TIDM57UB
Translation from the original prepared in Spanish for publication in Argentina
FINAL
PAN AMERICAN ENERGY LLC
(ARGENTINE BRANCH)
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2008
COMPARATIVE WITH THE PRIOR FISCAL YEAR
CONTENTS Page
Auditors´ report 2
Legal information 4
Balance sheet 5
Statement of income 6
Statement of cash flows 7
Notes to the financial statements 8
Exhibits A, B, C, D, E, F, G, H and I 24
Reporting summary 37
Supplementary information required 45
by the Buenos Aires Stock Exchange
INDEPENDENT AUDITORS' REPORT
To the Legal Representative of
Pan American Energy LLC (Argentine Branch)
Av. Leandro N. Alem 1180 - 11th floor
Buenos Aires, Argentina
1. We have audited the accompanying balance sheet of Pan American Energy LLC (Argentine Branch) as of December 31, 2008, and the related statements of income and cash flows, notes 1 to 16 and exhibits A, B, C, D, E, F, G, H and I for the year then ended, comparative with the financial statements as of December 31, 2007.
2. The legal representative and management are responsible for the preparation and fair presentation of these financial statements in accordance with the professional accounting principles in force in the City of Buenos Aires, Argentina, and the related regulations of the National Securities Commission ("CNV"). This responsibility includes: (a) designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error, (b) selecting and applying appropriate accounting policies, and (c) making accounting estimates that are reasonable in the circumstances. Our responsibility is to express an opinion on these financial statements based on our audit.
3. We conducted our audit in accordance with auditing standards generally accepted in Argentina. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of the accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
4. The accompanying financial statements were translated into the English language from those issued in Spanish in conformity with the regulations of the CNV. Certain accounting practices applied by the Branch that conform to the accounting standards set forth by the CNV do not conform to accounting principles generally accepted in the United States. The effects of these differences have not been quantified by the Company.
5. In relation to the financial statements as of December 31, 2007, and for the year then ended, presented for comparative purposes, we issued an unqualified opinion report dated March 7, 2008.
6. In our opinion, the financial statements referred to in paragraph 1 present fairly, in all material respects, the financial position of the Branch as of December 31, 2008, and the results of its operations and cash flows for the year then ended, in conformity with professional accounting principles in force in the City of Buenos Aires.
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 Argentina which, in their formal aspects, are kept pursuant to legislation in force. The information systems used to process the data included in the financial statements are kept under the security and integrity conditions based on which they were authorized;
b. we read the information included in the reporting summary (sections "Balance sheet items", "Income statement items" and "Indexes") and in the supplementary information to the financial statements required by section 68 of the regulations of the Buenos Aires Stock Exchange, based on which, as far as it relates to our area of responsibility, we have no observations;
c. as of December 31, 2008, the accrued liability for pension contributions arising from the accounting records amounted to $ 9,114,258, no amounts being due as of that date, and
d. as required by General Resolution No. 400 of the National Securities Commission:
-- the ratio between the total audit services invoiced to the Branch and
the total amount invoiced to the Branch, including audit services, is
0.48%;
-- the ratio between the total audit services invoiced to the Branch and
the total audit services invoiced to the Branch and its Head Office
and Temporary Union of Enterprises is 0.79%, and
-- the ratio between the total audit services invoiced to the Branch and
the total amount invoiced to the Branch and its Head Office and
Temporary Union Enterprises is 0.43%.
Buenos Aires (Argentina), March 11, 2009
SIBILLE
Néstor R. García
Partner
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
FINANCIAL STATEMENTS as ofDecember 31, 2008 for the fiscal year N° 12 beginning January 1, 2008 and ended December 31, 2008 comparatively presented with the prior fiscal year
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
Translation from the original prepared in Spanish for publication in Argentina
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
BALANCE SHEET as of December
31, 2008 comparative
with the prior fiscal year (in pesos)
12/31/2008 12/31/2007
ASSETS
CURRENT ASSETS
Cash on hand and in banks (Note 4 a) 11,410,757 33,987,608
Investments (Exhibit C) 635,833,232 451,093,477
Accounts receivable (Note 4 b) 556,925,263 497,884,676
Other receivables (Note 4 c) 451,785,772 88,459,852
Inventories (Note 4 d) 272,250,880 189,479,197
Total current assets 1,928,205,904 1,260,904,810
NON CURRENT ASSETS
Other receivables (Note 4 e) 64,779,696 53,139,229
Investments (Exhibit C) 4,855,868 9,533,846
Property, plant and equipment (Exhibit A) 9,698,503,381 7,383,251,413
Intangible assets (Exhibit B) 356,808 390,469
Total non current assets 9,768,495,753 7,446,314,957
Total assets 11,696,701,657 8,707,219,767
LIABILITIES
CURRENT LIABILITIES
Accounts payable (Note 4 f) 872,239,553 646,905,368
Loans (Note 4 g) 2,039,963,665 745,307,677
Payroll and social security contributions 79,659,248 40,571,422
Taxes payable (Note 4 h) 135,612,971 271,153,439
Other liabilities (Note 3 2 j) 3,310,810 -
Provision for future compensation
to personnel
(Exhibit D) 2,417,779 2,461,743
Total current liabilities 3,133,204,026 1,706,399,649
NON CURRENT LIABILITIES
Accounts payable (Note 4 i) 70,698,545 49,129,413
Loans (Note 4 j) 3,799,048,509 2,984,559,219
Other liabilities (Note 3 2 j) 182,561,417 128,930,896
Deferred tax (Note 11) 359,424,575 389,697,321
Provision for future compensation 17,689,849 15,241,426
to personnel
(Exhibit D)
Provision for environmental 123,870,043 82,182,464
remediation (Exhibit D)
Accruals (Exhibit D) 23,562,000 20,217,498
Total non current liabilities 4,576,854,938 3,669,958,237
Total liabilities 7,710,058,964 5,376,357,886
Account with Head Office (Note 7) 3,525,403,686 2,869,622,874
Capital allocated to the Branch (Note 8) 221,779,007 221,779,007
Capital adjustment 239,460,000 239,460,000
Total 11,696,701,657 8,707,219,767
The accompanying notes and exhibits are an integral part of these financial statements.
PAN AMERICAN ENERGY LLC
(ARGENTINE BRANCH)
STATEMENT OF INCOME for the fiscal year ended December 31,
2008 comparative with the prior fiscal year (in pesos)
2008 2007
Sales (Note 4 k) 6,087,999,396 5,529,608,286
Cost of sales (Exhibit E) (3,554,843,788 ) (2,690,291,924 )
Gross profit 2,533,155,608 2,839,316,362
Administrative expenses ( 322,284,782 ) ( 266,094,396 )
(Exhibit G)
Operating income 2,210,870,826 2,573,221,966
Financial results
Generated by assets
Interest 26,937,115 35,470,760
Exchange gains (losses) 92,316,420 19,684,649
Other financial results ( 1,915,293 ) 117,338,242 ( 1,001,993 )) 54,153,416
Generated by liabilities
Interest (312,838,220 ) (262,155,875 )
Exchange gains (losses) (469,434,809 ) ( 74,320,337 )
Other financial results ( 70,935,100 ) ( 853,208,129 ) ( 51,996,033 ) ( 388,472,245 )
Other income and expenses - net 23,405,830 ( 24,199,544 )
Income before income tax 1,498,406,769 2,214,703,593
Income tax expense - ( 551,629,967 ) ( 831,214,623 )
current (Note 11)
Income tax benefit - 30,272,746 52,253,813
deferred (Note 11)
Net income (Note 7) 977,049,548 1,435,742,783
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
fiscal year ended December 31,
2008 comparative with the prior
fiscal year (in pesos)
2008 2007
Cash provided by operations:
Net income 977,049,548 1,435,742,783
Adjustment to reconcile
net income with
the cash provided by operations
Depreciation of Property, 850,918,589 769,123,691
Plant and Equipment
Amortization of intangible assets 33,661 1,528,298
Income tax expense 551,629,967 831,214,623
Net increase (decrease)
in allowances
for bad debtors,
lawsuits and obsolescence 35,638,550 ( 7,678,801 )
of materials
Gain on property, plant 119,585,986 45,388,175
and equipment
Increase in provision for future 5,362,613 8,281,606
compensation to personnel
Net increase in the provision for 47,033,825 8,063,797
environmental remediation
Other non-cash items (1) 742,423,951 214,691,173
Changes in assets, liabilities
and account with Head Office:
(Increase) decrease in ( 90,702,558 ) 248,450,322
accounts receivable
Increase in inventories ( 83,025,294 ) ( 59,114,874 )
(Increase) decrease in other ( 63,730,366 ) 29,431,946
current receivables
Increase in other non ( 11,640,467 ) ( 24,223,784 )
current receivables
Increase in accounts payable, 207,392,006 65,114,075
payroll and social security
contributions,taxes payable
and other liabilities
Compensation paid to personnel ( 2,958,154 ) ( 2,343,863 )
for benefit plans
Payments related to lawsuits ( 378,466 ) ( 377,888 )
Use of provisions ( 12,620,921 ) ( 1,429,428 )
Income tax paid ( 851,225,521 ) (1,048,710,185 )
Net cash provided by operations 2,420,786,949 2,513,151,666
Cash used in investing activities:
Decrease (increase) in 4,677,978 ( 814,288 )
long-term investments
Acquisition of property, (3,308,295,696 ) (2,391,212,746 )
plant and equipment
Collection due to the 13,298,349 16,932,468
sale of property,
plant and equipment
Cash used in investing activities (3,290,319,369 ) (2,375,094,566 )
Cash provided by financing
activities:
Increase in loans (net) 1,352,964,060 320,256,578
Net activity with Head Office ( 321,268,736 ) ( 222,639,830 )
Cash provided by financing 1,031,695,324 97,616,748
activities
Net increase in cash 162,162,904 235,673,848
Cash at beginning of year (2) 485,081,085 249,407,237
Cash at the year-end (2) 647,243,989 485,081,085
(1) It is made up of:
Exchange gains/losses 772,696,697 266,944,986
and other financial
resultsrelating to
loans and other
Deferred income tax benefit ( 30,272,746 ) ( 52,253,813 )
Total 742,423,951 214,691,173
(2) Cash and banks plus investments becoming due in a period not exceeding three months.
The accompanying notes and exhibits are an integral part of these financial statements.
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
NOTES TO THE FINANCIAL STATEMENTS as of December 31, 2008 comparative with the prior fiscal year (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 the 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 or was involved during the fiscal year ended December 31, 2008.
Activity Operations Interest Participation
=-----------------------------------------------------------------------
=-----------------------------------------------------------------------
Oil and gas production Cerro Dragón 100.00% Operator
and development
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Piedra Clavada 100.00% Operator
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Koluel Kaike 100.00% Operator
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Lindero Atravesado 62.50% Operator
=-----------------------------------------------------------------------
Anticlinal Funes 80.00% Operator
=-----------------------------------------------------------------------
Acambuco 52.00% Operator
=-----------------------------------------------------------------------
Aguada Pichana (4) 18.18% Non operator
=-----------------------------------------------------------------------
San Roque (4) 16.47% Non operator
=-----------------------------------------------------------------------
Estancia La Escondida 25.00% Non operator
(1)
=-----------------------------------------------------------------------
=-----------------------------------------------------------------------
Oil and gas exploration Acambuco "B" (2) 100.00% Operator
and development
=-----------------------------------------------------------------------
Bandurria 18.18% Non operator
=-----------------------------------------------------------------------
Costa Afuera 33.50% Non operator
Argentina
"CAA-40" (3)
=-----------------------------------------------------------------------
Costa Afuera 33.50% Non operator
Argentina
"CAA-46" (3)
=-----------------------------------------------------------------------
Centro Golfo 90.00% Operator
San Jorge
Marina Chubut
=-----------------------------------------------------------------------
Centro Golfo 90.00% Operator
San Jorge
Marina Santa Cruz
=-----------------------------------------------------------------------
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 Zanjón", 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.
(2) Corresponds to the Macueta Oeste and San Pedrito Sur fields.
(3) On October 22, 2008, the Branch and YPF S.A. assigned Petrobras Energía S.A. 33.00% (16.50% each) of their ownership interests in the blocks known as Costa Afuera Argentina "CAA-40" and "CAA-46" and, therefore, the Branch's ownership interests in those blocks changed from 50.00% to 33.50%.
(4) See subsequent events (Note 16).
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 ("Comisión Nacional de Valores" or CNV), the Branch discontinued the application of inflation accounting as from March 1, 2003.
From January 1, 2002 to February 28, 2003, the Branch applied the inflation accounting 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 Republic of Argentina and pursuant to the provisions of the CNV.
Investments to become due or to be realized in the short term (within 3 months of year end) are considered a cash equivalent in the statement of cash flows.
Certain reclassifications were made to the financial statements presented as comparative information to conform them to the presentation used in this fiscal year.
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 fiscal year. The resulting exchange gains/losses are presented in the financial results line (provided by either assets or liabilities, as applicable) of the Statement of Income.
3.2 Valuation and presentation principles (Cont.)
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 are 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 as 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 - exchange gains/losses resulting from restating such liabilities totaling $1,832,303,600 through July 28, 2003 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.
3.2 Valuation and presentation principles (Cont.)
e) Property, plant and equipment (Cont.)
For the purposes of presenting the financial statements in constant currency (see Note 3.1), the capitalized exchange gains/losses amounting to $ 1,832,303,600 are considered an anticipated inflation adjustment until such differences are absorbed thereby. The excess of capitalized exchanges losses over the amounts in constant currency totals $ 85,358,131 as of December 31, 2008.
In October 2008 the Tuyuntí X-2 in Acambuco Area, was definitively abandoned, producing a loss of $ 133.622.445 (Included under "Dry well", Exhibit G).
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 the 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 as 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 price adjustments for receivables in foreign currency: they are
determined taking into consideration the stage of negotiations with
certain customers.
-- For obsolescence of materials: the Branch creates an allowance for
those assets evidencing significant slow movement based on a specific
analysis.
Accruals:
-- For lawsuits: they are determined considering the potential costs of
those lawsuits filed against the Branch based on the opinion of the
legal counsels.
Provisions:
-- For future compensation to 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.
3.2 Valuation and presentation principles (Cont.)
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 December 31, 2008 and 2007 on taxable income; and the future tax effect of the temporary differences in the book and tax values of assets and liabilities and the tax loss carryforwards, if any, are recognized as deferred tax assets or liabilities. The adjustment for inflation of property, plant and equipment is considered to be a temporary difference for deferred tax computations.
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 Branch management 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 fiscal year.
The final amounts may differ from the estimates used in the preparation of the financial statements.
j) Defined benefit pension plans
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 $ 185.872.227 ($ 128,930,896 as of December 31, 2007) presented under Other current liabilities and Other non current liabilities, out of which the amount of $ 57.451.802 accrued in the fiscal year ended December 31, 2008. The amount of $ 185,872,227 is made up of nominal value of $ 328.036.579 less $ 141.350.042 corresponding to the financial effect from the discount to present value and payments in the amount of $ 814.310.
In the fiscal year ended December 31, 2007, the amount accrued in connection with the referred "Plan Puente" was $ 32,152,231. The amount of $ 128,930,896 was made up of nominal value of $ 244,526,834 less $ 115,292,099 corresponding to the financial effect from the discount to present value and payments in the amount of $ 303,839.
As of December 31, 2008 and 2007, the relevant actuarial information related to the pension plans for the benefit of personnel included herein and in Note 3.2.g under Accounts payable, Other liabilities and Provisions for future compensation to personnel is as follows:
2008 2007
Cost of benefits accrued at 166,833,663 130,160,026
beginning of fiscal year
Services cost (1) 9,417,215 9,119,269
Interest (2) 20,213,710 18,435,178
Benefits paid ( 5,522,686 ) ( 4,278,590 )
Actuarial losses (1) 43,593,628 13,397,780
Obligations at fiscal year-end 234,535,530 166,833,663
(1) Included under Cost of sales
and Administrative expenses
of the statement of income (See Exhibit G)
(2) Included under Other financial
results provided
by liabilities of the statement of income
Main actuarial assumptions used:
Actual rate of long term salaries 1% 1%
increase (net of inflation)
Interest rate 4% 4%
k) Revenue recognition
Revenue derived from the sale of hydrocarbons 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 form 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 to the extent they are accrued.
The amount of the leases, broken down by maturity dates, is reported below:
Nominal value
Up to one year US$ 386,000 and $ 2,039,487
Over one year and up to five years US$ 440,000 and $ 1,963.980
During the fiscal year ended December 31, 2008, the Branch recognized an expense of $ 11,115,977 related to such lease agreements presented in the line Buildings Rentals and Maintenance in Exhibit G.
m) Foreign exchange forward contracts
As of December 31, 2008, Pan American Energy LLC Sucursal Argentina has four foreign exchange forward contracts in the total amount of US$ 25,410,000 (twenty five million four hundred and ten thousand US dollars), due between January 30, 2009 and March 31, 2009, being the resulting differences paid in pesos.
NOTE 4 - BREAKDOWN OF CERTAIN BALANCE SHEET ACCOUNTS AND THE STATEMENT INCOME
12/31/2008 12/31/2007
ASSETS
CURRENT ASSETS
a) Cash and banks
Cash on hand in local currency 218,935 219,522
Cash on hand in foreign 185,523 185,683
currency (Exhibit F)
Cash in banks in local currency 10,796,970 33,403,569
Cash in banks in foreign 209,329 178,834
currency (Exhibit F)
Total 11,410,757 33,987,608
b) Accounts receivable
Accounts receivable in local currency 196,022,162 120,830,313
Allowance for bad debtors in (19,038,186) (10,197,186)
local currency (Exhibit D)
Allowance for adjustments of prices in (22,820,971) -
foreign currency (Exhibits D and F)
Accounts receivable in foreign 354,055,791 387,251,549
currency (Exhibit F)
Affiliated companies in foreign currency 48,706,467 -
(Note 9 and Exhibit F)
Total 556,925,263 497,884,676
c) Other receivables
Loans to personnel 14,148,421 9,436,752
Tax credits 267,655,432 11,845,980
Expenses recoverable in local currency 9,032,946 5,105,747
Expenses recoverable in foreign 3,333,343 1,923,308
currency (Exhibit F)
Prepaid expenses in local currency 19,281,616 14,164,348
Miscellaneous in local currency 84,106,370 34,220,853
Miscellaneous in foreign 40,805,500 9,476,145
currency (Exhibit F)
Affiliated companies in foreign currency 13,422,144 2,286,719
(Note 9 and Exhibit F)
Total 451,785,772 88,459,852
d) Inventories
Crude oil in stock 151,768,790 116,679,969
Spare parts, materials and raw materials 79,680,571 56,281,193
Subtotal (Exhibit E) 231,449,361 172,961,162
Allowance for obsolescence (3,563,029) (3,309,418)
of materials (Exhibit D)
Subtotal 227,886,332 169,651,744
Goods in transit 38,431,306 14,921,350
Advances to suppliers in local currency 5,621,206 4,333,388
Advances to suppliers in foreign 312,036 572,715
currency (Exhibit F)
Total 272,250,880 189,479,197
NON CURRENT ASSETS
e) Other receivables
Loans to personnel 20,105,876 11,037,708
Prepaid expenses in local currency 2,247,128 1,377,539
Miscellaneous in local currency 27,938,354 26,419,281
Miscellaneous in foreign 14,488,338 14,304,701
currency (Exhibit F)
Total 64,779,696 53,139,229
LIABILITIES
CURRENT LIABILITIES
f) Accounts payable
Trade payables in local currency 634,080,265 440,920,083
Trade payables in foreign 207,906,479 159,701,798
currency (Exhibit F)
Expenses payable in local currency 14,610,713 39,244,409
Affiliated companies in foreign currency 2,585,874 5,183,546
(Note 9 and Exhibit F)
Miscellaneous in local currency 13,056,222 1,855,532
Total 872,239,553 646,905,368
g) Loans
Affiliated companies in local 329,666 -
currency (Nota 9)
Affiliated companies in foreign currency 453,029 -
(Note 9 and Exhibit F)
Bonds in foreign currency (Exhibit F) 345,300,000 -
Unsecured notes payable in local currency 371,393,731 263,824,044
Unsecured notes payable in foreign 1,227,230,731 405,650,487
currency (Exhibit F)
Interest accrued on bonds 95,256,508 75,833,146
and notes payable
in foreign currency (Exhibit F)
Total 2,039,963,665 745,307,677
h) Taxes payable
Income tax provision net - 174,142,115
of advanced payments
Tax on sales and production 67,336,294 87,217,728
Other 68,276,677 9,793,596
Total 135,612,971 271,153,439
NON CURRENT LIABILITIES
i) Accounts payable
Miscellaneous liabilities 51,672,005 31,777,958
in local currency
Miscellaneous liabilities in 19,026,540 17,351,455
foreign currency (Exhibit F)
Total 70,698,545 49,129,413
j) Loans
Affiliated companies in local 15,700,000 -
currency (Nota 9)
Affiliated companies in foreign currency 63,189,900 -
(Note 9 and Exhibit F)
Bonds in foreign currency (Exhibit F) 863,250,000 1,102,150,000
Unsecured notes payable in foreign 2,856,908,609 1,882,409,219
currency (Exhibit F)
Total 3,799,048,509 2,984,559,219
STATEMENT OF INCOME
2008 2007
k) Sales
Gross sales 8,252,008,202 6,325,389,608
Export tariffs (2,164,008,806) (795,781,322)
Total 6,087,999,396 5,529,608,286
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 an annual 6.75% rate. The bonds were paid upon maturity on February 1, 2007. Such issuance was made under the short and medium term bond program for a total maximum amount of US$ 200,000,000 authorized by the CNV through Resolution No. 10982 on 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 by BP Company North America Inc. until repayment in February 2007.
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 and for a five-year term.
On October 27, 2004, the Branch issued the Bonds Class 3 in the amount of US$100,000,000 under the Global Program. The bonds become due in five years (October 27, 2009) with a 7.125% annual fixed interest rate to be paid on a half-yearly basis. The price of the issuance was 99.483% of the nominal value. The funds obtained from this issuance were allocated to investments in property, plant and equipment and repayment of loans.
On August 9, 2006, the Branch issued the Bonds Class 4 in the amount of US$ 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 from this issuance were allocated to investments in property, plant and equipment and repayment of loans.
The Bonds Class 3 and Class 4 are guaranteed by Pan American Energy LLC.
NOTE 6 - OTHER FINANCIAL LIABILITIES
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 Pan American Energy LLC 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 a 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 Pan American Energy LLC´s economic performance, becoming due in July 2016.
The first repayment of principal for tranches "A" and "B" was made on January 15, 2007.
The funds obtained were used to partially fund the 2005 investment program in San Jorge Gulf.
On July 13, 2007, the Branch obtained from IFC a loan in the amount of US$ 550,000,000, consisting of two tranches that accrue interest at a variable rate:
- "A" in the amount of US$ 150,000,000 amortizable on a six-month installments basis and becoming due in April 2018; and
- "B", Sub-tranch "1" in the amount of US$ 158,500,000 amortizable on a six-month installments basis and becoming due in April 2014 and Sub-tranch "2" in the amount of US$ 241,500,000 amortizable on a six-month installments basis and becoming due in April 2015.
The loan is guaranteed by Pan American Energy LLC and the funds obtained are being applied to partially fund the investment program (including exploration and development) that the Company will undertake in the Cerro Dragón area in San Jorge Gulf basin located in the provinces of Santa Cruz and Chubut.
By December 31, 2007, the amount of US$ 400,000,000 of such loan had been disbursed while the remaining amount of US$ 150,000,000 was disbursed in January 2008.
On May 21, 2008, the Branch, obtained a loan from an international bank syndicate in the amount of U$S 200,000,000, the final maturity of which is on May 23, 2011. The loan will be repaid in 3 semiannual principal installments as from the second year, accruing interest at a variable Libor rate payable every six months.
The bank syndicate was led by Calyon New York Branch, JP Morgan Securities Inc. and ABN AMRO Bank N.V., whereas Banco Itaú Buen Ayre S.A. acts as the local intermediary bank. Rabobank Nederland New York Branch, Natixis and Export Development Canada participated as well.
As of December 31, 2008, this loan had been fully disbursed.
The loan is guaranteed by Pan American Energy LLC and the funds obtained were applied to exploration investments and property, plant and equipment and inventories.
The Branch considers 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.
NOTE 7 - ACCOUNT WITH HEAD OFFICE
The changes in the account with Head Office during the fiscal year ended December 31, 2008 and 2007 are as follows:
Fiscal year ended Fiscal year
12/31/2008 ended
12/31/2007
Balance at beginning of fiscal 2,869,622,874 1,656,519,921
year with Head Office
Net activity with Head Office ( 321,268,736 ) ( 222,639,830 )
Net income 977,049,548 1,435,742,783
Net changes for the fiscal year 655,780,812 1,213,102,953
Balance at fiscal year-end of the 3,525,403,686 2,869,622,874
account with Head Office (1)
(1) As of December 31, 2008 and December 31, 2007, 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 the 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 Río 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:
2008 2007
TRANSACTIONS
Pan American Fueguina S.A.
Financing 79,672,595 (446.709.189 )
Pan American Sur S,A,
Lending of LPG - ( 8,181,231 )
Purchases of gas 13,152,859 5,247,826
PAE E & P Bolivia Ltd.
Purchases and hiring of services 7,799,673 871,594
PAE Oil & Gas Bolivia Ltd.
Purchases and hiring of services 3,335,752 1,015,843
BP West Coast Products LLC
Sales 1,463,241,409 749,493,336
BP America Production Company
Contracted services 3,941,904 2,425,167
12/31/2008 12/31/2007
BALANCES
BP West Coast Products LLC
Accounts receivable 48,706,467 -
PAE E & P Bolivia Ltd.
Other receivables 8,964,950 1,165,277
PAE Oil & Gas Bolivia Ltd.
Other receivables 4,457,194 1,121,442
BP America Production Company
Accounts payable 771,189 1,910,240
Pan American Sur S.A.
Accounts payable 1,814,685 3,273,306
Pan American Fueguina S.A.
Short-term loans 782,695 -
Long-term loans 78,889,900 -
NOTE 10 - GUARANTEES AND OTHER COMMITMENTS
In terms of investment commitments, the Branch has not granted any guarantees as of December 31, 2008.
The terms agreed in certain loan agreements include commitments assumed by the Branch referring to the maintenance of certain indebtedness and debt service ratios. As of December 31, 2008, 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 contingent receivable of $ 12,276,001 as of December 31, 2008, in favor of the Branch, which has not been recorded. Such receivable will be collected when the crude oil WTI price be lower than US$28.50 per barrel. The price thereof was US$ 44,61 as of December 31, 2008.
Additionally, in September 2007, the Branch executed an agreement with ESSO Petrolera Argentina S.R.L., whereby such company agreed a total negotiated price of $ 7,966,366 in connection with deliveries of crude oil made in 2003 and 2004 also under the price stabilization agreement referred to above and $ 2,445,974 as interest. The Branch agreed to waive further claims in connection with said deliveries. The related revenue was recognized in the fiscal year ended December 31, 2007.
On October 14, 2008, the Branch, as other industry-related companies, entered into an Agreement for the Payment and Subscription of contributions to a trust fund with Nación Fideicomiso S.A. for the purpose of providing financing in pesos up to the amount equivalent to US$ 30,000,000, to finance the construction and laying of a new gas pipeline at the Strait of Magellan. The referred gas pipeline will run parallel to the existing one and will join Cabo Espíritu Santo, in the Province of Tierra del Fuego, with Cabo Vírgenes, in the Province of Santa Cruz. Thus, increasing the transportation capacity of the General San Martín pipeline.
NOTE 11 - INCOME TAX
The breakdown of the main deferred tax assets and liabilities is as follows:
12/31/2008 12/31/2007
Deferred tax assets
Allowance for materials obsolescence 1,247,060 1,158,296
Provision for future compensation to personnel 13,875,669 6,093,622
Accrual for lawsuits 8,355,203 7,278,725
Provision for environmental remediation 29,737,386 11,231,039
Other provisions and allowances 19,260,841 18,656,518
Total deferred tax assets 72,476,159 44,418,200
Deferred tax liabilities
Inventories - materials and spare parts 2,607,892 890,517
Property, plant and equipment 393,684,684 392,076,489
and intangible assets
Other 35,608,158 41,148,515
Total deferred tax liabilities 431,900,734 434,115,521
Net deferred tax liabilities 359,424,575 389,697,321
The reconciliation between the income tax expense for the fiscal year and that resulting from applying the prevailing tax rate to income before tax is as follows:
2008 2007
Net income before taxes 1,498,406,769 2,214,703,593
Prevailing tax rate 35% 35%
Net income prevailing tax rate ( 524,442,369) ( 775,146,258)
Permanent differences at the tax rate:
Miscellaneous - net (9,641,839) (3,814,552)
Subtotal permanent differences (9,641,839) (3,814,552)
at the tax rate
Subtotal ( 534,084,208) ( 778,960,810)
Overstatement of prior 12,726,987 -
fiscal-year provision
Income tax expense - total (521,357,221) (778,960,810)
Current income tax expense ( 551,629,967) ( 831,214,623)
Deferred income tax benefit 30,272,746 52,253,813
(521,357,221) (778,960,810)
NOTE 12 - RESTRICTED ASSETS
In August 2007, the Branch collected a bank deposit made in its own name as collateral for a loan from a foreign bank in fiscal year 2005. Such bank deposit amounted to US$ 1,764,705.
In August 2007, the pledge of two generators was settled in the amount of US$ 7,483,776. Such equipment was granted as collateral for outstanding accounts payable that were paid in June 2007.
Therefore, there are no restricted assets as of December 31, 2008.
NOTE 13 - "PETRÓLEO PLUS" PROGRAM
Decree No. 2014/2008, whereby the "Petróleo Plus" and "Refinación Plus" programs were created for the purposes of encouraging the increase in oil production and reserves, the expansion and growth in activities related to the production and operation of hydrocarbons and their derivatives and the construction of new oil refineries and/or enlargement of the existing ones, was published in the Official Bulletin on November 25, 2008. On December 1, 2008 the Secretary of Energy issued Resolution No. 1312/2008 and regulated these Programs.
Pursuant to these programs, companies that meet the Programs requirements are eligible by the Secretary of Energy to receive transferrable tax credit certificates to be applied to the payment of tariffs on the export of oil and other products. In addition, the resolution regulated section 7, subsection b) of Law No. 26360, by providing for that any works performed by the companies for the exploration and exploitation of new oilfields, increase in the production capacity and addition of new technologies for the production of existing fields shall be deemed as "Critical Infrastructure Works" and shall be granted the benefits set forth by such law.
Since both production and the replacement of reserves increased, Pan American Energy was eligible for the Petróleo Plus Program and, since 2009, it receives tax credit certificates issued under this regime.
NOTE 14 - INFORMATION ON LITIGATION AND OTHER SUPPLEMENTARY MATTERS
Lawsuits were filed against the Branch, particularly with courts in labor and commercial matters. Based on the information available, the Branch's Management and legal advisors 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 15 - AGREEMENTS WITH THE PROVINCES OF CHUBUT AND SANTA CRUZ
The Branch entered into two investment commitments and agreements with the Argentine Provinces of Chubut (April 27, 2007) and Santa Cruz (June 25, 2007) for the extension of the term of the concession for hydrocarbon exploitation for a ten-year period in the blocks known as Cerro Dragón, 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 original term of the agreements expired between 2016 and 2017.
These agreements provided for, among other obligations, minimum investments of US$ 2,000,000,000 in the Province of Chubut and US$ 500,000,000 in the Province of Santa Cruz to be made before 2017.
Furthermore, other investments of US$ 1,000,000,000 in the Province of Chubut and US$ 300,000,000 in the Province of Santa Cruz are to be made before 2027 as a condition for PAE to be granted the operation agreements referred to below.
The agreements also provided for a US$ 80,000,000 investment commitment for off-shore exploration, at the Branch's own risk, by means of two joint ventures (UTEs) with the state-owned companies Petrominera (in the case of Chubut) and Fomicruz (in the case of Santa Cruz). The potential exploration success and future business activity imply that, an additional investment commitment in the amount of US$ 500,000,000 be required for the development of the offshore fields.
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-owned 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-owned companies also fall within the scope of the referred legislation, which will be enforced as from the year 2027, subject to compliance with the investment commitments and Pan American Energy's exploration success, in developing sufficient reserves to continue with the production of the fields of those areas as from that year.
Based on these agreements, during the remaining term of the concessions, the Branch agreed to pay to the respective provinces an additional amount of 3% of the net revenues for certain items described in the agreements. The Branch will also provide money for the development of infrastructure and the economic diversification of the Provinces of Chubut and Santa Cruz. A number of grants will be awarded, loans given or guaranteed, job opportunities offered, and supplementary actions will be performed by the Branch as well. In addition, Pan American Energy LLC agreed to dismiss the claims filed against the Argentine Government with the International Centre for Settlement of Investment Disputes (ICSID), once the agreements referred to in the previous paragraphs are finally approved. On June 18, 2008, the Company filed such dismissal with the ICSID. On June 18, 2008, the Company filed such dismissal with the ICSID. On August 20, 2008, the Arbitration tribunal placed on record the termination of the proceedings.
The agreement with the province of Chubut was ratified by provincial law No. 5616 passed by the Provincial Congress on May 24, 2007, enacted by decree No. 500/2007 and published in the Official Bulletin on May 28, 2007.
The agreement with the province of Santa Cruz was ratified by provincial law No. 3009 issued by the Provincial Congress on March 13, 2008, enacted by decree No. 545/2008 and published in the Official Bulletin on March 27, 2008.
NOTE 16 - SUBSEQUENT EVENTS
On February 6, 2009, the CNV issued Resolution No. 16064 by which Pan American Energy LLC (Argentine Branch) was authorized to create a Global Program for a 5 years term for the Issuance of Bonds in a maximum outstanding amount not exceeding the nominal value of US$ 1,200,000,000. Bonds will be guaranteed by Pan American Energy LLC.
On February 9, 2009, the government of the province of Neuquén and the operator partner of the blocks Aguada Pichana and San Roque, in which Pan American Energy LLC Argentine Branch has an ownership interest, agreed to extend the term of the concessions for exploitation in such blocks for 10 years up to November 2027. These companies shall pay US$ 98,380,000 in 20 monthly installments, allocated to infrastructure works and regional development programs, and a monthly extraordinary rental payment of 3% over the production of the blocks. In addition, such companies agreed to make investments and incur in expenses for a total amount of US$ 883,000,000 from 2009 to 2027. The amount of US$ 133,000,000 out of which will be allocated to gas exploration mainly. The agreement also provides for the companies' commitment in terms of environmental protection, hiring of workforce and companies from Neuquén, payment of the stamp tax and the rights for the use of public water and review of the use of aggregates in public land. To support the industrialization of hydrocarbons and new projects for electric energy generation in the province, the renegotiation set forth that the companies should make available gas quotas of their own output for the conduction of any such activities.
No others events or transactions have occurred from year-end to the date of issuance of these financial statements that would have a material effect on the financial position of the Branch or the results of its operations as of that date.
Translation from the original prepared in Spanish for publication in Argentina
EXHIBIT A
PAN AMERICAN ENERGY LLC
(ARGENTINE BRANCH)
PROPERTY, PLANT AND EQUIPMENT
(in pesos)
as of December 31, 2008
and December 31, 2007
Original values Depreciation
At Increases for Decreases At Accumulated Increases Accumulated Net Net
Main account beginning the year Transfers year-end at beginning Decreases at as of as of
of the year of the year year-end 12/31/08 12/31/07
(1) (2)
Land and buildings 63,181,291 - 10,682,997 - 73,864,288 28,155,518 3,797,729 - 31,953,247 41,911,041 35,025,773
Plants, wells and 14,032,607,241 135,207,434 2,616,025,394 33,009,222 16,750,830,847 7,584,535,941 817,210,233 18,617,631 8,383,128,543 8,367,702,304 6,448,071,300
exploration
and production
facilities
Furniture and office 8,149,389 25,888 721,611 10,643 8,886,245 7,981,530 381,885 10,643 8,352,772 533,473 167,859
supplies
Equipment 155,628,892 - 30,771,292 - 186,400,184 121,482,040 21,944,165 - 143,426,205 42,973,979 34,146,852
Vehicles 48,081,219 - 1,111,399 299,992 48,892,626 27,334,072 7,584,577 258,108 34,660,541 14,232,085 20,747,147
Work in progress 804,921,605 3,149,944,252 (2,626,132,999 ) 140,818,451 1,187,914,407 - - - - 1,187,914,407 804,921,605
Advances to suppliers 40,170,877 36,244,909 ( 33,179,694 ) - 43,236,092 - - - - 43,236,092 40,170,877
Total as of 12/31/2008 15,152,740,514 3,321,422,483 - 174,138,308 18,300,024,689 7,769,489,101 850,918,589 18,886,382 8,601,521,308 9,698,503,381
Total as of 12/31/2007 12,909,726,416 2,398,016,058 - 155,001,960 15,152,740,514 7,039,238,260 769,123,691 38,872,850 7,769,489,101 7,383,251,413
(1) See Exhibit G.
(2) See depreciation policies in Note 3.2.e.
EXHIBIT
B
PAN
AMERICAN
ENERGY
LLC
(ARGENTINE
BRANCH)
INTANGIBLE
ASSETS
(in
pesos)
as
of
December
31, 2008
and
December
31, 2007
Original values Amortization
Main At Increases for At Accumulated For the Accumulated Net Net
account beginning the year year-end at beginning year at as of as of
of the year of the year year-end 12/31/08 12/31/07
(1) (2)
Pre-operating 48,740,915 - 48,740,915 48,353,074 31,033 48,384,107 356,808 387,841
expenses
Acquisition 6,487,247 - 6,487,247 6,484,619 2,628 6,487,247 - 2,628
cost
of
blocks
Deferred 63,488,027 - 63,488,027 63,488,027 - 63,488,027 - -
charges
Total as 118,716,189 - 118,716,189 118,325,720 33,661 118,359,381 356,808
of
12/31/2008
Total as 118,716,189 - 118,716,189 116,797,422 1,528,298 118,325,720 390,469
of
12/31/2007
(1) See Exhibit G.
(2) See amortization policies in Note 3.2.f.
EXHIBIT C
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
OTHER INVESTMENTS (in pesos)
as of December 31, 2008 and December 31, 2007
Book Book
value value
Main account 12/31/2008 12/31/2007
Short-term investments
Mutual funds in foreign currency (Exhibit F) 1,307 1,138
Class: Citi Institutional Liquid Reserves
Quantity: 383 units
Government securities
"Certificados de cancelación de deuda
impositiva" (Certificates
evidencing payment of tax liability, Government
of the Province of Chubut)
Coupons Nos. 20 and 21 1,678,294 1,500,411
Time deposits (Exhibit F) 6,266,092 218,595,022
Special deposit account (Exhibit F) 627,887,539 230,996,906
Total short-term investments 635,833,232 451,093,477
Long-term investments
Government securities:
Bonos de la República Argentina - Discount bonds
in pesos 5.83% final maturity in 2033
Quantity: 4,821,350
Face value: $ 1
Quoted: $ 0.585 2,820,489 5,592,766
GDP coupon pesos
Quantity: 14,306,676
Face value: $ 1
Quotation value: $ 0.041 586,574 1,258,987
"Certificados de cancelación de deuda
impositiva" (Certificates
evidencing payment of tax liability, Government
of the Province of Chubut)
Coupons Nos. 22 and 23 1,446,805 2,680,093
Shares:
Garantizar S.A.
Quantity: 2000
Class: B
Face value: $ 1 2,000 2,000
Total long-term investments 4,855,868 9,533,846
Total investments 640,689,100 460,627,323
EXHIBIT D
PAN AMERICAN
ENERGY LLC
(ARGENTINE
BRANCH)
ALLOWANCES,
PROVISIONS
AND
ACCRUALS (in
pesos)
as of December
31, 2008
and December
31, 2007
Main account Balances at Increases for Decreases for the year Balances as of
beginning of the year 12/31/08
the year
Deducted from
current
assets:
Allowance for bad 10,197,186 8,841,000 (1) - 19,038,186
debtors in local
currency
Allowance for - 22,820,971 (2) - 22,820,971
price
adjustments
for receivables
in
foreign currency
Allowance for 3,309,418 268,043 (3) 14,432 (4) 3,563,029
obsolescence
of
materials
Total deducted 13,506,604 31,930,014 14,432 45,422,186
from assets
Included in
current
liabilities:
Provision for 2,461,743 2,958,154 (5) 3,002,118 (6) 2,417,779
future
compensation
to personnel
Subtotal current 2,461,743 2,958,154 3,002,118 2,417,779
liabilities
Included in non
current
liabilities:
Accrual for 20,217,498 3,722,968 (7) 378,466 (8) 23,562,000
lawsuits
Provision 82,182,464 60,160,612 (9) 18,473,033 (10) 123,870,043
for environmental
Remediation
Provision for 15,241,426 8,357,586 (11) 5,909,163 (12) 17,689,849
future
compensation
to personnel
Subtotal non 117,641,388 72,241,166 24,760,662 165,121,892
current
liabilities
Total included 120,103,131 75,199,320 27,762,780 167,539,671
in liabilities
(1) Charges for the fiscal year included in Administrative
expenses (see Exhibit G) of the Statement of Income.
(2) Charges for the fiscal year deducted from
Sales of the Statement of Income.
(3) Charges for the fiscal year included in Production
Cost of the Statement of Income (see Exhibit G).
(4) Recoveries for the year.
(5) Transfer from the non current provision
for future compensation to personnel.
(6) It is made up of compensations paid during the fiscal
year in the amount of $ 2,958,154 and a transfer
to the provisions for future compensation to personnel
- non current in the amount of $ 43,964.
(7) Charges for the fiscal year. It is made up of $ 3,315,137
included in Production costs (see Exhibit
G) and $ 407,831 included in Administrative expenses
(see Exhibit G) of the Statement of Income.
(8) Payments for the fiscal year.
(9) Charges for the fiscal year. It is made up of $ 35,596,271
included in financial results provided by liabilities,
$ 11,437,554 included in other income and expenses and $
13,126,787 included in property, plant and equipment.
(10) Decrease in the amounts capitalized in property, plant
and equipment (in plants, wells and exploration
and production facilities) amounting to $ 5,852,112
and uses for the fiscal year of $ 12,620,921.
(11) It is made up of charges for the fiscal year in the
amount of $ 8,313,622 (out of which $ 5,241,408
are included in Administrative expenses (Defined
benefit plans to Personnel) and $ 3,072,214
are included in Other financial results provided
by liabilities of the Statement of Income)
and in the amount of $ 43,964 corresponding to
the transfer referred to in explanation 3.
(12) It is made up of transfers to the provisions for future
compensation to personnel - current for the fiscal
year in the amount of $ 2,958,154 and recoveries for
the fiscal year in the amount of $ 2,951,009.
EXHIBIT E
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
COST OF SALES (in pesos)
for the fiscal year beginning January 1, 2008 and ended December 31, 2008, comparative with the prior fiscal year
2008 2007
Inventories at the beginning of fiscal year 172,961,162 117,701,356
Purchases 225,280,828 210,238,684
Production costs (Exhibit G) 3,388,051,159 2,535,313,046
Inventories at fiscal year-end ( 231,449,361 ) ( 172,961,162 )
Cost of sales 3,554,843,788 2,690,291,924
Translation from the original prepared in Spanish for publication in Argentina
EXHIBIT F
PAN AMERICAN
ENERGY LLC
(ARGENTINE BRANCH)
ASSETS
AND LIABILITIES
IN FOREIGN CURRENCY
as of December
31, 2008
and December
31, 2007
Amount in Amount in
Type and amount of Exchange Argentine currency as of Type and amount of Argentine currency as of
foreign currency foreign currency
Item as of 12/31/2008 rate 12/31/2008 as of 12/31/2007 12/31/2007
US$ Euros $ US$ Euros
ASSETS
CURRENT ASSETS
Cash on hand
and in banks
Cash on hand - 4,370 4,7349 20.692 - 4,370 19,981
48,295 3,413 164.831 185,523 53,298 165,702 185,683
Cash in banks 61,333 3,413 209,329 57,521 178,834
Investments
Time deposits 1,835,948 3,413 6,266,092 70,310,396 218,595,022
Mutual funds 383 3,413 1,307 366 1,138
Special deposit 183,969,393 3,413 627,887,539 74,299,423 230,996,906
account
Accounts receivable
Common 103,737,413 3,413 354,055,791 124,558,233 387,251,549
Allowance for price (6,686,484) 3,413 (22,820,971) - -
adjustments
Affiliated companies 14,270,866 3,413 48,706,467 - -
Other receivables
Expenses recoverable 976,661 3,413 3,333,343 618,626 1,923,308
Miscellaneous 11,955,905 3,413 40,805,500 3,047,972 9,476,145
Affiliated companies 3,932,653 3,413 13,422,144 735,516 2,286,719
Inventories
Advances to 91,426 3,413 312,036 184,212 - 572,715
suppliers
Total current assets 314,193,792 4,370 1,072,364,100 273,865,563 4,370 851,468,019
NON CURRENT ASSETS
Other receivables
Miscellaneous 4,245,045 3,413 14,488,338 4,601,062 - 14,304,701
Total non current 4,245,045 14,488,338 4,601,062 - 14,304,701
assets
Total assets 318,438,837 4,370 1,086,852,438 278,466,625 4,370 865,772,720
US$ = US dollar
EXHIBIT
F
(Cont.)
PAN
AMERICAN
ENERGY
LLC
(ARGENTINE
BRANCH)
ASSETS
AND
LIABILITIES
IN
FOREIGN
CURRENCY
as
of
December
31, 2008
and
December
31, 2007
Type and amount of Exchange Amount in Type and amount of Amount in
foreign currency Argentine currency foreign currency Argentine currency
as of as of
Item as of 12/31/2008 Rate 12/31/2008 as of 12/31/2007 12/31/2007
US$ $ US$
LIABILITIES
CURRENT
LIABILITIES
Accounts
payable
Trade 60,210,391 3.453 207,906,479 50,715,083 159,701,798
Affiliated 748,878 3.453 2,585,874 1,646,093 5,183,546
companies
Loans
Affiliated 131,199 3.453 453,029 - -
companies
Bonds 100,000,000 3.453 345,300,000 - -
Unsecured 355,410,000 3.453 1,227,230,731 128,818,827 405,650,487
notes
payable
Interest
accrued
on
bonds 27,586,594 3.453 95,256,508 24,081,660 75,833,146
and
notes
payable
Total 544,087,062 1,878,732,621 205,261,663 646,368,977
current
liabilities
NON
CURRENT
LIABILITIES
Accounts
payable
Miscellaneous 5,510,148 3.453 19,026,540 5,510,148 17,351,455
liabilities
Loans
Affiliated 18,300,000 3.453 63,189,900 - -
companies
Bonds 250,000,000 3.453 863,250,000 350,000,000 1,102,150,000
Unsecured 827,370,000 3.453 2,856,908,609 597,780,000 1,882,409,219
notes
payable
Total 1,101,180,148 3,802,375,049 953,290,148 3,001,910,674
non
current
liabilities
Total 1,645,267,210 5,681,107,670 1,158,551,811 3,648,279,651
liabilities
US$ = US dollar
EXHIBIT G
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
INFORMATION REQUIRED BY ART. 64, CLAUSE 1b) OF LAW 19550, for the fiscal year beginning January 1, 2008 and ended December 31, 2008, comparative with the prior fiscal year (in pesos)
Items Productioncosts Administrativeexpenses Total 2008 Total 2007
Fees and compensation for services 22,486,562 23,114,626 45,601,188 42,620,697
Salaries, wages and benefits to 225,160,845 49,547,723 274,708,568 206,934,128
Personnel
Defined benefit plans to personnel 18,278,641 34,732,202 53,010,843 22,517,049
(Note 3 2 j)
Social security contributions 32,982,671 8,499,120 41,481,791 25,303,266
Taxes, assessments and other contributions 1,124,539,762 163,521,509 1,288,061,271 969,321,144
Depreciation of property, plant and equipment 843,866,389 7,052,200 850,918,589 769,123,691
(Exhibit A)
Intangible asset amortization (Exhibit B) 33,661 - 33,661 1,528,298
Transportation, freight and storage expenses 142,157,038 60,209 142,217,247 109,228,573
Contracted services 589,065,015 6,144,451 595,209,466 402,621,974
Travel and accommodation expenses 14,982,267 5,842,740 20,825,007 16,105,509
Building rentals, maintenance and others 47,302,112 13,014,302 60,316,414 35,020,269
Environmental remediation and rights of way 48,784,490 - 48,784,490 41,795,578
Bed debtors (Exhibit D) - 8,841,000 8,841,000 5,903,164
Lawsuits (Exhibit D) 3,315,137 407,831 3,722,968 1,160,565
Obsolescence of materials (Exhibit D) 268,043 - 268,043 445,288
Dry wells 135,835,246 - 135,835,246 36,989,971
Production, exploration and administrative 138,993,280 1,506,869 140,500,149 114,788,278
general expenses
Total 2008 3,388,051,159 322,284,782 3,710,335,941
Total 2007 2,535,313,046 266,094,396 2,801,407,442
EXHIBIT H
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
Balance sheet as of December 31,
2008 and December 31, 2007
TERMS, INTEREST RATES AND ADJUSTMENT CLAUSES OF SHORT-TERM
INVESTMENTS, LOANS, RECEIVABLES AND PAYABLES (in pesos)
Investments Receivables Payables Loans
12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007
Total amount without any established term 588,574 (1) 1,260,987 129,553,604 (3) 101,806,117 754,002,626 664,952,181 - -
To become due:
Up to 3 months 635,109,829 450,344,176 833,482,014 515,078,238 1,087,102,026 754,732,049 1,067,799,779 566,991,809
From 3 to 6 months - - 104,095,389 1,718,540 604,445 174,757,551 427,608,521 123,035,173
From 6 to 9 months 723,403 670,023 2,922,548 1,674,756 604,445 615,436 58,027,665 55,280,695
From 9 to 12 months - 79,278 2,869,817 1,610,016 4,929,445 30,986,936 486,527,700 -
From 1 to 2 years 1,446,805 1,340,047 9,880,415 5,651,924 241,803 229,339 937,796,025 655,218,728
From 2 to 3 years - 1,340,046 6,428,476 3,793,343 - - 1,060,340,334 293,083,728
From 3 to 4 years - - 2,339,788 1,574,957 - - 830,135,730 686,708,728
From 4 to 5 years - - 1,803,445 848,516 - - 355,348,230 686,708,728
From 5 to 6 years - - 445,648 382,649 - - 270,749,730 222,237,526
From 6 to 7 years - - - - - - 156,835,260 189,236,006
From 7 to 8 years - - - - - - 106,352,400 113,722,986
From 8 to 9 years - - - - - - 54,557,400 83,398,116
From 9 to 10 years - - - - - - 26,933,400 36,163,116
From 10 to 11 years - - - - - - - 18,081,557
Over 11 years 2,820,489 (2) 5,592,766 (2) - - - - - -
Subtotal 640,689,100 460,627,323 1,093,821,144 634,139,056 1,847,484,790 1,626,273,492 5,839,012,174 3,729,866,896
Other items that are not to be - - 21,528,744 15,541,887 - - - -
collected or paid in cash
Total 640,689,100 460,627,323 1,115,349,888 649,680,943 1,847,484,790 1,626,273,492 5,839,012,174 3,729,866,896
(1) It includes $ 586,574 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.
Translation from the original prepared in Spanish for publication in Argentina
EXHIBIT H
(cont.)
PAN AMERICAN ENERGY LLC
(SUCURSAL ARGENTINA)
Balance sheet as of December 31,
2008 and December 31, 2007
TERMS, INTEREST RATES AND ADJUSTMENT CLAUSES OF SHORT-TERM
INVESTMENTS, LOANS, RECEIVABLES AND PAYABLES (in pesos)
Investments Receivables Payables Loans
12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007
Rate Pesos Rate Pesos Rate Pesos Rate Pesos Rate Pesos Rate Pesos Rate Pesos Rate Pesos
Annual fixed rate in US$ - - - - - - - - - - - - 7,125 345,300,000 7,125 314,900,000
Annual fixed rate in US$ - - - - - - - - - - - - - - 5,45 1,887,731
Annual fixed rate in US$ - - - - - - - - - - - - - - 6,18 64,199
Annual fixed rate in US$ - - - - - - - - - - - - 7,56 268,574,340 7,56 279,914,610
Annual fixed rate in US$ - - - - - - - - - - - - 6,97 310,770,000 6,97 354,262,500
Annual fixed rate in US$ - - - - - - - - - - - - 5,66 (2) 51,795,000 5,66 (2) 47,235,000
Annual fixed rate in US$ - - - - - - - - - - - - 8,00 34,530,000 8,00 31,490,000
Annual fixed rate in US$ - - - - - - - - - - - - 7,75 863,250,000 7,75 787,250,000
CER plus annual fixed 4,00 3,125,099 4.00 4,180,504 - - - - - - - - - - - -
rate in $
Average annual variable - - - - 8,00 28,458,878 8.00 15,196,646 - - - - 21,48 387,093,731 9,83 263,824,044
rate in $
Annual fixed rate in US$ - - - - 8,50 1,283,368 8.50 1,654,064 - - - - - - - -
Average annual variable - - - - - - - - - - - - 5,92 2,589,750,000 7,14 1,267,752,666
rate in US$
Average annual fixed - - - - - - - - - - - - 6,02 891,909,900 5,76 305,453,000
rate in US$
Average annual variable 0,19 634,154,938 4.62 449,593,066 - - 4.50 14,286 - - - - - - - -
rate in US$
Annual fixed rate 5,83 2,820,489 5.83 5,592,766 - - - - - - - - - - - -
in $ plus CER
Non-interest bearing 588,574 1,260,987 - 1,085,607,642 632,815,947 1,847,484,790 1,626,273,492 - - -
Total 640,689,100 460,627,323 1,115,349,888 649,680,943 1,847,484,790 1,626,273,492 5,742,972,971(1) 3,654,033,750(1)
(1) It only includes principal at face value.
(2) Plus additional interest calculated in relation to the economic performance of Pan American Energy LLC.
EXHIBIT I
PAN AMERICAN ENERGY LLC
(ARGENTINE BRANCH)
Balance sheet as of December 31,
2008 and December 31, 2007
PARTICIPATION IN JOINT
VENTURES (in pesos)
Lindero Aguada San Acambuco Estancia Bandurria Costa Afuera Costa Afuera Anticlinal
Atravesado Pichana Roque La Escondida Argentina Bloque 40 (a) Argentina Bloque 46 (a) Funes
62.50% 62.50% 18.18% 18.18% 16.47 % 16.47 % 52.00 % 52.00 % 25.00% 25.00% 18.18% 18.18% 33.50% 50.00% 33.50% 50.00% 80.00% 80.00%
Balance sheet 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007
ASSETS
CURRENT ASSETS
Cash on hand 167,761 6,737 252,757 162,872 46,808 21,005 992,129 115,536 22,769 28,033 18,538 68,531 - - - - 6,477 -
and in banks
Other receivables 608,105 1,022,484 10,799,621 9,917,410 6,638,296 5,035,286 842,307 611,434 51,375 1,171,815 720,550 8,948 1,177,020 63,424 90 29,265 1,026,619 911,323
Inventories 7,030,776 6,518,514 11,499,202 8,773,323 5,993,575 8,886,765 5,661,318 2,632,499 82,081 80,115 - - - - - - - -
Total current assets 7,806,642 7,547,735 22,551,580 18,853,605 12,678,679 13,943,056 7,495,754 3,359,469 156,225 1,279,963 739,088 77,479 1,177,020 63,424 90 29,265 1,033,096 911,323
NON CURRENT ASSETS
Other receivables 40,738 - - - - - 207,947 - - - - - - - - - - -
Property, plant 144,901,449 132,339,618 245,427,586 253,948,755 178,405,542 189,303,216 660,183,034 673,640,204 5,240,181 5,587,925 469,659 2,117,425 9,131,471 13,835,541 269,574 1,113,741 6,086,392 3,820,656
and equipment
Intangible assets - - - - - - - - - 2,628 - - - - - - - -
Total non current assets 144,942,187 132,339,618 245,427,586 253,948,755 178,405,542 189,303,216 660,390,981 673,640,204 5,240,181 5,590,553 469,659 2,117,425 9,131,471 13,835,541 269,574 1,113,741 6,086,392 3,820,656
Total assets 152,748,829 139,887,353 267,979,166 272,802,360 191,084,221 203,246,272 667,886,735 676,999,673 5,396,406 6,870,516 1,208,747 2,194,904 10,308,491 13,898,965 269,664 1,143,006 7,119,488 4,731,979
(a) See Note 2 - Explanation 3 - Operations of the Branch.
EXHIBIT
I
(Cont.)
PAN
AMERICAN
ENERGY
LLC
(ARGENTINE
BRANCH)
Balance
sheet
as
of
December
31,
2008 and
December
31, 2007
PARTICIPATION
IN JOINT
VENTURES
(in
pesos)
Lindero Atravesado Aguada Pichana San Roque Acambuco Estancia La Escondida Bandurria Costa Afuera Costa Afuera Anticlinal Funes
Argentina Bloque 40 (a) Argentina Bloque 46 (a)
62.50% 62.50% 18.18% 18.18% 16.47 % 16.47 % 52.00 % 52.00 % 25.00% 25.00% 18.18% 18.18% 33.50% 50.00% 33.50% 50.00% 80.00% 80.00%
Balance 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007
sheet
LIABILITIES
CURRENT
LIABILITIES
Accounts 3,212,849 3,747,969 48,042,599 44,692,923 14,012,481 14,300,600 44,347,411 31,815,503 480,714 1,201,226 354,511 509,626 - - - - 1,111,158 1,078,756
payable
Payroll 1,013,290 754,526 - - - - 1,319,328 659,944 - - - - - - - - 7,041 6,711
and
social
security
contributions
Taxes 38,867 123,464 2,538,256 215 1,351,812 - 876,997 275,367 64,932 111,921 18,859 6,793 - - - - 3,409 2,654
payable
Provision 40,836 - - - - - 21,052 - - - - - - - - - - -
for
future
compensation
to
personnel
Total 4,305,842 4,625,959 50,580,855 44,693,138 15,364,293 14,300,600 46,564,788 32,750,814 545,646 1,313,147 373,370 516,419 - - - - 1,121,608 1,088,121
current
liabilities
NON
CURRENT
LIABILITIES
Accounts 6,184,528 3,261,912 219,132 219,132 876,528 876,528 3,564,189 1,741,273 - - - - - - - - - -
payable
Provision 9,466,948 10,608,086 12,144,261 6,401,074 7,341,867 8,873,866 4,613,532 3,459,737 117,082 83,641 - - - - - - 2,837,368 551,850
for
environmental
remediation
Accruals 7,534,510 6,147,461 66,571 76,201 177,075 436,293 3,198,879 2,458,378 - - - - - - - - - -
Total 23,185,986 20,017,459 12,429,964 6,696,407 8,395,470 10,186,687 11,376,600 7,659,388 117,082 83,641 - - - - - - 2,837,368 551,850
non
current
liabilities
Total 27,491,828 24,643,418 63,010,819 51,389,545 23,759,763 24,487,287 57,941,388 40,410,202 662,728 1,396,788 373,370 516,419 - - - - 3,958,976 1,639,971
liabilities
Owner's 125,257,001 115,243,935 204,968,347 221,412,815 167,324,458 178,758,985 609,945,347 636,589,471 4,733,678 5,473,728 835,377 1,678,485 10,308,491 13,898,965 269,664 1,143,006 3,160,512 3,092,008
equity
Total 152,748,829 139,887,353 267,979,166 272,802,360 191,084,221 203,246,272 667,886,735 676,999,673 5,396,406 6,870,516 1,208,747 2,194,904 10,308,491 13,898,965 269,664 1,143,006 7,119,488 4,731,979
(a) See Note 2 - Explanation 3 - Operations of the Branch.
EXHIBIT I
(Cont.)
PAN AMERICAN ENERGY LLC
(ARGENTINE BRANCH)
Statement of income for fiscal year ended December
31, 2008, comparative with the prior fiscal year
PARTICIPATION IN JOINT
VENTURES (in pesos)
Lindero Atravesado Aguada Pichana San Roque Acambuco Estancia La Escondid Bandurria Costa Afuera Costa Afuera Anticlinal Funes
Argentina Bloque 40 (a) Argentina Bloque 46 (a)
62.50% 62.50% 18.18% 18.18% 16.47% 16.47% 52.00% 52.00% 25.00% 25.00% 18.18% 18.18% 33.50% 50.00% 33.50% 50.00% 80.00% 80.00%
2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
STATEMENT OF
INCOME
Sales (b) - - - - - - - - - - - - - - - - - -
Cost of sales (77,369,460) (56,512,537) (184,769,461) (108,140,572) (104,362,902) (115,530,238) (325,184,847) (172,222,135) (4,056,479) (3,369,612) - - - - - - (9,874,819) (8,619,219)
Gross result (77,369,460) (56,512,537) (184,769,461) (108,140,572) (104,362,902) (115,530,238) (325,184,847) (172,222,135) (4,056,479) (3,369,612) - - - - - - ( 9,874,819) (8,619,219)
Administrative - - - - - - - - - - - - - - - - - -
expenses
Operating result (77,369,460) (56,512,537) (184,769,461) (108,140,572) (104,362,902) (115,530,238) (325,184,847) (172,222,135) (4,056,479) (3,369,612) - - - - - - ( 9,874,819) (8,619,219)
Financial results ( 869,260) ( 900,646) 151,904 ( 214,864) ( 520,228) ( 413,880) 318,273 ( 184,017) ( 3,756) 19,189 ( 9,084) ( 2,315) ( 651) - 767 - ( 232,914) 142,344
- net
Other income and 665,774 1,928,395 175,813 4,874,844 120,309 371,953 1,355,877 1,246,341 - - (1,168,210) (3,054,904) 2,025,197 (567,667) 5,942,665 (732,684) - 6
expenses - net
Net results (77,572,946) (55,484,788) (184,441,744) (103,480,592) (104,762,821) (115,572,165) (323,510,697) (171,159,811) (4,060,235) (3,350,423) (1,177,294) (3,057,219) 2,024,546 (567,667) 5,943,432 (732,684) (10,107,733) (8,476,869)
(a) See Note 2 - Explanation 3 - Operations of the Branch.
(b) No sales were recorded in the joint ventures because production is directly assigned to each participant.
Translation from the original prepared in Spanish for publication in Argentina
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
FINANCIAL STATEMENTS as of December 31, 2008
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 fiscal year 2008, with a daily average production of 226.5 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 rate of 6.75%. The bonds were paid upon maturity on February 1, 2007. Such issuance was made under a short and medium term bond program in the amount of US$ 200,000,000, authorized by Resolution No. 10982 issued by the CNV on 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 by BP Company North America Inc. until repayment in February 2007.
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 and for a five-year term.
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% of the nominal value. The funds derived from this issuance were allocated to investments in property, plant and equipment and 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 from this issue were allocated to investments in property, plant and equipment and repayment of loans.
Bonds Class 3 and Class 4 are guaranteed by Pan American Energy LLC.
On February 6, 2009, the CNV issued Resolution No. 16064 by which Pan American Energy LLC (Argentine Branch) was authorized to create a Global Program for a 5 years term for the Issuance of Bonds in a maximum outstanding amount not exceeding the nominal value of US$ 1,200,000,000. Bonds will be guaranteed by Pan American Energy LLC.
1.3. Loan agreements
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 Pan American Energy LLC 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 a 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 Pan American Energy LLC´s economic performance, becoming due in July 2016.
The first repayment of principal for tranches "A" and "B" was made on January 15, 2007.
The funds obtained were used to partially fund the 2005 investment program in San Jorge Gulf.
On July 13, 2007, the Branch obtained from the International Finance Corporation (IFC) a loan in the amount of US$ 550,000,000, consisting of two tranches which accrue interest at a variable rate:
- "A" in the amount of US$ 150,000,000, amortizable on a six-month installments basis and becoming due in April 2018; and
- "B", Sub-tranch "1" in the amount of US$ 158,500,000, amortizable on a six-month installments basis and becoming due in April 2014, and "B", Sub-tranch "2" in the amount of US$ 241,500,000, amortizable on a six-month installments basis and becoming due in April 2015.
The loan is guaranteed by Pan American Energy LLC and the funds obtained are being applied to partially fund the investment program (including exploration and development) that the Company will undertake in the Cerro Dragón area, in the San Jorge Gulf basin, located in the provinces of Santa Cruz and Chubut.
As of December 31, 2007, the amount of US$ 400,000,000 of such loan had been disbursed and in January 2008, the remaining amount of US$ 150,000,000 was disbursed.
On May 21, 2008, Pan American Energy, Argentine Branch, obtained a loan from an international bank syndicate in the amount of U$S 200,000,000, the final maturity of which is on May 23, 2011. The loan will be repaid in 3 semiannual principal installments as from the second year, accruing interest at a variable Libor rate payable every six months.
The bank syndicate was led by Calyon New York Branch, JP Morgan Securities Inc. and ABN AMRO Bank N.V., whereas Banco Itaú Buen Ayre S.A. acts as the local intermediary bank. Rabobank Nederland New York Branch, Natixis and Export Development Canada participated as well.
As of December 31, 2008, this loan had been fully disbursed.
The loan is guaranteed by Pan American Energy LLC and the funds obtained were applied to exploration investments and property, plant and equipment and inventories.
The Branch considers 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.
2. Balance sheet items as of December 31, 2008 (in pesos)
Balance Balance Balance Balance Balance
sheet sheet sheet sheet sheet
as of as of as of as of as of
12/31/2008 12/31/2007 12/31/2006 12/31/2005 12/31/2004
Current 1,928,205,904 1,260,904,810 1,235,627,955 1,193,228,984 659,203,025
assets
Non 9,768,495,753 7,446,314,957 5,910,041,926 4,879,105,847 4,198,334,101
current
assets
Total 11,696,701,657 8,707,219,767 7,145,669,881 6,072,334,831 4,857,537,126
Current 3,133,204,026 1,706,399,649 2,038,446,446 1,384,514,484 1,416,818,735
liabilities
Non 4,576,854,938 3,669,958,237 2,989,464,507 2,164,983,591 1,367,102,560
current
liabilities
Subtotal 7,710,058,964 5,376,357,886 5,027,910,953 3,549,498,075 2,783,921,295
Account 3,525,403,686 2,869,622,874 1,656,519,921 2,061,597,749 1,634,155,831
with
Head
Office
Capital 221,779,007 221,779,007 221,779,007 221,779,007 200,000,000
allocated
to the
Branch
Capital 239,460,000 239,460,000 239,460,000 239,460,000 239,460,000
adjustment
Total 11,696,701,657 8,707,219,767 7,145,669,881 6,072,334,831 4,857,537,126
3. Income statement items as of December 31, 2008 (in pesos)
Fiscal Fiscal Fiscal Fiscal Fiscal
year year year year year
ended ended ended ended ended
12/31/2008 12/31/2007 12/31/2006 12/31/2005 12/31/2004
Ordinary 2,210,870,826 2,573,221,966 2,743,659,781 1,892,940,989 1,345,594,475
operating
income
Financial ( ( ( ( (
results 735,869,887) 334,318,829) 157,229,580) 111,002,384) 162,139,929)
Other 23,405,830 (24,199,544) (41,522,382) (100,766,855) (95,409,580)
income
and
expenses
- net
Income 1,498,406,769 2,214,703,593 2,544,907,819 1,681,171,750 1,088,044,966
before
taxes
Income tax ( ( ( ( (
current 551,629,967) 831,214,623) 896,407,452) 609,797,133) 409,943,143)
Deferred 30,272,746 52,253,813 (3,463,245) 14,847,018 86,414,740
income
tax
Net income 977,049,548 1,435,742,783 1,645,037,122 1,086,221,635 764,516,563
4. Statistical data
Fiscal Fiscal Fiscal Fiscal Fiscal
year year year year year
ended ended ended ended ended
12/31/2008 12/31/2007 12/31/2006 12/31/2005 12/31/2004
in cubic in cubic in cubic in cubic in cubic
meters meters meters meters meters
Production 6,145,708 6,150,764 6,123,609 5,899,233 5,721,813
of crude
oil (1)
Sale of 6,009,932 6,135,234 6,146,250 5,688,359 5,534,021
crude
oil
in in in in in
thousand thousand thousand thousand thousand
cubic cubic cubic cubic cubic
meters meters meters meters meters
Production 5,635,655 5,229,944 4,887,081 4,447,626 4,187,349
of
natural
gas (2)
Sale 5,655,867 5,310,947 4,777,025 4,457,984 3,972,402
of
natural
gas
Transportation - 2,756 15,159 307,242 358,903
of
natural
gas
in tons in tons in tons in tons in tons
Production 138,904 75,337 104,647 66,910 64,577
of L.P.G.
Sale of 126,354 62,342 105,810 60,480 69,597
L.P.G.
5. Indexes
Financial Financial Financial Financial Financial
statements statements statements statements statements
as of as of as of as of as of
12/31/2008 12/31/2007 12/31/2006 12/31/2005 12/31/2004
Liquidity 0.62 0.74 0.61 0.86 0.47
Indebtedness 1.93 1.60 2.37 1.41 1.34
Tied -up funds 0.83 0.86 0.83 0.80 0.86
Solvency 0.52 0.62 0.42 0.71 0.74
Return before 0.45 1.05 1.01 0.81 0.65
income tax /
minimum deemed
income tax
Net return 0.29 0.68 0.65 0.52 0.45
6. Supplementary Information to the Financial Statements as of December 31, 2008
Information on oil and gas reserves
In compliance with General Resolution N° 541/2008 of the Argentine Securities and Exchange Commission, below are the proved reserves of oil and gas of the issuer as of December 31, 2008:
The Branch's reserves are located in the geographic area of Argentina.
The information on the reserves is based on the estimates prepared by the international technical consultants Gaffney, Cline & Associates and Ryder Scott Company Petroleum Consultants.
Developed and undeveloped proved reserves
Crude oil, condensed and liquid natural gas Natural gas Total combined
(in m3) (in thousands of m3) (in m3 of equivalent oil)
Reserves as of December 134,566,403 51,591,358 186,157,761
31, 2007
Net increase for the year 15,733,780 2,691,114 18,424,894
Production for the year ( 6,098,535 ) ( 6,491,161 ) ( 12,589,696 )
Reserves as of December 144,201,648 47,791,311 191,992,959
31, 2008
7. 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).
The Branch's total production of hydrocarbons grew by 4.7% in 2008 compared with the prior year. The production of natural gas rose by 7.7% and the production of oil evidenced a slight decrease of 0.1% in 2008 compared with the prior year. The active investment program successfully implemented by Pan American Energy in the last years has allowed it to double its production of hydrocarbons from 1999 to 2008.
During this year and particularly over the third and four quarter, the world's economy displayed disturbing signs both in the banking and financial sector and in the so-called real economy. The subprime mortgage crisis reached banks, mainly in the United States and Europe, thus, giving rise to a public sense of unrest that triggered running on banks and deposit flight. Governments of different countries were to intervene to mitigate these effects, seeking to inspire confidence and reinstate credit-granting levels, especially restricted in emerging countries. Such anxiety also extended to the capital markets all over the world, including the Latin American countries, and Argentina was not an exception. The emerging countries' shares and governmental bonds evidenced a considerable fall in quoted prices.
In addition, the crisis is affecting the real economy, which recorded lower levels of activity and employment, significant reductions in the price of commodities (including oil prices: the WTI type decreased from a maximum amount of US$ 145.31 per barrel in July 2008 to less of a third of this value in the last days of December 2008) and falls consumption and investment. As a consequence, the governments of many countries, including Argentina, took actions intended to stimulate the global demand and the maintenance of employment. The severity and duration of the emerging crisis is still an unanswerable question.
After the 2002 crisis, the country has managed to achieve high gross domestic product (GDP) growth with relatively low inflation rates though growing recently and, a stable currency, with unemployment rates that have been significantly reduced.
In 2008, the GDP grew by 7.0% compared with the prior fiscal year, which indicates that a growing trend - initiated 27 quarters ago - continues.
In the fiscal year 2008, the fiscal surplus totaled 32,528 million pesos, thus disclosing a 26.4% increase compared to the prior fiscal year. The level of foreign indebtedness as of September 30, 2008 increased with respect to the same date of the prior fiscal year and amounted to US$ 127,919 million. The country's international reserves amounted US$ 46,386 million as of December 31, 2008, 0.5% higher than those for a year before.
At a sector level, the increased costs in the oil industry is a matter of concern as they exceed the general rise in prices.
As previously informed, revenues from the exploration and production of oil and gas have been affected in the last years by the amendments to the regulations in force. In the case of oil, as from March 2002, an increasing rate of export tariffs on exports has been applied, which has also affected the sales prices in the domestic market. On November 15, 2007, the Ministry of Economy and Production of Argentina issued Resolution 394/07 by which export tariffs on oil and by products exports were significantly increased for sales of oil above US$ 60.9 / barrel.
In the case of natural gas, in January 2002, the wellhead price of natural gas was redenominated into pesos and frozen for sales to the domestic market 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". This agreement had a term that had expired on December 31, 2006, after which, and at the request of the related authorities, a new agreement was signed that will be in force until December 31, 2011.
The new agreement, approved in June 2007 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.
On September 19, 2008, the Secretary of Energy issued Resolution 1070/2008 by which the wellhead price of gas was restructured applicable to certain residential segments, CNG and gas plants. At the same time, PAE and other producers signed with the Secretary of Energy a "Supplementary Agreement with Natural Gas Producers" for the purpose of defining the contribution to the fiduciary fund created by Law No. 26020 - aimed at meeting the liquefied natural gas needs (LPG or bottled gas) of the poorest sectors.
In March 2008, the Secretary of Energy issued Resolution No. 24/2008 whereby it created the "Gas Plus" program intended to increase the production of gas. Gas Plus is defined as a program by which preferred selling terms are granted to the natural gas coming from fields which, because they have been recently discovered or due to their geological conditions, require a higher level of investment and, therefore, a higher price than that currently agreed in the domestic market of natural gas. In order to apply for this regime, producers must file eligible projects with the Secretary of Energy for its approval. The Secretary of Energy approved the three Gas Plus Projects filed by Pan American Energy - two exploration projects, one in Acambuco and the other one in Cerro Dragón and one tight sands project in Lindero Atravesado - and the four Aguada Pichana projects filed by Total Austral S.A. (operator).
Decree No. 2014/2008, whereby the "Petróleo Plus" and "Refinación Plus" programs were created for the purposes of encouraging the increase in oil production and reserves, the expansion and growth in activities related to the production and operation of hydrocarbons and their derivatives and the construction of new oil refineries and/or enlargement of the existing ones, was published in the Official Bulletin on November 25, 2008. On December 1, 2008 the Secretary of Energy issued Resolution No. 1312/2008 and regulated these Programs.
Pursuant to these programs, companies that meet the Programs requirements are eligible by the Secretary of Energy to receive transferrable tax credit certificates to be applied to the payment of tariffs on the export of oil and its derivatives. In addition, the resolution regulated section 7, subsection b) of Law No. 26360, by providing for that any works performed by the companies for the exploration and exploitation of new oilfields, increase in the production capacity and addition of new technologies for the production of existing fields shall be deemed as "Critical Infrastructure Works" and shall be granted the benefits set forth by such law.
Since both production and the replacement of reserves increased, Pan American Energy was eligible for the Petróleo Plus Program and, since 2009, it receives tax credit certificates issued under this regime.
In the first half of 2008, the various unions gathering workers who perform tasks in the oil fields operated by the Branch made several claims for salary increases, reclassifications, labor continuity (for UOCRA personnel), enforcement of the collective bargaining agreements and other labor benefits. Such claims were supported by various action measures particularly affecting the province of Santa Cruz and, as a result, the Piedra Clavada and Koluel Kaike blocks came to a complete standstill in May and the drilling, completion and pulling activities were partially interrupted in the province of Chubut. Compensation agreements were signed with the Private Oil Workers Union of Chubut, the Oil Workers Union of Santa Cruz, the Union of Hierarchy Employees of the Southern Patagonia and the Argentine Federation of Private Oil and Gas Workers (FASP y GP). In addition, the Business Chambers reached collective bargaining agreements with the Workers Unions of Neuquén, both Private Oil Workers and Hierarchy Employees. In November 2008, promoted by the Ministries of Labor and Social Security and Federal Planning, Public Investment and Services, a "social peace agreement" was signed with Workers Unions (oil workers and hierarchy employees) to postpone negotiations until March 31, 2009. The agreement was signed by the main operators and the governments of the provinces of Neuquén, Santa Cruz and Chubut, and the FASP y GP acted as guarantor.
During 2008, 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 No. 26197, known as"Hydrocarbons Short Law", was passed. This law complied with the constitutional provision of transferring the original ownership of the natural resources contained in the subsurface from the Federal State to the producing provinces where oil fields are located.
Within this framework, 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 Dragón, 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, among other obligations, 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 to be made before 2017.
Furthermore, other investments of US$ 1,000,000,000 in the Province of Chubut and US$ 300,000,000 in the Province of Santa Cruz are to be made before 2027 as a condition for PAE to be granted the operation agreements referred to below.
The agreements also provided for a US$ 80,000,000 investment commitment for off-shore exploration, at the Branch's own risk, by means of two joint ventures (UTEs) with the state-owned companies Petrominera (in the case of Chubut) and Fomicruz (in the case of Santa Cruz). The potential exploration success and future business activity imply that, an additional investment commitment in the amount of US$ 500,000,000 be required for the development of the offshore fields.
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-owned 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-owned companies also fall within the scope of the referred legislation, which will be enforced as from the year 2027, subject to compliance with the investment commitments and Pan American Energy's exploration success, in developing sufficient reserves to continue with the production of the fields of those areas as from that year.
Based on these agreements, during the remaining term of the concessions, the Branch agreed to pay to the respective provinces an additional amount of 3% of the net revenues for certain items described in the agreements. The Branch will also provide money for the development of infrastructure and the economic diversification of the Provinces of Chubut and Santa Cruz. A number of grants will be awarded, loans given or guaranteed, job opportunities offered, and supplementary actions will be performed by the Branch as well. In addition, Pan American Energy LLC agreed to dismiss the claims filed against the Argentine Government with the International Centre for Settlement of Investment Disputes (ICSID), once the agreements referred to in the previous paragraphs are finally approved. On June 18, 2008, the Company filed such dismissal with the ICSID. On June 18, 2008, the Company filed such dismissal with the ICSID. On August 20, 2008, the Arbitration tribunal placed on record the termination of the proceedings.
The agreement with the province of Chubut was ratified by provincial law No. 5616 passed by the Provincial Congress on May 24, 2007, enacted by decree No. 500/2007 and published in the Official Bulletin on May 28, 2007.
The agreement with the province of Santa Cruz was ratified by provincial law No. 3009 issued by the Provincial Congress on March 13, 2008, enacted by decree No. 545/2008 and published in the Official Bulletin on March 27, 2008.
The execution of these agreements proposes 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 and other regulatory and market conditions will allow addressing long-term projects requiring sound investments, new technologies and teams working for the future.
On January 28, 2008, Pan American Energy communicated that, as a result of its permanent exploration activities in the Cerro Dragón block, it has been able to find new oil and natural gas reserves which were identified in the Northern and Central areas of such block in the Province of Chibut, totaling for one hundred million equivalent oil barrels (boe).
On February 9, 2009, the government of the province of Neuquén and the operator partner of the blocks Aguada Pichana and San Roque, in which Pan American Energy LLC Argentine Branch has an ownership interest, agreed to extend the term of the concessions for exploitation in such blocks for 10 years up to November 2027. These companies shall pay US$ 98,380,000 in 20 monthly installments, allocated to infrastructure works and regional development programs, and a monthly extraordinary rental payment of 3% over the production of the blocks. In addition, such companies agreed to make investments and incur in expenses for a total amount of US$ 883,000,000 from 2009 to 2027. The amount of US$ 133,000,000 out of which will be allocated to gas exploration mainly. The agreement also provides for the companies' commitment in terms of environmental protection, hiring of workforce and companies from Neuquén, payment of the stamp tax and the rights for the use of public water and review of the use of aggregates in public land. To support the industrialization of hydrocarbons and new projects for electric energy generation in the province, the renegotiation set forth that the companies should make available gas quotas of their own output for the conduction of any such activities.
Furthermore, the Branch is currently holding negotiations with the government of the province of Neuquén to extend the term of the concession for exploitation in the block known as Lindero Atravesado, of which it is operator, for 10 years since its present expiry up to 2026. The agreement is expected to be signed by the end of this month.
Buenos Aires, March 11, 2009
Daniel Grinstein
Attorney-in-fact
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2008
SUPPLEMENTARY INFORMATION TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 2008REQUIRED 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 December 31, 2008.
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 due:
Current receivables
$
Due from October to December 2008 17,143,970
Due from July to September to 2008 31,510,125
Due from April to June 2008 22,562,212
Due from January to March 2008 8,087,123
Due from January to December 2007 3,802,978
Due from January 2006 to December 2006 2,124,926
Due from January 2005 to December 2005 2,046,011
Due from January 2004 to December 2004 309,684
Due from January 2003 to December 2003 22,709
Due from January 2002 to December 2002 86,436
Due from January 2001 to December 2001 135,366
Due from January 2000 to December 2000 87,268
Total 87,918,808
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 December 31, 2008, 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 December 31, 2008 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 December 31, 2008, the insurance taken on the Branch's assets are as follows:
Covered
Insured assets Insured risks amount
Thousand US$
Equipment, facilities
and pipelines
applied to exploitation Physical damage 2,263,658 (*)
and transportation
Equipment, facilities
and pipelines
applied to exploitation Liability insurance 10,000
and transportation
Wells Control, re-drilling, spill (**)
Goods Transportation 10,000
Additionally, the Branch has taken out workers compensation insurance and automobile liability insurance.
(*) This is the total appearing in the policy.
(**) According to the limits and deductible amounts applied to the different oilfields.
12.Negative and positive contingencies
To calculate the related accruals, all available elements of judgment and probability of occurrence have been considered (see Notes 3 2 g, 10, 14 and Exhibit D to the basic financial statements).
13.Contingent events as of the date of issuance of the financial statements with moderate likelihood of occurrence, the financial effects of which have not been fully recorded as of December 31, 2008.
None.
Irrevocable advances for future subscriptions
14. As of December 31, 2008 there are no irrevocable advances for future subscriptions.
15. There are no preferred shares as of December 31, 2008.
16. As of December 31, 2008 the Branch has no restrictions on the distributions of earnings, except as indicated in Note 10.
Buenos Aires, March 11, 2009
Daniel Grinstein
Attorney-in-fact
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