre-production geological expenditures and acquisition cost of blocks
valued at restated cost as indicated in Note 3.1, less the related accumulated
amortization. Amortization is calculated per the units of production method.
g) Allowances, provisions and accruals
Allowances deducted from assets:
- For bad debtors: they are determined following the detailed analysis of the
credit status of each customer.
- For obsolescence of materials: the Branch creates an allowance for those
assets evidencing significant slow movement based on a specific analysis.
Accruals included in liabilities:
- For lawsuits: they are determined considering the potential costs of those
lawsuits filed against the Branch based on the opinion of legal counsel.
Provisions included in liabilities:
- For future compensation of personnel: they are estimated as a percentage of
compensation paid, calculated in terms of actuarial methods, and can be applied
to compensate employees of the Branch who have complied with certain seniority
requirements defined by the Branch. Payments are debited from the related
provision.
- For environmental remediation: calculated on the basis of well-abandonment
forecasts until the expiration of agreements, at present values.
h) Income tax
The Branch applies the deferred tax method to account for income tax. Based on
the referred method, the current income tax is calculated by applying the rates
prevailing as of September 30, 2007 and 2006 on taxable income; and the future
tax effect of the tax loss carryforwards, if any, and the temporary differences
in the book and tax values of assets and liabilities is recognized as deferred
tax assets or liabilities.
The deferred tax assets are recognized only to the extent of their
recoverability.
i) Use of estimates
The preparation of the financial statements in accordance with generally
accepted accounting principles requires that the Management of the Branch makes
estimates about the value of certain assets and liabilities, including
contingent liabilities, as well as the amounts informed of certain income and
expenses generated during the period.
The final present value of the transactions and items affected by these
estimates may differ from the estimated amounts.
j) Defined benefit plan
The Branch implemented a pension plan for the benefit of its personnel called
"Plan Puente" or "Bridge Plan". The amount accrued upon the implementation of
such plan amounts to $114,216,919, ($ 97,036,602 as of December 31, 2006)
presented under Other non current liabilities, out of which the amount of
$ 17,345.816 accrued in the nine-month period ended September 30, 2007 and was
included in Other income and expenses of the Statement of Income. Such amount is
made up of $ 186,953,230 of nominal value less $ 72,736,311 (financial effect
from the discount to present value).
k) Revenue recognition
Revenue derived from the sale of assets is recognized when the significant risks
and rewards of ownership have been transferred to the purchaser.
The Branch uses the production method to recognize revenues from the sale of
oil. In those cases where the Branch has a shared interest with other producers,
revenues are recorded upon the basis of the interest held in each joint venture.
In order to recognize revenues from the sale of gas, the Branch uses the sales
method, whereby these revenues are recorded on the basis of the actual volumes
delivered to purchasers irrespective of whether they result from the Branch's
own output or from the output shared with other producers.
l) Lease agreements
The Branch leases the space occupied by its offices, which agreements are of an
operating nature and, therefore, the expenses incurred are recognized in the
statement of income as they accrue.
The amount of the leases, broken down by maturity dates, is reported below:
Nominal value
------------------------------
Up to a year U$S 2,667,232 and $ 1,190,597
Over one year and up to five years U$S 3,257,982 and $ 2,077,198
During the nine-month period, the Branch recognized an expense of $ 7,080,020
related to such lease agreements, presented in the line Buildings Rentals and
Maintenance in Exhibit G.
m) Enactment of new technical resolutions and other regulations
In line with General Resolution No. 487/2006 of the CNV, the Branch has
considered the currency restatement of property, plant and equipment as a
temporary difference for the purpose of the deferred tax calculation.
Consequently, at the beginning of the fiscal year 2006, an increase in the net
deferred tax liabilities amounting to $229,088,577 was recognized, as well as an
adjustment to prior year results (loss) presented as part of the Account with
Head Office (Note 7).
As required by Resolution No. 487/2006 of the CNV in connection with the
recoverable values of assets, we report that at the balance sheet date no
indicators exist that the carrying value of the assets exceeds their recoverable
value.
NOTE 4 - BREAKDOWN OF CERTAIN BALANCE SHEET ITEMS
09/30/2007 12/31/2006
------------- -------------
ASSETS
CURRENT ASSETS
a) Cash on hand and in banks
Cash on hand in local currency 139,986 141,977
Cash on hand in foreign currency
(Exhibit F) 129,251 232,722
Cash in banks in local currency 28,762,501 24,481,235
Cash in banks in foreign currency
(Exhibit F) 107,756 9,494,638
------------- -------------
Total 29,139,494 34,350,572
============= =============
b) Accounts receivable
Accounts receivable in local currency 96,813,906 73,659,586
Allowance for bad debtors in local
currency (Exhibit D) ( 4,919,487) ( 4,983,016)
Accounts receivable in foreign currency
(Exhibit F) 509,391,065 682,872,598
Allowance for bad debtors in foreign
currency (Exhibits D
and F) ( 26,799,675) ( 14,029,859)
------------- -------------
Total 574,485,809 737,519,309
============= =============
09/30/2007 12/31/2006
----------- -----------
c) Other receivables
Loans to personnel 9,479,201 8,490,283
Tax credits 20,647,543 24,907,001
Expenses recoverable in local currency 4,983,230 7,310,337
Expenses recoverable in foreign currency
(Exhibit F) 1,816,349 1,284,463
Prepaid expenses in local currency 3,289,872 7,648,706
Tax credit certificate - Decree 564/05
in foreign currency (Exhibit F) 20,170,793 -
Miscellaneous in local currency 34,689,602 39,819,127
Miscellaneous in foreign currency (Exhibit
F) 8,257,936 28,032,599
Affiliated companies in foreign currency
(Note 9and Exhibit F)
1,817,256 399,282
----------- -----------
Total 105,151,782 117,891,798
=========== ===========
d) Inventories
Crude oil in stock 49,633,369 69,704,063
Spare parts, materials and raw materials 56,949,815 47,997,293
------------ ------------
Subtotal (Exhibit E) 106,583,184 117,701,356
Allowance for obsolescence of materials
(Exhibit D) ( 3,039,521) ( 2,864,130)
------------ ------------
Subtotal 103,543,663 114,837,226
Goods in transit 27,325,248 7,924,880
Advances to suppliers in local currency 5,132,345 7,765,719
Advances to suppliers in foreign currency
(Exhibit F) 308,547 281,786
------------ ------------
Total 136,309,803 130,809,611
============ ============
NON CURRENT ASSETS
e) Other receivables
Loans to personnel 5,858,202 3,837,996
Advances to suppliers in local currency 1,745,212 4,534,641
Miscellaneous in local currency 6,127,550 6,517,545
Miscellaneous in foreign currency (Exhibit F) 14,576,684 14,025,263
---------- ----------
Total 28,307,648 28,915,445
========== ==========
09/30/2007 12/31/2006
----------- -----------
LIABILITIES
CURRENT LIABILITIES
f) Accounts payable
Trade payables in local currency 407,835,080 449,624,468
Trade payables in foreign currency (Exhibit
F) 134,027,227 167,263,681
Expenses payable in local currency 37,695,468 34,598,789
Expenses payable in foreign currency
(Exhibit F) 94,500,000 -
Affiliated companies in foreign currency
(Note 9 and Exhibit F)
9,105,223 9,977,411
----------- -----------
Total 683,162,998 661,464,349
=========== ===========
g) Loans
Bonds in foreign currency (Exhibit F) - 306,200,000
Unsecured notes payable in local currency 103,799,516 275,057,276
Secured notes payable in foreign currency
(Exhibit F) - 4,172,593
Unsecured notes payable in foreign currency
(Exhibit F) 312,736,454 226,105,569
Interest accrued on bonds and notes payable
in foreign currency (Exhibit F)
42,956,014 65,486,912
----------- -----------
Total 459,491,984 877,022,350
=========== ===========
h) Taxes payable
Income tax net of prepayments 144,382,035 391,273,549
Miscellaneous 85,448,064 73,884,392
----------- -----------
Total 229,830,099 465,157,941
=========== ===========
NON CURRENT LIABILITIES
i) Accounts payable
Miscellaneous liabilities in local currency 41,311,497 15,707,663
Miscellaneous liabilities in foreign currency
(Exhibit F) 17,356,965 16,872,072
---------- ----------
Total 58,668,462 32,579,735
========== ==========
09/30/2007 12/31/2006
------------- -------------
j) Loans
Affiliated companies in local currency
(Note 9) - 446,709,189
Bonds in foreign currency (Exhibit F) 1,102,500,000 1,071,700,000
Unsecured notes payable in foreign
currency
(Exhibit F) 1,883,007,000 747,233,793
------------- -------------
Total 2,985,507,000 2,265,642,982
============= =============
NOTE 5 - ISSUANCE OF BONDS
On February 11, 1997, Amoco Argentina Oil Company (Argentine Branch) issued the
Second Series of Bonds in the amount of US$ 100,000,000 due in ten years, at a
6.75% rate per annum. The bonds were paid upon maturity on February 1, 2007.
This issuance completes the maximum amount of the short and medium term bond
program of US$ 200,000,000 approved by the National Securities Commission
through Resolution No. 10982 dated July 13, 1995.
As a result of the transfer of assets and liabilities referred to in the second
paragraph of Note 1 to these financial statements, Amoco Argentina Oil Company
(Argentine Branch) transferred the above mentioned bonds to Pan American Energy
LLC (Argentine Branch). Such Bonds were guaranteed until repayment, in February
2007, by BP Company North America Inc.
On February 21, 2002, through Resolution No. 14123, the CNV authorized the
Global Program for the Issuance of Bonds of Pan American Energy LLC (Argentine
Branch) (the "Global Program") in the total amount of US$ 1,000,000,000.
On October 27, 2004, the Branch issued Bonds Class 3 in the amount of US$
100,000,000 under the Global Program. The bonds become due in five years
(October 27, 2009) with a 7.125% annual fixed interest rate to be paid on a
half-yearly basis. The price of the issuance was 99.483%, nominal value. The
funds derived from this issuance were allocated to investments in property and
equipment and the repayment of loans.
On August 9, 2006, the Branch issued Bonds Class 4 in the amount of US$
250,000,000 under the Global Program, to be repaid in two equal installments
becoming due on February 9, 2011 and February 9, 2012, with interest accruing at
an annual fixed interest rate of 7.75% to be paid on a half-yearly basis. The
price of the issuance was 100.00% of the nominal value. The funds obtained in
this issue were allocated to investments in property and equipment, working
capital and repayment of loans.
NOTE 6 - OTHER FINANCIAL LIABILITIES
Pan American Energy LLC (Argentine Branch) obtained the following loans at a
five-year term, with interest compounded bi-annually amortized in monthly
installments: 1) On July 20, 2001, in the amount of US$ 72,051,406, with
interest accruing at an annual rate of 7.54%, with the first installment falling
due on April 19, 2002 and the repayment term being completed on June 20, 2006,
and 2) on September 17, 2001, in the amount of US$ 40,001,944, with interest
accruing at an annual rate of 6.72%, with the first installment falling due on
June 20, 2002 and completing repayment on August 21, 2006. For the purpose of
fixing the interest rate, the Branch has entered into integrated derivative
transactions, the impact of which has been included in the cost of the
transactions. Both loans have been guaranteed by Pan American Energy LLC until
the repayment thereof in June and August 2006.
On July 11, 2005, the Branch obtained from the International Finance Corporation
(IFC) a loan in the amount of US$ 250,000,000 guaranteed by Head Office and
consisting of three tranches:
-"A" in the amount of US$ 100,000,000, with interest accruing at an annual fixed
rate of 7.56%, through an interest rate swap with IFC, amortizable on six-month
installments basis and becoming due in July 2015;
- "B" in the amount of US$ 135,000,000, at an annual fixed rate of 6.97%,
through an interest rate swap with IFC, amortizable on a six-month installments
basis, and becoming due in July 2012; and
- "C" in the amount of US$ 15,000,000, at an annual fixed base rate of 5.66%
plus additional interest calculated in relation to Head Office's economic
performance, becoming due in July 2016.
As of December 31, 2005, the amount of the loans had been fully disbursed.
The first principal installment for tranches "A" and "B" was paid on January 15,
2007.
The funds obtained were used to partially fund the 2005 investment program in
the San Jorge Gulf.
On July 13, 2007, the Branch obtained from the International Finance Corporation
(IFC) a loan in the amount of U$S 550,000,000, consisting of two tranches:
- "A" in the amount of US$ 150,000,000, amortizable on a six-month installment
basis and becoming due in April 2018; and
- "B-1" in the amount of US$ 158,500,000, amortizable on a six-month
installments basis and becoming due in April 2014, and "B-2" in the amount of
US$ 241,500,000, amortizable on a six-month installment basis and becoming due
in April 2015.
The loan is guaranteed by Pan American Energy LLC and the funds obtained will be
applied to partially fund the investment program that the Company will undertake
in the Cerro Drag�n, area in the San Jorge Gulf basin, located in the provinces
of Santa Cruz and Chubut.
To the date of these financial statements, a disbursement of US$ 400,000,000 was
made in relation to the referred loan, and the outstanding US$ 150,000,000 are
planned to be disbursed during the first quarter of the following year.
The Branch believes that its access to credit lines is appropriate in order to
meet its commercial and financial obligations even though it presents a negative
working capital as of September 30, 2007.
NOTE 7 - ACCOUNT WITH HEAD OFFICE
The changes in the account with Head Office during the nine-month periods ended
September 30, 2007 and 2006 have been as follows:
Nine-month period ended
-----------------------------
09/30/2007 09/30/2006
------------- ---------------
Balance at beginning of year with Head
Office 1,656,519,921 2,290,686,326
Adjustment to prior-year results (Note
3.2.m) - ( 229,088,577)
------------- ---------------
Balance at beginning of the year with
Head Office after adjustment 1,656,519,921 2,061,597,749
Remittances made to Head Office - net ( 34,254,830) (1,578,473,978)
Transfer of net income 955,954,327 1,266,647,813
------------- ---------------
Net changes for the period 990,209,157 ( 311,826,165)
------------- ---------------
Balance at period-end with Head Office
(1) 2,612,474,248 1,749,771,584
============= ===============
(1) As of September 30, 2007 and as of September 30, 2006 the balances
are in local currency.
NOTE 8 - CAPITAL ALLOCATED TO THE BRANCH
Pursuant to the Consent Action taken by the members on December 27, 2001, Pan
American Energy LLC allocated capital to the Branch in the amount of $
200,000,000. Such capital is registered with the Public Registry of Commerce. In
accordance with Consent Action dated February 1, 2005, Pan American Energy LLC
allocated capital to the Branch in the amount of $ 21,779,007. Such capital
contribution represents the contribution of assets and liabilities of the areas
Anticlinal Funes and R�o Barrancas made by Head Office within the scope of the
corporate reorganization registered in the State of Delaware, USA and in the
Public Registry of Commerce of the City of Buenos Aires on December 12, 2005
under number 2106, Book 58, Volume B of Foreign Companies.
NOTE 9 - TRANSACTIONS AND BALANCES WITH AFFILIATED COMPANIES
The transactions and balances with Pan American Energy LLC, the Branch's Head
Office, are disclosed in note 7.
The transactions and balances with affiliated companies are detailed below:
2007 2006
(9 months) (9 months)
TRANSACTIONS
Pan American Fueguina SA
Recovery of receivables - 3,014
Financing (446,709,189) 384,000,000
Pan American Sur S.A.
Pays ( 1,252,476) -
PAE E & P Bolivia Ltd,
Purchases and hiring of services 581,480 -
PAE Oil & Gas Bolivia Ltd.
Purchases and hiring of services 836,494 3,489
BP West Coast Products LLC
Sales 322,280,943 984,587,543
BP America Production Company
Services 1,922,241 4,682,925
09/30/2007 12/31/2006
BALANCES
Pan American Fueguina S.A.
Accounts payable - 899,281
Loans - 446,709,189
Pan American Sur S.A.
Accounts payable 6,928,755 8,181,231
PAE E & P Bolivia Ltd.
Other receivables 875,163 293,683
PAE Oil & Gas Bolivia Ltd.
Other receivables 942,093 105,599
BP West Coast Products LLC
Accounts receivable - -
BP America Production Company
Accounts payable 2,176,468 896.899
NOTE 10 - GUARANTEES AND OTHER COMMITMENTS
In terms of investment commitments, the Branch has not granted any guarantees as
of September 30, 2007.
The terms agreed in certain loan agreements include commitments assumed by the
Branch referring to the maintenance of certain indebtedness and debt service
ratios and certain restrictions on the distribution of dividends. As of
September 30, 2007, the Branch complied with all the commitments assumed in loan
agreements.
The Branch signed the agreement entered into between producers and refineries on
January 2, 2003 for the stability of the prices of crude oil, gasoline and gas
oil (Resolution No. 85/2003 of the Energy Department), in force until April 30,
2004. The Branch has complied with the quotas set forth in the crude oil
agreement. Such deliveries were stated at spot price upon carrying out the
transaction, giving rise to a receivable of $ 10,458,352 as of September 30,
2007 in favor of the Branch, contingent on the decrease in the crude oil WTI
price to an amount lower than US$28.50 per barrel. The price thereof was US$
81.56 as of September 30, 2007.
On February 27, 2006 the Branch executed an agreement with Shell C.A.P.S.A.
whereby Shell agreed to pay the Branch a total negotiated price of $86,499,326
in connection with deliveries of crude oil made in 2003 and 2004 under the price
stabilization agreement referred to in the preceding paragraph, and $ 14,032,834
as interest. The Branch agreed to waive further claims in connection with said
deliveries. The related revenue was recognized in the period ended September 30,
2006. In addition, in September 2007, the Branch reached an agreement with ESSO
Petrolera Argentina S.R.L., whereby ESSO agreed to pay a total price of
$ 7,966,366 in connection with deliveries of crude oil made in 2003 and 2004 and
$ 2,445,974 as interest. The Branch agreed to waive further claims in connection
with such deliveries. The related revenue was recognized in the nine-month
period ended September 30, 2007.
NOTE 11 - INCOME TAX
The breakdown of the main deferred tax assets and liabilities is as follows:
09/30/2007 12/31/2006
----------- -----------
Deferred tax assets
Allowance for obsolescence of materials 1,063,833 1,002,446
Provision for future compensation to
personnel 4,657,945 4,296,053
Allowance for lawsuits 7,793,389 7,082,362
Provision for environmental remediation 12,698,077 9,835,326
Other provisions and allowances 26,064,507 18,174,616
----------- -----------
Total deferred tax assets 52,277,751 40,390,803
----------- -----------
Deferred tax liabilities
Inventories - materials and spare parts 956,830 962,248
Property, plant and equipment and
intangible assets 419,413,553 458,338,264
Other 23,035,825 23,041,425
----------- -----------
Total deferred tax liabilities 443,406,208 482,341,937
----------- -----------
Total deferred tax liabilities - net 391,128,457 441,951,134
=========== ===========
The reconciliation between the income tax expense for the period and the
theoretical expense resulting from applying the prevailing tax rate to income
before tax is as follows:
2007 2006
-------------- --------------
(9 months) (9 months)
Net income before taxes 1,518,228,499 1,948,768,060
Prevailing tax rate 35% 35%
-------------- --------------
Net income at prevailing tax rate ( 531,379,975) ( 682,068,821)
Permanent differences at the tax rate:
Miscellaneous - net 3,360,633 ( 51,426)
-------------- --------------
Subtotal permanent differences at the
tax rate 3,360,633 ( 51,426)
-------------- --------------
Income tax expense - total ( 528,019,342) ( 682,120,247)
============== ==============
Current income tax expense ( 578,842,019) ( 727,581,754)
Deferred income tax benefit 50,822,677 45,461,507
-------------- --------------
( 528,019,342) ( 682,120,247)
============== ==============
NOTE 12 - RESTRICTED ASSETS
In November 2006, the Branch collected the deposit made in 2003 as collateral
for a loan from a foreign bank. It amounted to US$ 2,505,351.
In August 2007, the Branch also collected the deposit made in 2005 as collateral
for a loan received from a foreign bank amounted to US$ 1,764,705.
In August 2007, the liens on two generators pledged as collateral for a loan in
the amount of $ US$ 7,483,776 was cancelled, after the loan was paid off in June
2007.
Then, there are no restricted assets as of September 30, 2007.
NOTE 13 - INFORMATION ON LITIGATION AND OTHER SUPPLEMENTARY MATTERS
Lawsuits were filed against the Branch, particularly in courts in labor and
commercial matters. Based on the information available, Management and the legal
counsel of the Branch consider that the contingent liability that might arise
from such lawsuits would not have a material adverse effect on the financial
position of the Branch or the results of its operations.
NOTE 14 - AGREEMENTS WITH THE PROVINCES OF CHUBUT AND SANTA CRUZ
The Branch entered with the Argentine province of Chubut (04/27/2007) and Santa
Cruz (06/25/2007) into the investment commitment agreement which provides for
the extension of the term of the exploration and production for a ten-year
period in the blocks known as Cerro Drag�n, the area of which is extended in the
territory of both provinces, and Piedra Clavada and Koluel Kaike in the province
of Santa Cruz. The agreements expired between 2016 and 2017.
These agreements provided for minimum investments of US$ 2,000,000,000 in the
Province of Chubut and of US$ 500,000,000 in the Province of Santa Cruz. These
investments are to be made before 2017 and are destined to onshore activities.
Other investments of US$ 1,000,000,000 in the Province of Chubut and of US$
300,000,000 in the Province of Santa Cruz are to be made before 2027.
In addition, both agreements provided for a US$ 80,000,000 investment commitment
for sea exploration, at the Branch's own risk, by means of two joint ventures
(UTEs) with the state-run companies Petrominera (in the case of Chubut) and
Fomicruz (in the case of Santa Cruz). If the Branch makes commercial
discoveries, an additional investment commitment will be required in the amount
of US$ 500,000,000 for the development of the offshore fields to be discovered.
The creation of the UTEs referred to in the preceding paragraph is consistent
with the provisions of sections 11 and 95 of the Hydrocarbon Law, whereby
state-run companies are expressly empowered to execute agreements and create
companies or other forms of association with individuals or entities for the
development of their activities.
The operation agreements executed with state-run companies also fall within the
scope of the referred Law, which shall be effected as from the year 2027,
subject to compliance with the investments and Pan American Energy's exploration
success, so that it is allowed to evidence that it has developed sufficient
reserves to continue with the production of the fields of those areas as from
that year.
Other commitments assumed by the Branch are as follows:
-- make a special contribution of 3% of the net revenues generated by the
concessions to the provinces of Chubut and Santa Cruz ; and
-- make a contribution of US$ 120,000,000 and US$ 40,000,000 for the
creation of different funds in the provinces of Chubut and Santa Cruz,
respectively, destined to domestic development and payable in four
annual, equal and consecutive installments. These amounts will be added
to the important commitment assumed by the Branch in the field of
Corporate Social Responsibility and are considered expenses for the
fiscal year in which payments are effectively made.
The agreement with the province of Chubut was ratified by provincial law No.
5616 passed by the Provincial Legislature on May 24, 2007, enacted by decree No.
500/2007 and published in the Official Bulletin on May 28, 2007.
The Government of the Province of Santa Cruz has sent the agreement to the
Provincial Legislature for its approval, which is pending.
The execution of these agreements involves a new horizon to sustain the increase
in production and reserves in the oil fields Cerro Drag�n, Piedra Clavada and
Koluel Kaike, as well as to the new off shore operations in the Gulf. This new
horizon shall allow addressing long-term projects requiring sound investments,
new technologies and teams working for the future.
NOTE 15 - SUBSEQUENT EVENTS
No events or transactions have occurred from the balance sheet to the date of
issuance of these financial statements that would have a material effect on the
financial position of the Branch as of September 30, 2007 or the results of its
operations for the nine month period then ended.
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH) EXHIBIT A
PROPERTY, PLANT AND EQUIPMENT (in pesos)
as of September 30, 2007 and as of December 31, 2006
Original values
--------------------------------------------------------------------
At Increases
beginning for At
Main account of the year the period Transfers Decreases period-end
------------ -------------- ------------- ------------- -------------------------
Land and
buildings 53,902,203 45,000 3,383,271 - 57,330,474
Plants,
wells and
exploration
and
production
facilities 12,045,371,439 107,654,817 500,370,346 68,531,338 12,584,865,264
Furniture
and office
supplies 8,090,645 - 7,677 - 8,098,322
Equipment 130,526,906 - 8,660,344 - 139,187,250
Vehicles 37,318,081 276,583 - 287,802 37,306,862
Work in
progress 610,477,077 1,512,722,906 (512,421,638) - 1,610,778,345
Advances to
suppliers 24,040,065 3,060,817 - - 27,100,882
-------------- ------------- ------------- ---------- --------------
Total as of
09/30/2007 12,909,726,416 1,623,760,123 - 68,819,140 14,464,667,399
============== ============= ============= ========== ==============
Total as of
12/31/2006 11,215,074,160 1,714,133,505 - 19,481,249 12,909,726,416
============== ============= ============= ========== ==============
Depreciation
--------------------------------------------------------
Book value
Accumulated ---------------------------
at beginning Accumulated Net as of Net as of
Main account of the year Increases Decreases at period-end 09/30/07 12/31/06
------------------------ -------------- ------------ ----------- ---------------- ------------- -------------
(1) (2)
Land and buildings 25,181,488 2,153,946 - 27,335,434 29,995,040 28,720,715
Plants, wells and
exploration and
production facilities 6,880,673,207 550,442,686 22,734,197 7,408,381,696 5,176,483,568 5,164,698,232
Furniture and office
supplies 7,895,688 61,439 - 7,957,127 141,195 194,957
Equipment 102,450,577 13,978,528 - 116,429,105 22,758,145 28,076,329
Vehicles 23,037,300 3,852,136 287,801 26,601,635 10,705,227 14,280,781
Work in progress - - - - 1,610,778,345 610,477,077
Advances to suppliers - - - - 27,100,882 24,040,065
-------------- ------------ ----------- ---------------- ------------- -------------
Total as of 09/30/2007 7,039,238,260 570,488,835 23,021,998 7,586,704,997 6,877,962,402
============== ============ =========== ================ =============
Total as of 12/31/2006 6,417,279,987 638,177,818 16,219,545 7,039,238,260 5,870,488,156
============== ============ =========== ================ =============
(1) See Exhibit G.
(2) See depreciation policies in Note 3.2.e.
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH) EXBHIBIT B
INTANGIBLE ASSETS (in pesos)
as of September 30, 2007 and as of December 31, 2006
Original Values Amortization
--------------------------------- ---------------------------------
Book value
Increases Accumulated ------------------
At for at Accumulated Net as
beginning the At beginning For the at of Net as of
Main account of the year period period-end of the year period period-end 09/30/07 12/31/06
--------------------------------- ----------- --------- ----------- ----------- --------- ----------- -------- ---------
(1) (2)
Pre-operating expenses and dry
wells 48,740,915 - 48,740,915 48,300,969 43,080 48,344,049 396,866 439,946
Acquisition cost of blocks 6,487,247 - 6,487,247 6,276,829 104,783 6,381,612 105,635 210,418
Deferred charges 63,488,027 67,390 63,555,417 62,219,624 1,335,793 63,555,417 - 1,268,403
----------- --------- ----------- ----------- --------- ----------- -------- ---------
Total as of 09/30/2007 118,716,189 67,390 118,783,579 116,797,422 1,483,656 118,281,078 502,501
=========== ========= =========== =========== ========= =========== ========
Total as of 12/31/2006 118,299,083 417,106 118,716,189 114,582,363 2,215,059 116,797,422 1,918,767
=========== ========= =========== =========== ========= =========== =========
(1) See Exhibit G.
(2) See amortization criteria in Note 3.2.f.
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
OTHER INVESTMENTS (in pesos)
as of September 30, 2007 and as of December 31, 2006
Book Book
value value
Main account 09/30/2007 12/31/2006
-----------------------------
Short-term investments
Mutual funds in foreign
currency (Exhibit F) 1,138 215,056,665
Class: Citi Institutional
Liquid Reserves
Quantity: 366 units
Quoted value: US$ 1
(US dollar)
Government securities
Certificates evidencing
payment of tax liability
(Government of the
Province of Chubut)
Coupons Nos, 18 and 19 1,309,861 -
Time deposits in foreign
currency (Exhibit F) 68,945,055 -
Special account in foreign
currency (Exhibit F) 339,867,637 -
Total short-term
investments 410,123,691 215,056,665
Long-term investments
Government securities:
Bonos de la Rep�blica
Argentina - discount
bonds
in pesos 5.83% final
maturity in 2033
Quantity: 4,821,350
Face value: $ 1
Quoted value: $ 1,223 5,896,511 7,015,064
GDP coupon in pesos
Quantity: 14,306,676
Face value: $ 1
Quoted value: $ 0,0965 1,380,594 1,702,494
Certificates evidencing
payment of tax liability
(Government of the
Province of Chubut)
Coupons Nos, 20 to 23 2,619,722 -
Shares:
Garantizar S,A,
Quantity: 2000
Class: B
Face value: $ 1 2,000 2,000
Total long-term
investments 9,898,827 8,719,558
Total investments 420,022,518 223,776,223
EXHIBIT D
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
ALLOWANCES, PROVISIONS AND ACCRUALS (in pesos)
as of September 30, 2007 and as of December 31, 2006
Balances at Increases Decreases Balances as of
beginning for the for the 09/30/07
Main account of the year period period
------------------------------------- ------------ ------------ ----------- ----------------
Deducted from current assets:
Allowance for bad debtors in local
currency 4,983,016 625,465 (1) 688,994 (2) 4,919,487
Allowance for bad debtors in foreign
currency 14,029,859 12,769,816 (3) - 26,799,675
Allowance for obsolescence of
materials 2,864,130 175,391 (4) - 3,039,521
------------ ------------ ----------- ----------------
Total deducted from assets 21,877,005 13,570,672 688,994 34,758,683
============ ============ =========== ================
Included in current liabilities:
Provision for future compensation of
personnel 1,968,408 49,620 (5) - 2,018,028
------------ ------------ ----------- ----------------
Subtotal current liabilities 1,968,408 49,620 - 2,018,028
------------ ------------ ----------- ----------------
Included in non current liabilities:
Accrual for lawsuits 19,903,786 2,091,351 (6) 59,844 (7) 21,935,293
Provision for environmental
remediation 122,553,250 10,707,768 (8) 24,348,934 (9) 108,912,084
Provision for future compensation of
personnel 9,797,018 3,529,800(10) 1,727,278(11) 11,599,540
------------ ------------ ----------- ----------------
Subtotal non current liabilities 152,254,054 16,328,919 26,136,056 142,446,917
------------ ------------ ----------- ----------------
Total included in liabilities 154,222,462 16,378,539 26,136,056 144,464,945
============ ============ =========== ================
(1) Charges for the period, included in administrative expenses (see Exhibit G) of the Statement of Income.
(2) Uses of the allowances during the period.
(3) Charges for the period, made up of $ 12,550,222 included in administrative expenses (see Exhibit G) and $ 219,594
included in financial results provided by assets, exchange gains/losses, in the Statement of Income.
(4) Charges for the period, included in production costs (see Exhibit G) of the Statement of Income.
(5) Transfer from the non current provision.
(6) Charges for the period, made up of $ 1,536,243 included in production costs (see Exhibit G) and $ 555,108 included
in administrative expenses (see Exhibit G) of the Statement of Income.
(7) Payments for the period.
(8) Charges for the period, consisting of $ 4,991,308 included in financial results provided by liabilities, $
1,408,720 included in other income and expenses of the Statement of Income and $ 4,307,740 included in plants,
wells and exploration and production facilities.
(9) Related to the decreases included in plants, wells and exploration and production facilities of $ 21,015,567 and
uses for the period for $ 3,333,367.
(10) Charges for the period, included in other income and expenses of the Statement of Income.
(11) Consisting of compensation paid during the period in the amount of $ 1,677,658 and the transfer referred to in
line 5 in the amount of $ 49,620.
EXHIBIT E
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
COST OF SALES (in pesos)
For the nine-month period beginning January 1, 2007 and ended September
30, 2007, comparative with the same period of the prior year
2007 2006
-------------- -------------
(9 months) (9 months)
Inventories at the beginning of the year 117,701,356 107,032,601
Purchases 133,705,172 156,218,065
Production costs (Exhibit G) 1,819,581,337 1,583,374,879
Inventories at period-end ( 106,583,184) ( 97,011,952)
-------------- -------------
Cost of sales 1,964,404,681 1,749,613,593
============== =============
EXHIBIT F
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
ASSETS AND LIABILITIES IN FOREIGN CURRENCY
as of September 30, 2007 and as of December 31, 2006
Amount and type of Amount in Amount and type of Amount in
foreign currency Exchange local foreign currency local
currency currency
Item as of rate as of as of as of
09/30/2007 09/30/2007 12/31/2006 12/31/2006
--------------------- ------------------ -------- ------------- ------------------ -------------
US$ Euros $ (1) (1) US$ Euros (2) (2)
ASSETS
CURRENT ASSETS
Cash on hand and in
banks
Cash on hand - 4.370 4.4355 19,383 - - 4,370 17,419
35,327 3.11 109,868 129,251 71,245 215,303 232,722
----------- -----------
Cash in banks
Domestic 5,570 3.11 17,323 3,472 10,491
Foreign 29,078 3.11 90,433 107,756 3,138,368 9,484,147 9,494,638
----------- -----------
Investments
Time deposits in
foreign currency 22,168,828 3.11 68,945,055 - -
Foreign mutual
funds 366 3.11 1,138 71,163,688 215,056,665
Special account in
foreign currency 109,282,198 3.11 339,867,637 -
Accounts receivable
Domestic 79,425,626 3.11 247,013,698 106,460,311 321,723,060
Foreign 84,365,713 3.11 262,377,367 509,391,065 119,506,796 361,149,538 682,872,598
----------- -----------
Allowance for bad
debtors ( 8,617,259) 3.11 ( 26,799,675) ( 4,642,574) ( 14,029,859)
Other receivables
Expenses
recoverable -
foreign 584,035 3.11 1,816,349 425,037 1,284,463
Tax credit
certificate 6,485,786 3.11 20,170,793 - -
Miscellaneous -
domestic 1,134,368 3.11 3,527,886 2,675,304 8,084,768
Miscellaneous -
foreign 1,520,916 3.11 4,730,050 8,257,936 6,600,871 19,947,831 28,032,599
----------- -----------
Foreign affiliated
companies 584,327 3.11 1,817,256 132,125 399,282
Inventories
Advances to
suppliers
Foreign 99,211 - - 308,547 93,245 - 281,786
------------ ----- ------------- ------------ ----- -------------
Total current
assets 297,104,092 4,370 924,013,108 305,627,888 4,370 923,624,894
------------ ----- ------------- ------------ ----- -------------
NON CURRENT ASSETS
Other receivables
Miscellaneous -
domestic 4,687,037 - 3.11 14,576,684 4,641,053 - 14,025,263
------------ ----- ------------- ------------ ----- -------------
Total non current
assets 4,687,037 - 14,576,684 4,641,053 - 14,025,263
------------ ----- ------------- ------------ ----- -------------
Total assets 301,791,128 4,370 938,589,792 310,268,941 4,370 937,650,157
============ ===== ============= ============ ===== =============
US$ = US dollar
(1) As per buyer exchange rate as of September 30, 2007.
(2) As per buyer exchange rate as of December 31, 2006.
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH) EXHIBIT F
ASSETS AND LIABILITIES IN FOREIGN CURRENCY
as of September 30, 2007 and as of December 31, 2006
Amount and Amount in Amount and Amount in
type of type of
foreign Exchange local foreign local currency
currency currency currency
Item as of rate as of as of as of
09/30/2007 09/30/2007 12/31/2006 12/31/2006
--------------- ------------- -------- ------------- ------------ --------------
US$ $ (1) (1) US$ (2) (2)
LIABILITIES
CURRENT
LIABILITIES
Accounts
payable
Trade -
domestic 36,322,391 3.15 114,415,532 37,552,721 114,986,434
Trade -
foreign 6,225,935 3.15 19,611,695 134,027,227 17,072,909 52,277,247 167,263,681
------------- -----------
Affiliated
companies -
domestic 2,199,605 3.15 6,928,755 2,965,550 9,080,512
Affiliated
companies -
foreign 690,942 3.15 2,176,468 9,105,223 292,913 896,899 9,977,411
------------- -----------
Expenses
payable in
local
currency 30,000,000 3.15 94,500,000 -
Loans
Bonds -
foreign - - - 100,000,000 306,200,000
Secured notes
payable -
foreign - - - 1,362,702 4,172,593
Unsecured
notes
payable -
domestic 50,000,000 3.15 157,500,000 25,000,000 76,550,000 -
Unsecured
notes
payable -
foreign 49,281,414 3.15 155,236,454 312,736,454 48,842,446 149,555,569 226,105,569
------------- -----------
Interest
accrued on
bonds and
notes
payable 13,636,830 3.15 42,956,014 21,386,973 65,486,912
------------- ------------- ------------ --------------
Total current
liabilities 188,357,117 593,324,918 254,476,214 779,206,166
------------- ------------- ------------ --------------
NON CURRENT
LIABILITIES
Accounts
payable
Miscellaneous
liabilities
- foreign r 5,510,148 3.15 17,356,965 5,510,148 16,872,072
Loans
Bonds -
foreign 350,000,000 3.15 1,102,500,000 350,000,000 1,071,700,000
Unsecured
notes
payable -
domestic 15,000,000 3.15 47,250,000 - -
Unsecured
notes
payable -
foreign 582,780,000 3.15 1,835,757,000 1,883,007,000 244,034,550 747,233,793 747,233,793
------------- ------------- ------------- ------------ ----------- --------------
Total current
liabilities 953,290,148 3,002,863,965 599,544,698 1,835,805,865
------------- ------------- ------------ --------------
Total
liabilities 1,141,647,265 3,596,188,883 854,020,912 2,615,012,031
============= ============= ============ ==============
US$ = US dollar
(1) As per seller exchange rate as of September 30, 2007.
(2) As per seller exchange rate as of December 31, 2006.
EXHIBIT G
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
INFORMATION REQUIRED BY ART. 64, CLAUSE 1b) OF LAW 19550, for the nine-month period beginning January
1, 2007 and ended September 30, 2007, comparative with the same period of the prior year (in pesos)
Production Administrative
Items cost expenses Total 2007 Total 2006
----------------------------------------- ------------- ---------------- -------------- ---------------
(9 months) (9 months)
Fees and compensation for services 7,666,492 10,415,862 18,082,354 13,179,973
Salaries, wages and benefits to
personnel 107,219,419 40,369,450 147,588,869 96,898,565
Social security contributions 10,619,112 7,016,226 17,635,338 14,016,195
Taxes, assessments and other tributes 567,293,326 94,035,562 661,328,888 643,190,888
Depreciation of property, plant and
equipment (Exhibit A) 565,072,476 5,416,259 570,488,735 481,912,961
Intangible asset amortization (Exhibit B) 1,483,656 - 1,483,656 1,444,304
Transportation, freight and storage
expenses 82,950,424 49,910 83,000,334 61,397,874
Contracted services 253,826,629 2,907,881 256,734,510 264,068,338
Travel and accommodation expenses 5,544,444 4,742,544 10,286,988 9,022,032
Building rentals and maintenance 938,816 9,110,818 10,049,634 8,759,860
Environmental remediation 10,900,144 - 10,900,144 7,714,016
Bad debtors (Exhibit D) - 13,175,687 13,175,687 10,638,982
Lawsuits (Exhibit D) 1,536,243 555,108 2,091,351 2,950,774
Obsolescence of materials (Exhibit D) 175,391 - 175,391 -
Production, exploration and
administrative
general expenses 204,354,765 16,443,615 220,798,380 131,458,581
------------- ---------------- -------------- ---------------
Total 2007 (9 months) 1,819,581,337 204,238,922 2,023,820,259
============= ================ ==============
Total 2006 (9 months) 1,583,374,879 163,278,464 1,746,653,343
============= ================ ===============
EXHIBIT H
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
Balance sheet as of September 30, 2007 and as of December 31, 2006
TERMS, INTEREST RATES AND ADJUSTMENT CLAUSES OF SHORT-TERM INVESTMENTS, LOANS, RECEIVABLES AND PAYABLES (in pesos)
Investments Receivables Payables Loans
-------------------------------------------------------------------------------------------------------
09/30/2007 12/31/2006 09/30/2007 12/31/2006 09/30/2007 12/31/2006 09/30/2007 12/31/2006
-------------------------------------------------------------------------------------------------------
Total amount
without an
established term 1,382,594 (1) 1,704,494 56,801,881 (3)61,217,175 684,299,239 703,702,130 - -
To become due:
Up to 3 months 408,813,830 215,056,665 668,118,096 821,770,799 770,297,307 746,810,041 154,584,584 793,674,710
From 3 to 6
months 654,931 - 894,231 1,780,744 504,507 391,765,651 212,798,250 12,719,548
From 6 to 9
months - 833,854 1,087,619 144,886,542 492,102 36,810,900 59,108,848
From 9 to 12
months 654,930 - 782,140 697,929 31,020,607 22,356,302 55,298,250 11,519,244
From 1 to 2 years 1,309,861 - 3,978,600 2,814,716 226,223 215,609 264,937,050 614,032,179
From 2 to 3 years 1,309,861 - 1,585,037 903,215 - - 608,265,000 420,959,321
From 3 to 4 years - - 1,241,770 491,328 - - 687,015,000 111,306,762
From 4 to 5 years - - 318,914 332,877 - - 687,015,000 485,663,820
From 5 to 6 years - - 74,794 59,678 - - 222,390,000 485,663,820
From 6 to 7 years - - - - - - 222,390,000 34,018,820
From 7 to 8 years - - - - - - 155,988,000 34,018,820
From 8 to 9 years - - - - - - 83,443,500 34,049,440
From 9 to 10
years - - - - - - 36,193,500 45,930,000
From 10 to 11
years - - - - - - 17,869,950 -
Over 11 years 5,896,511 (2)7,015,064 (2) - - - - - -
-------------------------------------------------------------------------------------------------------
Subtotal 420,022,518 223,776,223 734,629,317 891,156,0801,631,234,4251,865,341,8353,444,998,9843,142,665,332
Other items that
are not to be
collected or paid
in cash - - 5,035,084 12,183,347 - - - -
-------------------------------------------------------------------------------------------------------
Total 420,022,518 223,776,223 739,664,401 903,339,4271,631,234,4251,865,341,8353,444,998,9843,142,665,332
=======================================================================================================
(1) It includes $ 1,380,594 relating to GDP coupons in pesos. The government securities linked to the GDP become due on
12/31/2035. However, in the event a certain GDP rate growth is exceeded in the country, the bondholders shall be
entitled to annual payments.
(2) It is amortized as from 06/30/2024 in 20 semiannual installments (on 06/30 and 12/31 of each year), the final
maturity of which is on 12/31/2033.
(3) It includes the overdue receivables detailed in item 3.a of the supplementary information.
EXHIBIT H
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
Balance sheet as of September 30, 2007 and as of December 31, 2006 (Cont.)
TERMS, INTEREST RATES AND ADJUSTMENT CLAUSES OF SHORT-TERM INVESTMENTS, LOANS, RECEIVABLES AND PAYABLES (in pesos)
Investments Receivables
--------------------------------- ---------------------------------
09/30/2007 12/31/2006 09/30/2007 12/31/2006
---------------- ---------------- ---------------- ----------------
Rate Pesos Rate Pesos Rate Pesos Rate Pesos
---- ----------- ---- ----------- ---- ----------- ---- -----------
Annual
fixed
rate in
US$ - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - -
Annual
fixed
rate in
US$ - - - - 4.50 14,286 4.50 28,574
Annual
fixed
rate in
US$ - - - - - - 8.00 2,362,909
CER plus
annual
fixed
rate in
$ 4.00 3,929,583 - - - - - -
Average
annual
variable
rate in
$ - - - - 8.00 11,810,478 8.00 7,906,016
Average
annual
variable
rate in
$ - - - - - - - -
Annual
fixed
rate in
US$ - - - - 8.50 1,766,465 8.5 1,079,127
Average
annual
variable
rate in
US$ - - - - - - - -
Average
annual
fixed
rate in
US$ - - - - - - - -
Annual
variable
rate in
U$S 5.28 1,138 5.26 215,056,665 - - - -
Annual
variable
rate in
US$ 5.29 339,867,637 - - - - - -
Annual
variable
rate in
US$ 3.85 68,945,055 - - - - - -
Annual
fixed
rate in
$ plus
CER 5.83 5,896,511 5.83 7,015,064 - - - -
Non-
interest
bearing - 1,382,594 - 1,704,494 - 726,073,172 - 891,962,801
----------- ----------- ----------- -----------
Total 420,022,518 223,776,223 739,664,401 903,339,427
=========== =========== =========== ===========
Payables Loans
------------------------------------- -----------------------------------------------
09/30/2007 12/31/2006 09/30/2007 12/31/2006
------------------ ------------------ ----------------------- -----------------------
Rate Pesos Rate Pesos Rate Pesos Rate Pesos
---- ------------- ---- ------------- ----- ----------------- ----- -----------------
Annual
fixed
rate in
US$ - - - - - - 6.75 306,200,000
Annual
fixed
rate in
US$ - - - - 7.125 315,000,000 7.125 306,200,000
Annual
fixed
rate in
US$ - - - - - - 7.00 4,172,594
Annual
fixed
rate in
US$ - - - - 5.45 3,776,667 5.45 5,565,507
Annual
fixed
rate in
US$ - - - - 6.18 128,438 6.18 187,272
Annual
fixed
rate in
US$ - - - - 7.56 280,003,500 7.56 306,200,000
Annual
fixed
rate in
US$ - - - - 6.97 354,375,000 6.97 413,370,000
Annual
fixed
rate in
US$ - - - - 5.66 47,250,000 5.66 45,930,000
Annual
fixed
rate in
US$ - - - - 8.00 31,500,000 8.00 30,620,000
Annual
fixed
rate in
US$ - - - - - - 5.00 76,550,000
Annual
fixed
rate in
US$ - - - - 7.75 787,500,000 7.75 765,500,000
CER plus
annual
fixed
rate in
$ - - - - - - - -
Average
annual
variable
rate in
$ - - - - 8.44 103,799,516 7.78 275,057,276
Average
annual
variable
rate in
$ - - - - - - 10.25 446,709,189
Annual
fixed
rate in
US$ - - - - - - - -
Average
annual
variable
rate in
US$ - - - - 7.51 1,273,959,849 6.48 94,916,582
Average
annual
fixed
rate in
US$ - - - - 5.85 204,750,000 - -
Annual
variable
rate in
U$S - - - - - - - -
Annual
variable
rate in
US$ - - - - - - - -
Annual
variable
rate in
US$ - - - - - - - -
Annual
fixed
rate in
$ plus
CER - - - - - - - -
Non-
interest
bearing - 1,631,234,425 - 1.865.341.835 - - - -
------------- ------------- ----------------- -----------------
Total 1,631,234,425 1.865.341.835 (1) 3,402,042,970 (1) 3,077,178,420
============= ============= ================= =================
(1) It only includes the principal at face value.
EXHIBIT I
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
Balance sheet as of September 30, 2007 and as of December 31, 2006
PARTICIPATION IN JOINT VENTURES (in pesos)
Lindero Lindero Aguada Aguada San San Estancia
La
Atravesado Atravesado Pichana Pichana Roque Roque Acambuco Acambuco Escondida
62,50% 62,50% 18,18% 18,18% 16,47 % 16,47 % 52,00 % 52,00 % 25,00%
09/30/2007 12/31/2006 09/30/2007 12/31/2006 09/30/2007 12/31/2006 09/30/2007 12/31/2006 09/30/2007
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
ASSETS
------------
CURRENT
ASSETS
------------
Cash on hand
and in
banks 3,394,403 8,006 149,116 132,325 353,440 46,796 53,264 681,589 661
Other
receivables 865,502 885,345 6,736,822 1,608,315 3,880,693 27,819 393,589 2,503,876 442,239
Inventories 5,881,799 5,608,560 8,124,146 10,779,553 9,384,116 8,325,385 2,173,640 1,881,612 67,944
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total
current
assets 10,141,704 6,501,911 15,010,084 12,520,193 13,618,249 8,400,000 2,620,493 5,067,077 510,844
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
NON CURRENT
ASSETS
------------
Property,
plant and
equipment 130,586,232 100,752,309 260,624,732 210,261,214 241,028,778 211,498,427 643,992,924 599,158,484 5,828,744
Intangible
assets - - - 8,059 - - - - 105,635
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total non
current
assets 130,586,232 100,752,309 260,624,732 210,269,273 241,028,778 211,498,427 643,992,924 599,158,484 5,934,379
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total assets 140,727,936 107,254,220 275,634,816 222,789,466 254,647,027 219,898,427 646,613,417 604,225,561 6,445,223
=========== =========== =========== =========== =========== =========== =========== =========== ==========
Costa Costa Costa Costa
Afuera Afuera Afuera Afuera
Estancia Argentina Argentina Argentina Argentina Anticlinal Anticlinal
La
Escondida Bandurria Bandurria Bloque 40 Bloque 40 Bloque 46 Bloque 46 Funes Funes
25,00% 18,18% 18,18% 50,00% 50,00% 50,00% 50,00% 80,00% 80,00%
12/31/2006 09/30/2007 12/31/2006 09/30/2007 12/31/2006 09/30/2007 12/31/2006 09/30/2007 12/31/2006
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
ASSETS
---------------------
CURRENT ASSETS
---------------------
Cash on hand and in
banks 1,384 68,690 88,614 - - - - 1,332 1,644
Other receivables 395,342 8,914 31,301 63,424 65,562 29,264 29,264 1,089,693 1,087,844
Inventories 76,352 - - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total current assets 473,078 77,604 119,915 63,424 65,562 29,264 29,264 1,091,025 1,089,488
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NON CURRENT ASSETS
---------------------
Property, plant and
equipment 5,090,205 2,117,424 4,519,810 13,835,541 11,175,237 1,113,743 588,337 4,232,740 2,262,167
Intangible assets 210,418 - - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total non current
assets 5,300,623 2,117,424 4,519,810 13,835,541 11,175,237 1,113,743 588,337 4,232,740 2,262,167
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets 5,773,701 2,195,028 4,639,725 13,898,965 11,240,799 1,143,007 617,601 5,323,765 3,351,655
========== ========== ========== ========== ========== ========== ========== ========== ==========
EXHIBIT I
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
Balance sheet as of September 30, 2007 and as of December 31, 2006
PARTICIPATION IN JOINT VENTURES (in pesos)
Lindero Lindero Aguada Aguada San San Estancia
La
Atravesado Atravesado Pichana Pichana Roque Roque Acambuco Acambuco Escondida
62,50% 62,50% 18,18% 18,18% 16,47% 16,47% 52,00% 52,00% 25,00%
Balance sheet 09/30/2007 12/31/2006 09/30/2007 12/31/2006 09/30/2007 12/31/2006 09/30/2007 12/31/2006 09/30/2007
------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
LIABILITIES
-------------
CURRENT
LIABILITIES
-------------
Accounts
payable 9,256,051 3,103,235 38,951,140 39,892,511 14,345,687 14,087,777 24,524,551 71,445,119 883,115
Payroll and
social
security
contri-
butions 534,253 500,717 - - - - 442,370 574,386 -
Taxes payable 90,144 85,849 - - 19,656 307,032 1,297,812 899,221 124,239
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total current
liabilities 9,880,448 3,689,801 39,951,140 39,892,511 14,365,343 14,394,809 26,264,733 72,918,726 1,007,354
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
NON CURRENT
LIABILITIES
-------------
Accounts
payable 2,351,951 2,036,355 219,132 219,132 876,528 876,528 1,806,738 1,521,884 -
Provision for
environmental
remediation 11,203,820 9,177,151 5,480,067 3,737,323 8,541,479 7,186,139 3,105,012 2,928,406 57,846
Accruals 5,610,557 5,137,832 372,388 365,027 715,396 325,076 2,328,162 2,098,309 -
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total non
current
liabilities 19,166,328 16,351,338 6,071,587 4,321,482 10,133,403 8,387,743 7,239,912 6,548,599 57,846
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
-----------
Total
liabilities 29,046,776 20,041,139 45,022,727 44,213,993 24,498,746 22,782,552 33,504,645 79,467,325 1,065,200
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Owners'
equity 111,681,160 87,213,081 230,612,089 178,575,473 230,148,281 197,115,875 613,108,772 524,758,236 5,380,023
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total 140,727,936 107,254,220 275,634,816 222,789,466 254,647,027 219,898,427 646,613,417 604,225,561 6,445,223
=========== =========== =========== =========== =========== =========== =========== =========== ==========
Costa Costa Costa Costa
Afuera Afuera Afuera Afuera
Estancia Argentina Argentina Argentina Argentina Anticlinal Anticlinal
La
Escondida Bandurria Bandurria Bloque 40 Bloque 40 Bloque 46 Bloque 46 Funes Funes
25,00% 18,18% 18,18% 50,00% 50,00% 50,00% 50,00% 80,00% 80,00%
Balance sheet 12/31/2006 09/30/2007 12/31/2006 09/30/2007 12/31/2006 09/30/2007 12/31/2006 09/30/2007 12/31/2006
--------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES
---------------------
CURRENT LIABILITIES
---------------------
Accounts payable 250,581 424,601 823,060 - - - 13,283 2,254,286 1,376,434
Payroll and social
security contri-
butions - - - - - - - 6,711 1,928
Taxes payable 95,443 6,793 - - - - - 5,386 10,000
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities 346,024 431,394 823,060 - - - 13,283 2,266,383 1,388,362
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NON CURRENT
LIABILITIES
---------------------
Accounts payable - - - - - - - - -
Provision for
environmental
remediation 92,200 - - - - - - 762,404 972,617
Accruals - - - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total non current
liabilities 92,200 - - - - - - 762,404 972,617
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 438,224 431,394 823,060 - - - 13,283 3,028,787 2,360,979
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Owners' equity 5,335,477 1,763,634 3,816,665 13,898,965 11,240,799 1,143,007 604,318 2,294,978 990,676
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 5,773,701 2,195,028 4,639,725 13,898,965 11,240,799 1,143,007 617,601 5,323,765 3,351,655
========== ========== ========== ========== ========== ========== ========== ========== ==========
EXHIBIT I
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
Statement of income for the period beginning January 1 and ended September 30, 2007, comparative with the same period of
the prior year
PARTICIPATION IN JOINT VENTURES (in pesos)
Lindero Lindero Aguada Aguada San San
Atravesado Atravesado Pichana Pichana Roque Roque
62,50% 62,50% 18,18% 18,18% 16,47% 16,47%
2007 2006 2007 2006 2007 2006
------------ ------------ ------------- ------------ ------------ ------------
STATEMENT OF
INCOME (9 months) (9 months) (9 months) (9 months) (9 months) (9 months)
--------------
Sales (1) - - - - - -
Cost of sales (41,270,638) (34,794,596) ( 83,936,463) (68,669,227) (39,725,599) (35,455,991)
------------ ------------ ------------- ------------ ------------ ------------
Gross result (41,270,638) (34,794,596) ( 83,936,463) (68,669,227) (39,725,599) (35,455,991)
Administrative
expenses - - - - - -
------------ ------------ ------------- ------------ ------------ ------------
Operating
result (41,270,638) (34,794,596) ( 83,936,463) (68,669,227) (39,725,599) (35,455,991)
Financial
results - net ( 339,323) ( 446,495) ( 161,136) ( 111,414) ( 310,410) ( 255,600)
Other income
and expenses
- net 1,070,545 ( 1,657,419) 6,089,881 ( 20,262) 65,142 ( 229,183)
------------ ------------ ------------- ------------ ------------ ------------
Net result (40,539,416) (36,898,510) (78,007,718) (68,800,903) (39,970,867) (35,940,774)
============ ============ ============= ============ ============ ============
Estancia Estancia
Acambuco Acambuco La Escondida La Escondida Bandurria Bandurria
52,00% 52,00% 25,00% 25,00% 18,18% 18,18%%
2007 2006 2007 2006 2007 2006
------------- ------------- ------------- ------------- ----------- ---------
STATEMENT OF (9
INCOME (9 months) (9 months) (9 months) (9 months) (9 months) months)
--------------
Sales (1) - - - - - -
Cost of sales (124,386,867) (113,632,935) (2,372,648) (3,751,978) - -
------------- ------------- ------------- ------------- ----------- ---------
Gross result (124,386,867) (113,632,935) (2,372,648) (3,751,978) - -
Administrative
expenses - - - - - -
------------- ------------- ------------- ------------- ----------- ---------
Operating
result (124,386,867) (113,632,935) (2,372,648) (3,751,978) - -
Financial
results - net 75,311 ( 234,476) 19,492 ( 16,286) ( 2,668) ( 3,761)
Other income
and expenses
- net ( 123,616) 821,595 - - (2,814,303) (611,978)
------------- ------------- ------------- ------------- ----------- ---------
Net result (124,435,172) (114,689,006) (2,353,156) (3,768,264) (2,816,971) (615,739)
============= ============= ============= ============= =========== =========
Costa Costa Costa Costa
Afuera Afuera Afuera Afuera
Argentina Argentina Argentina Argentina Anticlinal Anticlinal
Bloque 40 Bloque 40 Bloque 46 Bloque 46 Funes Funes
50,00% 50,00% 50,00% 50,00% 80,00% 80,00%
2007 2006 2007 2006 2007 2006
--------- ----------- --------- ----------- ----------- ------------
STATEMENT OF (9 (9
INCOME months) (9 months) months) (9 months) (9 months) (9 months)
--------------
Sales (1) - - - - - -
Cost of sales - - - - (5,403,925) (10,200,885)
--------- ----------- --------- ----------- ----------- ------------
Gross result - - - - (5,403,925) (10,200,885
Administrative
expenses - - - - - -
--------- ----------- --------- ----------- ----------- ------------
Operating
result - - - - (5,403,925) (10,200,885
Financial
results - net - - - - ( 43,058) ( 34,414)
Other income
and expenses
- net 37,407 (3,443,020) (492,968) (3,252,953) 6 -
--------- ----------- --------- ----------- ----------- ------------
Net result 37,407 (3,443,020) (492,968) (3,252,953) (5,446,977) (10,235,299
========= =========== ========= ----------- =========== ============
(1) No sales were recorded in the joint ventures because production is directly assigned to each participant.
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2007
REPORTING SUMMARY REQUIRED BY RESOLUTION No. 290/97 OF THE NATIONAL SECURITIES
COMMISSION
1. Comment on the Branch's activity
1.1. Operating activities
Pan American Energy LLC (Argentine Branch) is mainly engaged in the exploration,
development and production of hydrocarbons. The Head Office of the Branch is Pan
American Energy LLC, which also has various subsidiaries and affiliates that
carry out activities in Argentina and other Mercosur countries. BP and Bridas
Corporation hold interests that account for 60% and 40%, respectively of the
Branch's ownership.
During the first nine-month period of 2007, with a daily average production of
218.1 thousand barrels of oil, the Branch together with subsidiaries of Head
Office that develop their activities in the country, rank second in the
production of natural gas and oil in Argentina.
1.2. Issuance of bonds
On February 11, 1997, Amoco Argentina Oil Company (Argentine Branch) issued the
Second Series of Bonds in the amount of US$ 100,000,000 due in ten years, at a
6.75% rate per annum. The bonds were paid upon maturity on February 1, 2007.
This issuance completes the maximum amount of the short and medium term bond
program of US$ 200,000,000 approved by the National Securities Commission
through Resolution No. 10982 dated July 13, 1995.
As a result of the transfer of assets and liabilities referred to in the second
paragraph of Note 1 to these financial statements, Amoco Argentina Oil Company
(Argentine Branch) transferred the above mentioned bonds to Pan American Energy
LLC (Argentine Branch). Such Bonds were guaranteed until repayment, in February
2007, by BP Company North America Inc.
On February 21, 2002, through Resolution No. 14123, the CNV authorized the
Global Program for the Issuance of Bonds of Pan American Energy LLC (Argentine
Branch) (the "Global Program") in the total amount of US$ 1,000,000,000.
On October 27, 2004, the Branch issued Bonds Class 3 in the amount of US$
100,000,000 under the Global Program. The bonds become due in five years
(October 27, 2009) with a 7.125% annual fixed interest rate to be paid on a
half-yearly basis. The price of the issuance was 99.483%, nominal value. The
funds derived from this issuance were allocated to investments in property and
equipment and the repayment of loans.
On August 9, 2006, the Branch issued Bonds Class 4 in the amount of US$
250,000,000 under the Global Program, to be repaid in two equal installments
becoming due on February 9, 2011 and February 9, 2012, with interest accruing at
an annual fixed interest rate of 7.75% to be paid on a half-yearly basis. The
price of the issuance was 100.00% of the nominal value. The funds obtained in
this issue will be allocated to investments in property and equipment, working
capital and repayment of loans.
1.3. Loan agreements
Pan American Energy LLC (Argentine Branch) obtained the following loans at a
five-year term, with interest compounded bi-annually amortized in monthly
installments: 1) On July 20, 2001, in the amount of US$ 72,051,406, with
interest accruing at an annual rate of 7.54%, with the first installment falling
due on April 19, 2002 and the repayment term being completed on June 20, 2006,
and 2) on September 17, 2001, in the amount of US$ 40,001,944, with interest
accruing at an annual rate of 6.72%, with the first installment falling due on
June 20, 2002 and completing repayment on August 21, 2006. For the purpose of
fixing the interest rate, the Branch has entered into integrated derivative
transactions, the impact of which has been included in the cost of the
transactions. Both loans have been guaranteed by Pan American Energy LLC until
the repayment thereof in June and August 2006.
On July 11, 2005, the Branch obtained from the International Finance Corporation
(IFC) a loan in the amount of US$ 250,000,000 guaranteed by Head Office and
consisting of three tranches:
- "A" in the amount of US$ 100,000,000, with interest accruing at an annual
fixed rate of 7.56%, through an interest rate swap with IFC, amortizable on
six-month installments basis and becoming due in July 2015;
- "B" in the amount of US$ 135,000,000, at an annual fixed rate of 6.97%,
through an interest rate swap with IFC, amortizable on a six-month installments
basis, and becoming due in July 2012; and
- "C" in the amount of US$ 15,000,000, at an annual fixed base rate of 5.66%
plus additional interest calculated in relation to Head Office's economic
performance, becoming due in July 2016.
As of December 31, 2005, the amount of the loans had been fully disbursed.
The first principal installment for tranches "A" and "B" was paid on January 15,
2007.
The funds obtained were used to partially fund the 2005 investment program in
the San Jorge Gulf.
On July 13, 2007, the Branch obtained from the International Finance Corporation
(IFC) a loan in the amount of U$S 550,000,000, consisting of two tranches:
- "A" in the amount of US$ 150,000,000, amortizable on a six-month installment
basis and becoming due in April 2018; and
- "B-1" in the amount of US$ 158,500,000, amortizable on a six-month installment
basis and becoming due in April 2014, and "B-2" in the amount of US$
241,500,000, amortizable on a six-month installment basis and becoming due in
April 2015.
The loan is guaranteed by Head Office and the funds obtained shall be destined
to partially finance the investment program that the Company is planning to
launch in Cerro Drag�n, in the San Jorge Gulf basin, located in the provinces of
Santa Cruz and Chubut.
To the date of these financial statements, a disbursement of US$ 400,000,000 was
made in relation to the referred loan, and the outstanding US$ 150,000,000 are
planned to be disbursed during the first quarter of the following year.
2. Balance sheet items as of September 30, 2007 (in pesos)
Balance Balance Balance Balance Balance
sheet sheet sheet sheet sheet
as of as of as of as of as of
09/30/2007 09/30/2006 09/30/2005 09/30/2004 09/30/2003
--------------- --------------- --------------- --------------- ---------------
Current assets 1,255,210,579 1,558,787,365 1,060,737,642 745,780,799 576,207,301
Non current assets 6,916,671,378 5,572,249,794 4,647,841,128 3,967,829,320 3,916,949,439
--------------- --------------- --------------- --------------- ---------------
Total 8,171,881,957 7,131,037,159 5,708,578,770 4,713,610,119 4,493,156,740
=============== =============== =============== =============== ===============
Current liabilities 1,406,200,947 2,027,190,446 1,303,610,293 1,738,521,186 1,105,155,059
Non current
liabilities 3,691,967,755 2,892,836,122 1,822,791,116 1,076,255,148 1,681,050,538
--------------- --------------- --------------- --------------- ---------------
Subtotal 5,098,168,702 4,920,026,568 3,126,401,409 2,814,776,334 2,786,205,597
--------------- --------------- --------------- --------------- ---------------
Account with Head
Office 2,612,474,248 1,749,771,584 2,120,938,354 1,459,373,785 1,267,491,143
Capital allocated to
the Branch 221,779,007 221,779,007 221,779,007 200,000,000 200,000,000
Capital adjustment 239,460,000 239,460,000 239,460,000 239,460,000 239,460,000
--------------- --------------- --------------- --------------- ---------------
Total 8,171,881,957 7,131,037,159 5,708,578,770 4,713,610,119 4,493,156,740
=============== =============== =============== =============== ===============
3. Income statement items as of September 30, 2007 (in pesos)
Nine-month Nine-month Nine-month Nine-month Nine-month
period ended period ended period ended period ended period ended
09/30/2007 09/30/2006 09/30/2005 09/30/2004 09/30/2003
-------------- -------------- -------------- -------------- -------------
Ordinary operating income 1,830,837,686 2,089,205,309 1,365,117,208 1,039,958,469 692,418,985
Financial results ( 264,041,479) ( 103,584,008) ( 44,910,282) ( 120,722,551) (110,847,522)
Other income and expenses -
net ( 48,567,708) ( 36,853,241) ( 19,698,264) ( 97,631,702) ( 73,387,832)
-------------- -------------- -------------- -------------- -------------
Income before taxes 1,518,228,499 1,948,768,060 1,300,508,662 821,604,216 508,183,631
Income tax/minimum deemed
income tax ( 578,842,019) ( 727,581,754) ( 491,427,561) ( 358,188,289) (182,782,653)
Deferred tax 50,822,677 45,461,507 31,874,626 122,851,793 94,229,283
-------------- -------------- -------------- -------------- -------------
Net income 990,209,157 1,266,647,813 840,955,727 586,267,720 419,630,261
============== ============== ============== ============== =============
4. Statistical data
Nine-month Nine-month Nine-month Nine-month Nine-month
period ended period ended period ended period ended period ended
09/30/2007 09/30/2006 09/30/2005 09/30/2004 09/30/2003
-------------- --------------- --------------- --------------- ---------------
In cubic
meters In cubic meters In cubic meters In cubic meters In cubic meters
-------------- --------------- --------------- --------------- ---------------
Production of crude oil 4,598,566 4,562,441 4,424,441 4,259,197 3,898,929
Sale of crude oil 4,591,064 4,519,444 4,226,528 4,279,900 3,846,215
Nine-month Nine-month Nine-month Nine-month Nine-month
period ended period ended period ended period ended period ended
09/30/2007 09/30/2006 09/30/2005 09/30/2004 09/30/2003
----------------- ---------------- ----------------- ---------------- ----------------
In cubic meters In cubic meters In cubic meters In cubic meters In cubic meters
----------------- ---------------- ----------------- ---------------- ----------------
Production of natural gas 3,826,540 3,619,986 3,286,420 3,146,525 2,543,477
Sale of natural gas 3,941,524 3,512,136 3,312,333 3,003,178 2,324,174
Transportation of natural gas 2,756 11,390 221,618 282,390 211,563
In tons In tons In tons In tons In tons
-------------- ------------- -------------- -------------- --------------
Production of L.P.G. 53,518 76,160 45,464 50,505 43,348
Sale of L.P.G. 51,823 83,229 32,229 54,231 49,283
5. Ratios
Financial Financial Financial Financial Financial
statements statements statements statements statements
as of as of as of as of as of
09/30/2007 09/30/2006 09/30/2005 09/30/2004 09/30/2003
------------- -------------- ------------- -------------- --------------
Current ratio 0,89 0,77 0,81 0,43 0,52
Indebtedness 1,66 2,23 1,21 1,48 1,63
Tied - up funds 0,85 0,78 0,81 0,84 0,87
Solvency 0,60 0,45 0,83 0,67 0,61
6. Business prospects
Pan American Energy LLC (Argentine Branch) is working to maintain and increase
its operating efficiency in connection with the oil and gas exploration and
production, to continue increasing its share in hydrocarbon production in
Argentina, satisfying in this way the needs derived from a sustained growth rate
of the country's economy as well as to comply with its existing contractual
obligations. The Branch strives to provide its personnel and contractors with
healthy and safe working conditions while preserving the environment.
The Branch is strongly engaged with the concerns and challenges posed by the
communities where it operates, by developing different social responsibility
programs (CSR).
During the first nine-month period of 2007, the Branch's oil production grew by
0,8% and natural gas production rose by 5,7% with respect to the same period of
the prior year. This growth results from the active investment program
successfully implemented by Pan American Energy in the last years, which has
allowed it to double hydrocarbon production from 1999 to 2006.
After the 2002 crisis, the country has managed to achieve high GDP growth with
relatively low inflation rates though growing recently and, a stable currency,
with unemployment rates that have been significantly reduced.
In the first nine-month period of 2007, the GDP went on growing at a sustained
rate, which indicates that a growing trend - initiated 22 quarters ago -
continues. It is estimated that the GDP will grow by 8.4% in 2007. The
unemployment rate is about 8.5%.
The National Government exceeded the primary fiscal surplus expected for the
first nine-month period of 2007 by 27.3%, reaching a primary fiscal surplus of
22,796 million pesos, up 19.4% with respect to the same period of the prior
year. The level of foreign indebtedness as of June 30, 2007 increased with
respect to the same date of the prior year and amounted to US$ 138,315 million.
The country's international reserves amounted US$ 42,891 million as of September
30, 2007.
The increase in the oil industry costs is a source of concern, since it clearly
exceeds the general increase in prices.
As previously informed, revenues from the exploration and production of oil and
gas were affected by the amendments to the regulations in force. In the case of
oil, as from March 2002, an increasing rate of up to 45% of export tariffs on
exports has been applied, which has also affected the sales prices in the
domestic market. In the case of natural gas, in January 2002, the wellhead price
of natural gas was redenominated into pesos and frozen and, afterwards, export
tariffs on exports and quantitative restrictions to them were established. In
April 2004, the Secretary of Energy and the natural gas producers signed an
agreement named "regularization of wellhead prices". The term of this agreement
expired on December 31, 2006, after which, and at the request of the related
authorities, a new agreement was signed that shall be in force until December
31, 2011 and which is currently being performed.
The new agreement, approved last June by Resolution 599/07 of the Secretary of
Energy, compels producers (including the Branch) to satisfy the domestic demand
up to the levels reached in 2006 plus the growth of the residential market
during the validity thereof by setting out new guidelines for price changes.
In relation to export tariffs on gas exports, on July 25, 2006, the Ministry of
Economy, through Resolution No. 534/2006, increased them to US$ 2,25 per million
BTU.
On June 29, 2006, the National Government signed a form contract with the
Republic of Bolivia to import gas from such country. In October 2006, ENARSA and
Yacimientos Petrol�feros Fiscales Bolivianos agreed on the sale of Bolivian
natural gas having established an initial price of US$ 5 per million of BTU with
a maximum daily volume of 7.7 million cubic meters up to a maximum daily volume
of 27.7 million cubic meters in year 2010. This contract provides for an
extension of one year. The volume proposed for 2010/2011 will be obtained once
the gas pipeline named Noreste starts operating and/or through the availability
of gas by Bolivia.
Pursuant to Resolution 776 issued by the Argentine Ministry of Economy on
October 11, 2006, the national government provided for the retroactive
application of export tariffs on exports of hydrocarbons made from the Special
Customs Area of the Province of Tierra del Fuego. On January 15, 2007, Law 26217
was passed which, besides extending for a five-year term the application of
export tariffs on the export of hydrocarbons in general, imposes that such
export tariffs be applied on the exports made from the referred Special Customs
Area. The oil companies operating in this province consider that pursuant to the
provisions of Law Nr. 19640 that establishes a special regime applicable to
economic activities in Tierra del Fuego, as well as other regulations provide,
including those that approved the concessions or other rights over the oil
areas, the application of export tariffs on future exports becomes a
challengeable issue and that the retroactive application of export tariffs
becomes absolutely invalid and therefore these companies have commenced all
actions before administrative authorities and the courts.
During the first six-month period of 2007, union claims for a salary increase to
be enjoyed by the personnel (both from the Private Oil Workers Union and
Hierarchy employees union exceeding 60%) were peacefully made by the unions to
the business chambers. As a result, no action measures affecting operations were
taken. Nonetheless, in July, the unions took direct action measures which
affected the normal functioning of tower equipment for several days and caused
some minor production interruptions in the oil fields, however, they caused
operating problems generating long-lasting effects on the production volume.
Towards the end of July, several agreements were reached for a one-year term
with the unions. The agreements provide for a gradual salary increase of
approximately 30%.
In the third quarter of 2007, different salary claims started to be made by the
other unions involved in the oil fields (construction, surveillance, etc.),
which asked for salary increases similar to those obtained by the oil laborers
unions. Additionally, the oil unions are requesting for private oil company
workers involved in the sector of special operations (cementing, logging,
casing, etc.) a change in the working conditions, which the chamber of companies
is currently considering.
During fiscal year 2007, the Branch has continued with its investment plans with
a view to expanding its business and contributing to satisfying the growing
energy demand. The commitments assumed referred to in the following paragraphs
strengthen these expansion plans.
On December 6, 2006, Law Nr. 26197, known as "Hydrocarbons Short Law", was
passed. This law complied with the constitutional provision of transferring the
original ownership of the natural resources placed in the subsurface from the
Federal State to the producing provinces where oil fields are located.
Consequently, the Branch entered into with the Argentine provinces of Chubut
(04/27/2007) and Santa Cruz (06/25/2007) two investment commitments and
agreements for the extension of the term of the concession for hydrocarbon
exploitation for a ten-year period in the blocks known as Cerro Drag�n, the area
of which is extended in the territory of both provinces, and Piedra Clavada and
Koluel Kaike in the province of Santa Cruz. The agreements expired between 2016
and 2017.
These agreements provided for minimum investments of US$ 2,000,000,000 in the
Province of Chubut and of US$ 500,000,000 in the Province of Santa Cruz. These
investments are to be made before 2017 and are destined to onshore activities.
Other investments of US$ 1,000,000,000 in the Province of Chubut and of US$
300,000,000 in the Province of Santa Cruz are to be made before 2027.
The agreements also provided for a US$ 80,000,000 investment commitment for sea
exploration, at the Branch's own risk, by means of two joint ventures (UTEs)
with the state-run companies Petrominera (in the case of Chubut) and Fomicruz
(in the case of Santa Cruz). If the Branch makes commercial discoveries, an
additional investment commitment will be required in the amount of US$
500,000,000 for the development of the offshore fields to be discovered.
The creation of the UTEs referred to in the preceding paragraph is consistent
with the provisions of sections 11 and 95 of the Hydrocarbon Law, which allows
state-run companies to enter into agreements and create companies, partnerships
or other associations with individuals or entities for the development of their
activities.
The operation agreements executed with state-run companies also fall within the
scope of the referred Law, which shall be effected as from the year 2027,
subject to compliance with the investments and Pan American Energy's exploration
success, so that it is allowed to evidence that it has developed sufficient
reserves to continue with the production of the fields of those areas as from
that year.
Other commitments assumed by the Branch are as follows:
-- make a special contribution of 3% of the net revenues generated by the
concessions to the provinces of Chubut and Santa Cruz ;
-- in the field of Corporate Social Responsibility, extend its considerable
commitments on education and development of regional small and
medium-sized companies by means of a number of university scholarship
programs in the country and abroad and a significant extension of its
development programs for domestic companies; and
-- make a contribution of US$ 120,000,000 and US$ 40,000,000 for the
creation of different funds in the provinces of Chubut and Santa Cruz,
respectively, destined to domestic development and payable in four
annual, equal and consecutive installments. These amounts will be added
to commitment assumed by the Branch in the field of Corporate Social
Responsibility and are considered expenses for the fiscal year in which
payments are effectively made.
The agreement with the province of Chubut was ratified by provincial law No.
5616 passed by the Provincial Legislature on May 24, 2007, enacted by decree No.
500/2007 and published in the Official Bulletin on May 28, 2007.
The Government of the Province of Santa Cruz has sent the agreement to the
Provincial Legislature for its approval, which is pending.
The execution of these agreements involves a new horizon to sustain the increase
in production and reserves maintained by Pan American Energy in the Golfo San
Jorge basin. This new horizon shall allow addressing long-term projects
requiring sound investments, new technologies and teams working for the future.
On October 28, 2007, the presidential, and other governmental authorities
elections took place in the country. Thus, the elections schedule that started
several months ago in different provinces of the country was completed. These
elections proved to be a new milestone in the history of the country's democracy
and support the democratic and institutional regularization process that started
24 years ago. The new administration is expected to continue, in general lines,
with the current policies on hydrocarbon exploitation and production.
Buenos Aires, November 9, 2007
Daniel Grinstein
Attorney in-fact
SUPPLEMENTARY INFORMATION TO THE FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2007
REQUIRED BY SECTION 68 OF THE REGULATIONS OF THE BUENOS AIRES STOCK EXCHANGE
Overall issues about the Branch's activity:
1. Specific and significant legal requirements which imply contingent
suspensions or changes of benefits provided for by such regulations:
The Branch is not subject to specific and significant legal requirements, which
may imply the contingent suspension or change of benefits provided for by such
regulations, except as disclosed in notes to the financial statements.
2. Significant changes in the Branch's activities or other similar circumstances
that affect the comparison of the financial statements with prior years', or
with those to be presented in future years.
There are no changes in the Branch's activities that significantly affect the
comparison of the financial statements as of September 30, 2007.
3. Breakdown of receivables and payables as per section 68, subsection 3.
3.a) The breakdown of receivables and payables based on the maturity thereof is
disclosed in Exhibit H to the financial statements.
The following receivables without any established term included in the referred
Exhibit H are overdue:
Current receivables
$
-------------------
Due from April to September 2007 673,459
Due from January to March 2007 5,095,214
Due from October to December 2006 4,138,925
Due from July to September 2006 3,339,101
Due from October 2005 to September 2006 11,215,023
Due from October 2004 to September 2005 8,498,472
Due from October 2003 to September 2004 2,832,876
Due from October 2002 to September 2003 1,445,798
Due from October 2001 to September 2002 52,196
Due from October 2000 to September 2001 147,496
-------------------
Total 37,438,560
===================
There are no overdue payables.
3.b) In connection with the receivables and payables in foreign currency, see
Exhibit F to the financial statements. There are no significant receivables and
payables represented by securities.
3.c) There are no receivables and payables subject to adjustment clauses.
3.d) In connection with the receivables and payables that accrue interest as of
September 30, 2007, see Exhibit H to the financial statements.
4. Corporations Art. 33 Law 19550
None.
5. Receivables or loans with directors, statutory auditors, and relatives
including up to the second degree:
None as of the date of issuance of these financial statements.
6. Physical counts of inventories
Based on the nature of the activity, the Branch carries out physical counts of
most of its inventories. There are no significant slow-moving inventories as of
September 30, 2007 for which an allowance has not been set up.
7. Current values
The valuation method of inventories is disclosed in Note 3.2.d) to the financial
statements.
8. Property, plant and equipment
No items of property, plant and equipment have been subject to appraisal.
To date, there are no property, plant and equipment items that are not in use
due to obsolescence.
9. Interests in other companies
None. The Branch's participating interests in joint operations and other
entities are disclosed in Note 2 to the financial statements.
10. Recoverable value
The recoverable value of inventories and fixed assets, used as a limit to their
valuation for financial reporting purposes, have been determined based on the
net realizable values and values in use, the latter defined as the expected net
cash flows that would result from both the use of the assets and the disposal
thereof at the end of their useful life.
11. Insurance
As of September 30, 2007 the insurance taken onthe Branch's assets are as follows:
Covered
Insured assets Insured risk amount
----------------------------------------------- --------------------------- ----------------
Thousand US$
Equipment, facilities and pipelines applied to
exploitation and transportation Physical damage 702,815
Equipment, facilities and pipelines applied to
exploitation and transportation Liability insurance 10,000
Wells Control, re-drilling, spill 39,000
Additionally, the Branch has taken the following policies: workers compensation insurance,
directors and officers liability insurance and automobile liability insurance.
12. Negative and positive contingencies
To calculate the related accruals, all available elements of judgment and
probability of occurrence have been considered (see Notes 10, 13 and Exhibit D
to the basic financial statements).
13. Contingent events as of the date of issuance of the financial statements
with moderate probability of occurrence, the financial effects of which have not
been fully recorded as of September 30, 2007
None.
Irrevocable advances for future subscriptions
14. As of September 30, 2007, there are no irrevocable advances for future
subscriptions.
15. There are no preferred shares as of the date of issuance of these financial
statements.
16. As of the date of issuance of these financial statements, the Branch has no
restrictions on the distributions of earnings, except as indicated in Note 10.
Buenos Aires, November 9, 2007
Daniel Grinstein
Attorney in-fact
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