Pan American Energy LLC, Argentine Branch
PAN AMERICAN ENERGY LLC
(ARGENTINE BRANCH)
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007
COMPARATIVE WITH THE PRIOR YEAR
CONTENTS
Auditors' report
Legal information
Balance sheet
Statement of income
Statement of cash flows
Notes to the financial statements
Exhibits A, B, C, D, E, F, G, H and I
Reporting summary
Supplementary information required by the Buenos Aires Stock Exchange
AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Legal Representative of
Pan American Energy LLC (Argentine Branch)
Av. Leandro N. Alem 1180 - 11th Floor
Buenos Aires
C.U.I.T.: 30-69554247-6
We examined the accompanying balance sheet of Pan American Energy LLC (Argentine
Branch) as of December 31, 2007 and the related statements of income and cash
flows, notes 1 to 15 and exhibits A, B, C, D, E, F, G, H and I for the year then
ended, comparative with the prior year. The preparation of these financial
statements is the responsibility of the Legal Representative of the Branch. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards in force in the
Republic of Argentina. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and the
reasonableness of the significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In relation to the financial statements as of December 31, 2006 and for the year
then ended, presented for comparative purposes, we issued an unqualified opinion
in our audit report dated March 9, 2007.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of the Branch
as of December 31, 2007, the results of its operations and the changes in cash
flows for the year then ended, in conformity with the professional accounting
principles in force in the City of Buenos Aires (Republic of Argentina).
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", "Statistical data" and "Ratios") 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, 2007, the accrued liability for pension contributions
arising from the accounting records amounted to $ 6,649,458, 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
0.59%;
-- the ratio between the total audit services invoiced to the Branch and
the total audit services invoiced to the Branch and its subsidiaries and
affiliated companies is 0.80%, and
-- the ratio between the total audit services invoiced to the Branch and
the total amount invoiced to the Branch and its subsidiaries and
affiliated companies is 0.51%.
Buenos Aires, March 7, 2008
SIBILLE
Graciela C. Laso
Partner
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
FINANCIAL STATEMENTS as of December 31, 2007 for the fiscal year No. 11
beginning January 1, 2007 and ended December 31, 2007 comparatively presented
with the prior 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
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
BALANCE SHEET as of December 31, 2007 comparative with the prior year (in pesos)
12/31/2007 12/31/2006
------------------ ------------------
ASSETS
CURRENT ASSETS
Cash on hand and in banks (Note 4 a) 33,987,608 34,350,572
Investments (Exhibit C) 451,093,477 215,056,665
Accounts receivable (Note 4 b) 497,884,676 737,519,309
Other receivables (Note 4 c) 88,459,852 117,891,798
Inventories (Note 4 d) 189,479,197 130,809,611
------------------ ------------------
Total current assets 1,260,904,810 1,235,627,955
------------------ ------------------
NON CURRENT ASSETS
Other receivables (Note 4 e) 53,139,229 28,915,445
Investments (Exhibit C) 9,533,846 8,719,558
Property, plant and equipment (Exhibit A) 7,383,251,413 5,870,488,156
Intangible assets (Exhibit B) 390,469 1,918,767
------------------ ------------------
Total non current assets 7,446,314,957 5,910,041,926
------------------ ------------------
Total assets 8,707,219,767 7,145,669,881
================== ==================
LIABILITIES
CURRENT LIABILITIES
Accounts payable (Note 4 f) 645,049,836 661,464,349
Loans (Note 4 g) 745,307,677 877,022,350
Payroll and social security contributions 42,426,954 32,833,398
Taxes payable (Note 4 h) 271,153,439 465,157,941
Provision for future compensation to personnel (Exhibit D) 2,461,743 1,968,408
------------------ ------------------
Total current liabilities 1,706,399,649 2,038,446,446
------------------ ------------------
NON CURRENT LIABILITIES
Accounts payable (Note 4 i) 49,129,413 32,579,735
Loans (Note 4 j) 2,984,559,219 2,265,642,982
Other liabilities (Note 3.2.j) 128,930,896 97,036,602
Deferred tax (Note 3.2.h and 11) 389,697,321 441,951,134
Provision for future compensation to personnel (Exhibit D) 15,241,426 9,797,018
Provision for environmental remediation (Exhibit D) 82,182,464 122,553,250
Accruals (Exhibit D) 20,217,498 19,903,786
------------------ ------------------
Total non current liabilities 3,669,958,237 2,989,464,507
------------------ ------------------
Total liabilities 5,376,357,886 5,027,910,953
Account with Head Office (Note 7) 2,869,622,874 1,656,519,921
Capital allocated to the Branch (Note 8) 221,779,007 221,779,007
Capital adjustment 239,460,000 239,460,000
------------------ ------------------
Total 8,707,219,767 7,145,669,881
================== ==================
The accompanying notes and exhibits are an integral part of these financial
statements.
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
STATEMENT OF INCOME for the year ended December 31, 2007 comparative with the prior year (in pesos)
2007 2006
------------------------------ -----------------------------
Sales 5,529,608,286 5,349,672,587
Cost of sales (Exhibit E) (2,690,291,924) (2,379,583,352)
--------------- ---------------
Gross profit 2,839,316,362 2,970,089,235
Administrative expenses (Exhibit G) ( 266,094,396) ( 226,429,454)
--------------- ---------------
Operating income 2,573,221,966 2,743,659,781
Financial results
Generated by assets
Interest 35,470,760 56,391,423
Exchange gains/losses 19,684,649 10,169,992
Other financial results ( 1,001,993) 54,153,416 2,293,677 68,855,092
-------------- -------------
Generated by liabilities
Interest ( 262,155,875) (179,682,702)
Exchange gains/losses ( 74,320,337) ( 21,319,803)
Other financial results ( 51,996,033) ( 388,472,245) ( 25,082,167) ( 226,084,672)
-------------- -------------
Other income and expenses - net (Note
3.2.j
and Exhibit D, lines 9 and 11) ( 24,199,544) ( 41,522,382)
--------------- ---------------
Income before income tax 2,214,703,593 2,544,907,819
Income tax expense - current (Note 3.2 h
and 11) ( 831,214,623) ( 896,407,452)
Income tax (expense) benefit - deferred
(Note 3.2.h and 11) 52,253,813 ( 3,463,245)
--------------- ---------------
Net income (Note 7) 1,435,742,783 1,645,037,122
=============== ===============
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 year ended December 31, 2007 comparative with the prior year (in pesos)
2007 2006
------------------ ----------------
Cash provided by operations:
Net income 1,435,742,783 1,645,037,122
Adjustments to reconcile net income with the cash provided by
operations
Depreciation of property, plant and equipment 769,123,691 638,177,818
Amortization of intangible assets 1,528,298 2,215,059
Income tax expense 831,214,623 896,407,452
Net (decrease) increase in allowances for bad debtors, obsolescence of
materials
and accruals for lawsuits ( 7,678,801) 2,283,351
Gain on disposal of property, plant and equipment 45,388,175 1,421,822
Increase in provision for future compensation to personnel 8,281,606 7,395,291
Net increase in the provision for environmental remediation 6,634,369 4,478,360
Other non-cash items (1) 214,691,173 159,537,645
Changes in assets, liabilities and account with Head Office:
Decrease (increase) in accounts receivable 248,450,322 ( 203,963,920)
Increase in inventories ( 59,114,874) ( 8,197,255)
Decrease in other current receivables 29,431,946 32,203,095
(Increase) decrease in other non current receivables ( 24,223,784) 42,988,316
Increase in accounts payable, payroll and social security
contributions,
taxes payable and other liabilities 65,114,075 235,305,695
Compensation paid to personnel pursuant to defined benefit plans ( 2,343,863) ( 2,175,319)
Payments related to lawsuits ( 377,888) ( 859,383)
Income tax paid (1,048,710,185) ( 792,704,461)
------------------ ----------------
Net cash provided by operations 2,513,151,666 2,659,550,688
================== ================
Cash used in investing activities:
Increase in long-term investments ( 814,288) ( 3,028,365)
Acquisition of property, plant and equipment (2,391,212,746) (1,696,444,812)
Additions of intangible assets - ( 417,106)
Proceeds from the sale of property, plant and equipment 16,932,468 1,839,882
------------------ ----------------
Cash used in investing activities (2,375,094,566) (1,698,050,401)
------------------ ----------------
Cash provided by (used in) financing activities:
Increase in loans (net) 320,256,578 954,727,802
Net activity with Head Office ( 222,639,830) (2,050,114,950)
------------------ ----------------
Cash provided by (used in) financing activities 97,616,748 (1,095,387,148)
------------------ ----------------
Net increase (decrease) in cash 235,673,848 ( 133,886,861)
Cash at beginning of year (2) 249,407,237 383,294,098
------------------ ----------------
Cash at year-end (2) 485,081,085 249,407,237
================== ================
(1) It is made up of:
Exchange gains/losses and other financial results relating to
loans and other 266,944,986 156,074,400
Deferred income tax expense (benefit) ( 52,253,813) 3,463,245
------------------ ----------------
Total 214,691,173 159,537,645
================== ================
(2) Cash and banks plus investments becoming due within three months.
The accompanying notes and exhibits are an integral part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS as of December 31, 2007 comparative with the
prior 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 year ended December 31, 2007.
Activity Main blocks/ operations
Ownership Branch's
interest participation
--------------------------------------- ------------------------------------ ---------- ------------------
Oil and gas production and development Cerro Drag�n 100.00% Operator
Piedra Clavada 100.00% Operator
Koluel Kaike 100.00% Operator
Lindero Atravesado 62.50% Operator
Anticlinal Funes 80.00% Operator
Acambuco 52.00% Operator
Aguada Pichana 18.18% Non operator
San Roque 16.47% Non operator
Estancia La Escondida (1) 25.00% Non operator
Oil and gas exploration and development Acambuco "B" 100.00% Operator
Bandurria 18.18% Non operator
Costa Afuera Argentina "CAA-40" 50.00% Non operator
Costa Afuera Argentina "CAA-46" 50.00% Non operator
Centro Golfo San Jorge Marina Chubut 90.00% Operator
Explanations:
(1) The Joint Venture agreement (UTE) governing the relationships between the
holders of concession states that their participating interests in rights,
obligations and interests inherent in the property including production, will be
distributed based on the depth from which production is obtained: in the deep
area, the Branch has a 75% interest and the co-holder has the remaining 25%; in
the shallow area from which current total production is obtained, the Branch has
a 25% interest and the co-holder the remaining 75%; and in the area
"Descubrimiento El Zanj�n", both parties hold a 50% interest. The average
interest described grants the Branch a 50% interest in the rights over the
property, regardless the percentage thereof in the concession.
NOTE 3 - ACCOUNTING PRINCIPLES
3.1 Reporting currency
In accordance with Decree 664/2003 and General Resolution No. 441/2003 of the
National Securities Commission ("Comisi�n 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
City of Buenos Aires (Republic of Argentina) and pursuant to the provisions of
the CNV.
Investments to become due or to be realized in the short term (3 months) are
considered a cash equivalent in the statement of cash flows.
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.
d) Inventories
Crude oil is stated at reproduction cost.
Spare parts, materials and raw materials are stated at the latest acquisition
cost.
Goods in transit are stated at acquisition cost plus import expenses.
Advances to suppliers are valued at the amounts actually incurred.
The carrying value of inventories, taken as a whole and after considering the
allowance for obsolescence (see Note 3.2.g), does not exceed their recoverable
value.
e) Property, plant and equipment
Property, plant and equipment is stated at acquisition cost as indicated in Note
3.1 less the related accumulated depreciation. The acquisition cost includes all
the necessary costs incurred in order to put the assets in working condition.
Depreciation is calculated by applying the straight-line method over the
estimated useful lives of the assets and/or the duration of the contracts, as
applicable, except for production wells, equipment and services, which are
depreciated 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.
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 restated amounts totals $ 85,358,131 as of December 31, 2007.
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 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 legal counsel.
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 deducted from the related
provision.
- For environmental remediation: calculated on the basis of well-abandonment
forecasts until the expiration of agreements, at present values.
h) Income tax
The Branch applies the deferred tax method to account for income tax. Based on
the referred method, the current income tax is calculated by applying the rates
prevailing as of December 31, 2007 and 2006 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 deferred tax assets are recognized only to the extent of their
recoverability.
i) Use of estimates
The preparation of the financial statements in accordance with generally
accepted accounting principles requires that the management of the Branch makes
estimates about the value of certain assets and liabilities, including
contingent liabilities, as well as the amounts informed of certain income and
expenses generated during the 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 $ 128,930,896 ($ 97,036,602 as of December 31, 2006)
presented under Other non current liabilities, out of which the amount of
$ 32,152,231 accrued in the fiscal year ended December 31, 2007. Such amount is
made up of $ 244,526,834 of nominal value less $ 115,292,099 corresponding to
the financial effect from the discount to present value and payments in the
amount of $ 303,839.
In the fiscal year ended December 31, 2006, the amount accrued in connection
with the referred "Plan Puente" was $ 27,394,646. Such amount was made up of
$ 169,818,815 of nominal value less $ 72,736,311 corresponding to the financial
effect from the discount to present value and payments in the amount of $
45,902.
As of December 31, 2007 and 2006, the relevant actuarial information related to
the pension plans for the benefit of personnel included herein and in Note 3.2.g
under Other liabilities, Provisions for future compensation to personnel and
Account with Head Office is as follows:
2007 2006
------------------ ------------------
Cost of benefits accrued at beginning of year 130,160,026 96,784,802
Service cost (1) (Exhibit D) 9,119,269 6,350,558
Interest (2) 18,435,178 14,296,029
Benefits paid ( 4,278,590) ( 2,071,223)
Actuarial losses (1) (Exhibit D) 13,397,780 14,799,860
------------------ ------------------
Obligation at year-end 166,833,663 130,160,026
================== ==================
(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 compensation increase (net of
inflation) 1% 1%
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
crude 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 rental expense incurred is recognized in
the Statement of income as it accrues.
The lease expenditur, broken down by maturity dates, are reported below:
Nominal value
-------------------------------
Up to a year US$ 2,668,732 and $ 1,201,897
Over one year and up to five years US$ 2,590,299 and $ 1,773,099
During the year ended December 31, 2007, the Branch recognized an expense of
$ 9,461,634 related to such lease agreements presented in the line Buildings
Rentals and Maintenance in Exhibit G.
m) Enactment of new technical resolutions and other regulations
In line with General Resolution No. 487/2006 of the CNV, the Branch has
considered the currency restatement of property, plant and equipment as a
temporary difference for the purposes of the deferred tax calculation.
Consequently, at the beginning of the fiscal year 2006, an increase in the net
deferred tax liabilities amounting to $229,088,577 was recognized, as well as an
adjustment to prior year results (loss) presented as part of the Account with
Head Office (Note 7).
As required by Resolution No. 487/2006 of the CNV in connection with the
recoverable values of assets, at the balance sheet date no indicators exist that
the carrying value of the assets exceeds the recoverable value.
NOTE 4 - BREAKDOWN OF CERTAIN BALANCE SHEET ACCOUNTS
NOTE 4 - BREAKDOWN OF CERTAIN BALANCE SHEET ACCOUNTS
12/31/2007 12/31/2006
------------------ ------------------
ASSETS
CURRENT ASSETS
a) Cash and banks
Cash on hand in local currency 219,522 141,977
Cash on hand in foreign currency (Exhibit F) 185,683 232,722
Cash in banks in local currency 33,403,569 24,481,235
Cash in banks in foreign currency (Exhibit F) 178,834 9,494,638
------------------ ------------------
Total 33,987,608 34,350,572
================== ==================
b) Accounts receivable
Accounts receivable in local currency 120,830,313 73,659,586
Allowance for bad debtors in local currency (Exhibit D) ( 10,197,186) ( 4,983,016)
Accounts receivable in foreign currency (Exhibit F) 387,251,549 682,872,598
Allowance for bad debtors in foreign currency (Exhibits D
and F) - ( 14,029,859)
------------------ ------------------
Total 497,884,676 737,519,309
================== ==================
c) Other receivables
Loans to personnel 9,436,752 8,490,283
Tax credits 11,845,980 24,907,001
Expenses recoverable in local currency 5,105,747 7,310,337
Expenses recoverable in foreign currency (Exhibit F) 1,923,308 1,284,463
Prepaid expenses in local currency 14,164,348 7,648,706
Miscellaneous in local currency 34,220,853 39,819,127
Miscellaneous in foreign currency (Exhibit F) 9,476,145 28,032,599
Affiliated companies in foreign currency (Note 9
and Exhibit F) 2,286,719 399,282
------------------ ------------------
Total 88,459,852 117,891,798
================== ==================
d) Inventories
Crude oil in stock 116,679,969 69,704,063
Spare parts, materials and raw materials 56,281,193 47,997,293
------------------ ------------------
Subtotal (Exhibit E) 172,961,162 117,701,356
Allowance for obsolescence of materials (Exhibit D) ( 3,309,418) ( 2,864,130)
------------------ ------------------
Subtotal 169,651,744 114,837,226
Goods in transit 14,921,350 7,924,880
Advances to suppliers in local currency 4,333,388 7,765,719
Advances to suppliers in foreign currency (Exhibit F) 572,715 281,786
------------------ ------------------
Total 189,479,197 130,809,611
================== ==================
NON CURRENT ASSETS
e) Other receivables
Loans to personnel 11,037,708 3,837,996
Prepaid expenses in local currency 1,377,539 4,534,641
Miscellaneous in local currency 26,419,281 6,517,545
Miscellaneous in foreign currency (Exhibit F) 14,304,701 14,025,263
------------------ ------------------
Total 53,139,229 28,915,445
================== ==================
LIABILITIES
CURRENT LIABILITIES
f) Accounts payable
Trade payables in local currency 440,920,083 449,624,468
Trade payables in foreign currency (Exhibit F) 159,701,798 167,263,681
Expenses payable in local currency 39,244,409 34,598,789
Affiliated companies in foreign currency (Note 9 and
Exhibit F) 5,183,546 9,977,411
------------------ ------------------
Total 645,049,836 661,464,349
================== ==================
g) Loans
Bonds in foreign currency (Exhibit F) - 306,200,000
Unsecured notes payable in local currency 263,824,044 275,057,276
Secured notes payable in foreign currency
(Exhibit F) - 4,172,593
Unsecured notes payable in foreign currency
(Exhibit F) 405,650,487 226,105,569
Interest accrued on bonds and notes payable in foreign
currency (Exhibit F) 75,833,146 65,486,912
------------------ ------------------
Total 745,307,677 877,022,350
================== ==================
h) Taxes payable
Income tax provision net of prepayments 174,142,115 391,273,549
Tax on sales and production of hydrocarbons 87,217,728 64,989,555
Other 9,793,596 8,894,837
------------------ ------------------
Total 271,153,439 465,157,941
================== ==================
NON CURRENT LIABILITIES
i) Accounts payable
Miscellaneous liabilities in local currency 31,777,958 15,707,663
Miscellaneous liabilities in foreign currency (Exhibit F) 17,351,455 16,872,072
------------------ ------------------
Total 49,129,413 32,579,735
================== ==================
j) Loans
Affiliated companies in local currency (Note 9) - 446,709,189
Bonds in foreign currency (Exhibit F) 1,102,150,000 1,071,700,000
Unsecured notes payable in foreign currency
(Exhibit F) 1,882,409,219 747,233,793
------------------ ------------------
Total 2,984,559,219 2,265,642,982
================== ==================
NOTE 5 - ISSUANCE OF BONDS
On February 11, 1997, Amoco Argentina Oil Company (Argentine Branch) issued the
Second Series of bonds in the amount of US$ 100,000,000 due in ten years, at an
annual 6.75% rate. The bonds were paid upon maturity on February 1, 2007. Such
issueance 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.
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
Pan American Energy LLC (Argentine Branch) obtained the following loans at a
five-year term, with interest compounded bi-annually amortized in monthly
installments: 1) On July 20, 2001, in the amount of US$ 72,051,406, with
interest accruing at an annual rate of 7.54%, with the first installment falling
due on April 19, 2002 and the repayment term being completed on June 20, 2006,
and 2) on September 17, 2001, in the amount of US$ 40,001,944, with interest
accruing at an annual rate of 6.72%, with the first installment falling due on
June 20, 2002 and completing repayment on August 21, 2006. For the purpose of
fixing the interest rate, the Branch entered into integrated derivative
transactions, the impact of which has been included in the cost of the
transactions. Both loans were guaranteed by Pan American Energy LLC until the
repayment thereof in June and August 2006.
On July 11, 2005, the Branch obtained from the International Finance Corporation
(IFC) a loan in the amount of US$ 250,000,000 guaranteed by 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 half yearly basis and
becoming due in April 2018; and
- "B", Sub-tranch "1" in the amount of US$ 158,500,000 amortizable on a half
yearly basis and becoming due in April 2014 and Sub-tranch "2" in the amount of
US$ 241,500,000 amortizable on a half yearly 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 that the Company will
undertake in the Cerro Drag�n area in 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. The remaining US$ 150,000,000 was disbursed in January 2008.
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 as of December 31, 2007.
NOTE 7 - ACCOUNT WITH HEAD OFFICE
The changes in the account with Head Office during the fiscal years ended
December 31, 2007 and 2006 are as follows:
Fiscal year Fiscal year
ended ended
12/31/2007 12/31/2006
---------------- -------------------
Balance at beginning of fiscal year of Account with Head
Office 1,656,519,921 2,290,686,326
Adjustment to prior-fiscal year results (Note 3.2.m) - ( 229,088,577)
---------------- -------------------
Balance at beginning of the fiscal year of Account with Head
Office after
adjustment 1,656,519,921 2,061,597,749
Net activity with Head Office ( 222,639,830) (2,050,114,950)
Transfer of net income 1,435,742,783 1,645,037,122
---------------- -------------------
Net changes for the fiscal year 1,213,102,953 ( 405,077,828)
---------------- -------------------
Balance at fiscal year-end of Account with Head Office (1) 2,869,622,874 1,656,519,921
================ ===================
(1) As of December 31, 2007 and December 31, 2006 balances are stated 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 R�o Barrancas made by Head Office within the scope of the
corporate reorganization registered in the State of Delaware, USA and in the
Public Registry of Commerce of the City of Buenos Aires on December 12, 2005
under number 2106, Book 58, Volume B of Foreign Companies.
NOTE 9 - TRANSACTIONS AND BALANCES WITH AFFILIATED COMPANIES
The transactions and balances with Pan American Energy LLC, the Branch's Head
Office, are disclosed in note 7.
The transactions and balances with affiliated companies are detailed below:
2007 2006
-----------------------------------
TRANSACTIONS
Pan American Fueguina S.A.
Purchases - 899,281
Financing (446,709,189) 446,709,189
Pan American Sur S.A.
Lending of LPG ( 8,181,231) 8,181,231
Gas purchases 3,273,306 -
PAE E & P Bolivia Ltd.
Purchases and hiring of services 871,594 -
PAE Oil & Gas Bolivia Ltd.
Purchases and hiring of services 1,015,843 52,482
BP West Coast Products LLC
Sales 749,493,336 1,197,372,640
BP America Production Company
Services 2,425,167 5,299,091
NOTE 9 - TRANSACTIONS AND BALANCES WITH AFFILIATED COMPANIES (cont.)
12/31/2007 12/31/2006
------------------------ -------------------
BALANCES
Pan American Fueguina S.A.
Accounts payable - 899,281
Loans - 446,709,189
Pan American Sur S.A.
Accounts payable 3,273,306 8,181,231
PAE E & P Bolivia Ltd.
Other receivables 1,165,277 293,683
PAE Oil & Gas Bolivia Ltd.
Other receivables 1,121,442 105,599
BP America Production Company
Accounts payable 1,910,240 896,899
NOTE 10 - GUARANTEES AND OTHER COMMITMENTS
In terms of investment commitments, the Branch has not granted any guarantees as
of December 31, 2007.
The terms and conditions in certain loan agreements include commitments assumed
by the Branch referring to the maintenance of certain indebtedness and debt
service ratios and certain restrictions on the distribution of dividends. As of
December 31, 2007, the Branch complied with all the commitments assumed in loan
agreements.
The Branch signed the agreement entered into between producers and refineries on
January 2, 2003 for the stability of the prices of crude oil, gasoline and gas
oil (Resolution No. 85/2003 of the Energy Department), in force until April 30,
2004. The Branch has complied with the quotas set forth in the crude oil
agreement. Such deliveries were stated at spot price upon carrying out the
transaction, giving rise to a contingent receivable of $ 10,601,137 as of
December 31, 2007, in favor of the Branch, which has not been recorded. Such
receivable will be collected when the crude oil WTI price falls below US$28.50
per barrel. The price thereof was US$ 96.00 as of December 31, 2007.
On February 27, 2006 the Branch executed an agreement with Shell C.A.P.S.A.
whereby Shell agreed to pay the Branch a total negotiated price of $86,499,326
in connection with deliveries of crude oil made in 2003 and 2004 under the price
stabilization agreement referred to in the preceding paragraph, and $ 14,032,834
as interest accrued. The Branch agreed to waive further claims in connection
with said deliveries. The related revenue was recognized in the year ended
December 31, 2006. 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.
NOTE 11 - INCOME TAX
The breakdown of the main deferred tax assets and liabilities is as follows:
12/31/2007 12/31/2006
------------------- ------------------
Deferred tax assets
Allowance of materials obsolescence 1,158,296 1,002,446
Provision for future compensation to personnel 6,093,622 4,296,053
Accrual for lawsuits 7,278,725 7,082,362
Provision for environmental remediation 11,231,039 9,835,326
Other provisions and allowances 18,656,518 18,174,616
------------------- ------------------
Total deferred tax assets 44,418,200 40,390,803
------------------- ------------------
Deferred tax liabilities
Inventories - materials and spare parts 890,517 962,248
Property, plant and equipment 392,076,489 458,338,264
Other 41,148,515 23,041,425
------------------- ------------------
Total deferred tax liabilities 434,115,521 482,341,937
------------------- ------------------
Net deferred tax liabilities 389,697,321 441,951,134
=================== ==================
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:
2007 2006
------------------- ------------------
Net income before taxes 2,214,703,593 2,544,907,819
Prevailing tax rate 35% 35%
------------------- ------------------
Net income at prevailing tax rate ( 775,146,258) ( 890,717,737)
Permanent differences at the tax rate:
Miscellaneous - net ( 3,814,552) ( 9,152,960)
------------------- ------------------
Subtotal permanent differences at the tax rate ( 3,814,552) ( 9,152,960)
------------------- ------------------
Income tax - total ( 778,960,810) ( 899,870,697)
=================== ==================
Current income tax expense ( 831,214,623) ( 896,407,452)
Deferred income tax benefit (expense) 52,253,813 ( 3,463,245)
------------------- ------------------
( 778,960,810) ( 899,870,697)
=================== ==================
NOTE 12 - RESTRICTED ASSETS
In November 2006, the Branch collected a bank deposit made in its own name as a
collateral for a loan from a foreign bank in fiscal year 2003. Such bank deposit
amounted to US$ 2,505,351.
In August 2007, the Branch collected a bank deposit made in its own name as a
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 a collateral for outstanding accounts
payable that were paid in June 2007.
Therefore, there are no restricted assets as of December 31, 2007.
NOTE 13 - 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, 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 14 - AGREEMENTS WITH THE PROVINCES OF CHUBUT AND SANTA CRUZ
The Branch entered into with the Argentine provinces of Chubut (04/27/2007) and
Santa Cruz (06/25/2007) two investment commitments and agreements for the
extension of the term of the concession for hydrocarbon exploitation for a
ten-year period in the blocks known as Cerro Drag�n, the area of which is
extended in the territory of both provinces, and Piedra Clavada and Koluel Kaike
in the province of Santa Cruz. The agreements expired between 2016 and 2017.
These agreements provided for, 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. These investments are to be made before 2017 and are
destined to onshore activities. Other investments of US$ 1,000,000,000 in the
Province of Chubut and of US$ 300,000,000 in the Province of Santa Cruz are to
be made before 2027.
The agreements also provided for a US$ 80,000,000 investment commitment for
offshore exploration, at the Branch's own risk, by means of two joint ventures
(UTEs) with the state run companies Petrominera (in the case of Chubut) and
Fomicruz (in the case of Santa Cruz). If the Branch makes commercial
discoveries, an additional investment commitment will be required in the amount
of US$ 500,000,000 for the development of the offshore fields to be discovered.
The creation of the UTEs referred to in the preceding paragraph is consistent
with the provisions of sections 11 and 95 of the Hydrocarbons 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 Law and will be enforced as from the year 2027,
subject to compliance with the investments and Pan American Energy's exploration
success, in that it will have developed sufficient reserves to continue with the
production of the fields of those areas as from that year.
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 Government of the Province of Santa Cruz has sent the agreement to the
Provincial Congress for its approval, which is pending.
NOTE 15 - SUBSEQUENT EVENTS
On January 28, 2008, Pan American Energy announced that, based on its permanent
exploration activities in Cerro Drag�n 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 Chubut, totaling one hundred million barrels of
oil equivalent (boe).
No 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.
EXHIBIT A
PROPERTY, PLANT AND EQUIPMENT (in pesos)
as of December 31, 2007 and as of December 31, 2006
Original values
------------------------------------------------------------------------------------
At
beginning Increases for At
Main account of year the year Transfers Decreases year-end
------------ -------------- ------------- --------------- --------------------------
Land and
buildings 53,902,203 45,000 9,234,088 - 63,181,291
Plants,
wells and
exploration
and
production
facilities 12,045,371,439 159,021,174 1,979,510,239 151,295,611 14,032,607,241
Furniture
and office
supplies 8,090,645 41,348 17,396 - 8,149,389
Equipment 130,526,906 - 25,101,986 - 155,628,892
Vehicles 37,318,081 - 11,981,533 1,218,395 48,081,219
Work in
progress 610,477,077 2,222,777,724 (2,025,845,242) 2,487,954 804,921,605
Advances to
suppliers 24,040,065 16,130,812 - - 40,170,877
-------------- ------------- --------------- ----------- --------------
Total as of
12/31/2007 12,909,726,416 2,398,016,058 - 155,001,960 15,152,740,514
============== ============= =============== =========== ==============
Total as of
12/31/2006 11,215,074,160 1,714,133,505 - 19,481,249 12,909,726,416
============== ============= =============== =========== ==============
Depreciation
---------------------------------------------------------------
Accumulated Accumulated Net Net
at beginning at as of as of
Main account of year Increases Decreases year-end 12/31/07 12/31/06
------------------------- ------------ ---------- ------------- ------------- -------------
(1) (2)
Land and
buildings 25,181,488 2,974,030 - 28,155,518 35,025,773 28,720,715
Plants,
wells and
exploration
and
production
facilities 6,880,673,207 741,559,559 37,696,825 7,584,535,941 6,448,071,300 5,164,698,232
Furniture
and office
supplies 7,895,688 85,842 - 7,981,530 167,859 194,957
Equipment 102,450,577 19,031,463 - 121,482,040 34,146,852 28,076,329
Vehicles 23,037,300 5,472,797 1,176,025 27,334,072 20,747,147 14,280,781
Work in
progress - - - - 804,921,605 610,477,077
Advances to
suppliers - - - - 40,170,877 24,040,065
------------- ------------ ---------- ------------- ------------- -------------
Total as of
12/31/2007 7,039,238,260 769,123,691 38,872,850 7,769,489,101 7,383,251,413
============= ============ ========== ============= =============
Total as of
12/31/2006 6,417,279,987 638,177,818 16,219,545 7,039,238,260 5,870,488,156
============= ============ ========== ============= =============
(1) See Exhibit G.
(2) See depreciation policies in Note 3.2.e.
EXHIBIT B
INTANGIBLE ASSETS (in pesos)
as of December 31, 2007 and as of December 31, 2006
Original Values Amortization
------------------------------------------- -------------------------------------------
Accumulated Decreases
At Increases Decreases at for Accumulated Net Net
Main beginning for for At beginning For the the year at as of as of
account of year the year the year year end of year year year-end 12/31/07 12/31/06
------------ ----------- --------- --------- ----------- ----------- --------- --------- ----------- -------- ---------
(1) (2)
Pre-
operating
expenses 48,740,915 - - 48,740,915 48,300,969 52,105 - 48,353,074 387,841 439,946
Acquisition
cost of
blocks 6,487,247 - - 6,487,247 6,276,829 207,790 - 6,484,619 2,628 210,418
Deferred
charges 63,488,027 - - 63,488,027 62,219,624 1,268,403 - 63,488,027 - 1,268,403
----------- --------- --------- ----------- ----------- --------- --------- ----------- -------- ---------
Total as of
12/31/2007 118,716,189 - - 118,716,189 116,797,422 1,528,298 - 118,325,720 390,469
=========== ========= ========= =========== =========== ========= ========= =========== ======== =========
Total as of
12/31/2006 118,299,083 417,106 - 118,716,189 114,582,363 2,215,059 - 116,797,422 1,918,767
=========== ========= ========= =========== =========== ========= ========= =========== ======== =========
(1) See Exhibit G.
(2) See depreciation policies in Note 3.2.f.
EXHIBIT C
OTHER INVESTMENTS (in pesos)
as of December 31, 2007 and as of December 31, 2006
Book value Book value
Main account 12/31/2007 12/31/2006
-------------------------------------------------------- -------------------- ------------
Short-term investments
Mutual funds in foreign currency (Exhibit F) 1,138 215,056,665
Class: Citi Institutional Liquid Reserves
Quantity: 366 units
Quoted value: US$ 1
(US dollar)
Government securities
"Certificados de cancelaci�n de deuda impositiva"
(Government of the Province of Chubut)
Coupons Nos. 14, 18 and 19 1,500,411 -
Time deposits in foreign currency (Exhibit F) 218,595,022 -
Special deposit account in foreign currency (Exhibit F) 230,996,906 -
-------------------- ------------
Total short-term investments 451,093,477 215,056,665
-------------------- ------------
Long-term investments
Government securities:
Bonos de la Rep�blica Argentina - Discount bonds
in pesos 5.83% final maturity in 2033
Quantity: 4,821,350
Face value: $ 1
Quoted value: $ 1,16 5,592,766 7,015,064
GDP coupon in pesos
Quantity: 14,306,676
Face value: $ 1
Quoted value: $ 0,088 1,258,987 1,702,494
"Certificados de cancelaci�n de deuda impositiva"
(Government of the Province of Chubut)
Coupons Nos. 20 to 23 2,680,093 -
Shares:
Garantizar S.A.
Quantity: 2000
Class: B
Face value: $ 1 2,000 2,000
-------------------- ------------
Total long-term investments 9,533,846 8,719,558
-------------------- ------------
Total investments 460,627,323 223,776,223
-------------------- ------------
EXHIBIT D
ALLOWANCES, PROVISIONS AND ACCRUALS (in pesos)
as of December 31, 2007 and as of December 31, 2006
Balances at Decreases Balances as
beginning of Increases for for the of
Main account year the year year 12/31/07
----------------------------------- ---------------- ------------- ----------- -------------
Deducted from current assets:
Allowance for bad debtors in local
currency 4,983,016 5,903,164 (1) 688,994 (2) 10,197,186
Allowance for bad debtors in
foreign
currency 14,029,859 219,594 (3) 14,249,453 (4) -
Allowance for obsolescence of
materials 2,864,130 445,288 (5) - 3,309,418
---------------- ------------- ----------- -------------
Total deducted from assets 21,877,005 6,568,046 14,938,447 13,506,604
================ ============= =========== =============
Included in current liabilities:
Provision for future compensation
to personnel 1,968,408 493,335 (6) - 2,461,743
---------------- ------------- ----------- -------------
Subtotal current liabilities 1,968,408 493,335 - 2,461,743
---------------- ------------- ----------- -------------
Included in non current
liabilities:
Accrual for lawsuits 19,903,786 746,126 (7) 432,414 (8) 20,217,498
Provision for environmental
remediation 122,553,250 14,867,109 (9) 55,237,895 (10) 82,182,464
Provision for future compensation
to personnel 9,797,018 8,281,606 (11) 2,837,198 (12) 15,241,426
---------------- ------------- ----------- -------------
Subtotal non current liabilities 152,254,054 23,894,841 58,507,507 117,641,388
---------------- ------------- ----------- -------------
Total included in liabilities 154,222,462 24,388,176 58,507,507 120,103,131
================ ============= =========== =============
(1) Charges for the fiscal year included in Administrative Expenses of the
Statement of Income (See Exhibit G).
(2) Uses for the fiscal year.
(3) Charges for the fiscal year included in financial results provided by
assets, exchange gains/losses of the Statement of Income.
(4) Recoveries for the fiscal year.
(5) Charges for the fiscal year. They are included in production costs (see
Exhibit G) of the Statement of Income.
(6) Transfer from the non current provision for future compensation to
personnel.
(7) Charges for the fiscal year included in Administrative Expenses of the
Statement of Income (See Exhibit G).
(8) It is made up of $ 377,888 corresponding to payments for the fiscal year and
$ 54,526 corresponding to recoveries for the fiscal year.
(9) Charges for the fiscal year. It is made up of $ 6,655,077 included in
financial results provided by liabilities, $ 6,803,312 included in plants, wells
and exploration and production facilities and $ 1,408,720 included in other
income and expenses of the Statement of Income.
(10) Decreases in the amounts capitalized included (in plants, wells and
exploration and production facilities) amounting to $ 53,808,467 and uses for
the fiscal year of $ 1,429,428.
(11) Charges for the fiscal year. They are included in other financial results
of the Statement of Income and in Exhibit G.
(12) It is made up of the compensation paid during the fiscal year amounting to
$ 2,343,863 and the transfer referred to in line 6 of $493,335.
EXHIBIT E
COST OF SALES (in pesos)
For the fiscal year beginning January 1, 2007 and ended December 31, 2007,
comparative with the prior fiscal year
2007 2006
------------------- ------------------
Inventories at the beginning of the year 117,701,356 107,032,601
Purchases 210,238,684 231,050,230
Production costs (Exhibit G) 2,535,313,046 2,159,201,877
Inventories at fiscal year-end ( 172,961,162) ( 117,701,356)
------------------- ------------------
Cost of sales 2,690,291,924 2,379,583,352
=================== ==================
EXHIBIT F
ASSETS AND LIABILITIES IN FOREIGN CURRENCY
as of December 31, 2007 and as of December 31, 2006
Amount and type Amount Amount and type Amount in
of Exchange in local of foreign local
foreign currency currency as currency currency as
of of
Item as of rate as of
12/31/2007 12/31/2007 12/31/2006 12/31/2006
------------------------ ----------------- -------- ----------- ------------------ -------------
US$ Euros $ (1) (1) US$ Euros (2) (2)
ASSETS
CURRENT ASSETS
Cash on hand and in
banks
Cash on hand - 4,370 4.5724 19,981 - 4,370 17,419
53,298 - 3.109 165,702 185,683 71,245 215,303 232,722
----------- -----------
Cash in banks
Domestic 25,275 - 3.109 78,581 3,472 10,491
Foreign 32,246 - 3.109 100,253 178,834 3,138,368 9,484,147 9,494,638
----------- -----------
Investments
Time deposits in
foreign currency 70,310,396 - 3.109 218,595,022 - -
Mutual funds in
foering currency 366 - 3.109 1,138 71,163,688 215,056,665
Special deposit
account in foreign
currency 74,299,423 - 3.109 230,996,906 - -
Accounts receivable
Domestic 116,860,806 - 3.109 363,320,247 106,460,311 321,723,060
Foreign 7,697,427 - 3.109 23,931,302 387,251,549 119,506,796 361,149,538 682,872,598
----------- -----------
Allowances for bad
debtors - - - - ( 4,642,574) ( 14,029,859)
Other receivables
Expenses recoverable
- foreign 618,626 - 3.109 1,923,308 425,037 1,284,463
Miscellaneous -
domestic 435,222 - 3.109 1,353,106 2,675,304 8,084,768
Miscellaneous -
foreign 2,612,750 - 3.109 8,123,039 9,476,145 6,600,871 19,947,831 28,032,599
----------- -----------
Foreign affiliated
companies 735,516 - 3.109 2,286,719 132,125 399,282
Inventories
Advances to suppliers
- foreign 184,212 - 3.109 572,715 93,245 - 281,786
Total current assets 273,865,563 4,370 851,468,019 305,627,888 4,370 923,624,894
----------- ----- ----------- ------------ ----- -------------
NON CURRENT ASSETS
Other receivables
Miscellaneous -
domestic 4,601,062 - 3.109 14,304,701 4,641,053 - 14,025,263
----------- ----- ----------- ------------ ----- -------------
Total non current
assets 4,601,062 - 14,304,701 4,641,053 - 14,025,263
----------- ----- ----------- ------------ ----- -------------
Total assets 278,466,625 4,370 865,772,720 310,268,941 4,370 937,650,157
=========== ===== =========== ============ ===== =============
US$ = United States dollars
(1) As per buyer exchange rate as of December 31, 2007.
(2) As per buyer exchange rate as of December 31, 2006.
EXHIBIT F
(Cont.)
ASSETS AND LIABILITIES IN FOREIGN CURRENCY
as of December 31, 2007 and as of December 31, 2006
Amount and type Amount Amount and Amount in
of Exchange in local type local
foreign currency currency as of foreign currency as
of currency of
Item as of rate as of
12/31/2007 12/31/2007 12/31/2006 12/31/2006
-------------------------- ---------------- -------- ------------- ------------- ------------- ----------- -------------
US$ $ (1) (1) US$ (2) (2)
LIABILITIES
CURRENT LIABILITIES
Accounts payable
Trade - domestic 48,454,730 3.149 152,583,946 37,552,721 114,986,434
Trade - foreign 2,260,353 3.149 7,117,852 159,701,798 17,072,909 52,277,247 167,263,681
------------- -----------
Affiliated companies -
domestic 1,039,475 3.149 3,273,306 2,965,550 9,080,512
Affiliated companies -
foreign 606,618 3.149 1,910,240 5,183,546 292,913 896,899 9,977,411
------------- -----------
Loans
Bonds - Foreign - - - - 100,000,000 306,200,000
Secured notes payable -
Foreign - - - - 1,362,702 4,172,593
Unsecured notes payable
- domestic 82,000,000 3.149 258,218,000 25,000,000 76,550,000 -
Unsecured notes payable
- Foreign 46,818,827 3.149 147,432,487 405,650,487 48,842,446 149,555,569 226,105,569
Interest accrued on
bonds and notes payable 24,081,660 3.149 75,833,146 21,386,973 65,486,912
---------------- ------------- ------------- -------------
Total current
liabilities 205,261,663 646,368,977 254,476,214 779,206,166
---------------- ------------- ------------- -------------
NON CURRENT LIABILITIES
Accounts payable
Miscellaneous
liabilities - foreign 5,510,148 3.149 17,351,455 5,510,148 16,872,072
Loans
Bonds - foreign 350,000,000 3.149 1,102,150,000 350,000,000 1,071,700,000
Unsecured notes payable
- domestic 15,000,000 3.149 47,235,000 - - -
Unsecured notes payable
- foreign 582,780,000 3.149 1,835,174,219 1,882,409,219 244,034,550 747,233,793 747,233,793
---------------- ------------- ------------- ------------- ----------- -------------
Total non current
liabilities 953,290,148 3,001,910,674 599,544,698 1,835,805,865
---------------- ------------- ------------- -------------
Total liabilities 1,158,551,811 3,648,279,651 854,020,912 2,615,012,031
================ ============= ============= =============
US$ = United States dollars
(1) As per seller exchange rate as of December 31, 2007.
(2) As per seller exchange rate as of December 31, 2006.
EXHIBIT G
INFORMATION REQUIRED BY ART. 64, CLAUSE 1b) OF LAW 19550, for the fiscal year
beginning January 1, 2007 and ended December 31, 2007, comparative with the
prior fiscal year (in pesos)
Production Administrative
Items costs expenses Total 2007 Total 2006
---------------------------------------- ------------- ----------------- --------------- --------------
Fees and compensation for services 22,231,589 20,389,108 42,620,697 29,213,286
Salaries, wages and benefits to
personnel 159,786,066 47,148,062 206,934,128 137,849,967
Defined benefit plans to personnel
(Note 3.2.j) 12,701,813 9,815,236 22,517,049 21,150,418
Social security contributions 17,086,164 8,217,102 25,303,266 19,374,470
Taxes, assessments and other
contributions 839,386,187 129,934,957 969,321,144 864,819,051
Depreciation of property, plant and
equipment (Exhibit A) 761,688,344 7,435,347 769,123,691 638,177,818
Intangible asset amortization (Exhibit
B) 1,528,298 - 1,528,298 2,215,059
Transportation, freight and storage
expenses 109,165,788 62,785 109,228,573 90,817,237
Contracted services 386,550,013 16,071,961 402,621,974 407,390,908
Travel and accommodation expenses 8,871,492 7,234,017 16,105,509 12,548,784
Building rentals and maintenance 22,163,264 12,857,005 35,020,269 33,367,588
Environmental remediation and rights of
way 41,795,578 - 41,795,578 21,391,465
Bad debtors (Exhibit D) - 5,903,164 5,903,164 3,550,367
Lawsuits 414,439 746,126 (1) 1,160,565 3,913,284
Obsolescence of materials (Exhibit D) 445,288 - 445,288 502,300
Production, exploration and
administrative general expenses 151,498,723 279,526 151,778,249 99,349,329
------------- ----------------- --------------- --------------
Total 2007 2,535,313,046 266,094,396 2,801,407,442
============= ================= ===============
Total 2006 2,159,201,877 226,429,454 2,385,631,331
============= ================= ==============
(1) Exhibit D
EXHIBIT H
Balance sheet as of December 31, 2007 and as of December 31, 2006
TERMS, INTEREST RATES AND ADJUSTMENT CLAUSES OF SHORT-TERM INVESTMENTS, LOANS,
RECEIVABLES AND PAYABLES (in pesos)
Investments Receivables Payables
------------------------------ ------------------------------ ----------------------------
12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006
------------- ---------------- --------------- -------------- ------------- --------------
Total
amount
without
an
established
term 1,260,987 (1) 1,704,494 101,806,117 (3) 61,217,175 664,952,181 703,702,130
To become
due:
Up to 3
months 450,344,176 215,056,665 515,078,238 821,770,799 754,732,049 746,810,041
From 3 to 6
months - - 1,718,540 1,780,744 174,757,551 391,765,651
From 6 to 9
months 670,023 - 1,674,756 1,087,619 615,436 492,102
From 9 to 12
months 79,278 - 1,610,016 697,929 30,986,936 22,356,302
From 1 to 2
years 1,340,047 - 5,651,924 2,814,716 229,339 215,609
From 2 to 3
years 1,340,046 - 3,793,343 903,215 - -
From 3 to 4
years - - 1,574,957 491,328 - -
From 4 to 5
years - - 848,516 332,877 - -
From 5 to 6
years - - 382,649 59,678 - -
From 6 to 7
years - - - - - -
From 7 to 8
years - - - - - -
From 8 to 9
years - - - - - -
From 9 to 10
years - - - - - -
From 10 to
11 years - - - - - -
Over 11
years 5,592,766 (2) 7,015,064 (2) - - - -
------------- ---------------- --------------- -------------- ------------- --------------
Subtotal 460,627,323 223,776,223 634,139,056 891,156,080 1,626,273,492 1,865,341,835
Other items
that are
not to be
collected
or paid in
cash - - 15,541,887 12,183,347 - -
------------- ---------------- --------------- -------------- ------------- --------------
Total 460,627,323 223,776,223 649,680,943 903,339,427 1,626,273,492 1,865,341,835
============= ================ =============== ============== ============= ==============
Loans
----------------------------------------
12/31/2007 12/31/2006
---------------------- -----------------
Total amount without an established term - -
To become due:
Up to 3 months 566,991,809 793,674,710
From 3 to 6 months 123,035,173 12,719,548
From 6 to 9 months 55,280,695 59,108,848
From 9 to 12 months - 11,519,244
From 1 to 2 years 655,218,728 614,032,179
From 2 to 3 years 293,083,728 420,959,321
From 3 to 4 years 686,708,728 111,306,762
From 4 to 5 years 686,708,728 485,663,820
From 5 to 6 years 222,237,526 485,663,820
From 6 to 7 years 189,236,006 34,018,820
From 7 to 8 years 113,722,986 34,018,820
From 8 to 9 years 83,398,116 34,049,440
From 9 to 10 years 36,163,116 45,930,000
From 10 to 11 years 18,081,557 -
Over 11 years - -
---------------------- -----------------
Subtotal 3,729,866,896 3,142,665,332
Other items that are not to be collected or paid in cash - -
---------------------- -----------------
Total 3,729,866,896 3,142,665,332
====================== =================
(1) It includes $ 1,258,987 relating to GDP coupons in pesos. The government
securities linked to the GDP become due on 12/31/2035. However, in the event a
certain GDP rate growth is exceeded in the country, the bondholders shall be
entitled to annual payments.
(2) It is amortized as from 06/30/2024 in 20 semiannual installments (on 06/30
and 12/31 of each year), the final maturity of which is on 12/31/2033.
(3) It includes the overdue receivables detailed in item 3.a of the
supplementary information.
EXHIBIT H
Balance sheet as of December 31, 2007 and as of December 31, 2006 (Cont.)
TERMS, INTEREST RATES AND ADJUSTMENT CLAUSES OF SHORT-TERM INVESTMENTS, LOANS,
RECEIVABLES AND PAYABLES (in pesos)
Investments Receivables Payables
--------------------------------- --------------------------------- -------------------------------------
12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006
---------------- ---------------- ---------------- ---------------- ------------------ ------------------
Rate Pesos Rate Pesos Rate Pesos Rate Pesos Rate Pesos Rate Pesos
---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ------------- ---- -------------
Annual
fixed
rate in
US$ - - - - - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - - - - - - -
Annual
fixed
rate in
US$ - - - - - - 8.00 2,362,909 - - - -
CER plus
annual
fixed
rate in
$ 4.00 4,180,504 - - - - - - - - - -
Average
annual
variable
rate in
$ - - - - 8.00 15,196,646 8.00 7,906,016 - - - -
Average
annual
variable
rate in
$ - - - - - - - - - - -
Annual
fixed
rate in
US$ - - - - 8.50 1,654,064 8.50 1,079,127 - - - -
Average
annual
variable
rate in
US$ - - - - - - - - - - - -
Average
annual
fixed
rate in
US$ - - - - - - - - - - - -
Average
annual
variable
rate in
US$ 4.62 449,593,066 5.26 215,056,665 4.50 14,286 4.50 28,574 - - - -
Annual
fixed
rate in
$ plus
CER 5.83 5,592,766 5.83 7,015,064 - - - - - - - -
Non-
interest
bearing 1,260,987 1,704,494 632,815,947 891,962,801 1,626,273,492 1,865,341,835
----------- ----------- ----------- ----------- ------------- -------------
Total 460,627,323 223,776,223 649,680,943 903,339,427 1,626,273,492 1,865,341,835
=========== =========== =========== =========== ============= =============
Loans
--------------------------------------------------
12/31/2007 12/31/2006
-------------------------- -----------------------
Rate Pesos Rate Pesos
-------- ----------------- ----- -----------------
Annual fixed rate in US$ - - 6.75 306,200,000
Annual fixed rate in US$ 7.125 314,900,000 7.125 306,200,000
Annual fixed rate in US$ - - 7.00 4,172,594
Annual fixed rate in US$ 5.45 1,887,731 5.45 5,565,507
Annual fixed rate in US$ 6.18 64,199 6.18 187,272
Annual fixed rate in US$ 7.56 279,914,610 7.56 306,200,000
Annual fixed rate in US$ 6.97 354,262,500 6.97 413,370,000
Annual fixed rate in US$ 5.66 (2) 47,235,000 5.66 45,930,000
Annual fixed rate in US$ 8.00 31,490,000 8.00 30,620,000
Annual fixed rate in US$ 7.75 787,250,000 7.75 765,500,000
CER plus annual fixed rate in $ - - - -
Average annual variable rate in $ 9.83 263,824,044 7.78 275,057,276
Average annual variable rate in $ - - 10.25 446,709,189
Annual fixed rate in US$ - - - -
Average annual variable rate in US$ 7.14 1,267,752,666 6.48 94,916,582
Average annual fixed rate in US$ 5.76 305,453,000 5.00 76,550,000
Average annual variable rate in US$ - - - -
Annual fixed rate in $ plus CER - - - -
Non-interest bearing - - -
----------------- -----------------
Total 3,654,033,750 (1) 3,077,178,420 (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
Balance sheet as of December 31, 2007 and as of December 31, 2006
PARTICIPATION IN JOINT VENTURES (in pesos)
Lindero Lindero Aguada Aguada San San Estancia
La
Atravesado Atravesado Pichana Pichana Roque Roque Acambuco Acambuco Escondida
62,50% 62,50% 18,18% 18,18% 16,47 % 16,47 % 52,00 % 52,00 % 25,00%
12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
ASSETS
------------
CURRENT
ASSETS
------------
Cash on hand
and in
banks 6,737 8,006 162,872 132,325 21,005 46,796 115,536 681,589 28,033
Other
receivables 1,022,484 885,345 9,917,410 1,608,315 5,035,286 27,819 611,434 2,503,876 1,171,815
Inventories 6,518,514 5,608,560 9,565,286 10,779,553 9,049,887 8,325,385 2,697,006 1,881,612 80,115
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total
current
assets 7,547,735 6,501,911 19,645,568 12,520,193 14,106,178 8,400,000 3,423,976 5,067,077 1,279,963
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
NON CURRENT
ASSETS
------------
Property,
plant and
equipment 132,339,618 100,752,309 253,948,755 210,261,214 189,303,216 211,498,427 673,640,204 599,158,484 5,587,925
Intangible
assets - - - 8,059 - - - - 2,628
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total non
current
assets 132,339,618 100,752,309 253,948,755 210,269,273 189,303,216 211,498,427 673,640,204 599,158,484 5,590,553
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total assets 139,887,353 107,254,220 273,594,323 222,789,466 203,409,394 219,898,427 677,064,180 604,225,561 6,870,516
=========== =========== =========== =========== =========== =========== =========== =========== ==========
Costa Costa Costa Costa
Afuera Afuera Afuera Afuera
Estancia Argentina Argentina Argentina Argentina Anticlinal Anticlinal
La
Escondida Bandurria Bandurria Bloque 40 Bloque 40 Bloque 46 Bloque 46 Funes Funes
25,00% 18,18% 18,18% 50,00% 50,00% 50,00% 50,00% 80,00% 80,00%
12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
ASSETS
------------
CURRENT
ASSETS
------------
Cash on hand
and in
banks 1,384 68,531 88,614 - - - - - 1,644
Other
receivables 395,342 8,948 31,301 63,424 65,562 29,265 29,264 911,323 1,087,844
Inventories 76,352 - - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total
current
assets 473,078 77,479 119,915 63,424 65,562 29,265 29,264 911,323 1,089,488
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NON CURRENT
ASSETS
------------
Property,
plant and
equipment 5,090,205 2,117,425 4,519,810 13,835,541 11,175,237 1,113,741 588,337 3,820,656 2,262,167
Intangible
assets 210,418 - - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total non
current
assets 5,300,623 2,117,425 4,519,810 13,835,541 11,175,237 1,113,741 588,337 3,820,656 2,262,167
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets 5,773,701 2,194,904 4,639,725 13,898,965 11,240,799 1,143,006 617,601 4,731,979 3,351,655
========== ========== ========== ========== ========== ========== ========== ========== ==========
EXHIBIT I
(Cont.)
Balance sheet as of December 31, 2007 and as of December 31, 2006
PARTICIPATION IN JOINT VENTURES (in pesos)
Lindero Lindero Aguada Aguada San San
Atravesado Atravesado Pichana Pichana Roque Roque Acambuco Acambuco
62,50% 62,50% 18,18% 18,18% 16,47% 16,47% 52,00% 52,00%
12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES
---------------
CURRENT
LIABILITIES
---------------
Accounts payable 3,747,969 3,103,235 44,692,923 39,892,511 14,300,600 14,087,777 31,815,503 71,445,119
Payroll and
social security
contributions 754,526 500,717 - - - - 659,944 574,386
Taxes payable 123,464 85,849 215 - - 307,032 275,367 899,221
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total current
liabilities 4,625,959 3,689,801 44,693,138 39,892,511 14,300,600 14,394,809 32,750,814 72,918,726
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
NON CURRENT
LIABILITIES
-----------------
Accounts payable 3,261,912 2,036,355 219,132 219,132 876,528 876,528 1,741,273 1,521,884
Provision for
environmental
remediation 10,608,086 9,177,151 6,401,074 3,737,323 8,873,866 7,186,139 3,459,737 2,928,406
Accruals 6,147,461 5,137,832 76,201 365,027 436,293 325,076 2,458,378 2,098,309
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total non current
liabilities 20,017,459 16,351,338 6,696,407 4,321,482 10,186,687 8,387,743 7,659,388 6,548,599
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 24,643,418 20,041,139 51,389,545 44,213,993 24,487,287 22,782,552 40,410,202 79,467,325
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Owner's equity 115,243,935 87,213,081 222,204,778 178,575,473 178,922,107 197,115,875 636,653,978 524,758,236
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total 139,887,353 107,254,220 273,594,323 222,789,466 203,409,394 219,898,427 677,064,180 604,225,561
=========== =========== =========== =========== =========== =========== =========== ===========
Costa Costa Costa Costa
Afuera Afuera Afuera Afuera
Estancia Estancia Argentina Argentina Argentina Argentina Anticlinal
La La
Escondida Escondida Bandurria Bandurria Bloque 40 Bloque 40 Bloque 46 Bloque 46 Funes
25,00% 25,00% 18,18% 18,18% 50,00% 50,00% 50,00% 50,00% 80,00%
12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES
---------------
CURRENT
LIABILITIES
---------------
Accounts payable 1,201,226 250,581 509,626 823,060 - - - 13,283 1,078,756
Payroll and
social security
contributions - - - - - - - - 6,711
Taxes payable 111,921 95,443 6,793 - - - - - 2,654
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities 1,313,147 346,024 516,419 823,060 - - - 13,283 1,088,121
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NON CURRENT
LIABILITIES
-----------------
Accounts payable - - - - - -
Provision for
environmental
remediation 83,641 92,200 - - - - - 551,850
Accruals - - - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total non current
liabilities 83,641 92,200 - - - - - - 551,850
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 1,396,788 438,224 516,419 823,060 - - - 13,283 1,639,971
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Owner's equity 5,473,728 5,335,477 1,678,485 3,816,665 13,898,965 11,240,799 1,143,006 604,318 3,092,008
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 6,870,516 5,773,701 2,194,904 4,639,725 13,898,965 11,240,799 1,143,006 617,601 4,731,979
========== ========== ========== ========== ========== ========== ========== ========== ==========
Anticlinal
Funes
80,00%
12/31/2006
----------
LIABILITIES
---------------
CURRENT
LIABILITIES
---------------
Accounts payable 1,376,434
Payroll and
social security
contributions 1,928
Taxes payable 10,000
----------
Total current
liabilities 1,388,362
----------
NON CURRENT
LIABILITIES
-----------------
Accounts payable -
Provision for
environmental
remediation 972,617
Accruals -
----------
Total non current
liabilities 972,617
----------
Total liabilities 2,360,979
----------
Owner's equity 990,676
----------
Total 3,351,655
==========
EXHIBIT I
(Cont.)
Statement of income for the fiscal year ended December 31, 2007, comparative
with the prior fiscal year
PARTICIPATION IN JOINT VENTURES (in pesos)
Lindero Lindero Aguada Aguada San San
Atravesado Atravesado Pichana Pichana Roque Roque Acambuco
62,50% 62,50% 18,18% 18,18% 16,47% 16,47% 52,00%
2007 2006 2007 2006 2007 2006 2007
------------ ------------ ------------- ------------ ------------- ------------ -------------
Sales (1) - - - - - - -
Cost of sales (55,567,051) (48,257,651) (125,013,861) (85,070,429) (115,433,002) (47,786,864) (172,199,123)
------------ ------------ ------------- ------------ ------------- ------------ -------------
Gross result (55,567,051) (48,257,651) (125,013,861) (85,070,429) (115,433,002) (47,786,864) (172,199,123)
Administrative
expenses - - - - - - -
------------ ------------ ------------- ------------ ------------- ------------ -------------
Operating
result (55,567,051) (48,257,651) (125,013,861) (85,070,429) (115,433,002) (47,786,864) (172,199,123)
Financial
results - net ( 607,411) ( 484,699) ( 214,864) ( 148,551) ( 413,880) ( 340,800) 37,110
Other income
and expenses
-
Net 702,842 ( 2,801,292) 4,874,844 ( 50,634) 371,953 ( 435,176) 972,859
------------ ------------ ------------- ------------ ------------- ------------ -------------
Net results (55,471,620) (51,543,642) (120,353,881) (85,269,614) (115,474,929) (48,562,840) (171,189,154)
============ ============ ============= ============ ============= ============ =============
Estancia Estancia
La La
Acambuco Escondida Escondida Bandurria Bandurria
52,00% 25,00% 25,00% 18,18% 18,18%%
2006 2007 2006 2007 2006
-------------------------- ----------- ----------- ----------- ---------
Sales (1) - - - - -
Cost of sales (148,797,239) (3,369,612) (4,849,585) - -
-------------------------- ----------- ----------- ----------- ---------
Gross result (148,797,239) (3,369,612) (4,849,585) - -
Administrative
expenses - - - - -
-------------------------- ----------- ----------- ----------- ---------
Operating
result (148,797,239) (3,369,612) (4,849,585) -
Financial
results - net ( 246,753) 19,189 ( 17,359) ( 2,315) ( 1,994)
Other income
and expenses
-
Net ( 534,930) - - (3,054,904) (768,580)
-------------------------- ----------- ----------- ----------- ---------
Net results (149,578,922) (3,350,423) (4,866,944) (3,057,219) (770,574)
========================== =========== =========== =========== =========
Costa Costa Costa Costa
Afuera Afuera Afuera Afuera
Argentina Argentina Argentina Argentina Anticlinal Anticlinal
Bloque 40 Bloque 46 Bloque 46 Bloque 46 Funes Funes
50,00% 35,00% 50,00% 35,00% 80,00% 80,00%
2007 2006 2007 2006 2007 2006
--------- ----------- --------- ----------- ----------- ------------
Sales (1) - - - - - -
Cost of sales - - - - (8,619,219) (14,246,684)
--------- ----------- --------- ----------- ----------- ------------
Gross result (8,619,219) (14,246,684)
Administrative
expenses - - - - - -
--------- ----------- --------- ----------- ----------- ------------
Operating
result - - - (8,619,219) (14,246,684)
Financial
results - net - - - - 142,344 ( 52,968)
Other income
and expenses
-
Net (567,667) (4,327,370) (732,684) (3,563,307) 6 ( 101)
--------- ----------- --------- ----------- ----------- ------------
Net results (567,667) (4,327,370) (732,684) (3,563,307) (8,476,869) (14,299,753)
========= =========== ========= =========== =========== ============
(1) No sales were recorded in the joint ventures because production is directly
assigned to each participant.
FINANCIAL STATEMENTS as of December 31, 2007
REPORTING SUMMARY REQUIRED BY RESOLUTION No. 290/97 OF THE NATIONAL SECURITIES
COMMISSION
1. Comment on the Branch's activity
1.1. Operating activities
Pan American Energy LLC (Argentine Branch) is mainly engaged in the exploration,
development and production of hydrocarbons. The Head Office of the Branch is Pan
American Energy LLC, which also has various subsidiaries and affiliates that
carry out activities in Argentina and other Mercosur countries. BP and Bridas
Corporation hold interests that account for 60% and 40%, respectively of the
Branch's ownership.
During fiscal year 2007, with a daily average production of 219.6 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 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.
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 issueance 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.
1.3. Loan agreements
Pan American Energy LLC (Argentine Branch) obtained the following loans at a
five-year term, with interest compounded bi-annually amortized in monthly
installments: 1) On July 20, 2001, in the amount of US$ 72,051,406, with
interest accruing at an annual rate of 7.54%, with the first installment falling
due on April 19, 2002 and the repayment term being completed on June 20, 2006,
and 2) on September 17, 2001, in the amount of US$ 40,001,944, with interest
accruing at an annual rate of 6.72%, with the first installment falling due on
June 20, 2002 and completing repayment on August 21, 2006. For the purpose of
fixing the interest rate, the Branch entered into integrated derivative
transactions, the impact of which has been included in the cost of the
transactions. Both loans were guaranteed by Pan American Energy LLC until the
repayment thereof in June and August 2006.
On July 11, 2005, the Branch obtained from the International Finance Corporation
(IFC) a loan in the amount of US$ 250,000,000 guaranteed by 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 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 half yearly basis and
becoming due in April 2018; and
- "B", sub-tranch "1" in the amount of US$ 158,500,000, amortizable on a half
yearly basis and becoming due in April 2014, and "B" sub-tranch "2" in the
amount of US$ 241,500,000, amortizable on a half yearly 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 that the Company will
undertake in the Cerro Drag�n area in 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. The remaining U$S 150,000,000 was disbursed in January 2008.
2. Balance sheet items as of December 31, 2007 (in pesos)
Balance sheet Balance sheet Balance sheet Balance sheet Balance sheet
as of as of as of as of as of
12/31/2007 12/31/2006 12/31/2005 12/31/2004 12/31/2003
--------------- --------------- --------------- --------------- ---------------
Current assets 1,260,904,810 1,235,627,955 1,193,228,984 659,203,025 508,446,665
Non current assets 7,446,314,957 5,910,041,926 4,879,105,847 4,198,334,101 3,928,552,138
--------------- --------------- --------------- --------------- ---------------
Total 8,707,219,767 7,145,669,881 6,072,334,831 4,857,537,126 4,436,998,803
=============== =============== =============== =============== ===============
Current liabilities 1,706,399,649 2,038,446,446 1,384,514,484 1,416,818,735 1,193,557,856
Non current
liabilities 3,669,958,237 2,989,464,507 2,164,983,591 1,367,102,560 1,561,029,726
--------------- --------------- --------------- --------------- ---------------
Subtotal 5,376,357,886 5,027,910,953 3,549,498,075 2,783,921,295 2,754,587,582
--------------- --------------- --------------- --------------- ---------------
Account with Head
Office 2,869,622,874 1,656,519,921 2,061,597,749 1,634,155,831 1,242,951,221
Capital allocated to
the Branch 221,779,007 221,779,007 221,779,007 200,000,000 200,000,000
Capital adjustment 239,460,000 239,460,000 239,460,000 239,460,000 239,460,000
--------------- --------------- --------------- --------------- ---------------
Total 8,707,219,767 7,145,669,881 6,072,334,831 4,857,537,126 4,436,998,803
=============== =============== =============== =============== ===============
3. Income statement items as of December 31, 2007 (in pesos)
Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year
ended ended ended ended ended
12/31/2007 12/31/2006 12/31/2005 12/31/2004 12/31/2003
-------------- -------------- -------------- -------------- -------------
Ordinary operating income 2,573,221,966 2,743,659,781 1,892,940,989 1,345,594,475 962,439,720
Financial results ( 334,318,829) ( 157,229,580) ( 111,002,384) ( 162,139,929) (278,812,283)
Other income and expenses -
net ( 24,199,544) ( 41,522,382) ( 100,766,855) ( 95,409,580) ( 89,107,077)
-------------- -------------- -------------- -------------- -------------
Income before taxes 2,214,703,593 2,544,907,819 1,681,171,750 1,088,044,966 594,520,360
Income tax/minimum deemed
income tax ( 831,214,623) ( 896,407,452) ( 609,797,133) ( 409,943,143) (248,894,158)
Deferred tax 52,253,813 ( 3,463,245) 14,847,018 86,414,740 161,016,474
-------------- -------------- -------------- -------------- -------------
Net income 1,435,742,783 1,645,037,122 1,086,221,635 764,516,563 506,642,676
============== ============== ============== ============== =============
4. Statistical data
Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year
ended ended ended ended ended
12/31/2007 12/31/2006 12/31/2005 12/31/2004 12/31/2003
------------------ ----------------- ----------------- ------------------ -----------------
In cubic meters In cubic meters In cubic meters In cubic meters In cubic meters
------------------ ----------------- ----------------- ------------------ -----------------
Production of crude oil 6,150,764 6,123,609 5,899,233 5,721,813 5,279,853
Sale of crude oil 6,135,234 6,146,250 5,688,359 5,534,021 5,289,407
In thousand cubic In thousand cubic In thousand cubic In thousand cubic In thousand cubic
meters meters meters meters meters
------------------ ----------------- ----------------- ------------------ -----------------
Production of natural gas 5,229,944 4,887,081 4,447,626 4,187,349 3,411,061
Sale of natural gas 5,310,947 4,777,025 4,457,984 3,972,402 3,149,750
Transportation of natural
gas 2,756 15,159 307,242 358,903 281,921
In tons In tons In tons In tons In tons
------------------ ----------------- ----------------- ------------------ -----------------
Production of L.P.G. 75,337 104,647 66,910 64,577 58,940
Sale of L.P.G. 62,342 105,810 60,480 69,597 72,585
5. Ratios
Financial Financial Financial Financial Financial
statements statements statements statements statements
as of as of as of as of as of
12/31/2007 12/31/2006 12/31/2005 12/31/2004 12/31/2003
------------- -------------- -------------- -------------- --------------
Liquidity 0.74 0.61 0.86 0.47 0.43
Indebtedness 1.60 2.37 1.41 1.34 1.64
Tied -up funds 0.86 0.83 0.80 0.86 0.89
Solvency 0.62 0.42 0.71 0.74 0.61
Return before income tax
/ minimum deemed income
tax 1.05 1.01 0.81 0.65 0.34
Net return 0.68 0.65 0.52 0.45 0.29
6. Business prospects
Pan American Energy LLC (Argentine Branch) is working to maintain and increase
its operating efficiency in connection with the oil and gas exploration and
production, to continue increasing its share in hydrocarbon production in
Argentina, satisfying in this way the needs derived from a sustained growth rate
of the country's economy as well as to comply with its existing contractual
obligations. The Branch strives to provide its personnel and contractors with
healthy and safe working conditions while preserving the environment.
The Branch is strongly engaged with the concerns and challenges posed by the
communities where it operates, by developing different social responsibility
programs (CSR).
During fiscal year 2007, the Branch's oil production grew by 0.4% and natural
gas production rose by 7.0% with respect to the prior fiscal year. This growth
results from the active investment program successfully implemented by Pan
American Energy in the last years, which has allowed it to double hydrocarbon
production from 1999 to 2006.
After the 2002 crisis, the country has managed to achieve high 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 fiscal year 2007, the GDP grew by 8.7% compared with the prior fiscal year,
which indicates that a growing trend - initiated 23 quarters ago - continues. It
is estimated that the gross domestic product GDP will continue growing in a
sustainable way in 2008. The unemployment rate is about 7.5%.
The Federal Government exceeded the primary fiscal surplus expected for 2007 by
22%, reaching a primary fiscal surplus of 25,670 million pesos, up 10.8% with
respect to the prior fiscal year. The level of foreign indebtedness as of
September 30, 2007 increased with respect to the same date of the prior fiscal
year and amounted to US$ 137,114 million. The country's international reserves
amounted US$ 46,176 million as of December 31, 2007, 44.1% higher than those for
the prior fiscal year.
The increase in the oil industry costs is a source of concern, since it clearly
exceeds the general increase in prices.
As previously informed, revenues from the exploration and production of oil and
gas were affected by the amendments to the regulations in force. In the case of
oil, as from March 2002, an increasing rate of 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 $ 60.9 / barrel. The fourth
quarter and fiscal year 2007 results fully reflect the impact of this increase.
In the case of natural gas, in January 2002, the wellhead price of natural gas
was redenominated into pesos and frozen and, afterwards, export tariffs on
exports and quantitative restrictions to them were established. In April 2004,
the Secretary of Energy and the natural gas producers signed an agreement named
"regularization of wellhead prices". 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 shall be in force until December
31, 2011.
The new agreement, approved last June by Resolution 599/07 of the Secretary of
Energy, compels producers (including the Branch) to satisfy the domestic demand
up to the levels reached in 2006 plus the growth of the residential market
during the validity thereof by setting out new guidelines for price changes.
In relation to export tariffs on gas exports, on July 25, 2006, the Ministry of
Economy, through Resolution No. 534/2006, increased them to US$ 2,25 per million
BTU.
On June 29, 2006, the Federal Government signed a form contract with the
Republic of Bolivia to import gas from such country. In October 2006, ENARSA and
Yacimientos Petrol�feros Fiscales Bolivianos agreed on the sale of Bolivian
natural gas having established an initial price of US$ 5 per million of BTU with
a maximum daily volume of 7.7 million cubic meters up to a maximum daily volume
of 27.7 million cubic meters in year 2010. This contract provides for an
extension of one year. The volume proposed for 2010/2011 will be obtained once
the gas pipeline named Noreste Argentino is built and the increase required in
the gas production capacity of Bolivia is ensured. During the last months, the
gas availability by Bolivia was not enough to meet the supply commitment assumed
with Argentina.
During 2007, the various unions gathering workers who perform tasks in the oil
fields operated by the Branch made claims for a salary increase and other labor
benefits. In the first half of the year, such claims were peacefully made and,
as a result, no action measures affecting operations were taken. Nonetheless, in
July, the unions took direct action measures which affected production and
operations in our oil fields.
During fiscal year 2007, the Branch has continued with its investment plans with
a view to expanding its business and contributing to satisfying the growing
energy demand. The commitments assumed referred to in the following paragraphs
strengthen these expansion plans.
On December 6, 2006, Law Nr. 26197, known as "Hydrocarbons Short Law", was
passed. This law complied with the constitutional provision of transferring the
original ownership of the natural resources 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 Drag�n, the area
of which is extended in the territory of both provinces, and Piedra Clavada and
Koluel Kaike in the province of Santa Cruz. The agreements expired between 2016
and 2017.
These agreements provided for, 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. These investments are to be made before 2017 and are
destined to onshore activities. Other investments of US$ 1,000,000,000 in the
Province of Chubut and of US$ 300,000,000 in the Province of Santa Cruz are to
be made before 2027.
The agreements also provided for a US$ 80,000,000 investment commitment for
offshore exploration, at the Branch's own risk, by means of two joint ventures
(UTEs) with the companies Petrominera (owned by the province Chubut) and
Fomicruz (owned by the province of Santa Cruz). If the Branch makes commercial
discoveries, an additional investment commitment will be required in the amount
of US$ 500,000,000 for the development of the offshore fields to be discovered.
The creation of the UTEs referred to in the preceding paragraph is consistent
with the provisions of sections 11 and 95 of the Hydrocarbons 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 Law, and will be enforced as from the year 2027,
subject to compliance with the investments and Pan American Energy's exploration
success, in that it will have developed sufficient reserves to continue with the
production of the fields of those areas as from that year.
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 Government of the Province of Santa Cruz has sent the agreement to the
Provincial Congress for its approval, which is pending.
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 shall allow addressing long-term projects
requiring sound investments, new technologies and teams working for the future.
Pan American Energy, based on its exploration activities in Cerro Drag�n block,
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 Chubut,
totaling one hundred million barrels of oil equivalent.
On October 28, 2007, the presidential, and other governmental authorities
elections took place in the country. Thus, the elections schedule that started
several months ago in different provinces of the country was completed. These
elections proved to be a new milestone in the history of the country's democracy
and support the democratic and institutional regularization process that started
24 years ago. The new administration is expected to maintain the current
policies in terms of hydrocarbon exploration and production.
Buenos Aires, March 7, 2008
Daniel Grinstein
Attorney in-fact
FINANCIAL STATEMENTS as of December 31, 2007
SUPPLEMENTARY INFORMATION TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007
REQUIRED BY SECTION 68 OF THE REGULATIONS OF THE BUENOS AIRES STOCK EXCHANGE
Overall issues about the Branch's activity:
1. Specific and significant legal requirements which imply contingent
suspensions or changes of benefits provided for by such regulations:
The Branch is not subject to specific and significant legal requirements, which
may imply the contingent suspension or change of benefits provided for by such
regulations, except as disclosed in notes to the financial statements.
2. Significant changes in the Branch's activities or other similar circumstances
that affect the comparison of the financial statements with prior years, or with
those to be presented in future years.
There are no changes in the Branch's activities that significantly affect the
comparison of the financial statements as of December 31, 2007.
3. Breakdown of receivables and payables as per section 68, subsection 3.
3.a) The breakdown of receivables and payables based on the maturity thereof is
disclosed in Exhibit H to the financial statements.
The following receivables without any established term included in the referred
Exhibit H are due:
Current receivables
$
----------------------
Due from October to December 2007 7,095,134
Due from July to September 2007 24,600,701
Due from April to June 2007 4,516,657
Due from January to March 2007 2,311,832
Due from January to December 2006 16,947,546
Due from January to December 2005 2,963,901
Due from January to December 2004 654,292
Due from January to December 2003 1,903,688
Due from January to December 2002 1,054,721
Due from January to December 2001 183,996
Due from January to December 2000 63,348
----------------------
Total 62,295,816
======================
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, 2006, 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, 2007 for which an allowance has not been set up.
7. Current values
The valuation method of inventories is disclosed in Note 3.2.d) to the financial
statements.
8. Property, plant and equipment
No items of property, plant and equipment have been subject to appraisal.
To date, there are no property, plant and equipment items that are not in use
due to obsolescence.
9. Interests in other companies
None. The Branch's participating interests in joint operations and other
entities are disclosed in Note 2 to the financial statements.
10. Recoverable value
The recoverable value of inventories and fixed assets, used as a limit to their
valuation for financial reporting purposes, have been determined based on the
net realizable values and values in use, the latter defined as the expected net
cash flows that would result from both the use of the assets and the disposal
thereof at the end of their useful life.
11. Insurance
As of December 31, 2007, the insurance taken on the Branch's assets are as
follows:
Covered
Insured assets Insured risk Covered amount
------------------------------------------- --------------------------- --------------
Thousand US$
Equipment, facilities and pipelines
applied to exploitation and transportation Physical damage 702,815
Equipment, facilities and pipelines
applied to exploitation and transportation Liability insurance 10,000
Wells Control, re-drilling, spill 72,037
Additionally, the Branch has taken the following policies: workers compensation
insurance, directors and officers liability insurance and automobile liability
insurance.
12. Negative and positive contingencies
To calculate the related accruals, all available elements of judgment and
probability of occurrence have been considered (see Notes 10, 13 and Exhibit D
to the basic financial statements).
13. Contingent events as of the date of issuance of the financial statements
with moderate likelihood of occurrence, the financial effects of which have not
been fully recorded as of December 31, 2007.
None.
Irrevocable advances for future subscriptions
14. As of December 31, 2007 there are no irrevocable advances for future
subscriptions.
15. There are no preferred shares as of the date of issuance of these financial
statements.
16. As of the date of issuance of these financial statements, the Branch has no
restrictions on the distributions of earnings, except as indicated in Note 10.
Buenos Aires, March 7, 2008
Daniel Grinstein
Attorney in-fact
Translation from the original prepared in Spanish for publication in Argentina
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