Tecpetrol International S.A. Annual Report period ended at · Annual Report and Consolidated...

Tecpetrol International S.A. Annual Report and Consolidated Financial Statements for the nine-month period ended at December 31, 2011

AnnuAl RepoRt

BoARd MeMBeRs

Independents AudItoR’s RepoRt

ConsolIdAted FInAnCIAl stAteMents FoR the nIne-Month peRIod ended deCeMBeR 31, 2011Consolidated Income Statement Consolidated Statement of Comprehensive IncomeConsolidated Statement of Financial PositionConsolidated Statement of Changes in EquityConsolidated Statement of Cash FlowsNotes to the Consolidated Financial Statements

CoMpleMentARy InFoRMAtIon

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Contents

Annual Report and Consolidated Financial Statements / Tecpetrol International S.A. 3

Annual Report

4

5Annual Report and Consolidated Financial Statements / Tecpetrol International S.A.

Annual Report

the CoMpAnyTECPETROL INTERNATIONAL S.A. (“the Company”), domiciled in Uruguay, is an investment company for the energy business that belongs to the Techint Group, which owns shares in hydrocarbons production, transport and distribution compa-nies in Argentina, Bolivia, Ecuador, Mexico, Peru, Venezuela, Colombia and the United States of America. The Company is controlled by San Faustin S.A., through its subsidiaries.The Company, through its subsidiaries, develops, operates and invests in busi-nesses in the energy market, carrying out the exploration and production of oil and gas (E&P) and the transport and distribution of gas (G&P).In just over twenty years, it has consolidated its position as an inves-tor in the Latin American energy sector and positionated itself as an interna-tionally qualified operator, strengthen-ing its relationship with key interna-tional partners.

InteRnAtIonAl ConteXtDuring 2011, the world economic sce-nario continued to show evidence of two-speed growth. On the one hand, the developed economies found it hard to return to a path of expansion following the last international finan-cial crisis. On the other, although the emerging economies initially revealed themselves to be far more dynamic, they began to show signs of fatigue in the second half of the year and they are expected to achieve lower global demand levels during 2012. In particular, the United States is under great economy pressure and has re-corded the lowest recovery levels since the Second World War. Job creation has failed to impact significantly on

unemployment rates, and although the economy has managed to avoid falling again into a recession, the outlook is not encouraging. In Europe, the economic situation showed a marked deterioration over 2011. The economy of some countries has presented increasingly problems to repay its national debts despite sup-port from the European Union, the International Monetary Fund (“IMF”) and the European Central Bank. In Latin America, the general pattern is the slowdown of the economy and these countries prepares themselves to handle an international context which is distinctly less favorable in the wake of the increasing problems beset-ting developed nations. The IMF esti-mates over the world trade shows that this downturn will continue during 2012. During the first half of 2011, the dollar continued to fall against most of the other currencies, but managed to buck this trend in the second half of the year. As regards the demand for oil, during 2011 there was a general increase in demand from emerging economies less affected by the crisis, with China and the rest of Asia in the lead, coun-tered by a marked downturn in the developed economies of which the United States and the European Union were the hardest hit. The International Energy Agency (IEA) reported that the slight increase in oil demand during 2011 answered to a minor upturn in economic growth and high fuel prices. In line with the situation described above, the benchmark West Texas Intermediate (WTI) has showed a slight decline since the close of the previous financial period, reaching an average of value of 99 and 103 United States dollars (“US$ ”) per barrel as of December 31 and March 31, 2011, respectively.


For 2012, the Organization of Petroleum Exporting Countries (OPEC) estimates that world oil demand will grow at a slower pace, given the fragility of the world economy and the greater decline in consumption rates in Europe. The IEA estimates that world demand for this commodity in 2012 will be less than predicted as the eco-nomic downturn and high prices will limit consumption.

eConoMIC Results And FInAnCIAl sItuAtIon These Consolidated Financial Statements corresponds to a nine-month period beginning on April 1,

The result for the period ended December 31, 2011 showed net profits of US$217.3 million, which represented

2011 and closing on December 31, 2011; as a consequence, the comparison of the information included in these Consolidated Financial Statements as of December 31, 2011, with the ac-counting information for the annual period ending on March 31, 2011 may be affected. The main ratios and finan-cial indicators of the Company are dis-closed below. The analysis is based on, and must be read in conjunction with, the audited Consolidated Financial Statements as of December 31, 2011, which were prepared according to the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

a 21% over net sales, in comparison with a 16% in the previous year. The main financial indicators are as follows:

In US$ mIllIonS

Net salesGross profitOperating resultsResult for the periodCash flows provided by operating activitiesIncreases in Property, plant and equipment, net

At December 31, 2011 (9 months)

1,034.9

380.0

300.1

217.3

345.5

238.9

At march 31, 2011 (12 months)

820.1

286.6

178.1

129.4

257.3

216.1

8

huMAn ResouRCesThe Company has since the beginning maintained that one of its priorities for consolidating growth is training human resources to ensure they are qualified and committed, with a broad range of experience across the differ-ent businesses it operates. The sig-nificant investment made in training which sets the Company and its sub-sidiaries apart is a clear sign of com-mitment in this area. At December 31, 2011, the Company employs a work force of 994 people located at its different subsidiaries, of which 71 corresponds to board and management staff. Employees have participated in train-ing activities throughout the current period, both in prestigious universities and as part of in-company activities, giving them the opportunity to take specific technical courses and to attend events held in different countries.

CoMMunIty RelAtIons, enVIRonMent And sAFety

social developmentThrough its operating subsidiaries, the Company works closely with the communities neighboring its opera-tions, contributing to the develop-ment of each community and its insti-tutions. With this purpose, it carries

out and supports social development programs in low-income rural and ur-ban areas, communities and schools in the vicinity of its fields, committing its personnel and the local population to the development of its social programs. The Community Action Plan mainly includes a number of nutrition, education, health, sustain-able development, culture and work training programs.

environmental safety and protectionThe Company and its subsidiaries pursue the priority objective of man-aging their operations to ensure that the physical integrity of the personnel involved as well as third parties is adequately protected, in addition to safeguarding the environment. Health, Safety and Environmental protection (“HSE”) concepts have been integrated within this objective as core management values.

environmentThe Company’s operating subsidiar-ies are currently running a number of different programs to safeguard the environment, such as environmental impact studies, monitoring and contin-gency plans, which analyze the poten-tial impact a new project may have in order to plan the avoidance or minimi-zation of damage to the environment.

LiquiditySolvencyNon-current assets over total assetsNet profit margin

At December 31, 2011

1.64

1.74

0.69

20%

At march 31, 2011

1.62

1.47

0.69

14%


Other environmental programs are also being carried out, such as the appropri-ate disposal of production waters, rein-jecting 100% of these effluents in order to eliminate the risks of contaminat-ing ground and subterranean waters; the acquisition of low-impact seismic equipment; the prevention of oil spills and leaks; erosion control and others.Another key objective is the develop-ment and implementation of new sys-tems and technologies aimed at pre-venting and reducing the impact on the environment. The Argentine subsidiary Tecpetrol S.A. was the first oil company in its country to set up a new technolo-gy for treating oil-contaminated mud in the area of El Tordillo, solving a historic problem that all operating companies working in Argentine Patagonia have had due to climatic conditions. Efforts to protect the environment have been complemented by activities centered on revegetation and refor-estation with native species in the operations carried in Argentina, Peru, Ecuador and Colombia. Furthermore, the management of solid and liquid waste was improved, par-ticularly in the areas of El Tordillo, Los Bastos and Agua Salada in Argentina. Additionally, also in Argentina, the bio-remediation of the soil in El Tordillo and Agua Salada was launched, while works to control erosion continued in Argentina, Peru and Ecuador.In May 2011, Bureau Veritas, the inde-pendent certification organism, held an external audit of the environmen-tal management system at Bermejo (Ecuador), maintaining the ISO 14001 certification, on the basis of which the environmental license was awarded to build the rail, set up the rig and drill the Bermejo Este X-1 well. In Colombia, the processes to obtain the environmental licenses for the

exploratory drilling projects planned in the different blocks (CPO-6, CPO-7A, CPO-7B and CPO-13) were launched, and the licenses for the first three were obtained.In November 2011, the Peruvian Mining, Oil and Energy Society (Sociedad Nacional de Minería Petróleo y Energía de Perú - SNMPE) awarded the prizes for “Sustainable Development 2011” in recognition of the best practices developed in social and environmental fields by companies from the mining and energy sectors. The associate company Transportadora de gas del Peru S.A. (“TgP”) was awarded a prize for its project “Clean from start to finish: compost in the TgP pipeline transport system”. The project is about the treatment of solid organic waste generated during coastline, mountain and rainforest operations in order to create significant environ-mental, economic and social benefits. This process means that 100% of the waste can be reused to produce com-post for the benefit of the communi-ties, as it can be employed to improve soil for revegetation, gardening and crop-growing.

safetyThe key elements for the implementa-tion of a safety policy are leadership and commitment, integrated safety, audits, prevention programs, accident and incident investigation, risk ad-ministration, improvement plans and safety initiatives as well as the ability to manage change.Results obtained are monitored by comparing the safety ratios against the objectives set. The main focus was on managing the effective application of the key elements through a program called HSE Control Panel (STOP, audits, incident reports).

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The afore-mentioned Bureau Veritas report underlined the continuing effec-tiveness of actions taken in the areas of health, safety and the environment, and allowed Tecpecuador to maintain the ISO 14001 certification initially obtained in April 2005 for a further three-year period.

hydRoCARBons ReseRVes (e&p)Reserves mean the volumes of oil and gas (in oil-equivalent cubic me-ters) which generate or are associated with revenue in the areas where each company operates or has a direct or indirect share, and which the Company has the right to exploit. This includes hydrocarbons volumes related to the service contracts in which the compa-nies do not have ownership either of the reserves or of the hydrocarbons extracted and the volumes expected to be produced for the contracting party under the works contracts. Reserve calculation is a subjective process which attempts to estimate the underground accumulation of crude oil and natural gas which in-volves a certain degree of uncertainty. Proved reserves of hydrocarbons (developed and undeveloped) estimated as of December 31, 2011, are as follows:

Oil millions of cubic meters 13

Gas billions of cubic meters 34

The aforementioned reserves include proved reserves which may be ex-tracted and from which royalties have not been deducted. They have been prepared by the Company’s technical

personnel based on the technological and economic conditions prevailing on June 30, 2011, taking into account the economic evaluation within the terms of the respective contracts or concession.


tRAnspoRt GAs CApACIty (G&p)The transport capacity of the subsid-iary companies is given below:

outlooK And pRoJeCtsThe Company continues to analyze new business options in those coun-tries where currently operates, as well as other countries, that allows it to ful-fill its growth and consolidation strate-gy. The goal continues to be growth for both the E&P and the G&P businesses.

ArgentinaIn the area of El Tordillo, Tecpetrol will continue with the drilling activities, including primary and secondary work-overs, working with several workover rigs. It will continue with the tertiary recovery project using polymer injec-tions. At the production facilities, the main investments concern the drive to fight corrosion which includes the re-coating of pipelines, and the purchase and upgrade of pumping equipment and environmental tasks.

GAS (in Mm3/day)

Transportadora de Gas del Norte S.A. (Argentina)

Litoral Gas S.A. (Argentina)

Transportadora de gas del Perú S.A. (Peru)

Transportadora de Gas del Mercosur S.A. (Argentina)

Utilization percentage

97.4%

95.6%

83.0%

-

Daily transport

53,005

7,587

12,509

-

Total daily transport capacity

54,400

7,936

15,007

2,800

In the Neuquina basin, Tecpetrol will continue with the drilling activities, in-cluding the exploratory wells foreseen in the Gas Plus program. Furthermore, the construction of infrastructure works in Los Bastos and Agua Salada is planned, including pipelines and storage tanks in order to expand hy-drocarbons transport and processing capacities.In Río Atuel, the exploratory work cur-rently under way will continue, includ-ing the drilling of wells according to the commitments undertaken with the province of Mendoza. Negotiations are expected to continue with the provinces with a view to ex-tending the areas of El Tordillo and Aguaragüe. Regarding the commercialization of hy-drocarbons in Argentina, it is estimated that sales will continue to be made as in previous years.

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peruFollowing the award in November 2010 of Bloque 174, in the Ucayali Basin, the field exploration and exploitation contract was signed on September 23, 2011. This stipulates that if the sub-sidiary Tecpetrol Lote 174 SAC finds commercial reserves, it has the right of ownership over the hydrocarbons ex-tracted while Perupetro S.A. will ensure the contractual obligations are met. Bloque 174 covers a surface area of some 264,000 hectares and has a very encouraging outlook as regards the discovery of hydrocarbons. Tecpetrol Lote 174 SAC has been granted a 7-year period for the exploration phase, 30 years for exploitation if oil is found, and 40 years if the find is of natural gas and associated liquids. The commitment undertaken for the first few years includes the reprocessing of existing seismic information on the field and the registration of 150 km of 2D seismic surveys, or exploratory tasks for a given number of explora-tion work units. Although the contract presents a num-ber of logistical, community-related, environmental and geological chal-lenges in the middle of the Peruvian Amazonian jungle, it also offers a wealth of opportunities to continue ex-panding the Company’s presence and experience in this country. The Camisea operations are also expected to continue in Bloque 88 (San Martín and Cashiriari), and in Bloque 56 (Pagoreni and Mipaya), which have been supplying 100% of the requirements of Perú LNG S.R.L. (PLNG), reaching 620 MMcf/d (million cubic feet per day) since June 2010, when the company began commercial operations. Furthermore, on April 18, 2011, an ad-dendum to the natural gas transport

concession contract was signed by the Ministerio de Energía y Minas de Perú (Peruvian Ministry of Energy and Mining) and the associated company TgP, regulating TgP’s commitment to a phased expansion of the gas carriage system with a target of 920 MMcf/d, taking into account the new objectives set by the expansion project. Towards the end of July 2011, the en-vironmental impact study presented by TgP was approved, a requirement enabling it to progress with the expan-sion of the natural gas (NG) and lique-fied natural gas (LNG) carriage system in the “Selva-Loop Sur” section. This expansion involves the installation of two new 55 km-long gas and liq-uids pipelines to be connected to the current pipeline network in order to increase its NG transport capacity to 1,540 MMcf/d and its LNG transport ca-pacity to 120,000 bpd. In addition, the Loop-Sur project includes the construc-tion of a LNG pumping station as well as the auxiliary systems and equip-ment required for this kind of facility. This expansion, for which an invest-ment of some US$600 million has been earmarked, will allow new gas demands to be met, in particular with regard to the needs for the greater generation of energy in power stations.

MexicoDuring 2011, the investments planned were made in a drilling rig for the Bloque Misión contract. The strategy envisaged seeks to establish a balance between the development of existing fields and the search for new reserves in the form of exploratory projects, which strengthen the possibility for future developments in the block. Additionally, the drilling campaign with one rig, and the building of facili-ties are expected to continue in the


fields of Santa Anita, Cali and Trapiche throughout 2012, as well as the con-struction of new installations on the basis of the results achieved by the exploratory wells. As regards production, increases in excess of 250% of gas and of 900% of liquids have been achieved since the outset of the contract. At business level, from 2004 to 2011, over US$580 million have been invested, which rep-resents approximately 400% over the minimum amounts committed for the first eight years. Under the aegis of the contract of the technological development laboratory in the Coyotes field (Mexico), signed between the subsidiary Burgos Oil Services S.A. de C.V. (“BOS”) and PEMEX Exploración y Producción (“PEP”), BOS finalized and presented PEP with the first stage of the geo-sciences and production studies as well as the exploitation plan which will serve as a basis for the future development of the Coyotes field. Furthermore, several well workovers were carried out and the idea is to continue with these for the remainder of 2012. At the end of the contractual period in December 2012, the labora-tory contract is expected to be updated to envisage a longer period. Additionally, during 2011, the first mul-tifractured horizontal well was success-fully drilled and completed, a major achievement from both the technical and operational points of view, as this is the first such project in the Coyotes field. The engineering objective here was to access a greater part of the reservoir, reaching more than one formation and improving the invest-ment-production ratio. The technique introduced by BOS for this horizontal multifractured drilling project is widely used in the U.S. to develop shale gas

wells and extract gas from clay soils. In this case, a similar system was used to produce oil. Currently the option of continuing with a series of other hori-zontal well drilling projects is being analyzed. One of the key objectives, which involves the generation of value for PEP, can be reached by introducing better operating practices. The success-ful drilling and completion of these wells will demonstrate the consolida-tion of this process.

united statesFollowing the acquisition of Tecpetrol Corporation in March 2010, work continued during 2011 to consolidate operations in the United States. In this context, Tecpetrol Corporation has continued with the process to op-timize operations and new stakes have been acquired in some of the fields in the Ann Mag area, as well as explo-ration and eventual exploitation rights in other fields.

ColombiaThe Ministerio de Ambiente, Vivienda y Desarrollo Territorial (Environment, Housing and Development Ministry) awarded Tecpetrol Colombia S.A.S. the environmental licenses for the exploratory blocks CPO-6, CPO-7A and 7B, authorizing drilling to commence in these locations. Exploratory drilling has started in areas of over 164 and 180 thousand hectares (CPO-6 and CPO-7A, respectively) to be extended during 2012, in order to meet the contractual commitments made for Phase 1. Approval is still awaited for the license pending which corresponds to Bloque CPO-13 and which will complete the drilling campaign. Furthermore, at Bloque CPO-13, an agreement was reached to begin seismic surveys with-in the Resguardo El Tigre field, which

16

began in December 2011. This means that an additional 200 km will be added to the over 2,000 km of seismic sur-veys recorded in 2010 in an area of great exploratory interest.

ecuadorIn February 2011, the amendment con-tract between the State of Ecuador, represented by the Secretaría de Hidrocarburos (Hydrocarbons Secretariat), and the subsidiary compa-ny Tecpecuador S.A. was signed, thus adopting a model for the provision of integrated services for the explora-tion and exploitation of hydrocarbons, according to the first temporary dispo-sition given in the Law amending the Law of Hydrocarbons and the Internal Tax Regime Law. The contract is appli-cable until July 30, 2019.This renegotiation also stipulates the pre-cretaceous basin exploration. This is a high-risk objective, as there are no records of the existence of oil systems at these levels. On January 31, 2012 two contracts were signed with the Ecuadorian state oil company EP PETROECUADOR to provide specific services including financing from Tecpetrol in order to carry out activities aimed at optimizing production and improving recovery and exploration, as well as providing advice for the optimization of variable operating costs. These contracts cover the fields Libertador-Atacapi and Shushufindi-Aguarico, where Tecpetrol will be the operator in the former. The agreements have a duration of 15 years, and include investments planned in the region of US$1,300 million for Sushsufindi and US$385 million for Libertador. As a result of these awards and the current Bermejo contract, Tecpetrol will be involved through the provision of

its services in some 15% of the total output of hydrocarbons in Ecuador.

BoliviaDuring 2011, gas reserves were found in the Huamapampa formation in the Bloque Aquío where the subsidiary Tecpetrol de Bolivia S.A. holds a 20% stake. There is still major exploratory potential in deeper reservoirs (Icla and Santa Rosa formations) which remains to be researched by the subsidiary and its partners. As from 2015 the flow is expected to reach 6.5 MMm3 per day.

The Board thanks the Company´s personnel for their dedication and achievements during this period.


Board Members

pResIdentCarlos Arturo Ormachea

VICepResIdentEnrico Fabián Repetto Mariño

dIReCtoRJorge Emilio Perazzo Puppo

dIReCtoRCarlos Manuel Franck

dIReCtoRCatalina Alicia Ilicic Sincovich


Independent Auditor’s Report

To the Shareholders, Board of Directors and Managementof Tecpetrol International S.A.

We have audited the accompanying consolidated financial statements of Tecpetrol International S.A. which comprise the consolidated statement of financial position as of December 31, 2011, and the related consolidated statements of income, comprehensive in-come, changes in equity and cash flows for the period then ended, and a summary of signifi-cant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the International Standards on Auditing. These Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control to be relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the accompanying consolidated financial statements present fairly, in all material aspects, the consolidated financial position of Tecpetrol International S.A. as of December 31, 2011, and of their fi-nancial performance and cash flows for the period then ended in accordance with International Financial Reporting Standards.

Montevideo, Uruguay, March 23, 2012

Consolidated Financial Statements for the nine-month period ended at December 31, 2011

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Contents

Consolidated Income statementConsolidated statement of Comprehensive IncomeConsolidated statement of Financial positionConsolidated statement of Changes in equityConsolidated statement of Cash Flows

notes to the Consolidated Financial statements 1. General information2. summary of significant accounting policies2.1 Basis of preparation2.2 Consolidation2.3 Foreign currency translation 2.4 Property, plant and equipment. Exploration, evaluation and development assets2.5 Intangible assets2.6 Inventories2.7 Trade and other receivables2.8 Cash and cash equivalents2.9 Equity2.10 Borrowings2.11 Income tax2.12 Employee benefits2.13 Employee’s statutory profit sharing2.14 Provisions2.15 Trade and other payables2.16 Revenue recognition2.17 Cost of sales2.18 Financial Instruments2.19 Derivative financial instruments and hedging activities3. new accounting standards4. Financial risk management4.1 Financial risk factors4.2 Financial instruments by category4.3 Fair value estimation5. Critical accounting estimates and judgments6. operating costs 7. selling expenses 8. Administrative expenses9. labor costs10. other operating items11. Financial results 12. Income tax 13. property, plant and equipment. exploration, evaluation and development assets

26

14. Intangible assets15. Investments in associated companies16. Impairment of long-term assets. property, plant and equipment 17. Available-for-sale financial assets18. Inventories19. other receivables and prepayments20. trade receivables21. Cash and cash equivalents22. dividends per share23. Borrowings24. employee benefits25. provisions26. trade and other payables27. deferred income tax28. derivative financial instruments29. Contingencies30. situation of associated companies transportadora de Gas del norte s.A. and transportadora de Gas del Mercosur s.A.31. principal guarantees, commitments and restrictions32. Related party balances and transactions33. principal subsidiaries and jointly-controlled entities34. dividends35. subsequent events


Continuing operationsNet sales Operating costsGross profit

Selling expensesAdministrative expensesExploration costsOther operating incomeOther operating expensesoperating results

Interest incomeInterest expenseOther financial results, netIncome before equity in earnings of associated companies and income tax

Equity in earnings of associated companiesIncome before income tax

Income taxResult for the period

Attributable to:Equity holders of the CompanyNon-controlling interests

December 31,

2011

(9 months) (*)

1,034,912,579

(654,891,736)

380,020,843

(13,516,301)

(60,558,947)

(3,023,917)

5,797,656

(8,607,389)

300,111,945

4,990,974

(12,733,239)

(6,242,604)

286,127,076

20,608,276

306,735,352

(89,449,740)

217,285,612

217,525,673

(240,061)

notes

6

7

8

10

10

11

11

11

15

12

march 31,

2011

(12 months) (*)

820,132,384

(533,511,615)

286,620,769

(9,359,293)

(61,427,709)

(27,615,743)

241,666

(10,299,636)

178,160,054

6,800,420

(11,505,800)

(399,287)

173,055,387

20,322,013

193,377,400

(63,942,285)

129,435,115

129,877,528

(442,413)

(Amounts in United States dollars, unless otherwise stated)

(*) See Note 1.

The accompanying notes 1 to 35 are an integral part of these Consolidated Financial Statements.

Consolidated Income Statement

28

Result for the year

other comprehensive income:Currency translation differencesChanges in the fair value of available-for-sale financial assets Income tax relative to components of other comprehensive income (**)Share of other comprehensive income of associates:Changes in fair value of derivatives held for hedging purposesother comprehensive income, net of taxTotal comprehensive income for the period

Attributable to:Equity holders of the CompanyNon-controlling interests

December 31,

2011

(9 months) (*)

217,285,612

(12,575,189)

(279,087)

25,185

31,861

(12,797,230)

204,488,382

204,666,820

(178,438)

204,488,382

notes

17

15

march 31,

2011,

(12 months) (*)

129,435,115

(13,445,050)

1,345,761

1,740

(49,562)

(12,147,111)

117,288,004

117,773,010

(485,006)

117,288,004


(*) See Note 1.

(**) Corresponds to changes in the fair value of available-for-sale financial assets.


Consolidated Statement of Comprehensive Income


ASSETSnon-current assets

Property, plant and equipment. Exploration, evaluation and development assetsIntangible assetsInvestments in associated companiesAvailable-for-sale financial assetsDeferred tax assetsOther financial assets at fair value through profit or lossOther receivables and prepaymentsTrade receivables

Total non-current assets

Current assetsInventoriesOther receivables and prepaymentsIncome tax creditTrade receivablesDerivative financial instrumentsCash and cash equivalents

Total current assetsTotal assets

lIABIlITIES AnD EQUITYEquity

Share capitalLegal reserveOther reservesRetained earningsEquity attributable to the Company´s equity holdersNon-controlling interests

Total equity

non-current liabilitiesBorrowingsDeferred tax liabilitiesEmployee benefitsProvisionsTrade and other payables

Total non-current liabilities

Current liabilitiesBorrowings ProvisionsIncome tax liabilitiesTrade and other payables

Total current liabilities Total liabilities Total equity and liabilities

December 31,

2011

905,519,548

12,352,643

145,388,238

62,300,024

17,585,558

10,647,297

51,247,946

44,977,469

1,250,018,723

42,476,126

49,221,496

5,246,818

137,756,007

228,763

324,430,642

559,359,852

1,809,378,575

371,940,304

34,886,194

(77,118,077)

820,050,662

1,149,759,083

(483,738)

1,149,275,345

163,167,269

73,406,755

17,343,745

53,762,551

12,312,394

319,992,714

106,228,536

11,699,288

34,512,860

187,669,832

340,110,516

660,103,230

1,809,378,575

notes

13

14

15

17

27

19

20

18

19

20

28

21

23

27

24

25

26

23

25

26

march 31,

2011

809,610,557

12,352,643

128,022,788

62,748,755

12,982,291

10,082,007

42,021,925

43,914,773

1,121,735,739

22,436,781

55,150,041

712,594

144,462,917

-

292,705,527

515,467,860

1,637,203,599

371,940,304

28,392,317

(64,259,224)

639,018,866

975,092,263

(305,300)

974,786,963

212,416,426

71,081,256

14,991,900

44,983,952

11,176,343

354,649,877

111,026,678

11,070,478

28,021,820

157,647,783

307,766,759

662,416,636

1,637,203,599



Consolidated Statement of Financial Position

30

Balance at march 31, 2010

Profit for the yearCurrency translation differences Changes in the fair value of available-for-sale financial assets Income tax related to components of other comprehensive income Share of other comprehensive income of associates

other comprehensive income for the yearTotal comprehensive income for the year

Transfer to legal reserveDividends paid in cash


Profit for the periodCurrency translation differences Changes in the fair value of available-for-sale financial assets Income tax related to components of other comprehensive income Share of other comprehensive income of associates

other comprehensive income for the periodTotal comprehensive income for the period


Balance at December 31, 2011



Consolidated Statement of Changes in Equity

32


Profit for the yearCurrency translation differences Changes in the fair value of available-for-sale financial assets Income tax related to components of other comprehensive income Share of other comprehensive income of associates

other comprehensive income for the yearTotal comprehensive income for the year



Profit for the periodCurrency translation differences Changes in the fair value of available-for-sale financial assets Income tax related to components of other comprehensive income Share of other comprehensive income of associates

other comprehensive income for the periodTotal comprehensive income for the period


Balance at December 31, 2011

Total

887,498,959

129,435,115

(13,445,050)

1,345,761

1,740

(49,562)

(12,147,111)

117,288,004

-

(30,000,000)

974,786,963

217,285,612

(12,575,189)

(279,087)

25,185

31,861

(12,797,230)

204,488,382

-

(30,000,000)

1,149,275,345

non-

controlling

interests

179,706

(442,413)

(42,593)

-

-

-

(42,593)

(485,006)

-

-

(305,300)

(240,061)

61,623

-

-

-

61,623

(178,438)

-

-

(483,738)

Total

887,319,253

129,877,528

(13,402,457)

1,345,761

1,740

(49,562)

(12,104,518)

117,773,010

-

(30,000,000)

975,092,263

217,525,673

(12,636,812)

(279,087)

25,185

31,861

(12,858,853)

204,666,820

-

(30,000,000)

1,149,759,083

Retained

earnings

547,131,493

129,877,528

-

-

-

-

-

129,877,528

(7,990,155)

(30,000,000)

639,018,866

217,525,673

-

-

-

-

-

217,525,673

(6,493,877)

(30,000,000)

820,050,662

other

reserves

(52,154,706)

-

(13,402,457)

1,345,761

1,740

(49,562)

(12,104,518)

(12,104,518)

-

-

(64,259,224)

-

(12,636,812)

(279,087)

25,185

31,861

(12,858,853)

(12,858,853)

-

-

(77,118,077)

legal

reserves

20,402,162

-

-

-

-

-

-

-

7,990,155

-

28,392,317

-

-

-

-

-

-

-

6,493,877

-

34,886,194

Share

capital

371,940,304

-

-

-

-

-

-

-

-

-

371,940,304

-

-

-

-

-

-

-

-

-

371,940,304

notes

22

22

Attributable to the Company´s equity holders


oPERATInG ACTIVITIESProfit for the periodAdjustments for: Depreciation and impairment of property, plant and equipmentIncome tax Uncollected accrued interest (**)ProvisionsEquity in earnings of associated companiesResult from the sale of property, plant and equipment

Changes in working capital:Increase in trade and other receivables(Increase) / Decrease in inventoriesIncrease in trade and other payablesDecrease / (Increase) in available-for-sale financial assetsIncrease in assets at fair value through profit or loss (Increase) / Decrease in derivative financial instruments Increase in employee benefits Others, including currency translation differencesIncome tax paymentCash provided by operating activities

InVESTInG ACTIVITIESIncrease in property, plant and equipment, netDisposals of property, plant and equipmentProceeds from disposals of property, plant and equipmentDividends receivedCash used in investing activities

FInAnCInG ACTIVITIESProceeds from borrowings Repayment of borrowingsDividends paidCash (used in) / provided by financing activities

Increase in cash and cash equivalents

Changes in cash and cash equivalentsCash and cash equivalents at the beginningIncrease in cash and cash equivalents Effect of exchange rate changes

Cash and cash equivalents at the end

December 31,

2011

(9 months) (*)

217,285,612

122,834,529

89,449,740

(1,368,975)

10,931,180

(20,608,276)

(1,212,963)

(3,096,279)

(20,039,345)

10,214,507

279,087

(1,150,908)

(228,763)

3,252,543

952,853

(62,015,107)

345,479,435

(238,943,827)

2,551,062

1,158,352

1,867,128

(233,367,285)

82,773,355

(131,074,860)

(30,000,000)

(78,301,505)

33,810,645

284,248,658

33,810,645

3,660,264

321,719,567

notes

13

12

15

15

22

21

march 31,

2011

(12 months) (*)

129,435,115

95,528,855

63,942,285

(1,261,398)

1,926,518

(20,322,013)

(183,512)

(39,398,213)

3,069,455

52,249,762

(1,345,839)

(1,962,485)

81,559

5,392,512

(1,836,711)

(28,021,819)

257,294,071

(216,110,039)

21,123,371

1,229,768

2,312,507

(191,444,393)

139,766,696

(96,949,827)

(30,000,000)

12,816,869

78,666,547

203,082,521

78,666,547

2,499,590

284,248,658


(*) See Note 1.

(**) The difference between interests expense and paid up is not significant.


Consolidated Statement of Cash Flows

34

1. GeneRAl InFoRMAtIonTecpetrol International S.A. (the “Company”) and its subsidiaries are mainly engaged in the exploration, development, production, transporta-tion and sale of hydrocarbons in sev-eral countries in America. References in these Consolidated Financial Statements to “Tecpetrol” include Tecpetrol International S.A. and its subsidiaries. The Company is incorporated and domiciled in Uruguay. Its legal address is La Cumparsita 1373, office 302, Montevideo, Uruguay.These Consolidated Financial Statements were authorized for issue by the Board of Directors on March 23, 2012.On March 30, 2011, the Board of Directors decided to modify the clos-ing date of the financial period from March 31 to December 31 of each year. Accordingly, the present period cor-responds to an irregular period of nine months, beginning on April 1, 2011 and ending on December 31, 2011. For this reason, the comparison of the infor-mation covering the period of nine months included in these Consolidated Financial Statements with the accounting information for the financial year ended on March 31, 2011, may be affected. The Financial Statements of Tecpetrol International S.A. at December 31, 2011, to be presented to the Auditoría Interna de la Nación (Uruguyan Internal Audit Office) were prepared in accordance with the Obligatory Financial Reporting Standards in Uruguay and were approved by the Board of Directors on March 23, 2012.

2. suMMARy oF sIGnIFICAnt ACCountInG polICIes The principal accounting policies applied in the preparation of these

Consolidated Financial Statements are set out below:

2.1 Basis of preparationThese Consolidated Financial Statements have been prepared in ac-cordance with International Financial Reporting Standards (“IFRS”), as is-sued by the International Accounting Standards Board (“IASB”), under the historical cost convention, as modified by the revaluation of financial assets and liabilities at fair value, the valuation of inventories and the employee benefits. Certain comparative amounts have been reclassified to conform current period’s presentation.The preparation of financial state-ments, in conformity with IFRS, re-quires management to make certain estimates and assessments that may affect the reported amounts of assets and liabilities, the disclosure of contin-gent assets and liabilities at the report-ing dates, and the reported amounts of income and expenses. Actual results may differ from these estimates.

2.2 Consolidation(a) subsidiariesSubsidiaries are all entities over which the Company has the power to govern the financial and operating policies, generally accompanying a sharehold-ing of more than one half of the voting rights. Subsidiaries are fully consoli-dated from the date on which control is transferred to the Company. They are de-consolidated from the date that this control ceases. The Company applies the purchase method of accounting to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, eq-uity instruments issued and liabilities incurred or assumed at the date of

Notes to the Consolidated Financial Statements


exchange. Acquisition related costs are expensed as incurred. Identifiable assets acquired, liabilities and contin-gent liabilities assumed in a business combination are measured at fair value at the acquisition date. Any non-controlling interest in the acquiree is measured either at fair value or at the non-controlling interests proportion-ate share of the acquiree’s net assets. The excess of the cost of acquisition and the amount of any non-controlling interest in the acquiree, over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the Consolidated Income Statement. Inter-company transactions, balances and unrealized gains (losses) on trans-actions between group companies are eliminated for the purposes of consoli-dation. As the functional currency of some subsidiaries is its respective local currency, some financial gains (losses) arising from inter-company transac-tions are generated. These are included in the Consolidated Income Statement under “Other financial results”.The accounting policies of the subsid-iaries have been modified where nec-essary to ensure consistency with the accounting policies adopted by the Company.

(b) Associated companiesAssociates are all entities over which the Company has significant influence generally accompanying a sharehold-ing of between 20% and 50% of the voting rights. Investments in associ-ates are initially recognized at cost and subsequently accounted for by the equity method of accounting. Unrealized results on transactions be-tween the Company and its associated

companies are eliminated to the extent of the Company’s share interest in them. The accounting policies of the associ-ated companies have been modified where necessary to ensure consistency with the accounting policies adopted by the Company. The Company incorpo-rates, where significant, the subsequent operations when financial statements of different dates are used to calculate the equity method of accounting. Investments in associated companies, each one of which is considered a Cash Generating Unit (“CGU”), are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recov-erable, and if appropriate, an impair-ment loss is recorded.

(c) Interests in joint venturesA joint venture is a contractual ar-rangement whereby two or more par-ties undertake an economic activity that is subject to joint control. Joint control exists only when the strategic financial and operating decisions relat-ing to the activities require the unani-mous consent of the parties involved. A jointly-controlled entity is a joint ven-ture that involves the establishment of a company, partnership or other entity to engage in economic activity that the group jointly controls with its partners. The assets and liabilities of a jointly-controlled entity are accounted for by proportionate consolidation. Accounting policies have been modified as necessary to ensure consistency with the policies adopted by the Company.

2.3 Foreign currency translation(a) Functional and presentation currency Items included in the financial state-ments of the Company and its subsidiar-ies are recorded in the currency of the

36

primary economic environment in which the entity operates (functional currency). These Consolidated Financial Statements are presented in United States dollars (“US$”), which is the Company’s func-tional and presentation currency.The functional currency of the subsid-iaries is their local currency or in some cases the United States dollars, when the main economic and financial transactions are denominated in United States dollars.

(b) transactions in currency other than the functional currency Foreign currency transactions are translated into the functional currency using the exchange rates prevail-ing at the dates of the transaction or valuation. Foreign exchange gains and losses resulting from the settle-ment of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the Consolidated Income Statement, except when deferred in Other Comprehensive income as cash flow hedges. Translation differences on non-monetary balances, such as as-sets held at fair value through profit or loss, are recognized in the Consolidated Income Statement. Translation differenc-es on non-monetary financial assets and liabilities, such as investments classified as available-for-sale financial assets are included in Other comprehensive income. The Share capital account is translated at the exchange rate in effect at the date of each capital contribution. The Legal reserve is translated at the exchange rate applicable in the month in which it is affected by shareholders. (c) translation of financial statementsThe financial statements of the sub-sidiaries whose functional currency is

different to the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities are translated

at the closing rate at each report-ing date and income and expenses are translated at the average rate of the period;

(ii) resulting translation differences are recognized in the Other com-prehensive income as currency translation differences. When a subsidiary is disposed of or sold, the accumulated currency transla-tion difference is recognized as profit or loss at the date of disposi-tion or sale.

2.4 property, plant and equipment. exploration, evaluation and development assets Exploration and evaluation expenditures are accounted for using the successful efforts method of accounting and are ac-cumulated on a field-by-field basis. Costs related to the exploration and exploitation of fields and to the acqui-sition of rights and concessions related to proved reserves are capitalized. Exploration costs and the acquisition costs for rights and concessions re-lated to probable and possible reserves are initially capitalized. Subsequently, if exploratory results are determined to be unsuccessful on completion and evaluation, these costs are charged to expenses in the period in which this determination is confirmed definitively by studies, technical reports or addi-tional drilling carried out. No deprecia-tion is charged during the exploration and evaluation phases.Field development costs are capital-ized as Property, plant and equipment. These costs include the acquisition and installation of production facili-ties, development drilling costs and


project-related engineering.The Company regards wells drilled in producing fields for the purpose of developing proved reserves as devel-opment wells. The Company considers any wells which are neither develop-ment wells nor service wells to be exploratory wells.Workovers of wells used to develop reserves and/or increase production are capitalized and depreciated on the basis of their estimated average useful life. Maintenance costs are charged to income when incurred.Asset retirement obligations costs are calculated as explained in Note 2.14. The Company periodically reevaluates the remaining useful lives of its assets, their residual value and the amortization method and readjusts these if necessary. The depreciation of wells, machinery, equipment and installations has been calculated according to the depletion method over the total proved reserves developed considered in each field as from the month of starting production.The depreciation of exploration and exploitation rights and of the cost of the acquisition of rights and concessions related to proved reserves is calculated using the depletion method over the total amount of proven reserves in each field. The depreciation of the remaining Property, plant and equipment is calcu-lated using the straight line method by applying such annual rates as required to write off their value at the end of their estimated useful lives, as follows:

Vehicles up to 5 years

Furniture and office equipment up to 5 years

Gains and losses from disposals are determined by comparing the pro-ceeds with the carrying amount of the

asset and are recognized within “Other operating income/expenses” in the Consolidated Income Statement.Assets in productive and develop-ment fields are reviewed for impair-ment whenever events or changing circumstances indicates that the car-rying value may not be recoverable. Impairment losses are recognized when the carrying amount of the as-sets is greater than their recoverable amount. The recoverable amount is the higher of the asset’s fair value less cot to sale and its value in use. The value in use is determined on the basis of the present value of net future cash flows expected to arise from the remaining commercial reserves. Assets which have suffered impair-ment losses in previous periods are reviewed at each reporting date in order to assess if the conditions which gave rise to the impairment loss have changed and, if appropriate, reverse the previous recognized im-pairment loss.

2.5 Intangible assetsGoodwillGoodwill represents the excess of the acquisition cost over the fair value of the net identifiable assets acquired as part of a business combination. Goodwill has an indefinite useful life and is subject to an impairment test on an annual basis. Impairment losses on goodwill are not reverted. For the purposes of the recover-ability test, goodwill is allocated to those cash-generating units ex-pected to benefit from the business combination.

2.6 InventoriesHydrocarbon stocks are valued at their net realizable value at the end of each reporting date.

38

Supplies and spare parts are principal-ly valued at cost, using the weighted average cost formula. The recoverable amount is calculated at each reporting date and an allowance is recognized in the Consolidated Income Statement, if necessary.

2.7 trade and other receivablesTrade and other receivables are rec-ognized initially at fair value and sub-sequently measured at amortized cost using the effective interest method, less allowances for doubtful accounts, if necessary. An allowance for doubtful accounts of trade receivables is established when there is objective evidence that the Company will not be able to col-lect the amounts due according to the original terms. Indicators that the trade receivable may be impaired include the debtor experiencing significant financial difficulties, the probability that the debtor will enter in bankruptcy or be subject to insolvency proceed-ings, and default or significant delays in payments. Furthermore, this allow-ance is adjusted periodically based on the age of the receivables. The asset’s carrying amount is shown net of the allowances, where applicable. The al-lowance expense is recognized in the Consolidated Income Statement under “Selling expenses”.

2.8 Cash and cash equivalents For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents includes cash in hand, bank deposits, other short-term highly liquid investments with original ma-turities of less than three months and bank overdrafts. In the Consolidated Statement of Financial Position, bank overdrafts are shown within “Borrowings” in current liabilities.

2.9 equity(a) equity componentsThe Consolidated Statement of Changes in Equity includes share capital, legal reserves, other reserves (including the currency translation differences, hedge accounting and the variations in the fair value of available-for-sale financial assets), retained earn-ings and non-controlling interest. (b) share capitalOrdinary shares are classified as Equity. Authorized share capital is 15,000,000 Uruguayan pesos (UY$). Total capital issued and outstanding as of December 31, 2011 and March 31, 2011, amounts to UY$ 9,541,175,037.89 and is represented by a bond corre-sponding to 9,541,175 ordinary bearer shares with a nominal value of UY$ 1,000 per share and a total nomi-nal value of UY$ 9,541,175,000 as well as a provisional certificate for UY$ 37.89 in favor of Techint Investments N.V.

(c) dividend distributionDividends distributions are based on Tecpetrol International S.A. Stand-alone Financial Statements, rather than on its Consolidated Financial Statements, and they are recognized as a liability in the Consolidated Financial Statements in the period in which they are approved by a share-holders’ meeting.

2.10 BorrowingsBorrowings are recognized initially at fair value net of transaction costs in-curred. Subsequently, they are stated at amortized cost.Borrowings are classified as current liabilities unless the Company has the unconditional right to defer the settle-ment of the liability for at least 12 months following the reporting date.


2.11 Income tax The income tax expense for the period comprises current and deferred tax. Tax is recognized in the Consolidated Income Statement, excepting those cases where it is related to items rec-ognized in the Other Comprehensive Income. In this case, tax is also recog-nized in Other Comprehensive Income. Current income tax charges are calculat-ed on the basis of the tax laws existing in the countries in which the Company and its subsidiaries operate and gener-ate taxable income. Tecpetrol periodi-cally evaluates positions taken in tax returns with relation to situations where tax legislation is subject to interpreta-tion and accordingly establishes provi-sions where considered appropriate. Deferred income tax is recognized by applying the liability method on tem-porary differences arising between the tax bases of assets and liabilities and their carrying amounts. The principal temporary differences arise from the depreciation of property, plant and equipment, valuation of inventories and provisions. Deferred tax assets and liabilities are measured at the tax rates expected to apply in the period in which the related tax asset is realized or the tax liability settled, based on the rates and legislation in force at the reporting date. Deferred tax assets are also recognized for net operating loss carryforwards to the extent that it is probable that future taxable income will be available. Tecpetrol reassess unrecognized de-ferred tax assets at each reporting date and recognizes the previously unrecog-nized deferred tax asset to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are offset for by each subsidiary when there

is a legally enforceable right to offset current tax assets against current tax li-abilities and when deferred income tax is levied by the same fiscal authorities.

2.12 employee benefits(a) Retirement benefit plans and othersSome subsidiaries have benefit plans such as “unfunded defined benefits” and “other long-term benefits” that are granted over an employee’s working life and after retirement under certain established conditions.Liability provisions for such benefits are recorded at the present value of future flows, and charged to expense during the remaining years of service of the beneficiaries, until all the vesting condi-tions of each benefit have been met. The liability is calculated at least once a year by independent actuaries using the “Projected unit credit” method.The net liability recognized in the Consolidated Statement of Financial Position includes the present value of the obligation plus / minus the actuar-ial gains / losses and the unrecognized past-service costs. Tecpetrol holds an investment in US$ which may be used to pay such ben-efits in whole or in part. These invest-ments are neither part of a specific plan, nor are they held separate from other Tecpetrol assets. Accordingly, the plan is classified as “unfunded” under IFRS definitions.

(b) employee retention and long-term incentive program As from the financial period closed on March 31, 2011, the Company has ad-opted an employee retention and long-term incentive program for certain senior executives in some subsidiaries. According to the program, the benefi-ciaries will be granted with a number

40

of units valued according to the eq-uity book value per Company share (excluding non-controlling interests). The units will be vested over a period of four years and the corresponding subsidiaries will redeem them after a period of ten years from the grant day, with the option for the employee to request the payment as from the seventh year onwards, or when the employee ceases employment from the subsidiary responsible for making the payment, at the equity book value at the date of payment. The beneficia-ries will also receive cash payments equivalent to the dividend paid out per share, each time Tecpetrol International S.A. makes a cash payment to its shareholders.

2.13 employee’s statutory profit sharingIn accordance with the laws in force in the territories of certain subsidiaries of the Company, an annual benefit must be paid to employees, calculated on a similar basis to that used for income tax purposes. The liability is calculated according to IAS 19 – “Employee bene-fits” and is disclosed under “Trade and other payables” in the Consolidated Statement of Financial Position and the corresponding expense charge is classified as “Labor costs” in the Consolidated Income Statement.

2.14 provisionsProvisions are recognized when: a) the Company has present legal or con-structive obligations as a result of past events; b) it is highly probably that an outflow of resources will be required to settle the obligation; and, c) the amount can be reliably estimated.Provisions are measured at the pres-ent value of the expenditures expected to be required to settle the obligation

using the appropriate discount rate. Provisions for asset retirement obliga-tions are calculated by establishing the present value of future costs related to the abandonment of each field. When the liability is initially recorded, the Company capitalizes these costs by increasing the carrying amount of the related asset. Over time, the liability is accreted to its present value during each period, and the initially capitalized cost is depreciated over the estimated use-ful life of the related asset, as detailed in Note 2.4. The Company periodically re-evaluates the future costs of asset retirement obligation, based on changes in technology and variations in the costs of restoration necessary to protect the environment. The effects of these re-calculations are included in the financial statements in which they are deter-mined and disclosed as an adjustment to the liability and the related asset.

2.15 trade and other payablesTrade and other payables are recog-nized initially at fair value and subse-quently stated at amortized cost using the effective interest method.

2.16 Revenue recognitionRevenue comprises the sale of goods and services to third parties net of value-added tax, withholding and dis-counts. Revenue from the sale of hy-drocarbons and other assets is recog-nized when all the significant risks and rewards of ownership are transferred to the buyer, at the fair value of the consideration received or receivable.Other revenues are recognized on an accrual basis. Dividends received are recognized when the right to receive payment is established.Revenues from interest are recognized on an accrual basis, using the effective interest method.


2.17 Cost of sales The cost of sales is recognized in the Consolidated Income Statement on an accrual basis and classified as “Operating costs”.

2.18 Financial instrumentsThe Company classifies its non-derivative financial instruments into the following categories: at fair value through profit or loss, loans and re-ceivables, available-for-sale assets and other financial liabilities. Classification depends on the nature of the financial instruments and the purpose for which they were acquired. The Company de-termines the classification of its finan-cial instruments at the time of initial recognition, and reassesses their desig-nation at each reporting date. Financial assets and liabilities are recognized and derecognized on their settlement date.

(a) Financial assets at fair value through profit or lossA financial asset is classified in this category if it is held for trading in the short term or if it is so designated by management initially. This category includes cash and cash equivalents and the investments in financial debt instruments held for trading.

(b) loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determin-able payments that are not quoted on an active market. This category includes trade and other receivables. In general, they are classified as current assets ex-cept for those with maturities greater than 12 months following the reporting date.

(c) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial instruments

that are either designated in this cat-egory or not classified in any of the other categories. They are included in non-current assets unless manage-ment intends to sell the investment within a 12-month period as from the reporting date. Available-for-sale fi-nancial assets are valued at fair value and variations are recognized in Other Comprehensive Income. The Company determines at each reporting date whether there are any impairment indicators. In the case of equity instruments classified as available-for-sale, any significant or prolonged decline in the fair value of fi-nancial assets below its cost is consid-ered as an impairment indicator and, if appropriate, the accumulated losses in Other Comprehensive Income is re-classified to the Consolidated Income Statement.

(d) other financial liabilitiesThis includes borrowings and trade and other payables.

2.19 derivative financial instruments and hedging activitiesDerivative financial instruments are recognized at fair value. Specific tools are used to calculate the fair value of each instrument, which are tested for consistency on a regular basis. Market rates are used for all pricing operations. These include exchange rates, interest rates and other discount rates which mitigate the nature of the underlying risk. The fair value of derivate financial instruments is disclosed in Note 28. The method of recognizing the result-ing gain or loss depends on whether the derivative is designated as a hedg-ing instrument, and if so, on the nature of the item being hedged. Changes in the fair value of derivate financial

42

instruments that are not designated as hedging instruments are immediately recognized in the Consolidated Income Statement under “Other financial re-sults, net”.The full fair value of a hedging instru-ment is classified as a non-current asset or liability if the hedged item has a maturity greater than 12 months, and as a current asset or liability, if the remaining maturity of the hedged item is less than 12 months. Derivatives not designated as hedging instruments are classified as current assets or liabilities.

Cash flow hedgesWhen a derivative is designated as a hedging instrument, the Company documents the relationship between hedging instruments and hedged items at the inception of the transaction, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Company also documents its assessment, both at the inception and on an ongoing basis, of the effectiveness of the derivatives used in hedging transactions to offset chang-es in the cash flows of hedged items.The effective portion of changes in the fair value of derivatives that are desig-nated and qualify as cash flow hedges is recognized in Other comprehensive income. The profit or loss relating to the ineffective portion is recognized immediately in the Consolidated Income Statement under “Other finan-cial results, net”.When a hedging instrument expires or is sold, or when a hedge no lon-ger meets the criteria for hedge ac-counting, any cumulative gain or loss previously recognized in Other Comprehensive income remains in Other Comprehensive Income and is reclassified to the Consolidated

Income Statement when the forecast transaction is ultimately recognized in the Consolidated Income Statement. When a forecast transaction is no longer expected to occur, the cumula-tive gain or loss recognized in Other Comprehensive Income is immediately transferred to the Consolidated Income Statement.

3. new ACCountInG stAndARds(a) new standards, interpretations and amendments to the published standards effective in 2011:There are no new standards, inter-pretations or amendments which are effective for the first time in the current period and have a material impact on the Company.

(b) new standards, interpretations and amendments to published standards which are not yet effective and which have not been early adopted: • IFRS 9, “Financial instruments”

In November 2009, the IASB issued IFRS 9 “Financial instruments” which establishes principles for the disclo-sure of financial assets, simplifying their classification and form of mea-surement. This standard applies to annual periods beginning on or after January 1, 2015. Management has not yet assessed the potential impact that the ap-plication of IFRS 9 may have on the Consolidated Financial Statements.

• IFRS 10, “Consolidated financial statements” In May 2011, the IASB issued IFRS 10 “Consolidated financial statements” which establishes the principles for the presentation and preparation of consolidated financial statements when a company owns one or more


other companies. IFRS 10 replaces IAS 27, “Consolidated and separate financial statements” and SIC 12 “Consolidation—Special Purpose Entities”. This standard will be effec-tive for accounting periods begin-ning after January 1, 2013, and its early application is permitted. Management has not yet assessed the potential impact that the appli-cation of IFRS 10 may have on the Consolidated Financial Statements.

• IFRS 11, “Joint arrangements” In May 2011, the IASB issued IFRS 11 “Joint arrangements” which estab-lishes the principles for the presen-tation and preparation of financial statements for the members of a joint arrangement. IFRS 11 replaces IAS 31, “Interests in joint ventures” and SIC 13 “Jointly-controlled enti-ties and non-monetary contributions by venturers”. This standard is effec-tive for accounting periods begin-ning as from January 1, 2013. Management has not yet assessed the potential impact that the appli-cation of IFRS 11 may have on the Consolidated Financial Statements.

• IFRS 12, “Disclosure of interests in other entities” In May 2011, the IASB issued IFRS 12, “Disclosure of interests in other entities” applicable to companies with interests in a subsidiary, associ-ate, joint venture or other forms of investment. IFRS 12 requires that a company disclose information which will allow the users of the financial statements to evaluate the nature and risk associated with risks in other entities and the effects of these on its financial position. This is effec-tive for those annual periods starting as from January 1, 2013. Management has not yet assessed the potential impact that the application of

IFRS 12 may have on the Consolidated Financial Statements.

• IFRS 13 “Fair value measurement” In May 2011, the IASB issued IFRS 13 “Fair value measurement” which es-tablishes a structure to measure fair value and disclosure requirements when fair value measurement is required by a standard. This standard is applicable both to financial and non-financial instruments measured at fair value. It will be effective as from January 1, 2013. Management estimates that the ap-plication of these modifications will not have any material effect on the financial position or results.

• IAS 27, “Separate financial statements” As a consequence of the issue of IFRS 10, “Consolidated financial state-ments”, IAS 27 was modified in May 2011 by the IASB to include only those requirements related to separate financial statements. IAS 27, formerly “Consolidated and separate financial statements” is now “Separate finan-cial statements”. It will be effective as from January 1, 2013. Management estimates that the ap-plication of these modifications will not have any material effect on the financial position or results.

• IAS 28, “Investments in associates and joint ventures” After the issue of IFRS 11, the IASB decided to include joint ventures in IAS 28, as the proportional equity value method also applies to these. It thus changed the name of the stan-dard to “Investments in associates and joint ventures”. This modification is effective as from January 1, 2013. Management has not yet assessed the potential impact that the ap-plication of IAS 28 may have on the Consolidated Financial Statements.

44

• IAS 1, “Presentation of financial statements” On June 16, 2011, the IASB published the amendments to IAS 1, which principally include the parameters related to the objective of improv-ing the consistency and clarity of the presentation of the items presented in Other Comprehensive Income. All entities must apply these modi-fications for the accounting periods beginning on or after July 1, 2012. Management has not yet assessed the potential impact that these modifications may have on the Consolidated Financial Statements.

• IAS 19, “Employee Benefits” On June 16, 2011, the IASB pub-lished the modifications to IAS 19 “Employee Benefits”. These modifica-tions principally cover the elimination of the option to defer the recognition of actuarial profit and loss as well as simplifying the way changes in assets and liabilities arising from defined benefit plans are presented. Entities should apply these modifications to accounting periods beginning on or after January 1, 2013. Management has not yet assessed the potential impact that the appli-cation of these modifications may have on the Consolidated Financial Statements.

Management has evaluated the signifi-cance of other new standards, amend-ments and interpretations not yet effec-tive and has concluded that they are not relevant for the Company.

4. FInAnCIAl RIsK MAnAGeMent

4.1 Financial risk factorsThe activities of the Company and its sub-sidiaries expose it to a variety of financial risks, mostly related to market risks (in-cluding the effects of changes in foreign currency exchange rates, in interest rates and market prices), the concentration of credit risk, liquidity risk and capital risk.The Company’s risk management pro-gram focuses on the unpredictability of financial markets and seeks to mini-mize any potentially adverse effects on its financial performance.

(i) Foreign exchange rate riskThe Company and its subsidiaries are exposed to the risk of exchange rate fluctuations as a result of transactions made currencies other than their func-tional currencies. As the Company’s functional currency is US$, the objec-tive of the foreign currency hedge program is principally to reduce the risk associated with changes in foreign currency exchange rates against its functional currency.Tecpetrol’s exposure to changes in ex-change rates is reviewed periodically. The Company aims to neutralize the poten-tially negative impact of fluctuations in the value of other currencies with respect to its functional currency using derivative financial instruments, if necessary.The following table discloses the expo-sure (in thousands of US$) to different currencies as of December 31, 2011, in-cluding the effect of foreign exchange derivative instruments.


The Company estimates that the impact of a favorable or unfavorable change in exchange rates of 1% would have gen-erated a gain / loss of US$1.03 million as of December 31, 2011, and US$0.63 million as of March 31, 2011. The im-pact on Equity would come to US$0.27 million as of December 31, 2011, and US$0.14 million as of March 31, 2011.

(ii) Interest rate risk The Company is exposed to inter-est rate volatility risk, mainly re-lated to short-term investments and borrowings. The following table shows the propor-tions of fixed-rate and variable-rate debt as of each reporting date.

US$EURARSCOPPENMXNDKKUY$

Fixed rate Variable rate

ARS

(24,333)

-

N/A

-

-

-

-

-

CoP

(52,919)

-

-

N/A

-

-

-

-

BoB

(3,053)

-

-

-

-

-

-

-

PEn

(25,037)

-

-

-

N/A

-

-

-

VEF

274

-

-

-

-

-

-

-

mXn

27

-

-

-

-

N/A

-

-

DKK

13

-

-

-

-

-

N/A

-

US$

N/A

1,855

11,625

4,013

5,078

(3,731)

(150)

3

Amount

13,842,592

309,600,512

Percentage

4%

96%

Percentage

5%

95%

Amount

14,452,856

254,942,949

If interest rates on the accumulated nomi-nal average of borrowings held during the year had been 50 basis points higher with all other variables remaining constant, net income would have been US$1.0 million less at December 31, 2011 (US$1.3 mil-lion at March 31, 2011). Note 23 includes information concerning the interest rate applicable to main borrowings.

Exposure to interest rates on borrow-ings is partially mitigated by invest-ments and credits exposed to a vari-able rate. Tecpetrol estimates that an increase in the average interest rates of 50 base points would lead to an increase in the net result of US$1.2 million at December 31, 2011 (US$0.9 million at March 31, 2011).

December 31, 2011

Functional currency

march 31, 2011

46

(iii) Concentration of credit riskThose of the Company’s financial as-sets which are potentially exposed to concentrations of credit risk consist mainly of deposits with financial insti-tutions and trade receivables. As regards deposits in financial institu-tions, the Company reduces its expo-sure to significant concentrations of credit risk maintaining its deposits and placing its cash investments with lead-ing financial institutions, either directly or through a related company which acts as a financial agent. With regard to trade receivables, the Company and its subsidiaries have policies in place to ensure that sales are only made to customers with an appropriate credit history or letters of credit in their stead. At December 31, 2011, 58%, 11% and 6% (60%, 10% and 6% at March 31, 2011) of the trade receivables are with PEMEX (Petróleos

Mexicanos), Esso Petrolera Argentina S.R.L. and Transportadora de Gas del Perú S.A. (associated company), respectively.

(iv) liquidity riskTecpetrol’s financial strategy seeks to maintain adequate financial resources and access to credit facilities to finance its operations. During this period, Tecpetrol has counted on cash flows from its operations as well as bank financing to funds its transactions. Tecpetrol pursues a conservative strat-egy as regards liquidity management, which consists in cash at banks, liquid funds and short-term investments with a maturity of no more than three months from the purchase date. The table below shows an analysis of the financial liabilities of the Company according to their contrac-tual due dates:

At December 31, 2011BorrowingsTrade and other payablesInterest to be accruedTotal

less than a year

106,228,536

187,669,832

8,710,554

302,608,922

Between 1 and 2 years

36,174,630

-

6,321,075

42,495,705


126,992,639

12,312,394

1,749,451

141,054,484


(v) price riskThe Company’s policy is to regularly as-sess the volatility of crude oil prices and execute hedge contracts, if necessary. As of December 31, 2011, and March 31, 2011, the Company does not have finan-cial instruments subject to price risk.A 10% increase in the price of crude and oil-related products would imply an approximate increase in the net income of the Company of US$18 and US$52 million at December 31, 2011, and March 31, 2011, respectively. As in previous periods, a 10% increase in the price of crude would not have a significant impact on the net income of the Argentine subsidiaries since those

companies sale exclusively on the domestic market pursuant to current regulations.

(vi) Capital riskThe Company seeks to maintain an adequate level of debt to total equity considering the industry and mar-kets in which it operates. The annual debt / total equity ratio (where “debt” comprises all financial borrowings and “total equity” is the aggregate of financial borrowings and equity) is 0.19 at December 31, 2011, compared with 0.25 at March 31, 2011. The Company is not obliged to comply with regulatory capital requirements.

At march 31, 2011 BorrowingsTrade and other payablesInterest to be accruedTotal

less than a year

111,026,678

157,647,783

9,703,293

278,377,754


16,298,855

-

7,222,158

23,521,013


196,117,571

11,176,343

7,256,350

214,550,264

48

At December 31, 2011AssetsTrade receivablesOther receivablesAvailable-for-sale financial assets

Other assets at fair value through profit or loss

Derivative financial instrumentsCash and cash equivalents Total

At December 31, 2011liabilitiesBorrowingsTrade and other payablesTotal

Financial assets at fair value through profit or loss

-

-

-

10,647,297

228,763

324,430,642

335,306,702

other financial liabilities

269,395,805

199,982,226

469,378,031

loans and receivables

182,733,476

72,586,380

-

-

-

-

255,319,856

Available for sale

-

-

62,300,024

-

-

-

62,300,024

4.2 Financial instruments by categoryThe table below discloses the financial instruments by category:


At march 31, 2011 AssetsTrade receivablesOther receivablesAvailable-for-sale financial assets

Other assets at fair value through profit or loss

Cash and cash equivalents Total

At march 31, 2011liabilitiesBorrowingsTrade and other payablesTotal

Financial assets at fair value through profit or loss

-

-

-

10,082,007

292,705,527

302,787,534

other financial liabilities

323,443,104

168,824,126

492,267,230

loans and receivables

188,377,690

71,990,165

-

-

-

260,367,855

Available for sale

-

-

62,748,755

-

-

62,748,755

4.3 Fair value estimationThe fair value of the investments traded is determined using closing market prices. If the financial asset is not traded in an active market, the fair value is de-termined using standard valuation tech-niques. The Company uses a variety of methods and premises based on market conditions existing at the reporting date.The Company calculates the fair value of cash and cash equivalents and other investments with a maturity of less than three months using the historical cost method as this approximates their fair value.

The fair value of all derivative financial instruments is determined according to Note 2.19. For disclosure purposes, the nominal value of trade and other receivables and of trade and other payables, less any impairment provision, if appropi-ate, is assumed to approximate their fair values.

Fair value hierarchyFinancial instruments valued at fair val-ue may be classified within the follow-ing levels of hierarchy according to the way in which fair value is estimated:

50

At December 31, 2011AssetsAvailable-for-sale financial assetsDerivative financial instrumentsCash and cash equivalentsOther financial assets at fair value through profit or loss

Total

At march 31, 2011AssetsAvailable-for-sale financial assetsCash and cash equivalentsOther financial assets at fair value through profit or loss

Total

level 1

-

-

324,430,642

10,647,297

335,077,939

level 1

-

292,705,527

10,082,007

302,787,534

level 2

-

228,763

-

-

228,763

level 2

-

-

-

-

level 3

62,300,024

-

-

-

62,300,024

level 3

62,748,755

-

-

62,748,755

• Level 1 – On the basis of quoted prices in active markets for identical assets and liabilities.

• Level 2 – On the basis of market data (different from the quoted prices included within Level 1) that are ob-servable for the assets and liabilities, either directly or indirectly.

• Level 3 – On the basis of inputs for assets and liabilities which

is not based on observable market data (for example, discounted cash flow).

The following table presents the financial assets and liabilities mea-sured at fair value by hierarchy level at December 31, 2011, and March 31, 2011:


5. CRItICAl ACCountInG estIMAtes And JudGMentsEstimates and judgments are periodi-cally reviewed and are based on the historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.The Company makes estimates and as-sumptions concerning the future when preparing its financial statements. Actual results may differ from these es-timates. The most significant estimates and assumptions are discussed below:

(a) hydrocarbon reserves Reserves mean the volumes of oil and gas (expressed in oil-equivalent cubic meters) which generate or are associ-ated with revenue in the fields where Tecpetrol operates or has a direct or indirect share interest and for which it owns exploitation rights. This in-cludes hydrocarbons volumes related to the services contracts in which Tecpetrol does not have the ownership either of the reserves or of the hydro-carbons extracted, and the volumes ex-pected to be produced for the contract-ing party under the works contracts. There are numerous issues which generate uncertainty as to the calcu-lation of proved reserves, of future production profiles, development costs and prices, including diverse factors which are beyond the producer’s con-trol. Reserve calculation is a subjective process which estimates the under-ground accumulation of crude oil and natural gas which cannot be accurately measured. The estimation of reserves is carried out on the basis of the qual-ity of geological and engineering data available on that date and its interpretation. The estimated proved reserves of hydrocarbons (developed and

undeveloped) as of December 31, 2011, are as follows:

Oil m3 million 13

Gas m3 billion 34

The aforementioned reserves include proved reserves which may be extract-ed and from which the corresponding royalties have not been deducted. They have been prepared by the Company’s technical staff, and are based on the technical and economic conditions in force at June 30, 2011, taking into ac-count the economic evaluation over the term of the respective contracts or concessions.The reserves estimates are adjusted whenever justified by changes in the aspects considered for their evalu-ation or at least once a year. These reserves estimates have taken into account those certified by hydrocarbon consultants.

(b) provision for asset retirement obligationsThe liability related to the asset retire-ment obligations once operations have been finalized implies that manage-ment makes estimates concerning the long-term abandonment cost and the time left until abandonment. It should be pointed out that technologies and costs are also constantly changing as well as political, environmental, safety and public relations considerations, which can lead to differences between estimates and actual costs.

(c) ContingenciesTecpetrol is subject to various claims, lawsuits and other legal proceedings in the normal course of its business. Liabilities with respect to such claims, lawsuits and other legal proceedings

52

cannot be estimated with certainty. The Company reviews the status of each contingency and assesses its potential financial exposure. If the potential loss from the claim or pro-ceedings is considered to be probable and the amount can be reasonably estimated, a provision is recorded. Management estimates the amount

of this provision based on the infor-mation available and the assumptions and methods it considers appropriate. These estimates are primarily con-structed with the assistance of legal counsel. The Company peri-odically reviews and adjusts its es-timates, as additional information becomes available.

Fees and servicesLabor costs Depreciation of property, plant and equipmentMaintenance costsTreatment, storage and loadingTaxesOthers

December 31, 2011 (9 months)

112,059,081

51,642,972

121,628,729

153,054,767

24,595,051

160,141,590

31,769,546

654,891,736

march 31, 2011 (12 months)

82,427,145

43,785,093

95,058,053

128,811,548

26,173,242

116,249,553

41,006,981

533,511,615

6. opeRAtInG Costs


7. sellInG eXpenses

8. AdMInIstRAtIVe eXpenses

9. lABoR Costs

Treatment, storage and loadingAllowances for doubtful accountsTaxes

Fees and servicesLabor costs Depreciation of property, plant and equipmentTaxesReimbursement of expenses and others

Salaries, wages and other costsSocial security costsEmployee benefits (Note 24)


2,261,759

5,497,887

5,756,655

13,516,301


16,233,162

39,296,139

1,205,800

907,467

2,916,379

60,558,947


76,605,480

10,390,935

3,942,696

90,939,111


2,821,233

-

6,538,060

9,359,293


17,615,052

46,803,403

470,802

154,984

(3,616,532)

61,427,709


76,296,618

8,761,071

5,530,807

90,588,496

54

10. otheR opeRAtInG IteMs

11. FInAnCIAl Results

other operating incomeDividends receivedNet income from other salesReimbursements from third partiesOther

other operating expensesBank transaction taxes Provision for legal claims and contingencies Fees and servicesOther

Interest incomeInterest expense

Foreign exchange differences and changes in the fair value of derivative financial instruments

Other other financial results, net

December 31, 2011

(9 months)

3,939,055

1,212,963

22,300

623,338

5,797,656

4,587,691

1,624,187

1,046,601

1,348,910

8,607,389


4,990,974

(12,733,239)

(5,560,830)

(681,774)

(6,242,604)

march 31, 2011

(12 months)

-

183,512

33,736

24,418

241,666

5,240,203

3,481,532

1,031,699

546,202

10,299,636


6,800,420

(11,505,800)

(2,270,796)

1,871,509

(399,287)


12. InCoMe tAX

The tax levied on the Company’s in-come before taxes differs from the theoretical amount that would be

Current taxDeferred tax (credit) - (See Note 27)

Income before income taxNon-taxable incomenet tax baseTax calculated at the tax rate in each countryExempt incomeTax losses not recorded as deferred assets Non-deductible expenses and othersTax charge


92,323,545

(2,873,805)

89,449,740


306,735,352

(21,575,829)

285,159,523

87,276,578

(704,224)

4,371,875

(1,494,489)

89,449,740


65,422,543

(1,480,258)

63,942,285


193,377,400

(16,457,941)

176,919,459

53,411,466

(1,020,207)

6,136,044

5,414,982

63,942,285

obtained using the statutory tax rate applicable in each country, as shown below:

56

CostValue at beginningTranslation differencesAdditionsTransfersDisposalsValue at the end

DepreciationAccumulated depreciation at the beginningTranslation differencesDepreciation and impairment (1)DisposalsAccumulated depreciation at the endAt December 31, 2011

machinery and equipment

400,061,920

(13,125,601)

257,773

13,894,297

(2,025,088)

399,063,301

202,651,951

(10,223,621)

22,025,906

(2,021,733)

212,432,503

186,630,798

Development/ productive assets

912,592,049

(44,613,054)

-

129,038,100

(5,844,563)

991,172,532

635,633,122

(35,095,846)

80,021,079

(5,194,275)

675,364,080

315,808,452

(1) Includes the impairment of development assets in the subsidiary Tecpetrol S.A. of US$10.5 million. See Note 16.

13. pRopeRty, plAnt And equIpMent. eXploRAtIon, eVAluAtIon And deVelopMent Assets

58


DepreciationAccumulated depreciation at the beginningTranslation differencesDepreciation and impairment (1)DisposalsAccumulated depreciation at the endAt December 31, 2011

Total

1,671,487,550

(64,041,252)

238,943,827

-

(10,706,647)

1,835,683,478

861,876,993

(46,337,396)

122,834,529

(8,210,196)

930,163,930

905,519,548

others

33,754,631

(682,660)

8,702,117

(1,553,371)

(438,440)

39,782,277

11,883,319

(377,056)

3,300,406

(340,181)

14,466,488

25,315,789

Work in progress

49,218,019

(1,018,149)

205,843,668

(161,826,135)

(1,744,549)

90,472,854

-

-

-

-

-

90,472,854

Acquired reserves

185,301,535

-

-

4,856,523

-

190,158,058

-

-

15,658,614

-

15,658,614

174,499,444

Exploration and evaluation

75,534,635

(3,695,133)

12,844,170

15,590,586

-

100,274,258

-

-

-

-

-

100,274,258

Asset retirement obligation

15,024,761

(906,655)

11,296,099

-

(654,007)

24,760,198

11,708,601

(640,873)

1,828,524

(654,007)

12,242,245

12,517,953



DepreciationAccumulated depreciation at the beginningTranslation differencesDepreciation and impairment (2)DisposalsAccumulated depreciation at the endAt march 31, 2011

machinery and equipment

387,045,337

(9,852,877)

1,776,274

21,174,540

(81,355)

400,061,919

188,792,464

(7,391,415)

21,174,887

76,015

202,651,951

197,409,968

Development/ productive assets

828,632,585

(31,909,237)

24,591,444

108,066,836

(16,789,579)

912,592,049

587,083,494

(24,645,012)

73,194,640

-

635,633,122

276,958,927

(2) Includes the reversal of the impairment of ac-counted-for development assets in the subsidiary Tecpecuador S.A. of US$4.1 million. See Note 16.

13. pRopeRty, plAnt And equIpMent. eXploRAtIon, eVAluAtIon And deVelopMent Assets

60


DepreciationAccumulated depreciation at the beginningTranslation differencesDepreciation and impairment (2)DisposalsAccumulated depreciation at the endAt march 31, 2011

Total

1,522,783,552

(45,505,581)

216,110,039

-

(21,900,460)

1,671,487,550

799,097,828

(32,801,651)

95,528,855

51,961

861,876,993

809,610,557

others

20,886,827

(426,654)

14,665,990

-

(1,371,532)

33,754,631

10,517,968

(266,404)

1,655,809

(24,054)

11,883,319

21,871,312

Work in progress

48,843,703

(1,039,732)

136,822,098

(135,408,049)

-

49,218,020

-

-

-

-

-

49,218,020

Acquired reserves

185,301,535

-

-

-

-

185,301,535

-

-

-

-

-

185,301,535

Exploration and evaluation

34,706,956

(1,645,333)

37,059,744

6,166,673

(753,405)

75,534,635

-

-

-

-

-

75,534,635

Asset retirement obligation

17,366,609

(631,748)

1,194,489

-

(2,904,589)

15,024,761

12,703,902

(498,820)

(496,481)

-

11,708,601

3,316,160


14. IntAnGIBle AssetsOn March 25, 2010, the subsidiary Burgos Oil Services S.A. de C.V. complete the acquisition of 100% of the share capital of Erskine Energy Production Co., (today Tecpetrol Corporation), generating a goodwill of US$12,352,643 at December 31, 2011 and March 31, 2011. The cost of acquisition was determined as the fair value of the assets acquired, capital issued and debts incurred or assumed at the purchase date, plus the costs directly attributable to the

acquisition, according to IFRS 3 in force at that date. For the purpose of goodwill impair-ment test, the Company calculates the value in use using the discounted cash flow technique. The key assump-tions used are the estimate of the sales prices, costs and production levels as well as a discount rate of 15.0% at December 31 and 12.4% at March 31, 2011. At December 31, 2011 and at March 31, 2011, no impairment loss was recorded on goodwill.

At the beginningTranslation differencesShare of other comprehensive income of associates

Equity in earnings of associated companiesDividends receivedAt the end

December 31,

2011

128,022,788

(1,407,559)

31,861

20,608,276

(1,867,128)

145,388,238

march 31, 2011

110,948,454

(885,610)

(49,562)

20,322,013

(2,312,507)

128,022,788

15. InVestMents In AssoCIAted CoMpAnIes

62

The following is the detailed list of investments in associated companies:

ComPAnY

Transportadora de Gas del Perú S.A. (1)

TIBSA Inversora S.A. (2)Gasinvest S.A. (3) and (4)Transportadora de Gas del Mercosur S.A. (4)

Energy Consulting Services S.A. Transportadora de Gas del Norte S.A. (2) and (4)

Total


23.60

30.00

27.24

21.79

29.17

0.03

Value at march 31, 2011

88,999,127

18,370,481

10,351,718

8,000,000

2,282,872

18,590

128,022,788

At march 31, 2011

23.60

30.00

27.24

21.79

29.17

0.03

Country

Peru

Argentina

Argentina

Argentina

Argentina

Argentina

Value at December 31, 2011

108,847,277

16,084,094

10,334,887

8,000,000

2,103,390

18,590

145,388,238

% share interest

(1) The Company owns a stake of 22.97% through Tecgas Camisea S.A. and a stake of 0.64% through Tecgas N.V. as of December 31 and March 31, 2011.

(2) Through TIBSA Inversora S.A., the Company holds an indirect stake of 27.50% in Litoral Gas S.A. as of December 31 and March 31, 2011.

(3) Through Gasinvest S.A., the Company holds an indirect stake of 15.35% in Transportadora de

Gas del Norte S.A. (TGN), as of December 31 and March 31, 2011. The Company has significant influ-ence over TGN as of December 31 and March 31, 2011.

(4) The Company carried out an impairment test of its investments in Gasinvest, Transportadora del Gas del Mercosur S.A. (TGM) and TGN, and recorded an impairment loss of approximately US$41 mil-lion at March 31, 2009. See Note 30.


Summarized selected financial infor-mation concerning associated compa-nies is as follows:

ComPAnY

Transportadora de gas del Perú S.A.

TIBSA Inversora S.A. Gasinvest S.A.Transportadora de Gas del Mercosur S.A.

Energy Consulting Services S.A.

Transportadora de Gas del Norte S.A.

ComPAnY

Transportadora de Gas del Perú S.A.

TIBSA Inversora S.A. Gasinvest S.A.Transportadora de Gas del Mercosur S.A.

Energy Consulting Services S.A.

Transportadora de Gas del Norte S.A.

net income

83,964

4,974

(11)

(4,959)

3,219

(16,152)

Results

74,728

4,993

(11)

(5,108)

3,676

31,447

liabilities

1,404,203

29,056

46

20,091

23,143

558,298

liabilities

1,372,037

27,505

46

4,079

24,701

553,814

Assets

1,865,402

87,635

856

69,310

30,354

795,124

Assets

1,749,137

91,423

856

46,136

32,528

825,844

Revenues

406,343

69,135

-

4

79,722

70,085

Sales Income

353,527

62,311

-

-

68,155

124,557

12.31.10 (in US$ thousands)

12.31.11 (in US$ thousands)

64

16. IMpAIRMent oF lonG-teRM Assets. pRopeRty, plAnt And equIpMentThe Company periodically reviews its long-lived assets for impairment or whenever events or changes in circumstances indicate that the carry-ing amount may not be recoverable. These tests are performed as described in Note 2.4.The recoverable amount of each CGU is estimated by the Company as the higher of the fair value of the assets less cost to sale and the value in use. The value in use is calculated on the basis of a discounted cash flow ap-plying a discount rate that reflects the risks of the country where the CGU operates and its particular features. A CGU is considered to be a joint venture or a legal entity in the case that the operations are not carried out through joint ventures.Determining discounted cash flows involves a combination of estimates and assumptions, such as the hydro-carbons production levels, sales prices, the evolution of the future price curve of WTI (Western Texas Intermediate), inflation, foreign exchange rates, costs and other expenses, based on the best assumptions the Company has in rela-tion to its future operations.Cash flows from the different CGUs are generally projected for a period that covers the existence of economically-productive reserves and is limited to the existence of proved reserves in the period of the concessions or contracts. Future prices of hydrocarbons are based on available market prices.The discount rates used amounts to approximately 15% at December 31, 2011 and March 31, 2011. At December 31, 2011 an impairment charge of US$10.5 million was recog-nized for the operations in Argentina,

as a consequence of changes in the economic conditions in this country, which is included in “Operating costs” in the Consolidated Income Statement.At March 31, 2009, as a consequence of changes in economical and regula-tory conditions affecting Tecpetrol’s international operations, an impair-ment loss of US$16.6 million was recognized corresponding to the op-erations in Argentina and Ecuador. As a consequence of the recoverability assessment carried out at March 31, 2011, the previously recognized im-pairment charge for the operations in Ecuador were reversed by US$4.1 mil-lion, which were charged to “Operating costs” in the Consolidated Income Statement at March 31, 2011.


17. AVAIlABle-FoR-sAle FInAnCIAl Assets

The evolution of available-for-sale financial assets is as follows:

Available-for-sale financial assets com-prise interests in the following com-panies: Baripetrol S.A., Oleoductos del Valle S.A., Terminales Marítimas Patagónicas S.A. and Euroamérica Hardwoods Technology S.A.The fair value of non-quoted invest-ments was calculated on the basis of

Non-quoted investments

At the beginningTranslation differences AdditionsChanges in fair valueAt the end

December 31, 2011

62,300,024

62,300,024

December 31, 2011

62,748,755

(169,644)

-

(279,087)

62,300,024

march 31, 2011

62,748,755

62,748,755

march 31, 2011

60,989,951

412,965

78

1,345,761

62,748,755

discounted cash flows using a discount rate of 13.2% at December 31, 2011 and 10.0% at March 31, 2011. Of those investments, 96% corresponds to finan-cial assets in US$ and the remaining 4% are in Argentine pesos. At December 31, 2011, and March 31, 2011, no impair-ment loss has been recognized.

66

18. InVentoRIes

HydrocarbonsSupplies and spare parts

December 31, 2011

20,860,461

21,615,665

42,476,126

march 31, 2011

2,672,245

19,764,536

22,436,781

19. otheR ReCeIVABles And pRepAyMents

non-currentTax creditsLoans to related parties (Note 32)Loans and advances to employeesOther receivables

Allowance for doubtful accounts

CurrentTrade receivables AdvancesOther receivables from related parties (Note 32)Tax creditsLoans and advances to employeesOther receivables


December 31, 2011

11,858,613

33,467,906

1,307,041

4,749,868

51,383,428

(135,482)

51,247,946

22,145,481

7,046,111

4,178,094

3,903,507

1,762,033

11,128,477

50,163,703

(942,207)

49,221,496

march 31, 2011

4,925,177

32,202,628

1,589,292

3,304,828

42,021,925

-

42,021,925

30,459,033

7,485,748

1,135,362

12,770,876

704,590

2,594,432

55,150,041

-

55,150,041


20. tRAde ReCeIVABles

The following table details the maturity of the trade receivables:

non-current Trade receivables


CurrentTrade receivables Trade receivables from related parties (Note 32)


December 31, 2011

45,547,916

45,547,916

(570,447)

44,977,469

130,024,732

14,452,032

144,476,764

(6,720,757)

137,756,007

march 31, 2011

43,914,773

43,914,773

-

43,914,773

133,653,986

13,811,387

147,465,373

(3,002,456)

144,462,917

At December 31, 2011Trade receivablesAllowance for doubtful accounts

net value

At march 31, 2011Trade receivablesAllowance for doubtful accounts

net value

1 - 180 days

4,955,172

(1,075,797)

3,879,375

2,539,164

(1,511,299)

1,027,865

not due

179,068,325

(214,224)

178,854,101

187,349,825

-

187,349,825

Total

190,024,680

(7,291,204)

182,733,476

191,380,146

(3,002,456)

188,377,690

> 180 days

6,001,183

(6,001,183)

-

1,491,157

(1,491,157)

-

Past due

68

21. CAsh And CAsh equIVAlents

The effective interest rate on short-term deposits during both periods averaged 0.5%. These deposits have an average maturity of 30 days.

22. dIVIdends peR shAReOn October 11, 2011, the Board of Tecpetrol International S.A. ap-proved a cash dividend payment for US$30,000,000, representing an amount of US$3.14 per ordinary share currently issued and outstanding.

Cash at bankShort-term bank depositsShort-term deposits with related parties (Note 32)

Cash and cash equivalents Bank overdraft (Note 23)

December 31, 2011

138,349,984

24,236,679

161,843,979

324,430,642

December 31, 2011

324,430,642

(2,711,075)

321,719,567

march 31, 2011

85,264,721

24,200,616

183,240,190

292,705,527

march 31, 2011

292,705,527

(8,456,869)

284,248,658

Cash and cash equivalents include the following for the purposes of the Consolidated Cash Flow Statement:

On October 21, 2010, the General Ordinary Shareholders’ Meeting of Tecpetrol International S.A. ap-proved a cash dividend payment for US$30,000,000, representing an amount of US$3.14 per ordinary share currently issued and outstanding.


23. BoRRowInGs

Total borrowings as of December 31, 2011, and March 31, 2011, include secured liabilities for US$251,546,664 and US$231,344,917, respectively.

non-currentBank borrowingsBorrowings from related parties (Note 32)

CurrentBank overdraft (Note 21)Bank borrowingsBorrowings from related parties (Note 32)

December 31, 2011

159,920,993

3,246,276

163,167,269

2,711,075

103,367,452

150,009

106,228,536

march 31, 2011

151,670,912

60,745,514

212,416,426

8,456,869

83,609,181

18,960,628

111,026,678

Significant borrowings from banks and related parties are detailed below:

70

Bank borrowings

ComPAnY

non-currentTecpetrol Corporation

Tecpetrol del Perú S.A.C.

Tecpetrol Bloque 56 S.A.C.


Servicios Múltiples de Burgos S.A. de C.V.

CurrentTecpetrol Colombia S.A.S.

Tecpetrol Colombia S.A.S.


Servicios Múltiples de Burgos S.A. de C.V.


Tecpetrol S.A.


December 31, 2011

98,480,231

28,956,667

17,819,558

8,908,442

5,756,095

26,640,311

27,055,541

16,666,868

9,079,175

8,122,923

7,118,781

-

lender

Credit Agricole Corporate and Investment Bank

Scotiabank Perú

Scotiabank Perú

Banco de Crédito del Perú

Bancomer S.A.

BBVA New York

Credit Agricole Corporate and Investment Bank

Scotiabank Peru

Bancomer

Scotiabank Perú

Banco Ciudad

BBVA Banco Continental

Interest rate

LIBO + 3.5%

LIBO + 3.4%

LIBO + 4.5%

LIBO + 4.5%

LIBO + spread

between 1.5

and 3%

LIBO + 0.92%

LIBO +0.85%

LIBO + 3.4%

LIBO + spread

between 1.5

and 3%

LIBO + 4.5%

16%

LIBO + 1.75%

march 31, 2011

97,803,066

-

25,755,954

12,876,046

8,142,247

26,599,861

18,999,902

-

11,335,484

8,168,856

-

6,638,575

Currency

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

ARS

US$


The fair value of current and non-current borrowings does not differ significantly from their book value at December 31 and March 31, 2011.

24. eMployee BeneFItsThe amounts recognized in the Consolidated Statement of Financial Position and the Consolidated Income Statement are as follows:

Retirement benefit programs and othersEmployee retention and long-term incentive programOther employee benefitsTotal liability recognized (*)

December 31, 2011

15,904,461

1,069,914

369,370

17,343,745

march 31, 2011

13,998,996

692,304

300,600

14,991,900

Retirement benefit programs and othersEmployee retention and long-term incentive programOther employee benefitsTotal included in labor Costs (note 9)


3,442,648

431,278

68,770

3,942,696


4,700,184

692,304

138,319

5,530,807

(*) No debt is due as of December 31 and March 31, 2011.

Borrowings with related parties

ComPAnY

non-currentTecpetrol International S.L.U.

CurrentTecpetrol International S.A.

December 31, 2011

-

150,009

lender

Santa María Financial S.A.

Santa María Financial S.A.

Interest rate

LIBO + 1.4%

LIBO (30 days

DKK) + 0.1%

march 31,

2011

57,500,000

17,443,270

Currency

US$

DKK

72

Present value of obligationsUnrecognized past-service costsUnrecognized actuarial gains / lossesnet liability recognized

December 31, 2011

22,632,589

(372,960)

(6,355,168)

15,904,461

march 31, 2011

19,993,524

(172,353)

(5,822,175)

13,998,996

Retirement benefit programs and others:The key actuarial assumptions for the two benefit programs that the Company has in place as “unfunded benefit plans” and “other long-term

benefits” contemplates a discount rate of 7% and 6%(real) and a salary in-crease rate of 2% and 3% respectively for both periods. The liability recog-nized in the Consolidated Statement of Financial Position is as follows:

Current service costInterest costNet actuarial losses/gains recognizedTotal

December 31, 2011

1,030,532

2,251,432

160,684

3,442,648

march 31, 2011

1,196,900

2,519,233

984,051

4,700,184

The amounts recognized in the Consolidated Income Statement are as follows:


Movements in the liability recognized in the Consolidated Statement of Financial Position are as follows:

At the beginningTranslation differencesTotal expenses (*)Contributions paidAt the end

December 31, 2011

13,998,996

(900,698)

3,841,352

(1,035,189)

15,904,461

march 31, 2011

10,133,657

(534,269)

4,950,837

(551,229)

13,998,996

(*) Total expenses include exchange differences for US$398,704 at December 31, 2011 (US$250,653 at March 31, 2011) disclosed in “Other financial re-sults, net” in the Consolidated Income Statement.

25. pRoVIsIons

Asset retirement obligations Tax contingenciesOtherTotal non-current

Provision for other contingenciesTotal current

December 31, 2011

46,947,751

-

6,814,800

53,762,551

11,699,288

11,699,288

march 31, 2011

34,026,810

1,978,260

8,978,882

44,983,952

11,070,478

11,070,478

74

Movements in the provisions are as follows:

The provision related to asset retire-ment obligations was estimated using an inflation rate of 4.5% and a discount rate of 8.5% at December 31 and March 31, 2011.

26. tRAde And otheR pAyABles

At the beginningTranslation differencesIncreases DecreasesAt the end

Trade payablesTotal non-current

Trade payablesPayables to related parties (Note 32)Social security and other taxesAccrued expensesTotal current

December 31, 2011

56,054,430

(1,523,771)

15,232,593

(4,301,413)

65,461,839

December 31, 2011

12,312,394

12,312,394

131,366,712

17,720,666

22,029,951

16,552,503

187,669,832

march 31, 2011

54,301,433

(173,521)

7,886,269

(5,959,751)

56,054,430

march 31, 2011

11,176,343

11,176,343

114,206,342

19,922,557

19,670,972

3,847,912

157,647,783


27. deFeRRed InCoMe tAX The evolution of deferred income tax is as follows:

The movements of deferred tax assets and liabilities are detailed below:

At the beginning (net deferred liability)Translation differencesCharged directly to Other Comprehensive IncomeIncome statement (credit)At the end (net deferred liability)

DEFERRED TAX lIABIlITIES

At March 31, 2010Translation differencesIncome statement (credit) / charge

At march 31, 2011

Translation differencesIncome statement (credit) / charge


December 31, 2011

58,098,965

621,222

(25,185)

(2,873,805)

55,821,197

others

5,359,072

(142,028)

2,274,757

7,491,801

(79,730)

5,035,051

12,447,122

Provisions

32,367,369

-

(7,188,356)

25,179,013

-

(2,396,937)

22,782,076

Property, plant and equipment

59,945,104

(89,257)

4,844,801

64,700,648

171,292

12,054,003

76,925,943

march 31, 2011

59,047,528

533,435

(1,740)

(1,480,258)

58,098,965

Total

97,671,545

(231,285)

(68,798)

97,371,462

91,562

14,692,117

112,155,141

76

The following amounts, determined after being appropriate set off, are disclosed in the Consolidated Statement of Financial Position:

DEFERRED TAX ASSETS

At March 31, 2010Translation differencesCharged directly to Other Comprehensive Income

Income statement (credit) / chargeAt march 31, 2011

Translation differencesCharged directly to Other Comprehensive Income

Income statement (credit) / chargeAt December 31, 2011

others

(233,083)

60,399

(1,740)

(275,889)

(450,313)

(28,988)

(25,185)

517,088

12,602

Provisions

(22,432,284)

706,833

-

206,041

(21,519,410)

561,101

-

(3,985,638)

(24,943,947)

Tax losses

(15,873,070)

-

-

(1,368,099)

(17,241,169)

-

-

(12,492,604)

(29,733,773)

Property, plant and equipment

(85,580)

(2,512)

-

26,487

(61,605)

(2,453)

-

(1,604,768)

(1,668,826)

Total

(38,624,017)

764,720

(1,740)

(1,411,460)

(39,272,497)

529,660

(25,185)

(17,565,922)

(56,333,944)

Deferred tax assetsDeferred tax liabilities

December 31, 2011

(17,585,558)

73,406,755

55,821,197

march 31, 2011

(12,982,291)

71,081,256

58,098,965


The period estimated for the reversal of deferred assets and liabilities is as follows:

As of the date of these Consolidated Financial Statements, the tax losses for which no deferred assets was recognized amounts to US$53.2 mil-lion, of which US$35.4 million are from Tecpetrol Corporation, with an expiration period of between 3 and 20 years, and US$17.8 million from

Deferred tax assets to be recovered after 12 months

Deferred tax liabilities to be recovered after 12 months

Deferred tax assets to be recovered within 12 months

Deferred tax liabilities to be recovered within 12 months

Foreign exchange derivative contracts Contracts with positive fair values

Foreign exchange derivative contracts Contracts with negative fair valuesTotal

December 31, 2011

(31,402,599)

76,925,943

(24,931,345)

35,229,198

December 31, 2011

879,052

879,052

(650,289)

(650,289)

228,763

march 31, 2011

(17,302,774)

64,700,648

(21,969,723)

32,670,814

march 31, 2011

-

-

-

-

-

other subsidiaries whose expiration period is 5 years.

28. deRIVAtIVe FInAnCIAl InstRuMentsThe net fair values of the derivative financial instruments are:

78

The breakdown of derivative financial instruments is as follows:

29. ContInGenCIes Tecpetrol has contingent liabilities in respect of legal claims arising in the ordinary course of business. There are certain interpretations made by the regulators as to the calculation and payment of certain taxes that differ from the Company’s position. Based on management’s evaluation and the advice of legal counsels, it is not an-ticipated that the ultimate resolution of pending litigation will result in amounts in excess of recorded provisions in these Consolidated Financial Statements.

Argentina – Income tax assessment The Argentine tax authority (Administración Federal de Ingresos Públicos – AFIP), has notified the sub-sidiary Tecpetrol S.A. of an income tax assessment amounting to US$2.4 mil-lion, in addition to the corresponding interests and fines, with the argument of improper treatment of the result of certain crude oil derivatives and other deductions for the fiscal years 2000 and 2001. In July 2006, the Company appealed resulting in a stay of execu-tion with respect to the demand for

PURChASE CURREnCY

USDUSDUSDUSDTotal

December 31, 2011

464,986

(27,373)

(102,654)

(106,196)

228,763

Sell currency

ARS

PEN

EUR

COP

march 31, 2011

-

-

-

-

-

Term

2012

2012

2012

2012

payment. In May 2011, the Company was notified of the Tax Court’s decision which ruled in favor of the Company as regards the treatment of oil de-rivative instruments and against the Company as regards certain deduc-tions. As the suspensive effect of the appeal to the Tax Court had expired, in November 2011, the Company paid up the amount corresponding to the items detailed in the ruling (approximately US$0.1 million of taxes plus interests); notwithstanding, the Company has lodged an appeal with the Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal (National Appeal Court for Federal Administration Litigation).

30. sItuAtIon oF AssoCIAted CoMpAnIes tRAnspoRtAdoRA de GAs del noRte s.A. And tRAnspoRtAdoRA de GAs del MeRCosuR s.A.Transportadora de Gas del Norte S.A. (“TGN”) began its operations at the end of 1992, and has since carried out an ambitious investment plan,

Fair value at


developing 6,195 km. of gas pipelines with a transportation capacity in ex-cess of 54.4 MMm³/day of natural gas, 354,200 installed HP and 19 compres-sor plants. TGN operates two main gas pipelines connected to fields in the North and Mid-West of Argentina, whose location al-lows the company to meet the gas needs of the countries in the Southern Cone. The measures adopted by the Argentine Government during 2002 and the situation to-date have substan-tially altered the legal and contractual conditions of the framework in which TGN conducted its business until December 2001. The tariff-freeze, added to the devaluation of the Argentine currency to a third of its value before the end of 2001, caused a substantial imbalance in TGN’s financial and eq-uity structure. This situation led to the company’s temporary inability to meet commitments with its financial credi-tors and the need to restructure its fi-nancial debt. In fact, after four years of negotiations with its financial creditors, TGN was finally able to consummate the voluntary restructuring of its finan-cial debt at the end of September 2007.On the other hand, as a result of the resolutions adopted by the Board of TGN on December 11, 2007 and the Ordinary Shareholders’ Assembly held on January 22, 2008, a new Global Program was adopted to issue simple negotiable obligations not convertible into shares for up to US$400 million or its equivalent in other currencies in circulation at any given moment. Nonetheless, the deterioration in the financial and economic equation as a result of the ongoing domestic tariff-freeze, combined with a fall in income from export transportation due to the lack of available gas and a generalized increase in costs in both Argentine

pesos and U.S. dollars, is generating uncertainty about TGN’s future capacity to continue meeting its financial com-mitments as agreed. In this context, the Board of TGN decided on December 22, 2008, to suspend capital payments and interests on its financial debt. At December 31, 2011, TGN has out-standing financial debts worth a total of US$451.3 million. Of these, it has not met the capital payment require-ments of US$344.9 million, and inter-ests worth US$89.3 million as well as US$17.1 million in punitive interests.Although the decision to suspend the repayments of its financial debt was taken with the explicit purpose of enabling the secure and reliable pro-vision of public natural gas carriage services, preserving the going concern principle and ensuring equal treat-ment for all its financial debtors, on December 29, 2008, the Ente Nacional Regulador de Gas - ENARGAS (Argentine Regulatory Gas Entity) took the decision to intervene TGN for 120 days. This intervention was succes-sively extended and is currently still in force. It should be noted that TGN has continued to provide public services as charged and in a normal fashion with-out affecting either customers or users in general in any way.On April 23, 2009, TGN announced the presentation of a swap offer and requested an out-of-court repayment plan (Acuerdo Preventivo Extrajudicial - APE) for the total restructuring of its financial liabilities. This was subse-quently improved upon and amended by a new offer and request for an out-of-court repayment plan made on September 8, 2009. This offer re-ceived an acceptance level of 87.97%; however, the restructuring process was delayed by the judiciary upon the request of the Administración Nacional

80

de Seguridad Social (Argentine Social Security Administration). In mid-July 2010, this conflict was unblocked but in September 2010, the Attorney-General requested the annulment of the out-of-court repayment plan to be null and void. The Commercial Court has not yet issued a ruling on this case. At the date of these Consolidated Financial Statements, there has been no changes in the tariff struc-ture; notwithstanding, TGN hopes to reach a full understanding with the Argentine Government and thus con-tinues to work with the Argentine authorities, making every effort to re-turn to the path of growth in the short-est time possible. Transportadora de Gas del Mercosur S.A. (“TGM”) began commercial op-erations in 2000, in compliance with its contractual obligations to provide YPF S.A. with the capacity to transport up to 2.8 million m3/day of natural gas along TGM’s 24 inch-diameter and 422 km-long pipeline for delivery at the sub-fluvial frontier between Argentina and Brazil under the river Uruguay near the town of Paso de los Libres in the province of Corrientes.On the base of the norms adopted by the Argentine Government aimed at palliating the effects of the en-ergy crisis in the short term, the Subsecretaría de Combustibles (Fuels Sub-secretariat) passed a series of measures suspending the export of certain volumes of natural gas in order to secure domestic supply. As a result, on April 15, 2009, TGM announced the termination of the transport agreement with YPF, which is currently its only source of income. In relation to the recoverable amount of the Company’s stake in the share capital of TGN and TGM, the Company carried out impairment tests. The

hypotheses, key assumptions and estimates of future events used to carry out these tests are based on the range of operating and commercial scenarios as regards the activities and prices pro-jected by each of the operating compa-nies themselves. This takes into account the outlook projected by management concerning income tax considerations, different scenarios for the collection of dividends arising from these invest-ments and the discount rate.These estimates are based on future suppositions which may or not come about. In these circumstances, the valuation of such investments (net of allowances for impairment recorded in previous years) represents the best estimate of management concerning the recoverability of these assets.

31. pRInCIpAl GuARAntees, CoMMItMents And RestRICtIons

Guarantees and commitmentsAt the date of these Consolidated Financial Statements, the Company and its subsidiaries hold the following commitments and/or guarantees:


a) Main corporate guarantees (amounts in us$ millions)

82

IteM Unconditional several guarantees as principal and joint obligor, for compliance with obligations on behalf of SMB with Pemex Exploración y Producción (“PEP”).

Guarantee for Tecpetrol Corporation’s obligations in favor of Credit Agricole-Investment Bank (“CA-IB”).

Guarantee of 50% of SMB’s obligations for the debt balance with Bancomer.

Irrevocable and unconditional covering for due compliance with the contractual obligations (first and second phase) signed between PEP and Norpower S.A. de C.V.

Joint guarantee of compliance with the obligations of Tecpetrol del Perú SAC and Tecpetrol Bloque 56 SAC under the license contract to exploit hydrocarbons in Lote 88, Lote 56 and Lote 174.

Company

Tecpetrol International S.A.


Tecpetrol Internacional S.L.U.



Beneficiary

PEP

CA-IB

Bancomer

PEP

Perupetro S.A.

Amount

38

13

15

14

-

Comments

-

-

Only executable if non-compliance is due to causes related to SMB’s performance.

TE&IC S.A. (shareholder of Norpower S.A. de C.V. through Techint S.A. de C.V.) issued an indemnity in favor of Tecpetrol International S.A. for a total of US$5.7 million against all action.

No defined amount.


IteM Due and total compliance with the obligations of Tecpecuador S.A. regarding the contract modifying the contract for the provision of services for the exploration and exploitation of hydrocarbons in Bloque Bermejo.

Joint guarantee for compliance with the obligations of Tecpecol S.A. enshrined in the contract for the exploration and exploitation of hydrocarbons with the Agencia Nacional de Hidrocarburos de Colombia (“ANH”) and any damages occasioned by non-compliance with the same.

Joint, unconditional and irrevocable guarantee for providing Tecpetrol de Bolivia S.A. with all the technical and financial resources required for the latter to fully and appropriately comply with its obligations pursuant to the contracts for the exploitation of the Bloques Aquío and Ipati.

Irrevocable and unconditional guarantee for the first and second phases of the contract signed between PEP and Norpower S.A. de C.V.

The Operation and Maintenance Agreement (O&M) for COGA obligations to provide pipeline operations and maintenance services to TgP according to the BOOT Contracts for the Concession of Gas and Gas Liquids.

Company



Tecpetrol S.A.

Tecgas NV

Tecgas NV

Beneficiary

Ecuadorian state

ANH

YPFB

PEP

TgP

Amount

-

-

-

7

-

Comments

No defined amount.

No defined amount.

No defined amount.

TE&IC S.A. issued an indemnity in favor of Tecpetrol International S.A. of up to US$ 2.9 million against any action.

COGA is liable to TgP for any damages, penalties, fines, costs, expenses or losses incurred as a result of, or because of, the pipeline system operation when this is due to negligence or willful misconduct on the part of the operator while providing the services. Any damages incurred by the gas shippers under their respective gas transport contracts are limited to an annual equivalent of no more than US$5 million.

84

IteM On December 9, 2000, TgP signed Investment Contracts in order to be eligible for the benefits established by Legislative Decree No. 818 and supplementary regulations. In these, TgP committed to investments concerning the BOOT Concession Contracts for up to US$665 million to be made within a forty-four month period as from that date. In the opinion of TgP Management, these investments have been correctly realized for the amounts and on the dates agreed.

Supreme Resolution No. 041-2010-EM of May 27, 2010, approved the signature of an addendum to the natural gas BOOT contract by the Ministerio de Energía y Minas and TgP. This stipulates that TgP commits to expanding in various stages the system’s gas transport capabilities to reach 920 MMcf per day of firm service.

Company

TgP

TgP

Beneficiary

Ministerio de Energía y Minas and CONITE (Peru)

Ministerio de Energía y Minas (Peru)

Amount

665

-

Comments

-

No defined amount.


IteM

Compliance with Tecpetrol Colombia S.A.S. investment plan.

Compliance with Tecpetrol Colombia S.A.S. investment plan.

Due compliance with the obligations of Burgos Oil Services S.A. de C.V. arising from the public works contract signed with PEP.

Due compliance with the obligations arising from the works contract signed between Norpower S.A. de C.V. and PEP.

Compliance with Rio Atuel investment plan.

Issuer

Citibank Colombia S.A.

HSBC Colombia S.A.

Afianzadora Aserta S.A. de C.V.

HSBC México S.A.

CHUBB Argentina de Seguros S.A.

Applicant Company



Burgos Oil Services S.A. de C.V.

Norpower S.A. de C.V.

Tecpetrol S.A.

Beneficiary

ANH

ANH

PEP

PEP

Mendoza province (Argentina)

Amount

7

4

8

4

5

Comments

Tecpetrol Internacional S.L.U. provided guarantees to Citigroup Inc. so that Citibank Colombia S.A. could issue a bank guarantee as requested by Tecpetrol Colombia S.A.S.

Tecpetrol Internacional S.L.U. provided guarantees to HSBC Colombia S.A. to issue bank guarantees as requested by Tecpetrol Colombia S.A.S.

Tecpetrol Internacional S.L.U. guarantees the surety policies provided by Afianzadora Aserta S.A. de C.V. in favor of PEP for US$9 million.

Tecpetrol Internacional S.L.U. signed a guarantee for up to US$5 million in favor of HSBC México S.A. Also, TE&IC S.A. issued an indemnity in favor of Tecpetrol Internacional S.L.U. for up to US$2 million.

-

b) Main guarantees for financial entities and insurance companies (amounts given in us$ millions)

86

IteM

Compliance with Oran investment plan.

Due compliance with SMB’s obligations arising from its contract with PEP.

Guarantee covering hidden defects.

Joint surety to guarantee compliance with TgP’s obligations as laid down in the BOOT Concession Contracts arising from the preoperational phase of the concession.

Guarantee for the payment of the acquisition price for the shareholding of Argentinean Pipeline Holding Company (“APHC”) in Gasinvest, TGM, TGN and related credits.

Issuer

CHUBB Argentina de Seguros S.A.

HSBC México S.A.

Afianzadoras Sofimex S.A. and Aserta S.A. de C.V.

Banco de Crédito del Perú

Banco Santander

Applicant Company

Tecpetrol S.A.

SMB

SMB

TgP


Beneficiary

Secretaría de Energía de la provincia de Salta, Argentina

PEP

PEP

Ministerio de Energía y Minas de Perú

APHC

Amount

2

16

17

2

5

Comments

-

-

-

This is a two-year guarantee, which is the minimum period given in the BOOT Concession Contracts, and is to remain applicable from the date of delivery to the Concessionaire until 90 calendar days after the due date of the BOOT Concession Contracts.

Compañía General de Combustible issued an indemnity in favor of Tecpetrol Internacional S.L.U. for US$2.34 million.


c) other commitmentsAt December 31, 2011, TgP obligations registered under the first corporate bond issue program according to the Framework Issue Contract amount to US$459 million (US$466 million at December 31, 2010). These obligations are secured by: (i) a bank escrow ac-count equivalent to six months’ debt service, (ii) a first senior mortgage on the concession-related assets es-tablished in the BOOT Concession Contracts, and (iii) a first senior pledge on TgP shares. Furthermore, the total amount of bank loans amounts to US$459 million at December 31, 2011, (US$416 million at December 31, 2010). The amounts dis-bursed and committed for these loans have been committed as guaranteed preferential loans, with the guarantees shared out according to the Framework Issue Contract. According to the contracts signed with financial entities, and to the Framework Issue Contract, TgP is required to com-ply with certain contractual covenants relating to financial ratios, business management, and other issues related to business activities. Within the “Sponsor Support and Share Retention Agreement”, Tecgas N.V. guarantees the international Development Bank (IDB) and the Corporación Andina de Fomento – CAF (Andean Promotion Corporation) the 23.6009% of US$6 million per year over the life of the loan. This guarantee covers any possible damages awarded as a result of the pipeline operation. legal stability agreementOn December 5, 2000, TgP signed Legal Stability Agreement with the Comisión Nacional de Inversiones y Tecnologías Extranjeras – CONITE - now Proinversión (National Committee

of Foreign Investments and Technology of Peru). Under the terms of the Agreement, TgP committed to issuing shares for up to US$208,740,000, and the Peruvian Government guaranteed the legal stability of the income tax regime and the regimes for the hiring of TgP’s workforce. On July 12, 2002, as resolved at the Ordinary Shareholders’ Meeting held on March 5, 2002, TgP amended the Agreement, stipulating a new commitment to issuing shares for up to US$204,477,000. At December 31, 2011, and 2010, all of the contributions committed had been capitalized and recorded with the public registers.These contributions are earmarked for the development and operation of the natural gas and natural gas liquids car-riage system.The Legal Stability Agreement came into force on the trade-date of the contracts and shall remain effective throughout the term of the conces-sion. It may not be modified unilater-ally, whether or not the modifications benefit one or other of the parties. Nonetheless, TgP is entitled to a single waiver of the benefits offered by the legal stability regime under this agree-ment so that it can automatically be-come subject to ordinary legislation.

limitations on share transfer and income distribution i) TGNThe terms and conditions of the transfer agreement impose certain restrictions on the transfer of those of TGN shares held by Gasinvest and the transfer of the latter’s shares by its shareholders.In accordance with such restrictions, Gasinvest may not reduce its share in TGN’s capital and votes to less than 51% (“Control Package”) without prior approval of the Ente Nacional

88

Regulador de Gas - ENARGAS (National Regulatory Gas Entity). Any transfer or assignment or any other act leading to a decrease below 51% in the interests held by the original share-holders in the capital of Gasinvest, including any shortfall in the subscrip-tion by those shareholders of any capital increase in Gasinvest, requires prior approval by ENARGAS.The aforementioned restrictions do not apply to transfers between parties be-longing to the same economic group as specified in the terms and condi-tions of the tender documents.As established in the new financial contracts it signed, TGN may not pay out dividends if it has incurred default or grounds for default or is undergoing a period of adverse events (as defined in the contracts) or if such payment exceeds in any calculation period the available basket amount, determined as available cash, and certain ratios between the cash flows for the calcula-tion period and the total financial debt.

Restricted assets A substantial majority of the assets transferred by Gas del Estado Sociedad del Estado (“GdE”) to TGN, mainly those included under the headings of gas pipelines, high-pressure branches, compressor plants and pressure regu-lation and/or measuring stations, has been defined in the License as “essen-tial for rendering the service licensed’’.In accordance with the license granted for the rendering of the natural gas car-riage public service through which the company is granted the exclusive right to exploit the two gas pipelines of its ownership in the North and Mid-West regions of Argentina, TGN is bound to repair and maintain all essential assets, including making any improve-ments and extensions as established

by specific standards defined in the license. TGN may by no means dispose of any essential assets, encumber, rent or otherwise give them in loan and restitution, nor may it use them for any purpose other than the rendering of the carriage services, without prior authori-zation from ENARGAS.As set forth in the new financial agree-ments entered into as a result of the financial debt restructuring, TGN may not dispose of any assets, unless the price of the sale operation is equal to the fair value of those assets or at least 75% of the sale price is collected in cash or cash equivalents. In addition, funds arising from the sale of an asset should be allocated to purchases and/or pre-settlements of capital from the exchange of corporate bonds, except if the profits resulting from those sales are reinvested in new assets within twelve months after the operation has been carried out.

(ii) TIBSA/Litoral Gas S.A.As established in the terms of reference and conditions for the international public tender for the privatization of Gas del Estado S.E., TIBSA may dispose of a portion of the majority sharehold-ing in Litoral Gas provided that it does not reduce its interest in the capital stock and voting rights of the licensee company to less than 51%. The transfer of this percentage, as well as any act that reduces TIBSA’s shareholding to an amount below this equity interest shall, in all cases, be subject to the prior au-thorization of the regulatory entity.

32. RelAted pARty BAlAnCes And tRAnsACtIonsThe parent company is San Faustin S.A., a corporation based in Luxembourg. San Faustin S.A. owned

Associated companies:Sales of products and services Interest income

other related companies:Sales of products and servicesPurchases of goodsFees and services Other operating income and expensesInterest income Interest expense


99,704,342

1,368,975

16,382,305

(23,245,761)

(47,822,454)

-

749,087

(4,418,566)


101,980,362

1,261,398

18,305,017

(12,297,689)

(54,055,903)

(282,363)

1,020,844

(3,336,556)


the Company through subsidiaries.Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin, a Dutch private foundation (“Stichting”), (“RP STAK”) held shares

in San Faustin S.A. sufficient in number to control San Faustin S.A. No person or group of persons controlled RP STAK.

Main operations with related parties

90

Short-term deposits with related parties (Note 21)

Trade receivables from related parties (Note 20)Associate companiesOther related companies

Other receivables from related parties (Note 19)Non-current – Associated companiesCurrent - Other related companies

Borrowings from related parties (Note 23)Non-current - Other related companiesCurrent - Other related companies

Payables to related parties (Note 26)

December 31, 2011

161,843,979

12,291,064

2,160,968

14,452,032

33,467,906

4,178,094

3,246,276

150,009

17,720,666

march 31, 2011

183,240,190

10,863,867

2,947,520

13,811,387

32,202,628

1,135,362

60,745,514

18,960,628

19,922,557

Balance with related parties

Key management compensationDuring the periods ended on December 31 and March 31, 2011,

the total compensation of Directors amounted to US$4.0 and US$4.4 mil-lion, respectively.

CoMpAny


Tecpetrol S.A.

Tecpetrol de México S.A. de C.V.

Burgos Oil Services S.A. de C.V.

Tecpecuador S.A.



Techenergy Services S.A. de C.V.

Tecpetrol de Bolivia S.A.

Dapetrol S.A.

33. pRInCIpAl suBsIdIARIes And JoIntly-ContRolled entItIes

Share percentage


main activity

Holding company

Exploration, exploitation, production and sale of oil and gas

Provision of services related to the development, infrastructure and maintenance of gas fields

Provision of services related to the development, infrastructure and maintenance of gas fields




Exploration, operation and maintenance of hydrocarbons fields



Country

Spain

Argentina

Mexico

Mexico

Ecuador

Peru

Peru

Mexico

Bolivia

Argentina

Dec-2011

100

100

100

100

100

100

100

100

100

100

mar-2011

100

100

100

100

100

100

100

100

100

100

(*) On November 30, 2011, Tecpecol S.A. modified its denomination to Tecpetrol Colombia S.A.S.

92

CoMpAny

Tecgas N.V.

Tecpetrol Lote 174 S.A.C.

Tecpetrol Colombia S.A.S. (*)

Compañía Operadora de Gas del Amazonas S.A.C.

Tecpetrol Corporation

Norpower S.A. de C.V.

Share percentage main activity

Holding company

Exploration, exploitation, production and sale of oil and gas Exploration, exploitation, production and sale of oil and gas, and operating and maintenance services and development hydrocarbons fields

Provision of services for the carriage and distribution of natural gas

Exploration, exploitation and production of oil and gas

Carrying out works related to the development, infrastructure and maintenance of the System 3 gas pipeline

Country

Curaçao

Peru

Colombia

Peru

U.S.A.

Mexico

Dec-2011

100

100

100

100

100

60

mar-2011

100

100

100

100

100

60


Share % nAmE

Agua Salada

Atuel Norte

El Tordillo

Caracol Norte (d)

Tres Nidos (e)

Aguaragüe

La Tapera-Puesto Quiroga

Río Atuel

Assignment date

September 1990

September 1990

June 1991

July 1992

July 1992

November 1992

July 1994

December2008

At December 31. 2011

70.00

33.34

52.13

-

65.00

23.00

52.13

33.33

location

Río Negro

Mendoza

Chubut

Neuquén

Río Negro

Salta

Chubut

Mendoza

Duration (years)

25

25

25

25

25

25 (a)

25 (b)

(c)

At march 31. 2011

70.00

33.34

52.13

65.00

65.00

23.00

52.13

33.33

entities under joint control

Joint ventures - ArgentinaAreas operated by Tecpetrol S.A.

(a) The term is calculated as from November 2001 for the “San Antonio Sur” field.

(b) This term is calculated as from July 21, 1992, when the area was awarded to Glacco S.A.. Tecpetrol S.A. purchased the area from Glacco S.A. in July 1994.

(c) This period will have the duration required to en-sure compliance with the obligations arising from the contract in question.

(d) On November 14, 2011 the Neuquén provincial government ended Tecpetrol’s exploitation con-cession in the Caracol Norte area.

(e) On June 1, 2011 Tecpetrol S.A. began the process to rescind its share in the Tres Nidos area.

nAmE

Ramos

Assignment date

January 1991

% at December 31 and march 31, 2011

25

location

Salta

Duration (years)

25 (*)

Areas operated by third parties

(*) On June 20, 1996, the due date of concession was postponed until January 21, 2026.

94

(1) On January 22, 2011, the amendment contract with the Ecuadorian state was signed by the Secretariat of Hydrocarbons (Secretaría de Hidrocarburos) of Ecuador and the subsidiary company Tecpec-uador S.A., in which the model for the provision

of services for the exploration and exploitation of hydrocarbons was adopted. The contract was registered with the register held by the Ecuadorian Secretariat of Hydrocarbons on February 17, 2011, and is applicable until July 30, 2019.

CountRy

Venezuela

Venezuela

Ecuador (1)

Peru

Mexico

Bolivia

Colombia

Duration (years)

20 years

Until such time as the obliga-

tions related to the contract to

convert this to a mixed com-

pany are fulfilled

20 years

30 years for oil exploitation

and 40 years for gas

20 years

Ipatí: 31 years

Aquío: 35 years

24 years as from the find

operator/ Common representative

Tecpetrol de

Venezuela S.A.

Suizum Servicios

de Consultoría

S.L.U.

Tecpecuador S.A.

Pluspetrol Perú

Corporation

S.A.

Servicios

Múltiples

de Burgos S.A.

de C.V.

Total Exploration

Production

Bolivia

Tecpetrol

Colombia S.A.S.

Area

Colón

Colón

Bermejo

Camisea

Misión

Ipatí

y Aquío

CPO6, CPO7

y CPO13

% mar- 2011

43.75

43.75

100

10

50

20

80

% Dec-2011

43.75

43.75

100

10

50

20

80

Assignment date

December 1994

September 2010

August 1999

December 2000

January 2004

May 2007

January 2009

Joint ventures – other countries


DEnomInATIon

ArgentinaAgua SaladaEl TordilloAtuel NorteTres Nidos - El Caracol Norte

AguaragüeRamosLa Tapera – Puesto Quiroga

Río Atuel

VenezuelaColón

mexicoMisión

PeruBloque 88Bloque 56

EcuadorBermejo

BoliviaAquíoIpati

Dec-11

9,280,960

37,881,344

358,610

8,596

5,133,744

12,566,598

620,004

359,527

304,361

46,755,985

13,909,985

12,459,349

11,762,328

2,163,127

1,347,979

mar-11

16,973,772

169,576,208

1,338,149

41,312

1,616,656

40,875,710

3,408,648

6,582,159

597,312

123,565,536

154,998,031

94,207,835

39,963,435

21,183,480

15,194,415

Dec-11

13,247,944

149,497,105

949,303

7,127

944,403

18,183,193

3,009,429

6,491,801

700,713

113,996,640

179,288,134

112,550,938

36,922,906

33,993,027

20,401,580

mar-11

12,505,344

36,435,093

671,895

772,005

5,506,137

12,166,392

636,172

803,151

323,205

57,382,635

19,607,044

7,138,138

11,907,616

2,847,663

1,087,396

Main entities under joint control: assets and liabilities according to the Company’s share interests

liabilitiesAssets

96

At December 31, 2011, the jointly-controlled entities and joint ventures contributed current and non-current as-sets for approximately US$106.55 and US$583.63 million, respectively, and current and non-current liabilities for approximately US$94.60 and US$60.31 million, respectively.Jointly-controlled entities and joint ven-tures contributed with revenues for ap-proximately US$719 million and expendi-tures for approximately US$403 million.

34. dIVIdendsOn March 23, 2012, the Board of Directors proposed to Tecpetrol International S.A.’s Ordinary Shareholders’ General Assembly to set up a reserve for future dividends of US$30,000,000, so that the Board may, as delegated by the Assembly, deter-mine the opportunities for dividend payments in the future.

35. suBsequent eVentsNo further events, situations or circum-stances have occurred subsequent to December 31, 2011, other than those mentioned below, which are not of public knowledge, that significantly or potentially may affect the Company’s equity, economic and financial position.

signature of contracts in ecuador for the libertador-Atacapi and shushufindi-Aguarico fields:On January 31, 2012 two contracts were signed with the Ecuadorian state oil company EP PETROECUADOR to provide specific services including financing from Tecpetrol in order to carry out activities aimed at optimiz-ing production, improving recovery and exploration as well as providing

advice for the optimization of variable operating costs. These contracts are for the Libertador-Atacapi and Shushufindi-Aguarico fields. Tecpetrol will be the operator in the former. The agreements have a duration of 15 years and foresee investments of US$1,300 million for Shushufundi and US$385 million for Libertador.Tecpetrol Internacional S.L.U. has issued annual guarantees in favor of EP PETROECUADOR, proportional in percentage terms to its share in both contracts, for the obligations which may be claimed and executed accord-ing to the terms and conditions of both contracts. These guarantees amount to US$21 million for Libertador-Atacapi and US$74 million for Shushufindi-Aguarico and are limited to the amount established in the annual work pro-gram for each fiscal period.

Tecpetrol International S.A. Complementary information at December 31, 2011

98

99 Tecpetrol International S.A.

Tecpetrol International S.A. and its subsdiaries

eXploRAtIon And pRoduCtIon opeRAtIons (e&p)

ArgentinaTecpetrol S.A. carries out oil and gas exploration and production activities in Argentina, and in other Latin American countries, through its investments. In Argentina, it operates the hydrocar-bons-producing areas in the Noroeste (Northwest), Golfo de San Jorge (San Jorge Gulf) and Neuquina basins. The main fields are El Tordillo in the San Jorge Gulf, and Aguaragüe in the Northeast. The company holds a 25% stake as a non-operating partner in the Ramos area in the Northwest basin. The export of crude oil is regulated. The Resolution of the Ministry of Economy (Ministerio de Economía - “ME”) N° 234/07 sets crude exportation rights at a proportional rate which var-ies according to the international price of crude and establishes a cut-off value of US$42 per barrel and a reference price of US$60.9 per barrel for WTI. This means that export rights increase in tandem with increases in internation-al crude prices over US$60.9 per barrel, so that the State effectively takes for itself almost all of any increase in inter-national oil prices. On November 2, 2011, the Ministry of Economy and Public Finances (Ministerio de Economía y Finanzas Públicas - MEyFP) and the Ministry of Federal Planning, Public Investment and Services (Ministerio de Planificación Federal, Inversión Pública y Servicios – MINPLAN), by means of the Joint Resolution MEyFP 693/2011 and MINPLAN Nº 1900/2011, set up a work-ing group to analyze the impact of the subsidies created by the Poder Ejecutivo Nacional (Executive) on different sectors. Furthermore, Decree No. 2014/08 and the regulatory Resolution of the Energy

Secretariat (Secretaría de Energía - “SE”) No. 1312/08 created a range of subsidies to provide an incentive for future investments in reserves, produc-tion and refinery. This regulation allows producers to receive a subsidy for an increase in reserves and/or an increase in or maintenance of production lev-els. Subsidies are also granted for the export of crude oil by those companies able to demonstrate an improvement in the performance of their reserve and production indicators compared with their indicators for the first six months of 2008 (baseline). These incentives were temporarily suspended as from February 2, 2012, in the form of a note from the Ministry of Federal Planning, Public Investment and Services (MINPLAN) sent to each major com-pany which had either received or was still receiving this subsidy. As regards the exploration and pro-duction of gas, in the framework of Resolution SE Nº 24/08 and its comple-mentary measures, which created the incentive program for natural gas production called “Gas Plus”, Tecpetrol S.A. has presented 22 gas projects to the Argentine Energy Secretariat with a view to qualifying for Gas Plus. Nineteen of these projects were ap-proved (five during 2011), and currently only three are pending resolution. Additionally, Letters of Intent have been signed with an industrial user and an electrical power generator with a view to developing these projects. Currently, there are eight projects un-der way, of which one makes sales to the industrial segment. During this period, natural gas produc-ers have reached a new agreement with the government which has led to a reduction (during the winter season) in part of the amounts committed by the producers in the framework of


Resolution SE N° 599/07. The agree-ment has had the effect of freeing up natural gas to be sold to industrial us-ers and/or electrical power generators, and has also resulted in better average sales prices. There have been no price increases in natural gas in the sectors of distribu-tion licensees, Natural Condensed Gas (NCG) service stations or electrical power generators during this period. peruThe Company is active in Peru through its stake in the companies Tecpetrol del Perú S.A.C., Tecpetrol Bloque 56 S.A.C. and more recently through the com-pany Tecpetrol Lote 174 S.A.C. Tecpetrol del Perú S.A.C. and Tecpetrol Bloque 56 S.A.C. hold a 10% stake as non-operators in the licensing contracts to exploit hydrocarbons in Bloques 88 and 56, respectively. These contracts with PERUPETRO S.A. were signed, together with other oil companies, on December 9, 2000 and September 7, 2004, with the aim of pro-ducing hydrocarbons in these fields. The terms and conditions of these contracts permit the consortium mem-bers to enjoy the rights of ownership over and free disposition of the hydro-carbons extracted in the contract area, paying the Peruvian state through PERUPETRO S.A. royalties calculated on the output amounts verified.As of December 31, 2011, the invest-ments made on a cumulative basis in Bloque 88 and Bloque 56 relative to the share of the companies (10%) amounted to US$200 and US$118 mil-lion, respectively. Tecpetrol Lote 174 S.A.C. is in charge of activities in Bloque 174, part of the same oil system which produced Camisea, lying 120 km north of the Camisea gas and condensed gas fields.

MexicoThe Company operates in Mexico through its shares in the companies Servicios Múltiples de Burgos S.A. de C.V. (“SMB”), and Burgos Oil Services S.A. de C.V. (“Burgos Oil Services” or “BOS”). SMB was set up specifically to un-dertake all the activities required to comply with the object of the public works contract signed with PEMEX Exploración y Producción (PEP), a subsidiary of Petróleos Mexicanos (PEMEX), as regards the execution of the requisite works related to the development, infrastructure and main-tenance of non-associated gas fields in the Burgos Basin in the Bloque Misión.Due to the security risks in north Mexico, during 2011 the agreement be-tween SMB and PEMEX continued to be operational for the Géminis, Presa, Quitrín and Troncón fields, aimed at reducing risks for personnel as well as for the environment and surface installations, while seeking to ensure compliance with SMB’s obligations concerning the development works, infrastructure and maintenance in a timely fashion. During 2011, under the aegis of the security guidelines agreed and implemented, several works were carried out in the Arcabuz and Santa Anita fields which could not be done in 2010 because of the afore-mentioned security problems. On March 25, 2010, BOS completed its acquisition of 100% of the share capital of the Tecpetrol Corporation (see the paragraph on the United States), lo-cated in Houston in the state of Texas, United States.Furthermore, in April, 2010, BOS and PEP signed a public works contract in which BOS undertakes to perform all the works involved in the technological development laboratory (field labora-tory) in the Coyotes field for Active

102

Integrated Tertiary Gulf Oil, a project under the general management of PEP. BOS will not have any share in the hydrocarbons extracted from or pro-duced by any of the development or exploratory wells included in the con-tract, and may only enjoy the right to receive the considerations foreseen in the contract in exchange for the works undertaken in the contract. The contract contemplates three phas-es of operations: stage one, involving geosciences and production studies; stage two, maintenance works, and stage three, development works. The duration of the contract is from April 5, 2010, to December 31, 2012.

ecuadorThe subsidiary Tecpecuador S.A., was awarded a contract for the provision of services to explore and exploit hy-drocarbons (crude oil) in the Bermejo field in Ecuador. Tecpecuador has the right to charge a tariff for the fields in production for each net barrel pro-duced and delivered at the Control and Delivery Center. This tariff takes into ac-count an estimate of the depreciation of the investments costs and expenses as well as a reasonable profit which also contemplates the risks incurred.

united states Tecpetrol Corporation is dedicated to oil and gas exploration, exploitation and production activities in the south of Texas, and has exploitation rights in four production fields of differing oper-ating characteristics as well as in three exploratory fields.

ColombiaIn Colombia, the Company operates through Tecpetrol Colombia S.A.S.In November 2008, CPO6, CPO7 and CPO13, three exploratory blocks lying

next to each other in the prolific Llanos Orientales basin were pre-awarded. This is an exploratory zone with a very high potential. Tecpetrol Colombia S.A.S. formed a consortium with the company Inepetrol from the Inelectra group with stakes of 80% and 20% respectively, with Tecpetrol Colombia S.A.S. acting as operator for all the blocks. In January 2009, the E&P contracts with the National Hydrocarbons Agency (Agencia Nacional de Hidrocarburos – ANH) were signed. During 2011, the processing of the 2,000 km of 2D seismic surveys recorded in 2010 was completed and the interpretation of these led to the identification of the locations of the exploratory wells committed in phase 1, where drilling began at the end of 2011.

BoliviaThe Company is active in Bolivia through Tecpetrol de Bolivia S.A., which holds a 20% stake in the operat-ing contracts for the Ipati and Aquío blocks as a non-operating partner. Both operating contracts establish that the private partners (Total E&P Bolivie, Suc. Bolivia and Tecpetrol de Bolivia S.A.) are responsible for carrying out the oil operations (exploration, evalu-ation, development, exploitation and well-abandonment) at their own risk and expense, in exchange for a return on the output produced and delivered to Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) which is exempt from both risk and responsibility as regards either oil operations or their results. In this context, Tecpetrol de Bolivia has no rights of ownership to either the hydrocarbons fields or the hydrocarbons produced, as both belong to YPFB.


VenezuelaThe Company has a stake in the mixed-capital company Baripetrol S.A. through its subsidiary Suizum Serviços de Consultoría S.L.U. Consorcio Colón only undertakes residual activity related to the administrative and operational services it provides to Baripetrol S.A.

GAs And poweR tRAnspoRt And dIstRIButIon opeRAtIons (G&p)

ArgentinaThe Company develops G&P operations through its shares in the companies Transportadora de Gas del Norte S.A. (“TGN”), Transportadora de Gas del Mercosur S.A. (“TGM”), Litoral Gas S.A. (“Litoral Gas”) and Energy Consulting Services S.A. (“ECS”).TGN began operations at the end of 1992, and has since then carried out an ambitious investment plan, develop-ing 6,195 km. of gas pipelines with a transportation capacity in excess of 54.4 MMm³/day of natural gas, 354,200 installed HP and 19 compressor plants. TGN operates two main gas pipelines connected to fields in the North and Mid-West of Argentina, whose location al-lows the company to meet the gas needs of the countries in the Southern Cone. As explained in Note 30 to the Consolidated Financial Statements, the measures adopted by the Argentine Government during 2002 and the situ-ation to-date have substantially altered the legal and contractual conditions of the framework in which TGN conduct-ed its business until 2001.TGM began commercial operations in 2000, in compliance with its contractu-al obligations to provide YPF S.A. with the capacity to transport up to 2.8 mil-lion m3/day of natural gas for delivery

at the sub-fluvial frontier under the river Uruguay.On the base of the norms adopted by the Argentine Government aimed at palliating the effects of the energy cri-sis in the short term, the Subsecretaría de Combustibles (Fuel Sub-secretariat) passed a series of measures suspend-ing the export of certain volumes of natural gas in order to secure domestic supply. As a result, on April 15, 2009, TGM announced the termination of the transport agreement with YPF, which is currently its only source of income. Litoral Gas is constituted in Argentina where it undertakes its operations on an exclusive basis. It distributes natural gas through networks in the geograph-ical area made up of the province of Santa Fe and the north of the province of Buenos Aires. It began operations in December 1992 following the privatiza-tion of the state-owned company Gas del Estado S.E.Litoral Gas provides services to nearly 640,000 residential, commercial and industrial clients as well as power stations, compressed natural gas ex-penders and sub-distributors through 1,855 km. of pipelines and 9,305 km. of distribution networks.Capital investments for the current period were in excess of US$3 million, and totaled approximately US$149 mil-lion during the 1993-2011 periods. ECS provides sales and consultancy activities to companies from the en-ergy markets of Argentina and other Latin American countries. It offers transport and distribution manage-ment services for natural gas and other fuels for industrial clients, as well as expert advice for projects to optimize the consumption and use of energy, financial operations related to energy, and the development of infrastructure projects, among others.

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peruAssociated company Transportadora de Gas del Perú S.A. (TgP) is the conces-sionary company in charge of trans-porting natural gas (NG) and Liquid Natural Gas (LNG) from the Camisea fields in the Peruvian rainforest to the coast, Pisco for LNG and Lurín in the case of NG.From January 2002 to August 2004, the month in which the company’s operations began, 730 km of pipeline were laid to transport natural gas from Camisea to City Gate in Lurín, and a 560 km. stretch laid to take natural gas liquids from the fractioning plant in Pisco. These are the TgP’s main assets. Furthermore, the subsidiary COGA is in charge of operating and maintaining the natural gas and natural gas liquids carriage system belonging to TgP. It offers a range of services related to the expansion of the natural gas and natural gas liquids carriage system. Additionally, COGA has provided TgP with services to carry out stabilization projects, geotechnical surveys, erosion control work and soil revegetation on the sites where the Camisea Project natural gas and natural gas liquids car-riage system is located.

MexicoIn December 2009, Norpower S.A. de C.V. (“Norpower”) and PEP signed a public works contact for a ten-year period to provide services over a ten-year period to ensure the integrity and reliability of the pipelines making up System 3. The contract is divided into two phases, the first lasting 36 months and the second 84 months. The con-tract term may be expanded with the signature of a contractual amendment by both parties. System 3, lying in southeast Mexico, is a pipeline network of 1,400 km.

The contract mostly includes pipeline, rights of way and measurement points maintenance activities, the provision of technical assistance to PEP regarding pipeline maintenance and operations; and specific tasks for the substitution, modification, removal, capping and dismantling of stretches of pipeline, among others.


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