TECPETROL INTERNATIONAL S.A. Report... · TECPETROL INTERNATIONAL S.A. (“TECPINT”), domiciled in Uruguay, is an investment company for the energy business concerns belong-ing

TECPETROL INTERNATIONAL S.A.

Annual Report and Consolidated Financial Statements as of March 31, 2011

CONTENTS

Annual Report and Consolidated Financial Statements as of March 31, 2011

Annual report as of March 31, 2011

Board Members as of March 31, 2011

Independent auditor’s report

4 17

18

2 Tecpetrol International S.A.

Consolidated Financial Statements as of March 31, 2011

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Tecpetrol International S.A. and its subsidiaries

Consolidated Statement of Comprehensive Income

Consolidated Income Statement

Consolidated Cash Flow Statement

Notes to the Consolidated Financial Statements

21 24

26

99

25

25

27 28

Annual Report and Consolidated Financial Statements 3

THE COMPANYTECPETROL INTERNATIONAL S.A. (“TECPINT”), domiciled in Uruguay, is an investment company for the energy business concerns belong-ing to the Techint Group.The Company owns shares in lead-ing production, transport and dis-tribution companies in Argentina, Bolivia, Ecuador, Mexico, Peru, Venezuela, Colombia and the United States of America, develop-ing and taking part in major en-ergy integration projects. In just over twenty years, it has managed to consolidate its position as an in-vestor in the energy sector in Latin America, strengthening its relation-ship with key international part-ners and positioning itself as an internationally-qualified operator.

STRUCTURE OF TECPETROL INTERNATIONAL S.A. TECPETROL INTERNATIONAL S.A. concentrates in one sole invest-ment company the ownership of the subsidiaries which carry out the Techint Group’s energy busi-ness into one sole investment company. It is owned by Techint Investments N.V.Currently, the Company develops, invests and operates businesses in the energy market through its sub-sidiaries, carrying out the explora-tion and production of oil and gas (E&P) and the transport and distri-bution of gas (G&P).

INTERNATIONAL CONTEXTTowards the end of 2009, the first signs of recovery began to make themselves felt in global terms, following the 2008 crisis. However, the world economy, particularly that of the United States of America and Europe, has not yet managed to show a clear trend for reactiva-tion as regards global demand and employment levels.As of March 31, 2010 and 2011, the average WTI price was of United States dollars (“US$”) 81.30 and 103 per barrel, respectively, reflecting a growth in demand for this com-modity over the last year.International oil market operators expect the price of oil to remain at these levels, bolstered by a num-ber of different factors arising from the strong growth of emerg-ing economies, in particular China and India.It is estimated that oil demand will remain steadier in 2011 than in 2010 and will reach some 89 million bpd, according to the projections made by the International Energy Agency (IEA) in its past December newsletter.

ANNUAL REPORT

Tecpetrol International S.A. 4

As of March 31, 2011

820.1

(533.5)

286.6

(9.4)

(61.4)

(27.6)

(10.1)

178.1

(5.1)

20.3

193.3

(63.9)

129.4

129.8

(0.4)


704.4

(455.0)

249.4

(9.5)

(44.6)

(9.7)

3.3

188.9

(3.4)

18.8

204.3

(44.5)

159.8

159.8

(0.0)

ECONOMIC RESULTS AND FINANCIAL SITUATIONThe Company and its subsidiar-ies have applied the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board

(IASB) as accounting principles for the preparation of their fi nan-cial information as of March 31, 2011, and 2010.The breakdown of the Consolidated Financial Statements is given below:

In US$ millions

Net sales income

Operating costs

Gross profit

Selling expenses

Administrative expenses

Exploration costs

Other operating income and losses

Operating profit

Net financial result

Results of investments in associates

Results before income tax

Income tax

Profit for the year

Attributable to:

Company shareholders

Non-controlling interests

5Annual report as of March 31, 2011


1,121.7

515.5

1,637.2

974.8

343.3

319.1

1,637.2

975.1

(0.3)


1.62

1.47

0.69

14%


1,040.7

389.4

1,430.1

887.5

340.1

202.5

1,430.1

887.3

0.2


1.93

1.65

0.73

19%

As shown above, sales income for the fi nancial year ending March 31, 2011, was US$820.1 million, which represents an increase of US$115.7 million compared with the total sales of US$704.4 as of March 31, 2010. Profi t for the year came to US$129.4 million (net of

As of October 21, 2010, the Ordinary Shareholders’ Assembly of Tecpetrol International S.A. approved the payment of cash dividends for US$30 million,

income tax worth US$63.9 million) which represents 16% of total net sales income.The Company’s net consolidated equity as of March 31, 2011, came to US$974.8 million. The details of the most relevant fi gures are given below:

representing a total of US$3.14 per ordinary share issued and current-ly in circulation.The main fi nancial indicators are as follows:

In US$ million

Non-current assets

Current assets

Equity (*)

Non-current liabilities

Current liabilities

(*) Attributable to:



Liquidity

Solvency

Capital immobilization

Yield


PERSONNEL The Company has since the begin-ning maintained that one of its priorities for consolidating growth is training human resources to ensure they are qualifi ed and committed, with a broad range of experience across the diff erent businesses it operates. The signifi -cant investment made in training which sets its companies apart is a clear sign of commitment in this area.As of March 31, 2011, the Company employs a work force of 976 people based at its diff erent subsidiaries throughout the Americas.The numbers of staff employed per level and category during the fi nancial year are as follows:Board and management staff 70 employeesOther personnel 906 employees

Training Continuing with its training and development policy, person-nel members have taken part in training activities throughout the current fi nancial year, both in prestigious universities and as part of in-company activities. The Company has also been represent-ed at various events held in diff er-ent countries, off ering staff the possibility to take specifi c techni-cal courses.

COMMUNITY RELATIONS, ENVIRONMENT AND SAFETY

Social DevelopmentThrough its operating subsidiaries, the Company works closely with the communities neighboring its operations, contributing to the de-velopment of each community and its institutions. In this spirit, it car-ries out and supports social devel-opment programs in low-income rural and urban areas, indigenous communities and schools in the vicinity of its fi elds, committing its personnel just as much as the local population to the development of its social programs.The Company is currently contrib-uting to the development of the community mainly through inte-grated community development programs managed by its subsidiar-ies. A Community Action Plan was drawn up to this eff ect, which in-cludes mainly nutrition, education, health, culture and work training.


Environmental safety and protectionThe Company and its subsidiar-ies, in particular the operators, all pursue the priority objective of managing their operations to en-sure that the physical integrity of personnel and third parties is ad-equately protected, as well as safe-guarding the environment. Health, Safety and Environmental protec-tion concepts have been integrated under this concept (“HSE”) as core management values.

Environment The Company’s operating sub-sidiaries are currently running a number of diff erent programs to safeguard the environment, such as environmental impact stud-ies, monitoring and contingency plans, which analyze the potential impact a new project may have in order to plan adequately to avoid or minimize any damage to the environment; cleaning the landfi ll areas inherited from past opera-tors which helps to mitigate the

impact of the diff erent fi elds on the land itself; the appropriate disposal of production waters, reinjecting 100% of these effl uents in order to eliminate the risks of contaminating ground and sub-terranean waters; the elimination of gas emissions which helps to diminish their eff ects on the at-mosphere and reduces greenhouse gases; the acquisition of impact seismic equipment; the preven-tion of oil spills and leaks; erosion control and environmental recov-ery by restoring the aff ected areas, either by encouraging the process of natural revegetation, by restor-ing the original condition of the soil, or carrying out a replanting program with indigenous species, etc.Another key objective is the develop-ment and implementation of new systems and technologies aimed at preventing and reducing the impact on the environment. The Argentine subsidiary Tecpetrol S.A. was the fi rst oil company in its country to set up a new technology for treating oil-contaminated mud in the area El Tordillo, solving a historic problem that all operating companies work-ing in Argentine Patagonia have had, due to climatic conditions.Furthermore, work continued with the state company ENARSA to operate wind turbines in the area El Tordillo and acquire the wind energy created within the frame-work of a pilot project for “Clean Development Mechanisms” (CDM)


to reduce greenhouse gases.Revegetation and reforestation activities were carried out with native species in diff erent opera-tions in Argentina, Peru, Ecuador and Colombia to complement the drive to protect and care for the environment.Particularly in Peru, the Company was awarded the Integrated Health, Occupational Safety, Quality and the Environment Management certifi cation by the quality control consultants TÜV Rheinland.In Bermejo, Ecuador, the ISO 14001 certifi cation for the Environmental Management System implemented was main-tained and the environmental license for the operation of the entire block was obtained. Drilling at the well El Rayo 5 was completed with environmental compliance levels of 100% and no “non-compli-ance” outstanding.In Colombia, the compliance re-ports for the 2D seismic survey proj-ect carried out in the three blocks (CPO-6, CPO-7 and CPO-13), were presented to the competent bodies, while the procedures to obtain the environmental licenses for the ex-ploratory drilling project planned for 2011-2012 were also begun.

SafetyThe key elements for the imple-mentation of a safety policy are leadership and commitment, in-tegrated safety, audits, prevention programs, accident and incident investigation, risk administration, improvement plans and safety initiatives as well as the ability to manage change.The results obtained are moni-tored using the safety indices compared with the objectives set, the number of audits carried out measured against the original number programmed, and the number of positive and negative preventive observations (STOP). The main focus was on managing the eff ective application of the key elements through a program called HSE Control Panel (STOP, audits, incident reports).During the fi nancial year, as every year, prizes were awarded for Safety in each fi eld to groups of contrac-tors with an outstanding perfor-mance in this area. The Annual ‘Alejandro Buchanan’ Safety prize was awarded to the Mexican op-eration’s “Sistema 3” area of the subsidiary Norpower S.A. de C.V. for achieving the highest safety indica-tors among all the operative subsid-iaries in the Company.


Furthermore, after successfully passed an external audit, the Peruvian companies Transportadora de Gas del Perú (TgP) and Compañía Operadora de Gas del Amazonas S.A.C. (COGA) were awarded the triple standard certifi cation ISO 9001, ISO 14001 and OHSAS 18001, thus reaching the most rigorous standards of quality, environment and safety, respectively. The audit was carried out in two phases and fi nished on December 10, 2010, with the highest possible qualifi cation, as there were no “non-compliance” boxes ticked.Certifi cation for the associate TgP includes the process for natu-ral gas and natural gas liquids carriage through the Camisea natural gas and natural gas liq-uids transport system, while the certifi cation corresponding to the subsidiary COGA covers the opera-tions, maintenance and overall management of the hydrocarbons transport systems through pipes and associated installations.

The safety results achieved by the subsidiaries during the fi nancial year were: 0.62 for the Lost Time Injury Frequency Rate for days missed (per million hours worked), while the index of recorded ac-cidents which measures lost days, fatalities, cases requiring medical treatment and restricted work duties, was 2.78. The objectives for 2010 were 1 and 2.5, respectively.For 2011, the following objectives have been set for the subsidiar-ies: 0.6 for the Lost Time Injury Frequency Rate for days missed and 2.5 for the recorded accident index.


HYDROCARBONS RESERVES Reserves are taken to mean the volumes of oil and gas (in oil-equiv-alent cubic meters) which gener-ate or are associated with revenue in the areas where each company operates or has a direct or indirect interest and which the Company has the right to exploit. This in-cludes hydrocarbons volumes related to the service contracts in which the Companies have neither ownership of the reserves, nor ownership of the hydrocarbons extracted, which are estimated will be produced for the contracting party under the works contracts.There are numerous factors which generate uncertainty as to the cal-culation of proven reserves, future production profi les, development costs and prices, including diverse factors which are beyond the control of the producer. Reserve engineering is a subjective process

which attempts to estimate the un-derground accumulation of crude oil and natural gas which involves a certain degree of uncertainty.The proven reserves of hydrocar-bons estimated as of March 31, 2011, according to the share inter-ests of the diff erent subsdiaries, are as follows:Oil – millions of cubic meters 16Gas – billions of cubic meters 44The aforementioned reserves include proven reserves which may be extracted and from which royalties have not been deducted. The information was prepared by the Company’s technical person-nel based on the technological and economic conditions prevailing on the date in question. It takes into account the economic evaluation within the terms of the respective contracts or concessions in order to defi ne their recoverability.


Utilization percentage

91.6%

95.3%

70%

-

Daily transport capacity

54,400

7,935

15,000

2,800

Daily transport

49,850

7,563

10,453

-

GAS (in Mm3/day)

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

Litoral Gas S.A. (Argentina)

Transportadora de Gas del Perú S.A.

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

TRANSPORT GAS CAPACITY (G&P)

OUTLOOK AND PROJECTSIn Argentina, in the area El Tordillo, work will continue with drilling, including eleven deep wells with one rig. Forty-four pri-mary and thirty secondary work-overs will be carried out as well as two conversions to drainage wells in order to handle water excess. Work will continue with six work-over rigs and the tertiary recovery project using polymer injections. As regards the product collection installations, the main investments planned concern the purchase

of pumping equipment, the up-grade of pipelines and collection pipes, the electrifi cation of far-off wells and plans to forestall corro-sion and rusting.In the Neuquina basin, work will continue with drilling, including exploratory wells foreseen in the Gas Plus program.Furthermore, the building of in-frastructure works in Los Bastos is planned, including pipelines and storage tanks in order to expand hydrocarbons transport and pro-cessing capacity.


In Río Atuel, the Argentine subsid-iary Tecpetrol S.A. will continue with the exploratory work current-ly under way, including the record-ing, processing and interpretation of 3D seismic studies, according to the commitments undertaken with the province of Mendoza.As regards the commercialization of crude oil in Argentina, sales will continue to be made principally on the domestic market.Concerning gas, and given that Tecpetrol has adhered to the “Agreement with Natural Gas Producers 2007-2011”, sales will be made mainly on the domestic market within the pricing param-eters and according to the priori-ties established by Resolution SE Nº 599/07. As for the Gas Plus proj-ects presented (19 gas projects, of which 15 were approved during 2010) it is expected that the re-maining projects presented by the Company still pending approval will be accepted in the short term. Of those approved, two are already in production and one is making sales to the industrial segment.In Peru, following the evaluation of 24 exploratory blocks off ered by Perupetro, the Company selected, bid for and was awarded to Bloque 174 in November 2010. Tecpetrol Lote 174 S.A.C. was set up as the cor-porate vehicle for this new opera-tion. The area in question is part of the same oil system developed origi-nally by Camisea (Peru) and lies just 120 km to the north of this fi eld.

The contract awaiting signature concerns exploration and exploita-tion activities aimed at discovering and producing hydrocarbons in the area covered by the contract. The Company will enjoy owner-ship rights over the hydrocarbons extracted, while Perupetro S.A. will act as supervisor. The explora-tion period is expected to last 7 years and is divided into 5 phases. If a discovery is made, the total duration of the contract will be extended for a further 30 or 40 years, depending on whether oil or associated gas is found, re-spectively. As of the date of the current Consolidated Financial Statements, the Company is wait-ing on the Peruvian government to issue the award decree.Furthermore, the Camisea op-erations are expected to con-tinue in Bloque 88 (San Martín and Cashiriari), and in Bloque 56 (Pagoreni), which have been sup-plying 100% of the requirements of Perú LNG S.R.L. (PLNG), reaching 620 MMscf/d (million cubic feet per day) since June 2010, when the company began commercial opera-tions. Additionally, as part of the Full Exploration Plan, the drilling program in Mipaya, is under way, as drilling at Mipaya X-1001D was completed in May 2011, belonging to Bloque 56. Work is continuing on the second expansion phase in Bloque 88 with the aim of increas-ing plant capacity by 520 MMscf/d.On May 13, 2010, the subsidiary


COGA and PLNG signed the “Gas Pipeline Maintenance Contract” which sets out the scope of ser-vices to be provided by COGA in order to maintain the 34 inches PLNG Gas Pipeline running from Chiquintirca near Ayacucho to PLNG’s plant in Pampa Melchorita (Peru). The contract came into effect on June 1, 2010, and its ap-plication period lasts 36 months, which may be extended by further 36-month periods subject to agree-ment by both parties.On May 27, 2010, the Ministerio de Energía y Minas de Perú and TgP signed an addendum to the BOOT concession contract for natural gas carriage, in which TgP under-took to expand the gas transport system in a phased plan to reach a capacity of 920 MMscf/d of regular service, subsequently modified in scope in April 2011.In Mexico, an investment cam-paign was carried out during 2010 with a drilling rig as part of the Bloque Misión contract. To-date, five wells have been drilled, three of which are exploratory, and the plan for the rest of the year is to drill a further ten development wells and two exploratory wells. 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. A further ten workovers are planned for 2011, while work is expected to continue on building the facilities in the Misión, Santa Anita, Cali and Arcabuz fields.

As regards production, increases of over 250% have been achieved for gas and over 550% for liquids since the start of the contract. At a business level, during the peri-od from 2004 to 2010, over US$500 million have been invested, equiva-lent to 38,922 work units, 378% over the minimum investment commit-ment for the first seven years.During March 2010, Burgos Oil Services S.A. (a subsidiary company) acquired 100% of the share capital of Erskine Energy Production Co., a company based in the United States which carries out oil and gas exploration, exploi-tation and production activities in the south of Texas, United States (U.S.). During April 2010, Erskine Energy Production Co. changed its name to Tecpetrol Corporation.By December 2010, Tecpetrol Corporation had completed a total of five major workovers and 15 repairs.Furthermore, on April 5, 2010, the subsidiary BOS and PEMEX Exploración y Producción (PEP) signed a public works contract in which BOS undertook to perform all the works involved in the tech-nological development laboratory (field laboratory) in the Coyotes field for Active Integrated Tertiary Gulf Oil, a project under the gen-eral management of PEP. The con-tract contemplates three phases of operations, which are already under way: stage one, involving geosciences and production stud-ies; stage two, maintenance works, and stage three, development works. BOS undertakes to perform the tasks given in the contract mentioned above as from April 5, 2010, and to complete these by no later than December 31, 2012.


BOS has now fi nalized the fi rst stage of the geosciences and pro-duction studies and presented these to PEP, as they will be used to defi ne and establish the future development of the Coyotes fi eld. Furthermore, 85 well interventions have been carried out and the idea is to continue the campaign dur-ing the rest of 2011. During the month of May, the fi rst horizontal drilling project was carried out and is now awaiting completion. The results of the well will deter-mine the viability of continuing with the drilling campaign. The BOS operation includes 156 wells, of which 138 are currently in operation while another 18 are awaiting reacti-vation. Production levels amounts to 2,650 bbl/d (barrels per day).As for the subsidiary company Norpower S.A., the outlook for this corporation includes continuing to meet contractual obligations as well as executing the works previ-ously defi ned by PEP as well as other additional projects which may be necessary.In Colombia, a 2D seismic survey covering over 2,000 linear kilome-ters was launched towards the end of 2009. The project concluded in August 2010, having recorded 2008 km in the survey with results of excellent quality. Tecpecol S.A. was thus able to begin processing and interpreting the data obtained to generate the information required to move onto the stage of drilling exploratory wells. The seismic in-terpretation work is expected to continue during 2011, as well as the defi nition of exploratory prospects and the bureaucratic procedures

required to obtain environmental permits and other authorizations in order to begin exploratory drilling during the third quarter of this year.In Ecuador, in January 2011, the amendment contract between the State of Ecuador, represented by the Secretaría de Hidrocarburos, and the subsidiary company Tecpecuador S.A. was signed. The contract covers the model for the provision of services for the explora-tion and exploitation of hydrocar-bons, according to the fi rst tempo-rary disposition given in the Law amending the Law of Hydrocarbons and the Internal Tax Regime Law, published in the Registro Ofi cial Suplemento No. 244 of July 27, 2010. The contract was registered at the Registro de la Secretaría de Hidrocarburos on February 17, 2011 and is applicable until July 30, 2019.


The parties agree that Tecpecuador shall have the right to charge a tariff for the fi elds in production produced and delivered at the Control and Delivery Center. This tariff takes into account an esti-mate of the depreciation in invest-ment, costs and expenses as well as a reasonable profi t which also contemplates the risks incurred.This renegotiation stipulates the need to explore the pre-Cretaceous basin. This is a high risk objective, as there are no records of the exis-tence of oil systems at these levels.Furthermore, for 2011, Tecpecuador S.A. plans to be-gin drilling the exploratory well Bermejo Este X-1 and to perform four repairs in order to increase production output.In Bolivia, in the Bloque Aquío, the 3D seismic survey was carried out along a stretch of 400 km2 which led to the sinking of well AQ X-1001. In February 2010, drilling began to a depth of 4,805 meters. The well turned out to be a fi nd, and represents an increase in reserves, providing support for the continu-ity of this structure. As declared by Bolivian President Evo Morales when he announced the fi nd on April 27, 2011, this is the most signifi cant discovery of the last few years. The fi rst fi eld development phase covers the drilling of three wells and a production train. As from 2015, output is expected to reach some 6.5 MMm3 per day.

The reserves discovered in Bolivia belong to the reservoirs along the Huamampampa formation. There is still exploratory potential in deeper reservoirs, such as those in the Santa Rosa and Icla forma-tions, which Tecpetrol de Bolivia S.A. will be investigating with future wells.The Company continues to ana-lyze new business options in those countries where it is currently op-erating, as well as other countries, in its search for new operations which will allow it to fulfi ll its growth and consolidation strategy.The Board thanks personnel for their dedication, hard work and achieve-ments during this fi nancial year.


BOARD MEMBERS AS OF MARCH 31, 2011

PRESIDENTCarlos Arturo Ormachea

VICEPRESIDENTEnrico Fabián Repetto Mariño

DIRECTORJorge Emilio Perazzo Puppo

DIRECTORCarlos Manuel Franck

DIRECTORACatalina Alicia Ilicic Sincovich

17

Independent auditor’s report

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

We have audited the accompanying consolidated financial statements of Tecpetrol International S.A. (“the Company”) which comprise the consolidated statement of financial position as of March 31, 2011, and the consolidated income statement, comprehensive income, changes in equity and cash flows for the year then ended and a summary of significant 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. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

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 that 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.

PricewaterhouseCoopers, Cerrito 461 1st floor, T: +598 29160463, F: +598 29160605 11.000, Montevideo, Uruguay, www.pwc.com/uy ©2011 PricewaterhouseCoopers Ltda., PricewaterhouseCoopers, PricewaterhouseCoopers Professional Services Ltda., PricewaterhouseCoopers, Shaw, Faget & Asociados, and PricewaterhouseCoopers Software Ltda. All rights reserved. In this document “PricewaterhouseCoopers” and/or “PwC” refers to PricewaterhouseCoopers Ltda., PricewaterhouseCoopers, PricewaterhouseCoopers Professional Services Ltda., PricewaterhouseCoopers, Shaw, Faget & Asociados, and PricewaterhouseCoopers Software Ltda., which are member firms of PricewaterhouseCoopers International Limited (PwC IL), each member firm is a separate legal entity.

Opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2011, the consolidated results of its operations and its cash flows consolidated for the year then ended in accordance with International Financial Reporting Standards.

Emphasis of Matter

Without qualifying our opinion, we draw your attention to Note 31to the financial statements. There are certain associated companies and subsidiaries which are operating under unstable regulatory and economic conditions. An adverse evolution of the situation described in this Note could have a negative impact on the Company’s financial and economic position.

Montevideo, UruguayAugust 4, 2011


TECPETROL INTERNATIONAL S.A.

Consolidated Financial Statements as of March 31, 2011

21

CONTENTS

Consolidated Statement of fi nancial positionConsolidated Income StatementConsolidated Statement of Comprehensive IncomeConsolidated Statement of Changes in EquityConsolidated Cash Flow StatementNotes to the Consolidated Financial Statements:

1. General information2. Summary of signifi cant accounting policies:2.1 Basis of preparation2.2 Consolidation2.3 Foreign currency translation2.4 Property, plant and equipment. Exploration, evaluation and development assets2.5 Intangible assets2.6 Non-fi nancial assets impairment losses2.7 Financial instruments2.8 Derivative fi nancial instruments and hedging activities2.9 Inventories2.10 Trade and other receivables2.11 Cash and cash equivalents2.12 Share capital2.13 Borrowings2.14 Income tax2.15 Retirement benefi t programs and other plans2.16 Trade and other payables2.17 Provisions2.18 Revenue recognition2.19 Cost of sales2.20 Employees’ share of profi ts as established by law2.21 Dividends distribution3. Financial risk management:3.1 Financial risk factors3.2 Fair value estimation3.3 Financial instruments by category4. Critical accounting estimates and judgments5. New accounting standards6. Operating costs

242525262728

282828293031

333334343636363636373738383939393940404345474953


535354545556

5858606162636464

6565666667687173757677

808890919898

7. Selling expenses8. Administrative expenses9. Labor costs10. Financial results11. Income tax12. Property, plant and equipment. Exploration, evaluation and development assets13. Intangible assets14. Investments in associates15. Impairment of assets16. Available for sale fi nancial assets17. Derivative fi nancial instruments18. Trade and other receivables19. Inventories20. Other fi nancial assets at fair value through profi t or loss21. Cash and cash equivalents22. Share capital23. Other reserves24. Dividends per share25. Trade and other payables26. Borrowings27. Deferred tax assets and liabilities28. Retirement benefi t programs and other plans29. Provisions30. Contingencies31. Situation of associates: Transportadora de Gas del Norte S.A. and Transportadora de Gas del Mercosur S.A.32. Main guarantees, commitments and restrictions33. Related party balances and transactions34. Business combinations35. Subsidiaries and jointly-controlled entities36. Dividends37. Subsequent events

23Annual Report and Consolidated Financial Statements

Notes

12

14

27

20

16

13

18

19

18

17

21

22

23

26

27

28

29

26

25

29

ASSETS

LIABILITIES AND NET EQUITY

2010

723,685,724

110,948,454

11,776,086

8,488,020

60,989,951

12,352,643

112,188,691

217,206

1,040,646,775

25,893,335

158,197,354

81,559

205,235,896

389,408,144

1,430,054,919

371,940,304

20,402,162

(52,154,706)

547,131,493

887,319,253

179,706

887,498,959

219,052,859

70,823,614

10,133,657

40,113,520

340,123,650

55,704,336

118,348,883

14,191,178

14,187,913

202,432,310

542,555,960

1,430,054,919

2011

809,600,729

128,022,788

12,982,291

10,082,007

62,748,755

12,352,643

85,936,698

9,828

1,121,735,739

22,436,781

200,325,552

-

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

14,691,300

45,143,023

343,332,005

111,026,678

168,965,655

28,021,820

11,070,478

319,084,631

662,416,636

1,637,203,599

CONSOLIDATED STATEMENT OF FINANCIAL POSITION(Amounts given in US dollars unless otherwise indicated)

Non-current assets

Property, plant and equipment. Exploration, evaluation and development assets

Investments in associates

Deferred tax assets

Other financial assets at fair value through profit or loss

Available for sale financial assets

Intangible assets

Trade and other receivables

Other assets

Total non-current assets

Current assets

Inventories

Trade and other receivables

Derivative financial instruments

Cash and cash equivalents

Total current assets

Total assets

Net equity

Share capital

Legal reserves

Other reserves

Retained earnings


Total equity

Non-current liabilities

Borrowings

Deferred tax liabilities

Retirement benefit programs and other plans

Provisions

Total non-current liabilites

Current liabilites

Borrowings

Trade and other payables

Current income tax liabilities

Provisions

Total current liabilites

Total liabilities

Total equity and liabilities

The accompanying notes 1 to 37 are an integral part of these Consolidated Financial Statements.


Notes

6

7

8

10

10

10

14

11

2010

704,350,252

(454,977,532)

249,372,720

(9,485,447)

(44,552,708)

(9,705,654)

7,825,873

(4,549,436)

188,905,348

3,918,495

(4,461,930)

(2,827,937)

185,533,976

18,776,833

204,310,809

(44,526,949)

159,783,860

159,803,083

(19,223)

2011

820,132,384

(533,511,615)

286,620,769

(9,359,293)

(61,427,709)

(27,615,743)

1,596,239

(11,654,209)

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)

CONSOLIDATED INCOME STATEMENT(Amounts given in US dollars unless otherwise indicated)

Ongoing operations

Net sales

Operating costs

Gross profit

Selling expenses

Administrative expenses

Exploration costs

Other operating income

Other operating losses

Operating profit

Interest income

Interest expense

Other net financial results

Income before results of investments in associates, and income tax


Income before tax

Income tax

Profit for the year

Attributable to:



2010

159,783,860

(12,489,269)

(1,476,921)

(297,491)

-

(14,263,681)

145,520,179

145,539,402

(19,223)

145,520,179

2011

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

Profit for the year

Other comprehensive income:

Currency translation adjustment

Changes 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 as cash flow hedges

Other comprehensive income after tax

Total comprehensive income for the year

Attributable to:



(*) Related to changes in the fair value of available for sale assets.

The accompanying notes 1 to 37 are an integral part of these consolidated fi nancial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

25Consolidated fi nancial statements as of March 31, 2011

Balance as of March 31, 2009

Profit for the year

Other comprehensive income


Legal reserves

Increase in minority interests

Dividends paid in cash


Profit for the year

Other comprehensive income


Legal reserves

Dividends paid in cash


Total

771,779,851

159,783,860

(14,263,681)

145,520,179

-

198,929

(30,000,000)

887,498,959

129,435,115

(12,147,111)

117,288,004

-

(30,000,000)

974,786,963


-

(19,223)

-

(19,223)

-

198,929

-

179,706

(442,413)

(42,593)

(485,006)

-

-

(305,300)

Retained earnings

419,929,849

159,803,083

-

159,803,083

(2,601,439)

-

(30,000,000)

547,131,493

129,877,528

-

129,877,528

(7,990,155)

(30,000,000)

639,018,866

Other reserves

(37,891,025)

-

(14,263,681)

(14,263,681)

-

-

-

(52,154,706)

-

(12,104,518)

(12,104,518)

-

-

(64,259,224)

Legal reserves

17,800,723

-

-

-

2,601,439

-

-

20,402,162

-

-

-

7,990,155

-

28,392,317

Share capital

371,940,304

-

-

-

-

-

-

371,940,304

-

-

-

-

-

371,940,304

Notes

24

22 y 23

24

22 y 23

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Amounts given in US dollars unless otherwise indicated)


Attributable to Company shareholders


Notes

12

11

14

34

14

24

21

2010

159,783,860

86,920,870

44,526,949

(1,389,593)

4,108,755

(18,776,833)

-

20,047,279

(14,263,681)

(57,425,000)

(1,668,853)

(10,350,229)

1,476,921

(1,354,090)

(217,206)

(113,049)

2,159,124

(36,183,282)

177,281,942

(90,310,534)

5,840,575

(64,676,293)

-

(198,929)

940,924

(148,404,257)

106,862,321

(48,363,047)

(30,000,000)

28,499,274

57,376,959

144,424,912

1,280,650

203,082,521

2011

129,435,115

95,528,855

63,942,285

(1,261,398)

2,085,589

(20,322,013)

(183,512)

9,204,047

(12,104,518)

(39,398,213)

3,069,455

52,391,291

(1,345,839)

(1,962,485)

207,378

81,559

5,091,912

(28,021,819)

256,437,689

(213,973,030)

22,302,280

-

(1,229,768)

-

2,312,507

(190,588,011)

139,766,696

(96,949,827)

(30,000,000)

12,816,869

78,666,547

203,082,521

2,499,590

284,248,658

CONSOLIDATED CASH FLOW STATEMENT (Amounts given in US dollars unless otherwise indicated)

OPERATIONS ACTIVITIESProfit for the year

Adjustments for: (1)

Depreciation of property, plant and equipment

Income tax

Uncollected accrued interest

Provisions


Results of sale of property, plant and equipment

Effect of currency translations

Changes in other reserves

Changes in operating assets and liabilities

Increase in trade and other receivables

Decrease / (Increase) in inventory

Increase / (Decrease) in trade and other payables

(Increase) / Decrease in available-for-sale financial assets

Increase in assets through profit or loss

Decrease / (Increase) in other assets

Decrease / (Increase) in derivative financial instruments

Increase in retirement benefit plans and others

Income tax payment

Cash generated from operations activities

INVESTING ACTIVITIESIncrease in property, plants and equipment

Disposal of property, plant and equipment

Acquisition of subsidiary

Proceeds from sales of assets

Increase in non-controlling interests

Dividends collected

Cash used in investment activities

FINANCING ACTIVITIESIncrease in borrowings

Repayment of borrowings

Dividends payments

Cash generated by financing activities

Increase in cash and cash equivalents

Changes in cash and cash equivalents

Cash and cash equivalents less overdrafts at the beginning of the year

Effect of currency translations

Cash and cash equivalents less overdrafts at the end of the year

(1) The difference between interest expenditure and payments is not signifi cant.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts in US dollars, unless otherwise stated)

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 several countries in America (see Note 35).The Company is incorporated and domiciled in Uruguay. The address of its registered offi ce is La Cumparsita 1373, offi ce 302, Montevideo, Uruguay.These Consolidated Financial Statements, in accordance with International Financial Reporting Standards (IFRS), were approved for issue by the Company´s Board of Directors on July 27, 2011.On March 30, 2011, the Board of Directors decided to change the date of closure for the fi nancial year from March 31 to December 31 of each year. This means that the next accounting period will be irregular in length and will last nine months, beginning on April 1, 2011 and ending on December 31, 2011.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBelow are some of the most relevant accounting standards used to pre-pare these Consolidated Financial Statements.

2.1. Basis of preparationThese Consolidated Financial Statements have been prepared in ac-cordance with International Financial Reporting Standards (IFRS) and the interpretations of the IFRIC issued by the International Accounting Standards Board (IASB) under the historical cost convention, as modifi ed by the revaluation of fi nancial assets and liabilities (including derivative fi nancial instruments) at fair value through profi t or loss and available for sale assets. The Consolidated Financial Statements have been present-ed in United States Dollars (“US$”).Certain comparative fi gures have been reclassifi ed to conform to the cur-rent year’s presentation, including those given in Note 34.The preparation of these Consolidated Financial Statements, according to IFRS, requires Company management to make estimates and assump-tions that may aff ect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the fi nancial statements, and the reported amounts of revenues and expenses during the reporting years. Actual results may diff er from these estimates.The fi nancial statements of Tecpetrol International S.A. as of March 31, 2011, prepared for the purposes of presentation to the Uruguayan Internal Audit Offi ce (AIN) under the Adequate Accounting Standards of Mandatory Application in Uruguay, were approved by the Company on July 27, 2011.


2.2 Consolidation(a) SubsidiariesSubsidiaries are all entities over which the Company has the power to govern fi nancial and operating policies, generally accompanying a share-holding of over half of the voting rights. Subsidiaries are fully consolidat-ed from the date on which control is transferred to the Company. They are de-consolidated from the date that control ceases.The purchase method of accounting is used to account for the acquisi-tion of subsidiaries by the Company as described in Note 34. The cost of an acquisition is measured as the fair value of the assets given, capital issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition, according to IFRS 3 as ap-plicable at the time of the afore-mentioned purchase, as the Company decided not to apply early IFRS 3 which was amended in January 2008. Identifi able assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the acqui-sition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Company’s share of the identifi able net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the diff erence is recognized directly in the income statement.Inter-company transactions, balances and unrealized gains (losses) on transactions between group companies are eliminated. However, since the functional currency of some subsidiaries is its respective local cur-rency, fi nancial gains (losses) arising from inter-company transactions are generated. These are included in “Other fi nancial results”, in the Consolidated Income Statement. The accounting policies of subsidiaries have been changed where necessary to ensure consistency with the poli-cies adopted by the Company.

(b) Associated companiesAssociates are all entities over which the Company has signifi cant infl uence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for us-ing the equity method of accounting and are initially recognized at cost.Unrealized results on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in the associated companies. The accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Company.Investments in associates are reviewed for impairment whenever events or changes in circumstances indicate that the asset´s carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less


cost to sell and the present value of estimated future cash fl ows. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifi able cash fl ows (cash-generating units).

(c) Interests in joint venturesA Joint Venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint con-trol exists only when the strategic fi nancial and operating decisions relat-ing to the activities require the unanimous consent of the parties involved. A jointly-controlled entity is a joint venture that involves the establishment of a company, partnership or other entity to engage in economic activity that the Company jointly controls with its fellow venturers. The assets and liabilities of a jointly-controlled entity are included in these Consolidated Financial Statements in proportion to the Company’s interests.The subsidiaries, associates and joint ventures have been included in these Consolidated Financial Statements using balance sheets dated as detailed in Notes 14 and 35. The Company incorporates diff erences re-sulting from the use of fi nancial statements at a date closer to year-end, where signifi cant.

2.3 Foreign currency translation(a) Functional and presentation currency Items included in the fi nancial statements of each of the Company’s entities are measured using the currency of the primary economic envi-ronment in which the entity operates (‘the functional currency’). These Consolidated Financial Statements are presented in United States dollars (US$), which is the Company’s functional and presentation currency.The functional currency of the subsidiaries is either their local currency or the U.S. dollar, as the main economic and fi nancial transactions car-ried out are denominated in US$.

(b) Transactions and balancesForeign currency transactions are translated into the functional cur-rency using the exchange rates prevailing at the dates of the transac-tions. Foreign exchange gains and losses resulting from the settlement 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 income statement, except when deferred in equity as qualifying cash fl ow hedges and qualifying net investment hedges.


Translation diff erences on non-monetary balances, such as assets held at fair value through profi t or loss, are recognized in profi t or loss as part of the fair value gain or loss. Translation diff erences arising from available for sale fi nancial assets are disclosed under “Other reserves” as “Other comprehensive results” in shareholders’ equity.The share capital account is converted at the exchange rate in eff ect at the date of each capital contribution. The legal reserve is converted at the exchange rate applicable in the month in which it is used by shareholders.

(c) Subsidiary companiesThe fi nancial statements of all the Company’s subsidiaries with a func-tional currency diff erent to the presentation currency are translated into the presentation currency as follows: (i) Assets and liabilities of subsidiaries and associates are translated at

the closing rate at the date of the Consolidated Financial Statements of each subsidiary and associate.

(ii) The operational results of subsidiaries and associates are translated at the average rate.

(iii) All resulting translation diff erences are recognized in the Consolidated Statement of Changes in Equity as currency translation diff erences, included in “Other comprehensive income”.

(iv) When any of those subsidiaries is partially disposed of or sold, the ac-cumulated currency translation diff erences are recognized in profi t or loss at the date of disposition or sale.

2.4 Property, plant and equipment. Exploration, evaluation and development assetsExploration and evaluation expenditures are accounted for using the successful eff orts method of accounting. Costs are accumulated on a fi eld-by-fi eld basis. The acquisition costs related to exploration and evalu-ation activities are capitalized. Costs directly associated with exploration wells are initially capitalized. If the prospects are subsequently deter-mined to be unsuccessful on completion and evaluation, these costs are charged to expenses in the period in which that determination is confi rmed. No depreciation and/or amortization are charged during the exploration and evaluation phase.


All fi eld development costs are capitalized as Property, plant and equip-ment. These costs include the acquisition and installation of production facilities, development drilling costs, project-related engineering and the acquisition costs of rights and concessions related to proven properties.The Company regards wells drilled in producing fi elds for the purpose of developing proven reserves as development wells. The Company regards any wells that are not development wells or service wells as 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.The Company periodically reevaluates the remaining useful lives of its assets, especially those associated directly with the production of hydrocarbons.The depreciation of wells, machinery, equipment and installations has been calculated according to the depletion method based on devel-oped proven reserves considered in each area as from the month of starting production.The depreciation of the exploitation and association rights has been cal-culated according to the depletion method based on the cubic meters of oil extracted on the total proven reserves in each area considered.The depreciation of the remaining property, plant and equipment is calculated 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 offi ce equipment up to 5 years


The net carrying value of productive and development fi elds is com-pared with the discounted future net revenues which are expected to be derived from the remaining commercial reserves. If the full recovery of the amounts recorded at the current net value of future net revenues discounted at a rate which represents the weighted average cost of capi-tal (WACC) is deemed unlikely, an impairment loss is accounted for. Exploration, evaluation and productive assets are reviewed annually for indicators of impairment.Gains and losses for sales or write-off are determined by comparing the value received with the recorded value of the asset and are recognized in “Other operating income” or “Other operating losses” in the Consolidated Income Statement.

2.5 Intangible assetsGoodwill represents the excess of the acquisition cost over the fair value of the net assets acquired as part of a business combination. Goodwill has an undefi ned useful life and it is not amortized, but is nonetheless sub-ject to a recoverability test on an annual basis. In the case of impairment, loss through the impairment of goodwill is not reversible. Goodwill is included in Intangible assets in the Consolidated Financial Statements.Goodwill is allocated to cash-generating units for the purposes of the re-coverability test. The assignation is made to those cash generating units that are expected to benefi t from the business combination which gener-ated the goodwill being tested.

2.6 Non-fi nancial assets impairment lossesEvents and circumstances may potentially aff ect the recoverability of the recorded value of tangible and intangible assets, including invest-ments in related companies. The value of non-fi nancial assets recorded is assessed if events or changes in circumstances indicate that the value recorded may not be recoverable. An impairment loss is recognized when the value of the assets recorded exceeds their recoverable value. The recoverable value is the higher of their fair value, less direct sales costs, and their value in use. Impaired assets are reviewed at the date of each balance sheet.


2.7 Financial instrumentsThe Company classifi es its non-derivative fi nancial instruments into the following categories: at fair value through profi t or loss, loans and receivables, available for sale assets and other fi nancial liabilities. Classifi cation depends on the nature of the fi nancial instruments and the purpose for which they were acquired. The Company determines the classifi cation of its fi nancial instruments at the time that they are initially accounted for, and reevaluates their designation each time its fi nancial statements are presented.

(a) Financial assets at fair value through profi t or lossA fi nancial asset is classifi ed in this category if acquired principally for the purpose of sale in the short term or if so designated by management. This includes cash and cash equivalents as well as investments in debt bonds retained for their negotiation.

(b) Loans and receivablesLoans and receivables are non-derivative fi nancial assets with fi xed or de-terminable payments that are not quoted on an active market. They are included in current assets, except for maturities greater than 12 months following the balance sheet date. These are classifi ed as non-current as-sets. Loans and receivables are classifi ed as trade and other receivables in the current Consolidated Financial Statements.

(c) Available for sale fi nancial assets Available for sale fi nancial assets are non-derivative fi nancial instru-ments included in this category or are otherwise not classifi ed in any other category. They are included in non-current assets unless Management intends to sell the investment within a 12-month period as from the date of the Consolidated Financial Statements.

(d) Other fi nancial liabilities This includes borrowings, trade and other payables.

2.8 Derivative fi nancial instruments and hedging activitiesDerivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Specifi c tools, duly analyzed to verify their reliability, are used to calculate the fair value of each instrument. Market indicators are used for all pricing operations. These include exchange rates, interest rates and other discounted rates which mitigate the impact of each underly-ing risk. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, on the nature of the item being hedged.


The Company analyzes 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 hedge inception and on an ongoing basis, of the eff ectiveness of the derivatives used in hedging transactions are highly eff ective in off setting changes in the fair values or cash fl ows of hedged items.The fair value of derivative instruments is given in Note 17. The full fair value of a hedging derivative is classifi ed as a non-current asset or liabil-ity if the remaining hedge item has a maturity of over 12 months, and as a current asset or liability, if the maturity of the remaining hedged item is less than 12 months.

(a) Cash fl ow hedgesThe eff ective portion of changes in the fair value of derivatives that are designated and qualify as cash fl ow hedges is recognized in equity. The gain or loss relating to the ineff ective portion is recognized immediately in the income statement.When a hedging instrument expires or is sold, or when a hedge no lon-ger meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity. When a forecast trans-action is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the Income state-ment. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the eff ective interest method is used is amortized to profi t or loss over the period to maturity.

(b) Derivatives that do not qualify for hedge accountingCertain derivative fi nancial instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognized immediately in the Income statement.


2.9 InventoriesHydrocarbon stocks have been valued at their net realizable value at the end of the year.Supplies and spare parts have principally been valued at cost, using the weighted average cost formula. The total amount does not exceed the respective amounts of these which may be recovered in the normal course of business.The recoverable value is evaluated at year-end and the timely value adjustments charged against earnings if these have been overstated.

2.10 Trade and other receivablesTrade receivables are recognized initially at fair value and subsequently measured at amortized cost using the eff ective interest method, less pro-vision for impairment, if relevant.A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Typical indicators that the trade receivable may be impaired include the debtor experiencing signifi cant fi nancial diffi culties, the probability that the debtor will enter a state of bankruptcy or be subject to insolvency pro-ceedings, and default or signifi cant delays in payments. The asset’s car-rying amount is shown net of the provision recorded, where applicable. The expense of the provision is carried against the result for the year and shown under selling costs or administrative expenses, as applicable.

2.11 Cash and cash equivalentsFor the purposes of the cash fl ow statement, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within “Borrowings” in current liabilities in the Consolidated Financial Statements.

2.12 Share capitalOrdinary shares are classifi ed as Equity.

2.13 BorrowingsBorrowings were recognized initially at fair value, net of transaction costs incurred. In subsequent fi nancial periods, borrowings are stated at amortized cost.Borrowings are classifi ed as current liabilities unless the Company has the right to defer the settlement of the liability for at least 12 months following the date of the Consolidated Financial Statements.


2.14 Income tax Current income tax charges are calculated on the basis of the tax laws existing in the countries in which Tecpetrol International S.A. and its subsidiaries operate. The income tax charged for the period includes current and deferred tax. The tax is recognized in the Consolidated Income Statement, excepting those cases where it is related to items recognized in the Consolidated Statement of Comprehensive Income. In this case, it is rec-ognized in the Consolidated Statement of Comprehensive Income.Deferred income tax is recognized using the liability method, on the tem-porary diff erences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements. The principal temporary diff erences arise from fair value adjustments of assets acquired in business combinations, the eff ect of currency trans-lation on fi xed assets, depreciation of property, plant and equipment, valuation of inventories and provisions for retirement benefi t programs. Deferred income tax is determined using tax rates that have been en-acted by the respective governments at the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.Deferred income tax assets are recognized to the extent that it is prob-able that future taxable profi ts will be generated against which the tem-porary diff erences may be off set.

2.15 Retirement benefi t programs and other plans(a) Personnel benefi t programsSome subsidiaries operate two benefi t plans: “unfunded defi ned benefi ts” and “other long-term benefi ts” which, under certain conditions estab-lished by the subsidiaries, are granted over an employee’s working life and after retirement, and are recorded according to the guidelines for current accounting standards.Liability provisions for such benefi ts are recorded at the present value of future cash fl ows and are charged to the Income statement during the remaining years of service of the benefi ciaries involved, until such time as all the conditions for the vesting period of each benefi t have been met. These liabilities are calculated at least once a year by independent actuaries using the “Projected credit unit” method.In addition, the Company holds a foreign savings fund in U.S. dollars which may be used to cover such benefi ts in whole or in part.


(b) Long-term employee retention and incentive programStarting as from this fi nancial period, Tecpetrol International S.A. ad-opted an employee retention and long term incentive program for cer-tain employees in specifi c subsidiaries. Pursuant to this program, certain senior executives will be granted with a number of units’ equivalent in value to the equity book value per share (excluding non-controlling interest). The units will be vested over four years period and the corre-sponding subsidiaries will redeem vested units following a period of ten years from the grant date, with the option for the employee to request them as from the seventh year onwards or when the employee ceases employment from the subsidiary responsible for making the payment, at the majority equity book value per share at the time of payment. Benefi ciaries will also receive a cash amount per unit equivalent to the dividend paid per share whenever the Company pays a cash dividend to its shareholders.

2.16 Trade and other payablesTrade and other payables are recognized initially at fair value and subse-quently stated at amortized cost using the eff ective interest method.

2.17 ProvisionsProvisions for well abandonment, restructuring costs and legal claims are recognized in those cases when the Company has a current legal or constructive obligation as a result of past events, making it highly likely that an outlay of resources will be required to settle the obligation whose amount has been reliably estimated.Where there are a number of similar obligations, the likelihood that an outlay will be required as settlement is determined by considering the class of obligations as a whole.Provisions are measured at the present value of the expenditures expect-ed to be required in order to settle the obligation, using an appropriate discount rate.The Company records the present value of the liability for well-abandon-ment cost obligations in the period in which they are incurred. When the liability is initially recorded, the Company capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capital-ized cost is depreciated over the estimated useful life of the related asset. According to interpretations and application of current legislation and on the basis of the changes in technology and the variations in the costs of restoration necessary to protect the environment, the Company has


considered it convenient to periodically re-evaluate the future costs of well-abandonment. The eff ects of this re-calculation are included in the fi nancial statements in which they are determined and disclosed as an adjustment to the provision, and to the “Property, plant and equipment. Exploration, evaluation and development assets.”

2.18 Revenue recognitionRevenue comprises sale of goods and services net of value-added tax, withholding and discounts, and after eliminating sales within the Company. Revenue from the sale of hydrocarbons and other assets is recognized when all signifi cant risks and rewards of ownership are transferred to the buyer.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 a proportional lapsed time basis, using the eff ective interest method.

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

2.20 Employees’ share of profi ts as established by lawIn accordance with the laws in force in the territories of certain sub-sidiaries of the Company, an annual bonus must be paid to employees, which is calculated on a similar basis to that used for income tax cal-culation. The liability generated by employees’ share of profi ts is re-corded under “Trade and other payables” in the Consolidated Financial Statements and the result charged to “Labor costs” in the Consolidated Income Statement.

2.21 Dividends distributionThe dividends that Tecpetrol International S.A. may pay to its sharehold-ers are based on its stand-alone fi nancial statements rather than on its Consolidated Financial Statements.The distribution of dividends to Company shareholders is recognized as a liability in the Consolidated Financial Statements in the period in which the dividends are approved by the shareholders.


3. FINANCIAL RISK MANAGEMENT

3.1 Financial risk factorsThe activities of the Company and its subsidiaries expose it to a variety of fi nancial risks, including the eff ects of variations in the market prices of its fi nancial instruments, changes in foreign currency exchange rates and in interest rates, concentration of credit risk and liquidity risk. The Company’s risk management program focuses on the unpredictability of fi nancial markets and seeks to minimize potentially adverse eff ects on its fi nancial performance.

(i) Foreign exchange rate riskThe Company aims to neutralize the potentially negative impact of fl uctu-ations in the value of other currencies with respect to its functional cur-rency using derivative fi nancial instruments, if necessary. (See Note 17).Nonetheless, the Company holds certain payables and receivables in for-eign currencies as a consequence of its operations. A dollar appreciation of 5% against the various local currencies would imply an approximate decrease in income of approximately US$1 million at March 31, 2011, and an approximate increase of US$3 million at March 31, 2010. The Company is not exposed to foreign exchange risk attached to other currencies.

(ii) Interest rate riskThe Company is exposed to the risk of interest rate volatility. However, Company results and cash fl ows are not aff ected signifi cantly from any changes in these. The risk is reduced by maintaining excess cash in pres-tigious fi nancial entities. Information related to the interest rate appli-cable to borrowings is included in Note 26.


The following table shows the portions of debt at fi xed and variable in-terest rates at each fi scal closing date.

If interest rates on the accumulated nominal average of loans held dur-ing the year had been 50 base points higher with all other variables remaining constant, net income would have been US$1.3 million less at March 31, 2011 (US$0.5 million less at March 31, 2010).The Company does not possess any signifi cant fi nancial assets with a variable interest rate as of March 31, 2011, and 2010.

(iii) Concentration of credit riskThose of the Company’s fi nancial assets which are potentially exposed to concentrations of credit risk consist mainly of deposits with fi nancial institutions and trade receivables. Regarding the deposits in fi nancial entities, the Company reduces its exposure to signifi cant concentrations of credit risk because it maintains its deposits and places its cash investments with leading fi nancial institutions. With regard to the trade accounts receivable, the Company and its subsidiaries have policies in place to ensure that sales of products are only made to cus-tomers with an appropriate credit history or letters of credit. As of March 31, 2011, 60%, 10% and 6% (66%, 11% and 5% as of March 31, 2010) of the trade receivables which the Company holds are with PEMEX, Esso Petrolera Argentina S.R.L. and Transportadora de Gas del Perú S.A. (associate), respectively.

(iv) Liquidity riskThe Company maintains suffi cient cash and marketable securities, and funding availability through an adequate amount of committed credit facilities.The table below shows an analysis of the fi nancial liabilities of the Company to be settled by their net amount and grouped by due dates ac-cording to the terms pending at the date of the balance sheet until the due date agreed in the contract.

Fixed rate

Variable rate

Percentage

4%

96%

Percentage

1%

99%

Amount

13,842,592

309,600,512

Amount

2,231,155

272,526,040

2011 2010


At March 31, 2011

Financial and bank borrowings


Interest payable pending accrual

Total

At March 31, 2010

Financial and bank borrowings


Interest payable pending accrual

Total

Less than a year

111,026,678

168,965,655

9,703,293

289,695,626

55,704,336

118,348,883

2,228,173

176,281,392

Between 1 and 2 years

16,298,855

-

7,222,158

23,521,013

42,160,664

-

1,855,069

44,015,733


196,117,571

-

7,256,350

203,373,921

176,892,195

-

8,313,933

185,206,128

(v) Price riskThe Company’s policy is to regularly assess the volatility of the price of crude oil and execute hedge contracts, if necessary. As of March 31, 2011 and 2010, the Company does not possess any fi nancial instruments sub-ject 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$52 and US$36 million as of March 31, 2011, and 2010, respectively.As in the previous year, a 10% increase in the price of crude would not have a signifi cant impact on the net income of the Argentine subsidiar-ies since those companies make their sales 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 markets in which it operates. The annual debt / total net equity ratio (where “debt” comprises all fi nancial loans and “net equity” is the aggregate of fi nancial loans and net equity) is 0.25 at March 31, 2011, as against 0.24 at March 31, 2010. The Company is not obliged to comply with regulatory capital requirements.

3.2 Fair value estimation The fair value of fi nancial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash fl ows, are used to determine fair value for the remaining fi nancial instruments. The nomi-nal value less impairment provision of trade receivables and payables is assumed to approximate their fair values. The fair value of fi nancial liabilities for disclosure purposes is estimated by discounting the future contractual cash fl ows at the current market interest rate available to the Company for similar fi nancial instruments.

Fair value by hierarchyThe Company adopted the amendments to IFRS 7 for fi nancial instru-ments measured at fair value, which requires disclosure of fair value measurements by the following hierarchical levels:Level 1 – Reference prices quoted on the markets for identical assets and liabilities.Level 2 – Inputs other than quoted prices included in Level 1 which are observable for assets and liabilities, either directly (that is, as prices) or indirectly (that is, derived from prices).Level 3 – Inputs for assets and liabilities which are not based on observ-able market data (non-observable information).


The following table presents the assets and liabilities measured at fair value at March 31, 2011, and 2010.

(*) The evolution of available for sale assets is given in Note 16.

AT MARCH 31, 2011

Assets

Available for sale assets (*)



Total

AT MARCH 31, 2010

Assets

Available for sale assets (*)



Total

Liabilities


Total

Level 1

-

292,705,527

10,082,007

302,787,534

Level 2

-

-

-

-

81,559

81,559

Level 1

-

205,235,896

8,488,020

213,723,916

-

-

Level 3

62,748,755

-

-

62,748,755

Level 3

60,989,951

-

-

60,989,951

-

-


3.3 Financial instruments by categoryAccounting policies for fi nancial instruments have been applied to the items given below.

AT MARCH 31, 2011

Assets

Trade receivables

Other receivables

Available for sale assets

Other assets at fair value through profit or loss


Total

AT MARCH 31, 2011

Liabilities

Borrowings

Trade an other payables

Total

Loans and accounts receivable

188,377,690

71,990,165

-

-

-

260,367,855

Financial assets at fair value through profit or loss

-

-

-

10,082,007

292,705,527

302,787,534

Available for sale

-

-

62,748,755

-

-

62,748,755

Other financial liabilities

323,443,104

168,965,655

492,408,759


AT MARCH 31, 2010

Assets

Trade receivables

Other receivables

Available for sale assets

Other assets at fair value through profit or loss


Total

AT MARCH 31, 2010

Liabilities

Borrowings



Total

Loans and accounts receivable

197,332,754

52,567,768

-

-

-

249,900,522

Financial assets at fair value through profit or loss

-

-

-

8,488,020

205,235,896

213,723,916

Financial liabilities at fair value through profit or loss

-

81,559

-

81,559

Available for sale

-

-

60,989,951

-

-

60,989,951

Other financial liabilities

274,757,195

-

118,348,883

393,106,078

Financial assets recorded at fair value through profi t and loss are ini-tially accounted for at fair value, and the transaction costs charged to income. Available for sale fi nancial assets are recorded at fair value. Any variations in the fair value of monetary and non-monetary securities classed as available for sale are recorded in equity. Loans and receivables are recorded at amortized cost using the eff ective interest method. Lastly, other fi nancial liabilities are evaluated at amortized cost using the eff ec-tive interest rate method.When available for sale assets are sold and a drop in value in these securities or shares is recorded, the adjustments to accumulated fair value recorded in equity are included in the Consolidated Income Statement. Interests on available for sale securities are calculated using the eff ective interest method and recorded in the income statement. The dividends arising from available for sale capital instruments are recorded in the income statement when the Company’s right to receive payment is established.The Company determines at the date of closure of the Consolidated Financial Statements whether there is any objective evidence that a fi nancial asset or group of these has lost value. In the case of available for sale fi nancial assets, a signifi cant or prolonged drop in the fair value of


the security or shares below cost is considered to be an indicator that the securities have lost value. If such evidence is found concerning available-for-sale fi nancial assets, the accumulated loss --measured as the diff er-ence between the acquisition cost and the current fair value, less any loss for devaluation of the said fi nancial asset formerly recorded in income— is struck from equity and accounted for in the income statement. Losses arising from devaluation recorded in the income statement for capital instruments may not be reversed in the income statement.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTSEstimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.The Company makes estimates and assumptions concerning the future. Actual results may diff er from those estimated under diff erent variables, assumptions or conditions. The estimates and assumptions that have a signifi cant risk are discussed below:

(a) Hydrocarbon reservesReserve estimates have been prepared by the Company’s technical staff , and are based on technical and economic conditions in force at March 31, 2011, taking into account the economic evaluation over the term of the respective contracts or concessions in order to determine their term of recoverability. The proven hydrocarbon reserves remaining at March 31, 2011, according to the subsidiaries’ stakes in the consolidation perim-eter, amount to an equivalent of 60 million m3.The reserves estimates will be adjusted whenever justifi ed by changes in the aspects considered for their evaluation or at least once a year. These reserves estimates have taken into account those made by hydrocarbon consultants.Reserves are taken to mean the volumes of oil and gas (expressed in oil-equivalent cubic meters) which generate or are associated with revenue in the areas where each subsidiary operates or has a direct or indirect share interest and for which it owns exploitation rights. This includes hydrocarbons volumes related to the service contracts in which the sub-sidiaries have neither ownership of the reserves nor of the hydrocarbons extracted, as well as those volumes which are estimated will be produced for the contracting party under the works contracts.There are numerous issues which generate uncertainty as to the calcula-tion of proven reserves, of future production profi les, development costs and prices, including diverse factors which are beyond the producer’s control. Reserve engineering is a subjective process which estimates the underground accumulation of crude oil and natural gas which cannot be accurately measured. The calculation of reserves is carried out on the basis of the quality of geological and engineering data available on that date and its interpretation.


The proven reserves developed and no-developed of hydrocarbons es-timated as of March 31, 2011, according to the Company’s stake, are as follows:Oil – m3 million 16Gas – m3 thousand million 44The reserves given above consist of proven reserves, liable to be extracted, from which the corresponding royalties have not been deducted.

(b) Well-abandonment provisionThe obligations related to the plugging of wells once operations have fi nalized involve the recognition of signifi cant liabilities. Estimating future abandonment costs is diffi cult and requires management to make estimates and judgments as most of the obligations will be liable much further ahead in the future. Technologies and costs are also constantly changing as well as political, environmental, safety and public relations considerations.The Company has adopted the following criterion for recognizing well-abandonment related costs:The present value of future costs necessary for well-abandonment is calculated for each area on the basis of a cash fl ow discounted at an ap-propriate interest rate.The present value determined is recognized as an opening asset and li-ability balance. Liabilities are adjusted at the interest rate applicable on the original transaction date while assets are depreciated using the units of production method taking into account developed proven reserves and production for the fi nancial year.Adjustments to future plugging costs, if any, are recorded following the same criteria as for the initial estimate. The liabilities recognized are based upon estimated future abandonment costs, wells subject to aban-donment and the time to abandonment. (See Notes 2.17, 12 and 29).


(c) Contingencies The Company and its subsidiaries are subject to various claims, lawsuits and other legal proceedings including customer claims in which a third party is seeking reimbursement or indemnity. Liability with respect to such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Periodically, the Company reviews the status of each sig-nifi cant matter and assesses potential fi nancial exposure. If the poten-tial loss from the claim or proceedings is considered probable and the amount can be reasonably estimated, liability is recorded. Management estimates the amount of such a liability based on the information avail-able and the assumptions and methods it considers to be appropriate, in accordance with IFRS provisions. Provisions for such contingencies refl ect a reasonable estimate of the losses to be incurred based on the information available and a combination of litigation and settlement strategies as of the date of preparation of the fi nancial statements. These estimates are primarily construed with the assistance of legal counsel. As additional information becomes available, the Company will reassess its evaluation of the pending claims, lawsuits and other proceedings in order to revise its estimates.Provision for contingencies refl ects a reasonable estimate of the losses to be incurred, based on the information available to management at the time when the fi nancial statements were drawn up.

5. NEW ACCOUNTING STANDARDS

(a) Interpretations, modifi cation and new standards effective as from 2010 which are relevant for the Company:IFRS 3 (revised in January 2008), “Business Combinations”In January 2008, the IASB issued IFRS 3 (revised in January 2008), “Business Combinations” (IFRS 3 – revised). IFRS 3 revised includes amendments that are meant to provide guidance in applying the acquisition method.IFRS 3 revised replaces IFRS 3 (issued in 2004) comes into eff ect for busi-ness combinations for which the acquisition date is on or after the begin-ning of the fi rst annual reporting period beginning on or after July 1, 2009.This standard does not impact on current fi nancial statements and its future impact depends on the existence of business combinations.


IAS 27 revised, “Consolidated and Separate Financial Statements”This revised standard requires the eff ects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifi es the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognized in profi t or loss.This amendment has no material impact on the fi nancial situation and results of the Company’s operations.

(b) Interpretations and modifi cations to published norms which are yet to be applied, and which were not early adopted:IFRS 9, “Financial Instruments”In November 2009, the IASB issued IFRS 9 “Financial Instruments” which establishes principles for the disclosure of fi nancial assets, simplifying their classifi cation and measurement.This standard applies to annual periods beginning on or after January 1, 2013.Company´s management has not yet assessed the potential impact that the application of IFRS 9 may have on its fi nancial statements.

Improvements to International Financial Reporting StandardsIn May 2010, the IASB issued “Improvements to International Financial Reporting Standards” by which it amended several international ac-counting standards. Entities must apply these amendments for the fi -nancial annual periods beggining on or after January 1, 2011.Company management estimates that the application of these modifi ca-tions will have no material impact on its fi nancial position or results.

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 fi nancial statements when a company owns one or more other companies. IFRS 10 replaces IAS 27, “Consolidated and separate fi -nancial statements” and SIC 12 “Consolidation—Special Purpose Entities”. This norm will be eff ective for accounting periods beginning on or after January 1, 2013, and its early application is permitted.Company management has not yet estimated the potential impact that the application of IFRS 10 will have on its fi nancial statements.


IFRS 11, “Joint Arrangements”In May 2011, the IASB issued IFRS 11 “Joint Arrangements” which estab-lishes the principles for the presentation and preparation of fi nancial statements for the members of a joint arrangement.IFRS 11 replaces IAS 31, “Interests in Joint Ventures” and SIC 13 “Jointly-controlled Entities and Non-monetary Contributions by Venturers”. This is eff ective for accounting periods beginning on or after January 1, 2013, and its early application is permitted.Company management has not yet estimated the potential impact that the application of IFRS 11 will have on its fi nancial 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 fi nancial statements to evaluate the nature and risk associated with risks interests in other entities and the eff ects of these on its fi nancial position. This is eff ective for those annual periods starting as from January 1, 2013 and its early application is permitted.Company management has not yet estimated the potential impact that the application of IFRS 12 will have on its fi nancial statements.

IFRS 13 “Fair Value Measurement”In May 2011, the IASB issued IFRS 13 “Fair Value Measurement” which es-tablishes a single structure to measure fair value when this is required by other standards. This standard is applicable both to fi nancial and non-fi nancial instruments measured at fair value. It will be eff ective as from January 1, 2013 and its early application is permitted.Company management estimates that the application of these modifi ca-tions will not have any material eff ect on its fi nancial position or results.

IAS 27, “Separate Financial Statements”As a consequence of the issue of IFRS 10, “Consolidated Financial Statements”, IAS 27 was modifi ed 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 Financial Statements”.Company management estimates that the application of these modifi ca-tions will not have any material eff ect on its fi nancial 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 share method also will apply to these. It thus changed the name of the standard to “Investments in Associates and Joint Ventures”. This modifi cation is eff ective as from January 1, 2013, and early applica-tion is permitted.Company management has not yet estimated the potential impact that the application of IAS 28 will have on its fi nancial statements.

IAS 1, “Presentation of Financial Statements”On June 16, 2011, the IASB published the modifi cations to IAS 1, which principally include the parameters related to the objective of improv-ing the consistency and clarity of the presentation of the sections which make up other comprehensive income. All entities must apply these mod-ifi cations for the accounting periods beginning on or after July 1, 2012.Company management has not yet estimated the potential impact that the application of these modifi cations will have on its fi nancial statements.

IAS 19, “Employee Benefi ts”On June 16, 2011, the IASB published the modifi cations to IAS 19 “Employee Benefi ts”. These modifi cations principally cover the elimina-tion of the option to defer the recognition of profi t and loss, the simpli-fi cation of the presentation of changes in assets and liabilities arising from defi ned benefi t plans, including the measurement requirements to be presented in other comprehensive income. Furthermore, it improves the disclosure requirements for defi ned benefi t plans. Entities should apply these modifi cations to accounting periods beginning on or after January 1, 2013.Company management has not yet estimated the potential impact that the application of these modifi cations will have on its fi nancial statements.

Management has evaluated the signifi cance of other amendments, inter-pretations not yet in eff ect and other new standards, and has concluded that these are not relevant for the Company.


2011

82,427,145

43,785,093

95,058,053

128,811,548

26,173,242

116,249,553

41,006,981

533,511,615

2011

2,821,233

6,538,060

9,359,293

2011

17,615,052

46,803,403

470,802

154,984

(3,616,532)

61,427,709

Fees and services

Labor costs


Maintenance expenses

Preparation, storage and loading

Taxes

Others

Preparation, storage and loading

Taxes

Fees and services

Labor costs


Taxes

Reimbursement of expenses and others

2010

71,147,638

31,808,337

86,347,579

149,090,959

21,517,377

83,805,694

11,259,948

454,977,532

2010

3,530,493

5,954,954

9,485,447

2010

15,603,449

30,612,908

573,291

145,499

(2,382,439)

44,552,708

6. OPERATING COSTS

7. SELLING EXPENSES

8. ADMINISTRATIVE EXPENSES


2011

76,434,937

8,761,071

5,392,488

90,588,496

2011

6,800,420

(11,505,800)

(2,270,796)

1,871,509

(399,287)

Salaries, wages and other costs

Payroll taxes

Retirement benefit programs and other plans (Note 28)

Interest income

Interest expenses

Loss for foreign exchange differences and changes in the fair value of derivative financial instruments

Others

Other net financial results

2010

52,356,251

7,346,685

2,718,309

62,421,245

2010

3,918,495

(4,461,930)

(2,132,604)

(695,333)

(2,827,937)

9. LABOR COSTS

10. FINANCIAL RESULTS


2011

65,422,543

(1,480,258)

63,942,285

2011

193,377,400

(22,576,076)

170,801,324

51,435,406

12,506,879

63,942,285

Current tax

Deferred tax –(gain) / loss (Note 27)

Profit before income tax

Income exempt from taxes

Net tax base

Tax calculated at the tax rate in each country

Non-taxable income / Non-deductible expenses

Tax charge

2010

36,866,781

7,660,168

44,526,949

2010

204,310,809

(16,709,422)

187,601,387

55,634,233

(11,107,284)

44,526,949

11. INCOME TAX

The tax levied on the Company’s income before taxes diff ers from the theoretical amount that would be obtained using the statutory tax rate applicable in each country, as shown below:


Cost

Value at beginning of year

Translation differences

Additions

Decreases

Value at year-end

Depreciation

Accumulated depreciation at the beginning of the year


Depreciation of the year and devaluation (1)

Decreases

Accumulated depreciation at year-end

At March 31, 2011

Well abandonment

16,770,237

(686,207)

1,186,674

(2,842,316)

14,428,388

12,119,955

(498,833)

(496,974)

-

11,124,148

3,304,240

Machinery and equipment

411,383,657

(9,880,419)

10,921,721

(79,611)

412,345,348

197,747,713

(7,236,419)

21,174,638

(76,015)

211,609,917

200,735,431

Development / productive Assets

847,584,677

(31,335,200)

142,033,086

(16,429,615)

941,852,948

572,279,972

(24,185,043)

73,194,149

-

621,289,078

320,563,870

Total

1,517,336,924

(43,807,327)

213,973,030

(21,448,045)

1,666,054,582

793,651,200

(32,167,157)

95,528,855

(559,045)

856,453,853

809,600,729

Others

23,558,907

(353,937)

14,709,669

(1,359,251)

36,555,388

11,503,560

(246,862)

1,657,042

(483,030)

12,430,710

24,124,678

Reserves acquired

185,301,535

-

-

-

185,301,535

-

-

-

-

-

185,301,535

Exploration and evaluation

32,737,911

(1,551,564)

45,121,880

(737,252)

75,570,975

-

-

-

-

-

75,570,975

12. PROPERTY, PLANT AND EQUIPMENT. EXPLORATION, EVALUATION AND DEVELOPMENT ASSETS

(1) Includes the reversal of the devaluation of accounted-for development assets in the subsidiary Tecpecuador S.A. of US$4.1 million.


Cost

Value at beginning of year


Additions

Additions due to business combinations (see Note 34)

Decreases

Value at year-end

Depreciation

Accumulated depreciation at the beginning of the year


Depreciation of the year

Decrease

Accumulated depreciation at year-end

At March 31, 2010

Well abandonment

18,562,413

(714,375)

(1,077,801)

-

-

16,770,237

11,536,088

(490,309)

1,074,176

-

12,119,955

4,650,282

Machinery and equipment

394,544,060

(9,419,308)

26,272,795

-

(13,890)

411,383,657

178,104,795

(6,405,958)

26,048,876

-

197,747,713

213,635,944

Development / productive Assets

837,062,974

(29,325,085)

44,777,949

-

(4,931,161)

847,584,677

535,713,904

(21,538,605)

58,104,673

-

572,279,972

275,304,705

Total

1,284,862,260

(40,341,326)

90,310,534

188,754,087

(6,248,631)

1,517,336,924

735,781,170

(28,642,784)

86,920,870

(408,056)

793,651,200

723,685,724

Others

22,394,357

(358,173)

2,549,751

276,552

(1,303,580)

23,558,907

10,426,383

(207,912)

1,693,145

(408,056)

11,503,560

12,055,347

Reserves acquired

-

-

-

185,301,535

-

185,301,535

-

-

-

-

-

185,301,535

Exploration and evaluation

12,298,456

(524,385)

17,787,840

3,176,000

-

32,737,911

-

-

-

-

-

32,737,911


13. INTANGIBLE ASSETSAs explained in Note 34, on March 25, 2010, the subsidiary Burgos Oil Services S.A. de C.V. fi nalized the acquisition of 100% of the share capital of Erskine Energy Production Co., which subsequently changed its name to Tecpetrol Corporation. The goodwill of US$12,352,643 at March 31, 2011 and 2010, has its origins in the assignation of assets and liabilities ac-quired in relation to the amount paid for the acquisition.The Company uses the discounted cash fl ow technique to evaluate the recoverability of goodwill. The main premises used were a discount rate of 9.6 rate, and price estimates according to the futures curve current at the close of the accounting period, using publicly-available information provided by agencies. The result of this estimate revealed that no devalu-ation of the assets tested was necessary.

2011

110,948,454

(935,172)

20,322,013

(2,312,507)

128,022,788

At the beginning of the year


Result of investments in associates

Dividends collected

At the end of the year

2010

95,787,662

(2,675,117)

18,776,833

(940,924)

110,948,454

14. INVESTMENTS IN ASSOCIATES



27.24

30.00

21.79

0.03

29.17

23.60

Assets

856

91,423

46,136

825,844

32,528

1,749,137

Book value at March 31, 2011

10,351,718

18,370,481

8,000,000

18,590

2,282,872

88,999,127

128,022,788

Results

(11)

4,993

(5,108)

31,447

3,676

74,728

COMPANY

Gasinvest S.A. (2) and (4)

TIBSA Inversora S.A. (1)

Transportadora de Gas del Mercosur

Transportadora de Gas del Norte S.A. (2)

Energy Consulting Services S.A

Transportadora de Gas del Perú S.A. (3)

Total

COMPANY

Gasinvest S.A.

TIBSA Inversora S.A.

Transportadora de Gas del Mercosur S.A.

Transportadora de Gas del Norte S.A.



Book value at March 31, 2010

10,406,676

18,642,603

8,000,000

18,590

2,468,404

71,412,181

110,948,454

Income

-

62,311

-

124,557

68,155

353,527


27.24

30.00

21.79

0.03

29.17

23.60

Liabilities

46

27,505

4,079

553,814

24,701

1,372,037

% share interest

12.31.10 (in US$ thousands)

Country

Argentina

Argentina

Argentina

Argentina

Argentina

Peru

The associates are as follows:

The most recent fi nancial information concerning associated companies is as follows:

(1) Through TIBSA Inversora S.A., the Company holds an indirect stake of 27.50% in Litoral Gas S.A. as of March 31, 2011 and 2010.

(2) Through Gasinvest S.A., the Company holds an indirect stake of 15.35% in TGN, as of March 31, 2011 and 2010. The Company exer-

cises signifi cant infl uence over this company as of March 31, 2011 and 2010.

(3) Through Tecgas Camisea S.A. the Company owns a stake of 22.97% and a stake of 0.64%, through Tecgas N.V. as of March 31, 2010

and 2009.

(4) The Company carried out a recoverability test of its assets related to TGM, Gasinvest and TGN, and an impairment of approximate-

ly US$41 million was recorded as of March 31, 2009. See Note 15.


Assets

1,087

85,443

82,518

766,369

29,868

1,464,252

Results

(25)

8,643

(9,850)

(7,639)

3,864

59,125

COMPANY

Gasinvest S.A.

TIBSA Inversora S.A.

Transportadora de Gas del Mercosur S.A.

Transportadora de Gas del Norte S.A.



Income

-

71,557

-

139,728

52,740

268,882

Liabilities

74

23,302

21,456

513,220

21,405

1,064,853

12.31.09 (in US$ thousands)

15. IMPAIRMENT OF ASSETSThe Company tests its long-lived assets for impairment periodically or whenever events or changes in circumstances indicate potential signs of impairment of assets. These tests are performed as described in Note 2.6.The Company estimates the recoverable amount of assets as the higher of fair value less costs to sell and value in use of those assets. Value in use is estimated on the basis of the present value of net future cash fl ows of each cash generating units (CGU) by applying a discount rate that refl ects the specifi c nature of the risks of the country where the CGU operates.The determination of discounted cash fl ows involves a combination of highly sensitive estimates and assumptions, such as the evolution of hydrocarbons production levels, sales prices, the evolution of the future price of WTI (Western Texas Intermediate), infl ation, foreign exchange rates, and costs and other expenses, based on the best income and ex-pense estimates that the Company has in relation to its future operations.The cash fl ows from the diff erent CGUs are generally projected for a period that covers the existence of economically productive reserves and is limited to the existence of proven reserves in the period of the conces-sions or contracts. The future prices of hydrocarbons considered are based on market prices available in the fi nancial community.For associated companies, the future discounted fl ow of funds which the Company could potentially receive as a stockholder is considered, using the appropriate discount rate.The discount rates used were between 21% and 16% for the years 2011 and 2010.During this fi nancial period no results have been recorded from the im-pairment of assets as a consequence of the recoverability tests.At March 31, 2009, as a consequence of the deterioration of economi-cal and regulatory conditions aff ecting the Company’s international operations, it recorded a total impairment loss of US$57.6 million


corresponding to its operations in Argentina and Ecuador. Following the evaluations made during the current accounting period concerning the value of the afore-mentioned assets, the determination was made to re-verse the impairment balance generated by the Company’s operations in Ecuador. This reversal came to US$4.1 million and was charged to income as of March 31, 2011.

2011

62,748,755

62,748,755

2011

60,989,951

412,965

78

1,345,761

62,748,755

Non-current

Non-quoted investments



Increases

Changes in fair value


2010

60,989,951

60,989,951

2010

62,596,099

(129,227)

-

(1,476,921)

60,989,951

16. AVAILABLE FOR SALE FINANCIAL ASSETS

Changes in available for sale fi nancial assets are as follows:

Available for sale fi nancial assets are made up of minority investments in the following companies: Baripetrol S.A., Oleoductos del Valle S.A., Terminales Marítimas Patagónicas S.A. and Euroamérica Hardwoods Technology S.A.The fair value of unlisted securities is based on cash fl ows discounted at a rate of 10% at March 31, 2011 and 2010. Of those securities, 96% corre-sponds to fi nancial assets in US$ and the remaining 4% to fi nancial assets in Argentine pesos. As of March 31, 2011, and 2010, no impairment loss has been recorded on those assets.


17. DERIVATIVE FINANCIAL INSTRUMENTSAs of March 31, 2011, the Company has no recorded balance generated by derivative fi nancial instruments.As of March 31, 2010, the Company had various Non Deliverable Forwards (NDF) contracts signed during the fi nancial year in United States dollars (“US$), Danish Kroner (“DKK”) and Argentine pesos (“$”). The principal conditions of these are as follows:

The net fair values of derivative fi nancial instruments at March 31, 2010, are as follows:

The assets and/or liabilities arising from derivative instruments have been valued at fair value. The diff erences generated by the application of the measurement criteria detailed above have been recognized as “Other fi nancial results” in the statement of income, since they are derivatives not designated as hedge instruments by the IFRS.

Buyer of currency of reference

Tecpetrol International S.A.Santa María Financial S.A.




Tecpetrol S.A.

Rate

4.97 4.96

5.18 5.18

5.52 5.52

5.48 5.49

3.88

Notional amount

DKK1,755,644 DKK1,755,644

DKK43,733,304 DKK43,733,304

DKK1,593,344 DKK1,593,344

DKK5,479,600 DKK5,479,600

$20,000,000

Amount in currency of reference

US$353,519 US$353,718

US$8,438,487 US$8,442,397

US$288,623 US$288,780

US$1,000,000 US$1,000,329

US$5,150,657

NDF N° 1 and 2 (12/2009) (*)

NDF N° 3 and 4 (12/2009) (*)

NDF N° 5 and 6 (02/2010) (*)

NDF N° 7 and 8 (03/2010) (*)

NDF N° 9 (03/2010) (**)

Seller of currency of reference

Santa María Financial S.A.Tecpetrol International ApS.


Santa MaríaFinancial S.A.Tecpetrol International ApS.


Standard Bank S.A.

(*) Dates of compensation and valuation of the operations: June 30, 2010 and June 28, 2010, respectively.

(**) Date of compensation of the operations: April 30, 2010.

Contract

Future purchase of Danish Kroner

Future sales of Danish Kroner

CURRENCY

DKK/US$

US$/DKK

Subtotal

Others

2010

550,173

(551,015)

(842)

82,401

81,559


The Company regularly assesses the volatility of and outlook for the price of crude oil and has decided not to hedge against this.There are no other contracts which may be considered as derivatives.

2011

43,914,773

4,925,177

32,202,628

1,589,292

3,304,828

85,936,698

130,651,530

13,811,387

30,459,033

7,485,748

1,135,362

13,483,470

704,590

2,594,432

200,325,552

2011

242,809,641

31,010,545

4,156,310

3,089,482

220,058

4,960,768

647

14,799

286,262,250

Non-current

Trade receivables

Taxes

Loans to related parties (Note 33)

Loans and advances to employees

Other receivables

Current

Trade receivables

Trade receivables from related parties (Note 33)

Common receivables

Advances

Receivables from related parties (Note 33)

Taxes

Loans and advances to employees

Other receivables

US Dollars

Argentine Pesos

Peruvian Soles

Mexican Pesos

Bolivars

Colombian Pesos

Uruguayan Pesos

Euros

2010

69,288,145

3,635,864

30,933,494

1,971,058

6,360,130

112,188,691

115,729,847

12,314,762

7,887,076

2,694,836

2,035,771

14,154,823

511,376

2,868,863

158,197,354

2010

225,217,143

37,683,958

1,807,682

5,387,410

276,697

-

-

13,155

270,386,045

18. TRADE AND OTHER RECEIVABLES

Current trade receivables are for a term of not more than 30 days.Total trade and other receivables are maintained in the following currencies:


2011

8,650,999

75,210,663

2,075,036

85,936,698

2011

2,672,245

19,764,536

22,436,781

2011

10,082,007

-

-

10,082,007

2011

8,488,020

(368,498)

1,962,485

10,082,007



More than 5 years

Hydrocarbons

Supplies and spare parts

Non-current

Other investments

External bills of the Republic of Argentina

Impairment of external bills of Republic of Argentina



Increases


2010

43,186,205

36,144,554

32,857,932

112,188,691

2010

3,306,815

22,586,520

25,893,335

2010

8,488,020

1,070,720

(1,070,720)

8,488,020

2010

7,416,895

(282,965)

1,354,090

8,488,020

The maturities of trade accounts receivable and other non-current re-ceivables are as follows:

19. INVENTORIES

20. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Changes in other fi nancial assets at fair value through profi t or loss are as follows:


2011

157,416,159

135,289,368

292,705,527

2011

292,705,527

(8,456,869)

284,248,658

Cash at bank and in hand

Short-term bank deposits


Overdraft facilities (Note 26)

2010

54,643,252

150,592,644

205,235,896

2010

205,235,896

(2,153,375)

203,082,521

21. CASH AND CASH EQUIVALENTS

The eff ective interest rate on short-term bank deposits during both peri-ods averaged 0.5%; these deposits have an average maturity of 30 days.Cash, cash equivalents and bank overdrafts include the following for the purposes of the cash fl ow statement:

Share capital

371,940,304

Number of shares

9,541,175As of March 31, 2011, and 2010

Total

371,940,304

22. SHARE CAPITAL

The total authorized number of shares is 15,000,000. Paid-up capital as of March 31, 2011 and 2010, amounts to Uruguayan pesos (“UY$”) 9,541,175,037.89, represented by a bearer bond amounting to UY$9,541,175,000 (9,541,175 shares of UY$1,000 par value each) in favor of Techint Investments N.V. plus interim certifi cates for UY$37.89.


2011

(82,761,508)

(49,562)

(5,355,959)

23,907,805

(64,259,224)

2011

(52,154,706)

(13,402,457)

(49,562)

1,347,501

(64,259,224)

Effects of currency translation

Changes in fair value of derivatives maintained as hedge flows (1)

Increase due to share purchases

Fair value of available for sale financial assets (including income tax)


Effects of currency translation

Changes in fair value of derivatives maintained as hedge flows (1)

Fair value of available for sale financial assets (including income tax)

At year-end

2010

(69,359,051)

-

(5,355,959)

22,560,304

(52,154,706)

2010

(37,891,025)

(12,489,269)

-

(1,774,412)

(52,154,706)

23. OTHER RESERVES

Changes in other reserves are as follows:

24. DIVIDENDS PER SHAREOn October 21, 2010, the Ordinary Shareholders’ Meeting of Tecpetrol International S.A. approved a cash dividend payment for US$30,000,000, representing an amount of US$3.14 per ordinary share currently issued and outstanding.On July 31, 2009, the Ordinary Shareholders’ Meeting of Tecpetrol International S.A. approved a cash dividend payment for US$30,000,000, representing an amount of US$3.14 per ordinary share currently issued and outstanding.

(1) Share in other comprehensive income of the associate TgP.


2011

125,382,685

19,922,557

19,812,501

3,847,912

168,965,655

2011

99,465,075

32,363,835

27,313,427

7,767,682

1,967,398

16,200

72,038

168,965,655

Trade payables

Amounts due to related parties (Note 33)

Social security and other taxes

Accrued expenses

U.S. Dollars

Argentine Pesos

Peruvian Soles

Mexican Pesos

Colombian pesos

Bolivars

Euros

2010

84,968,029

13,423,903

15,608,144

4,348,807

118,348,883

2010

79,806,583

27,117,167

8,589,893

2,672,101

-

27,982

135,157

118,348,883

25. TRADE AND OTHER PAYABLES

Total trade and other payables are held in the following currencies:


Total borrowings as of March 31, 2011 and 2010, include secured liabilities (bank and collateralized borrowings) for a total of US$231,344,917 and US$164,760,778 respectively.

2011

151,670,912

60,745,514

212,416,426

8,456,869

83,609,181

18,960,628

111,026,678

Non-current

Bank borrowings

Borrowings from related parties (Note 33)

Current

Overdraft facilities (Note 21)

Bank borrowings


2010

130,694,979

88,357,880

219,052,859

2,153,375

41,454,326

12,096,635

55,704,336

26. BORROWINGS


2011

97,803,066

2,128,080

4,965,519

25,755,954

12,876,046

2,405,731

343,523

3,607,048

934,777

623,185

227,983

151,670,912

-

1,002,408

6,638,575

2,845,104

1,484,110

8,168,856

4,083,815

4,679,016

638,165

989,406

425,443

3,119,344

3,935,176

26,599,861

18,999,902

-

83,609,181

COMPANY

Non-current

Tecpetrol Corporation

Tecpetrol del Perú S.A.C.


Tecpetrol Bloque 56 S.A.C.


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

Tecpetrol de México S.A. de C.V





Current

Tecpecuador S.A.

Tecpecuador S.A.




Tecpetrol Bloque 56 S.A. de C.V.

Tecpetrol Bloque 56 S.A.de C.V.






Tecpetrol S.A.

Tecpetrol de Colombia S.A.

Tecpetrol de Colombia S.A.

Tecpetrol de Venezuela

Lender

Credit Agricole Corporate and Investment Bank

Scotiabank Perú

BBVA Banco Continental

Scotiabank Perú

Banco de Crédito del Perú

Bancomer S.A.

Bancomer S.A.

Bancomer S.A.

Bancomer S.A.

Bancomer S.A.

Bancomer S.A.

Citibank NYC

Citibank NYC

BBVA Banco Continental

Scotiabank Perú

Bancomer S.A.

Scotiabank Perú

Banco de Crédito del Perú

Bancomer S.A.

Bancomer S.A.

Bancomer S.A.

Bancomer S.A.

Bancomer S.A.

Banco de la Pcia. de Bs. As.

BBVA New York

Credit Agricole Corporate and Investment Bank

Banco Venezolano

Currency

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

US$

Bs

Interest rate

LIBO + 3.5%

LIBO + 1.75%

LIBO + 1.75%

LIBO + 4.5%

LIBO + 4.5%

LIBO + 3%

LIBO + 1.5%

LIBO + 3%

LIBO + 2.75%

LIBO + 2.75%

LIBO + 1.5%

LIBO + 2.2%

LIBO + 3%

LIBO + 1.75%

LIBO + 1.75%

LIBO + 1.5%

LIBO + 4.5%

LIBO + 4.5%

LIBO + 3%

LIBO + 2.75%

LIBO + 1.5%

LIBO + 2.75%

LIBO + 3%

1.7%

LIBO + 0.92%

LIBO +0.85%

28%

2010

97,303,488

11,585,060

4,965,026

-

-

5,520,144

1,824,626

8,280,217

-

-

1,216,418

130,694,979

5,584,504

-

6,647,113

2,848,763

3,165,588

-

-

6,607,756

-

2,110,392

-

4,405,171

-

10,007,259

-

77,780

41,454,326

Bank borrowings


2011

57,500,000

3,245,514

60,745,514

426

66,385

-

17,443,270

1,450,547

-

18,960,628

COMPANY

Non-current

Tecpetrol International S.L.U.

Norpower S.A. de C.V.

Current

TGT S.A. de C.V.

Tecpetrol International S.L.U.

Tecgas Camisea S.A.

Tecpetrol International S.A.


Tecgas N.V.

Lender

Santa María Financial S.A.

Techint S.A. de C.V.







Currency

US$

US$

US$

US$

US$

DKK

Euros

US$

Interest rate

LIBO + 1.4%

LIBO + 3%

LIBO + 1.4%

LIBO + 1.4%

2.25%

LIBO (30 días DKK) + 0.1%

0.6%

2.25%

2010

88,065,794

292,086

88,357,880

-

-

79,106

10,765,303

-

1,252,226

12,096,635



The fair value of current and non-current borrowings does not diff er signifi cantly from their book value.

27. DEFERRED TAX ASSETS AND LIABILITIESDeferred income tax charges are calculated entirely on the basis of tem-porary diff erences according to the deferred tax liability method at the tax rate applicable in each country.At March 31, deferred income tax was determined as follows:

2011

16,298,854

196,117,572

212,416,426

2011

59,047,528

(1,148,275)

(6,840,349)

533,435

(1,740)

6,508,366

58,098,965



At the beginning of the year (net deferred liability)

Temporary differences:

Property, plant and equipment

Provisions


Directly charged to other comprehensive income

Tax loss and others

At the end of the year (net deferred liability)

2010

25,107,551

193,945,308

219,052,859

2010

51,195,080

20,042,641

11,947,007

(55,578)

(297,491)

(23,784,131)

59,047,528

The maturity of non-current borrowings is as follows:


At the date of these fi nancial statements, the tax losses pending uti-lization not charged as deferred assets, as there is not suffi cient evi-dence concerning future tax gains to allow for these to be absorbed, come to US$82.3 million, of which US$26.6 million are from Tecpetrol Corporation, with a time limitation of 20 years, as from the acquisition of this company (Note 34), and US$55.7 million from other wholly-owned companies, with no time limitations.The movements of deferred tax assets and liabilities for this year are detailed below:

Losses and others (*)

(19,871,410)

7,299,144

(12,572,266)


5,256,282

(24,883,961)

(243,731)

(19,871,410)


(728,023)

792,518

(15,947)

48,548


29,036

(802,339)

45,280

(728,023)

Provisions

31,665,262

(8,010,302)

23,654,960

Provisions

3,541,905

27,638,822

484,535

31,665,262

Provisions

15,916,354

(1,169,953)

(619,210)

14,127,191

Provisions

370,998

15,691,815

(146,459)

15,916,354


59,029,762

968,800

59,998,562


42,811,203

16,792,240

(573,681)

59,029,762


(3,412,245)

2,117,075

101,722

(1,193,448)


14,276

(3,250,401)

(176,120)

(3,412,245)

DEFERRED TAX LIABILITIES

Amounts at March 31, 2010

Movement for the year


DEFERRED TAX LIABILITIES





DEFERRED TAX ASSETS





DEFERRED TAX ASSETS





Total

70,823,614

257,642

71,081,256

Total

51,609,390

19,547,101

(332,877)

70,823,614

Total

11,776,086

1,739,640

(533,435)

12,982,291

Total

414,310

11,639,075

(277,299)

11,776,086

(*) This includes the amount charged directly to other comprehensive income.


Deferred tax assets and liabilities are off set when there is a legally-en-forceable right to off set current tax assets against current tax liabilities and when deferred income taxes are handled by the same tax authority. The estimated reversal term is the following:

28. RETIREMENT BENEFIT PROGRAMS AND OTHER PLANSThe main actuarial premises for the two benefi t plans which the Company has in place known as “unfunded defi ned benefi ts” and “other long-term benefi ts” are based on real discount rates of 7% and 6% and a salary increase rate of 2% and 3%, respectively, for both periods. The amounts assigned to these plans are the following:

Furthermore, as of March 31, 2011, the Company has a new employee incentive and retention plan explained in greater detail in Note 2.15 (b). The liability which corresponds to this program as of March 31, 2011, is US$692,304.As disclosed, the total liabilities for retirement benefi t programs and other plans come to US$14,691,300 and US$10,133,657 as of March 31, 2011 and 2010, respectively.

2011

10,116,360

23,654,960

2,865,931

47,426,296

2011

19,993,524

(172,353)

(5,822,175)

13,998,996

Deferred tax assets to be recovered within 12 months

Deferred tax liabilities to be paid within 12 months

Deferred tax assets to be recovered after 12 months

Deferred tax liabilities to be paid within 12 months

Present value of obligations

Unrecognized cost of services rendered in the past

Unrecorded actuarial gains (losses)

Total net liabilities recorded

2010

11,278,313

31,665,262

497,773

39,158,352

2010

14,131,939

(187,437)

(3,810,845)

10,133,657


The amounts disclosed in the Consolidated Income Statement are the following:

The variations in the liabilities disclosed in the Consolidated Statement of Financial Position are the following:

Net liabilities recognized for those benefi ts have been disclosed under the “Retirement benefi t programs and other plans” account, in non-cur-rent liabilities, there being no claimable debt at year-end. The charge to income, which comes to US$5,392,488 (US$2,718,309 at March 31, 2010) is disclosed as a labor expense under “Operating costs” in the Consolidated Income Statement.

2011

1,196,900

2,519,233

984,051

4,700,184

692,304

5,392,488

2011

10,133,657

(534,269)

4,950,837

(551,229)

13,998,996

692,304

14,691,300

Current cost of services

Interest

Actuarial losses/gains, net, recognized in the fiscal year

Subtotal

Incentive program (Note 2.15 (b))

Total included in Labor costs (Note 9)



Total expense

Contributions paid

Subtotal

Incentive program (Note 2.15 (b))


2010

811,762

1,465,866

440,681

2,718,309

-

2,718,309

2010

8,349,818

(375,285)

2,901,160

(742,036)

10,133,657

-

10,133,657


29. PROVISIONS

The maturities of provisions for other non-current liabilities are given below:

Variations in provisions for other liabilities occurred in the fi scal year are given below:

The provision related to well abandonment is recognized using an infl a-tion rate of 4.5% and a discount rate of 8.5%.

2011

34,026,810

1,978,260

9,137,953

45,143,023

11,070,478

11,070,478

2011

1,701,341

11,116,212

32,325,470

45,143,023

2011

54,301,433

(173,521)

8,045,340

(5,959,751)

56,213,501

Well abandonment

Tax liabilities

Others

Total non-current

Provision for other contingencies

Total current



After 5 years



Increases

Decreases


2010

29,978,362

2,422,870

7,712,288

40,113,520

14,187,913

14,187,913

2010

1,299,597

7,201,551

31,612,372

40,113,520

2010

42,626,793

(75,932)

12,397,148

(646,576)

54,301,433


30. CONTINGENCIESThe Company has contingent liabilities in respect of tax claims arising in the ordinary course of business. It is not anticipated that any mate-rial liabilities will arise from these contingent liabilities other than those provided for.There are certain interpretations made by the supervisory authorities as to the calculation and payment of certain taxes that diff er from the Company’s position. Management does not consider that any signifi cant impact will result from the fi nal resolution of these situations other than that contemplated in these Consolidated Financial Statements.The Argentine tax controller authority (Administración Federal de Ingresos Públicos – AFIP), has notifi ed the subsidiary Tecpetrol S.A. of a jeopardy assessment amounting to US$2.4 million corresponding to in-come tax, in addition to interests and fi nes, with the argument that the income from certain crude oil derivatives and other deductions for the fi scal years 2000 and 2001 was incorrectly computed and recorded.On July 18, 2006, the company fi led an appeal with the National Tax Court resulting in a stay of execution with respect to the demand for payment. The company estimates that the probability of a favorable outcome based on the defense presented is high, and that accordingly no provision needs to be set.The Peruvian Organization for the Supervision of Investment in Energy and Mining (Organismo Supervisor de la Inversión en Energía y Minería de Perú - OSINERGMIN) has levied fi nes on the associate Transportadora de Gas del Perú (TgP) which refer, among others, to alleged environmen-tal off enses for approximately US$15 million, of which some US$13 mil-lion correspond to fi nes levied during the pipeline construction phase, which have since been contested. Management has taken into account the opinion of its legal counsel and considers that the fi nal resolution of these situations will not have a signifi cant impact on its current fi nan-cial statements other than that already taken into account.


31. SITUATION OF ASSOCIATES: TRANSPORTADORA DE GAS DEL NORTE S.A. AND TRANSPORTADORA DE GAS DEL MERCOSUR S.A.Transportadora de Gas del Norte S.A. (“TGN”) began operations at the end of 1992, and has since then carried out an ambitious investment plan, developing 6,195 km. of gas pipelines with a transportation capac-ity 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 fi elds in the North and Mid-West of Argentina, whose location allows 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 substantially altered the legal and contractual conditions of the framework in which TGN conducted its business until 2001. The tariff -freeze, added to the devaluation of the Argentine cur-rency to a third of its value before the end of 2001, caused a substantial imbalance in TGN’s fi nancial and equity structure. This situation led to the company’s temporary inability to meet commitments with its fi nan-cial creditors and the need to restructure its fi nancial debt. In fact, after four years of negotiations with its fi nancial creditors, TGN was fi nally able to consummate the voluntary restructuring of its fi nancial 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 fi nancial 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 fi nancial commitments as agreed. In this context, the Board of TGN decided on December 22, 2008, to suspend capital payments and inter-ests on its fi nancial debt.As of 31 December 2010, TGN has outstanding fi nancial debts worth a total of US$411.7 million. Of these, it has not met the capital payment requirements of US$82.7 million and interests worth US$59.49 million as well as US$7.4 million in punitive interests.Although the decision to suspend the repayments of its fi nancial debt was taken with the explicit purpose of enabling the secure and reliable provision of public natural gas carriage services, preserving the going concern principle and ensuring equal treatment for all its fi nancial debt-ors, on December 29, 2008, the Argentine Regulatory Gas Entity (Ente Nacional Regulador de Gas - ENARGAS) took the decision to intervene TGN for 120 days. This intervention was successively extended and is


currently still in force. It should be noted that TGN continued to provide public services as charged and in a normal fashion without aff ecting either customers or users in general in any way.On April 23, 2009, TGN announced the presentation of a swap off er and requested an out-of-court repayment plan (Acuerdo Preventivo Extrajudicial - APE) for the total restructuring of its fi nancial liabilities. This was subsequently improved upon and amended by a new off er and request for an out-of-court repayment plan made on September 8, 2009. This off er received an acceptance level in the order of 87.97%; however, the restructuring process was delayed by the judiciary upon the re-quest of the Argentine Social Security Administration (Administración Nacional de Seguridad Social). In mid-July 2010, this confl ict was un-blocked but in September 2010, the Attorney-General declared the out-of-court repayment plan to be null and void. This has since been appealed and refuted by TGN.Furthermore, TGN hopes to reach a full understanding with the Argentine Government before re-investing in the assets required to sat-isfy the demands of an economy with a projected positive growth. It thus continues to work with the Argentine authorities and is making every eff ort to return to the path of growth in the shortest time possible.Transportadora de Gas del Mercosur S.A. (“TGM) began commercial operations 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, 422 km-long pipeline for delivery at the sub-fl uvial 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 eff ects of the energy crisis in the short term, the Subsecretaría de Combustibles (Under-secretariat of Fuels) passed a se-ries 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 signature of a transport agreement with YPF, which is currently its only source of income. In relation to the recovery of the value of the Company’s stake in the share capital of TGN and TGM, the Company carried out recoverability tests on those of its assets related to these companies. The hypotheses, premises 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 projected by the operating companies them-selves. This takes into account the outlook projected by the Company’s Management concerning income tax considerations, scenarios for the perception of dividends arising from these investments and the rate of funding fl ow adjustment.The sum total of these estimates is based on future suppositions and may or not come about. As regards TGM, they may be further aff ected by the uncertainties related to the evolution of its commercial contract, includ-ing economic compensation for the same. The development of the busi-ness is unpredictable in both cases, and hence it is diffi cult to calculate the generation of a future fl ow of funds which would allow the value of the aforementioned assets to be recovered.


32. MAIN GUARANTEES, COMMITMENTS AND RESTRICTIONSThe Company has assumed the following guarantees, commitments and restrictions as of year-end:

Guarantees and commitmentsAs of these fi nancial statements the Company and its subsidiaries hold the following commitments and/or guarantees:

a) Corporate guarantees(amounts in US$ millions)

ITEM

Unconditional several guarantee as princi-

pal and joint obligor, for compliance with

obligations on behalf of SMB with Pemex

Exploración y Producción (“PEP”).

Irrevocable and unconditional guarantee

for due compliance with the contractual

obligations (first and second phase) signed

between PEP and Norpower S.A. de C.V.

Guarantee for the obligations of Tecpetrol

Corporation in favor of Credit Agricole-

Investment Bank (“CA-IB”).

Guarantee of 50% of SMB’s obligations for

the debt balance with Bancomer.

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

and Lote 56.

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 production of

hydrocarbons in Bloque Bermejo signed with

the Ecuadorian state.

Company




Tecpetrol Internacional S.L.U.



Comments

-

TE&IC S.A. (shareholder of Nor-

power 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.

To be executed in November

2011 if the Borrowing Base is less

than US$100 million.

Only executable if non-compliance

is due to causes related to SMB’s

performance.

No defined amount.

No defined amount. Replaces

the guarantees issued by

Tecpetrol S.A. and Tecpetrol

International S.A.

Amount

38.23

14.10

25.00

20.66

-

-

Beneficiary

PEP

PEP

CA - IB

Bancomer

Perupetro S.A.

Ecuadorian state


ITEM

Unconditional guarantee for the payment of

export pre-financing for Tecpecuador S.A.

Joint guarantee for compliance with the

obligations of Tecpecol S.A. enshrined in

the contract for the exploration and exploi-

tation of hydrocarbons with the Agencia

Nacional de Hidrocarburos de Colombia

(“ANH”) and any damages occasioned by

non-compliance with the same.

To jointly and severally, absolutely and

irrevocably guarantee that it will provide

Tecpetrol de Bolivia S.A. with all the tech-

nical and financial resources required for

the latter to fully and appropriately comply

with its obligations pursuant to the con-

tracts for the exploitation of the Aquío and

Ipati Blocks.

Irrevocable and unconditional guarantee

for the first and second phases of the con-

tract 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 mainte-

nance services to TgP according to

the BOOT Contracts for the Concession

of Gas and Gas Liquids, the O&M Manual,

industry best practices and the laws

applicable in Peru.

Company


Tecpetrol S.A.

Tecpetrol S.A.

Tecgas N.V.

Tecgas N.V.

Comments

Paid up on April 7, 2011.

No defined amount. Paid up and

replaced on April 5, 2011 by a

new guarantee issued by

Tecpetrol Internacional S.L.U.,

under the same conditions.

No defined amount.

TE&IC S.A. issued an indemnity

in favor of Tecpetrol Internation-

al 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 in-

curred as a result of, or because

of, the pipeline system opera-

tion when this is due to negli-

gence 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 lim-

ited to an annual equivalent of

no more than US$5 million.

Amount

7.00

-

-

7.30

-

Beneficiary

Citigroup Inc.

ANH

YPFB

PEP

TgP


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 regula-

tions. In these, TgP committed to invest-

ments 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

addendum to the natural gas BOOT con-

tract by the Ministerio de Energía y Minas

and TgP. This stipulates that TgP commits

to expanding the system’s gas transport

capabilities to reach 920MMscf per day.

Company

TgP

TgP

Comments

-

-

Amount

665

-

Beneficiary

Ministerio de

Energía y Minas

and CONITE

(Peru)

Ministerio de

Energía y Minas

Peru)


b) Guarantees for fi nancial entities and insurance companies(amounts given in US$ millions)

ITEM

Compliance with Tecpecol S.A.

investment plan

Compliance with Tecpecol S.A.

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 aris-

ing from the works contract signed be-

tween Norpower S.A. de C.V. and PEP.

Compliance with Hickman

investment plan.

Compliance with Rio Atuel

investment plan.

Company

Tecpecol S.A.

Tecpecol S.A.

Burgos Oil

Services S.A.

de C.V.

Norpower S.A.

de C.V.

Tecpetrol S.A.

Tecpetrol S.A.

Comments


provided unconditional guaran-

tees to Citigroup Inc. so that Ci-

tibank Colombia S.A. could issue

a bank guarantee as requested

by Tecpecol S.A. Between April

and June 2011, the AHN autho-

rized the amounts permitted to

be reduced to US$6.82 million.


provided guarantees to HSBC

Colombia S.A. to issue bank guar-

antees as requested by Tecpecol

S.A. In June 2011, the AHN autho-

rized the amounts permitted to be

reduced to US$4.08 million.

Tecpetrol Internacional S.L.U. guar-

antees the surety policies provided

by Afianzadora Aserta S.A. de C.V.

in favor of PEP for US$9 million.


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


for up to US$2 million.

-

-

Amount

27.40

14.34

7.85

3.09

4.30

4.82

Beneficiary

ANH

ANH

PEP

PEP

Province of Salta

(Argentina)

Province of Mendoza

(Argentina)

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.

CHUBB

Argentina de

Seguros S.A.


ITEM

Compliance with Oran investment plan.

Due compliance with SMB’s obligations

arising from its contract with PEP.

Guarantee covering hidden defects.

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.

Company

Tecpetrol S.A.

SMB

SMB

SMB

TgP

Comments

-

-

-

-

This is a two-year guarantee,

which is the minimum period

given in the BOOT Concession

Contracts, and is to remain appli-

cable from the date of delivery to

the Concessionaire until 90 cal-

endar days after the due date of

the BOOT Concession Contracts.

Amount

2.40

15.07

11.67

1.12

2

Beneficiary

Secretaria de Energía

of the Province of

Salta, Argentina

PEP

PEP

PEP

Republic of Peru,

represented

by the Ministerio

de Energía y Minas

Issuer

CHUBB

Argentina de

Seguros S.A.

HSBC

México S.A.

Afianzadora

Aserta S.A.

de C.V.

Afianzadora

Sofimex S.A.

Banco de

Crédito del Perú


c) Other commitmentsTgP obligations registered under the fi rst corporate bond issue program according to the Framework Issue Contract amount to US$467 million at December 31, 2010 (US$327 million at December 31, 2009). Obligations with the Inter-American Development Bank and Corporación Andina de Fomento under the Common Terms Agreement amount to US$92 million at December 31, 2010 (US$99 million at December 31, 2009). These obligations are secured by: (i) a bank escrow account equivalent to six months’ debt service, (ii) a fi rst senior mortgage on the concession-related assets established in the BOOT Concession Contracts, and (iii) a fi rst senior pledge on TgP shares. In addition, according to the Framework Issue Contract, TgP is required to comply with certain contractual covenants relating to fi nancial ratios, business management, and other issues.The associate TgP has also signed a number of diff erent contracts with fi nancial institutions: Banco de Crédito del Perú, fi nancing agreement for up to US$50 million; Banco de Crédito del Perú and Natixis, up to US$80 million; Banco de Crédito del Perú, Natixis and Corporación Andina de Fomento, up to US$150 million; and Banco Nacional de Desenvolvimento Econômico e Social up to US$197 million. The amounts disbursed 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 fi nancial entities, TgP is required to comply with certain contractual covenants relating to fi nancial ratios, business management, and other issues related to business activities.In December 2006, Tecgas N.V. signed the “Termination Agreement of Completion Guaranty” with the Inter-American Development Bank (IDB) and Corporación Andina de Fomento (CAF), together with other supplementary documentation. This agreement permitted the release of corporate guarantees committed within the “Sponsor Support and Share Retention Agreement”, which came to 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 a Legal Stability Agreement with the National Committee of Foreign Investments and Technology of Peru (Comisión Nacional de Inversiones y Tecnologías Extranjeras – CONITE - now Proinversión). 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. As of December 31, 2010 and 2009, 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 Carriage System through pipelines from Camisea to City Gate and the Natural Gas Liquids Carriage System through pipelines from Camisea to the Coast.The Legal Stability Agreement came into force on the trade-date of the contracts and shall remain eff ective throughout the term of the concession. It may not be modifi ed unilaterally, whether or not the modifi cations benefi t one or other of the parties. Nonetheless, TgP is entitled to a single waiver of the benefi ts of the legal stability regime provided for under this agreement so that it can automatically become subject to ordinary legislation

Limitations on share transfer and income distributioni) 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 National Regulatory Gas Entity (Ente Nacional Regulador de Gas - ENARGAS).Any transfer or assignment or any other act leading to a decrease below 51% in the interests held by the original shareholders in the capital of Gasinvest, including any shortfall in the subscription by those shareholders of any capital increase in Gasinvest, requires prior approval by ENARGAS.The aforementioned restrictions do not apply to transfers between parties belonging to the same economic group as specifi ed in the terms and conditions of the tender documents.As established in the new fi nancial 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 defi ned 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 fl ows for the calculation period and the total fi nancial debt.


Restricted assetsA 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 regulation and/or measuring Stations, has been defi ned in the License as “essential for rendering the service licensed’’. In accordance with the license granted for the rendering of the natural gas carriage public service (“the License”), 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 improvements and extensions as established by specifi c standards defi ned 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 transportation services, without prior authorization from ENARGAS.As set forth in the new fi nancial agreements entered into as a result of the fi nancial 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 profi ts 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 shareholding 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 authorization of the regulatory entity.


33. RELATED PARTY BALANCES AND TRANSACTIONSThe Company is controlled by Techint Investments N.V. which owns 100% of the Company’s shares.At the end of the former fi nancial period, the Company’s ultimate controlling company was San Faustin N.V, based in Curaçao, which possessed ownership of the Company through other subsidiaries.Rocca & Partners S.A. (“R&P”) controlled a signifi cant portion of the voting rights in San Faustin N.V. and had the ability to infl uence matters aff ecting, or submitted to a vote of San Faustin’s shareholders.In February 2011, the Company was informed of a reorganization in the ownership structure, which had no impact on company ownership, and San Faustin N.V. transferred its domicile from Curaçao to Luxembourg, changing its name to “San Faustin S.A.”.In connection with the redomiciliation of San Faustin S.A.’s into Luxembourg, R&P organized a Dutch private foundation (“Stichting”) under the name of Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin (“RP STAK”). Currently, RP STAK hold shares in San Faustin S.A. suffi cient in number to ensure majority control. No person or group of persons controls RP STAK.

a) Principal operations with related parties:

2011

101,980,362

1,261,398

18,305,017

12,297,689

(54,055,903)

1,020,844

(3,336,556)

(282,363)

Associates:

Sales of products and services

Interest income

Other related companies:

Sales of products and services

Purchases of goods

Fees and services

Interest income

Interest loss

Other operating income and losses

2010

85,405,661

1,389,593

10,304,524

6,495,002

(41,884,543)

1,468,407

(673,176)

(190,053)


b) Balance with related parties

Remuneration of Board membersThe total remuneration of the Board Directors and members earned dur-ing the fi nancial years ending on March 31, 2011 and 2010, came to US$4.4 and US$3.5 million, respectively.

2011

10,863,867

2,947,520

13,811,387

1,135,362

19,922,557

32,202,628

60,745,514

18,960,628

79,706,142

Trade receivables from related parties (Note 18):

Associates

Other related parties

Receivables from related parties (Note 18):


Payables to related parties (Note 25):


Loans to associated parties (Note 18):

Non-current

Borrowings from other related companies (Note 26)

Non-current

Current

2010

10,233,783

2,080,979

12,314,762

2,035,771

13,423,903

30,933,494

88,357,880

12,096,635

100,454,515


34. BUSINESS COMBINATIONSOn March 25, 2010, the subsidiary company Burgos Oil Services S.A. de C.V., completed the acquisition of 100% of the share capital of Erskine Energy Production Co., located in Houston, Texas, United States, for US$71.2 million, with certain adjustments to be agreed.Tecpetrol Corporation is dedicated to oil and gas exploration, exploita-tion and production in the south of the state of Texas.The assets and liabilities resulting from the acquisition, which were determined provisionally at March 31, 2010, given the proximity of the operation to the close of the fi nancial year, were adjusted as of March 31, 2011, according to the purchase method given in IFRS 3 appli-cable at the trade date. The adjustments made to the balances at March 31, 2010 are given below:

(*) This does not include the cash balance.

The acquisition of Erskine created goodwill as of March 31, 2011 and 2010, of US$12,352,643, corresponding to the excess of the acquisition cost over the fair value of net assets (Note 13).During this accounting period, the calculations corresponding to the identifi able assets and liabilities acquired were completed, and certain extra liabilities were detected in addition to those considered at the trade date, which are refl ected in the comparative fi gures of the current Consolidated Financial Statements. The Company commenced consolida-tion of the balances and income from Tecpetrol Corporation’s operations as from the trade date.If the Tecpetrol Corporation transaction had taken place on April 1, 2009, the pro-forma information for the 2010 fi scal period concerning net sales income would have been in the region of US$740 million. These pro-for-ma results have been prepared on the basis of public information and on non-audited accounting records prior to the acquisition.

Adjustments

(0.1)

(3.0)

8.6

(5.5)

-

-

-

2010

(8.7)

192.0

3.7

(122.3)

64.7

6.5

71.2

Other current assets and liabilities (net) (*)


Intangible assets – goodwill

Non-current debt

Subtotal

Cash acquired

Total paid in cash

2010 adjusted

(8.8)

189.0

12.3

(127.8)

64.7

6.5

71.2


35. SubSidiarieS and jointly-controlled entitieS

% 2011

100

100

100

100

100

100

100

100

100

100

100

Date

03.31.11

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

Country

Spain

Argentina

Venezuela

Mexico

Mexico

U.S.A.

U.S.A.

Ecuador

Peru

Peru

Mexico

SubSidiarieS and main activity


Purchase, holding, administration and management of shares and securities

or any other form of representation of interests in the corporate capital of

non-resident entities, exploration, exploitation and development of

hydrocarbons fields; carriage, transformation, distillation, refining, industrial

use and sale of hydrocarbons and their by-products.

Tecpetrol S.A.

Exploration, exploitation and development of hydrocarbons fields;

transportation, transformation, distillation and industrial development

of hydrocarbons and their by-products; and trade in hydrocarbons. (2)

Tecpetrol de Venezuela S.A.

Provision of services in the hydrocarbons area, including exploration,

exploitation, transportation, manufacture and refining activities. (3)

Tecpetrol de México S.A. de C.V.

Performance of works relating to the development, infrastructure

and maintenance of gas fields. (1)


Object given in (1)

Tecpandina L.L.C.

Object given in (2)

Peruvian Energy L.L.C.

Object given in (2)

TecpEcuador S.A.

Object given in (2)


Object given in (2)


Object given in (2)

Techenergy Services S.A. de C.V.

Exploration, operation and maintenance of hydrocarbons fields.

% 2010

100

100

100

100

100

100

100

100

100

100

100

91Consolidated financial statements as of March 31, 2011

% 2011

50

100

-

100

100

100

100

100

100

100

Date

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

Country

Mexico

Portugal

Brazil

Denmark

U.S.A.

Bolivia

Argentina

Curaçao

Argentina

Cayman Islands


Servicios Múltiples de Burgos S.A. de C.V. (*)

Works relating to the development, infrastructure

and maintenance of gas fields.

Suizum Serviços de Consultadoria Soc. Unip., Ltda.

Consulting technical support in expansion and modernization of industrial,

commercial and of services companies in the international environment,

and participation in other companies.

Tecpetrol do Brasil Ltda. (**)

Object given in (3)

Tecpetrol International ApS

Commercial and industrial activities, holding of investments in other

companies and administration of funds generated by the Company.

Tecpetrol Block 174 L.L.C.

Object given in (2)

Tecpetrol de Bolivia S.A.

Object given in (2)

Dapetrol S.A.

Exploration, discovery, exploitation and sale

of gas and liquid hydrocarbons.

Tecgas N.V.

Investments and participation in companies and corporations.

GEA – Geo Energy Alternatives S.A.

Exploration, exploitation and development of hydrocarbons fields; transport,

transformation, distillation and industrial development of hydrocarbons

and their byproducts; and trade in hydrocarbons; operation of oil and gas

pipelines, development of projects and the provision of advisory and consulting

services relating to the transport and distribution of energy in general.

Tecgas Camisea S.A.

Financial and investment business.

% 2010

50

100

100

100

-

100

100

100

100

100

(*) This subsidiary is considered to be an entity under joint control constituted by proportional consolidation.

The remainder of the companies are totally consolidated.

(**) The subsidiary Tecpetrol do Brasil was sold in March 2011.


% 2011

100

100

100

100

100

100

100

100

60

Date

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

12.31.10

Country

Peru

Colombia

Peru

Uruguay

Uruguay

U.S.A.

U.S.A.

Mexico

Mexico


Tecpetrol Lote 174 S.A.C.

Object given in (2)

Tecpecol S.A.

Exploration, exploitation and development of hydrocarbons fields;

transportation, transformation, distillation, refining and industrial

use of hydrocarbons, sale of hydrocarbons and their by-products,

providing services of operation, maintenance and development

of third party hydrocarbon fields.

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

Provision of public utility services for the carriage and distribution of natural

gas and gas liquids through a pipeline network; performance of studies,

projects, provision of engineering, maintenance and other services relating

to the carriage and distribution of natural gas and gas liquids.

Tecpower S.A. (formerly Ustal International S.A.)

Investment in other commercial companies. (4)

Zuneray S.A.

Object given in (4)

Tecpetrol Corporation

Oil and gas exploration, exploitation and production (5)

Tecpetrol Operating L.L.C.

Object given in (5)

TGT de México S.A. de C.V.

Provision of natural gas carriage services.

Norpower S.A. de C.V.

Carrying out works related to the development, infrastructure

and maintenance of “Sistema 3” gas pipeline.

% 2010

-

100

100

100

100

100

100

100

60

93Consolidated financial statements as of March 31, 2011

Entities under joint control

All the joint ventures have been consolidated in proportion to the Company’s share interests.

(1) Corresponding to Tecpetrol S.A. (Argentina).

(2) In these countries the corresponding governments facilitate the exploitation of their country’s mineral resources by taking advan-

tage of the expertise of a commercial oil and gas entity. The operating entity may only be entitled to recover specified costs plus an

agreed profit margin. It may have the right to extract resources over a specified period of time.

(3) On January 22, 2011, the amendment contract with the Ecuadorian State was signed by the Secretaría de Hidrocarburos of Ecua-

dor and the subsidiary company Tecpecuador S.A., in which the model for the provision of services for the exploration and exploi-

tation of hydrocarbons was adopted. The contract was registered in the Registro de la Secretaria de Hidrocarburos de Ecuador on

February 17, 2011, and is applicable until July 30, 2019.

Assignment date

See details below

December 1994

September 2010

August 1999

December 2000

January 2004

May 2007 (Date of the new contracts)

January 2009

Operator

See details below

Tecpetrol de Venezuela S.A.

Suizum Servicos de Consultadoría Lda.

Tecpecuador S.A.

Pluspetrol Perú Corporation S.A.

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

Total Exploration Production Bolivia

Tecpecol S.A.

% 2011

See details below

43.75

43.75

100

10

50

20

80

% 2010

See details below

43.75

-

100

10

50

20

80

Area

See details below

Colón

Colón

Bermejo

Camisea

Misión

Ipatí and Aquío (1)

CPO6, CPO7 y CPO13

Country

Argentina

Venezuela (2)

Venezuela (2)

Ecuador (3)

Perú

México (2)

Bolivia

Colombia

Duration (years)

See details below

20 years

Until such time as the obligations related to the contract to convert this to a mixed company are fulfilled.

20 years

30 years for oil exploitation and 40 years for gas

20 years

Aquio: 35 years Ipati: 31 years

24 years as from the exploration discovery


Jointly controlled entities – Argentina

Areas operated by Tecpetrol S.A.

(1) The percentages indicated correspond to the direct and indirect interests held by the

Company at March 31, 2011 and 2010.

(*) The term is calculated as from November 2001 for the “San Antonio Sur” fi eld.

(**) 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.

(***) This period will have the duration required to ensure compliance with the obliga-

tions arising from the contract in question.

(****) On April 26, 2010, the return of the Caracol Norte fi eld was signed with the province

of Neuquén. On June 1, 2011, Tecpetrol S.A. signed an agreement ceding its share in

the Tres Nidos area.

Assignment date

September 1990

September 1990

June 1991

July 1992

November 1992

July 1994

December 2008

% (1)

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

NAME

Agua Salada

Atuel Norte

El Tordillo

Tres Nidos-El Caracol Norte (****)

Aguaragüe

La Tapera-Puesto Quiroga

Rio Atuel

Duration (years)

25

25

25

25

25 (*)

25 (**)

(***)


Areas operated by third parties

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

Assignment Date

January 1991

Participation %

25

Location

Salta

Name

Ramos

Duration (years)

25 (*)


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

2010

13,415,332

191,951,441

1,115,440

106,678

811,375

50,010,320

3,770,324

2,074,053

1,010,042

140,885,266

127,452,269

90,632,894

33,683,256

8,803,427

12,791,150

2010

5,295,166

25,643,358

419,756

735,139

4,371,314

13,192,046

2,095,476

1,449,040

318,026

74,303,322

8,960,968

3,537,958

4,301,409

2,034,510

697,431

2011

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

2011

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

DENOMINATION

ARGENTINA

Agua Salada

El Tordillo

Atuel Norte

Tres Nidos - El Caracol Norte

Aguaragüe

Ramos

La Tapera – Puesto Quiroga

Río Atuel

VENEZUELA

Colón

MEXICO

Misión

PERU

Bloque 88

Bloque 56

ECUADOR

Bermejo

BOLIVIA

Aquio

Ipati

Assets Liabilities

At March 31, 2011, the jointly-controlled entities and joint ventures re-corded current and non-current assets for approximately US$133 and US$557 million respectively, and current and non-current liabilities for approximately US$115 and US$55 million respectively.Jointly-controlled entities and the joint ventures recorded income fi gures of approximately US$664 million and expenditure of approxi-mately US$348 million.


36. DIVIDENDSThe Company Board of Directors will propose to Tecpetrol International S.A.’s Ordinary Shareholders’ General Assembly that a reserve be set up to provide for future dividends of US$30,000,000, so that the Board may, as delegated by the Assembly, determine the opportunities for dividend payments in the future.

37. SUBSEQUENT EVENTSNo further events, situations or circumstances have occurred subsequent to March 31, 2011-other than those mentioned in Notes 5, 32 and 35- and which are of public knowledge that signifi cantly aff ect or potentially af-fect the Company’s equity, economic and fi nancial position.


TECPETROL INTERNATIONAL S.A. AND ITS SUBSIDIARIES

Complementary information as of March 31, 2011

99

EXPLORATION AND PRODUCTION OPERATIONS (E&P)

ARGENTINATecpetrol S.A. carries out oil and gas exploration and production ac-tivities in Argentina, and in other Latin American countries, through those companies in which it owns shares. In Argentina, it operates the hydrocarbons-producing ar-eas in the Noroeste (Northeast), Golfo de San Jorge (San Jorge Gulf) and Neuquina basins. The main zones 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 Northeast basin.During this accounting period, seven new wells were drilled in the El Tordillo-La Tapera-Puesto Quiroga areas in the province of Chubut, with one rig. A further 39 well repairs were carried out and the development of the secondary and tertiary (gels) recovery pro-grams continued as planned.In the areas Estancia La Mariposa-Lomita de la Costa, in the province of Santa Cruz, three new wells were drilled and repairs were carried out with encouraging results.The fi nal phase of the Rxp-1012 exploratory well was completed in Ramos (province of Salta) where production was obtained solely from the well’s non-exploratory objectives.In Aguaragüe (province of Salta), drilling began during October 2010 on the side track to well CD xp-1001 at Campo Durán which aims to recover well productivity (damaged by drilling mud due to broken pipes) so as to continue draining reserves.

In the Hickmann area (province of Salta) drilling took place from April to August 2010 at the explor-atory well Campo Libre x-1. The well was abandoned without being piped on the basis of the in-formation provided by the drilling exercise. Tecpetrol S.A. sent the provincial government of Salta a letter at the end of 2010 explain-ing its decision to return the entire area covered by the explor-atory permits.In April 2010, the extension to the Los Bastos and Fortín de Piedra concessions was signed in the province of Neuquén. The exten-sion is for a further ten years, until 2026 and 2027 respectively. In Los Bastos area, three explor-atory wells were drilled in October and November 2010, two of which (PdT.x-1 and PAS.x-1) had excellent results, while the third was aban-doned without piping (Cse.x-1). Between May and September 2010, fi ve development wells were drilled in Los Bastos Sur fi eld, of which four proved to be successful (LBS-1015, LBS-1019, LBS-1018 and LBS-1016) and one was abandoned with-out being piped (LBS-1017) as water was found in the relevant layers.In the Neuquina basin in Agua Salada area in the province of Rio Negro, four development wells were drilled from May to December 2010. One was aban-doned without piping (LB-1029) while the other three had very good results (LJ-1037, LA-2 and ADIS-4). In November, a workover was carried out on well LB-1012 to turn it into an injection well, expanding the secondary recovery project in the area, while a further


three workovers were carried out (LA.x-1, ADIS.x-1 and LJ-1037) to increase production.In Río Atuel area in the province of Mendoza, the exploratory work agreed in the 2009 contract award-ing the area is currently under way, including the series of 3D seismic surveys which began to-wards the end of March 2010 with an investment of approximately US$17 million. The surveys are nearly 60% complete. As regards the sale of oil, 100% of Argentine production was sold on the local market to refi neries.Resolution ME N° 234/07 lays down crude oil export duties within a quota which varies according to the international price for crude oil and establishes a cut-off value of 42 dollars per barrel and a ref-erence price of 60.9 dollars per barrel for WTI. As a consequence of this measure, taken by the Argentine Ministry of Economy, all kinds of crude oil in the country began to be sold on the domestic market at prices that absorbed the impact implied by such a measure. As from December 2009, the fi xed price charged was slightly higher, although there continued to be a signifi cant negative balance com-pared with international prices.Decree N° 2014/08 created subsi-dies to act as incentives for future investments in reserves, produc-tion and refi neries, followed by Resolution SE N° 1312/08, which regulated the earlier measure. The measure now allows a producer, for instance, to receive a subsidy for an increase in reserves, and for an increase in, or maintenance of, production levels, as well as for the

export of crude oil by those com-panies able to show improvements in the performance of reserves and production indicators as established in the same, compared with the indicators provided by the company itself for the fi rst six months of 2008 (baseline).The Resolution adopted by the Planning Ministry (Ministerio de Planeamiento y Obras Públicas - MPyOP) No. 295/10 established that fuel prices at the pump should remain at the same level as those published on July 31, 2010, without the possibility of adjustments. As a result of this measure, nearly all the refi neries froze the purchase prices for their raw materials at September 2010 levels, less than the prices originally agreed for the last quarter of 2010. Although this resolution was derogated to the end of December 2010, the conse-quences arising from the measure continued to have an impact until the end of the fi nancial year.

101Complementary information as of March 31, 2011

As regards gas sales during the ac-counting period, 41% of income from natural gas sales corresponded to industrial users and 36% to electri-cal power stations, while 17% came from distribution license holders and 6% from CNG service stations.The disputes with the Company’s Chilean clients concerning the export restrictions imposed by the Secretariat of Energy, have been resolved. In March 2010, Tecpetrol S.A. adhered to the terms and conditions of the “Agreement with Natural Gas Producers 2007-2011”, enshrined in Resolution SE Nº 599/07.In the framework of Resolution SE Nº 24/08 and its complemen-tary measures, which created the incentive program for natural gas production called “Gas Plus”, Tecpetrol S.A. has presented 19 gas projects to the Argentine Energy Secretariat with a view to qualify-ing for Gas Plus. During 2010, 15 of these projects were approved, and currently only four are pend-ing resolution. Additionally, Letters of Intent have been signed with Natural Gas Distributors for the development of these projects.During this accounting period, there have not been any increases in natural gas prices in the segment of Distribution Licensees, CNG stations and electrical power generators.

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 company Tecpetrol Lote 174 S.A.C.. The Company owns 100% of the share capital of these companies.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 compa-nies, on December 9, 2000, and September 7, 2004, with the aim of producing hydrocarbons in these areas.As of December 31, 2010, the cumu-lative investments in Bloques 88 and 56, which correspond to the Company’s 10% stake in these companies, reached US$174 and US$97 million, respectively.Bloque 88: after commencing ac-tivities in August 2004, operations have proceeded as expected, main-taining both production and rein-jection capacities in excess of the original levels projected. During 2008, development began in the “Cashiriari” fi eld with a total of ten wells (eight new ones and two re-entries to existing wells) with their respective fl ow-lines to the Malvinas plant.Bloque 56: During September 2008, the Pagoreni fi eld began produc-tion, reaching daily output lev-els over and above the amounts forecast (35,000 bbl/day). In the fi rst phase, output was produced by four wells while two others


were used as reinjection wells. As from March 2010, the production scheme was modifi ed so that all six Pagoreni wells could be used for production purposes.As regards the natural gas mar-ket, there has been an increase in demand over and above original expectations. This is the result of strong growth in the electri-cal power generation sector and the reconversion to natural gas of small and medium-sized industries in areas surrounding the Peruvian capital city. Currently, gas sales commitments are slightly lower than certifi ed proven reserves.During 2008, LPG exports started up again with prices which were slightly higher than MBV quotes, while LPG prices on the domestic market maintained their levels of MBV + bonus.Bloque 56 has begun selling natu-ral gas to its exclusive client, PLNG, having made its fi rst NGL export on June 22, 2010. It is es-timated that by the beginning of August, the maximum levels foreseen in the contract will be being dispatched, equivalent to 620MMcf/d, to be maintained throughout the contract.Following a period of evaluation lasting several months during which a range of diff erent blocks were placed on off er in the bidding round for exploration in 2010 by PERUPETRO in November 2010, the Company was awarded Bloque 174. As a result, the company Tecpetrol Lote 174 S.A.C. was created, whose main objective is the exploration, exploitation and development of hydrocarbons fi elds.

Bloque 174 is part of the same oil system which gave rise to Camisea, lying 120 km north of the Camisea gas and condensed gas fi elds.The subsidiary Tecpetrol Lote 174 S.A.C has ownership rights over the hydrocarbons extracted while PERUPETRO will oversee the proj-ect. The exploration period will last for seven years, divided into fi ve phases. If there is a fi nd, the total duration of the contract will be of either 30 or 40 years, depend-ing on whether oil or associated gas is found, respectively. The work program includes the reprocessing of 200 km of 2D seismic studies, geological and geophysical studies during the fi rst phase of explora-tion, while the second phase in-volves 150 km of 2D seismic studies and the third envisages the drilling of an exploratory well.


MEXICOThe Company operates in Mexico through its shares in the compa-nies Servicios Múltiples de Burgos S.A. de C.V. (“SMB”) and Burgos Oil Services S.A. de C.V.SMB’s shareholding is as follows: Tecpetrol de México 30%, Burgos Oil Services 20%, and Industrial Perforadora de Campeche S.A. de C.V. 50%.SMB was created for the express purpose of being a co-signatory with PEMEX Exploración y Producción (PEP), a subsidiary of Petróleos Mexicanos (PEMEX), of the Public Works Contract award-ed by International Public Call for Tender No. 18575008-130-03. SMB was set up to undertake all the activities required to comply with the object of the aforementioned contract as regards the execution of the requisite works related to the development, infrastructure and maintenance of non-associat-ed gas fi elds in the Burgos Basin, in Bloque Misión. This area lies in the states of Tamaulipas and Nuevo León and is delimited to the north by the River Bravo, Mexico.The Financed Public Works Contract signed with PEMEX stip-ulates minimum investment com-mitments for each phase of the Contract. These commitments are set in Work Units (WU) which have an original unit value of US$9,900 each and are indexed to U.S. infl a-tion for adjustment on a yearly basis. Until the close of 2010, 38,922 Work Units were carried out, 378% in excess of the minimum invest-ment commitment set for the fi rst seven years. During 2010, activ-ity levels were maintained with a

single drilling rig to develop the diff erent fi elds making up the Bloque Misión as well as those activities to develop exploration opportunities. On December 31, 2010, the Second Contractual Year of the Third Phase of Development expired with no contractual com-mitments outstanding.Due to the security risks in Mexico, during April 2010 SMB signed an operational agreement with PEMEX aimed at reducing risks for personnel as well as for the envi-ronment and surface installations, while seeking to ensure compli-ance with SMB’s obligations con-cerning the development works, infrastructure and maintenance in a timely fashion. Thus, several projects planned in diff erent fi elds (Santa Anita, Arcabuz, Géminis, Quitrín, Troncón, etc.) which could not be carried out for secu-rity reasons were reprogrammed. Furthermore, joint access to the fi elds with PEMEX was agreed. Well-capping for a number of wells in these fi elds was carried out in the framework of the operational agreement between SMB and PEMEX, where there is limited day-time access to the fi elds.Burgos Oil Services S.A. de C.V., was incorporated on March 2, 2001, as Elina 410 S.A. de C.V., ac-cording to Mexican legislation. Following certain modifi cations to the company name, at the General Extraordinary and Ordinary Shareholders’ Assembly held on October 3, 2007, the Shareholders agreed to change the name offi -cially to Burgos Oil Services S. A. de C.V. (“Burgos Oil Services” or “BOS”) and its corporate purpose was


modifi ed accordingly. Since then its stated purpose is to provide technical services for the projec-tion, engineering development, general construction, and drill-ing of oil and gas wells as well as the exploration, exploitation and provision of maintenance, engi-neering and development services to oil fi elds.On March 25, 2010, BOS completed its acquisition of 100% of the share capital of Erskine (see chapter United States), located in Houston in the state of Texas, United States, which in April changed its name to Tecpetrol Corporation.Furthermore, on April 5, 2010, the subsidiary BOS and PEMEX Exploración y Producción (PEP) signed a public works contract in which BOS undertakes to perform all the works involved in the tech-nological development laboratory (fi eld laboratory) in the Coyotes fi eld for Active Integrated Tertiary Gulf Oil, a project under the gener-al management of PEP. This means that PEP is responsible for approv-ing the proposals and programs presented by Burgos Oil Services regarding any of the stages or phases included in the contract,

on the basis of which PEP will request BOS to implement them through the pertinent job orders.BOS will not have any share in the hydrocarbons extracted from or produced by any of the develop-ment or exploratory wells included in the contract, and PEP will not make it party to any consider-ations arising from the production of the wells. BOS solely enjoys the right to receive the considerations foreseen in the contract in ex-change for the works undertaken and contemplated in the same.The contract contemplates three phases of operations, which are al-ready under way: stage one, involv-ing geosciences and production studies; stage two, maintenance works, and stage three, develop-ment works. BOS undertakes to perform the tasks given in the contract mentioned above as from April 5, 2010, and to complete these by no later than December 31, 2012.The BOS operation covers 156 wells, of which 138 are currently in oper-ation while another 18 are awaiting reactivation. Subsequently, BOS signed two agreements amending the contract with PEP. The fi rst is related to the acquisition of


hydraulic pumps (UBH GR 20-120), which is expected to generate addi-tional associated income of US$115 million, and the second is an agreement modifying Laboratorio Coyotes. The main amendments include changes to the volumes of the diff erent items on the price list of elements needed for execution, such as pumps, measuring rods, etc.) and the incorporation of the Coyotes Battery I (an additional 47 wells) and UBH Cameron (the incorporation of 25 units for US$2.9 million with a margin for BOS of US$0.6 million for all the units). BOS has also committed to present PEP with a technical and economic proposal to manage Campo Soledad Norte (lying next to Coyotes).

The low permeability of the Coyotes fi eld means that conventional wells are not very productive. BOS has thus opted to go for horizontal drilling, which means that it will come into contact with a greater area of the reservoir and improve the relationship between invest-ment and production. This tech-nique is similar to that used in the United States to develop Shale Gas projects, which extract gas from clay soil. In this case, the same sys-tem will be used to produce oil. The fi rst horizontal drilling program fi nalized during May, and is now awaiting completion. The future viability of the drilling campaign will be analyzed according to the results of the well drilling.


ECUADORTecpecuador S.A., wholly owned by the Company, was awarded the Campo Marginal Bermejo in Ecuador to exploit crude oil and carry out additional hydrocar-bons exploration work in order to increase current production levels and incorporate new reserves in the area. The contract signed with the Ecuadorian State through its intermediary Petroecuador and Tecpecuador S.A. (the Contractor) will have a duration of up to 20 years.Tecpecuador S.A. has committed to undertake the activities and make the necessary investments using the best technology available at its sole risk and responsibility. The com-pany also committed to carrying out the requisite technical, economic and administrative operations and to implementing the Minimum Program for Exploitation Activities and investment commitments for the fi rst three years, worth a total of US$35.9 million. It undertook to safeguard the environment em-ploying best industry practices and techniques. As of the date of these fi nancial statements, the investment commitments have been met 100%.In Ecuador, on January 22, 2011, the amendment contract between the

State of Ecuador, represented by the Secretaría de Hidrocarburos, and the subsidiary Tecpecuador S.A. was signed. The contract concerns the model for the provision of services for the exploration and exploita-tion of hydrocarbons, according to the fi rst temporary disposition given in the Law amending the Law of Hydrocarbons and the Internal Tax Regime Law, published in the Registro Ofi cial Suplemento No. 244 of July 27, 2010. The contract was registered at the Registro de la Secretaría de Hidrocarburos on February 17, 2011, and is applicable until July 30, 2019.The parties agree that Tecpecuador shall have the right to charge a tariff for the fi elds in production pro-duced and delivered at the Control


and Delivery Center. This tariff takes into account an estimate of the depreciation of investment, costs and expenses as well as a reasonable profi t which also contemplates the risks incurred.This renegotiation also covers the exploration of pre-Cretaceous basin. This is a high risk objective, as there are no records of the existence of oil systems at these levels.During 2010, diff erent activities were carried out with a view to increasing and maintaining pro-duction levels. To this end, invest-ment focused on reconditioning activities (3), pulling (13), and drill-ing and completing a development well in Campo El Rayo (ER05). The reconditioning work mainly in-volved carrying out tests in new zones and sinking new boreholes at intervals.Pulling work primarily included the replacement of mechanical pump sucker rods and the ex-change of three extraction systems. The average output of the fi eld during 2010 was 4,406 bbl/d with 43 production wells.

UNITED STATESAs mentioned earlier, in March 2010, Burgos Oil Services S.A. de C.V. completed the acquisi-tion of 100% of the share capital of Erskine, located in Houston in the state of Texas, United States of America, which subsequently changed its name to Tecpetrol Corporation in April.Tecpetrol Corporation carries out oil and gas exploration, exploi-tation and production activities in the south of Texas, and has shares in eight fi elds, of which it operates seven.During April 2010, the company began workovers and minor repair work, and by the end of the 2010 fi nancial year had completed a total of fi ve major workovers and 15 repairs.In October 2010, drilling began in the Ann Mag fi eld with the deep well Perez Alaniz A-2. Wells Sullivan #20 and Sullivan Deep C-5 were also drilled.2010 production levels reached a total of 15MMcf/d (75% gas, 25% condensates + NGL), of which 10 MMcf/d correspond to Tecpetrol Corporation’s share, with some 50 wells in activity to-date.


COLOMBIAIn Colombia, the Company operates through Tecpecol S.A., in which it has a 100% stake.Tecpecol S.A. has been set up in accordance with Colombian legis-lation and states as its main activ-ity the exploration, exploitation and development of hydrocarbons fi elds; the transport, transforma-tion, distillation, refi nery and the industrial use of hydrocarbons; the commercialization of hydro-carbons and their derivatives, and; the provision of operations, maintenance, and hydrocarbons fi eld development services to third parties.In November 2008, CPO6, CPO7 and CPO13, three exploratory blocks lying next to each other in the prolifi c Llanos Orientales basin were pre-awarded. This is an exploratory zone with a very high potential.Tecpecol S.A. formed a consortium with the company Inepetrol from the Inelectra group with stakes of 80% and 20% respectively, with Tecpecol acting as operator for all the blocks.On January 14, 2009, the E&P con-tracts with the Agencia Nacional de Hidrocarburos – ANH (National Hydrocarbons Agency) were signed. The awardee has a three-year term in which to comply with the exploratory commitments included in the fi rst phase. As the three blocks are adjacent, a 2D seismic survey was carried out over 2,000 linear km. to take advantage of this synergy.In August 2010, the seismic survey was completed in all three blocks, except for the area of Refugio

El Tigre, where, for the time being, the local community is in opposi-tion to the project. On the basis of new discoveries made in neighbor-ing Quifa and Rubiales blocks, the decision was taken to survey an extra 80 km in addition to the distance initially planned at Bloque CPO7, in order to produce the right seismic profi le and iden-tify further possible opportunities.During September 2010, the environmental zoning impact studies for the three exploratory blocks awarded were presented to the Ministerio de Ambiente, Vivienda y Desarrollo Territorial (Ministry of Environment, Housing and Land Development). These studies are a pre-requisite for exploratory drilling.The locations for the drilling of the 6A- 1 (Palenque) and 6B (Puerto Gaitán) wells in Bloque CP06 were agreed among the partners and fi eld work started following the agreement to develop the environmental management plans for exploratory drilling and detail engineering.


BOLIVIAThe Company is active in Bolivia through Tecpetrol de Bolivia S.A., owned by Tecpetrol S.A.Tecpetrol de Bolivia S.A., a subsid-iary of Tecpetrol S.A., holds a 20% stake in the Operating Contracts for the Ipati and Aquío blocks as a non-operating partner.Both operating contracts estab-lish 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 pro-duced and delivered to Yacimiento Petrolíferos Fiscales Bolivianos

(YPFB) which is exempt from both risk and responsibility as regards either oil operations or their re-sults. In this context, Tecpetrol de Bolivia has no property rights to either the hydrocarbons fi elds or the hydrocarbons produced, as both belong to YPFB.On August 7, 2008, Phase 4 of the Bloque Ipati exploration was com-pleted, as the exploratory zone known as Ipati Norte was returned on July 16, 2008. There are accord-ingly no exploration commitments pending in Ipati.The Bloque Aquío is now in Phase 3 of exploration which ended on May 1, 2011. On February 1, 2010, work began to drill the explor-atory well AQI-X1001 in the Bloque Aquío. On April 14, 2011, the opera-tor Total E&P Bolivie notifi ed YPFB of the existence of hydrocarbons in the Huamampampa formation.


VENEZUELAIn the framework of the policy carried out by the Government of Venezuela, the previous Operating Concessions have been declared null and void, due to the fact that all oil-producing activities have passed into the hands of Joint Ventures as from the beginning of 2006. Consorcio Colón, in which Tecpetrol de Venezuela S.A. holds a 43.75% interest, was converted into the joint venture Baripetrol S.A. in which PDVSA owns a 60% controlling interest, while the pri-vate sector shareholders own the remaining 40%.Since the operation migrated to the joint venture, the Consortium now only undertakes residual activity related to the administra-tive and operational services it provides to Baripetrol S.A.Currently, a decision is expected from the majority shareholder to approve the realization of the dividends already approved by the Management Board of Baripetrol S.A. for 2008 and 2009.


GAS AND POWER (G&P) TRANSPORT AND DISTRIBUTION OPERATIONS

Through its subsidiaries, the Company undertakes gas and power (G&P) transport and

23.53%

12.58%

11.63%

10.33%

3.75%

2.80%

20.00%

32.68%

20.00%

14.63%

10.90%

64.16%

8.34%

46.67%

24.16%

22.38%

21.18%

12.38%

11.19%

8.07%

0.6%

0.6%

Other stockholders (direct or indirect)

Blue Ridge Investments

Transcogas Inversora S.A.

Total Gas y Electricidad Argentina S.A.

Petronas Argentina S.A.

Total GasAndes

Compañía General de Combustibles S.A.

Otros

Total Gas y Electricidad Argentina S.A.

CMS Operating S.R.L.

Petronas Argentina S.A.

Compañía General de Combustibles S.A.

Suez - Tractebel S.A.

Otros


West LB International S.A.

Hunt Pipeline Company of Peru Ltd.

Sipco Peru Pipeline Corporation

Carmen Corporation

SK Corporation Suez-Tractebel S.A.


Graña y Montero S.A.

Corporación Financiera de Inversiones S.A.A.

Country

Argentina

Argentina

Argentina

Argentina

Perú

Direct and indirect stake

15.38%

21.79%

27.50%

29.17%

23.60%

COMPANY

Transportadora

de Gas del Norte S.A.

Transportadora

de Gas del Mercosur S.A.

Litoral Gas S.A.

Energy Consulting

Services S.A.

Transportadora

de Gas del Perú S.A.

The results of the investments made in each associate as of March 31, 2011 and 2010 are given in Note 14 of this balance.

distribution operations working with diff erent companies whose stake is given below:

The Company also owns the fol-lowing companies which carry out G&P operations.


ARGENTINATransportadora de Gas del Norte S.A. (“TGN”) began operations at the end of 1992, and has since then carried out an ambitious invest-ment plan, developing 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 pipe-lines connected to fi elds in the North and Mid-West of Argentina, whose location allows the company to meet the gas needs of the coun-tries in the Southern Cone.The measures adopted by the Argentine Government during 2002 and the situation to-date have substantially altered the legal and contractual conditions of the framework in which TGN con-ducted its business until 2001. The tariff -freeze, added to the devalu-ation of the Argentine currency to a third of its value before the end of 2001, caused a substantial

(*) There are no operations recorded to-date.

40%

Other stockholders (direct or indirect)

-

-

Techint S.A. de C.V.

Country

Peru

Mexico

Mexico

Direct and indirect stake

100%

100%

60%

COMPANY

Compañía Operadora

de Gas del Amazonas S.A.C.

TGT de México S.A.

de C.V. (*)

Norpower S.A. de CV

imbalance in TGN’s fi nancial and equity structure. This situation led to the company’s temporary in-ability to meet commitments with its fi nancial creditors and the need to restructure its fi nancial debt. In fact, after four years of negotia-tions with its fi nancial creditors, TGN was fi nally able to consum-mate the voluntary restructuring of its fi nancial 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 obliga-tions 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 fi nancial and economic equa-tion as a result of the ongoing do-mestic tariff -freeze, combined with


a fall in income from export trans-portation due to the lack of avail-able gas and a generalized increase in costs in both Argentine pesos and dollars, is generating uncer-tainty about TGN’s future capacity to continue meeting its fi nancial commitments as agreed. In this context, the Board of TGN decided on December 22, 2008, to suspend capital payments and interests on its fi nancial debt. As of December 31, 2010, TGN has outstanding fi nancial debts worth a total of US$411.7 million. Of these, it has not met the capital payment re-quirements of US$82.7 million and interests worth US$59.49 million and US$7.4 in punitive interests.Furthermore, TGN hopes to reach a full understanding with the Argentine Government before re-investing in the assets required to satisfy the demands of an economy with a projected positive growth. It thus continues to work with the Argentine authorities and is making every eff ort to return to the path of growth in the short-est time possible.

Transportadora de Gas del Mercosur S.A. (“TGM) began com-mercial operations 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, 422 km-long pipeline for delivery at the sub-fl uvial 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 eff ects of the energy crisis in the short term, the Subsecretaría de Combustibles (Under-secretariat of Fuels) 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 signature of a transport agreement with YPF, which is currently its only source of income.


In relation to the recovery of the value of the Company’s stake in the share capital of TGN and TGM, the Company carried out recover-ability tests on those of its assets related to these companies. The hy-potheses, premises and estimates of future events used to carry out these tests are based on the range of operating and commercial sce-narios as regards the activities and prices projected by the operating companies themselves. This takes into account the outlook projected by the Company’s Management concerning income tax consider-ations, scenarios for the percep-tion of dividends arising from these investments and the rate of funding fl ow adjustment. The sum total of these estimates is based on future suppositions and may or not come about. As regards TGM, they may be further aff ected by the uncertainties related to the evolu-tion of its commercial contract, including economic compensation for the same. The development of the business is unpredictable in both cases, and hence it is diffi cult to calculate the generation of a future fl ow of funds which would allow the value of the aforemen-tioned assets to be recovered.Litoral Gas S.A. (“Litoral Gas”) is constituted in Argentina where it undertakes its operations on an exclusive basis. It distributes natu-ral gas through networks in the geographical 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 privatization of the state-owned company Gas del Estado S.E.Litoral Gas provides services through its fi fteen sales offi ces to nearly 616,000 residential, com-mercial and industrial clients as well as power stations, compressed natural gas expenders and sub-distributors through 1,854 km. of pipelines and 9,305 km. of distri-bution networks. The company services a geographical area cover-ing 136,387 km2 and a population of 3.5 million people. This area is home to major industrial compa-nies and thermal power stations. During 2010, the total number of clients continued to grow. This increase, in the order of 3%, took place within the context of the low consumer tariff s in comparison with alternative fuel.Capital investments for the cur-rent fi nancial year were in excess of US$12 million and totaled ap-proximately US$361.8 million dur-ing the 1993-2010 period. Despite the tariff -freeze, 175 km. of pipe-lines were added to the network during 2010. As of December 31, 2010, the distribution network of Litoral Gas had reached a total of 11,300 km. This represents an increase of 125% since the outset of the company’s operations.


Energy Consulting Services S.A. (ECS) pursues sales and consul-tancy activities in the energy mar-kets of Argentina and other Latin American countries where it has been operating since 1994. ECS provides customized global energy solutions for its clients.It is worth nothing that the Argentine macroeconomic context has conditioned ECS’s activities, although the company has unceas-ingly demonstrated its fl exibility and willingness to take part in new business opportunities. The Argentine regulatory framework

nonetheless continues to be the object of changes which have an adverse eff ect on decision-making for long-term commitments. The future development of ECS thus re-lies on key features such as fl exibil-ity, the company’s ability to adapt to its surroundings and the search for new business opportunities.Consultancy services have main-tained their share, extending their coverage to more countries in the region. The management busi-ness for large users and new direct consumers was maintained with a positive contribution to the result.


12.0

10.0

8.0

6.0

4.0

2.0

0.0

Volume

[MMm3/day]

Q1-2010 Q2-2010 Q3-2010 Q4-2010

Volume

[MMCFD/day]

QUARTERLY NATURAL GAS TRANSPORTATION 2010Local Market

400

300

200

100

0

Power Generators

Independent Costumers

Calidda

PERUTransportadora de Gas del Perú S.A. (TgP) is the concessionary company in charge of transporting natural gas (NG) and Natural Gas Liquids (NGL) from the Camisea fi elds in the Peruvian rainforest to the coast, Pisco for NGL 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 pipe-line were laid to transport natural gas from Camisea to City Gate in Lurín, and a 560 km. stretch to take natural gas liquids from the fractioning plant in Pisco. These are the company’s main assets.TGP’s corporate policy includes the objective of effi ciently and safely transporting natural gas and its liquids to Peruvian industries and homes. Furthermore, it carries out its activities with the fi rm convic-tion that the protection of the environment and the safety of the people with whom it works, in addi-tion to that of its neighboring com-munities, are the foundations for a responsible policy on which to build a country’s energy development. During 2010, the average volume of natural gas transported was 10,453 Mm3/ day. This volume represents an increase of 32% compared with the amount transported in 2009.

The increase in the volume trans-ported is largely due to greater consumption levels of electric generators which grew by 36% compared with the previous year, generating approximately 71% in annual growth. It is worth point-ing out that consumption levels of regulated clients also showed a signifi cant increase, in the region of 35%. The demand for natural gas from the company’s independent clients increased by 11%. In the case of natural gas liquids transport, the Company has two contracts with producers from the Camisea fi elds. The contracts in force are the Ship or Pay kind, for


order to increase current capac-ity according to the expansion program agreed with the Peruvian State in the Addendum to the BOOT contract as well as meet in-creases in demand. This extension comes in the wake of those already completed in the Peruvian moun-tains and coastline, and takes installed capacity to 1,540 MMcf/d of natural gas and 120,000 bbl/day of natural gas liquids.The project, which involved ex-haustive engineering work, as well as the execution of a number of diff erent studies to identify viable alternatives, was designed to make the System as reliable as possible, minimizing environmental impact and optimizing its social benefi ts. However, despite the eff orts made to develop the project, the pro-posal was not received with equal enthusiasm by all the sectors in-volved, which led to a degree of uncertainty as to its chances of ex-ecution. The Peruvian Government asked TgP to evaluate an alterna-tive, seeking to meet the demand projected for the next few years as best possible. Thus TgP decided to change its engineering proposal in order to solve the technical needs comprehensively and satisfactorily, and put to rest all the uncertain-ties on the issue.The fi rst stage of the project con-templates the building of two pipelines parallel to the current ones (loops), one for natural gas measuring 32 inches in diameter,

a fi xed transport capacity which is set at 80,000 bbl/day. During 2010, the multiple pipeline transported an average of 80,634 bbl/day.During 2010, Transportadora de Gas del Perú launched a new ex-pansion plan for its natural gas and natural gas liquids carriage systems in the jungle region in

85

80

75

70

65

60

Volume

[ bbl/day]

Q1-2010 Q2-2010 Q3-2010 Q4-2010

NATURAL GAS LIQUIDS TRANSPORTATION 2010Quarterly


and the other for natural gas liq-uids of 24 inches in diameter, both 55 km long, between KP 88.1 and KP 127.2 in the district of Echarate in the province of Convention, in the Cuzco region, as well a pump-ing station for natural gas liquids to be located at KP 27 of the new pipelines to be built. In the sec-ond stage, a Compressor Plant will be built at KP 127 on the cur-rent transport system, which will initially have installed power of 54,000 HP, as well as other upgrad-ing work on the system itself.In addition to the main mainte-nance program for the engines at the existing pumping plants, the engineering and sourcing of the new replacement reduction boxes for the Pumping Stations 1 and 2 has been carried out. This is in addition to the installation of the new injection systems for the Drag Reducer, helping to reduce friction during the transport of natural gas liquids at the PRS2 pressure regu-lation station, which has already been completed, and at the PS3 Pumping Station, which will begin operations at the start of 2011.In addition to the aforementioned expansion project, during 2010 work began on installing the fourth pumps and complementary work at each Pumping Station along the natural gas liquids trans-port system, which once they are up and running, will provide the system with the back necessary to ensure the reliability of the cur-rent operation.In this fashion, TgP ratifi es its commitment to the growth and de-velopment of the country, carrying out the actions necessary to meet

the demand projected for the next few years in the best possible man-ner, working in harmony with the environment where it operates.Compañía Operadora de Gas del Amazonas S.A.C (COGA) is in charge of operating and maintain-ing the natural gas and natural gas liquids carriage system belong-ing to TgP.In addition to the Operation and Maintenance Agreement, COGA has provided TgP with services to carry out stabilization projects, geotechnical surveys, erosion con-trol work and soil revegetation on the sites where the Camisea Project natural gas and natural gas liquids carriage system is located.On November 13, 2008, COGA signed with TgP the fi rst ad-dendum to the Operation and Maintenance Agreement regarding the provision of a range of services related to the expansion of the natural gas and natural gas liquids carriage system.On May 13, 2010, COGA and Perú LNG S.R.L. (PLNG) signed the “Gas Pipeline Maintenance Contract” which sets out the scope of services to be provided by COGA in order to maintain the 34” PLNG Gas Pipeline


running from Chiquintirca near Ayacucho to PLNG’s plant in Pampa Melchorita (Peru).The contract came into eff ect on June 1, 2010, and its application period lasts 36 months, which may be extended by further 36-month periods subject to agreement by both parties.Furthermore, in 2010, the Company signed a “Contract to Provide Services to Maintain the Transport System and Geotechnical Works” with a related company, Techint S.A.C., which establishes the scope of diff erent services to be provided by Techint S.A.C.. These include the mainte-nance of the pumping stations, the surface installations, pipelines, accesses, rights of way, the devel-opment of mechanisms to con-trol erosion, the management of camps, maintenance and erosion control for the rights of way.The contract is applicable as from July 1, 2010, for a period of 30 months. The parties may negoti-ate to extend the period of the

contract, and if an agreement cannot be reached concerning this extension, the contract will be extended for an additional period of 6 months, thus due to expire on June 31, 2013. This contract replac-es the “Contract to Provide Services to Maintain the Transport System” signed in 2007, which ended on June 30, 2010.


MEXICOPEMEX Exploración y Producción (PEP), the subsidiary of Petróleos Mexicanos (PEMEX) in charge of upstream activities, held a call for tender for the provision of services over a ten-year period to ensure the integrity and reliability of the pipelines making up “Sistema 3” in the states of Tabasco, Chiapas and Campeche in South-East Mexico.The Energy, Engineering and Construction divisions of the Techint Organization presented a joint bid and were awarded the contract. An ad hoc company has been incorporated for this pur-pose, (Norpower S.A. de C.V., con-stituted in Mexico), in which the Company has a 60% stake (through Tecpetrol International S.L.U., 59.4% and Tecpetrol S.A. 0.6%) and 40% belongs to Techint S.A. de C.V. (Mexico).On December 3, 2009, Norpower S.A. de C.V. (“Norpower”) and PEP agreed to sign a public works con-tact for a ten-year period to pro-vide services over a ten-year period to ensure the integrity and reli-ability of the pipelines making up “Sistema 3”. Norpower S.A. de C.V. is responsible for ensuring the integ-rity and reliability of the hydrocar-bons pipeline transport system as enshrined in a ten year contract divided into two phases, the fi rst of 36 months and the second of 84 months. The period of the contract may be extended by means of an agreement signed between the par-ties for this purpose.

“Sistema 3” is a complex of 1,400 km of pipelines (101 pipelines, 70% Gas Natural) stretching across 560 km of rights of way (43 rights of way), 54 measurement points and 122 junctions (62 km) to surface installations.The contract includes pipeline maintenance activities, rights of way and measurement points, the provision of technical assistance to PEP regarding pipeline main-tenance and operations; periodic reviews of the situation with the owners of the rights of way and the implementation of a program to regulate and carry out specifi c tasks for the substitution, modifi ca-tion, removal capping and disman-tling of stretches of pipeline, sub-stitution of valves and monoblock joints, the provision and installa-tion of scraper traps, repair of right of way slippage, two river fords by directed drilling, and the automa-tion of cathode protection systems.


The total amount to bill to PEMEX according to the contract comes to US$268 million, of which US$127 million (US$13 million per year) correspond to pipeline, rights of way and measurement point main-tenance activities; US$31 million to a comprehensive list of tasks to be executed in the fi rst three years, and the rest (US$110 million) to works to be assigned over time at the behest of the PEP and/or as proposed by the contractor.Activities are divided into Work Concepts (WC). The minimum working obligation is made up of CTs 1 and 2 (maintenance) and by Annex B2 (tasks to be carried out in the fi rst 36 months, phase1). The CTs 3 and 4 are assigned a specifi c amount in the contract but are to be carried out either as proposed by Norpower or as requested by PEP.

The timeline for the tasks is deter-mined at the outset of the contract in the Master Execution Program (MPE) which distributes the Work Units (WU) on a yearly basis and defi nes the yearly amounts to be executed. The contract foresees the execution of 17,800 WU for WC 1 and 2 as well as 12,300 WU for WC 3 and 4 (30,100 WU in total). The MPE is adjusted on an annual basis by the Annual Work Programs (AWP) which are proposed by Norpower at the outset of each year for PEP’s approval. These give details of the activities to be car-ried out over the year, including the work of the WU 1 to 4 and the work covered in Annex B2, in addi-tion to the proposal for PEP per-sonnel training and community actions, for instance.The prices in the contract are giv-en in US dollars and adjusted on an annual basis using a PPI index “Pipeline Transportation of Crude Oil” published by the U.S. Bureau of Labor Statistics. This index may be modifi ed by just cause with the prior agreement of the par-ties. Payments to the Contractor


must be made on a monthly basis against the presentation of reports and supporting documentation as requested by PEP. The contract includes the possibility of making U.S. dollar payments abroad.During November, a number of work proposals were agreed with PEP to carry out tasks inferior to WC3 (mostly the supply and in-stallation of valves) which require special approval and payment pro-cedures, and represents additional income for the Company.Finally, TGT de México S.A. de C.V. was constituted in March 1999, although it had not yet begun operations as of December 31, 2010, rendering it practically inactive. Its main activity is the provision of natural gas carriage services, the performance of all legal or mate-rial activities directly or indirectly related to this activity, including the construction of pipelines for carriage purposes.


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TECPETROL INTERNATIONAL S.A. Report... · TECPETROL INTERNATIONAL S.A. (“TECPINT”), domiciled in Uruguay, is an investment company for the energy business concerns belong-ing