Translation from the original prepared in Spanish for publication in Argentina
JUEVES 8 ENERO 2009 - 9.40 HORAS- FINAL
PAN AMERICAN ENERGY LLC
(ARGENTINE BRANCH)
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2008 AND COMPARATIVE INFORMATION
CONTENTS Page
Limited review report on interim financial statements 2
Legal information 4
Balance sheet 5
Statement of income 6
Statement of cash flows 7
Notes to the financial statements 8
Exhibits A, B, C, D, E, F, G, H and I 24
Reporting summary 37
Supplementary information required by the Buenos Aires Stock Exchange 44
REVIEW REPORT ON INTERIM FINANCIAL STATEMENTS
To the Legal Representative of
Pan American Energy LLC (Argentine Branch)
Av. Leandro N. Alem 1180 - 11th Floor
Buenos Aires, Argentina
We reviewed the accompanying balance sheet of Pan American Energy LLC (Argentine Branch) as of September 30, 2008,
and the related statements of income and cash flows, notes 1 to 15 and exhibits A, B, C, D, E, F, G, H and I for the
nine-month period then ended, comparative with the same period of the prior year, and in the case of the balance sheet
and the related notes and exhibits, with the financial statements as of December 31, 2007. The preparation of these
financial statements is the responsibility of the Legal Representative of the Branch.
We conducted our review in accordance with auditing standards generally accepted in the Republic of Argentina
applicable to the limited scope review of interim financial statements. A review of interim financial information
consists principally in applying analytical procedures to the accounting data and making inquiries of the individuals
responsible for its preparation. As a review is substantially less in scope than an audit of annual financial
statements, we do not express an opinion on the financial position of the Branch as of September 30, 2008, nor on the
results of its operations and the cash flows for the nine-month period then ended.
The accompanying consolidated financial statements were translated into the English language from those issued in
Spanish in conformity with accounting principles and reporting practices adopted by the regulations of the National
Securities Commission ("CNV") of Argentina.
In relation to the financial statements as of December 31, 2007, presented for comparative purposes, we issued an
unqualified opinion on March 7, 2008. In addition, on November 9, 2007, we issued an unmodified review report on the
financial statements for the nine months ended September 30, 2007, also presented for comparative purposes.
Based on our review, we report that the financial statements as of September 30, 2008 and for the nine months then
ended referred to in the first paragraph consider all the significant facts and circumstances of which we became aware
during our review and in relation to them we have no significant observations.
In compliance with rules and regulations in force, we report that:
a) the financial statements comply with the provisions of the Corporations Law and the regulations on accounting
documentation of the National Securities Commission, they are transcribed in the Inventory Book and they derive from the
accounting records of the Branch maintained in the Republic of Argentina timely authorized by the Inspection Board of
Legal Entities (IGJ). Following its submission of the special report required by section 287 of Resolution 7/2005 of the
IGJ, the Branch has not received the certification from such authorities acknowledging compliance. The information
systems used to process the financial information included in the financial statements are maintained under the security
and integrity conditions based on which they were authorized;
b) we read the reporting summary (sections "Balance sheet items", "Income statement items", and "Ratios") and the
supplementary information to the financial statements required by section 68 of the regulations of the Buenos Aires
Stock Exchange and, based on our review as far as it relates to our area of responsibility, we have no observations, and
c) as of September 30, 2008, the accrued liability for pension contributions arising from the accounting records
amounted to $ 5,901,282, no amounts being due as of that date.
Buenos Aires, November 7, 2008
SIBILLE
N�stor R. Garc�a
Partner
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
FINANCIAL STATEMENTS as of September 30, 2008 for the nine-month period beginning January 1, 2008 and ended
September 30, 2008 and comparative information
Stated in pesos
Legal address of the Branch: Av. Leandro N. Alem 1180 - 11(th)floor - Buenos Aires
Main activity of the Branch: Oil and gas exploration and production
Date of registration with the Public Registry of Commerce: October 17, 1997
Registration number with the Inspection Board of Legal Entities: 1868, Book 54, Volume B of Foreign Companies
Capital registered with the Inspection Board of Legal Entities: $ 200,000,000 under number 1257, Book 57, Volume B
of Foreign Companies, and $ 21,779,007 under number 2106, Book 58, Volume B of Foreign Companies (Note 8)
Date of registration of capital with the Inspection Board of Legal Entities: $ 200,000,000 on July 11, 2003 and $
21,779,007 on December 12, 2005
Subscribed capital (paid in full): $ 221,779,007
HEAD OFFICE
Name: Pan American Energy LLC
Legal address: The Corporation Trust Company, Trust Corporation Center, 1209 Orange Street, Wilmington, Delaware -
19801 - United States of America
Main activity: Oil and gas exploration and production
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
BALANCE SHEET as of September 30, 2008 and as of December 31, 2007 (in pesos)
09/30/2008 12/31/2007
ASSETS
CURRENT ASSETS
Cash on hand and in banks (Note 4 3,351,397 33,987,608
a)
Investments (Exhibit C) 1,025,030,111 451,093,477
Accounts receivable (Note 4 b) 417,198,288 497,884,676
Other receivables (Note 4 c) 178,168,843 88,459,852
Inventories (Note 4 d) 234,908,536 189,479,197
Total current assets 1,858,657,175 1,260,904,810
NON CURRENT ASSETS
Other receivables (Note 4 e) 57,921,859 53,139,229
Investments (Exhibit C) 7,337,203 9,533,846
Property, plant and equipment 9,004,729,627 7,383,251,413
(Exhibit A)
Intangible assets (Exhibit B) 364,374 390,469
Total non current assets 9,070,353,063 7,446,314,957
Total assets 10,929,010,238 8,707,219,767
LIABILITIES
CURRENT LIABILITIES
Accounts payable (Note 4 f) 637,513,565 645,049,836
Loans (Note 4 g) 1,124,807,625 745,307,677
Payroll and social security 59,286,282 42,426,954
contributions
Taxes payable (Note 4 h) 360,298,600 271,153,439
Other liabilities (Note 3 2 j) 382,833 -
Provision for future compensation
to personnel
(Exhibit D) 2,476,055 2,461,743
Total current liabilities 2,184,764,960 1,706,399,649
NON CURRENT LIABILITIES
Accounts payable (Note 4 i) 54,034,717 49,129,413
Loans (Note 4 j) 3,819,276,450 2,984,559,219
Other liabilities (Note 3 2 j) 148,882,100 128,930,896
Deferred tax (Note 11) 359,916,945 389,697,321
Provision for future compensation
to personnel
(Exhibit D) 16,782,629 15,241,426
Provision for environmental 88,093,005 82,182,464
remediation (Exhibit D)
Accruals (Exhibit D) 22,740,520 20,217,498
Total non current liabilities 4,509,726,366 3,669,958,237
Total liabilities 6,694,491,326 5,376,357,886
Account with Head Office (Note 7) 3,773,279,905 2,869,622,874
Capital allocated to the Branch 221,779,007 221,779,007
(Note 8)
Capital adjustment 239,460,000 239,460,000
Total 10,929,010,238 8,707,219,767
The accompanying notes and exhibits are an integral part of these financial statements.
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
STATEMENT OF INCOME for the nine-month period beginning January 1 and ended September 30, 2008 comparative with the
same period of the prior year (in pesos)
2008(nine months) 2007(nine months)
Sales (Note 4 k) 4,732,138,181 3,999,481,289
Cost of sales (Exhibit E) (2,442,430,530) (1,968,713,012)
Gross profit 2,289,707,651 2,030,768,277
Administrative expenses (208,191,869) (206,756,846)
(Exhibit G)
Operating income 2,081,515,782 1,824,011,431
Financial results
Generated by assets
Interest 19,864,858 27,417,126
Exchange gains (losses) ( 33,825,009) 17,885,579
Other financial results (384,087) ( 14,344,238) (374,417) 44,928,288
Generated by liabilities
Interest (216,270,709) (195,209,659)
Exchange gains (losses) 24,588,970 ( 77,003,694)
Other financial results (33,784,758) ( 225,466,497) (50,600,661) ( 322,814,014)
Other income and expenses - (1,278,500) (27,897,206)
net
Income before income tax 1,840,426,547 1,518,228,499
Income tax expense - current ( 652,729,560) ( 578,842,019)
(Note 11)
Income tax benefit - deferred 29,780,376 50,822,677
(Note 11)
Net income (Note 7) 1,217,477,363 990,209,157
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 nine-month period beginning January 1 and ended September 30, 2008 comparative with
the same period of the prior year (in pesos)
2008 2007
(9 months) (9 months)
Cash provided by operations:
Net income 1,217,477,363 990,209,157
Adjustment to reconcile net income with the cash provided
by operations
Depreciation of Property, Plant and Equipment 613,818,481 570,488,735
Amortization of intangible assets 26,095 1,483,656
Income tax expense 652,729,560 578,842,019
Net increase in allowances for bad debtors,
lawsuits and obsolescence of materials 2,319,189 14,973,029
(Loss) gain on property, plant and equipment ( 378,738) 12,286,188
Increase in provision for future compensation to personnel 3,729,991 3,529,800
Net increase in the provision for environmental remediation 8,398,270 6,400,028
Other non-cash items (1) 156,292,371 155,200,083
Changes in assets, liabilities and account with Head
Office:
Decrease in accounts receivable 80,686,388 150,327,213
Increase in inventories ( 44,889,545) ( 5,675,583)
(Increase) decrease in other current receivables ( 89,708,991) 12,740,016
(Increase) decrease in other non current receivables ( 4,782,630) 607,797
Increase in accounts payable, payroll and social security 117,091,031 79,874,253
contributions,taxes payable and other liabilities
Compensation paid to personnel for benefit plans ( 2,174,476) ( 1,677,658)
Payments related to lawsuits ( 335,961) ( 59,844)
Use of provisions ( 5,300.905) ( 3,333,367)
Income tax paid (646,113,032) (830,211,981)
Net cash provided by operations 2,058,884,461 1,736,003,541
Cash used in investing activities:
Decrease (increase) in long-term investments 2,196,643 ( 1,179,269)
Acquisition of property, plant and equipment (2,239,020,652) (1,619,452,383)
Additions of intangible assets - ( 67,390)
Collection due to the sale of property, plant and equipment 6,915,871 12,495,387
Cash used in investing activities (2,229,908,138) (1,608,203,655)
Cash provided by financing activities:
Increase in loans (net) 1,028,144,432 96,310,892
Net activity with Head Office (313,820,332) (34,254,830)
Cash provided by financing activities 714,324,100 62,056,062
Net increase in cash 543,300,423 189,855,948
Cash at beginning of period (2) 485,081,085 249,407,237
Cash at the end of the period (2) 1,028,381,508 439,263,185
(1) It is made up of:
Exchange gains/losses and other financial results 186,072,747 206,022,760
relating to loans and other
Deferred income tax benefit ( 29,780,376) ( 50,822,677)
Total 156,292,371 155,200,083
(2) Cash and banks plus investments becoming due in a
period not exceeding three months.
The accompanying notes and exhibits are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS as of September 30, 2008 and comparative information (in pesos)
NOTE 1 - THE BRANCH
Pan American Energy LLC (Argentine Branch) is engaged in the exploration, development and production of
hydrocarbons.
On October 30, 1997, a definitive agreement for the transfer of assets and liabilities was entered into between
Amoco Argentina Oil Company (Argentine Branch) and Pan American Energy LLC (Argentine Branch) hereinafter "the Branch",
whereby Amoco Argentina Oil Company (Argentine Branch) transferred its business consisting of assets and liabilities to
the Branch, effective on October 8, 1997.
On May 1, 1998 a definitive agreement for the transfer of assets and liabilities was entered into between Pan
American Continental S.R.L. and the Branch, whereby Pan American Continental S.R.L. transferred to the Branch its
business consisting of 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 nine-month period ended September 30, 2008.
Activity Operations Interest Participation
Oil and gas production and Cerro Drag�n 100.00% Operator
development
Piedra Clavada 100.00% Operator
Koluel Kaike 100.00% Operator
Lindero Atravesado 62.50% Operator
Anticlinal Funes 80.00% Operator
Acambuco 52.00% Operator
Agua da Pichana 18.18% Nonoperator
San Roque 16.47% Non operator
Estancia La Escondida (1) 25.00% Non operat
Oil and gas exploration and Acambuco "B" (2) 100.00% Operator
development
Bandurria 18.18% Non operator
Costa Afuera Argentina "CAA-40" (3) 50.00% Non operator
Costa Afuera Argentina "CAA-46" (3) 50.00% Non operator
Centro Golfo San Jorge Marina Chubut 90.00% Operator
Centro Golfo San Jorge Marina Santa Cruz 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.
(2) Corresponds to the Macueta Oeste and San Pedrito Sur fields
(3) See Note 15 - Subsequent events
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 Republic of Argentina and pursuant to the provisions of the CNV.
Investments to become due or to be realized in the short term (within 3 months of period end) are considered a cash
equivalent in the statement of cash flows.
Certain reclassifications were made to the financial statements presented as comparative information to conform them
to the presentation used in this period.
b) Participating interest in joint ventures
The Branch is engaged in exploration and production activities in certain areas through its participation in joint
ventures with other companies. The account balances reflecting the joint ventures' assets, liabilities, income and
expenses are proportionately consolidated in these financial statements.
c) Foreign currency
Assets and liabilities denominated in foreign currency as listed in Exhibit F have been stated in Argentine Pesos at
the exchange rate prevailing at the end of each period. The resulting exchange gains/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 are stated at acquisition cost as indicated in Note 3.1., less the related accumulated
depreciation. The acquisition cost includes all the necessary costs incurred in order to put the assets in working
condition.
Depreciation is calculated by applying the straight-line method over the estimated useful lives of the assets and/or
the duration of the contracts, as applicable, except for production wells, equipment and services, which are depreciated
as per the units of production method.
The pre-operating costs of the properties in the exploration stage, except for geology and geophysics related
expenses that are charged to the Statement of Income as incurred, remain capitalized for a given period based on the
characteristics of each property, without exceeding five years considered as from the completion of the exploration
stage or, if applicable, as from production interruption, unless:
1. it is expected that explored areas will proceed to the commercial production stage, in which case the referred
costs remain capitalized, or
2. during the referred five year period, management estimates that commercial production will not be feasible, in
which case, the referred costs are expensed.
For Property, plant and equipment existing as of January 6, 2002, the acquisition or construction of which resulted
in outstanding liabilities denominated in foreign currency - exchange gains/losses resulting from restating such
liabilities totaling $1,832,303,600 through July 28, 2003 were capitalized pursuant to specific accounting principles,
based on the determination of the direct or indirect ratio between the assets subject to capitalization and the
outstanding liabilities in foreign currency. The assets or group of assets eligible for the capitalization of exchange
gains/losses have remained unchanged. Such capitalization of exchange gains/losses was performed in proportion to the
balance of the original value of the referred assets not subject to depreciation. Additionally, exchange gains and
losses were capitalized up to the limit arising from the comparison between the replacement or reproduction cost of the
assets and their recoverable value.
For the purposes of presenting the financial statements in constant currency (see Note 3.1), the capitalized
exchange gains/losses amounting to $ 1,832,303,600 are considered an anticipated inflation adjustment until such
differences are absorbed thereby. The excess of capitalized exchanges losses over the amounts in constant currency
totals $ 85,358,131 as of September 30, 2008.
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 the legal counsels.
Provisions:
- For future compensation to personnel: they are estimated as a percentage of compensation paid, calculated in terms
of actuarial methods, and can be applied to compensate employees of the Branch who have complied with certain seniority
requirements defined by the Branch. Payments are debited from the related provision.
- For environmental remediation: calculated on the basis of well-abandonment forecasts until the expiration of
agreements, at present values.
h) Income tax
The Branch applies the deferred tax method to account for income tax. Based on the referred method, the current
income tax is calculated by applying the rates prevailing as of September 30, 2008 and 2007 on taxable income; and the
future tax effect of the temporary differences in the book and tax values of assets and liabilities and the tax loss
carryforwards, if any, are recognized as deferred tax assets or liabilities. The adjustment for inflation of property,
plant and equipment is considered to be a temporary difference for deferred tax computations.
The deferred tax assets are recognized only to the extent of their recoverability.
i) Use of estimates
The preparation of the financial statements in accordance with generally accepted accounting principles requires
that the Branch management makes estimates about the value of certain assets and liabilities, including contingent
liabilities, as well as the amounts informed of certain income and expenses generated during the period.
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 $ 149,264,933 ($ 128,930,896 as of December 31, 2007)
presented under Other current liabilities and Other non current liabilities, out of which the amount of $ 20,689,767
accrued in the nine-month period ended September 30, 2008. Such amount is made up of $ 265,216,601 of nominal value less
$ 115,292,099 corresponding to the financial effect from the discount to present value and payments in the amount of $
659,569.
k) Revenue recognition
Revenue derived from the sale of hydrocarbons is recognized when the significant risks and rewards of ownership have
been transferred to the purchaser.
The Branch uses the production method to recognize revenues from the sale of oil. In those cases where the Branch
has a shared interest with other producers, revenues are recorded upon the basis of the interest held in each joint
venture.
In order to recognize revenues from the sale of gas, the Branch uses the sales method, whereby these revenues are
recorded on the basis of the actual volumes delivered to purchasers irrespective of whether they result form the
Branch's own output or from the output shared with other producers.
l) Lease agreements
The Branch leases the space occupied by its offices, which agreements are of an operating nature and, therefore, the
expenses incurred are recognized in the Statement of income to the extent they are accrued.
The amount of the leases, broken down by maturity dates, is reported below:
Nominal value
Up to one year US$ 2,908,100 and $ 2,041,586
Over one year and up to five years US$ 515,000 and $ 2,475,077
During the nine-month period ended September 30, 2008, the Branch recognized an expense of $ 7,556,684 related to
such lease agreements presented in the line Buildings Rentals and Maintenance in Exhibit G.
NOTE 4 - BREAKDOWN OF CERTAIN BALANCE SHEET ACCOUNTS AND THE STATEMENT INCOME
09/30/2008 12/31/2007
ASSETS
CURRENT ASSETS
a) Cash and banks
Cash on hand in local currency 220,594 219,522
Cash on hand in foreign 83,016 185,683
currency (Exhibit F)
Cash in banks in local 2,738,865 33,403,569
currency
Cash in banks in foreign 308,922 178,834
currency (Exhibit F)
Total 3,351,397 33,987,608
b) Accounts receivable
Accounts receivable in local 109,762,284 120,830,313
currency
Allowance for bad debtors in (10,197,186) (10,197,186)
local currency (Exhibit D)
Accounts receivable in foreign 314,983,925 387,251,549
currency (Exhibit F)
Affiliated companies in
foreign currency
(Note 9 and Exhibit F) 2,649,265 -
Total 417,198,288 497,884,676
c) Other receivables
Loans to personnel 12,174,751 9,436,752
Tax credits 63,086,004 11,845,980
Expenses recoverable in local 10,279,655 5,105,747
currency
Expenses recoverable in 3,152,715 1,923,308
foreign currency (Exhibit F)
Prepaid expenses in local 26,745,355 14,164,348
currency
Miscellaneous in local 43,243,157 34,220,853
currency
Miscellaneous in foreign 7,475,915 9,476,145
currency (Exhibit F)
Affiliated companies in
foreign currency (Note 9
and Exhibit F) 12,011,291 2,286,719
Total 178,168,843 88,459,852
d) Inventories
Crude oil in stock 136,327,618 116,679,969
Spare parts, materials and raw 76,012,405 56,281,193
materials
Subtotal (Exhibit E) 212,340,023 172,961,162
Allowance for obsolescence of (2,769,624) (3,309,418)
materials (Exhibit D)
Subtotal 209,570,399 169,651,744
Goods in transit 20,138,661 14,921,350
Advances to suppliers in local 4,931,446 4,333,388
currency
Advances to suppliers in 268,030 572,715
foreign currency (Exhibit F)
Total 234,908,536 189,479,197
e) Other receivables
Loans to personnel 15,212,973 11,037,708
Prepaid expenses in local 3,165,092 1,377,539
currency
Miscellaneous in local 26,102,147 26,419,281
currency
Miscellaneous in foreign 13,441,647 14,304,701
currency (Exhibit F)
Total 57,921,859 53,139,229
LIABILITIES
CURRENT LIABILITIES
f) Accounts payable
Trade payables in local 463,030,849 440,920,083
currency
Trade payables in foreign 150,141,734 159,701,798
currency (Exhibit F)
Expenses payable in local 21,921,992 39,244,409
currency
Affiliated companies in
foreign currency (Note 9 and
Exhibit F) 2,418,990 5,183,546
Total 637,513,565 645,049,836
g) Loans
Unsecured notes payable in 77,197,458 263,824,044
local currency
Unsecured notes payable in
foreign currency
(Exhibit F) 970,301,650 405,650,487
Interest accrued on bonds and
notes payable in foreign
currency (Exhibit F) 77,308,517 75,833,146
Total 1,124,807,625 745,307,677
h) Taxes payable
Income tax provision net of 224,645,672 174,142,115
advanced payments
Tax on sales and production 101,384,121 87,217,728
Other 34,268,807 9,793,596
Total 360,298,600 271,153,439
NON CURRENT LIABILITIES
i) Accounts payable
Miscellaneous liabilities in 36,760,403 31,777,958
local currency
Miscellaneous liabilities in 17,274,314 17,351,455
foreign currency (Exhibit F)
Total 54,034,717 49,129,413
j) Loans
Bonds in foreign currency 1,097,250,000 1,102,150,000
(Exhibit F)
Unsecured notes payable in
foreign currency
(Exhibit F) 2,722,026,450 1,882,409,219
Total 3,819,276,450 2,984,559,219
STATEMENT OF INCOME
k) Sales
Gross sales 6,514,735,975 4,438,906,534
Export tariffs (1,782,597,794) (439,425,245)
Total 4,732,138,181 3,999,481,289
NOTE 5 - ISSUANCE OF BONDS
On February 11, 1997, Amoco Argentina Oil Company (Argentine Branch) issued the Second Series of bonds in the amount
of US$ 100,000,000 due in ten years, at an annual 6.75% rate. The bonds were paid upon maturity on February 1, 2007.
Such issuance was made under the short and medium term bond program for a total maximum amount of US$ 200,000,000
authorized by the CNV through Resolution No. 10982 on July 13, 1995.
As a result of the transfer of assets and liabilities referred to in the second paragraph of Note 1 to these
financial statements, Amoco Argentina Oil Company (Argentine Branch) transferred the above mentioned bonds to Pan
American Energy LLC (Argentine Branch). Such bonds were guaranteed by BP Company North America Inc. until repayment in
February 2007.
On February 21, 2002, through Resolution No. 14123, the CNV authorized the Global Program for the Issuance of Bonds
of Pan American Energy LLC (Argentine Branch) (the "Global Program") in the total amount of US$ 1,000,000,000 and for a
five-year term.
On October 27, 2004, the Branch issued the Bonds Class 3 in the amount of US$100,000,000 under the Global Program.
The bonds become due in five years (October 27, 2009) with a 7.125% annual fixed interest rate to be paid on a
half-yearly basis. The price of the issuance was 99.483% of the nominal value. The funds obtained from this issuance
were allocated to investments in property, plant and equipment and repayment of loans.
On August 9, 2006, the Branch issued the Bonds Class 4 in the amount of US$ 250,000,000 under the Global Program, to
be repaid in two equal installments becoming due on February 9, 2011 and February 9, 2012, with interest accruing at an
annual fixed interest rate of 7.75% to be paid on a half-yearly basis. The price of the issuance was 100.00% of the
nominal value. The funds obtained from this issuance were allocated to investments in property, plant and equipment and
repayment of loans.
The Bonds Class 3 and Class 4 are guaranteed by Pan American Energy LLC.
NOTE 6 - OTHER FINANCIAL LIABILITIES
On July 11, 2005, the Branch obtained from the International Finance Corporation (IFC) a loan in the amount of US$
250,000,000 guaranteed by Pan American Energy LLC and consisting of three tranches:
- "A" in the amount of US$ 100,000,000, with interest accruing at an annual fixed rate of 7.56%, through an interest
rate swap with IFC, amortizable on a six-month installments basis and becoming due in July 2015;
- "B" in the amount of US$ 135,000,000, at an annual fixed rate of 6.97%, through an interest rate swap with IFC,
amortizable on a six-month installments basis, and becoming due in July 2012, and
- "C" in the amount of US$ 15,000,000, at an annual fixed base rate of 5.66% plus additional interest calculated in
relation to Pan American Energy LLC�s economic performance, becoming due in July 2016.
The first repayment of principal for tranches "A" and "B" was made on January 15, 2007.
The funds obtained were used to partially fund the 2005 investment program in San Jorge Gulf.
On July 13, 2007, the Branch obtained from IFC a loan in the amount of US$ 550,000,000, consisting of two tranches
that accrue interest at a variable rate:
- "A" in the amount of US$ 150,000,000 amortizable on a six-month installments basis and becoming due in April 2018;
and
- "B", Sub-tranch "1" in the amount of US$ 158,500,000 amortizable on a six-month installments basis and becoming
due in April 2014 and Sub-tranch "2" in the amount of US$ 241,500,000 amortizable on a six-month installments basis and
becoming due in April 2015.
The loan is guaranteed by Pan American Energy LLC and the funds obtained are being applied to partially fund the
investment program 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.
By December 31, 2007, the amount of US$ 400,000,000 of such loan had been disbursed while the remaining amount of
US$ 150,000,000 was disbursed in January 2008.
On May 21, 2008, the Branch, obtained a loan from an international bank syndicate in the amount of U$S 200,000,000,
the final maturity of which is on May 23, 2011. The loan will be repaid in 3 semiannual principal installments as from
the second year, accruing interest at a variable Libor rate payable every six months.
The bank syndicate was led by Calyon New York Branch, JP Morgan Securities Inc. and ABN AMRO Bank N.V., whereas
Banco Ita� Buen Ayre S.A. acts as the local intermediary bank. Rabobank Nederland New York Branch, Natixis and Export
Development Canada participated as well.
As of September 30, 2008, this loan had been fully disbursed.
The loan is guaranteed by Pan American Energy LLC and the funds obtained must be applied to the payment of property,
plant and equipment and inventories.
The Branch considers that its access to credit lines is appropriate in order to meet its commercial and financial
obligations, even though it presents a negative working capital.
NOTE 7 - ACCOUNT WITH HEAD OFFICE
The changes in the account with Head Office during the nine-month periods ended September 30, 2008 and 2007 are as
follows:
Nine-month period ended
09/30/2008 09/30/2007
Balance at beginning of period with Head Office 2,869,622,874 1,656,519,921
Net activity with Head Office ( 313,820,332) ( 34,254,830)
Transfer of income for the period 1,217,477,363 990,209,157
Net changes for the period 903,657,031 955,954,327
Balance at period-end of the account with Head Office (1) 3,773,279,905 2,612,474,248
(1) As of September 30, 2008 and September 30, 2007, the balances are in local currency.
NOTE 8 - CAPITAL ALLOCATED TO THE BRANCH
Pursuant to the Consent Action taken by the members on December 27, 2001, Pan American Energy LLC allocated capital
to the Branch in the amount of $ 200,000,000. Such capital is registered with the Public Registry of Commerce. In
accordance with the Consent Action dated February 1, 2005, Pan American Energy LLC allocated capital to the Branch in
the amount of $ 21,779,007. Such capital contribution represents the contribution of assets and liabilities of the areas
Anticlinal Funes and 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:
2008 2007
(9 months) (9 months)
TRANSACTIONS
Pan American Fueguina S.A.
Financing - (446,709,189)
Pan American Sur S,A,
Lending of LPG - ( 1,252,476)
PAE E & P Bolivia Ltd.
Purchases and hiring of services 7,008,020 581,480
PAE Oil & Gas Bolivia Ltd.
Purchases and hiring of services 2,716,552 836,494
BP West Coast Products LLC
Sales 1,178,522,078 322,280,943
BP America Production Company
Contracted services 3,797,947 1,922,241
09/30/2008 12/31/2007
BALANCES
BP West Coast Products LLC
Accounts receivable 2,649,265 -
PAE E & P Bolivia Ltd.
Other receivables 8,173,297 1,165,277
PAE Oil & Gas Bolivia Ltd.
Other receivables 3,837,994 1,121,442
BP America Production Company
Accounts payable 463,153 1,910,240
Pan American Sur S.A.
Accounts payable 1,955,837 3,273,306
NOTE 10 - GUARANTEES AND OTHER COMMITMENTS
In terms of investment commitments, the Branch has not granted any guarantees as of September 30, 2008.
The terms agreed in certain loan agreements include commitments assumed by the Branch referring to the maintenance
of certain indebtedness and debt service ratios and certain restrictions on the distribution of dividends. As of
September 30, 2008, the Branch complied with all the commitments assumed in loan agreements.
The Branch signed the agreement entered into between producers and refineries on January 2, 2003 for the stability
of the prices of crude oil, gasoline and gas oil (Resolution No. 85/2003 of the Energy Department), in force until April
30, 2004. The Branch has complied with the quotas set forth in the crude oil agreement. Such deliveries were stated at
spot price upon carrying out the transaction, giving rise to a contingent receivable of $ 10,986,714 as of September 30,
2008, in favor of the Branch, which has not been recorded. Such receivable will be collected when the crude oil WTI
price be lower than US$28.50 per barrel. The price thereof was US$ 100.66 as of September 30, 2008.
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:
09/30/2008 12/31/2007
Deferred tax assets
Allowance for materials obsolescence 969,368 1,158,296
Provision for future compensation to personnel 13,577,982 6,093,622
Accrual for lawsuits 8,070,128 7,278,725
Provision for environmental remediation 13,769,759 11,231,039
Other provisions and allowances 11,400,197 18,656,518
Total deferred tax assets 47,787,434 44,418,200
Deferred tax liabilities
Inventories - materials and spare parts 1,892,963 890,517
Property, plant and equipment and intangible assets 373,785,987 392,076,489
Other 32,025,429 41,148,515
Total deferred tax liabilities 407,704,379 434,115,521
Net deferred tax liabilities 359,916,945 389,697,321
The reconciliation between the income tax expense for the nine-month period and that resulting from applying the
prevailing tax rate to income before tax is as follows:
2008 2007
(9 months) (9 months)
Income for the nine-month period before taxes 1,840,426,547 1,518,228,499
Prevailing tax rate 35% 35%
Income for the nine-month period at prevailing tax rate ( 644,149,291) (531,379,975)
Permanent differences at the tax rate:
Miscellaneous - net 8,473,120 3,360,633
Subtotal permanent differences at the tax rate 8,473,120 3,360,633
Subtotal ( 635,676,171) (528,019,342)
Overstatement of prior-year provision 12,726,987 -
Income tax expense - total (622,949,184) (528,019,342)
Current income tax expense ( 652,729,560) (578,842,019)
Deferred income tax benefit 29,780,376 50,822,677
(622,949,184) (528,019,342)
NOTE 12 - RESTRICTED ASSETS
In August 2007, the Branch collected a bank deposit made in its own name as collateral for a loan from a foreign
bank in fiscal year 2005. Such bank deposit amounted to US$ 1,764,705.
In August 2007, the pledge of two generators was settled in the amount of US$ 7,483,776. Such equipment was granted
as collateral for outstanding accounts payable that were paid in June 2007.
Therefore, there are no restricted assets as of September 30, 2008.
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, the Branch's Management and legal advisors consider that the contingent liability that might
arise from such lawsuits would not have a material adverse effect on the financial position of the Branch or the results
of its operations.
NOTE 14 - AGREEMENTS WITH THE PROVINCES OF CHUBUT AND SANTA CRUZ
The Branch entered into two investment commitments and agreements with the Argentine Provinces of Chubut (April 27,
2007) and Santa Cruz (June 25, 2007) for the extension of the term of the concession for hydrocarbon exploitation for a
ten-year period in the blocks known as Cerro 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 original term of the agreements expired between
2016 and 2017.
These agreements provided for, among other obligations, minimum investments of US$ 2,000,000,000 in the Province of
Chubut and US$ 500,000,000 in the Province of Santa Cruz to be made before 2017.
Furthermore, other investments of US$ 1,000,000,000 in the Province of Chubut and US$ 300,000,000 in the Province of
Santa Cruz are to be made before 2027 as a condition for PAE to be granted the operation agreements referred to below.
The agreements also provided for a US$ 80,000,000 investment commitment for off-shore exploration, at the Branch's
own risk, by means of two joint ventures (UTEs) with the state-owned companies Petrominera (in the case of Chubut) and
Fomicruz (in the case of Santa Cruz). The potential exploration success and future business activity imply that, an
additional investment commitment in the amount of US$ 500,000,000 be required for the development of the offshore
fields.
The creation of the UTEs referred to in the preceding paragraph is consistent with the provisions of sections 11 and
95 of the Hydrocarbon Law, which allows state-owned companies to enter into agreements and create companies,
partnerships or other associations with individuals or entities for the development of their activities.
The operation agreements executed with state-owned companies also fall within the scope of the referred legislation,
which will be enforced as from the year 2027, subject to compliance with the investment commitments and Pan American
Energy's exploration success, in developing sufficient reserves to continue with the production of the fields of those
areas as from that year.
Based on these agreements, during the remaining term of the concessions, the Branch agreed to pay to the respective
provinces an additional amount of 3% of the net revenues for certain items described in the agreements. The Branch will
also provide money for the development of infrastructure and the economic diversification of the Provinces of Chubut and
Santa Cruz. A number of grants will be awarded, loans given or guaranteed, job opportunities offered, and supplementary
actions will be performed by the Branch as well. In addition, Pan American Energy LLC agreed to dismiss the claims filed
against the Argentine Government with the International Centre for Settlement of Investment Disputes (ICSID), once the
agreements referred to in the previous paragraphs are finally approved. On June 18, 2008, the Company filed such
dismissal with the ICSID. On June 18, 2008, the Company filed such dismissal with the ICSID. On August 20, 2008, the
Arbitration tribunal placed on record the termination of the proceedings.
The agreement with the province of Chubut was ratified by provincial law No. 5616 passed by the Provincial Congress
on May 24, 2007, enacted by decree No. 500/2007 and published in the Official Bulletin on May 28, 2007.
The agreement with the province of Santa Cruz was ratified by provincial law No. 3009 issued by the Provincial
Congress on March 13, 2008, enacted by decree No. 545/2008 and published in the Official Bulletin on March 27, 2008.
NOTE 15 - SUBSEQUENT EVENTS
On October 22, 2008, the Branch and YPF S.A. assigned Petrobras Energ�a S.A. 33% (16.5% each) of their interests in
the Costa Afuera Argentina "CAA-40" and "CAA-46" blocks.
In October 2008 the Tuyunt� x-2 well in Acambuco Area, was definitively abandoned, producing a loss of $
129,715,670.
No others events or transactions have occurred from period-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
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
PROPERTY, PLANT AND EQUIPMENT (in pesos)
as of September 30, 2008 and December 31, 2007
Original values
Depreciation
Netas of Atbeginning Increases Decreases Atperiod-end
Accumulatedat Increases Accumulatedat Netas of09/30/08 Netas of12/31/07
12/31/07 of the year forthe period Transfers
beginning Decreases period-end
of the year
(1) (2)
35,025,773 63,181,291 - 7,426,347 - 70,607,638
28,155,518 2,308,780 - 30,464,298 40,143,340 35,025,773
6,448,071,300 14,032,607,241 96,687,133 1,038,771,160 18,674,543 15,149,390,991
7,584,535,941 589,323,434 11,096,179 8,162,763,196 6,986,627,795 6,448,071,300
167,859 8,149,389 19,924 439,758 - 8,609,071
7,981,530 113,734 - 8,095,264 513,807 167,859
34,146,852 155,628,892 - 19,529,041 - 175,157,933
121,482,040 16,325,324 - 137,807,364 37,350,569 34,146,852
20,747,147 48,081,219 - 649,382 212,168 48,518,433
27,334,072 5,747,209 212,168 32,869,113 15,649,320 20,747,147
804,921,605 804,921,605 2,109,878,473 (1,039,250,083) - 1,875,549,995
- - - - 1,875,549,995 804,921,605
40,170,877 40,170,877 36,289,529 (27,565,605) - 48,894,801
- - - - 48,894,801 40,170,877
Total as of 09/30/2008 15,152,740,514 2,242,875,059 - 18,886,711
17,376,728,862 7,769,489,101 613,818,481 11,308,347 8,371,999,235 9,004,729,627
7,383,251,413 12,909,726,416 2,398,016,058 - 155,001,960 15,152,740,514
7,039,238,260 769,123,691 38,872,850 7,769,489,101 7,383,251,413
(1) See Exhibit G.
(2) See depreciation policies in Note 3.2.e.
EXHIBIT B
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
INTANGIBLE ASSETS (in pesos)
as of September 30, 2008 and December 31, 2007
Original Values Amortization
Main account Atbeginning Increases At Accumulatedat For
Accumulatedat Netas of Netas of
of the year forthe period period-end beginning theperiod
period-end 09/30/08 12/31/07
of the year
(1) (2)
Pre-operating expenses 48,740,915 - 48,740,915 48,353,074 23,467
48,376,541 364,374 387,841
Acquisition cost of blocks 6,487,247 - 6,487,247 6,484,619 2,628
6,487,247 - 2,628
Deferred charges 63,488,027 - 63,488,027 63,488,027 -
63,488,027 - -
Total as of 09/30/2008 118,716,189 - 118,716,189 118,325,720 26,095
118,351,815 364,374
Total as of 12/31/2007 118,716,189 - 118,716,189 116,797,422 1,528,298
118,325,720 390,469
(1) See Exhibit G.
(2) See amortization policies in Note 3.2.f.
EXHIBIT C
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
OTHER INVESTMENTS (in pesos)
as of September 30, 2008 and December 31, 2007
Book Book
value value
Main account 09/30/2008 12/31/2007
Short-term investments
Mutual funds in foreign currency (Exhibit F) 1,179 1,138
Class: Citi Institutional Liquid Reserves
Quantity: 381 units
Government securities
"Certificados de cancelaci�n de deuda impositiva"
(Certificates
evidencing payment of tax liability, Government of the
Province of Chubut)
Coupons Nos. 20 and 21 1,428,119 1,500,411
Time deposits (Exhibit F) 15,967,413 218,595,022
Special deposit account (Exhibit F) 1,007,633,400 230,996,906
Total short-term investments 1,025,030,111 451,093,477
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: $ 0.97 4,676,710 5,592,766
GDP coupon pesos
Quantity: 14,306,676
Face value: $ 1
Quotation value: $ 0.086 1,230,374 1,258,987
"Certificados de cancelaci�n de deuda impositiva"
(Certificates
evidencing payment of tax liability, Government of the
Province of Chubut)
Coupons Nos. 22 and 23 1,428,119 2,680,093
Shares:
Garantizar S.A.
Quantity: 2000
Class: B
Face value: $ 1 2,000 2,000
Total long-term investments 7,337,203 9,533,846
Total investments 1,032,367,314 460,627,323
EXHIBIT D
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
ALLOWANCES, PROVISIONS AND ACCRUALS (in pesos)
as of September 30, 2008 and December 31, 2007
Main account Balances atbeginning Increases forthe Decreases for the period
Balances as of09/30/08
of period
the year
Deducted from current assets:
Allowance for bad debtors in 10,197,186 - -
10,197,186
localcurrency
Allowance for obsolescence 3,309,418 - 539,794 (1)
2,769,624
ofmaterials
Total deducted from assets 13,506,604 - 539,794
12,966,810
Included in current
liabilities:
Provision for future 2,461,743 14,312 (2) -
2,476,055
compensationto personnel
Subtotal current liabilities 2,461,743 14,312 -
2,476,055
Included in non current
liabilities:
Accrual for lawsuits 20,217,498 2,858,983 (3) 335,961 (4)
22,740,520
Provision for 82,182,464 12,252,677 (5) 6,342,136 (6)
88,093,005
environmentalremediation
Provision for future 15,241,426 3,729,991 (7) 2,188,788 (8)
16,782,629
compensationto personnel
Subtotal non current 117,641,388 18,841,651 8,866,885
127,616,154
liabilities
Total included in liabilities 120,103,131 18,855,963 8,866,885
130,092,209
(1) Recoveries for the period.
(2) Transfer from the non current provision for future compensation to personnel.
(3) Charges for the period. It is made up of $ 2,524,310 included in production costs (see Exhibit G) and $ 334,673
included in administrative expenses (see Exhibit G) of the Statement of Income.
(4) Payments for the period.
(5) Charges for the period. It is made up of $ 3,901,682 included in financial results provided by liabilities, $
4,496,588 included in other income and expenses and $ 3,854,407 included in property, plant and equipment.
(6) Uses for the period.
(7) Charges for the period. They are included in financial results of the Statement of Income and in Exhibit G.
(8) It is made up of compensations paid during the period in the amount of $ 2,174,476 and the transfer referred to
in line 2 in the amount of $ 14,312.
EXHIBIT E
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
COST OF SALES (in pesos)
for the nine-month period beginning January 1, 2008 and ended September 30, 2008, comparative with the same period
of the prior year
2008 2007
(9 months) (9 months)
Inventories at the beginning of year 172,961,162 117,701,356
Purchases 171,752,318 133,705,172
Production costs (Exhibit G) 2,310,057,073 1,823,889,668
Inventories at period-end (212,340,023) (106,583,184)
Cost of sales 2,442,430,530 1,968,713,012
Translation from the original prepared in Spanish for publication in Argentina
EXHIBIT F
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
ASSETS AND LIABILITIES IN FOREIGN CURRENCY
as of September 30, 2008 and December 31, 2007
Amount in
Amount in
Type and amount offoreign currency Exchange Argentine currency
Type and amount offoreign currency Argentine currency
rate as of
as of
Item as of 09/30/2008 09/30/2008
as of 12/31/2007 12/31/2007
US$ Euros $
US$ Euros
ASSETS
CURRENT ASSETS
Cash on hand and in banks
Cash on hand - 4,370 4,3550 19,031
- 4,370 19,981
20,674 3,095 63,985 83,016
53,298 165,702 185,683
Cash in banks 99,813 3,095 308,922
57,521 178,834
Investments
Time deposits 5,159,100 3,095 15,967,413
70,310,396 218,595,022
Mutual funds 381 3,095 1,179
366 1,138
Special deposit account 325,568,142 3,095 1,007,633,400
74,299,423 230,996,906
Accounts receivable
Common 101,771,866 3,095 314,983,925
124,558,233 387,251,549
Affiliated companies 855,982 3,095 2,649,265
- -
Other receivables
Expenses recoverable 1,018,648 3,095 3,152,715
618,626 1,923,308
Miscellaneous 2,415,481 3,095 7,475,915
3,047,972 9,476,145
Affiliated companies 3,880,869 3,095 12,011,291
735,516 2,286,719
Inventories
Advances to suppliers 86,601 - 3,095 268,030
184,212 - 572,715
Total current assets 440,877,557 4,370 1,364,535,071
273,865,563 4,370 851,468,019
NON CURRENT ASSETS
Other receivables
Miscellaneous 4,343,020 3,095 13,441,647
4,601,062 - 14,304,701
Total non current assets 4,343,020 13,441,647
4,601,062 - 14,304,701
Total assets 445,220,577 4,370 1,377,976,718
278,466,625 4,370 865,772,720
US$ = US dollar
Amount in
Amount in
Type and amount Exchange Argentine currencyas Type and amount
Argentine currencyas
offoreign currency Rate of offoreign currency
of
Item as of 09/30/2008 09/30/2008 as of 12/31/2007
12/31/2007
US$ $ US$
LIABILITIES
CURRENT LIABILITIES
Accounts payable
Trade 47,892,100 3,135 150,141,734 50,715,083
159,701,798
Affiliated companies 771,607 3,135 2,418,990 1,646,093
5,183,546
Loans
Unsecured notes payable 309,506,108 3,135 970,301,650 128,818,827
405,650,487
Interest accrued on
bonds and notes payable 24,659,814 3,135 77,308,517 24,081,660
75,833,146
Total current liabilities 382,829,629 1,200,170,891 205,261,663
646,368,977
NON CURRENT LIABILITIES
Accounts payable
Miscellaneous liabilities 5,510,148 3,135 17,274,314 5,510,148
17,351,455
Loans
Bonds 350,000,000 3,135 1,097,250,000 350,000,000
1,102,150,000
Unsecured notes payable 868,270,000 3,135 2,722,026,450 597,780,000
1,882,409,219
Total non current liabilities 1,223,780,148 3,836,550,764 953,290,148
3,001,910,674
Total liabilities 1,606,609,777 5,036,721,655 1,158,551,811
3,648,279,651
US$ = US dollar
EXHIBIT G
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
INFORMATION REQUIRED BY ART. 64, CLAUSE 1b) OF LAW 19550, for the nine-month period beginning January 1, 2008 and
ended September 30, 2008, comparative with the same period of the prior year (in pesos)
Items Productioncosts Administrativeexpens Total 2008 Total 2007
es
(9 months) (9 months)
Fees and compensation for 15,303,306 18,637,992 33,941,298
30,678,937
services
Salaries, wages and benefits 165,920,669 28,192,480 194,113,149
147,588,869
topersonnel
Defined benefit plans to 4,721,506 2,792,119 7,513,625
6,826,255
personnel(Note 3 2 j)
Social security contributions 19,882,385 6,258,050 26,140,435
17,635,338
Taxes, assessments and other 891,969,609 128,218,303 1,020,187,912
661,328,888
contributions
Depreciation of property, 608,321,147 5,497,334 613,818,481
570,488,735
plant and equipment(Exhibit A)
Intangible asset amortization 26,095 - 26,095
1,483,656
(Exhibit B)
Transportation, freight and 96,006,068 50,603 96,056,671
83,000,334
storage expenses
Contracted services 400,692,618 4,336,899 405,029,517
283,126,479
Travel and accommodation 10,695,123 3,339,527 14,034,650
10,286,988
expenses
Building rentals and 33,642,331 9,209,807 42,852,138
23,277,364
maintenance
Environmental remediation and 35,294,854 - 35,294,854
33,106,092
rights of way
Bed debtors - - -
13,175,687
Lawsuits (Exhibit D) 2,524,310 334,673 2,858,983
2,091,351
Obsolescence of materials - - -
175,391
Production, exploration and 25,057,052 1,324,082 26,381,134
146,376,150
administrativegeneral expenses
Total 2008 (9 months) 2,310,057,073 208,191,869 2,518,248,942
Total 2007 (9 months) 1,823,889,668 206,756,846
2,030,646,514
EXHIBIT H
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
Balance sheet as of September 30, 2008 and December 31, 2007
TERMS, INTEREST RATES AND ADJUSTMENT CLAUSES OF SHORT-TERM INVESTMENTS, LOANS, RECEIVABLES AND PAYABLES (in pesos)
Investments Receivables
Payables Loans
09/30/2008 12/31/2007 09/30/2008 12/31/2007
09/30/2008 12/31/2007 09/30/2008 12/31/2007
Total amount without any 1,232,374 (1) 1,260,987 123,907,975 (3) 101,806,117
667,470,706 664,952,181 - -
established term
To become due:
Up to 3 months 1,023,601,992 450,344,176 487,629,627 515,078,238
822,942,289 754,732,049 239,310,429 566,991,809
From 3 to 6 months 714,060 - 1,911,969 1,718,540
619,014 174,757,551 563,517,021 123,035,173
From 6 to 9 months - 670,023 1,802,878 1,674,756
225,264,686 615,436 269,296,500 55,280,695
From 9 to 12 months 714,059 79,278 2,243,723 1,610,016
10,748,513 30,986,936 52,683,675 -
From 1 to 2 years 1,428,119 1,340,047 5,921,476 5,651,924
238,690 229,339 884,308,260 655,218,728
From 2 to 3 years - 1,340,046 4,974,979 3,793,343
- - 1,171,687,440 293,083,728
From 3 to 4 years - - 2,330,944 1,574,957
- - 753,685,350 686,708,728
From 4 to 5 years - - 1,493,151 848,516
- - 322,622,850 686,708,728
From 5 to 6 years - - 1,359,007 382,649
- - 291,272,850 222,237,526
From 6 to 7 years - - - -
- - 200,389,200 189,236,006
From 7 to 8 years - - - -
- - 96,558,000 113,722,986
From 8 to 9 years - - - -
- - 49,533,000 83,398,116
From 9 to 10 years - - - -
- - 49,219,500 36,163,116
From 10 to 11 years - - - -
- - - 18,081,557
Over 11 years 4,676,710 (2) 5,592,766(2) - -
- - - -
Subtotal 1,032,367,314 460,627,323 633,575,729 634,139,056
1,727,283,898 1,626,273,492 4,944,084,075 3,729,866,896
Other items that are not to be - - 29,910,447 15,541,887
- - - -
collected or paid in cash
Total 1,032,367,314 460,627,323 663,486,176 649,680,943
1,727,283,898 1,626,273,492 4,944,084,075 3,729,866,896
(1) It includes $ 1,230,374 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.
PAN AMERICAN ENERGY LLC (SUCURSAL ARGENTINA)
Balance sheet as of September 30, 2008 and December 31, 2007 (cont.)
TERMS, INTEREST RATES AND ADJUSTMENT CLAUSES OF SHORT-TERM INVESTMENTS, LOANS, RECEIVABLES AND PAYABLES (in pesos)
Investments Receivables
Payables Loans
09/30/2008 12/31/2007 09/30/2008
12/31/2007 09/30/2008 12/31/2007 09/30/2008 12/31/2007
Pesos Pesos Rate Pesos Rate Pesos Rate Pesos
Rate Pesos Rate Pesos Rate Pesos Rate Pesos
Annual fixed rate in US$ 314,900,000 - - - - -
- - - - - - 7.125 313,500,000 7.125
314,900,000
Annual fixed rate in US$ 1,887,731 - - - - -
- - - - - - - - 5.45 1,887,731
Annual fixed rate in US$ 64,199 - - - - -
- - - - - - - - 6.18 64,199
Annual fixed rate in US$ 279,914,610 - - - - -
- - - - - - 7.56 243,840,300 7.56
279,914,610
Annual fixed rate in US$ 354,262,500 - - - - -
- - - - - - 6.97 282,150,000 6.97
354,262,500
Annual fixed rate in US$ 47,235,000 - - - - -
- - - - - - 5.66 (2) 47,025,000 5.66 (2)
47,235,000
Annual fixed rate in US$ 31,490,000 - - - - -
- - - - - - 8.00 31,350,000 8.00
31,490,000
Annual fixed rate in US$ 787,250,000 - - - - -
- - - - - - 7.75 783,750,000 7.75
787,250,000
CER plus annual fixed rate in - 2,856,238 4,00 4,180,504 - -
- - - - - - - - - -
$
Average annual variable rate 263,824,044 - - - 8.00 23,469,449
8.00 15,196,646 - - - - 11.44 77,197,458 9.83
263,824,044
in $
Annual fixed rate in US$ - - - - 8.50 1,312,264
8.50 1,654,064 - - - - - - - -
Average annual variable rate 1,267,752,666 - - - - -
- - - - - - 4.77 2,351,237,800 7.14
1,267,752,666
in US$
Average annual fixed rate in 305,453,000 - - - - -
- - - - - - 5.67 736,725,000 5.76
305,453,000
US$
Average annual variable rate - 1,023,601,992 4.62 449,593,066 - -
4.50 14,286 - - - - - - - -
in US$
Annual fixed rate in $ plus - 4,676,710 5.83 5,592,766 - -
- - - - - - - - -
CER
Non-interest bearing - 1,232,374 1,260,987 - 638,704,463
632,815,947 1,727,283,898 1,626,273,492 - - -
Total 3,654,033,750 (1) 1,032,367,314 460,627,323 663,486,176
649,680,943 1,727,283,898 1,626,273,492 4,866,775,558 (1)
3,654,033,750 (1)
(1) It only includes principal at face value.
(2) Plus additional interest calculated in relation to the economic performance of Pan American Energy LLC.
EXHIBIT I
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
Balance sheet as of September 30, 2008 and December 31, 2007
PARTICIPATION IN JOINT VENTURES (in pesos)
EstanciaLa Escondida AguadaPichana SanRoque
Acambuco EstanciaLa Escondida Bandurria Costa AfueraArgentina Bloque 40 (a)
Costa AfueraArgentina Bloque 46 (a)
25.00% 62.50% 18.18% 18.18%
16.47 % 16.47 % 52.00 % 52.00 % 25.00% 25.00% 25.00%
25.00% 25.00% 25.00% 25.00%
Balance sheet 09/30/2008 12/31/2007 09/30/2008 12/31/2007
09/30/2008 12/31/2007 09/30/2008 12/31/2007 09/30/2008 12/31/2007
12/31/2007 12/31/2007 12/31/2007 12/31/2007 12/31/2007
ASSETS
CURRENT ASSETS
Cash on hand and in banks 14,914 6,737 333,961 162,872
463,010 21,005 312,391 115,536 14,914 28,033 28,033
28,033 28,033 28,033 28,033
Other receivables 279,642 1,022,484 7,627,507 9,917,410
6,006,810 5,035,286 1,154,757 611,434 279,642 1,171,815
1,171,815 1,171,815 1,171,815 1,171,815 1,171,815
Inventories 86,760 6,518,514 11,834,927 9,565,286
7,286,257 9,049,887 6,110,762 2,697,006 86,760 80,115
80,115 80,115 80,115 80,115 80,115
Total current assets 381,316 7,547,735 19,796,395 19,645,568
13,756,077 14,106,178 7,577,910 3,423,976 381,316 1,279,963
1,279,963 1,279,963 1,279,963 1,279,963 1,279,963
NON CURRENT ASSETS
Property, plant and equipment 5,288,034 132,339,618 241,706,627 253,948,755
187,170,157 189,303,216 739,189,602 673,640,204 5,288,034 5,587,925
5,587,925 5,587,925 5,587,925 5,587,925 5,587,925
Intangible assets - - - -
- - - - - 2,628 2,628 2,628
2,628 2,628 2,628
Total non current assets 5,288,034 132,339,618 241,706,627 253,948,755
187,170,157 189,303,216 739,189,602 673,640,204 5,288,034 5,590,553
5,590,553 5,590,553 5,590,553 5,590,553 5,590,553
Total assets 5,669,350 139,887,353 261,503,022 273,594,323
200,926,234 203,409,394 746,767,512 677,064,180 5,669,350 6,870,516
6,870,516 6,870,516 6,870,516 6,870,516 6,870,516
(a) See Note 15 - Subsequent events
EXHIBIT I
(Cont.)
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
Balance sheet as of September 30, 2008 and December 31, 2007
PARTICIPATION IN JOINT VENTURES (in pesos)
Estancia La Escondida Aguada Pichana San Roque
Acambuco Estancia La Escondida Bandurria Costa AfueraArgentina Bloque 40 (a)
Costa AfueraArgentina Bloque 46 (a)
25.00% 62.50% 18.18% 18.18%
16.47 % 16.47 % 52.00 % 52.00 % 25.00% 25.00% 25.00%
25.00% 25.00% 25.00% 25.00%
Balance sheet 09/30/2008 12/31/2007 09/30/2008 12/31/2007
09/30/2008 12/31/2007 09/30/2008 12/31/2007 09/30/2008 12/31/2007
12/31/2007 12/31/2007 12/31/2007 12/31/2007 12/31/2007
LIABILITIES
CURRENT LIABILITIES
Accounts payable 430,484 3,747,969 48,018,359 44,692,923
14,157,491 14,300,600 18,311,530 31,815,503 430,484 1,201,226
1,201,226 1,201,226 1,201,226 1,201,226 1,201,226
Payroll and social security - 754,526 - -
158,437 - 1,311,757 659,944 - - -
- - - -
contributions
Taxes payable - 123,464 479,060 215
- - 209,456 275,367 - 111,921 111,921
111,921 111,921 111,921 111,921
Total current liabilities 430,484 4,625,959 48,497,419 44,693,138
14,315,928 14,300,600 19,832,743 32,750,814 430,484 1,313,147
1,313,147 1,313,147 1,313,147 1,313,147 1,313,147
NON CURRENT LIABILITIES
Accounts payable - 3,261,912 219,132 219,132
876,528 876,528 1,994,480 1,741,273 - - -
- - - -
Provision for environmental 88,946 10,608,086 6,811,775 6,401,074
9,215,852 8,873,866 3,952,129 3,459,737 88,946 83,641
83,641 83,641 83,641 83,641 83,641
remediation
Accruals - 6,147,461 66,328 76,201
184,296 436,293 3,133,069 2,458,378 - - -
- - - -
Total non current liabilities 88,946 20,017,459 7,097,235 6,696,407
10,276,676 10,186,687 9,079,678 7,659,388 88,946 83,641
83,641 83,641 83,641 83,641 83,641
Total liabilities 519,430 24,643,418 55,594,654 51,389,545
24,592,604 24,487,287 28,912,421 40,410,202 519,430 1,396,788
1,396,788 1,396,788 1,396,788 1,396,788 1,396,788
Owner's equity 5,149,920 115,243,935 205,908,368 222,204,778
176,333,630 178,922,107 717,855,091 636,653,978 5,149,920 5,473,728
5,473,728 5,473,728 5,473,728 5,473,728 5,473,728
Total 5,669,350 139,887,353 261,503,022 273,594,323
200,926,234 203,409,394 746,767,512 677,064,180 5,669,350 6,870,516
6,870,516 6,870,516 6,870,516 6,870,516 6,870,516
(a) See Note 15 - Subsequent events
EXHIBIT I
(Cont.)
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
Statement of income for the nine-month period beginning January 1 and ended September 30, 2008, comparative with the
same period of the prior year
PARTICIPATION IN JOINT VENTURES (in pesos)
Estancia La Escondida Aguada Pichana San
Roque Acambuco Estancia La Escondida Bandurria Costa
AfueraArgentina Bloque 40 (a) Costa AfueraArgentina Bloque 46 (a)
25.00% 62.50% 18.18% 18.18%
16.47% 16.47% 52.00% 52.00% 25.00% 25.00% 25.00%
25.00% 25.00% 25.00% 25.00%
2008 2007 2008 2007
2008 2007 2008 2007 2008 2007 2007
2007 2007 2007 2007
(9 months) (9 months) (9 months) (9 months)
(9 months) (9 months) (9 months) (9 months) (9 months) (9 months)
(9 months) (9 months) (9 months) (9 months) (9 months)
STATEMENT OF INCOME
Sales (b) - - - -
- - - - - - - -
- - -
Cost of sales (3,219,761) (41,366,309) (125,115,532) (83,936,463)
(75,049,396) (39,301,925) (135,104,135) (124,520,832) (3,219,761)
(2,372,648) (2,372,648) (2,372, (2,372, (2,372, (2,372,
648)
Gross result (3,219,761) (41,366,309) (125,115,532) (83,936,463)
(75,049,396) (39,301,925) (135,104,135) (124,520,832) (3,219,761)
(2,372,648) (2,372,648) (2,372, (2,372, (2,372, (2,372,
648)
Administrative expenses - - - -
- - - - - - - -
- - -
Operating result (3,219,761) (41,366,309) (125,115,532) (83,936,463)
(75,049,396) (39,301,925) (135,104,135) (124,520,832) (3,219,761)
(2,372,648) (2,372,648) (2,372, (2,372, (2,372, (2,372,
648)
Financial results - net ( 1,682) ( 559,249) ( 104,809) ( 161,136)
( 386,903) ( 310,410) ( 313,176) ( 91,508) ( 1,682) 19,492
19,492 19,492 19,492 19,492 19,492
Other income andexpenses - net - 1,386,142 129,639 6,089,881
88,713 65,142 733,960 177,168 - - -
- - - -
Net results (3,221,443) (40,539,416) (125,090,702) (78,007,718)
(75,347,586) (39,547,193) (134,683,351) (124,435,172) (3,221,443)
(2,353,156) (2,353,156) (2,353, (2,353, (2,353, (2,353,
156)
(a) See Note 15 - Subsequent events
(b) No sales were recorded in the joint ventures because production is directly assigned to each participant.
Translation from the original prepared in Spanish for publication in Argentina
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
FINANCIAL STATEMENTS as of September 30, 2008
REPORTING SUMMARY REQUIRED BY RESOLUTION No. 290/97 OF THE NATIONAL SECURITIES COMMISSION
1. Comment on the Branch's activity
1.1. Operating activities
Pan American Energy LLC (Argentine Branch) is mainly engaged in the exploration, development and production of
hydrocarbons. The Head Office of the Branch is Pan American Energy LLC, which also has various subsidiaries and
affiliates that carry out activities in Argentina and other Mercosur countries. BP and Bridas Corporation hold interests
that account for 60% and 40%, respectively of the Branch's ownership.
During the first nine-month period of 2008, with a daily average production of 228.1 thousand barrels of oil, the
Branch together with subsidiaries of Head Office that develop their activities in the country rank second in the
production of natural gas and oil in Argentina.
1.2. Issuance of bonds
On February 11, 1997, Amoco Argentina Oil Company (Argentine Branch) issued the Second Series of bonds in the amount
of US$ 100,000,000 due in ten years at a rate of 6.75%. The bonds were paid upon maturity on February 1, 2007. Such
issuance was made under a short and medium term bond program in the amount of US$ 200,000,000, authorized by Resolution
No. 10982 issued by the CNV on July 13, 1995.
As a result of the transfer of assets and liabilities referred to in the second paragraph of note 1 to these
financial statements, Amoco Argentina Oil Company (Argentine Branch) transferred the above mentioned bonds to Pan
American Energy LLC (Argentine Branch). Such bonds were guaranteed by BP Company North America Inc. until repayment in
February 2007.
On February 21, 2002, through Resolution No. 14123, the CNV authorized the Global Program for the Issuance of Bonds
of Pan American Energy LLC (Argentine Branch) (the "Global Program") in the total amount of US$ 1,000,000,000 and for a
five-year term.
On October 27, 2004, the Branch issued Bonds Class 3 in the amount of US$ 100,000,000 under the Global Program. The
bonds become due in five years (October 27, 2009) with a 7.125% annual fixed interest rate to be paid on a half-yearly
basis. The price of the issuance was 99.483% of the nominal value. The funds derived from this issuance were allocated
to investments in property, plant and equipment and repayment of loans.
On August 9, 2006, the Branch issued Bonds Class 4 in the amount of US$ 250,000,000 under the Global Program, to be
repaid in two equal installments becoming due on February 9, 2011 and February 9, 2012, with interest accruing at an
annual fixed interest rate of 7.75% to be paid on a half-yearly basis. The price of the issuance was 100.00% of the
nominal value. The funds obtained from this issue were allocated to investments in property, plant and equipment and
repayment of loans.
Bonds Class 3 and Class 4 are guaranteed by Pan American Energy LLC.
1.3. Loan agreements
On July 11, 2005, the Branch obtained from the International Finance Corporation (IFC) a loan in the amount of US$
250,000,000 guaranteed by Pan American Energy LLC and consisting of three tranches:
- "A" in the amount of US$ 100,000,000 with interest accruing at an annual fixed rate of 7.56%, through an interest
rate swap with IFC, amortizable on a six-month installments basis, and becoming due in July 2015,
- "B" in the amount of US$ 135,000,000, at an annual fixed rate of 6.97%, through an interest rate swap with IFC,
amortizable on a six-month installments basis, and becoming due in July 2012, and
- "C" in the amount of US$ 15,000,000, at an annual fixed base rate of 5.66% plus additional interest calculated in
relation to Pan American Energy LLC�s economic performance, becoming due in July 2016.
The first repayment of principal for tranches "A" and "B" was made on January 15, 2007.
The funds obtained were used to partially fund the 2005 investment program in San Jorge Gulf.
On July 13, 2007, the Branch obtained from the International Finance Corporation (IFC) a loan in the amount of US$
550,000,000, consisting of two tranches which accrue interest at a variable rate:
- "A" in the amount of US$ 150,000,000, amortizable on a six-month installments basis and becoming due in April
2018; and
- "B", Sub-tranch "1" in the amount of US$ 158,500,000, amortizable on a six-month installments basis and becoming
due in April 2014, and "B", Sub-tranch "2" in the amount of US$ 241,500,000, amortizable on a six-month installments
basis and becoming due in April 2015.
The loan is guaranteed by Pan American Energy LLC and the funds obtained are being applied to partially fund the
investment program that the Company will undertake in the Cerro Drag�n area, in the San Jorge Gulf basin, located in the
provinces of Santa Cruz and Chubut.
As of December 31, 2007, the amount of US$ 400,000,000 of such loan had been disbursed and in January 2008, the
remaining amount of US$ 150,000,000 was disbursed.
On May 21, 2008, Pan American Energy, Argentine Branch, obtained a loan from an international bank syndicate in the
amount of U$S 200,000,000, the final maturity of which is on May 23, 2011. The loan will be repaid in 3 semiannual
principal installments as from the second year, accruing interest at a variable Libor rate payable every six months.
The bank syndicate was led by Calyon New York Branch, JP Morgan Securities Inc. and ABN AMRO Bank N.V., whereas
Banco Ita� Buen Ayre S.A. acts as the local intermediary bank. Rabobank Nederland New York Branch, Natixis and Export
Development Canada participated as well.
As of September 30, 2008, this loan had been fully disbursed.
The loan is guaranteed by Pan American Energy LLC and the funds obtained must be applied to the payment of property,
plant and equipment and inventories.
The Branch considers that its access to credit lines is appropriate in order to meet its commercial and financial
obligations, even though it presents a negative working capital.
2. Balance sheet items as of September 30, 2008 (in pesos)
Balance Balance Balance
Balance Balance
sheet sheet sheet
sheet sheet
as of as of as of
as of as of
09/30/2008 09/30/2007 09/30/2006
09/30/2005 09/30/2004
Current assets 1,858,657,175 1,255,210,579 1,558,787,365
1,060,737,642 745,780,799
Non current assets 9,070,353,063 6,916,671,378 5,572,249,794
4,647,841,128 3,967,829,320
Total 10,929,010,238 8,171,881,957 7,131,037,159
5,708,578,770 4,713,610,119
Current liabilities 2,184,764,960 1,406,200,947 2,027,190,446
1,303,610,293 1,738,521,186
Non current liabilities 4,509,726,366 3,691,967,755 2,892,836,122
1,822,791,116 1,076,255,148
Subtotal 6,694,491,326 5,098,168,702 4,920,026,568
3,126,401,409 2,814,776,334
Account with Head Office 3,773,279,905 2,612,474,248 1,749,771,584
2,120,938,354 1,459,373,785
Capital allocated to theBranch 221,779,007 221,779,007 221,779,007
221,779,007 200,000,000
Capital adjustment 239,460,000 239,460,000 239,460,000
239,460,000 239,460,000
Total 10,929,010,238 8,171,881,957 7,131,037,159
5,708,578,770 4,713,610,119
3. Income statement items as of September 30, 2008 (in pesos)
Nine-month period Nine-month period Nine-month period
Nine-month period Nine-month period ended
ended ended ended
ended 09/30/2004
09/30/2008 09/30/2007 09/30/2006
09/30/2005
Ordinary operating income 2,081,515,782 1,824,011,431
2,089,205,309 1,365,117,208 1,039,958,469
Financial results ( 239,810,735) ( 277,885,726) (
103,584,008) ( 44,910,282) ( 120,722,551)
Other income and expenses - (1,278,500) (27,897,206)
(36,853,241) (19,698,264) (97,631,702)
net
Income before taxes 1,840,426,547 1,518,228,499
1,948,768,060 1,300,508,662 821,604,216
Income tax current ( 652,729,560) ( 578,842,019) (
727,581,754) ( 491,427,561) ( 358,188,289)
Deferred income tax 29,780,376 50,822,677
45,461,507 31,874,626 122,851,793
Net income 1,217,477,363 990,209,157
1,266,647,813 840,955,727 586,267,720
4. Statistical data
Nine-month Nine-month Nine-month
Nine-month Nine-month
period ended period ended period ended
period ended period ended
09/30/2008 09/30/2007 09/30/2006
09/30/2005 09/30/2004
in cubic meters in cubic meters in cubic meters
in cubic meters in cubic meters
Production of crude oil 4,611,933 4,598,566 4,562,441
4,424,441 4,259,197
Sale of crude oil 4,538,958 4,591,064 4,519,444
4,226,528 4,279,900
in thousand cubic in thousand cubic in thousand cubic
in thousand cubic in thousand cubic
meters meters meters
meters meters
Production of natural gas 4,250,842 3,826,540 3,619,986
3,286,420 3,146,525
Sale of natural gas 4,254,910 3,941,524 3,512,136
3,312,333 3,003,178
Transportation of natural gas 2,756 11,390
221,618 282,390
in tons in tons in tons
in tons in tons
Production of L.P.G. 82,736 53,518 76,160
45,464 50,505
Sale of L.P.G. 64,850 51,823 83,229
32,229 54,231
5. Indexes
Financial statements Financial statements Financial statements
Financial statements Financial statements
as of09/30/2008 as of09/30/2007 as of09/30/2006 as
of09/30/2005 as of09/30/2004
Liquidity 0.85 0.89 0.77
0.81 0.43
Indebtedness 1.58 1.66 2.23
1.21 1.48
Tied -up funds 0.83 0.85 0.78
0.81 0.84
Solvency 0.63 0.60 0.45
0.83 0.67
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 this year and particularly over the last quarter, the world's economy displayed disturbing signs both in the
banking and financial sector and in the so-called real economy. The subprime mortgage crisis reached banks, mainly in
the United States and Europe, thus, giving rise to a public sense of unrest that triggered running on banks and deposit
flight. Governments of different countries were to intervene to mitigate these effects, seeking to inspire confidence
and reinstate credit-granting levels, especially restricted in emerging countries. Such anxiety also extended to the
capital markets all over the world, including the Latin American countries, and Argentina was not an exception. The
emerging countries' shares and governmental bonds evidenced a considerable fall in quoted prices.
Additionally, there are symptoms that the real economy would be hit by the crisis, as the activity levels have
fallen, the employment rate is being adversely affected, there has been a significant decrease in the price of
commodities (including oil, which evidenced a decrease in WTI from the maximum amount of US$ 145.31 per barrel in July
2008 to US$ 60.77 in early November 2008), and also a slowdown in consumption and investment. How deep and long the
crisis would be is a question not yet answered.
During the first nine-month period of 2008, the Branch's oil production increased by 0.3% and natural gas production
rose by 11.1% with respect to the same period of the prior fiscal year. The active investment program successfully
implemented by Pan American Energy in the last years has allowed it to double hydrocarbon production from 1999 to 2007.
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 the first nine-month period of 2008, the GDP grew by 7.6% compared with the same period of the prior fiscal year,
which indicates that a growing trend - initiated 26 quarters ago - continues. It is estimated that the gross domestic
product will increase by 6.7% in 2008.
In the first nine-month period of 2008, the fiscal surplus totaled 31,567 million pesos, thus disclosing a 38.5%
increase compared to the same period of the prior fiscal year. The level of foreign indebtedness as of June 30, 2008
increased with respect to the same date of the prior fiscal year and amounted to US$ 128,685 million. The country's
international reserves amounted US$ 47,121 million as of September 30, 2008, 9,9% higher than those for a year before.
At a sector level, the increased costs in the oil industry is a matter of concern as they exceed the general rise in
prices.
As previously informed, revenues from the exploration and production of oil and gas 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 US$ 60.9 / barrel.
In the case of natural gas, in January 2002, the wellhead price of natural gas was redenominated into pesos and
frozen and, afterwards, export tariffs on exports and quantitative restrictions to them were established. In April 2004,
the Secretary of Energy and the natural gas producers signed an agreement named "regularization of wellhead prices".
This agreement had a term that had expired on December 31, 2006, after which, and at the request of the related
authorities, a new agreement was signed that will be in force until December 31, 2011.
The new agreement, approved in June 2007 by Resolution 599/07 of the Secretary of Energy, compels producers
(including the Branch) to satisfy the domestic demand up to the levels reached in 2006 plus the growth of the
residential market during the validity thereof by setting out new guidelines for price changes.
On September 19, 2008, the Secretary of Energy issued Resolution 1070/2008 by which the wellhead price of gas was
restructured (applicable to the residential segment, CNG and power generation plants) and the residential demand of
natural gas was segmented, supplementing Resolution 599/07. Part of the increase in the price of gas shall be allocated
by gas producers to the fiduciary fund created by Law No. 26020 - aimed at meeting the liquefied petroleum gas (LPG or
Bottled Gas) needs of the poorest sectors and extending the gas networks (Resolutions 1071 and 1080 issued by the
Secretary of Energy).
In terms of export tariffs on gas exports, Resolution No. 127/2008 is still effective. Such resolution established
that export tariffs would be equal to 100% of the highest import price of natural gas imported to Argentina applicable
each time. In the periods where LNG (liquefied natural gas) was imported to the country (June-mid September), such
amount (US$ 15.7 per million BTU on the average) was applied as an import reference price. These amounts were
established by external notes issued by the Customs Authorities. As from mid September, the applicable import price is
the Bolivian gas import price (US$ 9.03/million BTU for September and US$ 10.35/million BTU for the period
October-December).
In the first half of 2008, the various unions gathering workers who perform tasks in the oil fields operated by the
Branch made several claims for salary increases, reclassifications, labor continuity (for UOCRA personnel), enforcement
of the collective bargaining agreements and other labor benefits. Such claims were supported by various action measures
particularly affecting the province of Santa Cruz and, as a result, the Piedra Clavada and Koluel Kaike blocks came to a
complete standstill in May and the drilling, completion and pulling activities were partially interrupted in the
province of Chubut. The Business Chambers reached agreements with the Workers Unions of Neuqu�n, both Private Oil
Workers and Hierarchy Employees. In addition, compensation agreements were signed with the Private Oil Workers Union of
Chubut, the Oil Workers Union of Santa Cruz, the Union of Hierarchy Employees of the Southern Patagonia and the
Argentine Federation of Private Oil and Gas Workers (FASP y GP). At present, the negotiations between employees and
employers' representatives for the execution and/or renewal of collective bargaining agreements with the Workers Unions
of Chubut (oil workers and hierarchy employees) and the Argentine Union Federation of Private Oil and Gas Companies
(FASP y GP) are ongoing.
During the first nine-month period of 2008, the Branch has continued with its investment plans with a view to
expanding its business and contributing to satisfying the growing energy demand. The commitments assumed referred to in
the following paragraphs strengthen these expansion plans.
On December 6, 2006, Law No. 26197, known as "Hydrocarbons Short Law", was passed. This law complied with the
constitutional provision of transferring the original ownership of the natural resources contained in the subsurface
from the Federal State to the producing provinces where oil fields are located.
Within this framework, the Branch entered into with the Argentine provinces of Chubut (04/27/2007) and Santa Cruz
(06/25/2007) two investment commitments and agreements for the extension of the term of the concession for hydrocarbon
exploitation for a ten-year period in the blocks known as Cerro 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 to be made before 2017.
Furthermore, other investments of US$ 1,000,000,000 in the Province of Chubut and US$ 300,000,000 in the Province of
Santa Cruz are to be made before 2027 as a condition for PAE to be granted the operation agreements referred to below.
The agreements also provided for a US$ 80,000,000 investment commitment for off-shore exploration, at the Branch's
own risk, by means of two joint ventures (UTEs) with the state-owned companies Petrominera (in the case of Chubut) and
Fomicruz (in the case of Santa Cruz). The potential exploration success and future business activity imply that, an
additional investment commitment in the amount of US$ 500,000,000 be required for the development of the offshore
fields.
The creation of the UTEs referred to in the preceding paragraph is consistent with the provisions of sections 11 and
95 of the Hydrocarbon Law, which allows state-owned companies to enter into agreements and create companies,
partnerships or other associations with individuals or entities for the development of their activities.
The operation agreements executed with state-owned companies also fall within the scope of the referred legislation,
which will be enforced as from the year 2027, subject to compliance with the investment commitments and Pan American
Energy's exploration success, in developing sufficient reserves to continue with the production of the fields of those
areas as from that year.
Based on these agreements, during the remaining term of the concessions, the Branch agreed to pay to the respective
provinces an additional amount of 3% of the net revenues for certain items described in the agreements. The Branch will
also provide money for the development of infrastructure and the economic diversification of the Provinces of Chubut and
Santa Cruz. A number of grants will be awarded, loans given or guaranteed, job opportunities offered, and supplementary
actions will be performed by the Branch as well. In addition, Pan American Energy LLC agreed to dismiss the claims filed
against the Argentine Government with the International Centre for Settlement of Investment Disputes (ICSID), once the
agreements referred to in the previous paragraphs are finally approved. On June 18, 2008, the Company filed such
dismissal with the ICSID. On June 18, 2008, the Company filed such dismissal with the ICSID. On August 20, 2008, the
Arbitration tribunal placed on record the termination of the proceedings.
The agreement with the province of Chubut was ratified by provincial law No. 5616 passed by the Provincial Congress
on May 24, 2007, enacted by decree No. 500/2007 and published in the Official Bulletin on May 28, 2007.
The agreement with the province of Santa Cruz was ratified by provincial law No. 3009 issued by the Provincial
Congress on March 13, 2008, enacted by decree No. 545/2008 and published in the Official Bulletin on March 27, 2008.
The execution of these agreements proposes a new horizon to sustain the increase in production and reserves
maintained by Pan American Energy in the Golfo San Jorge basin. This new horizon and other regulatory and market
conditions will allow addressing long-term projects requiring sound investments, new technologies and teams working for
the future.
On January 28, 2008, Pan American Energy communicated that, as a result of its permanent exploration activities in
the Cerro 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 Chibut, totaling for one hundred million equivalent oil barrels
(boe).
Buenos Aires, November 7, 2008
Daniel Grinstein
Attorney-in-fact
PAN AMERICAN ENERGY LLC (ARGENTINE BRANCH)
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2008
SUPPLEMENTARY INFORMATION TO THE FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2008 REQUIRED BY SECTION 68 OF THE
REGULATIONS OF THE BUENOS AIRES STOCK EXCHANGE
Overall issues about the Branch's activity:
1.Specific and significant legal requirements which imply contingent suspensions or changes of benefits provided for
by such regulations:
The Branch is not subject to specific and significant legal requirements, which may imply the contingent suspension
or change of benefits provided for by such regulations, except as disclosed in notes to the financial statements.
2.Significant changes in the Branch's activities or other similar circumstances that affect the comparison of the
financial statements with prior years, or with those to be presented in future years.
There are no changes in the Branch's activities that significantly affect the comparison of the financial statements
as of September 30, 2008.
3.Breakdown of receivables and payables as per section 68, subsection 3.
3.a) The breakdown of receivables and payables based on the maturity thereof is disclosed in Exhibit H to the
financial statements.
The following receivables without any established term included in the referred Exhibit H are due:
Current receivables
$
Due from July to September to 2008 20,311,383
Due from April to June 2008 28,906,170
Due from January to March 2008 23,096,150
Due from October to December 2007 8,375,502
Due from October 2006 to September 2007 2,514,130
Due from October 2005 to September 2006 954,554
Due from October 2004 to September 2005 243,407
Due from October 2003 to September 2004 350,750
Due from October 2002 to September 2003 98,676
Due from October 2001 to September 2002 194,750
Due from October 2000 to September 2001 185,293
Total 85,230,765
There are no overdue payables.
3.b) In connection with the receivables and payables in foreign currency, see Exhibit F to the financial statements.
There are no significant receivables and payables represented by securities.
3.c) There are no receivables and payables subject to adjustment clauses.
3.d) In connection with the receivables and payables that accrue interest as of September 30, 2008, see Exhibit H to
the financial statements.
4.Corporations Art. 33 Law 19550
None.
5.Receivables or loans with directors, statutory auditors, and relatives including up to the second degree:
None as of the date of issuance of these financial statements.
6.Physical counts of inventories
Based on the nature of the activity, the Branch carries out physical counts of most of its inventories. There are no
significant slow-moving inventories as of September 30, 2008 for which an allowance has not been set up.
7.Current values
The valuation method of inventories is disclosed in Note 3.2.d) to the financial statements.
8.Property, plant and equipment
No items of property, plant and equipment have been subject to appraisal.
To date, there are no property, plant and equipment items that are not in use due to obsolescence.
9.Interests in other companies
None. The Branch's participating interests in joint operations and other entities are disclosed in Note 2 to the
financial statements.
10.Recoverable value
The recoverable value of inventories and fixed assets, used as a limit to their valuation for financial reporting
purposes, have been determined based on the net realizable values and values in use, the latter defined as the expected
net cash flows that would result from both the use of the assets and the disposal thereof at the end of their useful
life.
11.Insurance
As of September 30, 2008, the insurance taken on the Branch's assets are as follows:
Covered
Insured assets Insured risks amount
Thousand US$
Equipment, facilities and pipelines
applied to exploitation and transportation Physical damage 2,263,658
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 3 2 g, 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 September 30, 2008.
None.
Irrevocable advances for future subscriptions
14. As of September 30, 2008 there are no irrevocable advances for future subscriptions.
15. There are no preferred shares as of September 30, 2008.
16. As of September 30, 2008 the Branch has no restrictions on the distributions of earnings, except as indicated in
Note 10.
Buenos Aires, November 7, 2008
Daniel Grinstein
Attorney-in-fact
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