bmi argentina oil and gas report q3 2013[1]

Q3 2013www.businessmonitor.com

ARGENTINAOIL & GAS REPORTINCLUDES 10-YEAR FORECASTS TO 2022

ISSN 1748-3808Published by:Business Monitor International

Argentina Oil & Gas Report Q32013INCLUDES 10-YEAR FORECASTS TO 2022

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: May 2013

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CONTENTS

BMI Industry View ............................................................................................................... 7

SWOT .................................................................................................................................... 9

Industry Forecast .............................................................................................................. 11Oil And Gas Reserves ............................................................................................................................. 11

Table: Argentina Proven Oil & Gas Reserves and Total Petroleum Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Table: Argentina Proven Oil & Gas Reserves And Total Petroleum Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Oil Supply And Demand .......................................................................................................................... 13Table: Argentina Oil Production, Consumption And Net Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Table: Argentina Oil Production, Consumption And Net Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Gas Supply And Demand ......................................................................................................................... 16Table: Argentina Gas Production, Consumption And Net Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Table: Argentina Gas Production, Consumption And Net Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Refining And Oil Products Trade .............................................................................................................. 20Table: Argentina Refining - Production And Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Table: Argentina Refining - Production And Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Revenues/Import Costs ............................................................................................................................ 21

Industry Risk Reward Ratings .......................................................................................... 22Latin America - Risk/Reward Ratings .......................................................................................................... 22

Table: Latin America Oil & Gas Risk/Reward Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Upstream: Production Growth Forecasts Reinforce Regional Polarization ....................................................... 25Table: Latin America Upstream Risk/Reward Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Downstream: Medium-Term Outlook Reinforces Current Dynamics ................................................................ 27Table: Latin America Downstream Risk/Reward Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Argentina - Risk/Reward Ratings ................................................................................................................ 28

Argentina Upstream Ratings .................................................................................................................... 28

Argentina Downstream Ratings ................................................................................................................ 29

Market Overview ............................................................................................................... 30Argentina Energy Market Overview ............................................................................................................ 30

Overview/State Role ............................................................................................................................... 30

Licensing And Regulation ........................................................................................................................ 31

Government Policy ................................................................................................................................. 31

Licensing Rounds ................................................................................................................................... 32

International Energy Relations ................................................................................................................. 33

Argentina - Major Upstream Projects ........................................................................................................ 35Table: Argentina - Upstream Projects Database . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Oil And Gas Infrastructure ........................................................................................................................ 35

Oil Refineries ........................................................................................................................................ 35Table: Refineries In Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Argentina Oil & Gas Report Q3 2013

© Business Monitor International

Service Stations ..................................................................................................................................... 37

Oil Terminals/Ports ................................................................................................................................ 37

Oil Pipelines ......................................................................................................................................... 37

LNG Terminals ...................................................................................................................................... 38

Gas Storage .......................................................................................................................................... 38

Gas Pipelines ........................................................................................................................................ 39

Competitive Landscape .................................................................................................... 41Table: Key Players - Argentine Oil And Gas Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Table: Key Upstream Players . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Table: Key Downstream Players . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Company Profile ................................................................................................................ 44YPF ...................................................................................................................................................... 44

Petrobras ............................................................................................................................................... 48

Chevron ................................................................................................................................................. 51

Total ..................................................................................................................................................... 53

ExxonMobil ............................................................................................................................................ 56

Royal Dutch Shell .................................................................................................................................... 58

Apache Energy ........................................................................................................................................ 60

Other Companies - Summary ..................................................................................................................... 63

Regional Overview ............................................................................................................ 66Latin America Overview ........................................................................................................................... 66

Global Industry Overview .................................................................................................. 73Global Energy Market Overview ................................................................................................................ 73

Table: BMI's Oil Price Forecasts & Bloomberg Analyst Consensus, Average Price (US$/bbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Table: Global Oil Demand Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Industry Trend Analysis ............................................................................................................................ 83

Growing Implementation Base .................................................................................................................. 84

Developed Drive .................................................................................................................................... 86

Appendix ............................................................................................................................ 87Latin America - Regional Appendix ............................................................................................................. 87

Table: Oil Consumption - Historical Data & Forecasts, 2010-2017 ('000b/d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Table: Oil Consumption - Long-Term Forecasts, 2014-2021 ('000b/d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Table: Oil Production - Historical Data & Forecasts, 2010-2017 ('000b/d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Table: Oil Production - Long-Term Forecasts, 2014-2021 ('000b/d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Table: Refining Capacity - Historical Data & Forecasts, 2010-2017 ('000b/d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Table: Refining Capacity - Long-Term Forecasts, 2014-2021 ('000b/d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Table: Gas Consumption - Historical Data & Forecasts, 2010-2017 (bcm) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Table: Gas Consumption - Long-Term Forecasts, 2014-2021 (bcm) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Table: Gas Production - Historical Data & Forecasts, 2010-2017 (bcm) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

Table: Gas Production - Long-Term Forecasts, 2014-2021 (bcm) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

Table: LNG Exports - Historical Data & Forecasts, 2010-2017 (bcm) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Table: LNG Exports - Long-Term Forecasts, 2014-2021 (bcm) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93



Glossary ............................................................................................................................. 95Table: Glossary Of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Methodology ...................................................................................................................... 97Oil & Gas Risk/Reward Ratings Methodology ............................................................................................. 97

Ratings Overview ................................................................................................................................... 97Table: BMI's Oil & Gas Risk Reward Ratings - Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Indicators ............................................................................................................................................. 98Table: BMI's Oil & Gas Business Environment Upstream Ratings - Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Oil & Gas Forecasts Methodology .......................................................................................................... 100

Energy Industry ................................................................................................................................... 100

Cross checks ....................................................................................................................................... 101

Sources .............................................................................................................................................. 101



BMI Industry View

BMI View: Argentina's technically recoverable shale resources are the third largest in the world, behind

only China and the US. Yet the Argentina's business environment has turned increasingly negative in recent

years, and this has only been further exacerbated by the expropriation of YPF from Repsol in early

2012. There appears, however, to be a small but growing cadre of international and national oil companies

seeking to gain first-mover advantage by tapping potentially game-changing shale resources in the Vaca

Muerta formation - despite Argentina's risky business environment. If the country is able to make the

necessary investments, its shale potential could provide the country with an opportunity to become a

regional, and potentially global, gas powerhouse. Nevertheless, we continue to highlight the challenges to

operating there, and expect a difficult progression to large-scale unconventional natural gas production.

Indeed, we retain our view that rising gas production will fail to keep pace with rising consumption, leading

to an increasingly costly import burden over our forecast period.

The main trends and developments we highlight in the Argentine oil and gas sector are:

■ There appears to be an uptick in momentum with regards to investment in Argentina's shale potential,with several companies calculating that the benefit of having first-mover advantage in Vaca Muerta willoutweigh the risks associated with investment in the sector. Should YPF prove successful in unlockingsome of its massive shale potential through participation with foreign partners, it could provide thecountry with an opportunity to stave off or possibly even reverse a decline in gas production - giving thecountry net importer status over the next decade.

■ Although we are holding on to our forecasts, which highlight the growing gas import burden, recentdevelopments are generating significant upside risk to them. Indeed, in addition to Uruguayan Ancap'snegotiations in early 2013, we have also provided extensive analysis of the deal which was signed byChevron and YPF in late 2012, as well as that of Argentina's Bridas Corporation (which is 50% ownedby China's CNOOC). In April 2013 Dow Chemical signed an MoU with YPF to develop the El Orejanoblock. For its part, Chevron is in the midst of a pilot project with YPF, which will involve the drilling of100 wells in 2013 at a shared cost of US$1bn, although an ongoing dispute with Ecuador is being playedout in Argentine courts, resulting in a freezing of its assets. YPF and Chevron both acknowledged thenegative effects this was having on their joint shale development plans.

■ YPF's investment plan envisages US$7bn in capital expenditure (capex) each year to 2017, focusing onthe unconventional plays at Vaca Muerta and marginal fields. The aim is to increase production to 219.2barrels of oil equivalent (boe) by 2017, a rise of 37% on current production levels. YPF aims to increasethe number of new wells to 50 per year, in comparison to 19 wells per year between 2007 and 2011. Priorto its expropriation, Repsol-YPF had estimated that it would invest US$25bn per year to double thecountry's current oil and gas production.

■ Conventional oil volumes will continue to come under pressure, though the plan to increase productionfrom marginal fields could provide some respite if implemented as envisaged by YPF. Our currentestimates assume oil output declining slowly but steadily in the coming years. By 2017, we expectArgentina to be pumping an average 715,000 barrels per day (b/d). We reiterate that we have not yetbegun to factor in the country's massive shale potential, which therefore provides considerable upside riskto this forecast.



■ One upside risk to our oil production forecast comes from recent activities in the country by PresidentEnergy, which is looking to revive production at its Puesto Guardian concession in north-west Argentinausing fracking techniques. A return to more significant production volumes, which peaked at 9,000b/d inthe 1980s, would pose a modest upside risk to our oil production forecast. However, we still expect thecurrent decline in oil production to continue over the next decade, albeit at a slower pace than in recentyears.

■ The Argentine government has continued to reform its fiscal regime - with a cut in the export taxes leviedon domestically produced oil - in an attempt to increase its attractiveness to foreign investment. With thischange, exporters will now realise US$70 per barrel (bbl) for oil sold abroad, rather than US$42/bbl aswas previously the case. The change follows a November revision of wellhead natural gas prices, whichare to rise from US$5per mn British Thermal Units (mnBTU) to US$7.50/mnBTU in a bid to furtherincentivise production.

■ Artificially low domestic prices for fuels continue to insulate demand, with our forecast for annualaverage growth in oil consumption of 2.1 % through to 2017, reaching 777,188b/d. Exacerbating thisdynamic in the short term is the freeze of consumer energy prices announced by the government in April2013. The move is an effort to mitigate inflationary pressures in advance of the October 2013congressional elections.

■ The trend of importing more and more refined fuels while exporting less and less crude oil will continue,pushing the cost of imports higher. By 2018 we see net oil imports of 13,360b/d and rising thereafter,ending Argentina's position as a net oil exporter.

■ Our forecasts suggest that natural gas production will reach 40.5bn cubic metres (bcm) by 2017,although, again, we are not factoring in any shale gas production at this preliminary stage. Under thecurrent forecast scenario, imports of natural gas are expected to exceed 17bcm by 2017, up from 7.4bcmin 2011.

At the time of writing we assumed an OPEC basket oil price for 2013 of US$108.40/bbl, falling to US

$104.00/bbl in 2014.



SWOT

SWOT Analysis

Strengths ■ An audit of the Vaca Muerta formation in Argentina's Neuquén Province has led to a

substantial increase in estimated reserves. The formation is now considered to hold

prospective resources of 21.2bn barrels of oil equivalent (boe). According to the EIA,

Argentina holds the world's third largest shale gas resources, behind China and the

United States.

■ Oil and gas related infrastructure and services are fairly well developed.

Weaknesses ■ Oil production has been in decline since the late 1990s. Similarly, natural gas

production is falling increasingly short of consumption, leading to an increasing

import burden.

■ Heavily subsidised natural gas prices deter investment in new projects, ensuring the

country's import dependence. These prices were increased slightly at the end of

2012, however, in order to spur additional investment.

Opportunities ■ The country's offshore, particularly in deep waters near the Falkland Islands, remains

underexplored.

■ Subsidy and labour reforms would likely unleash a new wave of investment in

Argentina's hydrocarbons sector.

■ There appears to be a small but growing cadre of international and national oil

companies seeking to gain first-mover advantage by tapping potentially game-

changing shale resources in the Vaca Muerta formation - despite Argentina's risky

business environment.

Threats ■ Strikes and labour disputes are rife and often lead to slow project development and

production shut downs.

■ As Falkland Islands oil production moves closer to reality, tensions are likely to rise

with the UK.



SWOT Analysis - Continued

■ Heavy-handed state intervention and re-nationalisation of YPF has created a lot of

uncertainty and investor concern.



Industry Forecast

Oil And Gas Reserves

Table: Argentina Proven Oil & Gas Reserves and Total Petroleum Data

2011 2012e 2013f 2014f 2015f 2016f

Proven Oil Reserves bbl bn 2.5 2.5 2.5 2.5 2.5 2.5

Proven Oil Reserves bbl mn 2,504.7 2,504.7 2,500.0 2,500.0 2,500.0 2,500.0

Proven Oil Reserves % change y-o-y -0.6 0.0 -0.2 0.0 0.0 0.0

Reserves to production ratio (RPR), years 9.2 9.3 9.3 9.3 9.4 9.5

Natural Gas Proven Reserves, tcm 0.4 0.4 0.3 0.3 0.3 0.3

Natural Gas Proven Reserves, bcm 378.9 378.9 332.5 325.8 319.3 312.9

Natural Gas Proven Reserves, % change y-o-y -4.9 0.0 -12.2 -2.0 -2.0 -2.0

Natural Gas Reserve to Production Ratio, years 9.8 10.1 8.6 8.4 8.2 7.8

Petroleum Production, Consumption and Net Exports

Total Petroleum Production, 000boe/d 1,412.9 1,385.3 1,398.9 1,406.1 1,398.9 1,409.8

Total Petroleum Production, 000boe/d, % change y-o-y -4.6 -2.0 1.0 0.5 -0.5 0.8

Total Petroleum Production, US$bn 31.4 31.2 31.3 30.3 29.4 29.2

Total Petroleum Production, US$, % change y-o-y 33.1 -0.6 0.2 -2.9 -3.2 -0.6

Total Petroleum Consumption, 000boe/d 1,473.1 1,527.4 1,574.5 1,623.2 1,673.6 1,729.3

Total Petroleum Consumption, 000boe/d, % change y-o-y 7.8 3.7 3.1 3.1 3.1 3.3

Total Petroleum Consumption, US$bn 51.3 54.1 55.0 54.5 54.5 55.2

Total Petroleum Consumption, US$, % change y-o-y 50.0 5.6 1.6 -0.8 0.0 1.2

Total Net Petroleum Exports, 000boe/d -60.2 -142.2 -175.6 -217.1 -274.6 -319.6

Total Net Petroleum Exports, 000boe/d, change y-o-y -152.2 136.1 23.5 23.6 26.5 16.4

Total Net Petroleum Exports, US$bn -1.3 -4.2 -5.3 -6.5 -8.1 -9.4

Total Net Petroleum Exports, US$, % change y-o-y -136.9 215.9 27.1 22.2 25.6 16.1

Total Net Petroleum Exports, US$mn at US$50/bbl, US$bn -0.6 -1.9 -2.5 -3.1 -4.0 -4.8


e/f = estimate/forecast. Source: EIA, BMI



Table: Argentina Proven Oil & Gas Reserves And Total Petroleum Data

2017f 2018f 2019f 2020f 2021f 2022f

Proven Oil Reserves bbl bn 2.5 2.5 2.5 2.5 2.5 2.5

Proven Oil Reserves bbl mn 2,500.0 2,500.0 2,500.0 2,500.0 2,500.0 2,500.0

Proven Oil Reserves % change y-o-y 0.0 0.0 0.0 0.0 0.0 0.0

Reserves to production ratio (RPR), years 9.6 9.6 9.7 9.7 9.8 9.9

Natural Gas Proven Reserves, tcm 0.3 0.3 0.3 0.3 0.3 0.3

Natural Gas Proven Reserves, bcm 306.7 300.6 294.5 288.6 282.9 277.2

Natural Gas Proven Reserves, % change y-o-y -2.0 -2.0 -2.0 -2.0 -2.0 -2.0

Natural Gas Reserve to Production Ratio, years 7.6 7.2 7.0 6.7 6.6 6.4

Petroleum Production, Consumption and Net Exports

Total Petroleum Production, 000boe/d 1,413.5 1,426.5 1,431.0 1,444.0 1,439.9 1,435.8

Total Petroleum Production, 000boe/d, % change y-o-y 0.3 0.9 0.3 0.9 -0.3 -0.3

Total Petroleum Production, US$bn 28.6 28.1 27.7 28.1 28.1 28.1

Total Petroleum Production, US$, % change y-o-y -1.9 -1.8 -1.5 1.5 -0.1 -0.1

Total Petroleum Consumption, 000boe/d 1,783.3 1,839.1 1,896.8 1,956.5 2,018.2 2,082.1

Total Petroleum Consumption, 000boe/d, % change y-o-y 3.1 3.1 3.1 3.1 3.2 3.2

Total Petroleum Consumption, US$bn 55.4 55.2 55.7 57.4 59.2 61.0

Total Petroleum Consumption, US$, % change y-o-y 0.4 -0.4 0.9 3.1 3.1 3.1

Total Net Petroleum Exports, 000boe/d -369.8 -412.6 -465.8 -512.4 -578.3 -646.3

Total Net Petroleum Exports, 000boe/d, change y-o-y 15.7 11.6 12.9 10.0 12.9 11.8

Total Net Petroleum Exports, US$bn -10.8 -11.7 -13.0 -14.4 -16.3 -18.2

Total Net Petroleum Exports, US$, % change y-o-y 13.9 8.8 11.1 10.6 13.2 12.0



f = forecast. Source: EIA, BMI

Argentina has oil reserves of 2.5bn barrels (bbl) and gas reserves of 380bn cubic metres (bcm) of gas

(according to the EIA). The EIA has stated that Argentina has the world's third largest shale gas resources in

the world, behind only China and the United States. The country is only in the very early stages of

exploration into its shale potential, however, and as such we have held on to our forecasts for now while

acknowledging the potential for substantial revisions if and when reserves begin being booked.



Oil Supply And Demand

Table: Argentina Oil Production, Consumption And Net Exports

2011 2012e 2013f 2014f 2015f 2016f

Total Oil Production, 000b/d 744.8 739.0 735.5 734.0 726.8 720.5

Total Oil Production, mn bbl/year 271.8 269.7 268.4 267.9 265.3 263.0

Total Oil Production, % change y-o-y -5.8 -0.8 -0.5 -0.2 -1.0 -0.9

Total Oil Production, US$bn 10.7 10.8 10.6 10.2 9.8 9.5

Total Oil Production, US$bn, % change y-o-y 30.9 1.1 -1.8 -3.9 -3.8 -2.8

Total Oil Production, US$bn at US$50/bbl 13.6 13.5 13.4 13.4 13.3 13.1



Total Oil Consumption, 000b/d 678.0 700.5 714.5 728.8 743.4 761.9

Total Oil Consumption, % change y-o-y 9.3 3.3 2.0 2.0 2.0 2.5

Total Net Oil Exports (crude and products), 000b/d 66.8 38.5 21.0 5.2 -16.5 -41.5

Total Net Oil Exports (crude and products), % change y-o-y -60.8 -42.3 -45.6 -75.1 -416.1 151.2

Total Net Oil Exports (crude and products), US$bn 2.6 1.5 0.8 0.2 -0.6 -1.5

Total Net Oil Exports (crude and products), US$bn, % change y-o-y -45.5 -41.2 -46.4 -76.0 -407.0 146.2

Total Net Oil Exports (crude and products), US$bn at US$50/bbl 1.2 0.7 0.4 0.1 -0.3 -0.8






Table: Argentina Oil Production, Consumption And Net Exports

2017f 2018f 2019f 2020f 2021f 2022f

Total Oil Production, 000b/d 715.5 711.3 707.2 703.0 698.9 694.8

Total Oil Production, mn bbl/year 261.2 259.6 258.1 256.6 255.1 253.6

Total Oil Production, % change y-o-y -0.7 -0.6 -0.6 -0.6 -0.6 -0.6

Total Oil Production, US$bn 9.2 8.8 8.6 8.6 8.5 8.5

Total Oil Production, US$bn, % change y-o-y -3.2 -3.8 -2.7 -0.5 -0.5 -0.5




Total Oil Consumption, 000b/d 777.2 792.7 808.6 824.8 841.3 858.1

Total Oil Consumption, % change y-o-y 2.0 2.0 2.0 2.0 2.0 2.0

Total Net Oil Exports (crude and products), 000b/d -61.7 -81.4 -101.4 -121.7 -142.3 -163.3

Total Net Oil Exports (crude and products), % change y-o-y 48.6 32.0 24.6 20.0 16.9 14.7

Total Net Oil Exports (crude and products), US$bn -2.2 -2.8 -3.4 -4.1 -4.8 -5.5

Total Net Oil Exports (crude and products), US$bn, % change y-o-y 44.8 27.7 22.0 20.1 17.0 14.8

Total Net Oil Exports (crude and products), US$bn at US$50/bbl -1.1 -1.5 -1.9 -2.2 -2.6 -3.0






Oil production levels rose quickly during the 1990s,

from 525,000 barrels per day (b/d) to more than

840,000b/d by the end of the decade. Since then, a

domestic financial crisis has led to reduced

investment and volume stagnation, with 722,160b/d

produced in 2012, representing a 0.79% fall from

2011 production levels.

Our near-term outlook sees volumes increasing a

further 0.50% to 718,550b/d in 2013. The downtrend

will remain in place, and production will reach

698,630b/d by 2017. The country's oil production

downtrend will remain in place throughout the

second half of our forecast period as well, with

677,920b/d expected in 2022. We again reiterate that

this forecast does not take into account potential

shale liquids production, as exploration is currently

nascent, highly prospective, and will likely be gas-

directed.

Despite our forecasts, YPF's new investment plan is focusing on additional production volumes, and calls

for US$7bn in capex each year through to 2017. The investment will focus on the unconventional plays at

Vaca Muerta and marginal fields. The aim is to increase production to 219.2 barrels of oil equivalent (boe)

by 2017, up 37% on current production levels, consisting of a ten- and twenty-fold increase in oil and gas

production respectively. Previously, Repsol-YPF had estimated that it would take US$25bn per year to

double the country's current oil and gas production. We remain bearish on YPF's ability to accomplish a

large-scale turnaround in production, as its current agreements with foreign partners are tentative and/or

pilot projects, in addition to the large financial burden on the company in an environment where raising

money in international markets is exceeding difficult due to Argentina's poor business environment.

On the demand side, artificially low domestic prices for fuels insulate demand, in spite of the weakening

macroeconomic environment, including the most recent fuel price freeze which is focused on controlling

inflation. We forecast annual average growth in oil consumption of approximately 2.0% per annum through

2017, reaching 777,188b/d.

Argentine Oil Production,Consumption & Net Exports

2002-2017, '000b/d

Total oil production, 000b/d (LHS)Total oil consumption, 000b/d (LHS)Total net oil exports (crude and products), 000b/d (RHS)

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

0

250

500

750

1,000

-250

0

250

500




Shale Oil

In late 2012, YPF and Chevron signed an agreement for a pilot project to develop the country's vast shale

reserves in the Vaca Muerta formation. The plan will involve the drilling of 100 wells in 2013 at a shared

cost of US$1bn. The deal signing represents the first agreement signed between YPF and an international

oil company (IOC) since the Argentine government expropriated YPF from Repsol. Since then, there

appears to be an uptick in momentum with regards to investment in Argentina's shale potential, with several

companies calculating that the benefit of having first-mover advantage in Vaca Muerta will outweigh the

risks associated with investment in the sector. Additional companies to make agreements with or express

interest into entering Argentina in addition to Chevron are Bridas Corporation, Urugay's state-owned

Ancap, ExxonMobil, and others. Importantly, while there is some upside for liquids production due to

shale development, it is likely that the majority of this production will be gas directed, at least in the near

term.

Gas Supply And Demand

Table: Argentina Gas Production, Consumption And Net Exports

2011 2012e 2013f 2014f 2015f 2016f

Dry Natural Gas Production, bcm 38.8 37.5 38.5 39.0 39.0 40.0

Dry Natural Gas Production, % change y-o-y -3.3 -3.3 2.7 1.3 0.0 2.6

Dry Natural Gas Production, US$mn 20.7 20.4 20.7 20.2 19.6 19.7

Dry Natural Gas Production, US$bn, % change y-o-y 34.3 -1.5 1.3 -2.5 -2.9 0.5

Dry Natural Gas Production, US$bn at US$4/mn btu 5.5 5.4 5.5 5.6 5.6 5.7



Dry Natural Gas Production, % of Domestic Consumption

Dry Natural Gas Consumption, bcm 46.1 48.0 49.9 51.9 54.0 56.1

Dry Natural Gas Consumption, % change y-o-y 6.6 4.0 4.0 4.0 4.0 4.0

Dry Natural Gas Consumption, US$bn 24.7 26.1 26.8 26.9 27.1 27.6

Dry Natural Gas Consumption, US$bn % change y-o-y 48.1 5.9 2.6 0.1 1.0 1.9

Dry Natural Gas Net Exports, bcm -7.4 -10.5 -11.4 -12.9 -15.0 -16.1

Dry Natural Gas Net Exports, % change y-o-y 131.0 42.3 8.8 13.1 16.1 7.7

Dry Natural Gas Net Exports, US$bn -3.9 -5.7 -6.1 -6.7 -7.5 -7.9

Dry Natural Gas Net Exports, US$bn % change y-o-y 221.0 44.9 7.3 8.9 12.7 5.6

Dry Natural Gas Net Exports, at US$50/bbl US$bn -1.8 -2.6 -2.8 -3.2 -3.7 -4.0




Argentina Gas Production, Consumption And Net Exports - Continued

2011 2012e 2013f 2014f 2015f 2016f

o/w Pipeline Gas Net Exports, bcm -4.6 -7.5 -6.4 -6.9 -7.0 -8.1

o/w Pipeline Gas Net Exports, % change y-o-y 236.0 63.8 -14.4 7.7 1.1 16.6

o/w Pipeline Gas Net Exports, % of total 62.0 71.4 56.2 53.5 46.6 50.4

o/w Pipeline Gas Net Exports, US$bn -2.4 -4.1 -3.4 -3.6 -3.5 -4.0

o/w Pipeline Gas Net Exports, US$bn % change y-o-y 366.9 66.8 -15.6 3.8 -1.8 14.3

o/w LNG Net Exports, bcm -2.8 -3.0 -5.0 -6.0 -8.0 -8.0

o/w LNG Net Exports, % change y-o-y 53.0 7.1 66.7 20.0 33.3 0.0

o/w LNG Net Exports, % of Total Gas Exports 38.0 28.6 43.8 46.5 53.4 49.6

o/w LNG Net Exports, US$bn -1.6 -1.7 -2.9 -3.3 -4.3 -4.2

o/w LNG Net Exports, US$bn % change y-o-y 112.6 9.1 64.4 15.6 29.5 -2.0


Table: Argentina Gas Production, Consumption And Net Exports

2017f 2018f 2019f 2020f 2021f 2022f

Dry Natural Gas Production, bcm 40.5 41.5 42.0 43.0 43.0 43.0

Dry Natural Gas Production, % change y-o-y 1.3 2.5 1.2 2.4 0.0 0.0

Dry Natural Gas Production, US$mn 19.4 19.3 19.1 19.6 19.6 19.6

Dry Natural Gas Production, US$bn, % change y-o-y -1.3 -0.9 -0.9 2.4 0.1 0.1




Dry Natural Gas Production, % of Domestic Consumption

Dry Natural Gas Consumption, bcm 58.4 60.7 63.1 65.7 68.3 71.0

Dry Natural Gas Consumption, % change y-o-y 4.0 4.0 4.0 4.0 4.0 4.0

Dry Natural Gas Consumption, US$bn 28.0 28.2 28.7 29.9 31.1 32.3

Dry Natural Gas Consumption, US$bn % change y-o-y 1.4 0.6 1.8 4.1 4.1 4.1

Dry Natural Gas Net Exports, bcm -17.9 -19.2 -21.1 -22.7 -25.3 -28.0

Dry Natural Gas Net Exports, % change y-o-y 10.8 7.5 10.0 7.2 11.6 10.8

Dry Natural Gas Net Exports, US$bn -8.6 -8.9 -9.6 -10.3 -11.5 -12.8

Dry Natural Gas Net Exports, US$bn % change y-o-y 8.0 4.0 7.7 7.3 11.6 10.9





Argentina Gas Production, Consumption And Net Exports - Continued

2017f 2018f 2019f 2020f 2021f 2022f

o/w Pipeline Gas Net Exports, bcm -9.9 -10.2 -12.1 -11.7 -14.3 -17.0

o/w Pipeline Gas Net Exports, % change y-o-y 21.5 3.4 18.9 -3.9 22.5 19.1

o/w Pipeline Gas Net Exports, % of total 55.3 53.2 57.4 51.5 56.5 60.8

o/w Pipeline Gas Net Exports, US$bn -4.7 -4.7 -5.5 -5.3 -6.5 -7.8

o/w Pipeline Gas Net Exports, US$bn % change y-o-y 18.4 0.0 16.4 -3.9 22.6 19.2

o/w LNG Net Exports, bcm -8.0 -9.0 -9.0 -11.0 -11.0 -11.0

o/w LNG Net Exports, % change y-o-y 0.0 12.5 0.0 22.2 0.0 0.0

o/w LNG Net Exports, % of Total Gas Exports 44.7 46.8 42.6 48.5 43.5 39.2

o/w LNG Net Exports, US$bn -4.1 -4.5 -4.4 -5.3 -5.3 -5.3

o/w LNG Net Exports, US$bn % change y-o-y -2.5 8.8 -2.1 22.3 0.1 0.1


Natural gas consumption had been rising at an

annual rate of 5% before the global financial crisis,

but demand has stalled during the downturn. We

now see demand picking up in line with economic

recovery. Indeed, consumption of an estimated

48.0bcm in 2012 will rise to 58.4bcm by 2017,

leading to a gas import burden of over 15bcm.

Ceteris paribus, that trend will remain in place, with

the import burden rising to over 25bcm by 2022.

The Argentine government is hoping a new

generation of fields in the southern region of Tierra

del Fuego will help to offset falling gas output from

the mature basins in the west and north west of the

country. Argentina similarly has high hopes for

offshore acreage, although deepwater exploration

has so far failed to take off, as investors have

expressed uncertainty over the regulatory

environment and the region's resource potential. In addition, tensions over the Falkland Islands and offshore

development remains top of mind for those interested in the islands potential.

Argentine Natural Gas Production,Consumption, & Net Exports

2002-2017, '000b/d

Dry natural gas production, bcm (LHS)Dry natural gas consumption, bcm (LHS)Dry natural gas net exports, bcm (RHS)

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

e20

13f

2014

f20

15f

2016

f20

17f

16 17 18 19 20

0

25

50

75

-20

0

e/f=estimate/forecast, Source: EIA, BMI



Our forecast suggests that natural gas production will reach 40.5bcm by 2017, although we again reiterate

that we are not factoring in any production from shale gas at this stage.

Shale Gas

To be sure, there is the potential for our natural gas forecasts to change as investment into the country's

shale potential accelerates. With the world's third largest technically recoverable shale gas resources

(according to the EIA), there is growing interest by IOCs and national oil companies (NOCs) alike into its

development.

Depending on the relative success of the development of Vaca Muerta, there is the potential to either stave

off, or possibly even reverse, Argentina's decline in production and likely move to net importer status over

the next decade. Looking to the long term, we have previously discussed that Argentina's vast reserves

could act as a critical game-changer, altering its role in the region and beyond.

LNG

Argentina has rapidly expanded its LNG import capacity since the first import terminal came onstream in

2008. This is a trend we expect to continue as the country becomes increasingly reliant on gas imports and

looks to lessen its dependence on Bolivian pipeline imports.

Argentina has a theoretical LNG import capacity of just over 8bcm, delivered via two floating regasification

units. The first floating liquefied natural gas (FLNG) terminal, the 3bcm Bahía Blanca GasPort (BBGP),

was brought onstream in 2008. That was followed by a second terminal, the 5.2bcm Escobar FLNG

terminal, which started operations in May 2011. Southern Cone LNG, the country's third FLNG terminal, is

expected to come onstream in 2014.



Refining And Oil Products Trade

Table: Argentina Refining - Production And Consumption

2011 2012e 2013f 2014f 2015f 2016f

Crude Oil Refining Capacity, 000b/d 631.2 631.2 631.2 631.2 631.2 631.2

Crude Oil Refining Capacity, % change y-o-y 0.0 0.0 0.0 0.0 0.0 0.0

Crude Oil Refining Capacity, Utilisation, % 33.2 33.2 33.2 33.2 33.2 33.2

Refined Petroleum Products Production, 000b/d 209.5 209.5 209.5 209.5 209.5 209.5

Refined Petroleum Products Production, % change y-o-y 0.0 0.0 0.0 0.0 0.0 0.0

Refined Products Production (inc ethanol and non-conventional),000b/d 232.5 233.5 234.5 235.5 236.5 237.5

Refined Products Production (inc ethanol and non-conventional),% change y-o-y 0.0 0.4 0.4 0.4 0.4 0.4

Refined Products Consumption (inc ethanol and non-conventional), 000b/d 709.5 734.2 748.9 765.3 783.1 805.7

Refined Products Consumption (inc ethanol and non-conventional), % change y-o-y 12.2 3.5 2.0 2.2 2.3 2.9


Table: Argentina Refining - Production And Consumption

2017f 2018f 2019f 2020f 2021f 2022f

Crude Oil Refining Capacity, 000b/d 631.2 631.2 631.2 631.2 631.2 631.2

Crude Oil Refining Capacity, % change y-o-y 0.0 0.0 0.0 0.0 0.0 0.0

Crude Oil Refining Capacity, Utilisation, % 33.2 33.2 33.2 33.2 33.2 33.2

Refined Petroleum Products Production, 000b/d 209.5 209.5 209.5 209.5 209.5 209.5

Refined Petroleum Products Production, % change y-o-y 0.0 0.0 0.0 0.0 0.0 0.0

Refined Products Production (inc ethanol and non-conventional),000b/d 238.5 239.5 240.5 241.5 242.5 243.5

Refined Products Production (inc ethanol and non-conventional),% change y-o-y 0.4 0.4 0.4 0.4 0.4 0.4

Refined Products Consumption (inc ethanol and non-conventional), 000b/d 825.7 846.0 866.3 887.3 909.2 931.5

Refined Products Consumption (inc ethanol and non-conventional), % change y-o-y 2.5 2.5 2.4 2.4 2.5 2.5




The December 2010 OGJ survey estimates capacity at 627,000b/d. Using company data, BMI has

calculated that end-2012 crude distillation capacity was 631,180b/d. We are assuming no change in refining

capacity for the foreseeable future. Refined products exports, which have historically exceeded 200,000b/d,

will therefore fall steadily over the remainder of the forecast period unless new capacity is introduced.

Importantly, an April 2013 fire at the La Plata refinery is likely to keep production below normal capacity

through at least the end of 2013. This will lead to a short-term rise in the country's import burden for refined

products.

Revenues/Import Costs

At the time of writing we assumed an OPEC basket oil price for 2013 of US$108.00/bbl, falling to US

$104.00/bbl in 2014.



Industry Risk Reward Ratings

Latin America - Risk/Reward Ratings

BMI View: While there have been some changes to BMI's Latin American Risk/Reward Ratings (RRRs) this

quarter, these have occurred either at the top or the bottom of our ratings table, reinforcing a growing

divergence in outlooks for countries like Brazil, Peru, and Colombia relative to the likes of Ecuador,

Bolivia, and Mexico. While there is healthy competition amongst our highest rated countries, with Peru

receiving the highest upstream rewards score, there is a race to the bottom taking place at the lower end of

our ratings table. Indeed, growing political uncertainty, rising resource nationalism, and

disappointing reform efforts continue to prevent significant improvement in the Risk/Rewards outlook for

those at the bottom.

The consistent pace with which new, significant discoveries are announced offshore Brazil underpins the

country's long-term oil production potential, as well as its retention of the top spot in our RRRs for yet

another quarter. Indeed, recent discoveries off the country's northern coast are opening up even more

prospective areas for exploration. The country's upcoming licensing rounds later in 2013 will also provide

the foundation for continued investment into exploration and production (E&P) activities. Downside risks

remain, however, particularly as Petrobras continues to struggle financially despite several rounds of fuel

price increases since June 2012 (see our online service, February 18, 2013, 'Petrobras: Slowly Righting The

Ship').

Colombia and Peru have risen steadily in BMI's upstream ratings in recent quarters, largely on the back of

having put much more attractive business environments in place. They will both also benefit from strong

production growth in the coming years. Importantly, Peru has overtaken Colombia this quarter to seize

second spot, as its potential for production growth, in both oil and gas, receive the highest possible scores -

emphasising the very strong growth potential in the market. For its part, Colombia remains one of the most

important growth markets in Latin America, and we remain bullish on its long-term prospects as well.

Indeed, there remains a considerable distance between the top three countries in our upstream ratings and

the fourth - Venezuela - indicating the gathering strength of those three relative to the other countries in the

region.

At the other end of our ratings table, government involvement in the oil and gas industry is an enduring

theme in countries such as Argentina, Ecuador and Bolivia, with nationalisation, price controls and shifting

fiscal policy all damaging the energy sectors in these countries to varying degrees. However, high oil prices

and significant below-ground opportunities have seen companies continue to invest in these countries



despite these risks. This is particularly true in Argentina, where in late-2012 Chevron became the first to

sign an agreement with newly nationalised YPF to explore the country's shale potential. Nevertheless, if

prices were to fall significantly we would expect some of these markets to be hit very hard. Furthermore,

Ecuador, Mexico, Trinidad and Chile all suffer from oil-supply growth deterioration, a trend that is

particularly worrying in Mexico, one of the region's main producers. Although the prospect of oil sector

liberalisation in Mexico does continue to pose an upside risks to its position near the bottom of our ratings

table, the politics of reform continue to be a significant obstacle. It is therefore likely that while some

liberalisation will occur under Pena Nieto, it will fall short of the comprehensive reforms that are so badly

needed to achieve long-term production growth.

Table: Latin America Oil & Gas Risk/Reward Ratings

Upstream

R/R RatingsDownstream

R/R RatingsOil & Gas

R/R Ratings Rank

Brazil 64.0 58.1 61.0 1

Peru 68.3 46.2 57.2 2

Colombia 61.5 50.0 55.8 3

Venezuela 56.2 37.3 46.8 4

Chile 45.8 44.9 45.4 5

Trinidad & Tobago 51.0 38.0 44.5 6

Argentina 35.4 44.8 40.1 7

Mexico 30.5 47.5 39.0 8

Bolivia 39.9 33.7 36.8 9

Ecuador 35.3 36.7 36.0 10

Scores out of 100. Source: BMI

The main themes arising from BMI's O&G RRRs for Latin America are:

■ In Venezuela, the death of Hugo Chavez marks a major turning point for the country. The questionremains of whether this will also be a turning point for the energy sector. Our core view, under which webelieve current Vice President Nicolás Maduro will be elected, indicates that there will be no dramaticchange, as policy continuity under the banner of Chavismo will endure at least in the short term. This willsee continued emphasis on social programmes at the expense of the much-needed investment into andreform of the state-owned Petroleos de Venezuela S.A (PdVSA) -exacerbating the problems in theenergy sector.

■ We continue to highlight the risks of investment in Argentina, despite the significant below-groundpotential with regards to the country's vast shale reserves. We hold to this view despite what appears tobe growing momentum behind investment in the country - from companies such as Chevron, BridasCorporation, Total, and Wintershall. We believe the most pertinent risks to overseas players are strict



capital controls, import restrictions and other direct challenges to doing business, as well as conflictbetween the government and foreign players in the country's strategic sectors.

■ Countries with relatively small resource bases - Colombia and Peru in particular - have successfullyattracted investment by putting in place more attractive taxation regimes. Colombia's most recentlicensing round garnered strong interest due to both its resource potential and the favourable licensingterms for foreign companies. Similarly, the narrative for Peru supports an increasingly attractive sector,leading to its rise to second place in the upstream RRRs.

■ According to our forecasts, Latin America is set to be the fastest-growing region in terms of oilproduction over the next decade, with its percentage share of global output increasing 17.5% between2013 and 2021. Much of this growth will stem from production from Brazil's sub-salt fields andsignificant growth in Venezuelan, Colombian, and Peruvian crude volumes. Conversely, we are currentlyforecasting that, barring any fundamental shifts, such as large-scale unconventional production, regionalnatural gas production will stagnate, with the continent maintaining a steady 5.9% share of globalproduction over the period.

■ The bright economic outlook for the region - and concomitant rising fuel consumption - has createdopportunities for companies looking to expand their refining operations. We are forecasting stronggrowth in regional refining capacity over the next ten years.

■ Although Mexico could register the biggest upward move over the coming years, should it manage tostaunch a decline in output and open the sector to further foreign investment, the outlook is looking lessrosy than in previous quarters. While President Enrique Pena Nieto is placing energy sector liberalisationhigh on the agenda, the political obstacles look to be increasingly difficult to overcome if he is toimplement the large-scale reform that the sector needs.

Brazil And Peru Top The Charts

Latin American Upstream And Downstream Risk/Reward Ratings



Upstream: Production Growth Forecasts Reinforce Regional Polarization

A comparison between 2012 and our projected 2018 oil production figures reveals that (of the ten countries

in the region covered by BMI) only four countries will record an increase in their percentage share of total

regional production. Unsurprisingly, these are the four countries that top our upstream RRRs: Peru, Brazil,

Colombia, and Venezuela.

Forecasting Regional Growth

Latin American Oil Production By Country, 2012 & 2018(f), 000b/d

F=forecast, Source: EIA, BMI

Although Brazil maintains the top position in terms of overall upstream risk/rewards, Peru has now

surpassed it to assume the top spot in our upstream rating. Due to very strong below-ground fundamentals,

particularly in terms of strong proven natural gas reserves and a solid six-year growth outlook for both oil

and gas, Peru now receives a score of 75 out of 100 for upstream industry rewards, followed by Venezuela

(73) and Brazil (66).

Despite being the fourth largest producer in the region, Colombia's strong third place showing in our

upstream ratings is largely being driven by improving country rewards and low industry risks; specifically,

a positive privatisation trend, favourable licensing terms, and a low percentage of state-owned assets.



Chile retains its place in the middle of our upstream ratings. As a relatively stable albeit modest market,

its position underscores the polarization trend that we have been highlighting. Indeed, those countries that

rank below it, including Bolivia, Ecuador, Argentina, and Mexico, all have very limited potential to register

significant improvements over the near-term.

Table: Latin America Upstream Risk/Reward Ratings

UpstreamIndustry

Rewards

UpstreamCountry

RewardsUpstreamRewards

UpstreamIndustry

Risks

UpstreamCountry

RisksUpstream

Risks

UpstreamR/R

Ratings Rank

Peru 75 55 70 70 53 64 68 1

Brazil 66 70 67 55 59 56 64 2

Colombia 46 85 56 85 55 75 62 3

Venezuela 73 60 69 25 27 26 56 4

Trinidad and Tobago 38 70 46 80 33 63 51 5

Chile 35 15 30 85 78 83 46 6

Bolivia 51 33 47 20 33 25 40 7

Argentina 35 40 36 20 59 33 35 8

Ecuador 35 55 40 20 32 24 35 9

Mexico 39 15 33 10 53 25 30 10


We have been highlighting the important privatisation trend that is currently underway in Peru, where state-

owned Petroperú has announced plans to resume production in collaboration with private partners. The

timing is right for the state-owned company to regain a slice of domestic oil and gas production, as we

forecast both will rise rapidly over the next several years, and remain elevated through to the end of our

forecast period in 2022. The underexplored nature of the energy sector, combined with an increasingly

attractive business environment for foreign investment, creates further upside risk to our forecasts. It also

supports our view that Peru will remain one of the most dynamic economies in Latin America over the

forecast period (see 'Petroperú To Get Back In The Game', November 16 2012). However, downside risks

do exist, particularly from a return to leftist government policies, as well as active militant groups. Indeed,

ongoing attacks by the Shining Path group targeting the country's energy sector assets remain a concern,

particularly as the government continues to boost its security presence in the country's jungle areas

(see 'Security Remains Key To Energy Sector Growth', March 13, 2013).



Downstream: Medium-Term Outlook Reinforces Current Dynamics

Rising oil consumption across the region has created opportunities in the downstream segment. With both

rising fuel consumption and concrete plans to build several new refineries, Brazil is some distance ahead of

its closest rivals. Colombia, Peru and Mexico trail Brazil, but should see similarly strong growth in fuels

demand, as well as some investment into refining capacity over the medium term. While Bolivia now

occupies the bottom of the downstream ratings table, the bottom three - Venezuela, Ecuador, and Bolivia,

all maintain a strong hold on the segment in combination with a deteriorating macroeconomic and demand

outlook, leading to their similar, depressed scores. Indeed, the autumn 2012 Amuay refinery explosion in

Venezuela underscores the risks associated with poorly maintained and underinvested downstream

segments. As such, the medium-term forecast for refining capacity shows that the current dynamics in the

downstream segment will likely remain in place.

Regional Refining Capacity Distribution To Remain In Place

2012 & 2018(f) Refining Capacity, 000b/d

F=forecast, Source: EIA, BMI

Whereas the upstream ratings are likely to be fluid over the coming quarters, the downstream ratings should

be more stable, although small quarter-on-quarter (q-o-q) changes are to be expected.



Table: Latin America Downstream Risk/Reward Ratings

Down- stream

IndustryRewards

Down- stream

CountryRewards

Down- stream

Rewards

Down- stream

IndustryRisks

Down- stream

CountryRisks

Down- stream

Risks

Down- stream

R/R Ratings Rank

Brazil 50 62 53 75 63 70 58 1

Colombia 36 56 41 80 59 72 50 2

Mexico 48 48 48 35 65 47 48 3

Peru 38 48 40 60 59 60 46 4

Chile 30 36 32 80 71 76 45 5

Argentina 42 54 45 40 50 44 45 6

TrinidadandTobago

33 28 32 75 17 52 38 7

Venezuela 40 31 38 40 31 36 37 8

Ecuador 34 40 36 35 44 39 37 9

Bolivia 34 23 32 30 52 39 34 10


Argentina - Risk/Reward Ratings

Argentina has moved up our regional ratings table - from eighth to seventh. This is not necessarily due to

any improvement in Argentina's business environment itself, but rather because of the more-rapidly

deteriorating energy sector outlook for Bolivia and Ecuador. Indeed, nationalisation, price controls and

shifting fiscal policy continue to damage the energy sectors in these countries to varying degrees.

Argentina Upstream Ratings

Argentina's relatively low upstream rewards scores reflect the negative effects of resource nationalism and a

poor business environment, particularly at a time when the country's macroeconomic picture is worsening

considerably. That the country is in the bottom three countries in our upstream risk/reward ranking stands in

stark contrast to the estimate that its shale potential could be the third largest in the world behind China and

the United States in terms of technically recoverable resources (according to the EIA). Indeed, the country

scores poorly in terms of the state control over assets and competitive landscape. Similarly, Argentina's

industry risk scores have fallen from 70 to 20, further reflecting the negative privatisation trend and

deteriorating environment for licensing agreements. Overall, the total upstream risks score fell to 35,

representing continued weakness after a precipitous fall from 66 to 36 in the last several quarters.



Argentina Downstream Ratings

A similar picture has emerged it its downstream scores, where YPF is the largest player in refining and

marketing. State ownership of assets has increased, in turn decreasing the score it receives in our country

rewards ratings (our ratings methodology assumes higher state ownership equals lower rewards for other

operators). Consequently, Argentina's overall downstream rating has recently fallen to 45, down from

previous quarters where it received a score of 56. Indeed, the recent freeze of fuel prices on the back of

rising inflationary concerns generates further weakness in the downstream sector, in addition to increasing

the fiscal burden on YPF.



Market Overview

Argentina Energy Market Overview

Proven oil reserves of around 2.5bn barrels (bbl) (EIA) in 2013 are the result of a steadily declining reserves

base, having been above 3bn bbl as recently as 2001. However, estimates suggest that Argentina potentially

has the third largest shale resources in the world, providing the country with an opportunity to become a

regional, and potentially global, gas powerhouse if it is able to make the necessary investment.

Indeed, Venezuela currently has 1,026% more proven natural gas reserves than Mexico, the country with

the next largest reserves base. Argentina's technically recoverable shale resources are nearly three times

larger than Venezuela's proven reserves. If, for example, only a third of Argentina's technically recoverable

resources is deemed economically viable, it would represent a massive boon to the Argentine energy sector

and broader economy - a dramatic shift from our current forecast for a 28bn cubic metre (bcm) import

burden in 2022.

However, Argentine state-owned YPF has been struggling to attract foreign partners and capital in order to

develop the massive Vaca Muerta shale play largely on the back of a poor business environment. Some of

the key challenges include oil and gas prices (now to be managed by the recently established national

hydrocarbon planning commission), currency controls and import restrictions. This is compounded by the

fact that Argentina has been largely cut off from the global credit markets ever since it went through the

largest sovereign debt default in history. As a result, newly nationalised YPF finds itself in a conundrum; it

needs massive foreign investment, particularly into its vast shale reserves, yet is too risky a gamble for most

players. However, there does appear to be a small but growing cadre of international and national oil

companies seeking to gain first-mover advantage by tapping potentially game-changing shale resources in

the Vaca Muerta formation - despite Argentina's risky business environment.

Overview/State Role

Argentina's oil sector had been completely privatised until the October 2004 creation of new state entity,

Enarsa. The largest upstream and downstream operator is national company YPF, which was confiscated

from Spain's Repsol in April 2012. Four companies, namely YPF, PAE, Petrobras Energía and

Chevron San Jorge, account for over 70% of the country's oil production. Four companies also control the

downstream oil sector: YPF, Shell, ExxonMobil and Petrobras. Argentina's natural gas industry is in the

hands of the private sector. Transportadora de Gas del Sur (TGS) is Latin America's largest pipeline

company, delivering two-thirds of total gas consumption, and is largely owned by Petrobras Energía.



Transportadora de Gas del Norte (TGN), operating in the north and centre of the country, is the other key

gas supplier. Its shareholders include Techint, Compania General de Combustibles (CGC), Total and

Petronas of Malaysia.

Licensing And Regulation

Pricing

Argentina is highly dependent on natural gas, and, apart from a brief dip at the peak of the economic

downturn in 2009, gas consumption has been rising at an average of 5% per annum, spurred by prices that

have been frozen since 2002. The price restrictions have meant that some producers have had to sell gas for

as little as US$0.50/mn BTU, or US$18 per thousand cubic metres (mcm), resulting in stagnation or decline

in gas output. Consequently, Argentina has been forced to imports more pipeline gas from Bolivia and,

increasingly, liquefied natural gas (LNG) from Trinidad & Tobago (T&T), particularly during the peak

winter period.

In a bid to reverse its stagnating energy outlook, however, Argentina has continued to reform its fiscal

regime - with an early 2013 cut in the export taxes levied on domestically produced oil. With this change,

exporters will now realise US$70 per barrel (bbl) for oil sold abroad, rather than US$42/bbl as was

previously the case. The change follows a November 2012 revision of wellhead natural gas prices, which

are to rise from US$5per mn British Thermal Units (mnBTU) to US$7.50/mnBTU in a bid to further

incentivise production.

The picture is not entirely of reform, however. Indeed, in April 2013 the Argentine government announced

a six-month freeze of consumer energy prices in an effort to mitigate inflationary pressures in advance of

the October 2013 congressional elections. The move is both a reflection of the economic pressures on the

government and suggestive of increasing strain on state-owned YPF - and the country's energy sector more

broadly at a very critical time. Indeed, these price caps will raise the cost of an already growing import

burden just when YPF is seeking to significantly increase its investment into upstream exploration and

production (E&P), and into the country's vast shale gas resources in particular.

Government Policy

On a fundamental basis, we see the risks in Argentina as very differently to risks in highly frontier markets

with harsh operating environments. Indeed, while frontier markets may have significant risks (security risks,

lack of infrastructure, limited routes to market, etc), the relationship that foreign players often have with the



governments in these markets is qualitatively different to the relationship in Argentina, making the Latin

American country, ceteris paribus, significantly more risky.

In highly frontier and risky markets, foreign companies can have significant leverage over the government

and are, broadly speaking, able to negotiate from a position of strength - as they have the power to bring (or

not bring) wealth through natural resource development. In Argentina, this relationship is inverted, with the

foreign companies that are invited to the negotiating table attending with a significant disadvantage. Current

government policies are specifically designed to favour local players over foreign ones. Those specific

policies include unfavourable wellhead prices which are determined in a highly politicised fashion, limits on

profit repatriation, strict local content requirements, and others. In fact, due to the political dynamics in the

country, as well as the resource nationalism that the current government continues to espouse, foreign

companies are unlikely to enjoy a stable, mutually beneficial relationship with the government. As such,

policy risks in Argentina make it less attractive than other, less developed countries where traditional risks,

including those relating to security and infrastructure, can be a deterrent to investment.

Licensing Rounds

In 2007, the third licensing round launched by Rio Negro province attracted bids from eight companies

seeking to explore in the Neuquén basin. Offers for the Angostura block came in from US unit Apache

Energía Argentina, regional players CGC, Usinas y Terminales Eléctricas (UTE), and Estrella

Servicios Petroleros and Petrolifera Petroleum. The Tres Nidos Sur block attracted bids from Roch and

Antrim Energy. Geodyne Energy, another Canadian independent, submitted bids for the Blanco de los

Olivos and Catriel Viejo Sur blocks. Petrolifera Petroleum also made an offer for the Puesto Guevara block.

The round followed the signing of E&P contracts for four blocks in Neuquén Basin offered as part of Rio

Negro's second licensing round. According to the province's Deputy Governor, Mario De Rege, the first two

rounds should result in investment of up to US$200mn.

Local government-owned Gas y Petróleo del Neuquén (G&P) is reportedly planning a third bidding round

for oil and gas exploration licences in the western Argentine province of Neuquén, according to an April

2010 Platts report. Local newspaper La Mañana Neuquén reported that the round will offer 10 previously

unexplored blocks in the Neuquén Basin that are said to hold tight and shale gas potential. G&P conducted

its first two bidding rounds in 2009, awarding 18 exploration licences for low-, medium- and high-risk

blocks. The blocks were awarded to Total, YPF and Petrobras and Argentine firms Energy Operations,

Raiser and Rovella Carranza. G&P'S CEO Ruben Etcheverry said that he expects the companies to invest

about US$60.9mn over four years and drill 13 wells at the blocks. G&P will take a 15% stake in each of the

blocks.



Argentina has delayed the launch of a licensing round that would have put 32 offshore blocks up for grabs

because of the tumult that has rocked global markets in the wake of the US debt rating downgrade, a source

at Enarsa told Reuters on August 8 2011.

International Energy Relations

Falkland Islands

Argentina continues to claim the Falkland Islands (which it calls Islas Malvinas), nearly 180 years after the

British occupation of the islands. Following Argentina's unsuccessful military attempt to regain the islands

in 1982, the dispute has remained confined to the sphere of diplomatic relations. A small-scale drilling

campaign offshore Falklands in the late-1990s, however, which revealed the potential presence of

commercial hydrocarbons, reignited Argentina's drive to regain the islands. In preparation for the

submission to the UN of a formal claim to the islands, in 2006 Buenos Aires ended an exploration

cooperation agreement with the UK.

In April 2009, Argentina lodged a formal legal claim with the UN for control over large stretches of the

South Atlantic seabed, which includes the Falkland Islands. The discovery of potential oil plays south of the

Falklands in the 1990s has boosted interest in exploration in the area that could rekindle long-standing

territorial conflict between the two countries. On April 21 2009, the Argentine foreign ministry presented

the UN with 40 volumes of documentation stating the country's claim to 1.7mn sq km of seabed, which

includes the UK overseas territories of the Falklands, South Georgia and South Sandwich Islands and a

large portion of Antarctica. Argentina's claim, submitted under Article 76 of the 1994 UN Convention on

the Law of the Sea (UNCLOS), aims to expand its maritime territory by 35% to 370 nautical miles from the

shore on the basis of a claimed extension of the Argentine continental shelf.

According to Buenos Aires, the submission is the culmination of 11 years of research and 12 maritime

expeditions. Under UN laws, submission of a counter-claim would prevent either nation from exploiting the

contested seabed until a diplomatic agreement is reached. Although geological evidence from the 1990s

suggests that large hydrocarbon accumulations may have once been present offshore the Falklands, many

industry experts are sceptical of the area's potential for commercial production. Following the exit of the

majors in the 2000s, exploration activity has mostly been confined to small-scale British independents.

Their operations, however, are under serious threat following the UK's decision to submit a counter-claim in

May 2009. Any field development is now likely to be banned pending the UN resolution. Moreover, it is

doubtful that either Argentina or Britain will accept the UN ruling, regardless of the decision, meaning that

oil companies' operations in the Falklands will continue to be plagued by legal uncertainties.



Far from leading to a resolution of the dispute, the submission of the case to the UN appears to have raised

tensions, with both sides acting as though the case had already been decided in their favour. In December

2009 Argentina passed a law defining the country's provincial borders, which assigned the UK-administered

territories to its southernmost province of Tierra del Fuego. Buenos Aires followed up the enactment of new

statute by officially re-iterating its claims over the Falklands, South Georgia and the South Sandwich

Islands on January 4 2010. The British Foreign Office responded by delivering a formal note of protest to

the Argentine embassy in London on January 18.

The exchange of claim and counter-claim took place as AIM-listed explorers Rockhopper Exploration,

Desire Petroleum and Falklands Oil & Gas began a drilling campaign in the contested area in the South

Atlantic summer of 2009-10. The start of the campaign created an anomalous situation under international

laws, as the submission of two competing territorial claims under Article 76 of the 1994 UNCLOS

theoretically prevents either nation from exploiting the contested seabed until a diplomatic agreement is

reached.

Rockhopper has declared that its Sea Lion discovery is commercial and has set out a US$2bn plan to bring

Falklands oil to market by the middle of the decade.

Gas Imports

Argentina is linked to its neighbour Chile via two pipelines: Gaseoducto del Pacífico and GasAndes. With

Chile bringing onstream two LNG import terminals in 2009-10 there is a possibility of it eventually

exporting gas to Argentina through the existing pipeline infrastructure, reversing the long-standing energy

relationship between the Andean neighbours. The Pacífico pipeline began operating in 1999 but in recent

years has been running at a fraction of its 3.1bcm capacity because of the imposition of restrictions on gas

exports by the Argentine government, which has struggled to boost production to meet growing domestic

demand. The GasAndes trunkline runs from the city of La Mora to the Chilean capital, Santiago. In 2009, a

year after Argentina became a net gas importer, total volumes of gas received by Chile from its eastern

neighbour stood at merely 0.84bcm, down from 4.07bcm in 2000, according to Cedigaz data.

In September 2009, Argentina expressed its willingness to serve as a transit state for the gas trade between

Bolivia and Uruguay. A preliminary agreement on the Bolivia-Uruguay gas transit conditions was reached

during a meeting of Argentine Minister of Planning Julio de Vido and Raúl Sendic, the Uruguayan minister

of industry. According to online news source Hidrocarburos Bolivia, Argentina agreed to collect gas transit



fees only, dropping its earlier demand to tax the Bolivian gas destined for Uruguay. Uruguay would receive

Bolivian gas via the Cruz Del Sur pipeline, which runs from Buenos Aires to Montevideo.

On July 18 2012, Bolivia's state-owned YPFB and Argentina's Enarsa signed an 'interruptible natural gas

purchase and sale' contract to supply Argentina with an additional 6mn cubic metres per day (Mcm/d) of

gas for 2012-2013 (2.19bcm per annum). This is in addition to a 2010 bilateral gas deal which stipulated

that Bolivia would provide a steadily increasing supply of gas to Argentina to reach 27.7Mcm/d (10.1bcm)

by 2017. As a result of the agreement, Argentina expects to import 16.3Mcm/d from Bolivia in the second

half of 2012 - a 20% increase from the first six months of the year.

Argentina - Major Upstream Projects

Table: Argentina - Upstream Projects Database

Name Field Name Status Est. Peak Oil/Liquids Output,

(b/d)

Est. Peak GasOutput (bcm)

Type ofProject

Onshore/Offshore

Carina Aries Carina and Aries (BlockCMA-1)

Producing(since 2005) na 2.9 Gas Offshore

Anticlinal Grande Cerro Dragon Producing 87,934 na na Offshore

Chihuido de laSierra Negra(ChSN)

Chihuido de la SierraNegra (ChSN) Producing na na Oil Onshore

El TrapialExpansion Project

El Trapial (HuantraicoBlock, Neuquen Basin) Producing 40,000 na Oil Onshore

na = not available. Source: BMI

Oil And Gas Infrastructure

Oil Refineries

Argentina currently has 10 refineries giving the country a total capacity at the start of 2011 of about 631,000

barrels per day (b/d). Theoretically, this is more than equal to the task of meeting the country's demand for

oil products, with the notable seasonal exception of diesel. Government intervention in the market has,

however, led to Argentina occasionally importing gasoline as well. Capacity has remained relatively stable

in the country since 1971, and we do not currently expect any significant capacity additions in the near

future. YPF is currently the major player in Argentine refining, with more than 50% of total capacity.



Table: Refineries In Argentina

Refinery Capacity (b/d) Owner Completed Details

La Plata 189,000 YPF 1925 na

Buenos Aires 110,000 Shell 1931 na

Lujan de Cuyo 105,668 YPF na Upgrade started in 2009

Campana 87,000 ExxonMobil na na

San Lorenzo 45,800 Refineria San Lorenzo 1938 na

Bahia Blanca 30,500 Petróleo Brasileiro na na

Plaza Huincul 25,159 YPF na na

Campo Duran 25,788 Refinor SA 1992 na

Lomas de Zamora 8,000 DAdP na na

Dock Sud 4,000 DAdP 1993 na

Total Capacity 631,184

Planned Additional Capacity

General Mosconi II 150,000 30-company consortium na US$2.3bn diesel refinery

Lujan de Cuyo na YPF 2012+ Secondary processing

na = not available. Source: Company data

Buenos Aires is home to about 68% of Argentine refining capacity, and the broader Buenos Aires Province

contains six of the country's 10 plants with a combined capacity of 430,000b/d.

La Plata: YPF's 189,000b/d La Plata refinery in Buenos Aires is the largest in Argentina, accounting for

around 30% of the country's capacity. It produces fuel oil, diesel oil and gasoline, as well as lubricants,

asphalt and paraffin. More than one third of the country's consumed fuel is produced at La Plata.

In April 2013, the La Plata refinery was taken offline for repairs as a result of a fire. Initial repairs allowed a

partial restart of operations after a few days, but it will likely take a month or more for repairs to conclude.

At the time of writing, it is likely that it will take the remainder of 2013 for the refinery to begin producing

at full capacity again. Indeed, the refinery's outage has increased the country's refined products import

burden at a time when consumption continues to grow and fuel prices remain fixed due to inflationary

concerns.

Buenos Aires: Shell's Buenos Aires refinery is located in the Doc Sud area of the city, giving it access to

crude feedstock and product transport routes via the local port. The refinery is almost exclusively a



processor of Argentine crudes, including those from Tierra del Fuego. Crude is stored at a dedicated 4.8mn

bbl tank farm on site.

Lujan de Cuyo: Located in Mendoza Province in the foothills of the Andes, YPF's Lujan de Cuyo receives

crude from local fields and from the east-coast port of Bahia Blanca by pipeline. In October 2009, YPF

announced that it would invest US$396mn over three years to upgrade the refinery, with much of the

investment to be directed towards raising the quality of the gasoline and diesel produced and improving

energy use.

General Mosconi II (Proposed): In December 2006, the government announced that it had reached

agreement with several international oil companies (IOCs) to build a new 150,000b/d refinery. According to

press reports in January 2006, the government held talks with a number of IOCs over construction of the US

$2.3bn diesel fuel refinery. The project, provisionally called General Mosconi II (the first plant with such a

name, Petroquimca General Mosconi set up in 1970, is a petrochemicals plant), would produce refined

products for both the domestic and international market. There is, however, no indication at this point that

the project will ever go ahead.

Service Stations

Four major players, led by YPF, control the majority of the fuels distribution network, with a combined

market share of over 90% and around 4,400 retail stations. Repsol itself has about a third of the market.

Oil Terminals/Ports

According the Petroleum Economist, Argentina has 15 oil terminals, around half of which are clustered

around Buenos Aires and its riverine hinterland.

Oil Pipelines

Argentina has three main oil pipelines, which together indirectly link the oil export terminal at La Plata on

the east coast with the San Vincente oil terminal on Chile's west coast. Two of the pipelines are domestic

and link the country's major Neuquén Basin oil producing region with the refineries at Plaza Huincul and

Lujan de Cuyo. To the east, both pipelines connect to the oil terminal and refinery at Bahía Blanca. A single

pipeline runs north from the terminal to the La Plata oil terminal near Buenos Aires, before doubling back to

the Lomas de Zamora mini-refinery. The country's one international link is the 431km Transandino oil

pipeline. The pipeline, which can transport 115,000b/d, links the Neuquén Basin with San Vincente.



LNG Terminals

Argentina currently has one floating liquefied natural gas (FLNG) import terminal with a capacity of 3bn

cubic metres (bcm), and another was slated to open in mid-2011. The existing terminal is a floating

regasification vessel, moored at the port of Bahía Blanca. In September 2010, Excelerate Energy

announced that YPF and Enarsa had commissioned it to build a 5.2bcm floating regasification plant 48km

north of Buenos Aires. The terminal, dubbed Escobar LNG, was due onstream in May 2011.

Although Argentine LNG import capacity is limited, both Chile and Uruguay have put forward proposals to

supply Argentina with LNG regasified outside the country and then imported via pipeline. The proposals

mentioned Chile's Quintero regasification terminal as one possible source of gas, while another is a

proposed terminal in Uruguay.

Bahía Blanca GasPort

The Bahía Blanca GasPort (BBGP) has a maximum capacity of around 3bcm. The facility comprises a

floating regasification vessel known as the Energy Bridge Re-gasification Vessel (EBRV), moored

alongside a dedicated jetty, from which it feeds gas into the national gas distribution system. The project

was developed by Excelerate Energy and YPF.

Escobar LNG

Escobar LNG is a floating regasification plant, situated some 48km north of Buenos Aires. The project was

launched in September 2010 by US-based Excelerate Energy, Spain's YPF and Argentina's Enarsa and

received its first cargo in June 2011. The facility has a regasification capacity of 5.2bcm per year.

Southern Cone LNG (Planned)

The Southern Cone LNG terminal is scheduled to come onstream in 2014. In June 2011, Qatargas signed a

20-year LNG supply deal with Enarsa to feed the Southern Cone LNG Terminal. The deal will see Qatar,

the world's largest LNG producer, ship as much as 5mn tpa, or 6.9bcm, of LNG to the Latin American

country through the mid 2030s.

Gas Storage

Argentina first started storing gas with the inauguration of the Diadema gas storage pilot project in 2001.

Located in the southern province of Chubut, the Diadema facility is part of a depleted gas field. Diadema



was joined in 2003 by the Lunlunta Carrizal gas storage facility, located close to Mendoza city in Mendoza

province. The facility, operated by YPF, also came onstream as a pilot project, with an injection and

withdrawal capacity of 1mn cubic metres per day.

Gas Pipelines

Gasoducto del Pacífico (TransGas)

The Gasoducto del Pacífico (also known as TransGas), links the southern Chilean city of Concepción with

Argentina's Neuquén Basin. With Chile's first LNG import terminal onstream there is the possibility of

Chile eventually exporting gas to Argentina through the existing pipeline infrastructure, reversing the long-

standing energy relationship between the Andean neighbours. Argentina's energy supplies to Chile have

been falling progressively over the current decade on the back of lower output and growing domestic

demand. The decline in the gas trade accelerated sharply after 2004, following the imposition of gas

restrictions by the Argentine government.

Chile's Empresa Nacional del Petróleo (ENAP) announced on June 18 2009 that it had increased its stake

in the operating entity Gasoducto del Pacífico from 18.2% to 22.8% at a cost of US$6.88mn, while Gasco

raised its stake from 20% to 30% for US$9.97mn. A 15% stake in the pipeline was acquired by Argentina's

Trigas, a subsidiary of Yaconi-Santa Cruz. According to energy news provider Platts, the stakes were

acquired from YPF and US independent El Paso, which have exited the consortium. Another 30% of

Gasoducto del Pacífico remains in the hands of North American pipeline company TransCanada.

The Pacífico pipeline began operating in 1999 but in recent years has been running at a fraction of its

3.1bcm capacity because of the imposition of restrictions on gas exports by the Argentine government,

which has struggled to boost production to meet growing domestic demand. As well as receiving imports

via Pacífico, Chile imports Argentine gas through the GasAndes pipeline, with the trunkline running from

the city of La Mora to the Chilean capital Santiago. In 2008, the year Argentina became a net gas importer,

total volumes of gas received by Chile from its eastern neighbour stood at merely 0.69bcm, down from

4.07bcm in 2000, according to Cedigaz data.

Gasoducto del Noreste (GNEA)

Construction of the Gasoducto del Noreste (GNEA) gas pipeline across north-eastern Argentina began in

2011, with completion scheduled for 2014-2015, the governor of the participating Misiones province

announced on June 7 2011. The project was originally due online in 2011, but no engineering contracts have



yet been signed. Although the project has been delayed, there are some signs of progress after President

Christina Fernandez de Kirchner opened a tender for construction contracts in February 2011.

Misiones Governor Maurice Closs made the announcement after signing project plans for GNEA with the

governors of the four remaining participating provinces - Chaco, Corrientes, Formosa and Salta - and

Argentina's Minister of Planning Julio De Vido. The 1,460km GNEA pipeline will have an initial capacity

of 7.3bcm per annum. It is designed to be expanded to 11bcm per annum by the end of the decade. No cost

estimates or sources of funding have been specified.

Tierra del Fuego Link

Argentina constructed a new 38km subsea gas pipeline in 2010 to double the supply capacity from the

southernmost island of Tierra del Fuego to the mainland. The new pipeline, which links up with the national

trunkline system, will help to connect gas fields offshore Tierra del Fuego to large domestic markets further

north, stimulating E&P in the southernmost province.

The new pipeline runs parallel to an existing 30-year-old subsea link, connecting Cape Espíritu Santo in the

Argentine section of Tierra del Fuego to Cape Vírgenes in the mainland province of Santa Cruz. The

pipeline adds 6.2bcm of carrying capacity, doubling Tierra del Fuego's current maximum send-out volumes.

The project was carried out on behalf of the government by a JV between Dutch firm Royal Boskalis

Westminster and Swiss-based Allseas Group at a cost of US$265mn.

Bolivia-Argentina Interconnector

In March 2010, Bolivia signed a long-awaited gas supply deal with Argentina, which should see a tenfold

rise in bilateral energy trade over the course of the current decade. The deal binds the two sides to gradually

raising gas trade volumes from around 1.7bcm to 10.1bcm.

The majority of new gas will come from new phases of the Margarita field in the southern Bolivian

province of Santa Cruz, which is operated by the Caipipendi consortium led by YPF. Exports did not pick

up until May 2011, when a new 50km Gasoducto de Integración Juana Azurduy (GIJA) interconnector to

Argentina came online. Initial annual capacity of 2.8bcm will be gradually boosted to a maximum of

10.1bcm envisaged under the new supply contract.



Competitive Landscape

Executive Summary

■ The government in April 2012 re-nationalised YPF through the seizure of a 51% stake and former ownerRepsol of Spain is seeking US$10bn in compensation.

■ The Argentina's internal commerce secretary has announced a six-month freeze of consumer gasoline anddiesel prices as the government seeks to stem inflationary pressures in advance of the October 2013congressional elections. Despite company statements to the contrary, it is feared that this fuel price freezewill have a negative impact on YPF. These price caps will raise the cost of an already growing importburden. YPF and other downstream players, including Royal Dutch Shell, Axion Energy and Brazil'sPetrobras, will have to import gasoline and diesel at market prices and then sell them domestically at aloss.

■ A new petroleum exploration and production fund will be created by the government in a bid to becomeself-sufficient in the oil and gas sector. According to a declaration published by the government-ownedOfficial Bulletin on April 19 2013, the US$2bn fund will be known as the Argentine Hydrocarbon Fundand will be authorised to lend capital, contribute money and purchase securities issued by oil firms inwhich the government has an equity stake.

■ Enarsa holds ownership rights to exploration permits and exploitation concessions on the ArgentineContinental Shelf. It participates in exploration activity in partnership with international oilcompanies (IOCs).

■ YPF is the leading Argentine producer, with assets located in the Neuquén, Gulf of San Jorge, Northeast,Austral and Cuyana basins. These fields account for more than half of Argentina's oil production. It isalso Argentina's leading oil refiner, operating three facilities with 319,500 barrels per day (b/d) ofcapacity, as well as a half share in the Refinor complex (26,100b/d gross). This provides the group withover 50% of fuels supply, while its service station chain accounts for over 30% of the retail market.

■ The CEO of YPF, Miguel Galuccio, has said that the company could postpone its shale explorationprogramme in 2013 owing to high equipment costs, reports Reuters. YPF intended to spud 132 oil wellsat the Vaca Muerta shale formation in Patagonia in 2013. YPF could adjust the pilot plan of theprogramme, worth around US$1.36bn, if it fails to secure equipment and workers at the right price,Galuccio said.

■ Dow Chemical has signed a memorandum of understanding (MoU) with YPF to jointly develop the vastVaca Muerta shale gas reserves. According to YPF, the company will enter into final negotiations withDow focused on establishing a joint venture (JV) in order to develop the El Orejano block.

■ Maria das Gracas Foster, CEO of Brazilian oil and gas company Petrobras, has confirmed that thecompany is looking to sell its Argentine subsidiary and related assets, reports Rig Zone. The potentialsale of Petrobras' Argentine business is part of a wider US$9.9bn divestment plan. It is believed thatpreliminary talks have taken place over the sale, but Gracas Foster declined to comment on the specificsdue to the 'sensitive nature' of the discussions. Behind YPF, Petrobras Energía has been the second mostsignificant Argentine oil and gas sector participant, thanks to its purchase of the former Perez Compancgroup.

■ In 2011, US major Chevron achieved total production in Argentina of 35,000b/d of crude oil (26,000b/dnet) and 170 thousand cubic metres (mcm) per day of natural gas. YPF and Chevron have signed anagreement for a pilot project to develop the country's vast shale reserves in the Vaca Muerta formation.The plan will involve the drilling of 100 wells in 2013 at a shared cost of US$1bn.



■ ExxonMobil produces gas from the Sierra Chata and Aguarague fields. Bridas Corporation inSeptember 2012 completed the purchase of the Campana refinery and 700-plus filling stations in LatinAmerica.

■ Royal Dutch Shell has 110,000b/d of refining capacity and a retail market share in excess of 20%.

■ China National Offshore Oil Corporation (CNOOC) took a 50% stake in Bridas Corporation inMarch 2010, increasing the Chinese company's proven reserves by 318mn boe and adding around46,000boe/d to its production.

■ Total of France produced 4.1bcm of Argentina's gas in 2011. It accounted for 14,000b/d of oilproduction.

■ China's state-run China Petrochemical Corporation (Sinopec) agreed in December 2010 to buyOccidental Petroleum (Oxy)'s assets in Argentina for US$2.45bn. In a statement, Sinopec said that theassets held gross P2 reserves of 393mn barrels of oil equivalent (boe).

■ Apache Energy of the US acquired the Argentine upstream interests of Pioneer in a US$675mn deal in2006. It produced 2.2bcm of gas and 12,615b/d of oil and liquids in 2011.

Table: Key Players - Argentine Oil And Gas Sector

Company 2010 Sales (US$mnunless otherwise

stated)

% shareof total

sales

No. ofemployees

Yearestablished

Total Assets, 2010(US$mn unless

otherwise stated)

Ownership

YPF EUR49bn 100 na 1993 EUR58bn Public

Total Austral na na 450 1978 na 100% Total

PetrobrasEnergia ARS11,972 na 3,696 1946 ARS23,083 59% Petrobras

Esso Petrolera na na 2,100 1911 na 100%ExxonMobil

Pan AmericanEnergy 354,617* na 603 1998 228,238* 100% Bridas

ChevronArgentina na na 360 1989 na 100% Chevron

ShellArgentina na na 2,998 1914 na 100% RD Shell

*2008; na = not available. Source: BMI, Company data



Table: Key Upstream Players

Company Oil production (000b/d) Market share (%) Gas production (bcm) Market share (%)

YPF 304 46e 16.6 37.3e

Total Argentina 14 2.3e 3.9 8.6e

Petrobras Energía 40 6.1e 3.1 7e

PAE 75 11.5e 3.9 8.8e

Chevron Argentina 31 5e 0.27 0.6e

Esso Petrolera na na 0.7 na

Occidental 36 5.5e 0.2* 0.5*

*2008; e = estimate; na = not available. Source: BMI, Company data 2009

Table: Key Downstream Players

Company Refining capacity (000b/d) Market share (%) Retail outlets Market share (%)

YPF 320 51 1,668 31

Petrobras Energía/Oil Combustibles 80.8 13e 605 15e

Shell Argentina 100 16 1,025 23

*2005; e = estimate. Source: BMI, Company data 2009



Company ProfileYPF

SWOT Analysis

Strengths ■ Leading domestic oil and gas producer.

■ Dominant position in downstream oil segment.

■ Extensive exploration portfolio.

• Involvement in key energy infrastructure.

Weaknesses ■ Over-dependent on Argentina.

■ Mature and competitive industry.

■ Vulnerable to state energy policy.

Opportunities ■ Steady domestic and regional demand growth.

■ Scope for productivity gains and cost reductions.

■ Can influence government energy policy.

Threats ■ State intervention in tariffs and taxation.

■ Uncertain political and fiscal outlook

■ Repsol compensation battle.

Company Overview YPF is the leading Argentine producer, with assets located in the Neuquén, Gulf of San

Jorge, Northeast, Austral and Cuyana basins. These fields account for more than half of

Argentina's oil production. In 2010, YPF produced an average 541,000boe/d of oil and

gas. It is also Argentina's leading oil refiner, operating three facilities with 320,000b/d of

capacity, as well as a half share in the Refinor complex (26,100b/d gross). This provides

the group with over 50% of fuels supply, while its service station chain accounts for

over 30% of the retail market.



Strategy YPF and Chevron have signed an agreement for a pilot project to develop the country's

vast shale reserves in the Vaca Muerta formation. The plan will involve the drilling of 100

wells in 2013 at a shared cost of US$1bn. The deal represents the first agreement

signed between YPF and an international oil company (IOC) since the Argentine

government expropriated YPF from Repsol in early 2012.

YPF will invest ARS60mn (US$12mn) in the drilling of an unconventional well in the

country's Chubut province, Rigzone reports. The decision is part of Argentina's strategy

to uncover new sources of shale oil and gas outside the Neuquen province. President

Cristina Kirchner, Chubut Governor Martin Buzzi and YPF CEO Miguel Galuccio have all

spoken of the well's potential, with Buzzi hailing its approval as a 'new milestone in

Argentina oil history'.

Dow Chemical has signed a memorandum of understanding (MoU) with YPF to jointly

develop the vast Vaca Muerta shale gas reserves. According to YPF, the company will

enter into final negotiations with Dow focused on establishing a joint venture (JV) in

order to develop the El Orejano block. YPF signed a similar agreement with Chevron at

the end of 2012, but its progress has been stymied by an ongoing legal dispute that

threatens the company's presence in the country.

The El Orejano block covers 41sq km in the Neuquén province, the epicentre of shale

gas exploration in Argentina. Estimates of the country's technically recoverable shale

gas resources place it third in the world, only behind China and the US. The most recent

confirmation of the country's shale potential is the announcement by Royal Dutch Shell

that its subsidiary O&G Developments has discovered hydrocarbons in the Sierras

Blancas area of the Vaca Muerta formation in Neuquén.

The CEO of YPF, Miguel Galuccio, has said that the company could postpone its shale

exploration programme in 2013 owing to high equipment costs, reports Reuters. YPF

intends to spud 132 oil wells at the Vaca Muerta shale formation in Patagonia in 2013.

YPF could adjust the pilot plan of the programme, worth around US$1.36bn, if it fails to

secure equipment and workers at the right price, Galuccio said. YPF has concessions

on 40% of Vaca Muerta, which is estimated to hold 23bn barrels of oil equivalent.

YPF is planning to boost capital investments by 60% as it 'aggressively' explores shale,

chief executive Miguel Galuccio said. 'We're not waiting for Chevron' to develop shale,

he told reporters at the company's headquarters after reporting fourth-quarter profit that

almost doubled to ARS1.02bn. Galuccio said YPF and Chevron have been meeting

weekly to hammer out final details of their accord.

YPF's 'aggressive but ambitious' five-year strategic development plan is going to focus

on reversing Argentina's declining oil production and reinstate its status as a net oil

exporter. The potential prospectivity of its unconventional plays could be a game

changer for the Argentinean energy sector, and the country's entire economy.

The new strategy has two main pillars: marginal fields and enhanced oil recovery (EOR)

for mature fields, plus tapping Argentina's unconventional resources. New YPF CEO,



Miguel Galuccion, said that the company will invest US$7bn each year to increase

hydrocarbons production to 216mn boe by 2017. As a point of reference, Repsol-YPF

had previously estimated that it would take US$25bn per year to double the country's

current oil and gas production.

YPF is evaluating the construction of a new refinery that would have the capacity to

process about 200,000b/d of crude oil. The refinery would be up and running by 2018

or 2019, then expanded in 2023, said Daniel Palomeque, head of the company's La

Plata refinery. Palomeque told participants at a conference in Buenos Aires that YPF

aims to invest US$12.5bn in refining and logistics in the next five years.

Market Position YPF is the leading Argentine producer, with assets located in the Neuquén, Gulf of San

Jorge, Northeast, Austral and Cuyana basins. These fields account for more than half of

Argentina's oil production. In 2010, YPF produced an average 541,000boe/d of oil and

gas.

It is also Argentina's leading oil refiner, operating three facilities with 320,000b/d of

capacity, as well as a half share in the Refinor complex (26,100b/d gross). This provides

the group with over 50% of fuels supply, while its service station chain accounts for

over 30% of the retail market. Argentina forms the core of Repsol's production and

reserve portfolio.

YPF has been at the forefront of exploration in the Neuquén Basin, and its initial drilling

programme gave an indication of the region's potential. The company announced in

December 2010 that it had discovered 127bcm of gas after an initial four-well drilling

programme. YPF's CEO, Sebastian Eskenazi, said that initial exploration had been

limited to a small section of the prospective area, and that that 'huge volumes' of tight

gas had been identified that would guarantee the country's gas supplies for many years

to come.

In May 2011, YPF announced that it had discovered 150mn bbl of shale oil at a block in

the Neuquén Basin - the company's second major unconventional discovery at the

Loma La Lata Block. YPF has said that it is still in the early stages of exploration at the

site and planned to invest US$270mn in 2011 to drill 17 new horizontal wells and

fracturing 14 existing wells.

GNL Escobar (GNLE), the second LNG import facility in Argentina, started operations on

June 8 2011. The facility was jointly developed by YPF, Enarsa and US-based

Excelerate Energy. GNLE is based on the design of Excelerate's GasPort and has a

base load throughput capacity of 14.26Mcm/d as well as a peak throughput capacity of

17Mcm/d.

YPF said it has acquired control of Metrogas, Argentina's largest gas distributor, from

BG Group for US$9.7mn. YPF said in a filing with securities regulators that it would

now own 70% of the gas utility's stock.

Ordinary revenues for Q113 were ARS18,634mn, a 25.5% increase compared with

Q112. Operating income for Q113 increased by 1.3% and EBITDA for Q113 was



ARS5,365mn, a 20.7% increase compared with Q112. Net income for Q113 was

ARS1,258mn, a 2.8 % decrease compared with Q112. During Q113, crude oil

production was 226,300b/d, a 0.7% decrease compared with Q112, while natural gas

production was 31.4Mcm/d, down 3.7% year-on-year.

Financial Data YPF Operating income

■ ARS7,903mn (2012)■ ARS7,188mn (2011)))

Operational Data Oil and gas production:

■ 541,000boe/d (2010)■ 572,000boe/d (2009)



Petrobras

SWOT Analysis

Strengths ■ Good spread of upstream assets.

■ Some production upside potential.

■ Distribution infrastructure exposure.

• Significant downstream oil presence.

Weaknesses ■ Mature and competitive industry.

■ Vulnerable to state energy policy.


■ Scope for productivity gains and cost reductions.

■ Platform for LatAm regional expansion.


■ Uncertain political and fiscal outlook.

■ Potential for market to slow.

Company Overview Petrobras has been active in Argentina since 1993, but significantly increased its

holdings with the US$1.028bn purchase of a 58.62% stake in Perez Companc (Pecom

Energía) in 2002. The Pecom unit was rebranded as Petrobras Energía in April 2003,

with responsibility for exploration, production and power assets and the Buenos Aires

office continuing to serve as the Latin American headquarters. Refining and marketing

were centralised under the Petrobras Argentina subsidiary. Petrobras Argentina's

domestic sales of liquid fuels totalled 2.2Mcm in 2010. These figures accounted for a

market share of 11.1%.

Strategy Maria das Gracas Foster, CEO of Petrobras, has confirmed that the company is looking

to sell its Argentine subsidiary and related assets, reports Rig Zone. The potential sale



of Petrobras' Argentine business is part of a wider US$9.9bn divestment plan. It is

believed that preliminary talks have taken place over the sale, but Gracas Foster

declined to comment on the specifics due to the 'sensitive nature' of the discussions.

Behind YPF, Petrobras Energía has been the second most significant Argentine oil and

gas sector participant, thanks to its purchase of the former Perez Companc group.

Given that there is little opportunity for Petrobras to apply its deepwater drilling skills in

Argentina, and the demands of the huge Brazilian sub-salt upstream portfolio, it is no

surprise that certain of these non-core assets are now up for sale.

It was disclosed in February 2013 that Petrobras is in advanced talks to sell stakes (of a

possible 51%) in its refineries and other assets in Argentina for US$400mn to Argentine

company Oil Combustibles, a source close to the Brazilian company told Reuters. The

company had previously bough the San Lorenzo refinery from Petrobras.

Reuters had reported in November 2012 that Petrobras was interested in selling its

stakes in the Dr. Ricardo Eliçabe refinery in Buenos Aires and in the Refinor refinery in

the province of Salta. Petrobras began taking bids for its Argentine assets in December

2012 as part of its plan to sell an estimated US$14.8bn of assets to help finance a US

$237bn five-year expansion plan, the world's largest corporate investment programme.

Market Position In 2010, the Bahía Blanca refinery processed 24,404b/d of oil, accounting for 80% of its

installed capacity of 30,500b/d. During 2010, the San Lorenzo refinery processed

32,761b/d, accounting for a 68% of its installed capacity.

On May 4 2010, Petrobras Argentina approved the terms and conditions for the sale of

its refining business in San Lorenzo, the loading and unloading unit and the fuels sales

network of approximately 360 sites and associated client portfolio. The price offered by

the buyer, Oil Combustibles, was approximately US$36mn.

The company has a presence in - and obtains crude oil, natural gas and liquefied

petroleum gas (LPG) from - Argentina's most important oil basins. In 2010, the company

reached a production level of 102,400boe/d, and made exploration and development

investment totalling US$224mn.

Production fell 12% year-on-year in 2010, attributable to the natural decline of mature

fields in Argentina, and divestment of the company's assets in Peru and Ecuador.

Production in Argentina alone averaged 86,400boe/d, representing a 7% y-o-y fall.

As of December 31 2010, Petrobras Argentina´s proven liquid hydrocarbon and natural

gas reserves totalled 248.4mn boe (107.8mn bbl of oil and 23.9bcm of gas). DeGolyer

and MacNaughton, international technical consultants, audited approximately 71% of

the company's total estimated reserves and 100% of estimated reserves operated by

the company.

Power assets include a 27.33% equity interest in the Edesur electricity distribution

company that serves greater Buenos Aires, a 29.3% interest in the 120MW Uruguai



hydroelectric plant, and a 9.2% interest in the 1,400MW Piedra del Aguila hydroelectric

plant.

Financial Data Operating income

■ ARS1,442mn (2010)■ ARS918mn (2009)■ ARS1.95bn (2008)■ ARS1.53bn (2007)■ ARS2.15bn (2006)

Net income

■ ARS610mn (2010)■ ARS925mn (2009)■ ARS776mn (2008)■ ARS762mn (2007)■ ARS1,416mn (2006

Operational Data Oil production:

■ 38,200b/d (2010)■ 40,300b/d (2009)■ 41,400b/d (2008)

Gas production:

■ 2.8bcm (2010)■ 3.1bcm (2009)■ 2.6bcm (2008)

Refining capacity:

■ 80,800b/d (2009)■ 81,000b/d (2008)

Company Details ■ Petrobras Energía SA

■ Avenida de Mayo 701Piso 16

Buenos Aires

C1084ABA

Argentina

■ Tel: +54 (11) 4344 6000

■ Fax: +54 (11) 4344 6315



Chevron

SWOT Analysis

Strengths ■ Significant share of domestic oil production.

■ Good spread of exploration interests.

■ Share in oil transport infrastructure.

• Strong presence in lubricants sector.

Weaknesses ■ No refining or fuels marketing presence.

■ Limited production upside potential.


■ Some exploration upside potential.




Company Overview In Argentina, Chevron produces crude oil and natural gas through subsidiary Chevron

Argentina. Chevron has operated interests, ranging from 18.8% to 100% in four

concessions. In the Neuquén Basin, Chevron Argentina continued with a series of

projects designed to reduce declines in production at the El Trapial Field in 2011. In

December 2011, it successfully extended the onshore El Trapial concession until 2032.

During 2011, total daily production in Argentina averaged 35,000 barrels (bbl) of crude

oil and 170 thousand cubic metres (mcm) of natural gas. The company holds a 14%

interest in Oleoductos del Valle.

Strategy The group appears committed to Argentine investment and is steadily beginning to

ramp up capital inflows to the country. However, concerns over the continual imposition

of price tariffs, for example, or the freeze on gas prices for residential users, may lead

the firm to scale back its investment plans. Despite the relatively limited nature of



Argentina's upstream, the group feels confident of volume growth and revenue

expansion, should the government's interventionist stance be relaxed.

YPF and Chevron are expected to have formalised an agreement for a pilot project to

develop the country's vast shale reserves in the Vaca Muerta formation by July 2013.

The deal will see YPF transfer a 50% stake in the Loma La Lata Norte and Loma

Campana areas in the vast Vaca Muerta shale field in the province of Neuquen to

Chevron in return for US$1.5bn of investment. The plan will involve the drilling of at least

100 wells in 2013/14.

Operational Data Oil and gas liquids production:

■ 26,000b/d (2011)■ 31,000b/d (2010)■ 33,000b/d (2009)■ 37,000b/d (2008)

Natural gas production:

■ 0.04bcm (2011)■ 0.05bcm (2010)■ 0.27bcm (2009)■ 0.46bcm (2008)

Company Details ■ Chevron Argentina

■ Peron 925Piso 4

AAS Buenos Aires

1038

Argentina

■ Tel: +54 (11) 4320 7400

■ Fax: +54 (11) 4463 0073



Total

SWOT Analysis

Strengths ■ Substantial market share in electricity supply.

■ Participation in gas infrastructure.

• Production growth potential.

Weaknesses ■ Modest upstream volumes.

■ No refining or fuels marketing presence.

■ High exposure to utility pricing issues


■ Some exploration upside potential.

■ Total plans to boost its current natural gas output to 4.2bcm from its offshore fields in

southern Argentina.




Company Overview Total's exploration and production (E&P) activities in Argentina are carried out through

its subsidiary Total Austral, which has assets in the Neuquén, Santa Cruz and Austral

basins. Key producing assets include stakes in the Aguada Pichana (27.3% interest),

San Roque (24.7%), Canadon Alfa (37.5%), Hidra (37.5%) and Argo (37.5%) oil and gas

fields. The company's net local production averaged 14,000 barrels per day (b/d) of

crude and 4.1bn cubic metres (bcm) of gas in 2011. Total is also Argentina's second

largest producer of electricity, with capacity equivalent to 15% of the country's national

grid and concentrated in metropolitan Buenos Aires and the south. Total Austral holds a

70% interest in the 1,400MW Piedra de Aguila hydroelectric power plant. Other



shareholders include Petrobras Energía with a 9.19% interest. It also has a 63.93%

stake in the Central Puerto power generator.

Strategy European energy companies Total and Wintershall are expected to inject US$1.1bn

and US$1bn respectively into boosting natural gas production in Argentina over the

next five years to 2018, World Oil reports. Argentina's government says it expects the

country's annual rate of natural gas output to increase by 3.1% between 2013 and 2017

as a result of the investment from the French and German majors. Argentina is currently

seeking to rejuvenate its energy sector, after falling production and rising demand has

turned it into a net importer in recent years.

Total plans to boost its current natural gas output to 4.2bcm from its offshore fields in

southern Argentina. In January 2011, Repsol and Total announced plans to step up

shale gas exploration in Argentina's Neuquén Basin. Total announced that it had been

awarded 42.5% operating interests in the Aguada de Castro and Pampa las Yeguas II

licences as well a 40% non-operating interest in the Cerro las Minas licence and a 45%

non-operating interest in the Cerro Partido licence. YPF will hold the remaining stakes

and will operate the Cerro las Minas and Cerro Partido licences. Since the seizure of a

controlling stake in YPF by the Argentine government from Repsol in April 2012, the

status of all Repsol deals in Argentina is uncertain.

Market Position E&P activities are carried out through its subsidiary Total Austral, which has assets in

the Neuquén, Santa Cruz and Austral basins. Key producing assets include stakes in

the Aguada Pichana (27.3% interest), San Roque (24.7%), Canadon Alfa (37.5%), Hidra

(37.5%) and Argo (37.5%) oil and gas fields. The company's net local production

averaged 14,000b/d of crude and 4.1bcm of gas in 2011.

In Tierra del Fuego, the group notably operates the Carina and Aries offshore

fields (37.5%). The award of the contracts to build the offshore facilities for the

development of the Vega Pleyade gas and condensates field is scheduled for 2012/13.

The project is scheduled to start production in 2014/15 and should make it possible to

maintain the production operated by the group in Tierra del Fuego at around 17.41mn

cubic metres (Mcm) per day.

In the Neuquén Basin, Total started a drilling campaign in 2011 on its operated

licences in order to assess their shale gas potential. The campaign, which started on

the Aguada Pichana 1 (27.3%, operator) and San Roque (24.7%, operator) blocks, will

be extended subsequently to the Rincon la Ceniza and La Escalonada licences

acquired in 2010 (85%, operator) and to the four blocks acquired in 2011: Aguada de

Castro (42.5%, operator), Pampa de las Yeguas II (42.5%, operator), Cerro Las Minas

(40%) and Cerro Partido (45%). The connection of satellite discoveries on the edge of

the main Aguada Pichana field, particularly in the Las Carceles canyons area, and the

increase in compression capacity at San Roque, have extended plateau production of

the mature fields in these two blocks.



Total is also Argentina's second largest producer of electricity, with capacity equivalent

to 15% of the country's national grid and concentrated in metropolitan Buenos Aires

and the south. Total Austral holds a 70% interest in the 1,400MW Piedra de Aguila

hydroelectric power plant. Other shareholders include Petrobras Energía with a 9.19%

interest. It also has a 63.93% stake in the Central Puerto power generator.

The group also has interests in a number of gas pipelines, including a 15.4% stake in

Transportadora de Gas del Norte (TGN), which operates a gas distribution network

covering the northern half of Argentina, a 32.7% interest in Transportadora de Gas del

Mercosur (TGM), which operates a gas transport network connecting Argentina to

southern Brazil and a 56.5% holding in the companies that own the GasAndes pipeline,

which links the TGN network to the Neuquén Basin in Chile's Santiago del Chile region.

Group unit TOTALGAZ is a major LPG distributor serving the commercial, industrial and

residential sectors.

Operational Data ■ Year established: 1978■ No. of employees: 450

Oil and gas liquids production:

■ 14,000b/d (2011)■ 14,000b/d (2010)■ 15,000b/d (2009)■ 14,000b/d (2008)

Gas production:

■ 4.1bcm (2011)■ 3.9bcm (2010)■ 3.8bcm (2009)■ 3.8bcm (2008)

Company Details ■ Total Austral

■ Moreno 877Piso 17

Capital Federal

Buenos Aires

1091

Argentina

■ Tel: +54 (11) 4346 6400

■ Fax: +54 (11) 4346 6499



ExxonMobil

SWOT Analysis

Strengths ■ Long history in refining and marketing.

• Some gas production upside potential.

Weaknesses ■ Insignificant contribution to group revenues.

■ Weak upstream position.

Opportunities ■ Steady growth in domestic energy demand.

■ Modest investment requirement.

■ Shale drilling potential.



Company Overview ExxonMobil's E&P assets comprise a 51% equity share of the Chihuidos block, which

contains the Sierra Chata gas field in the Neuquén Basin, plus 23% of the Aguarague

concession in the north west. The US firm's net daily production from these two fields is

sold to consumers in Argentina and Chile. The company's former refining and marketing

assets include the 86,000 barrel per day (b/d) Campana refinery. It also operated a

network of service stations with an approximate 15% market share. Bridas

Corporation, the oil company owned by China National Offshore Oil Corporation

(CNOOC) and the Bulgheroni family, completed the purchase of the Campana refinery

and 700-plus filling stations in Latin America in September 2012.

Strategy Exxon's interest in the Argentine market has been reinvigorated with its push into the

country's burgeoning Neuquén shale play. The company's Neuquén assets fit nicely in

the Exxon's growing global unconventional resources portfolio and will likely be the

focal point of its strategy in Argentina over the coming years. Beyond Neuquén, the

company will likely hold on to its mature assets and may deploy its enhanced oil

recovery technology to boost output.



Market Position Bridas Corporation, the oil company owned by CNOOC and the Bulgheroni family, in

September 2012 completed the purchase of ExxonMobil's Campana refinery in

Argentina and filling stations in South America. Bridas's subsidiary, Axion Energy, will

control the assets acquired from Exxon, the company said in an e-mailed statement.

The service stations are in Argentina (500), Paraguay and Uruguay (220

combined). Bridas will invest US$800mn in the next three years to increase gasoline

production at the Campana refinery by 50% and diesel production by 60%.

ExxonMobil has taken another step towards expanding its position in Argentina's

burgeoning Neuquén shale play. The company has entered into a farm-in agreement

with Argentina-focused independent Americas Petrogas that will see it take a 45%

stake in four blocks and invest as much as US$76.3mn in initial exploration.

Exxon and Americas Petrogas were to focus initially on exploring the Los Toldos 1 and

2 blocks, where an initial three-well drilling campaign in 2010 showed signs of gas and

light oil, potentially as part of the same Vaca Muerta formation in which YPF's Argentine

unit recorded two major shale oil and gas discoveries.

The deal marks Exxon's second acquisition in the Neuquén Basin. The company made

its first move into the region in late-December 2010 when it joined forces with YPF to

explore for unconventional gas in the Loma del Molle and Pampa de las Yeguas I

blocks. Drilling at both the YPF and Americas Petrogas projects was expected to get

under way in Q411.

Operational Data ■ Gas production: 0.7bcm (2007)■ Refining capacity: 86,000b/d (2008)

Company Details ■ Esso Petrolera Argentina SRL

■ Carlos Maria Della Paolera 297/299Capital Federal

Buenos Aires

C1001ADA

Argentina

■ Tel: +54 (11) 4319 1400

■ Fax: +54 (11) 4319 1227

■ www.exxonmobil.com



Royal Dutch Shell

SWOT Analysis

Strengths ■ Long history in refining and marketing.

■ Some production upside potential.

Weaknesses ■ Insignificant contribution to group revenues.

■ Weak upstream position.

Opportunities ■ Steady growth in domestic energy demand.

■ Modest investment requirement.



Company Overview Argentina is not a major area for Shell's exploration and production (E&P) unit, but it

holds a much stronger position in the refining and marketing sector. The Buenos Aires

office serves as the group's Latin American headquarters for Shell Oil Products. Shell

has a 22.5% interest in the Acambuco gas field (together with PAE) and a 51.25%

interest in the Valle Morado exploration licence (together with CGC). Shell's key

downstream assets include the 100,000b/d Refinería Buenos Aires refining facility.

Retail fuels marketing is carried out through a network of 1,025 service stations,

translating into an approximate 23% market share. Lubricants are produced at the

Planta Sola lubes-blending plant.

Strategy There is a clash between Shell's long history and large presence in Argentina, and its

changing international strategy of 'more upstream, profitable downstream'. It is possible

that Shell will begin divesting established but non-profitable businesses in Argentina

before too long. Calls by former president Nestor Kirchner for the removal of Shell from

Argentina cannot have helped the group's position, or enthusiasm for Argentine

investments.

Shell is facing an uphill struggle to overturn Argentine government influence over the

price of oil products. Although the government has been loath directly to ban products

that break Argentina's artificially low price ceiling, it could bring significant pressure to



bear on Shell or other retailers if they increase prices. President Kirchner's

administration managed to keep the market for gasoline about 50% below international

prices through a policy of persuading manufacturers to freeze their prices.

Shell in December 2011 agreed to partner with Argentina's Medanito on a shale oil and

natural gas project in south-western Argentina, with plans to invest at least US$200mn

over the next five years. The exploration and production activities will be carried out in

the Aguila Mora and Sierras Blancas blocks in the Neuquen Basin for both conventional

and unconventional oil and gas.

Market Position Argentina is not a major area for Shell's E&P unit, but it holds a much stronger position

in the refining and marketing sector. The Buenos Aires office serves as the group's Latin

American headquarters for Shell Oil Products. Shell has a 22.5% interest in the

Acambuco gas field (together with PAE) and a 51.25% interest in the Valle Morado

exploration licence (together with CGC). Shell's key downstream assets include the

100,000b/d Refinería Buenos Aires refining facility. Retail fuels marketing is carried out

through a network of 1,025 service stations, translating into an approximate 23%

market share. Lubricants are produced at the Planta Sola lubes-blending plant.

Operational Data ■ Refining capacity: 100,000b/d (2010)

Company Details ■ Shell Compañía Argentina de Petróleo SA (CAPSA)

■ Avenida President Roque Saenz Pena 788Capital Federal

Buenos Aires

1383

Argentina

■ Tel: +54 (11) 4328 0333/0444

■ Fax: +54 (11) 4130 2324



Apache Energy

SWOT Analysis

Strengths ■ Upstream assets.

Weaknesses ■ Weak gas prices.

■ High capex requirement.

Opportunities ■ Gas Plus price premium.

■ Liberalisation of gas pricing after the elections.

Threats ■ Further populist measures.

■ Growing regasified gas imports from neighbours.

■ Bolivian gas.

Company Overview Apache Energy acquired the Argentine interests of fellow US oil firm Pioneer in a US

$675mn deal in Q206. Through the deal, Apache gained estimated proven reserves of

22mn barrels (bbl) of oil/liquids and 8.4bn cubic metres (bcm) of natural gas. In Q306,

the company acquired further operating interests in seven concessions in the Tierra del

Fuego province from PAE for US$429mn.

Strategy Apache continues to evaluate the use of horizontal drilling techniques on tight and

unconventional gas resources in the pre-Cuyo and Vaca Muerta formations of the

Neuquén basin (these formations receive the benefit of higher gas prices under the Gas

Plus programme).

Apache is planning at least US$4bn of non-core asset sales that many observers think

will include the Argentina portfolio. Asked whether investors should think about

Argentina being in Apache's portfolio for the long term, its management said that the

country is troubled politically, which puts a question mark over its long-term fit in the

exploration company's portfolio. However, securing the right price may be a challenge

unless national oil companies make strategic bids for the business.



Market Position Apache has had a continuous presence in Argentina since 2001, which was expanded

substantially by two acquisitions in 2006. It currently has operations in the Provinces of

Neuquén, Rio Negro, Tierra del Fuego and Mendoza. Apache has interests in 34

concessions, exploration permits and other interests totalling 3.7mn gross acres in four

of the main Argentine hydrocarbon basins: Neuquén, Austral, Cuyo, and Noroeste. The

concessions have varying expiration dates ranging from three years to over 15 years

remaining, subject to potential extensions.

Fourth-quarter 2012 production in Argentina was 46,946 barrels of oil equivalent per

day (boe/d), down 3% quarter-on-quarter, due to natural production decline. During the

quarter, the region averaged two rigs and drilled five net wells.

Apache focused on new recompletions in the Neuquén basin (Lajas, Quintuco and

Centenario reservoirs) and increased lift capacity jobs in several fields in both Austral

and Neuquén basins.

Under the Gas Plus programme of the Neuquén Basin, two wells at Estación Fernández

Oro (EFO) reached total depth and were initially completed delivering a combined gross

rate of 147 thousand cubic metres per day (mcm) and 555 barrels per day (b/d) in the

fourth quarter of 2012.

Apache continues to evaluate the use of horizontal drilling techniques on tight and

unconventional gas resources in the pre-Cuyo and Vaca Muerta formations of the

Neuquén basin (these formations receive the benefit of higher gas prices under the Gas

Plus programme).

During the same quarter, Apache drilled three exploration wells and participated in two

non-operating wells targeting Vaca Muerta shale oil and wet gas trends.

Apache holds approximately 1.3mn net acres in the Vaca Muerta shale window, of

which 586,000 net acres are in the oil window of the play.

Financial Data Group net revenue

■ US$17.08bn (2012)■ US$16.89bn (2011)■ US$12.09bn (2010)

Group net income/(loss)

■ US$2.00bn (2012)■ $4.58bn (2011)■ US$3.03bn (2010)

Operational Data Oil/Gas liquids production

■ 12,749b/d (2012)



Gas production

■ 2.21bcm (2012)

Company Details ■ Apache Energia

■ Tucuman 1 - 12th FloorBuenos Aires

C1049AAA

Argentina

■ Tel: +54 (11) 4335-5200

■ Fax: +54 (11) 4335-5201

■ www.apachecorp.com



Other Companies - Summary

Sinopec China's state-run Sinopec agreed in December 2010 to buy Occidental Petroleum's

assets in Argentina for US$2.45bn. Oxy had acquired Vintage Petroleum's production

assets in Argentina in 2006. It has shares in 23 concessions located mainly in the San

Jorge Basin as well as in the Cuyo and Neuquén basins. It is the operator with a 100%

stake in 20 of the concessions.

Bridas/pae Pan American Energy (PAE) is a company dedicated to oil and natural gas E&P

activities in the Southern Cone and it is the second largest producer of hydrocarbons in

Argentina. It is 100% owned by Bridas Corporation, a 50:50 JV between Bridas

Energy Holdings Limited (BEH) and CNOOC.

Bridas and CNOOC filed a lawsuit against Repsol on January 3 2012 in order to prevent

the Spanish company from blocking a US$1.5bn shale gas project with YPF. On

December 28 2012, YPF and Bridas agreed to invest US$1.5bn in developing shale oil

reserves in Patagonia, with the partnership planning to drill 130 wells. Bridas has

pledged to offer up to US$500mn in financing for YPF, to be repaid in 10 years,

according to the documents in the lawsuit.

PAE has agreed to invest US$3.4bn in the country's natural gas sector between 2013

and 2017, World Oil reports. The deal, signed with the Argentine government, will boost

domestic exploration and allow Pan American to charge prices above the current base

level of US$7.50 per million British thermal unit in return. State-owned rival YPF has a

similar agreement in place.

Americas Petrogas Americas Petrogas has announced the discovery of new light oil with its LHo.x-1 well

on Totoral Block offshore Argentina. The LHo.x-1 well established oil production

potential from the Vaca Muerta shale play in the Picun Leufu sub-basin. The basin

extends over the company's Totoral, Yerba Buena and Bajada Colorada blocks.

LHo.x-1 has been closed for a pressure build-up test, after which the company will

perform a test to determine the fluid contribution of each interval that was hydraulically

stimulated.

Americas Petrogas has made a new shale gas discovery in Argentina, World Oil reports.

Part of the onshore Vaca Muerta site, the new find was made when Americas

hydraulically fractured (fracked) the Los Toldos I block, producing 90.6 cubic metres of

natural gas during initial testing.

Americas Petrogas has discovered new reserves of gas and natural gas liquids (NGLs)

at its Aguada Los Loros vertical well in central Argentina, Oil Voice reports. The well,

ALL.x-1, is part of the Los Toldos I block, which covers 398sq km of land. Americas

Petrogas intersected the Vaca Muerta shale formation at 562 metres (m) in late 2012

before carrying out hydraulic stimulaton at four pressure points in early 2013. Initial



production at depths between 2,570m and 2,929m is currently at 3.2mn cubic metres of

gas per day (Mcm/d) and 9-18 barrels per day (b/d) of oil.

Others Germany's Wintershall is looking for partners to develop its CN-V block in Argentina's

Neuquen province following a hike in natural gas prices. Wintershall intends to sell a

stake in CN-V block to divide investment costs, reports Bloomberg, citing Jurgen

Schuster, vice-president for ventures. The government had increased prices of natural

gas at the well to US$7.50 per million British thermal units in November 2012 in a bid to

attract investment. Wintershall also expects to start production at its Vega Pleyade field

by 2016.

Britain's BG Group has agreed the sale of its direct and indirect participation in

troubled Argentine natural gas distributor Metrogas. BG will sell its 54.7% stake in Gas

Argentino - the holding company that controls Metrogas - as well as a 7% direct stake

in the gas distributor to Integra Gas Distribution for an undisclosed sum. '(BG) is

leaving its Argentine business,' a Metrogas spokesman said, adding that he did not

have any information about Integra Gas Distribution. Metrogas, which distributes natural

gas to about 2mn customers in and around the capital Buenos Aires, has been suffering

financial problems due to a tariff freeze imposed a decade ago at the height of a sharp

economic crisis. In September, it said it was struggling to pay providers because of the

tariff freeze.

Uruguay's Ancap has become the latest company to seek a slice of Argentina's

unconventional oil and gas potential, with the Vaca Muerta formation estimated to

contain the world's third largest shale reserves, according to the US Energy Information

Agency (EIA). During recent negotiations with Argentina's YPF, Ancap expressed

interest in jointly producing oil and gas, although details regarding the scope of

investment have not yet been made public.

President Energy is looking to revive production at the Puesto Guardian concession in

north-west Argentina. Its efforts are currently focused on a three-well workover

campaign across the Pozo Escondido and Dos Puntitas fields, where it will employ

hydraulic fracturing (fracking) techniques in order to stimulate production. Indeed,

Puesto Guardian was first discovered in 1937 and has registered sharp declines in

production since peaking at 9,000b/d in the 1980s - with two of the wells currently

targeted by President having been shut-in for two decades. Current gross production

has fallen to approximately 450b/d.

President Energy's three-well campaign will focus on wells PE7 and PE8 at the Pozo

Escondido field and the DP1001 well at the Dos Puntitas field. The two fields at Pozo

Escondido have been shut-in for 20 years, but President anticipates they hold

significant untapped potential, largely on the back of a 215% increase in stock tank oil

initially in place (STOIIP). STOIIP is now estimated to be 63mn barrels (bbl), up from

20mn barrels (bbl). The Dos Puntitas field has 15mn bbl of STOIIP, with further upside

potential. Dos Puntitas is currently producing approximately 80b/d. President expects



the combination of the workover programme and fracking technologies to support a rise

in production.

Madalena Ventures has revealed the results of an evaluation of unconventional shale

resources on its three land blocks in Argentina's Neuquen basin. Performed by Ryder

Scott Petroleum Consultants, the report focused on the Vaca Muerta shale, Lower

Agrio shale and Basal Quintuco. The results showed best case P50 discovered

petroleum initially in place (PIIP) of 257.4mn barrels of oil equivalent (boe), with best

case P50 undiscovered PIIP of 34.6bn boe. Meanwhile, best case P50 contingent

recoverable resources were 19.4mn boe, with best case P50 prospective recoverable of

2.8bn boe.



Regional Overview

Latin America Overview

BMI View: Latin America is set to be the fastest-growing region in terms of oil production over the next

decade. However, evolving opportunities and risks in some of the region's largest producers make for a

bumpy road to growth over the short-to-medium term. The next several quarters are full of opportunities for

Brazil, Peru and Colombia, with new licensing rounds and rising foreign investment generating growing

optimism. Among the risks is the trajectory of political transition in Venezuela, a deteriorating

macroeconomic environment in Argentina, and mounting scepticism of reform in Mexico.

We are forecasting strong oil and natural gas production growth in Latin America through 2016. Brazil's

offshore subsalt oil province and Venezuela's Orinoco heavy oil belt will be at the forefront of the surge in

oil production, leading to an increasingly large export capacity for the region. Indeed, growing opportunities

in Brazil, Colombia and Peru underscore this potential. Yet some acute risk factors could limit the

realisation of such significant potential in the short-to-medium term, particularly for some of the region's

largest markets, including Venezuela, Mexico and Argentina.

Forecasting Regional Growth

Share Of Latin American Oil Production By Country, 2012 & 2018f




As for natural gas, we forecast that demand will outpace production growth, leading to a rise in the volumes

of natural gas being imported into the region. This view of a regional gas deficit will remain in place until

we begin to see credible commitments to developing the region's shale gas resources, particularly in

Argentina, which has the potential to be a regional gas powerhouse should its development be successful.

At the moment, however, we cautionagainst over-excitement on the back of weak macroeconomics and

largely unsupportive government policies towards the energy sector.

Increased Oil Export Capacity, Gas Import Dependency

Latin America Oil & Gas Production & Consumption, 2002-2021 ('000b/d & bcm)

Latin America Oil Production, 000b/d (LHS)Latin America Oil Consumption, 000b/d (LHS)Latin America Gas Production, bcm (RHS)Latin America Gas Consumption, bcm (RHS)

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

f20

14f

2015

f20

16f

2017

f20

18f

2019

f20

20f

2021

f

0

10,000

20,000

100

200

300

400


Key Themes In Latin America's Oil & Gas Sector:

■ It is tempting for markets and industry players alike to imagine a brighter future for the post-HugoChávez energy sector in Venezuela. Indeed, the country's unparalleled below-ground potential hasdisappointed in recent years due to economic mismanagement, underinvestment and the unsustainablesocial policies which have drained state-owned PdVSA of critical resources. However, our core view isone of policy continuity, as we expect acting president Nicolás Maduro to win the upcoming election onthe back of a commitment to Chavismo policies, therefore reducing the prospect for reform of the energysector and the broader economy in the short term.

■ Our Country Risk team is forecasting a 'perfect storm' in Argentina in 2013, which includes a sizeabledevaluation of the country's exchange rate. Similarly, deepening political challenges for PresidentCristina Fernández de Kirchner could pave the way for more erratic policymaking and reduce the



predictability of Argentina's government. Such political volatility in a country prone to interference in itsstrategic sectors, as well as a broad worsening of an already strained economic environment, does notbode well for the Argentine energy sector. The recently-nationalised YPF is desperate for foreignpartners and capital in order to monetise the country's shale resources. Although some partners haveemerged in recent months - Chevron being the most significant partner at the time of writing - such a'perfect storm' could deter them from providing the much-needed foreign investment into the country'senergy sector. Indeed, Chevron's plans for the country's shale potential are being thwarted by thecountry's legal system, providing yet another barrier to investment. As such, we are currently holding onto our forecasts.

Betting On Shale

Argentine Proven Gas Reserves & Production, 2002-2021 (bcm)

Proven gas reserves, bcm (LHS)Gas production, bcm (RHS)

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

e20

13f

2014

f20

15f

2016

f20

17f

2018

f20

19f

2020

f20

21f

0

500

1,000

35

40

45

50


■ Before entering office, Mexican President Enrique Peña Nieto made the liberalisation of state-owned oilmonopoly Petroleos Mexicanos (Pemex) a 'signature issue' of his election campaign. Yet the reformoutlook is looking less rosy since he took office. Although Peña Nieto is placing energy sectorliberalisation high on the agenda, the political barriers increasingly look too resilient to make the large-scale reform that the sector needs. As such, it is likely that only some liberalisation will occur. Thiswould fall short of what is needed for comprehensive reform, while disappointing those investors bettingon a rapidly improving Mexican production outlook.



Banking On Reforms For A Production Trend Reversal

Mexican Oil Production & Net Exports, 2001-2022 ('000b/d)

Latin America oil production, 000b/d (LHS)Latin America oil consumption, 000b/d (LHS)Latin America gas production, bcm (RHS)Latin America gas consumption, bcm (RHS)

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

e20

13f

2014

f20

15f

2016

f20

17f

2018

f20

19f

2020

f20

21f

0

10,000

20,000

100

200

300

400


■ We remain firmly bullish on the long-term outlook for the Brazilian energy sector, with production fromthe country's sub-salt reserves pushing production to new highs. The 11th Licensing Round, to be heldlater this year, also presents strong upside risks, although at this point, any new production from thesenew blocks may fall outside the scope of our 10-year forecast period. The short-term outlook is moremixed, however, as ongoing regulatory challenges provide reason for some caution. Of these, a flare upin the ongoing battle for a new Oil Royalty Law underscores the highly politicized nature of Brazil'sregulatory environment. This remains particularly true as local content requirements and strict labourlaws are raising production costs and pose a growing deterrent to doing business in Brazil. There havebeen some positive developments for state-owned Petrobras, however, as government-controlled fuelprices have been hiked substantially since June 2012, helping to relieve the immense financial pressureson the company.



A Steady Climb

Brazil's Proven Oil Reserves & Production, 2002-2021 (bn bbl & '000b/d)

Proven oil reserves, bn barrels (LHS)Oil production, 000b/d (RHS)

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

e20

13f

2014

f20

15f

2016

f20

17f

2018

f20

19f

2020

f20

21f

0

10

20

30

0

2,500

5,000

7,500


■ Bolivia's natural gas reserves base is in decline, despite our forecasts for production to increase 22%through 2016. The longer-term prospects for Bolivia as a major regional gas supplier are thereforecontingent upon new and successful gas exploration. Attracting that type of investment will be difficult,however. Increased nationalism across the country's strategic sectors, including electricity generation andmining, is causing a deterioration in Bolivia's business environment and the downside risks in the sectorare substantial.



Running Out Of Steam

Bolivian Proven Gas Reserves and Production, 2002-2021 (bcm)

Proven gas reserves, bcm (LHS)Gas production, bcm (RHS)

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

e20

13f

2014

f20

15f

2016

f20

17f

2018

f20

19f

2020

f20

21f

0

500

1,000

0

10

20

30


■ We have been highlighting the important privatisation trend underway in Peru, where state-ownedPetroperú has plans to resume production in collaboration with private partners. The timing is right forthe state-owned company to regain a slice of domestic oil and gas production, as we forecast both willrise rapidly over the next several years, and remain elevated through to the end of our forecast period in2022. The underexplored nature of the energy sector, combined with an increasingly attractive businessenvironment for foreign investment, creates further upside risks to our forecasts. It also supports our viewthat Peru will remain one of the most dynamic economies in Latin America over the forecast period.Indeed, Peru has just surpassed Brazil in BMI's Upstream Risk/Reward Ratings to be the highest scoringcountry in the region in terms of Upstream Rewards (see our online service, March 14 2013, 'Racing ToThe Top, And Bottom'). However, downside risks do exist, particularly in the form of a return to leftistgovernment policies, as well as active militant groups that continue to target the country's energyinfrastructure. Indeed, recent attacks have been carried out by the Shining Path group, targeting naturalgas assets.



Export Potential Within Reach

Peruvian Oil Production & Exports, 2002-2022 ('000b/d)

Latin America oil production, 000b/d (LHS)Latin America oil consumption, 000b/d (LHS)Latin America gas production, bcm (RHS)Latin America gas consumption, bcm (RHS)

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

e20

13f

2014

f20

15f

2016

f20

17f

2018

f20

19f

2020

f20

21f

0

10,000

20,000

100

200

300

400


■ Strong regional economic growth will see demand for oil rise rapidly over the coming years, and weforecast that regional consumption will rise by 13% between 2011 and 2016. Brazil and Trinidad andTobago will each record the largest percentage increase in oil demand over the forecast period,registering 25% and 22% rises in oil consumption, respectively.

■ Regional refining capacity is forecast to rise alongside consumption, with Brazil and Venezuela to remainthe two countries with the largest overall capacity. Brazil will also undergo the largest refinery capacityexpansion over the forecast period, with an anticipated 50% increase. We also expect Peru and Venezuelato increase their refining capacities by 20% and 6%, respectively. The development of refining projectswill be dominated by state-run companies.

■ The Latin American gas market will be divided sharply: surging demand in the Southern Cone countrieswill exacerbate their import requirements, while the northern countries will further realise their growingexport potential - particularly Trinidad and Tobago, the region's largest LNG exporter (although notwithout significant degradation of its reserves base), and Peru. Indeed, Peru's natural gas outlook hasimproved significantly, with production forecast to increase by 73% between 2011 and 2016. Theregion's most important pipeline trade will continue to be between Bolivia and its southern neighbours,Brazil and Argentina.



Global Industry Overview

Global Energy Market Overview

The fundamentals are pointing to a well-supplied global oil market for 2013, with big gains forecast for Iraq

(circa 350,000 barrels per day - b/d - our expectations adjusted lower than previous quarters), the US (circa

800,000b/d - our expectations adjusted higher than the previous quarter), as well as the Sudans, Nigeria and

Angola, and smaller producers such as Colombia, Peru and Ghana.

There are 'low-hanging fruit' that will bolster the supply picture for 2013, such as the ramp-up in Iraqi

production (albeit with more downside risks due to infrastructure constraints), the resumption of volumes

from South Sudan and the continuous ramp-up of US production, as well as delayed fields in Ghana coming

online. Technical risks are always part of the picture and could cause delays (and therefore a downside risk

to production forecasts), especially in markets like Iraq and the Sudans, where the ramp-up is precarious

and predicated on a sensitive political balance in both cases. The US, however, will do a lot to bolster

growth on the production front.

Over the longer term, production growth globally could moderate as costs continue to escalate along with

the technical challenges inherent in new large-scale developments. Russia is a prime example, where we see

production hitting new peaks each year to 2015/2016, though this momentum will fade as natural decline

rates take over and new fields are more difficult and costly to develop. Our global production forecasts

reflect a moderation in production growth from 2017 and beyond, although potential discoveries generate

strong upside risk to this forecast.

A raft of downward revisions from the major agencies (IEA, EIA and OPEC) at time of writing is (April

2013) indicative of the scepticism with regards to strength of global demand in 2013, which has also

prompted a sell-off in the oil markets.

The EIA revised China's 2011 oil consumption data down by 900,000b/d, prompting us to change our China

data series, and consequently our historical data pertaining to the global supply and demand balance.

Nonetheless, there has been no structural change to the market dynamics depicted by our chart below,

which shows a global deficit turning into a surplus in the coming years.

This outlook also underpins our oil price forecast for the year, which sees the market pricing in a lower

average Brent price compared to 2012, but firmly above the US$100 per barrel (bbl) mark.



Oil Fundamentals: Getting Comfortable

Theoretical Supply & Demand Balance In The Global Oil Market, 2007-2015 ('000b/d)

2012 = BMI estimate; 2013-2015 = BMI forecast. Source: EIA, BMI

Table: BMI's Oil Price Forecasts & Bloomberg Analyst Consensus, Average Price (US$/bbl)

2012 2013f 2014f 2015f

WTI, US$/bbl - BMI 93.30 93.50 91.00 91.00

Brent, US$/bbl - BMI 111.70 110.00 105.00 102.5

Brent-WTI Spread - BMI 18.40 16.50 14.00 12.5

WTI, US$/bbl - Bloomberg Consensus 95 98 105

Brent, US$/bbl - Bloomberg Consensus 110.70 110 110

Brent-WTI Spread, US$/bbl - Bloomberg Consensus 15.7 12 5

f = forecast. Source: Bloomberg, BMI



The theoretical surplus between supply and demand in the global oil market will grow over the coming

years, precipitating a decline in the price of oil. In early March 2013 we revised up our Brent oil price

outlook to better reflect the equilibrium in the global oil market. We forecast Brent to average US$110/

barrel (bbl) in 2013, falling from an average of nearly US$112/bbl in 2012. WTI is expected to average US

$93.5/bbl in 2013.

We have priced-in big gains in supply in 2013:

■ In Brazil, the Aruana, Guara and Papa Terra subsalt fields are planned to enter production in 2013,ramping up output further in 2014. We forecast total Brazilian oil production rising from 2.88mn b/d in2012 to 3.0mn b/d in 2013 and a surge (as delayed projects come online) in 2014 to 3.4mn b/d.

■ We have raised our production forecasts for South Sudan - on the condition that the agreement withSudan holds - and expect a rise in production of 54,000b/d in 2013 and a big leap of 218,000 b/d in 2014.

■ Floods and other problems that reduced Nigerian volumes in 2012 are expected to be resolved in 2013,though we cannot rule out further disruptions to the country's oil supply, including from rampantbunkering and attacks on infrastructure.

■ Colombia, Peru and Ghana are also expected to register strong output gains in 2013, adding a combined180,000b/d to the global market - the rise will be led by Colombia.

■ The US will register the largest supply gain globally, with an additional 800,000b/d of crude oil goinginto the market in 2013 (1mn b/d if we include NGL and Other Liquids productionin the crudefigure), according to our recently upwardly revised forecasts.

These additions will make up for the continued loss of supply from Iran. We have once again downgraded

our forecasts for production as negotiations over Iran's nuclear programme and the sanctions rumble on. We

forecast that Iranian oil production will decline a further 17% in 2013 to 2.6mn b/d. This is 1.6mn b/d less

than in 2010.



Net Balance Positive

2013f Production Gains/Losses by Region, % change y-o-y

f=forecast. Source: BMI

Compared to our last Global Oil update, we have turned more bearish on Venezuela: from a previous

forecast suggesting a gain of 300,000b/d for 2013, we now expect a smaller gain of 120,000b/d. We are also

looking at a more sombre picture for Angolan production in 2013, compared to our previous expectations.

On paper, there are about 530,000b/d due to come online, but realistically we estimate that, following

various project delays, the increase will be approximately half of the expected volume.



Growth From Frontiers While US Maintains Momentum In 2013

Gains In Oil Production In 2013 Compared To 2012 % change y-o-y (top) / Gains In Oil Production In2013 - Addition/Loss to 2012, '000s b/d (bottom)

Source: BMI

However, in terms of growth trends in oil production, we still expect the same patterns to emerge.

Specifically:

■ High (albeit volatile) 2013 oil prices will continue to incentivise production and we anticipate stronggrowth, especially from non-OPEC suppliers in the Americas;

■ Saudi Arabia and the US will be the two markets to watch over the coming quarters, with the lattercontinuously surprising to the upside, while Saudi's status as a swing producer makes the country themain determinant of global spare capacity.



In terms of crude oil and liquids daily production, we do not see the US overtaking Saudi Arabia within our

forecast period; nonetheless such a trend is clearly showing, which could make the US the world's largest

crude and liquids producer the following decade.

Saudi Arabia Stays Marginally In The Lead

Crude Oil, NGLs & Other Liquids Production Forecasts ('000b/d)

Note: These figures do not depict our "Total Oil Production" forecasts, which also include Refinery Gains. 2012=

BMI estimate, 2013-2021=BMI forecast. Source: BMI

OPEC policy changes remain uncertain as the cartel seems to be in an uneasy equilibrium at the moment.

Saudi Arabia has several conflicting factors to consider, from the challenge posed by US oil production, to

providing a floor to prices and keeping more hawkish OPEC calls on production at bay.

In the latest OPEC meeting, the members decided to keep the quota for crude oil production at around 30mn

b/d. Our forecasts suggest that total OPEC oil production will be 38mn b/d in 2013. That factors in our

expectations that members will produce crude oil above their quotas, but it also includes natural gas liquids

(NGLs) and other liquids production, as well as refinery gains (consistent with EIA data methodology), in

contrast to a more strict 'crude-only' categorisation from OPEC for oil production.



Iraq will primarily fuel oil production growth amongst OPEC producers, and make up for the falls that we

have factored-in for Saudi Arabian production in 2013. We forecast that Saudi Arabian crude oil production

for 2013 will be 9.7mn b/d, down from an estimated 9.8mn in 2012.

Iraq Fuels Production Growth

OPEC Production Forecasts, 2010-2021 ('000b/d & % chg y-o-y)


On the non-OPEC front, we see total production in 2013 reaching 54.5mn b/d in 2013, up from an estimated

52.5mn b/d in 2012. Our production forecast (which includes crude, lease condensate, NGLs, other liquids

and refinery gains - consistent with EIA methodology) is now (following upward revisions for the USA

primarily and the Sudans) in line with the IEA's, which sees non-OPEC production in 2013 reaching

54.4mn b/d in 2013. According to OPEC's April 2013 Monthly Oil Market Report, non-OPEC oil supply

for 2013 is more bearish at 53.9mn b/d.

While there is scope for delays with projects, as well as political and security risks taking a toll on global

production capacity, the greatest addition of new daily volumes is going to come from the US , where we

forecast total oil production to reach 12.2mn b/d. With oil prices forecast to remain supportive for crude and

liquids production, the outlook for US upstream is strong.



Russia will be the second largest oil producer, though we see its production growth stagnating and

eventually beginning to decline. We reiterate several factors that underpin our current outlook on Russia,

such as resources located in more remote areas and of a more technically-challenging nature, a lack of fresh

capital for the massive capital expenditure (capex) required to develop them and

inadequate infrastructure. Political risk, stemming from heavy-handed state involvement and regulatory

uncertainty, could also keep private commitments at bay. The realisation of Russia's oil and gas potential

thus lies in unlocking the political gridlock that has prevented much needed reforms from taking place.

Still Growing In 2013

Total Non-OPEC and OPEC Production Forecast, 2000-2020 ('000b/d)

e/f = forecast. Source: EIA, BMI

Looking on the demand side, we saw last quarter a significant downgrade in our historical dataseries for

China. The EIA had previously overestimated Chinese oil consumption in 2011, and a revision by the

agency saw this figure downgraded by 900,000b/d. This also had a knock-on effect in our 2012 data for

China, as well as for global consumption for the year. For 2013 we forecast a rise in global oil consumption

of 1.8%, based on an assumption of global GDP growth of 2.9%.



Along The Same Lines

Global GDP Real Growth Forecasts, 2012-2014 (% chg y-o-y)

2013, 2014 = BMI forecasts. Source: BMI

Table: Global Oil Demand Forecasts

2013 Demand 2012 Demand % change y-o-y2013 GDP Growth %

Assumption

IEA 90.6 89.8 0.9 3.5

OPEC 89.7 88.9 0.9 3.2

EIA 90.0 89 1.1 na

BMI 89.6 88 1.8 2.9

* Oil consumption definitions may vary between agencies. BMI Definition: Consumption of finished petroleum products.Source: BMI, EIA, OPEC, IEA

We are more bullish in our demand growth forecasts than other major agencies. We attribute this to the fact

that in some of the largest consumers in the world - such as China, India, Brazil and other large emerging

markets - large subsidies are still in place that are artificially boosting demand. While across emerging

markets price reform is taking place, we still price-in healthy levels of demand for products such as gasoline



and diesel. Africa and Latin America will register the highest growth in consumption in 2013, 3.3% and

3.2% respectively, with Western Europe and North America lagging behind at 0% and 0.4% respectively.

Looking at the longer-term trends in consumption, emerging markets will unsurprisingly lead in terms of

the biggest gains in consumption growth. According to our forecasts, Brazil's per capital oil consumption

will be 45% higher in 2021 compared to 2013, the largest increase amongst large consumers. Energy

efficiency gains will mean a lower rate of growth in oil consumption in developed economies, whose

consumption of oil per capita is going to be lower in 2021 compared to 2013. Markets where we see a small

increase in oil consumption to the end of our forecast period, but a population decline (Japan and Germany)

will see a rise in per capital oil consumption, symptomatic though of their population 'time-bomb' rather

than any major structural divergences in energy consumption patterns from their peers.

BRICs Leading The Surge In Consumption

% Change In Per Capita Oil Consumption, 2013-2021

Based on 2013 and 2021 BMI oil consumption and population forecasts. Source: BMI



Industry Trend Analysis

BMI View: The Extractive Industry Transparency Initiative (EITI) has gained a lot of prominence over the

last year, with the US adopting similar standards in September 2012, and the EU reaching agreement on

EITI implementation in April 2013. While incomplete, with the initiative providing no guidance pertaining

to the allocation of exploration rights, EITI constitutes a strong basis that will guarantee stronger and

fairer competition in the hydrocarbons markets of the countries that take up implementation. We believe

these recent developments will foster a trend towards greater transparency in the oil & gas industry.

The EITI is a non-governmental institution, established in October 2002 by former UK Prime Minister

Tony Blair, and headquartered in Oslo. Including the United States, 20 countries and 70 companies

involved in mining, timber and oil and gas extraction are part of the organisation.

The purpose of the EITI is to ensure that revenues from the extracting industry are correctly redirected

towards the greater good of the population. This occurs through increased transparency in transfers between

companies and the government; this increase in transparency aims to reduce corruption, which is especially

pertinent in the extractive industries space.

A certain number of requirements need to be met for a country to be declared EITI compliant.

■ The first requires the government of a given country to formally announce its intention to implementEITI, along with a commitment to working with civil society groups and extracting companies. Thisinception phase also requires public authorities to set-up institutions devoted to the implementation ofEITI. This includes the creation of a multi-stakeholder group in charge of overseeing the implementationand composed of representatives of civil society, companies and public authorities.

■ The second phase constitutes the most critical, as it requires the country to implement EITI's standards.Most notably, this includes the regular reporting of transfers to the government and public entities by allcompanies operating in extractive sectors in the country. These transfers should be independently audited.Meanwhile, the government must report that it has received these notifications from the companies.These reports should be disclosed to the public and payments are normally disaggregated by revenuestream, often by company.

■ Finally, the country must ensure that it maintains the reporting and disclosure requirements in order tocontinue to be considered a compliant country.

Our view is that the impact of EITI is positive in two respects:

■ Increased transparency, along with compulsory auditing of reporting, is reducing the scope forcorruption. This should improve the economic picture of the country as less revenue from the extractiveindustry will be redirected toward private interests that perpetuated rent-seeking behaviour and patronagenetworks. This will improve the business environment for investors, which will have to face fewercorruption-related charges.



■ Public disclosure of revenues and transfers will allow communities to know exactly how much revenue isgenerated from the oil and gas industries. This, along with involvement of civil society in the multi-stakeholder groups may stir debate and ensure better use of natural resource revenues in pursuit of a morepositive economic picture.

■ EITI is a strong signal to investors that the government is promoting fair competition. This shouldincentivise international oil companies to increase activity in EITI countries.

The adoption of transparency standards, and intention to join EITI from the US (under the banner of the

Dodd-Frank Act) and the European Union are the strongest endorsements of the initiative to date and we

believe are a strong signal to the industry and governments on greater transparency in the industry. There

are however limitations by what extent the EITI will be able to pierce the opaque veil that exists in several

markets, especially governing the tender and licensing rounds phase.

■ It has no transparency requirements, nor does it introduce standard procedure, for the allocation ofexploration and production rights. Consequently, it does not put in place controls to stop potential abusestaking place throughout the bidding system.

■ EITI only concerns companies operating in a given country; it does not require the monitoring oftransfers from the international subsidiaries of a company to the government, therefore allowing somescope for bribery in an international context. Countries however always have the possibility to implementmore stringent requirements.

■ Reporting, even following auditing, leaves scope for irregular and unreported money transfers, inparticular from individual to individual.

Finally, EITI reporting usually does not include payments made in kind, leaving once again, additional

scope for corruption.

Growing Implementation Base

There are currently 20 countries complying with EITI and 17 candidate countries. The majority of them are

Sub-Saharan African (SSA) nations, which have been fighting corruption for several years, not only in the

O&G industry but also in the mineral extraction sectors.



EITI Belt

EITI Countries & Respective Status

Source: EITI, BMI

Several statistical studies have shown that adoption of EITI standards could increase investment in a

country's extractive industry. However, even in Africa, several of the main oil and gas producers remain

indifferent to EITI. For instance, none of the North African producers have formulated any intention of

joining the group, neither has Angola.

We see two mains reasons for this trend. Firstly, countries with proven large below-ground potential can

find other ways to influence investors and prompt them to take an interest in their hydrocarbons sectors.

Secondly, announcing the intention to join EITI could impair investor sentiment, as it signals the given

country is subject to corruption.



Developed Drive

We believe that, while it is already growing fast, EITI's progressive implementation will accelerate in the

coming years. The main reason for this is the recent drive by developed countries to implement the

standards. Hosting the committee, Norway has been compliant with EITI standards since 2011, and is so far

the only major developed country formally applying the standards. However, since 2012, the US, Australia

and the European Union have taken steps toward the implementation of EITI or equivalent rules.

Australia launched an EITI pilot project in October 2011. Thus far, the country has set up the required

institutions including a multi-stakeholder group, although it has not formally entered the candidacy process.

However, so far, the project only involves eight companies out of the 4,000 extraction-oriented firms in the

country.

The US has expressed its intention to join EITI in 2012, along with an amendment of the Security Exchange

Act of 1934. The amendment creates a new section under the act entitled 'Disclosure for Payment by

Resource Extraction Issuers'. This will require country-by-country and project-by-project disclosure of

revenues and payments made by US companies to all governments and government entities. These new

reporting requirements will affect US-listed companies, both domestic and foreign, and will apply to

subsidiaries or other controlled entities belonging to companies operating in the extraction industry. The

amendment will take effect on September 30 2013.

The EU, while not formally applying EITI, started the adoption of a similarly stringent set of transparency

requirements in early April 2013. The regulations, to be implemented and operational by 2015, require

every EU-listed and large non-listed company to report revenues generated in every country in which they

operate on a project-by-project basis. Along with this requirement, these extractive companies will have to

publish all transfers made to the governments of the countries in which they operate.



Appendix

Latin America - Regional Appendix

The data contained in these appendix tables is correct as of 27 March 2013. It represents a snapshot of our

regional forecasts at the end of our last publishing quarter. It is included for reference purposes only. Latest

data, reflecting forecasts made for the market this quarter, can be found in the Industry Forecast Scenario

section of this report. Please note, that because this table represents a snapshot of our last regional forecasts,

whereas data included in the Industry Forecast Scenario represents our latest forecasts made this quarter,

country-specific data may not match.

Table: Oil Consumption - Historical Data & Forecasts, 2010-2017 ('000b/d)

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Argentina 623.00 647.92 660.88 674.10 687.58 701.33 718.86 733.24

Bolivia 54.35 62.00 63.24 64.50 65.79 67.11 68.45 69.82

Brazil 2,560.00 2,793.00 2,932.65 3,108.61 3,295.13 3,476.36 3,667.56 3,832.60

Chile 286.00 322.74 332.42 335.74 338.97 341.83 345.65 348.52

Colombia 285.00 298.00 305.45 313.09 320.91 328.94 337.16 345.59

Ecuador 201.00 201.00 209.96 218.36 227.10 236.09 245.02 254.06

Mexico 2,072.96 2,078.35 2,130.30 2,172.91 2,205.50 2,227.56 2,249.83 2,272.33

Peru 189.00 195.62 201.48 207.53 213.75 218.03 222.39 226.84

Trinidad and Tobago 41.00 40.00 41.40 43.47 45.64 47.93 50.32 52.84

Venezuela 776.17 787.81 854.77 867.60 884.95 902.65 920.70 939.11

BMI Universe 7,088 7,426 7,733 8,006 8,285 8,548 8,826 9,075

other LatAm 1,183 1,195 1,207 1,219 1,225 1,231 1,237 1,243

Regional Total 8,271 8,621 8,939 9,224 9,510 9,779 10,063 10,318




Table: Oil Consumption - Long-Term Forecasts, 2014-2021 ('000b/d)

2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f

Argentina 687.58 701.33 718.86 733.24 747.90 762.86 778.12 793.68

Bolivia 65.79 67.11 68.45 69.82 71.22 72.64 74.10 75.58

Brazil 3,295.13 3,476.36 3,667.56 3,832.60 4,024.23 4,265.68 4,521.62 4,792.92

Chile 338.97 341.83 345.65 348.52 353.29 357.11 362.84 368.66

Colombia 320.91 328.94 337.16 345.59 354.23 363.08 372.16 381.47

Ecuador 227.10 236.09 245.02 254.06 263.51 272.04 280.21 291.41

Mexico 2,205.50 2,227.56 2,249.83 2,272.33 2,295.06 2,318.01 2,341.19 2,437.13

Peru 213.75 218.03 222.39 226.84 231.37 236.00 240.72 245.54

Trinidad andTobago

45.64 47.93 50.32 52.84 55.48 58.25 61.17 64.22

Venezuela 884.95 902.65 920.70 939.11 957.90 977.05 996.59 1,016.53

BMI Universe 8,285 8,548 8,826 9,075 9,354 9,683 10,029 10,467

other LatAm 1,225 1,231 1,237 1,243 1,249 1,256 1,262 1,268

Regional Total 9,510 9,779 10,063 10,318 10,604 10,938 11,291 11,735


Table: Oil Production - Historical Data & Forecasts, 2010-2017 ('000b/d)

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Argentina 763.61 748.54 739.54 754.54 775 763 745 745

Bolivia 48.21 49.99 50.87 49.88 49 48 50 49

Brazil 2,714 2,687 2,881 3,053 3,393 3,631 3,867 4,349

Chile 10.64 9.23 9.00 7.60 6 6 5 5

Colombia 807.35 939.97 982.15 1,111 1,190 1,220 1,333 1,393

Ecuador 485.59 501.19 504.50 507.52 510 512 512 511

Mexico 2,983 2,964 2,947 2,936 2,886 2,812 2,717 2,625

Peru 158.33 157.17 166.17 191.17 251 311 351 346

Trinidad and Tobago 144.93 135.40 132.68 131.35 130 130 129 129

Venezuela 2,375 2,470 2,867 2,981 3,114 3,261 3,456 3,697



Oil Production - Historical Data & Forecasts, 2010-2017 ('000b/d) - Continued

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

BMI Universe 10,491 10,662 11,280 11,722 12,304 12,692 13,164 13,848

other LatAm 90 92 95 99 104 109 115 121

Regional Total 10,581 10,755 11,375 11,821 12,408 12,802 13,279 13,968


Table: Oil Production - Long-Term Forecasts, 2014-2021 ('000b/d)

2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f

Argentina 775 763 745 745 735 730 715 713

Bolivia 49 48 50 49 48 47 46 46

Brazil 3,393 3,631 3,867 4,349 4,813 5,078 5,442 5,804

Chile 6 6 5 5 4 3 3 3

Colombia 1,190 1,220 1,333 1,393 1,457 1,388 1,373 1,375

Ecuador 510 512 512 511 511 510 510 510

Mexico 2,886 2,812 2,717 2,625 2,538 2,453 2,372 2,298

Peru 251 311 351 346 341 341 339 337

Trinidad and Tobago 130 130 129 129 128 128 127 128

Venezuela 3,114 3,261 3,456 3,697 3,936 4,179 4,408 4,624

BMI Universe 12,304 12,692 13,164 13,848 14,510 14,857 15,334 15,836

other LatAm 104 109 115 121 127 133 140 146

Regional Total 12,408 12,802 13,279 13,968 14,636 14,990 15,474 15,982




Table: Refining Capacity - Historical Data & Forecasts, 2010-2017 ('000b/d)

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Argentina 631.18 631.18 631.18 631.18 631.18 631.18 631.18 631.18

Bolivia 41.20 41.20 41.20 41.20 41.20 41.20 41.20 41.20

Brazil 2,010 2,010 2,200 2,390 2,690 2,990 2,990 3,140

Chile 226.80 300.00 300.00 300.00 300.00 300.00 300.00 300.00

Colombia 285.85 335.85 335.85 400.85 465.85 465.85 465.85 465.85

Ecuador 175.00 175.00 175.00 175.00 175.00 175.00 175.00 175.00

Mexico 1,540 1,540 1,540 1,540 1,540 1,540 1,540 1,540

Peru 193.10 193.10 193.10 193.10 193.10 221.10 231.10 231.10


Venezuela 1,282 1,282 1,282 1,342 1,342 1,342 1,342 1,342

Total 7,108 7,231 7,421 7,736 8,101 8,429 8,439 8,589


Table: Refining Capacity - Long-Term Forecasts, 2014-2021 ('000b/d)

2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f

Argentina 631.18 631.18 631.18 631.18 631.18 631.18 631.18 631.18

Bolivia 41.20 41.20 41.20 41.20 41.20 41.20 41.20 41.20

Brazil 2,690 2,990 2,990 3,140 3,290 3,290 3,290 3,290

Chile 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00

Colombia 465.85 465.85 465.85 465.85 465.85 465.85 465.85 465.85

Ecuador 175.00 175.00 175.00 175.00 175.00 175.00 175.00 175.00

Mexico 1,540 1,540 1,540 1,540 1,540 1,540 1,540 1,540

Peru 193.10 221.10 231.10 231.10 231.10 231.10 231.10 231.10


Venezuela 1,342 1,342 1,342 1,342 1,510 1,510 1,510 1,510

Total 8,101 8,429 8,439 8,589 8,907 8,907 8,907 8,907




Table: Gas Consumption - Historical Data & Forecasts, 2010-2017 (bcm)

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Argentina 43.29 44.16 45.92 47.76 49.67 51.66 53.72 55.87

Bolivia 2.70 2.44 2.57 2.70 2.84 2.98 3.13 3.27

Brazil 25.20 28.98 31.15 33.33 35.33 37.45 39.51 41.69

Chile 5.32 5.85 6.14 6.45 6.77 7.18 7.66 8.04

Colombia 9.08 9.35 9.63 9.92 10.22 10.53 10.84 11.17

Ecuador 0.33 0.24 0.25 0.25 0.26 0.26 0.27 0.28

Mexico 60.44 61.29 62.15 64.70 67.25 72.36 76.62 80.02

Peru 5.41 5.95 6.37 6.81 7.29 7.73 8.19 8.60


Venezuela 27.11 27.22 28.99 31.31 34.44 37.20 40.17 42.58

Total 200.96 207.87 216.01 226.65 238.07 252.06 265.57 278.25


Table: Gas Consumption - Long-Term Forecasts, 2014-2021 (bcm)

2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f

Argentina 49.67 51.66 53.72 55.87 58.11 60.43 62.85 65.36

Bolivia 2.84 2.98 3.13 3.27 3.41 3.56 3.71 3.85

Brazil 35.33 37.45 39.51 41.69 44.61 48.17 52.03 56.71

Chile 6.77 7.18 7.66 8.04 8.43 8.85 9.29 9.75

Colombia 10.22 10.53 10.84 11.17 11.56 11.96 12.38 12.81

Ecuador 0.26 0.26 0.27 0.28 0.29 0.30 0.30 0.31

Mexico 67.25 72.36 76.62 80.02 84.28 89.39 93.65 97.62

Peru 7.29 7.73 8.19 8.60 9.03 9.48 9.86 10.26


Venezuela 34.44 37.20 40.17 42.58 45.14 47.85 50.72 53.76

Total 238.07 252.06 265.57 278.25 292.91 309.45 325.72 342.93




Table: Gas Production - Historical Data & Forecasts, 2010-2017 (bcm)

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Argentina 40.09 39.00 37.50 38.50 39.00 39.00 40.00 40.50

Bolivia 14.37 15.60 16.80 17.90 18.60 19.30 20.00 21.00

Brazil 12.59 14.58 15.02 15.47 16.09 16.73 17.74 19.16

Chile 1.10 0.84 0.90 1.00 1.10 1.20 1.00 0.95

Colombia 10.50 11.00 11.00 11.50 12.00 12.50 13.50 13.50

Ecuador 0.33 0.24 0.26 0.27 0.28 0.29 0.29 0.30

Mexico 48.78 46.80 46.00 46.39 47.00 49.00 49.41 49.83

Peru 7.23 7.50 9.30 10.30 11.50 12.00 13.00 13.50


Venezuela 24.93 25.11 26.12 27.29 31.39 33.08 34.74 36.44

Total 202.38 201.44 202.84 207.77 215.71 223.02 230.40 236.70


Table: Gas Production - Long-Term Forecasts, 2014-2021 (bcm)

2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f

Argentina 39.00 39.00 40.00 40.50 41.50 42.00 43.00 43.00

Bolivia 18.60 19.30 20.00 21.00 22.00 21.50 21.00 20.50

Brazil 16.09 16.73 17.74 19.16 20.88 22.76 24.58 26.42

Chile 1.10 1.20 1.00 0.95 0.90 0.80 0.70 0.70

Colombia 12.00 12.50 13.50 13.50 15.50 15.50 16.00 16.50

Ecuador 0.28 0.29 0.29 0.30 0.31 0.31 0.31 0.31

Mexico 47.00 49.00 49.41 49.83 50.25 50.67 51.09 51.52

Peru 11.50 12.00 13.00 13.50 14.00 15.00 15.75 16.00


Venezuela 31.39 33.08 34.74 36.44 37.68 38.81 40.90 42.95

Total 215.71 223.02 230.40 236.70 245.79 250.98 257.84 263.74




Table: LNG Exports - Historical Data & Forecasts, 2010-2017 (bcm)

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Argentina -1.83 -2.80 -3.00 -5.00 -6.00 -8.00 (8.00) (8.00)

Bolivia 0.00 0.00 0.00 0.00 0.00 0.00 - -

Brazil -3.00 -3.00 -3.00 -5.00 -6.00 -6.00 (6.00) (6.00)

Chile -3.07 -5.01 -5.24 -5.45 -5.67 -5.98 (6.66) (7.09)

Colombia 0.00 0.00 0.00 0.25 0.50 0.50 0.50 0.50

Ecuador 0.00 0.00 0.00 0.00 0.00 0.00 - -

Mexico -3.55 -3.55 -4.55 -6.00 -7.00 -9.55 (9.55) (9.55)

Peru 1.82 1.55 2.93 3.49 4.21 4.27 4.81 4.90


Venezuela 0.00 0.00 0.00 0.00 0.00 0.00 - -

BMI Universe 11 6 4 -2 -5 -10 -10 -10

Total 10.75 5.57 4.25 (1.97) (5.20) (9.55) (9.63) (10.43)


Table: LNG Exports - Long-Term Forecasts, 2014-2021 (bcm)

2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f

Argentina -6.00 -8.00 (8.00) (8.00) (9.00) (9.00) (11.00) (11.00)

Bolivia 0.00 0.00 - - - - - -

Brazil -6.00 -6.00 (6.00) (6.00) (6.00) (4.00) (4.00) (5.00)

Chile -5.67 -5.98 (6.66) (7.09) (7.53) (8.05) (8.59) (9.05)

Colombia 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50

Ecuador 0.00 0.00 - - - - - -

Mexico -7.00 -9.55 (9.55) (9.55) (9.55) (9.55) (9.55) (9.55)

Peru 4.21 4.27 4.81 4.90 4.97 5.52 5.89 5.74


Venezuela 0.00 0.00 - - - - - -

BMI Universe -5 -10 -10 -10 -12 -10 -13 -15



LNG Exports - Long-Term Forecasts, 2014-2021 (bcm) - Continued

2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f

Total (5.20) (9.55) (9.63) (10.43) (11.89) (10.41) (13.18) (15.00)




Glossary

Table: Glossary Of Terms

AOR Additional Oil Recovery KCTS Kazakh Caspian Transport System

APA Awards for Predefined Areas km kilometres

API American Petroleum Institute LAB Linear Alkyl Benzene

bbl barrel LDPE low density polypropylene

bcm billion cubic metres LNG liquefied natural gas

b/d barrels per day LPG liquefied petroleum gas

bn billion m metres

boe barrels of oil equivalent mcm thousand cubic metres

BTC Baku-Tbilisi-Ceyhan Pipeline Mcm mn cubic metres

BTU British Thermal Unit MEA Middle East and Africa

Capex capital expenditure mn million

CBM coal bed methane MoU Memorandum of Understanding

CEE Central and Eastern Europe mt metric tonne

CPC Caspian Pipeline Consortium MW megawatts

CSG coal seam gas na not available/ applicable

DoE US Department of Energy NGL natural gas liquids

EBRDEuropean Bank for Reconstruction &

Develpt NOC national oil company

EEZ exclusive economic zone OECDOrganisation for Economic Cooperation & Development

e/f estimate/forecast OPECOrganization of the Petroleum

Exporting Countries

EIA US Energy Information Administration PE polyethylene

EM emerging markets PP polypropylene

EOR enhanced oil recovery PSA production sharing agreement

E&P exploration and production PSC production sharing contract

EPSAexploration and production sharing

agreement q-o-q quarter-on-quarter

FID final investment decision R&D research and development

FDI foreign direct investment R/P reserves/production

FEED front end engineering & design RPR reserves to production ratio

FPSO floating production, storage & offloading SGI strategic gas initiative

FTA free trade agreement SoI Statement of Intent

FTZ free trade zone SPA Sale and Purchase Agreement

GDP gross domestic product SPR Strategic Petroleum Reserve



Glossary Of Terms - Continued


G&G geological and geophysical t/d tonnes per day

GoM Gulf of Mexico tcm trillion cubic metres

GS geological survey toe tonnes of oil equivalent

GTL gas-to-liquids conversion tpa tonnes per annum

GW gigawatts TRIPSTrade-Related Aspects of Intellectual

Property Rights

GWh gigawatt hours trn trillion

HDPE high density polyethylene T&T Trinidad and Tobago

HoA Heads of Agreement TTPC Trans-Tunisian Pipeline Company

IEA International Energy Agency TWh terawatt hours

IGCC Integrated Gasification Combined Cycle UAE United Arab Emirates

IOC international oil company USGS US Geological Survey

IPI Iran-Pakistan-India Pipeline WAGP West African Gas Pipeline

IPO initial public offering WIPO World Intellectual Property Organisation

JOC joint operating company WTI West Texas Intermediate

JPDA Joint Petroleum Development Area WTO World Trade Organisation


Source: BMI



Methodology

Oil & Gas Risk/Reward Ratings Methodology

BMI's approach in assessing the risk/reward balance for oil and gas industry investors is threefold. First, we

have disaggregated the upstream (oil and gas E&P) and downstream (oil refining and marketing, gas

processing and distribution), enabling us to take a more nuanced approach to analysing the potential within

each segment, and identifying the different risks along the value chain. Second, we have identified objective

indicators that may serve as proxies for issues and trends that were previously evaluated on a subjective

basis. Finally, we have used BMI's proprietary Country Risk Ratings (CRR) in a more refined manner in

order to ensure that only those risks most relevant to the industry have been included. Overall, the new

ratings system - which is now integrated with those of all industries covered by BMI - offers an industry-

leading insight into the prospects/risks for companies across the globe.

Ratings Overview

Conceptually, the new ratings system is organised in a manner that enables us clearly to present the

comparative strengths and weaknesses of each state. As before, the headline oil and gas rating is the

principal rating. However, the differentiation of upstream and downstream and the articulation of the

elements that comprise each segment enable more sophisticated conclusions to be drawn, and also facilitate

the use of the ratings by clients who have varying levels of exposure and risk appetite.

Oil & Gas Risk Reward Rating: This is the overall rating, which comprises 50% upstream BER and 50%

downstream;

Upstream Oil & Gas Risk Reward Rating: This is the overall upstream rating, which is composed of

rewards/risks (see below);

Downstream Oil & Gas Risk Reward Rating: This is the overall downstream rating, which comprises

rewards/risks (see below);

Both the upstream RRR and downstream RRR are composed of Rewards/Risks sub-ratings, which

themselves comprise industry-specific and broader country risk components;

Rewards: Evaluates the sector's size and growth potential in each state, and also broader industry and state

characteristics that may inhibit its development;



Risks: Evaluates both industry-specific dangers and those emanating from the state's political and economic

profile that call into question the likelihood of expected returns being realised over the assessed time period.

Table: BMI's Oil & Gas Risk Reward Ratings - Structure

Component Details

Oil & Gas Risk Reward Rating Overall rating

Upstream RRR 50% of Oil & Gas RRR

Rewards 70% of Upstream RRR

- Industry rewards 75% of Rewards

- Country rewards 25% of Rewards

Risks 30% of Upstream RRR

- Industry risks 65% of Risks

- Country risks 35% of Risks

Downstream RRR 50% of Oil & Gas RRR

Rewards 70% of Downstream RRR

- Industry rewards 75% of Rewards

- Country rewards 25% of Rewards

Risks 30% of Downstream RRR

- Industry risks 60% of Risks

- Country risks 40% of Risks

Source: BMI

Indicators

The following indicators have been used. Overall, the rating uses three subjectively measured indicators and

41 separate indicators/datasets.

Table: BMI's Oil & Gas Business Environment Upstream Ratings - Methodology

Indicator Rationale

Upstream RRR: Rewards

Industry rewards

Resource base

- Proven oil reserves, mn bblIndicators used to denote total market potential. High values given better

scores.



BMI's Oil & Gas Business Environment Upstream Ratings - Methodology - Continued

Indicator Rationale

- Proven gas reserves, bcm

Growth outlook

- Oil production growth, 2009-2014Indicators used as proxies for BMI's market assumptions, with strong growth

accorded higher scores.

- Gas production growth, 2009-2014

Market maturity

- Oil reserves/production

Indicator used to denote whether industries are frontier/emerging/developedor mature markets. Low existing exploitation in relation to potential is

accorded higher scores.

- Gas reserves and production

- Current oil production vs peak

- Current gas production vs peak

Country rewards

State ownership of assets, %Indicator used to denote opportunity for foreign NOCs/IOCs/independents.

Low state ownership scores higher.

Number of non-state companiesIndicator used to denote market competitiveness. Presence (and large

number) of non-state companies scores higher.

Upstream BER: Risks

Industry risks

Licensing termsSubjective evaluation of government policy towards sector against BMI-

defined criteria. Protectionist states are marked down.

Privatisation trendSubjective evaluation of government industry orientation. Protectionist states

are marked down.

Country risks

Physical infrastructureRating from BMI's CRR. It evaluates the constraints imposed by power,

transport and communications infrastructure.

Long-term policy continuity riskFrom CRR It evaluates the risk of a sharp change in the broad direction of

government policy.

Rule of law From CRR. It evaluates government's ability to enforce its will within the state.

CorruptionFrom CRR, to denote risk of additional legal costs and possibility of opacity in

tendering or business operations affecting companies' ability to compete.

Source: BMI



Oil & Gas Forecasts Methodology

BMI's industry forecasts are generated using the best-practice techniques of time-series modelling. The

precise form of time-series model we use varies from industry to industry, in each case being determined, as

per standard practice, by the prevailing features of the industry data being examined. For example, data for

some industries may be particularly prone to seasonality, meaning seasonal trends. In other industries, there

may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than

cyclical booms.

Our approach varies from industry to industry. Common to our analysis of every industry, however, is the

use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the

variable's own history as explanatory information. For example, when forecasting oil prices, we can include

information about oil consumption, supply and capacity.

When forecasting for some of our industry sub-component variables, however, using a variable's own

history is often the most desirable method of analysis. Such single-variable analysis is called univariate

modelling. We use the most common and versatile form of univariate models: the autoregressive moving

average model (ARMA).

In some cases, ARMA techniques are inappropriate because there is insufficient historical data or data

quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a

basis for analysis and forecasting.

It must be remembered that human intervention plays a necessary and desirable part of all our industry

forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks,

anomalous data, turning points and seasonal features where a purely mechanical forecasting process would

not

Energy Industry

There are a number of principal criteria that drive our forecasts for each Energy indicator.

Energy supply

Supply of crude oil, natural gas, refined oil products and electrical power is determined largely by

investment levels, available capacity, plant utilisation rates and national policy. We therefore examine:



■ National energy policy, stated output goals and investment levels;

■ Company-specific capacity data, output targets and capital expenditures, using national, regional andmultinational company sources;

■ International quotas, guidelines and projections such as OPEC, IEA, and EIA.

Energy consumption

A mixture of methods are used to generate demand forecasts, applied as appropriate to each individual

country:

■ Underlying economic (GDP) growth for individual countries/regions, sourced from BMI publishedestimates. Historic relationships between GDP growth and energy demand growth at an individualcountry are analysed and used as the basis for predicting levels of consumption;

■ Government projections for oil, gas and electricity demand;

■ Third-party agency projections for regional demand, such as IEA, EIA, OPEC;

Extrapolation of capacity expansion forecasts based on company- or state-specific investment levels.

Cross checks

Whenever possible, we compare government and/or third party agency projections with the declared

spending and capacity expansion plans of the companies operating in each individual country. Where there

are discrepancies, we use company-specific data as physical spending patterns to ultimately determine

capacity and supply capability. Similarly, we compare capacity expansion plans and demand projections to

check the energy balance of each country. Where the data suggest imports or exports, we check that

necessary capacity exists or that the required investment in infrastructure is taking place.

Sources

Sources include those international bodies mentioned above such as OPEC, IEA, and EIA, as well as local

energy ministries, official company information, and international and national news, and international and

national news agencies.



bmi argentina oil and gas report q3 2013[1]

Documents

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business monitorinternational

net exports

oil products trade