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Etcheverry Presentation Final

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    The Future of Unconventional Fields

    in Neuquen BasinNew Horizons Plan 4th Round

    Province of Neuquen Argentina

    HOUSTON, MARCH 2011

    Rubn Etcheverry. President Gas y Petrleo del Neuqun S.A.

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    Summary

    Brief overview ofHydrocarbon history in

    Argentina

    A gas dependent

    country

    The role of imports

    Need to underpingrowth

    Response to new market signals

    Unconventional fields:Neuqun's potential

    The creation of the ProvincialOil & Gas Company: G&P

    New Horizons Plan Unconventional Fields

    Technology Center

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    Brief overview ofhydrocarbon industry inArgentina

    Argentina needs to increase itsinternal energy supply,especially gas and oil, whichconcentrate 90% of the energymatrix.

    Gas infrastructure developedthroughout 100 years of gasIndustry

    Oil

    Hydroelectric

    Biomass Other

    NaturalGas

    Argentina Energy Mix

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    A gas-dependant country

    Aos

    800.000

    700.000

    600.000

    500.000

    400.000

    300.000

    200.000

    100.000

    Millonesm

    3

    0

    5

    10

    15

    20

    25

    '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09

    Reservas probadas de gas y horizonte de produccin

    Aos

    Volumen de reservas

    NeuquinaSan JorgeAustralCuyana

    NoroesteTotal

    19.5523.9517.92544

    4.14635.618

    20.6923.8927.35944

    4.72136.708

    -5,51,57,7-1,1

    -12,2-3,0

    Cuenca Ene/oct 2010 Ene/oct 2009 Var. %

    Produccin de gas por cuenca (en millones de m3)

    Source: Secretariat of Energy

    Fuente: IAPG

    Argentina is one of the few

    countries where natural gas has asignificant share in manyconsumption segments:residential, commercial, industrial,power generation, GNCandtransportation.

    However, its reserves havedropped by 50% in the last 10years

    Gas production by basin (Mm3)

    Gas proved reserves and production (Mm3)

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    NeuquinaSan JorgeAustralCuyana

    NoroesteTotal

    11.27612.1981.4361.412

    54426.866

    11.65211.9041.4981.438

    61127.103

    -3,22,5-4,1-1,8

    -10,9-0,9

    Cuenca Ene/oct 2010 Ene/oct 2009 Var. %

    Produccin de petrleo por cuenca (en miles de m3)

    100.000

    200.000

    300.000

    400.000

    500.000

    600.000

    Miles

    m3

    2

    4

    6

    8

    10

    12

    Aos

    Reservas de petrleo y horizonte de produccin

    '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09

    AosVolum en de reservas

    Fuente: Secretara de Energa

    Fuente: IAPGIn 2010, oil production was downin four of the five producingbasins. Also, for the first time in20 years, in 2010 the countrybecame a net fuel importer.

    Oil production by basin (Km3)

    Oil proved reserves and production forecast (Km3)

    Net importer country

    A gas-dependant country

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    12

    10

    8

    6

    4

    20

    U

    S$porMMBTU

    2Tr 3Tr 4Tr 1Tr/08

    2Tr 3Tr 4Tr 1Tr/09

    2Tr 3Tr 4Tr 1Tr/10

    2Tr 3Tr 4Tr

    Precio del gas natural local Vs. importado desde Bolivia

    Impor. Bolivia Promedio cuencas argentinas

    Fuente: M&A con datos de mercado.

    Importaciones de hidrocarburos y derivados (9 meses 2009 Vs 2010)

    Combustible

    Nafta elaborada

    Gasoil + cortes

    Fueloil

    Gas natural

    miles m3

    miles m3

    miles ton.milln m3.

    Unidades Ene/set 2010 Ene/set 2009 Var. %

    109,81638,7

    820,02.772,8

    42,0

    374,1

    700,01.125,1

    161,7

    338,1

    17,1

    146,4

    Fuente: IAPG

    The role of imports

    The growing supply-demand imbalance hasforced the increase inimports of liquid fuels(fuel oil & gas oil),

    natural gas, LNG, LPGand power.

    Natural Gas Price comparison Domestic vs Bolivian import

    HC and derivatives imports (9 months 2009 vs 2010)

    Source: IAPG

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    Millones de m3/da

    0 2 4 6 8 10. 12

    Mayo-junio/09

    Julio/09

    Agosto/09

    Set/09

    Mayo-junio/10Julio/10

    Agosto/10

    Argentina: importaciones de gas (Agosto/noviembre 2010)

    2

    4

    0

    6

    8

    10

    12

    Millonesdem3/da

    5,1

    5,1

    5,5

    4,9

    5,1

    2,3

    4,7

    5,9

    Agos. Set. Oct. Nov.GNL Bolivia

    Source: Enargas

    Nevertheless, in spite ofthe imports growth,

    consumption restrictionshave increased, mainlyaffecting industrial activity.In August 2010, 5,800 MWof power were inoperativedue to lack of fuel (naturalgas)

    (Besides the curtailments toChile export contracts)

    Argentina gas imports (August/November 2010) MM m3/d

    Argentina gas supply cuts for large consumers MM m3/d

    Restrictions

    The role of imports

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    During 2011, shipments ofimported LNG will go from 20 in

    2010 to over 45, as the new YPFregasification facility iscommissioned.

    Government and private analystshave estimated around 330million dollars per month ($ 3.4billion in the year) will be spent

    importing gas, fuel oil and gas oil

    The role of imports

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    The price of gas, as well asimported liquid fuel, isdictated by internationalcrude oil prices.

    Where will unconventionalgas be situated?

    0 5 10 15

    Local usinas (mx = Gas Plus)Local residencial

    Local industrias (mx = Gas Plus)

    Importacin Bolivia / GNL*

    Importacin gasoil / fuel oil**

    Gas no convencional (tight, shale)

    * Incluye transporte a GBA y/o costo de regasificacin

    * * Paridad de importacin para 80 US$ el barril.

    US$ MM/BTU

    ?

    Rangos de precios del gas natural y sustitutosPrice range for Natural Gas and Alternate Fuels

    Domestic residential

    Domestic thermal plants (max = Gas Plus)

    Domestic Industries (max = Gas Plus)

    Bolivian imports / LNG *

    Gas Oil/Fuel Oil Imports**

    Unconventional Gas (tight/shale)

    * Includes transportation to GBA and/or re-gas cost** Import parity for 80 US$/bbl

    Just to compare

    The role of imports

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    In mid February 2011, the Argentine government announcedthe 2011-2020 Strategic Industrial Plan (Plan EstrategicoIndustrial), aimed at reducing imports by 45%. The goals areto achieve an average annual GDP growth of 5% and 7% in

    the industrial sector.

    To support this growth pace, some 6 billion dollars/yearshould be invested in the energy sector, not countingthe recovery for the recent years under investment.

    Need to underpin growth

    The majority of these investments will have to originate

    in the private sector and include the oil and gasexploration and production.

    Without these investments, not only the announced Planobjectives will be at risk, but paradoxically thedependency on imports will increase, as much in energyas in other industrial sectors.

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    The increase in activityobserved lately is aresponse to price signalsand shows trust in thefuture

    19941.1

    19991.1

    20001.1

    20011.2

    20020.4

    20030.5

    20040.7

    20051

    20061.8

    20072.1

    20082.83.2

    20092.93.2

    20103.63.9

    20114.54.8

    6

    5

    4

    4

    2

    1

    0US$porMMBTU

    Price

    Price + Gas Specific Charge

    Gas: price for individual purchase users

    *

    *Decreto PEN 2068/08

    Fuente: M&A con datos de MEG SA y de mercado

    Cantidad de equipos de perforacin en actividad (ago.2009/nov.2010)

    Ago./09

    Set. Oct. Nov. Dic. Ene./10

    Feb. Mar. Abr. May.Jun. Jul. Ago.Set. Oct. Nov.

    0

    10

    30

    20

    40

    50

    60

    7080

    90

    100

    Equipos

    Fuente: Weatherford

    Response tonew market signals

    Drilling equipment and activity (Aug 2009/Nov 2010)

    Source: Weatherford

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    Although the specific gas drillingactivity showed caution in 2010(less wells than in 2009), asubstantial reactivation isexpected as prices tied to GasPlus and unconventional fieldsare strengthened.

    (Investment commitments for the 3rounds of New Horizons Plan)

    181614

    1210

    86420

    Total Austral Capsa YPF SA P.A.E Apache Otros

    Pozos gasferos perforados (Ene/set 2009 vs.2010)

    2010 2009

    Precio de las distintas franjas de consumo de gasGas prices for consumer tranches

    Drilled gas wells (Jan/Sept 2009 vs 2010)

    TrendsAverage Price

    Residential & Commercial

    Industrial by utilities

    Industrial by producers

    Response tonew market signals

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    Basin limit

    Mendoza

    La Pampa

    Areas of greatestconventional oiland gas production

    Unconventional fields:Neuqun's potential

    The Province of Neuqun continues beingthe main gas producer in the country(48%) and second oil producer (22%), dueto a complete infrastructure in support ofproduction, as well as main and regionalgas pipelines, power transmission lines,etc.

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    MENDOZALA PAMPA

    NEUQUN

    Deep marine depositsin center basin

    External platformShales and turbidites

    Fm. Los Molles

    Precuyo: Proven Gas and oilgeneration at China Muerta andLoma Negra depocenters, witha surface of 2.050 Km2.Average thickness of 150-290m. at 3.500-4.000 m. depth.

    Los Molles: Shale gasand tight gas field. Coversan area of 18.000 Km2.Average thickness of 150-200 m. at 1.500-3.500 m.depth.

    Vaca Muerta: The mostextensive formation in thebasin, covering a surface of25,000 Km2. Averagethickness over 200 m ofshales,3-5% TOC.

    The Neuqun Basin containsthree main formations withexploratory interest for shaleand tight gas & oil reservoirs:

    PrecuyoLos MollesVaca Muerta

    KEROGENTYPEI & II

    Neuqun Basin Characteristics

    Unconventional fields:Neuqun's potential

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    The geological features of the Neuqun Basin are similar to the shale gas fields in North America. Inparticular, the Vaca Muerta (Neuqun) is most similar to the Eagleford and Haynesville formations.

    Chert

    3 to 6%

    125 to 4501.6 to 2.7

    10.6 to 13.5

    4 to 10%

    100 to 1000

    5 to 8

    175 to 250

    4 to 10

    Horn River

    Lithology

    Average Mature TOC (%)

    Net Thickness (Ft)Maturity (Ro)

    Pressure Gradient (ppg)

    Porosity (%)

    Permeability (nD)

    Well IP (mcfd peak month)

    GIP*/Sq Mi (GCF)

    EUR**/Well (GCF)

    Siliceous Marl

    3 to 4%

    225 to 3001.7 to 2.8

    13.5 to 17.3

    7 to 9%

    100 to 500

    8 to 25

    150 to 250

    8 to 12

    Haynesville

    Siliceous Shale

    4 to 5%

    150 to 2501.3 to 2.1

    9.6 to 10.6

    4 to 8%

    50 to 200

    3 to 7

    100 to 150

    3 to 4.5

    Barnett Marcellus

    Siliceous Shale

    4 to 7%

    75 to 1501.3 to 2.4

    11.6 to 13.5

    7 to 9%

    100 to 200

    4 to 10

    75 to 125

    3 to 6

    Chert

    4 to 8%

    75 to 1501.2 to 2.8

    9.6 to 10.6

    5 to 6%

    40 to 70

    2 to 6

    75 to 150

    2.5 to 5

    Woodford

    Siliceous Marl

    3 to 5%

    300 to 13001.4 to 1.8

    9.4 to 17.3

    7 to 12%

    50 to 200

    2 to 12

    300 to 800 (BBN)

    8 to 20

    Vaca Muerta

    Shale gas world class targets

    * Gas in place** Estimated Ultimate Recovery

    Calcareus Shale

    4 to 8%

    120 to 2800.7 to 1.8

    9.6 to 14.5

    4 to 10%

    100 to 1500

    2 to 17

    80 to 250

    2 to 6

    Eagleford

    Unconventional fields:Neuqun's potential

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    Created in late 2008 by the government of the Neuqun

    as a provincial oil company, after the enactment of the finalnatural resource provincialization law.

    Its goal is to participate by itself or associated with thirdparties in the exploration and development of hydrocarbonfields within and outside the Province of Neuqun

    The creation of the ProvincialOil & Gas Company: G&P

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    Success at Aguada del Chaar

    In 2009, federal state owned ENARSA, andG&P, agreed to jointly explore and exploit theAguada del Chaarblock.

    In February 2011 results indicates apreliminary estimate of 3.5 million barrels of

    oil and 4.100 million cubic meters ofnatural gas.

    The first time in the last 20 years that a state(federal/provincial) owned companyundertakes as operator E&P activities.

    Aguada delChaar Well X-2

    Flowing Gas

    The creation of the ProvincialOil & Gas Company: G&P

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    The New Horizons Plan is Neuqun's Government strategicresponse to the fall in the reservoir and production of

    hydrocarbons.

    The Plan, launched by the provincial oil company G&P, invitesand encourages companies, capital and leading technologies totake part of a paradigm shiftin Neuqun Basin aimed at pursuing-in the medium term- high volumes of gas and oil fromunconventional reservoirs.

    The Plan was launched in 2009. Three bid rounds have beencompleted to date, with 33 areas awarded out of 37, and aninvestment commitment of more than USD 165 millions.

    The Provinces call on the private sector

    Neuqun's New Horizons Plan

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    G&P will retain exploration and concession rights.

    G&Ps minimum 10% participating interest in the joint venture.

    4-year-exploration term for conventional resources; and a 6-yearterm for exploration of unconventional and high risk reservoirs.

    Issuance of a performance bond agreement covering 100% of theWork and Investment Plan in US dollars

    The evaluation of bids will be based on: a) Work and InvestmentPlan Offer; b) percentage of participating interest offered to G&P; c)Access Fee granted to G&P.

    The other party of the joint venture will be liable for explorationrisks. G&Ps carried portion provided by the other parties duringexploration and production periods will only be recovered ifhydrocarbons are produced during exploitation.

    The following will be given priority: more investment in less time;more percentage of participating interest and Access Fee offered toG&P.

    For more information: www.gypnqn.com.ar www.energiadelsur.blogspot.com

    Key bid terms and conditions

    Neuqun's New Horizons Plan

    http://www.gypnqn.com.ar/http://www.energiadelsur.blogspot.com/http://www.energiadelsur.blogspot.com/http://www.energiadelsur.blogspot.com/http://www.energiadelsur.blogspot.com/http://www.energiadelsur.blogspot.com/http://www.energiadelsur.blogspot.com/http://www.energiadelsur.blogspot.com/http://www.energiadelsur.blogspot.com/http://www.gypnqn.com.ar/http://www.gypnqn.com.ar/http://www.gypnqn.com.ar/http://www.gypnqn.com.ar/http://www.gypnqn.com.ar/http://www.gypnqn.com.ar/http://www.gypnqn.com.ar/
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    1st, 2nd and 3rd Round Results

    INVESTMENTS

    Round km2 Investment ($) $/km2

    3rd Round

    year 2010)3.827

    (13 blocks)84,907,800 22,187

    1st and 2nd Round

    (year 2009)16.567(18 blocks)

    82,838,000 5,001

    Transferred to

    Hidenesa13.306 68,900,000 5,179

    TOTAL 33.700 236,645,800 7,023

    Neuqun's New Horizons Plan

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    The 4th Bid Round of the New

    Horizons Plan will be opened by theend of the first semester of 2011 for oiland gas Exploration, Development andProduction. 17 medium and high riskareas (located most of them in thewestern area of the Province) and atotal surface area of 33,000 Km2 willbe offered.Due to the increasing interest shownby companies in the previous rounds,work offers of around USD 80 millionare expected.

    2011 4th Bid Round

    Neuqun's New Horizons Plan

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    As exploitation of unconventional gasreservoirs is relatively new worldwide, but

    especially in Argentina, transfer of knowledgebecomes a key aspect in order toimprove cost and production performance,and, in particular, toprevent any potential environmental risksthat new practices and technologies maycause. Thus, the Government of Neuquen has

    decided to create the Unconventional FieldsTechnology Center: Alejandria Center.

    Neuqun: Unconventional FieldsTechnology Center

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    The Alejandria Center is the result of anew understanding of the size andavailability of tightandshale oil and gasresources in Neuquen Basin. It has beencreated with the aim of providingeducation, training and special services notonly at a national level but also throughoutLatin America. It will serve as a hub for thelocal technology business community.

    The Center is governed by a multilateralnon profit association created accordingly.

    Optimizing expenses andavoiding risks

    Neuqun: Unconventional FieldsTechnology Center

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    Main functions

    Unconventional Fields Technology Center

    Education and Training Special services Data Processing

    Provided by companies,universities andresearch centers.Training labs, lab facilities,special equipment, and 3Drooms.

    Special testing lab: tests not yetcarried out in Latin America.Shale and tight gas data processing.Reservoir simulations.Geomechanical servicesHydraulic fracture simulation andmodeling.

    Main shale gas fields of Argentinaand Latin America.It will enable to compare formations,improve extraction capacity andreduce production costs.

    Neuqun: Unconventional FieldsTechnology Center

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    The Province of Neuquen produceshydrocarbons since 1918. Given thepotential of Neuquens unconventional

    fields, the Province can become thelargest producer of most of the energythe country needs for the next decades.However, it is essential that governments

    create and maintain conditions forinvestment; and that companies invest ona long term basis.

    That is, there is a need for a jointstrategic approach, based on mutualcooperation and trust.

    A strategic approach basedonconfidence and cooperation

    Conclusions

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    The success of the previous bid rounds launched by

    G&Pwithin the private sectorand your presence heretoday show that we are on the right track.

    THANK YOU

    Conclusions


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