Petrobras Argentina S.A. ADS (PZE) 20-F 2010 FY Annual report (foreign)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2010

Commission file number 333-155319

PETROBRAS ARGENTINA S.A.

(Exact name of Registrant as specified in its charter)

N/A
(Translation of Registrant’s name into English)

REPUBLIC OF ARGENTINA
(Jurisdiction of incorporation of organization)

Maipú 1, 22 S.S. Floor
(C1084ABA) Buenos Aires
Argentina
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

	Name of Each Exchange
Title of each Class	On Which Registered
American Depositary Shares, each representing 10 Class B shares of Petrobras Argentina S.A.	New York Stock Exchange
Class B shares of Petrobras Argentina S.A.	New York Stock Exchange*

* Not for trading, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the NYSE.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2010 was:

Petrobras Argentina S.A. Class B ordinary shares, nominal value Ps. 1.00 per share 1,009,618,410

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.

Petrobras Argentina S.A. Yesþ Noo

^† Petrobras Argentina S.A. is a well-known seasoned issuer as a successor issuer to Petrobras Energía Participaciones S.A., pursuant to Rule 12g-3 of the Securities Exchange Act of 1934.

If this report is an annual or transitional report, indicate by check mark if the registrant is not required to file reports pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.

Petrobras Argentina S.A. Yeso Noþ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:

Petrobras Argentina S.A. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.495 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Not applicable.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAPo IFRSo Otherþ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Petrobras Argentina S.A. Large accelerated filero Accelerated filerþ Non-accelerated filero

^† Petrobras Argentina S.A. is accelerated filer as a successor issuer to Petrobras Energía Participaciones S.A., pursuant to Rule 12g-3 of the Securities Exchange Act of 1934.

Indicate by check mark which financial statement item the Registrant has elected to follow:

Item 17o Item 18þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Petrobras Argentina S.A. Yeso Noþ

TABLE OF CONTENTS

Item 1. Identity of Directors, Senior Management and Advisors	3
Item 2. Offer Statistics and Expected Timetable	3
Item 3. Key Information	4
Selected Financial Data	4
Exchange Rates	9
Risk Factors	11
Item 4. Information on the Company	18
History and Development	18
Business Overview	20
Oil and Gas Exploration and Production	24
Refining and Distribution	41
Petrochemicals	47
Gas and Energy	50
Insurance	61
Patents and Trademarks	62
Quality, Safety, Enviroment and Health	63
Regulation of our Business	66
Organizational Structure	89
Property, Plant and Equipment	90
Item 4A. Unresolved Staff Comments	90
Item 5. Operating and Financial Review and Prospects	91
Proportional Consolidation and Presentation of Discussion	91
Overview	91
Factors Affecting our Consolidated Results of Operations	93
Discussion of Results	101
Year ended December 31, 2010 compared to year ended December 31, 2009	104
Analysis of Operating Results by Business Segments	106
Analysis of Equity in Earnings of Affiliates	111
Year ended December 31, 2009 compared to year ended December 31, 2008	112
Analysis of Operating Results by Business Segments	115
Analysis of Equity in Earnings of Affiliates	121
Critical Accounting Policies	122
Liquidity and Capital Resources	125
Description of Indebtedness	129
Future Capital Requirements	130
Off-Balance Sheet Transactions	131
Contractual Obligations	131
U.S. GAAP Reconciliation	134
Reconciliation Tables	134
Item 6. Directors, Senior Management and Employees	137
Directors and Senior Management	137
Compensation	144
Board Practices	145
Employees	149
Share Ownership	149
Item 7. Major Shareholders and Related Party Transactions	150
Major Shareholders	150
Related Party Transactions	150
Item 8. Financial Information	156
Consolidated Financial Statements	156
Legal Proceedings	156
Dividends	156
Item 9. Offer and Listing	157
Markets	158
Item 10. Additional Information	159
Memorandum and Articles of Association	159
Material Contracts	164
Exchange Controls	165
Taxation	165
Documents On Display	168

Item 11. Quantitative and Qualitative Disclosures About Market Risk	169
Item 12. Description of Securities Other than Equity Securities	170
Item 13. Defaults, Dividend Arrearages and Delinquencies	172
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds	172
Item 15. Controls and Procedures	172
Item 16A. Audit Committee Financial Expert	173
Item 16B. Code of Ethics	173
Item 16C. Principal Accountant Fees and Services	173
Item 16D. Exemption from the Listing Standard for Audit Committees	174
Item 16E. Purchases of Equity Securities by the Issuer and Affiliates Purchasers	174
Item 16G. Corporate Governance	175
Item 17. Financial Statements	180
Item 18. Financial Statements	180
Item 19. Exhibits	180
Exhibit 4.8
Exhibit 8.1
Exhibit 12.1
Exhibit 12.2
Exhibit 13.1
Exhibit 13.2

NOTE ON MERGER

This annual report on Form 20-F has been filed by Petrobras Argentina S.A. (“PESA”) (formerly Petrobras Energía S.A.). On January 30, 2009, separate shareholders’ meetings of Petrobras Energía Participaciones S.A. (“PEPSA”) and PESA approved their merger, pursuant to which PEPSA was merged and absorbed into PESA, the surviving company.

Shareholders of PEPSA have received shares of PESA (in the United States, in the form of American Depositary Receipts), and the American Depositary Receipts of PEPSA have been removed from listing on the New York Stock Exchange (the “NYSE”) and from registration with the U.S. Securities and Exchange Commission (the “SEC”). Following this exchange of shares, American Depositary Receipts, each representing 10 Class B shares of PESA, have been listed and began trading on the NYSE. PESA is the successor issuer to PEPSA, as contemplated by Rule 12g-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All references in this annual report to:

“Petrobras Argentina”, “Petrobras Energía,” “PESA”, “the Company”, “we,” “us,” “our,” and similar terms refer to Petrobras Argentina S.A. and its subsidiaries, but excludes affiliates and companies under joint control. Prior to July 2003, PESA’s corporate name was Pecom Energía S.A. On March 27, 2009, the shareholders of PESA approved the change of the company’s corporate name from Petrobras Energía S.A. to Petrobras Argentina, S.A. See “Item 4—History and Development”.

“Petrobras Energía Participaciones,” and “PEPSA” refer to Petrobras Energía Participaciones S.A.. Prior to July 2003, the corporate name of PEPSA was Perez Companc S.A.

“Petrobras” refers to Petróleo Brasileiro S.A. — PETROBRAS.

“Argentine pesos”, “pesos” or “Ps.” refer to the currency of the Republic of Argentina.

“U.S. dollars,” “US$” or “U.S.$” refer to the currency of the United States of America.

“Argentina” refers to the Republic of Argentina, and “Argentine government” refer to the federal government of Argentina.

FORWARD LOOKING STATEMENTS

Some of the information included in this annual report contains information that is forward looking, including statements regarding capital expenditures, competition and sales, oil and gas reserves and prospects and trends in the oil and gas, refining and distribution, petrochemicals and electricity industries.

Certain statements contained in this annual report are forward-looking statements and are not based on historical facts, such as statements containing the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words. These forward-looking statements are subject to risks, uncertainties and assumptions, including those discussed in “Item 3. Key Information—Risk Factors” and elsewhere in this annual report. Factors that could cause actual results to differ materially and adversely include, but are not limited to:

• Changes in general economic, business, political or other conditions in Argentina or changes in general economic or business conditions in other Latin American countries;

• The availability of financing at reasonable terms to Argentine companies, such as us;

• The failure of governmental authorities to approve proposed measures or transactions described in this annual report;

• Changes in the price of hydrocarbons and oil products;

1

• Changes to our capital expenditure plans;

• Changes in laws or regulations affecting our operations;

• Increased costs; and

• Other factors discussed under “Risk Factors” in Item 3 of this annual report.

Forward-looking statements speak only as of the date they were made. We undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict all of these factors. In light of these limitations, you should not place undue reliance on forward-looking statements contained in this annual report.

2

PART I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

3

Item 3. KEY INFORMATION

SELECTED FINANCIAL DATA

The financial information set forth below may not contain all of the financial information that you should consider when making an investment decision. This information should be read in conjunction with, and is qualified in its entirety by reference to, the “Risk Factors” included in this annual report. See “Item 3—Risk Factors”. You should also carefully read our financial statements and “Item 5. Operating and Financial Review and Prospects” included in this annual report for additional financial information about us.

Our consolidated financial statements are prepared in accordance with regulations of theComisión Nacional de Valores(the Argentine Securities Commission, or “CNV”), and, except for the matters described in Note 3 to our consolidated financial statements, with generally accepted accounting principles in Argentina (as approved by the Professional Council of Economic Sciences of the City of Buenos Aires, or its Spanish acronym “CPCECABA”), or Argentine GAAP. Argentine GAAP differs in certain significant respects from generally accepted accounting principles in the United States, or U.S. GAAP. Note 20 to our financial statements provides a description of the principal differences between Argentine GAAP and U.S. GAAP, and Note 21 provides a reconciliation to U.S. GAAP of net income, shareholders’ equity and certain other selected financial data.

In compliance with Rule 3-09 of Regulation S-X, this annual report contains the audited financial statements of our equity investee, Petroritupano S.A.(“Petroritupano”), as of and for the year ended December 31, 2008 and the unaudited financial statements of Petroritupano as of and for the years ended December 31, 2009 and 2010. The independent registered public auditors of Petroritupano indicated in their report dated June 26, 2009 that Petroritupano had not complied with various formal tax duties, which, pursuant to current tax regulations, may give rise to the payment of sanctions and interest amounting to approximately US$24 million. The independent registered public auditors had noted that the accruals and other liabilities caption of the balance sheet as of December 31, 2008 and net income for the year then ended were understated and overstated by such amount, respectively. The unaudited financial statements of Petroritupano for 2009 includes the US$ 24 million adjustment to net income mentioned in the auditor’s report for the year ended December 31, 2008. We do not believe that this fact has had or will have a material impact on our financial results.

Consideration of the effects of inflation. Accounting practices

We maintain our statutory financial records in pesos. In addition, we present our consolidated financial statements in constant currency following the restatement method established by Technical Resolution No. 6 of the FACPCE and in accordance with CNV General Resolutions No. 415 and 441.

Under such method, the consolidated financial statements reflected the effects of the changes in the purchasing power of the Argentine peso through August 31, 1995. Starting September 1, 1995, under CNV General Resolution No. 272, we interrupted the use of this method and maintained the restatements made through such date.

On March 6, 2002, the CPCECABA approved Resolution MD No. 3/2002 providing, among other things, the reinstatement of the adjustment-for-inflation method for the interim periods or years ended after March 31, 2002, allowing for the accounting measurements restated based on the change in the purchasing power of the Argentine peso through the interruption of adjustments, such as those whose original date is within the stability period, to be stated in Argentine pesos as of December 2001. Through General Resolution No. 415 dated July 25, 2002, the CNV requires that the information related to the financial statements that are to be filed after the date on which the regulation became effective be disclosed adjusted for inflation.

On March 25, 2003, the PEN issued Decree No. 664 establishing that the financial statements for years ending as from such date be filed in nominal currency. Consequently, and under CNV Resolution No. 441, we no longer applied inflation accounting as from March 1, 2003.

According to inflation data published by the INDEC, from 2006 to 2010, the Argentine consumer price index increased 9.8%, 8.5%, 7.2%, 7.7% and 10.9%, respectively; and the wholesale price index increased 7.1%, 14.4%, 8.8%, 10.3% and 14.5%, respectively. Notwithstanding the above mentioned, reports published by the IMF states that private sector analysts believe that actual inflation is considerably higher than reflected in official data from 2007 onward.

Inflation could also affect the comparability among the different periods presented herein.

4

Information presented in US GAAP does not include any adjustment to eliminate the effects of inflation required under Argentina GAAP, as they are also permitted by Regulation S-X of the SEC.

Proportional consolidation of companies under which we exercise joint control

In accordance with the procedure set forth in Technical Resolution No. 21 of the Argentine Federation of Professional Councils in Economic Science (or its Spanish acronym “FACPCE”), we have consolidated our financial statements line by line on a proportional basis with the companies in which we exercise joint control (other than Compañía Inversora en Transmisión Eléctrica Citelec S.A., or “Citelec”, which we sold on July 19, 2007). See “Item 5—Proportional Consolidation and Presentation of Discussion”. In the consolidation of companies over which we exercise joint control, the amount of the investment in the companies under joint control and the interest in their income (loss) and cash flows are replaced by our proportional interest in the subsidiaries assets, liabilities and income (loss) and cash flows. In addition, related party receivables, payables and transactions within the consolidated group and companies under joint control are eliminated on a pro rata basis pursuant to our ownership share in that company.

5

New accounting standards

On December 30, 2009, the CNV issued General Resolution No. 562/09 providing for the application of FACPCE Technical Resolution No. 26 to certain entities admitted for the public offering of their shares or bonds under Law No. 17,811. FACPCE Technical Resolution No. 26 requires the application of the International Financial Reporting Standards issued by the International Accounting Standards Board, as from the fiscal year beginning on January 1, 2012. As of April 13, 2010 our management approved a plan for the adoption of such accounting standards.

As of the date of this annual report, and according to the IFRS adoption plan, the Company is analyzing the effects of adopting the IFRS.

U.S. GAAP Information

Neither the effects of inflation accounting nor the proportional consolidation of Distrilec Inversora S.A. (“Distrilec”) (for all years presented) or Petrobras de Valores Internacional de España S.L. (“PVIE”) (for the years ended December 31, 2007 and 2008 and for the three months ended March 31, 2009), jointly controlled companies under Argentine GAAP, have been reversed in the reconciliations to U.S. GAAP.

The proportional consolidation of Compañía de Inversiones de Energía S.A. (“CIESA”), another company under joint control in 2010, 2009, 2008, 2007 and 2006 under Argentine GAAP, has been reversed in the U.S. GAAP information. This reversal was a result of (1) CIESA having negative shareholders’ equity for each of those five years for purposes of U.S. GAAP, and (2) our not having assumed commitments to make capital contributions or to provide financial assistance to CIESA, which caused our interests in CIESA to be valued at zero.

6

The following tables set forth selected financial data (including data for joint control companies consolidated under the proportional consolidation method), as of and for the years ended December 31, 2010, 2009, 2008, 2007 and 2006. The balance sheet information below as of December 31, 2006 and the income statement information for the fiscal year then ended do not reflect the effects of the merger of PEPSA into PESA.

Petrobras Argentina S.A. — Income Statement Data

	Year Ended December 31,
	2010			2009			2008			2007			2006
	(in millions of pesos, except for per share amounts and number
	of shares or as otherwise indicated)
Argentine GAAP:
Net sales		14,442			11,972			15,175			13,458			11,745
Cost of sales		(10,806	)		(8,858	)		(11,000	)		(10,111	)		(8,062	)
Gross profit		3,636			3,114			4,175			3,347			3,683
Administrative and selling expenses		(1,746	)		(1,668	)		(1,758	)		(1,465	)		(1,281	)
Exploration expenses		(190	)		(336	)		(238	)		(172	)		(117	)
Other operating expenses, net		(258	)		(192	)		(231	)		(177	)		(135	)
Operating income		1,442			918			1,948			1,533			2,150
Equity in earnings of affiliates		156			210			305			176			219
Financial expenses and holding losses, net		(401	)		(701	)		(782	)		(495	)		(504	)
Other (expenses) income, net		(357	)		1,288			(117	)		139			99
Income before income tax and minority interest in subsidiaries		840			1,715			1,354			1,353			1,964
Income tax		(201	)		(726	)		(508	)		(503	)		(465	)
Minority interest in subsidiaries		(29	)		(64	)		(70	)		(88	)		(83	)
Net income		610			925			776			762			1,416
Basic/diluted earnings per share		0.604			0.916			0.769			0.755			1.403
Number of shares outstanding (in millions):
Class B		1,010			1,010			1,010			1,010			1,010
U.S. GAAP:
Net sales		13,236			10,017			12,639			10,926			9,646
Operating income		664			478			798			129			1,446
Income (loss) from continuing operations		486			175			167			(399	)		977
Income (loss) from discontinued operations		47			(79	)		267			375			318
Net income (loss)		533			96			434			(24	)		1,295
Basic/diluted net income (loss) per share
Income (loss) from continuing operations		0.481			0.173			0.165			(0.395	)		0.967
Income (loss) from discontinued operations		0.047			(0.078	)		0.264			0.371			0.315

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Petrobras Argentina S.A. — Balance Sheet Data

	Year Ended December 31,
	2010		2009		2008		2007		2006
	(in millions of pesos, except for per share amounts and number
	of shares or as otherwise indicated)
Argentine GAAP:
Consolidated Balance Sheet
Assets
Current assets
Cash		581		327		492		98		86
Investments		2,325		1,243		989		1,094		1,512
Trade receivables		1,824		1,792		1,635		1,605		1,438
Other receivables		1,802		2,467		1,595		2,659		1,226
Inventories		1,099		1,011		1,536		996		843
Other assets		142		269		5		—		1
Total current assets		7,773		7,109		6,252		6,452		5,106
Non-current assets
Trade receivables		230		202		154		228		124
Other receivables		446		790		522		657		691
Inventories		81		82		95		100		81
Investments		3,351		3,709		3,477		3,270		3,630
Property, plant and equipment		10,789		11,128		12,556		10,609		10,838
Other assets		89		63		35		41		41
Total non-current assets		14,986		15,974		16,839		14,905		15,405
Total assets		22,759		23,083		23,091		21,357		20,511
Liabilities
Current liabilities
Accounts payable		1,926		1,607		1,873		1,728		1,475
Short-term debt		1,285		2,508		2,445		1,922		2,646
Payroll and social security taxes		270		260		351		261		276
Taxes payable		503		415		463		280		360
Reserves		162		124		125		124		95
Other liabilities		960		575		530		305		214
Total current liabilities		5,106		5,489		5,787		4,620		5,066
Non-current liabilities
Accounts payable		171		161		136		179		143
Long-term debt		4,257		4,590		5,152		5,430		4,716
Other liabilities		993		698		567		367		402
Taxes payable		1,102		1,451		1,501		1,428		1,492
Reserves		167		136		119		86		85
Total non-current liabilities		6,690		7,036		7,475		7,490		6,838
Total liabilities		11,796		12,525		13,262		12,110		11,904
Minority interest in subsidiaries		989		969		882		817		771
Total Shareholders’ Equity		9,974		9,589		8,947		8,430		7,836
Total liabilities and shareholders’ equity		22,759		23,083		23,091		21,357		20,511
Capital Stock		1,010		1,010		1,010		1,010		1,010
U.S. GAAP:
Total assets		19,772		20,161		20,502		19,343		18,049
Shareholders’ equity		9,864		9,537		8,886		8,689		7,786

8

EXCHANGE RATES

From April 1, 1991 until the end of 2001, Law No. 23,928 and Decree No. 529/91 (together, the “Convertibility Law”) established a fixed exchange rate under which the Central Bank of Argentina (the “Central Bank”) was obliged to sell U.S. dollars at a fixed rate of one peso per U.S. dollar. On January 6, 2002, the Argentine Congress enacted the Public Emergency and Foreign Exchange System Reform Law No. 25,562 (the “Public Emergency Law”), which suspended certain provisions of the Convertibility Law, including the fixed exchange rate of Ps. 1 to U.S.$1, and granted the Argentine government the power to set the exchange rate between the peso and foreign currencies and to issue regulations related to the foreign exchange market. Following a brief period during which the Argentine government established a temporary dual exchange rate system, pursuant to the Public Emergency Law, the peso has been allowed to float freely against other currencies since February 2002.

The following table sets forth the annual high, low, average and period-end exchange rates for the periods indicated, expressed in Argentine pesos per U.S. dollar and not adjusted for inflation. There can be no assurance that the Argentine peso will not depreciate or appreciate again in the future. The Federal Reserve Bank of New York does not report a noon buying rate for pesos.

	Argentine peso per U.S. dollar
	High		Low		Average(1)		Period-end
Year ended December 31,
2010		3.99		3.79		3.91		3.98
2009		3.85		3.45		3.73		3.80
2008		3.47		2.98		3.16		3.45
2007		3.18		3.06		3.12		3.15
2006		3.11		3.03		3.08		3.07
Month:
May 2011		4,09		4,08		4.08		4.09
April 2011		4.09		4.05		4.07		4.08
March 2011		4.05		4.03		4.04		4.05
February 2011		4.03		4.01		4.02		4.03
January 2011		4.00		3.97		3.98		4.00
December 2010		3.99		3.97		3.98		3.98
November 2010		3.99		3.96		3.97		3.99

⁽¹⁾ The figures provided represent the average of the exchange rates at the close of trading on each business day during the relevant period.

9

EXCHANGE CONTROLS

Prior to December 1989, the Argentine foreign exchange market was subject to exchange controls. From December 1989 until April 1991, Argentina had a freely floating exchange rate for all foreign currency transactions, and the transfer of dividend payments in foreign currency abroad and the repatriation of capital were permitted without prior approval of the Central Bank. From April 1, 1991, when the Convertibility Law became effective, until December 21, 2001, when the Central Bank decided to close the foreign exchange market, the Argentine currency was freely convertible into U.S. dollars.

On December 3, 2001, the Argentine government imposed a number of monetary and currency exchange control measures, which included restrictions on the free disposition of funds deposited with banks and tight restrictions on transferring funds abroad without the Central Bank’s prior authorization subject to specific exceptions for transfers related to foreign trade. The Central Bank has gradually eased these restrictions with a view to gradually normalizing the domestic exchange market, and as a result, most restrictions relating to the repayment of foreign creditors and the payment of dividends to foreign shareholders have been lifted. In June 2003 the Argentine government set restrictions on capital flows into Argentina, which mainly consisted of a prohibition against the transfer abroad of any funds until 180 days after their entry into the country. Furthermore, in June 2005 the Argentine government established further restrictions on capital flows into Argentina, including increasing the period that certain incoming funds must remain in Argentina to 365 calendar days and requiring that 30% of such incoming funds be deposited with a bank in Argentina in a non-transferable, non-interest bearing account for 365 calendar days. Export and import financing operations, as well as primary public offerings of corporate bonds listed on self-regulated markets, among others, are exempt from the foregoing provision.

10

RISK FACTORS

Factors Relating to Argentina

Political and economic instability in Argentina has affected and may continue to adversely affect our financial condition and results of operations.

We are an Argentine corporation (sociedad anónima). As of December 31, 2010, approximately 78% of our total assets, 83% of our net sales, 84% of our combined crude oil and gas production and 83% of our proved oil and gas reserves were located in Argentina. Fluctuations in the Argentine economy and actions adopted by the Argentine government have had and may continue to have a significant impact on Argentine companies, including us. Specifically, we have been affected and may continue to be affected by inflation, interest rates, the value of the peso against foreign currencies, price controls, regulatory policies, business and tax regulations and in general by the political, social and economic scenario in Argentina and in other countries that may affect Argentina.

The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high and variable levels of inflation and currency devaluation.

During 2001 and 2002, Argentina went through a period of severe political, economic and social crisis. See “Item 4—Business Overview—Our Principal Market”. The crisis had significant and adverse consequences on our company, including (i) losses derived from the effects of the peso devaluation on our affiliates and our affiliates’ net borrowing position, which primarily was denominated in U.S. dollars, (ii) the impairment of the book value of certain gas areas and tax assets due to material changes in the prospects of our operations, (iii) a decrease in U.S. dollar cash flows due to the imposition of export taxes, (iv) limits on the availability in the financial market to renew our short-term lines of credit and the current portion of our medium and long-term financings at maturity and (v) restrictions on our ability to pass through the effects of inflation to the prices of products sold by us in the domestic market. In 2002, we reported a significant net loss and our liquidity was adversely affected. Within this context and in order to secure compliance with our financial commitments, we reduced our investment plan and reached an agreement with our financial creditors and holders of notes to extend the maturity profile of a substantial portion of our debt, at face value. As a result, capital expenditures in 2002, net of divestments, totaled only Ps. 139 million, a relatively low amount compared to our historical average investment.

During 2008 and 2009, the Argentine economy suffered a new deceleration of activity caused by local and external factors, including an extended drought and effects from a global economic crisis. Real Gross Domestic Product (“GDP”) growth recovered in 2010, at an annual rate of 9.2% according to the Ministry of Economy. Nevertheless, uncertainty remains as to whether Argentina’s long-term growth will not be adversely affected by continued inflationary pressures, the loss of competitiveness and the lack of a legal framework that is suitable to attract foreign investments.

We cannot provide you with any assurance that future economic, social and political developments in Argentina, over which we have no control, will not adversely affect our financial condition or results of operations, including our ability to pay our debts at maturity or dividends.

The Argentine economy has been adversely affected by economic developments in other markets.

Financial and securities markets in Argentina are influenced by economic and market conditions in other markets worldwide. Although economic conditions vary from country to country, investors’ perceptions of events occurring in one country may substantially affect capital flows into and investments in securities from issuers in other countries, including Argentina. Furthermore, the Argentine economy has been affected by events in developed economies which are trading partners or that impact the global economy. Consequently, there can be no assurance that the Argentine financial system and securities markets will not continue to be adversely affected by events in developed countries’ economies or events in other emerging markets. This could adversely affect our results of operations and financial condition.

A lack of financing for Argentine companies, whether due to government regulation or market forces, may negatively impact the execution of our strategic business plan.

The prospects for Argentine companies of accessing financial markets might be limited in terms of the amount of financing available, and the conditions and cost of such financing. The default on the Argentine sovereign debt at the end of 2001, the global economic crisis that started in the fourth quarter of 2008 and the resulting international stock market crash and the insolvency of major financial institutions toward the end of 2008, have limited the ability of Argentine companies to access international financial markets as they have in the past. Since June 2009, a greater number of Argentine companies have gained access to the international capital markets, albeit at conditions more onerous than competitors based in other countries in the region.

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Our ability to execute and carry out our strategic business plan depends upon our ability to obtain financing at a reasonable cost and on reasonable terms. In recent years, we have regularly obtained financing from the private pension fund system in Argentina, which has been a significant purchaser of our debt and shares. However, in November 2008 the Argentine National Congress passed a law eliminating the private pension system, mandating that funds administered by the private Retirement and Pension Funds Administrators (the “AFJP”), be transferred to a new administrator, the National Social Security Administration (Administración Nacional de la Seguridad Social, or “ANSES”). Because the private pension funds until that moment had been major institutional investors in the Argentine capital markets, the transfer of their assets to a state-run administrator has led to a decline in liquidity in the local capital markets, and may limit the sources of financing for Argentine companies, including us. If we are unable to gain access to international or local financial markets to refinance our indebtedness at reasonable cost and on reasonable terms, we may have to reduce our projected capital expenditures, which, in turn, may negatively affect the implementation of our business plan.

Fluctuations in the value of the peso may adversely affect the Argentine economy, our financial condition and the results of operations.

The value of the peso has fluctuated significantly in the past and may do so in the future. Since the end of the of Ps. 1.00 to U.S.$ 1.00 parity in January 2002, the peso has fluctuated significantly in value. As a result, the Central Bank has taken several measures to stabilize the exchange rate. The marked devaluation of the peso in 2002 had a negative impact on the ability of the Argentine government and companies to honor their foreign currency-denominated debt, led to very high inflation initially and had a negative impact on businesses whose success depends on domestic market demand, including public utilities.

The significant peso devaluation during 2002 adversely affected our results of operations and financial condition. Substantially all of our financial debt and a significant portion of our affiliates’ debt were denominated in U.S. dollars. Before the enactment of the Public Emergency Law in January 2002, our cash flow, generally denominated in U.S. dollars or dollar-adjusted, provided a natural hedge against exchange rate risks. The Argentine regulatory framework after the enactment of the Public Emergency Law (which included the pesification of utility rates, regulatory issues related to the renegotiation of pesified utility rates, new taxes on hydrocarbon exports, and the implementation of regulations to prevent an increase in prices to final users in the domestic market and restrictions on exports), however, limited our ability to hedge the impact of the peso devaluation.

If the peso devaluates significantly, all of the negative effects on the Argentine economy related to such devaluation could recur, with adverse consequences to our business. On the other hand, a substantial increase in the value of the peso against the U.S. dollar also presents risks for the Argentine economy since it may lead to a deterioration of the country’s current account balance and the balance of payments.

We are unable to predict the future value of the peso against the U.S. dollar and how any fluctuations may affect the demand of our products and services. Moreover, we cannot assure you that the Argentine government will not make regulatory changes that prevent or limit us from offsetting the risk derived from our exposure to the U.S. dollar and, if so, what impact these changes will have on our financial condition and results of operations.

Inflation may escalate and undermine economic growth in Argentina and adversely affect our financial condition and results of operations.

In the past, inflation has undermined the Argentine economy and the government’s ability to stimulate economic growth. For example, during 2002, the Argentine consumers price index increased by 41%, and the wholesale price index increased by 118.2%. This inflation reflected both the effect of the peso devaluation on production costs and a significant change in relative prices, which was partially offset by the elimination of rate adjustments and a strong drop in demand as a result of the recession. According to inflation data published by the National Statistics Institute, in 2003, inflation slowed, with a 3.7% increase in the consumer price index and a 2.0% increase in the wholesale price index.

In addition, according to inflation data published by theInstituto Nacional de Estadística y Censos(the national statistics and census institute, or “INDEC”), from 2006 to 2010, the Argentine consumer price index increased 9.8%, 8.5%, 7.2%, 7.7% and 10.9%, respectively; and the wholesale price index increased 7.1%, 14.4%, 8.8%, 10.3% and 14.5%, respectively.

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Uncertainty surrounding future inflation may result in slowed economic activity and reduced growth. A high inflation environment could also undermine Argentina’s foreign competitiveness by diluting the effects of the peso devaluation, with negative effects on the level of economic activity and employment. Sustained inflation in Argentina, without a corresponding increase in the price paid by consumers for our products in the local market would have a negative effect on our results of operations and financial condition. We cannot estimate how our activities and results of operations will be affected by inflation in the future.

Exchange controls in Argentina may impair our ability to service our foreign currency-denominated debt obligations and pay dividends.

After December 2001, Argentine authorities implemented a number of monetary and currency exchange control measures that included restrictions on the withdrawal of funds deposited with banks, the obligation to deposit foreign currency from exports with the Central Bank, restrictions on the transfers of funds abroad as well as restrictions relating to the servicing of foreign debt. The Central Bank has since issued a number of regulations aimed at gradually normalizing the domestic exchange market and, as a result, most restrictions in connection with the repayment of foreign creditors and the payment of dividends to foreign shareholders have been lifted. Nevertheless, certain exchange controls, including those imposed on foreign loans to the Argentine private sector, remain in place, with related requirements concerning the term of such loans, their denomination and transferability. See “Item 3— Exchange Rates—Exchange controls,” and “Item 5—Description of Indebtedness”.

As a result of political and economic instability in Argentina, the Argentine Government may impose exchange controls and other related measures. If the Argentine government imposes exchange controls and other restrictions on the transfer of funds, we may be unable to make principal or interest payments on our debt when it becomes due or to pay dividends.

Factors Relating to Our Business

Substantial or extended declines and volatility in the prices of crude oil, oil products and natural gas may have an adverse effect on our results of operations and financial condition.

A significant amount of our revenue is derived from sales of crude oil, oil products and natural gas. Factors affecting international prices for crude oil and related oil products include: political developments in crude oil producing regions, particularly in the Middle East; the ability of the Organization of Petroleum Exporting Countries (“OPEC”) and other crude oil producing nations to set and maintain crude oil production levels and prices; global and regional supply and demand for crude oil; competition from other energy sources; domestic and foreign government regulations; weather conditions and global conflicts or acts of terrorism. We have no control over these factors. Changes in crude oil prices generally result in changes in prices for related products. International oil prices have fluctuated widely over the last ten years.

Substantial or extended declines in international prices of crude oil and related oil products may have a material adverse effect on our business, results of operations and financial condition, and the value of our proved reserves. In addition, significant decreases in the prices of crude oil and related oil products may cause us to reduce or alter the timing of our capital expenditures, and this could adversely affect our production forecasts in the medium term and our reserve estimates in the future.

Our crude oil and natural gas reserves estimates involve some degree of uncertainty which could adversely affect our ability to generate income.

The proved crude oil and natural gas reserves set forth in this annual report account for our estimated quantities of crude oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable from known reservoirs under existing economic and operating conditions according to applicable regulations. Our proved developed crude oil and natural gas reserves are those that can be expected to be recovered through existing wells with existing equipment and operating methods. See “Item 4—Oil and Gas Exploration and Production—Reserves”.

Proved reserve estimates could be materially different from the quantities of crude oil and natural gas that are ultimately recovered, and downward revisions of our estimates could impact our future results of operations and business plan, including our level of capital expenditures.

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We may not be able to replace our oil and gas reserves and this may have an adverse impact on our future results of operations and financial condition.

In recent years, we have experienced a decline in reserves and production, including as a result of the sale of our interest in PVIE and new regulations in Bolivia which prevent us from accounting for reserves (see “Item 4— Business Overview—Reserves—Internal Control over Proved Reserves”). The possibility of replacing our crude oil and gas reserves in the future is dependent on our ability to access new reserves, both through successful exploration and reserve acquisitions. We consider exploration, which carries inherent risks and uncertainties, our main vehicle for future growth and reserves replacement.

Without successful exploration activities or reserve acquisitions, our proved reserves will decline as our oil and gas production will be forced to rely on our current portfolio of assets.

We cannot guarantee that our exploration, development and acquisition activities will allow us to offset the decline of our reserves. If we are not able to successfully find, develop or acquire additional reserves, our reserves and therefore our production may continue to decline and, consequently, this may adversely affect our future results of operations and financial condition.

Limits on exports of hydrocarbons and related oil products have affected and may continue to affect our results of operations.

In recent periods, the Argentine government has introduced a series of measures limiting exports of hydrocarbons and related oil products, which have prevented us from profiting from higher prices of these commodities in the international markets, and materially affected our competitiveness and results of operations.

In April 2004, to facilitate the recovery of natural gas prices, the Argentine Secretary of Energy (the “SE”) entered into an agreement with natural gas producers requiring them to sell a specified amount of gas in the local regulated market. During 2006, the SE required producers to redirect gas earmarked for export to supply local thermal power plants and gas distribution companies. In January 2007, the SE confirmed that the ability to export hydrocarbons would be subject to the satisfaction of domestic demand and that export would have to be authorized on a case-by-case basis by the SE. These measures prevent us from benefiting from higher margins in the international markets. In 2007, upon the expiration of the aforementioned agreement, the Argentine government and producers signed a new agreement effective until 2011 aimed at securing the domestic supply of gas.

Under these agreements, temporary limits on certain natural gas exports have been imposed to avoid a crisis in the local supply of natural gas, depriving us of higher margins in the international markets.

Pursuant to Resolution No. 1679/04, since December 2004, producers must obtain the approval of the Argentine government prior to exporting crude oil or diesel oil. To obtain this approval, exporters must demonstrate that they have either satisfied local demand requirements or have granted the domestic market the opportunity to acquire oil or diesel oil under terms similar to current domestic market prices and, in the case of diesel oil, they must also demonstrate, if applicable, that commercial terms offered to the domestic market are at least equal to those offered to their own gas station network. Furthermore, in December 2006, pursuant to Resolution No. 1338/06, the SE extended these regulations to the export of gasoline, fuel oil and fuel oil mixtures, diesel oil, aero kerosene, jet fuel, lubricants, asphalts, coke and by-products for use in the petrochemical industry. In January 2008 the Argentine government temporarily prohibited the exports of gasoline and diesel oil until the domestic market was fully supplied at the prices in force on October 31, 2007.

These restrictions may significantly and adversely affect the profitability of our operations, preventing us from capturing the upside of export prices, and negatively impacting the total volume of refined products sold in the domestic market, due to our need to manage crude oil volumes processed in accordance with our storage capacity.

We cannot assure you that the Argentine government will not increase export restrictions on hydrocarbons and related oil products. If it were to do so, our financial condition and results of operations could be adversely affected.

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Export taxes on our products have negatively affected, and may continue to negatively affect, the profitability of our operations.

On March 1, 2002, the Argentine government imposed a withholding tax on exports of hydrocarbons, initially lasting five years. This tax framework has prevented us from benefiting from significant increases in international prices for oil, oil related products and natural gas, hindered us from offsetting sustained increases in costs endemic to the energy industry, and materially affected our competitiveness and results of operations. Effective November 2007, the Ministry of Economy and Production (the “Ministry of Economy”) adopted a more onerous method for calculating withholding taxes on exports of crude oil and certain oil by-products. See “Item 5—Factors affecting our consolidated results of operations—Regulations of the Energy Industry in Argentina—Withholding Taxes on Exports”.

We cannot assure you that the Argentine government will reduce current export tax rates or will not increase them further. We cannot predict the impact that any changes may have on our results of operations and financial condition.

Limitations on local pricing in Argentina may adversely affect our results of operations.

In recent years, due to regulatory, economic and government policy factors, our domestic gasoline, diesel and other fuel prices have frequently lagged substantially behind prevailing international and regional market prices for such products, and our ability to increase prices has been limited. Likewise, the prices at which we sell natural gas in Argentina (particularly to the residential sector) are subject to government regulations and currently are substantially below regional market prices for natural gas. For additional information on domestic pricing for our products, see “Item 5—Factors Affecting our Consolidated Results of Operations—Regulation of the Energy Industry in Argentina” and “Item 4—Regulation of our Business—Argentine Regulatory Framework.”

We cannot assure you that we will be able to increase the domestic prices of our products, and limitations on our ability to do so would continue to adversely affect our financial condition and results of operations. Similarly, we cannot assure you that hydrocarbon prices in Argentina will match the increases or decreases in hydrocarbon prices at the international or regional levels.

Oil and gas prices could affect our level of capital expenditures

The prices that we are able to obtain for our hydrocarbon products affect the viability of investments in new exploration, development and refining, and as a result the timing and amount of our projected capital expenditures for such purposes. We budget capital expenditures by taking into account, among other things, market prices for our hydrocarbon products. In the event that current domestic prices decrease, our ability to improve our hydrocarbon recovery rates, identify new reserves and carry out certain of our other capital expenditure plans is likely to be affected, which, in turn, could have an adverse effect on our results of operations.

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The Argentine government and our affiliated utility companies are in the process of renegotiating utility contracts, and the recoverability of our investments in these affiliates depends on the successful completion of these negotiations.

The macroeconomic situation of the country after the enactment of the Public Emergency Law impacted the economic and financial condition of utility companies in Argentina. The combined effect of (i) the peso devaluation, (ii) the pesification of rates on a one-to-one basis and (iii) financial debts primarily denominated in foreign currency, adversely affected the utility companies’ financial condition, results of operations and ability to satisfy financial obligations and pay dividends. Although some of these utility companies have been successful in restructuring their indebtedness, their return to financial stability and profitability on a long-term basis depends on a successful negotiation of tariff increases with the Argentine government. The Utilities Contract Renegotiation and Analysis Committee (Unidad de Renegociación y Análisis de Contratos de Servicios Públicos) (“UNIREN”), created by the Argentine government to provide assistance in the negotiation process, execute comprehensive or partial agreements with utility companies and submit regulatory projects related to provisional rate adjustments, has been engaged in a renegotiation of contracts with our affiliates Edesur S.A. (“EDESUR”) and Transportadora de Gas del Sur S.A. (“TGS”). See “Item 4—Gas and Energy—Gas Transportation-TGS—Tariff Renegotiation Process” and “Gas and Energy— Electricity—Electricity Distribution: EDESUR” and “Regulation of Our Business—Argentine Regulatory Framework—Natural Gas and Electricity”.

Our operations could be adversely affected by events beyond our control.

Our operations may be curtailed, delayed, interrupted or canceled as a result of weather conditions, mechanical difficulties, shortages or delays in the delivery of equipment, coercive actions and compliance with governmental requirements, or other events that could adversely impact our costs of production, results of operation and financial condition. For example, from March 9, 2007 to April 10, 2007, operations in Block 18, in Ecuador, were curtailed as a result of coercive actions taken by local communities. During this period, cumulative oil production decreased by approximately 305,000 barrels of oil equivalent in our participation. Future events beyond our control may affect our results of operations and financial condition.

We cannot assure you that these discussions will ultimately result in a level of tariff increases sufficient for our affiliated utility companies to return to financial stability and profitability in the near future or on a long-term basis.

Our activities may be adversely affected by events in countries in which we do business.

Our operations are concentrated in Latin America, a region that has experienced significant economic, social, political and regulatory volatility. In recent periods, many governments in Latin America have taken steps to assert greater control or increase their share of revenues from the energy sector, spurred by soaring oil and gas prices and nationalist politics. See “Item 4—Regulation of our Businesses—Venezuela and Bolivian Regulatory Framework.

These risks are evidenced by changes in business conditions that we have experienced in Venezuela, Bolivia and Ecuador. See “Item 5—Factors affecting our Consolidated Results of Operations” See “Item 4—Oil and Gas Exploration and Production—Production—Production Outside of Argentina”.

We could be subject to organized labor action.

Many of our operations are highly labor-intensive and require a significant number of workers. The sectors in which we operate are largely unionized. We have experienced organized work disruptions and stoppages in the past, frequently due to strikes by employees of contractors we employ. We cannot assure you that we will not experience such disruptions or work stoppages in the future, and any such action could adversely affect our business and revenues.

In 2008 unionized employees went on strike over salary increases, adversely affecting our operations. In 2008, in the Austral basin in Argentina, the pace of production slowed as a result of the labor strike held by our contractor’s employees throughout May 2008, with an adverse impact on production levels in subsequent months. During 2009 and 2010, to a lesser extent, gas production in the Austral basin was affected by labor strikes by contractors’ personnel. See “Item 6— Employees”.

We do not maintain insurance coverage for business interruptions, including business interruptions caused by labor actions. Strikes, picketing or other types of conflict with the unionized personnel may adversely affect our results of operations and financial condition.

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Our operations could cause environmental damage, and any changes in environmental laws may increase our operational costs.

Some of our operations are subject to environmental risks that may arise unexpectedly and result in material adverse effects on our results of operations and financial condition. In addition, the occurrence of any of these risks could result in personal injuries, loss of life, environmental damage, clean-up and repair expenses, equipment damage and liability in civil and administrative proceedings. We cannot assure you that we will not incur in additional costs related to the environment in the future, which could negatively impact our results of operations and financial condition. In addition, we cannot assure that the insurance coverage that we maintain is adequate to cover the losses that may potentially arise from these environmental risks.

Furthermore, we are subject to extensive environmental regulation both in Argentina and in the other countries in which we operate. Local, provincial and national authorities in Argentina and other countries where we operate are moving towards more stringent enforcement of environmental laws, which may require us to incur in higher compliance costs. We cannot predict what effects this may have on our financial condition and results of operations.

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Item 4. INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT

History

Petrobras Argentina S.A.

PESA is a corporation (sociedad anónima)organized and existing under the laws of the Republic of Argentina and registered on November 17, 1947 with the Public Registry of Commerce, under No.759, page 569, Book 47, Volume A, with a term of duration expiring June 18, 2046. Our principal place of business is located at Maipú 1, (C1084ABA), Buenos Aires, Argentina. Telephone: 54-11-4344-6000, fax 54-11-4344-6315 and web site atwww.petrobras.com.ar. Our process agent in the U.S. for certain contracts is CT Corporation System, located at 111 Eighth Avenue, New York, New York 10011. Our authorized representative in United States for our registration statement with SEC is Puglisi Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.

We are an integrated energy company,engaged in oil and gas exploration and production, refining, petrochemicals, electricity generation, transmission and distribution and hydrocarbon marketing and transportation. As of December 31, 2010, we maintain operations in Argentina, Bolivia, Brazil, Ecuador, Mexico and Venezuela. Our operations are currently divided into four business segments that are in turn supported by corporate functions. The four business units are: (1) oil and gas exploration and production, (2) gas and energy, (3) refining and distribution, and (4) petrochemicals.

PESA was founded in 1946 under the name “Compañía Naviera Pérez Companc” as a shipping company by the Perez Companc family. In the mid-1950’s, the Company began its forestry operations when it acquired an important forestry area in northeastern Argentina. In the 1960s, it began servicing oil wells; over time, its maritime operations were gradually discontinued and replaced by oil-related activities.

The development of our oil and gas business is marked by two significant events. The first occurred in 1991 when we were awarded concessions to operate Puesto Hernández, one of the most important oilfields in Argentina in terms of reserves and production, located in the provinces of Neuquén and Mendoza, and the Faro Vírgenes and Santa Cruz areas in the Austral basin, located in the province of Santa Cruz. As a result of these concessions, we have become one of the largest oil and gas producers in Argentina.

The second event that was a key factor in our oil and gas operations growth abroad occurred in March 1994 when PESA was awarded the Oritupano-Leona area in Venezuela. This was the first step towards a significant regional expansion of our businesses.

Between 1990 and 1994, many state-owned enterprises were privatized in Argentina. As a result, PESA acquired interests in companies operating in the natural gas transportation and distribution, electricity generation, transmission and distribution, oil transportation, storage and shipment and refining sectors. These activities have formed our core business.

PESA has in the past conducted operations in other industries, including construction, real estate, telecommunications, mining and agriculture. Beginning in 1997, and through successive divestments, PESA restructured its business strategy with a focus on the energy sector. As a result of these divestitures and the development of our energy businesses, PESA has become a vertically-integrated energy company.

Merger between Petrobras Energía S.A., Eg3 S.A., Petrobras Argentina S.A. and Petrolera Santa Fe S.R.L.

On January 21, 2005, the shareholders’ meetings of Petrobras Energía S.A. (“PESA”), Eg3 S.A. (“Eg3”), Petrobras Argentina S.A. (“PAR”) and Petrolera Santa Fe S.R.L. (“PSF”), approved the merger of these companies, pursuant to which Petrobras Energía S.A. was the surviving company, having absorbed Eg3, PAR and PSF. The effective merger date was set at January 1, 2005, and as of that date, all assets, liabilities, rights and obligations of the absorbed companies were assumed by PESA.

Change of corporate name

On March 27, 2009, the general regular and special shareholders’ meeting of PESA approved the change of the Company’s corporate name to Petrobras Argentina S.A. On July 19, 2010, the Argentine Securities Commission (in Spanish, Comisión Nacional de Valores, the “CNV”) notified PESA of the registration of the change of its corporate name with the Superintendency of Legal Entities (in Spanish, the Inspección General de Justicia, the “IGJ”).

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Corporate reorganization of PESA and PEPSA

On January 30, 2009, the special shareholders’ meetings of PESA and PEPSA approved the merger of these two companies, pursuant to which PEPSA was merged and absorbed into PESA, being PESA the surviving company. The effective merger date was set at January 1, 2009, and as of that date all assets, liabilities, rights and obligations of the absorbed company were incorporated into Petrobras Energía. Immediately following the merger, Petrobras continued holding 67.2% of the outstanding shares of Petrobras Energía. The Board of Directors of Petrobras Energía and Petrobras Energía Paticipaciones approved the merger agreement between the two companies on April 14, 2009. This reorganization was authorized by Resolution No. 16,131 of the CNV and subsequently registered with the IGJ.

As a result of this corporate reorganization, shareholders of PEPSA received shares of PESA (in the United States, in the form of American Depositary Receipts), and the American Depositary Receipts of PEPSA were removed from listing on the NYSE and from registration with the SEC. Immediately subsequent to this exchange of shares, American Depositary Receipts, each representing 10 Class B shares of Petrobras Energía, were listed and began trading on the NYSE.

Capital Expenditures and Divestitures

For a description of our capital expenditures see “Item 5—Liquidity and Capital Resources”.

For a description of our most significant divestitures see “Item 5—Factors Affecting Our Consolidated Results of Operations—Operations in Ecuador”, “—Sale of Petrobras Argentina’s Interest in Petrobras de Valores Internacional de España S.L. (PVIE)”, “—Sale of the fertilizers business” and “—Changes in Our Portfolio”.

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BUSINESS OVERVIEW

Our Strategy

Our long-term strategy is to grow as an integrated energy company in Argentina, while being a leader in profitability as well as social and environmental responsibility.

The main points of this strategy are:

• Setting our focus on our Argentine operations.

• Increasing oil and gas reserves and maintaining production levels through profitable operations with a commitment to social and environmental responsibility.

• Seeking profitability in the downstream business in Argentina, through a balanced crude production — refining — logistics — distribution chain.

• Generating energy solutions through the development of businesses in the gas and energy areas that will allow for capitalizing on the synergies with the natural gas reserves of the Petrobras group.

• Maintaining our position in styrenics markets.

• Maintaining financial solvency, while pursuing operating and management efficiency and the development of human resources.

In order to fulfill this strategy, we consider the following to be essential:

• A commitment to protecting the quality of our goods and services, the environment and the health and safety of our employees, contractors and neighboring communities.

• Adoption of, and compliance with, corporate governance practices in line with recognized best practices.

• Maintenance of a management style that favors communication and teamwork, fostered by the value of the people that work in our organization.

• Developing new business opportunities in order to maximize potential synergies and capitalize on complementary business opportunities with Petrobras.

We currently manage our activities, with the support of a corporate center, in four business segments: (1) Oil and Gas Exploration and Production, (2) Gas and Energy, (3) Refining and Distribution, and (4) Petrochemicals.

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Our Principal Market

PESA is an Argentinesociedad anónima. As of December 31, 2010, approximately 78% of total assets, 83% of net sales, 84% of combined crude oil and gas production and 83% of proved oil and gas reserves were located in Argentina. Fluctuations in the Argentine economy and actions adopted by the Argentine government have had and may continue to have a significant effect on Argentine private sector entities, including us. Specifically, we have been affected and may be affected by inflation, interest rates, the value of the peso against foreign currencies, price and export controls on oil and oil by-products, business regulations, fluctuations in tax regulations and in general by the political, social and economic environment affecting Argentina and other countries. See “Item 3—Risk Factors—Factors Relating to Argentina”.

Historically, the Argentine economy has been characterized by its macroeconomic instability and by periods of low or negative growth and high and variable levels of inflation and currency devaluation. In 1988, 1989 and 1990, the annual inflation rates were approximately 388%, 4,924% and 1,344%, respectively, based on the Argentine consumer price index and approximately 422%, 5,386% and 798%, respectively, based on the Argentine wholesale price index. As a result of inflationary pressures, the Argentine currency was devalued repeatedly during the 1960s, 1970s and 1980s. Macroeconomic instability led to broad changes in the real exchange rate of the Argentine currency relative to the U.S. dollar. To address these pressures, the Argentine government implemented various plans and utilized a number of exchange rate systems and controls.

In the 1990s deep and drastic economic reforms were implemented in terms of state reform, privatization of public companies and utilities and opening of the economy. The pillar of the economic reform was the Convertibility Law enacted in 1991. The Convertibility Law fixed the exchange rate at one Argentine peso per U.S. dollar and required that the Central Bank maintain reserves in gold and foreign currency at least equivalent to the monetary base. Between 1991 and 1997, the economy experienced growth, with exchange stability and low inflation rates.

Partly due to the convertibility model, in 1998 the Argentine economy entered into a recession, hitting its lowest point in December 2001, which resulted in a massive withdrawal of deposits and capital outflow. In light of the situation, and with a fall in GDP of approximately 10%, the Argentine government implemented a number of monetary and exchange control measures, which proved to be insufficient and caused a sharp rise in social discontent. This triggered a political, social and economic crisis.

On January 1, 2002 Argentina suspended the payment of a portion of its sovereign debt. Later that month, the Argentine Congress enacted the Public Emergency Law, whereby monetary, financial and exchange measures were implemented to overcome the economic crisis in the short term. These events resulted in dramatic changes in the economic model and put an end to the U.S. dollar-peso parity, leading to a significant devaluation of the Argentine peso.

The Argentine government implemented a number of far-reaching initiatives, which included:

• Pesification of certain assets and liabilities denominated in foreign currency that were held in Argentina;

• Amendment of the charter of the Central Bank authorizing it to issue money in excess of the foreign currency reserves, grant short-term loans to the Argentine government and provide financial assistance to financial institutions with liquidity or solvency problems;

• Pesification of, and elimination of indexing clauses for utility rates, fixing those rates in pesos at the Ps. 1=US$1 exchange rate; and

• Implementation of taxes on hydrocarbon exports and certain related oil products, among others.

In 2002, with an active intervention by the government in the development of the economy as a consequence of the significant political and economic changes that resulted from the severe crisis at the end of 2001, commercial and financial activities were virtually paralyzed, further aggravating the economic recession which resulted in a 10.9% decline in the GDP. Within this context, the peso devalued 238% against the U.S. dollar and wholesale inflation grew 118.2%. Towards the end of 2002, the Argentine government implemented different measures aimed at stimulating the economy and eliminating certain restrictions to gradually normalize the foreign exchange market and the commercial and financial flow of foreign currency.

In subsequent years, the activity level exhibited an accelerated recovery, taking advantage of existing idle capacity, a high real exchange rate and increased international prices for commodities. During this period, inflation remained stable and there was an excess supply of U.S. dollars, supported by a significant trade surplus. The Central Bank sought to prevent the nominal appreciation of the Argentine peso through the purchase of foreign currency, increasing its international reserves up to US$46 billion in 2007. During this stage, social indicators, such as unemployment, exhibited significant improvements.

21

The Argentine government has maintained a surplus in its public accounts, though increasingly reduced, to meet its financing needs. In 2005, the government was able to restructure the debt in default with 76% of creditors accepting the government’s exchange proposal, with reductions in principal amount, term extensions and reductions in interest rates. Early in 2006, Argentina prepaid the debt outstanding with the International Monetary Fund (“IMF”) (around US$10 billion) using freely available Central Bank reserves. Since the 2005 debt exchange and up through 2007, the Argentine country-risk remained below 500 basis points.

Between 2004 and 2008, Argentina recorded primary budget surpluses in excess of 3% at national levels. The primary surplus fell to 1.5% in 2009 due to a general slowdown in economic activity and to 1.7% in 2010, when government fiscal revenues outpaced growth in public expenditure, according to the Ministry of Economy.

The annual consumer price index, according to the INDEC, increased by 7.2% in 2008, 7.7% in 2009 and 10.9% in 2010. According to reports published by the IMF, private sector analysts believe that actual inflation is considerably higher than reflected in official data from 2007 onward.

During 2008, unlike previous years and despite the benefit of record commodity prices, the foreign currency supply did not show a surplus, reserves at the Central Bank stagnated and the nominal exchange rate showed a depreciation, triggered by capital outflows. Within this context, and with the combined effect of an international context affected by the financial crisis and reduced domestic growth, the government was unable to raise sufficient voluntary funds to repay the debt and it had to resort mostly to intra-public sector financing. Consequently, the country-risk exhibited a clear upward trend, which was exacerbated as from September 2008 and reached approximately 1,800 basis points. By the end of 2008, Congress passed a bill that eliminated the private pension system and provided for a return to the public pension regime. This allowed the government to have additional funds available in the short term.

In 2009, the Argentine economy was affected by a serious drought that negatively impacted harvests, together with lower commodity prices and reduced external demand resulting from the global crisis. In this context, industrial production suffered a deeper impact than non-industrial activities. In addition, salaries increased less in real peso terms than in previous years.

The Argentine trade balance surplus increased to over US$16 billion in 2009 as a result of imports contracting more rapidly than exports. Exports were mainly affected by fewer sales of commodities due to the drought. In spite of this significant trade surplus, the reserves at the Central Bank ended the year at levels similar to those recorded by the end of 2008. Private foreign currency demand was very high during the first part of the year, but then dropped progressively as a result of a more favorable domestic and overseas macro-economic trends. The peso-dollar exchange rate was consistent with this evolution, having a higher depreciation rate at the beginning of the year and a more stable behavior in the last months of the period. The exchange rate closed the year at Ps. 3.80 = US$1.00 (a 10% depreciation), with an average of Ps. 3.73 = US$1.00 in the twelve-month period.

The public sector had a primary surplus, though lower than the previous year’s, with increases in pension contributions resulting from the nationalization of the private pension system in November 2008 and the application of the capital expansion of the IMF, but decreases in other income, mainly taxes and export duties, because of the weaknesses in the economy and lower international commodity prices. By the end of 2009, the Argentine government announced an exchange offer for the debt which had not been restructured in 2005, and the renewed intent to renegotiate its debt with the Paris Club, still in default.

The Argentine economy began its recovery in the second half of 2009, resulting in a GDP increase of 0.9% for the year ended December 31, 2009, according to the INDEC.

According to INDEC, 7.5% of the active population was unemployed in the third quarter of 2010 compared to 9.1% rate in the third quarter of 2009. In line with the recovery in general activity, wages during 2010 rose faster than in 2009. Industry-wide wage negotiations, by sector, began in the second quarter of 2011.

Central Bank reserves increased by over U.S.$4.0 billion in 2010 to approximately U.S.$52.1 billion at the end of 2010, in spite of withdrawal of reserves to support payments to sovereign multilateral lenders and bondholders. For 2011, the government has passed a regulation allowing the withdrawal of up to an additional U.S.$7.5 billion from these reserves for the same purpose. The exchange rate of the Argentine peso against the U.S. dollar as of December 31, 2010 was Ps.3.98/ U.S.$1.00, reflecting a depreciation of the peso of 4.7% compared to December 31, 2009.

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In May 2010, the Argentine government submitted a proposal to exchange bonds that did not participate in the 2005 restructuring, amounting to US$ 18.7 billion. The acceptance rate for the exchange was above 60% of the overall amount.

After a decline in trade in 2009, caused mainly by lower commodity prices and the effects of a severe drought, both exports and imports increased during 2010. Industrial goods exports (in particular, related to the automotive industry) as well as agricultural exports boosted exports, while imports increased more rapidly than exports, mainly as a result of increased economic activity, which resulted in higher demand for fuel, consumer and intermediate goods, and capital assets, according to the Central Bank. As a result, the trade balance surplus decreased to U.S.$12 billion. The government is taking active measures to discourage imports, seeking to prevent a further deterioration of the balance of trade.

The increased economic activity during 2010 boosted imports by more than 40%, resulting in a trade balance surplus reduction when offset by an increase of approximately 20% in exports as a consequence of the good harvest and strong prices.

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OIL AND GAS EXPLORATION AND PRODUCTION

Overview

The core of our operations is the oil and gas exploration and production business segment, as a key link in our business chain. This business segment’s strategy is to increase oil and gas reserves and maintain production levels through profitable operations with a commitment to social and environmental responsibility. This strategy is focused on four main initiatives:

• Exploration for reserve replacement;

• Optimization of operations and existing infrastructure as leverage for new projects;

• Development and monetization of non-conventional gas reserves;

• Portfolio management through acquisition of reserves and negotiations.

As of December 31, 2010, we participated in oil and gas exploration and production activities in Argentina and in other Latin American countries, including Venezuela (through our equity interest in mixed-ownership companies), and Bolivia. In addition, we act as a contractor and provide technical and operating support in Mexico.

As of December 31, 2010, our combined crude oil and natural gas proved reserves, including our share of the reserves of our unconsolidated investees, were estimated at 248.4 million barrels of oil equivalent, approximately 57% of which were proved developed reserves and approximately 43% of which were proved undeveloped reserves. Crude oil accounted for approximately 43% of our combined proved reserves, while natural gas accounted for about 57%. As of December 31, 2010, 83% of our total combined proved reserves were located in Argentina and 17% were located abroad.

During 2010, combined crude oil and natural gas production, including our share in the production of our unconsolidated investees, averaged 102,200 barrels of oil equivalent per day. Crude oil accounted for approximately 51,000 barrels per day, while natural gas accounted for approximately 307.2 million cubic feet per day. Approximately 78.4% of our oil production and 90.1% of our gas production is derived from our operations in Argentina.

Integration with our refining and distribution business segment enables us to process a large part of our crude oil production in Argentina. The Genelba thermal power plant (“Genelba”), allows us to use approximately 100 million cubic feet of natural gas per day and Genelba Plus (as defined below), placed contiguous to Genelba, uses 37 million cubic feet of natural gas per day, all of which come mainly from our own production. In addition, in Argentina our oil and gas exploration and production business segment supplies gas to our Petrochemical and Refining operations

Our Oil and Gas Exploration and Production Interests

As is commonplace in the oil and gas exploration and production business, we generally participate in exploration and production activities in conjunction with joint venture partners. Contractual arrangements among participants in a joint venture are usually governed by an operating agreement, which provides that costs, entitlements to production and liabilities are to be shared according to each party’s percentage interest in the joint venture. One party of the joint venture is usually appointed as operator and is responsible for conducting the operations under the overall supervision and control of an operating committee that consists of representatives of each party of the joint venture. While operating agreements generally provide for liabilities to be borne by the participants according to their respective percentage interest, licenses issued by the relevant governmental authority generally provide that participants in joint ventures are jointly and severally liable for their obligations to that governmental authority pursuant to the applicable license. In addition to their interest in field production, contractual operators are generally paid their indirect administrative expenses on a monthly basis by their partners in proportion to their participation in the relevant field.

As of December 31, 2010, we had interests in forty-one blocks: twenty-four oil and gas production blocks (nineteen in Argentina and five outside of Argentina) and seventeen exploration blocks located within exploration areas or pending authorization for production (all of them located in Argentina). We were directly or indirectly the contractual operator of twenty-two of the forty-one blocks in which we had an interest.

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As of December 31, 2010, our total gross and net productive wells were as follows:

	Oil		Gas		Total
Gross productive wells(1)		3,260		366		3,626
Net productive wells(2)		1,655		244		1,899

(1)	Refers to number of wells completed.
(2)	Refers to fractional ownership working interest in gross wells.

As of December 31, 2010, our total production and exploration acreage, both gross and net, was as follows:

	Average
	Production(1)				Exploration(2)
	Gross		Net(3)		Gross			Net(3)
	(in thousands of acres)
Argentina		4,124		2,600		17,173	(4)		5,973	(5)
Venezuela		485		125		—			—
Bolivia		56		56		—			—
Total		4,665		2,781		17,173			5,973

(1)	Includes all areas in which we produce commercial quantities of oil and gas or areas in the development stage.
(2)	Includes all areas in which we are allowed to perform exploration activities but where commercial quantities of oil and gas are not produced or areas that are not in the development stage.
(3)	Represents our fractional ownership working interest in the gross acreage.
(4)	Includes 14.7 million exploration acres in offshore areas.
(5)	Includes 4.3 million exploration acres in offshore areas.

The following table sets forth the number of total wells we drilled in Argentina and outside of Argentina and the results for the relevant periods. A development well, for purposes of the following table, is one that justifies the installation of permanent equipment for the production of oil or gas. A well is deemed to be a dry well if it is determined to be incapable of commercial production. “Gross wells drilled” in the table below refers to the number of wells completed during each fiscal year, regardless of the spud date, and “net wells drilled” relates to our fractional ownership working interest in wells drilled. This table includes wells drilled by our consolidated subsidiaries, companies under joint control and unconsolidated investees.

	Year ended December 31,
	2010						2009						2008
					Rest of						Rest of						Rest of
					Latin-						Latin-						Latin-
	Argentina		Venezuela		America		Argentina		Venezuela		America		Argentina		Venezuela		America
Gross wells drilled:
Production:
Development wells:
Oil		87		14		—		86		21		—		144		23		128
Gas		7		—		—		6		—		1		15		—		3
Dry wells		—		—		—		—		—		—		—		1		—
Total		94		14		—		92		21		1		159		24		131
Exploration:
Exploratory wells:
Oil		2		—		—		1		—		—		3		—		—
Gas		—		—		—		—		—		—		—		—		1
Dry wells		3		—		—		6		—		—		10		—		—
Total		5		—		—		7		—		—		13		—		1
Net wells drilled:
Production:
Productive wells:
Oil		53		4		—		51		6		—		67		6		77
Gas		5		—		—		4		—		1		10		—		3
Dry wells		—		—		—		—		—		—		—		—		—
Total		58		4		—		55		6		1		77		6		80
Exploration:
Discovery wells:
Oil		2		—		—		—		—		—		1		—		—
Gas		—		—		—		—		—		—		—		—		0.3
Dry wells		2		—		—		2		—		—		2		—		—
Total		4		—		—		2		—		—		3		—		0.3

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Production

Argentine Oil and Gas Production

Rights to develop oil and gas fields in Argentina are granted through concessions and exploration permits. Concessions are generally granted for periods of 25 years and are typically renewable for a maximum term of ten years, and permits are generally granted for initial periods of four years. Concessionaires in Argentina are entitled to gross proceeds from production sales. All permanent fixtures, materials and equipment are under the control of the concessionaire, although they revert to the Argentine government at the end of the concession. Royalties based on production are paid to the respective Argentine provinces. These royalties are, in general, 12% of the wellhead price for oil and gas. The wellhead price is calculated by deducting freight and other expenses to make oil and gas available for sale from the sales price obtained in transactions with third parties, or from the product price prevailing in the domestic market if the product is subject to industrialization processes.

We transport our oil and gas production in several ways depending on the infrastructure available and the cost efficiency of the transportation system in a given location. We use the oil pipeline system and oil tankers to transport oil to our customers. Oil is customarily sold through contracts whereby producers are responsible for transporting produced oil from the field to a port for shipping, with all costs and risks associated with transportation borne by the producer. Gas, however, is sold at the delivery point of the gas pipeline system near the field and, therefore, the customer bears all transportation costs and risks associated therewith. Oil and gas transportation in Argentina operates in an “open access” non-discriminatory environment under which producers have equal and open access to the transportation infrastructure. We maintain limited storage capacity at each oil site and at the terminals from which oil is shipped. In the past, these capacities have been sufficient to store oil without reducing current production during temporary unavailability of the pipeline systems, due, for example, to maintenance requirements or temporary emergencies.

As of December 31, 2010, we owned 19 concessions in oil and gas production areas in Argentina. Our production is concentrated in four basins: the Neuquén, Austral, San Jorge and Noroeste basins. In the Neuquén basin—the most important basin in Argentina in terms of oil and gas production—we own approximately 589,000 net acres. Our most important fields in the Neuquén basin are Puesto Hernández, 25 de Mayo-Medanito S.E. and Sierra Chata. In the Austral basin, we own approximately 1,910,000 net acres, with Santa Cruz I and Santa Cruz II being our main concessions. As of December 31, 2010, we had 3,217 productive wells in Argentina.

For the year 2010, our average daily production was 40,000 barrels of crude oil and 276.8 million cubic feet of natural gas, representing a reduction of 6% and 9%, respectively, compared to 2009, due to the fact that our production activities in Argentina are mainly developed in mature fields undergoing secondary recovery operations, which are capital-intensive projects.

During the fiscal year ended December 31, 2010, according to the SE, oil production in Argentina declined to an average of 609,000 barrels per day, a slight decrease (2%) compared to 2009. Gas production decreased by 2% to a value of 4.6 billions of cubic feet. Our oil and gas production accounted for approximately 7% and 6% of total oil and gas production in Argentina, respectively, and positioned us as the third producer in the country.

In 2010, we carried out investment plans aligned with our reserve replacement and production goals, as a mean to achieve sustainable growth. Our capital expenditures included the drilling of 53 producing wells, repairing of 88 producing wells, the expansion of secondary recovery projects and surface facilities in several areas in which we operate.

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Pursuant to the Gas Plus program promoted by the SE, designed to encourage additional natural gas production, in December 2010 we entered into an investment agreement with Pampa (as defined below) to drill four new wells in El Mangrullo area for up to US$16 million aimed at developing non-conventional gas reserves.

The international crisis of 2008 had an impact on 2009 investment levels in the global and Argentine oil industry. Within this context, both national and provincial governments played active roles in promoting negotiations between operators and trade unions to reach sustainable agreements and to avoid a significant impact on production activities. PESA was an active player in these agreements, which secured the maintenance of employment levels in the oil and gas industry during 2010.

Production Outside of Argentina

As of December 31, 2010, 17% of our combined proved reserves were located outside of Argentina. In addition, as of December 31, 2010, approximately 21.6% of our oil production and 9.9% of our gas production came from outside of Argentina. As of that date, we had working interests in five oil and gas production blocks outside of Argentina: Oritupano Leona, La Concepción, Acema and Mata (through direct and indirect equity interest in Petroritupano S.A., Petroven-Bras S.A., Petrowayú S.A. and Petrokariña S.A.) in Venezuela and Colpa Caranda in Bolivia.

During the second quarter of 2010, the Tibú Consortium, of which PESA was a party, officially communicated to Ecopetrol, the Colombian state-owned company, its decision to discontinue its operations in the Tibú field in the Catatumbo basin, given the poor results obtained from exploratory and evaluation works performed in the field, which was the only asset held by PESA in Colombia. In 2010, our net daily production in Colombia was 0.1 thousand barrels of oil equivalent.

In April 2009, we sold our 60% remaining equity interest in PVIE, a holding company whose main asset through its 99.79% interest in Petrobras Energía Perú S.A.’s capital stock, was Lote X, to Petrobras International Braspetro BV (PIB BV). See “Item 5—Factors affecting our Consolidated Results of Operations—7) Sale of Petrobras Argentina’s Interest in Petrobras de Valores Internacional de España S.L. (PVIE).”

Venezuela

In 2010, oil and gas production attributable to operations in Venezuela averaged 8,200 barrels of oil equivalent per day, representing 8% of our daily production and a reduction of 18% compared to 2009. Our four areas in Venezuela, operated by mixed-ownership companies, had an aggregate of 349 productive wells.

Mixed-ownership companies are required to sell all liquid hydrocarbons and the associated natural gas they produce to PDVSA according to a price formula that uses international benchmarks such as the price of WTI crude and the cost of Well Test Services (“WTS”).

Mixed-ownership companies are subject to royalty payments of 33.33% based on production. In addition, they are required to pay to the Venezuelan government an amount equivalent to any difference between (1) 50% of the value of oil and gas sales during each calendar year and (2) the sum of total royalty payments made during such year plus income tax and any other tax or duty calculated on the basis of the sales revenues paid during such year.

Additionally, since April 2008, with the enactment of the Special Tax Law on Extraordinary Prices of the International Hydrocarbon Market, a special tax payable by companies exporting or transporting liquid hydrocarbons and oil by-products abroad has been applicable to mixed-ownership companies.

Ecuador

Up to November 25, 2010, we operated Block 18 in Ecuador, in which we hold a 30% interest, through our subsidiary EcuadorTLC S.A., under a participation agreement. During 2010, and up to November 25, our oil production in Ecuador averaged 2,300 barrels per day, accounting for 2.3% of our total average daily production in barrels of oil equivalent.

Block 18 comprises the Pata and Palo Azul fields, located in the Oriente Basin, covering approximately 84,360 net acres and having potential of 26° to 33° API gravity light crude oil reserves. We acquired a 70% working interest in Block 18 in 2001 for a 20-year term which began in October 2002. Production agreements relating to Block 18 provided for the free availability of the crude oil output and a share in production in favor of the Ecuadorian government.

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On January 11, 2007 the Ministry of Energy and Mines of Ecuador approved a preliminary agreement entered into with Teikoku Oil Co. Ltd. (“Teikoku”) in January 2005, whereby we assigned 40% of our rights and obligations under the Block 18 participation agreement to Teikoku. On October 27, 2008, the transfer of our interest to Teikoku, and consequent reduction of our interest in Block 18 from 70% to 30% was completed.

On October 31, 2008, EcuadorTLC S.A., Teikoku Oil Ecuador (a subsidiary of Teikoku) and Petroecuador, among others, executed amendment agreements, which, among other things, governed the operation of Block 18 for one year, which was subsequently extended to October 2010.

On July 26, 2010, the Ecuadorian Hydrocarbon Law was amended. Such amendment provided, among other things, the migration to a new contractual modality as from November 24, 2010.

As a result of this, we decided not to accept the final proposal received from the Ecuadorian government to migrate to service contracts for Block 18 and Palo Azul Unified Field. Consequently, on November 25, 2010, the Hydrocarbon Secretary notified EcuadorTLC the termination of the participation agreements and instructed Petroamazonas EP to implement the operational transition process.

As a consequence of this termination, the Ecuadorian government must compensate contractors in an amount equivalent to unamortized investments adjusted by a variable rate considered reasonable for this type of projects in such country, with a term established for us and the Ecuadorian government to negotiate the settlement price for the agreements.

On March 18, 2011, the Ecuadorian Hydrocarbon Secretary issued official notice No. 626 to inform us that it was analyzing and structuring a new regulatory framework to determine the settlement price for the agreements. On April 11, 2011, we filed an answer to the official notice and rejected the terms thereof claiming that they do not comply with the procedure to determine the settlement price established in the amendment agreements by the parties concerned, which procedure may not be unilaterally modified. In this respect, we informed the Ecuadorian Hydrocarbon Secretary that we will continue to apply the procedure provided for in the agreements.

As of the date of this annual report, we maintain a credit for approximately US$ 103 million for this transaction, on which, considering the uncertainties involved, we have recognized an impairment charge of approximately US$ 50 million for 2011. This impairment charge should not be deemed as a waiver of our rights to receive the compensation provided for in the amendment agreements.

As of the date of this annual report, we continue to pursue an agreement with the Ecuadorian government regarding payment of said compensation under the amendment agreements.

We maintain a presence in Ecuador, through our equity share in Oleoducto de Crudos Pesados S.A.

Ship or Pay Obligations with Oleoducto de Crudos Pesados (“OCP”)

The Company is a party to a transportation agreement with OCP whereby we acquired an oil transportation capacity of 80,000 barrels per day for 15 years, beginning on November 10, 2003. Under the “ship or pay” clause included in the agreement, we must pay a fee covering OCP operating costs and financial services, although no crude oil is transported. We are entitled to sell transportation capacity through the OCP to mitigate the negative effect resulting from the excess capacity contracted. In this respect, we periodically enter into agreements to reduce our committed transportation capacity exposure. On December 31, 2008, we signed an agreement with Petroecuador concerning the use of the oil transportation capacity committed under the agreement with OCP. The Ecuadorian Government has undertaken the commitment, beginning January 1, 2009, to transport a minimum of 33,000 barrels per day of its crude oil, increasing to 48,000 barrels per day since 2010 and further increasing to a maximum of 70,000 barrels per day until the year 2018. During 2010, Petroecuador transported an average of 49,634 barrels per day.

As a result of the agreement signed with Teikoku, 40% of our net contractual obligation with OCP was assumed by Teikoku Oil Ecuador, according to the terms of the assignment agreement of 40% of Block 18 and Palo Azul in October 2008. See “Item 5. Factors affecting our consolidated results of operations — Operations in Ecuador.”

Bolivia

As of December 31, 2010, we held a 100% interest in the Colpa Caranda Block in Bolivia. The Colpa Caranda Block covers approximately 56,000 net acres located in the Sub Andina Central basin and has sixty producing wells.

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As of December 31, 2008, estimated proved oil and gas reserves attributable to operations in Bolivia amounted to 23 million barrels of oil equivalent. However, on January 25, 2009, Bolivia adopted a new constitution that prohibits private ownership of the country’s oil and gas resources. In light of the new constitution, we were required to write off all of our proved reserves in Bolivia at the end of 2009. We continue to report production from our operations in Bolivia under our existing contracts in that country.

In 2010, our net daily production in Bolivia under the economic method was 5,400 barrels of oil equivalent or 5.3% of our total production. Of this amount, 26 million cubic feet per day correspond to gas production and 1,100 barrels of oil per day to liquid hydrocarbons, including LPG. These fields, which originally exported gas to Argentina, currently prioritize delivery of gas to the Santa Cruz-São Paulo pipeline that transports gas to Brazil.

We have operated the Colpa Caranda Block in Bolivia since 1989. Under a contract signed with the Bolivian national oil company, YPFB, in October 2006, we currently perform exploration and production activities at our own risk and for our own account in the Colpa Caranda Block, but on behalf and in the name of YPFB. The agreement was approved on April 23, 2007 and became effective on May 2, 2007. Under this agreement, YPFB owns the hydrocarbons and pays royalties, direct interest and direct tax on hydrocarbons, which in the aggregate amount to 50% of the production valued on the basis of sales prices discounted for costs of transport through pipelines from Colpa field to Brazil. Of the remaining amounts, 80% is used to pay for operating services provided by us, including depreciation. Any remainder is shared between YPFB and us on the basis of an index calculated based on production volumes, depreciation rates, prices and taxes paid, among other items.

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Statistical Information Relating to Oil and Gas Production

The following table sets forth our oil and gas production during 2010. Production figures represent our working interest in production (and are therefore net to us). In addition, the table includes our working interest in each field, the number of producing wells and the expiration date of the concessions, in each case as of December 31, 2010. Although some of these concessions may be extended at their expiration, the expiration dates set forth below do not include any extensions.

							Oil and
			2010 Production				Gas
Production Areas	Location	Basin	Oil(1)		Gas(2)		Wells		Interest			Expiration
Argentina:
25 de Mayo — Medanito S.E	La Pampa and Río Negro	Neuquén		3,930		3,669		618		100.00	%		2016
El Mangrullo	Neuquén	Neuquén		27		13,904		8		100.00	%		2025
Jagüel de los Machos	Río Negro and La Pampa	Neuquén		1,771		2,518		156		100.00	%		2015
Puesto Hernández	Mendoza and Neuquén	Neuquén		2,203		—		754		38.45	%		2016
Bajada del Palo	Neuquén	Neuquén		178		201		40		17.9	%(6)		2025
Santa Cruz II	Santa Cruz	Austral		593		4,144		71		100.00	%		2017/2028
Río Neuquén	Río Negro and Neuquén	Neuquén		365		8,598		125		100.00	%		2017/2027
Entre Lomas	Río Negro and Neuquén	Neuquén		807		1,131		479		17.9	%(6)		2016/2026
Veta Escondida and Rincón de Aranda	Neuquén	Neuquén		—		—		—		55.00	%		2027
Aguada de la Arena	Neuquén	Neuquén		60		6,382		13		80.00	%		2036
Santa Cruz I	Santa Cruz	Austral		1,248		42,690		105		71.00	%		2017/2035
Sierra Chata	Neuquén	Neuquén		59		12,235		56		45.55	%		2023
Atuel Norte	Mendoza	Neuquén		3		—		6		33.33	%(6)		2015
La Tapera — Puesto Quiroga	Chubut	San Jorge		96		—		—		35.67	%(6)		2017
El Tordillo	Chubut	San Jorge		2,643		—		701		35.67	%(6)		2017
Aguaragüe	Salta	Noroeste		94		5,159		45		15.00	%(6)		2017/2023
Estancia Agua Fresca	Santa Cruz	Austral		427		346		9		50.00	%		2034
Gobernador Ayala	Mendoza	Neuquén		82		—		24		22.51	%(6)			(3)
Charco del Palenque	Río Negro	Neuquén		15		57		7		17.90	%(6)		2038
Total Argentina				14,601		101,034		3,217
Outside of Argentina:
Colpa Caranda(4)	Bolivia	Sub Andina		385		9,543		60		100.00	%		2029
Oritupano Leona(5)	Venezuela	Oriental		1,657		—		194		22.00	%(6)		2025
Acema(5)	Venezuela	Oriental		170		623		17		31.36	%(6)		2025
La Concepción(5)	Venezuela	Lago Maracaibo		729		652		101		36.00	%(6)		2025
Mata(5)	Venezuela	Oriental		197		272		37		34.49	%(6)		2025
Block 18(7)	Ecuador	Oriente		850		—		—		30.00	%		2010
Tibú(8)	Colombia	Catatumbo		32		—		—		30.00	%(6)		2010
Total Outside of Argentina				4,020		11,090		409
Total				18,621		112,124		3,626

(1)	In thousands of barrels.
(2)	In millions of cubic feet.
(3)	We have filed an application for an exploitation concession with respect to this field, which is still pending approval.
(4)	Production from Colpa Caranda block was calculated using the “economic method”.
(5)	Indirect interests through mixed-ownership companies.
(6)	Areas operated by third parties.
(7)	This asset was operated by us, through our subsidiary EcuadorTLC S.A., up to November 25, 2010. See “Oil and Gas Exploration and Production — Production — Production outside of Argentina — Ecuador”.
(8)	This asset was relinquished in April 2010.

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The following table sets forth our average daily production of oil, including other liquid hydrocarbons, for the fiscal years ended December 31, 2010, 2009 and 2008. This table includes our net share of production of consolidated subsidiaries, companies under joint control and unconsolidated investees.

	Year ended December 31,
	2010		2009		2008
	(average barrels per day)
Argentina		40,003		42,389		43,016
Venezuela		7,545		9,282		12,611
Rest of Latin-America		3,468		7,801		20,143
Total		51,016		59,472		75,770

The following table sets forth our average daily gas production for the fiscal years ended December 31, 2010, 2009 and 2008. This table includes our net share of production of consolidated subsidiaries, companies under joint control and unconsolidated investees.

	Year ended December 31,
	2010		2009		2008
	(average thousand cubic feet per day)
Argentina		276,805		304,444		266,492
Venezuela		4,236		5,756		7,855
Rest of Latin-America		26,146		33,442		43,894
Total		307,187		343,642		318,241

The following table sets forth the average sales price per barrel of oil and per million cubic feet of gas for each geographic area for the fiscal years ended December 31, 2010, 2009 and 2008, of our consolidated subsidiaries, companies under joint control and unconsolidated investees.

	Year ended December 31,
	2010		2009		2008
Argentina:
Oil (in pesos per barrel of oil equivalent)		190.3		149.7		135.6
Gas (in pesos per million cubic feet)		6.2		5.7		4.6
Venezuela(1):
Oil (in pesos per barrel of oil equivalent)		274.6		206.5		270.4
Rest of Latin-America(2):
Oil (in pesos per barrel of oil equivalent)		243.8		175.8		280.2
Gas (in pesos per million cubic feet)		23.2		17.4		17.5

(1)	Figures are translated into Argentine pesos at historic exchange rates, calculated as the average of rates for each year.
(2)	Figures are translated into Argentine pesos at historic exchange rates, calculated as the average of monthly average exchange rates for each year.

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The following table sets forth our average operating cost, royalties and depreciation cost of oil and gas fields in each geographic area for the fiscal years ended December 31, 2010, 2009 and 2008. This table includes our net share of production of our consolidated subsidiaries, companies under joint control and unconsolidated investees.

	Year ended December 31,
	2010		2009		2008
	(in pesos per barrel of oil equivalent)
Argentina:
Operating cost		31.81		24.16		19.83
Royalties		14.56		11.82		11.01
Depreciation		26.51		26.00		21.70
Total		72.88		61.98		52.54
Venezuela(1):
Operating cost		65.12		55.91		71.35
Royalties		85.16		58.32		78.70
Depreciation		41.31		42.78		39.76
Total		191.59		157.01		189.81
Rest of Latin-America(2):
Operating cost		23.38		16.82		14.60
Royalties		22.05		15.08		52.16
Depreciation		10.30		10.34		9.94
Total		55.73		42.24		76.70

(1)	Figures are translated into Argentine pesos at historic exchange rates, calculated as the average of rates for each year.
(2)	Figures are translated into Argentine pesos at historic exchange rates, calculated as the average of monthly average exchange rates for each year.

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Exploration

Our strategy is focused on constantly searching for new exploration opportunities aligned with our growth targets. In exploring Argentina’s offshore areas, we use the expertise and know-how of Petrobras, a world leader in offshore exploration and a pioneer in deep and ultra deep-water activities.

The following table lists exploration areas as of December 31, 2010, the location and basin of each area, our net working interest and the expiration date for the exploration authorization.

	Location	Basin	Interest			Expiration
Argentina:
Glencross	Santa Cruz	Austral		87.00	%		2033
Estancia Chiripá	Santa Cruz	Austral		87.00	%		2033
Agua Amarga	Rio Negro	Neuquén		17.90	%(2)		2017
Parva Negra	Neuquén	Neuquén		100.00	%			(1)
Cerro Hamaca Norte	Mendoza	Neuquén		39.64	%(2)			(1)
Puesto Oliverio	Santa Cruz	Austral		50.00	%			(1)
El Campamento	Santa Cruz	Austral		50.00	%			(1)
El Cerrito Oeste	Santa Cruz	Austral		50.00	%			(1)
Chirete	Salta	Noroeste		100.00	%		2014
Rio Colorado	Salta	Noroeste		30.00	%(2)		2014
Enarsa 1	Continental Shelf	Offshore Argentina		25.00	%(2)		2020
Enarsa 3	Continental Shelf	Offshore Argentina		35.00	%		2020
Río Atuel	Mendoza	Neuquén		33.33	%(2) (3)		2015
Bloque CAA 40	Continental Shelf	Offshore Argentina		33.00	%(2)		2015
Bloque CAA 46	Continental Shelf	Offshore Argentina		33.00	%(2)		2016
Borde del Limay	Neuquén	Neuquén		85.00	%(3)		2015
Los Vértices	Neuquén	Neuquén		85.00	%(3)		2015

(1)	We have filed an application for an exploitation concession with respect to this field, which is still pending approval as of the date of this annual report.
(2)	Areas operated by third parties.
(3)	Exploration permits obtained in 2009.

Exploration in Argentina

As of December 31, 2010, we held interests in approximately 17,173,000 gross exploration acres in Argentina, of which 14,724,000 are located in offshore areas.

In 2008, we entered into a joint venture agreement with Repsol-YPF, which acted as operator, in CGSJ Marina-1 block in Golfo San Jorge basin, Argentina, with a 33% working interest. In accordance with the exploratory plan, four wells were drilled. The first was drilled in 2008, and the other three were drilled during 2009. These wells were later abandoned because of unfavorable results and the block was returned.

In 2008, we entered into a joint venture agreement for the exploration of the CAA-40 and CAA-46 blocks in the offshore Malvinas basin. We hold a 33% interest in this consortium, and the other parties are Repsol-YPF (33.5%), which is the operator, and Pan American Energy LLC (33.5%). During 2010, Repsol-YPF continued to perform geological and geophysical surveys and plans to drill Malvinas x-1 well in 2011.

In 2009 we obtained the concession of three blocks in the Neuquén basin: Río Atuel, Los Vértices and Borde del Limay, which involve 3-year investment commitments for the exploratory stage, in the case of the Rio Atuel block, and 4-year investment commitments for the exploratory stage in the case of the other two blocks.

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The Río Atuel block has a surface of 2,000 km² and is located in the province of Mendoza. We hold a 33.33% interest in this consortium and the other parties are Tecpetrol, which is the operator, and Petrolera El Trébol, both holding a 33.33% interest. Borde del Limay and Los Vértices blocks, which have a surface of 368 km² and 59 km², respectively, where we will act as operator, are located in the province of Neuquén. In 2010, 3D seismic surveys over 414² km were conducted at the Rio Atuel block.

In 2010, we drilled five onshore exploration wells: two in the Austral basin, two in the Neuquén basin and one in the Noroeste basin. Two of them were productive wells. In addition, two well completions were performed: one in the Neuquén basin, which showed commercial gas volumes and another one in the Austral basin with low gas productivity.

In addition, during 2010 we continued with geological and geophysical studies and exploration activities in the Enarsa 1 and Enarsa 3 blocks.

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Reserves

We believe our estimates of remaining proved recoverable oil and gas reserve volumes to be reasonable. Pursuant to Rule 4-10 of Regulation S-X, promulgated by the SEC, proved oil and natural gas reserves are those estimated quantities of crude oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs, under existing economic and operating conditions, i.e., prices and cost at the date of estimation. DeGolyer and MacNaughton audited approximately 71% of our estimated reserves as of December 31, 2010. The reserves not audited by DeGolyer and MacNaughton are in areas where we do not act as operator. The audit covered 100% of the estimated reserves located in areas operated by us. DeGolyer and MacNaughton concluded that the proved oil and natural gas reserve volumes covered by the audit are reasonable and that reserve estimates have been prepared in accordance with Rule 4-10 of Regulation S-X and in accordance with oil and gas reserve disclosure provisions of the ASC 932 of the FASB Accounting Standards Codification (ASC) relating to extractive activities — Oil and Gas (formerly FASB Statement of Financial Accounting Standards No. 69 — Disclosures about Oil and Gas Producing Activities). We resolved all questions that arose during the course of the audit process to the auditor’s satisfaction. See the reserves audit report by DeGolyer and MacNaughton, dated January 10, 2011, as Exhibit 4.8 to this annual report.

As of December 31, 2009 and 2008, 70% of our estimated reserves were audited by DeGolyer and MacNaughton.

Internal Control over Proved Reserves

The reserves estimation process begins with an initial evaluation of our assets by geophysicists, geologists and engineers. A Reserves Coordinator (Coordinador de Reservas or RC) safeguards the integrity and objectivity of our reserves estimates by supervising and providing technical support to technical teams who are responsible for preparing the reserves estimates. Our technical teams have degrees in geophysics, geology, petroleum engineering and accounting and are trained internally in reserves estimates seminars. The RC is responsible for consolidating and auditing the reserves estimation process in compliance with the SEC reserve guidelines. The technical person primarily responsible for overseeing the preparation of our reserves is a member of the SPE (Society of Petroleum Engineers), with 21 years of experience in exploration and production activities and who has been with PESA for 21 years. Our reserves estimates are approved by the Oil and Gas Exploration and Production Director and presented to our Executive Committee.

Most of the reserve estimates related to areas in which we do not act as operator were prepared by the operators and subsequently reviewed by our petroleum engineers before making the assessment of our proved reserves. The reported hydrocarbon reserves were estimated based on professional, geological and engineering judgment and on information supplied by us prior to January 10, 2011. Thus they are subject to revisions, upward or downward, as a result of future operations or as additional information becomes available. DeGolyer and MacNaughton’s audit examination included those tests and procedures considered necessary by them in view of the circumstances prevailing in each case. These tests and procedures included a review of the appropriateness of the methodologies employed by us in estimating reserves, the adequacy and quality of the data obtained and used by us in estimating reserves, the scope and completeness of the process used by us in estimating reserves and our classification of reserves in accordance with relevant definitions and guidance, as well as an economic test of the proved developed and total proved categories of reserves for each audited property.

An audit of proved reserves is an examination of proved reserves that is conducted by the auditor for the purpose of expressing an opinion as to whether such reserve information, in the aggregate, is reasonable. The estimation of reserves is an imprecise science due to many unknown geologic and reservoir factors that can only be estimated through sampling techniques. Since reserves are therefore only estimates, they cannot be audited for the purpose of verifying exactness. Instead, reserve information is audited for the purpose of reviewing in sufficient detail the policies, procedures and methods used by us, engaged in the exploration and production of oil and gas in estimating our reserves so that the auditor may express an opinion as to whether, in the aggregate, the reserve information furnished by us is reasonable.

As of December 31, 2010, our liquid hydrocarbon and natural gas proved developed and undeveloped reserves amounted to 248.4 million barrels of oil equivalent (107.8 million barrels of oil and 843.3 billion cubic feet of natural gas), representing a 14% decline compared to proved reserves as of December 31, 2009 (a decline of 18% and 11.5% for liquid hydrocarbons and natural gas, respectively). During 2010, the decision not to migrate to service agreements in connection with Block 18 in Ecuador and our divestment of our interest in Tibú field in Colombia resulted in a reduction in reserves of 6.1 million barrels of oil equivalent. In addition, a downward revision of 8.8 million barrels of oil equivalent was attributable, on the one hand, to reserve re-categorization in Argentina and, on the other, to a greater-than-expected decline in our reserves from mixed-ownership companies in Venezuela.

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Liquid hydrocarbons and natural gas accounted for 43% and 57%, respectively, of our total proved reserves as of December 31, 2010. Approximately 17% of our total proved reserves as of December 31, 2010 were located outside of Argentina as compared to 19.7% as of December 31, 2009.

As of December 31, 2010, proved developed reserves of crude oil equivalent represented 57.2% of our total proved reserves of crude oil equivalent.

As of December 2010, we had proved reserves equal to seven years of production at 2010 rates.

The following table sets forth the estimated net proved developed and undeveloped reserves of crude oil and natural gas by country as of December 31, 2010, for our consolidated subsidiaries, joint controlled affiliates and unconsolidated investees.

	Reserves as of December 31, 2010
	Oil		Natural gas
Reserves category	(mmbbl)		(bncf)
PROVED
Developed		71		425
Argentina		52		400
Venezuela		19		25
Other South America		—		—
PROVED
Undeveloped		37		418
Argentina		22		384
Venezuela		15		34
Other South America		—		—
Total proved reserves (developed and undeveloped)		108		843

Reserves calculations are based on forecasts of field production, which depend on a number of technical parameters, such as seismic interpretation, geological maps, well tests, reservoir engineering studies and economic data. All reserve estimates involve some degree of uncertainty. The uncertainty depends primarily on the amount of reliable geological and engineering data available at the time of the estimate and the interpretation of that data. Our estimates are thus made using the most reliable data at the time of the estimate, in accordance with the best practices in the oil and gas industry.

The statements contained in this Item 4 regarding exploration and development projects and production estimates are forward-looking and subject to significant risks and uncertainties. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that our actual levels of activity, production or performance will meet these expectations. See Item 3. “Key Information—Risk Factors.”

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The table below sets forth, by geographic area, total proved reserves and proved developed reserves of crude oil, condensate and natural gas liquids and reserves of natural gas at the indicated dates. This table includes our net share of the proved reserves of our consolidated subsidiaries, companies under joint control and unconsolidated investees. Our net share of the proved reserves of our unconsolidated investees represented 20% of our total proved reserves as of December 31, 2010.

	Crude oil, condensate and natural gas
	liquids												Natural gas
							Rest of												Rest of
							Latin-												Latin-
	Argentina			Venezuela			America			Total			Argentina			Venezuela			America			Total			Combined
																									(in millions
																									of barrels of
																									oil
	(in thousands of barrels)												(in millions of cubic feet)												equivalent)
Total proved developed and undeveloped reserves as of December 31, 2008		99,781			49,039			72,681			221,501			1,002,054			75,267			191,753			1,269,074			433.0
Proved developed reserves as of December 31, 2008		75,633			27,497			36,223			139,353			539,386			47,034			115,145			701,565			256.3
Increase (decrease) originated in:
Revisions of previous estimates		(1,687	)		(2,884	)		(4,159	)		(8,730	)		(4,514	)		(13,967	)		(124,014	)		(142,495	)		(32.5	)
Improved recovery		—			(2,769	)		—			(2,769	)		—			4,416			—			4,416			(2.0	)
Extensions and discoveries		2,489			—			—			2,489			1,919			—			—			1,919			2.8
Purchase of proved reserves in place		—			—			—			—			—			—			—			—			—
Sale of proved reserves in place		—			(174	)		(59,332	)		(59,506	)		—			(492	)		(65,988	)		(66,480	)		(70.6	)
Year’s production (1)		(15,472	)		(3,388	)		(2,406	)		(21,266	)		(111,122	)		(2,101	)		(733	)		(113,956	)		(40.3	)
Total proved developed and undeveloped reserves as of December 31, 2009		85,111			39,824			6,784			131,719			888,337			63,123			1,018			952,478			290.4
Proved developed reserves as of December 31, 2009		63,623			22,228			4,668			90,519			450,296			32,462			1,017			483,775			171.1
Increase (decrease) originated in:
Revisions of previous estimates		(2,240	)		(3,630	)		—			(5,870	)		(15,666	)		(1,856	)		—			(17,522	)		(8.8	)
Improved recovery		104			—			—			104			4,685			—			—			4,685			0.9
Extensions and discoveries		6,018			—			31			6,049			7,213			—			—			7,213			7.3
Purchase of proved reserves in place		—			—			—			—			—			—			—			—			—
Divestment/ Sale of proved reserves in place		(10	)		—			(5,935	)		(5,945	)		—			—			(1,018	)		(1,018	)		(6.1	)
Year’s production (1)		(14,601	)		(2,755	)		(880	)		(18,236	)		(101,034	)		(1,546	)		—			(102,580	)		(35.3	)
Total proved developed and undeveloped reserves as of December 31, 2010		74,382			33,439			—			107,821			783,535			59,721			—			843,256			248.4
Proved developed reserves as of December 31, 2010		52,499			18,739			—			71,238			399,567			25,076			—			424,643			142.0

(1) Without considering Bolivia’s production. As from 2009, following approval of a new constitution in Bolivia, the power to book and record reserves was exclusively vested in the Bolivian state. As a result, in 2009 we reduced our reserves by the barrels of oil equivalent attributable to reserves in Bolivia. However, this reduction in reserves does not imply changes in the economic value of our assets.

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The information as from January 1, 2009 is presented in accordance with the new reserve estimation and disclosure rules, which may not be applied retrospectively. The decrease in reserves shown in the table above as of December 31, 2009 is mainly due to the sale of our equity interest in PVIE, a holding company owning a 99.79% interest in Petrobras Energía Perú S.A.

The following table sets forth the breakdown of our total proved reserves of liquid hydrocarbons and natural gas into proved developed and undeveloped reserves as of December 31, 2010, 2009 and 2008.

	2010					2009					2008
	Millions of					Millions of
	barrels of		% of total			barrels of		% of total			Millions of		% of total
	oil		proved			oil		proved			barrels of oil		proved
	equivalent		reserves			equivalent		reserves			equivalent		reserves
Proved developed reserves		142.0		57.18	%		171.1		58.9	%		256.3		59.2	%
Proved undeveloped reserves		106.4		42.82	%		119.3		41.1	%		176.7		40.8	%
Total Proved Reserves		248.4		100	%		290.4		100	%		433.0		100	%

Estimated reserves were subject to economic evaluation to determine their economic limits. Estimated reserves in Argentina are stated before royalties, as the latter have the same attributes as taxes on production and as they are not paid in kind, and therefore are treated as operating costs. In Ecuador, due to the type of contract involved in which the government received a share of production, reserves were stated after the government’s share. Estimated reserves in Venezuela are stated before royalties and are computed by multiplying our ownership in each mixed-ownership company by the proved reserve volumes of the relevant mixed-ownership company.

57% of our proved reserves are developed, while 43% are undeveloped. Proved developed reserves are 142 million of barrels of oil equivalent. During 2010 we invested US$185 million to convert approximately 6 millions of barrels of proved undeveloped reserves to proved developed reserves.

Proved undeveloped reserves are 106.4 millions of barrels of oil equivalent, 88% of which will be put into production through activities implemented in the next five years. 12% of these reserves will be developed over a period longer than five years. These reserves are located in gas fields where the activity has been scheduled to maintain production levels in accordance with contracts and installed facilities.

We have a total of 16.4 millions of barrels of oil equivalent of proved undeveloped reserves that have been booked for more than 5 years: 9.6 MMboe in Argentina due to reserves mainly located in gas fields where the activity has been scheduled to maintain production levels in accordance with contracts and installed facilities and 6.8 MMBoe in Venezuela due to changes in development plans after the operation was transferred to the mixed-ownership companies in 2006. See “Oil and Gas Exploration and Production — Production — Production outside of Argentina — Venezuela”.

We prioritize the development of new business opportunities associated to non-conventional gas reserves in Argentina. In December 2010, we entered into an investment agreement with Pampa to drill new wells in El Mangrullo area aimed at developing non-conventional gas reserves. See “Oil and Gas Exploration and Production —Production—Argentine Production”.

There are many uncertainties in estimating quantities of proved reserves and in projecting future rates of production and the timing of development expenditures, including certain factors that are beyond our control. The reserves data set forth in this annual report solely represents estimates of our proved oil and gas reserves. Reserve engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be precisely measured. The accuracy of a reserve estimate stems from available data, engineering and geological interpretation and judgment of reserves and reservoir engineering. As a result, different engineers often obtain different estimates. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of such estimate, so the reserve estimates at a specific time are often different from the quantities of oil and gas that are ultimately recovered. Furthermore, estimates of future net revenues from our proved reserves and the present value thereof are based upon assumptions about future production levels, prices and costs that may prove to be incorrect over time. Estimates of future prices, costs and production volumes are subject to uncertainties and may prove to be incorrect over time. The meaningfulness of such estimates is highly dependent upon the accuracy of the assumptions upon which they are based. Accordingly, we cannot ensure that any specified production levels will be reached or that any cash flow arising therefrom will be produced. The actual quantity of our reserves and future net cash flows therefrom may be materially different from the estimates set forth in this annual report.

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We replace our reserves through the acquisition of new producing fields, new exploration of existing fields, exploration of new fields and by “proving up” reserves in existing fields. “Proving up” is the process by which additional reserves classified as “probable and possible reserves” in a producing field are accessed and reclassified as “proved reserves”. We prove up reserves with reservoir management techniques by implementing waterflood and enhanced oil recovery projects. Reservoir management techniques currently used include water injection and drilling of horizontal wells, including producing and injection wells. In addition, technologies such as 3D seismic process, horizontal and step out wells, underbalance drilling and reservoir numerical stimulation are also used.

Sales

The following table sets forth sales for the oil and gas exploration and production business segment (including consolidated subsidiaries and companies under joint control), by geographical area for fiscal years ended December 31, 2010, 2009 and 2008:

	Year ended December 31,
	2010		2009		2008
	(in millions of pesos)
Argentina		3,269		2,773		2,518
Outside of Argentina		392		544		2,222
Total		3,661		3,317		4,740

During 2010, our principal client in this segment was Petrobras International Finance Co. (“PIFCo”), a subsidiary of Petrobras, and sales to this company represented about 7% of total sales for the year for the oil and gas exploration and production business segment, before deducting export duties. During 2010, oil and gas exports totaled approximately Ps. 242 million, which were principally made to PIFCo.

Petrolera Entre Lomas S.A. (“PELSA”)

We hold a 19.21% interest in PELSA, which takes part in oil and gas exploration and production activities in Argentina. PELSA’s other shareholders are PPSL and Apco Argentina, Inc.

As of December 31, 2010, PELSA owned three concessions in oil and gas production areas in Argentina, of which the Entre Lomas field (in the Provinces of Neuquén and Río Negro) is the most important. PELSA holds a 73.15% interest in the Entre Lomas field, APCO Oil and Gas International Inc. Sucursal Argentina holds 23% and we hold a 3.85% stake. In 2010, PELSA’s average daily production was 11,300 barrels of crude oil (including LPG) and 15.5 million cubic feet of natural gas. PELSA’s proved reserves in Argentina as of December 31, 2010 were 20 million barrels of crude oil and 43 billion cubic feet of natural gas.

Oleoducto de Crudos Pesados (“OCP”)

The Ecuadorian government awarded OCP the construction and operation for a 20-year term of the 503 km-long pipeline that runs from the northeastern region of Ecuador to the Balao distribution terminal on the Pacific Ocean coast. As of December 31, 2010, we held an 11.42% interest in OCP. OCP’s other shareholders are Andes Petroleum, Perenco, Occidental, Repsol-YPF and AGIP.

The oil pipeline has a transportation capacity of approximately 450,000 barrels per day, of which at least 350,000 barrels per day are committed under transportation agreements that include a ship or pay clause. Because the oil pipeline runs across ecologically sensitive areas, the pipeline was constructed following stringent environmental and technical standards. The construction of the oil pipeline was completed and began operations in 2003.

We entered into a transportation agreement with OCP that includes a ship or pay clause whereby OCP has committed to transport 80,000 barrels per day of our oil for a 15-year term, from November 2003.

For a more detailed discussion see “Oil and Gas Exploration and Production — Production — Production outside of Argentina — Ecuador”.

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Oleoductos del Valle S.A. — Oldelval

Oldelval, a company in which we have a 23.1% interest, is the concessionaire of the transportation of crude oil through a 888 km-long oil pipeline with 1,706 km of installed piping between the Neuquén Basin and Puerto Rosales (located in the Province of Buenos Aires). The concession has a 35-year term starting in 1993, with an option to extend it for ten years. Oldelval’s other shareholders are YPF S.A., Chevron Argentina S.R.L., Pluspetrol S.A., Pan American Energy Ibérica S.L. and Tecpetrol S.A.

The pipeline between Allen and Puerto Rosales has a transportation capacity of approximately 220,000 barrels per day, with one million barrels of storage capacity.

During 2010, oil volumes transported by Oldelval from Allen to Puerto Rosales totaled 64.2 million barrels.

The applicable laws governing the transportation of hydrocarbons through oil pipelines, which are based on the notion of free access, assign loading preference quotas to pipeline owners based on their shareholdings. Oil transportation rates are set by the SE.

Competition

Our oil and gas related businesses are subject to oil price fluctuations determined by international market conditions and internal price controls, export restrictions and other regulations. In our oil and gas operations in and outside Argentina, we face competition from oil and gas producers throughout the world.

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REFINING AND DISTRIBUTION

Our presence in the Refining and Distribution business is a further step towards the vertical integration of our operations and enables us to capitalize on our hydrocarbon reserves. Refining and distribution operations are a necessary link in the business value chain, starting with crude oil and gas exploration and processing and ending with customer service at the gas station network and the supply of petrochemical products.

As of December 31, 2010, our Refining and Distribution operations were based in Argentina where we operated two refineries and a network of 604 gas stations. Our refineries were located in San Lorenzo (Province of Santa Fe) and Bahía Blanca (Province of Buenos Aires). In addition, we have a 28.5% interest in Refinería del Norte S.A. (“Refinor”).

Our main strategy in the Refining and Distribution segment is to seek profitability through a balanced crude oil refining, logistics and commercial chain.

On May 4, 2010, the Board of Directors approved the terms and conditions of the agreement for the sale of our San Lorenzo refinery to Oil Combustibles S.A., including loading and unloading facilities and the fuel sales network composed of about 360 points of sale and related customer relationships. The sale was consummated and we transferred ownership of the assets involved in this transaction on May 2, 2011. This decision was made in line with our strategy to assess our business and asset portfolio structure on an ongoing basis with a view to identifying opportunities to maximize the value of the whole Company. As of the date of this annual report, the transaction remains subject to approval by theComisión Nacional de Defensa de la Competencia(the Argentine Antitrust Commission or “CNDC”).

The Refining and Distribution Business in Argentina

In 2010, gasoline and diesel oil sales volumes in the Argentine fuel market totaled 19.6 million cubic meters, a 7.2% increase compared to 2009. According to the SE, diesel oil sales volumes in the domestic market increased 6.7% to 13.4 million cubic meters as a consequence of an increase in demand from the agricultural and industrial sectors.

According to the SE, the gasoline market increased 8.4%, with sales volumes totaling 6.2 million cubic meters. This rise was mainly attributable to the increase in demand for high grade and premium gasolines, the latter segment recording a 19.6% growth year on year.

The compressed natural gas (“CNG”) market totaled 2.7 million cubic meters, a 0.7% increase compared to 2009.

The diesel oil market increased 3.4% in the first quarter of 2011 compared to the same quarter in 2010. The growth of the diesel oil market is partly attributable to the recovery in the economic activity, and a record yield of the coarse grain harvest.

Total gasoline demand in the first quarter of 2011 rose 10.9%, mainly due to the increase in demand for premium gasoline.

Refining Division

In 2010, the Company had a total refining capacity of 78,930 barrels of oil per day: 48,430 from the San Lorenzo refinery and 30,500 from theRicardo Eliçaberefinery. Processed crude oil volumes at the refineries totaled 57,200 barrels per day in 2010, 51,900 barrels per day in 2009 and 72,200 barrels per day in 2008.

San Lorenzo Refinery

TheSan Lorenzorefinery is located in the Province of Santa Fe. The refinery’s processing capacity is approximately 48,430 barrels of oil per day. The refinery has three atmospheric distillation units, two vacuum distillation units and a heavy diesel oil thermal cracking unit. In 2010, it produced the following: premium gasoline, ultra high octane gasoline (Podium), regular gasoline, diesel oil, fuel oil, solvents, aromatics and asphalts.

On May 4, 2010, the Board of Directors approved the terms and conditions of the agreement for the sale of our San Lorenzo refinery, including loading and unloading facilities and the fuel sales network composed of about 360 points of sale and related customer relationships. The sale was consummated and we transferred ownership of the assets involved in this transaction on May 2, 2011. The total amount of the transaction was US$102 million, including the before mentioned assets as well as inventories amounting approximately US$60 million. The transaction is subject to approval by the CNDC.

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These assets have been classified as “Assets held for sale” in 2010, and measured at net realizable value. The transaction resulted in a loss of Ps. 209 million that was recognized in earnings in 2010.

Ricardo Eliçabe Refinery

The Ricardo Eliçabe refinery is located in Bahía Blanca, Province of Buenos Aires, a strategic location for the reception of crude oil coming through an oil pipeline from the Neuquén Basin, other Argentine crude oils coming by sea from the Golfo San Jorge or Santa Cruz Sur basins, and for imports from international markets. With a crude processing capacity of approximately 30,500 barrels per day, this refinery produces a wide variety of products: regular gasoline, premium gasoline and ultra high octane gasoline (Podium), diesel oil, fuel oil, asphalts and liquefied gases (propane and butane).

The refinery also produces intermediate fuel oil mixes used as fuel in vessels, raw materials for solvents and varieties for the petrochemical industry. The refinery has a storage capacity of 585,000 barrels of heavy products and 625,000 barrels of light products.

Dock Sud Plant

The Dock Sud plant, located in the province of Buenos Aires, close to the city of Buenos Aires, has a total storage capacity of approximately 245,000 barrels of heavy products and 950,000 barrels of light products. Crude oil is received from the oil pipeline connecting Bahía Blanca with Dock Sud and is dispatched to tankers transporting the oil to the San Lorenzo refinery.

Caleta Paula Plant

The Caleta Paula plant is our newest distribution plant. It is located in the Province of Santa Cruz, close to the city of Comodoro Rivadavia, in southern Argentina. The strategic location of this plant significantly improves our logistical capacity in an area distant from refineries. In addition, it allows us to maintain significant stocks of products to satisfy demand in the southern area of the country for gasoline, diesel oil and lubricants. The plant is located on the Atlantic coast, and is supplied by vessels and supplemented by truck loading facilities. It has a storage capacity of 90,000 barrels of light products.

Refining Investment Plans

The “Refining Quality Adjustment Project” in Bahía Blanca involves the construction of a diesel oil hydro-treatment plant to adjust fuel quality to the specifications set by law in terms of sulfur content.

This project continues to date. During 2010 we completed the engineering phase required to proceed with the purchase of equipment, construction and assembly. Construction of the hydro-treatment facilities required to adjust our diesel oil quality to meet statutory specifications in order to replace imports of this product is estimated to begin in the second half of 2011.

In addition to the above, the investment plan for the refining and distribution segment includes biofuel projects aimed at complying with the provisions set forth by new legislation applicable in Argentina which requires, as from 2010, 5% bioethanol and 7% biodiesel content for gasoline and diesel oil commercialized within the country. As a result of these regulations, investment projects are required to be carried out at our Bahía Blanca, Dock Sud and Caleta Paula facilities.

During 2010, we began producing biodiesel at the San Lorenzo, Bahía Blanca and Dock Sud plants and to deliver the product from all our terminals. However, since the SE sets a quota for available bioethanol, biogasolines were formulated and delivered only from San Lorenzo and Dock Sud plants. We plan to complete works relating to biogasolines in Bahia Blanca and Caleta Paula during 2011. Improvements will be implemented at biodiesel facilities to allow formulation and delivery on a highly automated basis from all our terminals.

In addition, during 2010 investments were made at Bahía Blanca and San Lorenzo refineries, especially relating to the environment and safety, as well as plant shutdowns for major maintenance works in addition to the execution of a project relating to ducts used for light products (gasoline and diesel oil) to be completed during 2011 that will provide greater pumping capacity and increased safety to prevent spills. The major plant shutdowns that took place during 2010 in Bahia Blanca aimed at preparing the units to operate in new campaigns for up to 5 years of production though maintenance works at the refinery distillation and conversion units and boilers.

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Distribution Division

As of December 31, 2010 our commercial network of gas stations and wholesale customers allowed us to deliver products and services to a number of regions in Argentina. In recent years, our strategy has been to optimize our customer portfolio, adapt its size to our refineries’ production capacity, and streamline distribution processes. We expect implementation of this strategy to continue in the coming years.

As of December 31, 2010, we had a network of 604 gas stations located throughout Argentina and 27 Spacio 1 convenience stores, including 360 points of sale sold in May 2011 in conjunction with the San Lorenzo refinery.

During 2009, we moved forward with the optimization of our gas station network, extending our brand to 511 gas stations that account for 84.6% of our network.

During 2010, continuing with our brand upgrade program developed and started in 2009, we aligned and updated the branding of 170 of our gas stations.

PESA’s points of sale (gas stations) in Argentina as of December 31, 2010 were as follows:

	As of December 31,
	2010
Owned(1)		124
Franchised(2)		480
Total		604

Following the completion of the sale of our San Lorenzo refinery and part of our sales network, PESA’s points of sale (gas stations) in Argentina will be as follows:

	After Sale
Owned(1)		85
Franchised(2)		210
Total		295

(1)

Owned or controlled by PESA under long-term commercial contracts or other types of contractual relationships that secure a long-term direct influence over such points of sale.

(2)

The term “franchised” is used to refer to gas stations owned by third parties with whom PESA has signed a franchise agreement that provides PESA with the right (i) to become the gas stations’ exclusive supplier and (ii) to brand the gas station with its corporate image. Current laws establish that the term of such contracts should be 5 years for existing stations and 8 years for newly constructed stations.

PESA sells fuels in Argentina under the Petrobras and other brand names. Distribution as of December 31, 2010 was broken down as follows:

Gas Stations

	As of December 31,
	2010
Petrobras-branded		513
Other brands		91
Total		604

Following the completion of the sale of our refining business in San Lorenzo, distribution would be as follows:

	After sale
Petrobras-branded		269
Other brands		26
Total		295

Our liquid fuels domestic sales totaled 2.2 million cubic meters during 2010, a 7% increase compared to 2009. Our market share in 2010 was 11.1%, a 0.1% increase when compared to 2009.

Of the 2.2 million cubic meters of total liquid fuels sold in 2010, 1.5 million cubic meters were attributable to diesel oil. This volume, boosted by demand from the agricultural sector, accounts for a 6,3% increase compared to 2009. Gasoline sales volumes, in turn, totaled 0.7 million cubic meters, an approximately 9% increase compared to 2009, as a result of a greater demand for high grade and premium gasolines. Sales volumes of Podium, the Company’s premium gasoline, increased 13.3% during 2010.

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Our distribution business is also significantly focused on lubricants. We aim at consolidating the Lubrax brand in Argentina through the development of exclusive lubricant customers, the leverage of combined sales with liquid fuels and promotions at retail outlets. During the first quarter of 2011, we designed and developed a change in Lubrax’s image that involves changes in the logo, the packaging and the names of our products.

In 2010, Lubrax sales in the Argentine market totaled 22,800 cubic meters, a 6.8% decrease when compared to 2009. Our share in the lubricants market in 2010 was 7.7%, down from 9.1% in 2009.

We also sell petroleum products to the industrial, construction and marine markets. Products sold in these markets include marine fuels and lubricants, asphalts and other products that are beyond governmental price stabilization policies. Our strategy is to consolidate our presence in these markets to maximize profits. In 2010, we sold 272,000 tons of Intermediate Fuel Oil (“IFO”) bunker, used in ships, a 7.5% increase compared to the previous year. In addition, we sold 40,000 cubic meters of marine diesel oil with a 16% market share, up from 12,2% in 2009.

In 2010, we sold 160,000 tons of asphalt, representing a 35% market share, a 13% increase when compared to 2009.

The following table shows production and sales for our consolidated refining and distribution segment for the fiscal years ended December 31, 2010, 2009 and 2008:

	Year Ended December 31,
	2010		2009		2008
Average crude oil processed per day (barrels)		57,200		51,900		72,200
Production (thousands of tons):
Virgin naphtha		700		737		882
Diesel oil		1,098		999		1,427
Other products		1,001		978		1,330
Sales (in thousands of m3):
Crude oil(1)		226		226		487
Gasoline		783		764		857
Diesel oil		1,714		1,704		2,393
Fuel oil/ IFOS		687		594		896
Paraffins		214		324		436
Others		539		516		603
Sales (in millions of pesos):
Argentina		6,457		4,675		5,708
Outside of Argentina		888		953		1,234
Total		7,345		5,628		6,942

(1) From fiscal year 2008, the refining and distribution business segment commercializes the oil produced in Argentina, which is transferred at market prices from the oil and gas exploration and production business segment.

Refinor

We have a 28.5% interest in Refinor, whose other shareholders are YPF S.A. (50%) and Pluspetrol S.A. (21.5%). Refinor is engaged in crude refining, natural gas processing, product transportation, marketing and sales.

Refinor owns the only refinery in the northern region of Argentina, which is located in Campo Durán, Province of Salta. Refinor’s refining capacity is approximately 26,400 barrels of oil per day and its natural gas processing capacity is 20.4 million cubic meters per day. In May 2007, Refinor increased its installed natural gas processing capacity by replacing the turbine that drives the Turboexpansion II Plant compressor. As a result, the plant’s processing capacity increased by 850,000 cubic meters per day.

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Refinor owns and operates the following processing plants: an atmospheric distillation unit (topping), a vacuum distillation unit, a gasoline hydro-treatment unit, a catalytic reformer plant, two turboexpander and fractioning plants for liquefied petroleum gas (“LPG”) production, as well as a plant for the production of auxiliary services (industrial water, steam, electricity, compressed air) used in the different processing plants.

The Campo Durán Refinery receives crude oil/condensate and natural gas from the Northwestern basin and from Bolivia. These operations are conducted through two oil pipelines and three gas pipelines.

In addition, Refinor operates a 1,100 km long pipeline running from Campo Durán (in the Province of Salta) to Montecristo (in the Province of Córdoba) for the distribution of its products. Along the pipeline, the Banda Río Salí (in the Province of Tucumán), Güemes (in the Province of Salta) and Leales (in the Province of Tucumán) dispatch plants are supplied. This pipeline is the most important distribution channel for liquids generated in the Northwestern basin in Argentina and transports diesel oil, virgin naphtha, motor gasoline, butane and propane.

As of December 31, 2010, Refinor has a commercial network of 69 gas stations located in the Provinces of Salta, Tucumán, Jujuy, Córdoba, Santiago del Estero, La Rioja, Catamarca and Chaco. Through these gas stations, Refinor sells a high performance fuel line: Refinor 97 (97 octane), High grade (95 octane), Regular (85 octane) and Eco Diesel.

In 2010, daily average volumes of crude processed totaled 12,425 barrels per day, a 13% decline compared to 2009 due to reduced crude oil availability in the Northwestern basin. Sales volumes totaled 865,000 cubic meters per year, a 14.5% decrease compared to 2009, 532,000 cubic meters of which were directed to the domestic market and 333,000 cubic meters of which were directed to export markets. During 2010, Refinor had a market share of approximately 24% and 22% in the motor gasoline and diesel oil markets, respectively, in the Northwestern region of Argentina. Considering the size of its gas station network, Refinor continues being the oil company with the second highest number of retail outlets and sales volumes in the Northwestern region of Argentina.

In 2010, Refinor processed an average of 15.5 million cubic meters of natural gas per day, a 12% decrease when compared to 2009.

In terms of LPG, during 2010 Refinor’s own production decreased from 306,000 tons in 2009 to 265,000 tons in 2010. This decrease is mainly attributable to a fire incident occurred at the gas processing plant in June 2010 which affected productions levels between June and September 2010. In 2009, Refinor had record production of 370,000 tons. Of this amount, 64,000 tons were produced under an agreement, for which Refinor receives a processing fee and ownership and marketing of LPG corresponds to the counterparty involved in the agreement. Refinor’s own production decreased from 329,000 tons in 2008 to 306,000 tons in 2009 as a consequence of the above-mentioned agreement.

Sales of LPG totaled approximately 240,000 tons during the year, a 22% decrease when compared to 2009.

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The following table sets forth Refinor’s production and sales for fiscal years ended December 31, 2010, 2009 and 2008:

	Year ended December 31,
	2010		2009		2008
Production (in thousands of m3):
Gasoline		113		103		111
Virgin naphtha		203		280		297
Diesel oil		286		299		323
Natural gasoline		118		141		147
Propane / butane		265		306		329
Other products		92		113		105
Sales (in thousands of m3):
Gasoline		114		107		110
Virgin naphtha		348		467		484
Diesel oil		285		311		324
Propane/butane		239		307		313
Other products		118		127		89
Sales (in millions of pesos):
Argentina		1,280		1,058		894
Outside of Argentina		517		535		344
Total		1,797		1,593		1,238

Competition

Our principal competitors in the Argentine gasoline and diesel oil markets are YPF, Shell, and Esso, with market share of approximately 57.3%, 14.2%, and 13.3%, respectively, according to the SE.

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PETROCHEMICALS

The Petrochemical business is an important component of our vertical integration strategy. Our goal in the petrochemical business is to maintain our position in styrenics market by capitalizing on current conditions and maximizing the use of our own petrochemical raw materials.

As of December 31, 2010, our petrochemical operations were performed in Argentina and Brazil, through Innova S.A. (“Innova”). We produce a wide array of products, such as styrene, polystyrene and synthetic rubber, both for the domestic and export markets.

On March 31, 2011, we agreed to sell our 100% interest then held in Innova to our controlling company Petrobras, as part of our strategy to prioritize our activities in Argentina

In November 2009, we approved the sale of our fertilizer business, which was effected in January 2010. The decision was part of our ongoing strategy to assess our business and asset portfolio structure to identify opportunities to maximize the value of the whole Company.

Argentine Operations

Argentine Styrenics Division

In Argentina, we are the only producer of styrene, polystyrene and elastomers and the only integrated producer of plastics derived from oil production. As part of our efforts to integrate our operations, we use a substantial amount of styrene for the production of polystyrene and synthetic rubber.

The styrenics division has the following plants:

• An Integrated Petrochemical Complex at Puerto General San Martín, in the Province of Santa Fé, with an annual production capacity of 160,000 tons of styrene, 58,500 tons of synthetic rubber, 180,000 tons of ethylbenzene and 31,000 tons of ethylene.

• A polystyrene plant located at Zárate, in the Province of Buenos Aires, with a production capacity of 65,000 tons of polystyrene per year and 14,000 tons of bioriented polystyrene (“BOPS”) per year. This state-of-the-art BOPS plant is the only one of its type in South America.

• An ethylene plant located in San Lorenzo with a production capacity of 19,000 tons per year. It is located along the Paraná river coast, near the Puerto General San Martín petrochemical complex, which uses ethylene as raw material for the production of ethylbenzene and styrene.

In 2010 sales volumes of monomer styrene totaled 74,000 tons, an 8% increase compared to 2009, primarily attributable to increased demand both in Argentina and in the region, especially Brazil. In line with these results and as in the previous year, in 2010 no deliveries of ethylbenzene were made to Innova since the Puerto General San Martin styrene plant operated at its maximum capacity. In addition, we exported 10,000 tons of styrene to Innova in order to partially meet the increased demand and its needs during its scheduled plant shutdown by the end of May and early in June 2010. By the end of the year, we imported styrene to supplement production to be affected by a maintenance scheduled plant shutdown planned for early 2011.

In 2010, our polystyrene plant operated at maximum capacity and achieved the highest production volume for the last 10 years. Total sales volumes of polystyrene totaled 55,000 tons in 2010, accounting for a 6% increase compared to 2009. This increase was mainly attributable to increased demand in the domestic market with total sales volumes of 43,800 tons, 9% higher compared to 2009. In the regional market, sales volumes totaled 11,200 tons, 4% lower compared to 2009.

In the synthetic rubber market, our sales volumes totaled 45,500 tons in 2010, approximately 3% less compared to 2009, of which 22,000 tons were sold in the domestic market and 23,500 tons to regional exports, accounting for a 2% increase and a 7% decrease, respectively. The decrease was mainly due to the fact that our sales to the export market were the most affected by availability constraints in the first semester resulting from a scheduled shutdown that took place at the Puerto General San Martín plant.

During 2011 we will seek to complete plant retrofitting works to produce polymers in compliance with the new European regulations applicable as from January 1, 2010, and thus obtain product certification before our main clients.

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As of December 31, 2010, our estimated market share of the following products in Argentina were:

• Styrene and Polystyrene — 85,9%

• Styrene butadiene rubber (“SBR”) — 79%.

The following table sets forth production and sales by major product for the styrenics divisions in Argentina for fiscal years ended December 31, 2010, 2009 and 2008:

	Year ended December 31,
	2010		2009		2008
Production(thousands of tons):
Styrene(1)		146		129		122
Synthetic rubber(2)		46		47		45
Urea(3)		5		92		67
UAN and other liquid fertilizers(3)		5		195		274
Polystyrene		65		61		59
BOPS		11		12		12
Sales(thousands of tons):
Styrene(1)		74		68		73
Synthetic rubber(2)		45		47		48
Fertilizers(3)		20		475		483
Polystyrene and BOPS		66		64		61
Propylene		24		20		18
Sales(in millions of pesos):
Argentina		856		1,073		1,503
Outside of Argentina		520		472		477
Total		1,376		1,545		1,980

(1)	Including ethylbenzene.
(2)	Including SBR, NBR and butadiene.
(3)	Corresponds only to January 2010, since we completed the sale of our fertilizer business.

Brazilian Operations

Until March 31, 2011, our petrochemical operations in Brazil were conducted through Innova.

Innova has the first integrated complex in Latin America for the production of ethylbenzene, styrene and polystyrene, located at Triunfo Petrochemical Pole, in the state of Rio Grande do Sul, in southern Brazil. The styrene plant has a production capacity of 260,000 tons per year and the polystyrene plant has a production capacity of 150,000 tons per year.

The polystyrene plant uses approximately 137,000 tons of styrene as feedstock to produce two grades of polystyrene (Crystal and High Impact). The remaining styrene is sold mainly in the Brazilian market for the production of synthetic rubber, expanded polystyrene, polyester and acrylic resins.

In September 2008, following an investment of approximately US$100 million, Innova opened a new ethylbenzene plant, one of the world’s most modern facilities in the world in terms of technology, environment and occupational health. This plant has a production capacity of 540,000 tons per year. The plant’s state-of-the-art technology and its location on the same styrene plant site allow for a significant reduction in costs.

During 2010, Innova reach a record production of styrene and polystyrene. In addition, Innova set a record in terms of polystyrene sales as well as styrene loading, shipment and sales.

Styrene production volumes totaled 267,000 tons and styrene sales volumes reached 153,000 tons, 13% and 5% higher compared to the previous year, respectively. Polystyrene production volumes reached 146,000 tons and sales volumes totaled 149,000 tons, reflecting 19% and 21% increases compared to the previous year, respectively. Finally, ethylbenzene production volumes totaled 284,000 tons, mainly due to increased demand in the Brazilian market.

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During 2007, Innova became the first petrochemical company in Brazil to receive a Restriction of Hazardous Substances (“ROHS”) certification, a European Union standard products in compliance with minimum level of substances harmful to the environment and human health. In 2010 this certification was renewed for three years.

In December 2010 Innova obtained the REACH (Registration, Evaluation and Authorization of Chemicals) certification, which allows Innova products to be exported to the European Union.

On March 31, 2011, through our subsidiary Petrobras Energía Internacional S.A., we agreed to sell our interest in Innova to our controlling shareholder, Petrobras. The total amount of the transaction was US$332 million. See “Item 7. Mayor shareholder and related party transactions — Related party transactions — Sale of companies.”

The following table sets forth Innova’s styrene and polystyrene production and sales for fiscal years ended December 31, 2010, 2009 and 2008.

	2010		2009		2008
Production(in thousands of tons):
Styrene		267		236		224
Polystyrene		146		123		110
Sales(in thousands of tons):
Styrene		153		146		146
Polystyrene		149		123		112
Other(*)		13		9		53
Sales(in millions of pesos):
Brazil		2,156		1,397		1,571
Outside of Brazil		44		61		74
Total sales		2,200		1,458		1,645

(*) From the opening of the new ethylbenzene plant in 2009, Innova stopped producing and selling certain steams that were part of the volume of “Others sales” in 2008. However, reduced income from such operations was offset by the reduction in costs attributable to the start-up of the ethylbenzene plant in 2009.

Competition

The petrochemical market in which we compete is highly cyclical, and world market conditions have a strong impact on our results of operations. We are the only producer of styrene, polystyrene and elastomers in Argentina, but compete with other foreign producers, especially those from Brazil.

In Brazil, as of December 31, 2010 we competed with Styron (formerly Dow Chemical), Unigel (formerly CBE and BASF), Videolar and Lanxess (Elastomers).

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GAS AND ENERGY

The gas and energy business segment serves to link together our energy businesses and allows us, by integrating our various businesses, to maximize profits from gas and electricity production and ensure self-supply.

Within this segment, we sell gas produced by our oil and gas exploration and production business segment, as well as imported gas. We also provide oil, gas and LPG brokerage and trading services. In addition, through our stake in TGS, we are engaged in the transportation of gas in southern Argentina and in the processing and marketing of natural gas liquids (“NGL”). We are a major player in the Argentine electricity market, where we operate in the generation, transmission and distribution segments.

In the Gas and Energy segment our main business objectives are:

• Growing profitably in the gas business.

• Growing profitably in the LPG business.

• Growing profitably in the electricity market.

Gas Marketing and Transportation

Our gas and energy business segment sells gas produced by our oil and gas exploration and production segment, as well as imported gas. In addition, we provide oil, gas and LPG brokerage and trading services. This business segment enables us to position ourselves as a leading commercial service provider, assisting clients in sales, logistics, foreign trade and marketing.

In 2010, in Argentina, sales volumes of gas produced and imported by us totaled 7.5 million cubic meters per day, 13% less than in 2009. We sold 4.6 million cubic meters of gas per day under the brokerage modality. In addition, gas was imported from Bolivia through ENARSA to be sold in the Argentine market. LPG produced and imported by us totaled 253,000 tons, of which 33,000 tons were sold under the brokerage modality.

Commissioning of TGS’s expanded transportation system in the Strait of Magellan had a positive impact on the marketing business. The expansion allowed more flexible injection alternatives from the Austral basin to meet gas supply commitments and comply with PESA’s agreements with the Argentine government. In addition, under Resolution No.1,410 the Argentine government’s involvement in natural gas deliveries increased to support operation of the transportation and distribution systems in scenarios where demand exceeds supply.

During 2009, Argentina sales of gas produced and imported by us totaled 8.6 million cubic meters per day. We sold, in turn, 3.9 million cubic meters per day in gas brokerage services. LPG sales volumes totaled 252,000 tons, of which 33,000 tons were sold under brokerage agreements.

Gas Transportation — TGS

Our Interest in TGS and Corporate Developments

We indirectly hold a 27.65% interest in TGS. TGS’s controlling shareholder is CIESA, which as of the date of this annual report holds approximately 55.3% of TGS’s capital stock. The remaining 44.7% of TGS’s capital stock is publicly held. TGS’s shares are listed on the Buenos Aires Stock Exchange and on the NYSE. CIESA is 50% owned by PESA (directly and indirectly through our subsidiary Petrobras Hispano Argentina S.A.), 40% by a trust whose trustee is ABN AMRO BANK N.V. Sucursal Argentina (the “Trust”), and the remaining 10% by Enron Pipeline Company Argentina S.A., a subsidiary of Enron Corp. (“EPCA”), which was acquired by Pampa on April 8, 2011.

CIESA’s and TGS’s current stock structure reflects the implementation of the first stage of the master settlement agreement and the mutual release agreement, signed by PESA and certain Enron subsidiaries on April 16, 2004 (the “Master Settlement Agreement”), in connection with the restructuring of CIESA’s indebtedness. CIESA’s Board of Directors is composed of three of our representatives, two representatives of the Trust and one representative of EPCA. TGS’s Board of Directors is composed of nine members, six of whom are CIESA’s representatives, and three are independent members. Pursuant to a shareholders’ agreement entered into on August 29, 2005 (the “Shareholders’ Agreement”) among EPCA, the Trust and us, we have the right to appoint the chairman of the Board of Directors of both TGS and CIESA and the Chief Executive Officer of TGS.

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Due to abrupt changes following the enactment of the Public Emergency Law in Argentina, CIESA and TGS both defaulted on their debt in 2002. CIESA failed to repay corporate bonds (“Obligaciones Negociables”) having a principal amount of US$220 million and derivative instruments of approximately US$2 million. In 2004, TGS successfully restructured substantially all of its debt.

In April 2004 PESA and EPCA, at that time CIESA’s only shareholders, entered into the Master Settlement Agreement to provide the necessary flexibility to move forward in restructuring CIESA’s financial debt. The Master Settlement Agreement provided for, among other things, certain stock transfers to be implemented in two successive steps. In July 2005, theEnte Nacional Regulador del Gas(Argentine Gas Regulatory Agency) (“ENARGAS”) approved the implementation of the first stage of the transactions contemplated by the Master Settlement Agreement and, as a result, on August 29, 2005, (a) Enron transferred 40% of CIESA’s shares to a newly created trust (the aforementioned Trust), and (b) PESA and its subsidiary, Petrobras Hispano Argentina, transferred Class “B” common shares of TGS, representing 7.35% of TGS’s capital stock, to subsidiaries of Enron, which in turn were subsequently sold to third parties.

Subsequently, pursuant to the terms of the financial debt restructuring agreement entered into on September 1, 2005 by CIESA, PESA, Petrobras Hispano Argentina S.A., EPCA, the Trust and all its financial creditors (the “CIESA Restructuring Agreement”), CIESA refinanced the debt for an amount of about US$23 million at a 10-year term.

In addition, the CIESA Restructuring Agreement contemplated the terms of the Master Settlement Agreement, which envisaged debt capitalization for a nominal amount of US$201.5 million plus accrued unpaid interest.

While approval of the CIESA Restructuring Agreement by the authorities was pending, on January 9, 2009, Ashmore Energy International Limited (now AEI), the only self declared holder of notes issued by CIESA in 1997, announced its decision to terminate the agreement, to which AEI, CIESA and others were a party.

On January 28, 2009, CIESA brought an action in New York state court seeking a declaratory judgment that any action initiated by AEI against CIESA in connection with the corporate bonds is barred by the statute of limitation, requesting an injunction for strict performance of the CIESA Restructuring Agreement requesting damages for unlawful termination of the agreement by AEI. The action brought by CIESA was initially dismissed on July 29, 2009, since a bankruptcy petition was pending before the courts of Argentina.

On February 4, 2009, AEI filed a “quiebra”(involuntary bankruptcy) petition against CIESA before the Courts of Argentina for the amount of US$127 million, seeking recovery of an alleged claim relating to the corporate bonds. Such bankruptcy petition was rejected by the Court of Appeals in Commercial Matters on October 9, 2009. AEI filed motions to invalidate the court decision and remove the intervening judges with cause, which motions were also dismissed on November 24 and December 28, 2009, respectively.

Following the dismissal of the bankruptcy petition decided in Argentina, on November 13, 2009 CIESA file a motion to renew and reargue in New York state court, requesting that it be permitted to renew and reargue its prior action and revocation of the prior dismissal. On April 12, 2010, CIESA was notified of the resolution issued by the Judge of New York, whereby the company’s petition was sustained and the court considered itself to be competent to deal with the request for declaring that the statute of limitation pertaining to the referred claim had expired as well as other issues raised. On August 9, 2010 AEI filed an appeal and on January 27, 2011 the Court of Appeals dismissed the appeal and upheld the lower court’s decision.

On May 13, 2010 notice was given to CIESA of a filing made by AEI rejecting the claims stated by CIESA in its complaint and demanding payment of CIESA’s corporate bonds including interest accrued. On October 7, 2010 CIESA filed its response to AEI’s filing. The judge’s decision is still pending.

During the first quarter of 2011 Pampa reported that it acquired from AEI the corporate bonds issued by CIESA and certain claims against CIESA as well as 100% of the outstanding shares of EPCA, which in turn owns 10% of CIESA.

On May 10, 2011, CIESA executed a Memorandum of Agreement (“MOA”) in which the parties agreed, firstly, to suspend the New York Litigation in order to seek to re-establish the restructuring provided under the Restructuring Agreement, and to include Pampa Energia S.A. and Pampa Inversiones S.A. (together, “Group Pampa”) as a party thereto, all of the foregoing subject to the necessary governmental approvals in order to implement the Restructuring Agreement; and secondly, to timely abandon and waive each and every claim and action that the parties and third parties have raised in the lawsuit, thus terminating the controversies between the parties New York Litigation.

On May 18, 2011, CIESA, PESA, the Trust, EPCA and Pampa entered into a fourth amendment to the Restructuring Agreement providing for the replacement of AEI by Group Pampa in the Restructuring Agreement. The fourth amendment to the Restructuring Agreement was filed with ENARGAS and CNDC to be granted by their respective approvals. The consummation of the transactions contemplated in the Restructuring Agreement, as amended, is also subject to the satisfaction of these conditions precedent.

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On April 29, 2011, TGS’s shareholder’s meeting approved the distribution of a cash dividend in the amount of Ps. 976 million that was paid to its shareholders on May 27, 2011. As a result, CIESA received a Ps. 540 million dividend payment from TGS.

Business

TGS began operations in late 1992 as a part of the privatization of the Argentine energy sector. Currently, TGS is the leading gas transportation company in Argentina, delivering about 61% of total gas transported in Argentina during 2010. TGS is also one of the leading natural gas liquid (“NGL”) producers and traders, both in the domestic and international markets, and an important provider of midstream services, including business structuring, turnkey construction and operation and maintenance of facilities used for gas storage, conditioning and transportation.

PESA provides services to TGS related to the operation and maintenance of the gas transportation system and related facilities and equipment to ensure that the system performance is in conformity with international standards and in compliance with certain environmental standards.

The following chart shows statistical information relating to TGS’s business segments for fiscal years ended December 31, 2010, 2009 and 2008.

	2010			2009			2008
Regulated Segment:
Average firm committed capacity(1)		80.0			78.3			73.3
Average daily deliveries(1)		62.8			62.2			63.0
Annual load factor(2)		79	%		79	%		86	%
Unregulated Segment:
Liquids total production(3)		894.7			895.1			891.4
Processing capacity at year end(1)		46.0			46.0			46.0

(1)	In millions of cubic meters per day.
(2)	Corresponds to the quotient of the average daily deliveries and the average firm contracted capacity.
(3)	In thousands of tons.

Regulated Energy Segment of TGS

TGS has a gas transportation license in southern Argentina, and is the largest transporter of natural gas in Argentina and all of Latin America. TGS’s pipeline system connects Argentina’s southern and western gas reserves with the main consumption centers in those regions, including Greater Buenos Aires. TGS has an exclusive license for the use of the southern gas transportation system, which is due to expire in 2027 with an option to extend it for ten additional years if certain conditions are met.

TGS transports gas through more than 9,909 km of pipelines, of which almost 7,650 km belong to TGS, with a firm contracted capacity as of December 31, 2010 of 80.0 million cubic meters per day. Pursuant to these contracts, the capacity is reserved and paid for irrespective of the actual use by customers. Almost all capacity of the gas transportation pipelines in Argentina is currently apportioned among gas distribution companies, large industrial customers and gas-fired power plants under firm long-term transportation contracts. The total average life of its firm transportation contracts is approximately nine years. In addition, TGS provides interruptible transportation services under which gas transportation is dependent on the availability of excess capacity.

Transportation services begin with the receipt of gas owned by a shipper (e.g. distribution companies, producers, traders or large users) at one or more reception points. It is then transported and delivered to designated delivery points along the system. The total service area includes approximately 5.3 million end users, approximately 3.5 million of which are in Greater Buenos Aires. Direct services to residential, commercial, industrial users and electric power plants are mainly provided by four gas distribution companies, which are connected to the TGS gas pipeline system: Metrogas S.A., Gas Natural Ban S.A., Camuzzi Gas Pampeana S.A. and Camuzzi Gas del Sur S.A. Some important industries and electric power plants are also located within TGS’s operational area and are provided with direct gas transport services by TGS.

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TGS has made significant investments in its business since the privatization. As a result, compression power has been increased from 429,030 HP in 1992 to 716,500 HP in 2010 and transportation capacity has been increased from 42.9 million cubic meters per day to 79.9 million cubic meters per day by the end of 2010.

Gas Trust

In light of the lack of expansion of the Argentine natural gas transportation system over recent years (as a consequence of the “pesification” of tariffs and the fact that the renegotiation of the terms of the utility contracts is still pending) and a growing gas demand in certain segments of the economy, in April 2004 the Argentine government established the framework for the creation of a trust fund (the “Gas Trust”), aimed at financing the expansion of the national gas transportation system.

Within this framework, the first expansion of the San Martín pipeline was completed in August 2005, which increased the transportation capacity by 102 million cubic feet per day. This project involved the construction of approximately 509 km of pipeline and a 30,000 HP compression capacity increase through the construction of a compressor plant and the revamping of some of TGS’s existing compressor units. The works financed by these means belong to the Gas Trust. TGS, as well as being in charge of the management of the works, is responsible for the operation and maintenance of the gas trust assets.

In addition, in April 2006, the Ministry of Federal Planning and Public Investment and Utilities (the Ministry of Federal Planning”), the SE and natural gas transporters, among others, signed a letter of intent to carry out a second, significantly larger expansion of the gas pipeline system. This second expansion will increase the aggregate transportation capacity of our system by 378 MMcf/d.

Ownership of the works of the second expansion will lie with a gas trust fund and the investment will be financed by other gas trust funds, whose trustors are the gas producers and the shippers who subscribed the additional capacity. The investment will be repaid with a new tariff charge that will ultimately be paid by the business and industrial users with firm transportation contracts.

The second expansion involves the installation of over 708 miles of pipeline loops and 196,800 HP of additional power. It also involves the construction of a new pipeline in the Strait of Magellan, which was completed in March 2010, and permits the transportation of more natural gas from the Austral basin. As of December 31, 2010, 222 MMcf/d of the second expansion project had been completed and become operational. The remaining 156 MMcf/d of are estimated to be completed in different stages, 53MMcf/d in July 2011 and 103 MMcf/d during 2012.

Tariff Renegotiation Process

As a consequence of the Public Emergency Law that pesified and prohibited the increase of tariffs, revenues from the regulated energy segment have declined considerably. The gas transportation segment represented 33%, 42% and 36% of the total revenues of TGS in 2010, 2009 and 2008, respectively, while from the time of TGS’s privatization through 2001, revenues for this segment represented approximately 80% of TGS’s total annual revenues. TGS is still engaged in discussions with UNIREN regarding the renegotiation of its tariffs. As a result, and despite contracted capacity increases, the profitability of the regulated business has not yet been restored.

After several proposals aimed at adjusting TGS’s license terms, which were rejected by TGS because they did not reflect preliminary agreements, in 2005 UNIREN proposed a 10% tariff increase and an overall tariff review effective in 2006. This proposal required that TGS and its shareholders waived any future claim against the Argentine government resulting from the Public Emergency Law and/or the failure to adjust tariffs during 2000 and 2001 based on the United States Industrial Goods Producer Price Index. TGS responded by rejecting the initial 10% increase as insufficient, and jointly with PESA agreed not to pursue any such claims if the parties reached a reasonably satisfactory agreement on tariff adjustments. In addition, Enron (Enron Creditors Recovery Corp., formerly, Enron Corp.), which filed a claim against Argentina with the International Centre for Settlement of Investment Disputes (“ICSID”) and obtained a favorable judgment in May 2007, reported that it would only consider waiving its claims provided it were fairly compensated. During 2006, UNIREN submitted two proposals to TGS with terms identical to those established in previous proposals.

In October 2008, TGS executed a provisional agreement with UNIREN, which provides for a 20% tariff increase to be retroactively applied as from September 1, 2008 and for the application of the proceeds from such increase to an investment plan in the gas transportation system devised under the same agreement. In December 2009, the Argentine government issued Decree No.1,918/09 ratifying such provisional agreement. TGS was to invoice the tariff increase to its customers once ENARGAS had published the new tariff schedule and defined the billing method for the retroactive effect. In August 2010, TGS sent a letter to ENARGAS requesting authorization to publish the new tariff schedule and the method for collection of the retroactive increase and the application of an interest rate in accordance with the payment terms to be defined. ENARGAS answered TGS that it had forwarded the background information and the tariff project to the Undersecretariat of Coordination and Control of Government Affairs, within the scope of the Ministry of Federal Planning, in compliance with Resolution No. 2000/2005 issued by the Ministry of Federal Planning.

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In September 2010, TGS filed a summary action for the protection of its constitutional rights (“acción de amparo”) under Section 43 of the Argentine Constitution and Law No.16,986, against the ENARGAS and the Undersecretariat of Coordination and Control of Government Affairs to seek implementation of the new tariff schedule. On November 2010, notice was given to TGS of the judgment granting the requested action and thus ordering the Undersecretariat of Coordination and Control of Government Affairs to return to the ENARGAS within two days the documents relating to the new tariff schedule applicable to TGS in compliance with Decree No. 1,918/09, and instructing ENARGAS to define the tariff schedule and the method for collection of the retroactive increase within two days following receipt of the referred documents. ENARGAS and the Undersecretariat of Coordination and Control of Government Affairs appealed said judgment and as of the date of this annual report, a decision is still pending.

In addition, in November 2010, UNIREN proposed TGS to move forward with the renegotiation of the license agreement within the scope and according to the terms and conditions of the Public Emergency Law, for which purpose suspension of the before mentioned action for the protection of constitutional rights was required. In November 2010, TGS decided to authorize a 20 business days suspension automatically renewable at maturity (except if TGS’s Board of Directors decides not to renew the same before or at the end of each period) in order to move forward with the renegotiation of the license agreement. On December 2010, TGS sent a letter to the ENARGAS and to the Ministry of Federal Planning requesting the suspension.

On April 5, 2011, the Court of Appeals confirmed the judgment rendered by the judge of first instance whereby the Under-secretariat of Coordination and Control of Government Affairs was instructed to return to ENARGAS, within 60 business days, the documents relating to the new tariff schedule applicable to TGS in compliance with Decree No. 1,918/09, and ENARGAS was instructed to establish the method for collection of the retroactive tariff increase within 60 business days after receipt of the tariff schedule.

Since more than one year has elapsed since publication of Decree No. 1,918/09 and given authorization of the suspension of the action for the protection of constitutional rights, this meaning a material change in the conditions determining the original recording of the tariff increase, TGS’s management resolved to: (i) discontinue accounting of revenues attributable to the tariff increase, and (ii) reverse the receivable amounts previously accounted. TGS’s management decision does not imply a waiver of the rights conferred by Decree No. 1,918/09.

This provisional agreement will be valid until the effective date of an agreement for the comprehensive renegotiation of the license to be entered into with the National Government.

In addition, in early October 2008, TGS received from UNIREN a proposal for a comprehensive renegotiation agreement (including a 20% initial tariff increase). As of the date of this annual report, TGS is evaluating that proposal. As set forth in the provisional agreement, TGS should reach an agreement with UNIREN on the modalities, terms and dates for the execution of the comprehensive agreement before the expiration date of the Public Emergency Law. If no agreement is reached, UNIREN will submit a report to the Argentine government recommending the steps to be taken.

Non-regulated Businesses of TGS

In addition to the regulated segment of natural gas transportation, TGS is one of the leading processors of natural gas and one of the largest traders of NGL. NGL production and distribution involves the extraction of ethane, propane, butane, and natural gasoline from the gas flow that arrives to the General Cerri Complex, located near Bahía Blanca, in the Province of Buenos Aires, which is connected to TGS’s main pipelines. TGS has two gas processing plants at the General Cerri Complex: (1) an ethane, propane, butane and natural gasoline turbo expander separating plant and (2) an absorption plant which extracts propane, butane and gasoline from the gas transported through the TGS’s pipeline system, with a gas processing capacity of 46 million cubic meters per day and a storage capacity of 54,840 tons. After extraction, TGS sells these products in the domestic and international markets. TGS also stores and ships the products at facilities located in Puerto Galván. These activities are not regulated by ENARGAS.

NGL production and distribution net revenues accounted for approximately 61%, 50% and 57% of TGS’s net revenues in 2010, 2009 and 2008, respectively. TGS’s operations were benefited by the adverse change in the regulated gas transportation segment, and rises in the international price of NGL and natural gasoline experienced during recent years (despite the temporarily sharp decline in the fourth quarter of 2008), which permitted higher revenues principally from exports. NGL production in 2010, 2009 and 2008 totaled 894,700,000 tons, 895,100 tons and 891,400 tons, respectively. See “Item 5—Analysis of Equity in Earnings of Affiliates”.

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During 2010, TGS sold its NGL production to brokers and refineries in the local market and part of the production was exported to PIFCo and other companies at current international market prices. During 2009, an agreement entered into with PIFCo for the sale of propane and butane was renewed for a sixteen month term, expiring on December 31, 2010. TGS currently sells its NGL exports to Petredec Limited under an export agreement that became effective January 1, 2011, following a private bidding process that resulted in a significant improvement for TGS in terms of price. The contract provides for sales of approximately 248,017 short tons (a unit of weight equal to 2,000 pounds or 907.2 kilograms) at the price quoted in Mont Belvieu, Texas, plus a fixed charge per metric ton. The contract expires on April 30, 2012.

TGS also exports natural gasoline to Trafigura Beheer B.V. Amsterdam, under an export agreement which came into effect January 1, 2010 and expires on June 30, 2011. This agreement provides for sales of approximately 10,741 short tons per month at NWE Ara price (used as reference in export agreements), less a fixed discount per metric ton.

One hundred percent of TGS’s ethanol is sold in the domestic market to PBB-Polisur S.A. at spot price.

Competition

TGS’s gas transportation business, which provides an essential service in Argentina, faces only limited direct competition. In view of the characteristics of the market in which TGS operates, it would be very difficult for a new entrant in the transportation market to pose a significant competitive threat to TGS, at least in the short to medium term. In the longer term, the ability of new entrants to successfully penetrate TGS’s market would depend on a favorable regulatory environment, an increasing and unsatisfied demand for gas by end users, and sufficient investment in gas transportation to accommodate delivery capacity from the transportation systems.

On a day-to-day basis, TGS competes, to a limited extent, with Transportadora de Gas del Norte S.A. for interruptible transportation services and for new firm transportation services made available as a result of expansion projects from the Neuquén basin to the Greater Buenos Aires area. Interruptible transportation services accounted for only 5% of TGS’s regulated business net revenues for 2010. The relative volumes of such services will depend mainly upon the specific arrangements between buyers and sellers of gas in such areas, the perceived quality of services offered by the competing companies, and the applicable rate for each company.

With respect to natural gas liquids processing activities, TGS competes with Compañía MEGA S.A., which owns a gas processing plant in the Neuquén basin and has a processing capacity of approximately 36 million cubic meters per day. Our controlling company, Petrobras, has a 34% interest in Compañía MEGA S.A.

Electricity

In the electricity business, we are active in generation, transmission and distribution activities, and are positioned as a major player in the Argentine electricity market. Electricity generation allows us to increase the value of our natural gas reserves. Integration of our business chain provides us with new growth opportunities, adding value through the sale of power and energy services to end users as well as through the development of cutting-edge technology.

We conduct electricity generation activities through the Genelba thermal power plant (“Genelba”) and the new open cycle gas-fired turbine (“Genelba Plus”) in the Province of Buenos Aires and the Pichi Picún Leufú Hydroelectric Complex (“HPPL”) in the Comahue region, on the Limay River, in the Province of Neuquén. The electricity distribution business is developed through our indirect equity interest in EDESUR, a company controlled by Distrilec. In addition, in the transportation business segment, we hold an equity interest in Enecor S.A.

The Argentine Electricity Market

In the early 1990s, as part of a general state reform and privatization plan, the Argentine government carried out an overall restructuring of the electricity sector and allowed for greater private sector participation. The Argentine electricity system had been characterized by the inability to meet short- and long-term demand and low service quality, with limited capacity on the part of the state to make necessary investments.

For the ten years prior to 2008, electricity demand in Argentina increased at an average rate of 5.2% per annum, exceeding the growth in GDP for the period. However, during 2008, the rate of growth declined as a consequence of a warm winter and the onset of the global economic crisis and during 2009, demand decreased mainly as a consequence of the drop in industrial activity levels and moderate temperatures during the year that resulted in reduced consumption by the residential sector. In 2008 the demand grew by 2.9% while in 2009 demand decreased 1.3% compared to 2008. Electricity demand resumed growth in 2010, at a rate of about 6%, as a result of economic recovery, reaching 110,760 GWh for the year. The residential sector made the highest contribution to growth as a consequence of the increased number of electric products used both in summer and in winter, with an increase rate of about 7%. Industrial demand, in turn, also showed an increase of about 5% compared to 2009.

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In 2010, a new energy consumption record was set. Supply to the system came from increased thermal generation derived from the addition of new generation facilities to the system and larger hydroelectric resources from extraordinary water volumes in the Paraná and Uruguay rivers. At the same time, in the Comahue basin, volumes of water were below historical average values, triggering an increase in the use of liquid fuels and imports.

Total electricity generation in Argentina during 2010, including imports and exports, totaled 116,165 GWh (57% attributable to thermoelectric plants, 35% to hydroelectric plants, 6% to nuclear plants and 2% to imports).

Electricity Generation: Genelba and HPPL

Genelba is a 674 MW combined cycle gas-fired generating unit located at the central node of the Argentine electricity network, in Marcos Paz, about 50 km away from the City of Buenos Aires. As part of our strategy to increase vertical integration, Genelba allows us to use approximately 100 million cubic feet of natural gas per day of our own gas reserves.

Genelba, which commenced commercial operations in February 1999, has two gas-fired turbines that receive gas through an 8 km duct connected to the transportation system operated by TGS. The electricity produced at Genelba is distributed via the national grid through a connection to the Ezeiza transforming station located only 1 km away from Genelba.

The allocation of electricity dispatched to the wholesale electricity market (the “MEM”), whether such electricity is produced under firm contracts or for the spot market, is subject to market rules based on the lowest variable cost of electricity generation. See “Regulation of our Businesses—Argentine Regulatory Framework—Electricity”. Since Genelba uses combined cycle technology for a natural gas-fired power plant, our short-run variable cost is expected to be lower than the cost of most other thermoelectric power plants, granting significant competitive advantages to Genelba. Therefore, theCompañía Administradora del Mercado Mayorista Eléctrico S.A. (the wholesale electric market administration company, or “CAMMESA”) is expected to dispatch Genelba’s generating capacity before that of most other thermoelectric plants. Genelba stands out in the Argentine electricity market for its high reliability and efficiency. The plant is recognized as one of the combined cycle electric power plants with the highest availability.

During 2007, our Board of Directors approved the construction of the new open cycle gas-fired turbine. In 2009 we completed construction works in connection with the new plant which added 165 MW to the system. This thermoelectric plant is close to the existing Genelba plant, and started its commercial operations in August 2009. This unit shall contribute to meet increased demand for electricity from our clients under supply agreements for Large Users in the MEM under the “Energía Plus” service.

In addition during 2010, we continued construction of Ecoenergía 14MW power plant, located at TGS’s General Cerri complex, in the city of Bahía Blanca, where commercial operations are scheduled to start in the second half of 2011.

We were awarded a 30-year concession for hydroelectric power generation at Pichi Picún Leufú Hydroelectric Complex beginning in August 1999. The complex has three electricity generating units with an installed capacity of 285 MW.

Pursuant to our concession contract and applicable laws, from August 2002 we paid 1% in hydroelectric royalties, with scheduled annual increases of 1% per year until royalties reach a cap of 12%, based upon the tariff rate applied to block sales of the electricity sold. As of December 31, 2010, we paid hydroelectric royalties at a rate of 8%. In addition, we pay the Argentine government a monthly fee for the use of the water source amounting to 0.5% of the same amount used for the calculation of hydroelectric royalties.

During 2010, the Genelba thermoelectric plant generated 4,877 GWh of electricity, of which 4,518 GWh were generated in combined cycle and 359 GWh by the new Genelba Plus power plant. The combined generation by Genelba represented a 4.3% of total power generation and 7.3% of thermal generation in Argentina during 2010.

The Genelba combined cycle and Genelba Plus gas turbine operated with a 91% and a 99.9% availability factor, respectively, during 2010. The reliability factor was 99.7% for the combined cycle and 99.9% for the new Genelba Plus gas turbine.

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In 2009, Genelba thermoelectric plant generated 4,855 GWh of electricity, of which 4,785 GWh were generated in combined cycle and 70 GWh by the new Genelba Plus power plant, with an availability factor of 96% and 99.3%, respectively.

In addition, HPPL generated 838 GWh, with a 93.4% availability factor and a 100% reliability factor. HPPL generated approximately 1% of total power generation in Argentina and 2.1% of total hydraulic generation in Argentina for 2010. In 2009 HPPL generated 1,146 GWh of electricity which shows a decrease of 26.9%.

During 2010, Genelba and HPPL together accounted for approximately 5.3% of the power generated in Argentina. The joint operation of the generating units minimizes income volatility, capitalizing on the natural barriers existing among the different resources used for power generation.

The following chart details energy generation and sales figures for Genelba and HPPL for fiscal years ended December 31, 2010, 2009 and 2008:

	Year ended December 31,
	2010		2009		2008
Power Generated (in Gwh)		5,715		6,001		6,193
Power Sold (in Gwh):
Forward market		2,784		2,605		2,578
Spot market		4,065		4,326		4,209
Total sales		6,849		6,931		6,787
Sales(in millions of pesos)		1,203		859		697

Electricity Transmission: Enecor

Enecor S.A. is an independent electricity transmission company. We own 69.99% of Enecor and Impregilo International Infrastructures N.V. owns the remaining interest. Enecor has a 95-year concession, expiring in 2088, to construct, operate and maintain approximately 22 km of electricity lines and a 500 Kv/132 Kv transforming station in the Province of Corrientes. Under the concession contract, 700,000 Class A shares of Enecor are pledged in favor of the Province of Corrientes.

Enecor entered into a maintenance agreement withCompañía de Transporte de Energía Eléctrica en Alta Tensión S.A.(“Transener”), which in June 2008 was extended for a period of ten years. Transener owns the majority of the National Interconnection System (“SIN”), including almost all of the 500 kV transmission lines.

Electricity Distribution: EDESUR

EDESUR was created as part of the privatization of the Buenos Aires electricity distribution network. PESA currently owns 48.5% of Distrilec, which, in turn, owns 56.35% of EDESUR. PESA and Enersis/Chilectra Group (which owns 51.5% of Distrilec), owned by ENEL Energy Europe S.L., are the only shareholders of Distrilec and, pursuant to a shareholders’ agreement, both parties have the right to elect an equal number of directors, with an equal number of votes to approve all the resolutions at meetings of the Board of Directors.

In 1992, EDESUR was awarded an exclusive license by the Argentine government to distribute electricity in the southern area of the City of Buenos Aires and 12 districts of the Province of Buenos Aires, serving a residential population of approximately 6 million inhabitants. The license expires in 2087 and is renewable for an additional 10-year period. By December 31, 2010, EDESUR’s clients totaled 2,352,720, a 2.1% net increase compared to 2009. This indicator keeps the upward trend for the eighth consecutive year. Some of these customers were added as a result of new electricity lines, while others, who had been receiving electricity outside the system, are now fully connected and duly billed.

Under its concession contract, EDESUR is subject to a fixed cap on what it may charge each customer for the distribution of electricity. However, EDESUR may pass through to the customer the cost of the electricity purchased, limited only by the pre-adjusted seasonal MEM price. Customers are divided into tariff categories based on the type of consumption required. Under current regulations, large users may purchase energy and power directly from the MEM. EDESUR charges a fee for the provision of distribution services. Residential consumers purchase power only from distributors. These customers are generally daylight and weather sensitive and their consumption of electricity is different in summer and winter. Peak demand occurs in July, when there is the least amount of sunlight, and in January, which is usually the hottest summer month in Argentina.

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The enactment of the Public Emergency Law significantly affected EDESUR’s economic and financial balance and its ability to comply with its contractual commitments. For this reason, EDESUR’s efforts were focused on refinancing financial liabilities, reducing risks and optimizing working capital. Based on these guidelines, EDESUR was able to refinance all of its financial debt, achieving a better maturity profile and lower average costs.

In August 2005, EDESUR signed a Memorandum of Agreement (“MOA”) with UNIREN as part of the renegotiation of its concession contract. The MOA included the terms and conditions which would be the basis for the adjustment of EDESUR’s concession agreement. The MOA provided that between the execution of the MOA and June 30, 2006 an overall rate review would be performed in order to establish a new rate schedule effective August 1, 2006 and for five subsequent years. In addition, the MOA provided an interim period for which the following was agreed upon: (i) an interim rate schedule as from November 1, 2005 with an increase in the average rate not exceeding 15%, applicable to all rate categories except for residential users, (ii) a cost monitoring system which allows for reviewing rate adjustments, (iii) restrictions on dividend distribution and debt interest payments during 2006, (iv) investment commitments for 2006, (v) service quality standards and (vi) restrictions on Distrilec with regard to changes in its interest or sale of its shareholdings in EDESUR. Subsequently, Resolution No.864/2008 issued by the SE delayed the effectiveness of the new rate system until February 1, 2009. As of the date of this annual report, there have been no new resolutions about the overall tariff review.

In February, 2007, as a consequence of the full effectiveness of the terms and conditions of the MOA, a 23% increase was applied to EDESUR’s distribution costs (not affecting T1R1 and T1R2 residential tariffs), connection costs and the reconnection service charged by EDESUR, and an additional average increase of 5% was also applied to the aforementioned distribution costs for the execution of a work plan. In addition, theEnte Nacional Regulador de la Electricidad(national electricity regulatory agency, or “ENRE”) authorized, as of May 1, 2006, the application to the aforementioned costs of a 9.962% positive variation in the cost monitoring system indexes provided under the MOA. Subsequently, under SE Resolution No. 1838/2007 and ENRE Resolution No. 867/2007, a 9.75% adjustment according to the cost monitoring system provided for under the MOA was approved for the May 2006—April 2007 period, applicable as from May 2007.

On July 31, 2008 ENRE issued Resolution No. 324/2008 in relation to the Interim Tariff Scheme, approving a new tariff schedule for EDESUR applicable as from July 1, 2008, which imposes gradual increases between 10% and 30% on residential users with bimonthly consumption levels over 650 kilowatts as well as a 10% increase on commercial or industrial users. In addition, it provides for the application of the new tariff to the Program for the Rational Use of Energy (PUREE) and the partial recognition of the cost monitoring system (CMS) for subsequent periods. In addition, Note No.1,382/08 issued by the Under-secretary of Energy provided that the Company’s own distribution costs under the CMS that were accrued and not included in tariffs had to be compensated for with surplus funds from the PUREE until the costs were actually passed through to tariffs.

On June 1, 2009, EDESUR received a notice from ENRE demanding the suspension of dividend distribution in the amount of Ps. 65 million that had previously been approved at the shareholders’ meeting held on March 16, 2009, on the grounds of non-compliance with the formal request for dividend distribution according to the MOA. The board of directors of EDESUR resolved, on grounds of prudence and without any acknowledgment of rights or facts, to abide by the terms of the notice sent by ENRE and requested that ENRE reconsider its demand. On August 26, 2009, the ENRE issued Resolution No. 445/2009 denying a request for reconsideration, and resolved to partially lift the suspension and order EDESUR to refrain from disposing of Ps. 17.4 million until evidence is given of the actual execution of pending tasks in connection with the 2006-2008 work plan.

In view of the aforesaid, on August 28, 2009, EDESUR’s board of directors resolved to distribute dividends in the amount of Ps. 48 million, with dividends made available to shareholders as from September 14, 2009. In addition, EDESUR appealed to the SE against ENRE Resolution No. 445/2009, which opposes express legal and contractual provisions and is based on an erroneous interpretation of item 7.4 of Section 7 of the MOA and applicable regulation, among other grounds for challenge. As of the date of this annual report, the SE is considering the appeal.

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At the general regular shareholders’ meeting of EDESUR held on March 12, 2010, a reserve for future dividends was created in the amount of Ps. 167 million. As in the previous year, the ENRE reminded EDESUR that before any dividend distribution is made the ENRE must expressly approve compliance with the 2009 Investment Plan. Though EDESUR does not agree with ENRE’s views, it made available to ENRE all the information requested after taking all pertinent legal steps.

On August 18, 2009, the SE established, by Resolution No. 652/09 new seasonal prices for the June 1, 2009 — December 31, 2009 period for residential users with bimonthly consumption over 1.000 kWh or monthly consumption over 500 kWh. As a result, the ENRE issued Resolution No. 433/09, dated August 19, 2009, approving the values stated in the new tariff schedule applicable to the above mentioned period which imply a subsidy from the Argentine government to users involved of 100% of the tariff increase provided under ENRE Resolution N° 628/08 for June and July 2009 and of 70% of the tariff increase for August and September 2009.

As in 2009, in view of the numerous claims made by users, the SE established that subsidies from the Argentine government to users should be set at 100% of the tariff increase (that is, to the value before issuance of SE Resolution No. 1,169/2008) for the June 1-July 31, 2010 period and be reduced to 70% for the August-September 30, 2010 period.

Additionally, pursuant to the overall tariff review, on November 12, 2009 EDESUR submitted to the ENRE its income requirements in compliance with ENRE’s Resolution No. 467/2008. During the first months of 2010, in response to ENRE’s additional requirements, EDESUR submitted the supplementary information so requested.

On October 8, 2010, ENRE served notice to EDESUR of Resolution No. 525/2010 demanding EDESUR to adjust the 2010 investment plan and submit an operative regularization program to remove deficiencies in the supply of public services. EDESUR submitted before the ENRE a petition for reconsideration against said resolution rejecting the reasons and grounds thereof.

Through ENRE Resolution No. 551/2010 issued on October 6, 2010 the dividend distribution process provided for under item 7.4 of the MOA in connection with fiscal year 2009 was suspended sine die, with the resulting impact on dividend distribution.

EDESUR does not agree with the statements of facts and provisions stated in the two resolutions and informed the administrative authorities of its disagreement. Notwithstanding the foregoing, EDESUR confirmed that the 2010 Investment Plan exceeded the minimum levels requested by ENRE and implemented an Operative Regularization Program for the October 2010 — March 2011 period.

Between June 2 — 4, 2010, a severe contingency occurred due to a double failure on EDESUR’s high voltage system which affected 123,000 users in the City of Buenos Aires. EDESUR implemented its General Contingency Plan to minimize the impact of the emergency.

The causes that led to this exceptional, non-recurring and unforeseeable “double contingency” are being heard in a court of law. EDESUR claims that the outages, with a few hours time difference, of two high voltage lines, located very close one to the other, and with no previous failures, were not due to operation failures or lack of proper maintenance or investments.

Through Resolution No. 379/2010 issued by ENRE, the regulatory entity imposed on EDESUR a Ps. 20.4 million penalty for the above mentioned events. EDESUR appealed the ENRE’s resolution through administrative and judicial channels which to date are pending.

Following electricity supply interruptions occurred on December 22 — 28, 2010, due to extreme and exceptional weather conditions, with the longest heat wave in the last 58 years, with nine consecutive days involving maximum temperatures above 33ºC, the ENRE, through Resolution No. 01/2011, on January 4, 2011 ordered the conduct of a comprehensive technical, legal, economic and financial audit, during a thirty day term, to assess compliance by EDESUR with material obligations, the adequacy of and compliance with the committed investment plan, the investments made to meet the demand growth, the current conditions and level of maintenance of the facilities and equipment and if EDESUR is qualified to adequately provide public electric power distribution services. The above mentioned comprehensive audit started January 5, 2011. As of the date of this annual report, the audit is in progress and EDESUR has answered all requests to demonstrate adequate compliance with its obligations.

On account of the interruptions described above, on February 8, 2011 ENRE issued Resolution No. 31/2011 imposing penalties in the amount of Ps. 5 million for alleged non-compliance with obligations provided for in the Concession Contract and providing for compensation for damages caused to users in the amount of approximately Ps. 60 million.

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The chart below sets forth EDESUR’s annual electricity sales for each type of user for fiscal years ended December 31, 2010, 2009 and 2008.

	Annual sales in Gwh
	2010		2009		2008
Sales in Gwh:
Residential		6,034		5,882		6,463
General		3,520		3,638		3,179
Large users		7,207		6,506		6,518
Total		16,761		16,026		16,160
Sales (in millions of pesos)		2,261		2,204		2,048

Argentina’s recent economic growth has had an impact on the demand for electricity, which has surpassed consumption levels recorded prior to the 2001 crisis. Within EDESUR’s concession area, demand in 2010 increased to 18,730 GWh, or 4.6%, compared to 2009, with a 3,505 MW peak demand that set a new record for EDESUR, exceeding by 8.3% the maximum power for 2009 and by 5.6% the previous record which dated back to 2008. As a result, the network is close to overloading. In addition, electricity sales were 16,761 GWh, a 4.6% increase compared to 2009.

On June 18, 2009, Decree No.732/2009 was published in the Official Gazette of the Province of Buenos Aires. The Decree approved the addendum to a new master agreement for the provision of electricity to low-income suburban areas close to the City of Buenos Aires, which had expired in December 2006, and provided for a 4-year renewal term as from January 1, 2007. Within the national framework, such addendum had already been ratified by the Ministry of Federal Planning on September 17, 2008.

Competition

We compete both in the spot and futures markets, with competitors such as Endesa Costanera, Central Puerto, AES and Pampa, among others. In addition, in the Gas Plus market, where most of our energy is sold under term contracts, we compete with Pampa, Grupo Albanesi and AES, among others.

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INSURANCE

Our insurance policy principally focuses on the concentration of risks and the importance and replacement value of assets. Under our risk management policy, risk associated with our principal assets, such as oil and gas facilities, refineries, petrochemical plants and power generation plants are insured for their replacement value.

We insure against material damages, control of wells, especially where we have gas production, and third-party liability, including marine liabilities. Our re-insurers have ratings equal or above “A-” from Standard & Poor’s, “A3” from Moody’s and/or “B+” from A.M.Best. Insurance companies provide coverage in each and every country where we have controlled interests, following terms and conditions given by our reinsurers. We maintain coverage for operational third-party liability with respect to our onshore and marine activities, including sudden environmental risks such as oil spills (see “Item 3—Risk Factors—Our operations could cause environmental damage, and any changes in environmental laws may increase our operational costs”). We carry third party liability insurance coverage of up to US$125 million for each and every ocean marine and non-ocean marine incident of loss. We maintain control of wells coverage in many gas and oil fields located in Argentina and Bolivia. We also carry marine cargo insurance and directors and officers insurance coverage. All projects and installations under construction are required to be insured in compliance with the contract for any damage and liability risk. We also carry insurance for workmen’s compensation and automobile liabilities.

Our main areas of coverage include the following different types of deductibles:

• US$10,000,000 for combined claims for property damage for all our businesses;

• US$5,000,000 for control of wells; and

• US$5,000,000 in ocean and non-ocean marine third-party liability.

Our insurance decisions are based on our requirements and available commercial and market opportunities. Our facilities are regularly subject to risk surveys undertaken by international risk consultants.

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PATENTS AND TRADEMARKS

Minor portions of our commercial activities are conducted under licenses granted by third parties. Royalties related to sales associated with such commercial activities are paid under the relevant licenses. We use the name “Petrobras” with the permission of Petrobras.

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QUALITY, SAFETY, ENVIRONMENT AND HEALTH

PESA is a socially and environmentally responsible corporation that promotes continuous improvement of its health, safety and environmental practices and policies. This commitment lies at the core of our corporate mission. We believe that caring for the environment in which we operate and for the safety and health of individuals is an essential condition for the activities we develop.

Our Quality, Safety, Environment and Health (“QSEH”) policies, incorporate state-of-the-art concepts, including: eco-efficiency, life cycle, continuous improvement and leadership. This is implemented through the use of 15 guidelines and international standards for practical and customary action, each aimed at responsible behavior-based development, and in accordance with management system requirements.

We have complied with international audits and certifications with respect to environmental management, quality, safety and occupational health. We have 29 certifications distributed in 10 assets certified under internationally recognized standards, including ISO 14001, ISO 9001 and OHSAS 18001, which are maintained through regular third-party audits.

Excellence in Management

We are adjusting our management procedures by adopting management tools such as the basis of “Excellence in Management Program”, developed by Petrobras based on the “Brazilian National Quality Award”, and the management evaluation program for safety, environment and health (“PAG-SMS Program”).

The Excellence in Management Program provides a framework for the development of best practices, measures business management and identifies strengths and opportunities for the implementation of improvement plans focused on excellence. Since 2008 we have been implementing pilot benchmark evaluations of management indicators to contribute to the creation of a culture of excellence that integrates comparative information. During 2010, these benchmark evaluations were extended throughout the Company.

The PAG-SMS Program, started in 2004, verifies site adherence to the safety, environmental and occupational health policy and its 15 corporate guidelines. This verification involves triennial evaluations conducted by specialized assistants from Petrobras System locations, selected by our Head Office.

We also promote transparent and integrated management processes, while improving the efficiency of operations. The Company has implemented its standardization process, based on the application SINPEP (Petrobras’ Electronic Integrated Standardization System), software developed by Petrobras for all its units to facilitate the creation, implementation and improvement of standards for organizational process management. During 2010 we completed a review of 15 corporate guidelines and management processes and began implementing a process of alignment to new standards set by Petrobras.

In order to avoid the occurrence and repetition of unexpected events, an anomaly management process has been implemented since 2006. This process enables tracking, tracing and learning from critical situations to avoid repeated damage to individuals, property and/or the environment. During 2010, this process was improved and extended to all PESA units. Actions focused on detecting and preventing deviations were consolidated.

In addition, to ensure proper transfer of know-how and operational discipline, we measure perception of the standardization culture in the workforce, that is, the degree in which employees have taken on process relevance.

Throughout the last few years, results showed a permanent improvement in QSEH processes as well as in management indicators, based on the strong commitment of the management and high employee motivation.

Safety

To reduce the risk of accidents, a series of preventive measures have been developed, which focus on and were addressed to PESA’s supervisors and contractors’ supervisors, as well as to PESA’s management staff through the “Proactive Leadership Program”.

We also launched the “Leadership Program in Injury Prevention”, essentially addressed to contractors’ supervisors, who are trained to, in turn, provide employees in their area with specific training in safety movement, hand care and accident prevention.

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Since 2005, we have conducted our “Contractor Staff Ranking and Certification” process, through which more than 15,000 employees were trained to implement our SEH policies and guidelines. To revalidate this certification, we developed and implemented a “SEH Recertification Workshop” that is compulsory for contractors. This new stage reinforces SEH concepts and is aimed at increasing awareness with selected tools that meet the Company’s needs.

In 2010, we reduced accident and environmental impact rates to levels below those of prior years.

Since 2008, we have worked on the implementation of a risk analysis process that coordinates planning related to tasks that pose risks to individuals, the environment and the Company. As a result of this analysis, the safest way to perform a task is provided, including the identification of possible emergencies. During 2010, operational traceability and behavioral audits were performed.

In 2009, we started change analysis systematization through the implementation of specific software known asSistema de Gestión de Cambios(Change Management System, or SGC, for its Spanish acronym). This application facilitates registration, analysis and management of changes related to facilities, people, etc. It aims at minimizing or eliminating any risks that may arise as a result of these changes. This process was implemented in the 14 fields operated in the Austral Basin in the oil and gas exploration and production business segment and it is being implemented in the Avellaneda lubricants plant.

With respect to road safety, since 2004, we have implemented certain best practices related to the safety, environmental and health management of the transportation by land of liquid fuels. At present, we have 433 tankers that travel approximately 47.3 million kilometers per year throughout Argentina. This transport implies a high exposure to risk for our drivers, community members, equipment and product, including environmental risks. In response to this risk, we have focused on three main aspects: professional training of drivers, fleet condition and maintenance and risk analysis relating to the area where the units travel. The implementation of these practices resulted in a strong reduction in the Company’s accident rate. In addition, since 2005 the Company has conducted driver safety training to employees that drive Company vehicles, as well as supervision to ensure compliance with existing standards and regulations.

Environment

We are committed to minimizing our impact on the environment, and are developing a framework to assess and report on the eco-efficiency of all our business units. Eco-efficiency is based on the concept of creating more goods and services while using fewer resources and creating less waste and pollution.

In line with our strategic commitment to environmental responsibility, we have been working to reconcile increased production with the efficient use of natural resources such as water and energy, and generate the least possible amount of effluents and emissions in all of our business units, as evidenced by programs such as our “Inventory System of Atmospheric Emissions” (Sistema de Gestión de Emisiones Atmosféricasor “SIGEA”) project.

Since July 2003, our SIGEA project has assisted us in reducing our atmospheric emissions by enhancing our decision-making process for new investments, particularly in terms of energy conservation and eco-efficiency. Additionally, the SIGEA project has helped us to detect improvements that will facilitate our participation in carbon credit markets. During 2008, ICF International consulting company conducted a verification of our greenhouse gas emissions inventory. Oil and gas exploration and production assets in Argentina and Ecuador as well as refining and distribution and petrochemicals facilities in Argentina were subject to audits.

Regarding operating improvements, remediation and waste treatment, during 2009 we consolidated the waste corporate management system (Sistema Corporativo de Residuos or “SCR”) aimed at tracking waste management from generation to final disposal. To such effect, the effluent and industrial plant drainage systems were improved including fire systems. It also continued with the implementation of projects for remediation and recovery of affected soils in gas and oil fields and at refineries and with projects for duct integrity. In 2009 we implemented the “DataHidro” system (corporate computerized water resource and effluent data system) that uses a database to manage the rational use of water by the Company. During 2010, together with external specialists, we audited the gas emission sources of our impacted plants. Thus, we managed to make sure that the data recorded on a monthly basis in the Company’s emissions inventory —in place since 2004— are reliable and reflect the situation for each asset. This source of information will support improvements and power reductions.

For the fifth year in a row, PESA, through Petrobras, qualified for inclusion in the Dow Jones Sustainability Index group, the world’s most important sustainability index which is based on the social, economic and environmental performance of the participating companies.

In addition, in line with the Kyoto Protocol recommendations, since 2007, with the cooperation of the World Bank, we constantly evaluate projects that may fall within the scope of the “Clean Development Mechanism” (“CDM”).

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In addition, in order to improve the environmental information about the locations we operate, in 2010 we produced an environmental sensitivity map for the Paraná river, from Asunción del Paraguay to its outflow in the Río De la Plata. This environmental, georeferenced information, which addresses socio-economic, cultural and flora, fauna and community aspects, will be a key tool to prevent risks inherent to PESA’s operations.

Emergency Response

The Company is actively engaged in preventing, preparing for, and responding to emergency situations, with an emphasis on minimizing damage and rapidly restoring previous conditions in the event of an accident. To that end, we carry out a plan of standardization and revision of contingency processes in our units.

We are party to a mutual assistance agreement with Petrobras, our controlling shareholder, whereby we have committed to assist each other during possible spills in our land and maritime operations. In 2005, we created emergency response bases, which are distributed throughout different strategic points in Argentina (nautical and land bases), all of them with the necessary equipment and personnel for effective performance in an emergency.

We regularly conduct land and nautical drills to develop the skills and competency needed to carry out our emergency plans in different sectors. These drills are carried out within the framework of our SEH policy, and coordinate the activities of various parties who would be called upon in an emergency, such as the fire department, police, our customer service centers, contractors, and our own employees.

Since 2004, we annually organize workshops on handling of hazardous material emergencies relating to road transportation in several locations within the country. The workshops culminate in road accident drills based on a range of different scenarios such as fire, spills and human injuries.

Since 2004, more than 1,450 individuals from the emergency-response community, including civil defense and firemen, have been trained in techniques for reducing leaks and fire fighting related to land transportation. Through the responses to these drills, we are able to analyze information, assess situations by ranking the seriousness of each scenario on site, establish response strategies, and study the development of joint intervention techniques, rescue assistance and protection.

Health

We have implemented a health promotion and protection program, which prioritizes the quality of life of our employees. The principal components of the program are health promotion, stress management, physical activity, healthy diet and disease and accident prevention through early detection and control of epidemiological risk factors. Program activities include workshops on stress, sedentary life-style, healthy diet and a smoking reduction plan and other specific workshops.

In order to encourage physical activity, we opened health promotion centers—gyms and aerobics tracks—in several plants and executed agreements with private gyms and related family members.

In addition, since 2005 we have provided CPR (cardiopulmonary resuscitation) and first-aid training to 4,200 individuals, and more than 320 people have participated in our “Substance Abuse Prevention Program”, which develops preventive actions to prevent alcohol and drug abuse. Families are eligible to participate in our health promotion program workshops, and we were certified by the Ministry of Health in 2007 as a smoke-free work place. Moreover, in December 10, 2008 we obtained a heart safe certificate from the Argentine Federation of Cardiology in connection with all assets in Argentina, certifying that the Company has all the necessary elements and trained personnel in case of a heart attack emergency.

During 2010, all members of our staff undertook mandatory regular medical checks, supplemented by epidemiological indicators for dyslipidemia, hypertension, sedentary lifestyle, overweight and obesity. Measurements of the work environment and specific risk maps were completed, and follow-up of deviations was performed. We have also made preventive dental checks available to all employees to improve dental health and minimize health risk factors and a flu and tetanus vaccination campaign throughout the Company.

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REGULATION OF OUR BUSINESS

Argentine Regulatory Framework

Petroleum

Overview

The Argentine oil and gas industry is regulated by Law No. 17,319 (the “Hydrocarbons Law”), enacted in 1967, and natural gas is regulated by Law No. 24,076 (the “Natural Gas Law”), enacted in 1992. The Hydrocarbons Law, which sets forth the general legal framework for the exploration and production of oil and gas, allows the Argentine government to establish a national policy for the development of Argentina’s hydrocarbon reserves, with the principal purpose of satisfying domestic demand.

Originally, the Hydrocarbons Law provided that all oil and gas reserves located within the Argentine territory were owned by the Argentine government but in 1992, a new regulatory framework was implemented in response to several changes in the Argentine oil and gas industry after the privatization of Yacimientos Petrolíferos Fiscales Sociedad del Estado (“YPF”), and Gas del Estado (“GdE”). In order to response to these changes, Law No. 24,145 (the “Privatization Law”) was enacted. Pursuant to the Privatization Law, the Argentine government transferred ownership of oil and gas reserves to the government of the provinces in which these reserves were located, upon satisfaction of certain conditions. Furthermore pursuant to section 124 of the Argentine Constitution, as amended in 1994, provinces were also granted primary control over natural resources existing in their respective territories. In 2007, Law No. 26,197 (the “Federalization Law”) amended the Hydrocarbons Law to also provide that oil and gas areas belong either to (and should be administrated by) the Argentine government or the provinces, depending on the territory where the relevant areas are located.

Fields located in the area lying between twelve nautical miles from the coastline and the outer boundary of the continental shelf belonging to the Argentine government. All the fields lying within the various provinces or in offshore areas within twelve nautical miles of the coast belong to the provinces or the City of Buenos Aires, as applicable. The Federalization Law also divides authority over hydrocarbon transportation concessions between the Argentine government and the provinces, as discussed in detail below under “—Federalization Law.”

As a result of the Federalization Law, all oil and gas exploration permits and production concessions as well as other types of exploration and/or exploitation contracts with respect to the fields located in provincial territories, where originally granted by the Argentine government, were transferred to the relevant provinces by operation of law without affecting the rights or obligations of permit or concessions holders. Transportation concessions within provincial territories were also transferred to the relevant provinces.

The Hydrocarbons Law allows the Argentine government to establish national policies for the development of Argentine reserves and to set out the federal energy policy. Provinces have the right to (i) control and conduct surveillance of permits, concessions and exploration and exploitation agreements, (ii) enforce compliance of the terms and conditions of permits, concessions and explorations and exploitation contracts, (iii) approve the extension of the terms of permits, concessions and exploration and exploitation agreements, and (iv) impose fees.

Following, the enactment of the Federalization Law, several provinces (i.e., Chubut, Río Negro, La Pampa and Mendoza) conducted public biddings processes for the granting of new exploration permits and, eventually, production concessions.

While privatized, the oil and gas industry still remains heavily regulated, particularly with respect the granting of exploration and production rights, restrictions and productions export, taxes and fees on gross production, and specific investment obligations related the drilling activities, and other environmental controls and works.

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Exploration and Production

Pursuant to the Hydrocarbons Law, exploration and production of oil and gas is carried out though exploration permits, production concessions, exploitation contracts or partnership agreements. Nevertheless, the Hydrocarbons Law permits surface reconnaissance of territories not covered by exploration permits or production concessions, with authorization of the SE and the permission of the owner of the land. Information obtained through surface reconnaissance must be provided to the office of the SE, which is prohibited from disclosing it for a period of two years, without the prior authorization of the party that conducted the exploration, except in connection with the granting of exploration permits or production concessions.

The Hydrocarbons Law originally granted exploration permits and production concessions at the federal level through a competitive bidding process. Since the enactment of the Federalization Law, this power is exercised by both the federal and provincial governments, as applicable. Companies and individuals seeking to obtain oil and gas permits and participate in concession biddings need to satisfy certain registration requirements with the SE. Permits granted to third parties in connection with the deregulation and de-monopolization process were granted in accordance with procedures specified in certain decrees, known as the “Oil Deregulation Decrees”, issued by the Argentine government. In 1991, the Argentine government established a program under the Hydrocarbons Law, known as the “Argentina Exploration Plan”, currently in effect, pursuant to which exploration permits may be auctioned. The holder of an exploration permit has the exclusive right to perform the operations necessary or appropriate for the exploration of oil and gas within the area specified by the permit. Each exploration permit may cover only unexplored areas up to 10,000 square kilometers (15,000 square kilometers for offshore exploration), and may have a term of up to 14 years (17 years for underwater exploration).

In the event that holders of an exploration permit discover commercially exploitable quantities of oil or gas, such holders will be entitled to obtain an exclusive concession for the production and exploitation of the relevant reserves. The production concession provides its holder the exclusive right to produce oil and gas from the area covered by the concession for a term of 25 years (plus, in certain cases, a part of the unexpired portion of the underlying exploration permit), which may be extended by the relevant authority for an additional ten-year term. A production concession also entitles the holder to obtain a transportation concession for the transport of the oil and gas produced.

Under the Hydrocarbons Law, holders of exploration permits and production concessions are required to carry out all necessary works to find or extract hydrocarbons, using appropriate techniques, and to make the investments specified in their respective permits or concessions. In addition, holders must avoid damage to oil and gas fields and waste of hydrocarbons, must undertake adequate measures to prevent accidents and damage to agricultural activities, the fishing industry, communications networks and ground water, and must comply with all applicable federal, provincial and local laws and regulations.

Holders of production concessions are required to pay for such permits and concessions, and certain royalties to the Argentine government. Please see “—Royalties” below for more detail.

Exploration permits and production or transportation concessions are subject to termination upon breach or violation of applicable laws, regulations, permits or concessions terms or upon the bankruptcy of the permit holder or concessionaire. In the event of the expiration of exploration permits or production concessions, all oil and gas wells, operating and maintenance equipment and ancillary facilities automatically revert to the federal or provincial government, without compensation to the permit holder or concessionaire.

Exploration permits and production concessions can be partially or totally assigned with prior authorization of the Argentine government.

No early termination is provided under the Hydrocarbon Law due to a change of control in the Company’s equity, although, change of control clauses may be included under the relevant exploration permits or production concessions.

Authorized Governmental Agency

The SE is the federal governmental agency in charge of enforcing the Hydrocarbons Law. However, the Argentine government is in charge of determining areas in which hydrocarbons activities are to be encouraged and the granting of permits and concessions. Pursuant to the Federalization Law, each province has the authority to enforce the Hydrocarbons Laws within its own territory.

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State-Owned Energy Company

In October 2004, the Argentine Congress enacted Law No. 25,943 creating a new state-owned energy company called Energía Argentina S.A. (“ENARSA”). The corporate purpose of ENARSA is to carry out, through third parties or through joint ventures with third parties, (i) studies, exploration and exploitation of hydrocarbon natural reserves, (ii) the transportation, processing and sale of hydrocarbons and their direct and indirect by-products, (iii) the transportation and distribution of natural gas and (iv) the generation, transportation, distribution and sale of electricity. Moreover, Law No. 25,943 granted ENARSA with all exploration concessions in respect of all national offshore areas located more than twelve nautical miles from the coastline, up to the outer boundary of the continental shelf, that were vacant at the time of the entry in force of this law (i.e., November 3, 2004). Therefore, any future exploration of offshore areas must be done in joint venture with ENARSA.

Net Worth Requirements

The Hydrocarbons Law requires that, to engage in any exploration, production or transportation of oil and gas activity, companies must comply with certain capital requirements and financial solvency standards.

SE Resolution No. 193/03, states that in order to receive and maintain permits or concessions, the permit holder or concessionaire must have a minimum net worth of Ps. 2 million, in the case of land areas, and Ps. 20 million, in the case of the offshore areas, and that such minimum net worth must be maintained for the entire term of the permit of concession. Non-compliance with this requirement may result in penalties, including fines or even removal from the register of oil companies of the SE. Up to 70% of these net worth requirements may be satisfied by means of financial banking or other guarantees.

Federalization Law

The Federalization Law was published in the Official Bulletin on January 3, 2007, and amended the Hydrocarbons Law to clarify the federal and provincial governments’ ownership rights over liquid and gaseous hydrocarbon fields, based upon their location. As noted above, the Federalization Law transferred ownership of all hydrocarbon reservoirs that are onshore or within twelve nautical miles off shore to the provinces and the City of Buenos Aires, and provided for Argentine government ownership of reservoirs more than twelve nautical miles off shore, until the outer limit of continental shelf. Pursuant to the Federalization Law, the Argentine Congress shall continue to enact laws and regulations to develop oil and gas resources existing within all of the Argentine territory (including marine resources), but the governments of the provinces where the hydrocarbon reservoirs are located shall be responsible for the enforcement of these laws and regulations, the administration of the hydrocarbon fields and shall act as granting authorities for the exploration permits and production concessions. However, the administrative powers granted to the provinces shall be exercised within the framework of the Hydrocarbons Law and the regulations complementing this law. Consequently, even though the Federalization Law established that the provinces shall be responsible for administering the hydrocarbon fields, the Argentine Congress retained its power to issue rules and regulations regarding the oil and gas legal framework. Additionally, the Argentine government retained the power to determine national energy policies. It is expressly stated that the transfer will not affect the rights and obligations of exploration permit and production concessionaires, or the basis for the calculation of royalties, which shall be calculated in accordance with the concession title and paid to the province where the reservoirs are located. The Federalization Law provides that the Argentine government shall retain the authority to grant transportation concessions: (i) involving the territory of two or more provinces, and (ii) directly connected to export pipelines for export purposes. Consequently, transportation concessions which are located within the territory of one province and which are not connected to export facilities have been transferred to the provinces.

Finally, the Federalization Law grants powers to the provinces to: (i) exercise in a complete and independent manner of all activities related to the supervision and control of the exploration permits and production concessions transferred by Law No. 26,197; (ii) enforce all applicable legal and/or contractual obligations regarding investments, rational production and information and surface fee and royalties payment; (iii) establish the legal and contractual terms; (iv) apply the sanctions provided for in the Hydrocarbons Law; and (v) all other authorities set by the Hydrocarbons Law.

As of the enactment of the Federalization Law on January 3, 2007, each enforcement authority was made a counterparty to the different permits and concessions granted, with all the powers set forth in the Hydrocarbons Law, as amended and supplemented, and the rights derived therefrom.

Transportation

The Hydrocarbons Law grants hydrocarbon producers the right to obtain from the Argentine government a 35-year concession for the transportation of oil, gas and their by-products through public tender. Producers remain subject to the provisions of the Natural Gas Law and in order to transport their hydrocarbons do not need to participate in public tenders. The term of a transportation concession may be extended for an additional ten years upon application to the Argentine government.

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Transporters of hydrocarbons must comply with the provisions established by Decree No. 44/91, which implements and regulates the Hydrocarbons Law as it relates to the transportation of hydrocarbons through oil pipelines, gas pipelines, multiple purpose pipelines and/or any other services provided by means of permanent and fixed installations for transportation, loading, dispatching, tapping, compression, conditioning infrastructure and hydrocarbon processing. This decree is applicable to oil pipelines and not to gas pipelines. See “Regulation of Our Business—Argentine Regulatory Framework—Natural Gas—ENARGAS”.

The transportation concessionaire has the right to transport oil, gas and petroleum products and to construct and operate oil pipelines and gas pipelines, storage facilities, pumping stations, compressor plants, roads, railways and other facilities and equipment necessary for the efficient operation of a pipeline system. While the transportation concessionaire is obligated to transport hydrocarbons on a non-discriminatory basis on behalf of third parties for a fee, this obligation applies only if such producer has surplus capacity available and after such producer’s own transportation requirements are satisfied.

Depending on whether gas or crude oil is transported, tariffs are subject to approval by ENARGAS or the SE. SE Resolution No. 5/04 sets forth:

• Maximum amounts for tariffs on hydrocarbon transportation through oil pipelines and multiple purpose pipelines, as well as for tariffs on storage, use of buoys and the handling of liquid hydrocarbons; and

• Maximum amounts that may be deducted in connection with crude oil transportation by producers that, as of the date of the regulation, transport their production through their own unregulated pipelines, for the purpose of assessing royalties.

Upon expiration of a transportation concession, ownership of the pipelines and related facilities is transferred to the Argentine government with no compensation to the concessionaire.

Refining and Marketing

Executive Decree No. 1212/89, issued pursuant to the Hydrocarbons Law in 1989, regulates hydrocarbon-refining activities by oil producers and other third parties. This decree, as well as rules and regulations issued by the SE, regulates the commercial, environmental, quality and safety aspects of refineries and gas stations. This decree authorized imports, abolished oil assignments by the SE and deregulated the installation of refineries and gas stations. Certain supervisory and control powers of the SE have also been delegated to provincial and municipal authorities and therefore the refining and sale of refined products must also comply with provincial and municipal technical, health, safety and environmental regulations.

In order to refine hydrocarbons, companies must register with the SE. Registration is granted on the basis of financial, technical and other standards. As described below, liquid fuel retail outlets, points of sale for fuel fractioning, the resale to large users and supply contracts between gas stations and oil companies are also subject to registration with the SE.

Disposition No. 157/06 of the Argentine Undersecretariat of Fuels provides that fuel sellers who are parties to contracts creating any degree of exclusivity between the refining company and the fuel seller, which for any reason are seeking to terminate such contract, shall report the termination in advance to the Argentine Undersecretariat of Fuels in order to inform the Secretary of Domestic Trade. In that case, the Secretary of Domestic Trade is to: (i) issue a statement regarding the validity of the termination of the contract and (ii) use all necessary means to allow the fuel seller terminating the contract to execute another agreement with a refining company and/or fuel broker in order to guarantee its fuel supply.

Gas stations and other fuel retailers and distributors are required to register with the SE to participate in the liquid fuel markets. Severe sanctions are imposed on those who execute transactions with unregistered parties. Additional requirements are also imposed on all fuel market participants, and brand owners are jointly liable for any breaches by companies operating under their brand name (SE Resolution No. 1102/04). Also, gas stations in border areas must sell fuels to vehicles bearing foreign license places at mandatory differential prices (SE Resolutions No. 938/06 and 959/06).

The Argentine government has also imposed restrictions on exports, requiring producers to obtain authorization before performing export operations (Executive Decree 645/02 and SE Resolution Nos. 1679/04 and 1338/06). Prior to obtaining the SE’s approval to export crude oil or diesel oil, producers must generally demonstrate that they have either satisfied local demand requirements or granted the domestic market the opportunity to purchase oil on similar terms. Potential exporters of diesel oil must also register in advance with the government (SE Resolution No. 1679/04).

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In 2005, the Argentine government imposed additional requirements to guarantee the domestic supply of diesel oil to gas stations by refiners (SE Resolutions No. 1834/05 and 1879/05). Initially, these regulations allowed gas stations to obtain diesel oil from third parties if refiners were unable to meet demand, with refiners bearing any additional costs incurred in procurement. In 2006, regulations were introduced to require refining companies, wholesalers and retailers to meet total reasonable diesel oil demand on a continuous basis in every region in Argentina at the same level demanded for the corresponding month in the previous year, plus an adjustment to account for growth in domestic product (Secretary of Domestic Trade, Resolution No. 25/06).

The SE also regulates the quality content of fuels, through Resolution 1283/06. This Resolution has been modified by Resolution No. 478/09, postponing the enforcement of some quality specifications to some kind of fuels.

Any new fuels sold in Argentina must be authorized by the Undersecretary of Fuels (SE Resolution No. 1334/06). In 2008, the SE exempted fuel oils sold to power plants from marketing quality requirements under Resolution No. 1283/06 (Resolution No. 150/08).

Resolution No. 1103/04 issued by the SE provides, pursuant to Executive Decree 1212/89, section 17, that in the case of gas stations operating under a brand, the brand owner under which fuels are sold shall be responsible for the specification, quality and quantity of products sold and for compliance thereof with reported requirements, and in the case of gas stations operating under no brand, the operator shall be the responsible party and fuel suppliers may also be jointly and severally liable when identified.

The Ministry of Federal Planning created theEnergía Total(Total Energy) program in 2007 to help guarantee the supply of liquid and gas fuels to producers and to the Argentine population during 2008 (Resolution 459/2007). The program is designed to encourage the substitution of alternative fuels for natural gas and electricity consumption used in various production activities and electricity generation. The program has been extended. ENARSA is in charge of coordinating the Energía Total program, under which two separate plans call for the provision of liquid and gas fuels. One goal of the program is to guarantee the supply of liquid fuels derived from oil (liquefied petroleum gas, diesel oil, fuel oil, gasoline and octane enhancers) and to meet overall demand, based on economic growth and industrial development. The beneficiaries of this plan are primarily fuel refining and importing companies in Argentina that qualify pursuant to regulations governing the Energía Total program and that have reached an agreement with ENARSA.

From January 1, 2010, as established by Law No. 26,093, Decree 109/07 and other regulations, all fuels sold in Argentina must contain 5% of bioethanol blending in gasoline and biodiesel in diesel oil.

Additionally, between August 2010 and March 2011, two administrative decisions were issued by the Secretary of Domestic Trade (both of them later abolished) fixing the price of fuel to the public and establishing a procedure for consumers to report breaches, with the intention of forcing refining companies, wholesalers and retailers to meet local demand for fuel on conditions comparable to the prior year.

Market Regulation

Under the Hydrocarbons Law and certain decrees issued in connection with the deregulation and de-monopolization process that took place in the early 1990s (the “Oil Deregulation Decrees”), holders of production concessions have the right, with a few limited exceptions, to freely dispose of their production either through sales in the domestic market or through exports. However, since 2002 the Argentine government has imposed restrictions on the export of hydrocarbons under the Hydrocarbons Law. See “—Refining and Marketing” above and “Item 3. Risk Factors— Factors Relating to Argentina—Limits on exports of hydrocarbons and related oil products have affected and may continue to affect our results of operations”.

Pursuant to Decree No. 1589/89, relating to the deregulation of the upstream oil industry, companies engaged in oil and gas production in Argentina are free to sell and dispose of the hydrocarbons they produce and are entitled to retain up to 70% of the foreign currency proceeds they receive from crude oil and gas sales abroad, while being required to repatriate at least 30% of the proceeds through Argentine exchange markets.

The Hydrocarbons Law authorizes the Argentine government to regulate the Argentine oil and gas markets and prohibits the export of crude oil during any period in which the Argentine government finds domestic production to be insufficient to satisfy domestic demand. In the event the Argentine government restricts the export of oil and petroleum products or the free disposal of natural gas, the Oil Deregulation Decrees provide that producers, refiners and exporters shall receive a price, in the case of crude oil and petroleum products, not lower than that of similar imported crude oil and petroleum products and, in the case of natural gas, not less than 35% of the international price per cubic meter of Arabian light oil, at 34 degrees. See “—Refining and Marketing” above.

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Oil Plus and Refining Plus Programs

On November 25, 2008, the Argentine government issued Decree No. 2014/2008. This Decree created two programs known asPetróleo Plus(“Oil Plus”) andRefinación Plus(“Refining Plus”). The principal purpose of these programs is to stimulate the exploration, production and exploitation of oil reserves, to increase refining capability and production of different type of fuels. According to the Decree, companies that fulfill requirements established by these programs will be awarded tax credits that are transferable and that can be applied against export taxes levied on exports of crude oil, natural gas and derivatives.

Also, pursuant to Decree No. 2014/2008, construction of infrastructure by oil companies to (i) enable the exploration and production of new hydrocarbons reservoirs, (ii) increase production capacity, or (iii) incorporate new technology for the operation of existing and new hydrocarbons reservoirs, may qualify asObra de Insfraestructura Crítica(Critical Infrastructure Construction) under Law No. 26,360 and seek reimbursement of the value-added tax (“VAT”) corresponding to the assets involved in the infrastructure construction, or accelerate the amortization of the same assets for the purpose of determining their income tax. Decree No. 2014/2008 is regulated by SE Resolution No. 1312/2008; which defines and quantifies the incentives to be awarded under these programs. These incentives are awarded according to variables such as the international price of oil, the production volumes and the ratios of recovery of hydrocarbons reserves. Fiscal credits awarded under the Oil Plus program are subject to verification of an increase in the production of oil and the incorporation of new reserves of hydrocarbons. Fiscal credits awarded under the Refining Plus program are contingent upon the existence of projects to install new refining units or the expansion of existing units.

Royalties

Pursuant to sections 57 and 58 of the Hydrocarbons Law, holders of exploration permits and production concessions must pay an annual surface fee that is based on acreage of each block and which varies depending on the phase of the operation, (i.e., exploration or production), and in the case of the former, depending on the relevant period of the exploration permit. On October 17, 2007, Decree No. 1,454/07 significantly increased the amount of exploration and production surface fees expressed in Argentine pesos that are payable to the different jurisdictions where the hydrocarbon fields are located.

Holders of production concessions and permits are required to pay a 12% royalty to the province in which production occurs, calculated on the wellhead price (equal to the FOB price less transportation costs and certain other reductions) of crude oil and natural gas produced. The Hydrocarbons Law authorizes the government to reduce royalties by 5% based on the productivity and location of a well and other special conditions. Any oil and gas produced by the holder of an exploration permit prior to the grant of a production concession is subject to the payment of a 15% royalty.

Resolution No. 435/04 issued by the SE, which updates Resolution No. 155 dated December 23, 1992, (i) imposes additional reporting requirements with respect to royalties, (ii) introduces certain changes with respect to the powers of provinces, (iii) amends certain parts of the royalty determination system, including applicable deductions and exchange rates and (iv) establishes penalties upon default of a reporting duty. This resolution has been applicable to permit holders and concessionaires since June 2004.

Concessionaires are required to file monthly affidavits with the SE and the relevant provincial authorities, informing:

• The quantity and quality of extracted hydrocarbons, including the computable production levels of liquid hydrocarbons and a breakdown of the crude oil (specifying the type), condensate and total natural gas recovered (with a 0.1% maximum error tolerance);

• Sales to domestic and foreign markets;

• Reference values for transfers made at no cost for purposes of further industrialization;

• Freight costs from location where marketable condition is acquired to location where commercial transfer takes place; and

• Description of sales executed during each month.

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In addition to the affidavits, concessionaires must file receipts evidencing payment of royalties. Upon breach of any reporting duty, provincial authorities are entitled to make their own assessment of royalties.

Resolution No. 435/04 also provides that if a concessionaire allots crude oil production for further industrialization processes at its own or affiliated plants, the concessionaire is required to agree with provincial authorities and the SE, as applicable, on the reference price to be used for the purpose of calculating royalties and payments. Upon failure by the concessionaire to agree this price, provincial authorities may fix this reference price. The concessionaire is eligible for certain deductions including (i) inter-jurisdictional freight costs, which can be deducted from the selling price, as long as transportation is made by means other than a pipeline, and monthly invoices and any relevant agreements are provided and (ii) internal treatment costs (not exceeding 1% of the payment) incurred by authorized permit or concessionaires.

By Decree No. 2,240/2008, the Province of Neuquén approved the agreement signed with PESA for the extension of its exploitation concessions, save Sierra Chata, for additional ten years, subject to the Company’s agreement to pay to the Province an extraordinary exploitation right of 3% on its production of oil and gas in addition to the 12% annual royalty payment previously described.

Exchange Rates Applicable to Royalties

Under Resolution No. 76/02 of the Ministry of Economy, royalties on oil exports must be fixed taking into account the offer exchange rate quoted by Banco de la Nación Argentina on the day before the royalty is paid.

However, from December 2001 until May 2002, producers and refiners agreed to negotiate a reduced exchange rate in order to moderate the impact of the devaluation on the price of the products. Producers calculated and paid royalties according to this reduced exchange rate. These calculations have been rejected by the Province of Neuquén, which has presented a claim for any shortfall in royalty payments resulting from this agreement. This claim is still pending judgment by the Supreme Court.

Regulations to Secure the Supply of Diesel Oil

Over the past several years, the Argentine government has passed various laws and adopted various initiatives aimed at guaranteeing the supply of diesel fuel to the domestic market.

One government initiative aimed at securing local supply exempts diesel fuel imports intended for domestic consumption from the fuel liquids and natural gas tax, as well as the diesel oil tax. The following laws exempted diesel fuel imports in the following amounts from such taxes: Law No. 26,022 (2005) — 500,000 m³; Law No. 26,074 (2006) — 800,000 m³ (subject to an additional exemption of 20% in 2007); Law No. 26,337 (2007) — 1,800,000 m³ (applicable in 2008, subject to an additional exemption of 20%). Exemptions under Law No. 26,337 are valid when the average monthly parity of diesel oil imports is not lower than the ex-refinery price of diesel oil (excluding all taxes except VAT). Resolution No. 151/08 of the SE has also applied these exemptions to the first 500,000 m³of diesel fuel imported each year.

The Argentine government has also undertaken initiatives aimed at securing the supply of diesel fuel at subsidized, differential prices for regulated-rate public transportation service providers. Following Executive Decree No. 675/03 (as amended by Executive Decrees No. 159/04, 945/04, 280/05 and 564/05), several agreements were subsequently signed whereby refining companies agreed to supply diesel oil at lower than market prices, depending on the kind of services provided by the transportation companies. Executive Decree No. 449/2008 empowered theJefe de Gabinete (Chief of Cabinet) to sign annual agreements extending the diesel fuel subsidy to transportation companies for the fiscal year 2008.

In exchange for providing diesel fuel at below market prices, refining companies receive direct compensation in the form of credit on export duties, equivalent to the difference between the net revenues from the sale of diesel oil at the subsidized price and the net revenues that would have been obtained from the sale of the same diesel oil volumes at market price. Refining companies that process crude oil they produce are entitled to direct compensation, calculated by deducting such compensation from any amount payable for export duties. The applicable rate is determined by the Chief of Cabinet and the right to compensation is determined by the SE.

Since a new agreement for the supply of diesel oil to public transport companies has not been signed as of the date of this annual report, the previous agreement is still applicable.

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Stability of Fuel Prices

In an effort to mitigate the impact of the significant increase in international prices for oil and its by-products on domestic prices and to ensure price stability for crude oil, gasoline and diesel oil, since January 2003, at the request of the Argentine government, hydrocarbon producers and refineries have entered into a series of temporary agreements, which contained price limits with respect to crude oil deliveries. By the end of 2004, in light of increases in the WTI, the Argentine government established a series of measures to ensure the supply of crude oil to local refiners at price levels consistent with the local retail price of refined products.

Producers and refiners currently freely negotiate purchase and sale prices for oil.

Natural Gas

In 1992, the Natural Gas Act was passed providing for the privatization of GdE and the deregulation of the price for natural gas. To carry out the privatization, the assets of GdE were divided among two new transportation companies and eight new regional distribution companies. The transportation assets were divided into two systems on a geographical basis, the Northern and Southern pipeline systems, designed to give both systems access to gas sources and to main centers of demand, including the “Greater Buenos Aires” region. A majority of the shares of each of the transportation and distribution companies was sold to private bidders.

The Natural Gas Act established a regulatory framework for the privatized industry and created ENARGAS, an autonomous entity under the Ministry of Economy that is responsible for the regulation of the transportation, distribution, marketing and storage of natural gas.

Regulatory framework

Natural gas transportation and distribution companies operate in an “open access,” non-discriminatory environment under which producers, large users and certain third parties, including distributors, are entitled to equal and open access to the transportation pipelines and distribution systems. In addition, exploitation concessionaires may transport their own gas production pursuant to certain concessions granted under the Hydrocarbons Law.

The Natural Gas Act forbids gas transportation companies from buying and selling natural gas. Additionally, gas producers, storage companies, distributors and consumers who contract directly with producers may not own a controlling interest (as defined in the Natural Gas Act) in a transportation company. Furthermore, gas producers, storage companies and transporters may not own a controlling interest in a distribution company, and no seller of natural gas may own a controlling interest in a transportation or distribution company (unless such seller neither receives nor supplies more than 20% of the gas received or transported, on a monthly basis, by the relevant distribution or transportation company).

Contracts between affiliated companies engaged in different stages of the natural gas industry must be reported to ENARGAS, which may only decline to authorize such contracts if it determines that they were not entered into on an arm’s length basis.

ENARGAS

ENARGAS is an autonomous entity which functions under the Ministry of Economy and is responsible for a wide variety of regulatory matters regarding the natural gas industry, including the approval and adjustment of rates and transfers of controlling interests in the distribution and transportation companies. ENARGAS is governed by a board of directors composed of five full-time directors appointed by the Argentine government subject to confirmation by the Argentine Congress.

On May 21, 2007 the Argentine government announced that it was temporarily intervening in the operations of ENARGAS. Though the board of directors of ENARGAS remains in functions, as of the time of filing of this annual report, officials from the Argentine government currently exercise control over ENARGAS, in consultation with the board of directors. The government has not indicated how long this arrangement will remain in place.

ENARGAS has its own budget, which must be included in the Argentine national budget and submitted to Congress for approval. ENARGAS is funded principally by annual control and inspection fees levied on regulated entities in an amount equal to the approved budget, net of collected penalties and allocated proportionately to each regulated entity.

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Conflicts between regulated entities or between a regulated entity and a third party arising from the distribution, storage, transportation or marketing of natural gas must first be submitted to ENARGAS for review. ENARGAS’s decisions may be appealed to the Ministry of Economy or to federal courts.

Rate Regulation

Summary

Since the enactment of the Public Emergency Law and other emergency measures in early 2002, the regulators framework of public utility tariffs has been radically modified, including regulation of gas transportation and distribution services. A patchwork of conflicting regulations is currently in effect. Although the general rules on tariffs described in this section remain in effect, in practice they have been supplemented by other laws described throughout this section (“Regulation of Our Business”). We cannot predict which rules and regulations will remain in place if these various conflicts are resolved.

Regulation of Natural Gas Distributors Prior to the Public Emergency Law

Prior to the enactment of the Public Emergency Law, provisions of the Natural Gas Act regulated the rates for gas transportation and distribution services, including those of TGS. Tariffs to end-users consisted of the sum of three components: (i) the price of the gas purchased; (ii) a tariff for transporting gas from the production area through the distribution system; and (iii) a distribution tariff. Under the Natural Gas Act and TGS license, TGS was permitted to adjust rates (i) semi-annually to reflect changes in the U.S. producer price index, and (ii) every five years in accordance with efficiency and investment factors to be determined by ENARGAS. In addition, subject to ENARGAS’s approval, rates were subject to adjustment from time to time to reflect cost variations resulting from changes in the tax regulations (other than income tax) applicable to TGS, and for objective, justifiable and non-recurring circumstances. The ratemaking methodology contemplated by the Natural Gas Act and the TGS license is the “price-cap with periodic review” methodology, a type of incentive regulation designed to allow regulated companies to retain a portion of the economic benefits arising from efficiency gains. This legal framework remains in effect, though it has been modified by the regulations described below.

UNIREN

The Public Emergency Law pesified tariffs for public utility services at a Ps. 1=US$1 parity and prohibited tariff indexation. Additionally, it authorized the Argentine government to renegotiate public utility services contracts. This authority was later delegated by the executive to the Ministry of Economy, which created, in July 2003, the UNIREN, for the purpose of assisting in the renegotiation process. The renegotiation of service contracts (several of which are still ongoing) must take into account the following criteria, among others:

• impact of tariffs on economic competitiveness and on income distribution;

• quality of services to be provided and/or the capital expenditure programs provided for in the contracts;

• interest of customers and accessibility to services;

• the safety of the systems; and

• the company’s profitability.

On October 1, 2003, the Argentine Congress passed a bill allowing the Argentine government to set public utility rates until the completion of the renegotiation process. TGS is in the process of re-negotiating a tariff structure with UNIREN. See “Item 4. Information on the Company—Gas and Energy—Gas and Transportation—TGS—Renegotiation process”.

Modifications to the regulatory framework

On February 16, 2004, the Argentine government, through Decree No. 180/04, modified the regulatory framework for the Argentine gas industry. The decree authorized the SE to take any necessary measures to maintain an adequate level of services in the event of a supply crisis. In addition, Decree No. 180/04 provided for:

• the creation of a trust fund (to be funded by tariffs payable by users of the service, special credit programs and contributions from direct beneficiaries) to finance the expansion of the industry and the creation of an electronic market;

• the creation of an electronic wholesale market to coordinate “spot” transactions of the sale of natural gas and secondary market transactions for transportation and distribution of natural gas; and

• a prohibition on distributors or their shareholders from having a controlling participation in more than one gas dealer.

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Adjustment of Natural Gas Price at Wellhead

Decree No. 181/04 instructed the SE to design a framework for the normalization of prices of natural gas at wellhead. The decree authorized the SE to negotiate a price framework for the adjustment of prices in sales to distributors. Natural gas prices for residential consumers were excluded from this process. It also authorized the SE to create a new category of users who must buy gas directly from producers.

Prices resulting from this framework are used as a reference for calculating royalties and are used by ENARGAS in calculating any necessary adjustments in tariffs that result from variations in the price of gas. In addition, the decree required that all agreements for the sale of natural gas be filed with the electronic gas market and granted authority to the SE to regulate the sale of gas (i) between producers and (ii) between producers and their affiliates.

Pursuant to Decree No. 181/04, in April 2004 the SE entered into an agreement with natural gas producers—approved by Resolution No. 208/04— that regulated the price of natural gas by sector, and that called for the complete deregulation of the wellhead price of natural gas by January 1, 2007. Under the April 2004 agreement, natural gas producers were required to provide minimum supply volumes to the local market, including (i) distributors for industrial users, (ii) clients of distributors, or new direct consumers, and (iii) local electric power generators. Additionally, this agreement called for producers to report all supply agreements to the SE.

In 2007, upon expiration of the 2004 agreement, the SE and the producers signed a new “Natural Gas Producers Agreement”. This agreement modified the proposed scope of gas price deregulation, and established set prices, under which the 2005 price is maintained for the residential segment, and an annual average increase is established at approximately 6.5% for the compressed natural gas, generation and industrial segments (though the price for gas in the industrial segment remains freely negotiable). The implementation of this agreement is staggered by segment and the last supply commitment to expire is that for residential supply, in December 31, 2011.

In 2008, the Argentine government implemented the “Gas Plus Program” to create an incentive for producers participating in the aforementioned supply agreements to increase production in unexploited areas, areas under exploitation with particular geologic characteristics (e.g. “tight gas”), areas that had not been in production since 2004, or new fields in areas otherwise under production (SE Resolution No. 24/2008). Gas produced in these new areas is not subject to the same conditions imposed by the aforementioned natural gas producers’ agreement, thus permitting more favorable pricing.

On May 23, 2005, pursuant to Resolution No. 752/05, the SE established a mechanism by which new direct consumers were entitled to buy natural gas directly from producers as from August 1, 2005. Resolution No. 1886/2006 subsequently extended this mechanism through December 31, 2016. New direct consumers were allowed to buy natural gas in the electronic gas market, which was originally created for “spot” transactions but now permits long-term operations. In order to purchase gas in the electronic market, new direct customers were required to post irrevocable purchase orders that provided for: (i) terms of at least 36 months, (ii) prices of at least export parity, and (iii) volume of at least 1,000 m³ per day.

If the irrevocable offer is not accepted, the SE may require export producers to provide natural gas for a period of six months pursuant to the prices approved by Resolution No. 599/07 of the Ministry of Federal Planning. Transportation companies are prohibited from transporting natural gas for export purposes as long as the domestic supply of natural gas is not satisfied.

Restrictions on Gas Exports

In March 2004, the SE suspended all export authorizations and exports of natural gas surplus volumes and instructed the Undersecretary of Fuels to create a program for the rationing of gas exports and the use of the country’s transport capacity. The Undersecretary of Fuels subsequently adopted a program, known as the “Program for the Rationalization of Natural Gas Exports”, which established a mechanism for the determination of export restrictions based on various factors and contemplated monthly and quarterly limits on gas exports. In addition, during 2004, the Undersecretary of Fuels did not authorize exports of volumes (excluding surplus volumes) in excess of those exported during 2003. This program was replaced in June 2004 with the Complementary Program to Supply Natural Gas to the Domestic Market, which eased the monthly and quarterly limits established under the Program for the Rationalization of Natural Gas Exports.

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Since 2005, as part of the “Complementary Program to Supply Natural Gas to the Domestic Market”, the SE has requested that producers redirect natural gas targeted for export to supply thermal plants and gas distribution companies. These measures restricted our total volume of exported gas by a daily average of approximately 31,000 cubic meters in 2008, 420,000 cubic meters in 2007, 339,000 cubic meters in 2006 and 110,000 cubic meters in 2005, preventing us from benefiting from the higher margins offered by the export market. See “Risk Factors—Factors Relating to Argentina—Limits on exports of hydrocarbons and related oil products have affected and may continue to affect our results of operations”.

Moreover, according to the Natural Gas Producers Agreement approved by Resolution No. 599/07, the export of natural gas is prohibited as long as domestic supply is not satisfied. A mechanism for the determination of export restrictions was also established.

The Public Emergency Law created a withholding tax on exports of hydrocarbons for five years from March 1, 2002, which was subsequently extended for five years from January 2007 pursuant to Law No. 26,217. The taxes withheld are deducted from the sales price of the exported hydrocarbons. In May 2004, a 20% withholding rate was imposed on gas exports. In July 2006, the Ministry of Economy increased the rate to 45% and instructed the customs administration to apply the price fixed by the framework agreement between Argentina and Bolivia (approximately US$6/mmBtu in December 2007) as the reference price to calculate this tax, irrespective of the actual transaction price. In addition, on October 10, 2006, the Ministry of Economy and Production imposed prevalent export duties on exports from the Tierra del Fuego province, which were previously exempted from taxes. Moreover, in May 2007 the Ministry of Economy increased to 25% the export duty on butane, propane and LPG.

Resolution No. 127/2008 of the Ministry of Economy, effective July 11, 2008, increased export duties on natural gas exports from 45% to 100%, establishing a valuation basis for the calculation of the duty as the highest price established in any contract of any Argentine importer for the import of gas (including the reference price set by the framework agreement between Argentina and Bolivia). Resolution No. 127/2008 provides with respect to LPG products that if the international price, as notified daily by the SE, is under the reference price, the applicable export duty for such product will be 45%. If the international price exceeds the reference price, the producer shall be allowed to collect the maximum amount established for the relevant product, the balance being withheld by the Argentine government as an export tax.

Compressed Natural Gas for Vehicles

Effective April 1, 2006, distributors cannot provide compressed natural gas, or CNG, to gas stations. Instead, gas stations are required to purchase CNG in the electronic wholesale market pursuant to a mechanism of irrevocable purchase orders designed to conceal the identity of buyers and sellers, where buyers are able to make joint offers. If any purchase orders are not satisfied through this system, exports of natural gas will be diverted to cover unsatisfied demand. This mechanism is in force as of the date of this annual report and expected to continue until the SE determines that it is no longer necessary, in light of the status of the domestic supply of natural gas.

Liquefied Petroleum Gas

Prior to the enactment of Law No. 26,020 on April 8, 2005, the Argentine liquefied petroleum gas (LPG) market was regulated by the Hydrocarbons Law and regulations issued by the Undersecretary of Fuels. Under Resolutions No. 49/01 and No. 52/01, the SE was responsible for enforcing the rules and regulations applicable to the LPG industry and an LPG board, which reported to the “National Refining and Marketing Board”, which, in turn, reported to the Undersecretary of Fuels, was in charge of supervising and auditing the industry.

Law No. 26,020 established a new regulatory framework for the LPG industry. This new regime regulates the production, fractioning, transportation, storage, distribution and sale of LPG. The SE is responsible for enforcement of Law No. 26,020, and may delegate supervision and control tasks to ENARGAS. The relevant portions of this law are summarized below:

• Prices: the SE determines reference prices (which must be below export parity prices) for the domestic market (by region, on a seasonal basis every six months), with the goal of securing regular supply in that market, and may establish price stabilization mechanisms to avoid domestic price fluctuations.

• Market limitations: the SE and the CNDC are authorized to analyze the sector, for the purpose of fixing limits at each stage of vertical integration of the industry.

• Open Access: an open access regime is established in connection with the storage of LPG and the SE establishes terms and conditions for the determination of maximum storage tariffs.

• Imports/Exports: no restrictions are imposed and no prior authorization is required for the import of LPG, and the SE may authorize the export of LPG without restriction, so long as the domestic market is satisfied.

• Trust Fund: a trust fund was established for the purpose of subsidizing the consumption of LPG by the low-income residential sector and expanding the distribution network to areas without service. The trust is to be funded from the sanctions collected under this law and contributions from the national budget.

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Resolution No. 168/05 of the Undersecretary of Fuels extends the domestic supply and export restrictions applicable to other hydrocarbons under Resolution 1679/04 to LPG producers. However, as of the date of this annual report, domestic supply mandates and export restrictions have not been extended to the LPG market due to adequate domestic supply.

SE Resolution No. 792/05 set forth two seasonal periods (winter and summer), fixing reference prices for each period. Additionally, it divided the country into three geographical areas—North, Center and South—in which these prices are applied, as discussed above. It also approved a mechanism for the determination of the export parity price and an exclusive price that applies to retailers only, calculated from an average of its purchases for the last 24-month period.

Electricity

Until 1990, virtually all of the electricity supply in Argentina was controlled by the public sector. In 1991, the Argentine government undertook the privatization of state-owned electricity generation, transmission and distribution companies. In January 1992, the Argentine congress adopted Law No. 24,065 (the “Regulatory Framework Law”), which established guidelines for the restructuring and privatization of the electricity sector. The Regulatory Framework Law which continues to provide the framework for regulation of the electricity sector, distinguished the generation, transmission and distribution of electricity as separate businesses and subjected each to respective regulatory regimes.

The ultimate objective of the privatization process was to reduce rates paid by users and improve the quality of the electricity supply service through competition. The privatization process commenced in February 1992 with the sale of several large thermal generation facilities, and continued with the sale of transmission and distribution facilities (including those currently operated by the Company) and additional thermoelectric and hydroelectric generation facilities.

The Public Emergency Law, combined with the devaluation of the peso and high rates of inflation, had a severe effect on public utilities in Argentina. Because public utilities were no longer able to increase tariffs, inflation led to decreases in their revenues in real terms and a deterioration of their operating performance and financial condition. Most public utilities had also incurred large amounts of foreign currency indebtedness under the Convertibility Law regime and, following the devaluation of the peso, the debt service burden of these companies increased sharply, which led many of these to suspend payments on their foreign currency debt in 2002. This situation caused many Argentine electricity generators, transmission companies and distributors to defer making further investments in their networks. As a result, Argentine electricity market participants, particularly generators, are currently operating at near full capacity, which could lead to insufficient supply to meet a growing national energy demand.

To address the electricity crisis the Argentine government has repeatedly intervened in and modified the rules of the MEM since 2002. These modifications include the imposition of caps on the prices paid by distributors for electricity power purchases (Resolution No. 8/2002) and the requirement that all prices charged by generators be calculated based on the price of natural gas (which are also regulated by the Argentine government), regardless of the fuel actually used in generation activities (Resolution No. 240/2003), which together has created a huge structural deficit in the operation of the MEM.

In December 2004, the Argentine government adopted new rules for the electricity market (Resolutions Nos. 826/2004 and 712/2004), to come into effect once the construction of two new 800 MW combined cycle generators has been completed. These two generators commenced commercial operations in open cycle during 2008 and in combined cycle during the first quarter of 2010. Construction is partially financed with credit balances of generators resulting from the spread between the sales price of energy and generation variable cost, which are transferred to theFondo Para Inversiones Necesarias que permitan Incrementar la Oferta de Energía Eléctrica en el Mercado Eléctrico Mayorista(the fund for investments required to increase the electricity supply in the MEM, or “FONINVEMEM”).

Electricity generators accepted the opportunity under Resolution No. 1427/2004 to participate in the FONINVEMEM projects. PESA contributed 65% of its credits accrued in the MEM during the 2004—2006 period for the construction of the combined cycle generators mentioned above, and earned the right to be a shareholder in the companies in charge of these projects.

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The construction of these new generators evidences a decision by the Argentine government to take a more active role in promoting energy investments in Argentina. In addition to these projects, in April 2006 the Argentine congress enacted a law that authorized the Argentine government to create a special fund to finance infrastructure improvements in the Argentine energy sector through the expansion of generation, distribution and transmission infrastructure relating to natural gas, propane and electricity. Contributions to this fund are made throughcargos específicos(specific charges) passed on to customers as an itemization on their energy bills.

In 2006 the SE implemented the “Energy Plus Program” (SE Resolution No. 1281/2006) to create an incentive for increased electricity generation. Projects implemented under the Energy Plus Program are not subject to market regulations regarding prices. Instead, prices can be freely negotiated between generators and users.

The Energy Plus Program seeks to increase electricity generation and satisfy domestic demand. For that purpose, CAMMESA requires that all large users (consuming more tan 300kW) purchase their incremental demand (any volumes exceeding their 2005 consumption) from new generators under the Energy Plus Program.

Regulatory authorities

The principal regulatory authorities responsible for the Argentine electricity market are:

(1)	the SE of the Ministry of Federal Planning, and
(2)	the ENRE.

The SE advises the Argentine government on matters related to the electricity sector and is responsible for the application of the policies concerning the Argentine electricity industry.

ENRE is an autonomous agency created by the Regulatory Framework Law. ENRE has a variety of regulatory and jurisdictional powers including, among others:

• enforcement of the Regulatory Framework Law and related regulations;

• control of the delivery of electric services and enforcement of compliance with the terms of concessions;

• adoption of rules applicable to generators, transmitters, distributors, electricity users and other related parties concerning safety, technical procedures, measurement and billing of electricity consumption, interruption and reconnection of supplies, third-party access to real estate used in the electricity industry and quality of services offered;

• prevention of anticompetitive, monopolistic and discriminatory conduct between participants in the electricity industry;

• imposition of penalties for violations of concessions or other related regulations; and

• arbitration of conflicts between electricity sector participants.

ENRE is managed by a five-member board of directors appointed by the Argentine government. Two of these members are nominated by theConsejo Federal de la Energía Eléctrica(Federal Council on Electricity, or the “CFEE”). The CFEE is funded with a percentage of revenues collected by CAMMESA for each MWh sold in the market. Sixty percent of the funds received by the CFEE are reserved for theFondo Subsidiario para Compensaciones Regionales de Tarifas a Usuarios Finales (regional tariff subsidy fund for end users), from which the CFEE makes distributions to provinces that have met certain specified tariff provisions. The remaining forty percent is used for investments related to the development of electrical services in the interior of Argentina.

The Wholesale Electricity Market

Overview

The SE established the MEM in August 1991 to allow electricity generators, distributors and other agents to buy and sell electricity in spot transactions or under long-term supply contracts at prices determined by the forces of supply and demand.

The MEM consists of:

• a term market in which generators, distributors and large users enter into long-term agreements on quantities, prices and conditions;

• a spot market, in which prices are established on an hourly basis as a function of economic production costs, represented by the short-term marginal cost of production measured at the Ezeiza 500 kV substation, the system’s load center; and

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• a stabilization system for spot market prices applicable to purchases by distributors, which operates on a quarterly basis.

• Operation of the MEM

CAMMESA oversees the operation of the MEM. CAMMESA was created in July 1992 by the Argentine government, which currently owns 20% of its capital stock. Various associations that represent MEM participants, including generators, transmitters, distributors, large users and electricity brokers own the remaining 80%.

CAMMESA is in charge of:

• managing the SIN (defined below) pursuant to the Regulatory Framework Law and related regulations, which includes:

determining technical and economic dispatch of electricity in the national interconnection system (the “SIN”);

maximizing the system’s security and the quality of electricity supplied;

minimizing wholesale prices in the spot market;

planning energy capacity needs and optimizing energy use pursuant to the rules set out from time to time by the SE; and

monitoring the operation of the term market and administering the technical dispatch of electricity pursuant to any agreements entered into in such market;

• acting as agent of the various MEM participants;

• purchasing or selling electricity from or to other countries by performing the relevant import/export operations; and

• providing consulting and other services related to these activities.

CAMMESA’s operating costs are covered by mandatory contributions made by MEM participants. CAMMESA’s annual budget is subject to a mandatory cap equivalent to 0.85% of the aggregate amount of transactions in the MEM projected for that year.

MEM Participants

The main participants in the MEM are generation, transmission and distribution companies. Large users and traders participate also in the MEM, but to a lesser extent.

Generators

As of December 31, 2010, Argentina’s installed power capacity was 28,143 MW. Of this amount, 59% was derived from thermal generation, 37.4% from hydraulic generation and 3.6% from nuclear generation.

Transmitters

Electricity is transmitted from power generation facilities to distributors through high voltage power transmission systems. Transmitters do not purchase or sale of electricity. Transmission services are governed by the Regulatory Framework Law and regulation by the SE.

In Argentina, transmission is carried at 500 kV, 220 kV and 132 kV through the SIN. The SIN consists primarily of overhead lines and sub-stations and covers approximately 90% of the country. The majority of the SIN, including almost all of the 500 kV transmission lines, has been privatized and is owned by Transener. Regional transmission companies, most of which have been privatized, own the remaining portion of the SIN. Supply points link the SIN to the distribution systems, and there are interconnections between the transmission systems of Argentina, Brazil, Uruguay and Paraguay allowing for the import or export of electricity from one system to another.

Transmission companies also participate in CAMMESA by appointing two acting and two alternate directors through theAsociación de Transportistas de Energía Eléctrica de la República Argentina (Argentine Association of Electric Power Transmitters) (“ATEERA”).

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Distributors

The largest distribution companies are EDESUR and Empresa Distribuidora y Comercializadora Norte S.A.

Each distributor supplies electricity to consumers and operates the related distribution network in a specified geographic area pursuant to a concession. Each concession establishes, among other things, the area, quality of service required, rates paid by consumers for service and an obligation to satisfy demand. ENRE monitors compliance by federal distributors with the provisions of their respective concessions and with the Regulatory Framework Law, and provides a mechanism for public hearings at which complaints against distributors can be heard and resolved. In turn, provincial regulatory agencies monitor compliance by local distributors with their respective concessions and with local regulatory frameworks.

Distributors participate in CAMMESA by appointing two acting and two alternate directors through theAsociación de Distribuidoras de Energía Eléctrica de la República Argentina(Argentine Association of Electric Power Distributors) (“ADEERA”).

Large users

The MEM classifies large users of energy into three categories:Grandes Usuarios Mayores (Major Large Users) (“GUMAs”),Grandes Usuarios Menores(Minor Large Users) (“GUMEs”) andGrandes Usuarios Particulares(Particular Large Users) (“GUPAs”).

GUMAs are required to purchase 50% of their demand through supply contracts and the remainder in the spot market, while GUMEs and GUPAs are required to purchase all of their demand through supply contracts.

Large users participate in CAMMESA by appointing two acting and two alternate directors through theAsociación de Grandes Usuarios de Energía Eléctrica de la República Argentina (Argentine Association of Electric Power Large Users) (“AGUEERA”).

Traders

Since 1997, traders are authorized to participate in the MEM by intermediating block sales of energy. Currently, there are eight authorized traders in the MEM, several of which conduct transactions withComercializadora de Energía del Mercosur S.A.(“CEMSA”) in the export market.

Spot Market

Spot prices

The emergency regulations enacted after the Argentine crisis in 2001 had significant impact on energy prices. Among the measures implemented were the pesification of prices in the MEM, known as the spot market, and the requirement that all spot prices be calculated based on the price of natural gas, even in circumstances where alternative fuel such as diesel is purchased to meet demand due to the lack of supply of natural gas. Despite these modifications, the basic framework for the spot market that was established prior to the economic crisis remains in place.

Under this system, energy prices in the spot market are set by CAMMESA, which determines the price charged by generators for energy sold in the spot market of the MEM on an hourly basis. The spot price reflects supply and demand in the MEM at any given time, which CAMMESA determines using different supply and demand scenarios that dispatch the optimum amount of available supply, taking into account the restrictions of the transmission grid, in such a way as to meet demand requirements while seeking to minimize the production cost and the cost associated with reducing risk of system failure.

The spot price set by CAMMESA compensates generators according to the cost of the last unit to be dispatched for the next unit as measured at the Ezeiza 500 Kv substation, which is the system’s load center and is in close proximity to the City of Buenos Aires. Dispatch order is determined by plant efficiency and the marginal cost of supply. In determining the spot price, CAMMESA also considers the different costs incurred by generators not in the vicinity of the city of Buenos Aires.

In addition to energy payments for actual output at the prevailing spot market prices, generators receive compensation for capacity placed at the disposal of the spot market, including stand-by capacity, additional stand-by capacity (for system capacity shortages) and ancillary services (such as frequency regulation and voltage control).

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Seasonal Prices

The regulations implemented in the wake of the Argentine economic crisis of 2001 also made significant changes to the seasonal prices charged to distributors in the MEM, including the implementation of a cap (which varies depending on the category of customer) on the cost of electricity charged by CAMMESA to distributors at a price significantly below the spot price charged by generators.

Prior to implementation of the emergency regulations, seasonal prices were regulated by CAMMESA as follows:

• prices charged by CAMMESA to distributors and large users changed only twice a year (in summer and winter), with interim quarterly revisions in case of significant changes in the spot price of energy, despite prices charged by generators in the MEM fluctuating constantly;

• prices were determined by CAMMESA based on the average cost of providing one MW of additional energy (its marginal cost) and several other factors; and

• CAMMESA would use seasonal database and optimization models in determining the seasonal prices and would consider both anticipated energy supplies and demand as follows:

• in determining supply, CAMMESA would consider energy supplies provided by generators based on their expected availability, committed imports of electricity and the availability declared by generators;

• in determining demand, CAMMESA included the requirements of distributors and large users purchasing in the MEM as well as committed exports.

Stabilization Fund

The stabilization fund, managed by CAMMESA, absorbs the difference between purchases by distributors and large users at seasonal prices and payments to generators for energy sales at spot price. When the spot price is lower than the seasonal price, the stabilization fund increases, and when the spot price is higher than the seasonal price, the stabilization fund decreases. The outstanding balance of this fund at any given time reflects the accumulation of differences between the seasonal price and the hourly energy price in the spot market. The stabilization fund is required to maintain a minimum amount to cover payments to generators if prices in the spot market during the quarter exceed the seasonal price.

Billing of all MEM transactions is performed monthly through CAMMESA, which acts as the clearing agent for all purchases between participants in the market. Generally, payments to generators are made approximately 40 days after the end of each month by CAMMESA.

The stabilization fund was adversely affected as a result of the modifications to the spot price and the seasonal price made by the emergency regulations, pursuant to which seasonal prices were set below spot prices resulting in large deficits in the stabilization fund. This deficit has been financed by the Argentine government through loans to CAMMESA and by generators through contributions to FONINVEMEM.

Term market

Historically, generators were able to enter into agreements in the term market to supply energy and capacity to distributors and large users. Distributors were able to purchase energy through agreements in the term market instead of purchasing energy in the spot market. Term agreements typically stipulated a price based on the spot price plus a margin. Prices in the term market were at times lower than the seasonal price that distributors were required to pay in the spot market. However, as a result of the emergency regulations, spot prices are currently higher than seasonal prices, particularly with respect to residential tariffs, making it unattractive to distributors to purchase energy under term contracts while prices remain at their current levels.

Renegotiation of Utility Tariffs

Our affiliate EDESUR is currently negotiating its utility contracts with UNIREN. See “Item 4. Information on the Company—Gas and Energy—Electricity—Electricity Distribution: EDESUR.”

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Argentine Taxation

General Overview

Holders of exploration permits and production concessions are subject to federal, provincial, and municipal taxes and regular customs duties on imports. The Hydrocarbons Law grants such holders a legal guarantee against new taxes and certain tax increases at the provincial and municipal levels. Permit holders and concessionaires must pay an annual surface tax based on the area held. Attempts by the Province of Neuquén to change the reference price used for calculating royalties are currently being challenged through litigation. For more detail on concession fees and royalties, see “—Royalties” above.

	Oil and gas exploration and production activities in Argentina are subject to the following taxes:
•	An annual surface tax based on the area held, which varies depending on the permit and concession terms.
•	An income tax of 35% of net income.
•	A VAT of 21% for the domestic sale of oil and gas, which is passed on to purchasers (exports have a zero percent VAT).
•	A provincial tax, usually of 2% of gross domestic sales (exports are excluded).
•	A national minimum income tax of 1% of the value of the assets that the company owns as of December 31 of each year. Certain assets, such as shares and interests in other companies subject to the same tax, are exempt. Assets located in the jurisdiction of the Province of Tierra del Fuego are also exempt. The income tax paid as determined for the same economic year is considered to be payment against this tax.
•	A provincial stamp tax applied to written agreements entered within the provincial jurisdiction, at rates varying between 0.3% and 2.5% of the economic value of the relevant agreement.
•	A withholding taxes on crude exports, as described under “—Export Taxes” below.
•	A tax on debits and credits applicable to bank account transactions and other banking transactions used as a replacement for current accounts. The generally applicable rate is 0.6% on each debit or credit transaction (although in some cases, it increases to 1.2% or decreases to 0.075%).
•	A tax on personal property that applies to the shares or other stakes of Argentine companies held by foreign companies or individuals at a rate of 0.5% of the value of such assets.
•	A surveillance fee applicable to downstream activities and transportation of liquid hydrocarbons and its derivates through pipelines, as described under “—Surveillance Fee” below.

In addition, the “net profit” (as defined in the Hydrocarbons Law) of holders of permits or concessions accruing from activity of such holders might be subject to the application of a special 55% income tax. This tax has never been applied, although each permit or concession granted after this tax came into place provided that the holder thereof is subject to it. Although a decree of the Argentine government provides that we are subject to the general Argentine tax regime, our permits and concessions were granted prior to the entry in force of this tax and this has never been enforced.

Following the introduction of market prices for downstream petroleum products in connection with the deregulation of the petroleum industry, Law No. 23,966 established a volume-based tax on transfers of certain types of fuel, replacing the prior regime, which was based on the regulated price. Law No. 25,745 modified, effective as of August 2003, the mechanism for calculating this tax, replacing the old fixed value per liter according to the type of fuel for a percentage to apply to the sales price, maintaining the old fixed value as the minimum tax.

Dividends distributed by us to our shareholders, regardless of their country of residence, are exempt from income tax in Argentina. However, dividends distributed in excess of the accumulated earnings, determined according to the provisions of the Argentine Income Tax Law by the end of the fiscal year prior to the year when the dividends are distributed, shall be subject to a 35% tax on such excess. This tax must be withheld by the distributing company.

Holding of our shares by individuals resident in Argentina or abroad and corporations, any type of legal entity, enterprise, permanent establishment, estate or resident abroad shall be subject to a personal assets tax on those holdings by December 31 every year. The tax basis shall be the percentage net equity of each shareholder, and the tax rate is 0.5%. We act as a substitute obligor and pay the tax. The Argentine government is entitled to recover the amount paid through withholding or by foreclosing on the assets that generated the tax liability.

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Export Taxes

In 2002, the Argentine government imposed customs duties on the export of hydrocarbons. Export tax rates on crude oil were increased to 20%, on butane, methane and LPG to 20% and gasoline and diesel fuel to 5%. In May 2004, Resolution No. 337/04 of the Ministry of Economy increased export duties on crude oil to 25%. These export tax rates were increased again in 2004, when the Ministry of Economy issued Resolution No. 532/04, establishing a progressive scheme of export duties for crude oil, with rates ranging from 25% to 45%, depending on the quotation of the WTI reference price at the time of the exportation. In addition, in May 2004, pursuant to Resolution No. 645/04 of the Ministry of Economy, an export duty on natural gas and natural gas liquids was established at a rate of 20%. In July 2006, the Ministry of Economy increased the rate to 45% and instructed the customs administration to apply the price fixed by the framework agreement between Argentina and Bolivia (approximately US$6/mmBtu in December 2007) as the reference price to calculate this tax, irrespective of the actual transaction price. In addition, on October 10, 2006, the Ministry of Economy and Production imposed prevalent export duties on exports from the Tierra del Fuego province, which were previously exempted from taxes. Moreover, in May 2007 the Ministry of Economy increased to 25% the export duty on butane, propane and LPG. There can be no assurance as to future levels of export taxes.

Resolution No. 394/07 of the Ministry of Economy, effective as of November 16, 2007, increased export duties on Argentine exports of crude oil and other crude derivatives. This regime provides that when the international price exceeds the reference price, which is fixed at US$60.90 per barrel, the producer shall be allowed to collect US$42 per barrel, the remaining being withheld by the Argentine government as an export tax. If the international price of Argentine oil exports (as defined by the regulator) is under the reference price but over US$45 per barrel, a 45% withholding rate will apply to all amounts over US$45. If such price is under US$45 per barrel, the applicable export tax is to be determined within 90 business days. A similar withholding regime applies to exports of oil by-products such as gasoline, fuel oil and lube oils, with different cut-off and reference prices. Despite the drop in reference prices following July 2008, there has been no recalculation of the applicable export tax as of the date of this annual report.

Resolution No. 127/2008 of the Ministry of Economy, effective July 11, 2008, increased export duties on natural gas exports from 45% to 100%, establishing a valuation basis for the calculation of the duty as the highest price established in any contract of any Argentine importer for the import of gas (including the reference price set by the framework agreement between Argentina and Bolivia mentioned above). Resolution No. 127/2008 provides with respect to LPG products (including butane, propane and blends thereof) that if the international price of the relevant LPG product, as notified daily by the SE, is under the reference price established for such product in the resolution (US$338/m³ for propane, US$393/m³ for butane and US$363/m³ for blends of the two), the applicable export duty for such product will be 45%. If the international price exceeds the reference price, the producer shall be allowed to collect the maximum amount established by the resolution for the relevant product (US$223/m³ for propane, US$271/m³ for butane and U.S.$250/m³ for blends of the two), the balance being withheld by the Argentine government as an export tax.

Surveillance Fee

Law No. 25,565 imposed a surveillance fee payable to the SE for downstream activities, equal to Ps. 0.0003 per for each commercialized transaction in the domestic market, and for the transportation of liquid hydrocarbons and its derivatives through pipelines, at a 0.35% rate of the estimated income for the provision of transportation service.

Argentine Environmental Regulations

The environmental legal framework comprises Sections 41 and 43 of the Argentine Constitution, as well as federal, provincial and municipal laws. According to Section 41 of the Argentine Constitution, the Argentine government legislates on the minimum standards for protection of the environment, while the provinces and municipalities are responsible for establishing specific standards and implementing regulations. Please note that in addition to the regulations described below, certain regulations may also apply depending on the location of the oil and gas reserves.

International Treaties

Argentina is a member state to several international treaties concerning environmental matters that may impact our business. Argentina has undertaken several obligations in connection with the protection of the environment, the preservation of biological diversity and the implementation of sustainable development.

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Such treaties include: (i) the Basel Convention on the Control of Transboundary Movements of Hazards Waste and their Disposal (1989); (ii) the United Nations Framework Convention on Climate Change adopted in Rio de Janeiro (1992); (iii) the Montreal Protocol of Substances that Deplete the Ozone Layer (1989); (iv) the Kyoto Protocol (a protocol to the United Nation’s Framework Convention on Climate Change) (1997); and (v) the Stockholm Agreement on Persistent Organic Polluting Agents (2001).

Federal Environmental Laws

In accordance with Section 41 of the Argentine Constitution, federal laws establishing minimum standards for environmental protection have been enacted. These Laws provide a general framework for the legislation to be enacted by local jurisdictions, which must satisfy the minimum standards contained therein.

General Environmental Laws

Law 25,675 (the “General Environmental Policy”) enacted in November 2002, established minimum standards for the protection of the environment, the preservation of biological diversity and sustainable development.

The main purpose of the General Environmental Policy is the promotion of the rational and sustainable use of natural resources and the establishment of procedures and mechanisms to minimize environmental risks, prevent and mitigate environmental emergencies and redress damages caused by environmental pollution.

The General Environmental Policy requires that any work or activity capable of significantly degrading the environmental or its components or which may adversely affect the quality of life, shall be subject to a prior environmental impact evolution. All entities must provide information related to the environmental impact of their activities and this information shall be publicly available, unless declared classified.

Entities carrying out dangerous activities for the environment and ecosystems must take out insurance policies for the damages such activities may cause. Any person liable for environmental damages must take the actions necessary to restore thestatus quo ante,and where such restoration is not possible, the indemnification determined by the courts shall be transferred to an environmental restoration fund for the execution of remedial action.

Specific Environmental Regulations of Oil and Gas Industries

SE Resolution No. 105/92 contains specific regulations and procedures for the protection of the environment during oil and gas exploration and exploitation.

During exploration, companies must prepare an environmental impact report to be filed with the SE, and no drilling activity may be carried out before filing such environmental impact report. Once oil and gas fields are discovered, companies must prepare an environmental assessment report also to be filed with the SE. Thereafter, environmental reports are to be filed with the SE on an annual basis.

Integral Management of Industrial and Services Activities Wastes

Law No. 25,612 established minimum standards for environmental protection with respect to the integral management of waste originated in industrial or service activities. It sets forth minimum environmental protection requirements for generation, handling, storage, transport, treatment and final disposal of the aforementioned wastes. It also maintains the Argentine Constitution’s prohibition on the importation, introduction, or transportation into the country, its air space and seas, of any types of wastes from other countries.

In general terms, Law No. 25,612 sets a system of tort liability equal to that of Law No. 24,051 described under“Hazardous Waste”below. Infringements of this law may be subject to warnings, fines, closure, suspension of activities for up to one year and definitive withdrawal of authorizations and registrations in the applicable registers. In the case of legal entities, board members and managers may be held severally liable for such penalties.

Hazardous Waste

Law No. 24,051 regulates the generation, manipulation, transport, treatment and final disposition of hazardous wastes generated or located under federal jurisdiction or, if located in the territory of a province, that could affect individuals or the environment in other provinces other than the one where they were generated, or when the sanitary measures which adoption may became necessary have an economic impact making it advisable to unify those measures throughout the country.

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With respect to hazardous waste liability, hazardous waste is considered to have inherent risk (a “risky thing” as contemplated by article 1113 of the Argentine Civil Code), which means that the generator or handler of hazardous waste will only be exonerated from its liability to the extent it proves the victim’s or third parties’ negligence or willful misconduct. The law establishes severe civil and criminal sanctions for infringers.

Air Pollution

Law No. 20,284 applies in federal jurisdictions and in those provinces which have adopted the provisions of this law. It sets general principles for the treatment of potential sources of pollution. Enforcement of this law is vested in the respective national, provincial or local health authorities.

Water Environmental Management

Law No. 25,688 sets minimum standards for the preservation of water, its exploitation and rational use. It defines the different uses of waters and the need for obtaining a permit from the local authorities for its use.

Additionally, it provides that a federal enforcement agency shall determine: (i) maximum limits for contamination and protection of aquifers, (ii) instructions for the refilling and protection of aquifers, and (iii) the fixing of parameters and environmental standards for the quality of waters.

PCB Elimination and Management

Law No. 25,670, enacted in October 2002, regulates the management and elimination of polychlorinated biphenyls (“PCB”). It forbids the entry of PCBs and machines containing PCBs into Argentina as well as the installation of machines containing PCBs. According to Law No. 25,670 the government is empowered to take all necessary measures to guarantee the prohibition of the production, commercialization and the entry of PCBs into Argentina, as well as the elimination of the used PCBs and the decontamination and elimination of PCBs and machines containing PCBs within the terms provided therein.

Concealment and Money Laundering

Argentine Law No. 25,246 categorizes money laundering as a crime, which is defined as the exchange, transfer, management, sale or any other use of money or other assets obtained through a crime, by a person who did not take part in such original crime, with the potential result that such original assets (or new assets resulting from such original assets) appear as if obtained through legitimate means, provided that the aggregate value of the assets involved exceed in the aggregate (through one or more related transactions) Ps. 50,000.

Law No. 25,246 assigns information and control duties to certain private sector entities, such as banks, agents, stock exchanges, insurance companies, according to the regulations of the Financial Information Unit, and for financial entities, the Central Bank. These regulations apply to many Argentine companies, including us. These obligations consist mainly of maintaining internal policies and procedures aimed at preventing money laundering and financing of terrorism, especially through the application of “know your customer” policies.

Among other duties, each financial entity is required to establish a “control and money laundering prevention committee” and to appoint a senior official responsible for money laundering prevention policies, who shall be in charge of centralizing and processing any information that the Central Bank and/or the Financial Information Unit may require.

Furthermore, financial entities are required to report to the Financial Information Unit any transaction that may be considered suspicious or unusual, which lacks economic or legal justification, or involves unjustified complexity. Financial entities must pay special attention to transactions arising from or relating to jurisdictions included in the Central Bank’s list of “non-cooperating” jurisdictions. As of the date of this annual report, Myanmar is the only jurisdiction included in such list.

Law No. 25,246 has been amended by Laws No. 26,087 and 26,119.

Venezuelan Regulatory Framework

The Venezuelan state owns all hydrocarbon fields and has established methods for regulating the exploitation of hydrocarbons in Venezuelan fields that are different from those in Argentina.

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The “Gas Hydrocarbons Organic Law” published on September 23, 1999 regulates the exploitation of free or non-associated gas and the transport, distribution, collection, storage, industrialization, handling and internal and external sale of associated (gaseous hydrocarbon that is extracted jointly with crude oil) gas and free or non-associated gas (hydrocarbon that is extracted from a field which does not contain crude oil), allowing private sector participation in these activities.

The Venezuelan Constitution, in force since December 1999, contains provisions related to petroleum activity, including Article 12, which states that oil fields are property of the Venezuelan state, and Article 302, which reserves petroleum activity to the Venezuelan state. The Constitution gives Petróleos de Venezuela S.A. (¨“PDVSA”), a state-owned entity, responsibility for managing petroleum activity.

The “Hydrocarbons Organic Law” published on November 13, 2001 effectively reversed most prior related legislation, except for the Gas Hydrocarbons Organic Law, and purported to grant ample opportunity for the private sector to participate in the industry, limiting the activities reserved to the Venezuelan state to primary activities (which include exploration, extraction and initial transport and storage) and to the sale of crude oil and specific products.

The Hydrocarbons Organic Law regulates the exploration, exploitation, refining, industrialization, transport, storage, sale and conservation of hydrocarbons and refined products. The law sets forth the following principles: (i) hydrocarbon fields are public property, (ii) hydrocarbon activities entail public utility and of social interest, and (iii) activities described in the law are subject to decisions of the Venezuelan state adopted in connection with international treaties.

The Performance of Hydrocarbon Related Activities

Primary activities expressly reserved by law to the Venezuelan state can only be performed by (i) the government of Venezuela; (ii) wholly-owned state entities; or (iii) companies in which the Venezuelan state maintains direct control by owning at least fifty percent of the shares or quotas of capital stock. The sale of natural hydrocarbons and certain specified by-products can only be performed by wholly-owned state entities. Installations and existing facilities dedicated to the refining of natural hydrocarbons in the country and to the transportation of products and gas are owned by the Venezuelan state.

The National Assembly must grant approval to mixed-ownership companies before they can operate. These entities must meet the following minimum conditions: (i) they must have a maximum duration of 25 years, (ii) they must provide information regarding location, orientation and extension of the area under operation, (iii) all of their assets must be reserved and turned over to the Venezuelan state once the activity ends and (iv) any dispute among its shareholders must be resolved through private negotiations or arbitration and shall be subject to the laws of Venezuela.

Prior to April 2006, our interest in Venezuelan oil and gas fields was through operating service agreements with PDVSA, which established the terms of our compensation for production activities and investments. These contracts were awarded during bidding rounds in 1994 and 1997. In 2005, the Venezuelan government announced that these operating service agreements did not comply with the Hydrocarbons Organic Law and instructed the Ministry of Energy and Petroleum to commence negotiations with private operators to convert all operating agreements into mixed-ownership companies where more than 50% of each field is state-owned. These negotiations were completed in March 2006, and as a result, all our operating service agreements were converted to mixed-ownership companies (empresas mixtas) in which the Venezuelan government, through CVP, holds at least 60% of the share capital and private companies hold the remaining. The interests allocated to private companies were determined on the basis of the value attributed to the different operating service agreements during the negotiations.

The National Assembly has approved (i) the principal terms of the conversion agreements and the form of organizational documents for the mixed-ownership companies; (ii) amendments to the Hydrocarbons Organic Law and certain tax laws to allow the mixed-ownership companies to sell their production of crude oil to PDVSA and its affiliates and to qualify as exporters for VAT purposes; and (iii) the Law for Regulating the Participation of Private Entities in Primary Activities, which limits private company participation in primary activities in Venezuela to participation through mixed-ownership companies.

Licenses and permits

A license from the Venezuelan Ministry of Energy and Mines is required to refine natural hydrocarbons, and permits from the Ministry are required for activities related to the processing or domestic sale of refined hydrocarbons.

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Relevant Tax Features

Income tax

Venezuelan income tax law imposes a tax at a rate of 50% on the net taxable income of persons involved in hydrocarbon related activities, or activities related to the purchase or acquisition of hydrocarbons and by-products for export. These persons may be authorized to deduct from their income tax 8% of the value of new investments in fixed assets up to a maximum amount equal to two percent of their annual income for the relevant fiscal year. Any excess may be used in the following three fiscal years. Four percent of the value of certain investments in high waters may also be deducted. Accelerated amortization and depreciation of fixed assets and direct or indirect expenses necessary for the drilling of oil wells is permitted.

Activities related to the export of extra-heavy hydrocarbons through vertically integrated projects or the exploration or exportation of natural non-associated gas are subject to a 34% rate.

Contractors dedicated to exploration and production activities under operating agreements with state companies are also subject to a 50% rate.

Value Added Tax

Subject to certain exceptions, in particular for exporting companies, imports and local purchases of goods and services are subject to VAT at a rate of 15%, with a limited number of goods and services subject to VAT at a rate of 8%.

Municipal taxes

Hydrocarbon activities are not subject to municipal taxes, as these taxes are exclusively reserved for the national government.

Income from contractors that have entered into operative contracts with state companies for the rehabilitation of marginal fields is generally subject to a municipal tax on gross income.

Royalties

Since January 2002, royalties on oil and gas production have been set at a rate of 30%.

Special Advantages and Contributions

Mixed-ownership companies are subject to the following special taxes: (i) 3.33% additional royalty on the hydrocarbons volume extracted under the concession and delivered to PDVSA, and (ii) an amount equivalent to the difference, if any, between (a) 50% of the value of the hydrocarbons extracted under the concession and delivered to PDVSA each year, and (b) the aggregate of payments made by the mixed-ownership company to Venezuela in connection with activities conducted by the company during such calendar year, as royalties applicable on hydrocarbons extracted (including the additional royalty indicated in preceding item (i), income tax and any other tax or contribution calculated on income (either gross or net income), and investments in endogenous development projects amounting to one percent (1%) of profit before taxes.

OPEC

Venezuela is a founding member of the OPEC. In the past, PDVSA, under instructions from the Ministry of Energy and Mines, has adjusted its own production to ensure that Venezuela complies with production quotas set by the OPEC.

The Venezuelan government has created a policy of strict compliance with the production quotas established by OPEC. Article 6 of the Hydrocarbons Organic Law requires all persons who perform activities regulated by the Hydrocarbons Law to comply with production cuts, such as those that may be set by OPEC. Hence any production cuts may directly affect private producers, contractors, PDVSA, and mixed-ownership companies.

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Exchange Controls

On February 5, 2003, the Venezuelan government introduced exchange controls. These regulations state that companies established for the purpose of developing any of the activities described in the Hydrocarbons Organic Law may maintain accounts in currency other than the currency of Venezuela in banking or similar institutions outside of Venezuela only for purposes of meeting their obligations outside Venezuela. The Central Bank of Venezuela must approve these accounts. Any other foreign currency generated by these companies must be sold to the Central Bank of Venezuela. These companies cannot acquire foreign currency from the Central Bank of Venezuela to make foreign currency payments. These same exchange controls are applicable to mixed-ownership companies.

Additional Matters

Companies operating in the hydrocarbons sector in Venezuela that meet certain income thresholds are also required to contribute a percentage of gross income to scientific, technological and research programs. Hydrocarbon companies operating as mixed-ownership companies are also required to contribute to social programs. Additionally, employers of more than 50 employees are required to contribute to social programs aimed at reducing drug trafficking and substance abuse.

Bolivian Regulatory Framework

In Bolivia, the petroleum and gas industry is regulated by the System of Regulation by Sectors (“SIRESE”), which regulates, controls and supervises telecommunications, electricity, hydrocarbons, transportation and water activities, to ensure that they operate efficiently and protect the interests of users, service providers and the Bolivian state by contributing to the development of the country. In May 2005, a new hydrocarbons law, Law No. 3,058 was enacted, which, among other things, significantly increased taxes for companies in the industry. The law imposed an 18% royalty and a 32% direct tax on hydrocarbons applicable on 100% of production. These new taxes were imposed in addition to applicable taxes under applicable Law No. 843.

In May 2006, the Bolivian government enacted Supreme Decree No. 28,701, which provided, among other things, for the nationalization of hydrocarbon resources in Bolivia. This decree mandated that as of May 1, 2006, oil companies had to deliver all property related to hydrocarbon production for sale to the national operator, YPFB. In addition, this decree provided that the Bolivian state would recover full participation in the entire oil and gas production chain and to that end provided for the nationalization of the shares of stock necessary for YPFB to have at least 50% plus one of the shares in a number of companies.

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ORGANIZATIONAL STRUCTURE

The following diagram illustrates the corporate organizational structure of PESA and its subsidiaries, as of the date of this annual report:

In addition to the companies included in this chart, we have holding companies in Spain, Austria, Bolivia, the Cayman Islands, Bermudas and Argentina, which are not reflected in the chart. Some of our material subsidiaries and affiliates are held through such holding companies.

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The following diagram illustrates the ownership structure of PESA as of the date of this annual report:

PROPERTY, PLANT AND EQUIPMENT

PESA has freehold and leasehold interests in various countries in South America, but there is no specific interest that is individually material to the Company. The majority of our property, consisting of oil and gas reserves, service stations, refineries, petrochemical plants, power plants, manufacturing facilities, power distribution systems, stock storage facilities, pipelines, oil and gas wells, and corporate office buildings, is located in Argentina. As of the date of this annual report we also have interests in crude oil and natural gas operations outside Argentina in Venezuela and Bolivia.

Item 4A. UNRESOLVED STAFF COMMENTS

None.

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Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with, and is entirely qualified by reference to, our consolidated financial statements and the notes to those financial statements. Our consolidated financial statements were prepared in accordance with Argentine GAAP, which differs in certain significant respects from U.S. GAAP. Note 20 to our consolidated financial statements provides a description of the principal differences between Argentine GAAP and U.S. GAAP, and Note 21 to our consolidated financial statements provides a reconciliation to U.S. GAAP of net income, shareholders’ equity and certain other selected financial data.

ANALYSIS OF CONSOLIDATED RESULTS OF OPERATIONS

PROPORTIONAL CONSOLIDATION AND PRESENTATION OF DISCUSSION

In accordance with the procedures set forth in Technical Resolution No. 21 of the FACPCE, we are required to consolidate on a proportional basis the financial statements of companies over which we exercise joint control. Joint control exists where all shareholders, or shareholders representing a voting majority, have resolved, on the basis of written agreements, to share control over defining and establishing the company’s operating and financial policies. When consolidating companies over which we exercise joint control, the amount of our investment in the companies under our joint control and the interest in their income (loss) and cash flows are replaced by our proportional interest in the company’s assets, liabilities and income (loss) and cash flows. In addition, related party receivables, payables and transactions among members of the consolidated group and companies under joint control are eliminated on a pro rata basis pursuant to our ownership share in those companies.

As of December 31, 2010, 2009 and 2008, we exercised joint control over the following companies:

• CIESA, a company mainly engaged in the gas transportation business in southern of Argentina through its subsidiary, TGS.

• Distrilec, a company engaged in the electricity distribution business in the southern area of the Federal Capital and twelve districts of the Province of Buenos Aires through EDESUR, its subsidiary.

As of December 31, 2008, we exercised joint control over PVIE, a holding company whose main asset is 99.79% of the capital stock of Petrobras Energía Perú S.A. In April 2009, we sold our 60% remaining equity interest in PVIE to a subsidiary of our controlling shareholder, Petrobras. See “Item 7. Related Party Transactions”.

Even though we consolidate the results of CIESA and Distrilec proportionally in our financial statements, our management analyzes our results and financial condition separately from the results and financial condition of these companies. Accordingly, and in line with management’s view, we believe financial information without proportional consolidation of CIESA and Distrilec is useful to investors in evaluating our financial condition and results of operations. Unless otherwise provided, the discussion below is presented on the basis of our consolidated financial data without proportionally consolidating CIESA or Distrilec, and, therefore, is not directly comparable to the corresponding financial data set forth in our financial statements. For the results of CIESA and Distrilec (both of which are presented under proportional consolidation in our consolidated financial statements) please refer to our discussion under “Analysis of Consolidated Results of Operations—Equity in Earnings of Affiliates”.

OVERVIEW

PESA is an integrated energy company engaged in:

• Exploration and production of oil and gas;

• Refining and distribution;

• Petrochemicals; and

• Gas and energy.

Our long-term strategy is to grow as an integrated energy company in Argentina, while being a leader in profitability as well as social and environmental responsibility.

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Our principal place of business has historically been Argentina, but we also conducted operations in Venezuela, Bolivia, Ecuador, Brazil, and Mexico as of December 31, 2010. Approximately 78% of our total assets, 83% of our net sales, 84% of our combined crude oil and gas production and 83% of our proved oil and gas reserves were located in Argentina as of December 31, 2010. Fluctuations in the Argentine economy and actions adopted by the Argentine government have had and will continue to have a significant effect on Argentine private sector entities, including us. See “Item Key Information—Risk Factors”.

Year to year fluctuations in our income are a result of a combination of factors, including principally:

• The volume of crude oil, oil products and natural gas we produce and sell;

• Changes in international prices of crude oil and oil by-products, which are denominated in U.S. dollars;

• Fluctuations in the Argentine peso/U.S. dollar exchange rate;

• Interest rates;

• Changes to our capital expenditures plan;

• Price and export controls on crude oil and oil by-products; and

• Changes in laws or regulations affecting our operations, including tax and environmental matters.

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FACTORS AFFECTING OUR CONSOLIDATED RESULTS OF OPERATIONS

1) Argentine Economic Situation

Fluctuations in the Argentine economy have had and will continue to have a significant effect on Argentine private sector entities, including us. Specifically, we have been affected and might continue to be affected by Argentine tax regulations, the value of the peso against foreign currencies, inflation, interest rates, and the general political, social and economic environment in and affecting Argentina.

a) Value of the Peso Against Foreign Currencies

As of December 31, 2010, the peso-U.S. dollar rate of exchange was Ps. 3.98 per U.S. dollar, compared to Ps. 3.80 and Ps. 3.45 per U.S. dollar as of December 31, 2009 and 2008, respectively.

Almost all of our financial debt, as well as a significant portion of the debt of our related companies, is denominated in U.S. dollars, which exposes us to exchange risk. The nature of our business, involving commodities which are sensitive to U.S. dollar price variation, together with our policy of maintaining a significant amount of investments in U.S. dollars, helps us mitigate our peso-U.S. dollar exchange rate exposure. Exchange differences arising from liabilities in foreign currency assumed to hedge the net investment in foreign entities are not directly charged to results but to the item Deferred Results within Stockholders’ Equity, to which results for conversion of operations abroad are also charged.

With the stated accounting considerations, the exchange differences determined for fiscal year 2010 a gain of Ps. 55 million, compared to losses for Ps. 70 million and Ps. 141 million, in 2009 and 2008, respectively, mainly resulting from a net monetary asset position in foreign currency as from the second quarter of 2009, mainly due to the sale of the 60% interest in PVIE (net of exchange differences from financial liabilities as described above). See “Risk Factors—Fluctuations in the value of the peso may adversely affect the Argentine economy, our financial condition and the results of operations”.

b) Inflation

Historically, the Argentine economy has exhibited significant volatility, characterized by periods of high inflation. The FACPCE, on an ongoing basis, estimates whether Argentina is in an inflationary or deflationary environment.

In March 2003, as a result of the Argentine economy’s stabilization following the marked economic instability of 2002, the CNV, through General Resolution No. 441, mandated that from March 1, 2003 forward, all financial statements of reporting Argentine companies must be in nominal currency.

In 2010, 2009 and 2008, consumer price indexes increased by 10.9%, 7.7% and 7.2%, and wholesale price indexes rose 14.5%, 10.3% and 8.8%, respectively, according to INDEC. See “Risk Factors—Factors related to Argentina—Inflation may escalate and undermine economic growth in Argentina and adversely affect our financial condition and results of operations”.

In the past, inflation has materially undermined the Argentine economy and the government’s ability to stimulate economic growth. Sustained inflation in Argentina, without a corresponding increase in the price of products sold by us in the domestic market, would have an adverse effect on our results of operations and financial position.

2) Regulation of the Energy Industry in Argentina

Over the past several years, and until the global financial crisis erupted in the third quarter of 2008, commodity prices experienced an extended period of sustained increases. In response, the Argentine government imposed a series of regulations, particularly focused on the energy sector, aimed at reducing the impact of inflationary pressures from high commodity prices and ensuring energy supplies to the domestic market.

These regulations have affected our competitiveness and results of operations. See “Risk Factors—Factors related to Argentina—Inflation may escalate and undermine economic growth in Argentina and adversely affect our financial condition and results of operations”.

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a) Natural Gas

In 2007, the Argentine government and producers signed a new natural gas producers agreement with two main goals: to secure domestic supply of gas and to gradually recover prices in a number of market segments.

This agreement established domestic supply commitments for each participating producer. The agreement was approved by SE Resolution No.599/07 and adopted a schedule of defined prices, whereby prices remains unchanged for the residential sector. This is currently in effect by sector, with the residential supply commitment expiring last in 2011. During 2010, gas sales were made as follows: 26% to the residential sector, 1% to GNC market, 37% to electricity generation and 36% to industries.

In addition, the above resolution established that natural gas producers’ commitments to supply the CNG and electricity generation segments would terminate on December 31, 2009. However, the SE decided to unilaterally extend those supply commitments until April 30, 2012 for the CNG segment. Although the SE did not extend this regime in relation to the electricity generation segment, in practice the agreement is still in force.

The electricity generation segment experienced the highest increase of approximately 60% between January 1, 2007 and December 31, 2010. In the case of the residential and CNG segments, however, as of the date of this annual report, prices did not increase significantly.

In January 2007, through Resolution No. 1,886, the SE confirmed that the ability to export hydrocarbons would be subject to the satisfaction of domestic demand and that exports would have to be authorized on a case-by-case basis by the Argentine government. The SE was authorized to approve or reject export applications. These measures restricted our total volume of exported gas, preventing us from benefiting from the higher prices in the export market.

In November 2008, a trust fund was created by the Argentine government to cover natural gas imports required to secure supply of the domestic market. The resulting expenses will be borne by users of transportation and/or distribution regulated services, by gas consumers receiving gas directly from producers without using natural gas transportation or distribution systems and by natural gas processing companies. This resolution has negatively impacted our petrochemical and downstream margins by increasing our operating costs.

In August 2009, the Argentine government and natural gas producers signed an agreement which provided that natural gas producers would maintain the production level in exchange for a 30% improvement in the wellhead price of natural gas for the power plant segment. In addition, producers should receive a US$0.56/MMBtu subsidy for gas deliveries to residential users. This, however, was only received by PESA during eight months to March 2010. The authorities have since failed to recognize this subsidy.

In October 2010, through Resolution I-1410 issued by ENARGAS, the natural gas delivery method was modified, prioritizing the supply for residential and CNG segments. As a result, each distribution company was able to request volumes on a daily basis above volumes committed under the natural gas producers agreement (SE Resolution No. 599/07). This resolution had a negative impact on the natural gas business since it implies delivering a higher volume to the prioritized demand.

b) Withholding Taxes on Exports

The Public Emergency Law established withholding taxes on exports of hydrocarbons to last for five years from March 1, 2002, which was subsequently extended for five years from January 2007 pursuant to Law No. 26,217. The taxes withheld are deducted from the sales price of the exported hydrocarbons.

Effective November 2007, Resolution No. 394/07 issued by the Ministry of Economy (“Resolution No. 394/07”) provided for a new method for calculating withholding taxes on exports of crude oil and certain oil by-products. Under this new method, when the international price for crude oil exceeds US$60.90 per barrel, an incremental withholding tax rate is applied to crude oil exports, capping the price the producer receives at US$42 per barrel. When the international price for crude oil ranges between US$45 and US$60.90 per barrel, a 45% withholding tax is applied. If the international price for crude oil decreases below US$45 per barrel, the authorities are required to set new rates within 90 days. A similar withholding regime applies to exports of oil by-products such as gasoline, fuel oil and lubrication oils, with different cut-off and reference prices. This new tax regime had a negative impact on our Refining and Distribution business unit, particularly on exports of fuel oil, VGO and gasoline.

In March 2008, the Ministry of Economy issued Resolution No.127/08, amending Resolution No. 534/2006, and imposing a 100% withholding tax on natural gas exports, based upon the highest price set for natural gas under any applicable agreement for natural gas imports into Argentina. Under this resolution, taxes on natural gas exports are equal to the cost of natural gas imported into Argentina. We have negotiated new contractual terms with our foreign customers to pass along the economic effect of these increased withholdings. In addition, under Resolution No.127/08, the method for calculating withholding taxes on exports of crude oil, as explained above, is also applicable to LPG. See “Risk Factors—Factors Relating to Our Business—Export taxes on our products have negatively affected, and may continue to negatively affect, the profitability of our operations”.

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c) Downstream Margins

The downstream business in Argentina has been and may continue to be subject to extensive regulatory changes that have affected the sector’s prices and profitability. These regulatory changes have had and may continue to have an adverse effect on our operational results.

Downstream margins have significantly declined since the enactment of the Public Emergency Law in January 2002. Since that time the Argentine government has actively intervened in the fuel market to secure domestic supply and limit increases in the price of gasoline and diesel oil at the retail level in the domestic market that would have otherwise resulted from: (i) higher costs due to increases in international and domestic crude oil prices, (ii) the peso devaluation, (iii) domestic inflation and (iv) higher costs resulting from the obligation to add biofuels to standard fuels.

During the 2007 — 2010 periods, some flexibility was reintroduced to the domestic market that allowed gradual increases in fuel prices, which facilitated a partial recovery in our margins. In March 2008, the Argentine government announced that beginning in April 2008, domestic fuel prices would be adjusted taking into account a target inflation rate. We have not received any assurance from the government, and can provide you with no assurance, that the price adjustments will match real inflation rates or on how long this measure will remain in force. In August 2010, under Resolution No. 295/10 oil prices in the domestic market reverted back to prices as of July 31, 2010. However, in December 2010 this rule was repealed by Resolution No. 543/10 issued by the Secretary of Domestic Trade. Subsequently, Resolution No. 13/11 reverting oil prices to January 28, 2011 levels was published on February 2, 2011, which was also repealed by Resolution No. 46/11 issued by the Secretary of Domestic Trade in March 2011.

Since November 2007, upon approval of Resolution No. 394/07, our downstream business margin has declined significantly, as the new withholding taxes on exports were significantly higher than those previously in place, with the greatest impact on fuel oil, VGO and gasoline exports. In addition, the Argentine government imposed new requirements for oil and fuel exports, which led to greater delays and restrictions in the processing of export permits.

Business margins were also affected by Resolution No. 25/2006 of the Secretary of Domestic Trade, which required refining companies to fully satisfy domestic demand for diesel oil. In 2006, 2007 and 2008, demand grew, but Argentine refineries were unable to significantly increase production levels as they were operating at levels close to their maximum installed capacity. We imported 202,000 cubic meters of diesel oil in 2008, compared to 208,000 cubic meters in 2007. Considering the gap between import and retail diesel oil prices, we recognized losses of Ps. 151 million and Ps. 106 million in 2008 and 2007, respectively.

Early in 2008, under Resolution No. 121/2008 of the Ministry of Federal Planning, we were able to import diesel oil at domestic market prices under the PET, which provided that the Argentine government would be responsible for the difference between domestic market prices and international prices. This significantly mitigated our losses incurred as a result of the implementation of Resolution No. 25/2006. In the future, subject to our plants’ production capacity and market growth levels, we could be required to continue importing diesel oil under Resolution No. 25/2006, with a probable adverse effect on our results, as we do not have any assurance that the government will bear the losses derived from diesel oil imports in the future, as it did while Resolution No. 121/2008 was effective.

Under Law No. 26,074/2006, diesel oil imports and sales in the domestic market of volumes imported during 2006 and 2007 were exempted from tax on liquid fuels and natural gas and from tax on diesel oil and other taxes. The SE issued several resolutions proposing hydrocarbon market operators to participate in this regime. Nevertheless, during the second semester of 2010 tax-exempt diesel oil import quotas ran out, which obliged us to do non-exempt imports of approximately 41,000 cubic meters with a negative impact on business margins.

d) Electricity Generation

With the enactment of the Public Emergency Law, the Argentine government implemented the pesification of dollar-denominated prices in the MEM, and set a cap on prices that could be charged for gas used in electric power generation. As a result of this regulation, electricity prices failed to reflect total generation costs. This discrepancy led to the gradual depletion of the Stabilization Fund (Fondo de Estabilización), causing an increasing deficit, which in turn prevented CAMMESA from normally settling accounts with market agents.

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In an effort to reduce the Stabilization Fund deficit, the Argentine government initially made contributions to the fund and reinstated seasonal adjustments, recognizing some of the increased costs resulting from the recovery of natural gas prices in the determination of wholesale spot prices. Subsequently, the SE encouraged MEM creditors to participate in investments in electric power generation in order to increase the available supply of electric power generation in Argentina. For this purpose, two investment funds were organized, FONINVEMEM I and II. The financing of FONINVEMEM I and II was made through the contribution of 65% and 50% of the credit balances recorded in 2004-2006 and in 2007, respectively, resulting from the spread between the selling price of energy and the variable generation cost in the spot market. The total contribution by all wholesale electric market private creditors is estimated at US$530 million for all periods, of which PESA contributed US$55 million, dedicating US$39 million to FONINVEMEM I and US$16 million to FONINVEMEM II.

On October 17, 2005, under the terms of Resolution No. 1,193 issued by the SE, PESA and other MEM creditors formally announced their decision to manage the construction, operation and maintenance of two power plants of at least 800 MW each, theTermoeléctrica Manuel BelgranoandTermoeléctrica José de San Martínplants. Construction costs of both plants are estimated at approximately US$1.3 billion and are to be funded with the contributions to FONINVEMEM I and II, with an additional charge imposed on consumers and with contributions from the Argentine government.

The gas turbines ofTermoeléctrica Manuel BelgranoandTermoeléctrica José de San Martínpower plants were operating in open cycle mode as of December 31, 2009 and in combined cycle as from the first quarter of 2010.

In order to restore the regular operation of the MEM as a competitive market that provides sufficient supply, in December 2004, the SE committed to approving successive seasonal price increases to values that would cover at least total monomic costs by November 2006. This commitment has not been carried out in practice. In November 2008, partial adjustments to seasonal prices were approved, applicable to the period between November 2008 and April 2009, but the adjusted prices still failed to cover the costs incurred by the generation system.

When the additional capacity contributed by FONINVEMEM is brought into the system, it is anticipated that the electricity market will return to more competitive market conditions and will have adequate supply. Once this happens, the SE plans to compensate energy producers at the marginal cost of electricity produced, as established in the spot market, and for capacities and at values in U.S. dollars as existed prior to the Public Emergency Law. As of the date of this annual report, maximum spot prices set under Resolution 406/2003 at 120 Ps./MWh are still in force.

In 2008, as a consequence of the increasing deficit in the Stabilization Fund, CAMMESA’s debt with generation agents, including us, gradually increased. Therefore, generation companies only received payment from CAMMESA for variable production costs and for power and services such as the primary frequency response system, but not for the margin (between the spot price and the variable production cost) on sales to the spot market. For the purpose of remedying this situation and securing generation supply, the SE issued Resolution 724/08 aimed at improving the collection priority of generation companies. Under this resolution, generation companies were able to submit projects for the expansion of the lifespam and/or generation capacity of their units for the purpose of ensuring priority in the collection of credit balances owed by CAMMESA.

As of December 31, 2009, the funds contributed by the Company to FONINVEMEM II had been fully recovered through investment in additional electricity generation projects under SE Resolution No. 564/2007, whereby the Company built Genelba Plus, a 165 MW thermoelectric plant close to the existing Genelba power plant. In addition, as of December 31, 2010, PESA had an outstanding credit owed to it by CAMMESA totaling Ps. 295 million for electricity generated by it and sold to the spot market.

During 2010, several resolutions were approved to improve the operating margins of electricity generators. Under SE Notes No.6,169 and 6,866 CAMMESA was instructed to accept assignment as from May 1, 2010 of gas and transportation agreements by electric power generators, to centralize and optimize delivery of natural gas to the electricity generation sector. In exchange, a gross margin is accrued to electricity generators as if generation were performed with natural gas, regardless of the fuel used. Resolution No. 7,548 applicable to energy sold pursuant to the Energy Plus Program was subsequently published and pursues the same objective.

On November 25, 2010, an agreement was entered into between generators and the SE to start readjustment of the MEM and comply with Resolution No.1,427/2004. Pursuant to this agreement, generators expect to start receiving a higher fee for the monthly generation capacity availability, regardless of the actual dispatches to the SIN. In addition, higher operation and maintenance costs will be recognized according to fuel used for generation. Generators, in turn, undertook to continue with their maintenance investment plans and to make investments with the proceeds from sales which generated the credit with CAMMESA before mentioned.

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e) Regulation of Utilities

The Public Emergency Law pesified tariffs for public utility services at a Ps. 1=US$1 parity and prohibited the increase of these tariffs based on indexation factors. In addition, the Argentine government was authorized to renegotiate the terms of contracts relating to the provision of public utility services, taking into account the following criteria: (i) the impact of tariffs on economic competitiveness and on income distribution; (ii) the quality of services to be provided and/or the capital expenditure programs provided for in the contracts; (iii) the interest of customers and accessibility to services; (iv) the safety of the system; and (v) the companies’ profitability.

In February 2002, the Ministry of Economy was authorized to renegotiate contracts with public utility companies. In July 2003, the UNIREN was created under the joint jurisdiction of the Ministry of Economy and the Ministry of Federal Planning. UNIREN’s mission is, among other purposes, to provide assistance in the utilities renegotiation process, execute comprehensive or partial agreements with utility companies and submit regulatory projects related to transitory price and rate adjustments.

UNIREN is currently renegotiating the contracts with EDESUR and TGS. These negotiations are in different stages. See “Item 4. Information on the Company—Gas and Energy—Gas Transportation—TGS—Tariff Renegotiation Process” and “Item 4. Information on the Company—Gas and Energy—Electricity—Electricity Distribution: EDESUR.”

We are unable to predict the future development of the renegotiation process involving tariff and concession contracts or the impact it may have on our results of operations or our financial position.

f) CIESA’s Debt Restructuring Process

Due to the Argentine macroeconomic situation, starting with the enactment of the Public Emergency Law, CIESA did not pay at maturity, in April 2002, either the principal and the last interest installment, or the cap and collar, of its interest rate agreements. See “Item 4. Information on the Company—Gas and Energy— Gas Transportation—TGS—Our Interest in TGS and Corporate Developments” for further detail on the restructuring of CIESA’s financial debt.

CIESA’s financial statements were prepared using the on-going concern basis of accounting and therefore such financial statements do not include any adjustment stemming from the resolution of the uncertainties associated from the debt restructuring process.

3) Migration of Operating Agreements in Venezuela

In April 2005, the Venezuelan Energy and Oil Ministry instructed the Venezuelan national oil company, PDVSA, to review all operating agreements signed with oil companies between 1992 and 1997. The Ministry further instructed PDVSA to take all necessary action to convert those operating agreements into mixed-ownership companies whereby the Venezuelan government, through PDVSA, would be entitled to majority ownership.

In March 2006, we, through our related companies in Venezuela, signed memoranda of understanding (“MOU”) with PDVSA and the CVP in order to effect the migration of our four pre-existing operating agreements. As a result, all our operating service agreements were converted to mixed-ownership companies in which the Venezuelan government, through CVP, holds at least 60% of the share capital and private companies hold the remaining.

In view of the new contractual framework, as of December 31, 2005, we recognized impairment charges of Ps. 424 million to adjust the book value of our assets in Venezuela to their estimated recoverable value.

Additionally, CVP recognized a divisible and transferable credit in favor of PESA in the amount of US$88.5 million, which does not accrue interest, but could be applied toward acquisition bonds for any new mixed-ownership company project for oil exploration and production activities, or licenses for gas exploration and production operations in Venezuela. Once the milestones required for recognition of the credit by PDVSA were reached, as of December 31, 2006, we recorded the credit at its estimated recoverable value of Ps. 180 million. As of December 31, 2007, since no projects for which the aforementioned credit was eligible for investment had materialized, our efforts to transfer the credit to third parties had been unsuccessful and alternative uses of the credit could not be anticipated, we recorded a writedown to reflect carrying value of such credit to zero.

As of December 31, 2010 the book value of our direct and indirect interest in Venezuelan mixed-ownership companies, net of impairment charges, is Ps. 2.5 billion. The recoverability of these investments is highly sensitive to crude oil price volatility, to economic, social and regulatory changes in Venezuela and, particularly, to the decisions made by management of the mixed-ownership companies. Decreases in crude oil prices, fluctuations in economic conditions, the adoption of more restrictive measures by the Venezuelan government, and decisions by mixed- ownership companies to limit the development of reserves could adversely affect the valuation of the recoverability of our investment in these companies and, consequently, our income. As a result of the aforementioned variables, in the years ended December 31, 2010, 2009 and 2008, we recorded writedowns of Ps. 212 million (which includes a loss of Ps. 208 million related to our equity in earnings of affiliates), Ps. 281 million and Ps. 154 million, respectively, related to our assets in Venezuela.

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See “Item 4. Oil and Gas Exploration and Production—Production—Production Outside of Argentina—Venezuela”, and “Item 3. Risk Factors—Factors Relating to Our Business—Our activities may be adversely affected by events in countries in which we do business”.

4) Commodities Prices

Our results of operations and cash flows are exposed to risks related to the volatility of international prices, mainly crude oil and oil by-product prices.

International prices for crude oil have fluctuated significantly over the last ten years. Changes in crude oil prices typically result in changes in the price for oil by-products.

During 2010, the Argentine and global economies consolidated the recovery that started in the second half of 2009. Emerging countries reported record-breaking growth rates and the United States showed a significant improvement in all indicators except for those related to employment and real estate. Commodities prices consolidated also recovered, with agricultural commodities and metals leading this trend. The volatility in the price of WTI declined compared to 2009. Closing price for the year 2010 was US$91.4 per barrel. The WTI average price for the year was US$79.4 per barrel, compared to an average of US$62.0 per barrel and US$99.6 per barrel in 2009 and 2008, respectively.

5) Oil and Gas Production in Argentina

Oil and gas reserves in Argentina have followed a downward trend in recent years. According to official data from the SE, proved oil and gas reserves dropped by 24% in the period from 2004 to 2009. In 2010, oil production averaged 609,000 barrels per day, accounting for a 2% drop compared to the same period of 2009. Gas production declined over 3% to 130 million cubic meters per day. Oil and gas production activities in Argentina are mainly developed in mature fields undergoing secondary recovery operations, which are capital intensive projects.

In this context, our oil and gas reserves in Argentina, net of additions, declined 12% in 2010 and 13% in 2009. Our production dropped 8% in 2010, after having increased by 6% in 2009.

The Company’s business plan provides for major exploratory investments in Argentina, including both offshore and onshore projects.

6) Operations in Ecuador

As from 2006 the Ecuadorian Government introduced sweeping tax and regulatory reforms in the hydrocarbon sector which resulted in significant changes to the terms and conditions set forth at the time of execution of the participation agreements.

a) Amendment agreements and amendment of the Hydrocarbon Law

On October 31, 2008, EcuadorTLC S.A., Teikoku Oil Ecuador (a subsidiary of Teikoku) and Petroecuador, among others, executed amendment agreements, which, among other things, set the rules for the operation of Block 18 for one year, subsequently extended to October 2010.

On July 26, 2010, the Ecuadorian Hydrocarbon Law was amended. Such amendment provided, among other things, the migration to a new contractual modality by November 24, 2010, which we decided not to accept. Consequently, on November 25, 2010, the Hydrocarbon Secretary notified EcuadorTLC the termination of the participation agreements and instructed Petroamazonas EP to implement the operational transition process.

On March 18, 2011, the Ecuadorian Hydrocarbon Secretary issued official notice No. 626 to inform us that it was analyzing and structuring a new regulatory framework to determine the settlement price for the agreements. On April 11, 2011, we filed an answer to the official notice and rejected the terms thereof claiming that they do not comply with the procedure to determine the settlement price established in the amendment agreements by the parties concerned, which procedure may not be unilaterally modified. In this respect, we informed the Ecuadorian Hydrocarbon Secretary that we will continue to apply the procedure provided for in the agreements.

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As of the date of this annual report, we maintain a credit for approximately US$103 million for this transaction, on which, considering the uncertainties involved, we have recognized an impairment charge of approximately US$50 million for 2011. This impairment charge should not be deemed as a waiver of our rights to receive the compensation provided for in the amendment agreements.

As of the date of this annual report, we continue to pursue an agreement with the Ecuadorian government regarding payment of said compensation under the amendment agreements.

b) Teikoku Oil Co. Ltd. Agreement

On January 11, 2007, the Ecuadorian Ministry of Energy and Mines approved a preliminary agreement entered into with Teikoku in January 2005, whereby we assigned to Teikoku 40% of our rights and obligations under the Block 18 participation agreement. On October 24, 2008, Petroecuador admitted Teikoku Oil Ecuador, a subsidiary of Teikoku, as partner in the Block 18 agreements and the assignment agreement was registered with theDirección Nacional de Hidrocarburos (National Hydrocarbons Board) on October 27, 2008. During the year ended December 31, 2008 we recognized a loss of Ps. 28 million in connection with this transaction.

c) Block 31

On December 31, 2008, PESA and Petroecuador signed a termination agreement in connection with the Block 31 participation agreement, providing for the reversion of which Block 31 to the Ecuadorian government. As of December 31, 2008 we recorded a Ps. 31 million loss in connection with the termination agreement.

d) Crude Oil Transportation Agreement With Oleoducto de Crudos Pesados Ltd. (OCP)

The Company is a party to an agreement with OCP, whereby we acquired an oil transportation capacity of 80,000 barrels per day for a 15-year term, starting November 10, 2003. Under the “ship or pay” clause of our transportation agreement, we must fulfill our contractual obligations for the aggregate oil volume committed, although no crude oil is transported, and pay, as well as all other producers, a fee covering OCP’s operating costs and financial services.

We are entitled to sell transportation capacity through the OCP to mitigate the negative effect resulting from the excess capacity contracted. We periodically negotiate the sale of committed transportation capacity. On December 31, 2008, we signed an agreement with Petroecuador concerning the use of the oil transportation capacity committed under our agreement with OCP. Under this agreement, the Ecuadorian government has undertaken a commitment, beginning January 1, 2009, to transport its crude oil, at a negotiated rate, under our transportation commitment with OCP, up to a maximum of 70,000 barrels per day. During 2010, Petroecuador transported an average of 49,634 barrels per day.

Lastly, 40% of our net contractual obligation under the agreement with OCP was assumed by Teikoku Oil Ecuador, according to the terms of our assignment agreement with Teikoku Oil Ecuador in respect of 40% of Block 18 and Palo Azul field in October 2008.

In connection with the abovementioned commitments, as of December 31, 2010, we recognized liabilities on the net transportation capacity committed under the agreement entered into with OCP for a total amount of approximately US$86 million.

In order to guarantee compliance with our financial commitments related to the “Ship or Pay” transportation agreement and OCP’s related business obligations, we issued letters of credit. These letters of credit, with maturity date of December 2018, are required to remain effective until the above-mentioned commitments expire. As of December 31, 2010 we had outstanding letters of credit for a total amount of approximately US$85 million. As the letters of credit expire, we will be required to renew or replace them. Otherwise, the amounts due to OCP must be deposited in cash.

7) Sale of Petrobras Argentina’s Interest in Petrobras de Valores Internacional de España S.L. (PVIE)

In December 2007, we sold 40% of our equity interest in PVIE, a holding company whose main asset through its 99.79% interest in Petrobras Energía Perú S.A.’s capital stock is Lote X to PIB BV.

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The agreed sale price was US$423.3 million and also includes an earn-out payment in our favor that reflects the market value of the “Kinteroni Prospect” or, alternatively, the non-participation of buyer and the respective compensation. Such earn out, to be defined by the parties, results from the gas and condensate discovery made at Kinteroni Prospect in Lote 57 in January 2008. We estimate to conclude the negotiations during 2011. For more information on the risks involved with this project as well as other details regarding the above mentioned operation, see “Item 3. Risk Factors—Factors Relating to Our Business—Our activities may be adversely affected by events in countries in which we do business” and “Risk Factors—Factors Relating to Our Business—Our crude oil and natural gas reserve estimates involve some degree of uncertainty and may prove to be incorrect over time” and “Item 7. Related Party Transactions”.

In April 2009, we sold our 60% remaining equity interest in PVIE to PIB BV, for total consideration of US$619.4 million. As a result of this transaction, we recognized income before income tax of Ps. 1.6 billion.

The assignment of our interest in PVIE enabled us to optimize our asset portfolio, adjusting exploratory investments to amounts in line with our business plan.

8) Changes in Our Oil and Gas Exploration and Production Portfolio

In addition to the sales of our interests in PVIE and in Block 18 (40% interest sold to Teikoku Oil Ecuador), the return of Block 31 to the Ecuadorian government and the termination of the Block 18 and Palo Azul participation agreements, in which we had a remaining 30% interest (in each case as described above), the following changes have occurred in our portfolio:

a) In September 2008, upon approval by the regulatory authorities, we acquired from ConocoPhillips a 25.67% and 52.37% interest in Sierra Chata and Parva Negra, respectively. We paid US$77.6 million for these interests, plus adjustments, mainly resulting from variations in working capital as of the date the agreement became effective.

b) In March 2008, upon approval by the regulatory authorities, we acquired a 13.72% interest in the El Tordillo and La Tapera — Puesto Quiroga areas for US$117.5 million.

c) During the second quarter of 2010, we returned the Tibú field, located in the Catatumbo basin in Colombia.

9) Sale of the Fertilizers Business

In November 2009 we approved the sale of our fertilizers business to Bunge Argentina S.A. The transaction was consummated in January 2010.

10) Tax Benefits Regarding Innova Operations — FUNDOPEM

As of December 31, 2010, we enjoyed a tax benefit, through Innova’s operations in Brazil, under an incentive program granted by the Rio Grande do Sul State for companies located in that state called FUNDOPEM. The benefit consists of a 60% reduction of the ICMS (interstate tax on goods and services).

On account of the construction and start-up of the new ethylbenzene plant, the FUNDOPEM benefit was extended until 2015. Under this program, we recorded Ps. 81 million, Ps. 66 million and Ps. 80 million gains in 2010, 2009 and 2008, respectively.

On March 31, 2011, we agreed to sell our interest in Innova to Petrobras.

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DISCUSSION OF RESULTS

The table below presents our selected consolidated financial data and that of our subsidiaries, including the proportional consolidation of CIESA and Distrilec, as compared to such data excluding the proportional consolidation of such companies under joint control, in each case for the fiscal years indicated. To this effect, the Company’s equity in the earnings of these companies under joint control is shown under Equity in Earnings of Affiliates.

										Without proportional consolidation
										of CIESA and Distrilec
	With proportional consolidation									For the year ended December 31,
	For the year ended December 31,									(Unaudited)
	2010			2009			2008			2010			2009			2008
	(millions of pesos)
Net sales		14,442			11,972			15,175			12,652	��		10,217			13,577
Cost of sales		(10,806	)		(8,858	)		(11,000	)		(9,535	)		(7,714	)		(9,915	)
Gross Profit		3,636			3,114			4,175			3,117			2,503			3,662
Administrative and selling expenses		(1,746	)		(1,668	)		(1,758	)		(1,488	)		(1,432	)		(1,558	)
Exploration expenses		(190	)		(336	)		(238	)		(190	)		(336	)		(238	)
Other operating expenses, net		(258	)		(192	)		(231	)		(177	)		(159	)		(198	)
Operating income		1,442			918			1,948			1,262			576			1,668
Equity in earnings of affiliates		156			210			305			120			198			311
Financial expenses and holding losses, net		(401	)		(701	)		(782	)		(232	)		(499	)		(618	)
Other (expenses) income, net		(357	)		1,288			(117	)		(357	)		1,304			(173	)
Income before income tax and minority interest in subsidiaries		840			1,715			1,354			793			1,579			1,188
Income tax provision		(201	)		(726	)		(508	)		(177	)		(653	)		(418	)
Minority interest in subsidiaries		(29	)		(64	)		(70	)		(6	)		(1	)		6
Net income		610			925			776			610			925			776

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The following tables set out net sales, gross profit and operating income for each of our business segments for the years ended December 31, 2010, 2009 and 2008, including proportional consolidation, which is required by Argentine general accounting standards, but excluding the proportional consolidation of CIESA and Distrilec. Our management analyzes our results and financial condition separately from the results and financial conditions of these companies, as we believe financial information excluding their proportional consolidation is useful to investors in evaluating our financial condition and results of operations. See “ — Proportional Consolidation and Presentation of Discussion” and “ — Reconciliation Tables”. Net sales eliminations relate to intersegment sales. Gross profit eliminations relate to adjustments related to intersegment sales and costs associated with such sales. Intersegment transactions are made at market prices.

The business segment year-to-year comparisons that follow the table include intersegment sales.

	For the year ended December 31,
With Proportional Consolidation	2010			2009			2008
	(in millions of pesos)
Net sales(1)
Oil and Gas Exploration and Production		3,661			3,317			4,740
Refining and Distribution		7,345			5,628			6,942
Petrochemicals		3,506			2,928			3,475
Gas and Energy(2)		3,716			3,274			2,993
Corporate and Eliminations(3)		(3,786	)		(3,175	)		(2,975	)
Total		14,442			11,972			15,175
Gross Profit (loss)(4)
Oil and Gas Exploration and Production		1,254			1,029			2,262
Refining and Distribution		781			509			293
Petrochemicals		700			576			713
Gas and Energy(2)		928			957			885
Corporate and Eliminations(3)		(27	)		43			22
Total		3,636			3,114			4,175
Operating Income (loss)
Oil and Gas Exploration and Production		704			329			1,580
Refining and Distribution		251			57			(171	)
Petrochemicals		333			262			339
Gas and Energy(2)		570			639			620
Corporate and Eliminations(3)		(416	)		(369	)		(420	)
Total		1,442			918			1,948

(1)	Royalties with respect to the oil and gas business in Argentina and Perú (in the case of the latter, only until April 2009) are accounted for as a cost on production and are not deducted in determining net sales.
(2)	This segment includes Electricity and Gas Transportation.
(3)	Eliminations correspond to sales between our business units and their associated costs.
(4)	Net sales less cost of sales.

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	For the year ended December 31,
Without Proportional Consolidation (Unaudited)	2010			2009			2008
	(in millions of pesos)
Net Sales(1)
Oil and Gas Exploration and Production		3,661			3,317			4,740
Refining and Distribution		7,345			5,628			6,942
Petrochemicals		3,506			2,928			3,475
Gas and Energy(2)		1,926			1,519			1,395
Corporate and Eliminations(3)		(3,786	)		(3,175	)		(2,975	)
Total		12,652			10,217			13,577
Gross Profit (loss)(4)
Oil and Gas Exploration and Production		1,254			1,029			2,262
Refining and Distribution		781			509			293
Petrochemicals		700			576			713
Gas and Energy(2)		409			346			372
Corporate and Eliminations(3)		(27	)		43			22
Total		3,117			2,503			3,662
Operating Income (loss)
Oil and Gas Exploration and Production		704			329			1,580
Refining and Distribution		251			57			(171	)
Petrochemicals		333			262			339
Gas and Energy (2)		390			297			340
Corporate and Eliminations(3)		(416	)		(369	)		(420	)
Total		1,262			576			1,668

(1)	Royalties with respect to the oil and gas business in Argentina and Peru (in the case of the latter, only until April 2009) are accounted for as a cost on production and are not deducted in determining net sales.
(2)	This segment includes Electricity and Gas Transportation.
(3)	Eliminations correspond to sales between our business units and their associated costs.
(4)	Net sales less cost of sales.

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YEAR ENDED DECEMBER 31, 2010 COMPARED TO YEAR ENDED DECEMBER 31, 2009

Net income:net income for 2010 fiscal year decreased by Ps. 315 million, (or 34.1%), to Ps. 610 million from Ps. 925 million in 2009. Net income for 2009, however, included an after tax non-recurring gain of approximately Ps. 840 million, on the sale of the 60% interest in PVIE in April 2009. Excluding the effect of the above mentioned sale, net income for 2010 fiscal year accounts for a Ps. 525 million year on year improvement.

Net sales: net sales for 2010 fiscal year increased by Ps. 2.5 billion, (or 20.6%), to Ps. 14.4 billion from Ps. 12.0 billion in 2009. Net sales for 2010 include Ps. 749 million and Ps. 1.1 billion attributable to our share of the net sales of CIESA and Distrilec, respectively, net of intercompany sales of Ps. 55 million. Net sales for 2009 include Ps. 747 million and Ps. 1.1 billion attributable to our share of the net sales of CIESA and Distrilec, respectively, net of intercompany sales of Ps. 61 million.

Excluding the proportional consolidation of CIESA and Distrilec, net sales increased by Ps. 2.4 billion, (or 23.8%), to Ps. 12.7 billion from Ps. 10.2 billion in 2009. This increase basically derives from increases of Ps. 1.7 billion, Ps. 578 million, Ps. 407 million and Ps. 344 million in sales by the refining and distribution, petrochemicals, gas and energy and oil and gas exploration and production business segments, respectively. Intercompany sales totaled Ps. 3.8 billion in 2010 and Ps. 3.2 billion in 2009. Most of these sales were attributable to the oil and gas exploration and production, refining and distribution and gas and energy business segments.

Gross profit:gross profit for 2010 fiscal year increased by Ps. 522 million, (or 16.8%), to Ps. 3.7 billion from Ps. 3.1 billion. Gross profit for 2010 includes Ps. 323 million and Ps. 196 million attributable to our share of the gross profit of CIESA and Distrilec, respectively. Gross profit for 2009 includes Ps. 342 million and Ps. 269 million attributable to our share of the gross profit of CIESA and Distrilec, respectively.

Excluding the proportional consolidation of CIESA and Distrilec, gross profit for 2010 increased by Ps. 614 million, or 24.5%, to Ps. 3.1 billion from Ps. 2.5 billion. This improvement resulted mainly from an increase in gross profit from the refining and distribution (Ps. 272 million), oil and gas exploration and production (Ps. 225 million), petrochemicals (Ps. 124 million) and gas and energy (Ps. 63 million) business segments.

Administrative and selling expenses:administrative and selling expenses for 2010 fiscal year increased by Ps. 78 million, (or 4.7%), to Ps. 1.7 billion from Ps. 1.7 billion in 2009. Administrative and selling expenses for 2010 include Ps. 63 million and Ps. 195 million attributable to our share of the administrative and selling expenses of CIESA and Distrilec, respectively. Administrative and selling expenses for 2009 include Ps. 57 million and Ps. 179 million attributable to our share of the administrative and selling expenses of CIESA and Distrilec, respectively.

Excluding the proportional consolidation of CIESA and Distrilec, administrative and selling expenses rose Ps. 56 million (or 3.9%), to Ps. 1.5 billion from Ps. 1.4 billion in 2009, mainly as a result of increases in administrative and selling expenses of each of the refining and distribution, oil and gas exploration and production and petrochemicals business segments, which were partially offset by a decrease in such expenses in our corporate segment.

Exploration expenses:exploration expenses for 2010 fiscal year decreased by Ps. 146 million (or 43.5%) during 2010, to Ps. 190 million from Ps. 336 million in 2009. See “Oil and Gas Exploration and Production”.

Other operating expenses, net:other operating expenses, net for 2010 fiscal year totalled Ps. 258 million and Ps. 192 million in 2010 and 2009, respectively. Other operating expenses, net for 2010 include losses of Ps. 62 million and Ps. 19 million attributable to our share of other operating expenses, net of CIESA and Distrilec, respectively. Other operating expenses, net for 2009 include Ps. 14 million and Ps. 19 million attributable to our share of other operating expenses, net of CIESA and Distrilec, respectively.

Excluding the proportional consolidation of CIESA and Distrilec, other operating expenses, net totalled of Ps. 177 million and Ps. 159 million during 2010 and 2009, respectively, mainly attributable to reduced gains reported by our petrochemicals business segment.

Operating income:operating income for 2010 fiscal year increased by Ps. 524 million, (or 57.1%) during 2010, to Ps. 1.4 billion from Ps. 918 million. Operating income for 2010 includes a gain of Ps. 198 million and a loss of Ps. 18 million attributable to our share of the operating income of CIESA and Distrilec. Operating income for 2009 includes gains of Ps. 271 million and Ps. 71 million attributable to our share of the operating income of CIESA and Distrilec.

Excluding the proportional consolidation of CIESA and Distrilec, operating income increased by Ps. 686 million (or 119.1%), to Ps. 1.3 billion from Ps. 576 million in 2009. This increase was mainly attributable to improvements in the operating income of each of the oil and gas exploration and production, refining and distribution, gas and energy and petrochemicals business segments, by Ps. 375 million, Ps. 194 million, Ps. 93 million and Ps. 71 million, respectively during 2010.

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Equity in earnings of affiliates: equity in earnings of affiliates for fiscal year 2010 decreased by Ps. 54 million (or 25.7%), to Ps. 156 million from Ps. 210 million in 2009. Excluding the proportional consolidation of CIESA and Distrilec, equity in earnings of affiliates decreased by Ps. 78 million (or 39.4%), to Ps. 120 million from Ps. 198 million in 2009. See “Analysis of Equity in Earnings of Affiliates”.

Financial expenses and holding losses:financial expenses and holding losses for fiscal year 2010 decreased by Ps. 300 million, (or 42.8%) to Ps. 401 million from Ps. 701 million in 2009. Financial expenses and holding losses for 2010 include financial expenses of Ps. 152 million and Ps. 17 million attributable to our share of the financial expenses and holding losses of CIESA and Distrilec, respectively. Financial expenses and holding losses for 2009 include financial expenses of Ps. 187 million and Ps. 15 million attributable to our share of the financial expenses and holding losses of CIESA and Distrilec, respectively.

Excluding the proportional consolidation of CIESA and Distrilec, financial expenses and holding losses decreased by Ps. 267 million, (or 53.5%) during 2010, to Ps. 232 million from Ps. 499 million. This decline was mainly due to:

• a Ps. 142 million reduction in net interest expense from Ps. 400 million in 2009 to Ps. 258 million in 2010, attributable to a 24% reduction in average indebtedness.

• a Ps. 125 million increase in exchange differences, with Ps. 55 million gain on exchange differences in 2010, compared to a Ps. 70 million loss in 2009, mainly attributable to a net monetary asset position in foreign currency as from the second quarter of 2009, mainly due to the sale of the 60% interest in PVIE (net of exchange differences from financial liabilities. See “Factors affecting our consolidated results of operations—1) Argentine Economic Situation—a) Value of the Peso Against Foreign Currencies”.).

• a Ps. 120 million increase in gains from holding of inventories, with a Ps. 40 million gain in 2010 compared to a Ps. 80 million loss in 2009 that resulted from the decline in oil and oil related product prices, mainly petrochemicals.

• a Ps. 47 million gain in 2009 resulting from reappraisal of the net realizable value of property, plant and equipment held for sale in connection with the fertilizer business.

Other income (expense), net:other expense, net resulted in a loss of Ps. 357 million in 2010, compared to a gain of Ps. 1.3 billion in 2009. Other income (expense), net for 2009 includes losses of Ps. 1 million and Ps. 15 million attributable to our share of other expense, net of CIESA and Distrilec, respectively.

Excluding the proportional consolidation of CIESA and Distrilec, other expense, net accounted for a loss of Ps. 357 million in 2010, compared to a gain of Ps. 1.3 billion in 2009.

Other income (expense), net for 2010 mainly reflects:

• a Ps. 212 million impairment charge on our Venezuelan assets (which includes a loss of Ps. 208 million related to our equity in earnings of affiliates)

• a Ps. 209 million impairment charge on certain of our assets in Argentina and

• a Ps. 34 million gain from the sale of our fertilizers business.

Other income (expense), net for 2009 mainly reflects:

• a Ps. 1.6 billion gain from the sale of a 60% interest in PVIE and

• a Ps. 281 million loss from impairment charge on assets in Venezuela.

Income tax:we incurred income tax charges for 2010 and 2009 of Ps. 201 million and Ps. 726 million, respectively. The income tax for 2010 includes a Ps. 33 million loss and a Ps. 9 million gain attributable to our share of the income tax of CIESA and Distrilec, respectively. The income tax for 2009 reflects Ps. 56 million and Ps. 17 million losses attributable to our share of the income tax of CIESA and Distrilec.

Excluding the proportional consolidation of CIESA and Distrilec, we incurred income tax charges of Ps. 177 million and Ps. 653 million in 2010 and 2009, respectively. Reduced tax charges for 2010 attributable to the tax profit arising from the sale of interest in PVIE in 2009 were not recurrent. In 2010 we incurred greater tax charges attributable to operating results.

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ANALYSIS OF OPERATING RESULTS BY BUSINESS SEGMENT

Oil and Gas Exploration and Production

Operating income:operating income for the oil and gas exploration and production business segment in 2010 increased by Ps. 375 million (or 114%), to Ps. 704 million, from Ps. 329 million in 2009.

Net sales:net sales for this business segment increased by Ps. 344 million, (or 10.4%), to Ps. 3.6 billion in 2010, from Ps. 3.3 billion in 2009, mainly due to improved operations in Argentina.

Increased sales in 2010 are the result of a 23% increase in average sales prices, partially offset by a 10% decline in sales volumes, in line with the 10.4% drop in production levels, mainly attributable to a decline in oil and gas production in Argentina. The decline in production levels also derives, to a lesser extent, from divestment of a 60% interest in Lote X in Peru in April 2009 and the remaining 30% in Block 18 and Palo Azul Unified Field, in Ecuador, by the end of November 2010.

Argentina

Net sales in Argentina grew Ps. 496 million (or 17.9%), to Ps. 3.3 billion in 2010 from Ps. 2.8 billion in 2009, primarily as a result of a 26.1% increase in average sales prices, partially offset by a 6.5% decline in total combined daily sales volumes of oil and gas, averaging 83,300 barrels of oil equivalent per day. Average daily production volumes totaled 83,800 barrels of oil equivalent, accounting for a 7.5% decline when compared to 2009.

Crude oil sales rose Ps. 507 million, (or 24%), to Ps. 2.6 billion in 2010, from Ps. 2.1 billion in 2009, mainly due to a 26.8% increase in average sales prices to Ps. 190.3 per barrel from Ps. 150 per barrel, partially offset by a 2.2% drop in sales volumes. The improvement in average sales prices basically results from the partial recovery in domestic prices. The drop in daily sales volumes to 37,700 barrels from 38,700 barrels was attributable to a 5% decline in production levels to 38,200 barrels from 40,300 barrels, mainly resulting from the natural decline of mature fields.

Gas sales decreased by Ps. 15 million (or 2.4%), to Ps. 623 million in 2010, from Ps. 638 million in 2009, basically due to a 9.8% decline in average sales volumes, partially offset by an 8.3% increase in sales prices. Daily gas sales volumes dropped to 273.6 million cubic feet during 2010, from 304 million cubic feet during 2009, in line with the 9% decline in production levels mainly as a result of logistic problems caused by events at a third party’s gas treatment plant. Production volumes also declined, although to a lesser extent, as a result of the natural decline in mature fields, partially offset by an increase in production attributable to workover works and drilling campaigns in 2009 and 2010.

The average sales price increased to Ps. 6.2 per million cubic feet for 2010 from Ps. 5.7 per million cubic feet for 2009, mainly due to a greater demand from higher price segments such as electricity generation facilities and industries.

Outside Argentina

Oil and gas sales outside Argentina dropped by Ps. 152 million (or 27.9%), to Ps. 392 million during 2010, from Ps. 544 million during 2009, mainly due to a 45.7% decline in sales volumes basically attributable to divestments in Peru and, to a lesser extent, in Ecuador, partially offset by an increase in the average sales price of oil equivalent, driven by rising international reference prices.

Net sales for 2010 and 2009 include Ps. 33 million and Ps. 34 million, primarily attributable to operations in Mexico and Colombia.

The following is a description of net sales in the main countries where the Company operates outside Argentina:

• Ecuador

Oil sales dropped by Ps. 33 million (or 12%), to Ps. 243 million in 2010 from Ps. 276 million in 2009, as a result of a decline in sales volumes, partially offset by an improvement in average sales prices.

Average daily oil sales volumes dropped 34.5% (to 2,400 barrels) in 2010 from 3,700 barrels in 2009. As a result of the above mentioned divestment, 2010 results includes operations until November.

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Average sales prices rose by 34.7% during 2010 to Ps. 275.8 per barrel from Ps. 204.7 per barrel during 2009, in line with the recovery in international reference prices.

• Bolivia

Oil and gas sales increased by Ps. 5 million (or 4.5%), to Ps. 116 million in 2010 from Ps. 111 million in 2009, mainly due to a 27% increase in sales prices, as a consequence of the increase in the price set for gas exports to Brazil, partially offset by a 17.7% decline in sales volumes resulting from a production shrinkage of 16.4%.

Gross profit:gross profit for the oil and gas exploration and production business segment increased by Ps. 225 million (or 21.9%), to Ps. 1.3 billion in 2010 from Ps. 1.0 billion. Gross margin on sales was 34.3% and 31% in 2010 and 2009, respectively. The rise in gross profit is mainly attributable to operations in Argentina, partially offset by the effect of the above mentioned divestments outside Argentina. Our lifting cost increased 32.6% to Ps. 30.1 per barrel of oil equivalent in 2010 from Ps. 22.7 per barrel of oil equivalent in 2009, mainly in Argentina, basically as a result of the increase in oil service rates.

Gross profit attributable to operations in Argentina in 2010 increased by Ps. 321 million (or 44.7%), to Ps. 1.0 billion from Ps. 718 million in 2009, and gross margin on sales in 2010 increased to 32% from 26% during 2009, primarily due to the above mentioned partial recovery in domestic prices.

Gross profit attributable to operations outside Argentina in 2010 decreased by Ps. 96 million (or 30.9%), to Ps. 215 million from Ps. 311 million during 2009, primarily due to the above mentioned divestments. Gross margin on sales in 2010 decreased to 54.8% from 57.2% during 2009.

Administrative and selling expenses:administrative and selling expenses in 2010 increased by Ps. 29 million (or 18.4%), to Ps. 187 million from Ps. 158 million in 2009, in line with increased sales.

Exploration expenses:exploration expenses totaled Ps. 190 million in 2010 and Ps. 336 million in 2009. In 2010, expenses were mainly attributable to onshore geological and geophysical exploration expenses in Argentina and in 2009 expenses were mainly attributable to geological and geophysical exploration expenses and investments in offshore exploration wells in Golfo San Jorge in Argentina.

Expenses for unsuccessful wells totaled Ps. 90 million in 2010 and Ps. 270 million in 2009.

Other operating expenses, net:Other operating expenses, net totaled Ps. 173 million and Ps. 206 million, respectively in 2010 and 2009. Costs associated with the unused transportation capacity under the ship or pay contract with OCP in Ecuador totaled Ps. 126 million in 2010 and Ps. 98 million in 2009. In 2010 and 2009 we incurred expenses totalling Ps. 62 million and Ps. 59 million, respectively, attributable to social peace agreements entered into with trade unions to ensure maintenance of employment levels and operating activities in Argentina.

Refining and Distribution

Operating income:operating income for the refining and distribution business segment in 2010 improved by Ps. 194 million to Ps. 251 million in 2010 compared to Ps. 57 million in 2009.

Net sales:net sales for the refining and distribution business segment in 2010 increased by Ps. 1.7 billion, (or 30.5%), during 2010 to Ps. 7.3 billion from Ps. 5.6 billion in 2009, mainly as a consequence of a partial recovery in average sales prices and, to a lesser extent, a slight increase in sales volumes.

Crude oil volumes processed at refineries increased by 11.8% to 58,000 barrels/day in 2010 from 51,900 barrels/day in 2009, in line with growing demand for products.

Crude oil sales to third parties in 2010 increased by Ps. 71 million (or 35%), to Ps. 275 million from Ps. 204 million in 2009, mainly as a consequence of an improvement in average sales prices in line with international reference prices.

Diesel oil sales volumes were similar in 2010 and 2009, totaling 1.7 million cubic meters. Excluding sales to other oil companies, sales volumes rose 6.3% compared to 2009. This increase mainly derived from the industrial, agricultural and transportation sectors.

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Gasoline sales volumes increased by 2.4%, to 783,000 cubic meters in 2010 from 764,000 cubic meters in 2009. Since priority was given to the domestic market supply, we exported no gasoline in 2010. This resulted in a sales volumes increase of approximately 9% excluding sales to oil companies.

Fuel oil and intermediate fuel oil (“IFO”) sales volumes increased 16% to an aggregate 687,000 cubic meters in 2010 from an aggregate 594,000 cubic meters in 2009, as a consequence of an increased fuel oil domestic demand to supply power plants and higher IFO sales to supply vessels.

Total sales volumes of other oil related products in 2010 totaled 753,000 cubic meters and 840,000 cubic meters in 2009.

Average sales prices for gasoline, diesel oil, fuel oil and IFOs and other oil related products in 2010 increased by 26%, 29%, 30% and 34%, respectively, compared to 2009.

Gross profit:gross profit for this business segment in 2010 increased by Ps. 272 million, (or 53.4%), to Ps. 781 million, from Ps. 509 million in 2009. Partial increases in sales prices were mostly offset by the increase in the price of crude oil. This resulted in a slight increase in the margin on sales to 10.6% in 2010 from 9% in 2009.

Administrative and selling expenses:administrative and selling expenses in 2010 increased by Ps. 67 million (or 14%), to Ps. 545 million, from Ps. 478 million in 2009, mainly in taxes and transportation, in line with the increase in net sales.

Other operating income, net:other operating income, net totaled Ps. 15 million and Ps. 26 million in 2010 and 2009, respectively.

Petrochemicals

Operating income:operating income for the petrochemicals business segment in 2010 increased by Ps. 71 million (or 27.1%), to Ps. 333 million, from Ps. 262 million in 2009.

Net sales:net sales in 2010 increased by Ps. 578 million (or 19.7%), to Ps. 3.5 billion from Ps. 2.9 billion in 2009, (Ps. 70 million in 2010 and Ps. 75 million in 2009 corresponding to transactions between our Argentine styrenics operations and Innova), mainly as a consequence of the recovery in sales prices, in line with the performance of the respective international reference prices after the global financial crisis which affected the previous year.

• Styrenics — Argentina:

In Argentina, styrenics sales increased by Ps. 372 million (or 37.9%), to Ps. 1.4 billion in 2010, from Ps. 981 million in 2009, mainly as a consequence of a 30.7% increase in average sales prices and, to a lesser extent, a 5.5% increase in sales volumes which totaled 209,600 tons in 2010 and 198,600 tons in 2009.

In 2010, in line with the performance of international reference prices, average sales prices in the styrene, polystyrene and synthetic rubber lines increased by approximately 30%, 25% and 40%, respectively.

In 2010, the Company’s combined market share in the styrene and polystyrene segments was 85.9%, accounting for a 2% increase compared to 2009.

Performance of main styrenic products was as follows:

a) Styrene sales volumes totaled 74,000 tons in 2010, accounting for an 8% increase compared to 2009, mainly due to the growth of both the Argentine market and the regional market, especially Brazil.

b) Propane and propylene sales volumes totaled 23,600 tons in 2010, accounting for a 21% increase compared to sales volumes in 2009, a period in which the economic activity level was adversely affected by labor strikes and the international crisis.

c) Polystyrene sales volumes increased by 5.8% in 2010 compared to 2009, totaling 55,000 tons mainly due to an improved activity level in the domestic market which accounted for sales volumes of 43,800 tons, 9% higher than in 2009.

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d) Synthetic rubber sales volumes totaled 45,500 tons, reflecting a sales level similar to that recorded in 2009, with an increase in domestic sales as a result of the improved activity level in the tire, auto-part and shoe segments, over exports.

• Styrenics Brazil — Innova:

Styrenics sales in Brazil increased by Ps. 742 million, (or 51%), to Ps. 2.2 billion during 2010, from Ps. 1.5 billion in 2009, mainly as a consequence of the 34% recovery in average sales prices, in line with the performance of international reference prices and, to a lesser extent, the 12.4% rise in styrene and polystyrene sales volumes.

In 2010, styrene sales volumes totaled 153,000 tons in 2010, accounting for a 4.8% increase compared to 2009, due to the recovery of domestic demand after the global financial crisis that strongly affected the Brazilian market during 2009 first quarter.

Polystyrene sales volumes totaled 149,000 tons in 2010, accounting for a 21% rise compared to 2009, in line with the growth in the polystyrene domestic market in 2010.

• Fertilizers:

As a consequence of the divestment of the fertilizer business in January 2010, the Company discontinued its operations in the fertilizer segment. The Company recognized sales from the fertilizer business in the amount of Ps. 23 million and Ps. 564 million in 2010 and 2009, respectively.

Gross profit:gross profit for this business segment increased by Ps. 124 million, (or 21.5%), to Ps. 700 million in 2010, from Ps. 576 million in 2009, mainly due to the general recovery in sales prices. Gross margin on sales slightly increased to 20% in 2010 from 19.7% in 2009, since the improvement in styrenics in Brazil allowed to offset the margin decline in Argentina.

• Styrenics-Argentina:

Gross profit dropped Ps. 19 million, (or 9.5%), to Ps. 180 million in 2010 from Ps. 199 million in 2009, and gross margin on sales declined to 13.3% from 20.3%, due to the fact that the increase in raw material costs could only be partially passed through to sales prices.

• Styrenics — Brazil:

Gross profit increased by Ps. 201 million, (or 62.2%), to Ps. 524 million in 2010 from Ps. 323 million in 2009 and gross margin on sales rose to 23.8% from 22.2%, reflecting a direct correlation between raw material costs and sales prices.

• Fertilizers:

Gross profit reflected a loss of Ps. 4 million in 2010 compared to a gain of Ps. 54 million in 2009.

Administrative and selling expenses:administrative and selling expenses in 2010 increased by Ps. 27 million, (or 6.5%), to Ps. 441 million, from Ps. 414 million in 2009 mainly as a consequence of higher expenses and taxes derived from increased sales, partially offset by lower expenses derived from discontinuation of our fertilizer business, which accounted for Ps. 4 million and Ps. 91 million of these expenses in 2010 and 2009, respectively.

Other operating income, net:other operating income, net totalled Ps. 74 million and Ps. 100 million in 2010 and 2009, respectively, mainly attributable to the collection of FUNDOPEM tax benefits in Brazil.

Gas and Energy

Operating income:operating income for the gas and energy segment in 2010 increased by Ps. 93 million (or 31%), to Ps. 390 million, from Ps. 297 million in 2009.

Electricity Generation

Operating income:Operating income for the electricity generation operations in 2010 increased by Ps. 31 million (or 12%), to Ps. 289 million from Ps. 258 million in 2009.

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Net sales:net sales for electricity generation in 2010 increased by Ps. 344 million (or 40%), to Ps. 1.2 billion, from Ps. 859 million in 2009, mainly due to the operation of Genelba Plus for a whole year and to the increase in average sales prices, boosted by energy deliveries by less efficient thermal power plants operated with liquid hydrocarbons to preserve hydroelectric plants’ reserves during most of the year. Regulatory requirements imposed a Ps. 120 per MWh cap on the sales spot price for energy.

Net sales attributable to Genelba in 2010 increased by Ps. 50 million, (or 7.4%), to Ps. 730 million, from Ps. 680 million in 2009, of which Ps. 52 million and Ps. 20 million, respectively, derived from SE Note No. 446/2008 and subsequent notes issued by the SE. See “Item 5 — factors Affecting our Consolidated Results of Operations — 2) Regulation of the Energy Industry in Argentina — d) Electricity Generation”. The increase in sales derives from an improvement in sales prices, partially offset by a decrease in sales volumes. Average sales price increased by 12.7% to Ps. 134.6 per MWh in 2010, from Ps. 119.1 per MWh in 2009. Energy sales in 2010 dropped 8.9% to 5,036 GWh from 5,528 GWh, mainly as a consequence of scheduled maintenance works and works to extend the lifespan of the power plant performed during 2010. Within this context, the power plant’s availability factor and the plant factor (the ratio of actual operational capacity on maximum capacity) reached 91.6% and 83% in 2010 compared to 96% and 88% in 2009, respectively.

Net sales attributable to Genelba Plus increased by Ps. 281 million during 2010, to Ps. 341 million from Ps. 60 million in 2009, of which Ps. 99 million and Ps. 13 million derived from Notes No. 446/2008 and subsequent notes issued by the SE. The increase in sales is mainly due to the rise in sales volumes to 793 GWh during 2010, from 225 GWh since the power plant started operations in August 2009. Genelba Plus plant’s availability factor was 99.94% and the plant factor was 74%.

Net sales attributable to Pichi Picún Leufú in 2010 increased by Ps. 16 million (or 13.1%), to Ps. 134 million, from Ps. 118 million in 2009, as a consequence of a 30.7% increase in average sales prices, to Ps. 131.4 per MWh from Ps. 100.5 per MWh, partially offset by a 13.4% decrease in sales volumes, to 1,020 GWh during 2010, from 1,178 GWh due to lower water supply in the Comahue basin, which was below historical averages.

Gross profit:gross profit in 2010 increased by Ps. 24 million to Ps. 293 million from Ps. 269 million in 2009 as a consequence of the positive contribution by Genelba Plus operations. However, gross margin on sales declined to 24.4% in 2010 from 31.3% in 2009 due to the fact that as a result of the implementation of the cap spot price for energy, higher natural gas costs could be passed through to sales prices only in part. Additionally, and, to a lesser extent, gross margin on sales in 2010 was adversely affected by the reduced generation volume in Pichi Picún Leufú power plant.

Marketing and Transportation of Gas

Operating income:operating income for the marketing and transportation of gas operations in 2010 increased to Ps. 78 million from Ps. 1 million in 2009.

Net sales:sales revenues in 2010 increased by Ps. 242 million, (or 25.3%), to Ps. 1.2 billion, from Ps. 956 million in 2009, mainly as a consequence of a rise in revenues from gas and liquid fuel sales. Gas and LPG brokerage services totaled Ps. 19 million in 2010 and Ps. 24 million in 2009.

Gas sales revenues in 2010 increased by Ps. 137 million, (or 20.1%), to Ps. 819 million, from Ps. 682 million in 2009, mainly due to a 17.4% increase in average sales prices attributable to higher prices for sales to power plants as well as increased sales prices in the spot market and the renegotiation of agreements. Daily sales volumes in 2010 increased by 2.3% to 312 million cubic feet from 304 million cubic feet in 2009, mainly due to increased gas supply to residential users and the supply to Genelba Plus power plant. These effects were partially offset by a decline in the Company’s own consumption due to the sale of the fertilizer business in January 2010 and reduced gas transfers to the liquid fuel segment. Increased commitments were met with an effective purchasing management in the forward and spot markets, offsetting reductions in the Company’s production.

LPG sales revenues in 2010 increased by Ps. 105 million, (or 42%), to Ps. 355 million from Ps. 250 million in 2009, mainly due to a 48% recovery in average sales prices, especially exports, in line with international reference prices, which increase was partially offset by a 4% reduction in sales volumes to 213,200 tons in 2010 from 222,100 tons in 2009, as a consequence of the restrictions on the use of natural gas imposed in 2010 which resulted in lower liquid fuel volumes processed compared to 2009.

Gross profit:gross profit increased in 2010 by Ps. 39 million, (or 53.4%), to Ps. 112 million from Ps. 73 million in 2009. Gross margin on sales in 2010 increased to 9.3% from 7.6% in 2009, mainly as a consequence of the above mentioned recovery in sales prices.

Administrative and selling expenses:administrative and selling expenses for the marketing and transportation of gas business segment in 2010 totaled Ps. 36 million and Ps. 68 million in 2009.

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ANALYSIS OF EQUITY IN EARNINGS OF AFFILIATES

In the following discussion, unless indicated otherwise, the amounts attributed to each affiliate or company represents the total amount recorded by that affiliate or company.

Mixed-ownership companies in Venezuela:our equity in the earnings of mixed-ownership companies dropped to Ps. 58 million in 2010 from Ps. 138 million in 2009, mainly as a consequence of a reduction in production levels derived from delays in mixed-ownership companies’ investment plans.

CIESA / TGS:our equity in CIESA accounted for losses of Ps. 19 million and Ps. 22 million in 2010 and 2009, respectively. The reduced loss in 2010 is mainly attributable to the positive effects of a lower devaluation of the peso against the dollar which resulted in reduced exchange losses in connection with CIESA’s and TGS’s debt mostly denominated in foreign currency. This gain was partially offset by a reduction in operating income.

Total sales revenues in 2010 increased by approximately 3.2% or Ps. 52 million to Ps. 1.7 billion, mainly to the non-regulated segment where exports of liquid fuels reflected the positive effects of the strong recovery of international prices, partially offset by a reduction in the regulated segment, as a consequence of reversal in 2010 of the tariff increase recorded in 2009.

In 2010, CIESA’s operating income decreased by Ps. 198 million, (or 35.3%), to Ps. 363 million, mainly as a consequence of the reversal of the above mentioned tariff increase.

Distrilec / EDESUR:our equity in Distrilec accounted for a Ps. 17 million loss in 2010, as a result of higher operating costs, compared to a Ps. 10 million gain in 2009, derived from the positive effect of recognitions of retroactive revenues provided for in the Master Agreement.

Revenues from services in 2010 increased by Ps. 57 million, (or 2.6%), to Ps. 2.3 billion from Ps. 2.2 billion in 2009, mainly due to the effects of an increase in the demand for electric power.

Distrilec’s operating expenses accounted for a Ps. 70 million loss in 2010 compared to a Ps. 131 million gain in 2009 which derived from the positive effects of the recognition of additional retroactive revenues from consumption by low-income residents close to the City of Buenos Aires as provided for in the Master Agreement. 2010 was affected by higher operating costs, mainly resulting from the setting up of a higher amount of allowances and the rise in administrative and selling expenses in 2010 as a consequence of the increase in salaries and tariffs of hired services.

PELSA:our equity in the earnings of PELSA in 2010 increased by Ps. 12 million to Ps. 39 million from Ps. 27 million in 2009.

PELSA’s sales in 2010 increased by Ps. 184 million (or 27.4%), to Ps. 855 million from Ps. 671 million in 2009, mainly as a consequence of an increase in crude oil and natural gas average sales prices and, to a lesser extent, an increase in natural gas sales volumes.

PELSA’s operating income in 2010 increased by Ps. 59 million (or 25.1%), to Ps. 294 million, from Ps. 235 million in 2009, as a consequence of the above mentioned improved sales revenues, partially offset by higher operating costs associated with increased hydrocarbon sales and higher depreciation resulting from increased investments.

Refinor:our equity in the earnings of Refinor increased by Ps. 12 million to Ps. 54 million in 2010 from Ps. 42 million in 2009.

Refinor’s sales in 2010 increased by Ps. 204 million, (or 12.8%), to Ps. 1.8 billion from Ps. 1.6 billion in 2009, mainly due to improved sales prices, both in the domestic market and exports.

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YEAR ENDED DECEMBER 31, 2009 COMPARED TO YEAR ENDED DECEMBER 31, 2008

Net income:net income for 2009 fiscal year increased by Ps. 149 million, (or 19.2%), to Ps. 925 million from Ps. 776 million in 2008.

Net sales:net sales declined Ps. 3.2 billion, (or 21.1%), to Ps. 12.0 billion from Ps. 15.2 billion in 2008. Net sales for 2009 fiscal year include Ps. 747 million and Ps. 1.1 billion attributable to our share of the net sales of CIESA and Distrilec, respectively, net of intercompany sales of Ps. 61 million. Net sales for fiscal year 2008 include Ps. 639 million and Ps. 993 million attributable to our share of the net sales (net of intercompany sales of Ps. 34 million) of CIESA and Distrilec, respectively.

Without proportional consolidation of CIESA and Distrilec, net sales decreased by Ps. 3.4 billion, (or 24.7%), to Ps. 10.2 billion from Ps. 13.6 billion in 2008. This decrease is mainly attributable to a decline of Ps. 1.4 billion, Ps. 1.3 billion and Ps. 547 million in sales in the oil and gas exploration and production, refining and distribution and petrochemicals business segments, respectively, partially offset by a Ps. 124 million increase in sales in the gas and energy segment. Intercompany sales totaled Ps. 3.2 billion in 2009 and Ps. 3.0 billion in 2008. Most of these sales were attributable to the Oil and Gas Exploration and production, refining and distribution and gas and energy business segments.

Gross profit:gross profit decreased by Ps. 1.1 billion, (or 25.4%), to Ps. 3.1 billion during 2009, from Ps. 4.2 billion. Gross profit for 2009 includes Ps. 342 million and Ps. 269 million attributable to our share of the gross profit of CIESA and Distrilec, respectively. Gross profit for 2008 includes Ps. 263 million and Ps. 250 million attributable to our share of the gross profit of CIESA and Distrilec, respectively.

Without proportional consolidation of CIESA and Distrilec, gross profit for 2009 fiscal year decreased by Ps. 1.2 billion, (or 31.6%), to Ps. 2.5 billion from Ps. 3.7 billion. This decline mainly resulted from a drop in gross profit from the oil and gas exploration and production (Ps. 1.2 billion), petrochemicals (Ps. 137 million) and gas and energy (Ps. 26 million) business segments, partially offset by a Ps. 216 million increase in gross profit from the refining and distribution business segment.

Administrative and selling expenses:administrative and selling expenses decreased by Ps. 90 million, (or 5.1%), to Ps. 1.7 billion during 2009, from Ps. 1.8 billion in 2008. Administrative and selling expenses for 2009 include Ps. 57 million and Ps. 179 million attributable to our share of the administrative and selling expenses of CIESA and Distrilec, respectively. Administrative and selling expenses for 2008 include Ps. 42 million and Ps. 158 million attributable to our share of the administrative and selling expenses of CIESA and Distrilec, respectively.

Without proportional consolidation of CIESA and Distrilec, administrative and selling expenses dropped Ps. 126 million, (or 8.1%), to Ps. 1.4 billion during 2009 from Ps. 1.6 billion in 2008, mainly as a result of decreases in the oil and gas exploration and production business segment as well as in our corporate segment.

Exploration expenses:exploration expenses increased by Ps. 98 million to Ps. 336 million during 2009 from Ps. 238 million in 2008. See “Oil and Gas Exploration and Production”.

Other operating expenses, net:other operating expenses, net, accounted for Ps. 192 million and Ps. 231 million losses in 2009 and 2008, respectively. Other operating expenses, net for 2009 include losses of Ps. 14 million and Ps. 19 million attributable to our share of other operating expenses, net of CIESA and Distrilec, respectively. Other operating expenses, net for 2008 includes losses of Ps. 16 million and Ps. 17 million attributable to our share of other operating expenses, net of CIESA and Distrilec, respectively.

Without proportional consolidation of CIESA and Distrilec, other operating expenses, net accounted for losses of Ps. 159 million and Ps. 198 million, mainly attributable to improvements reported by the petrochemicals business segment.

Operating income:operating income decreased by Ps. 1.0 billion, (or 52.9%), to Ps. 918 million during 2009, from Ps. 2.0 billion. Operating income for 2009 includes gains of Ps. 271 million and Ps. 71 million attributable to our share of the operating income of CIESA and Distrilec. Operating income for 2008 includes gains of Ps. 205 million and Ps. 75 million attributable to our share of the operating income of CIESA and Distrilec.

Without proportional consolidation of CIESA and Distrilec, operating income dropped Ps. 1.1 billion, or 65.5%, to Ps. 576 million during 2009, from Ps. 1.7 billion in 2008. This decline was mainly attributable to the decrease in the Oil and gas exploration and production, petrochemicals and gas and energy business segments, in the amount of Ps. 1.3 billion, Ps. 77 million and Ps. 43 million, respectively, partially offset by a Ps. 228 million rise in the refining and distribution business segment.

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Equity in earnings of affiliates: equity in earnings of affiliates decreased by Ps. 95 million, (or 31.1%), to Ps. 210 million during 2009, from Ps. 305 million in 2008. Without proportional consolidation of CIESA and Distrilec, equity in earnings of affiliates dropped Ps. 113 million, (or 36.3%), to Ps. 198 million from Ps. 311 million in 2008. See “Analysis of Equity in Earnings of Affiliates”.

Financial expenses and holding losses:financial expenses and holding losses decreased by Ps. 81 million, (or 10.4%), to Ps. 701 million during 2009, from Ps. 782 million in 2008. Losses for 2009 include financial expenses of Ps. 187 million and Ps. 15 million attributable to our share of the financial expenses and holding losses of CIESA and Distrilec, respectively. Financial expenses and holding losses for 2008 include financial expenses of Ps. 175 million and gains of Ps. 11 million attributable to our share of the financial expenses and holding losses of CIESA and Distrilec, respectively.

Without proportional consolidation of CIESA and Distrilec, financial expenses and holding losses decreased by Ps. 119 million, (or 19.3%), to Ps. 499 million from Ps. 618 million. This decline derived from:

• reduced losses from holding of inventories of Ps. 41 million to Ps. 78 million in 2009 from Ps. 119 million in 2008, as a result of the decline in prices for oil and oil related products, mainly petrochemicals.

• reduced exchange losses of Ps. 76 million to Ps. 70 million in 2009 from Ps. 146 million in 2008, mainly attributable to a 25% appreciation of the Brazilian real, compared to a 37% depreciation in 2008.

• increased net interest expense of Ps. 61 million to Ps. 401 million in 2009 from Ps. 340 million in 2008, reflecting the effect of the exchange rate increase on dollar denominated average indebtedness, partially offset by an 11% decline in average indebtedness.

• a gain of Ps. 47 resulting from the net realizable value of property, plant and equipment held for sale in connection with the fertilizer business.

Other income (expenses), net:other income (expenses), net include a gain of Ps. 1.3 billion in 2009 compared to a loss of Ps. 117 million in 2008. Other income (expenses), net for 2009 include losses of Ps. 1 million and Ps. 15 million attributable to our share of other income (expenses), net of CIESA and Distrilec, respectively. Other income (expense), net for 2008 include a gain of Ps. 56 million attributable to our share of other income (expenses), net of CIESA.

Without proportional consolidation of CIESA and Distrilec, other income (expenses), net accounted for a gain of Ps. 1.3 billion in 2009, compared to a loss of Ps. 173 million in 2008.

Other income (expenses), net for 2009 mainly reflect:

• a Ps. 1.6 billion gain from the sale of a 60% equity interest in PVIE.

• a Ps. 281 million loss from impairment charge on assets in Venezuela.

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Other income (expenses), net for 2008 mainly reflect:

• a Ps. 154 million loss from impairment charge on assets in Venezuela.

• a Ps. 31 million loss derived from the termination agreement in connection with Block 31 Participation Agreement.

• a Ps. 29 million loss from the sale of a 40% interest in Block 18 in Ecuador.

• a Ps. 121 million gain from reversal of allowances on oil areas in Argentina.

Income tax:income tax charge for 2009 and 2008 accounted for Ps. 726 million and Ps. 508 million losses, respectively. The income tax for 2009 reflects Ps. 56 million and Ps. 17 million losses attributable to our share of the income tax of CIESA and Distrilec. The income tax for 2008 reflects Ps. 56 million and Ps. 34 million losses attributable to our share of the income tax of CIESA and Distrilec.

Without proportional consolidation of CIESA and Distrilec, income tax accounted for losses of Ps. 653 million and Ps. 418 million in 2009 and 2008. Increased tax charges for the period under review are mainly attributable to income tax on the sale of equity interest in PVIE.

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ANALYSIS OF OPERATING RESULTS BY BUSINESS SEGMENT

Oil and Gas Exploration and Production

Operating income:operating income for the oil and gas exploration and production business segment decreased by Ps. 1.3 billion, (or 79.2%), to Ps. 329 million from Ps. 1.6 billion in 2008.

Net sales:net sales for this business segment decreased by Ps. 1.4 billion, (or 30%), to Ps. 3.3 billion in 2009 from Ps. 4.7 billion in 2008, mainly due to the divestment of a 60% interest in Lote X in Peru in April 2009 and a 40% interest in Block 18 in Ecuador in December 2008 and, to a lesser extent, a 21.7% drop in the average sale price per barrel of oil equivalent, in line with the decline in international reference prices. The above-mentioned divestments were a determining factor in the 10.9% decline in sales volumes of oil equivalent, which totaled a daily average of 98,400 barrels in 2009 and 110,500 barrels in 2008.

Combined average oil and gas sales volumes totaled 98,800 barrels of oil equivalent per day, a 16% drop compared to 2008, mainly attributable to divestments in Peru and Ecuador and, to a lesser extent, the decline in production from mature fields in Argentina. These effects were partially offset by an increase in gas production in Argentina.

In 2009, average oil sales volumes dropped 26% to 45,000 barrels per day from 60,800 barrels per day in 2008, principally as a result of a 31.2% drop in daily production volumes to 45,900 barrels per day, primarily attributable to divestments in Peru and Ecuador.

Daily gas sales volumes rose 7.6% to 320,400 barrels from 297,800 barrels in 2008, due to the 3.8% increase in average daily production volumes to 52,900 barrels of oil equivalent, mainly as a consequence of the rise recorded in Argentina attributable to the acquisition of an additional interest in Sierra Chata in September 2008.

Argentina

Net sales in Argentina grew Ps. 255 million, (or 10.1%), to Ps. 2.8 billion in 2009 from Ps. 2.5 billion in 2008, primarily as a result of a 7% increase in average sales prices and, to a lesser extent, a 3.3% rise in total combined daily sales volumes of oil and gas, averaging 89,400 barrels of oil equivalent per day. Average daily production volumes totaled 90,600 barrels of oil equivalent, accounting for a 3.4% rise compared to 2008.

Crude oil sales rose Ps. 77 million, (or 3.8%), to Ps. 2.1 billion from Ps. 2.0 billion in 2008, mainly due to a 10.4% increase in average sales prices to Ps. 149.7 per barrel from Ps. 135.6 per barrel, partially offset by a 5.7% drop in sales volumes. The improvement in average sales prices results from the impact of exchange rate variations on sales prices for operations in the domestic market. The drop in daily sales volumes to 38,700 barrels from 41,000 barrels was attributable to a 2.6% decline in production levels to 40,300 barrels from 41,400 barrels, mainly resulting from the natural decline of mature fields.

Gas sales increased by Ps. 181 million, (or 39.6%), to Ps. 638 million during 2009, from Ps. 457 million in 2008, due to the combined effect of a 25.6% increase in sales prices and an 11.5% rise in daily sales volumes. The average sales price increased to Ps. 5.7 per million cubic feet from Ps. 4.6 per million cubic feet in 2008, mainly due to a greater demand from higher price segments such as power plants and Industry. Daily gas sales volumes increased to 304.3 million cubic feet in 2009, from 273.1 million cubic feet in 2008, in line with an 8.8% rise in production volumes. In this respect, the acquisition of an increased interest in the Sierra Chata area in September 2008 had a positive impact. In addition, the investments made supported the increase in development activities in the fields, which resulted in higher production levels, mainly in the Estancia Agua Fresca, El Mangrullo and Santa Cruz 1 fields. The labor strike in May 2008 had an impact on production for 2008, also affecting production in the winter season.

Outside of Argentina

Oil and gas sales outside of Argentina dropped Ps. 1.7 billion, (or 75.5%), to Ps. 544 million from Ps. 2.2 billion in 2008, due to the combined effect of a 62.3% decline in sales volumes as a consequence of divestments in Peru and Ecuador, and a 38.2% drop in the average sales price of oil equivalent, in line with variations in international reference prices.

Net sales for 2009 and 2008 include Ps. 34 million and Ps. 29 million, primarily attributable to operations in Mexico and Colombia.

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The following is a description of net sales outside Argentina in the main countries where the Company operates:

•Ecuador

Oil sales dropped Ps. 813 million, (or 74.7%), to Ps. 276 million in 2009 from Ps. 1.1 billion in 2008, as a result of the combined effect of a decline in sales volumes and average sales prices.

Average daily oil sales volumes dropped 64.8% to 3,700 barrels from 10,500 barrels, basically due to the reduction of the Company’s interest in Block 18 from 70% to 30% in December 2008.

Average sales prices declined 27.5% to Ps. 204.7 per barrel from Ps. 282.4 per barrel, in line with variations in international reference prices.

•Peru

Oil and gas sales declined Ps. 842 million, (or 87.3%), to Ps. 123 million in 2009 from Ps. 965 million in 2008, mainly as a result of discontinued operations in Peru due to the sale of PVIE in April 2009 and, to a lesser extent, the drop in average sales prices, in line with international reference prices.

Average daily sales volumes decreased 76.8% to 2,300 barrels of oil equivalent in 2009, from 9,900 barrels of oil equivalent in 2008, as a result of the above-mentioned sale. For that reason, the fiscal year under review only includes operations for three months.

Average crude oil price declined 49% to Ps. 150 per barrel in 2009, from Ps. 294.2 per barrel in 2008, in line with the drop in the price of WTI.

• Bolivia

Oil and gas sales decreased by Ps. 28 million, (or 20.1%), to Ps. 111 million in 2009 from Ps. 139 million in 2008, mainly due to the 14.4% drop in sales volumes, as a consequence of a 13% fall in production and, to a lesser extent, a 6.4% drop in sales prices, as a result of the decline in the price set for gas exports to Brazil.

Gross profit:gross profit for the oil and gas exploration and production business segment declined Ps. 1.2 billion during 2009, to Ps. 1.0 billion from Ps. 2.2 billion in 2008. Margin on sales was 31% and 47.7% in 2009 and 2008, respectively. The decline in gross profit is mainly attributable to our operations in Ecuador and Peru and, to a lesser extent, Argentina. Our lifting cost increased 36% to Ps. 22.7 per barrel of oil equivalent in 2009 from Ps. 16.7 per barrel of oil equivalent in 2008.

The drop in gross profit in Ecuador is mainly attributable to the sale of the 40% interest in Block 18 in December 2008. In Peru, the above-referenced decline is the result of the divestment made in April 2009 and the drop in oil average sales prices.

In the case of Argentina, the decline in gross profit is due to: (i) higher lifting costs as a consequence of the rise in oil service rates and in the demand for pulling and workover services to support production at mature fields and (ii) increased depreciation as a result of higher investments.

Administrative and selling expenses:administrative and selling expenses decreased 33.3%, or Ps. 79 million, to Ps. 158 million in 2009 from Ps. 237 million in 2008, mainly due to the effects of divestments in Peru and Ecuador.

Exploration expenses:exploration expenses totaled Ps. 336 million in 2009 and Ps. 238 million in 2008. In both fiscal years, exploration expenses were mainly attributable to geological and geophysical expenses and investments in offshore and onshore exploration wells in Argentina. Expenses for unsuccessful wells totaled Ps. 270 million in 2009 and Ps. 42 million in 2008.

Other operating expenses, net:other operating expenses, net accounted for losses of Ps. 206 million and Ps. 207 million, respectively. Costs associated with the unused transportation capacity under the ship-or-pay contract with OCP in Ecuador accounted for losses of Ps. 98 million in 2009 and Ps. 174 million in 2008. Expenses for 2009 include Ps. 59 million attributable to agreements entered into with trade unions to ensure maintenance of employment levels and operating activities in Argentina.

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Refining and Distribution

Operating income (expense):operating income (expense) for the refining and distribution business segment improved by Ps. 228 million to a Ps. 57 million gain in 2009 compared to a Ps. 171 million loss in 2008.

Net sales:net sales for the refining and distribution business segment decreased by Ps. 1.3 billion, (or 18.9%), to Ps. 5.6 billion in 2009 from Ps. 6.9 billion in 2008, due to a decline in sales volumes, partially offset by a partial recovery of diesel oil and gasoline sales prices in the domestic market.

Processed crude oil volumes at the refineries dropped 28.1% to 51,900 barrels per day in 2009 from 72,200 barrels per day in 2008, with our focus shifting the search for profitable operations and on ensuring product supply to the market.

Crude oil sales to third parties totaled Ps. 204 million in 2009 and Ps. 374 million in 2008. This 45% drop is in line with the Company’s policy designed to prefer supply to the Company’s own refineries, which as from June 2009 recorded increased consumption of Escalante crude oil, over exports.

Diesel oil sales volumes dropped 29% to 1.7 million cubic meters in 2009 from 2.4 million cubic meters in 2008. Sales to other oil companies recorded the highest decline to 242,000 cubic meters in 2009, accounting for a 37% drop compared to 2008, with priority given to the supply of our own distribution network.

Gasoline sales volumes decreased 10.8% to 764,000 cubic meters in 2009 from 857,000 cubic meters in 2008. Exports recorded the highest decline to 9,000 cubic meters in 2009, accounting for an 81% drop compared to 2008, with priority given to the supply of the domestic market.

Fuel oil and IFOs sales volumes decreased 34% to 594,000 cubic meters from 896,000 cubic meters in 2008, as a consequence of lower fuel oil domestic demand to supply power plants and reduced IFO sales to supply vessels.

In addition, total sales volumes of other related oil products dropped 19% to 840,000 cubic meters from 1.0 million cubic meters in 2008, as a result of lower product availability derived from optimization of crude oil volumes processed.

Average sales prices for gasoline and diesel oil improved 20% and 16%, respectively.

Gross profit:gross profit for this business segment increased by Ps. 216 million, (or 73.7%), to Ps. 509 million in 2009 from Ps. 293 million in 2008 and margin on sales rose to 9% in 2009 from 4.2% in 2008. Partial increases in sales prices and optimization of crude oil volumes processed at refineries in 2009 supported a partial recovery of the business margin, which was affected by a Ps. 150 million loss in 2008 attributable to the sale of imported diesel oil.

Administrative and selling expenses:administrative and selling expenses increased by Ps. 3 million, (or 0.6%), to Ps. 478 million from Ps. 475 million in 2008. Reduced expenses as a result of lower sales volumes, mainly in taxes and transportation, were offset by an increase in freight costs and wages.

Other operating income, net:other operating income, net accounted for gains of Ps. 26 million and Ps. 11 million in 2009 and 2008, respectively.

Petrochemicals

Operating income:operating income for the petrochemicals business segment declined Ps. 77 million, (or 22.7%), to Ps. 262 million from Ps. 339 million in 2008.

Net sales:Net sales decreased by Ps. 547 million, (or 15.7%), to Ps. 2.9 billion in 2009 from Ps. 3.5 billion in 2008 (net of eliminations in the amount of Ps. 75 million in 2009 and Ps. 150 million in 2008 for transactions between our Argentine styrenics operations and Innova), mainly as a consequence of a decline in sales prices in line with the drop in international reference prices caused by the global financial crisis.

•Styrenics — Argentina:

In Argentina, styrenics sales dropped Ps. 218 million, (or 18.2%), to Ps. 981 million from Ps. 1.2 billion in 2008, mainly due to a 17.5% decline in average sales prices. Sales volumes in 2009 totaled 199,000 tons, a level similar to that recorded in 2008.

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In 2009 and in line with the performance of international reference prices, average sales prices in the styrene, polystyrene and synthetic rubber lines dropped 22.4%, 15.8% and 14.7%, respectively.

In 2009, our combined market share (styrene and polystyrene) was 84%, a 5.6% decrease compared to 2008 over the market as a whole.

Performance of main styrenic products was as follows:

a) Styrene sales volumes totaled 68,300 tons, a 30% increase compared to 2008, principally attributable to the foreign market, where sales volumes doubled, mainly to Chile and Brazil. In 2009 we exported 14,100 tons of styrene to Innova to meet supply needs derived from the plant shutdown in September.

Increased styrene availability in 2009 is in line with discontinued ethylbenzene deliveries to Innova and the use of this product as input for styrene production. In 2008, our ethylbenzene exports to Innova totaled 22,100 tons, until the start of operations of the new production plant in September 2008.

b) Propane-propylene sales volumes totaled 19,500 tons, a 9% increase compared to 2008. In 2008, sales volumes were adversely affected by the conflict between the government and the farm sector in the first semester and the shutdown performed at our main client’s plant during the last two months of that year. In addition, in both 2008 and 2009, the global financial crisis led to a decline in domestic demand for these propane-propylene.

c) Polystyrene sales volumes increased 7.6% to 51,900 tons compared to 2008 as a consequence of the increase in exports mainly directed to Chile and of higher sales in the domestic market as a result of the recovery of the Argentine market in the food and refrigeration segments, which were positively impacted by governmental policies designed to boost consumption.

d) Synthetic rubber sales volumes totaled 47,000 tons, reflecting a sales level similar to that recorded in 2008, with an increase in exports that offset a drop in domestic sales attributable to lower activity levels in the first half of 2009 in the tire, auto-part and shoe segments, which recovered in the second half of the year.

•Styrenics — Brazil — Innova:

Styrenics sales in Brazil fell Ps. 187 million, (or 11.4%), to Ps. 1.5 billion from Ps. 1.6 billion in 2008, mainly as a result of the 15.1% decline in average sales prices in 2009, in line with the performance of international reference prices, partially offset by a 4.4% improvement in sales volumes.

In 2009, styrene average sales volumes totaled 146,000 tons, a level similar to that recorded in 2008. During the first quarter of 2009, the global financial crisis affected the Brazilian market, but as from the second quarter sales volumes recovered. Even though a shutdown was performed for maintenance purposes at the styrene plant in September, lower production levels were replaced by purchases from the styrenics division in Argentina.

Polystyrene sales volumes totaled 123,000 tons, a 10% increase compared to 2008, in line with the growth in the polystyrene domestic market, which recorded its best historical performance in 2009. In addition, Innova made progress in the white appliance, disposable and packaging segments.

•Fertilizers:

Fertilizers sales fell Ps. 217 million, (or 27.8%), to Ps. 564 million in 2009 from Ps. 781 million in 2008, mainly due to the 26.4% decline in average sales prices, in line with the fall in international reference prices.

In 2009, sales volumes totaled 475,000 tons, a level similar to that recorded in 2008. Domestic demand was adversely affected in 2008 by the effects of the conflict between the government and the farm sector and, in both 2008 and 2009 by a historical drought and a sharp fall in the price for grains attributable to the global financial crisis.

Gross profit:Gross profit decreased by Ps. 137 million, (or 19.2%), to Ps. 576 million in 2009 from Ps. 713 million in 2008, due to a decline in sales prices for all products. However, gross margin on sales exhibited a small decline to 19.7% in 2009 from 20.5% in 2008, primarily due to the fact that the improvement in styrenics, mainly in Brazil offset the significant decline in margin in the fertilizers business.

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•Styrenics — Argentina:

Gross profit declined Ps. 35 million, (or 15.0%), to Ps. 199 million from Ps. 234 million in 2008. However, gross margin on sales grew to 20.3% from 19.5%, as the decline in raw material prices was higher than the drop in sales prices.

•Styrenics — Brazil:

Gross profit increased by Ps. 29 million, (or 9.9%), to Ps. 323 million in 2009, from Ps. 294 million in 2008 and gross margin on sales increased to 22.2% from 17.9%, as the decline in raw material costs was higher than the drop in sales prices.

•Fertilizers:

Gross profit decreased by Ps. 131 million to Ps. 54 million in 2009, from Ps. 185 million in 2008, and gross margin on sales fell to 9.6% from 23.4% in 2008, due to the significant decline in sales prices and the high inventory levels as of closing of 2008.

Administrative and selling expenses:administrative and selling expenses decreased by Ps. 25 million, (or 5.7%), to Ps. 414 million in 2009, from Ps. 439 million in 2008, mainly as a result of lower expenses and taxes derived from reduced sales, partially offset by increased freight costs.

Other operating income, net:other operating income, net totaled Ps. 100 million and Ps. 65 million in 2009 and 2008, respectively. Such increase was mainly attributable to the collection of FUNDOPEM tax benefits.

Gas and Energy

Operating income:operating income for the gas and energy segment fell by Ps. 43 million, (or 12.6%), to Ps. 297 million in 2009 from Ps. 340 million in 2008.

Electricity Generation

Operating income:in 2009, operating income from electricity generation operations decreased by Ps. 4 million, (or 1.5%), to Ps. 258 million in 2009, from Ps. 262 million in 2008.

Net sales:net sales for electricity generation increased by Ps. 162 million, (or 23.2%), to Ps. 859 million from Ps. 697 million in 2008, mainly due to a 20.6% increase in average sales prices and, to a lesser extent, a 2.1% rise in sales volumes as a result of deliveries by the new Genelba Plus power plant in August 2009. The above-mentioned increase in average sales prices was attributable to energy deliveries by less efficient power plants to preserve hydroelectric plants’ reserves during the winter season and our ability to pass through increases in gas prices, with a cap placed on such increases (Ps. 120/MWh).

Net sales attributable to Genelba increased by Ps. 71 million, (or 12.1%), to Ps. 660 million from Ps. 589 million in 2008. Average sales price increased by 13.8% to Ps. 119.14 per MWh in 2009, from Ps. 104.7 per MWh in 2008. Energy sales fell 1.8% to 5,528 GWh in 2009 from 5,628 GWh. Within this context, the power plant’s availability increased to 96% from 92.6%, and the plant factor was 88% and 94% in 2009 and 2008, respectively.

With a plant availability of 99.3%, energy delivered by Genelba Plus totaled 225 GWh, with sales revenues of Ps. 47 million. The average sales price was Ps. 209 per MWh, a price higher than average market price because Genelba Plus produces additional energy directed to supply large users under the Energía Plus Program.

Net sales attributable to Pichi Picún Leufú increased by Ps. 10 million, (or 9.3%), to Ps. 118 million in 2009, from Ps. 108 million in 2008, due to the combined effect of a 7.8% increase in average sales prices to Ps. 100.5 per MWh from Ps. 93.2 per MWh, and a 1.7% increase in sales volumes to 1,178 GWh from 1,159 GWh.

Gross profit:in both 2008 and 2009, gross profit totaled Ps. 269 million. Gross margin on sales dropped to 31.3% in 2009 from 38.6% in 2008, mainly due to the fact that as a result of the implementation of the above reference cap price, Genelba plant higher gas costs were partially passed through to sales prices.

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Marketing and Transportation of Gas

Operating income:operating income for the marketing and transportation of gas operations fell Ps. 36 million to Ps. 1 million in 2009 from Ps. 37 million in 2008.

Net sales:sales revenues increased by Ps. 59 million, (or 6.6%), to Ps. 956 million in 2009, from Ps. 897 million in 2008, mainly due to higher gas sales revenues, partially offset by a decline in liquid fuel sales and gas and LPG brokerage services, totaling Ps. 24 million in 2009 and Ps. 47 million in 2008.

Gas sales revenues increased by Ps. 124 million, (or 22.2%), to Ps. 682 million from Ps. 558 million in 2008, mainly due to a 30.4% rise in average sales prices attributable to higher prices for sales to power plants and gas sales to residential users at subsidized prices. These effects were partially offset by a 6% reduction in daily sales volumes to 304 million cubic feet in 2009 from 323 million cubic feet in 2008, basically due to labor strikes by contractors’ personnel in the Austral basin in the second and third quarters of 2009.

LPG sales revenues decreased by Ps. 42 million, (or 14.4%), to Ps. 250 million from Ps. 292 million in 2008, mainly due to an 11.3% drop in average sales prices as a result of the decline in international reference prices and the implementation of the LPG Producers Agreement entered into in the last quarter of 2008, whereby LPG started to be sold at subsidized prices for low-income users and, to a lesser extent, a 3.5% drop in sales volumes to 222,100 tons in 2009 from 230,100 tons in 2008, as a consequence of gas supply restrictions in 2009 that limited liquid fuel processing.

Gross profit:gross profit decreased by Ps. 24 million, (or 24.7%), to Ps. 73 million in 2009 from Ps. 97 million in 2008. Gross margin on sales dropped to 7.6% in 2009 from 10.8 % in 2008.

Administrative and selling expenses:administrative and selling expenses for the gas and energy segment totaled Ps. 68 million in 2009, an increase of 13.3% compared to Ps. 60 million in 2008, due to the increase in sales described above.

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ANALYSIS OF EQUITY IN EARNINGS OF AFFILIATES

In the following discussion, unless indicated otherwise, the amounts attributed to each affiliate or company represents the total amount recorded by that affiliate or company.

Mixed-ownership companies in Venezuela:our equity in the earnings of mixed-ownership companies fell to Ps. 138 million in 2009 from Ps. 290 million in 2008, mainly as a result of the decline in average sales prices, in line with the fall in international reference prices.

Total sales of mixed-ownership companies in Venezuela fell approximately 53% compared to 2008, mainly due to the combined effect of a 35% decline in average sales prices, which averaged US$50 per barrel of oil in 2009, and a 28% reduction in sales volumes to approximately 40,000 barrels per day in 2009.

CIESA/ TGS:our equity in the earnings of CIESA accounted for losses of Ps. 22 million and Ps. 20 million in 2009 and 2008, respectively.

Total sales revenues increased approximately Ps. 182 million, (or 13%), to Ps. 1.6 billion, mostly derived from the regulated segment, as a consequence of the 20% increase in the gas transportation tariff authorized by the Argentine government in December 2009, to be retroactively applied as from September 1, 2008, and, to a lesser extent, higher revenues derived from the 3.9 MMm³/day expansion of the transportation capacity completed under the Gas Trust Program implemented by the end of 2008 and during 2009.

In 2009, CIESA’s operating income increased by Ps. 130 million, (or 30.2%), to Ps. 561 million, mainly due to the above-mentioned tariff increase.

The above improvements were offset by a Ps. 123 million increase in net loss shown under financial results in 2009, basically attributable to a lower gain from prepayment of TGS’s financial debt, which resulted in a gain of Ps. 11 million in 2009 and Ps. 114 million in 2008.

Distrilec / EDESUR:our equity in the earnings of Distrilec fell by Ps. 16 million to Ps. 10 million in 2009 from Ps. 26 million in 2008.

Revenues from services increased by Ps. 156 million, (or 7.6%), to Ps. 2.2 billion in 2009 from Ps. 2.0 billion, mainly due to a 6% rise in the energy average sales price (including tolls), attributable to the implementation of new tariff schedules.

Distrilec’s operating income fell by Ps. 26 million, (or 17%), to Ps. 127 million from Ps. 153 million in 2008, mainly due to the 8.1% increase in energy purchase prices and, to a lesser extent, the rise in administrative and selling expenses in 2009 as a result of the increase in salaries and tariffs of hired services, which were partially offset by the above-mentioned improvement in sales revenues.

PELSA:our equity in the earnings of PELSA increased by Ps. 2 million, (or 8.0%), to Ps. 27 million from Ps. 25 million.

PELSA’s sales increased by Ps. 112 million, (or 20%), to Ps. 671 million from Ps. 559 million in 2008, due to the combined effect of an 11% improvement in average sales prices and an 8% rise in sales volumes.

PELSA’s operating income increased by Ps. 22 million, (or 10.3%), to Ps. 235 million, as a result of the above-mentioned improved sales revenues, partially offset by higher production costs associated with increased hydrocarbon production and sale and higher depreciation resulting from increased investments.

Refinor:our equity in the earnings of Refinor accounted for a Ps. 42 million gain in 2009 compared to a Ps. 6 million loss in 2008.

Refinor’s sales increased by Ps. 355 million, (or 28.7%), to Ps. 1.6 billion from Ps. 1.2 billion in 2008, mainly due to the positive impact of the benefits derived from the Oil Plus program, effective October 2008.

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CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with Argentine GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. Changes in facts and circumstances or discovery of new information may result in revised estimates and actual results may differ from these estimates.

The following summary provides more information about the critical accounting policies that could have a significant impact on our results and should be read in conjunction with the Notes to our financial statements. Our accounting policies are more fully described in both Notes 2 and 4 to our financial statements.

Estimates of Oil and Gas Reserves

Evaluations of oil and gas reserves are important for the effective management of upstream assets. They are used to make investment decisions about oil and gas properties. Oil and gas reserve quantities are also used as the basis for calculation of unit-of-production rates for depreciation of the related oil and gas assets and evaluation for impairment of our investments in upstream assets. Oil and gas reserves are divided between proved and unproved reserves. Proved reserves are estimated quantities of crude oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Unproved reserves are those with less than reasonable certainty of recoverability and are classified as either probable or possible. Probable reserves are reserves that are more likely to be recovered than not and possible reserves are less likely to be recovered than probable reserves.

Estimates of oil and gas reserves have been prepared in accordance with Rule 4-10 of Regulation S-X, promulgated by the SEC. The choice of method or combination of methods employed in the analysis of each reservoir was determined by the stage of development, quality and reliability of basic data, and production history.

The estimation of proved reserves is an ongoing process that takes into account engineering and geological information such as well logs, pressure data and fluid sample core data. Proved reserves can also be divided in two categories: developed and undeveloped. Developed proved reserves are expected to be recovered from existing wells, or when the costs necessary to put them in production are relatively low, or through extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction does not involve a well. For undeveloped proved reserves, significant investments are necessary, including drilling new wells and installing production or transportation facilities before these reserves can be exploited. Oil and natural gas reserves have a direct impact on the assessment of the recoverability of asset carrying values reported in the financial statements.

We use the “successful efforts” method of accounting for our exploration and production activities. Under this method, costs are accumulated on a field-by-field basis with certain exploratory expenditures and exploratory dry holes being expensed as incurred. Exploratory wells that find oil and gas in an area requiring major capital expenditure before production can begin are evaluated annually to ensure that commercial quantities of reserves have been found or that additional exploration work is under way or planned in a timeframe reasonable for its development cycle. Exploratory well costs not meeting either of these criteria are charged to expenses. Costs of productive wells and development dry holes are capitalized and amortized on the unit-of-production method.

Downward revision in our reserves estimates may result in: (a) higher depreciation and depletion charges in future periods, and/or (b) an immediate write-down of an asset’s book value. If, on the other hand, the oil and gas reserve quantities were revised upward, our per barrel depreciation and depletion expense would be lower. Changes in proved oil and gas reserves will also affect the standardized measure of discounted cash flows presented in Note 23 to our financial statements.

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Impairment of Long-Lived Assets

At December 31, 2010, our property, plant and equipment, net of accumulated depletion, amounted to Ps. 10,789 million.

Our management assesses the recoverability of long-lived assets whenever events or changes in circumstances occur that could indicate that the value of an asset or of a group of assets might not be recoverable. The book value of a long-lived asset is adjusted to its recoverable value if its carrying amount exceeds the recoverable value in use.

From a regulatory standpoint, recoverable value is defined as the larger of net realizable value and discounted value in use, defined as the addition of the discounted expected net cash flows that arise as a direct result of the use and eventual disposition of the assets. Among other elements, the premises that represent the best estimate made by management of the economic conditions that will prevail throughout the useful life of the assets are considered.

With respect to future prices, in general, we do not view temporarily low prices as a trigger event for conducting impairment tests. The markets for crude oil and natural gas and oil related products have a history of significant price volatility. Although prices will occasionally drop precipitously, industry prices over the long term will continue to be driven by market supply and demand fundamentals. Significantly lower future prices could lead to impairments in the future, if such decreases were considered to be indicative of long-term trends. In the determination of the discounted value in use, we make use of our long-term price assumptions. These are the same price assumptions that are used in our planning and budgeting processes and our capital investment decisions, and they are considered to be reasonable, given market indicators and past experience.

Among other assumptions, we consider discount rates used by market participants to evaluate the time value of money and the specific risk of the asset.

Under Argentine GAAP, impairment charges can be reversed in subsequent years so that the reduced carrying amount does not represent the new cost basis of the long-lived assets should the facts and circumstances change in the future.

As an example of our accounting for the impairment of long-lived assets, in 2007, we recorded an impairment allowance of Ps. 759 to write the book value of Ecuador’s assets down to zero, which is their probable recoverable value. This write down was a consequence of the Ecuadorian government’s imposition in 2007 of major tax and regulatory amendments that adversely affected the profitability evaluation of our ongoing projects in Ecuador.

Successful Efforts Method of Accounting

We follow the successful efforts method of accounting for our oil and gas activities.

Occasionally, an exploratory well may determine the existence of oil and gas reserves but the reserves cannot be classified as proved when drilling is complete.

In those cases, in accordance with FASB ASC TOPIC 932,“Extractive Activities —oil and gas-”, such costs continue to be capitalized insofar as (i) the well has determined the existence of sufficient reserves to warrant its completion as a production well and (ii) the company is making sufficient progress in evaluating the economic and operating feasibility of the project.

Before such interpretation, Statement of Financial Accounting Standards No. 19 provided: (I) if the well found reserves in an area requiring major capital expenditures before production may start, classification of such reserves as proved is dependent upon whether any additional reserves are found justifying the aforementioned investment. In this case, the cost of the exploratory well continues to be capitalized as long as it meets the following two conditions: (a) reserves found are sufficient to justify completion of the well as producing if the capital investment is made, and (b) the drilling of additional exploratory wells is in progress or firmly planned for the near future. Otherwise, drilling costs are charged to expense; (II) if the reserves are not classified as proved for any other reason, drilling costs of exploratory wells should not remain capitalized for a period exceeding one year after the completion of the drilling. If after one year no reserves are classified as proved, exploratory well costs should be charged to expense.

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The application of the successful efforts method can cause material fluctuations between periods in exploration expenses if drilling results are different than expected or if we change our exploration and development plans. If we change our views, as a result of changed circumstances or otherwise, during a later period, we would expense the relevant exploratory drilling cost during such later period.

As of December 31, 2010, we maintained capitalized exploratory well costs amounting to Ps. 216 million.

Fair Value

We estimate fair value for the measurement of long-lived assets during certain impairment tests and the initial measurement of an Asset Retirement Obligations. When the Company is required to measure fair value, and there is not a market observable price for the asset or liability, or a market observable price for a similar asset or liability, we generally utilize an income valuation approach. This approach utilizes management’s best assumptions regarding expectations of projected cash flows, and discounts the expected cash flows using a commensurate risk adjusted discount rate. Such evaluations involve a significant amount of judgment since the results are based on expected future events or conditions, such as sales prices; estimates of future oil and gas production or throughput; development and operating costs and the timing thereof; economic and regulatory climates and other factors. The Company’s estimates of future net cash flows are inherently imprecise because they reflect management’s expectation of future conditions that are often outside of management’s control. The assumptions used for fair value measurement are consistent with the ones developed for our planning and budgeting processes and our capital investment decisions.

Contingencies

Certain conditions may exist as of the date of the financial statements, which may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. We assess contingent liabilities based on the opinion of our legal counsel and available evidence. If the assessment of a contingency indicates that it is probable that a loss has been incurred and the amount can be estimated, a liability is accrued. If the assessment indicates that a potential loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the possibility of occurrence, is disclosed in a note to the financial statements. Loss contingencies considered remote are not disclosed unless they involve guarantees, in which case the nature of the guarantee is disclosed.

Changes in the facts or circumstances related to these types of contingencies, as well as the future outcome of these disputes, can have a significant effect on the amount of provisions for contingencies recorded. As of December 31, 2010, contingent liabilities (including current and non-current) amount to Ps. 329 million.

Income Tax

We estimate income tax on an individual basis under the deferred tax method. The deferred tax balance as of the end of each period has been determined on the basis of the temporary differences generated in certain items that have a different accounting and tax treatment.

To book such differences, we use the liability method, which establishes the determination of net deferred tax assets and liabilities on the basis of temporary differences determined between the accounting measurement of assets and liabilities and the related tax measurement. Temporary differences determine the balance of tax assets and liabilities where its future reversal decreases or increases the taxes determined. In the event there are unused tax loss carry forwards that may be offset against future taxable income, we will evaluate the recoverability of a deferred tax asset, only to the extent that it is “probable” that some portion or all of the deferred tax asset will be realized.

Judgment is required in determining the amounts of future income tax assets and liabilities and the related valuation allowance recorded against the net future income tax assets. In assessing the potential realization of future income tax assets, management considers whether it is “probable” that some portion or all of the future income tax assets will be realized. The ultimate realization of future income tax assets is dependent upon us generating sufficient future taxable income from operations during the period in which the future income tax assets are recoverable. Due to the fact that uncertainty exists surrounding our ability to generate sufficient taxable income from operations before the expiration of the loss carry forwards, we provided a valuation allowance of Ps. 1,028 million against tax loss carry forwards as at December 31, 2006, which to a large extent expired during 2007. In 2005, for example, after taking into consideration the profitability expectations arising from our business plan, we partially reversed an allowance for tax loss carry forwards and recognized a gain of Ps. 197 million. As of December 31, 2010, we maintained deferred tax assets amounting to Ps. 613 million, before considering a valuation allowance amounting to Ps. 339 million.

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LIQUIDITY AND CAPITAL RESOURCES

The default on the Argentine sovereign debt at the end of 2001, the global financial crisis and related decline in global stock markets as well as the insolvency of major financial institutions toward the end of 2008, have all significantly limited the ability of Argentine companies’ to access international financial markets at reasonable cost and conditions.

Our ability to execute and carry out our strategic business plan depends upon our ability to obtain financing at a reasonable cost and on reasonable terms.

In recent years, we have regularly obtained financing from the private pension fund system in Argentina, which has been a significant subscriber of issuances of our debt. However, in November 2008 the Argentine National Congress passed a law eliminating the private pension system, mandating that funds administered by the private Retirement and Pension Funds Administrators (the “AFJP”), be transferred to a new administrator, the National Social Security Administrative Office (Administración Nacional de la Seguridad Social, or “ANSES”). Because the private pension funds had until recently been major institutional investors in the Argentine capital markets, the nationalization of these funds and the transfer of their assets to a state-run administrator had led to a decline in liquidity in the local capital markets, and may further limit the sources of financing for Argentine companies, including us.

In response to the limited availability of financing for Argentine companies, we closely monitor our liquidity levels in order to ensure compliance with our financial obligations and achieve our growth objectives. Along these lines, and as a guiding principle, financial solvency is the foundation on which sustainable development of our businesses is built. In our opinion, our working capital is sufficient to meet our present requirements.

Pursuant to these strategic guidelines, we seek to:

• Design a capital structure in line with industry standards adaptable to the financial markets in which we operate, by establishing a debt maturity profile consistent with estimated cash generation.

• Gradually reduce our financing costs.

Adhering to these guidelines will enable us to treat financial management as a key element in the value-creation process.

Financial management highlights for 2010 fiscal year include:

• Strict compliance with all financial obligations, with a 24% decline in our annual average indebtedness, as measured in US dollars.

• Continued implementation of our capital expenditures plan.

In the short term, the most significant factors generally affecting our cash flow from operating activities are: (1) fluctuations in prices for crude oil and oil related products, (2) fluctuations in production levels and demand for our products, (3) fluctuations in margins in the refining and distribution and petrochemicals business units, (4) changes in regulations, such as taxes, taxes on exports, changes in royalty payments and price controls and (5) fluctuations in exchange and interest rates.

In the longer term, our ability to replace oil and gas reserves will affect future production levels, which, in turn, will affect cash flow provided by operating activities. Nonetheless, we do not believe that the risks associated with failure or delay of any single project would have a significant impact on our overall liquidity or ability to generate cash flows, since we have a diverse portfolio of development projects and exploration opportunities, which helps to mitigate the risks inherent to oil and gas exploration and production and the associated cash flow provided by operating activities.

Analysis of Liquidity and Capital Resources

Our management analyzes our results and financial condition separately from the results and financial condition of CIESA and Distrilec, affiliates under joint control with third parties. The discussion below, therefore, relates to our liquidity and capital resources, excluding the effects of the proportional consolidation of CIESA and Distrilec, and as a result may not be directly comparable to figures reflected in our financial statements.

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The table below reflects our statements of cash flow for the fiscal years ended December 31, 2010, 2009 and 2008 under Argentine GAAP and, for comparative purposes, the pro forma results excluding the effect of proportional consolidation of CIESA and Distrilec. Amounts are stated in millions of pesos.

										Excluding Proportional
	With Proportional									Consolidation of CIESA and
	Consolidation									Distrilec (Unaudited)
	2010			2009			2008			2010			2009			2008
Cash and cash equivalent at the beginning of the year		1,552			1,476			1,167			933			1,100			899
Net cash provided by operations		3,043			2,362			2,153			2,523			1,870			1,705
Net cash used in investing activities		320			(1,088	)		(1,247	)		626			(877	)		(1,009	)
Net cash used in financing activities		(2,122	)		(1,313	)		(680	)		(2,037	)		(1,270	)		(574	)
Effect of exchange rate change on cash		72			115			83			68			110			79
Cash and cash equivalent at the end of the year		2,865			1,552			1,476			2,113			933			1,100

Cash

As of December 31, 2010, 2009 and 2008, cash and cash equivalents, excluding proportional consolidation of CIESA and Distrilec, were Ps. 2.1 billion, Ps. 933 million and Ps. 1.1 billion, respectively.

Our goal is to maintain excess cash primarily in U.S. dollars and in short-term investments to ensure adequate liquidity levels. We primarily invest in money market mutual funds and overnight deposits.

Operating Activities

Net cash from operations, excluding proportional consolidation of CIESA and Distrilec, totaled Ps. 2.5 billion in 2010, Ps. 1.9 billion in 2009 and Ps. 1.7 billion in 2008.

Net cash from operations increased by Ps. 653 million (or 34.9%), to Ps. 2.5 billion in 2010, from Ps. 1.9 billion in 2009, mainly as a result of a reduction in working capital levels, reflecting the positive results of actions taken in 2010 towards resource optimization, efficient operations and, to a lesser extent, a reduction in interest payments in line with our debt reduction policy.

Net cash from operations in 2009 increased by Ps. 165 (or 9.7%), to Ps. 1.9 billion from Ps. 1.7 billion in 2008, mainly as a result of a reduction in working capital levels, reflecting the positive results of actions taken in 2009 towards resource optimization, efficient operations and financial discipline.

Investing Activities

Net cash from investing activities, excluding proportional consolidation of CIESA and Distrilec, totaled Ps. 626 million in 2010, Ps. 877 million used in investing activities in 2009 and Ps. 1.0 billion used in 2008.

In 2010 fiscal year, we generated net cash from investing activities primarily as a result of divestments totalling Ps. 1.7 billion in 2010, compared to Ps. 613 million in 2009, in both cases representing the net proceeds received from the sale of the 60% interest in PVIE in April 2009.

In 2009 we invested Ps. 119 million in the underwriting of bonds issued byFideicomiso Financiero de Obra Gasoducto Surto finance capital expenditures related to the expansion of the transportation capacity of the offshore section of the General San Martín gas pipeline that will cross the Strait of Magellan.

The table below reflects total net capital expenditures, in millions of pesos:

	2010			2009			2008
— Oil and Gas Exploration and Production		775			1,050			1,833
— Petrochemical		48			91			144
— Refining and Distribution		130			97			235
— Gas and Energy		98			110			265
— Corporate		8			11			12
Total capital expenditures		1,059			1,359			2,489
— Divestments		(1,684	)		(613	)		(1,440	)
Total net capital expenditures		(625	)		746			1,049

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•Oil and Gas Exploration and Production

Capital expenditures in the oil and gas exploration and production business segment totaled Ps. 775 million and Ps. 1.1 billion in 2010 and 2009, respectively. In 2010 and 2009, capital expenditures were mainly focused on improving the basic production curve. Our main capital investments included well drilling, expansion of secondary recovery projects and expansion of surface facilities and compression systems.

Investments were focused in Argentina, primarily in seismic surveys and drilling. In 2010 our investment plan involved the drilling of 53 producing and injection wells and the repair of 88 wells, mainly in the Neuquén basin, in Puesto Hernández, Medanito, El Mangrullo and Sierra Chata areas. In the Austral basin, works in connection with the construction of the crude oil treatment plant in Estancia Agua Fresca area started during 2010, with the plant start up scheduled for the first half of 2011.

•Refining and Distribution

Capital expenditures in the refining and distribution business segment totaled Ps. 130 million and Ps. 97 million in 2010 and 2009, respectively.

At the Bahía Blanca refinery, we performed two major scheduled shutdowns to improve our operational efficiency standards over the next five years. Works in connection with the Refining Quality Adjustment Project which involves the construction of a diesel oil hydro-treatment plant to meet quality specifications set by law in terms of sulphur contents also continued during 2010.

In addition, the Company advanced with the construction of its biofuel projects, with completion of biogasoline-related works in Bahía Blanca and Caleta Paula scheduled for 2011.

•Petrochemicals

In the petrochemicals business segment, capital expenditures totaled Ps. 48 million and Ps. 91 million in 2010 and 2009, respectively.

In 2010 we invested in retroffiting works at the Puerto General San Martín synthetic rubber plant for the purpose of producing in 2011 polymers that meet new European regulatory requirements.

•Gas and Energy

In the gas and energy business segment, capital expenditures totaled Ps. 98 million and Ps. 110 million in 2010 and 2009, respectively.

Construction works in connection with Ecoenergía power plant located at TGS’s General Cerri complex in Bahía Blanca continued during 2010 and are still ongoing. This plant will add 14 MW of renewable energy to the electricity system. Commercial operations are scheduled to start in the second half of 2011.

Financing Activities

Net cash used in financing activities totaled Ps. 2.0 billion, Ps. 1.3 billion and Ps. 574 million, in 2010, 2009 and 2008, respectively.

We paid long-term debt in the amount of Ps. 1.4 billion, Ps. 674 million and Ps. 11 million in 2010, 2009 and 2008, respectively.

• In 2010 and 2009, we paid at maturity our Class I and H Notes under our US$2.5 billion notes program in an aggregate amount of Ps. 1.4 billion and Ps. 674 million, respectively.

• In 2008, we repaid bank loans and long-term lines of credit in the amount of Ps. 11 million.

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Cash provided by long-term financing totaled Ps. 65 million, Ps. 572 million and Ps. 136 million in 2010, 2009 and 2008, respectively.

• In 2010, Innova received cash provided by bank financing in the amount of Ps. 65 million

• In 2009, we received cash provided by bank financing in the amount of Ps. 572 million.

• In 2008, we and Innova received cash provided by bank financing in the amounts of Ps. 79 million and Ps. 57 million, respectively.

With respect to our short-term financing, in 2010 we repaid short-term debt in the amount of Ps. 399 million. In 2009 and 2008 we repaid short-term debt for Ps. 899 million and Ps. 384 million, respectively.

In addition, pursuant to the resolutions adopted at the General Shareholders’ Meetings held on March 26, 2010, March 27, 2009 and March 28, 2008, we paid cash dividends in the amount of Ps. 275 million, Ps. 269 million and Ps. 315 million in 2010, 2009 and 2008, respectively.

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DESCRIPTION OF INDEBTEDNESS

Most of our financial debt and a significant portion of the debt of our main affiliates are denominated in US dollars. The description that follows describes the indebtedness of PESA and its consolidated subsidiaries, unless otherwise indicated.

As of December 31, 2010, total indebtedness, excluding the proportional consolidation of CIESA and Distrilec (companies under joint control with third parties) totaled Ps. 4.0 billion, of which Ps. 3.4 billion was long-term indebtedness. This compares to Ps. 5.5 billion as of December 31, 2009, of which Ps. 3.7 billion was long-term debt. As of December 31, 2010, short-term indebtedness totaled Ps. 584 million, of which Ps. 367 million represents the current portion of long-term obligations and Ps. 217 million represents short-term indebtedness with financial institutions under loan agreements and foreign trade financing.

As of December 31, 2010 notes in the aggregate principal amount of US$587 million were outstanding under the global note program that expired in May 2008.

In addition, in August 2008, the CNV authorized a new global corporate note program for an outstanding maximum principal amount of US$1 billion or its equivalent in other currencies, maturing within a 5-year term or the maximum term that may be established by any applicable regulation in the future. As of the date of this annual report, no notes had been issued under this global corporate note program.

The following represents our debt maturity profile as of December 31, 2010:

											6 or more
	1 year		2 years		3 years		4 years		5 years		years
Millions of pesos		584		392		1,011		11		796		1,194

On June 9, 2005, the Argentine government issued Decree No. 616/05, requiring that any cash inflow to the domestic market derived from foreign loans to the Argentine private sector shall have a maturity for repayment of at least 365 days as from the date of the cash inflow. In addition, at least 30% of the amount must be deposited with domestic financial institutions. This deposit (1) must be registered, (2) must be non-transferable, (3) must be non-interest bearing, (4) must be made in U.S. dollars, (5) must have a term of 365 days and (6) cannot be used as security or collateral in connection with other credit transactions. Export and import financing and primary public offerings of corporate bonds listed on self-regulated markets are exempt from the foregoing provisions among others. This Executive Order may limit our ability to finance our operations through new loans (granted either by Petrobras, any Petrobras related entity, our subsidiaries outside of Argentina or any other foreign financial institution).

Under Communication A 4860, issued on October 30, 2008 by the Central Bank, export collections required to be transferred and settled in the local exchange market must be transferred within a 10 working day term to foreign offices of local financial institutions, except for export collections applied to the payment of export pre-financings granted by financial institutions outside of Argentina. Under this requirement, the time frame to bring foreign currency into Argentina from certain export collections is reduced, posing a restriction on the term and amount of some of our sources of financing.

Cross Default Provisions

Our notes and other bank financings outstanding as of December 31, 2010 include cross default provisions whereby the Trustee under those notes, if instructed by the noteholders representing at least 25% of the related outstanding capital, in the case of the notes or the lender in the cases of the bank financings, as the case may be, may declare all the amounts owed due and payable if any debt of ours or our significant subsidiaries is not paid when due, provided that those due and unpaid amounts exceed the higher of US$25 million or 1% of PESA’s shareholders’ equity at the time such debt is due, and provided further that the default has not been eliminated or cured within 30 days after we have been served notice of the default.

In addition, our Series S notes contain cross default provisions that are triggered if the maturity of any indebtedness of Petrobras or of any of its material subsidiaries in a total aggregate principal amount of $100 million or more is accelerated. The notes contain other customary event of default provisions relating to Petrobras. See “Liquidity and Capital Resources—Financing Activities”.

As of the date of this annual report, we are in compliance with all covenants under our loan agreements and corporate bonds.

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FUTURE CAPITAL REQUIREMENTS

We estimate investments in PESA and its subsidiaries for 2011 at approximately US$540 million. This level of investments is part of our strategy for sustained growth, which we have pursued in accordance with growth and expansion targets contemplated in our business plan.

In addition, PESA’s general shareholders’ meeting held on April 6, 2011, approved the distribution of cash dividends in the amount of Ps. 183 million, which were paid on May 2011.

We estimate that our capital expenditure requirements, debt payment obligations, dividends payments and working capital will be financed by cash from operations and by new debt financings and possible divestments.

Our level of investments will depend on a variety of factors, many of which are beyond our control. These include the future price evolution of the commodities we sell, the behavior of energy demand in Argentina and in regional markets, the existence and competitive impact of alternative projects, the enforcement of regulations and changes in applicable taxes and royalties and the political, economic and social situation prevailing in the countries where we operate.

•Oil and Gas Exploration and Production

Our 2011 investment plan is in line with our current reserve replacement and production goals.

Efforts will continue in the Neuquén basin to develop oil reserves through well drilling, and expansion of secondary recovery projects and of relevant surface facilities. In terms of gas production, we expect to carry out well drilling and workover campaigns. We will continue with the development of the El Mangrullo field and the implementation of the tight gas pilot project at the Punta Rosada formation in the Río Neuquén field, for the exploitation of low permeability non-conventional gas reservoirs by using cutting-edge technology.

Investments in the Austral basin will be focused on well drilling for the development and demarcation of oil reserves and on maintenance of the curve of injection to the gas pipeline.

Additionally, we will continue with investment plans focused on exploration activities, particulary those in offshore blocks.

•Refining and Distribution

In 2011, investments will be focused on meeting fuel quality specifications set by law. In addition, major capital expenditures will be made in connection with improving the operational reliability of our refining facilities. Investments will also be made in connection with maintenance of our gas stations network.

•Petrochemicals

At the Puerto General San Martín plant, investments will continue with a focus on reliability projects and maintenance associated with scheduled shutdowns, in order to achieve increased yield and safety in operating processes.

•Gas & Energy

In 2011, investments will focus on completion of construction works at the Ecoenergía power plant and maintenance of the Genelba power plant.

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OFF-BALANCE SHEET TRANSACTIONS

Other than the transactions described below, we do not have any off-balance sheet arrangements required to be disclosed by Item 5 of Form 20-F.

OCP Investment’s Letters of Credit

In order to guarantee compliance with the Company’s financial commitments under the ship-or-pay transportation agreement executed with OCP and a portion of OCP’s contractual obligations, we are required to procure letters of credit. These letters of credit are required to remain in effect until December 2018. As of December 31, 2010, we had procured letters of credit for a total amount of about US$85 million. As the letters of credit expire, we will be required to renew or replace them. Otherwise, we would have to deposit cash in amounts equal to our guarantee obligations, which would have a material adverse effect on our cash flows.

CONTRACTUAL OBLIGATIONS

The following table summarizes certain contractual obligations as of December 31, 2010. The table does not include accounts payable. Amounts in the table do not include interest.

	Payments due by period
			Less than						More than
	Total		1 year		1-3 years		3-5 years		5 years
	(in millions of pesos)
Debt Obligations		3,988		584		1,403		807		1,194
Purchase Obligations
Long-term service agreement(4)		1,022		559		273		43		147
Petroleum services and materials(4)		1,925		1,640		178		54		53
Ethylene(2)(4)		1,759		439		878		442		—
Benzene(3)(4)		3,383		845		1,689		849		—
Oil purchase agreements for Refinery (4)		99		99		—		—		—
Gas transportation capacity with TGS (1)		1,413		209		419		419		366
Gas purchase agreements for Genelba(4)		160		68		76		16		—
Pension Plan		180		16		26		32		106
Total		13,929		4,459		4,942		2,662		1,866
Sales Obligations
Natural gas		1,334		400		340		304		290
Electric power		1,038		272		442		203		121
LPG		1,451		188		266		250		747
Oil		22		22		—		—		—
Total		3,845		882		1,048		757		1,158

(1)	Estimated price Ps. 0.16 million per million cubic meters.
(2)	Estimated average price US$818 per ton (4). Contractual prices are in US dollars. Peso amounts translated using exchange rate as of December 31, 2010.
(3)	Estimated price US$566 per ton (4). Contractual prices are in US dollars. Peso amounts translated using exchange rate as of December 31, 2010.
(4)	Prices are generally determined by formulas based on future market prices. Estimated prices used to calculate the monetary equivalent of these purchase obligations for purposes of the table are based on current market prices as of December 31, 2010 and may not reflect actual future prices of these commodities. Accordingly, the peso amounts provided in this table with respect to these obligations are provided for illustrative purpose only.

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The following table sets forth volume information with regards to our commitment under commercial contracts:

	Obligations by period
			Less than						More than
	Total		1 year		1-3 years		3-5 years		5 Years
Purchase Obligations
Ethylene (in thousands of tons)		540		135		270		135		—
Benzene (in thousands of tons)		1,501		375		749		377		—
Gas transportation capacity with TGS (in millions of cubic meters)		10,128		1,582		3,169		3,165		2,212
Gas purchase agreements for Genelba (in millions of cubic meters)		748		281		374		93		—
Sales Obligations
Natural gas (in millions of cubic meters)		6,076		1,835		1,545		1,432		1,264
Electric power (in GWh)		1,221		302		501		239		179
LPG (in thousands of tons)		334		57		61		54		162

Debt Obligations.A description of our contractual obligations with respect to our debt obligations is given under “Liquidity and Capital Resources — Description of Indebtedness”.

Long Term Service Agreement. We have entered into a long-term service agreement with Siemens S.A. for the maintenance and repair of Genelba.

Petroleum services and materials.We have entered into several agreements with different oil and gas petroleum service providers in order to ensure the usual supply of services and materials in countries where we conduct oil and gas activities. The aforementioned contracts provide for the supply of services such as pulling services, work-over, perforation works, materials and others.

Benzene and ethylene supply agreements. These long-term agreements were subscribed by Innova with Brasken, an affiliate of Petrobras formerly known as Copesul. The purpose of these agreements was to ensure the supply of a significant portion of benzene and ethylene, raw materials that are essential for Innova’s production of styrene and polystyrene. These agreements would expire in 2015. However, in March 31, 2011, we agreed to sell our interest in Innova to our controlling company Petrobras. See “Item 4. Information on the Company—Petrochemicals—Brazilian operations”.

Gas Transportation Agreements with TGS. We have entered into firm gas transportation agreements with TGS to provide gas transportation services to our thermal power plant, Genelba. These contracts include firm clauses, which require us to meet our contractual obligations for the entire volume hired, even if no gas is transported. These contracts expire in 2019.

Gas Purchase Agreement for Genelba. Complementing the gas transportation agreements mentioned above, we have entered into natural gas supply agreements with Compañía General de Combustibles. Under these agreements, Compañía General de Combustibles will supply Genelba Plus and Genelba’s natural gas requirements in the event that such supply is not met internally, ensuring both thermal power plants’ abilities to meet their own contractual energy delivery commitments.

Additional Gas Purchase Agreement for Genelba Plus. Complementing the gas transportation agreements mentioned above, we have entered into natural gas supply agreements with Roch Consortium. Under this agreement, this consortium will supply Genelba Plus’ natural gas requirements in the event that such supply is not met internally, ensuring Genelba Plus’ ability to meet its own contractual energy delivery commitments.

Pension Plan.A description of our contractual obligations with respect to our pension plans appears in Note 16 to the financial statements of PESA.

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Oil purchase agreements for Refineries. We entered into several purchase agreements with major Argentine oil producers, in order to ensure the supply to our refining business segment.

Sale of Styrene.Innova entered into long-term sale agreements with customers in order to ensure the sale of a significant amount of its styrene production in the Brazilian market. The contract price included in such contracts depends on current international prices. In March 31, 2011, we agreed to sell our interest in Innova to Petrobras. See “Item 4. Information on the Company—Petrochemicals—Brazilian operations”.

LPG and Electric Power Sales.These agreements correspond primarily to sale commitments in order to ensure the sale of LPG and electric power in Argentina.

Natural Gas Sales. These agreements correspond primarily to long-term sales commitments in order to ensure the sale of natural gas in Argentina.

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U.S. GAAP RECONCILIATION

We had net income under U.S. GAAP of Ps. 668 million in 2010, as compared to a net income of Ps. 96 million in 2009 and Ps. 434 million in 2008. Under Argentine GAAP, we reported net income of Ps. 610 million in 2010, Ps. 925 million in 2009 and Ps. 776 million in 2008.

There are several differences between Argentine GAAP and U.S. GAAP that significantly affect our net income and shareholders’ equity. The most significant differences in effect on 2010 net income are mainly related to the revaluation of assets held for sale, purchase price allocation’s impact on depreciation of property, plant and equipment, impairment testing and deferred income taxes. See Notes 20 and 21 to our financial statements, which include the reconciliation from Argentine GAAP to U.S. GAAP, as well as an explanation of the main differences between such accounting standards.

RECONCILIATION TABLES

The following tables reconcile PESA results for the years ended December 31, 2010, 2009 and 2008 with proportional consolidation of CIESA and Distrilec (as required by Argentine GAAP), with PESA results as adjusted to reflect the elimination of proportional consolidation of these companies:

	For the Year Ended December 31, 2010
										Without
	With									Proportional
	Proportional									Consolidation
	Consolidation			CIESA(1) (2)			Distrilec(1)			(Unaudited)
	(in millions of pesos)
Net sales		14,442			(694	)		(1,096	)		12,652
Cost of sales		(10,806	)		371			900			(9,535	)
Gross profit		3,636			(323	)		(196	)		3,117
Administrative and selling expenses		(1,746	)		63			195			(1,488	)
Exploration expenses		(190	)		—			—			(190	)
Other operating expenses net		(258	)		62			19			(177	)
Operating income		1,442			(198	)		18			1,262
Equity in earnings of affiliates		156			(19	)		(17	)		120
Financial income (expenses) and holding gains (losses)		(401	)		152			17			(232	)
Other income, net		(357	)		—			—			(357	)
Income (loss) before income tax and minority interest in subsidiaries		840			(65	)		18			793
Income tax		(201	)		33			(9	)		(177	)
Minority interest in subsidiaries		(29	)		32			(9	)		(6	)
Net income		610			—			—			610

(1)	Both the results of CIESA and Distrilec are proportionally consolidated in the Gas and Energy segment.
(2)	Net of Ps. 55 million in intercompany sales.

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	For the Year Ended December 31, 2009
										Without
	With									Proportional
	Proportional									Consolidation
	Consolidation			CIESA(1) (2)			Distrilec(1)			(Unaudited)
	(in millions of pesos)
Net sales		11,972			(686	)		(1,069	)		10,217
Cost of sales		(8,858	)		344			800			(7,714	)
Gross profit		3,114			(342	)		(269	)		2,503
Administrative and selling expenses		(1,668	)		57			179			(1,432	)
Exploration expenses		(336	)		—			—			(336	)
Other operating expenses net		(192	)		14			19			(159	)
Operating income		918			(271	)		(71	)		576
Equity in earnings of affiliates		210			(22	)		10			198
Financial income (expenses) and holding gains (losses), net		(701	)		187			15			(499	)
Other expenses, net		1,288			1			15			1,304
Income (loss) before income tax and minority interest in subsidiaries		1,715			(105	)		(31	)		1,579
Income tax		(726	)		56			17			(653	)
Minority interest in subsidiaries		(64	)		49			14			(1	)
Net income		925			—			—			925

(1)	Both the results of CIESA and Distrilec are proportionally consolidated in the Gas and Energy segment.
(2)	Net of Ps. 61 million in intercompany sales.

	For the Year Ended December 31, 2008
										Without
	With									Proportional
	Proportional									Consolidation
	Consolidation			CIESA(1) (2)			Distrilec(1)			(Unaudited)
	(in millions of pesos)
Net sales		15,175			(605	)		(993	)		13,577
Cost of sales		(11,000	)		342			743			(9,915	)
Gross profit		4,175			(263	)		(250	)		3,662
Administrative and selling expenses		(1,758	)		42			158			(1,558	)
Exploration expenses		(238	)		—			—			(238	)
Other operating expenses, net		(231	)		16			17			(198	)
Operating income		1,948			(205	)		(75	)		1,668
Equity in earnings of affiliates		305			(20	)		26			311
Financial income (expenses) and holding gains (losses)		(782	)		175			(11	)		(618	)
Other expenses, net		(117	)		(56	)		—			(173	)
Income (loss) before income tax and minority interest in subsidiaries		1,354			(106	)		(60	)		1,188
Income tax		(508	)		56			34			(418	)
Minority interest in subsidiaries		(70	)		50			26			6
Net income		776			—			—			776

(1)	Both the results of CIESA and Distrilec are proportionally consolidated in the Gas and Energy segment.
(2)	Net of Ps. 34 million in intercompany sales.

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The following tables reconcile PESA’s statements of cash flow for the fiscal years ended December 31, 2010, 2009 and 2008 with proportional consolidation as required by Argentine GAAP to these statements as adjusted to reflect the elimination of proportional consolidation of CIESA and Distrilec.

	For the Year Ended December 31, 2010
										Without
	With									Proportional
	Proportional									Consolidation
	Consolidation			CIESA			Distrilec			(Unaudited)
	(in millions of pesos)
Cash and cash equivalent at the beginning of the year		1,552			(520	)		(99	)		933
Net cash provided by operations		3,043			(154	)		(366	)		2,523
Net cash used in investing activities		320			71			235			626
Net cash (used) provided by financing activities		(2,122	)		48			37			(2,037	)
Effect of exchange rate change on cash		72			(1	)		(3	)		68
Cash and cash equivalent at the end of the year		2,865			(556	)		(196	)		2,113

	For the Year Ended December 31, 2009
										Without
	With									Proportional
	Proportional									Consolidation
	Consolidation			CIESA			Distrilec			(Unaudited)
	(in millions of pesos)
Cash and cash equivalent at the beginning of the year		1,476			(310	)		(66	)		1,100
Net cash provided by operations		2,362			(306	)		(186	)		1,870
Net cash used in investing activities		(1,088	)		74			137			(877	)
Net cash used in financing activities		(1,313	)		24			19			(1,270	)
Effect of exchange rate change on cash		115			(2	)		(3	)		110
Cash and cash equivalent at the end of the year		1,552			(520	)		(99	)		933

	For the Year Ended December 31, 2008
										Without
	With									Proportional
	Proportional									Consolidation
	Consolidation			CIESA			Distrilec			(Unaudited)
	(in millions of pesos)
Cash and cash equivalent at the beginning of the year		1,167			(196	)		(72	)		899
Net cash provided by operations		2,153			(314	)		(134	)		1,705
Net cash used in investing activities		(1,247	)		97			141			(1,009	)
Net cash used in financing activities		(680	)		103			3			(574	)
Effect of exchange rate change on cash		83			—			(4	)		79
Cash and cash equivalent at the end of the year		1,476			(310	)		(66	)		1,100

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Item 6. DIRECTORS, SENIOR MANAGEMENT, AND EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

PESA Board of Directors

In accordance with the bylaws of PESA, the Company’s Board of Directors is required to meet at least once every three months, and is composed of nine regular members who are elected for a three-year term. One-third of PESA’s directors are elected each year. The shareholders’ meeting may appoint a number of alternate members that may be equal to or lower than the number of regular members to fill any vacancy, in the order of their appointment.

The table below sets forth the current composition of the Board of Directors, as approved by PESA’s general ordinary shareholders’ meeting held on April 6, 2011.

	Year of		Term
Name	Appointment	Position	Expires
José Carlos Vilar Amigo	2010	Chairman	2012
Daniel Lima de Oliveira	2006	Vice Chairman	2011
José Raimundo Brandão Pereira	2009	Director	2011
Christovam Penteado Sanches	2010	Director	2011
Cedric Bridger	2004	Director	2013
Roberto Luis Monti	2003	Director	2013
Juan Fattobene	2011	Director	2013
Carlos Alberto da Costa	2010	Director	2012
Luis Miguel Sas	2003	Director	2012
Carlos Alberto Pereira de Oliveira	2010	Alternate Director	2012
Gustavo Tardin Barbosa (*)	2011	Alternate Director	2011
Eduardo Autran de Almeida Junior	2010	Alternate Director	2011
Solange da Silva Guedes	2011	Alternate Director	2011
Valdison Moreira	2010	Alternate Director	2012
Daniel Casal	2003	Alternate Director	2011
Alejandro Poletto	2008	Alternate Director	2011
María José Perez Van Morlegan	2011	Alternate Director	2013

(*) The Company’s Board of Directors, at a meeting held on May 10, 2011, considered and resolved to accept the resignation of Pedro Augusto Bonésio from his position as Alternate Director. Given the vacancy of the Alternate Director position and considering the individual and exclusive condition each alternate member has with respect to the relevant regular director, the Company’s Statutory Syndic Committee, upon the powers conferred under Section 258 of the Business Company Law, resolved to appoint Gustavo Tardin Barbosa as Alternate Director to replace the resigning Director.

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As approved by PESA’s general ordinary shareholders’ meeting held on April 6, 2011, alternate directors will fill any vacancy in the following order: Carlos Alberto Pereira de Oliveira to José Carlos Vilar Amigo, Pedro Augusto Bonésio to Daniel Lima de Oliveira, Eduardo Autran de Almeida Junior to José Raimundo Brandão Pereira, Solange da Silva Guedes to Christovam Penteado Sanches, Valdison Moreira to Carlos Alberto da Costa, Daniel Casal to Luis Miguel Sas, Alejandro Poletto to Cedric Bridger or Roberto Luis Monti and María José Pérez Van Morlegan to Juan Fattobene.

For the purpose of CNV Resolution No. 368, Cedric Bridger, Roberto Luis Monti, Juan Fattobene, Alejandro Poletto and María José Perez Van Morlegan qualify as independent directors, and the other directors are not independent in accordance with CNV rules. Resolution No. 368 provides that a member of a corporate body shall not be considered independent if that member fits one or more of the following descriptions:

1. The member is also a member of management or an employee of shareholders who hold significant interests in the issuer, or of other entities in which these shareholders hold either directly or indirectly significant interests or over which these shareholders exercise a significant influence.

2. The member is an employee of the issuer or has been an employee during the last three years.

3. The member has professional relations or is part of a company or professional association that maintains professional relations with, or that receives remunerations or fees (other than directors’ fees) from, the issuer or from its shareholders that hold either directly or indirectly significant interests in or exercise a significant influence over the issuer, or from which such shareholders hold either directly or indirectly significant interests or exercise a significant influence.

4. The member is either directly or indirectly a holder of significant interests in the issuer or in an entity that has significant interests in or exercises a significant influence over the issuer.

5. The member sells or provides either directly or indirectly goods or services to the issuer or to shareholders that hold either directly or indirectly significant interests in or exercise a significant influence over the issuer and receives compensation for such services that is substantially higher than that received as a director.

6. The member is married or is a family member, up to fourth degree by blood or up to second degree by affinity, to an individual who would not qualify as independent.

“Significant interests” mean shareholdings that represent at least 35% of the capital stock of the relevant entity, or a smaller percentage when the person has the right to elect one or more directors by class of shares or by having entered into agreements with other shareholders relating to the governance and the management of the relevant entity or of its controlling shareholders.

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The following is a brief summary of the principal business and academic experience of each of our directors:

José Carlos Vilar Amigo(58) has served as a member of and Chairman of our Board of Directors since 2006, and is currently a member of the Compensation Committee. He graduated in Mechanical Engineering from the Federal University of Rio de Janeiro (“UFRJ”). He joined Petrobras in 1977 and served for more than 20 years at the Research and Development Center as automation engineer and, then, as Basic Engineering Manager, participating in natural gas, petrochemical and refining plants projects and exploration and production platforms in the Campos sea basin, in Rio de Janeiro. Since 2000 he has served as a business consultant and took over several executive positions at Petrobras including Operations Support Manager at the Research and Development Center, Project Implementation Manager in the Refining area and Project Implementation Manager at Rio de Janeiro Petrochemical Complex — COMPERJ. He is currently the Executive Manager for Petrobras’ International Area, and is responsible for Petrobras’ operations in Latin America. He has a Masters degree in Education from the University of Rio de Janeiro and obtained an MBA degree for Directors and Managers from Getulio Vargas Foundation. He has completed several technical and managerial training courses including strategic planning, leadership, negotiation, logistics, quality, contract monitoring and Human Resource management. He is currently assistant professor in Engineering at the University of Rio de Janeiro.

Daniel Lima de Oliveira (59)has served as a member of and Vice Chairman of our Board of Directors since 2006. He graduated in 1975 in Mechanical Engineering from the Industrial Engineering School, in S.J. dos Campos (Sao Paulo, Brazil). He joined Petrobras in 1976 as a Supply Engineer in the Commercial Department. In 1982 he moved to Petrobras’s Financial Department where he worked in the Short-Term Credit Division and as Assistant to the General Manager. From 1984 to 1988 he served as Financial Manager of the Petrobras London office. From 1988 to 1992 he worked as Manager at PIB BV, responsible for insurance and financing for PIB BV’s foreign operations. From 1992 to 1995 he served as head of the Medium and Long-Term Credit Division, responsible for raising funds for PIB BV’s investment program. From 1995 to 1999 he was assigned to Petrobras’s New York Office as Financial Manager, responsible for negotiating trading lines, supporting the Head Office in structured transactions, Investor Relations and liaising with U.S. and Canadian export agencies. From September 1999 to July 2005 he was designated Deputy Executive Manager of the Financial Department, responsible for coordinating financial activities among several subsidiaries. In this position he has served on the Board of Directors of the following subsidiaries: Braspretro Oil Services Company (“BRASOIL”), CATLEIA, PIB BV, Petrobras Participaciones S.L. (“PPSL”), Petrobras Oil & Gas B.V. (“POG”), Petrobras Middle East B.V. (“PEMID”), Petrobras Europe Limited (“PEL”) and Petrobras Frade Inversiones S.A. (“FRADE INVERSIONES.”). In March 2004, he was appointed member of the REFAP S.A.’s Board of Directors. From July 2005 to March 2006, he served as Executive Manager of Petrobras’s Corporate Finance Department and from April 2006 he has served as Corporate Financial Executive Manager of Petrobras.

José Raimundo Brandão Pereira (54)has served as a member of our Board of Directors since 2009. He graduated in 1979 in Civil Engineering from the Universidad Estadual do Maranhão (UEMA). He joined Petrobras in 1980, where he specialized in Oil Engineering. During his career at Petrobras, he has held different administrative and managing positions, including service as the Executive Manager for Marketing and Commercialization for the Supplying Direction and Petrobras International Finance Company Director, both of which he has held since June 2008. In September 2008, he was designated Director of PIB BV. He worked in several areas within Petrobras (exploration and exploitation, international and downstream) and was resident in Bolivia (1999-2001) and Colombia (2001-2005). Has served as General Manager of maritime transport at the Head Office in Brazil (2005-2008). He has attended courses on technical and managing training in Brazil and abroad, including a specialization training course in Managing Competencies at Fundación Dom Cabral (Brazil), a course on Strategic Negotiation and Competitive Decision at Harvard Business School (USA) and courses on Oil Well Perforation at the Universidad Petrobras and Universidad Federal de Ouro Petro (Brazil).

Christovam Penteado Sanches (53)has served as a member of the Board of Directors since 2011. He graduated in Geological Engineering in the Federal University of Ouro Preto (UFOP), Mina Gerais, Brazil, in 1981. In 1983, he got a postgraduate degree in Reservoir Geoengineering in the above mentioned University. He joined Petrobras in 1983, and worked in the Research and Development Centre (CENPES) and in sedimentary basins in the Northeast of Brazil. Over the past 25 years, he has served as geologist of exploration and exploitation of reservoirs in the business unit of Bahía. Since 1990, he held technical managerial positions, until he was appointed Production Engineering Manager in the same business unit. From April 2008 to date, he has served as Executive Manager of Exploration and Production for the North-Northeast region.

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Cedric Bridger (75)has served as a member of our Board of Directors since 2004, and is currently a member of the Audit Committee. He graduated in Public Accounting in London from the Association of Certified and Corporate Accountants, where he initiated his professional activities. He joined FADIP S.A. (later Hughes Tool Co. S.A.) in Buenos Aires in 1964, where he was Financial Manager. Subsequently, he became General Manager of the company in Brazil and was ultimately appointed its Vice President of Operations for Latin America. From 1992 to 1998, he was Vice Chairman of the Finance Department at YPF S.A. In April 1998, he retired from YPF S.A. and took a position as Director of Banco Hipotecario and since 2003 he has been a member of the Board of Directors of IRSA Inversiones y Representaciones S.A.

Roberto Luis Monti (72)has served as a member of our Board of Directors since 2003, and is currently a member of the Audit Committee and of the Compensation Committee. He graduated in Electromechanical Engineering. He received a Master of Electronic Engineering from the Universidad de Buenos Aires (“UBA”), and an MBA from the American Management Association, New York. For 32 years he worked for Schlumberger, where he was Vice-Chairman of Wireline Operations, Chairman of Anadrill, Chairman of Wireline & Testing for Europe, Africa, Middle and Far East and Latin America, and Chairman of Dowell at a worldwide level during the period from 1981 to 1995. From 1995 to 1997 he served as Chairman and CEO of Maxus Energy Corporation. From 1997 to 1999 he served as Chairman and CEO of YPF S.A. In 2000, he served as Vice Chairman of Exploration and Production and Vice Chairman of the Board of Directors in YPF S.A. In addition, he currently serves as member of the Board of Directors of Tenaris S.A.

Juan Fattobene (60)has served as a member of our Board of Directors since 2011. He graduated in 1969 in Geology in the National University of Córdoba. In 1976, he got a postgraduate degree as a geologist specialized in engineering in the Oil Institute of the University of Buenos Aires. Additionally, he was visiting student at the University of Texas in 1982 and 1983. From 1977 to 1988, he worked in YPF, and held offices as project assistant, geologist of the Programming Division and Head of Geology. In 1988, he served as Field Geologist for Capsa S.A. and in 1989 and 1990, as Head of Reservoirs. He is the co-founder of Equilibrium S.A., a company whose activity is the performance of environmental impact studies, geological and hydrogeological aspects, works and tasks monitoring in oil and gas fields, where he served as Director from 1993 to 1997. In 1998 and 2007, he served as Deputy President at Roch S.A., in charge of the technical and operations area. From September 2007 to March 2008, he served as Director of Juan J. Fattobene y Asociados and provided advice to companies on activities related to exploration and exploitation of fields. Since April 2008 up to date, he has served as Chairman at Exe Energía S.A.

Carlos Alberto da Costa (57)has served as a member of our board of director and as Chief Executive Officer since 2010, and is also a member of the Compensation Committee. He graduated in Geology from the Universidad Federal Rural de Rio de Janeiro and completed a Ph.D. in Geophysics from the Universidad Federal de Bahia, Brazil. He held different managing positions within Petrobras, including: General Manager for Petrobras Argentina S.A., Vice-Chairman of MEGA S.A., Director of EG3 S.A., Business Coordinator of Venezuela, Exploration Manager of the International Area, and General Manager of Petrobras Uruguay’s gas distributing companies. In addition, he is currently a member of the Board of Directors of Petrolera Entre Lomas S.A., Petrobras Energía Ecuador Ltd, Petrobras Energía de México S.A. de C.V., Atalaya Energy S.R.L., Canadian Hunter S.A., Petrobras Energía Internacional S.A., and Petrobras Energía Colombia Ltd.

Luis Miguel Sas (48)has served as a member of our Board of Directors since 2003, and as Chief Financial Officer since May 2004. He graduated in Public Accounting from UBA and holds an MBA from the Instituto de Altos Estudios Empresariales — Universidad Austral. He joined Petrobras Argentina in 1984. In 1990 he was appointed Head of the Financial Operations Department for Telecom. He worked as head of Petrobras Argentina’s money desk and in 1997 he was appointed Corporate Finance Manager, in charge of capital markets and project financing. In January 2000, he was appointed Chief Financial Officer of Edesur S.A. He served as Financial Manager at PESA between May 2001 and May 2004. In addition, he currently serves as Chairman of Petrobras Hispano Argentina S.A. and is member of the Board of Directors of Petrolera Entre Lomas S.A. and Petrobras Energía Internacional S.A. He is also a member of the Executive Boards of FIEL (Foundation for Latin American Economic Research) and IAEF (Argentine Institute of Financial Executives).

The following is a brief summary of the principal business and academic experience of each of our alternate directors:

Carlos Alberto Pereira de Oliveira (53)has served as an alternate member of our Board of Directors since 2010. In 1980 he graduated in Mechanical Engineering from the Instituto Militar de Ingeniería (Engineering Military Institute) in Rio de Janeiro and with a Bachelor’s degree in Business Administration from UFRJ and in 1990 he received a Master Degree in Finance and Investment in Rio de Janeiro’s Pontificia Universidad Católica. In 1997, he completed a specialization in Oil Finances and Management at the University of Texas, Texas, USA. He joined Petrobras in 1981, and has worked in different operative areas and has held different executive positions. From 1999 to 2003, he served as Oil and Gas Exploration and Production Executive Manager. Between 2003 and 2008, he served as a member of the Board of Directors of Petrobras Argentina, as Executive Director of Petrobras Argentina’s oil and gas exploration and production business segment, as a Chairman of the Board of Directors of Petrobras Energía Perú S.A., and as a member of the Board of Directors of Petrolera Entre Lomas S.A. In 2008, he became Executive Manager for Petrobras’s International Businesses Technical Support division. Since 2010, he has served as Director of Petrobras Venezuela Investments & Services B.V.

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Gustavo Tardin Barbosa (50)has served as an alternate member of the Board of Directors since 2011. He graduated in Civil Engineering from Pontificia Universidade Católica do Rio de Janeiro in 1985. He also holds an MBA from Fundação Getulio Vargas (1992), post graduate studies in Corporate Finance from London Business School (1996) and Advanced Management from Wharton School (2002). He joined Petrobras in 1986 where he has held several senior financial positions including Controller of Petrobras International (1993-1994), Chief Financial Officer of Petrobras UK (1994-1999), Executive Manager of Financial Planning and Risk Management of Petrobras (1999-2003) and Chief Financial Officer of Petrobras America (2003-2011). In 2011, he was appointed by Petrobras to serve as Executive Manager of Corporate Finance.

Eduardo Autran de Almeida Junior (48)has served as an alternate member of the Board of Directors since 2011. he graduated in 1985 in Electrical Engineering in the Pontifical Catholic University of Río de Janeiro. He joined Petrobras as the Supplies Manager. In 1990, he did a course in Systems Analysis in Petrobras and a master in Computing Sciences in the same Pontifical Catholic University of Río de Janeiro. In addition, in 2000, he concluded his Master in Business Administration in COPPEAD. In Petrobras, he held important positions in his career, out of which we can remark the period between 1999 and 2006, where he served as Supplies Manager based in Singapore. Since 2006, he served as Supplies General Manager until 2010, when he was appointed Supplies Executive Manager, position which he holds currently.

Solange da Silva Guedes (50)has served as an alternate member of the Board of Directors since 2011. She graduated in Civil Engineering in the Federal University of Juiz de Fora in 1982. She joined Petrobras in 1985; in that same year, she did a specialization course in Oil and Production Engineering in Petrobras University. In 1988, she got an M.Sc. in Civil Engineering in the UFRJ. In 1998, she attended a Doctorate programme in the State University of Campinas (UNICAMP). In November 2000, she was appointed Reservoir Manager of Marlim Sur of the Exploration and Production Business Unit. From February 2003 to May 2008, she served as the Exploration and Production Executive Manager for the north and northeast region, and since May 2008, she has served as Production Engineering Executive Manager in the Exploration and Production Business Unit.

Valdison Moreira (55)has served as an alternate member of our Board of Directors since 2010 and as Executive Industrial Director since April 1, 2009. He graduated in Chemical Engineering in 1980 from UFRJ and obtained an MBA from the IBMEC of Sao Paulo, Brazil. He joined Petrobras in 1980 as Petroleum Processing Engineer. He occupied several managerial positions for Petrobras in Brazil, such as Production Manager in the Henrique Lange Refinery (1985-1996) and General Manager in the Capuava Refinery (1996-1999), in the Gabriel Passos Refinery (1999-2000) and in the Paulinia Refinery (2001-2005). From 2005 to 2007, he served as Refining Coordinator in Rio de Janeiro. From 2008 to 2009, he served as Downstream Senior Vice Chairman in Petrobras America Inc. In addition, he serves as Vice Chairman at the Instituto Latinoamericano de Calidad. He is currently a member of the Board of Directors of Refinería del Norte S.A. and Petrobras Energía Internacional S.A.

Daniel Casal(55) has served as an alternate member of our Board of Directors and as Executive Director of Legal Affairs of Petrobras Argentina since 2003. He graduated in Law from the Universidad Cátolica Argentina in 1980. He joined Petrobras Argentina in 1991. He also serves as a member of the Board of Directors of TGS, CIESA, Distrilec, Petrobras Energía Colombia Ltd, Petrobras Finance Bermuda and Petrobras Electricidad de Argentina S.A.; as Managing Director of Petrobras Holding Austria GMBH and as alternate Director of Edesur S.A., Petrobras Energía Internacional S.A. and Petrolera Entre Lomas S.A.

Alejandro Poletto (38)has served as an alternate member of our Board of Directors since 2008. He graduated in Law from the Universidad Católica Argentina in 1998 and received a Master Degree in Law (LL.M.) from Cornell University Law School, Ithaca, New York. He has previous experience as an associate lawyer for the law firms Marval, O’Farrell & Mairal, and Cárdenas, Cassagne & Asociados in Buenos Aires. He also worked as a foreign associate for Skadden, Arps, Slate, Meagher & Flom LLP’s New York office. Since September 2007, he has been a partner with the law firm Estudio Beccar Varela y Asociados (formerly Fortunati & Asociados).

María José Perez Van Morlegan (36)has served as an alternate member of the Board of Directors since 2011. She graduated in Law from the Universidad Católica Argentina. From 1995 to 1998, she worked in the Legal Department of Ford Motors, and since 1998 she has worked in the main law firms in Argentina. She has a renowned career in commercial and financial law. From 1998 to 1999, she was a lawyer at Marval, O Farrell & Mairal. Then, she was appointed Associate for the Cabanellas, Etchebarne, Kelly & DellOro Maini law firm. She served as Senior Associate at Fortunati & Asociados law firm until 2009. Currently, she is the Legal Manager at the sustainability guarantee fund of the ANSES.

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Administration and Organization

PESA’s operations are divided into four business segments that are in turn supported by corporate functions. The four business segments are: oil and gas exploration and production; refining and distribution; petrochemicals and gas and energy.

PESA is managed by a committee made up of five members: the Chief Executive Officer, the Chief Financial Officer, the Director of Oil and Gas Exploration and Production, the Industrial Director and the Marketing Director. Operations are managed through standardized processes that facilitate and secure coordination between the different units and groups. Delegation of authority is encouraged for the purpose of promoting efficiency. In addition, the scope of the delegation of authority is clearly and expressly determined through systemized approval limits for risk minimization purposes. Our internal control system is supported by coordination among the areas responsible for managing businesses and administering them on a centralized basis, always within the framework of the policies established by the executive committee. Operating and administrative processes are jointly supported by administrative procedures, highly reliable information systems, production of periodic management control reports, performance appraisals and fluid communication.

PESA Executive Officers

The table below sets out the names and positions of PESA’s executive officers:

Name	Position
Carlos Alberto da Costa	Chief Executive Officer
Luis Miguel Sas	Chief Financial Officer
Gustavo Fernández Martínez	Director of Oil and Gas Exploration and Production Segment (Acting Director)
Clóvis Corrêa de Queiroz	Marketing Director
Valdison Moreira	Industrial Director
Daniel Casal	Director of Legal Affairs
José Carlos Caino de Oliveira	Executive Manager of Gas and Energy Segment
Juan Martín D’Agostino	Executive Manager of Quality, Environmental and Safety Occupational Health
Alfredo Guía y Díaz	Executive Manager of Planning and Management Control
Adelson Antonio da Silva	Executive Manager of Human Resources
Juan Zajdman	Executive Manager of Communications

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The following is a brief summary of the principal business and academic experience of PESA’s executive directors and executive officers of the Company (for the summary regarding those who are directors, see above).

Gustavo Fernández Martínez (43)has served as Acting Executive Director of oil and gas exploration and production business segment since 2010. He graduated in Civil Engineering from the Universidad Nacional del Sur (Bahia Blanca, Argentina) and obtained an MBA from the IAE at the Universidad Austral, Argentina. He joined the Company in 1996. He held different managing positions, such as Planning and New Ventures Manager in Venezuela, Planning Manager and Portfolio New Ventures and Joint Ventures Manager in the oil and gas exploration and production business segment. In addition, he is currently a member of the Board of Directors of Petrolera Entre Lomas S.A., Atalaya Energy S.R.L. and Canadian Hunter S.A.

Clóvis Corrêa de Queiroz (60)has served as Executive Marketing Director since 2008. He graduated in Mechanical Engineering from UFRJ. He has participated in various executive training programs in several business schools, in Brazil and abroad. He has held several managerial positions in Brazil, and more recently was Chairman of Petrobras Uruguay. He was also a member of the Board of Directors of Distribuidora de Gas de Montevideo S.A., Conecta S.A. and Petrobras Uruguay Distribución S.A. He is currently the Chairman of Eg3 Red S.A. and Petrobras Finance Bermudas S.A., and a member of the Board of Directors of Petrobras Energía Internacional S.A.

Jose Carlos Caino de Oliveira(54) has served as Executive Manager of gas and energy business segment since December, 2009. He graduated in Electronic Engineering from UFRJ and obtained an MBA of Oil and Gas from CVC School, London. He also participated in the Advanced Management Program from USP, Sao Paulo. He joined Petrobras in 1980, where he specialized in Equipments Engineering. He occupied several managerial positions for Petrobras in Brazil, Bolivia, Argentina, Peru and Ecuador and in several areas, such as Equipment’s Development and Nationalization, Maintenance’s Planning and Control, Facility’s Engineering, Industrial and Civil Engineering, Maintenance Engineering, Logistic Superintendence, Goods and Services Procurement. He is currently the Chairman of Distrilec, Petrobras Electricidad de Argentina S.A., Petrobras Energia Internacional S.A., Enecor and World Energy Business S.A., and the Vice Chairman of Edesur S.A.

Juan Martín D’Agostino (43)has served as Executive Manager of Quality, Environmental and Safety Occupational Health since 2008. He graduated in Chemical Engineering from UBA and obtained an MBA from the Graduate School of the Engineering Faculty at UBA. He joined the Company in 1992. In 1997, he served as Commercial Manager, in 2000 as Engineering Manager and in 2007 Quality, Environmental and Safety Occupational Health Manager in the Commercial Downstream Business Unit.

Alfredo Sergio Guía y Díaz (54)has served as Executive Manager of Planning and Management Control since 2008. He graduated in Economic Sciences with specialization in Business Administration from Universidad Nacional de La Plata. He joined the Company in 1997. He was responsible for the Planning and Management Control Department of the refining and petrochemicals business segment and for the Management Control Department of Oil and Gas Exploration and Production and Gas and Energy. He has served as a member of the Board of Directors of Petrobras Argentina’s controlled and related companies. He also has served as Performance Appraisal Manager for the Southern Cone Region within Petrobras’ International Area. He is currently a member of the Board of Directors of Petrolera Entre Lomas S.A. and an alternate member of the Board of Directors of Petrobras Energía Internacional S.A.

Adelson Antonio da Silva (54)has served as Executive Manager of Human Resources since 2010. He graduated as a Certified Public Accountant from Nilton Paiva Ferreira University, in Belo Horizonte, and as a Lawyer from Candido Mendes University, in Río de Janeiro. He obtained a specialization degree in tax law from Sá University and holds an Executive/Marketing MBA degree from COPPEAD-UFRJ in Rio de Janeiro. He joined Petrobras over 30 years ago and held several positions, mainly in the Human Resources, Accounting, Finance, Commercial and Business Development areas. He served as Executive Manager of Planning and Management Control at Petrobras Argentina and as Director of some companies related to the Company during 2003, 2004 and 2005. He served as Manager of Strategy, Planning, Portfolio Management and Project Management in the Internacional Area.

Juan Eduardo Zajdman (43)has served as Executive Manager of Communications since 2011. He graduated with a BS in Business Administration from Merrimack College, MA. Having served in Marketing Areas in the retail and banking industries, he joined the Company in 2006 as Advertising & Sponsorships Manager. In 2008 he was also responsible for Internal Communications, and in 2009 Product Marketing was also added to his responsibilities within the Advertising, Sponsorships & Marketing area.

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COMPENSATION

Compensation of the members of the Board of Directors is determined at the Ordinary Shareholders’ Meeting in compliance with the Law No. 19,550 (“Business Companies Law”). The maximum amount of compensation that the members of the Board of Directors may receive, including salaries and any other form of compensation for the performance of technical, administrative, or permanent functions, may not exceed 25% of our profits. Such amount is 5% in the event that no dividends are distributed to the shareholders and is increased pro rata on the basis of the dividend distribution, up to the 25% cap. In the event that one or more directors serve as members of a special committee or perform technical or administrative functions, and profits are reduced or non-existent, and, consequently, the preset limits are exceeded, compensation in excess of the limit may only be paid with the prior express approval by shareholders at an ordinary shareholders’ meeting.

In PESA, the compensation policy for executive officers includes annual cash compensation and a benefits program. The annual cash compensation is determined based on the characteristics and responsibilities of the relevant position and the executive officer’s qualifications and experience and benchmark information. Such compensation consists of a monthly fixed compensation and annual variable cash bonus dependent upon Petrobras Energía’s results of operations and the achievement of individual goals and objectives. Benefits granted to executive officers are similar to those granted to employees generally, such as life insurance, health care plan, meal allowance and defined benefits pension plan, which are described in the Financial Statements.

No contracts for services were entered into between the directors and the Company or any of our subsidiaries that provide for benefits after termination of their office, other than as provided by law.

In 2010, PESA paid an aggregate of approximately Ps. 12.5 million to its directors and executive officers. The members of our Board of Directors and our executives do not receive compensation in the form of stock or equity. For information related to amounts set aside for pension and retirement benefits, see Note 16 to our financial statements.

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BOARD PRACTICES

Audit Committee

Pursuant to the Regime concerning transparency in public offerings approved by Decree No. 677/01, Argentine public companies must have an audit committee composed of three or more members of the board of directors.

On May 21, 2003, our Board of Directors approved the implementation process required under CNV General Resolution No. 400/02 for audit committees. In compliance with these resolutions, at the shareholders’ ordinary meeting held on March 19, 2004, PESA amended its bylaws by adding a provision related to the structure and operation of the Audit Committee.

On May 7, 2004, the Board of Directors created the Audit Committee and, in compliance with its duties, the Audit Committee approved its charter. At the Board of Directors meeting held on April 6, 2011, Cedric Bridger, Roberto Luis Monti and Juan Fattobene were appointed as regular members of our Audit Committee and Alejandro Poletto and María José Perez Van Morlegan were appointed as alternate members. Each of the members of the Audit Committee satisfies the independence requirements of Rule 10A-3 of the Exchange Act.

Audit Committee Terms of Reference

The purpose of the Audit Committee is to assist the Board of Directors in fulfilling its responsibilities relating to (1) the company’s financial statements, (2) compliance with applicable legal, regulatory and behavioral requirements, (3) qualification and independence of the independent external auditor that delivers an audit report on the company’s financial statements (the “Independent Auditor”), and (4) the conduct of the internal audit and the Independent Auditor’s performance.

The Audit Committee is composed of three regular members and an equal or lower number of alternate members that are appointed by the Board of Directors from among its members. Directors having sufficient experience and ability in financial, accounting or business matters are eligible to become members of their Audit Committee. All members of the Audit Committee must be independent in accordance with applicable SEC standards and a majority must be independent in accordance with the standards of the CNV. See “—Directors and Senior Management — Board of Directors”. The audit committees may adopt their own internal regulations.

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Once every year our Audit Committee prepares a working plan with respect to its goals and work schedule for the fiscal year to be reported to our Board of Directors. The remaining directors, members of the Statutory Supervisory Committee, managers and external auditors may, at the Audit Committee’s request, attend the Audit Committee’s meetings, assist the Audit Committee and provide it with any information available to them. For a better performance of its duties, the Audit Committee may retain, on the Company’s account, advisory services of counsel and other independent professionals. The Audit Committee shall have access to the information and documentation deemed necessary for the fulfillment of its functions.

Our Audit Committee has the following principal powers and responsibilities:

1. To supervise the performance of the internal control systems, the performance and reliability of the administrative and accounting system, the reliability of the financial statements and all the financial information and the disclosure of relevant events.

2. To establish and supervise the implementation of procedures for the reception, documentation and treatment of claims or reports on irregularities in connection with accounting, internal control or auditing matters, on a confidential and anonymous basis.

3. To issue founded opinions with respect to transactions with related parties as required by applicable law. To issue founded opinions whenever a conflict of interest exists or may arise for us and to communicate this opinion to self-regulated entities as required by the CNV.

4. To provide the market with complete information with respect to transactions where members of the corporate bodies and / or controlling shareholders of ours have conflicts of interests.

5. To opine with respect to the reasonableness of the compensation and stock option plans proposed by the Board of Director at the shareholders meetings.

6. To opine with respect to the compliance of legal requirements and on the reasonableness of proposals to issue shares or securities convertible into shares, in the case of capital increases that exclude or limit preemptive rights.

7. To issue at least once, at the time of submittal of the annual financial statements, a report on the treatment given during the year to the matters under its responsibility.

8. To issue an opinion on the proposal submitted by the respective Board of Directors for the appointment (or revocation) of the independent auditor and communicate it to the shareholders’ meeting.

9. To evaluate the qualifications and independence of the independent auditors.

10. To issue and maintain pre-approval procedures in connection with any service (whether audit-related or not) to be provided by the independent auditor, under which the Committee will be exclusively authorized to pre-approve any service provided by the said Auditor.

11. To evaluate the quality of our accounting standards and the main changes to such accounting standards.

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Compensation Committee

In order to better supervise salary and compensation matters, our Board of Directors created a compensation committee at its October 6, 2006 meeting. The main purpose of this committee is to assure the compliance with, and revise whenever necessary, policies relating to compensation that aim to provide the company with greater flexibility to make more effective decisions. The compensation committee meets monthly to approve matters relating to compensation policy, including compensation subject to our and the employee’s performance. The compensation committee, composed of Directors Roberto Luis Monti, José Carlos Vilar Amigo and Carlos Alberto da Costa, must report to the Board of Directors at least semiannually.

Statutory Supervisory Committee

PESA has aSindicatura(the “Statutory Supervisory Committee”) that is comprised of three members and three alternate members.

The table below sets out the name, year of appointment and position of each person on the Petrobras Energía Statutory Supervisory Committee, approved by the ordinary shareholders’ meeting held on April 6, 2011:

	First year of
Name	appointment	Position
Juan Carlos Cincotta	2004	Member
Justo Federico Norman	2003	Member
Rogelio Norberto Maciel	2003	Member
Olga M. Morrone de Quintana	2004	Alternate
Mariana P. Ardizzone	2004	Alternate
María Laura Maciel	2004	Alternate

The members and alternate members of the Statutory Supervisory Committee are elected by the shareholders at the annual shareholders’ meeting to serve for a renewable term of one year. The primary responsibilities of the Statutory Supervisory Committee are to monitor the board of directors’ and management’s compliance with the Business Companies Law, our by-laws and shareholders’ resolutions. The Statutory Supervisory Committee also performs other functions, including: (1) attending meetings of the Board of Directors and shareholders, (2) calling special shareholders’ meetings when deemed necessary or when required by shareholders, in accordance with the Business Companies Law, No. 19,550, (3) presenting a report on the reports of the Board of Directors and the annual financial statements at ordinary shareholders’ meetings, and (4) investigating written complaints of shareholders representing not less than 2% of the capital stock. The Statutory Supervisory Committee may not engage in any management control and, accordingly, may not evaluate business judgment and decisions on issues of administration, financing, sales and production, as these issues fall within the exclusive responsibility of the Board of Directors.

Justo Federico Norman, Rogelio Norberto Maciel, Mariana P. Ardizzone and María Laura Maciel are lawyers and work at Maciel, Norman & Asociados Law Office, which has professional relations with and charges fees to us, our controlling companies and our affiliates.

Olga M. Morrone de Quintana is a public accountant and works at Estudio Morrone de Quintana, Seoane & Quintana, which has professional relations with and charges fees to us and certain of our affiliates.

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The following is a brief summary of the principal business and academic experience of the members of the Statutory Supervisory Committee listed in the table above:

Juan Carlos Cincotta (66)graduated in public accounting from UBA. He is currently head of Cincotta Asesores, Auditores y Consultores, and formerly a partner at Pistrelli, Henry Martin y Asociados (Ernst & Young). He specializes in external audits of major public and private entities, and consulting in accounting, social and corporate governance issues. He is a member of the Special Commission on Accounting and Auditing Regulations (CENCyA) of FACPCE and Member of the Developing Nations Committee of the International Federation of Accountants (“IFAC”). He is Vice President of the Public Accounting Professional Practice Commission of CPCECABA. He lectures on topics within his special field of work in specialized entities in Argentina and abroad. He published several works on accounting, corporate and audit matters in different technical magazines.

Justo Federico Norman (66)earned his law degree from the Universidad Cátolica Argentina, and is a partner with Maciel, Norman & Asociados in Buenos Aires. He has extensive experience in the general practice of law and in the fields of energy, natural resources, oil and gas regulations and environmental issues, and is renowned in the litigation and international arbitration fields. He is a member of the Association of International Petroleum Negotiators where he has served as Regional Secretary (2001-2004), the International Bar Association, and Rocky Mountain Mineral Law Foundation. He has represented and currently represents companies such as Anadarko Petroleum Corporation, ANR Pipeline Company (Coastal), Apache Corporation, BHP Petroleum (Americas) Inc., British Gas, Devon Energy Corporation, Parker Drilling, and Petroliam National Berhad (Petronas). He is a Regular Director of Petronas Argentina S.A. and Apache Petrolera Argentina S.A., among others.

Rogelio Norberto Maciel (74)earned his law degree from the Universidad de Córdoba, and is a founding partner of Maciel, Norman & Asociados Law Office. He is a renowned lawyer in the litigation and international arbitration fields. He was one of the members of the Argentine Aeronautical Code Drafting Committee and was a member of the Argentine delegation to the International Civil Aviation Association. He is a member of the Buenos Aires Oil Club, the international Bar Association (IBA), the Association of International Petroleum Negotiators, and the Rocky Mountain Mineral Law Foundation. He is Vice Chairman of Petronas Argentina S.A., a Regular Director of BHP Petroleum (Argentina) S.A. and an Alternate Director of Petrolera Rio Alto S.A., among others.

Olga M. Morrone de Quintana (75)is a partner of Morrone de Quintana, Seoane & Quintana. She graduated in public accounting from UBA in 1965. She is currently a member of the statutory supervisory committee of Petrolera Entre Lomas S.A., Petrobras Energía Internacional S.A., World Energy Business S.A. and Propyme SGR.

Mariana P. Ardizzone (38)earned her law degree from the UBA. She holds a Master of Laws degree from the University of Michigan a post-graduate degree in Business Administration and Electric Energy and Natural Gas Markets at the Instituto Tecnológico de Buenos Aires. She is a member of the Association of International Petroleum Negotiators and the Rocky Mountain Mineral Law Foundation. Since July 2001, she has been a lawyer with Maciel, Norman & Asociados in Buenos Aires.

María Laura Maciel (48)earned her law degree from the Universidad Católica Argentina. She completed postgraduate courses in Private International Law and in Aviation Law at American University in Washington D.C. (1986), and postgraduate courses with the International Association of Air Transportation, Montreal, Canada (2004-2005). She is currently an associate attorney with Maciel, Norman & Asociados in Buenos Aires.

Total compensation for the members of the Statutory Supervisory Committee of PESA in 2010 was Ps. 0.3 million.

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EMPLOYEES

The following table sets forth the number of PESA employees by business segment for the fiscal years ended December 31, 2010, 2009 and 2008.

	As of December 31,
	2010		2009		2008
Oil and gas exploration and production		673		708		856
Refining and distribution		1,604		1,659		1,857
Petrochemical		793		1,112		1,197
Gas and energy		21		24		119
Corporate		739		823		795
Total		3,830		4,326		4,824

As of December 31, 2010, approximately 41% of our workforce consisted of members of labor unions and had entered into collective bargaining agreements with the Company and our subsidiaries. We have historically maintained good relations with our employees and labor unions. However, during 2008, we and other oil production companies in Argentina were engaged in collective bargaining with various unions representing workers engaged in production activities. Certain unions of private, senior and chemical oil workers were not subject to the general national framework governing conflict situations, which resulted in direct actions, such as strikes, that negatively affected the operations of many Argentine production companies, including us. PESA actively participated in the bargaining and negotiation processes that led to the signing of new collective bargaining arrangements, which allowed us to carry out normal operations. During 2009 and 2010, we conducted different negotiations with unionized employees engaged in upstream operations in Argentina, which, in a scenario of economic contraction, were focused on maintaining jobs and workstreams. See “Item 3-Risk Factors-Factors relating to our business-We could be subject to organized labor action.”

PESA maintains an employee defined contribution plan and two defined benefit pension plans. See Note 16 to our financial statements.

SHARE OWNERSHIP

To our knowledge, none of our directors or members of our senior management owns more than 1% of PESA’s outstanding shares.

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Item 7. MAJOR SHAREHOLDER AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

Our share capital consists of 1,009,618,410 Class B shares, which have a nominal value of Ps. 1.00, and are each entitled to one vote per share.

Petrobras, through its subsidiary PPSL, holds 67.2% of the outstanding shares of PESA.

The table below sets forth certain information as of April 30, 2011 with respect to the ownership of PESA’s capital stock by each shareholder who is known to us to be the owner of more than 5% of such shares.

	Class B Shares
			% of the Total
Shareholder	Number of Shares		Outstanding Shares
PPSL		678,395,778		67.2	%
ANSES		98,528,890		9.8	%(1)

(1) corresponds to holdings identified on information provided by Caja de Valores as of April 30, 2011. In relation with possible holdings in the form of ADSs in the NYSE, such information is not available.

On November 20, 2008, the Argentine Congress passed Law No. 26,425 unifying the Argentine pension and retirement system into a system publicly administered by theAdministración Nacional de la Seguridad Social(National Social Security Agency , or “ANSES”), eliminating the retirement savings system previously administered by private pension funds under the supervision of a governmental agency. In accordance with the new law, private pension funds transferred all of the assets administered by them under the retirement savings system to ANSES. As October 31, 2008, these funds held 13% of the outstanding shares of one of our predecessor companies, PEPSA. In addition, ANSES was subject to the same investment rules, prohibitions and restrictions that were applicable to the Argentine private pension funds under the retirement savings system, including Sections 75 and 76 of Law No. 24,241, which limited the voting rights of private pension funds in shareholders’ meetings to 5% of the relevant company’s shares. On April 13, 2011, paragraph f) Section 76 of Law No. 24,421 was repealed by Decree No. 441/2011 which provides that ANSES may exercise fully its voting rights in the companies in which it has an interest without the 5% limitation described above. Under such decree, the ANSES may be able to appoint board members in the board of directors of companies according to its holding of shares.

ANSES’s votes at the shareholders meeting on April 6, 2011 were limited to 5% of the total outstanding votes of PESA.

RELATED PARTY TRANSACTIONS

General conditions:

Related party transactions are carried out in the ordinary course of our operations at market conditions. We believe that the terms of these transactions are comparable to those offered by or that could be obtained from non-related third parties.

Sales of companies:

In March 31, 2011 through our subsidiary Petrobras Energía Internacional S.A., we agreed to sell our interest in Innova to Petrobras in an amount of US$332 million that implies the discontinuation of our operations in Brazil and resulted in a gain of Ps. 723 million before considering the effects of income taxes and the reclassification of deferred results of Ps. 134 million for Argentine GAAP purposes. On April 2011, we received US$228 million and the remaining US$104 million are due in September 30, 2013 , or any earlier date upon mutual agreement of the parties, the outstanding balance bears interest at LIBOR (12 months) until the date of its payments.

In April 2009, we sold our 60% equity interest in PVIE (40% was transferred to PIB BV in December 2007, as described below), a holding company whose main asset is the ownership of 99.79% of the capital stock of Petrobras Energía Perú S.A., to PIB BV, a subsidiary of Petrobras, for total consideration of US$619.4 million. As a result of this transaction, we recognized a gain on the sale of approximately Ps. 1.6 billion, before income tax.

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In December 2007, we sold the initial 40% of our equity interest in PVIE to PIB BV for US$423.3 million. As a result of this transaction, we recognized a gain of Ps. 1.0 billion in the year ended December 31, 2007. The agreed upon price also includes a contingent compensation in favor of the Company that reflects the market value of the “Kinteroni Prospect” or, alternatively, the non-participation of the buyer and its respective compensation. Such compensation, to be defined by the parties, results from the gas and condensate discovery made at the “Kinteroni Prospect” in Lote 57 in January 2008. We estimate to conclude negotiations relating to the determination of the amount of the contingent compensation during 2011.

Financing:

We have entered into several financing arrangements with subsidiaries of Petrobras, as explained below.

In 2005, we entered into a US$200 million loan agreement with PIB BV (as lender). The loan had a 10-year maturity and accrued interest at a rate of 7.22% per annum, plus taxes. This loan was repayable at any time without penalty, and was fully prepaid on April 5, 2011.

In February 2008, we approved placement of a short-term financial surplus in PIB BV, up to US$300 million, at a monthly payable nominal annual interest rate equivalent to 30-day Libor plus 0.15%, due July 2008. The loan was partially renewed at maturity for 200 U$S million. In December 2008, the outstanding balance was refinanced by two new loans totaling US$120 million: (i) a US$107 million loan between PIB BV and PESA and (ii) a U$S13 million loan between PIB BV and Petrobras Holding Austria GMBH, a subsidiary of PESA, both pre-payable and maturing December 2009. US$30 million were paid on these loans before maturity and US$90 million were paid at maturity. As of December 31, 2010, there is only one loan outstanding between PIB BV and PESA, in the aggregate amount of US$90 million, due December 2011.

In 2007, we issued US$300 million Class S corporate bonds, secured by a Standby Purchase Agreement provided by Petrobras.

In December 2009, we took two loans in the aggregate amount of US$150 million, secured by Petrobras: one loan granted by Banco Itaú Europa, in the amount of US$100 million, to be repaid in 7 semi-annual installments with final payment date in December 2013, and a second loan granted by HSBC Bank USA in the amount of US$50 million, due June 2012. In March 2011, the HSBC Bank facility was prepaid and as a consequence, its guarantee was cancelled.

Commercial operations:

In the ordinary course of business, we enter into transactions with Petrobras affiliates to import and export crude oil and related oil products, at determinable market prices and terms, primarily with Petrobras International Finance Co.

In addition, Braskem, an affiliate of Petrobras formerly known as Copesul, supplies us mainly with benzene and butadiene and supplied Innova with the benzene and ethylene necessary for ethylbenzene production.

These sales are undertaken in the ordinary course of business and at determinable market terms and prices.

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The outstanding balances from transactions with related companies, (including companies under joint control) as of December 31, 2010, 2009 and 2008 are as follows (in millions of pesos):

	2010
	Current												Non-current
			Trade		Other		Accounts		Other						Other		Accounts
Company	Investments		Receivables		Receivables		Payable		Liabilities		Loans		Investments		liabilities		Payable		Loans
Companies in which we exercise significant influence
Oleoducto de Crudos Pesados Ltd.		—		—		—		—		63		—		148		279		—		—
Petrolera Entre Lomas S.A.		—		—		—		37		—		—		—		—		36		—
Refinería del Norte S.A.		—		10		6		11		—		—		—		—		—		—
Other		—		3		16		4		4		—		6		—		—		—
		—		13		22		52		67		—		154		279		36		—
Companies under joint control
Transportadora de Gas del Sur S.A.		—		16		2		10		—		—		—		—		—		—
		—		16		2		10		—		—		—		—		—		—
Petroleo Brasileiro Group Companies
Braskem S.A.		—		—		—		58		—		—		—		—		—		—
Petrobras Chile Ltda.		—		—		1		—		—		—		—		—		—		—
Petrobras Energía Venezuela SA.		13		—		170		—		11		—		—		—		—		—
Petrobras Internacional-Braspetro B.V.		358		—		491		—		—		21		—		—		—		795
Petrobras Internacional- Finance Co.		—		23		—		—		—		—		—		—		—		—
Petrobras Venezuela Inversiones y Servicios S.A.		—		—		—		—		23		—		—		—		—		—
Petrobras Paraguay Operaciones y Logística S.R.L.		—		13		—		—		—		—		—		—		—		—
Petróleo Brasileiro S.A. Petrobras		—		19		2		94		—		—		—		—		—		—
		371		55		664		152		34		21		—		—		—		795
Total		371		84		688		214		101		21		154		279		36		795

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	2009
	Current												Non-current
			Trade		Other		Accounts		Other						Other		Accounts
Company	Investments		Receivables		Receivables		Payable		Liabilities		Loans		Investments		receivables		Payable		Loans
Companies in which we exercise significant influence
Oleoducto de Crudos Pesados Ltd.		—		—		—		—		—		—		150		—		—		—
Petrolera Entre Lomas S.A.		—		—		—		50		—		—		—		—		30		—
Refinería del Norte S.A.		—		13		5		10		—		—		—		—		—		—
Other		—		4		28		13		2		—		6		—		—		—
		—		17		33		73		2		—		156		—		30		—
Companies under joint control
Transportadora de Gas del Sur S.A.		—		7		11		10		—		—		—		—		—		—
		—		7		11		10		—		—		—		—		—		—
Petroleo Brasileiro Group Companies
Petrobras Energía Venezuela S.A.		13		—		162		—		8		—		—		—		—		—
Petrobras Internacional — Braspetro B.V.		342		—		1,606		—		69		20		—		344		—		760
Petrobras International Finance Co.		—		44		—		3		—		—		—		—		—		—
Petróleo Brasileiro S.A.- Petrobras		—		2		2		67		13		—		—		—		—		—
		355		46		1,770		70		90		20		—		344		—		760
Total		355		70		1,814		153		92		20		156		344		30		760

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	2008
	Current												Non-current
			Trade		Other		Accounts		Other				Other				Accounts
Company	Investments		Receivables		Receivables		Payable		Liabilities		Loans		receivables		Investments		payable		Loans
Companies in which we exercise significant influence
Oleoducto de Crudos Pesados Ltd.		—		—		—		2		—		—		—		136		—		—
Petrolera Entre Lomas S.A.		—		—		—		18		—		—		—		—		26		—
Refinería del Norte S.A.		—		28		1		19		—		—		—		—		—		—
Other		—		11		16		1		7		—		3		11		—		—
		—		39		17		40		7		—		3		147		26		—
Companies under joint control
Transportadora de Gas del Sur S.A.		—		23		2		31		—		—		—		—		—		—
Petrobras de Valores Internacional de España S.L.		5		—		59		—		—		58		—		—		—		—
		5		23		61		31		—		58		—		—		—		—
Petroleo Brasileiro Group Companies
Petrobras Internacional — Braspetro B.V.		414		—		194		—		31		18		—		—		—		688
Petrobras International Finance Co.		—		25		2		33		—		—		—		—		—		—
Petróleo Brasileiro S.A.- Petrobras		—		8		1		60		12		—		—		—		—		—
		414		33		197		93		43		18		—		—		—		688
Total		419		95		275		164		50		76		3		147		26		688

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The main transactions with related companies (including companies under joint control) for the fiscal years ended December 31, 2010, 2009 and 2008 are as follows (in million of pesos):

	2010				2009				2008
Company	Purchases		Sales		Purchases		Sales		Purchases		Sales
Companies in which we exercise significant influence
Oleoductos del Valle S.A.		18		—		22		—		18		—
Petrolera Entre Lomas S.A.		454		3		362		2		478		1
Refinería del Norte S.A.		120		69		133		68		93		43
Other		—		1		—		27		—		20
		592		73		517		97		589		64
Companies under joint control
Transportadora de Gas del Sur S.A.		49		22		48		36		153		165
		49		22		48		36		153		165
Petroleo Brasileiro Group Companies
Brasken (Copesul)		2,002		—		1,241		—		1,252		—
Petrobras International Finance Co.		247		492		208		902		224		2,449
Petróleo Brasileiro S.A.		71		86		35		16		108		20
Compañía Mega S.A.		—		22		—		—		—		—
Petrobras Paraguay Operaciones y Logística S.R.L		—		26		—		19		—		71
Other		2		—		—		—		—		—
		2,322		626		1,484		937		1,584		2,540
Total		2,963		721		2,049		1,070		2,326		2,769

We have not entered into any other material related party transactions.

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Item 8. FINANCIAL INFORMATION

CONSOLIDATED FINANCIAL STATEMENTS

See “Item 18. Financial Statements”.

LEGAL PROCEEDINGS

We are involved in various litigation and regulatory proceedings arising in the ordinary course of our business. We do not believe that any of these proceedings is material to our operations or financial condition. For information on litigation concerning our subsidiary, CIESA, see “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Consolidated Results of Operations—Regulation of the Energy Industry in Argentina—CIESA’s debt restructuring process.”

DIVIDENDS

We may only pay dividends from our retained earnings that are reflected in our annual audited financial statements as approved at our respective annual general regular shareholders’ meetings. Payment of cash dividends depends upon our financial position, results of operations, cash requirements (including capital expenditures and payments of debt service), retained earnings minimum requirements and other requirements imposed by Argentine law and upon any other factors deemed relevant by our Board of Directors for the purpose of resolving upon the declaration of dividends.

While our Board of Directors may declare interim dividends pursuant to an audited interim-period financial statement, our Board of Directors or our Statutory Audit Committee would be jointly and severally liable for any payments made in excess of retained earnings at fiscal year closing. The declaration, amount and payment of dividends to shareholders are subject to approval by a regular shareholders’ meeting.

Under our bylaws, our net income shall be allocated as follows: a) 5% to a legal reserve, until it equals 20% of outstanding capital; b) to compensation of the members of the Board of Directors and Statutory Supervisory Committee; c) to dividends on preferred stock, if any, and then to dividends on common stock or to a voluntary reserve, or to a new account, or as otherwise determined by the shareholders’ meeting. Dividends shall be paid within the year of their declaration and distributed pro rata to the number of common shares held by each shareholder.

Holders of American Depositary Shares (“ADSs”), will be entitled to receive any dividends payable in respect of our underlying Class B shares. We will pay cash dividends to the depositary in pesos, although we reserve the right to pay cash dividends in any other currency, including U.S. dollars. The deposit agreement provides that the depositary will convert cash dividends received by the depositary in pesos to U.S. dollars and, after a deduction or upon payment of fees and expenses of the depositary and any applicable taxes, will make payment to holders of the applicable ADSs in U.S. dollars.

Under Law No. 25,063, any dividends distributed, in cash or in kind, in excess of the taxable income accumulated as of the year-end immediately prior to the respective payment or distribution date, will be subject to a thirty-five percent income tax withholding, as single and definitive payment. For this purpose, taxable income is deemed to be that resulting from adding the income as determined under the general provisions of the income tax law and the dividends or income obtained from other corporations not taken into account in determining the former for the same tax period or periods.

Pursuant to the resolutions adopted at the general shareholders’ meetings held on March 26, 2010 and March 27, 2009, in 2010 and 2009 we paid cash dividends in the amount of Ps. 275 million and Ps. 269 million, respectively.

The general shareholders’ meeting held on April 6, 2011, approved the distribution of cash dividends in the amount of Ps. 183 million corresponding to 2010 distributable income, which were paid on May 2011.

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Item 9. OFFER AND LISTING

Our ADSs, each representing ten Class B shares, are listed on the NYSE under the trading symbol “PZE”. The ADSs began trading on the NYSE on September 30, 2009 following the completion of the merger and exchange of shares between PESA and PEPSA and were issued by Citibank, N.A. as depositary.

Our Class B shares have been listed on the Buenos Aires Stock Market since 1956. Currently the trading symbol is “PESA”.

The following table sets forth, for the periods indicated, the high and low closing sales price of the ADSs on the NYSE and the Class B shares of PESA on the Buenos Aires Stock Market:

	ADS(1) (3)						Class B share(2)
Full Year	High			Low			High		Low
2006								9.20		7.10
2007								10.15		7.00
2008								13.10		6.30
2009:		19.40	(3)		15.54	(3)		7.55		5.20
First Quarter								7.00		5.20
Second Quarter								7.00		6.00
Third Quarter								7.55		6.40
Fourth Quarter		19.40			15.54			7.30		5.98
2010:		26.38			12.91			10.65		5.20
First Quarter		17.40			16.10			6.80		6.20
Second Quarter		17.32			12.91			6.81		5.20
Third Quarter		16.54			14.43			6.56		5.70
Fourth Quarter		26.38			16.18			10.65		6.33
November 2010		20.42			18.24			8.10		7.15
December 2010		26.38			20.11			10.65		8.10
2011:
First Quarter		28.20			20.50			11.35		8.68
January 2011		28.20			24.70			11.35		10.15
February 2011		26.31			21.66			10.80		9.06
March 2011		23.68			20.50			9.80		8.68
April 2011		23.68			22.08			9.90		9.40
May 2011		22.59			20.37			9.77		8.95

(1)	In U.S. dollars.
(2)	In Argentine pesos.
(3)	Since September 30, 2009.

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MARKETS

Buenos Aires Stock Market

The Buenos Aires Stock Market, which is affiliated with the Buenos Aires Stock Exchange, is the largest stock market in Argentina. The Buenos Aires Stock Market is a corporation whose shareholder members are the only individuals and entities authorized to trade in the securities listed on the Buenos Aires Stock Exchange. Trading on the Buenos Aires Stock Exchange floor is conducted by continuous open outcry and a computer-based trading system called SINAC from 11:00 a.m. to 5:00 p.m. each business day. The Buenos Aires Stock Exchange also operates an electronic trading market system from 11:00 a.m. to 5:00 p.m. each business day.

To control price volatility, the Buenos Aires Stock Market operates a system by which trading of a security is suspended for 15 minutes whenever the price of such security changes 10% from its last closing price. Once the 15 minutes have elapsed, trading is resumed. From that point on during a trading day, trading will be suspended for 10 minutes whenever the trading price changes 5% from the last suspended price.

Certain information regarding the Argentine securities market is set forth in the table below:

	2010			2009			2008			2007			2006
Market capitalization (billions of pesos)		1,900			2,184			1,233			1,773			1,229
As percent of GDP(1)		132	%		187	%		122	%		227	%		183	%
Volume (in millions of pesos)		14,955			11,221			21,049			23,001			16,089
Average daily trading volume (in millions of pesos)		60.79			45.99			85.22			93.12			64.89
Number of listed companies(1)		107			88			91			93			86

⁽¹⁾ End-of-year figures for trading on the Buenos Aires Stock Exchange.

Source: Bolsa de Comercio de Buenos Aires, CNV and Instituto Argentino de Mercado de Capitales.

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Item 10. ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

Registration and Merger

Our bylaws (estatutos sociales) were authorized by Decree N. 17105 of the Argentine government dated June 18, 1947, and registered with the IGJ on November 17, 1947 under No. 759, Page 569, Book 47, Volume A of Argentine Bylaws. Amendments to the bylaws were authorized as indicated below, and registered as amended with the Public Registry of Commerce as follows: (1) as amended and authorized by Decree N. 29,460 of the Argentine government dated September 24, 1948, and registered on May 27, 1949, under N. 369, Page 332, Book 48, Volume A, of Argentine Bylaws; (2) as amended and authorized by Decree N. 10,460 of the Argentine government dated June 24, 1954, and registered on October 4, 1954, under N. 1,323, Page 508, Book 49, Volume A, of Argentine Bylaws; (3) as amended and authorized by Decree No. 3,789 of the Argentine government dated February 28, 1956, and registered on September 5, 1956, under N. 1,686, Page 238, Book 50, Volume A, of Argentine Bylaws; (4) as amended and authorized by Decree N. 3,773 of the Argentine government dated August 11, 1958, and registered on March 2, 1959, under N. 289, Page 391, Book 51, Volume A of Argentine Bylaws; (5) as amended and authorized by Decree N. 5,405 of the Argentine government dated June 12, 1962, and registered on September 28, 1962, under N. 2,161, Page 347, Book 55, Volume A of Argentine Bylaws; (6) as amended and authorized by Resolution issued by PJ (Board of Legal Entities) N. 001129, Ministry of Education and Justice, dated June 19, 1963, and registered on September 24, 1963, under N. 1,656, Page 109, Book 58, Volume A of Argentine Bylaws; (7) as amended and authorized by IGJ Resolution N. 6,307, Ministry of Justice, dated March 13, 1970, and registered on May 14, 1970, under N. 1,782, Page 56, Book 72, Volume A of Argentine Stock Corporations Bylaws; (8) as amended and authorized by I.G.P.J. (Board of Legal Entities) Resolution N. 2,116, Superintendent of Legal Entities, dated April 29, 1971, and registered on July 7, 1971, under N. 2,286, Page 287, Book 74, Volume A of Argentine Stock Corporations Bylaws; (9) as amended and authorized by I.G.P.J. (Board of Legal Entities) Resolution N. 2,687, Superintendent of Legal Entities, dated August 28, 1972, and registered on December 28, 1972, under N. 4,555, Page 479, Book 77, Volume A of Argentine Stock Corporations Bylaws; (10) as amended and registered on November 16, 1976, under N. 3,917, Book 84, Volume A of Argentine Stock Corporations Bylaws; (11) as amended and registered on July 8, 1977, under N. 2,237, Book 87, Volume A of Argentine Stock Corporations Bylaws; (12) as amended and registered on December 21, 1978, under N. 4,912, Book 88, Volume A of Argentine Stock Corporations Bylaws; (13) as amended registered on December 6, 1979, under N. 4,401, Book 90, Volume A of Argentine Stock Corporations Bylaws; (14) as amended and registered on March 25, 1981, under N. 1,105, Book 97, Volume A of Stock Corporations; (15) as amended registered on February 21, 1983, under N. 545, Book 98, Volume A of Argentine Stock Corporations; (16) as amended and registered on March 21, 1984, under N. 1,551, Book 99, Volume A of Stock Corporations; (17) as amended and registered on March 31, 1986, under N. 1,739, Book 101, Volume A of Stock Corporations; (18) as amended and registered on January 22, 1992, under N. 372, Book 110, Volume A of Stock Corporations; (19) as amended and registered on October 3, 1995, under N. 9223, Book 117, Volume A of Stock Corporations; (20) as amended registered on November 11, 1996, under N. 11,209, Book 120, Volume A of Stock Corporations; (21) as amended and registered on May 15, 1997, under N. 4894, Book 121, Volume A of Stock Corporations; (22) as amended and registered on June 11, 1998 under N. 3812, Book 1, Volume of Corporations; (23) as amended and registered on July 14, 2000 under N. 10116, Book 11, Volume of Corporations; (24) as amended and registered on October 26, 2000 under N. 16073, Book 13, Volume of Corporations; (25) as amended and registered on September 3, 2002, under N. 9737, Book 18, Volume of Corporations; (26) as amended and registered on February 12, 2003, under N. 2042, Book 19, Volume of Corporations; (27) as amended and registered on July 4, 2003, under N. 9191, Book 22, Volume of Corporations; (28) as amended and registered on August 22, 2003, under N. 11892, Book 22, Volume of Corporations; (29) as amended and registered on May 3, 2004, under N. 5377, Book 24, Volume of Corporations; (30) as amended and registered on November 29, 2004 under N. 15158, Book 26, Volume of Corporations; (31) as amended and registered on June 30, 2005 under N. 7618, Book 28, Volume of Corporations; (32) as amended and registered on January 26, 2009 under N. 1537, Book 43, Volume of Corporations; (33) as amended and registered on August 4, 2009 under N. 12887, Book 45, Volume of Corporations; (34) as adopted by the extraordinary and regular shareholder meeting held on January 30, 2009, and to be registered in the Volume of Corporations and (35) as adopted by the extraordinary and regular shareholder meeting held on March 27, 2009, and to be registered in the Volume of Corporations.

Objects and Purposes

Section 3 of our bylaws states that the object and purpose of the company is to do and engage in the following:

a) perform the following operations:

1) explore, exploit, prospect for, detect, bore and drill hydrocarbon and any other kind of wells, as well as carry out activities related to mining extraction in general;

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2)	purchase, sell, lease and operate drilling equipment, its spare parts and accessories and enter into any contract, to perform any act and carry out any operation related to mining extraction;
3)	manufacture, process, industrialize, purchase, sell, import, export and transport its own or third parties’ hydrocarbons and their by-products, whether they be liquid, solid or gaseous;

4) enter into any kind of contracts for work and/or of service related to the aforementioned activities;

b) commercial transactions through the import, export, purchase and sale, transportation and distribution of products and goods related to electric power, mining, including the exercise or performance of representations, commissions, consignments and agencies;

c) financial transactions in general, including: loans and/or capital contributions to individuals or companies for present or future businesses; granting of bonds, guaranties and suretyships in favor of third parties; purchase and sale and management of shares, public bonds, debentures and other securities, except for the transactions stipulated in the limitations provided for in the Financial Entities Law and those transactions requiring public bidding;

d) real estate transactions through the acquisition, sale, barter, construction, fractionation, exploitation and lease of urban and rural real estate, including cooperative property transactions and the creation of rightsin rem;

e) operation of navigation and maritime fluvial trade companies;

f) power generation, transformation, transmission and distribution operations; and

g) to render services or act as agent for itself or in favor of third parties.

In carrying out the aforementioned purposes and object, PESA has full capacity to perform any act, enter into any contract and carry out any transaction directly or indirectly related thereto.

Provisions of the Bylaws Relating to Directors

Section 9 of the bylaws states that the Board of Directors shall hold a meeting with the majority of its members present at the meeting, whether in person or remotely as long as they can each communicate among themselves through other means of simultaneous sound, image or word transmission, and shall adopt resolutions by the majority of the votes present thereat, including remote participants. The Board of Directors meets formally at least once every three months, and is composed of nine members. All members of the Board of Directors have one vote for any matter decided upon. For more information on the election of PESA Board of Directors, see “Item 6. Directors, Senior Management, and Employees—Directors and Senior Management—Petrobras Argentina Board of Directors.”

In accordance with our bylaws, in the event any members of the Board refrain from voting on account of having a conflict of interest or material interest in the matter at hand, the Board shall adopt resolutions by a majority of the members who did not refrain from voting for such reason. Participation and vote of remote participants as well as all transmission of data shall be registered in the minutes of the meetings. Argentine Companies Law requires that directors refrain from voting on matters in which such director may have a conflict of interest.

Capital Stock

The description that follows provides a summary of the material provisions of our capital stock, in accordance with our bylaws and Argentine law and regulations.

Voting Rights

Each PESA Class B share entitles the holder to one vote.

All existing PESA Class A shares were converted into PESA Class B shares on March 11, 2009. There are no PESA Class A shares currently outstanding.

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Cumulative Voting

Under Argentine law, a shareholder is entitled to cumulative voting procedures for the election of up to one-third of the directors being elected. If any shareholder notifies us of its decision to exercise its cumulative voting rights no later than three business days prior to the date of a meeting, all shareholders are entitled, but not required, to exercise their cumulative voting rights. Under cumulative voting, the aggregate number of votes that a shareholder may cast is multiplied by the number of vacancies to be filled in the election, and each shareholder may allocate the total number of its votes among a number of candidates not to exceed one-third of the number of vacancies to be filled. Shareholders not exercising cumulative voting rights are entitled to cast the number of votes corresponding to their shares for each candidate. The implementation of a staggered board does not impede or prohibit the exercise of cumulative voting in any manner.

Preemptive Rights

In the event of a capital increase, a holder of existing common shares of a given class has a preemptive right to subscribe for a number of shares of the same class sufficient to maintain the holder’s existing proportionate holdings of shares of that class.

Preemptive rights also apply to the issuance of certain convertible securities (obligaciones negociables) but do not apply upon conversion of these securities. Holders of ADSs may be restricted in their ability to exercise preemptive rights if a prospectus under the Securities Act relating to those securities has not been filed or is not effective or an exemption from registration is not available. You should note that we are not obligated to file a registration statement with respect to the shares relating to preemptive or accretion rights. Preemptive rights are exercisable during the 30 days following the last publication of notice to the shareholders in the Official Gazette and an Argentine newspaper of wide circulation. Pursuant to Argentine Companies law, the 30-day period may be reduced to ten days by a decision of our shareholders adopted at an extraordinary shareholders’ meeting. Preemptive rights may be suspended or limited in extraordinary circumstances with the favorable vote of more than 50% of all outstanding voting shares at an extraordinary shareholders’ meeting at which all shares will be entitled to exercise one vote, regardless of whether there are shares with multiple votes where the purpose of the capital increases is to issue shares as consideration for a contribution of assets to the company or to repay outstanding obligations.

Shareholders who have exercised their preemptive rights and indicated their intention to exercise additional preemptive rights are entitled to accretion rights, pro rata to their respective subscriptions, with respect to any unsubscribed shares by other shareholders during the preemptive rights period, in accordance with the terms of Article 194 et seq. of the Argentine Companies Law. Shares not subscribed by the shareholders by virtue of their exercise of preemptive rights or accretion rights may be offered to third parties.

Appraisal Rights

Whenever our shareholders approve (1) a spinoff or merger in which we are not the surviving corporation, (2) a change in our corporate legal status, (3) a fundamental change in our corporate purpose, (4) a change of our domicile to a location outside Argentina, (5) a voluntary withdrawal from a public offering or delisting, (6) the continuation of our company in the case of a mandatory delisting or cancellation of the authorization for a public offering, (7) a capital increase approved by an extraordinary shareholders’ meeting which would require a disbursement by shareholders or (8) a total or partial recapitalization following a mandatory reduction of capital or liquidation, any shareholder that voted against this action may withdraw from our company and receive the book value of his shares, determined on the basis of our latest balance sheet prepared or that should have been prepared in accordance with Argentine laws and regulations, provided that this shareholder exercises his appraisal rights within the period set forth below. However, because of the absence of legal precedent directly on point, there is doubt as to whether holders of our ADSs will be able to exercise appraisal rights either directly or through the depositary with respect to Class B shares represented by our ADSs. Appraisal rights must be exercised within five days following the adjournment of the meeting at which the resolution was adopted, in the event that the dissenting shareholder voted against such resolution, or within 15 days following such adjournment if the dissenting shareholder did not attend such meeting and can prove that he was a shareholder on the date of such meeting. In the case of a merger or spinoff, appraisal rights may not be exercised if the shares to be received as a result of such transaction are authorized for public offering or listed. Appraisal rights are extinguished if the resolution giving rise to such rights is revoked at another shareholders’ meeting held within 60 days of the meeting at which the resolution was adopted.

Payment on the appraisal rights must be made within one year of the date of the shareholders’ meeting at which the resolution was adopted, except when the resolution was to delist our stock or to continue our company following our mandatory delisting, in which case the payment period is reduced to 60 days from the date of the related resolution.

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Acquisition of Class B Shares by Class B Shareholders

Argentina law provides that if any person or group of persons acquires shares or securities convertible into shares representing at least three percent of a public company’s capital stock, then these persons must, within three days following the acquisition, give the company notice of the acquisition, irrespective of any additional notice requirements under applicable rules of any stock exchange or regulatory agency. The notice must state the acquisition dates and prices, the voting power acquired, the purpose of the acquisition and the intention of the acquiror (including, without limitation, whether it intends to increase its holding or to obtain control). This provision also applies to subsequent acquisitions involving a number of shares or securities convertible into shares representing at least three percent of the company’s capital stock.

Capital Increases and Reductions

Our capital stock may be increased by resolution of an ordinary shareholders’ meeting. Capital increases do not require an amendment of our bylaws, but must be approved by the CNV, published in the Official Gazette and registered with the Public Registry of Commerce. Capital reductions may be voluntary or mandatory. Voluntary reductions of capital must be approved by an extraordinary meeting of shareholders and may take place only after notice is published and creditors are given an opportunity to obtain payment or collateralization of their claims or attachment. Reductions of capital are mandatory when losses have exceeded reserves or more than 50% of our stated capital.

Shares issued in connection with any increase in capital must be divided among the various classes in proportion to the number of shares of each class outstanding at the date of the issuance, provided that the number of shares of each class actually issued may vary based on the exercise of preemptive rights and additional preemptive rights in accordance with the procedure described in the preceding section.

Redemption and Repurchase

Our shares are subject to redemption in connection with a reduction in capital by the vote of a majority of shareholders at an extraordinary shareholders’ meeting. Any shares so redeemed must be cancelled by us.

We may repurchase fully paid shares of our capital stock with retained earnings or freely available reserves, upon a determination of the board that this repurchase is necessary in order to avoid a material adverse effect to us. The board’s determination must be explained to shareholders at the next annual shareholders’ meeting. We may also repurchase shares of our capital stock held by a company acquired by or merged with us. In either case, we are required to resell the shares purchased within one year and must give shareholders a preemptive right to purchase these shares. Any shares repurchased by us will not be considered in the determination of a quorum or a majority.

Preferred Shares

We may issue non-voting preferred shares or preferred shares with one vote per share. The economic preferences and rights of our preferred shares will be determined at the shareholders’ meeting authorizing the issue of the preferred shares. Non-voting preferred shares may vote one vote per share in the following circumstances: (1) if we are in default with respect to the payment of preferred share dividends, (2) if the events described under “—Meetings of Shareholders—Quorum and Voting Requirements” occur, and (3) if the preferred shares have been listed on a stock exchange and that listing is cancelled or suspended.

Liquidation

The liquidation of our company may be carried out by our Board of Directors or by one or more liquidators appointed by the shareholders to wind up its affairs. In the event of liquidation, our assets will be applied to satisfy our debts and liabilities including liquidation expenses. Any remaining amounts will be distributed as follows: (1) the amount of the preferred shares issued shall be reimbursed at its paid-in, nominal value; (2) the amount of common shares shall be reimbursed at their paid-in, nominal value; (3) cumulative dividends in arrears on preferred shares shall be paid; and (4) the remaining balance shall be distributed pro rata among all holders of common shares.

Changes in Shareholder Rights

See “—Meetings of Shareholders” below.

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Audit Committee

The bylaws of PESA state that the company shall have an Audit Committee composed of three regular directors and an equal or smaller number of alternate members. For more details on our Audit Committees see “Item 6. Directors, Senior Management and Employees—Board Practices—Audit Committee”.

Meetings of Shareholders

General

Shareholders’ meetings may be ordinary or extraordinary. We are required to hold an ordinary shareholders’ meeting within four months of the close of each fiscal year to consider the approval of our annual financial statements, the allocation of net income for the fiscal year, the approval of the reports of the Board of Directors and the Statutory Supervisory Committee and the election and remuneration of directors and members of the Statutory Supervisory Committee. Other matters that may be considered at an ordinary meeting include the responsibility of directors and members of the Statutory Supervisory Committee, capital increases and the issuance of certain corporate bonds. Extraordinary shareholders’ meetings may be called at any time to consider matters outside the scope of authority of an ordinary meeting, including amendment of the bylaws, issuance of debentures, early dissolution, merger, spinoff, reduction of capital stock and redemption of shares, changing our company from one type of legal entity to another and limitation of shareholders’ preemptive rights.

Notices

Notice of shareholders’ meetings must be published for five days in theBoletin Oficial(the official gazette of the Republic of Argentina), in an Argentine newspaper of wide circulation and in the publications of Argentine exchanges or securities markets in which our shares are traded, at least ten days prior to the date on which the meeting is to be held as per Argentine Companies Law, and at least 20 days prior to the meeting as per Decree No. 677/01. The notice must include information regarding the type of meeting to be held, the date, time and place of the meeting and the agenda. If there is no quorum at the meeting, notice for a meeting on second call must be published for three days, at least eight days before the date of the second meeting, and must be held within 30 days of the date for which the first meeting was called. The first call and second call notices may be effected simultaneously in order for the meeting on second call to be held on the same day as the meeting on first call, but only in the case of ordinary shareholders’ meetings. Shareholders’ meetings may be validly held without notice if all shares of our outstanding capital stock are present and resolutions are adopted by unanimous vote.

The Board of Directors will determine appropriate publications for notice outside Argentina in accordance with requirements of jurisdictions and exchanges where our shares and ADS are traded.

Quorum and Voting Requirements

The quorum for ordinary shareholder’s meetings on first call is a majority of the shares entitled to vote, and action may be taken by the affirmative vote of an absolute majority of the shares present that are entitled to vote on such action. If a quorum is not available, a second call meeting may be held at which action may be taken by the holders of an absolute majority of the shares present, regardless of the number of such shares. The quorum for extraordinary shareholders’ meetings on first call is sixty percent of the shares entitled to vote, and if such quorum is not available, a second call meeting may be held, for which there is no quorum requirement.

Action may be taken at extraordinary shareholders’ meetings by the affirmative vote of an absolute majority of shares present that are entitled to vote on such action, except that the approval of a majority of shares with voting rights is required in both first and second call for: (1) the transfer of our domicile outside Argentina, (2) a fundamental change of the corporate object set forth in the bylaws, (3) our anticipated dissolution, (4) the total or partial repayment of capital, (5) a merger of our company, if we are not the surviving entity, (6) a spinoff of our company, or (7) changing our corporate legal status.

Shareholders’ meetings may be called by the Board of Directors or the members of the Statutory Supervisory Committee whenever required by law or whenever they deem it necessary. Also, the Board of Directors or the members of the Statutory Supervisory Committee are required to call shareholders’ meetings upon the request of shareholders representing an aggregate of at least five percent of our outstanding capital stock. If the board or the Statutory Supervisory Committee fail to call a meeting following this request, a meeting may be ordered by the CNV or by the courts. In order to attend a meeting, a shareholder must deposit with us a certificate of book-entry shares registered in its name and issued by Caja de Valores at least three business days prior to the date on which the meeting is to be held. Shareholders may be represented by proxy. Proxies may not be granted to directors, members of the Statutory Supervisory Committee or officers or employees of our company.

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Conflict of Interest

A shareholder who votes on a matter involving our company in which its interest conflicts with ours may, under Argentine law, be liable for damages to us resulting from its decision, but only if the transaction would not have been approved without its vote.

Limitations on Foreign Investment in Argentina

Under the Argentine Foreign Investment Law, as amended (“FIL”), the purchase of stock by an individual or legal entity domiciled abroad or by a local company of foreign capital (as defined in the FIL) constitutes a foreign investment subject to the FIL. Foreign investments are generally unrestricted. However, foreign investments in certain industries are restricted to a certain percentage. No approval is necessary to purchase our Class B shares. The FIL does not limit the right of non-resident or foreign owners to hold or vote our Class��B shares, and there are no restrictions in our bylaws limiting the rights of non-residents or non-Argentines to hold or vote our Class B shares.

However, General Resolution No. 7 passed in September 2003 by the IGJ and other related regulations set forth certain requirements for foreign entities registered with the IGJ. It requires, among other things, disclosure of information related to proprietary interests in assets located outside Argentina to be at least equivalent in value to those located inside Argentina. The entities must comply with these requirements in order to (1) perform activities on a regular basis through their Argentine branches (Section 118, Argentine Companies Law), or (2) exercise their ownership rights in Argentine Companies (Section 123, Argentine Companies Law). In cases where the IGJ has concluded that the entities (a) do not have assets outside Argentina; or (b) have non-current assets that are not materially significant compared to those non-current assets which are owned by them and located in Argentina; or (c) the entity’s address in Argentina becomes the place where this entity makes a majority of its decisions, corporate or otherwise, the entities may be required to amend and register their bylaws to comply with Argentine law, thereby becoming an Argentine entity subject to Argentine law according to Section 124 of Argentine Companies Law. In addition, Argentine companies with shareholders consisting of such entities that fail to comply with these requirements may be subject to the following sanctions: (1) the IGJ may not register corporate decisions adopted by the Argentine Company when its offshore shareholder votes as a shareholder and when that vote is essential in attaining a majority and any decisions made pursuant to such vote related to the approval of its annual balance sheet may be declared null and void for administrative purposes; (2) whether or not the vote of the offshore entity is necessary for purposes of determining quorum or majority, the IGJ may register the decision without considering that vote; and (3) the directors of the Argentine company may be held personally liable for actions taken by the Argentine company.

Change of Control

In 2001, Argentina adopted Decree No. 677/2001 which, among others, establishes an optional statutory system for binding public offers, which regulates the change of control of a public company. According to this decree, if a person or entity, directly or indirectly, acquires a determined percentage of the voting shares of a public company with the intention of obtaining control, then that person or entity must publicly tender to purchase all of the target’s outstanding shares. Companies are free to opt out of the decrees requirements, provided they do so expressly in their bylaws. We, with the approval of our shareholders, have opted out of these requirements. This does not prevent an acquiror from voluntarily commencing an offer for all our shares.

MATERIAL CONTRACTS

We are party to a number of material financing agreements, including the underlying agreements for the company’s Global Bond Program, and letters of credit entered into to backstop certain financial commitments under the ship or pay contract with OCP. These agreements and other financing agreements are briefly described under “Item 5. Operating and Financial Review and Prospects—Off-Balance Sheet Transactions”, “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Financing activities” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources— Description of Indebtedness”.

Our agreements with related parties are described in “Related Party Transactions” under Item 7.

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EXCHANGE CONTROLS

For more information on exchange controls imposed by the Argentine government, see “Item 3. Exchange Rates—Exchange Controls,” and “Item 5. Description of Indebtedness.”

TAXATION

The discussion in this section, “Taxation” describes tax matters relating to the acquisition, ownership and disposition of our Class B shares and ADSs, pursuant to the Deposit Agreement entered into or to be entered into with Citibank, N.A. as Depositary.

There is at present no income tax treaty between Argentina and the United States.

Argentine Taxes

General

The discussion describes the principal Argentine tax consequences of the acquisition, ownership and disposition of our Class B shares or ADSs, but it does not purport to be a comprehensive description of all of the Argentine tax considerations that may be relevant to your decision to acquire our Class B shares or ADSs. In this description of Argentine tax law, the purchase, sale or disposition of ADSs is treated as a purchase, sale or disposition of Class B shares.

The discussion is based upon Argentine tax laws, regulations and administrative and judicial interpretations in effect as of the date of this annual report and subject to change with possible retroactive effect. In addition, this summary is based in part on representations of the Depositary and assumes that each obligation provided for in, or otherwise contemplated by, the Deposit Agreement for our ADSs or any related document will be performed in accordance with its terms. Prospective purchasers of Class B shares or ADSs should consult their own tax advisors as to the Argentine or other tax consequences of the acquisition, ownership and disposition of our Class B shares or ADSs in their particular circumstances.

Income Tax

Capital gains

Sales or other dispositions of our Class B shares or ADSs by non-residents of Argentina or Argentine resident individuals or undivided estates located in Argentina are exempt from paying income tax on the resulting capital gains. However, capital gains of legal entities domiciled in Argentina resulting from the sale or other disposition of our Class B shares or ADSs will be subject to income tax at a 35% rate. Some investment funds and foundations are not subject to income tax.

Dividends

Dividends paid on our Class B shares or ADSs, whether in cash, property or other equity securities, and any other payment in kind, are not subject to income tax withholding, except for dividends paid in excess of the Company’s taxable accumulated income for the previous fiscal period, which are subject to withholding at the rate of 35% on such excess. This is a final tax and it is not applicable if dividends are paid in shares (acciones liberadas) rather than in cash.

With respect to dividends paid to shareholders residing abroad, such withholding may be reduced by a tax treaty between Argentina and their country of residence.

Citibank, N.A. is our paying agent in the United States. See “Item 8. Financial Information—Dividends” and “Item 9. Offering and Listing Details”.

Capital reductions and other distributions

Capital reductions and redemptions of our Class B shares and ADSs are not subject to income tax up to an amount equivalent to the adjusted contributed capital corresponding to the Class B shares and ADSs to be redeemed plus accumulated taxable earnings after income taxes paid and dividends received. Any distribution exceeding this amount will be considered as a dividend for tax purposes and withholding tax will apply as described above.

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Personal property tax

Corporations, partnerships, establishments, financial trusts and other legal entities domiciled or located in Argentina are not subject to the personal property tax.

Shareholdings or interests in companies governed by Argentine Companies Law, that are held by individuals or undivided estates domiciled or located in Argentina or abroad, or by companies or other legal persons located abroad, are subject to the personal property tax. A company is liable for the personal property tax payable by its shareholders in respect of their share ownership. A company liable for this tax payment will be entitled to seek reimbursement of the amount paid from the shareholders, by way of withholding or by foreclosing directly on the assets that gave rise to such payment. Consequently, we are liable to pay personal property tax in respect of our Class B shares and ADSs and we are entitled to seek reimbursement of the amount paid from shareholders. We usually seek these reimbursements through a withholding on dividend payments. The applicable tax rate is 0.50% on the equity value of the shares, calculated as of December 31 of the year under consideration.

For purposes of the above paragraph, shareholdings or interests in companies governed by Argentine Companies Law held by companies or any other kinds of legal persons domiciled or located abroad, are presumed to indirectly belong to individuals domiciled abroad or to undivided estates located abroad. Contrary evidence is not accepted to rebut this presumption.

Tax treaties

There is currently no income tax treaty or convention between Argentina and the United States.

Other taxes

There is no inheritance, gift, succession or value-added tax applicable to the ownership, transfer, exchange or disposition of our Class B shares or ADSs.

There is no Argentine gross revenue tax applicable on our Class B shares or ADSs or on income obtained from the disposition of our Class B shares or ADSs.

Our Class B shares or ADSs owned by legal entities (corporations, partnerships, certain associations and non-financial trusts organized in Argentina and permanent establishments owned by foreign beneficiaries) are exempt from tax on minimum presumed income.

Commissions paid on brokerage transactions for the sale of our Class B shares on the Buenos Aires Stock Exchange are subject to a value-added tax at a rate of 21%.

United States Federal Income Taxes

General

The following discussion summarizes the United States federal income tax considerations relevant to the acquisition, ownership and disposition of Class B shares or ADSs by U.S. holders (as defined below). This discussion is based on the United States Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated or proposed under the Code, published rulings, and administrative and judicial interpretations of the Code and the Treasury regulations, all as of the date hereof, and all of which are subject to change (possibly with retroactive effect) and to differing interpretations. This summary is based in part on representations of the depositary and assumes that each obligation provided for in or otherwise contemplated by the Deposit Agreement for our ADSs or any related document will be performed in accordance with its terms. This discussion is addressed only to U.S. holders and does not address any United States federal income tax considerations that might be relevant to persons other than U.S. holders. Further, this discussion deals only with U.S. holders that hold ADSs as capital assets (generally, property held for investment) within the meaning of Section 1221 of the Code, and does not address the tax treatment of holders that may be subject to special tax rules, such as banks, insurance companies, tax-exempt organizations, financial institutions, brokers or dealers in securities or currencies, traders in securities or currencies that elect mark-to-market treatment, persons that hold the ADSs as part of a hedge, “straddle,” “conversion transaction” or other integrated investment, persons that hold Class B shares or ADSs through a partnership or other pass-through entity, U.S. holders who have a “functional currency” other than the U.S. dollar or U.S. holders that own or are treated as owning 10% or more of the voting power of our shares.

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This discussion does not describe all aspects of United States federal income taxation that may be relevant to a particular investor in light of such investor’s particular circumstances. U.S. holders should consult their own tax advisors as to the specific tax consequences of the acquisition, ownership and disposition of our Class B shares or ADSs, including the application and effect of United States federal, state, local, foreign and other tax laws and the possible effects of changes in United States federal or other tax laws.

In general, for United States federal income tax purposes, if you hold our ADSs, you will be treated as the beneficial owner of our Class B shares represented by those ADSs. For purposes of this discussion, you are a U.S. holder if you are a beneficial owner of our Class B shares and you are, for United States federal income tax purposes, (a) an individual who is a citizen or resident of the United States, (b) a corporation (or other business entity created or organized in or under the laws of the United States or of any state or the District of Columbia treated as a corporation), or (c) otherwise subject to United States federal income taxation on a net income basis with respect to the ADSs or the Class B shares.

The U.S. federal income tax consequences of a partner in a partnership holding our Class B shares or ADSs generally will depend on the status of the partner and the activities of the partnership. Partners in such a partnership should consult with their own tax advisors.

Taxation of our ADSs

Distributions

Distributions we make on our Class B shares or ADSs will be treated as taxable dividends to you to the extent of our current and accumulated earnings and profits as determined under United States federal income tax principles. A dividend, generally, will be included in the gross income of a U.S. holder when the dividend is actually or constructively received by the depositary. Such dividends will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations.

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual U.S. holder prior to January 1, 2013 with respect to the ADSs will be subject to taxation at a maximum rate of 15% if the dividends are “qualified dividends”. Dividends paid on the ADSs will be treated as qualified dividends if (1) the ADSs are readily tradable on an established securities market in the United States and (2) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (a “PFIC”). The ADSs are, or will be, listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for United States federal income tax purposes with respect to our 2009 or 2010 taxable year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2011 taxable year.

Based on existing guidance, it is not entirely clear whether dividends received with respect to the Class B shares will be treated as qualified dividends, because the Class B shares are not themselves listed on a U.S. exchange. In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which U.S. holders of ADSs or common stock and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. U.S. holders of Class B shares or ADSs should consult their own tax advisors regarding the availability of the reduced dividend tax rate in the light of their own particular circumstances.

The amount of dividend income taxable to you generally will include the amount of Argentine taxes, if any, that we withhold (as described under “—Argentine Taxes”). Thus, in the event such withholding taxes are imposed, you most likely will be required to report income in an amount greater than the cash you receive in respect of payments made in respect of the ADSs. Subject to various limitations, you may be eligible to claim the Argentine income tax withheld in connection with any distribution on ADSs as a credit or deduction for purposes of computing your United States federal income tax liability. Foreign tax credits will not be allowed for withholding taxes imposed with regard to certain short-term or hedged positions in securities and may not be allowed with regard to arrangements in which a U.S. holder’s expected economic profit is insubstantial. Dividends we pay in respect of our ADSs generally will be treated as foreign source income and generally will constitute “passive” income for foreign tax credit purposes. Special rules will apply to the calculation of foreign tax credits in respect of dividend income that is subject to preferential rates of United States federal income tax. U.S. holders should consult with their own tax advisors with regard to the availability of foreign tax credits and the application of the foreign tax credit limitations in light of their particular situation.

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If a dividend is paid in pesos, the amount you must include in gross income will be the U.S. dollar value of the distributed pesos, as determined on the date of receipt by the Depositary, regardless of whether the payment is in fact converted into U.S. dollars at that time. You will have a tax basis in such pesos for United States federal income tax purposes equal to the U.S. dollar value on the date of such receipt. Any subsequent gain or loss in respect of such pesos arising from exchange rate fluctuations will be ordinary income or loss and will be treated as income from U.S. sources for foreign tax credit purposes.

It is unlikely that you will be able to claim a foreign tax credit for any Argentine personal property tax (as described in “Argentine Taxes”), but you may be able to deduct such tax in computing your United States federal income tax liability, subject to applicable limitations.

Sale, exchange or other disposition

Deposits and withdrawals of our Class B shares by U.S. holders in exchange for our Class B shares or ADSs will not result in the realization of gain or loss for United States federal income tax purposes.

Upon a sale, exchange or other disposition of our Class B shares or ADSs, a U.S. holder generally will recognize capital gain or loss equal to the difference between the amount realized on such disposition (which, in the event of a redemption, will include any amount withheld by us in respect of Argentine taxes imposed on such redemption) and the U.S. holder’s adjusted tax basis in our Class B shares or ADSs (which, generally, is the U.S. dollar cost thereof). Any gain that you recognize generally will be treated as U.S. source income for United States foreign tax credit purposes. Consequently, if a withholding tax is imposed on such gain, you will not be able to use any corresponding tax credit unless you have other foreign source income of the appropriate type in respect of which the credit may be used. Prior to January 1, 2013, long-term capital gains recognized by an individual holder are taxable at a maximum rate of 15%.

Backup withholding

The information reporting requirements of the Code generally will apply to distributions on, as well as to proceeds from the sale of exchange or our Class B shares or ADSs. Subject to certain exceptions, “backup withholding” may apply to payments of dividends on our Class B shares or ADSs and to payments of the proceeds of a sale or exchange of the Class B shares or ADSs that are made to a non-corporate U.S. holder if such holder fails to provide a correct taxpayer identification number or otherwise comply with applicable requirements of the backup withholding rules. The backup withholding tax is not an additional tax and may be credited against a U.S. holder’s United States federal income tax liability, provided that correct information is provided to the Internal Revenue Service. U.S. holders should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining such exemption, if applicable.

DOCUMENTS ON DISPLAY

We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at its public reference rooms in Washington, D.C., at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Foreign private issuers, like PESA, have been required to make filings with the SEC by electronic means since November 4, 2002. Any filings we make electronically are available to the public over the Internet at the SEC’s web site at http://www.sec.gov.

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Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following qualitative and quantitative information discusses our exposure to market risks in the ordinary course of business. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of several factors including those set forth in “Item 3—Risk Factors.” Uncertainties that are either non-financial or non-quantifiable, such as political, economic, tax, other regulatory, or credit risks, are not included in the following assessment of our market risks.

Qualitative Disclosures

Our results of operations and financial condition are exposed to market risk from three principal areas: (1) commodity price risk, (2) foreign currency exchange rate risk, and (3) interest rate risk. We periodically review the risks associated with our businesses at a senior management level, based on an approach that has evolved from an independent analysis of each business unit to a risk management strategy that focuses on measuring and monitoring the risks that affect our overall portfolio of assets. We believe our risk management strategy, which is in line with our business integration strategy, allows for efficient growth in the vertical integration of our business, while balancing market risks in the business value chain.

Within this context, the Company’s management evaluates from time to time the possibility of using hedging derivative instruments. These financial operations, when and if used by us, might expose us to credit risk of our counterparts. We apply strict requirements for the approval of lines of credit, and we also apply several procedures to assess such risks and seek to reduce our credit exposure in a variety of ways such as agreements for advance collateral payment or collection and the offset of collections and payments. As of the date of this annual report, we do not have a position in any such derivative instruments.

The boards of directors of our affiliates formulate their relevant risk management policies.

Commodity price risk

Our business is affected by numerous factors outside of our control, including, but not limited to, market fluctuations, government regulations relating to prices, taxes, royalties, and certain other factors related to commodities, especially crude oil and by-products.

In Argentina, the series of regulations imposed by the Government, focused particularly on the energy sector, aimed at reducing the impact of inflationary pressures, has negatively limited our exposure to market risk in relation to price volatility, preventing us from profiting from higher prices for commodities. See “Item 5—Factors Affecting our Consolidated Results of Operations—Regulation of the Energy Industry in Argentina”.

In the past, we have used financial derivatives, principally swaps, producer collars and options, to set crude oil sale prices at certain levels. The use of derivative instruments depends on our management’s perception of future economic events and developments and also on the level of operational natural hedge provided by our business operations. As of the date of this annual report, we do not have a position in any such derivative instruments.

Foreign exchange risk

Our results of operations and financial condition are sensitive to changes in the exchange rate between the Argentine peso and other foreign currencies.

As of December 31, 2010, a significant portion of our and our affiliates’ debt was denominated either directly or indirectly in U.S. dollars. This exposes us to foreign exchange risks. The nature of our business, involving commodities which are sensitive to U.S. dollar price variation, together with our policy of maintaining a significant amount of investments in U.S. dollars, helps us mitigate our peso-U.S. dollar exchange rate exposure.

Interest rate risks

Interest rate risk management mainly aims at reducing overall financial costs and adjusting our exposure to increasing interest rates.

As of December 31, 2010, approximately 70% our total financial debt was subject to fixed rates and 30% was subject to variable rates. The variable rate debt is mainly linked to the LIBO rate plus specified spreads. This risk, however, is mitigated by the natural hedge provided by certain liquid financial assets or marketable securities with remuneration determined by LIBO or a similar rate.

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Quantitative Disclosure

The following table provides information about our financial debt that is sensitive to foreign exchange rates and interest rates as of December 31, 2010.

Foreign Currency Exchange Rate Risk and Interest Rate Risk

	Expected Maturity
																Estimated
	2011		2012		2013		2014		2015		Thereafter		Total			Fair Value
	(in millions of pesos)
Short-and Long-Term Debt U.S. dollar:
Fixed Rate		42		—		786		—		796		1,194		2,818			2,962
Average interest rate (%)		—		—		9.38		—		8.20		5.88		—	��		—
Variable rate		542		392		215		14		7		—		1.170			1.170
Average interest rate (%)		2.40		4.72		7.02		2.32		2.32		—		—			—
Total		584		392		1,001		14		803		1,194		3,988			4,132

The estimated fair value of publicly traded long-term debt is based on quoted market prices, and for the remaining long-term debt estimated fair value was calculated based on the current rates available to the Company for debt of similar remaining maturities.

A table reconciling the above figures to our financial statements, which include the proportional consolidation of jointly controlled companies with third parties, CIESA and Distrilec, is presented below:

	Short-Term		Long-Term
	debt		debt		Total
	(In millions of pesos)
Debt obligations (1) without proportional consolidation		584		3,404		3,988
PESA’s interest in Distrilec’s debt obligations		47		67		114
PESA’s interest in CIESA’s debt obligations		654		786		1,440
Debt obligations (2) with proportional consolidation		1,285		4,257		5,542

(1)	As reported in tabular presentation.
(2)	As reported in the consolidated balance sheet of our financial statements.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A- Not applicable

B- Not applicable

C- Not applicable

12.D — American Depositary Shares

Fees and Charges Applicable to ADS Holders

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary also collects fees for making distributions to investors, by deducting those fees from amounts being distributed or by selling a portion of the distributable property to pay the fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

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Holders of ADS and persons depositing or withdrawing shares or ADSs, or persons to whom distributions are made, must pay:

Rate:	For:
Up to U.S.$5.00 per 100 ADSs (or fraction thereof)	Issuance of ADSs, including issuances resulting from a distribution of ADSs or exercise of rights to purchase additional ADSs, and excluding issuances resulting from cash distributions other than cash dividends (i.e., sale of rights and other entitlements).
	Surrender of ADSs for the purpose of withdrawal of deposited securities.
Up to U.S.$5.00 per 100 ADSs (or fraction thereof)	Distribution of cash dividends.
Up to U.S.$ 2.00 per 100 ADS (or fraction thereof)	Any cash distribution other than cash dividends.
Up to U.S.$ 5.00 per 100 ADS (or fraction thereof)	Distribution of securities other than ADS or rights to purchase additional ADS.
Registration fees	Registration of transfer of shares in the shares register and applicable to transfers of shares to or from the name of the custodian, the depositary or any nominees upon making deposits or withdrawals.
Expenses of the depositary	Cable, telex and facsimile transmissions and delivery.
	Conversion of foreign currency.
Taxes (including applicable interest and penalties) and other governmental charges	As necessary
Any fees and expenses incurred by the depositary or its agents, including the custodian, for servicing the deposited securities or in connection with compliance with exchange control regulations and other applicable regulatory requirements.	As necessary

Fees and Direct and Indirect Payments Made by the Depositary to the Company

Past Fees and Payments

During 2010, the Company received from the depositary a reimbursement of US$ 43,720 for (i) investor relation expenses, (ii) annual NYSE listing fees, and (iii) standard out-of-pocket administrative, maintenance and shareholder service expenses for providing services to the registered American depositary receipts holders, consisting, without limitation, of expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls, incurred by the Company during the year ended December 31, 2010. In addition, the depositary waived the cost of various support services that it provided to the Company.

Future Fees and Payments

The depositary may reimburse the Company for certain expenses incurred by the Company in respect of the ADR program established pursuant to the Deposit Agreement upon such terms and conditions as the Company and the Depositary have agreed upon and as may be further agreed upon from time to time. The Company shall pay to the depositary such fees and charges and reimburse the depositary for such reasonable out-of-pocket expenses as the depositary and the Company may agree from time to time.

As of the date of this annual report, the Company is negotiating the amount of reimbursements as a result of the merger between PEPSA and PESA, pursuant to which PEPSA was merged and absorbed into PESA, being PESA the surviving company.

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Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

Item 15. CONTROLS AND PROCEDURES

a) Disclosure Controls and Procedures

We carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2010. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that they file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

b) Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal controls is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2010. In making this assessment, management used the criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on its evaluations and those criteria, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2010.

Our assessment of internal controls over financial reporting excludes the internal control over financial reporting of CIESA and Distrilec, which are consolidated into our consolidated financial statements as of December 31, 2010 and for the year then ended on the basis of the proportionate consolidation method required by the professional accounting principles in force in the City of Buenos Aires. We have neither the ability to dictate or modify the controls of those entities, nor the ability, in practice, to assess those controls. Consequently, we have not included in our assessment the internal control over financial reporting of CIESA and Distrilec. The financial statements of CIESA and Distrilec proportionately consolidated represented assets constituting 22% as of December 31, 2010 and net sales constituting 13% for the year then ended of the respective consolidated totals. Under US GAAP, CIESA and Distrilec would be treated as equity investees.

c) Attestation Report of the Registered Public Accounting Firm

Sibille, a member firm of KPMG International, an independent registered public accounting firm, has audited our effectiveness of internal controls over financial reporting as of December 31, 2010. The reports on the audit of our internal controls over financial reporting are included below, beginning on page F-3.

d) Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act during the period covered by this annual report on Form 20- F that have materially affected or are reasonable likely to materially affect our internal control over financial reporting. Additionally, there have been no changes in our internal controls over financial reporting or other factors that have occurred subsequent to the balance sheet date and through the date of this annual report that might materially and adversely affect our internal controls over financial reporting as of December 31, 2010.

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Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that Cedric Bridger is an “audit committee financial expert,” and that Mr. Bridger is independent, within the meaning of this Item 16A. See “Item 6 — Audit Committee”.

Item 16B. CODE OF ETHICS

We have adopted a code of ethics, as defined in Item 16B of Form 20-F. Our code of ethics applies to our chief executive officer and our chief financial officer, as well as to other executive officers and employees. Our code of ethics is available on our web site at http://www.petrobras.com.ar, in the section “Corporate Governance”, inside the section entitled “Investor Center”.

Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit and Non-Audit Fees

Fees for professional services provided to us by our independent auditors, during the fiscal years ended December 31, 2010 and 2009 in each of the following categories are discussed below:

The following table summarizes the fees for professional services provided to PESA, on a consolidated basis:

	Year ended December 31,
	2010		2009
	(in millions of pesos)
Audit fees		11		10
Audit-related fees		—		—
Tax fees		—		—
Total fees		11		10

Audit fees.Audit fees in the above tables are mainly for professional services rendered in connection with the audit of our consolidated annual financial statements and the review of our quarterly reports, statutory audits of the financial statements of certain of our subsidiaries, and the provision of comfort letters.

Independent Auditors.For each of the years ended December 31, 2010 and 2009, Sibille, a member firm of KPMG International, served as our independent auditors and audited our financial statements.

The shareholders’ meeting of PESA held on April 6, 2011 designated Sibille, member firm of KPMG International, as PESA’s independent auditors for the year to be ended December 31, 2011.

Audit Committee Pre-Approval Policies and Procedures

Our Audit Committee must pre-approve all services provided by the external auditors to ensure the auditors’ independence and compliance with all applicable legal restrictions. Pre-approval is either general or specific in nature. All services that are predictable and recurrent in nature and can be performed in a reasonably foreseeable time frame and at a cost that can be reasonably estimated may be approved by the Audit Committee in a general fashion on an annual basis. Services to be pre-approved on a general basis must be described in sufficient detail so that their scope is readily apparent. This description must also include an estimate of the fees payable for such services. Specific pre-approval is required for any services not subject to general pre-approval and/or exceeding the estimated cost of those services. Detailed, written descriptions of any proposed services must be delivered to the administrative manager, who will determine whether such services have already been pre-approved and bring to the Audit Committee’s attention those services that have not been pre-approved. Any doubts as to the scope of a pre-approved service must be resolved exclusively by the Audit Committee. Prior to Audit Committee meetings and at least three times a year, the administrative manager must provide a report on all services provided by the external auditor and related fees to the Audit Committee. The Audit Committee is also required to periodically discuss with the external auditors the services they provide to us and our affiliates and the compensation they receive for those services.

All services performed by the independent auditor during 2010 and 2009 were approved by the Audit Committee in accordance with this policy and the aforementioned procedures. This approval applied to the audit of all of our subsidiaries.

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Item 16D. EXEMPTION FROM THE LISTING STANDARD FOR AUDIT COMMITTEES

Not applicable.

Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATES PURCHASERS

From January 1, 2010 to December 31, 2010, no purchases of our ordinary shares or ADSs were made by us or on our behalf or by any affiliated purchaser.

On December 31, 2009, the account Treasury Shares relates to 3,385,947 Company shares resulting from the exchange of 9,431,210 Class B shares of PEPSA held by the Company.

During 2010, pursuant to the conditions provided of Section No. 220 of the Business Companies Law, the Company sold these treasury shares under the preemptive right provisions set forth in Sections 221 and 194 of the Law No. 19,550, and subsequently transferred to Optimum Petrobras Trust the remaining 3,277,418 treasury shares of the Company.

The Company, in its capacity as trustor, entered into a trust agreement with BNP Paribas Argentina Investment Partners S.A., in its capacity as trustee. The trust assets consist of shares of the Company which as of December 31, 2010 numbered 3,235,910. The sole purpose of the trust is to make periodical contributions of shares and/or funds resulting from the sale of the shares for the Company to comply with the funding obligations under its Compensatory Fund and the Employees’ Supplementary Pension Plan.

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Item 16G. CORPORATE GOVERNANCE

Comparison of New York Stock Exchange Corporate Governance Standards and Our Corporate Governance Practice

On November 4, 2003, the NYSE established corporate governance rules applicable to listed companies. These rules, and the amendments thereto, are codified in Section 303A of the NYSE’s Listed Company Manual.

Under these rules, foreign private issuers are subject to a more limited set of corporate governance requirements than U.S. domestic issuers. As a foreign private issuer, pursuant to Rule 303A.11 of the Listed Company Manual of the NYSE, we must provide a brief description of any significant difference between our corporate governance practices and those followed by U.S. companies in accordance with the NYSE listing standards. As required by the NYSE and Item 16G of Form 20-F, the table below discloses the significant differences between our corporate governance practices and the NYSE rules. Our corporate governance practices are described in further detail elsewhere in this annual report. See “Item 6. Directors, Senior Management and Employees” and “Item 10. Additional Information—Memorandum and Articles of Association”.

Section of the
NYSE Listed
Company	New York Stock Exchange Corporate
Manual	Governance Rules for Domestic Issuers	Our Practices
Independent Director
303A.01	Listed companies must have a majority of independent directors on their board of Directors. “Controlled companies,” which would include our company if it were a U.S. issuer, need not comply with this requirement. A controlled company is one in which more than 50% of the voting power is held by an individual, a group or another company, rather than the public.	Argentine law does not require us to have a majority of independent board members. Only the majority of the directors on the Audit Committee must be independent.
Independence Tests
303A.02	(a) This section establishes general standards to determine directors’ independence. No director qualifies as “independent” unless the board of directors affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company). The board of directors is also required to identify which directors are independent and disclose the basis for that determination.	At our annual shareholders meeting, our shareholders determine in accordance with Resolution No. 368 of the CNV and Decree No. 677/01 whether or not each of our directors is independent based on the following criteria. A director is not independent if such director is:
		(1) a member of management or an employee of shareholders who hold significant interests in the issuer, or of other entities in which these shareholders hold either directly or indirectly significant interests or over which these shareholders exercise a significant influence;
	(b) In addition, a director is not independent if:
	(i) the director is or has been within the last three years, an employee, or an immediate family member is, or has been within the last three years, an executive officer, of the listed company, its parent or a consolidated subsidiary, other than employment as interim chairman or CEO or other executive officer;	(2) an employee of the issuer or was an employee of the issuer in the last three years;
	(ii) the director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than U.S.$120,000 in direct compensation from the listed company, its parent or a consolidated subsidiary, other than director and committee fees and pension or other forms of deferred compensation for prior services (provided such compensation is not contingent in any way on continued service);	(3) a person who has professional relations or is part of a company or professional association that maintains professional relations with, or that receives remunerations or fees (other than directors’ fees) from, the issuer or from its shareholders that hold either directly or indirectly significant interests in or exercise a significant influence over the issuer, or from which such shareholders hold either directly or indirectly significant interests or exercise a significant influence;

175

Section of the
NYSE Listed
Company	New York Stock Exchange Corporate
Manual	Governance Rules for Domestic Issuers	Our Practices
	(iii) (A) the director is a current partner or employee of a firm that is the listed company’s internal or external auditor; (B) the director has an immediate family member who is a current partner of such firm; (C) the director has an immediate family member who is a current employee of such firm and personally works on the company’s audit; or (D) the Director or an immediate family member was within the last three years a partner or employee of such firm and personally worked on the company’s audit within that time;	(4) a person who is either directly or indirectly a holder of significant interests in the issuer or in an entity that has significant interests in or exercises a significant influence over the issuer;
	(iv) the director, or an immediate family member is, or has been with the last three years, employed as an executive officer of another company where any of the listed company’s present executive officers at the same time serves or served on that company’s compensation committee;	(5) the member is married or is a family member, up to fourth degree by blood or up to second degree by affinity, to an individual who would not qualify as independent; and
	(v) the director is a current employee , or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from the listed company its parent or a consolidated subsidiary for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of U.S.$1 million, or 2% of such other company’s consolidated gross revenues.	(6) a person who sells or provides either directly or indirectly goods or services to the issuer or to shareholders that hold either directly or indirectly significant interests in or exercise a significant influence over the issuer and receives compensation for such services that is substantially higher than that payable to a director.
		“Significant interests” shall mean shareholdings that represent at least 35% of the capital stock of the relevant entity, or a smaller percentage when the person has the right to elect one or more directors by class of shares or by having entered into shareholders agreements relating to the governance and management of the relevant entity or of its controlling shareholders.
	There is a three-year “look-back” period before non-independent directors can be considered independent. “Immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, and anyone (other than domestic employees) who share such person’s home.	Cedric Bridger, Roberto Luis Monti, Juan Fattobene, Alejandro Poletto and María José Perez Van Morlegan are currently members of our Board of Directors who qualify as independent directors pursuant to the factors listed above.
Executive Sessions
303A.03	The non-management directors of each listed company must meet at regularly scheduled executive sessions without management.	Under Argentine Law, a board of directors must meet at least once every three months. Carlos Alberto da Costa and Luis Miguel Sas, in addition to serving on the Board of PESA, have management positions. Our other seven directors are non-managing directors. The non-managing directors do not meet at regularly scheduled executive sessions without the presence of the managerial directors. See “Item 6. Directors, Senior Management and Employees — Directors and Senior Management — Board of Directors”.

176

Section of the
NYSE Listed
Company	New York Stock Exchange Corporate
Manual	Governance Rules for Domestic Issuers	Our Practices
Nominating/Corporate Governance Committee
303A.04	Listed companies must have a nominating/corporate governance committee composed entirely of independent directors, with a written charter that covers the committee’s purpose and responsibilities and an annual performance evaluation of the committee. “Controlled companies,” which would include our company if it were a U.S. issuer, need not comply with this requirement.	Argentine law does not require the establishment of a nominating committee or a corporate governance committee. We do not have either of these committees. Instead, their functions are carried out by the Compensation Committee or by the Board of Directors, with the assistance of the Direction of Legal Affairs, the Executive Management of Human Resources and the General Corporative Secretary.
Compensation Committee
303A.05	Listed companies must have a compensation committee composed entirely of independent directors, with a written charter that covers the committee’s purpose and responsibilities and an annual performance evaluation. “Controlled companies,” which would include our company if it were a U.S. issuer, need not comply with this requirement.	Argentine regulations do not require the establishment of a compensation committee. However, at its October 6, 2006 meeting, in order to better supervise salary and compensation matters, our Board of Directors created a Compensation Committee, whose purpose is to assure the compliance with and revise, whenever necessary, policies relating to compensation that aim to provide the Company with greater flexibility to make more effective decisions. The Committee meets to approve matters relating to compensation policy, including variable compensation practices. The Committee, composed of Directors Roberto Luis Monti, José Carlos Vilar Amigo and Carlos Alberto da Costa, must report to the Board of Directors at least semiannually.
Audit Committee
303A.06 303A.07	Listed companies must have an Audit Committee with a minimum of three independent, financially literate members (at least one member must have accounting or related financial management expertise) that satisfy the independence requirements of Rule 10A-3 under the Exchange Act (“Rule 10A-3”). The Committee must have a written charter that addresses its purpose, annual performance evaluation and the duties and responsibilities. Listed companies must have an internal audit function.	The Audit Committee is an advisory committee to the Board of Directors. Argentine law requires that the audit committee be composed of three members from the Board of Directors (with a majority of independent directors), all of whom are well-versed in business, financial or accounting matters. The Audit Committee is composed of three directors, who each satisfy the independence requirements of Rule 10A-3. One member of our Audit Committee, Mr. Cedric Bridger, qualifies as “financial expert” within the meaning of Item 16A of the Form 20-F. See “Item 16A. Audit Committee Financial Expert”.

177

Section of the
NYSE Listed
Company	New York Stock Exchange Corporate
Manual	Governance Rules for Domestic Issuers	Our Practices
		Our Audit Committee is responsible for, among other things: (1) monitoring and evaluating the activities of the internal and external auditors, (2) supervising the process for preparation of our financial statements, (3) ensuring that our financial statements comply with applicable legal requirements, (4) providing the market with complete information with respect to transactions where members of corporate bodies or controlling shareholders of ours have conflicts of interest, and (5) opine on the reasonableness of compensatory plans for directors and managers. See “Item 6. Directors, Senior Management and Employees — Board Practices — Audit Committee”.
		Under Argentine law, the shareholders must appoint the external auditor. The Board of Directors may present a proposal regarding the appointment of the external auditor to the shareholders’ meeting. The Audit Committee must issue an opinion on any such proposal presented to the Shareholders.
		We also have an internal audit department. In accordance with Argentine law, we also have established a Statutory Supervisory Committee that is comprised of three members and three alternate members, approved by our shareholders. Members of the Statutory Supervisory Committee are not members of our Board of Directors. The primary responsibilities of the Statutory Supervisory Committee are to monitor Board of Director’s and management’s compliance with the Argentine Companies Law, our by-laws and our shareholders’ resolutions. The Statutory Supervisory Committee also performs other functions, including: (1) attending meetings of the Board of Directors and shareholders, (2) calling extraordinary shareholders’ meetings when deemed necessary or when required by shareholders, in accordance with the Argentine Companies Law, No. 19550, (3) presenting a report on the reports of the Board of Directors and the annual financial statements at ordinary shareholders’ meetings, and (4) investigating written complaints of shareholders representing not less than 2% of the capital stock. See “Item 6. Directors, Senior Management and Employees — Board Practices — Statutory Supervisory Committee”.
Shareholder Approval of Equity Compensation Plans
303A.08	Shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions thereto, with limited exemptions set forth in the NYSE rules.	Our Board of Directors approves equity compensation plans for our executive officers and senior management. For a description of our stock option programs for our executive officers and senior management see “Item 6. Directors, Senior Management and Employees — Compensation”. The Audit Committee issues an opinion on the reasonableness of the Board of Directors’ proposals regarding fees and executive equity compensation plans.

178

Section of the
NYSE Listed
Company	New York Stock Exchange Corporate
Manual	Governance Rules for Domestic Issuers	Our Practices
Corporate Governance Guidelines
303A.09	Listed companies must adopt and disclose corporate governance guidelines.	Adoption of corporate governance guidelines is not required by Argentine law, but the CNV requires companies to publicly report annually on their adoption of certain recommended corporate governance practices. We have nonetheless adopted the practice of issuing corporate governance policies, and publicly reports on these policies on an annual basis, as required by the CNV.
Code of Business Conduct and Ethics
303A.10	Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers.	We have adopted a Code of Conduct and Business Ethics applicable to all employees. See “Item 16B. Code of Ethics”. Any amendment to the code will be disclosed on our web site at www.petrobras.com.ar.
Certification Requirements
303A.12	Each listed company CEO must certify to the NYSE each year that he or she is not aware of any violation by the listed company of NYSE corporate governance listing standards, qualifying the certification to the extent necessary.	Our CEO will promptly notify the NYSE in writing if an executive officer becomes aware of any material non-compliance with any applicable provision of the NYSE corporate governance rules.

179

Item 17. FINANCIAL STATEMENTS

Not applicable.

Item 18. FINANCIAL STATEMENTS

Pages F-1 to F- 97 of this annual report are incorporated herein by reference.

Item 19. EXHIBITS

Pursuant to the rules and regulations of the SEC, we have filed certain agreements as exhibits to this annual report on Form 20-F. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (1) may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to such agreements if those statements turn out to be inaccurate, (2) may have been qualified by disclosures that were made to such other party or parties and that either have been reflected in the company’s filings or are not required to be disclosed in those filings, (3) may apply materiality standards different from what may be viewed as material to investors and (4) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof.

Exhibit			Incorporated by Reference					Filed
Number		Description	Filer	Form	Date	No.		Herewith
	1.1	English translation of bylaws (estatutos sociales) of Petrobras Energía S.A.	PESA	20-F	6/30/09		1.2
	2.1	Form of Deposit Agreement among Petrobras Energía S.A., Citibank, N.A., as depositary, and the Holders and Beneficial Owners of American Depositary Shares evidenced by American Depositary Receipts issued thereunder, including the form of American Depositary Receipt.	PESA	20-F	6/24/10		2.1
	2.2	Amended and Restated Indenture, dated August 1, 2002, amending and restating the Indenture dated May 1, 1998, between Petrobras Energía and Citibank, N.A.	PEPSA	20-F	6/30/03		2.11

180

Exhibit			Incorporated by Reference					Filed
Number		Description	Filer	Form	Date	No.		Herewith
	4.1	Restructuring Agreement dated as of September 1, 2005 among Compañía de Inversiones de Energía S.A., Petrobras Energía S.A., Petrobras Hispano Argentina S.A., Enron Pipeline Company Argentina S.A., ABN AMRO BANK N.V. Sucursal Argentina, and the Creditors named therein.	PEPSA	20-F	6/29/06		4.4
	4.2	Third Amendment to the Restructuring Agreement dated as of March 25, 2008 among Compañía de Inversiones de Energía S.A., Petrobras Energía S.A., Petrobras Hispano Argentina S.A., Enron Pipeline Company Argentina S.A., ABN AMRO BANK N.V. Sucursal Argentina, and AEI.	PEPSA	20-F	6/27/08		4.2
	4.3	Loan Agreement Number 0088/2005, dated February 21, 2005, between Petrobras Energía, as borrower, and Petrobras International Braspetro BV., as lender (English translation).	PEPSA	20-F	6/30/05		2.16
	4.4	Loan Agreement, dated December 15, 2008, between Petrobras International Braspetro BV., as borrower, and Petrobras Energía S.A., as lender (English translation).	PEPSA	20-F	6/30/09		4.4
	4.5	Loan Agreement, dated December 15, 2008, between Petrobras International Braspetro BV., as borrower, and Petrobras Holding Austria AG, as lender (English translation).	PEPSA	20-F	6/30/09		4.5
	4.6	Stock Purchase Agreement, dated December 21, 2007, between Petrobras Energía, S.A., as seller, and Petrobras International Braspetro BV, as purchaser.	PEPSA	20-F	6/27/08		4.7
	4.7	Stock Purchase Agreement, dated April 27, 2009, between Petrobras Energía, S.A., as seller, and Petrobras International Braspetro BV, as purchaser.	PEPSA	20-F	6/30/09		4.7
	4.8	DeGoyer and MacNaughton reserves audit report, dated January 10, 2011.						X
	8.1	List of “significant subsidiaries” of Petrobras Argentina S.A. as defined in Rule 1-02(w) of Regulation S-X.						X

181

Exhibit			Incorporated by Reference				Filed
Number		Description	Filer	Form	Date	No.	Herewith
	12.1	Petrobras Argentina CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated June 17, 2011.					X
	12.2	Petrobras Argentina CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated June 17, 2011.					X
	13.1	Petrobras Argentina CEO Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated June 17, 2011					X
	13.2	Petrobras Argentina CFO Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated June 17, 2011					X

Omitted from exhibits with this annual report are certain instruments and agreements with respect to PESA’s long-term debt, none of which authorizes securities in a total amount exceeding 10% of our total assets. We hereby agree to furnish to the SEC a copy of any such omitted instruments or agreements as the SEC requests.

182

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

PETROBRAS ARGENTINA S.A.
By:	/s/ Carlos Alberto da Costa
	Name:	Carlos Alberto da Costa
	Title:	Chief Executive Officer
By:	/s/ Luis Miguel Sas
	Name:	Luis Miguel Sas
	Title:	Chief Financial Officer

Date: June 17, 2011

183

INDEX TO FINANCIAL STATEMENTS

PETROBRAS ARGENTINA S.A.

Report of independent registered public accounting firm of Petrobras Argentina S.A. on the Consolidated Financial Statements as of December 31, 2010, 2009 and 2008	F-2
Report of independent registered public accounting firm of Petrobras Argentina S.A on Internal Control over Financial Reporting as of December 31, 2010	F-3
Report of independent registered public accounting firm of Petroritupano S.A. as of December 31, 2008 and 2007	F-4
Consolidated statements of income and loss of Petrobras Argentina S.A for the years ended December 31, 2010, 2009 and 2008	F-5
Consolidated balance sheets of Petrobras Argentina S.A as of December 31, 2010 and 2009	F-6
Statements of changes in shareholders’ equity of Petrobras Argentina S.A for the years ended December 31, 2010, 2009 and 2008	F-7
Consolidated statements of cash flows of Petrobras Argentina S.A for the years ended December 31, 2010, 2009 and 2008	F-8
Notes to the consolidated financial statements of Petrobras Argentina S.A for the years ended 2010, 2009 and 2008	F-9

PETRORITUPANO S.A.

Statements of income and loss for the years ended December 31, 2010 (unaudited)	F-98
Balance sheets as of December 31, 2010 (unaudited)	F-99
Statements of changes in shareholders’ equity for the years ended December 31, 2010 (unaudited)	F-100
Statements of cash flows for the years ended December 31, 2010 (unaudited)	F-101
Notes to the financial statements for the years ended 2010 (unaudited)	F-102
Statements of income and loss for the years ended December 31, 2009 and 2008 (unaudited)	F-128
Balance sheets as of December 31, 2009 and 2008 (unaudited)	F-129
Statements of changes in shareholders’ equity for the years ended December 31, 2009 and 2008 (unaudited)	F-130
Statements of cash flows for the years ended December 31, 2009 and 2008 (unaudited)	F-131
Notes to the financial statements for the years ended 2009 and 2008 (unaudited)	F-132

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Petrobras Argentina S.A.
(formerly Petrobras Energía S.A.)

1. We have audited the accompanying consolidated balance sheets of Petrobras Argentina S.A. (“PESA”) and its subsidiaries as of December 31, 2010 and 2009 and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

2. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

3. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Petrobras Argentina S.A. and its subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with generally accepted accounting principles in Argentina, as approved by the Professional Council of Economic Sciences of the City of Buenos Aires.

4. Generally accepted accounting principles in Argentina, as approved by the Professional Council of Economic Sciences of the City of Buenos Aires vary in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in Notes 20, 21, and 22 to the consolidated financial statements.

5. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Petrobras Argentina S.A.’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 17, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Buenos Aires, Argentina
June 17, 2011
SIBILLE
(Member firm of KPMG International Cooperative)
Graciela C. Laso
Partner

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Petrobras Argentina S.A.
(formerly Petrobras Energía S.A.)

1. We have audited Petrobras Argentina S.A.’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Petrobras Argentina S.A.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

2. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

3. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

4. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

5. In our opinion, Petrobras Argentina S.A. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

6. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Petrobras Argentina S.A. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three year period ended December 31, 2010, and our report dated June 17, 2011 expressed an unqualified opinion on those consolidated financial statements.

Buenos Aires, Argentina
June 17, 2011
SIBILLE
(Member firm of KPMG International Cooperative)
Graciela C. Laso
Partner

F-3

Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Directors of
Petroritupano, S. A.:

1. We have audited the accompanying balance sheets of Petroritupano, S. A. as of December 31, 2008 and 2007, and the related statements of income, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

2. We conducted our audits in accordance with generally accepted auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

3. During 2008, the Company did not comply with various formal tax duties which, pursuant to the current tax regulations, may give rise to the payment of sanctions and interest amounting to approximately $24 million. The 2008 financial statements do not include any provision in this regard. Accordingly, the accruals and other liabilities caption of the balance sheet as of December 31, 2008 and net income for the year then ended are understated and overstated by such amount, respectively.

4. In our opinion, except for the effects on the 2008 financial statements of the matter discussed in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Petroritupano, S. A. as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended in conformity with International Financial Reporting Standards (IFRS).

ALCARAZ CABRERA VÁZQUEZ

Mario Pepe P.
Public Accountant
C.P.C. N° 18.226

June 26, 2009
Puerto La Cruz, Venezuela

F-4

PETROBRAS ARGENTINA S.A., SUBSIDIARIES AND COMPANIES UNDER JOINT CONTROL
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Stated in millions of Argentine pesos)

			2010			2009			2008
Net sales				14,442			11,972			15,175
Cost of sales	(Note 25.3)			(10,806	)		(8,858	)		(11,000	)
Gross profit				3,636			3,114			4,175
Administrative and selling expenses	(Note 25.5)			(1,746	)		(1,668	)		(1,758	)
Exploration expenses	(Note 25.5)			(190	)		(336	)		(238	)
Other operating expenses, net	(Note 15.4)			(258	)		(192	)		(231	)
Operating income				1,442			918			1,948
Equity in earnings of affiliates	(Note 7.1.2)			156			210			305
Financial income (expenses) and holding gains (losses)
Generated by assets:
Interest				140			108			111
Exchange difference				239			361			227
Holding gains (losses)	(Note 25.3)			22			(80	)		(111	)
Other financial income, net				19			96			65
				420			485			292
Generated by liabilities:
Interest				(494	)		(604	)		(539	)
Exchange difference				(221	)		(524	)		(460	)
Other financial expenses, net				(106	)		(58	)		(75	)
				(821	)		(1,186	)		(1,074	)
Other (expenses) income, net	(Note 15.5)			(357	)		1,288			(117	)
Income before income tax and minority interest				840			1,715			1,354
Income tax	(Note 11)			(201	)		(726	)		(508	)
Minority interest				(29	)		(64	)		(70	)
Net income		(1)		610			925			776
Basic/diluted earnings per share — Stated in Argentine pesos				0.604			0.916			0.769

(1) Net income includes 593, 185 and 514 which relate to continuing operations, and 17, 740 and 262, which relate to discontinued operations for the years ended December 31, 2010, 2009 and 2008, respectively (Note 8.4).

The accompanying notes are an integral part of these consolidated financial statements.

F-5

PETROBRAS ARGENTINA S.A., SUBSIDIARIES AND COMPANIES UNDER JOINT CONTROL

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2010 AND 2009
(Stated in millions of Argentine pesos)

			2010		2009
CURRENT ASSETS
Cash				581		327
Investments	(Note 7.1.1)			2,325		1,243
Trade receivables				1,824		1,792
Other receivables	(Note 15.1)			1,802		2,467
Inventories	(Note 15.2)			1,099		1,011
Other assets		(1)		142		269
Total current assets				7,773		7,109
NON-CURRENT ASSETS
Trade receivables				230		202
Other receivables	(Note 15.1)			446		790
Inventories	(Note 15.2)			81		82
Investments	(Note 7.1.1)			3,351		3,709
Property, plant and equipment	(Note 25.1)			10,789		11,128
Other assets				89		63
Total non-current assets				14,986		15,974
Total assets				22,759		23,083
CURRENT LIABILITIES
Accounts payable				1,926		1,607
Short-term debt	(Note 9.1)			1,285		2,508
Payroll and social security taxes				270		260
Taxes payable				503		415
Reserves	(Note 12)			162		124
Other liabilities	(Note 15.3)			960		575
Total current liabilities				5,106		5,489
NON-CURRENT LIABILITIES
Accounts payable				171		161
Long-term debt	(Note 9.1)			4,257		4,590
Payroll and social security taxes				125		111
Taxes payable				1,102		1,451
Reserves	(Note 12)			167		136
Other liabilities	(Note 15.3)			868		587
Total non-current liabilities				6,690		7,036
Total liabilities				11,796		12,525
MINORITY INTEREST				989		969
SHAREHOLDERS’ EQUITY				9,974		9,589
				22,759		23,083

(1) See Notes 4.7), 8.1) and 8.3).

The accompanying notes are an integral part of these consolidated financial statements.

F-6

PETROBRAS ARGENTINA S.A., SUBSIDIARIES AND COMPANIES UNDER JOINT CONTROL

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Stated in millions of Argentine pesos)

			Capital stock														Retained earnings
														Additional
														paid-in
								Additional						capital on
						Adjustment		paid-in						sales of					Future
			Capital			to capital		capital from			Treasury			stock of			Legal		dividends			Unappropriated			Deferred
			stock			stock		merger			stock (a)			parent			reserve		reserve			retained earnings			income (a)		Total
Balances as of December 31, 2007				1,010			1,230		960			(33	)		56			411		—			4,789			7		8,430
Deferred income of the year				—			—		—			—			—			—		—			—			56		56
Shareholders’ Meeting decisions of March 28, 2008:
- Legal reserve				—			—		—			—			—			37		—			(37	)		—		—
- Cash dividends				—			—		—			—			—			—		—			(315	)		—		(315	)
Net income				—			—		—			—			—			—		—			776			—		776
Balances as of December 31, 2008				1,010			1,230		960			(33	)		56			448		—			5,213			63		8,947
Corporate reorganization	(Note 1.2)
- Issue of shares				765			—		—			—			—			—		—			—			—		765
- Cancellation of shares				(765	)		—		—			—			—			—		—			—			—		(765	)
- Net effects of the merger				—			—		(48	)		—			—			—		—			—			—		(48	)
Deferred income of the year				—			—		—			—			—			—		—			—			34		34
Shareholders’ Meeting decisions of March 27, 2009:
- Future dividends reserve		(b)		—			—		—			—			—			—		380			(380	)		—		—
- Cash dividends		(b)		—			—		—			—			—			—		(269	)		—			—		(269	)
Net income				—			—		—			—			—			—		—			925			—		925
Balances as of December 31, 2009				1,010			1,230		912			(33	)		56			448		111			5,758			97		9,589
Deferred income of the year				—			—		—			—			—			—		—			—			29		29
Shareholders’ Meeting decisions of March 26, 2010:
- Future dividends reserve		(c)		—			—		—			—			—			—		164			(164	)		—		—
- Cash dividends		(c)		—			—		—			—			—			—		(275	)		—			—		(275	)
Sales of stock of parent		(a)		—			—		—			33			(12	)		—		—			—			—		21
Net income				—			—		—			—			—			—		—			610			—		610
Balances as of December 31, 2010				1,010			1,230		912			—			44			448		—			6,204			126		9,974

(a)	See Note 4.16. The change in the year 2009 is net of the effects of the sale of PVIE in the amount of 29 (Note 8.2)
(b)	The Regular Shareholders’ Meeting delegated to the Board of Directors the determination of the dividend distribution date and amount. On November 10, 2009, the Board of Directors approved the distribution of cash dividends in the amount of 269.
(c)	The Regular Shareholders’ Meeting delegated to the Board of Directors the determination of the dividend distribution date and amount. On August 3, 2010, the Board of Directors approved the distribution of cash dividends in the amount of 275.

The accompanying notes are an integral part of these consolidated financial statements.

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PETROBRAS ARGENTINA S.A., SUBSIDIARIES AND COMPANIES UNDER JOINT CONTROL

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Stated in millions of Argentine pesos)

			2010			2009			2008
Cash provided by (used in) operations:
Net income				610			925			776
Reconciliation to net cash provided by (used in) operating activities:
Minority interest				29			64			70
Equity in earnings of affiliates				(156	)		(210	)		(305	)
Financial income and holding gains, net				149			213			215
Depreciation of property, plant and equipment				1,268			1,399			1,260
Abandoned and non-productive well write-downs				136			270			42
Disposal of property, plant and equipment	(Note 15.5)			3			30			—
Net impairment of assests in Venezuela	(Note 15.5)			212			281			154
Impairment of assets held for sale in Argentina	(Note 15.5)			209			—			—
Reversion net impairment of assests in Argentina	(Note 15.5)			—			—			(121	)
Loss on return of Block 31	(Note 15.5)			—			—			31
Gain from the sale of the fertilizer business	(Note 15.5)			(34	)		—			—
Revaluation of assets of fertilizer business	(Note 8.1)			—			(47	)		—
Sale of oil and gas areas	(Note 15.5)			—			—			28
Gain from the sale of the equity interest in PVIE	(Note 15.5)			—			(1,591	)		—
Income tax				201			726			508
Income tax paid				(145	)		(84	)		(109	)
Accrued interest				412			558			455
Other				(31	)		(44	)		2
Changes in assets and liabilities:
Trade receivables				26			(252	)		78
Other receivables				265			(89	)		(108	)
Inventories				(65	)		474			(596	)
Other assets				(42	)		(16	)		5
Accounts payable				205			(45	)		7
Payroll and social security taxes				8			(75	)		75
Taxes payable				(240	)		161			(252	)
Other liabilities				237			135			245
Dividends collected	(Note 7.1.3)			219			94			150
Interest paid				(433	)		(515	)		(457	)
Net cash provided by operations				3,043			2,362			2,153
Cash provided by (used in) investing activities:
Acquisition of property, plant and equipment, interests in companies and oil and gas areas				(1,367	)		(1,570	)		(2,739	)
Sale of property, plant and equipment, interests in companies and oil and gas areas				1,686			613			1,440
Net (increase) decrease in investments other than cash and cash equivalents				(5	)		(12	)		51
Fideicomiso Financiero de Obra Gasoducto Sur				6			(119	)		—
Contributions and advances to unconsolidated affiliates				—			—			(2	)
Other				—			—			3
Net cash provided by (used in) investing activities				320			(1,088	)		(1,247	)
Cash provided by (used in) financing activities:
Net decrease in short term debt				(477	)		(916	)		(475	)
Increase in long-term debt				65			672			136
Payment of debt with original long-term maturity				(1,427	)		(770	)		(19	)
Cash dividends paid				(283	)		(299	)		(322	)
Net cash used in financing activities				(2,122	)		(1,313	)		(680	)
Effect of exchange rate change on cash				72			115			83
Increase in cash				1,313			76			309
Cash and cash equivalents at the beginning of the year		(a)		1,552			1,476			1,167
Cash and cash equivalents at the end of the year	(a) (Note 15.6)			2,865			1,552			1,476

(a) Cash and cash equivalents include highly liquid temporary cash investments with original maturities of three-months or less and those with higher terms and prepayment clauses

The accompanying notes are an integral part of these consolidated financial statements.

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PETROBRAS ARGENTINA S.A.
SUBSIDIARIES AND COMPANIES UNDER JOINT CONTROL

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in millions of Argentine pesos)

1. Business of the Company

1.1.The Company operations

Petrobras Argentina S.A. (hereinafter “Petrobras Argentina” or “the Company”) is an integrated energy company, focused on oil and gas exploration and production, refining, petrochemical activities, generation, transmission and distribution of electricity and sale and distribution of hydrocarbons. It has businesses in Argentina, Bolivia, Brazil, Ecuador, Venezuela, México and Colombia (See Note 5.3).

1.2.Corporate reorganization of Petrobras Energía and Petrobras Energía Participaciones S.A.

On September 2, 2008, the Boards of Directors of Petrobras Energía S.A. (“Petrobras Energía”) and of PEPSA approved the preliminary merger agreement that the companies had been negotiating. Under the terms of the preliminary merger agreement, PEPSA merged into Petrobras Energía, by way of absorption by Petrobras Energía of PEPSA. The reorganization was effective on January 1, 2009. According to the terms of the Preliminary Merger Agreement, as from the effective reorganization date and until the registration of the Definitive Merger Agreement with the Public Registry of Commerce and the dissolution without liquidation of PEPSA, Petrobras Energía’s Board of Directors took over the administration of PEPSA’s assets and liabilities, replacing those in charge of management until then.

The Special Shareholders’ Meetings of Petrobras Energía and PEPSA held on January 30, 2009 approved the merger of both companies. The merger agreement was approved on April 14, 2009. This reorganization was authorized through the Resolution No. 16,131, of the CNV and with its corresponding registration to the IGJ.

As a result of this corporate reorganization, each shareholder of PEPSA received 0.359015136 Class B book-entry common shares of Petrobras Energía for each Class B book-entry common share of PEPSA.

Following this exchange, Petrobras Energía’s capital stock increased by P$765,435,847, through the issuance of the same number of Class B book-entry common shares, which were fully admitted to the public offering regime in Argentina and delivered to PEPSA’s shareholders in exchange for their shares in this company. Once the capital increase was effective, the 765,435,847 Class B book-entry common shares of Petrobras Energía representing PEPSA’s main asset holding was cancelled, respecting the principle of equality among shareholders.

Petrobras Energía took all necessary steps to apply for listing the shares constituting its capital stock on the New York Stock Exchange, as American Depositary Shares, in the same conditions to which PEPSA’s shares were subject.

The Company has recorded the effects of the corporate reorganization under the pooling of interests method described in Technical Resolution No.18 of the FACPCE.

According to such method, the assets, liabilities and shareholders’ equity of the combining entities are recorded in the combined entity according to the accounting measurements they had in the combining entities at the effective date of the merger.

Also, according to such method, the financial statements for the year in which the merger occurred and those for previous years shown on a comparative basis must reflect the assets, liabilities and results of the combined entity as if the pooling of interests had occurred at the beginning of the earliest fiscal year presented. Considering that the effective date of the merger is January 1, 2009, total shareholders’ equity and net income for the previous year shown for comparative purposes do not change as a result of the merger. For this reason, the balancing item of the net effect of additions, both in terms of the shareholders’ equity and net income, is recorded under minority interest.

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1.3.Change of corporate name

The Shareholders’ Meeting held on March 27, 2009, approved, among others things, the change of Petrobras Energía S.A.’s corporate name to Petrobras Argentina S.A.

On July 19, 2010 the CNV notified the Company of the registration of the change of its corporate name with the IGJ.

2. Basis of presentation

Petrobras Argentina’s consolidated financial statements have been prepared in accordance with the regulations of the CNV and, except for the matters described in Note 3, with Generally Accepted Accounting Principles in Argentina, as approved by the CPCECABA, applicable to consolidated financial statements (“Argentine GAAP”), which differ in certain significant respects from generally accepted accounting principles in the United States of America (“US GAAP”) — see Note 20. Such differences involve method of measuring the amounts shown in the financial statements, as well, as additional disclosures required by US GAAP and Regulation S-X of the Securities and Exchange Commission (“SEC”).

The accompanying consolidated financial statements have been translated into English from those issued in Spanish. They have also been reformatted in a manner different from the presentation in Spanish, but in all other respects follow accounting principles that conform with the CNV regulations.

Certain disclosures related to formal legal requirements for reporting in Argentina have been omitted for purposes of these consolidated financial statements.

The preparation of financial statements in conformity with Argentine GAAP requires management to make estimates, judgments and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the value of purchase consideration, valuation of accounts receivable, inventories, and other long-lived assets, legal contingencies, guarantee obligations, indemnifications, and assumptions used in the calculation of income taxes, retirement and other post-employment benefits, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Significant areas of uncertainty and critical judgments in the application of accounting principles that have most significant effects on the amounts recognized in the financial statements are as follows:

Notes 4.8 and 25.1	- Depreciation
Notes 4.8 and 5	- Accrual for asset retirement obligations and exploratory well costs
Notes 4.14 and 12	- Contingencies
Notes 4.8, 5, 7 and 12	- Impairment of long-lived assets
Notes 4.10 and 11	- Calculation of income taxes
Note 23	- Oil and Gas supplementary disclosures (Unaudited)

2.1.Basis of consolidation

In accordance with the procedure set forth in Technical Resolution No. 21 of the FACPCE, Petrobras Argentina has consolidated line by line its financial statements with those of the companies in which it exercises control or joint control. Joint control exists where all the shareholders, or only the shareholders owning a majority of the votes, have resolved, on the basis of written agreements, to share the power to define and establish a company’s operating and financial policies. As of December 31, 2010 and 2009 under the joint control of Petrobras Argentina are Distrilec and CIESA. As of December 31, 2008 the Company exercised joint control in Distrilec, CIESA and PVIE. Regarding PVIE see Note 8.2.

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In the consolidation of controlled companies, the amount of the investment in such subsidiaries and the interest in their income (loss) and cash flows are replaced by the aggregate assets, liabilities, income (loss) and cash flows of such subsidiaries, reflecting separately the minority interest. The related party receivables, payables and transactions within the consolidated group are eliminated. The unrealized intercompany gains (losses) from transactions within the consolidated group have been completely eliminated.

In the consolidation of companies over which the Company exercises joint control, the amount of the investment in the affiliate under joint control and the interest in its income (loss) and cash flows are replaced by the Company’s proportional interest in the affiliate’s assets, liabilities, income (loss) and cash flows. The related party receivables, payables and transactions within the consolidated group and companies under joint control have been eliminated in the consolidation pro rata to the shareholding of the Company.

The information contained in the consolidated financial statements from the proportional consolidation of companies over which the Company exercises joint control is disclosed in Note 25.9.

The information about the entities in which the Company exercises control, joint control and significant influence is disclosed in Note 25.6).

2.2.Foreign currency translation

The Company applies the method established by the Technical Resolution No. 18 of the FACPCE for the translation of financial statements of foreign operations.

In the opinion of the Company’s Management, the transactions carried out by its foreign operations have been classified as “not integrated”; as such transactions are not considered to be an extension of the Company’s transactions.

Upon applying the translation method, the financial statements of the foreign operations are first remeasured into US dollars (functional currency for such entities), as follows:

• Assets and liabilities stated at current values are converted at the closing exchange rate.

• Assets and liabilities measured at historical values and the income (loss) accounts are converted at historical exchange rates.

Remeasurement results are recognized in the statements of income as “Financial income (expenses) and holding gains (losses)”.

After the financial statements are remeasured into US dollars, they are translated into Argentine pesos as follows:

• Assets and liabilities are translated by using the closing exchange rate.

• Income (loss) is translated at the historical exchange rates.

The effect arising from the translation of the financial statements of foreign operations is disclosed in the Shareholders’ equity as “Deferred income”.

Exchange gains and losses arising from the remeasurement of the Company’s liabilities in foreign currency assigned to hedge the Company’s net investments in foreign entities are also recorded in the “Deferred income” account (Note 4.16).

2.3.Consideration of the effects of inflation

The Company presents its consolidated financial statements in constant currency following the restatement method established by Technical Resolution No. 6 of the FACPCE and in accordance with CNV General Resolutions No. 415 and 441.

Under such method, the consolidated financial statements reflected the effects of the changes in the purchasing power of the Argentine peso through August 31, 1995. Starting September 1, 1995, under CNV General Resolution No. 272, the Company interrupted the use of this method and maintained the restatements made through such date. This method has been accepted by professional accounting standards through December 31, 2001.

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On March 6, 2002, the CPCECABA approved Resolution MD No. 3/2002 providing, among other things, the reinstatement of the adjustment-for-inflation method for the interim periods or years ended after March 31, 2002, allowing for the accounting measurements restated based on the change in the purchasing power of the Argentine peso through the interruption of adjustments, such as those whose original date is within the stability period, to be stated in Argentine pesos as of December 2001. Through General Resolution No. 415 dated July 25, 2002, the CNV requires that the information related to the financial statements that are to be filed after the date on which the regulation became effective be disclosed adjusted for inflation.

The restatement method is applied to the accounting cost values immediately preceding the capitalization of the exchange differences, which represent an anticipation of the effects of variances in the purchasing power of the Argentine peso, which will be subsequently absorbed by the restatement in constant pesos.

On March 25, 2003, the PEN issued Decree No. 664 establishing that the financial statements for years ending as from such date be filed in nominal currency. Consequently, and under CNV Resolution No. 441, the Company no longer applied inflation accounting as from March 1, 2003. This method was not in accordance with professional accounting standards effective in the City of Buenos Aires, which through Resolution No. 287/03 of the CPCECABA, discontinued the application of the restatement method starting October 1, 2003. This difference in criteria does not significantly affect the Company’s financial position.

2.4.Accounting for the operations of oil and gas exploration and production joint ventures and foreign branches

The oil and gas exploration and production joint ventures have been proportionally consolidated. Under this method, the Company recognizes its proportionate interest in the joint ventures’ assets, liabilities, revenues, costs and expenses on a line-by-line basis in each account of its financial statements.

Foreign branches have been fully consolidated.

2.5.Financial statements used

The financial statements of the subsidiaries and companies under joint control as of December 31, 2010, 2009 and 2008 or the best available accounting information at such dates were used for consolidation purposes and adapted to an equal period of time in respect to the financial statements of the Company. Additionally, the adjustments to adapt the valuation methods to those applied by the Company were also considered.

2.6.New accounting standards

On December 30, 2009, the CNV issued General Resolution No. 562/09 providing for the application of Technical Resolution No. 26 of the FACPCE which mandates, for certain entities admitted to the public offering regime under Law No. 17,811, of their capital stock or their corporate bonds, among others, the application of International Financial Reporting Standards (IFRS) as issued by the IASB in the preparation of their financial statements to be filed with CNV. The Company should apply such standards as from the fiscal year beginning on January 1, 2012. On April 13, 2010 the Company’s Management approved an implementation plan for the adoption of such accounting standards.

3. Accounting standards

These consolidated financial statements have been prepared in accordance with the applicable CNV regulations. The CNV regulations differ from Argentine GAAP as follows:

a) The date of discontinuance of the application of inflation accounting provided for in FACPCE Technical Resolution No. 6, as described in Note 2.3).

b) The option of capitalizing the financial costs of financing with the Company’s own capital may not be applied.

c) The alternative treatment prescribed in the professional accounting standards in connection with the capitalization of financial costs attributable to certain assets is considered mandatory.

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4. Measurement methods

The main measurement methods used in the preparation of these consolidated financial statements are as follows:

4.1.Accounts denominated in foreign currency

At the prevailing exchange rates at each balance sheet date.

The summary of accounts denominated in foreign currency is presented in Note 25.4).

4.2.Trade receivables and accounts payable

Trade receivables and accounts payable are recognized at cost plus accrued financial components, net of collections or payments, respectively. The principal amount is equal to the cash price, if available, or the nominal price less implicit interest calculated at the prevailing interest rate on the date of the original transaction.

Trade receivables include both outstanding billed services and services rendered but not yet billed as of each balance sheet date.

The total amount of receivables, if applicable, is presented net of an allowance for doubtful accounts. In providing such allowance, the Company evaluates different factors, including the customers’ credit risk, historical trends and other relevant information. Such evaluation may require future adjustments if economic conditions substantially differ from the assumptions made.

4.3.Inventories

Crude oil stock: at reproduction cost.

Raw materials and materials: of high-turnover, at replacement cost; of low-turnover, at the latest purchase price, restated according to Note 2.3).

Work in progress and finished products relating to refining, distribution, petrochemical and gas and energy businesses: at replacement or reproduction cost, as applicable, applied proportionally to the degree of completion of the related good in the case of work in progress.

Advances to suppliers: based on the amounts of money delivered.

The carrying amount of these assets does not exceed their recoverable value.

4.4.Investments

Certificates of deposit and loans granted to affiliates: at nominal value plus accrued interest, according to the specific clauses of each transaction. The carrying amount of these assets does not exceed their recoverable value.

Investments in mutual funds: at market value at each balance sheet date.

Shares — Participation in affiliates in which the Company exercises significant influence: calculated under the equity method using the affiliates’ financial statements as of December 31, 2010 and 2009, respectively, or the best available financial information, adapted to an equal period of time.

For the determination of the Company’s equity investments in affiliates, consideration is given to the adjustments to adapt the valuation methods of some affiliates to those of the Company irrevocable contribution made by others, elimination of reciprocal investments, intercompany profits and losses and the difference between acquisition cost and book value of affiliates at the time of the acquisition.

Investments are stated at recoverable value if such value is exceeded by using the equity method.

Interest in affiliates in which the Company does not exercise control, joint control or significant influence: at acquisition cost restated according to Note 2.3).

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4.5. Financial receivables and payables

Financial receivables and payables are measured according to the amounts rendered and received, respectively, net of transaction costs, plus accrued financial gains (losses) on the basis of the explicit or estimated rate at such time, net of collections or payments.

4.6.Other receivables and payables

Other receivables and payables are measured on the basis of the best estimate of the amount to be collected or paid, respectively, discounted, when applicable, using the estimated rate at the time of initial measurement, except for the deferred tax assets and liabilities, which are stated at nominal value.

4.7.Other assets

Other current assets as of December 31, 2010 include property, plant and equipment related to the sale of the San Lorenzo’s refinery and other assets of the refining and distribution business, which were classified as assets held for sale (See Note 8.3 and Note 24.d) and, consequently, measured at their NRV.

Other current assets as of December 31, 2009 include property, plant and equipment related to the sale of the fertilizers business, which were classified as assets held for sale (See Note 8.1) and, consequently, measured at their NRV.

4.8. Property, plant and equipment

4.8.1.General principles

Property, plant and equipment, except as indicated below, is measured at acquisition cost restated according to Note 2.3, less accumulated depreciation. Any expenditure subsequent to the original recognition of the asset is added as a component of the asset only when the expenditure improves its condition and it is probable that future economic benefits, in excess of the originally assessed ones, will flow to the enterprise or when the expenditure relates to a major repair or overhaul of the asset made to allow the continued use of the asset provided (i) such expenditure is allocated to the replacement of the component parts of the asset, (ii) the useful life of such component parts has been calculated based on their own wear and tear or depletion and (iii) it is probable that future economic benefits will flow as a result of the expenditure.

The cost of work in progress, whose construction will extend over time, includes, if applicable, the computation of financial costs accrued on loans granted by third parties and the costs related to setting up the facilities, net of any income obtained from the sale of commercially valuable production during the process.

Property, plant and equipment related to foreign operations were remeasured in US dollars (functional currency) at their historical exchange rates, and translated into Argentine pesos at the exchange rate effective at closing date in accordance with the method for translating foreign operations described in Note 2.2.

4.8.2.Oil and gas exploration and production activities

The Company uses the successful efforts method of accounting for its oil and gas exploration and production activities, in accordance with the SFAS No. 19, issued by the United States FASB, which was codified into FASB as ASC 932, “Extractive Activities — Oil and Gas”. This method involves the capitalization of: (i) the cost of acquiring properties in oil and gas exploration and production areas; (ii) the cost of drilling and equipping exploratory wells that result in the discovery of commercially recoverable reserves; (iii) the cost of drilling and equipping development wells, and (iv) the estimated future costs of abandonment and restoration.

In accordance with ASC 932, exploration costs, excluding exploratory well costs, are expensed during the period in which they are incurred. Drilling costs of exploratory wells are capitalized until determination is made on whether the drilling resulted in proved reserves that justify the commercial development. If reserves are not found, such drilling costs are expensed. Occasionally, an exploratory well may determine the existence of oil and gas reserves but they cannot be classified as proved when drilling is complete. In those cases, such costs continue to be capitalized insofar as the well has allowed to determine the existence of sufficient reserves to warrant its completion as a production well and the Company is making sufficient progress in evaluating the economic and operating feasibility of the project.

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Estimated future restoration and well abandonment costs in hydrocarbons areas, discounted at an estimated rate at the time of their initial measurement, are included in the cost of the assets and depreciated using the units of production method. Additionally, a liability at the estimated value of the discounted amount payable is recognized.

4.8.3.TGS

The cost of TGS‘s property, plant and equipment was determined based on the price paid for the acquisition of 70% of TGS’s common stock. This price was the basis to determine a total value of common stock, to which was added the value of the debts assumed under the Transfer Agreement, in order to determine the initial carrying value of property, plant and equipment. Such amount has been restated as explained in Note 2.3).

4.8.4.Depreciations

The Company depreciates productive wells, machinery and camps in the production areas according to the units of production method, by applying the ratio of oil and gas produced to the proved developed oil and gas reserves. The acquisition cost of property with proved reserves is depreciated by applying the ratio of oil and gas produced to estimated proved oil and gas reserves. Acquisition costs related to properties with unproved reserves is valued at cost and its recoverability is periodically assessed on the basis of geological and engineering estimates of possible and probable reserves that are expected to be proved over the life of each concession.

The Company’s remaining items of property, plant and equipment are depreciated by the straight-line method based on their existing concession terms and their estimated useful lives as the case may be.

4.8.5.Recoverable value

The carrying value of property, plant and equipment does not exceed its recoverable value. Company’s Management assesses the recoverability of property, plant and equipment items whenever there occur events or changes in circumstances (including significant decreases in the market value of assets, in the prices of the main products sold by the Company or in oil and gas reserves, as well as changes in the regulatory framework for the Company’s activities, significant increases in operating expenses, or evidence of obsolescence or physical damage) that could indicate that the value of an asset or of a group of assets might not be recovered. The book value of a long-lived asset is adjusted to its recoverable value if its carrying amount exceeds such value.

From a regulatory standpoint, recoverable value is defined as the larger of net realizable value and the discounted value in use, defined as the addition of the discounted expected net cash flows that arise as a direct result of the use and eventual disposition of the assets. To such end, among other elements, the premises that represent the best estimation made by Management of the economic conditions that will prevail throughout the useful life of the assets are considered.

In subsequent periods, the reversal of the impairment is analyzed if changes in the assumptions used to determine the asset recoverable value arise. In such a case, the book value of the asset or group of assets is raised to the smaller of: a) the book value that the asset or group of assets would have had if the impairment had never been recognized; and b) its recoverable value.

4.9.Environmental costs

The costs incurred to limit, neutralize or prevent environmental pollution are only capitalized if at least one of the following conditions is met: (a) such costs relate to improvements in safety; (b) the risk of environmental pollution is prevented or limited; or (c) the costs are incurred to prepare the assets for sale and the book value of such assets together with the additional cost do not exceed their respective recoverable value.

Liabilities related to future remediation costs are recorded when environmental assessments are probable, and the costs can be reasonably estimated. The timing and magnitude of these accruals are generally based on the Company’s commitment to a formal plan of action, such as an approved remediation plan or the sale or disposal of an asset. The accrual is based on the probability that a future remediation commitment will be required.

The Company records the related liabilities based on its best estimation of future costs on a discounted basis, using currently available technology and applying current environmental regulations as well as the Company’s own internal environmental policies.

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4.10.Income tax and minimum presumed income tax

The Company estimates income tax on an individual basis under the deferred tax method.

To book the deferred tax balance, the Company uses the liability method, which establishes the determination of net deferred tax assets and liabilities on the basis of temporary differences determined between the accounting and tax measurement of assets and liabilities. Temporary differences result in the recognition of tax assets and liabilities when their future reversal decreases or increases the taxes to be determined, without affecting the compensation of the respective amounts. The Company recognizes deferred tax assets if, and only if, it is considered probable that there will be sufficient future taxable profit against which the tax loss could be used.

The deferred tax assets and liabilities are stated at their nominal value.

Prevailing income tax rates at year end in Argentina, Venezuela, Brazil, Ecuador, Bolivia, Austria and Spain are 35%, 50%, 34%, 25%, 25%, 25% and 30%, respectively. In the case of Ecuador, applies an additional charge for labor participation, in which the applicable rate rises to 36.25%. Additionally, payment of Bolivian-source income to beneficiaries outside Bolivia is levied with 12.5% withholding income tax.

The minimum presumed income tax is supplementary to income tax, since while the latter is levied on the taxable income, the minimum presumed income tax is a minimum tax levied on the potential income of certain productive assets at the rate of 1%, so that the Company’s final liability will be equal to the higher of both taxes. However, should the minimum presumed income tax exceed the calculated income tax in any given year, such excess may be applied to reduce any excess of income tax over the minimum presumed income tax in any of the ten succeeding years.

In the years ended December 31, 2010 and 2009, income tax expenses were higher than minimum presumed income tax. Therefore, the Company only recorded income tax expense. As of December 31, 2008 the minimum presumed income tax asset was stated at its discounted value.

4.11.Hydroelectric royalties

For the operation of Pichi Picún Leufú Hydroelectric Complex, the Company pays, since 2002, hydroelectric royalties of 1%, increasing at a rate of 1% per year up to the maximum percentage of 12% of the amount resulting from applying the rate for the bulk sale to the power sold under the terms of Section No. 43 of Law No. 15,336, as amended by Law No. 23,164. In addition, the Company is subject to a monthly license fee payable to the Federal Government for the use of the power source equivalent to 0.5% of the same basis used for the calculation of the hydroelectric royalty.

4.12.Withholdings on exports of hydrocarbons

The Public Emergency and Exchange System Reform Law No. 25,561 established the creation of a system of withholdings on exports of hydrocarbons for five years from March 1, 2002, which was subsequently extended for five years by Law No. 26,217. The effect of such withholdings is deducted from the respective selling prices.

Effective November 2007, Resolution No. 394/07 issued by the Ministry of the Economy and Production established a new method for calculating withholdings on exports of crude oil, and gave equivalent treatment to certain oil related products as that of crude oil. This amendment results in the application of a variable export withholding based on a formula that considers the international price of crude oil and a cut-off price by product. Under this method, when the international (quoted) price of crude oil exceeds US$ 60.90 per barrel, an increasing withholding rate is set for crude oil exports that results in a price cap of US$ 42 per barrel of standard-quality crude oil. When the international price of crude oil ranges between US$ 45 and US$ 60.90 per barrel, a 45% withholding rate is applied. When the international price of crude oil dips below US$ 45 per barrel, the regulations call for the authorities to determine a new applicable withholding rate within 90 days. The same rules apply to exports of refined products such as gasoline, fuel oil and lube oils, for which different cut-off and reference prices were defined.

In March 2008, the Ministry of Economy and Production issued Resolution No.127/08 which, in connection with natural gas, amended Resolution No. 534/2006, whereby a 45% withholding rate was established on the price of the gas imported from Bolivia, and imposed a 100% withholding on natural gas exports, considering for valuation purposes the highest price set for natural gas under the applicable agreements for natural gas imports into Argentina. In addition, pursuant to such resolution, the methodology for calculating withholdings on exports of crude oil was also applied to LPG.

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4.13.Labor costs liabilities

Labor costs liabilities are accrued in the periods in which the employees provide the services that trigger the consideration.

The cost of defined contribution plans is periodically recognized in accordance with the contributions made by Petrobras Argentina.

For purposes of determining the estimated cost of post-retirement benefits granted to employees, the Company has used actuarial calculation methods, making estimates with respect to the applicable demographic and financial variables. The amount recognized as liability attributable to such benefits represents the addition of the present value of the obligation, net of any actuarial result not recognized and the present value of the assets of the plan, with which the obligations will be canceled.

4.14.Contingencies

Contingencies relate to conditions that exist as of the date of the financial statements that may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. Such contingent liabilities are assessed by the Company’s management based on the opinion of its legal counsel and the remaining available evidence.

Such contingencies include outstanding lawsuits or claims for possible damages to third parties in the ordinary course of the Company’s business, as well as third party claims arising from disputes concerning the interpretation of legislation.

If the assessment of a contingency indicates that it is probable that a loss has been incurred and the amount of the loss can be estimated, a liability is accrued in the Reserves account, at present value at closing date, based on the best estimate of the expenditure required to settle the obligation. The Company evaluates whether there would be additional expenses directly associated to the ultimate resolution of each contingency, which are to be included in the reserve if they may be reasonably estimable. The Company evaluates whether there are incremental legal or other costs directly associated with the ultimate resolution of the matter that are reasonably estimable and, if so, they are included in the accrual. If the assessment indicates that a potential loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the possibility of occurrence, is disclosed in a note to the financial statements. Loss contingencies considered remote are not disclosed unless they involve guarantees, in which case the nature of the guarantee is disclosed.

Movements of reserves are disclosed in Note 12.

4.15.Basic/diluted earnings per share

Earnings per share for the years ended December 31, 2010, 2009 and 2008 were calculated on the basis of shares outstanding during each year, which amounts to 1,009,618,410 shares in those years. Since the Company does not have preferred shares or debt convertible into shares, basic and diluted earnings per share are the same.

4.16.Shareholders’ equity accounts

The equity accounts were restated according to Note 2.3), except for “Capital stock” that represents subscribed and paid-in capital. The adjustment arising from the restatement of the Capital stock is disclosed under the caption “Adjustment to capital stock”.

At December 31, 2009, the account Treasury Shares corresponds to 3,385,947 Company shares resulting from the exchange of 9,431,210 Class B shares of PEPSA held by the Company. Those shares were deducted from the shareholders’ equity at acquisition cost, with a cost and book value of 33.

During the third quarter of 2010 and in compliance with the terms and conditions in section 220 of the LSC, the Company sold these treasury shares under the preemptive right provisions set forth in Sections 221 and 194 of the LSC, and subsequently transfered to Optimum Petrobras Trust the remaining 3,277,418 shares of the Company (Note 16.3).

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The “Deferred income” account comprises the exchange differences from the Company’s non derivative financial liabilities denominated in foreign currency designated as hedging instruments of the net foreign investment, net of its related tax effect.

4.17.Revenue recognition

Revenues from the sale of crude oil, natural gas, petrochemical and refined products are recognized when the products are delivered, which occurs when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectibility is reasonably assured.

Revenues from oil and natural gas production in which the Company has a joint interest with other producers are recognized on the basis of the net working interest, regardless of actual assignation. Any imbalance between actual and contractual assignation will result in the recognition of an amount payable or receivable according to the actual share in production, whether above or below the production resulting from the Company’s contractual interest in the consortium. As of December 31, 2010, 2009 and 2008 gas imbalance liabilities were 5, 6 and 6, respectively, attributable to 99, 118 and 135 million cubic meters, respectively.

Revenues from electricity generation are accounted for under the accrual method, including energy and power actually delivered.

Revenues from natural gas transportation under firm agreements are recognized based on contracted capacity, regardless of the volumes carried. Revenues generated by interruptible gas transportation and by certain LNG production and transportation contracts are recognized at the time the natural gas and the liquids are delivered to the customers. For other LNG production contracts and other services, revenues are recognized when the services are rendered.

Revenues from electric power distribution are recognized on the basis of the actual supply of the service, considering the billed portion resulting from periodic power measurements and an estimated amount accrued and not billed for the services supplied from the last measurement to year end. Services accrued and not billed as of year end are determined on the basis of the estimated daily power consumption for the days following the last measurement, based on users’ historical consumption, and adjusted by seasonality or other measurable factors that may have an impact on consumption.

4.18.Changes in presentation criteria

For comparative purposes, all the necessary reclassifications were made in the consolidated financial statements of prior years in order to present them on a consistent basis with current year figures. These reclassifications do not imply changes in the decisions based on them.

4.19.Accounting for derivative financial instruments

Derivative financial instruments are measured at their fair value, determined as the amount of cash to be collected or paid to settle the instrument as of the date of measurement, net of any collected or paid advances.

Changes in the accounting measurement of derivative financial instruments designated as cash flows hedges, which have been designated as effective hedges, are recognized under “Deferred income” in “Shareholders’ equity”. Changes in the accounting measurement of derivative financial instruments that do not qualify for hedge accounting are recognized in the statement of income under “Financial income (expenses) and holding gains (losses)”.

A hedge is considered to be effective when at its inception, as well as during its life, its changes offset from eighty to one hundred and twenty five percent of the opposite changes of the hedged item. In this respect, the Company excludes the specific component attributable to the time-value of an option when measuring the effectiveness of instruments that qualify for hedge accounting.

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Hedge accounting must cease upon occurrence of any of the following events: (a) the hedge instrument has matured or has been settled; (b) the hedge transaction is no longer effective; or (c) the projected transaction does not have a high likelihood of occurrence. Should that be the case, the income (loss) arising from the hedge instrument that would have been allocated to “Deferred income” should remain there until the committed or projected transactions occurs in the case of (a) and (b), and are charged to the statement of income in the case of (c).

During the years ended December 31, 2010, 2009 and 2008, the transactions with derivative financial instruments did not imply the recognition of significant results during the years then ended. At that dates, the Company did not maintain positions in derivative financial instruments.

5. Oil and gas areas and participation in joint ventures

5.1.General considerations

As of December 31, 2010, the Company and its affiliates were part of the oil and gas consortiums, joint-ventures and areas indicated in Note 25.7). The aggregate joint ventures and consortium assets, liabilities and results in which the Company is a party, included in each account of the balance sheet and the statement of income utilizing the proportionate consolidation method, are disclosed in Note 25.8).

The Company is jointly and severally liable with the other participants for meeting the contractual obligations under these arrangements.

The production areas in Argentina are operated pursuant to concession production agreements with free crude oil availability.

According to Law No.17,319, royalties equivalent to 12% of the wellhead price of crude oil and natural gas are paid in Argentina. The wellhead price is calculated by deducting freight and other sales related expenses from the sale prices obtained from transactions with third parties.

In December 2008, the Company executed a Memorandum of Agreement for a ten-year extension of the production concessions Aguada de la Arena, Río Neuquén, Veta Escondida and Rincón de Aranda, all of them located in the province of Neuquén, with a related payment of 56.

Petrobras Argentina’s branch in Bolivia performs at its own risk and for its own account, in the name and on behalf of YPFB exploration and production activities within the Colpa Caranda area. Pursuant to the agreement, YPFB owns the hydrocarbons, pays royalties and direct tax on hydrocarbons, which in the aggregate amount to 50% of the production valued on the basis of sales prices, and applies the 80% of the surplus amount to pay, in the first place, the costs and depreciations associated to the development and operation of Petrobras Energia’s branch, being the rest shared between YPFB and the branch on the basis of an index calculated based on production volumes, depreciation rate, prices and taxes paid, among other items.

5.2.Investment commitments

In Argentina, on account of its interest in the joint ventures in charge of the exploration of the areas Chirete, Río Colorado, Río Atuel, Borde del Limay, Los Vértices and Malvinas, as of December 31, 2010 the Company maintains investment commitments for approximately US$ 23 million, which mainly include the execution of seismic surveys and exploratory wells perforation.

5.3.Changes in oil and gas areas and participation in joint ventures

During the second quarter of 2010, the results of the evaluation of the potential of the Tibú field located in the Catatumbo basin in Colombia were unsuccessful. For such reason, the Tibu Consortium, of which Petrobras Argentina is a member, officially announced to the Colombian authorities its decision to suspend operations and restore the area, which was the Company’s only asset in Colombia.

Consequently, in the year ended December 31, 2010 the Company wrote off 45 of capitalized costs relating to exploratory wells, and this expense was included in Exploration expenses.

During 2009, the Company was granted the concession of three new blocks in the Neuquina basin: Río Atuel, Los Vértices and Borde del Limay.

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In March 2008, once all the formalities concerning regulatory matters were completed, the Company acquired from Energy Development Corporation (Argentina), Inc. Argentina Branch a 13.72% equity interest in El Tordillo and La Tapera — Puesto Quiroga areas paying US$ 117.5 million.

In December 2008, the Company entered into a joint undertaking agreement with Repsol-YPF for the exploration of CGSJ Marina-1 block in the Golfo San Jorge basin for a 33% interest, which is currently being returned since no positive results were obtained from exploration activities. In such respect, the Company charged 220 to exploration expenses in 2009 fiscal year.

Since no positive results were obtained from the exploratory activities, in the first quarter of 2008, the Tierra Negra exploratory area was returned to the National Hydrocarbon Agency of Colombia.

In December, 2008, the Company entered into a joint undertaking agreement with Repsol-YPF and Pan American for the exploration of CAA-40 and CAA-46 exploration blocks in the Malvinas basin for a 33% interest.

5.4.Operations in Ecuador

As from 2006 the Ecuadorian Government introduced sweeping tax and regulatory reforms in the hydrocarbon sector which resulted in significant changes to the terms and conditions set forth at the time of execution of the participation agreements.

Amendatory Agreements and Law amending the Hydrocarbon Law

On October 31, 2008, EcuadorTLC S.A., Teikoku Oil Ecuador and Petroecuador, among others, executed the Amendatory Agreements regulating the operation of Block 18 and Palo Azul while the parties negotiated the migration to a new contract modality.

On July 26, 2010, the amendment to the Hydrocarbon Law in force was approved by operation of law, which provides for, among other things, as from the day after publication, the obligation to migrate to a new contract modality before November 24, 2010.

As a result of the negotiation process mentioned above, the Company decided not to accept the final proposal received from the Ecuadorian Government to migrate to Service Agreements in Block 18 and Palo Azul Unified Field. Consequently, through Resolution dated November 25, 2010 the Hydrocarbon Secretary notified EcuadorTLC S.A. the termination of said Participation Agreements and instructed Petroamazonas EP to undertake the operational transition process.

Pursuant to the Amendatory Agreements, the Ecuadorian Government must compensate contractors in an amount equivalent to unamortized investments at closing of each fiscal year, adjusted by a variable rate considered reasonable for this type of projects in Ecuador (See Note 24.c).

Crude Oil Transportation Agreement with OCP

The Company entered into an agreement with OCP, whereby it has secured an oil transportation capacity of 80,000 barrels per day for a 15-year term starting November 10, 2003.

The type of transportation agreement is “Ship or Pay”. Therefore, the Company must comply with its contractual obligations for the aggregate committed capacity, regardless of the amount of crude oil actually transported, and pay, like the other producers, a rate that covers OCP operating costs and financial services, among others.

As of December 31, 2010, transportation capacity costs invoiced by OCP were charged to expenses on a monthly basis. Costs related to the crude oil volume actually transported were charged to the “Administrative and selling expenses” line, while the portion related to the unused committed transportation capacity, was shown under “Other operating expenses — net” line (Note 15.4).

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The Company is entitled to sell transportation capacity through the OCP to mitigate the negative effect resulting from the excess capacity contracted. In this respect, the Company periodically negotiates the sale of committed transportation capacity. On December 31, 2008, the Company and Petroecuador entered into an agreement under which the Ecuadorian State undertook the commitment that transportation as from January 1, 2009 of its crude oil through the OCP will be charged to the transportation capacity committed under the agreement entered into between the Company and OCP, up to a maximum of 70,000 barrels per day. In addition, the Company sold transportation capacity of approximately 8,000 oil barrels per day to third parties for the July 2004-January 2012 period. As a result of non-compliance by the buyer by the end of 2009 first quarter, the Company made the pertinent claims. Finally, 40% of the net contractual commitment, resulting from the above mentioned, was assumed by Teikoku Oil Ecuador, as consideration for the assignment to the Company of a 40% interest in Block 18 and Palo Azul in October 2008.

In connection with the foregoing commitments, as of December 31, 2010, liabilities were recognized by the Company for the expected loss on the net transportation capacity committed under the agreement entered into with OCP in the amount of 342.

In order to secure compliance with its financial commitments related to the “Ship or Pay” transportation agreement entered into with OCP and those related to OCP commercial obligations, the Company issued letters of credit. These letters of credit, due December 2018, will be released in the same proportion as the above commitments are settled. As of December 31, 2010, the Company issued letters of credit for a total amount of approximately US$85 million. As the letters of credit expire, the Company will be required to renew, replace them or otherwise, the amounts due must be paid in cash.

5.5.Additional information on the oil and gas activities

Asset retirement obligations

According to the regulations applicable in the countries where the Company performs oil and gas exploration and production activities, the Company (directly or indirectly through its subsidiaries) has to incur costs associated with well plugging and abandonment. The Company does not have legally restricted assets for the purpose of settling such obligations.

The following table summarizes the activity in asset retirement obligations for the years ended December 31, 2010, 2009 and 2008.

		2010			2009			2008
Beginning balance			311			308			170
Accretion			23			23			15
Additions			14			5			59
Estimated cash flow changes			(1	)		10			52
Decreases			(5	)		(61	)		—
Foreign currency translation / other			9			26			12
Ending balance	(Note 15.3)		351			311			308

Exploratory well costs

The following table provides the year end balances and activity for exploratory well costs, during the years ended of December 31 2010, 2009 and 2008.

	2010			2009			2008
Beginning balance		228			303			124
Traslation effect		—			7			2
Additions		80			269			233
Transferred to development		(5	)		—			(14	)
Charged to expenses		(87	)		(270	)		(42	)
Write off due to sale		—			(81	)		—
Ending balance		216			228			303
Number of wells at year end		17			33			38

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6. Credit risk

The Company provides credit lines in the normal course of business to refiners, petrochemical companies, marketers of petroleum products, crude oil exporting companies, electrical power generation companies, retail customers, natural gas distributors, large electrical power users and power distribution companies, among others.

As a result of the Company’s business and sales locations, the portfolio of receivables is well diversified, and, therefore, the Company’s management considers the credit risk moderate based on such diversification. The Company constantly performs credit evaluations of the financial capacity of its customers, which minimizes the potential risk of bad debt losses.

7. Investments, equity in earnings of affiliates and dividends collected

7.1.Composition of items

The breakdown of current and non-current investments, the equity in earnings of affiliates and dividends collected, are as follows:

7.1.1.Investments

		2010					2009
				Book			Book
Name and issuer		Cost		value			value
Current:
Certificates of deposit			1,788		1,788			690
Mutual funds			131		131			195
Related companies	(Note 17)		371		371			355
Fideicomiso Financiero de Obra Gasoducto Sur	(Note 10.2)		13		16			—
Other			19		19			3
			2,322		2,325			1,243
Non-current:
Related companies	(Note 17)		154		154			156
Fideicomiso Financiero de Obra Gasoducto Sur	(Note 10.2)		115		115			119
Equity in affiliates	(Note 25.2)		2,938		4,050			4,157
Allowance for impairment of investments	(Note 12)		—		(970	)		(723	)
Other			—		2			—
			3,207		3,351			3,709

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7.1.2.Equity in earnings of affiliates

	2010			2009			2008
Petroritupano S.A.		(19	)		120			132
Petrokariña S.A.		11			(8	)		40
Petrowayú S.A.		62			13			107
Petroven-Bras S.A.		28			2			3
Petrolera Entre Lomas S.A.		39			27			25
Refinería del Norte S.A.		54			42			(6	)
Other		(19	)		14			4
		156			210			305

7.1.3.Dividends collected

	2010		2009		2008
Petroritupano S.A.		—		—		119
Petrowayú S.A.		128		60		21
Oleoducto de Crudos Pesados Ltd.		3		3		—
Refinería del Norte S.A.		62		22		—
Petrolera Entre Lomas S.A.		26		9		10
		219		94		150

7.2.Investments in companies in which joint control or significant influence is exercised and which are subject to transfer restrictions

Distrilec:

Petrobras Argentina, through Petrobras Finance Bermudas and PEDASA, holds an indirect interest of 48.50% in Distrilec.

Distrilec is able to change its equity interest and sell its shares in Edesur only with the approval of ENRE.

In addition, over the entire term of Edesur’s concession, the Class “A” shares in Edesur shall remain pledged to guarantee the compliance with the obligations undertaken in the Concession Agreement. This pledge in no way limits the exercise of financial and voting rights associated with the Edesur’s shares.

CIESA:

Shareholders of CIESA, parent company of TGS, may not sell their Class “A” shares representing 51% of TGS¢s capital stock, without the prior authorization of the regulatory agency and the approval of the shareholders of CIESA.

7.3.Tariff situation of the public utility companies

7.3.1.General framework

The scenario after the enactment of the Public Emergency Law significantly changed the financial equation of the public utility companies, which were affected, among others, by the local currency devaluation, the pesification and the elimination of indexation clauses on rates.

The Public Emergency Law provided for the conversion into Argentine pesos and the elimination of indexation clauses on public service rates, thus fixing them at the exchange rate of ARS 1 = US$ 1. In addition, the Executive Branch was empowered to renegotiate those agreements entered into to provide public services, along the following criteria: (i) rates impact on economic competitiveness and revenue allocation, (ii) service quality and investment plans, to the extent that they were contractually agreed upon, (iii) users interest and access to services, (iv) the safety in the system involved, and (v) companies’ profitability.

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On February 12, 2002, the Executive Branch of Government issued Decree No. 293/02 whereby it recommended that the Ministry of the Economy and Production renegotiate the agreements executed with public utility companies. UNIREN was created in July 2003, which took over the work of the Renegotiation Commission and its aim is, among others, to provide assistance in the public works and services renegotiation process, to execute comprehensive or partial agreements, and to submit regulatory projects related to transitory rate adjustments.

In December 2009, Law No. 26,563 was issued, which extended the public works and services renegotiation term to December 2011.

7.3.2.TGS

After UNIREN had submitted to TGS several proposals for the tariff adjustment as provided for in the concession contract that TGS had deemed insufficient, in October 2008 TGS executed a provisional agreement with UNIREN, which provides for a 20% tariff increase to be retroactively applied as from September 1, 2008 and for the application of the cash from such increase to an investment plan in the gas transportation system provided under the same agreement.

On December 3, 2009, the PEN issued Decree No. 1,918/09 ratifying the provisional agreement. As a result, TGS will invoice its clients the tariff increase once the ENARGAS has published the new tariff schedule and has defined the invoicing method of the retroactive increase. This administrative formality, however, has not been completed and considering the excessive delay, in August 2010 TGS sent a letter to ENARGAS requesting authorization to publish the tariff schedule including the 20% provisional tariff increase and the method for collection of the retroactive increase and the application of an interest rate in accordance with the payment terms to be defined. ENARGAS answered TGS that it had forwarded the background information and the tariff project to the SCyCG, which is part of the MPFIPyS, in compliance with Resolution No. 2.000/2.005 issued by the MPFIPyS.

On September 30, 2010, TGS filed an action for the protection of its constitutional rights (“acción de amparo”) under Section 43 of the National Constitution and Law No.16,986, against ENARGAS and SCyCG to seek implementation of the new tariff schedule. On November 8, 2010, notice was given to TGS of the judgment granting the requested action and thus ordering SCyCG to return to ENARGAS within two days the documents relating to the new tariff schedule applicable to TGS in compliance with Decree No. 1,918/09, and instructing ENARGAS to define the tariff schedule and the method for collection of the retroactive increase within two days following receipt of the referred documents. ENARGAS and the SCyCG appealed said judgment and as of the date of these financial statements, no decision has been rendered in such respect.

In addition, on November 16, 2010, UNIREN proposed TGS to move forward with the renegotiation of the License Agreement within the scope and according to the terms and conditions of the Public Emergency Law, for which purpose the suspension of the before mentioned action for the protection of constitutional rights was demanded by UNIREN. On November 18, 2010, TGS decided to authorize the suspension for a term of 20 business days automatically renewable unless TGS’s Board of Directors decided not to renew the same before or at the end of each period in order to move forward with the renegotiation of the License Agreement. On December 28, 2010, TGS sent a letter to ENARGAS and the MPFIPyS asking for the execution of the writing requesting the suspension. As of the date of these financial statements, no favorable answer to the letter has been received.

On April 5, 2011, Panel II of the Federal Court of Appeals in Administrative matters set a 60 business day term for SCyCG to take action as provided under Resolution No. 2000/2005 and return the record to ENARGAS, and instructed ENARGAS to render its opinion as regards the adequacy of tariffs and the Provisional Tariff Schedule provided there under no later than 60 business days after receipt of the abovementioned record from SCyCG, upon verification of compliance with the requirements provided for in the provisional agreement dated October 9, 2008. TGS and ENARGAS filed an extraordinary appeal and the Court of Appeals is considering whether to allow the appeal.

Since more than one year has elapsed since publication of Decree No. 1.918/09 and given authorization of the suspension of the “acción de amparo”, which in the view of TGS represents a material change in the conditions that led to the original recognition of the tariff increase, TGS’s Management resolved to: (i) discontinue recording the revenues attributable to the tariff increase, and (ii) reverse the amount receivable previously accounted for in fiscal year ended December 31, 2009 and in the nine-month period ended September 30, 2010. TGS management’s decision does not imply a waiver of the rights conferred by Decree No. 1.918/09.

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This provisional agreement will be valid until the effective date of an agreement for the comprehensive renegotiation of the license to be entered into with the National Government.

In early October 2008, TGS received from UNIREN a proposal for a comprehensive renegotiation agreement (including the 20% initial tariff increase). As of the date of these financial statements, TGS is evaluating that proposal. As set forth in the provisional agreement, TGS should reach an agreement with UNIREN on the modalities, terms and dates for the execution of the comprehensive agreement before the expiration date of the Economic Emergency Law. If no agreement is reached, UNIREN will submit a report to the PEN recommending the steps to be taken.

7.3.3.Edesur

Memorandum of Agreement between Edesur and the Argentine government

Edesur entered into with UNIREN the letter of understanding, in August 2005, the parties signed a memorandum of understanding that included, among other matters, the terms and conditions that, once the procedures established by regulations are fulfilled, would be the basis for amending the concession agreement. The document established through June 30, 2006, a RTI would be performed, which lead to a new rate system effective August 1, 2006, and for the following five years. Also, among others, it established a transition period for which the following was agreed, a transitional rate system as from November 1, 2005, with an increase in the average service rate not exceeding 15%, applicable to all rate categories, except for residential rates; and a mechanism to monitor costs, which allows for reviewing rate adjustments. Subsequently, Resolution No. 864/2008 issued by the Secretary of Energy approved the rate system through February 2009.

As a preliminary condition for the Executive Branch to ratify the Memorandum of Understanding, Edesur and its shareholders suspended all pending claims based on the measures taken as from the emergency situation established by Public Emergency Law in connection with the concession agreement.

The MOA was ratified by the Executive Branch on December 28, 2006. According to ENRE’s Resolution No. 50/2007 published in the Official Gazette on February 5, 2007, the values stated in Edesur’s Rate Schedule and resulting from the Interim Rate Schedule provided for in the MOA became effective as from February 1, 2007. As a consequence, a 23% increase was applied on the company’s own distribution costs (not affecting T1R1 and T1R2 residential rates), connection costs and the reconnection service charged by Edesur, and an additional average increase of 5% is also applied on such distribution costs for the execution of a work plan. In addition, ENRE authorized to apply to such costs, effective May 1, 2006, the 9.962% positive variation in the cost monitoring system indexes provided under the MOA.

Subsequently, Resolutions No. 1,838/2007 issued by the Secretary of Energy and No. 867/2007 of ENRE approved a 9.75% adjustment for the period from May 2006 to April 2007 under the cost monitoring method set forth in the Memorandum of Agreement applicable as from May 2007.

On July 31, 2008 ENRE issued Resolution No. 324/2008 in relation to the Interim Tariff Scheme, approving a new tariff schedule for Edesur applicable as from July 1, 2008, which imposes gradual increases between 10% and 30% on residential users with bimonthly consumption levels over 650 kilowatts as well as a 10% increase on commercial or industrial users. In addition, it provides for the application of the new tariff to the Program for the Rational Use of Energy and the partial recognition of the cost monitoring system for subsequent periods.

Additionally, pursuant to the Overall Tariff Review, on November 12, 2009 Edesur submitted to the ENRE its income requirements in compliance with ENRE’s Resolution No. 467/2008.

On August 18, 2009, considering the domestic electric power consumption level during the winter season and in order not to adversely affect their payment capability, the Secretary of Energy provided under Resolution No..652/09 new seasonal prices for the June 1, 2009 — September 30, 2009 period for residential users with bimonthly consumption over 1,000 kWh or monthly consumption over 500 kWh. As a result, the ENRE issued Resolution No. 433/09, dated August 19, 2009, approving the values stated in the new tariff schedule applicable to the before mentioned period which imply a subsidy from the National Government to users involved of 100% of the tariff increase provided under ENRE Resolution No. 628/08 for June and July 2009 and of 70% of the tariff increase for August and September 2009.

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Regulatory Agency Requirements

On October 8, 2010, ENRE served notice to Edesur of Resolution No. 525/2010 demanding Edesur to adjust the 2010 investment plan and submit an Operative Regularization Program to remove deficiencies in the supply of public services. Edesur submitted to the ENRE a petition for reconsideration against said resolution rejecting the reasons and grounds thereof and ratified the 2010 investment plan and the Operative Regularization Program. As of the date of these financial statements, the petition has not been answered.

Given the electricity supply interruptions occurred between December 22 and 29, 2010, ENRE, through Resolution No. 01/2011 sent to Edesur on January 4, 2011, ordered the conduct of a comprehensive technical, legal, economic and financial audit, during a thirty day term, to assess compliance by Edesur with material obligations, the adequacy of and compliance with the committed investment plan, the investments made to meet the demand growth, the current conditions and level of maintenance of the facilities and equipment and wether Edesur is qualified to adequately provide public electricity distribution services. The above mentioned comprehensive audit started January 5, 2011. As of the date of these financial statements, the audit is in progress and Edesur has answered all requests in order to prove adequate compliance with its obligations.

7.4.Investments in Mixed Companies in Venezuela

In April 2005, the MEP instructed PDVSA to review the thirty-two operating agreements signed by PDVSA affiliates with oil companies from 1992 through 1997. These instructions given by the MEP established that all the necessary measures should be taken by PDVSA to migrate all operating agreements effective at that time to mixed companies. In August 2006, the conversion operating agreements were signed, providing for that the equity interest of private partners in such mixed companies would be of 40%, with the remaining 60% to be held by the Venezuelan Government.

The companies Petroritupano S.A., Petrowayú S.A., Petroven-Bras S.A. and Petrokariña S.A. (collectively referred to as “mixed companies”) were organized as a result of migration of the operating agreements governing production activities in Venezuela in the Oritupano Leona, La Concepción, Acema and Mata areas, respectively.

The mixed companies have to sell to PDVSA all liquid hydrocarbons and the associated natural gas (when so provided in the agreement), produced in the delimited area, according to a price formula associated with international benchmarks such as WTS and WTI.

The mixed companies are subject to a payment of 33.33% for royalties and special benefits, and, in addition, they are required to pay an amount equivalent to any difference between 50% of the value of oil & gas sales during each calendar year and the royalty payments made during such year plus income tax and any other tax or duty calculated on the basis of the sales revenues. Additionally, since April 2008, with the enactment of the Special Tax Law on Extraordinary Prices of the International Hydrocarbon Market, a special tax payable by companies exporting or transporting abroad liquid hydrocarbons and oil by-products will be applicable when the average Venezuelan basket price of crude oil exceeds, in any month, US$70 per barrel. The special tax rate per barrel will be 50% of the difference between the above mentioned monthly average price and the US$70 threshold price. In addition, when such average price exceeds US$100, the special tax rate per barrel, applicable to any difference in excess of the US$100 threshold, will be 60%.

As of December 31, 2010 and 2009 the carrying value of the Company’s direct and indirect interest in the mixed companies, net of impairment charges, is 2,518 and 2,880, respectively. The recoverability of the referred investments is highly sensitive to crude oil price volatility, to economic, social and regulatory changes and, particularly, to the resulting business plans. As of December 31, 2010, 2009 and 2008 the Company maintains allowances for impairment on these investments of 970, 723 and 416, respectively (Note 12).

Upon the execution of the pertinent agreements in connection with the migration of the operating agreements, in August 2006, the Government of Venezuela recognized a divisible and transferable credit in favor of the private companies participating in the mixed companies in the amount of US$ 88.5 million for Petrobras Argentina’s equity interest, which does not accrue interest and could be applied to the payment of acquisition bonds to be used in any new mixed ownership project for oil exploration and production activities, or licenses for gas exploration and production operations in Venezuela. Since projects for the use of the credit recognized had not been materialized, the efforts to transfer such credit to third parties had not been successful, and other alternative uses of the credit was not anticipated, in 2007 the Company recorded an allowance for the full amount of the credit. As of December 31, 2010, 2009 and 2008 the Company maintains allowances for impairment on this asset of 352, 336 and 305, respectively (Note 12).

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8. Discontinued operations and assets held for sale

8.1.Fertilizers

In November 2009, the Company approved the sale of the fertilizers business to Bunge Argentina S.A., whereby in January 2010, with the execution of the respective agreements, the tangible assets, trade brands, commercial network and personnel engaged in such business were transferred to the buyer.

As of December 31, 2009, the property, plant and equipment relating to the fertilizer business had been classified as “Assets held for Sale” (See Note 4.7) and, consequently, measured at their net realizable value, which implied the recognition of a gain of 47, included in Financial income (expenses) and holding gains (losses).

Further, in the year ended December 31, 2010, upon the transfer of the assets, the Company recognized a gain of 34 included in Other (expenses) income, net (Note 15.5).

8.2.Petrobras de Valores Internacional de España S.L.

In December 2007, Petrobras Argentina sold to Petrobras International Braspetro B.V. 40% of its equity interest in PVIE, a holding company whose main asset is the 99.79% through its interest in the capital stock of Petrobras Energía Perú S.A., is the Lote X production area.

The agreed upon price was US$ 423.3 million and also includes a contingent compensation in favor of the Company that reflects the market value of the “Kinteroni Prospect”, or, alternatively, the non-participation of the buyer and its respective compensation. Such compensation, to be defined by the parties, results from the gas and condensate discovery made at the “Kinteroni Prospect” in Lote 57 in January 2008. The Company estimates to conclude the negotiation during the year 2011.

In April 2009 Petrobras Argentina sold its remaining 60% equity interest in PVIE to Petrobras Internacional — Braspetro B.V. in the amount of US$ 619.4 million. As a result of this transaction, in the second quarter of 2009, the Company recognized a pretax gain of 1,591 included in Other (expenses) income, net (Note 15.5) and the related reversal of deferred income in the amount of 29.

As of December 31, 2010 the outstanding amount under the transaction amounted to US$92 million.

8.3.San Lorenzo refinery and other assets related to the Refining and Distribution business

On May 4, 2010 the Company’s Board of Directors approved the terms and conditions of the agreement for the sale to Oil Combustibles S.A. of its refining business located in San Lorenzo, Province of Santa Fe, including the loading and unloading facilities and the gas stations network composed of approximately 360 points of sale and the related customers.

The price offered for such assets was approximately US$36 million. In addition, on the closing date, oil inventories and related products would be sold to Oil Combustibles S.A. in the amount of US$ 60 million. The total amount of the transaction is estimated at US$102 million. The date for the closing was estimated to be during the first half of 2011 and is subject to administrative authorizations required under the applicable Argentinean law.

As of December 31, 2010 the related assets were classified as “Assets held for sale” (see Note 4.7 and 24.d) and, consequently, measured at their net realizable value. Therefore, in the year ended December 31, 2010, the Company recognized a loss of 209 included in Other (expenses) income, net (Note 15.5).

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8.4.Relevant information

The table below shows the breakdown of consolidated statements of income and the most relevant information of the consolidated cash flows for the years ended December 31, 2010, 2009 and 2008, as required by the accounting standards regarding disclosure of discontinued operations:

	2010
	Continuing			Fertilizers
	operations			(1)			Total
Net sales		14,419			23			14,442
Cost of sales		(10,779	)		(27	)		(10,806	)
Gross profit (loss)		3,640			(4	)		3,636
Administrative and selling expenses		(1,742	)		(4	)		(1,746	)
Exploration expenses		(190	)		—			(190	)
Other operating expenses, net		(258	)		—			(258	)
Operating income (loss)		1,450			(8	)		1,442
Equity in earnings of affiliates		156			—			156
Financial income (expenses) and holding gains (losses)
Generated by assets:
Interest		140			—			140
Exchange difference		239			—			239
Holding losses		22			—			22
Other financial expenses, net		19			—			19
		420			—			420
Generated by liabilities:
Interest		(494	)		—			(494	)
Exchange difference		(221	)		—			(221	)
Other financial expenses, net		(106	)		—			(106	)
		(821	)		—			(821	)
Other (expenses) income, net		(391	)		34			(357	)
Income before income tax and minority interest		814			26			840
Income tax		(192	)		(9	)		(201	)
Minority interest		(29	)		—			(29	)
Net income		593			17			610
Basic/diluted earnings per share — Stated in Argentine pesos		0.587			0.017			0.604

(1) Transaction recorded to the sale of fertilizer business (Note 8.1)

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	2009
	Continuing			Discontinued operations						Subtotal
	operations (1)			Perú (2)			Fertilizers (1)			discontinued			Total
Net sales		11,285			123			564			687			11,972
Cost of sales		(8,279	)		(69	)		(510	)		(579	)		(8,858	)
Gross profit		3,006			54			54			108			3,114
Administrative and selling expenses		(1,574	)		(3	)		(91	)		(94	)		(1,668	)
Exploration expenses		(333	)		(3	)		—			(3	)		(336	)
Other operating expenses, net		(166	)		(3	)		(23	)		(26	)		(192	)
Operating income (loss)		933			45			(60	)		(15	)		918
Equity in earnings of affiliates		210			—			—			—			210
Financial income (expenses) and holding gains (losses)
Generated by assets:
Interest		108			—			—			—			108
Exchange difference		361			—			—			—			361
Holding gains (losses)		23			—			(103	)		(103	)		(80	)
Other financial income, net		48			1			47			48			96
		540			1			(56	)		(55	)		485
Generated by liabilities:
Interest		(600	)		(2	)		(2	)		(4	)		(604	)
Exchange difference		(526	)		(1	)		3			2			(524	)
Other financial expenses, net		(58	)		—			—			—			(58	)
		(1,184	)		(3	)		1			(2	)		(1,186	)
Other income (expenses), net		(298	)		1,591			(5	)		1,586			1,288
Income (loss) before income tax and minority interest		201			1,634			(120	)		1,514			1,715
Income tax		48			(816	)		42			(774	)		(726	)
Minority interest		(64	)		—			—			—			(64	)
Net (loss) income		185			818			(78	)		740			925
Basic/diluted earnings (loss) per share — Stated in Argentine pesos		0.183			0.810			(0.077	)		0.733			0.916

(1) Year ended December 31, 2009.

(2) Three month period ended March 31, 2009.

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	2008
	Continuing			Discontinued operations						Subtotal
	operations			Perú			Fertilizers			discontinued			Total
Net sales		13,429			965			781			1,746			15,175
Cost of sales		(9,867	)		(537	)		(596	)		(1,133	)		(11,000	)
Gross profit		3,562			428			185			613			4,175
Administrative and selling expenses		(1,617	)		(15	)		(126	)		(141	)		(1,758	)
Exploration expenses		(218	)		(20	)		—			(20	)		(238	)
Other operating expenses, net		(224	)		(1	)		(6	)		(7	)		(231	)
Operating income		1,503			392			53			445			1,948
Equity in earnings of affiliates		305			—			—			—			305
Financial income (expenses) and holding gains (losses)
Generated by assets:
Interest		106			5			—			5			111
Exchange difference		224			1			2			3			227
Holding losses		(84	)		—			(27	)		(27	)		(111	)
Other financial income, net		65			—			—			—			65
		311			6			(25	)		(19	)		292
Generated by liabilities:
Interest		(526	)		(12	)		(1	)		(13	)		(539	)
Exchange difference		(443	)		(2	)		(15	)		(17	)		(460	)
Other financial expenses, net		(73	)		(2	)		—			(2	)		(75	)
		(1,042	)		(16	)		(16	)		(32	)		(1,074	)
Other expenses, net		(117	)		—			—			—			(117	)
Income before income tax and minority interest		960			382			12			394			1,354
Income tax		(376	)		(128	)		(4	)		(132	)		(508	)
Minority interest		(70	)		—			—			—			(70	)
Net income		514			254			8			262			776
Basic/diluted earnings per share — Stated in Argentine pesos		0.509			0.252			0.008			0.260			0.769

	2010			2009						2008
	Fertilizers (1)			Perú (2)			Fertilizers (3)			Perú			Fertilizers
Cash and cash equivalents at the beginning of the year		—			1			—			5			—
Net cash provided by operations		17			85			158			258			(105	)
Net cash used in investing activities		—			(73	)		(36	)		(236	)		(30	)
Net cash used in financing activities		(17	)		(13	)		(122	)		(27	)		135
Effect of exchange rate change on cash		—			—			—			1			—
Cash and cash equivalents at the end of the year		—			—			—			1			—

(1)	Transaction recorded to the sale of fertilizer business (Note 8.1)
(2)	Three month period ended March 31, 2009.
(3)	Year ended December 31, 2009

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9. Financing

9.1.Financial debt

The breakdown of the financial debt as of December 31, 2010 and 2009 is as follows:

		2010				2009
				Non-				Non-
		Current		current		Current		current
Financial institutions			211		718		452		814
Bonds			1,053		2,744		2,036		3,016
Related companies	(Note 17)		21		795		20		760
			1,285		4,257		2,508		4,590

Breakdown of long-term debt

The long-term financial debt as of December 31, 2010 is made up as follows:

Type		Amount		Currency	Annual interest rate
Financial institutions
			225	US$	Libo+2,6		%
			199	US$	Libo+2,5		%
			31	US$	Libo+1,19		%
			41	US$		1,85	% (*)
			52	$		18.16	% (*)
			71	Rs		5.41	%
			50	US$	Libo+1,44		%
			49	US$	Libo+2		%
Related companies	(Note 17)		795	US$		7,22	%
Bonds
Class S			1,189	US$		5,875	%
2007 Global Program (TGS)			744	US$		7,875	%
Class R			795	US$		9,375	%
Class 7 (Edesur)			16	$		11,75	%
			4,257

(*) Average rate.

The maturities of the long-term debt as of December 31, 2010, are as follows:

From 1 to 2 years	445
From 2 to 3 years	1,023
From 3 to 4 years	200
Over 4 years	2,589
	4,257

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9.2.Global Programs of nonconvertible bonds

Global program of US$ 2.5 billion:

As of December 31, 2010 the following classes of bonds issued under this program, which expires on May 4, 2008, remained outstanding:

• Class N, for a face value of US$ 97 million, with principal amortized in two installments, the first — equivalent to 9.9099% of face value — settled on the same day of issuance, January 24, 2003, and the remaining due in June 2011, accruing interest at LIBOR for a period of six months plus 1%.

• Class R, for a face value of US$ 200 million, maturing in October 2013, at a 9.375% annual rate.

• Class S, for a face value of US$ 300 million, maturing in May 2017, at a 5.875% annual rate. Class S bonds are supported by a Standby Purchase Agreement provided by Petróleo Brasileiro, pursuant to which, in the event of failure to pay principal, interest and any other amount owed by Petrobras Argentina in connection with Class S bonds, Petróleo Brasileiro shall purchase the rights of bondholders to receive payments.

The proceeds from the issuances of the bonds were used to refinance liabilities, increase working capital, make capital expenditures in Argentina or capital contributions to affiliates.

Debt from the issuances is disclosed net of the unaccrued portion of the issuance discounts and the incurred costs for such issuances.

Global program of US$ 1 billion:

The Shareholders of Petrobras Argentina in their annual meeting held on March 28, 2008 approved the creation of a global program for the issuance of bonds for an outstanding maximum principal amounting to US$ 1 billion or its equivalent in any other currency, expiring within 5 years or the maximum term that may be established by any applicable regulation in the future, under terms and conditions identical to those of the global program of US$ 2.5 billion. On August 7, 2008, the program was authorized by Resolution No. 15,947 of the CNV.

9.3.Cross default clauses

The outstanding bonds and financial debt include cross default clauses, whereby the Trustee, as instructed by the bondholders representing at least 25% of the related outstanding capital, in the case of outstanding bonds or the creditor financial, as appropriate, shall declare all the amounts owed due and payable, if any debt of Petrobras Argentina or its significant subsidiaries is not settled upon the maturity date, provided that those due and unpaid amounts exceed the higher of US$ 25 million or 1% of Petrobras Argentina’s shareholders’ equity upon those maturities, and that the default has not been defeated or cured within 30 days after the Company has been served notice of the default.

As of the date of these consolidated financial statements, the Company has complied with all the terms and conditions related with its financial indebtedness.

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9.4.Edesur indebtedness

Edesur maintains a global corporate bond program expiring on October 14, 2013, or the maximum term that may be allowed under any new regulations that might become applicable in the future, for up to a maximum principal amount outstanding at any time during the effectiveness of the program up to US$ 450 million or its equivalent in other currency.

As of December 31, 2010, only Class 7 bonds are outstanding under such global program for a face value of 99, at an annual interest rate of 11.75%. Proceeds from the issuances were applied to refinancing liabilities and improving working capital.

In addition, Edesur has signed loan agreements with banks. Some of Edesur’s loan agreements contain cross-default clauses, whereby lending banks may declare all owed amounts as due and payable in the event that any debt was not settled in due time, provided that such amounts due and payable exceeded those stipulated in the agreements.

Some of these agreements also contain cross-acceleration clauses, whereby lending banks may declare all owed amounts as due and payable in the event that Edesur was required to pre-pay any other debt stipulated in the agreements.

As of the date of these consolidated financial statements Edesur has complied with all the terms and conditions contained in the loan agreements.

9.5.CIESA indebtedness

Due to the Argentine macroeconomic situation, starting with the enactment of the Public Emergency Law (Note 7.3.1), CIESA did not pay at maturity, in April 2002, either the principal and the last interest installment, or the cap and collar of interest rate agreements. Consequently, CIESA’s indebtedness included in the Company’s consolidated financial statements pursuant to the proportional consolidation method, in the amount of US$ 296 millions, has been disclosed in the “Short-term debt” line.

In April 2004, Petrobras Argentina and EPCA, a subsidiary of Enron Corp., the only two shareholders of CIESA, celebrated a master settlement agreement in which they agreed to make certain share transfers in two successive steps to facilitate the restructuring of CIESA’s financial debt.

Initially, after the relevant regulatory authorities’ approvals, on August 29, 2005, EPCA transferred 40% of its shares in CIESA to a trust fund and, at the same time, Petrobras Argentina and its subsidiary, Petrobras Hispano Argentina S.A., transferred to EPCA Class B shares of TGS (representing 7.35% of TGS’s capital stock). The Company considered the book value of the shares transferred as part of the valuation of its interest in CIESA in non-current investments.

Subsequently, pursuant to the terms of the Financial Debt Restructuring Agreement entered into on September 1, 2005 by CIESA, Petrobras Argentina S.A., Petrobras Hispano Argentina S.A., EPCA, ABN AMRO BANK N.V. Argentine Branch and all its financial creditors, CIESA refinanced the debt for an amount of about US$ 23 million at a 10-year term.

In addition, the Restructuring Agreement contemplated the terms of the Master Agreement which envisaged debt capitalization for a nominal amount of US$ 201.5 million plus accrued unpaid interest. The Restructuring Agreement was subject to approval by the ENARGAS and the CNDC.

While the Restructuring Agreement was awaiting approval by the governmental authorities, on January 9, 2009, Ashmore Energy Internacional Limited (now AEI), who then declared to be the sole holder of the Corporate Bonds (Obligaciones Negociables) issued by CIESA in 1997, announced its decision to terminate the Restructuring Agreement.

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Under such circumstances, on January 28, 2009, CIESA brought an action before the Courts of the State of New York, United States of America, to petition that an order be issued to declare that any action initiated by AEI against CIESA in connection with the Corporate Bonds should not succeed because said bonds had become time-barred and, on a subsidiary basis, that strict performance of the Restructuring Agreement be ordered and that CIESA be paid damages for termination of the agreement by AEI without due notice. The action brought by CIESA before the Courts of New York was initially dismissed on July 29, 2009, since a bankruptcy petition was pending before the Courts of the Republic of Argentina.

On February 4, 2009, AEI filed a bankruptcy petition against CIESA before the Courts of the Republic of Argentina for the amount of US$ 127 million, seeking recovery of an alleged claim relating to the Corporate Bonds. Such bankruptcy petition was rejected by the Court of Appeals in Commercial matters on October 9, 2009. AEI filed motions to invalidate the court decision and remove the intervening judges with cause, which motions were also dismissed on November 24 and December 28, 2009, respectively.

By virtue of the dismissal of the bankruptcy petition decided in the Republic of Argentina, on November 13, 2009 CIESA filed before the Courts of New York, a motion to renew and reargue, requesting: (i) to permit renewal and new arguments by CIESA against AEI’s motion to dismiss CIESA’s amended complaint and (ii) revocation of the judgment passed on July 29, 2009 admitting the motion to dismiss filed by AEI against the petition of CIESA. In April 12, 2010, CIESA was notified of the resolution issued by the Judge of New York, whereby the company’s petition was sustained and the court considered itself to be competent to deal with the request for declaring that the statute of limitation pertaining to the referred claim had expired as well as other issues raised. On August 9, 2010 AEI filed an appeal and on January 27, 2011 the Court of Appeals dismissed the appeal and upheld the lower court’s decision.

On May 13, 2010 notice was given to CIESA of a filing made by AEI rejecting the claims stated by CIESA in its complaint and demanding payment of CIESA’s Corporate Bonds, including interest accrued. On October 7, 2010 CIESA filed its response to AEI’s filing. The judge’s decision is still pending.

During the first quarter of 2011 Pampa Energía S.A. reported that it acquired from AEI the corporate notes issued by CIESA and certain claims against CIESA, as well as 100% of the outstanding shares EPCA, which inturn owns 10% of CIESA.

On May 10, 2011, CIESA executed a Memorandum of Agreement (“MOA”) in which the parties agreed, firstly, to suspend the New York Litigation in order to seek to re-establish the restructuring provided under the Restructuring Agreement, and to include Pampa Energia S.A. and Pampa Inversiones S.A. (together, “Group Pampa”) as a party thereto, all of the foregoing subject to the necessary governmental approvals in order to implement the Restructuring Agreement; and secondly, to timely abandon and waive each and every claim and action that the parties and third parties have raised in the lawsuit, thus terminating the controversies between the parties New York Litigation.

On May 18, 2011, CIESA, PESA, the Trust, EPCA and Pampa entered into a fourth amendment to the Restructuring Agreement providing for the replacement of AEI by Group Pampa in the Restructuring Agreement. The fourth amendment to the Restructuring Agreement was filed with ENARGAS and CNDC to be granted by their respective approvals. The consummation of the transactions contemplated in the Restructuring Agreement, as amended, is also subject to the satisfaction of these conditions precedent.

CIESA’s financial statements were prepared using the going concern basis of accounting and therefore such financial statements do not include any adjustments or reclassifications that may derive from the resolution of the uncertainties related to the foregoing actions.

9.6.TGS indebtedness

TGS maintains an outstanding global bond program, maturing on May 14, 2017. The CNV authorized it on January 18, 2007, up to US$ 650 million.

As of December 31, 2010, bonds issued under the global program, with a face value of US$ 374 million, bear interest at a fixed rate of 7.875% p.a. Principal will be repaid in four annual, equal and consecutives installments, as from May 14, 2014.

During the years ended December 31, 2010, 2009 and 2008, TGS repurchased bonds in an amount equivalent to a face value of US$ 21 million, US$ 10 million and US$ 95 million, recognizing a gain of 2, 5 and 57, respectively, included in Other income (expenses), net (Note 15.5).

Pursuant to the financing agreements executed in connection with the debt restructuring, TGS is required to comply with certain covenants, which include, among others, restrictions on debt issuance, new investments, sale of assets, payment of technical assistance fees and dividend distributions. As of the date of these financial statements, TGS has complied with the above mentioned covenants.

F-34

10. Contributions to finance works in the energy sector in Argentina

10.1.FONINVEMEM

Through Resolution No. 712/04, the Secretary of Energy created the FONINVEMEM I for the purpose of granting creditors and incentive to invest in the MEM for increasing the supply of electrical power generation in Argentina. In 2007, through Resolution S.E. No.564/07, the Secretary of Energy requested MEM agents to participate in FONINVEMEM II, with the purpose of complementing financing of FONINVEMEM I.

The financing of FONINVEMEM I and II was made through the contribution of 65% and 50% of the credit balances recorded in 2004-2006 and in 2007, respectively, resulting from the spread between the selling price of energy and the variable generation cost. The total contribution by all the private power generating companies in the wholesale electric market is estimated at US$ 530 million, of which Petrobras Argentina contributed US$ 55 million, US$ 39 million to FONINVEMEM I and US$ 16 to FONINVEMEN II.

On October 17, 2005 and under the terms of Resolution No. 1,193 issued by the Secretary of Energy, Petrobras Argentina and other MEM creditors formally announced their decision to participate in the construction, operation and maintenance of two power plants of at least 800 MW each. The construction cost of both plants was approximately US$ 1.3 billion and was partially funded with the net contributions made by the private power generating companies to FONINVEMEM I and II.

For the purposes of the purchase of equipment and the construction, operation and maintenance of the power plants, two trusts funds were created within the scope of CAMMESA. The procurement of the equipment, construction, operation and maintenance of each power plant will be undertaken by Termoeléctrica José de San Martín S.A. and Termoeléctrica Manuel Belgrano S.A., which will enter into a ten-year electricity supply agreement with CAMMESA for the 80% of the energy output, at a price that will allow to cover all costs as well as the reimbursements of the FONINVEMEM and the repayment of the debt used to finance the initial investment. The companies will be able to sale in the spot market 20% of the electricity output. Upon expiration of the supply agreement, the ownership of the assets held in trust will be transferred to the power generation companies proportionally to their contributions to finance the capital expenditure.

As of December 31, 2009, the gas turbines of both power plants were operating in open cycle mode, and started to operate in combined cycle as from the first quarter of 2010.

The Company recovers the amounts contributed to the FONINVEMEM I, converted to US$ and adjusted by Libo rate + 1% p.a., in 120 monthly installments starting March 2010, upon authorization of commercial operations of both power plants in the combined cycle mode refered to above.

By December 31, 2009 the funds contributed by the Company to FONINVEMEM II had been fully recovered through investment in additional electricity generation projects under Resolution No. 564/2007 issued by the Secretary of Energy, whereby the Company built Genelba Plus, a 165 MW thermoelectric plant close to the existing Genelba Power Plant.

10.2.Fideicomiso Financiero de Obra Gasoducto Sur (Financial Trust for South Gas Pipeline)

In order to assist in financing the expansion of the transportation capacity of the General San Martín Gas Pipeline, in the offshore leg across the Straits of Magellan, in the fourth quarter of 2009 Petrobras Argentina underwrote bonds issued by Fideicomiso Financiero de Obra Gasoducto Sur, for an amount in pesos equal to US$30 million.

Petrobras Argentina received in exchange Debt Securities denominated in Argentine pesos (“VRD Obra-4 Estrecho Definitivos”) that bear interest at a rate equivalent to the Reference Stabilization Coefficient plus an annual nominal rate of 8%. The principal will be amortized in 30 quarterly installments since April 25, 2011.

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11. Current and deferred income tax

The Company’s income tax expense and deferred tax balances are comprised as follows:

	2010			2009			2008
Income tax for the year
Current		(583	)		(733	)		(517	)
Deferred		382			7			9
Total income tax (1)		(201	)		(726	)		(508	)

(1) It includes charges of 9, 774 and 132 from discontinued operations for the years 2010, 2009 and 2008, respectively (Note 8.4).

		2010			2009
Deferred tax
Deferred tax assets
Tax losses carryforward			174			194
Reserves and provisions			146			138
Pension plan obligations			37			35
Equity interest in affiliates			42			38
Property, plant and equipment			—			188
Other credits			123			118
Other			91			96
Valuation allowance	(2) (Note 12)		(339	)		(517	)
Deferred tax liabilities
Property, plant and equipment and other assets			(727	)		(912	)
Debts			(12	)		(64	)
Prepaid expenses			(5	)		(5	)
Equity interest in affiliates			(336	)		(434	)
Other			(17	)		(28	)
	(1) (3)		(823	)		(1,153	)

(1)	274 and 290 are included in the non-current “Other receivables” line and 1,097 and 1,443 in the non-current “Taxes payable” line in 2010 and 2009, respectively.
(2)	Management evaluates the recoverability of tax loss carryforwards and the remaining temporary differences taking into consideration, among other elements, the projected business profits, tax planning strategies, temporariness of future taxable income, considering the term of expiration of the tax loss carryforwards, the future reversals of the existing temporary differences and the recent year tax history. All the evidence available, both positive and negative, is duly weighted and considered in the analysis.
(3)	The change in 2010 includes an increase of 52 attributable to the remeasurement of deferred tax liabilities in foreign affiliates and investments recorded in the “Deferred income” account.

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The reconciliation of the income tax expense charged to the income statement and the one that would result from the application of the prevailing income tax rate of the 35% to the gain before taxes and the minority interest is as follow:

		2010			2009			2008
Income before income tax and minority interest			840			1,715			1,354
Statutory tax rate			35	%		35	%		35	%
Income for the year at statutory tax rate			(294	)		(600	)		(474	)
Permanent differences at income tax rate
- Equity in earnings of affiliates			16			11			9
- Sales of foreign equity interests			—			(254	)		—
- Permanent differences in foreign subsidiaries			31			46			22
- Cash dividends and dividends receivable			(8	)		(101	)		(65	)
- Other			(33	)		(2	)		24
Subtotal			(288	)		(900	)		(484	)
- Foreign income tax			102			206			117
- Statute of limitation of tax losses carryforwards			(14	)		(12	)		—
- Net movement in the valuation allowance	(Note 12)		(1	)		(20	)		(141	)
			(201	)		(726	)		(508	)

Tax loss carryforwards may be used through the dates indicated below:

Use up to	2010		2009
2010		—		14
2011		14		14
2012 onwards		160		166
		174		194

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12. Contingencies, allowances and environmental matters

Movements of reserves for contingencies and allowances are as follows:

		Balances at								Balances
		the beginning								at the end
Account		of the year		Increase			Decrease			of the year
Allowances deducted from assets:
Current
For doubtful accounts			104		17			(46	)		75
For obsolescence of inventory	(Note 15.2)		3		—			(3	)		—
			107		17	(1)		(49	)(7)		75
Non-current
For doubtful accounts			39		2	(1)		—			41
For other receivables	(Note 15.1)
- Deferred tax assests	(Note 11)		517		19	(2)		(197	)(9)		339
- New projects of the mixed companys credit of Venezuela			336		16	(3)		—			352
For impairment of investments	(Note 7.1.1)		723		247	(4)		—			970
For property, plant and equipment			195		9	(3)		(204	)(5)		—
			1,810		293			(401	)		1,702
TOTAL 2010			1,917		310			(450	)		1,777
TOTAL 2009			2,130		492			(705	)		1,917
Reserves included in liabilities:
Current
For contingencies:
Labor and commercial contingencies			124		103			(65	)		162
			124		103	(6)		(65	)(7)		162
Non-current
For contingencies:
Labor and commercial contingencies			136		52			(21	)		167
			136		52	(8)		(21	)(7)		167
TOTAL 2010			260		155			(86	)		329
TOTAL 2009			244		85			(69	)		260

(1)	Recorded in “Financial income (expenses) and holding gains (losses)”
(2)	It includes 18 recorded in “Deferred income” and 1 recorded in “Income Tax” (Note 11)
(3)	Recorded in “Deferred income”
(4)	It includes 35 recorded in “Deferred income” and 212 recorded in “Other (expenses) income, net” (Note 15.5)
(5)	It includes 99 recorded in “Cost of sales” as “Depreciation of property, plant and equipment” and 105 by the impairment in Ecuador (Note 5.4)
(6)	It includes 47 recorded in “Cost of sales” and 56 recorded in “Financial income (expenses) and holding gains (losses)”.
(7)	Used during the year
(8)	It includes 17 recorded in “Cost of sales” and 35 recorded in “Other operating expenses, net” (Note 15.4)
(9)	Desinvestment in Ecuador

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Environmental matters

The Company is subject to extensive environmental regulations in Argentina and in the other countries in which it operates. Petrobras Argentina’s management believes that its current operations are in material compliance with applicable environmental requirements, as currently interpreted and enforced, including regulatory remediation commitments assumed. The Company has not incurred in any material pollution liabilities as a result of its operations to date. Petrobras Argentina undertakes environmental impact studies for new projects and investments and, to date, environmental requirements and restrictions imposed on these new projects have not had any material adverse impact on Petrobras Argentina’s business.

Other issues

The Company maintains interpretative differences with the AFIP, provincial tax authorities and foreign tax authorities about taxes applicable oil and gas activity. Company’s Management and its legal advisors estimate that the outcome of these differences will not have significant adverse effects on the Company’s financial position or results of operations.

13. Contractual commitments, warranty bonds, sureties and guarantees granted

The warranty bonds, sureties and guarantees as of December 31, 2010 and 2009, which are not disclosed in the other notes, amount to 16 and 15, respectively.

In addition, as of December 31, 2010, the Company had the following contractual commitments:

	Payments due by period
			Less than						More than
	Total		1 year		1-3 years		3-5 years		5 years		Until
	(in millions of pesos)
Purchase Obligations
Long-term service agreement (4)		1,022		559		273		43		147		2,029
Petroleum services and materials (4)		1,925		1,640		178		54		53		2,017
Ethylene (2)(4)		1,759		439		878		442		—		2,015
Benzene (3)(4)		3,383		845		1,689		849		—		2,015
Oil purchase agreements for Refinery (4)		99		99		—		—		—		2,011
Gas transportation capacity with TGS (1)		1,413		209		419		419		366		2,019
Gas purchase agreements for Genelba (4)		160		68		76		16		—		2,014
Total		9,761		3,859		3,513		1,823		566
Sales Obligations
Natural gas		1,334		400		340		304		290		2,019
Electric power		1,038		272		442		203		121		2,019
LPG		1,451		188		266		250		747		2,019
Oil		22		22		—		—		—		2,011
Total		3,845		882		1,048		757		1,158

(1)	Estimated price 0.16 per million cubic meters.
(2)	Estimated average price US$818 per ton (4). Contractual prices are in US dollars. Peso amounts translated using exchange rate as of December 31, 2010.
(3)	Estimated price US$566 per ton (4). Contractual prices are in US dollars. Peso amounts translated using exchange rate as of December 31, 2010.
(4)	Prices are generally determined by formulas based on future market prices. Estimated prices used to calculate the monetary equivalent of these purchase obligations for purposes of the table are based on current market prices as of December 31, 2010 and may not reflect actual future prices of these commodities. Accordingly, the peso amounts provided in this table with respect to these obligations are provided for illustrative purpose only.

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	Obligations by period
			Less than						More than
	Total		1 year		1-3 years		3-5 years		5 Years
Purchase Obligations
Ethylene (in thousands of tons)		540		135		270		135		—
Benzene (in thousands of tons)		1,501		375		749		377		—
Oil Purchase agreements for Refinery (in millions of barrels)		—		—		—		—		—
Gas transportation capacity with TGS (in millions of cubic meters)		10,128		1,582		3,169		3,165		2,212
Gas purchase agreements for Genelba (in millions of cubic meters)		748		281		374		93		—
Sales Obligations
Natural gas (in millions of cubic meters)		6,076		1,835		1,545		1,432		1,264
Electric power (in GWh)		1,221		302		501		239		179
LPG (in thousands of tons)		334		57		61		54		162

14. Capital stock

As of December 31, 2010, the Company’s capital stock totaled 1,010, fully subscribed, issued, paid-in, registered and authorized for public trading (Note 1.2).

Changes in capital stock in the last three years:

	December 31,
	2010		2009		2008
Common shares of 1 vote and face value of $1 per share		1.010		1.010		1.010

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15. Other receivables, inventories, other liabilities, other operating expenses, net, other (expenses) income, net and supplemental cash flow information

The composition of the items is as follows:

		2010					2009
		Current		Non-current			Current		Non-current
15.1. Other receivables
Joint ventures			24		—			74		—
Related companies	(Note 17)		688		—			1,814		344
Dividends receivable			229		—			7		—
Tax credits			198		79			346		80
Deferred tax assets	(Note 11)		—		613			—		807
Receivables from the sale of companies			38		—			37		—
Contractual credit in Ecuador			411		—			—		—
Expense refunds			9		5			19		5
Prepaid expenses			71		17			87		18
Credit for new projects in the mixed companies in Venezuela	(Note 7.4)		—		352			—		336
Guarantee deposits			14		37			5		38
Allowance for other receivables	(Note 12)		—		(691	)		—		(853	)
Other			120		34			78		15
			1,802		446			2,467		790

			2010				2009
									No
		Current		Non-current		Current			Non-current
15.2. Inventories
Crude oil stock			260		—		306			—
Raw materials and materials			309		81		261			73
Work in progress and finished products			530		—		445			—
Advances to suppliers			—		—		2			9
Allowance for obsolescence of inventory	(Note 12)		—		—		(3	)		—
			1,099		81		1,011			82

		2010				2009
		Current		Non-current		Current		Non-current
15.3. Other liabilities
Related companies	(Note 17)		101		279		92		—
Advanced collections			208		131		109		163
Reserve for environmental remediation			35		66		55		61
Joint ventures			28		—		6		29
Extension of production concessions	(Note 5.1)		—		—		6		—
Litigation and fines accrual			223		—		157		—
Third party collections			219		—		98		—
Asset retirement obligation	(Note 5.5)		—		351		—		311
Other			146		41		52		23
			960		868		575		587

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		2010			2009			2008
15.4. Other operating expenses, net
Advisory services rendered to other companies			32			37			40
Taxes on bank transactions			(145	)		(120	)		(146	)
Contingencies	(Note 12)		(35	)		(27	)		(42	)
Oil transportation agreement with OCP			(126	)		(98	)		(174	)
Fundopem	(1)		81			66			80
Tariff increase reversal in TGS	(2)		(61	)		—			—
Other			(4	)		(50	)		11
			(258	)		(192	)		(231	)

(1)	Tax benefits earned by Innova S.A. consisting in a partial reduction of certain taxes in accordance with an incentive program that the Brazilian state of Rio Grande do Sul provides to companies located there.
(2)	See Note 7.3.2.

		2010			2009			2008
15.5. Other (expenses) income, net
Writedown of assets in Argentina	(Note 8.3)		(209	)		—			—
Gain from the sale of the fertilizer business	(Note 8.1)		34			—			—
Gain from the financial debt repurchase	(Note 9.6)		2			5			57
Gain from the sale of the equity interest in PVIE	(Note 8.2)		—			1,591			—
Net impairment of assets in Venezuela	(Note 12)		(212	) (1)		(281	)		(154	)
Disposal of property, plant and equipment			(3	)		(30	)		—
Reversal of the allowance for impairment of PP&E in Argentina	(Note 25.1)		—			—			121
Termination Agreement of Block 31			—			—			(31	)
Loss from the sale of 40% of the equity interest of Block 18			—			—			(28	)
Other, net			31			3			(82	)
			(357	)		1,288			(117	)

(1) Includes a loss of Ps. 208 related to our equity in earnings of affiliates.

	2010		2009		2008
15.6. Supplemental cash flow information
Cash		581		327		492
Time deposits, mutual funds and affiliates balances		2,284		1,225		984
Cash and cash equivalent at the end of the year		2,865		1,552		1,476

16. Social benefits and other payroll benefits

16.1.Defined contribution plan

Supplementary pension plan

In November 2005, Petrobras Argentina’s Board of Directors approved the implementation of a defined voluntary contribution plan for the employees who fulfill certain conditions. Through this plan, Petrobras Argentina makes contributions to a trust fund in an equal amount to the contributions made by the employees adhered to the plan, in conformity with a scheme defined for each salary level. The participating employees may make voluntary contributions exceeding those established in the mentioned scheme, which will not be considered for purposes of the contributions to be made by Petrobras Argentina.

In the years ended December 31, 2010, 2009 and 2008, Petrobras Argentina expensed 10, 10 and 8, respectively, attributable to such benefit.

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16.2.Defined benefit plan

Indemnity plan

This is a defined benefit plan for employees who fulfill certain conditions, and consists of granting, upon retirement, a one-month salary per year of service at the Company, in conformity with a decreasing scale considering the years of effectiveness of the plan.

Compensatory fund

This is a defined benefit plan for employees of Petrobras Argentina who take part in the defined contribution plan effective at each opportunity that joined the Company prior to May 31, 1995, and have reached a certain number of years of service. The benefit is based on the last computable salary and years of service of each employee included in the plan.

The plan is of a supplemental nature, so that the benefit received by the employee is represented by the amount determined under the provisions of this plan, after deducting benefits payable to the employee under the contribution plan and the public retirement system, in order to that the aggregate benefit to each employee equals the one stipulated in this plan.

The plan calls for a contribution to a fund exclusively by Petrobras Argentina and without any contribution by the employees. The assets of the fund are contributed to a trust fund and invested in US dollar-denominated money market instruments in order to preserve the accumulated capital and obtain a return in line with a moderate risk profile. In addition, although there is no target asset allocation for the following years, funds are mainly invested in US government bonds, commercial papers rated A1 or P1, AAAm-rated mutual funds and time deposits in banks rated A+ or higher in the United States of America, in accordance with the Trust Agreement dated on March 27, 2002 entered with The Bank of New York, duly amended by the Permitted Investment Letter dated on September 14^th, 2006. The Bank of New York Mellon is the trustee and Towers Watson is the managing agent. Should there be an excess (duly certified by an independent actuary) of the funds to be used to settle the benefits granted by the plan, Petrobras Argentina will be entitled to choice to use it, in which case it would have to notify the trustee thereof.

The expected return on the plan assets is calculated on the basis of the average return of comparable short-term investments, plus some adjustments if future return expectations need to be reflected.

As of the date of these financial statements, Petrobras Argentina’s Board of Directors has not approved contributions to assets related to its defined benefit plan for fiscal year 2011.

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As of December 31, 2010, 2009 and 2008 the most relevant actuarial information on the defined-benefits pension plans are as follows:

	2010			2009			2008
Change in benefit obligation
Benefit obligation at the beginning of the year		189			191			176
Service cost		4			4			4
Interest cost		34			36			23
Actuarial gain		(15	)		(25	)		(3	)
Benefits paid		(8	)		(9	)		(9	)
Reductions / Terminations		(24	)		(8	)		—
Benefit obligation at the end of the year (1)		180			189			191
Change in plan assets
Fair value of plan assets at the beginning of the year		40			44			31
Return on plan assets		2			4			3
Contributions made		—			—			17
Benefits paid		(9	)		(8	)		(7	)
Fair value of plan assets at the end of the year		33			40			44

	2010			2009			2008
Reconciliation of funded (unfunded) status
Unfunded status at the end of the year		(147	)		(149	)		(147	)
Unrecognized prior service cost		20			27			36
Unrecognized actuarial loss		12			22			45
Net liability recognized		(115	)		(100	)		(66	)

	2010			2009			2008
Components of net periodic benefit cost
Service cost		4			4			4
Interest cost		34			36			23
Expected return on plan assets		(7	)		(8	)		(3	)
Amortization of actuarial gain and losses and unrecognized prior service cost		3			4			5
Net periodic benefit cost		34			36			29
Weighted-average assumptions
Discount rate		4	%		4	%		4	%
Rate of return on plan assets		14	%		19	%		21	%
Rate of compesation increase		2	%		2	%		2	%

(1) As of December 31, 2010, 2009 and 2008, the benefit obligation includes 144, 136 and 135 of Compensatory Fund and 36, 53 and 56 of Indemnity Plan, respectively.

Benefit obligation are expected to be paid as follows:
2011	16
2012	12
2013	14
2014	17
2015	15
2016-2020	85

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16.3.Pension plan financing — Optimum Petrobras Trust Fund

The Company, in its capacity as trustor, entered into a trust agreement with BNP Paribas Argentina Investment Partners S.A., in its capacity as trustee. The trust assets consist of shares of the Company which as of December 31, 2010 numbered 3,235,910 (Note 4.16).

The sole purpose of the trust is to make periodical contributions of shares and/or funds resulting from the sale of the shares in order for the Company to comply with the funding obligations under the Compensatory Fund and the Employees’ Supplementary Pension Plan.

17. Balances and transactions with related companies

General conditions:

Related-party transactions are conducted in the ordinary course of business at arm’s length conditions and at market prices. The terms and conditions of these transactions are comparable to those offered by or obtained from non-related parties.

Sale of companies:

In December 2007 and in April 2009, Petrobras Argentina sold to PIB BV (a subsidiary of its holding company) the initial 40% equity interest and the remaining 60% equity interest in PVIE in the amount of US$423.3 million and US$619.4 million, respectively.

Financial transactions:

In 2005, the Company entered into a US$ 200 million loan agreement with PIB BV (lender). The loan has a 10-year term and bears interest at a rate of 7.22% per annum, plus taxes and can be paid off at any time without penalty.

In February 2008, the Company approved placement of short-term financial surplus in PIB BV, up to the amount of US$300 million, at a monthly payable nominal annual interest rate equivalent to 30-day Libor plus 0.15%, due July 2008, with prepayment clause available for the Company. In December 2008, the outstanding loan balance was replaced by means of two new loans totaling US$120 million: a US$107 million loan between PIB BV and Petrobras Argentina and a U$S13 million loan between PIB BV and Petrobras Holding Austria GMBH, a subsidiary of Petrobras Argentina, both maturing December 2009, with prepayment clause available for the Company. As regards these two loans, US$30 million were paid before maturity and US$90 million were paid at maturity. As of December 31, 2010, only one loan is outstanding between PIB BV and Petrobras Argentina in the aggregate amount of US$90 million, due December 2011.

Financial guarantees:

In 2007, Petrobras Argentina issued US$300 million Class S corporate bonds, secured by a Standby Purchase Agreement provided by Petróleo Brasileiro.

In December 2009, the Company took two loans in the aggregate amount of US$150 million, secured by Petróleo Brasileiro: one loan granted by Banco Itaú Europa, in the amount of US$100 million, to be repaid in 7 semiannual installments with final payment date in December 2013, and another loan granted by HSBC Bank USA in the amount of US$50 million, due June 2012.

Commercial transactions

In the ordinary course of business, the Company performs crude oil and oil related products import and export transactions with subsidiaries of Petróleo Brasileiro, particularly with Petrobras International Finance Co.

In addition, Braskem, a subsidiary of Petróleo Brasilerio, supplies Innova with benzene and ethylene for the styrene manufacturing process.

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The outstanding balances with related parties as of December 31, 2010 and 2009 are as follows:

	2010
	Current												Non-current
			Trade		Other		Accounts		Other						Accounts		Other
Company	Investments		Receivables		Receivables		Payable		Liabilities		Loans		Investments		Payable		Liabilities		Loans
Companies in which it exercises significant influence
Oleoducto de Crudos Pesados Ltd.		—		—		—		—		63		—		148		—		279		—
Petrolera Entre Lomas S.A.		—		—		—		37		—		—		—		36		—		—
Refinería del Norte S.A.		—		10		6		11		—		—		—		—		—		—
Other		—		3		16		4		4		—		6		—		—		—
		—		13		22		52		67		—		154		36		279		—
Companies under joint control
Transportadora de Gas del Sur S.A.		—		16		2		10		—		—		—		—		—		—
		—		16		2		10		—		—		—		—		—		—
Petroleo Brasileiro Group Companies
Braskem S.A.		—		—		—		58		—		—		—		—		—		—
Petrobras Chile Ltda.		—		—		1		—		—		—		—		—		—		—
Petrobras Energía Venezuela S.A.		13		—		170		—		11		—		—		—		—		—
Petrobras International — Braspetro B.V.		358		—		491		—		—		21		—		—		—		795	(a)
Petrobras International Finance Co.		—		23		—		—		—		—		—		—		—		—
Petrobras Venezuela Inversiones y Servicios S.A.		—		—		—		—		23		—		—		—		—		—
Petrobras Paraguay Operaciones y Logistica S.R.L.		—		13		—		—		—		—		—		—		—		—
Petróleo Brasileiro S.A. -Petrobras		—		19		2		94		—		—		—		—		—		—
		371		55		664		152		34		21		—		—		—		795
Total		371		84		688		214		101		21		154		36		279		795
(a)      Prepaid on April 5, 2011.
	2009
	Current												Non-current
			Trade		Other		Accounts		Other						Other		Accounts
Company	Investments		Receivables		Receivables		Payable		Liabilities		Loans		Investments		Receivables		Payable		Loans
Companies in which it exercises significant influence
Oleoducto de Crudos Pesados Ltd.		—		—		—		—		—		—		150		—		—		—
Petrolera Entre Lomas S.A.		—		—		—		50		—		—		—		—		30		—
Refinería del Norte S.A.		—		13		5		10		—		—		—		—		—		—
Other		—		4		28		13		2		—		6		—		—		—
		—		17		33		73		2		—		156		—		30		—
Companies under joint control
Transportadora de Gas del Sur S.A.		—		7		11		10		—		—		—		—		—		—
		—		7		11		10		—		—		—		—		—		—
Petroleo Brasileiro Group Companies
Petrobras Energía Venezuela S.A.		13		—		162		—		8		—		—		—		—		—
Petrobras International — Braspetro B.V.		342		—		1,606		—		69		20		—		344		—		760
Petrobras International Finance Co.		—		44		—		3		—		—		—		—		—		—
Petróleo Brasileiro S.A. -Petrobras		—		2		2		67		13		—		—		—		—		—
		355		46		1,770		70		90		20		—		344		—		760
Total		355		70		1,814		153		92		20		156		344		30		760

F-46

The main transactions with affiliates for the years ended December 31, 2010, 2009 and 2008 are as follows:

	2010				2009				2008
Company	Purchases		Sales		Purchases		Sales		Purchases		Sales
Companies in which it exercises significant influence
Oleoductos del Valle S.A.		18		—		22		—		18		—
Petrolera Entre Lomas S.A.		454		3		362		2		478		1
Refinería del Norte S.A.		120		69		133		68		93		43
Other		—		1		—		27		—		20
		592		73		517		97		589		64
Companies under joint control
Transportadora de Gas del Sur S.A.		49		22		48		36		153		165
		49		22		48		36		153		165
Petroleo Brasileiro Group Companies
Braskem S.A.		2,002		—		1,241		—		1,252		—
Petrobras International Finance Co.		247		492		208		902		224		2,449
Petróleo Brasileiro S.A. -Petrobras		71		86		35		16		108		20
Compañía Mega S.A.		—		22		—		—		—		—
Petrobras Paraguay Operaciones y Logistica S.R.L.		—		26		—		19		—		71
Diversas		2		—		—		—		—		—
		2,322		626		1,484		937		1,584		2,540
Total		2,963		721		2,049		1,070		2,326		2,769

18. Business segments and geographic consolidated information

The Company’s business is mainly concentrated in the energy sector, especially through its activities in exploration and production of oil and gas, refining and distribution, petrochemical and gas and energy. Accordingly, the identified business segments are as follows:

a) Oil and Gas Exploration and Production, composed of the Company’s participation in oil and gas blocks and its interest in Oleoductos del Valle S.A., Petrolera Entre Lomas S.A., OCP and direct and indirect interest in the mixed companies in Venezuela.

b) Refining and Distribution, including the Company’s operations in the refineries of San Lorenzo (Note 8.3) and Bahía Blanca, its own gas station network, the Company’s equity interests in Refinería del Norte S.A. and the commercialization of the oil produced in Argentina, which is transferred at market prices from the Oil and Gas Exploration and Production business segment.

c) Petrochemicals, comprising the Company’s own fertilizers (Note 8.1) and styrenics operations developed in Argentina and Brazil.

d) Gas and Energy, comprising the Company’s operations of sale of the gas produced in Argentina and the liquefied petroleum gas brokerage and trading activities, its interest in TGS, the operations of electricity generation in the Genelba plant and in the Pichi Picún Leufú Hydroelectric Complex, and its interest in Edesur and Enecor S.A.

e) Assets and results of operations related to the Central Services Structure, those not attributable to any given business segment, discontinued operations and intercompany eliminations are disclosed together.

The applicable measurement methods to report business segment information are those described in Note 4 to these consolidated financial statements. The inter-segments transaction prices are made at market value.

F-47

The following information shows selected data for each of the business segments identified by the Company’s management:

	2010
	Oil and Gas
	Exploration		Refining				Gas		Corporate
	and		and				and		and
	Production		Distribution		Petrochemicals		Energy		Eliminations		Total
Total current assets		1,620		1,835		996		1,823		1,499		7,773
Property, plant and equipment		4,295		1,094		875		4,420		105		10,789
Non-current investment		2,807		141		—		253		150		3,351
Non-current other assets		42		64		91		414		235		846
Total assets		8,764		3,134		1,962		6,910		1,989		22,759
Total liabilities		1,712		1,897		774		3,792		3,621		11,796
Dividends collected		157		62		—		—		—		219

	2009
	Oil and Gas
	Exploration		Refining				Gas		Corporate
	and		and				and		and
	Production		Distribution		Petrochemicals		Energy		Eliminations		Total
Total current assets		1,026		1,297		1,168		1,704		1,914		7,109
Property, plant and equipment		4,450		1,365		894		4,308		111		11,128
Non-current investment		3,142		160		—		257		150		3,709
Non-current other assets		58		68		110		331		570		1,137
Total assets		8,676		2,890		2,172		6,600		2,745		23,083
Total liabilities		1,321		1,427		902		3,518		5,357		12,525
Dividends collected		72		22		—		—		—		94

F-48

	2010
	Oil and Gas
	Exploration			Refining						Gas			Corporate
	and			and						and			and
	Production			Distribution			Petrochemicals			Energy			Eliminations			Total
Consolidated Statement of Income
Net sales
To third parties		417			7,025			3,437			3,563			—			14,442
Inter-segment		3,244			320			69			153			(3,786	)		—
		3,661			7,345			3,506			3,716			(3,786	)		14,442
Cost of sales		(2,407	)		(6,564	)		(2,806	)		(2,788	)		3,759			(10,806	)
Gross profit (loss)		1,254			781			700			928			(27	)		3,636
Administrative and selling expenses		(187	)		(545	)		(441	)		(308	)		(265	)		(1,746	)
Exploration expenses		(190	)		—			—			—			—			(190	)
Other operating (expenses) income, net		(173	)		15			74			(50	)		(124	)		(258	)
Operating income (loss)		704			251			333			570			(416	)		1,442
Equity in earnings of affiliates		102			54			—			—			—			156
Gains interests		10			1			14			57			58			140
Loss interests		(20	)		(13	)		(16	)		(141	)		(304	)		(494	)
Other financial expenses, net		(1	)		(4	)		4			(58	)		12			(47	)
Income tax		(49	)		66			(25	)		(33	)		(160	)		(201	)
Other		(176	)		(213	)		24			(27	)		6			(386	)
Net income (loss)		570			142			334			368			(804	)		610

F-49

	2009
	Oil and Gas
	Exploration			Refining						Gas			Corporate
	and			and						and			and
	Production			Distribution			Petrochemicals			Energy			Eliminations			Total
Consolidated Statement of Income
Net sales
To third parties		578			5,414			2,897			3,083			—			11,972
Inter-segment		2,739			214			31			191			(3,175	)		—
		3,317			5,628			2,928			3,274			(3,175	)		11,972
Cost of sales		(2,288	)		(5,119	)		(2,352	)		(2,317	)		3,218			(8,858	)
Gross profit		1,029			509			576			957			43			3,114
Administrative and selling expenses		(158	)		(478	)		(414	)		(315	)		(303	)		(1,668	)
Exploration expenses		(336	)		—			—			—			—			(336	)
Other operating (expenses) income, net		(206	)		26			100			(3	)		(109	)		(192	)
Operating income (loss)		329			57			262			639			(369	)		918
Equity in earnings of affiliates		168			42			—			—			—			210
Gains interests		10			—			13			33			52			108
Loss interests		(41	)		(16	)		(26	)		(121	)		(400	)		(604	)
Other financial expenses, net		(11	)		(40	)		3			(122	)		(35	)		(205	)
Income tax		(64	)		(5	)		(29	)		(79	)		(549	)		(726	)
Other		(291	)		(4	)		(19	)		(80	)		1,618			1,224
Net income		100			34			204			270			317			925

F-50

	2008
	Oil and Gas
	Exploration			Refining						Gas			Corporate
	and			and						and			and
	Production			Distribution			Petrochemicals			Energy			Eliminations			Total
Statement of income
Net sales
To third parties		2,233			6,684			3,420			2,838			—			15,175
Inter-segment		2,507			258			55			155			(2,975	)		—
		4,740			6,942			3,475			2,993			(2,975	)		15,175
Cost of sales		(2,478	)		(6,649	)		(2,762	)		(2,108	)		2,997			(11,000	)
Gross profit		2,262			293			713			885			22			4,175
Administrative and selling expenses		(237	)		(475	)		(439	)		(275	)		(332	)		(1,758	)
Exploration expenses		(238	)		—			—			—			—			(238	)
Other operating (expenses) income, net		(207	)		11			65			10			(110	)		(231	)
Operating income (loss)		1,580			(171	)		339			620			(420	)		1,948
Equity earnings (losses) of affiliates		311			(6	)		—			—			—			305
Gains interests		6			—			5			31			69			111
Loss interests		(53	)		(26	)		(21	)		(103	)		(336	)		(539	)
Other financial expenses, net		9			(43	)		(157	)		(85	)		(78	)		(354	)
Income tax		(419	)		(2	)		(18	)		(96	)		27			(508	)
Other		(75	)		(2	)		11			(26	)		(95	)		(187	)
Net income (loss)		1,359			(250	)		159			341			(833	)		776

F-51

The following information shows selected data about assets, net sales, operating income (loss) and equity in earnings of affiliates by geographic area.

	2010
													Other and
	Argentina		Venezuela		Bolivia		Perú (a)		Brasil		Ecuador		eliminations			Total
Total current assets		6,460		146		73		—		578		490		26			7,773
Property, plant and equipment		9,980		—		173		—		617		17		2			10,789
Non-current investment		569		2,518		—		—		—		263		1			3,351
Non-current other assets		799		—		2		—		40		4		1			846
Total assets		17,808		2,664		248		—		1,235		774		30			22,759
Net sales
To third parties		11,856		—		116		—		2,191		243		36			14,442
Inter-segment		61		—		—		—		9		—		(70	)		—
Total		11,917		—		116		—		2,200		243		(34	)		14,442
Operating income (loss)		1,142		1		55		—		236		49		(41	)		1,442
Equity in earnings of affiliates		91		58		—		—		—		7		—			156

	2009
														Other and
	Argentina		Venezuela			Bolivia		Perú (a)		Brasil		Ecuador		eliminations			Total
Total current assets		6,295		139			64		—		429		78		104			7,109
Property, plant and equipment		10,240		—			178		—		632		32		46			11,128
Non-current investment		573		2,880			—		—		—		255		1			3,709
Non-current other assets		1,060		—			2		—		55		19		1			1,137
Total assets		18,168		3,019			244		—		1,116		384		152			23,083
Net sales
To third parties		9,969		—			111		123		1,454		277		38			11,972
Inter-segment		71		—			—		—		5		—		(76	)		—
Total		10,040		—			111		123		1,459		277		(38	)		11,972
Operating income (loss)		298		(1	)		49		45		189		44		294			918
Equity in earnings of affiliates		68		139			—		—		—		3		—			210

	2008
															Other and
	Argentina		Venezuela			Bolivia		Perú (a)		Brasil		Ecuador			eliminations			Total
Net sales
To third parties		11,309		—			139		965		1,639		1,089			34			15,175
Inter-segment		144		—			—		—		6		—			(150	)		—
Total		11,453		—			139		965		1,645		1,089			(116	)		15,175
Operating income (loss)		796		(12	)		84		392		98		623			(33	)		1,948
Equity in earnings (losses) of affiliates		21		289			—		—		—		(5	)		—			305

(a) Note 8.2.

F-52

19. Controlling Group

Petrobras Participaciones S.L. is the parent company of Petrobras Argentina, with an ownership interest of 67.2% (Note 1.2).

Petrobras Participaciones S.L. is a subsidiary by Petróleo Brasileiro S.A, a Brazilian company, whose business is concentrated on exploration, production, refining, sale and transportation of oil and its byproducts in Brazil and abroad.

20. Summary of significant differences between accounting principles followed by the Company and US GAAP and summary of new US GAAP accounting pronouncements not yet adopted

The Company’s financial statements have been prepared in accordance with Argentina GAAP, which differ in certain respects from US GAAP. Such differences involve methods of measuring the amounts shown in the consolidated financial statements (which are the amounts included in the reconciliation from Argentina GAAP to US GAAP, in Note 21), as well as additional disclosures required by US GAAP and Regulation S-X of the Securities and Exchange Commission. The main differences relate to the items described below.

A — Explanation of the main differences included in the reconciliation from Argentina GAAP to US GAAP, corresponding to Petrobras Argentina, its subsidiaries and companies under joint control

1. Debt refinancing costs

Under Argentina GAAP, unamortized deferred costs related to debt issuance are charged to expense when such debt is restructured, while costs related to the new debt are capitalized and amortized on a straight — line basis.

Under US GAAP, SFAS No. 15, SFAS No. 140 and related EITFs, which were subsequently codified into ASC 405 “Liabilities” and ASC 470 “Debt“, require the Company to continue amortizing the costs related to the old debt, if the debt restructuring is not considered to be an “extinguishment”, as is the case of the debt restructuring of the Company, and charge the restructuring direct costs to expense.

2. Pension plan obligations

Recognition of pension plan obligations under Argentina and US GAAP is essentially the same, except for the fact that under Argentina GAAP the recognition of the over or under funded status is not required.

3. Foreign currency translation

Under both Argentina GAAP and US GAAP, all foreign operations are remeasured into U.S. dollars, which is the functional currency of our foreign subsidiaries. Assets and liabilities stated at current values are to be converted at the closing exchange rates, assets and liabilities measured at cost and revenues, expenses, gains and losses are converted at the historical exchange rates. Once the transactions are remeasured into U.S. dollars, assets and liabilities are translated into pesos at the closing exchange rate, and revenues, expenses, gains and losses are translated at historical exchange rates.

The resulting remeasurement gain or loss is recognized in the “Financial income (expenses) and holding gain (losses) account”. The effects of the translation of foreign operations net of the foreign-exchange differences generated by the debt denominated in foreign currency designated as hedge for net investment abroad are disclosed, as in US GAAP, in shareholders’ equity.

The remaining exchange differences recognized in earnings differ from Argentina GAAP to US GAAP; as a result of differences in the book value of foreign subsidiaries’ net assets and resulting designated debt.

4. Discounting of certain assets and liabilities

Under Argentina GAAP, certain receivables and liabilities which are valued on the basis of the best possible estimate of the amount to be collected or paid, are required to be discounted using an estimated rate at the time of the initial measurement.

F-53

Under US GAAP, receivables and liabilities arising from transactions with customers and suppliers in the normal course of business, which are done in customary trade terms not exceeding one year, are generally accounted for at their nominal value, including accrued interest, if applicable.

5. Guarantor’s accounting for guarantees

Under US GAAP, FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees”, which was subsequently codified into ASC 460, “Guarantees”, clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee.

Under Argentina GAAP the recognition of an initial liability for the non contingent obligation is not required.

6. Accounting for inventories

Under Argentina GAAP, inventories must be accounted for at reproduction or replacement cost or, in other words, at the price the Company would pay at any given time to replace or reproduce such inventory, whereas under US GAAP, inventories are accounted for at the lower of cost or market value.

7. Accounting for business combinations

a) Petrobras Energía share exchange offer

Petrobras Energía Participaciones acquired control of Petrobras Energía on January 25, 2000 as a result of an exchange offer pursuant to which Petrobras Energía Participaciones issued 1,504,197,988 Class B shares, with one vote per share, in exchange for 69.29% of Petrobras Energía’s outstanding capital stock, thereby increasing its ownership interest in Petrobras Energía to 98.21%.

Under Argentina GAAP, the accounting practice enforced in 2000 fiscal year for non-monetary exchange of shares was to recognize net assets at book value. Accordingly, issued shares of Petrobras Energía Participaciones were subscribed and accounted for at the book value of Petrobras Energía’s shares exchanged.

Under US GAAP, the exchange offer was accounted for under the purchase method. The purchase price calculated based upon the market price of Petrobras Energía’s common stock, has been allocated to the identifiable assets acquired and liabilities assumed based upon their fair value as of the acquisition date. The excess of the purchase price over the fair value of the net assets acquired has been reflected as goodwill. Therefore, the US GAAP shareholders’ equity reconciliation reflects the additional purchase price of Petrobras Energía’s capital stock, and the net income reconciliation reflects the incremental depreciation, depletion, amortization, effective interest rate of liabilities, and when applicable, the relevant impairment charges, and the related effects on the deferred income tax, as a result of push down accounting the purchase price allocation mentioned above.

Beginning in 2003, pursuant to CNV Resolution No. 434, Argentina GAAP adopted the purchase method or the pooling of interests method, depending on the circumstances. However, such new standards were not applied on a retroactive basis.

b) Purchase price allocation of Eg3 S.A. and Petrolera Santa Fe S.R.L.

On January 21, 2005, the Special Shareholders’ Meeting of Petrobras Energía, Eg3 S.A. (“Eg3”) and Petrobras Argentina S.A. (“PAR”), and the Special Partners’ Meeting of Petrolera Santa Fé S.R.L. (“PSF”), in their respective meetings, approved the merger of Eg3, PAR, and PSF with and into Petrobras Energía, with the former companies being dissolved without being liquidated. The effective merger date was set as January 1, 2005, as from when all assets, liabilities, rights and obligations of the absorbed companies were considered incorporated into Petrobras Energía.

Petrobras Energía recorded the effects of the corporate reorganization in accordance with the pooling-of-interest method.

F-54

As a result of the merger between Petrobras Energía, Petrolera Santa Fé S.R.L, Eg3 S.A. and Petrobras Argentina S.A., the reconciliation to US GAAP includes adjustments to Property, plant and equipment as of December 31, 2010 and 2009, respectively, that corresponds to the purchase price allocation derived from the excess of the acquisition price over the book values (allocated values) that were originally recorded in Eg3 S.A. and Petrolera Santa Fé S.A. as push down accounting when such companies were acquired by Petrobras, the Company’s controlling shareholder, in 2001 and 2002.

Under Argentina GAAP, push down accounting (as the term is defined by US GAAP) is not required.

8. Impairment of goodwill, property, plant and equipment and equity in affiliates

a) As described above in 7.a), the purchase price of Petrobras Energía has been allocated under US GAAP (but not under Argentina GAAP) to the identifiable assets acquired and liabilities assumed, based upon their fair values as of acquisition date, being the excess reflected as goodwill.

b) Under US GAAP, once an impairment loss is allocated to the carrying value of the long-lived assets, the reduced carrying amount represents the new cost basis of the long-lived assets. As a result, SFAS 144, which was subsequently codified into ASC 360 “Property Plant and Equipment”, prohibits entities from reversing the impairment loss should facts and circumstances change in the future. Under Argentina GAAP, impairment charges can be reversed in future years due to changes in the above-mentioned facts and circumstances.

c) Method of calculating impairment related to property, plant and equipment

Under Argentina GAAP the book value of a long-lived asset is adjusted to its recoverable value if its carrying amount exceeds the recoverable value in use. From a regulatory standpoint, recoverable value is defined as the larger of net realizable value and discounted value in use, defined as the addition of the discounted expected net cash flows that arise as a direct result of the use and eventual disposition of the assets.

Under US GAAP the book value of a long-lived asset is adjusted to its fair value if its carrying amount exceeds the undiscounted value in use.

Following this guidance, in the reconciliation to US GAAP, impairment charges and the related effect on depreciation of property, plant and equipment recorded under Argentina GAAP were reversed since under US GAAP the carrying amount did not exceed the undiscounted value in use.

The reconciliation of net income from Argentina GAAP to US GAAP for the year ended December 31, 2008 includes a loss of 352 mainly related to: (i) the write-off of the remaining carrying value under US GAAP (higher than the Argentina GAAP figure as it had not been affected by an impairment charge in 2007) of the property, plant & equipment related to Block 31, returned to Ecuador during 2008, and (ii) the elimination of the gain recorded under Argentina GAAP to reverse an impairment charge recorded in prior years on assets located in Argentina that, considering the difference in the calculation method described above, was not recorded for US GAAP purposes.

The above mentioned adjustments were allocated to the Other Operating expenses, net caption in the US GAAP Summarized Consolidated data included in Note 21.

9. Income taxes

Represents the effect of deferred income tax over each US GAAP adjustment, when applicable.

F-55

10. Proportional consolidation

Under Argentina GAAP, an investor is required to proportionally consolidate line by line its financial statements with the financial statements of the companies in which it exercises joint control. Joint control exists where all the shareholders, or only the shareholders owning a majority of votes, share the power to define and establish a company’s operating and financial policies on the basis of written agreements. In the consolidation of companies over which an investor exercises joint control, the amount of the investment in the company under joint control and the interest in its income (loss) and cash flows are replaced by the investor’s proportional interest in the company’s assets, liabilities, income (loss) and cash flows. Under the joint control of the Company are Distrilec, CIESA, and, as from December 31, 2007 through its sale on April 2009, PVIE.

Under US GAAP, interests in companies over which the investor exercises joint control are accounted for by the equity method and no proportional consolidation is allowed. However, pursuant to the SEC’s rules, differences in classification or presentation that result from using proportionate consolidation in the reconciliation to US GAAP, may be omitted if certain requirements are met. Such requirements are met by Distrilec and (since December 31, 2007 through its sale in April 2009) by PVIE but not by CIESA. The proportional consolidation of CIESA for the years ended December 31, 2010, 2009 and 2008 under Argentina GAAP has been reversed for purposes of the US GAAP reconciliation and in the additional disclosures included in Notes 21 and 22.

11. Sale of non-current assets to related parties

Under US GAAP, results on sales of non-current assets to related parties under common control are considered as a capital transaction. Under Argentina GAAP, results on sales of non-current assets are recognized in the statement of income.

Consequently, in the year ended December 31, 2009, the reconciliation to US GAAP includes the reversal of gains recorded under Argentina GAAP, which were recorded as an increase in Additional Paid in Capital for US GAAP purposes.

The above mentioned transaction with related parties under common control relates to the sale of Petrobras Energía’s interest in PVIE to Petrobras Internacional Braspetro B.V. (See Notes 8.2 and 17).

12. Noncontrolling Interest

An adjustment to record the effect of all US GAAP adjustments attributable to noncontrolling interest has been recorded.

13. Revaluation of assets held for sale

Under Argentina GAAP, assets classified as “held for sale” should be measured at their net realizable value and a gain can be recognized if the net realizable value exceeds book value and certain other conditions are met. However, as under US GAAP “assets held for sale” are measured at the lower of carrying amount or fair value less costs to sell, the reconciliation of net income for the year ended December 31, 2009 includes the reversal of the gain recorded under Argentina GAAP upon presentation of the assets as held for sale. Such gain was recognized in the year ended December 31, 2010 for US GAAP purposes, when the assets were sold (See Note 8.1.)

B — Explanation of the main differences included in the reconciliation from Argentina GAAP to US GAAP, applicable to our equity in affiliates

1) Capitalization of exchange differences

Under Argentina GAAP, during the period January 2002 to July 2003, exchange differences resulting from the peso devaluation on liabilities denominated in foreign currencies, which were directly related to the acquisition, construction or production of property, plant and equipment, intangibles and long-term investments in other companies incorporated in Argentina, were allowed to be capitalized to the cost values of such assets, subject to a number of conditions.

F-56

As of December 31, 2010 and 2009 the Company recorded capitalized foreign exchange differences losses of CIESA.

Under US GAAP, foreign currency exchange gains or losses are recognized in the statement of income.

2) Noncontrolling interest

An adjustment to record the effect of all US GAAP adjustments attributable to noncontrolling interest in consolidated subsidiaries of our equity in affiliates has been recorded.

3) Income taxes

Represents the effect of deferred income tax over each US GAAP adjustment, when applicable.

In addition, the recognition of a deferred tax asset or liability for differences related to assets and liabilities that, under FAS 52 Foreign Currency Translation, subsequently codified into ASC 830 “Foreign Currency”, are remeasured from the local currency into the functional currency using historical exchange rates and which result from change in exchange rates or indexing for tax purposes is not allowed for US GAAP purposes. However, under Argentina GAAP recognition of a deferred tax liability or asset for those temporary differences is allowed.

4) Impairment of equity interest in affiliates

The reconciliation of net income from Argentina GAAP to US GAAP for the years ended December 31, 2010 and 2009 includes a loss of 190 mainly related to impairment reversals recorded under Argentina GAAP in 2010 and a gain of 135 related to the reversal of impairment charges recorded in 2009 for Argentina GAAP purposes resulting from differences in the carrying amount of our equity interest in mixed companies in Venezuela.

5) Revenue recognition

As mentioned in Note 7.3.2, in 2009 TGS entered into a transitional agreement with the UNIREN that contemplated a tariff increase. The agreement was ratified by the President of the Republic. Accordingly, TGS recognized revenue for 122 under Argentina GAAP (amounts presented before the effect of noncontrolling interest and proportional consolidation of CIESA).

Under US GAAP, following the provisions of ASC 605, “Revenue recognition”, TGS considered that collectibility was not reasonably assured, and as a result TGS was not able to recognize such revenue until the new tariff schedule was published by ENARGAS. Based on the above, as of December 31, 2009, the revenue recognized was reversed in the reconciliation from Argentina GAAP to US GAAP included in Note 21.

Resulting from the fact that in 2010 TGS reversed the revenue recognized in 2009 for Argentina GAAP purposes, the reconciliation to US GAAP for the year-ended December 31, 2010 includes the reversal of such reversal.

C — Presentation

Major reclassifications to adjust the Argentina GAAP presentation to conform to US GAAP are as follows:

1) Classification of impairment losses

Under Argentina GAAP, impairment losses on property, plant and equipment or equity interest in affiliates are generally presented in the income statement as non-operating expenses.

US GAAP requires such losses to be presented as operating expenses. Therefore, impairment losses recognized under Argentina GAAP and additional impairment losses recognized under US GAAP are included in the Operating income (loss) subtotal of the US GAAP Consolidated income data presented in Note 21.

2) Balance sheet classification differences related to deferred income tax assets (liabilities)

Under Argentina GAAP, net deferred tax assets (liabilities) are to be classified as non-current assets (liabilities).

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Under US GAAP, the Company applied the provisions contained in SFAS No. 109, “Accounting for income taxes”, which was subsequently codified into ASC 740 “Income Taxes”. Such statement states that in a classified statement of financial position, an enterprise should separate deferred tax liabilities and assets into a current amount and a non-current amount. To such extent, deferred tax liabilities and assets should be classified as current or non-current based on the classification of the related asset or liability for financial reporting. In addition, a deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to tax loss carryforwards, shall be classified according to the expected reversal date of the temporary difference.

3) Accounting for purchases and sales of inventory with the same counterparty

Under Argentina GAAP, purchases and sales of inventory with the same counterparty that are entered into in contemplation of one another are not required to be combined for reporting purposes.

Under US GAAP, EITF No. 04-13, subsequently codified into ASC 845 “Non-monetary Transactions”, states that purchases and sales of inventory with the same counterparty that are entered into in contemplation of one another should be combined and recorded as exchanges measured at the book value of the item sold.

4) Accounting for discontinued operations

In accordance with US GAAP, the results of continuing operations should be presented separately from discontinued operations and any gain or loss from the disposal of a component of a business segment should be reported in conjunction with the result of discontinued operations.

Since for Argentina GAAP purposes, discontinued operations were not presented separately from continued operations in the face of the income statement, required reclassifications have been made for purposes of the US GAAP consolidated income data presented in Note 21.

D — Other

1) Restatement of financial statements for the effects of inflation

The reconciliation to US GAAP does not include any adjustment to eliminate the effects of inflation required under Argentina GAAP (see Note 2.3), as they are also permitted by Regulation S-X of the SEC.

E — Recently issued accounting standards under US GAAP

Intangibles Goodwill and Other (Topic 350): When to perform step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (ASU 2010-28)

The FASB issued Accounting Standards Update (“ASU”) 2010-28 in December 2010. This standard establishes when to perform the Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts. Under this new guidance an entity must consider whether it is more likely than not that goodwill impairment exists for each reporting unit with a zero or negative carrying amount. If it is considered that goodwill impairment exists, the second step of the goodwill impairment test must be performed. The Company does not have goodwill recorded in reporting units with zero or negative carrying amounts.

F — Recently adopted accounting pronouncements

Transfers and Servicing (ASC 860), Accounting for Transfers of Financial Assets (ASU 2009-16)

The FASB issued Accounting Standards Update (“ASU”) 2009-16 in December 2009. This standard removes the concept of a Qualifying Special Purpose Entity (“QSPE”) and the exception for QSPE consolidation and clarifies the requirements for financial asset transfers eligible for sale accounting. ASU 2009-17 became effective for the Company on January 1, 2010, and its adoption did not have a material impact on the Company’s consolidated results of operations, financial position or liquidity.

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Consolidation (ASC 810), Improvements to Financial Reporting by Enterprises Involved With Variable Interest Entities (ASU 2009-17)

The FASB issued ASU 2009-17 in December 2009. ASU 2009-17 requires the enterprise to qualitatively assess if it is the primary beneficiary of a variable-interest entity (“VIE”), and, if so, the VIE must be consolidated. Additionally, this Statement requires continuous assessments of whether an enterprise is the primary beneficiary of a VIE. ASU 2009-17 became effective for the Company on January 1, 2010, and its adoption did not have a material impact on the Company’s results of operations, financial position or liquidity.

Receivables (ASC 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20)

The FASB issued ASU 2010-20 in July 2010. ASU 2010-20 amends and expands disclosure requirements about the credit quality of financing receivables and the related allowance for credit losses. As a result of these amendments, companies are required to disaggregate, by portfolio segment or class of financing receivable, certain existing disclosures and provide certain new disclosures about financing receivables and related allowance for credit losses. ASU 2010-20 became effective for the Company on January 1, 2010.

Fair value measurements and disclosures (Topic 820), Improving Disclosures about Fair value Measurements (ASU 2010-06)

The FASB issued Accounting Standards Update ASU 2010-06 in January 2010. This Standard provides for additional disclosures for transfers in and out of levels I and II and for activity in level III and also clarifies certain other existing disclosure requirements including level of desegregation and disclosures around inputs and valuation techniques. ASU 2010-06 became effective for the Company on January 1, 2010, except for the requirement to provide the level III activity for purchases, sales, issuances, and settlements on a gross basis which is effective for fiscal years beginning after December 15, 2010. There was no impact to the Company’s consolidated financial statements from the implementation of this standard.

F-59

21. Reconciliation of net income and equity to US GAAP

The following is a summary of the significant adjustments to net income (including noncontrolling interest) for the years ended December 31, 2010, 2009 and 2008, the shareholders’ equity and noncontrolling interest as of December 31, 2010 and 2009, which would be required if US GAAP had been applied instead of Argentina GAAP in the Company’s financial statements.

Reconciliation of net income to US GAAP

	2010			2009			2008
Net income under Argentina GAAP		610			925			776
US GAAP adjustments:
Foreign currency translation (Note 20.A.3)		15			6			26
Debt refinancing costs (Note 20.A.1)		1			1			3
Depreciation of Property Plant & Equipment
Business combination (Note 20.A.7)		(19	)		(26	)		(27	)
Impairment (Note 20.A.8.b)		1			2			(23	)
Other		(6	)		1			(5	)
Impairment of property plant & equipment (Note 20.A.8.c)		—			—			(352	)
Discounted value of assets and liabilities (Note 20.A.4)		12			(50	)		(35	)
Effects of the sale of noncurrent assets to related parties (Note 20.A.11)		—			(1,591	)		—
Noncontrolling interest (Note 20.A.12)		1			1			3
Inventories (Note 20.A.6)		(10	)		(37	)		91
Deferred income taxes (Note 20.A.9)		57			815			66
Revaluation of assets held for sale (Note 20.A.13)		47			(47	)		—
Other		—			1			(10	)
US GAAP adjustments applicable to equity in earnings of affiliates
Deferred income taxes (Note 20.B.3)		33			(28	)		(97	)
Depreciation of property plant and equipment		(22	)		(3	)		(3	)
Capitalized exchange losses (Note 20.B.1)		—			—			1
Noncontrolling interest (Note 20.B.2)		(19	)		19			2
Reversal of equity in earnings of CIESA (i) (Note 20.A.10)		(49	)		33			18
Impairment (Note 20.B.4)		(190	)		135			—
Revenue recognition (Note 20.B.5)		61			(61	)		—
Other		10			—			—
Total US GAAP adjustments		(77	)		(829	)		(342	)
Net income under US GAAP attributable to the shareholders		533			96			434
Plus: noncontrolling interest under US GAAP		(4	)		14			19
Net income (including noncontrolling interest) under US GAAP		529			110			453

i) This adjustment reverses the equity in earnings accounted for under Argentina GAAP and complements the effects of other US GAAP adjustments recognized in items listed above with respect to CIESA (2010, 2009 and 2008). As of December 31, 2010, 2009 and 2008, CIESA presented a deficit in shareholders equity under US GAAP, and therefore it was valued at zero.

F-60

Earnings per share	2010		2009			2008
Basic / Diluted earnings per share under US GAAP
Class B:
Income / (loss) from continuing operations		0.481		0.173			0.165
Income / (loss) from discontinued operations		0.047		(0.078	)		0.264
Basic / Diluted earnings per share under Argentine GAAP
Class B		0.604		0.916			0.769
Number of shares -in millions (1)		1,010		1,010			1,010

(1) Earnings (loss) per share are calculated based on the weighted average number of shares outstanding during the years ended December 31, 2010, 2009 and 2008.

Consolidated statement of comprehensive income and accumulated comprehensive income

	2010			2009			2008
Net income (including noncontrolling interest) under US GAAP		529			110			453
Foreign currency translation (Note 20.A.3)
Net change during the year, net of tax		37			49			73
Deferred pension plan obligations (Note 20.A.2)
Decrease net of tax		11			22			5
Total comprehensive income		577			181			531
Less: noncontrolling interest under US GAAP		4			(14	)		(19	)
Total comprehensive income attributable to the shareholders		581			167			512
Accumulated other comprehensive income (loss):
Amounts not recognized as net periodic pension costs, net of tax (Note 20.A.2)		7			(4	)		(26	)
Foreign currency translation net of tax (Note 20.A.3)		221			184			135
Adjustment to initially apply ASC 715, net of tax (1)		(28	)		(28	)		(28	)
Total Accumulated Other Comprehensive Income		200			152			81

(1) SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, was subsequently codified into ASC 715, “Compensation — Retirement Benefits”.

F-61

Reconciliation of shareholders’ equity to US GAAP

	2010			2009
Shareholders’ equity under Argentina GAAP		9,974			9,589
US GAAP adjustments:
Debt refinancing costs (Note 20.A.1)		—			(1	)
Pension plan obligations (Note 20.A.2)		(31	)		(48	)
Foreign currency translation (Note 20.A.3)		(22	)		(35	)
Property plant and equipment
Business combination (Note 20.A.7)		236			250
Impairment (Note 20.A.8.c)		(27	)		(28	)
Other		(30	)		(24	)
Revaluation of assets held for sale (Note 20.A.13)		—			(47	)
Other		(10	)		(10	)
Goodwill (Note 20.A.7.a and 20.A.8.a)		101			101
Discounted value of assets and liabilities (Note 20.A.4)		12			—
Inventories (Note 20.A.6)		(34	)		(24	)
Guarantees (Note 20.A.5)		(5	)		(5	)
Noncontrolling interest (Note 20.A.12)		12			11
Deferred income taxes (Note 20.A.9)		41			(9	)
US GAAP adjustments applicable to equity in affiliates
Deferred income taxes (Note 20.B.3)		(152	)		(178	)
Property plant and equipment (Note 20.A.8.a)		(7	)		9
Capitalized exchange losses (Note 20.B.1)		(24	)		(25	)
Noncontrolling interest (Note 20.B.2)		(18	)		1
Reversal of equity in affiliates of CIESA (i) (Note 20.A.10)		(106	)		(57	)
Impairment (Note 20.B.4)		(49	)		135
Revenue recognition (Note 20.B.5)		—			(61	)
Other		3			(7	)
Total US GAAP adjustments		(110	)		(52	)
Shareholders’ equity under US GAAP (A)		9,864			9,537
Noncontrolling interest under Argentina GAAP		989			969
US GAAP adjustments:
Reversal of noncontrolling interest of CIESA under Argentina GAAP		(578	)		(554	)
Other		(12	)		(11	)
Total US GAAP adjustments		(590	)		(565	)
Noncontrolling interest under US GAAP (B)		399			404
Equity under US GAAP (A) + (B)		10,263			9,941

i) This adjustment reverses the equity in earnings accounted for under Argentina GAAP and complements the effects of other US GAAP adjustments recognized in items listed above with respect to CIESA. As of December 31, 2010 and 2009, CIESA presented a deficit in shareholders’ equity under US GAAP, and therefore it was valued at zero.

F-62

Description of changes in equity under US GAAP

	2010			2009			2008
Shareholders’ equity under US GAAP as of beginning of the year		9,537			8,886			8,689
Additional paid-in capital (Note 20.A.11)		—			801			—
Net effects of corporate reorganization (Note 1.2)		—			(48	)		—
Treasury stock		21			—			—
Cash dividends		(275	)		(269	)		(315	)
Other comprehensive income		48			71			78
Net income attributable to the Shareholders under US GAAP		533			96			434
Shareholders’ equity under US GAAP as of the end of the year		9,864			9,537			8,886
Noncontrolling interest		399			404			360
Equity under US GAAP as of the end of the year		10,263			9,941			9,246

US GAAP summarized consolidated data

The consolidated income data and the consolidated cash flows for the years ended December 31, 2010, 2009 and 2008 and the consolidated balance sheets as of December 31, 2010 and 2009, presented below have been adjusted to reflect the differences between US GAAP and Argentina GAAP discussed above, giving effect to differences in measurement methods and disclosures as previously discussed.

	Year ended December 31,
US GAAP consolidated income data	2010			2009			2008
Sales		13,458			10,301			13,181
Less — taxes on sales and services		(222	)		(284	)		(542	)
Net sales		13,236			10,017			12,639
Cost of sales		(9,898	)		(7,378	)		(9,306	)
Gross profit		3,338			2,639			3,333
Administrative and selling expenses		(1,707	)		(1,517	)		(1,573	)
Exploration expenses		(190	)		(333	)		(218	)
Other operating expenses, net		(777	)		(311	)		(744	)
Operating income		664			478			798
Equity in earnings of affiliates		151			147			208
Financial expenses and holding losses, net		(249	)		(537	)		(569	)
Income before income taxes and discontinued operations		566			88			437
Income tax (expense) benefit		(84	)		101			(251	)
Net income from continuing operations		482			189			186
Income (loss) from discontinued operations, net of tax (1)		47			(79	)		267
Net income for the year		529			110			453
Net income attributable to noncontrolling interest		4			(14	)		(19	)
Net income for the year attributable to the Shareholders		533			96			434

(1) Net of income tax (benefit) expense of 26, (44) and 133 for the years ended December 31, 2010, 2009 and 2008, respectively.

F-63

	As of December 31,
US GAAP condensed consolidated balance sheet data	2010		2009
Other receivables		1,908		2,517
Other current assets		5,225		3,862
Current assets		7,133		6,379
Investments		3,024		3,571
Property, plant and equipment		8,962		9,278
Other non-current assets		653		933
Total non-current assets		12,639		13,782
Total assets		19,772		20,161
Short-term debt (a) (b)		631		1,901
Other liabilities		3,542		2,702
Total current liabilities		4,173		4,603
Long-term debt		3,471		3,801
Other non-current liabilities		1,865		1,816
Total non-current liabilities		5,336		5,617
Total liabilities		9,509		10,220
Shareholders’ equity		9,864		9,537
Noncontrolling Interest		399		404
Total Equity		10,263		9,941
		19,772		20,161

(a)	The weighted average annual interest rates for outstanding short-term borrowings were 6.007% and 8.16% as of December 31, 2010 and 2009, respectively.
(b)	Includes 584 and 1.480 relating to current portion of long-term debt as of December 31, 2010 and 2009, respectively.

		Year ended December 31,
US GAAP condensed consolidated cash flow data		2010			2009			2008
Net cash provided by operations			2,889			2,056			1,839
Net cash provided (used) in investing activities			391			(1,014	)		(1,150	)
Net cash used in financing activities			(2,074	)		(1,289	)		(577	)
Increase (decrease) in cash			1,206			(247	)		112
Effect of the exchange rate on cash			71			115			83
Cash and cash equivalent at the beginning of the year			1,034			1,166			971
Cash and cash equivalent at the end under US GAAP	��		2,311			1,034			1,166

F-64

22. Additional financial statement disclosures required by US GAAP and the SEC

a)Income taxes

The tax effect of the significant differences between the book value under US GAAP and the tax value of the Company’s assets and liabilities and tax loss carryforwards is as follows:

	2010			2009
Deferred tax assets
Tax loss carryforwards		67			92
Inventories		12			8
Property, plant and equipment		7			212
Reserve for contingencies		127			119
Equity interest in affiliates		80			80
Pension plan obligations		48			52
Receivables		120			118
Other deferred tax assets		82			113
Total gross deferred tax assets		543			794
Less valuation allowance (2)		(277	)		(469	)
Total net deferred tax assets		266			325
Deferred tax liabilities
Loans		(12	)		(64	)
Prepaid expenses		(5	)		(5	)
Property, plant and equipment		(447	)		(637	)
Equity interest in affiliates		(256	)		(421	)
Other deferred tax liabilities, not individually significant		(13	)		(21	)
Total deferred tax liabilities		(733	)		(1,148	)
Net deferred tax liabilities		(467	)(1)		(823	)

(1)

The change in 2010 includes: an increase of 60 mainly attributable to the effect of the foreign exchange fluctuations on the deferred tax liabilities in foreign affiliates.

(2)

Management evaluates the recoverability of tax loss carryforwards and the remaining temporary differences taking into consideration, among other elements, the projected business profits, tax planning strategies, temporariness of future taxable income, considering the term of expiration of the tax loss carryforwards, the future reversals of the existing temporary differences and the recent year tax history. All the evidence available, both positive and negative, is duly weighted and considered in the analysis. Management believes that it is more likely than not that the Company will realize the benefits of the above-mentioned deductible differences and tax loss carryfowards, net of the existing valuation allowance as of December 31, 2010 and 2009.

Net deferred tax liabilities as of December 31, 2010 and 2009 consist of:

	2010			2009
Current deferred income tax assets		129			55
Non-current deferred income tax assets		9			4
Non-current deferred income tax liabilities		(605	)		(882	)
Net deferred tax liabilities		(467	)		(823	)

F-65

The reconciliation of the income tax expense charged to the income statement and the one that would result from the application of the prevailing income tax rate of the 35% to the gain before taxes and the minority interest is as follows:

	2010			2009			2008
Income (loss) before income tax and noncontrolling interest from continuing operations		566			88			437
Statutory tax rate		35	%		35	%		35	%
Statutory tax rate applied to pre-tax income from continuing operations		(198	)		(31	)		(153	)
Equity in earnings of affiliates		13			7			11
Permanent differences in foreign subsidiaries		31			46			22
Cash dividends and capital stock reductions in foreign affiliates		(8	)		(101	)		(65	)
Other, net		(33	)		(29	)		—
Foreign income tax		102			206			117
Net movement in the valuation allowance		9			3			(183	)
Tax (expense) benefit from continuing operations		(84	)		101			(251	)

The Company’s provision for income taxes from continuing operations under US GAAP comprised the following:

	2010			2009			2008
Current
Argentina		(432	)		158			(82	)
Foreign		(84	)		(58	)		(247	)
		(516	)		100			(329	)
Deferred
Argentina		423			22			113
Foreign		9			(21	)		(35	)
		432			1			78
Total tax (expense) benefit		(84	)		101			(251	)

As of December 31, 2010, the tax loss carryforwards amounting to 191 may be used until the dates indicated below:

2012 and thereafter	191
	191

Effect of adopting provisions of ASC 740 of the FASB Accounting Standards Codification (ASC) relating to accounting for uncertainty in income taxes (formerly FASB Interpretation no. 48)

The Company accounts for uncertain tax positions pursuant to FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. This standard provides guidance on recognition, classification and disclosure concerning uncertain income tax liabilities. The evaluation of a tax position requires recognition of a tax benefit if it is more likely than not it will be sustained upon examination.

F-66

As of December 31, 2010, 2009 and 2008 and for the years then ended, the Company did not have any unrecognized tax benefits. In addition, the Company does not expect that the amount of unrecognized tax benefits will change significantly within the next twelve months. Furthermore, the Company has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of financial and operating expenses, respectively, in the consolidated statements of income. As of December 31, 2010, 2009 and 2008 and for the years then ended, the Company has not accrued interest and penalties related to unrecognized tax benefits.

The Company and its subsidiaries file income tax returns in Argentina and in other foreign jurisdictions. The Argentine tax returns are open to examination by the respective tax authorities for the years beginning in 2004. In addition, tax returns of foreign jurisdictions in which we operate are open to examination for the years beginning in 2006 in Venezuela, Bolivia and Spain, 2005 in Colombia, Brazil, Austria and Mexico and 2004 in Ecuador.

b)Fair value of financial instruments

US GAAP requires disclosure of the estimated fair value of the Company’s financial instruments. The following methods and assumptions were used to estimate the fair value of each class of financial instruments.

The carrying amounts of cash, cash equivalents, accounts receivables and short-term obligations approximate their fair value, because of the short-term maturities of these instruments.

The fair value of publicly traded long-term debt is based on quoted market prices, and for the remaining long-term debt fair value was estimated based on the current rates available to the Company for debt of similar remaining maturities.

The estimated fair values of financial instruments are as follows, except for those financial instruments noted above for which the carrying values approximate fair values:

	2010				2009
	Carrying				Carrying
	amount				amount
	under		Fair		under		Fair
	US GAAP		Value		US GAAP		Value
Financial liabilities:
Long-term debt		3,471		3,622		3,801		3,926

c)Fair value disclosures

ASC 820, “Fair Value Measurements” among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820-10 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1:Observable inputs such as quoted prices in active markets;

Level 2:Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3:Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions

F-67

The disclosure requirements of ASC820 for financial assets and liabilities measured at fair value on a recurring basis were applied to holdings in mutual funds recognized in accordance with SFAS 115, which was subsequently codified into ASC 320 Investments—Debt and Equity Securities.

The fair value of the holdings in mutual funds was recognized on the basis of exchange quoted prices as the balance sheet date for identical assets in active markets and, therefore, were classified as Level 1

The inputs used in the calculation of the fair value of the Company’s financial assets and liabilities accounted for at fair value on a recurring basis at December 31, 2010 and 2009, were:

	As of December 31, 2010
	Level 1		Level 2		Level 3		Total
Assets
Holdings in mutual funds		131		—		—		131
Total assets		131		—		—		131

	As of December 31, 2009
	Level 1		Level 2		Level 3		Total
Assets
Holdings in mutual funds		195		—		—		195
Total assets		195		—		—		195

The inputs used in the calculation of the fair value of the Company’s non financial assets and liabilities accounted for at fair value on a non-recurring basis at December 31, 2010 and 2009, were:

	As of December 31, 2010
	Level 1		Level 2		Level 3		Total
Assets
Equity method investments		—		—		1,534		1,534
Long-lived assets held for sale		—		139		—		139
Total assets		—		139		1,534		1,673

	As of December 31, 2009
	Level 1		Level 2		Level 3		Total
Assets
Equity method investments		—		—		2,006		2,006
Total assets		—		—		2,006		2,006

F-68

	As of December 31, 2010
	Level 1		Level 2		Level 3		Total
Liabilities
Other Liabilities		—		—		342		342
Total liabilities		—		—		342		342

Equity method investments in Venezuela were determined to have a fair value below their carrying amount as of December 31, 2010 and 2009 and the impairment was considered to be other than temporary. As a result, those investments were written down to their fair value resulting in a charge of 217 and 146 before tax, as of December 31, 2010 and 2009, respectively (Note 21). Inputs used to estimate fair value include: prices based on our business plan, production curves, market operating costs and investments needed for carrying out the projects.

Long-lived assets held for sale were written down to their fair value of 139 resulting in a loss of 209 before tax, which is included in other operating expenses, net caption in the US GAAP Summarized Consolidated Data as of December 31, 2009 (Note 21).

Other liabilities measured at fair value as of December 31, 2010, correspond to current and non-current liabilities recorded by the Company in connection with the net transportation capacity committed under the agreement entered into with OCP (Note 5.4).

d)Summarized financial information of unconsolidated affiliates

The following table provides summarized financial information on a 100% basis, for the main affiliates accounted for by the equity method, combined per business unit, under Argentina GAAP.

Each business unit includes the following companies as of December 31, 2010, 2009 and 2008:

• Oil and Gas Exploration and Production:Petrolera Entre Lomas S.A., Inversora Mata S.A., Coroil S.A., Petroritupano S.A., Petrowayú S.A., Petrovenbras S.A., Petrokariña S.A., Oleoductos del Valle S.A. and Oleoducto de Crudos Pesados Ltd.

• Refining and Distribution: Refinería del Norte S.A.

F-69

	2010
	Oil and Gas
	Exploration and			Refining and
	Production			Distribution
Current assets		6,570			609
Non current assets		10,422			426
Current liabilities		5,234			481
Non current liabilities		4,765			57
Shareholders’ equity		6,993			497
Sales		4,719			1,797
Gross profit		2,347			483
Net (loss) income		(345	)		191

	2009
	Oil and Gas
	Exploration and		Refining and
	Production		Distribution
Current assets		8,153		788
Non current assets		9,303		395
Current liabilities		4,421		584
Non current liabilities		4,530		37
Shareholders’ equity		8,505		562
Sales		4,300		1,593
Gross profit		2,872		366
Net income		1,062		149

	2008
	Oil and Gas
	Exploration and		Refining and
	Production		Distribution
Sales		6,545		1,238
Gross profit		4,087		186
Net income (loss)		1,216		(21	)

F-70

e)Pension plan

Defined benefit plan:

Supplemental information for the Company’s defined benefit plans is as follows (see also Note 16.2):

	2010			2009
Projected benefit obligation at the end of the year		180			189
Accumulated benefit obligation at the end of year		176			189
Fair value of plan assets at the end of the year (1)		33			40
Status of the plans — Unfunded at year — end		(147	)		(149	)

(1) Both for December 31, 2010 and 2009 assets contributed correspond to the Compensatory Fund (Note 16.2)

Amounts recorded in the consolidated balance sheet consisists of:

	2010			2009			2008
Total liabilities		(147	)		(149	)		(147	)

Cumulative amounts recorded in “Accumulated other comprehensive income” consists of:

	2010		2009		2008
Unrecognized prior service cost		20		27		36
Unrecognized actuarial loss		12		22		46
“Accumulated other comprehensive income” at year-end, before tax		32		49		82

Reconciliation of amounts recognized in “Accumulated other comprehensive income”

	2010			2009			2008
Amounts recorded before tax at beginning of year		49			82			90
Change in unrecognized actuarial loss		(10	)		(23	)		(6	)
Amortization of prior service cost recognized in net periodic benefit cost		(2	)		(2	)		(2	)
Other adjustments /Curtailment		(5	)		(8	)		—
Amounts recorded before tax at end of year:		32			49			82

Components of net periodic pension benefit cost

	2010			2009			2008
Service cost		4			4			4
Interest cost		34			36			23
Return on plan assets		(7	)		(8	)		(3	)
Amortization of actuarial gains/ losses and unrecognized prior service cost		3			4			5
Net periodic benefit cost		34			36			29
Curtailment		(20	)		—			—
Total expense for the year		14			36			29

As of December 31, 2010 and 2009, the assets related to the defined pension plans were composed of U$ dollar money markets instrument (Level 1 in the fair value hierarchy of ASC 820) held at The Bank of New York Mellon in compliance with the applicable investment policies defined for such plans.

F-71

As of December 31, 2010, the amounts expected to be recognized in 2011 as net periodic benefit cost, before the effect of income taxes, are as follows:

Prior service cost	2
Net actuarial loss	—

f)Exploratory well costs

The following table provides an aging of capitalized exploratory well costs based on the date the drilling was completed and the number of projects for which exploratory well costs have been capitalized for a period greater than one year since the completion of the drilling:

Aging of capitalized exploratory well costs

	2010				2009				2008
	Amount		Wells		Amount		Wells		Amount		Wells
Drilling not finished or capitalized for less than one year		56		9		44		14		178		22
Capitalized for more than one year		160		8		184		19		125		16
Total		216		17		228		33		303		38

Capitalized exploratory well costs as of December 31, 2010 for more than one year correspond to 8 wells located in the Austral and Neuquén Basin (Argentina), for which the Company has assigned certain of its personnel to assess the economic, legal, political, environmental, and regulatory aspects related to the potential development of such projects.

g)Financing receivables

The Company has no significant long term financing receivables, other than a non current account receivable from CAMMESA amounting to 212 from the sale of electricity generated by Petrobras Argentina in the spot market due to the fact that in previous years, generation companies only received payment from CAMMESA to cover variable production costs and for power and services, but not for the profit margin on sales to the spot market. As a result, FONINVEMEM I and II were created through the contribution of a significant portion of our receivable from CAMMESA in 2004-2006 and in 2007, respectively (Note 10.1).

The Company recovers the amounts contributed to the FONINVEMEM I, converted to US$ and adjusted by Libo rate + 1% p.a., in 120 monthly installments starting March 2010. In addition, amounts related to FONINVEMEM II were fully recovered in the year ended December 31, 2009. With regards to the remaining balances outstanding, Petrobras Argentina estimates that on the basis of the amounts already collected, and estimates of future collections, such amounts will be collected and that no valuation allowance is needed for such amounts.

23. Oil and Gas Supplementary Disclosures (Unaudited)

In December 2009, the Company adopted revised oil and gas reserve estimation and disclosure requirements. The primary impact of the new disclosures is to conform the definition of proved reserves with the Modernization of Oil and Gas Reporting rules, which were issued by the Securities and Exchange Commission (“SEC”) of the United States of America at the end of 2008. The accounting standards update revised the definition of proved oil and gas reserves to require that the average, first-day-of-the-month price during the 12-month period before the end of the year rather than the year-end price, must be used when estimating whether reserve quantities are economical to produce. This same 12-month average price is also used in calculating the aggregate amount of (and changes in) future cash inflows related to the standardized measure of discounted future net cash flows. The rules also allow for the use of reliable technology to estimate proved oil and gas reserves if those technologies have been demonstrated to result in reliable conclusions about reserve volumes. The unaudited supplemental information on oil and gas exploration and production activities for 2010 and 2009 has been presented in accordance with the new reserve estimation and disclosure rules, which may not be applied retrospectively. The 2008 data is presented in accordance with FASB oil and gas disclosure requirements effective during this period. Disclosures by geographic area include the Argentina, Venezuela and Rest of Latin American areas. The effect of applying the new definition of reliable technology and other non-price related aspects of the updated rules did not significantly impact 2009 net proved reserve volumes.

F-72

The following information for the oil and gas producing activities has been prepared in accordance with the methodology prescribed by ASC 932 of the FASB Accounting Standards Codification (ASC) relating to Extractive Activities — Oil and Gas (formerly SFAS no. 69 Disclosures about Oil and Gas Producing Activities) and includes the Company and its subsidiaries oil and gas production activities as well as the equity shares in its affiliates valued by the equity method. The Company has oil and gas properties in Argentina and other countries in Latin America.

Amounts are stated in millions of pesos as mentioned in Note 2.3 to the financial statements.

Capitalized costs

The following table presents the capitalized costs as of December 31, 2010 and 2009, for proved and unproved oil and gas properties, and the related accumulated depreciation and allowances, which reduce the value of assets.

	Argentine GAAP
	Consolidated Companies									Equity Method Investment
				Rest of
				Latin-
	Argentina			America			Total			Argentina			Venezuela			Total
	(in millions of constant pesos - note 2.3)
December 31,2010
Proved properties:
Equipment, camps and other facilities		4,226			66			4,292			4			—			4
Mining properties and wells		7,088			459			7,547			304			2,544			2,848
Unproved properties		214			—			214			—			—			—
Total capitalized costs		11,528			525			12,053			308			2,544			2,852
Accumulated depreciation and allowances which reduce the value of assets		(7,424	)		(334	)		(7,758	)		(163	)		(518	)		(681	)
Total net capitalized costs		4,104			191			4,295			145			2,026			2,171

	Argentine GAAP
	Consolidated Companies									Equity Method Investment
				Rest of
				Latin-
	Argentina			America			Total			Argentina			Venezuela			Total
	(in millions of constant pesos - note 2.3)
December 31,2009
Proved properties:
Equipment, camps and other facilities		3,883			142			4,025			4			—			4
Mining properties and wells		6,579			1,247			7,826			253			2,524			2,777
Unproved properties		227			—			227			—			—			—
Total capitalized costs		10,689			1,389			12,078			257			2,524			2,781
Accumulated depreciation and allowances which reduce the value of assets		(6,492	)		(1,136	)		(7,628	)		(132	)		(412	)		(544	)
Total net capitalized costs		4,197			253			4,450			125			2,112			2,237

F-73

Costs incurred

The following table presents those costs capitalized as well as expensed that were incurred during each of the years ended as of December 31, 2010, 2009 and 2008. The acquisition of properties includes the cost of acquisition of proved or unproved oil and gas properties. Exploration costs include geological and geophysical costs, costs necessary for retaining undeveloped properties, and drilling costs and exploratory well equipment. Development costs include drilling costs and equipment for developmental wells, costs incurred in improved recovery, the construction of facilities for extraction, treatment and storage of hydrocarbons and all necessary costs to maintain facilities for the existing developed reserves.

	Argentina GAAP
	Consolidated companies						Equity Method Investment
			Rest of
			Latin-
	Argentina		America		Total		Argentina		Venezuela		Total
	(in millions of constant pesos - note 2.3)
At December, 2010
Acquisition of properties:
- Proved		—		—		—		—		—		—
- Unproved		—		—		—		—		—		—
Exploration costs		137		45		182		3		—		3
Development costs		752		37		789		51		148		199
Total costs incurred		889		82		971		54		148		202
At December, 2009
Acquisition of properties:
- Proved		2		—		2		—		—		—
- Unproved		—		—		—		—		—		—
Exploration costs		300		28		328		1		—		1
Development costs		608		90		698		42		240		282
Total costs incurred		910		118		1,028		43		240		283
At December, 2008
Acquisition of properties:
- Proved		735		—		735		—		—		—
- Unproved		3		—		3		—		—		—
Exploration costs		345		96		441		—		—		—
Development costs		859		334		1,193		—		—		—
Total costs incurred		1,942		430		2,372		41		208		249

F-74

Results of operations

The breakdown of results of the operations shown below summarizes revenues and expenses directly associated with oil and gas-producing activities for the years ended December 31, 2010, 2009 and 2008. These activities are a part of the Oil and Gas Exploration and Production segment. This breakdown does not include any allocation of financial costs or expenses from Corporate and therefore it is not necessarily an indicator of the contribution in operations for oil and gas producing activities to the net income of the Company. Income tax for the years presented was calculated utilizing the deferred income tax criteria.

	Argentina GAAP
	Consolidated companies									Equity Method Investment
				Rest of
				Latin-
	Argentina			America			Total			Argentina			Venezuela			Total
	(in millions of constant pesos - note 2.3)
At December 31, 2010
Net sales:
- to third parties		25			392			417			75			747			822
- transfers to other operations		3,244			—			3,244			83			—			83
Total net sales		3,269			392			3,661			158			747			905
Production costs:
- Operating costs		(968	)		(90	)		(1,058	)		(42	)		(186	)		(228	)
- Royalties and other		(601	)		(224	)		(825	)		(20	)		(244	)		(264	)
Total production costs		(1,569	)		(314	)		(1,883	)		(62	)		(430	)		(492	)
Exploration costs		(145	)		(45	)		(190	)		(3	)		—			(3	)
Depreciation, depletion, amortization and allowances which reduce the value of assets		(810	)		4			(806	)		(37	)		(363	)		(400	)
Results of operations before income tax		745			37			782			56			(46	)		10
Income tax		(261	)		(58	)		(319	)		(23	)		53			30
Total Results of oil and gas operations		484			(21	)		463			33			7			40

F-75

	Argentina GAAP
	Consolidated companies									Equity Method Investment
				Rest of
				Latin-
	Argentina			America			Total			Argentina			Venezuela			Total
	(in millions of constant pesos - note 2.3)
At December 31, 2009
Net sales:
- to third parties		34			544			578			59			716			775
- transfers to other operations		2,739			—			2,739			67			—			67
Total net sales		2,773			544			3,317			126			716			842
Production costs:
- Operating costs		(789	)		(104	)		(893	)		(31	)		(209	)		(240	)
- Royalties and other		(520	)		(221	)		(741	)		(16	)		(218	)		(234	)
Total production costs		(1,309	)		(325	)		(1,634	)		(47	)		(427	)		(474	)
Exploration costs		(330	)		(6	)		(336	)		(1	)		—			(1	)
Depreciation, depletion, amortization and allowances which reduce the value of assets		(860	)		(51	)		(911	)		(31	)		(427	)		(458	)
Results of operations before income tax		274			162			436			47			(138	)		(91	)
Income tax		(96	)		(86	)		(182	)		(19	)		81			62
Total Results of oil and gas operations		178			76			254			28			(57	)		(29	)

F-76

	Argentina GAAP
	Consolidated companies									Equity Method Investment
				Rest of
				Latin-
	Argentina			America			Total			Argentina		Venezuela		Total
	(in millions of constant pesos - note 2.3)
At December 31, 2008
Net sales:
- to third parties		11			2,222			2,233			—		—		—
- transfers to other operations		2,507			—			2,507			—		—		—
Total net sales		2,518			2,222			4,740			—		—		—
Production costs:
- Operating costs		(620	)		(161	)		(781	)		—		—		—
- Royalties and other		(486	)		(882	)		(1,368	)		—		—		—
Total production costs		(1,106	)		(1,043	)		(2,149	)		—		—		—
Exploration costs		(179	)		(59	)		(238	)		—		—		—
Depreciation, depletion, amortization and allowances which reduce the value of assets		(574	)		(102	)		(676	)		—		—		—
Results of operations before income tax		659			1,018			1,677			—		—		—
Income tax		(230	)		(423	)		(653	)		—		—		—
Total Results of oil and gas operations		429			595			1,024			25		128		153

Estimated oil and gas reserves

Proved reserves represent estimated quantities of oil (including crude oil, condensate and natural gas liquids) and natural gas, which available geological and engineering data demonstrates with reasonable certainty to be recoverable in the future from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can reasonably be expected to be recovered through existing wells with existing equipment and operating methods. The choice of method or combination of methods employed in the analysis of each reservoir was determined by the stage of development, quality and reliability of basic data, and production history.

The Company believes that its estimates of remaining proved recoverable oil and gas reserve volumes are reasonable and such estimates have been prepared in accordance with the SEC Modernization of Oil and Gas Reporting rules, which were issued by the SEC at the end of 2008.

The Company estimates its reserves at least once a year. The Company’s reserves estimation as of December 31, 2010, 2009 and 2008 was audited by DeGolyer and MacNaughton. The technical revision covered approximately 71%, 70% and 70% respectively, of the Company’s estimated reserves. DeGolyer and MacNaughton have concluded that the audited proved oil and natural gas reserve volumes are reasonable. We resolved all questions that arose during the course of the audit process to the auditor’s satisfaction.

F-77

Proved reserves are estimated by the Company’s reservoir engineers. Reserves engineering is a subjective process of estimation of hydrocarbon accumulation, which cannot be accurately measured, and the reserve estimation depends on the quality of available information and the interpretation and judgment of the engineers and geologists. Therefore, the reserves estimations, as well as future production profiles, are often different than the quantities of hydrocarbons which are finally recovered. The accuracy of such estimations depends, in general, on the assumptions on which they are based.

The following table sets forth the estimated proved reserves of oil (includes crude oil, condensate and natural gas liquids) and natural gas as of December 31, 2010, 2009 and 2008:

	CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS
	IN THOUSANDS OF BARRELS															NATURAL GAS IN MILLION OF CUBIC FEET
	Consolidated companies						Equity Method Investment									Consolidated companies						Equity Method Investment
				Rest of															Rest of
Proved reserves				Latin-															Latin-
(developed and undeveloped)	Argentina			America			Argentina			Venezuela			Total			Argentina			America			Argentina			Venezuela			Total
Reserves as of December 31, 2007 (*)		93,685			106,446			4,794			59,977			264,902			1,006,986			223,732			9,719			66,626			1,307,063
Increase (Decrease) originated in:
Revisions of previous estimates		3,048			(15,704	)		197			(6,335	)		(18,794	)		(78,921	)		(15,906	)		(514	)		11,508			(83,833	)
Extensions and discoveries		1,505			—			—			—			1,505			39,195			—			—			—			39,195
Purchase of proved reserves in place		12,296			—			—			—			12,296			123,125			—			—			—			123,125
Sale of proved reserves in place		—			(10,677	)		—			—			(10,677	)		—			—			—			—			—
Year’s production		(15,027	)		(7,384	)		(717	)		(4,603	)		(27,731	)		(96,673	)		(16,073	)		(863	)		(2,867	)		(116,476	)
Reserves as of December 31, 2008 (*)		95,507			72,681			4,274			49,039			221,501			993,712			191,753			8,342			75,267			1,269,074
Increase (Decrease) originated in:
Revisions of previous estimates		(1,656	)		(4,159	)		(31	)		(2,884	)		(8,730	)		(6,224	)		(124,014	)		1,710			(13,967	)		(142,495	)
Improved recovery		—			—			—			(2,769	)		(2,769	)		—			—			—			4,416			4,416
Extensions and discoveries		1,935			—			554			—			2,489			1,059			—			860			—			1,919
Sale of proved reserves in place		—			(59,332	)		—			(174	)		(59,506	)		—			(65,988	)		—			(492	)		(66,480	)
Year’s production		(14,695	)		(2,406	)		(777	)		(3,388	)		(21,266	)		(110,232	)		(733	)		(890	)		(2,101	)		(113,956	)
Reserves as of December 31, 2009 (*)		81,091			6,784			4,020			39,824			131,719			878,315			1,018			10,022			63,123			952,478
Increase (Decrease) originated in:
Revisions of previous estimates		(2,284	)		—			44			(3,630	)		(5,870	)		(14,364	)		—			(1,302	)		(1,856	)		(17,522	)
Improved recovery		109			—			(5	)		—			104			4,692			—			(7	)		—			4,685
Extensions and discoveries		5,439			31			579			—			6,049			6,580			—			633			—			7,213
Sale of proved reserves in place		(10	)		(5,935	)		—			—			(5,945	)		—			(1,018	)		—			—			(1,018	)
Year’s production		(13,813	)		(880	)		(788	)		(2,755	)		(18,236	)		(99,948	)		—			(1,086	)		(1,546	)		(102,580	)
Reserves as of December 31, 2010 (*)		70,532			—			3,850			33,439			107,821			775,275			—			8,260			59,721			843,256

(*) Includes proved developed reserves:

As of December 31, 2007	68,326	46,098	3,601	33,432	151,457	499,270	144,566	7,870	43,976	695,682
As of December 31, 2008	72,054	36,223	3,579	27,497	139,353	531,807	115,145	7,579	47,034	701,565
As of December 31, 2009	60,434	4,668	3,189	22,228	90,519	442,226	1,017	8,070	32,462	483,775
As of December 31, 2010	49,358	—	3,141	18,739	71,238	392,255	—	7,311	25,076	424,642

Bolivian proved reserves were not classified as such in 2010 and 2009 due to the new Bolivian Constitution, which restrict the disclosure of estimated reserves for properties under its authority. The initial balance of Bolivian proved reserves for 2009 is adjusted under the line item “Revisions of previous estimates”. The reserve volumes in Bolivia for year ended in 2008 were calculated using the economic method, according to the terms of the new operating agreements signed in October 2006.

The estimated reserves were subjected to economic evaluation to determine their economic limits. Such estimated reserves in Argentina for years ended in 2010, 2009 and 2008; and in Peru for the years ended in 2008 are stated prior to the payment of any royalties as they have the same attributes as taxes on production and, therefore, are treated as operating costs. In Ecuador, due to the type of contract in which the Government has the right to a percentage of production and takes it in kind, the reserves are stated after such percentage as of December 2009 and 2008 (Note 5.4)

F-78

In Venezuela, as of December 31, 2010, 2009 and 2008, estimated reserves were calculated on the basis of the contractual structure in force, and are stated before royalties and are computed by multiplying our ownership in each mixed company by the proved reserve volumes of the relevant mixed company.

	2010				2009				2008
	Crude Oil,				Crude Oil,				Crude Oil,
	Condensate and				Condensate and				Condensate and
	Natural Gas		Natural		Natural Gas		Natural		Natural Gas		Natural
	Liquids		Gas		Liquids		Gas		Liquids		Gas
	In thousands of		In million of		In thousands of		In million of		In thousands of		In million of
	barrels		cubic feet		barrels		cubic feet		barrels		cubic feet
Net proved developed reserves:
Consolidated entities
Argentina		49,358		392,255		60,434		442,226		72,054		531,807
Rest of Latin-America		—		—		4,668		1,017		36,223		115,145
		49,358		392,255		65,102		443,243		108,277		646,952
Equity method investees
Argentina		3,141		7,311		3,189		8,070		3,579		7,579
Venezuela		18,739		25,076		22,228		32,462		27,497		47,034
		21,880		32,387		25,417		40,532		31,076		54,613
Total consolidated and equity method investees		71,238		424,642		90,519		483,775		139,353		701,565
Net proved undeveloped reserves:
Consolidated entities
Argentina		21,174		383,020		20,658		436,089		23,453		461,905
Rest of Latin-America		—		—		2,118		1		36,458		76,608
		21,174		383,020		22,776		436,090		59,911		538,513
Equity method investees
Argentina		709		949		831		1,952		695		763
Venezuela		14,700		34,645		17,596		30,661		21,542		28,233
		15,409		35,594		18,427		32,613		22,237		28,996
Total consolidated and equity method investees		36,583		418,614		41,203		468,703		82,148		567,509

Standardized measure of discounted future net cash flows

The following table discloses estimated future net cash flows from future production of proved developed and undeveloped reserves of crude oil, condensate, natural gas liquids and natural gas. As prescribed by SEC Modernization of Oil and Gas Reporting rules and ASC 932 of the FASB Accounting Standards Codification (ASC) relating to Extractive Activities — Oil and Gas (formerly SFAS no. 69 Disclosures about Oil and Gas Producing Activities), such future net cash flows were estimated using for 2010 and 2009 the average first-day-of-the-month price during the 12-month period for 2010 and 2009 and using year-end prices for 2008 and costs held constant for the life of the reserves and using a 10% annual discount factor. Future development and abandonment costs include estimated drilling costs, development and exploitation installations and abandonment costs. These future development costs were estimated based on evaluations made by the Company and the operators of the fields in which the Company has an interest. The future income tax was calculated by applying the tax rate in effect as of the date this supplementary information was filed.

F-79

This standardized measure is not intended to be and should not be interpreted as an estimate of the market value of the Company’s reserves. The purpose of this information is to give standardized data to help the users of the financial statements to compare different companies and make certain projections. It is important to point out that this information does not include, among other items, the effect of future changes in prices, costs and tax rates, which past experience indicates that are likely to occur, as well as the effect of future cash flows from reserves which have not yet been classified as proved reserves, of a discount factor more representative of the value of money over the lapse of time and of the risks inherent to the production of oil and gas. These future changes may have a significant impact on the future net cash flows disclosed below. For all these reasons, this information does not necessarily indicate the perception the Company has on the discounted future net cash flows derived from the reserves of hydrocarbons.

	Consolidated companies									Equity Method Investment
				Rest of
				Latin-
	Argentina			America			Total			Argentina			Venezuela			Total
	(in millions of pesos - note 2.3.)
At December 31, 2010
Future cash flows		21,080			823			21,903			835			7,928			8,763
Future production costs		(9,472	)		(433	)		(9,905	)		(317	)		(4,265	)		(4,582	)
Future development and abandonment costs		(3,154	)		(117	)		(3,271	)		(114	)		(283	)		(397	)
Future income tax		(2,159	)		(85	)		(2,244	)		(112	)		(1,324	)		(1,436	)
Undiscounted future net cash flows		6,295			188			6,483			292			2,056			2,348
10% annual discount		(1,722	)		(60	)		(1,782	)		(75	)		(764	)		(839	)
Standardized measure of discounted future net cash flows		4,573			128			4,701			217			1,292			1,509
At December 31, 2009
Future cash flows		20,403			2,133			22,536			751			7,364			8,115
Future production costs		(8,848	)		(819	)		(9,667	)		(261	)		(3,668	)		(3,929	)
Future development and abandonment costs		(3,365	)		(312	)		(3,677	)		(104	)		(461	)		(565	)
Future income tax		(2,299	)		(300	)		(2,599	)		(106	)		(1,195	)		(1,301	)
Undiscounted future net cash flows		5,891			702			6,593			280			2,040			2,320
10% annual discount		(1,804	)		(304	)		(2,108	)		(74	)		(844	)		(918	)
Standardized measure of discounted future net cash flows		4,087			398			4,485			206			1,196			1,402
At December 31, 2008
Future cash flows		21,210			9,495			30,705			—			—			—
Future production costs		(7,928	)		(3,631	)		(11,559	)		—			—			—
Future development and abandonment costs		(3,482	)		(1,774	)		(5,256	)		—			—			—
Future income tax		(2,699	)		(1,191	)		(3,890	)		—			—			—
Undiscounted future net cash flows		7,101			2,899			10,000			—			—			—
10% annual discount		(2,381	)		(1,524	)		(3,905	)		—			—			—
Standardized measure of discounted future net cash flows		4,720			1,375			6,095			198			827			1,025

F-80

Changes in the standardized measure of discounted future net cash flows

The following table discloses the changes in the standardized measure of discounted future net cash flows for the years ended December 31, 2010, 2009 and 2008:

	Consolidated companies									Equity Method Investment
				Rest of
				Latin-
	Argentina			America			Total			Argentina			Venezuela			Total
	(in millions of pesos - note 2.3)
Standardized measure at December 31, 2009		4,086			397			4,483			206			1,196			1,402
Changes related to oil & gas activities:
Hydrocarbons sales net of production costs		(1,700	)		(78	)		(1,778	)		(96	)		(317	)		(413	)
Net change in sales prices, net of future production costs		487			(57	)		430			10			242			252
Changes in future development costs		(346	)		(8	)		(354	)		(47	)		43			(4	)
Extensions, discoveries and improved recovery, net of future production and associated costs		590			—			590			53			—			53
Development costs incurred		752			37			789			51			148			199
Revisions of quantity estimates		(159	)		(9	)		(168	)		(10	)		(232	)		(242	)
Sale of reserves in place		—			(229	)		(229	)		—			—			—
Net change in income taxes		140			(26	)		114			(1	)		(74	)		(75	)
Accretion of discount		607			63			670			30			204			234
Changes in production rates		172			31			203			1			19			20
Other changes		(55	)		7			(48	)		21			63			84
Standardized measure at December 31, 2010		4,574			128			4,702			218			1,292			1,510

F-81

	Consolidated companies									Equity Method Investment
				Rest of
				Latin-
	Argentina			America			Total			Argentina			Venezuela			Total
	(in millions of pesos - note 2.3)
Standardized measure at December 31, 2008		4,720			1,375			6,095			198			827			1,025
Changes related to oil & gas activities:
Hydrocarbons sales net of production costs		(1,465	)		(219	)		(1,684	)		(79	)		(289	)		(368	)
Net change in sales prices, net of future production costs		(1,267	)		266			(1,001	)		(32	)		850			818
Changes in future development costs		(132	)		43			(89	)		(37	)		(266	)		(303	)
Extensions, discoveries and improved recovery, net of future production and associated costs		151			—			151			51			(118	)		(67	)
Development costs incurred		608			90			698			42			240			282
Revisions of quantity estimates		(274	)		(204	)		(478	)		18			(213	)		(195	)
Purchase of reserves in place		—			—			—			—			—			—
Sale of reserves in place		—			(1,770	)		(1,770	)		—			(1	)		(1	)
Net change in income taxes		428			406			834			7			(137	)		(130	)
Accretion of discount		734			214			948			31			153			184
Changes in production rates		190			43			233			3			(46	)		(43	)
Other changes		393			153			546			4			196			200
Standardized measure at December 31, 2009		4,086			397			4,483			206			1,196			1,402

F-82

	Consolidated companies									Equity Method Investment
				Rest of
				Latin-
	Argentina			America			Total			Argentina		Venezuela		Total
	(in millions of pesos - note 2.3)
Standardized measure at December 31, 2007		4,687			3,732			8,419			217		2,492		2,709
Changes related to oil & gas activities:
Hydrocarbons sales net of production costs		(1,412	)		(1,179	)		(2,591	)
Net change in sales prices, net of future production costs		(425	)		(3,041	)		(3,466	)
Changes in future development costs		(1,416	)		(421	)		(1,837	)
Extensions, discoveries and improved recovery, net of future production and associated costs		238			—			238
Development costs incurred		859			334			1,193
Revisions of quantity estimates		(79	)		50			(29	)
Purchase of reserves in place		984			—			984
Sale of reserves in place		—			(292	)		(292	)
Net change in income taxes		258			1,466			1,724
Accretion of discount		734			608			1,342
Changes in production rates		(145	)		(183	)		(328	)
Other changes		437			301			738
Standardized measure at December 31, 2008		4,720			1,375			6,095			198		827		1,025

24. Subsequent events

a) Sale of Innova S.A.

On March 31, 2011, Petrobras Argentina, through its subsidiary Petrobras Energía Internacional S.A., agreed to the sale of its interest in Innova S.A. to its controlling shareholder, Petróleo Brasileiro S.A, in an amount of US $332 that implies the discontinuation of our operations in Brazil and resulted in a gain of P $723 before considering the effects of income taxes and the reclassification of deferred results of 134 for Argentina GAAP purposes.

b) Shareholders Meeting of Petrobras Argentina S.A.

On April 6, 2011, the Petrobras Argentina’s General Regular Shareholder’s Meeting approved the distribution of cash dividends amounting to 183, which were paid on May 2011.

F-83

c) Operations in Ecuador

On March 18, 2011, the Hydrocarbon Secretary issued Official Notice No. 626 to inform the Company that it is analyzing and structuring a new regulatory framework to determine the settlement price for the agreements.

On April 11, 2011, the Company filed an answer to the Official Notice and rejected the terms thereof claiming that they do not comply with the procedure to determine the settlement price established in the Amendment Agreements by the parties concerned, which procedure may not be unilaterally modified. In this respect, the Company informed the Hydrocarbon Secretary that the Company will continue to apply the procedure provided for in the agreements.

Along these lines, and considering the uncertainties involved following the Official Notice of March 18, 2011, Petrobras Argentina recognized an impairment charge of 209 in earnings of 2011. Notwithstanding the above, such impairments charges should not be deemed as a waiver of our rights to receive the compensation provided for in the Amendment Agreements.

As of the date of these financial statements, Petrobras Argentina is taking the necessary steps to reach an agreement with the Ecuadorian Government regarding payment of the compensation provided for in the foregoing Amendatory Agreements.

d) Sale of San Lorenzo Refinery

On May 2, 2011 Petrobras Argentina S.A. transferred ownership of the San Lorenzo refinery, its loading and unloading facilities and the related fuel sales network to Oil Combustibles S.A. The total amount of the transaction was US$102 million, including inventories for approximately US$60 million.

The San Lorenzo refinery was classified as “Assets held for sale” in 2010, and measured at net realizable value. The transaction resulted in a loss of 209 that was recognized in earnings in 2010.

The transaction is subject to approval by the Argentine Antitrust Authorities (Comisión Nacional de Defensa de la Competencia).

e) TGS’s Shareholders’ Meeting

On April 29, 2011, TGS’s shareholders’ meeting approved the distribution of a cash dividend in the amount of 976 that was paid to its shareholders on May 27, 2011. As a result, CIESA received 540.

f) Nonconvertible bonds payment

On June 9, 2011, Petrobras Argentina paid all amounts outstanding (totalling US$ 87 million) on the nonconvertible Class N bonds issued on June 24, 2003 under the US$ 2.5 billion global program.

F-84

25. Other consolidated information

The following tables present additional consolidated financial statements disclosures required under Argentine GAAP:

25.1. Property, plant and equipment.

25.2. Equity in affiliates.

25.3. Cost of sales.

25.4. Foreign currency assets and liabilities.

25.5. Detail of expenses.

25.6. Information about ownership in subsidiaries and affiliates.

25.7. Oil and gas areas and participation in joint-ventures.

25.8. Combined joint-ventures and consortium assets, liabilities and statements of income.

25.9. Information about companies over which the Company exercises joint control.

F-85

25.1. Property, plant and equipment as of December 31, 2010, 2009 and 2008

(Stated in millions of Argentine Pesos)

		2010
		Oil and Gas
		Exploration			Refining						Gas			Corporate
		and			and						and			and
		Production			Distribution			Petrochemicals			Energy			Eliminations			Total
Net book value at the beginning of the year			4,450			1,365			894			4,308			111			11,128
Translation effect			5			—			13			—			—			18
Net increase			705			142			49			377			9			1,282
Assets held for sale	(Note 8.3)		—			(343	)		—			—			—			(343	)
Desinvestment in Ecuador	(Note 5.4)		(28	)		—			—			—			—			(28	)
Depreciation	(Note 25.5)		(837	)		(70	)		(81	)		(265	)		(15	)		(1,268	)
Net book value at the end of the year			4,295			1,094			875			4,420			105			10,789

		2009
		Oil and Gas
		Exploration			Refining						Gas			Corporate
		and			and						and			and
		Production			Distribution			Petrochemicals			Energy			Eliminations			Total
Net book value at the beginning of the year			5,767			1,368			1,124			4,175			122			12,556
Translation effect			127			—			62			—			—			189
Net increase			569			81			62			386			8			1,106
Assets held for sale	(Note 8.1)		—			—			(222	)		—			—			(222	)
Sale of PVIE	(Note 8.2)		(1,102	)		—			—			—			—			(1,102	)
Depreciation	(Note 25.5)		(911	)		(84	)		(132	)		(253	)		(19	)		(1,399	)
Net book value at the end of the year			4,450			1,365			894			4,308			111			11,128

		2008
		Oil and Gas
		Exploration			Refining						Gas			Corporate
		and			and						and			and
		Production			Distribution			Petrochemicals			Energy			Eliminations			Total
Net book value at the beginning of the year			4,258			1,317			1,009			3,897			128			10,609
Translation effect			88			—			48			—			—			136
Net increase			2,098			140			175			519			18			2,950
Reversal of the allowance of assets in Argentine	(Note 15.5)		121			—			—			—			—			121
Depreciation	(Note 25.5)		(798	)		(89	)		(108	)		(241	)		(24	)		(1,260	)
Net book value at the end of the year			5,767			1,368			1,124			4,175			122			12,556

F-86

25.2. Equity in affiliates as of December 31, 2010 and 2009

(Stated in millions of Argentine Pesos)

	2010								2009
	Description of securities
	Face						Book		Book
Name and issuer	Value		Amount		Cost		value		value
Oleoducto de Crudos Pesados Ltd.	US $	0.01		31,500		98		115		106
Oleoductos del Valle S.A.	$	10		2,542,716		61		59		61
Petrolera Entre Lomas S.A.	$	1		96,050		2		115		94
Refinería del Norte S.A.	$	10		2,610,809		63		141		160
Petrowayú S.A.	Bs	1,000		382,202		957		1,133		1,147
Petroritupano S.A.	Bs	1,000		483,263		1,109		1,336		1,499
Petroven-Bras S.A.	Bs	1,000		97,163		129		244		205
Petrokariña S.A.	Bs	1,000		153,869		456		640		601
Cost related with CIESA’s reestructuring (Note 9.5)		—		—		—		110		110
TGS S.A. goodwill in CIESA S.A.		—		—		—		19		21
Other		—		—		63		138		153
						2,938		4,050		4,157

US$	United States Dollars
Bol	Bolivian Pesos
$	Argentine Pesos

F-87

25.3. Cost of sales for the years ended December 31, 2010, 2009 and 2008

(Stated in millions of Argentine Pesos)

		2010
		Oil and Gas
		Exploration			Refining						Gas
		and			and						and
		Production			Distribution			Petrochemicals			Energy			Eliminations			Total
Inventories at the beginning of the year			132			624			360			93			(116	)		1,093
Currency traslation			—			—			6			—			—			6
Costs	(Note 25.5)		2,383			295			294			893			—			3,865
Holding (losses) gains			(1	)		18			3			3			(1	)		22
Purchases, consumptions and other			12			6,372			2,536			1,876			(3,796	)		7,000
Inventories at the end of the year			(119	)		(745	)		(393	)		(77	)		154			(1,180	)
Cost of sales			2,407			6,564			2,806			2,788			(3,759	)		10,806

		2009
		Oil and Gas
		Exploration			Refining						Gas
		and			and						and
		Production			Distribution			Petrochemicals			Energy			Eliminations			Total
Inventories at the beginning of the year			152			882			621			156			(180	)		1,631
Currency traslation			4			—			11			—			—			15
Costs	(Note 25.5)		2,214			260			357			765			—			3,596
Holding (losses) gains			2			3			(78	)		(7	)		—			(80	)
Purchases, consumptions and other			48			4,598			1,801			1,496			(3,154	)		4,789
Inventories at the end of the year			(132	)		(624	)		(360	)		(93	)		116			(1,093	)
Cost of sales			2,288			5,119			2,352			2,317			(3,218	)		8,858

		2008
		Oil and Gas
		Exploration			Refining						Gas
		and			and						and
		Production			Distribution			Petrochemicals			Energy			Eliminations			Total
Inventories at the beginning of the year			98			683			422			61			(168	)		1,096
Traslation effect			5			—			14			—			—			19
Costs	(Note 25.5)		2,433			237			314			665			—			3,649
Holding (losses) gains			—			(49	)		(86	)		6			18			(111	)
Purchases, consumptions and other			94			6,660			2,719			1,532			(3,027	)		7,978
Inventories at the end of the year			(152	)		(882	)		(621	)		(156	)		180			(1,631	)
Cost of sales			2,478			6,649			2,762			2,108			(2,997	)		11,000

F-88

25.4. Foreign currency assets and liabilities as of December 31, 2010 and 2009

(Stated in millions of Argentine Pesos)

					Book
	Foreign				value in
	currency and		Exchange		local
	amount		rate		currency
CURRENT ASSETS
Cash	US$	91.5		3.98		364
	Rs	2.1		2.39		5
	EU	0.8		5.27		4
						373
Investments	US$	524.6		3.98		2,088
	Rs	33.1		2.39		79
						2,167
Trade receivables	US$	86.7		3.98		345
	Rs	129.7		2.39		310
	Bol	86.3		0.56		48
	EU	0.8		5.27		4
						707
Other receivables	US$	397.5		3.98		1,582
	Rs	7.1		2.39		17
	Bol	10.8		0.56		6
						1,605
	TOTAL 2010					4,852
	TOTAL 2009					3,920
NON-CURRENT ASSETS
Trade receivables	US$	1.0		3.98		4
	Bol	3.6		0.56		2
						6
Other receivables	Rs	12.6		2.39		30
Investments	US$	37.2		3.98		148
	TOTAL 2010					184
	TOTAL 2009					575
TOTAL ASSETS		2010				5,036
		2009				4,495
CURRENT LIABILITIES
Accounts payable	US$	149.7		3.98		596
	Rs	48.1		2.39		115
	EU	3.0		5.27		16
						727
Short-term debt	US$	311.1		3.98		1,238
Payroll and social	US$	0.5		3.98		2
security taxes	Rs	9.2		2.39		22
						24
Taxes payable	US$	0.8		3.98		3
	Rs	26.8		2.39		64
	Bol	23.4		0.56		13
						80
Other liabilities	US$	61.1		3.98		243
	Rs	33.1		2.39		79
						322
	TOTAL 2010					2,391
	TOTAL 2009					3,309
NON-CURRENT LIABILITIES
Accounts payable	US$	10.3		3.98		41
	Rs	0.4		2.39		1
						42
Long-term debt	US$	1,034.7		3.98		4,118
	Rs	29.7		2.39		71
						4,189
Taxes payable	Rs	5.0		2.39		12
Other liabilities	US$	100.8		3.98		401
	Bol	41.4		0.56		23
						424
	TOTAL 2010					4,667
	TOTAL 2009					4,991
TOTAL LIABILITIES		2010				7,058
		2009				8,300

US$	Millions of United States Dollars
Rs	Millions of Reales
Bol	Millions of Bolivian Pesos
EU	Millions of Euros

F-89

25.5. Detail of expenses for the years ended December 31, 2010, 2009 and 2008

(Stated in millions of Argentine Pesos)

		2008			2009			2010
														Administrative
														and selling			Exploration
Accounts		Total			Total			Total			Costs			expenses			expenses
Salaries and wages			892			1,002			1,096			509			587			—
Other benefits to personnel			164			142			158			54			104			—
Taxes, charges and contributions			328			312			420			31			389			—
Fees and professional advisory			148			125			100			11			89			—
Depreciation of property, plant and equipment	(Note 25.1)		1,260			1,399			1,268			1,199			69			—
Oil and gas royalties			902			491			532			532			—			—
Spare parts and repairs			276			319			386			353			33			—
Geological and geophysical expenses			188			62			54			—			—			54
Abandoned and non-productive well write-downs			42			270			136			—			—			136
Transportation and freights			446			427			481			148			333			—
Construction contracts and other services			793			886			1,009			833			176			—
Fuel, gas, energy and other			77			69			63			52			11			—
Other operating costs and consumptions			237			252			226			166			60			—
Expense reimbursements			(108	)		(156	)		(128	)		(23	)		(105	)		—
Total 2010									5,801			3,865			1,746			190
Total 2009						5,600						3,596			1,668			336
Total 2008			5,645									3,649			1,758			238

F-90

25.6. Information about ownership in subsidiaries and affiliates as of December 31, 2010

		% OF OWNERSHIP AND
		VOTES
Subsidiaries	COUNTRY	DIRECT		INDIRECT		BUSINESS SEGMENT
Atalaya Energy S.R.L.	Argentina		95.00		5.00	Oil and Gas Exploration and Production
Canadian Hunter Argentina S.A	Argentina		95.00		5.00	Oil and Gas Exploration and Production
Corod Producción S.A.	Venezuela		100.00		—	Oil and Gas Exploration and Production
EcuadorTLC S.A.	Ecuador		100.00		—	Oil and Gas Exploration and Production
Eg3 Red S.A.	Argentina		95.00		5.00	Refining and Distribution
Electricidade Com S.A.	Brasil		—		100.00	Gas and Energy
Enecor S.A.	Argentina		69.99		—	Gas and Energy
Innova S.A.	Brasil		0.01		99.99	Petrochemicals
Petrobras Bolivia Internacional S.A.	Bolivia		100.00		—	Corporate
Petrobras Electricidad de Argentina S.A.	Argentina		93.60		6.40	Gas and Energy
Petrobras Energía Colombia	Gran Cayman		—		100.00	Oil and Gas Exploration and Production
Petrobras Energía de México S.A. de C.V.	México		—		100.00	Oil and Gas Exploration and Production
Petrobras Energía Ecuador	Gran Cayman		—		100.00	Oil and Gas Exploration and Production
Petrobras Energía Internacional S.A.	Argentina		95.00		5.00	Corporate
Petrobras Energía Operaciones Ecuador S.A.	Ecuador		—		100.00	Oil and Gas Exploration and Production
Petrobras Finance Bermuda	Islas Bermudas		—		100.00	Corporate
Petrobras Hispano Argentina S.A.	España		100.00		—	Corporate
Petrobras Holding Austria GMBH	Austria		—		100.00	Corporate
Petrolera San Carlos S.A.	Venezuela		—		100.00	Oil and Gas Exploration and Production
Transporte y Servicios de Gas en Uruguay S.A.	Uruguay		51.00		13.55	Gas and Energy
World Energy Business S.A.	Argentina		—		100.00	Gas and Energy
Affiliates under joint control
Cía. de Inversiones de Energía S.A.	Argentina		25.00		25.00	Gas and Energy
Distrilec Inversora S.A.	Argentina		—		48.50	Gas and Energy
Edesur S.A.	Argentina		—		27.33	Gas and Energy
Transportadora de Gas del Sur S.A.	Argentina		—		27.65	Gas and Energy
Main affiliates in which significance influence is exercised
Coroil S.A.	Venezuela		20.00		—	Oil and Gas Exploration and Production
Inversora Mata S.A.	Venezuela		49.00		—	Oil and Gas Exploration and Production
Oleoducto de Crudos Pesados Ltd.	Gran Cayman		—		11.42	Oil and Gas Exploration and Production
Oleoducto de Crudos Pesados S.A.	Ecuador		—		11.42	Oil and Gas Exploration and Production
Oleoductos del Valle S.A.	Argentina		23.10		—	Oil and Gas Exploration and Production
Petrokariña S.A.	Venezuela		29.20		5.29	Oil and Gas Exploration and Production
Petrolera Entre Lomas S.A.	Argentina		19.21		—	Oil and Gas Exploration and Production
Petroritupano S.A.	Venezuela		22.00		—	Oil and Gas Exploration and Production
Petroven-Bras S.A.	Venezuela		29.20		2.16	Oil and Gas Exploration and Production
Petrowayú S.A.	Venezuela		36.00		—	Oil and Gas Exploration and Production
Propyme S.G.R	Argentina		50.00		—	Corporate
Refinería del Norte S.A.	Argentina		28.50		—	Refining and Distribution
Urugua-í S.A.	Argentina		29.33		—	Gas and Energy
Other interest in affiliates
Ternoeléctrica José de San Martín S.A.	Argentina		10.00		—	Gas and Energy
Ternoeléctrica Manuel Belgrano S.A.	Argentina		10.00		—	Gas and Energy

F-91

25.7. Oil and gas areas and participation in joint-ventures as of December 31, 2010

			WORKING INTEREST							DURATION
NAME		LOCATION	DIRECT			INDIRECT			OPERADOR	THROUGH
Production
Argentina
25 de Mayo — Medanito S.E.		La Pampa and Río Negro		100.00	%		—		Petrobras Argentina	2016
Jagüel de los Machos		La Pampa and Río Negro		100.00	%		—		Petrobras Argentina	2015
Puesto Hernández		Mendoza y Neuquén		38.45	%		—		Petrobras Argentina	2016
Bajada del Palo		Neuquén		3.85	%		14.05	%	Petrolera Entre Lomas	2025
Santa Cruz II		Santa Cruz		100.00	%		—		Petrobras Argentina	2017 / 2028
Río Neuquén		Río Negro and Neuquén		100.00	%		—		Petrobras Argentina	2017 / 2027
Entre Lomas		Río Negro and Neuquén		3.85	%		14.05	%	Petrolera Entre Lomas	2016 / 2026
Aguada de la Arena		Neuquén		80.00	%		—		Petrobras Argentina	2036
Veta Escondida y Rincón de Aranda		Neuquén		55.00	%		—		Petrobras Argentina	2027
Santa Cruz I		Santa Cruz		71.00	%		—		Petrobras Argentina	2017 / 2035
Sierra Chata		Neuquén		19.89	%		25.67	%	Petrobras Argentina	2023
El Mangrullo		Neuquén		100.00	%		—		Petrobras Argentina	2025
Atuel Norte		Mendoza		33.33	%		—		Tecpetrol	2015
La Tapera — Puesto Quiroga		Chubut		35.67	%		—		Tecpetrol	2017
El Tordillo		Chubut		35.67	%		—		Tecpetrol	2017
Aguaragüe		Salta		15.00	%		—		Tecpetrol	2017 / 2023
Estancia Agua Fresca		Santa Cruz		50.00	%		—		Petrobras Argentina	2034
Gobernador Ayala	(1)	Mendoza		22.51	%		—		Petro Andina Resources Ltd	—
Charco del Palenque		Río Negro		3.85	%		14.05	%	Petrolera Entre Lomas	2038
Foreign
Colpa — Caranda		Bolivia		100.00	%		—		Petrobras Argentina	2029
Oritupano — Leona		Venezuela		—			22.00	%	PDVSA	2025
Acema		Venezuela		—			31.36	%	PDVSA	2025
La Concepción		Venezuela		—			36.00	%	PDVSA	2025
Mata		Venezuela		—			34.49	%	PDVSA	2025
Bloque 18		Ecuador		—			30.00	%	Ecuadortlc	2010
Tibú	(3)	Colombia		—			30.00	%	Petrobras Colombia	2010
Exploration
Argentina
Glencross		Santa Cruz		87.00	%		—		Petrobras Argentina	2033
Puesto Oliverio	(1)	Santa Cruz		50.00	%		—		Petrobras Argentina	—
Cerrito Oeste	(1)	Santa Cruz		50.00	%		—		Petrobras Argentina	—
El Campamento	(1)	Santa Cruz		50.00	%		—		Petrobras Argentina	—
Cerro Hamaca Norte	(1)	Mendoza		39.64	%		—		Petro Andina Resources Ltd	—
Parva Negra	(1)	Neuquén		47.63	%		52.37	%	Petrobras Argentina	—
Estancia Chiripá		Santa Cruz		87.00	%		—		Petrobras Argentina	2033
Enarsa 1 (E1)		Plataforma Continental Argentina		25.00	%		—		YPF	2020
Enarsa 3 (E3)		Plataforma Continental Argentina		35.00	%		—		Petrobras Argentina	2020
Chirete		Salta		100.00	%		—		Petrobras Argentina	2014
Río Colorado		Salta		30.00	%		—		Tecpetrol	2014
Río Atuel	(2)	Mendoza		33.33	%		—		Tecpetrol	2015
Bloque CAA 40		Plataforma Continental Argentina		33.00	%		—		YPF	2015
Bloque CAA 46		Plataforma Continental Argentina		33.00	%		—		YPF	2016
Borde del Limay	(2)	Neuquén		85.00	%		—		Petrobras Argentina	2015
Agua Amarga		Río Negro		3.85	%		14.05	%	Petrolera Entre Lomas	2017
Los Vértices	(2)	Neuquén		85.00	%		—		Petrobras Argentina	2015

(1)	The granting of the concession is in progress and the term will be 25 years from such granting.
(2)	Note 5.3.
(3)	This asset was relinquished in April 2010

F-92

25.8. Combined joint-ventures and consortium assets and liabilities as of December 31, 2010 and 2009 and statements of income as of December 31, 2010, 2009 and 2008

(Stated in millions of Argentine Pesos)

Assets and liabilities	2010		2009
Current assets		85		146
Non-current assets		1,499		1,682
Total assets		1,584		1,828
Current liabilities		198		271
Non-current liabilities		146		184
Total liabilities		344		455

Statements of income
For the years ended December 31, 2010, 2009 and 2008

	2010			2009			2008
Net sales		1,852			1,701			2,400
Cost of sales		(1,229	)		(1,224	)		(1,094	)
Gross profit		623			477			1,306
Administrative and selling expenses		(53	)		(65	)		(92	)
Exploration expenses		(101	)		(281	)		(127	)
Other operating expenses		(191	)		(161	)		(194	)
Financial expenses and holding losses		(12	)		(17	)		(16	)
Other income (expenses), net		33			(3	)		(8	)
Income tax		(5	)		(23	)		(272	)
Net income (loss)		294			(73	)		597

F-93

25.9. Information about companies over which the Company exercises joint control as of December 31, 2010, 2009 and 2008

(Stated in millions of Argentine Pesos)

	2010
	CIESA			Distrilec			Total
Balance sheets
Current Assets		749			434			1,183
Non-current Assets		2,173			1,723			3,896
Current liabilities		943			900			1,843
Non-current liabilities		1,244			292			1,536
Shareholders’ equity		157			561			718
Minority interest		578			404			982
Statements of income
Net sales		749			1,096			1,845
Gross profit		323			196			519
Net loss		(19	)		(17	)		(36	)
Statements of cash flows
Cash and cash equivalents at the beginning of the year		520			99			619
Net cash provided by operations		154			366			520
Net cash used in investing activities		(71	)		(235	)		(306	)
Net cash used in financing activities		(48	)		(37	)		(85	)
Effect of exchange rate change on cash		1			3			4
Cash and cash equivalents at the end of the year		556			196			752

	2009
	CIESA			Distrilec			PVIE			Total
Balance sheets
Current Assets		741			339			—			1,080
Non-current Assets		2,169			1,615			—			3,784
Current liabilities		908			621			—			1,529
Non-current liabilities		1,271			342			—			1,613
Shareholders’ equity		176			578			—			754
Minority interest		555			413			—			968
Statements of income
Net sales		747			1,069			123			1,939
Gross profit		342			269			55			666
Net (loss) profit		(22	)		10			27			15
Statements of cash flows
Cash and cash equivalents at the beginning of the year		310			66			102			478
Net cash provided by operations		306			186			40			532
Net cash used in investing activities		(74	)		(137	)		(138	)		(349	)
Net cash used in financing activities		(24	)		(19	)		(12	)		(55	)
Effect of exchange rate change on cash		2			3			8			13
Cash and cash equivalents at the end of the year		520			99			—			619

F-94

	2008
	CIESA			Distrilec			PVIE			Total
Statements of income
Net sales		639			993			965			2,597
Gross profit		263			251			428			942
Net (loss) profit		(18	)		26			241			249
Statements of cash flows
Cash and cash equivalents at the beginning of the year		196			72			23			291
Net cash provided by operations		314			134			319			767
Net cash used in investing activities		(97	)		(141	)		(214	)		(452	)
Net cash used in financing activities		(103	)		(3	)		(27	)		(133	)
Effect of exchange rate change on cash		—			4			1			5
Cash and cash equivalents at the end of the year		310			66			102			478

F-95

GLOSSARY:

AFIP	Administración Federal de Ingresos Públicos —Argentine Federal Public Revenues Administration
ASC	Accounting Standards Codification
CAMMESA	Compañía Administradora del Mercado Mayorista Eléctrico S.A.
CIESA	Compañía de Inversiones de Energía S.A.
CNDC	Comisión Nacional de Defensa de la Competencia — Argentine Anti-Trust Authorities
CNV	Comisión Nacional de Valores — Argentine Securities Commission
CPCECABA	Consejo Profesional de Ciencias Económicas de la Ciudad Autónoma de Buenos Aires — Professional Council in Economic Sciences of the City of Buenos Aires
Distrilec	Distrilec Inversora S.A.
Edesur	Empresa Distribuidora Sur S.A. (Edesur S.A.)
EEUU	Estados Unidos de Norteamérica — United States of America
ENARGAS	Ente Nacional Regulador del Gas — Argentine Gas Regulatory Agency
ENRE	Ente Nacional Regulador de la Electricidad — Federal Power Regulation Authority
EPCA	Enron Pipeline Company Argentina S.A.
FACPCE	Federación Argentina de Consejos Profesionales de Ciencias Económicas — Argentine Federation of Professional Councils in Economic Sciences
FASB	Financial Accounting Standard Board
FONINVEMEM	Fondo para las Inversiones Necesarias que permitan Incrementar la Oferta de Energía Eléctrica — Fund for the Investments Required to Increase the Electric Power Supply in the Electric Wholesale Market
IASB	International Accounting Standards Board
IGJ	Inspección General de Justicia — Superintendency of Legal Entities
LNG	Liquid Natural Gas
LPG	Liquefied Petroleum Gas
LSC	Ley de Sociedades Comerciales — Business Associations Law
MEM	Mercado Eléctrico Mayorista — Wholesale Electricity Market
MEP	Ministerio de Energía y Petróleo de Venezuela — Venezuelan Energy and Oil Ministry
MOA	Memorandum of Agreement
MPFIPyS	Ministerio de Planificación Federal, Inversión Pública y Servicios — Federal Planning, Public Investment and Services Ministry
NRV	Net Realizable Value
OCP	Oleoducto de Crudos Pesados Ltd.
PDVSA	Petróleos de Venezuela S.A.
PEDASA	Petrobras Electricidad de Argentina S.A.

F-96

PEN	Poder Ejecutivo Nacional — Executive Branch of Government
PEPSA	Petrobras Energía Participaciones S.A.
Petróleo Brasileiro	Petróleo Brasileiro S.A. — PETROBRAS.
PVIE	Petrobras Valores Internacional de España S.L.
RTI	Revisión Tarifaria Integral — Complete Rate Review
SCyCG	Subsecretaría de Coordinación y Control de Gestión — Undersecretariat of Coordination and Control of Government Affairs
SFAS	Statement of Financial Accounting Standard
TGS	Transportadora de Gas del Sur S.A.
UNIREN	Unidad de Renegociación y Análisis de Contratos de Servicios Públicos — Public Service Agreement Renegotiation and Analysis Unit
U.S. GAAP	U.S. Generally Accepted Accounting Principles
WTI	West Texas Intermediate
WTS	West Texas Sour
YPFB	Yacimientos Petrolíferos Fiscales Bolivianos

F-97

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)

Statement of Comprehensive Income

(In thousands of Dollars)

		Year ended December 31, 2010
	Note	Unaudited
Sales of crude oil	18 and 3-b		507,143
Costs and expenses
Operating expenses			95,137
Depreciation and amortization	9		53,436
Selling administrative and general expenses			10,387
Currency fluctuation			56,966
Royalties and other taxes	8-b		175,609
Financial income			(1	)
Financial expenses			42,339
Other expenses, net			1,829
			435,702
Income before income tax			71,441
Income tax	8-a		314,907
Net loss			(243,466	)

The accompanying notes are an integral part of the financial statements

F-98

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)

Statement of Financial Position

(In thousands of Dollars)

		December 31, 2010
	Note	Unaudited
Assets
Property, plant and equipment, net	9		640,748
Deferred income tax	8-a		65,416
Recoverable tax credits			35,041
Total non-current assets			741,205
Materials and supplies inventories			11,321
Shareholders and related companies accounts receivable	18		681,793
Prepaid expenses and other	10		7,857
Cash	11		5,134
Total current assets			706,105
Total assets			1,447,310
Shareholders’ equity
Shareholders’ equity, see statement of changes in shareholders’ equity	12		645,451
Liabilities
Accounts payable to related company — non current	18		10,938
Provisions, net of current portion	13		98,312
Total non-current liabilities			109,250
Accounts payable to suppliers and others	15		303,565
Provisions	13		13,659
Accruals and other liabilities	14		173,642
Income tax payable			201,743
Total current liabilities			692,609
Total liabilities			801,859
Total liabilities and shareholders’ equity			1,447,310

The accompanying notes are an integral part of the financial statements

F-99

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)

Statement of Changes in Equity

(In thousands of Dollars)

	Unaudited
	Capital		Premium
	stock		in issue		Accumulated gains/losses											Total
	suscribed		of share		Legal		Other			Accumulated						shareholders’
	and paid		stock		reserve		reserves			earnings			Total			equity
Balances as of December 31, 2009		10,217		471,901		1,022		280,042			371,065			652,129			1,134,247
Net loss		—		—		—		—			(243,466	)		(243,466	)		(243,466	)
Approved dividends		—		—		—		—			(245,330	)		(245,330	)		(245,330	)
Transfer to reserves		—		—		—		(214,626	)		214,626			—			—
Balances as of December 31, 2010		10,217		471,901		1,022		65,416			96,895			163,333			645,451

F-100

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)

Statements of Cash Flows

(In thousand of Dollars)

		Year ended December 31, 2010
	Note	Unaudited
Cash flows from operating activities:
Net loss			(243,466	)
Adjustments to reconcile net income to net cash provided
Depreciation and amortization	9		53,436
Cost of asset retirement obligations			11,304
Deferred Income taxes	8-a		74,605
Net changes in operating assets
Related Companies accounts receivables			(81,377	)
Prepaid expenses and other assets			30,265
Materials and supplies inventories			883
Tax Credits and other			162,239
Net changes in operating liabilities
Related Companies accounts payable			(1,273	)
Provisions			(13,660	)
Accounts payable and other			(58,600	)
Taxes payable			200,183
Accuals and other liabilities			(39,146	)
Total adjustments			338,859
Net cash provided by operating activities			95,393
Net cash flows used in investing activities
Acquisition of property, plant and equipment			(92,737	)
Net increase in cash			2,656
Cash and cash equivalent at beginning of the year			2,478
Cash and cash equivalent at the end of year			5,134

Notes are integral part of the financial statements

F-101

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)

Notes to the Financial Statements

December 31, 2010

(1) Reporting Entity

Petroritupano S.A. is an entity incorporated and domiciled in the Bolivarian Republic of Venezuela and its offices and operations are located in an area named Oritupano — Leona, located on the San Tomé — Oritupano road, in Anzoátegui and Monagas states.

The shareholders of Petroritupano S.A. are: Corporación Venezolana del Petróleo, S.A. (CVP), a subsidiary of Petróleos de Venezuela, S.A. (PDVSA), Petrobras Argentina, S.A. and Venezuela US S.R.L., which have capital stock interests of 60%, 22% and 18%, respectively.

During the year 2005, the Ministry of People’s Power for Energy and Petroleum (MENPET) provided instructions to the Boards of Directors of Petróleos de Venezuela, S.A. (PDVSA), and its subsidiary Corporación Venezolana del Petróleo, S.A. (CVP) for the conversion of the operating agreements signed by PDVSA Petróleo, S.A., a subsidiary of PDVSA, and private investing companies to mixed companies. On August 5, 2005, the following participants of the operating agreement of the Oritupano — Leona area: Petrobras Argentina, S.A., APC Venezuela, S.R.L., Venezuela US S.R.L. and Corod Producción, S.A. signed a transitory agreement with PDVSA Petróleo, S.A. (PDVSA Petróleo) and CVP for the conversion to a mixed company which purpose is to carry out primary exploration activities in search for hydrocarbon wells, their initial extraction from natural wells, collection, transportation and storage, pursuant to Section 9 of the Organic Hydrocarbons Law.

On March 16, 2006, the National Government filed with the National Assembly through the MENPET the model contract for the incorporation of mixed companies between CVP and private investing companies taking part in operating agreements entered into with PDVSA Petróleo. In May 2006, the National Assembly agreed the incorporation, creation and operation of Petroritupano S.A. in order to develop the abovementioned primary activities for a twenty-year period.

On March 31, 2006, Petrobras Argentina, S.A., APC Venezuela, S.R.L., Venezuela US S.R.L. and Corod Producción, S.A. signed jointly with PDVSA Petróleo and CVP a memorandum of understanding whereby, subject to all necessary approvals including the approval of the National Assembly of the Bolivarian Republic of Venezuela and the corporate approvals of the participating companies, CVP and the participating companies will have an interest of 60% and 40%, respectively, in Petroritupano S.A.’s capital stock. This company will be in charge of conducting the primary activities provided in the model contract for the incorporation of mixed companies, and their by-laws and articles of incorporation will be in accordance with such model. In addition, subject to the approvals established in the memorandum of understanding, the parties agreed to have reached an agreement regarding the calculation basis for the commencement of operations of the mixed company, including the execution of the hydrocarbon purchase/sale contract with PDVSA Petróleo, on April 1, 2006.

The contract model for the creation of mixed companies establishes the automatic termination of operating agreements as from March 31, 2006, whereby the operating companies are not entitled to receive any compensation as a result of these agreements, except for any payments pending from the first quarter of 2006 or any claim derived from such termination. In addition, it rules the transfer of the ownership of assets operated at such date under these agreements, and that such assets be made immediately available to the mixed companies, for the development of their activities.

The main activities of Petroritupano S.A. are governed by the Organic Hydrocarbons Law, in effect since January 2002, and as partially amended in May 2006, as well as the Organic Gas Hydrocarbons Law effective since September 1999 and its Regulatory Decree dated June 2000, the “Terms and Conditions for the Incorporation of Mixed Companies” and Petroritupano S.A.’s bylaws, and the provisions issued by the National Government through the MENPET, and any applicable ordinary laws.

F-102

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

In accordance with the “Terms and Conditions for the Incorporation of Mixed Companies”, approved by the National Assembly, such companies would operate under a transition period regime, from April 1, 2006 to the date on which they are formally incorporated. Upon incorporation, contractual terms shall apply retrospectively from April 1, 2006.

(2) Basis of Preparation

(a)	Statement of Compliance
	The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), adopted by the International Accounting Standards Board (IASB) and the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB.
(b)	Basis of Measurement
	The financial statements have been prepared on the historical cost basis, except for certain assets and liabilities that have been adjusted to be presented at fair value. Assets measured and presented at fair value are mainly recoverable tax credits.
	The methods used to measure fair value are discussed comprehensively in note 6.
(c)	Functional and Presentation Currency
	The financial statements are stated in U.S. dollars (dollar or $). The functional currency is the U.S. dollar because the price of the crude oil that Petroritupano S.A. sells and delivers to PDVSA Petróleo under the purchase-sale contract is determined in dollars. Additionally, a significant portion of revenues, as well as most costs, expenses and investments, are denominated in dollars.
	All financial information presented in dollars has been rounded to the nearest thousands.
(d)	Use of Estimates and Judgments
	The preparation of financial statements in conformity with IFRS requires management to make estimates, judgments and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Petroritupano S.A. uses its best estimates and judgments; however, actual results may differ from these estimates.
	Estimates and related assumptions are based on the experience and some other factors that are deemed reasonable in the current circumstances, which result is the basis to form judgments on the carrying value of assets and liabilities that are not easily determinable by other sources. Estimates and assumptions are reviewed periodically, and the reviews of these accounting estimates are recognized in the same period and the future periods affected.
	The following notes describe the information on the most significant areas of critical judgments in the application of accounting policies which have a material effect on the amounts recognized in the financial statements:

• Note 9 — Valuation of property, plant and equipment.

• Note 16 — Valuation of financial instruments.

F-103

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

The information on the estimation of uncertainties that have a significant risk of causing material adjustments in the coming periods is included in the following notes:

• Nota 8-a — Deferred income tax.

• Note 13 — Asset retirement obligations and abandonment of wells.

• Note 13 — Provisions for tax liabilities.

(3) Significant Accounting Policies

Accounting policies have been applied consistently by Petroritupano S.A. in these financial statements.

(a)	Currencies Other than the Dollar
	Transactions in foreign currencies other than the dollar
	Transactions in foreign currencies other than the dollar are translated into the related functional currency of Petroritupano S.A. at the exchange rate in effect at the transaction date. Monetary assets and liabilities in foreign currencies other than the dollar at the statements of financial position date are translated into the functional currency, at the exchange rate in effect at that date. The resulting exchange gain or loss is recognized in the statement of comprehensive income. Non-monetary assets and liabilities in currencies other than the dollar stated at fair value are retranslated into the functional currency at the exchange rate in effect at the date of fair value determination.
(b)	Revenue Recognition
	Revenue from sales of crude oil and gas are recognized in the statement of comprehensive income when all significant ownership risks and rights have been transferred to PDVSA Petróleo and the MENPET, according to the Hydrocarbons Purchase-Sale Contract signed between Petroritupano S.A. and PDVSA Petróleo, when they can be reasonably measured and it is probable that future economic benefits will flow to Petroritupano S.A. This income is calculated at the transaction date, based on contract specifications which consider a number of international market references, and other factors, as agreed between the parties, for the determination of the oil prices.
	Income from activities other than Petroritupano S.A.’s core business is recognized when income has been realized. No income is recognized if there is significant uncertainty regarding the recovery of the amounts under the obligation assumed by the buyer.
(c)	Financial income and expenses
	Financial income included in the statement of comprehensive income is composed mainly of interest earned and higher value obtained on the sale of invested funds.
	Financial expenses, included in the statement of comprehensive income, are comprised of interest on financial obligations, increase in asset retirement obligations (see note 3-h) and financial expenses related to impairment losses and changes (loss) in the fair value of financial assets.
(d)	Income tax
	Income tax expense (benefit) comprises current and deferred tax. Income tax is recognized in profit or loss.
	Current income tax is the estimated amount that must be paid based on the taxable income for the year, using the methodology established by effective laws, tax rates as of the statement of financial position date and any adjustment to taxes payable for prior years.
	Deferred income tax is recognized using the balance sheet method. Deferred tax assets and liabilities are recognized for temporary differences between the amounts of assets and liabilities reported in the statement of financial position and their respective fiscal bases, and tax losses and tax loss carryforwards. Deferred tax assets and liabilities are measured using the tax rates applicable to taxable income in the year in which temporary differences will be recovered or cancelled, pursuant to law. The effect on deferred tax assets and liabilities of changes in tax rates is recorded in comprehensive income for the year in which they become effective.

F-104

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

	Deferred tax assets are recognized only up to the amount that it is probable that future taxable income will be available to offset such assets. Deferred tax assets are reviewed at the date of the financial statements and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
(e)	Social Development Contributions
	Correspond to contributions to social programs and projects through which Petroritupano S.A. takes part in the social and integral development of the country (see note 19). These contributions are recorded directly as an expense at the time the obligation is undertaken.
(f)	Financial Instruments
	Non-Derivative Financial Instruments
	Non-derivative financial instruments are made up of recoverable tax credits, accounts receivable, other investments, cash, accounts payable and other liabilities.
	Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs.
	A financial instrument is recorded when Petroritupano S.A. agrees to comply with the contractual clauses thereof. Financial assets are reversed if the contractual rights of Petroritupano S.A. over the cash flows of the asset expire or if Petroritupano S.A. transfers the financial asset to another entity without retaining control or a significant portion of risks and rewards of the asset. Purchases and sales of financial assets made using the usual procedures are accounted for at the negotiation date, which is generally the date when Petroritupano S.A. agrees to purchase or sell the asset. Financial liabilities are derecognized when the specific contractual obligation of Petroritupano S.A. expires or is paid.
	Financial assets and liabilities are offset and the net amount is presented in the statement of financial position when, and only when, Petroritupano S.A. has the legal right to offset the amounts and intends to pay on a net basis or realize the assets and simultaneously pay the liabilities.
	See accounting policies to record financial income and expenses in note 3-c.
	Derivative Financial Instruments
	During the year ended December 31, 2010, Petroritupano S.A. did not conduct any transactions with derivative financial instruments.
	In accordance with its corporate policy, Petroritupano S.A. does not use or hold derivative financial instruments for trading or speculative purposes.
(g)	Property, Plant and Equipment
	Recognition and Measurement
	Property, plant and equipment are stated at cost net of accumulated depreciation and impairment loss (see note 3-k). The successful efforts method of accounting is used for exploration and production activities for crude oil, under International Financial Reporting Standard 6Exploration and Evaluation of Mineral Resources(IFRS 6) for recognition of exploration and assessment assets. Costs of well development, related plant and equipment and property used in exploitation of oil and gas are recorded as part of the cost of assets. Costs of exploratory wells are recorded as assets until it is determined whether the well is commercially feasible; otherwise, such costs are charged to exploration expenses. Other exploration expenditures, including the geological and geophysical costs, are expensed as incurred.

F-105

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

The cost of property, plant and equipment also includes disbursements for acquisition of those assets, as well as the amounts associated with asset retirement obligations (see note 3-h).

Financing costs of projects requiring major investments and those incurred in financing of specific projects are recognized as part of the cost of property, plant and equipment, when directly related to the construction or acquisition of an asset. Capitalization of these costs is suspended during the years in which the development of construction activities is interrupted, and capitalization ceases when the activities required for use of the asset have been substantially completed.

The cost of assets built by Petroritupano S.A. includes interest on borrowings, cost of materials and direct labor, as well as any other direct cost attributable to bringing the asset to working condition. It also includes dismantling and removal costs at the location where built.

All disbursements relating to construction or purchase of property, plant and equipment in the stage prior to implementation are stated at cost as work in progress. Once the assets are ready for use, they are transferred to property, plant and equipment and depreciation or amortization commences.

Income or losses generated from the sale or disposal of property, plant and equipment are determined by the difference between the amount received from such sale or disposal, if any, and the net carrying amount of the asset, and it is recorded as part of other expenses (income), net in the statement of comprehensive income.

Subsequent Costs

Major maintenance and general repair costs, as well as replacement of significant items of property, plant and equipment, are capitalized when they are identified as a separate component of the asset to which such maintenance, repair or replacement corresponds, and are depreciated over the period between one maintenance or replacement and another. Disbursements for minor maintenance, repairs and renewals incurred to maintain the facilities in normal operating condition are expensed.

Depreciation

Depreciation and amortization of capitalized costs relating to wells, pipeline and facilities for the production of crude oil and gas are determined using the units of production method by field, based on the proved developed reserves that are the quantities of crude oil that can be expected to be recovered from existing wells with current equipment and operating methods. The rates used are reviewed annually, based on an analysis of reserves, and are applied retroactively at the beginning of the year.

Depreciation of property and equipment not related to exploration, development and production of hydrocarbons is calculated based on the straight-line method using the estimated useful lives of fixed assets:

	Years
Operating equipment		17 – 4
Computer equipment and vehicles		4

	When parts of an asset under property, plant and equipment have different useful lives, they are recorded separately as a significant component of that asset.
	Useful lives of property, plant and equipment are reviewed annually.
(h)	Costs Associated to Asset Retirement Obligations
	Petroritupano S.A. capitalizes the estimated costs associated with asset retirement obligations, involving assets for exploration and production of crude oil and other industrial facilities, based on the future retirement plan for those assets. Costs are capitalized as part of the long-lived assets and are amortized by charging operating expenses over their useful lives (see note 3-l).

F-106

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

(i)	Materials and Supplies Inventories
	Materials and supplies inventories these are valued at average cost, which does not exceed the net realization value.
(j)	Accounts Receivable
	The accounts receivable from sale of crude oil to PDVSA Petróleo are recorded at the amount billed. As of December 31, 2010, Petroritupano S.A. believes that there are no accounts receivable deemed as bad debts; therefore, no estimate has been recorded for doubtful accounts.
(k)	Impairment of Assets
	Financial Assets
	Petroritupano S.A. reviews the carrying value of its financial assets at each reporting date to determine whether there is any objective evidence of impairment. A financial asset is impaired if there is objective evidence that one or more events have had a negative effect on the estimated future cash flows of the asset.
	Significant financial assets are evaluated individually to determine their impairment. The remaining financial assets with similar credit-risk characteristics are evaluated as a group (see note 6).
	An impairment loss related to a financial asset is calculated as the difference between the carrying value of the asset and the current value of the future estimated cash flows, discounted at the effective interest rate. Impairment losses are recognized in the statement of comprehensive income. The reversal of an impairment loss only occurs if it can be objectively related to an event occurred after the date in which the impairment loss was recognized.
	Non-Financial Assets
	The carrying amounts of non-financial assets, excluding inventory and deferred income tax, are reviewed at each reporting date to determine whether evidence of impairment exists. If any such indication exists, then the recoverable amount of the asset is estimated.
	The recoverable amount of an asset or cash-generating unit is the greater between the value in use and the fair value less selling costs. To determine the value in use, net future cash flows of those assets are discounted at present value, using the discount rate before tax that reflects the current evaluations of the market on the temporary value of money and the specific risks the assets may have.
	An impairment loss is recognized when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. An impairment loss is recorded in the statement of comprehensive income. Impairment losses recognized in respect of cash- generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of other assets in the unit on a pro rata basis.
	An impairment loss is reversed only if the reversal relates to a change in the estimates used after the impairment loss was recognized. Those reversals may not exceed the carrying value of assets net of depreciation or amortization as if the impairment had never been recognized. Impairment losses in respect of goodwill are not reversed.
(l)	Provisions
	A provision is recognized if, as a result of a past event Petroritupano S.A. has a present or legal obligation that can be reliably estimated, and it is probable that a future disbursement will be required to settle the obligation. When the effect of the value of money over time is significant, the provision is determined by applying a discount rate associated with the estimated payment term, if the term may be reasonably estimated as well as the risk associated with those obligations.

F-107

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

Environmental policies

According to the environmental policies established by PDVSA and effective laws, Petroritupano S.A. records liabilities when the costs are probable and can be reliably estimated. Disbursements related to environmental conservation associated with income from current or future operations are recorded as expenses or assets, as the case may be. Disbursements for past operations not aimed at generating current or future income are charged to expenses. The creation of these provisions is in line with the identification of an obligation for environmental remediation where Petroritupano S.A. has sufficient information to determine a fair estimate of the respective cost. Subsequent adjustments to estimates, if necessary, are made upon obtaining additional information.

Assets Disposal

The obligations associated to the disposal of long-term assets are recognized at fair value as incurred, based on discounted future cash flows. The determination of fair values is based on the existing regulations and technologies.

Changes in the fair value of the obligation are added to or deducted from the cost of the corresponding asset. The adjusted depreciable amount of the asset is depreciated over the remaining useful life of the asset. Therefore, once the asset has reached the end of its useful life, all subsequent changes in the fair value of the obligation are recognized in profit or loss for the period. The increase in the obligation per year is recognized in comprehensive income as financial expenses (see note 3-h).

Litigations and Other Claims

Provisions for litigations and claims are recorded in the case of legal actions, government investigations, diligences or other pending or threatened legal actions against Petroritupano S.A., due to past events, for which it is probable that there will be an outflow of resources to settle the obligations and when it is possible to reliably estimate the amount of such obligation (see note 17).

(4) Foreign Exchange Agreement with the Central Bank of Venezuela (BCV)

According to the Amendment to the BCV Law, effective since July 20, 2005, PDVSA must only sell the BCV income in currency other than local currency required to meet its obligations in local currency. The remaining amounts in currency other than local currency can be used by PDVSA to meet its obligations and investments in these currencies. Any amount in excess of the foregoing must be transferred by PDVSA to the Venezuelan Development National Fund (FONDEN).

In Official Gazette 38,318, dated November 21, 2005, the Foreign Currency Exchange Agreement 9 was published, which establishes that the income in currency other than local currency arising from the export of hydrocarbons must be mandatorily sold to the BCV, except for that allocated to PDVSA’s activities, pursuant to the Amendment to the BCV Law mentioned above. This agreement states that PDVSA may not hold funds in currency other than local currency within the national territory for more than 48 hours, and establishes conditions for the use of funds by PDVSA.

F-108

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

On March 2, 2006, the Board of Directors of the BCV authorized PDVSA to increase the rotating funds to $2,000 million, to ensure operating and investment payments.

On March 22, 2007, the Official Gazette 38,650 published the amendment to the Foreign Currency Exchange Agreement 9, whereby it was established that PDVSA may acquire funds in currency other than local currency directly with the BCV for the replacement, up to the authorized amount, of the funds to be placed abroad pursuant to Section 113 of the BCV Law. On such basis, on February 8, 2007, the Board of Directors of the BCV authorized PDVSA to maintain a special fund in dollars up to the amount of $3,500 million, to meet the needs related to the Oil Sowing Plan 2007 — 2013.

On January 8, 2010, the Official Gazette 39,340 was published which included the Foreign Currency Exchange Agreement 14, effective as of January 11, 2010, which establishes exchange rates for purchase and sale of dollars.

In accordance with the legal agreement for the creation of mixed companies, Petroritupano S.A.’ billing collections related to hydrocarbons sales must be paid to Petroritupano S.A. in dollars, currency that may be kept by Petroritupano S.A. in foreign bank accounts and used to pay foreign liabilities.

(5) Balances in Currencies other than the Dollar

As of December 31, 2010, Petroritupano S.A. has the following monetary assets and liabilities denominated in bolivars, which are translated into dollars at the exchange rate prevailing at the statement of financial position date:

	2010 (Unaudited)
	Bolivars			Dollars
Monetary assets		589,763			137,154
Monetary liabilities		1,941,153			451,432
Net monetary (liabilities) assets position		(1,351,390	)		(314,278	)

As of December 31, 2010, the dollar exchange rate at year-end, the average annual exchange rate, the increase in the exchange rate and the national consumer price index (NCPI) and the Caracas consumer price index (CPI published by the BCV), were as follows:

	2010
Exchange rate at year-end (Bs./US$1)		4.30
Average annual exchange rate (Bs./US$1)		4.30
Interannual increase in the exchange rate (%)		—
Interannual increase in the INPC/IPC (%)		27

(6) Determination of Fair Value

Certain of Petroritupano S.A.’s accounting policies and disclosures require the determination of fair values for both financial and non-financial assets and liabilities. Fair values have been determined for valuation and/or disclosure purposes, using available market information and appropriate valuation methodologies and, as required, additional information about fair value estimates of assets and liabilities is included in the notes to the financial statements.

F-109

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

Non-derivative current financial assets and liabilities

The carrying amounts of accounts receivable, other financial assets included in prepaid expenses and other assets, cash and accounts payable approximate their fair value due to the short-term maturity of these instruments.

Other non-derivative assets and liabilities

The fair value of recoverable tax credits and certain accruals and other liabilities is determined by discounting the carrying amounts based on future estimated recoveries and payments, using interest rates assessed on the basis of the inherent risks of the instrument, such as its creditworthiness, liquidity, currency and other factors.

Accounts Payable to Shareholders and Related Companies

The carrying amounts of accounts payable to shareholders and related companies approximate their fair value, as their recovery depends on the volume and nature of the operations between Petroritupano S.A. and its shareholders and PDVSA and its subsidiaries.

(7) Financial Risk Management

Petroritupano S.A. has exposure to the following risks related to its use of financial instruments:

• Credit risk

• Liquidity risk

• Market risk

• Operational risk

This note presents information about Petroritupano S.A.’s exposure to each of the above risks, Petroritupano S.A.’s objectives, policies and procedures for measuring and managing risks, and capital management. The financial statements include further quantitative disclosures.

The Board of Directors of Petroritupano S.A. is responsible for establishing and overseeing its risk management framework. When developing the strategic plan and budget, business risks are analyzed to gain an understanding of their impact on Petroritupano S.A.

Risk management policies are established to identify and analyze the risks faced by Petroritupano S.A., set proper risk limits and controls, and monitor risks and compliance with limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and Petroritupano S.A.’s activities.

(a) Credit Risk

Credit risk is the risk of financial loss faced by Petroritupano S.A. if a client or counterparty to a financial instrument fails to meet its contractual obligations, which arises mainly from cash and accounts receivable from sales. For the purposes of mitigating credit risk, cash is placed in highly recognized and trustworthy institutions. In this regard, risk is highly concentrated in accounts receivable as the receiver of 100% of hydrocarbon production sales is the related company PDVSA Petróleo (see note 19).

(b) Liquidity Risk

Liquidity risk is the risk that Petroritupano S.A. will not be able to meet its financial obligations upon maturity. Petroritupano S.A.’s approach is to manage liquidity to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities upon maturity, under both normal and stressed conditions, without incurring in unacceptable losses or risking Petroritupano S.A.’s reputation.

As a fundamental policy, Petroritupano S.A. will ensure that it has enough cash available to meet its payment commitments. This excludes the possible impact of extreme circumstances that may not be reasonably foreseen, such as natural disasters.

F-110

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

(c) Market Risk

Market risk is the risk of changes in market prices, including exchange rates, interest rates or sales prices, affecting the income of Petroritupano S.A. or the value of its financial instruments.

The activities of Petroritupano S.A. financial conditions and the results of its operations depend on export volumes and crude oil prices. These prices are cyclical and tend to be unstable; therefore, the primary risk is volatility of crude oil prices.

PDVSA and Petroritupano S.A. constantly monitor market conditions to ensure optimal placement of crude oil production. Furthermore, the Bolivarian Republic of Venezuela is a member of the Organization of Petroleum Exporting Countries (OPEC), through which it enters into agreements with a view to stabilizing prices of crude oil and by-products.

(d) Operating Risk

It is the risk of direct or indirect loss originated due to a broad variety of causes associated with the processes, personnel, technology and infrastructure of Petroritupano S.A. and to external factors other than liquidity, market and credit risks, as those risks that arise as a result of legal and regulatory requirements and Petroritupano S.A.’s generally accepted behavior standards. Operating risks arise from all operations of Petroritupano S.A.

The primary responsibility for developing and implementing controls to address operating risk is supported by the development of standards applied by Petroritupano S.A. for operating risk management, such as segregation of duties, transaction reconciliation and monitoring, compliance with regulatory requirements and other legal requirements, documentation of controls and procedures, training and professional development and risk mitigation, including insurance, when they are effective. Petroritupano S.A.’s compliance is supported by a program of periodic reviews conducted by the Internal Audit area.

(8) Taxes and royalties

A summary of the taxes affecting the operations of Petroritupano S.A. is as follows:

	2010 (Unaudited)
	Dollars
Income tax		314,907
Royalties, production taxes and other taxes		175,609
		490,516

F-111

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

(a) Income tax

The income tax expense (benefit) for the fiscal year ended December 31, 2010 is summarized as follows:

	2010 (Unaudited)
	Dollars
Estimated income tax expense based on the period’s taxable income		240,302
Deferred income tax expense		74,605
		314,907

Petroritupano S.A.’s fiscal year ends on December 31, each year.

In the year ended December 31, 2010, Petroritupano S.A. obtained $480,605 of taxable income, generating a current income tax expense of $240,302, which was offset by taxes paid in advance during 2010 and 2008, resulting in an income tax payable of $128,066 as of December 31, 2010.

Income tax rate

The Income Tax Law in force in Venezuela establishes a general tax rate of 50% for companies engaged in the exploitation of hydrocarbons and related activities, and eliminates the application of the 34% tax rate on firms that have been formed under Association Conventions entered into pursuant to the repealed Organic Law Reserving the Hydrocarbons Industry and Commerce to the State.

The Income Tax Law states that all taxpayers shall, at the end of their first fiscal year, make an initial update of their non-monetary assets and liabilities as provided by the Law. In addition, taxpayers shall register with the Revalued Assets Registry (RAR) in the year in which the initial adjustment for fiscal inflation is determined. This registration gives rise to a payment of 3% of the initial inflation adjustment related to assets subject to depreciation, payable in three equal, annual and consecutive installments.

The initially adjusted values of property, plant and equipment are depreciated or amortized for tax purposes during their remaining useful life. The law also provides for a regular annual inflation adjustment, which will be included in the reconciliation of income as a taxable or deductible item.

Pursuant to the Income Tax Law, taxpayers subject to this tax, who conduct import, export and financing transactions with related companies domiciled abroad, are required to determine their income, costs, and deductions by applying the transfer pricing methodology set forth in the referred law. Petroritupano S.A. has had a transfer pricing analysis completed based on the methodology established in the Law, which has no effect whatsoever in determining the income tax for the period.

F-112

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

The reconciliation between the income tax nominal rate and its effective rate for fiscal year ended December 31, 2010, is detailed below:

				2010 (Unaudited)
	%			Dollars
Income before income tax		100			71,441
Income tax calulated based on the tax rate		50			35,721
Property, plant and equipment		(21	)		(14,654	)
Regular inflation adjustment		365			260,999
Non-deductible tax liabilities		(4	)		(3,091	)
Special advantages tax		24			16,822
Others		27			19,110
		391			314,907

Deferred tax assets as of December 31, 2010 are comprised as follows:

	2010 (Unaudited)
	Dollars
Property, plant and equipment, net		36,812
Assets retirement obligations, net		4,447
Contributions to the Organic Law on Prevention of the illicit use of drugs and Psychotropics		2,807
Accruals and other liabilities		19,121
Others		2,229
		65,416

Deferred tax expenses as of December 31, 2010 are comprised as follows:

	2010 (Unaudited)
	Dollars
Property, plant and equipment, net		(75,908	)
Assets retirement obligations, net		1,655
Contributions to the Science, Technology and Innovation Law		(2,456	)
Contribution to the Law on Prevention of the illicit use of drugs and Psychotropics		2,807
Accruals and other liabilities		(1,356	)
Others		653
		(74,605	)

F-113

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

(b)	Production, Extraction and Other Taxes
	Below there is a summary of the production, extraction and other taxes for the year ended December 31, 2010:

	2010 (Unaudited)
	Dollars
Crude oil production tax		152,634
Natural gas production tax		581
Production tax to municipalities		5,629
Production tax for endogenous development projects		11,259
Accrual for investment in endogenous development projects		665
Contribution for the application of the Organic Law on Science, Technology and Innovation		4,841
		175,609

	Crude Oil and Gas Production Tax
	Pursuant to Article 44 of the Organic Law on Hydrocarbons, the State is entitled to a 30% interest in all hydrocarbon volumes mixed companies may extract from a reservoir, as production tax. During the year ended December 31, 2010, Petroritupano S.A. paid $152,634 in crude oil production tax through the delivery of crude volumes to PDVSA Petróleo, S.A. on account of the MENPET.
	Similarly, Petroritupano S.A. is also levied with a natural gas extraction tax. During the year ended December 31, 2010, Petroritupano S.A. recorded an accrual of $581 on this account.
	Other taxes
	Petroritupano S.A. is subject to the payment of some additional taxes determined based on: a) an additional 3.33% interest in the volume of hydrocarbons extracted from the specified areas, as additional production tax, which will be distributed as follows: 2.22% directly to the municipalities that make up the specified area, superseding the payments not received by such municipalities as municipal taxes, and 1.11% to fund finance endogenous development projects pursuant to the guidelines of the National Development Plan in the Relevant Region and; b) an amount equivalent to the difference, if any, between (i) 50% of the value of hydrocarbons extracted from the specified area during each calendar year and (ii) the sum of the payments made by Petroritupano S.A. to the Bolivarian Republic of Venezuela, regarding the activity developed by the latter during such calendar year, for the production taxes levied on hydrocarbons, including the ones mentioned above, and the investments in endogenous development projects corresponding to 1% of income before income tax. Additional taxes shall be paid before April 20, each year, pursuant to the provisions of Annex F of the Contract of Conversion to Mixed Company.
(c)	Value Added Tax (VAT)
	The VAT Partial Amendment Law, which provides for a cut in tax rates from 14% to 11%, as from March 1 until June 30, 2007, and to 9% as from July 1, 2007 onwards was published in the Official Gazette No. 38,632 on February 26, 2007.
	Petroritupano S.A. is not subject to VAT withholdings because natural hydrocarbon sales made by mixed companies, which are governed by the Organic Law on Hydrocarbons, to Petróleos de Venezuela, S.A. or to any of its subsidiaries are subject to a 0% rate, according to the provisions of the VAT law in force.

F-114

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

Likewise, the Law establishes that mixed companies ruled by the Organic Law on Hydrocarbons will be assimilated to regular exporting taxpayers, in order to apply the tax credits recovery regime provided for in the Law in force to the sales of hydrocarbons made to PDVSA or to any of its subsidiaries in the country. As of December 31, 2010, Petroritupano S.A. had not submitted to the Venezuelan tax authorities the request to recover VAT credits for a reasonable amount of $35,041 because the tax authorities are still in the process of defining the procedures that Mixed Companies must follow to recover tax credits.

(9) Property, Plant and Equipment

Property, plant and equipment as of December 31, 2010 comprises as follows:

	Totals
Cost:
Balances as of December 31, 2009		824,802
Net acquisitions and additions		88,199
Balances as of December 31, 2010		913,001
Depreciation and amortization:
Balances as of December 31, 2009		218,817
Depreciation and amortization		53,436
Balances as of December 31, 2010		272,253
Total net cost as of December 31, 2010		640,748

As of December 31, 2010, Petroritupano S.A. set up provisions for assets retirement and well and production facilities abandonment in the amount of $98,312 (see note 13).

Works in progress

The balance of works in progress is mainly composed of investment programs for works aiming at maintaining the production capacity and to adjust the facilities to the production levels established in the business plan, tangible assets for exploration works and several projects in execution that will be capitalized as property, plants and equipment at their date of incorporation to the activities.

In 2010, Petroritupano S.A. evaluated impairment and, when considering the market conditions as against current production conditions, it considered it was not necessary to record any impairment loss regarding its property, plant and equipment.

F-115

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

(10) Prepaid Expenses and Other Assets

Below there is a summary of prepaid expenses and other assets:

	2010 (Unaudited)
	Dollars
Advance to suppliers		7,737
Advances to employees for travel expenses		120
		7,857

(11) Cash

Cash comprises as follows:

	2010 (Unaudited)
	Dollars
Petty cash		3
Bank balances		5,131
		5,134

(12) Shareholders’ Equity

(a)	Capital Stock
	As of December 31, 2010, Petroritupano S.A.’s nominal and legal capital stock is composed as follows:

							Subscribed
	Number					Share	and paid-in capital
	of shares		%			Type	Dollars
Corporación Venezolana del Petróleo, S.A. (CVP)		1,317,990		60	%	A		6,130
Petrobras Argentina S.A.		483,263		22	%	B		2,248
Venezuela US, S.R.L.		395,397		18	%	B		1,839
		2,196,650		100	%			10,217

As of December 31, 2010 shares have a value of $4.6511 each.

Petroritupano S.A.’s articles of incorporation set forth that the number of shares held by the Bolivarian Republic of Venezuela shall account for at least 50% of Petroritupano S.A.’s capital stock. Likewise, it also establishes that if Petroritupano S.A. is liquidated all assets must be transferred to the class “A” shareholder, except for the available cash not reserved for the payment of obligations, which will be distributed among shareholders in proportion to the interest they hold in Petroritupano S.A.’s capital stock.

(b) Premium in issue of share stock

At the Extraordinary Shareholders’ Meeting held on October 6, 2006, it was decided to recognize the additional contributions of property, plant and equipment for $470,249 (stockholder “A”) and inventories of materials and supplies for $1,652 (stockholders class “B”) as a premium in the issue of new shares, in proportion to each shareholder’s interest in Petroritupano S.A.’s capital stock.

F-116

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

(c)	Legal and Other Reserves
	The legal reserve is a requirement established in the Venezuelan Code of Commerce, whereby Venezuelan companies must set apart 5% of their net income until the legal reserve amounts to at least 10% of the capital stock in bolivars. The legal reserve cannot be distributed as dividends.
	As of December 31, 2010, Petroritupano S.A. has a legal reserve of $1,022.
	As of December 31, 2010, other reserves mainly include reserves for the realization of deferred income tax assets in the amount of $65,416.

(13) Provisions

Provisions are detailed below:

	2010 (Unaudited)
	Dollars
Obligations resulting from the retirement of assets and the abandonment of wells (see note 3-h)		98,312
Provisions for tax liabilities		13,659
		111,971

As of December 31, 2010, Petroritupano S.A.’s business plan provides for the performance of drilling and production activities until 2025; therefore, the provision for abandonment was calculated considering the disbursements made during that period related to current wells.

In fiscal year 2010, provisions changed as follows:

				Unaudited
	Balance at the								Balance at		Current
	beginning of year			Increase		Decrease			year-end		portion
Obligations resulting from the retirement of assets and abandonment of wells		86,447			11,865		—			98,312		—
Provisions for fines and interest in arrears		27,319	��		—		(13,660	)		13,659		13,659

F-117

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

(14) Accruals and Other Liabilities

Below there is a summary of accruals and other liabilities as of December 31, 2010:

	Balance at							Balance at
	beginning of year		Increase		Decrease			year-end
Production tax to municipalities		51,351		7,054		(25,676	)		32,729
Production tax for endogenous development projects		23,013		11,259		(30,861	)		3,411
Special advantage tax		20,236		—		(10,118	)		10,118
Investments in endogenous projects		9,770		665		(7,295	)		3,140
Special contribution to social development		679				(679	)		—
Application of the Law on Science, technology and innovation		—		4,911					4,911
Application of the Law on Prevention of the Illicit Use of Drugs and Psycotropic Substances		7,362		—		(3,681	)		3,681
Payable retentions		26,190		2,130		(13,095	)		15,225
Services and goods received		78,131		58,929		(39,067	)		97,993
Others		4,991		1,946		(4,503	)		2,434
Total accruals and other liabilities		221,723		86,894		(134,975	)		173,642

(15) Accounts Payable

Accounts payable as of December 31, 2010 comprise as follows:

	2010 (Unaudited)
	Dollars
Related companies (see note 18)		285,796
Commercial suppliers		17,769
		303,565

F-118

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

(16) Financial Instruments

(a)	Credit Risk
	Exposure to credit risk
	The carrying value of financial assets represents the maximum credit risk exposure and is summarized as follows:

	2010 (Unaudited)
	Dollars
Recoverable tax credits
(see note 8-c)		35,041
Accounts receivable from related companies
(see note 18)		681,793
Cash (see note 11)		5,134

	Impairment Loss
	As of December 31, 2010, Petroritupano S.A. believes there are no trade accounts and notes receivable that may be regarded as bad debts; therefore, no allowance has been set up.
(b)	Liquidity Risk
	A summary of the contractual maturities of financial liabilities, including estimated payments and excluding the impact of netting agreements, is provided below:

	2010 (Unaudited)
			Contractual
	Carrying		cash		6 months		Between 6 and		Over
	value		flows		or less		12 months		12 months
Accounts payable to related company		10,938		10,938		—		—		10,938
Accounts payable		303,565		303,565		210,902		92,663		—
Other liabilities (included in accruals and other liabilities (see note 14) (1)
Accruals and other liabilities		173,642		173.642		158,327		15,315		—
		488,145		488.145		369,229		107,978		10,938

(1) It includes withholdings of the social fund, production taxes, extraction taxes, and exports registry to be paid, special contribution, financial debt interest payable, and social contributions.

F-119

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

Fair Value of Financial Instruments

The estimated amounts presented below as of December 31, 2010, are not necessarily an indication of the amounts that Petroritupano S.A. may realize in a current market exchange. The use of different market assumptions and/or methodologies to determine estimates may significantly affect the estimated fair values. Fair values are determined using the bases disclosed in note 6:

	2010 (Unaudited)
	Carrying		Fair
	value		value
	Dollars
Assets:
Recoverable tax credits		35,041		35,041
Accounts receivable from related companies		681,793		681,793
Cash		5,134		5,134
Liabilities:
Accounts payable to related companies		10,938		10,938
Accounts payable		303,565		303,565
Accruals and other liabilities		173,642		173,642

(17) Commitments and Contingencies

Claims

As of December 31, 2010, Petroritupano S.A. is involved in claims and legal actions related to its normal course of business worth $840. In the opinion of management and its legal counsels, the outcome of these claims would not have a materially adverse effect on Petroritupano S.A.’s financial position, results of its operations or liquidity.

Compliance with Environmental Regulations

PDVSA and its subsidiaries are subject to various environmental laws and regulations which may require significant expenditures to modify facilities and prevent or remedy the environmental effects of waste disposal and spills of pollutants.

Petroritupano S.A., along with its Head Office CVP, is taking significant steps to prevent risks to the environment, to protect people’s health and to preserve the integrity of its facilities.

Agreements with the Organization of Petroleum Exporting Countries (OPEC)

The Bolivarian Republic of Venezuela is a member of the OPEC, an organization mainly aimed at establishing agreements to maintain stable crude-oil prices through production quotas. To date the reduction in the production of crude oil as a result of changes in the production quotas established by OPEC, or variations in prices, did not have a significant effect on Petroritupano S.A.’s financial position, results of its operations, cash flows, and financial results.

(18) Transactions with Related Parties

Petroritupano S.A. considers its shareholders, subsidiaries and affiliated companies of the latter, directors and executives, as well as all other governmental institutions as related parties.

Petroritupano S.A. maintains balances and carries out significant mercantile transactions with related companies and entities, the impact of which is included in its results and financial position.

Transactions with PDVSA Petróleo, S.A. (PDVSA Petróleo) and its subsidiaries are accounted for through the PDVSA Petróleo account. This account is not interest-bearing and has no established maturity date. PDVSA Petróleo supplies the funding required by Petroritupano S.A. to conduct its activities and meet its obligations. The amounts recognized as income in dollars are automatically transferred to the accounts of PDVSA Petróleo, and, subsequently, to the BCV, which accredits the equivalent in bolivars to PDVSA Petróleo and the latter, in turn, to CVP and its subsidiaries.

F-120

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

The balances with related entities comprise as follows:

	2010 (Unaudited)
	Dollars
Accounts receivable -
PDVSA Petróleo, S.A.		667,675
PDV Insurance Company LTD		6,702
Petrokariña, S.A.		4,569
Bielovenezuela, S.A.		685
Petrowayu, S.A.		65
Petronado, S.A.		94
Petrocuragua, S.A.		205
Petrozumano, S.A.		69
Petroindovenezuela, S.A.		32
Petrodelta, S.A.		3
Petroven-bras, S.A.		1,694
		681,793
Accounts payable
PDVSA Petróleo		28,199
MENPET		2,277
Petrokariña, S. A.		6,229
Petrovenbrás, S. A.		2,777
Petrobras Argentina, S. A.		53,972
Venezuela US, S.R.L.		44,159
PDV Insurance Company LTD		766
Petrolerakaki, S. A.		169
Corporación Venezolana de Petróleo, S.A.		147,197
Baripetrol, S. A.		49
Petrowayuu, S. A.		2
		285,796
Accounts payable, non current portion-
PDVSA Petróleo, S.A.		10,938

F-121

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

The most significant transactions conducted during the year ended December 31, 2010 are summarized as follows:

	2010 (Unaudited)
	Dollars
Sales of crude oil to PDVSA Petróleo		354,509
Sales of crude oil to PDVSA Petróleo as payment of production tax		152,634
		507,143
Social development contribution		665
Labor costs		23,157
Other taxes		24,952
Estimated income tax expense		23,081
Purchase of insurance policies		1,635

Accounts receivable from PDVSA Petróleo, are related to sales of crude oil. The production generating the remaining amount of revenues obtained by Petroritupano S.A. during fiscal year ended December 31, 2010, in the amount of $152,634 was delivered to PDVSA Petróleo for the payment of production tax to MENPET, in accordance with the agreement with such ministry (see note 8-b).

The Special Contribution on Extraordinary International Oil Market Prices and the resolutions issued in connection with this contribution provide that this contribution shall be paid on a monthly basis by those entities exporting, or transporting liquid hydrocarbons and its derivatives to other countries (see note 19-c). Petroritupano S.A. is not a direct oil exporter. However, the payment of a contribution for social development purposes in Venezuela equivalent to the amount set forth in such law was established under an agreement entered into with PDVSA Petróleo.

In fiscal year ended December 31, 2010, PDVSA Petróleo made payments on behalf of Petroritupano S.A. for labor costs of $27,566, which are included in the statement of comprehensive income under operating, selling, administrative and general expenses.

PDVSA Petróleo employs all employees assigned to Petroritupano S.A. and bills the cost of payroll and other labor benefits to Petroritupano S.A. on a monthly basis.

As of December 31, 2010, Petroritupano S.A. recorded a liability of $10,938 corresponding to retirement benefits of PDVSA Petróleo’s staff transferred to Petroritupano S.A. and included it in the statement of financial position under non-current accounts payable to PDVSA Petróleo, S.A., registering the year-over-year variation as an expense under the operating, selling, administrative and general expenses account in the statement of comprehensive income.

As of December 31, 2010, accounts payable to PDVSA Petróleo, S.A., relate mainly to payments made by the company on behalf of Petroritupano S.A. on account of labor costs and payroll benefits, taxes, operating expenses and cash advances on capital loans.

Accounts payable to Petrobras Argentina S.A., as of December 31, 2010, correspond to dividends that were paid on May 2011.

In the year ended December 31, 2010, Petroritupano S.A. acquired insurance policies from PDV Insurance Company LTD for $1,635.

F-122

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

As per the instructions received from the management of Corporación Venezolana del Petróleo, S.A. (CVP), Petroritupano S.A. offset the accounts receivable from the sale of crude oil made to PDVSA Petróleo against the accounts payable to PDVSA Petróleo for labor costs and operating expenses; such offset included the offset for dividends payable to CVP. As of December 31, 2010, the amounts offset are detailed below:

	2010 (Unaudited)
	Dollars
Accounts receivable from PDVSA Petróleo		255,401
Accounts payable to PDVSA Petróleo		(255,401	)

Transactions with related entities as of December 31, 2010 do not necessarily represent the results that would have been obtained had these transactions been conducted in accordance with the arms-length principle.

Transactions with Key Management Staff

Some of Petroritupano S.A.’s directors hold key positions in other related entities, and some of their powers may influence the operating and financial policies of such companies.

(19) Laws, Resolutions and Legal Contributions

Laws and Resolutions

Petroritupano S.A.’s management, through their legal advisors and those of PDVSA, concluded that these laws will have no significant effect on the financial statements of Petroritupano S.A.

(a) Foreign Currency Exchange Agreements

The Foreign Currency Exchange Agreement No. 14, effective as from January 11, 2010, was published in the Official Gazette No. 39,342 on January 8, 2010, establishing the exchange rates applicable to legal entities for the purchase and sale of foreign currency:

• Payment of foreign currency sale transactions aimed at importing goods and services for the food, health, education, machinery and equipment, and science and technology sectors, as well as those used for payments in the non-petroleum public sector, will be made at an exchange rate of Bs.2.60 per U.S. dollar; all other foreign currency sale transactions will be made at an exchange rate of Bs.4.30 per U.S. dollar.

• Payment of foreign-currency purchase transactions obtained: i) by the public sector other than those originating from the import of hydrocarbons, regulated by the Foreign Currency Exchange Agreement No. 9, will be made at an exchange rate of Bs.2.5935 per U.S. dollar; and ii) the remaining purchases of foreign currency will be made at an exchange rate of Bs.4.2893 per U.S. dollar.

• Payment of foreign-currency purchase transactions originating from hydrocarbon exports, regulated by the Foreign Currency Exchange Agreement No. 9, will be made at an exchange rate of Bs.4.2893 and Bs.2.5935 per U.S. dollar, as established by the BCV, in the proportions that the BCV may determine for payment of selling operations. The exchange rate is Bs.2.5935 per U.S. dollar and applies to at least 30% of foreign currency purchase transactions.

Additionally, this agreement enables legal entities, different from PDVSA, to engage in the export of goods and services, to retain and manage up to thirty percent (30%) of the revenues they may obtain in foreign currencies as a result of the transactions carried out. This percentage shall be allocated to pay expenses resulting from export activities different from the financial debt. This agreement also establishes that the purchase and sale of foreign currency, the payment of which had been requested from the BCV before it came into effect, shall be paid at the exchange rates of Bs.2.14 per US dollar and Bs.2.15 per US dollar, respectively, as established in the Foreign Currency Exchange Agreement No. 2, dated March 1, 2005.

F-123

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

On January 27, 2010, the Foreign Currency Exchange Agreement No. 15, which had been originally published in the Official Gazette No. 39,349 of January 19, 2010, was republished in the Official Gazette No. 39,349 due to a material misstatement. This agreement includes new provisions and guidelines that consider the official multiple exchange rates system set up by the Foreign Currency Exchange Agreement No. 14. The most relevant items in this agreement are as follows:

• For VAT purposes, imports of goods and services shall be subject to an exchange rate of Bs.2.60 per U.S. dollar and Bs.4.30 per U.S. dollar, depending on whether they correspond to the food, health, machineries and equipments, science and technology, or any other sector, respectively. Exports of goods and services shall be subject to an exchange rate of Bs.4.2893 per US dollar.

• For customs purposes, the applicable exchange rate is Bs.2.60 per U.S. dollar for imports in the food, health, education, machinery and equipment, and science and technology sectors; and Bs.4.30 per U.S. dollar for any other imports.

The Foreign Currency Exchange Agreement No. 14, in force as from January 1, 2011, was renamed on December 30, 2010, by means of the Official Gazette No. 39,584 whereby the exchange rate was set at Bs.4.2893 per U.S. dollar for purchase transactions, and at Bs.4.30 per U.S. dollar per selling transactions. Likewise, this resolution repealed the Foreign Currency Exchange Agreement No. 14, dated January 8, 2010, published in the Official Gazette of the Bolivarian Republic of Venezuela No. 39,342 on January 8, 2010; as well as Foreign Currency Exchange Agreements No. 15, 16 and 17, and all other provisions contrary to the provisions of the referred Foreign Currency Exchange Agreement.

(b) Law authorizing the President of the Republic to issue Decrees with the same rank, validity and enforceability as Laws

On December 17, 2010, the National Assembly passed a Law authorizing the President of the Republic to issue Decrees with the same rank, validity and enforceability as Laws regarding a canvas of matters delegated for an eighteen-month period as from its publication date. Pursuant to the wording of this law, decrees may be issued on any matter involving the transformation of state institutions, popular participation, as well as economic, social, financial, tax, and energy related matters.

(c) Foreign Currency Exchange Agreement No. 18

Foreign Currency Exchange Agreement No. 18 was published in the Official Gazette No. 39,439, on June 4, 2010, establishing that the BCV will be the agency in charge of setting up the terms and conditions to trade the foreign currency-denominated securities issued or to be issued by the Bolivarian Republic of Venezuela, its decentralized agencies, or any other issuer, in the national currency and by resorting to the system applicable to such effect.

(d) Administrative Ruling No. 001-2010 issued by the National Antinarcotics Office (ONA)

On February 10, 2010, the Administrative Ruling No. 001-2010 was published in the Official Gazette No. 39,366, setting up standards for admissible discounts to the contribution set forth in the LOCTICSEP and its Regulation in relation to proper payment of the amounts corresponding to fiscal years 2006, 2007 and 2008. This ruling establishes that the only amounts that may be discounted are amounts paid by taxpayers during fiscal years of 2006, 2007 and 2008:

• Implementation of comprehensive social prevention projects.

• Contributions under non-reimbursable technical assistance agreements.

• Financing or performance of activities related to comprehensive social prevention matters.

F-124

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

(e) Modification of the Terms and Conditions for the Creation and Operation of Mixed Companies

On September 28, 2009, the Official Gazette No. 39,273 published an amendment to the Agreement for the Creation and Functioning of Mixed Companies, establishing the new distribution percentages of the additional royalty of 3.33%, also known as special advantage, which mixed companies must pay for oil activities. The Agreement’s amendment establishes that the distribution will be as follows: a) 2.22% for the Special Fund for People’s Power (Fondo Especial para el Poder Popular) (FOPO), directly administered by the National Government and engaged in endogenous development projects pursuant to the guidelines of the National Development Plan, and b) the remaining 1.11% for the municipalities where the country’s oil activities are conducted. The latter percentage shall be distributed as follows: 30% for the municipalities where mixed companies’ primary activities are conducted, and 70% for the remaining municipalities where oil activities are conducted, in proportion to their population and their human development index.

F-125

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

Legal Contributions

(f) Organic Law on Science, Technology and Innovation (LOCTI)

The Law that partially amends the Organic Law on Science, Technology and Innovation (LOCTI) was published on December 15, 2010. The referred law, states that legal entities, whether private or state-owned, domiciled in the Bolivarian Republic of Venezuela or abroad, conducting business in the national territory, shall annually pay a percentage of the gross income they have obtained in the immediately previous fiscal year depending on the business activity they are engaged in:

• Two percent (2%) if the business activity is regulated in the Casinos, Bingos and Slot Machines Control Law, or if it is related to the ethyl alcohol, or alcohol and tobacco industries.

• One percent (1%) in case of private equity companies engaged in one of the business activities provided for in the Organic Law on Hydrocarbons and Gaseous Hydrocarbons, including mining exploitation, processing and distribution.

• Point five percent (0.5%) in case of state-owned companies engaged in one of the business activities provided for in the Organic Law on Hydrocarbons and Gaseous Hydrocarbons, including mining exploitation, processing and distribution.

• Point five percent (0.5%) in case of any other business activity.

(g) Special Contribution on Extraordinary Prices of the International Hydrocarbons Market Law

The Special Contribution on Extraordinary Prices of the International Hydrocarbons Market Law and the related resolutions No. 151 and No. 195 issued by the MENPET, were enacted in 2008 providing for a special contribution to be paid, on a monthly basis, by exporters or transporters of liquid hydrocarbons and by-products to foreign countries. The amount of the contribution will be equivalent to a) 50% of the difference between the average monthly price of “Venezuelan basket” crude and the threshold price of $70 per barrel; and b) 60% of the difference of the average monthly price of “Venezuelan basket” crude and the threshold price of over $100 per barrel. This contribution will be made for each barrel of oil exported or transported to foreign countries and paid on a monthly basis by MENPET to the Venezuelan Development National Fund (FONDEN).

F-126

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2010

(h) Organic Law on Drugs (LOD) repealing the Organic Law against Illegal Trafficking and Consumption of Drugs and Psychotropic Substances (LOCTICSEP)

The Organic Law against Illegal Trafficking and Consumption of Drugs and Psychotropic Substances was published in December 2005. The referred law establishes that all legal entities employing 50 workers or more shall allocate 1% of their annual net income to comprehensive social programs aimed at fighting illegal drugs trafficking and consumption, and 0.5% of such percentage shall be assigned to comprehensive programs aimed at protecting children and teenagers.

On May 31, 2006, the National Antidrug Office (ONA) published a notice extending the deadline to make those contributions; therefore, as of December 31, 2009 and 2008, no payments were made for this concept.

Presidential Decree No. 6776, published in the Official Gazette No. 39,211, dated July 1, 2009, enacts the LOCTICSEP Partial Regulations. This decree is intended to define and establish the guidelines, mechanisms, modalities, ways and timeframes that must be followed by companies, both state-owned and private, as mentioned in Articles 96 and 97 of this Law in order to comply with the obligation to pay the National Anti-Drug Agency (ONA) the contribution amounts stipulated in the law.

Rulings No. 007-2009 and No. 008-2009 were published by the ONA in the Official Gazette No. 39,336 on December 29, 2009, specifying the rules and procedures to be followed for registration of taxpayers, as well as for the collection, control and monitoring of contributions provided for in Articles 96 and 97 of the law. The abovementioned rulings also indicate the rules governing the procedures to file and calculate the contributions payable for fiscal years 2006, 2007 and 2008, highlighting that the taxable base of contributions is the net income before income tax.

The Organic Law on Drugs (LOD), repealing the LOCTICSEP as from the date of publication, was published in the Official Gazette No. 39,510 on September 15, 2010. This Law states that all legal entities employing 50 workers or more shall allocate 1% of the income or profit they may obtain in a given fiscal year to the National Anti-Drug Fund within sixty running days counted as from the end of the corresponding fiscal year. Legal entities belonging to an economic group shall consolidate their financial statements for the purpose of such contribution.

F-127

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)

Statements of Comprehensive Income

(In thousand of Dollars)

		Years ended December 31,
	Note	2009			2008
		Unaudited
Sales of crude oil	19		484,139			1,054,108
Costs and Expenses:
Operating expenses			50,792			70,200
Depreciation and amortization	9		50,456			59,476
Selling, administrative and general expenses			23,192			35,935
Production, extraction and other taxes	8-b		190,109			355,840
Social development contributions	19, 20-c		679			129,969
Financial income	11		(153	)		(4,152	)
Financial expenses	8-c		8,674			1,990
Other expenses, net	14		27,376			3,556
			351,125			652,814
Income before tax			133,014			401,294
Income tax	8-a		(43,858	)		60,131
Net income			176,872			341,163
Other comprehensive income -
There are not other comprehensive income for the years 2009 and 2008			—			—
Total comprehensive income			176,872			341,163

Notes 1 to 22 are integral part of the financial statements.

F-128

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)

Statements of Financial Position

(In thousand of Dollars)

		December 31,
	Note	2009		2008
		Unaudited
Assets
Property, plant and equipment, net	9		605,985		483,990
Deferred income tax	8-a		280,042		184,902
Recoverable value added tax	8-c		57,259		44,532
Total non current assets			943,286		713,424
Materials and supplies inventories			12,204		7,201
Related companies accounts receivables	19		600,416		627,820
Prepaid expenses and other assets	10		38,122		4,585
Other investments	11		—		1,425
Cash	12		2,478		37,497
Total current assets			653,220		678,528
Total assets			1,596,506		1,391,952
Stockholders’ Equity
Capital stock	13-a		10,217		10,217
Premium in issue of shares	13-b		471,901		471,901
Retained earnings:
Legal reserve	13-c		1,022		1,022
Other reserves	13-c		280,042		184,902
Accumulated earnings			371,065		289,333
			652,129		475,257
Total stockholders’ equity			1,134,247		957,375
Liabilities
Related company accounts payable	19		12,211		5,062
Provisions, net of current portion	14		86,447		19,483
Total non-current liabilities			98,658		24,545
Accounts payable	16		114,559		254,231
Current portion of provisions	14		27,319		—
Accruals and other liabilities	15		221,723		152,865
Income tax payable	8-a		—		2,936
Total current liabilities			363,601		410,032
Total liabilities			462,259		434,577
Total stockholders’ equity and liabilities			1,596,506		1,391,952

Notes 1 to 22 are integral part of the financial statements.

F-129

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)

Statements of Changes in Equity

Years ended December 31, 2009 and 2008
(In thousand of Dollars)

		Unaudited
		Capital		Premium
		stock		in issue		Retained earnings										Total
		subscribed		of share		Legal		Other		Accumulated						stockholders’
	Note	and paid		stock		reserve		reserves		earnings			Total			equity
Balances as of December 31, 2007			10,217		471,901		1,022		—		297,257			298,279			780,397
Total comprehensive income			—		—		—		—		341,163			341,163			341,163
Paid dividends	13-d		—		—		—		—		(164,185	)		(164,185	)		(164,185	)
Transfer to reserves	13-c		—		—		—		184,902		(184,902	)		—			—
Balances as of December 31, 2008			10,217		471,901		1,022		184,902		289,333			475,257			957,375
Total comprehensive income			—		—		—		—		176,872			176,872			176,872
Transfer to reserves	13-c		—		—		—		95,140		(95,140	)		—			—
Balances as of December 31, 2009			10,217		471,901		1,022		280,042		371,065			652,129			1,134,247

Notes 1 to 22 are integral part of the financial statements.

F-130

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)

Statements of Cash Flows

(In thousand of Dollars)

		Years ended December 31,
	Note	2009			2008
		Unaudited
Cash flows from operating activities:
Net income			176,872			341,163
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization	9		50,456			59,476
Costs of assets retirement obligation	9 y 14		1,514			1,990
Deferred income tax benefit	8-a		(95,140	)		(82,482	)
Changes in operating assets -
Related companies accounts receivables	19		27,404			(541,169	)
Prepaid expenses and other assets	10		(33,537	)		(6,470	)
Materials and supplies inventories			(5,003	)		(6,791	)
Recoverable value added tax	8-c		(12,727	)		(16,614	)
Other investments	11		1,425			(1,425	)
Changes in operating liabilities -
Related company accounts payable	19		7,149			2,129
Provisions	14		27,534			2,702
Accounts payable	16		(139,672	)		344,244
Income tax payable	8-a		(2,936	)		(988	)
Accruals and other liabilities	15		68,858			41,540
Total adjustments			(104,675	)		(203,858	)
Net cash provided by operating activities			72,197			137,305
Net cash used in investments activities — purchases of property, plant and equipment, net	9		(107,216	)		(103,519	)
Net cash used in financial activities — dividends paid to shareholders	13-d		—			(65,675	)
Net decrease in cash			(35,019	)		(31,889	)
Cash at beggining of year			37,497			69,386
Cash at year end			2,478			37,497
Supplementary disclosure:
Significant cash disbursements during the year -
Income tax	8-a		83,614			143,601
Production tax	8-b		146,501			317,736
Significant transactions not requiring cash -
Related companies balances offset	19		362,944			792,534

Notes 1 to 22 are integral part of the financial statements.

F-131

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)

Notes to the Financial Statements

December 31, 2009 and 2008

(1) Reporting Entity

Petroritupano, S.A. (the Company) is an entity incorporated and domiciled in the Bolivarian Republic of Venezuela (the Republic) and its offices and operations are located in an area named Oritupano — Leona, located on the San Tomé — Oritupano road, in Anzoátegui and Monagas states.

The stockholders of Petroritupano, S.A. are: Corporación Venezolana del Petróleo, S.A. (CVP), a subsidiary of Petróleos de Venezuela, S.A. (PDVSA), Petrobras Energía, S.A. and Venezuela US S.R.L, which have capital stock interests of 60%, 22% and 18% respectively.

During the year 2005, the Ministry of People’s Power for Energy and Petroleum (MENPET) instructed the Boards of Directors of Petróleos de Venezuela, S.A. (PDVSA), and its subsidiary Corporación Venezolana del Petróleo, S.A. (CVP), for the conversion of the operating agreements of PDVSA Petróleo, S.A. (PDVSA Petróleo), a subsidiary of PDVSA, to mixed companies. On August 5, 2005, the following participants of the operating agreements of the Oritupano — Leona area: Petrobras Energía, S.A.; APC Venezuela, S.R.L.; Venezuela US S.R.L. and Corod Producción, S.A. signed a transitory agreement with PDVSA Petróleo and CVP for the conversion of a mixed company which purpose is to carry out primary exploration activities in search for hydrocarbon wells, their initial extraction from natural wells, collection, transportation and storage, pursuant to Article 9 of the Organic Hydrocarbons Law.

The National Government filed on March 16, 2006 with the National Assembly through MENPET the model project contract for the incorporation of mixed companies between CVP and private investing companies taking part in operating agreements entered into with PDVSA Petróleo. In May 2006, the National Assembly agreed the incorporation, creation and operations of the Company in order to develop the abovementioned primary activities for a twenty-year period.

On March 31, 2006, Petrobras Energía, S.A.; APC Venezuela, S.R.L.; Venezuela US S.R.L. and Corod Producción, S. A. signed jointly with PDVSA Petróleo and CVP a memorandum of understanding whereby, subject to all necessary approvals including the approval of the National Assembly of the Bolivarian Republic of Venezuela and the corporate approvals of the participating companies, CVP and the participating companies will have 60% and 40%, respectively, of participation on the Company’s capital stock. The mixed company will be in charge of conducting the primary activities provided in the model project contract for the incorporation of mixed companies, and their by-laws and incorporation document will be adjusted as per such model. In addition, pending to the approvals established in the memorandum of understanding, the parties agreed having reached an agreement regarding the basis of economic calculations for the commencement of operations of the mixed company, including the signing of the purchase/sale contract of hydrocarbons with PDVSA Petróleo, on April 1^st, 2006.

The contract model for the creation of mixed companies establishes the automatic extinguishment of operating agreements since March 31, 2006, whereby the operating companies are not entitled to receive any compensation as a result of these agreements, except for any payments pending related to the first quarter of 2006 or to file any claim as a result of such extinguishment. In addition, it rules the transfer of ownership of assets operated at such date under these agreements, and that these be made immediately available to the mixed companies, for the development of their activities.

The main activities of Petroritupano, S.A. are governed by the Organic Hydrocarbons Law, in effect since January 2002, and its partial amendment in May 2006, as well as the Organic Gas Hydrocarbons Law effective since September 1999 and its Regulation from June 2000, on the grounds of that provided in the Terms and Conditions for the Incorporation of Mixed Companies and in the Company’s bylaws, and in the provisions that the National Government, through the MENPET has issued, and any applicable ordinary laws.

In accordance with the “Terms and Conditions for the Incorporation of Mixed Companies”, approved by the National Assembly, such companies would operate under a transition period regime, from April 1^st, 2006 and the date on which they were formally incorporated. Upon incorporation, contractual terms shall apply retrospectively from April 1^st, 2006.

F-132

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

(2) Basis of Preparation

(a) Statement of Compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), adopted by the International Accounting Standards Board (IASB) and its interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB.

(b) Basis of Measurement

The financial statements have been prepared on the historical cost basis, except for certain assets and liabilities that have been adjusted to be presented at fair value. Assets measured and presented at its fair value are mainly the recoverable value added tax.

The methods used to measure fair value are discussed comprehensively in note 6.

(c) Functional and Presentation Currency

The financial statements are stated in U.S. dollars ($) and bolivars (Bs). The functional currency is the U.S. dollar because the price of the crude oil that Petroritupano, S.A. sells and delivers to PDVSA Petróleo under the purchase-sale contract is determined in dollars. Additionally, a significant portion of costs, expenses and investments are denominated in dollars.

The financial statements in bolivars are presented for statutory purposes and at the request of its Parent Company. The conversion of the financial statements of the Company into bolivars, a presentation currency different from its functional currency, was performed in accordance with International Accounting Standard 21The Effects of Changes in Foreing Exchange Rates(IAS 21). This standard requires determination by each entity of its functional currency based on an analysis of its main economic environment, which is where it generates and uses most of its cash.

The financial statements were translated into bolívares by using the following procedures:

• Assets and liabilities included in the statements of financial position presented were translated at the closing exchange rate on the date of issue of the relevant statement;

• Income and expenses in each of the items of the statements of income, were translated at the exchange rates prevailing at each transaction date; and

• All exchange differences that occurred as a result of the above are recognized as a separate component of equity, designated as translation differences. Owing to the fact that during the years ended December 31, 2009 and 2008 there were no changes in the official exchange rate, no translation differences occurred.

All financial information presented in dollars and bolivars has been rounded to the nearest thousands.

(d) Use of Estimates and Judgments

The preparation of financial statements in conformity with IFRS requires management to make estimates, judgements and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The Company uses its best estimates and judgements; however, actual results may differ from these estimates.

F-133

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Estimates and related assumptions are based on the experience and some other factors that are deemed reasonable in the current circumstances, which result is the basis to form judgments on the carrying value of assets and liabilities that are not easily determinable by other sources. Estimates and assumptions are reviewed periodically, and the reviews of these accounting estimates are recognized in the same period and the future periods affected.

The significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements follow:

• Note 9 — Valuation of property, plant and equipment.

• Note 17 — Valuation of financial instruments.

The information on the estimation of uncertainties that have a significant risk of causing material adjustments in the coming periods is included in the following notes:

• Nota 8-a — Deferred income tax.

• Note 14 — Asset Retirement Obligations and abandonment of wells.

• Note 14 — Provisions for tax liabilities.

(3) Significant Accounting Policies

Accounting policies have been applied consistently for all periods presented in these financial statements.

(a) Currencies Other than the Dollar

Transactions in foreign currencies other than the dollar

Transactions in foreign currencies other than the dollar are translated to the dollar, the functional currency of the Company at the exchange rate in effect at the transaction date. Monetary assets and liabilities in foreign currencies other than the dollar at the statements of financial position date are translated into the dollars, using the applicable exchange rate on that date. The foreign currency gain or loss on monetary items is the difference between the net cost in the functional currency at the beginning of the year, adjusted by payments during the year, and the net cost in foreign currency is translated using the exchange rate at year-end. Non-monetary assets and liabilities in currencies other than the dollar stated at fair value are retranslated into the functional currency using the exchange rate as of the date of fair value determination.

Translation to the Presentation Currency

The translation of the financial statements of Petroritupano, S.A. from dollars into bolívares, a presentation currency that is not the functional currency, was conducted in accordance with IAS 21 as follows: assets and liabilities at the exchange rates prevailing at the date of issue of the statements of financial position, and income and expenses at average exchange rates prevailing during each year. All exchange differences generated as a result of the above are recognized in the comprehensive statements of income for the period, under other comprehensive income.

(b) Revenue Recognition

Revenue from sales of crude oil and gas are mensured at the fair value of the consideration received or to be received, net fo commercial discounts and is recorded recognized in the statements of comprehensive income when all significant ownership risks and rights have been transferred to PDVSA Petróleo and the MENPET, according to the Oil Purchase-Sale contract signed between the Company and PDVSA Petróleo, when they can be reasonably measured and it is probable that future economic benefits will flow to the Company. This income is calculated at the transaction date, based on contract specifications which consider a number of international market references, and other factors, as agreed between the parties, involved in the determination of the oil price.

F-134

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

In the case of income from activities other than the Company’s core business, these are recognized when income has been realized. No income is recognized if there is significant uncertainty regarding the recovery of the amounts under the obligation assumed by the buyer.

(c) Financial Incomes and Expenses

Financial incomes included in the statements of comprehensive income is composed mainly by interests earned on invested funds and higher value obtained from the sale of investments.

Financial expenses, included in the statements of comprehensive income, are comprised of interest on financial obligations, increase of asset retirement obligations (see note 3-h) and financial expenses related to: impairment losses and changes (losses) in the fair value of financial assets.

(d) Income Tax

Income tax expense (benefit) comprises current and deferred tax. Income tax expense is recorded in the results of each year.

Current tax is the estimated amount that must be paid based on the taxable income for the year, using the methodology established by current laws, tax rates as of the balance sheet date and any adjustment to taxes payable from previous years.

Deferred income tax is recorded using the balance method. Deferred tax assets and liabilities are recorded for temporary differences between the amounts of assets and liabilities reported in the statement of financial position and their respective fiscal bases, and tax loss and tax credits carryforwards. Deferred tax assets and liabilities are measured using the tax rates applicable to taxable income in the year in which temporary differences will be recovered or cancelled, pursuant to law. The effect on deferred tax assets and liabilities of changes in tax rates is recorded in the results of the year in which they become effective.

Deferred tax assets are recorded only up to the amount that it is probable that future taxable income will be available to offset those amounts. Deferred tax assets are reviewed at the date of the financial statements and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

(e) Social Development Contributions

Correspond to contributions to social programs and projects through which Petroritupano, S.A. takes part in the social and integral development of the country (see note 19). These contributions are recorded directly as an expense at the time the obligation is undertaken.

(f)	Financial Instruments
	Non-Derivative Financial Instruments

Non-derivative financial instruments are recoverable value added tax, accounts receivables, other investments, cash, accounts payable and other liabilities.

Non-derivative financial instruments are initially recorded at fair value plus in the case of financial assets or liabilities not recorded at fair value with subsequent changes recorded in the statements of comprehensive income, direct transactions costs.

A financial instrument is recorded when the Company engages or commits to the contractual clauses thereof. Financial assets are reversed if the contractual rights of the Company over the cash flows of the asset expire or if the Company transfers the financial asset to another entity without retaining control or a significant portion of risks and rewards of the asset. Purchases and sales of financial assets made using the usual procedures are accounted for at the negotiation date, which is generally the date when the Company commits to purchase or sell the asset. Financial liabilities are derecognized when the specific contractual obligation of the Company expires or is paid.

F-135

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Financial assets and liabilities are offset and the net amount presented in the financial position when, and only when, the Company has the legal right to offset the amounts and has the purpose to pay on a net basis or realize the asset and simultaneously pay the liabilities.

See accounting policies for recording financial incomes and expenses in note 3-c.

Derivative Financial Instruments

During the years ended 2009 and 2008 Petroritupano, S.A. did not undertake transactions with derivative financial instruments.

In accordance with its corporate policy, Petroritupano, S.A. does not use or hold derivative financial instruments for trading or speculative purposes.

(g)	Property, Plant and Equipment
	Recognition and Measurement

Property, plant and equipment are stated at cost net of accumulated depreciation and impairment loss (see note 3-k). The successful efforts method of accounting is used for exploration and production activities for crude oil, under International Financial Reporting Standard 6Exploration and Evaluation of Mineral Resources(IFRS 6) for recognition of exploration and assessment assets. Costs of well development, related plant and equipment and property used in exploitation of oil and gas are recorded as part of the cost of assets. Costs of exploratory wells are recorded as assets until it is determined whether the well is commercially feasible; otherwise, such costs are charged to exploration expenses. Other explorations expenditures, including the geological and geophysical costs, are expensed as incurred.

The cost of property, plant and equipment also includes disbursements for acquisition of those assets, as well as the amounts associated with asset retirement obligations (see note 3-h).

Financing costs of projects requiring major investments and those incurred in financing of specific projects are recognized as part of the cost of property, plant and equipment, when directly related to the construction or acquisition of an asset. Capitalization of these costs is suspended during the years in which the development of construction activities is interrupted, and capitalization ceases when the activities required for use of the asset have been substantially completed.

The cost of assets built by the Company includes interest on borrowings, cost of materials and direct labor, as well as any other direct cost attributable to bringing the asset to working condition. It also includes dismantling and removal costs at the location where built.

All disbursements relating to construction or purchase of property, plant and equipment in the stage prior to implementation are stated at cost as work in progress. Once the assets are ready for use, they are transferred to property, plant and equipment and depreciation or amortization commences.

Income or losses generated from the sale or disposal of property, plant and equipment are determined by the difference between the amount received from such sale or desincorporation, if any, and the net carrying amount of the asset, and it is recorded as part of other expenses (income), net in the statements of comprehensive income.

Subsequent Costs

Major maintenance and general repair costs, as well as replacement of significant items of property, plant and equipment are capitalized when these are identified as a separate component of the asset to which such maintenance, repair or replacement corresponds, and are depreciated over the period between one maintenance, replacement and another. Disbursements for minor maintenance, repairs and renewals incurred to maintain the facilities in normal operating condition are expensed.

F-136

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Depreciation

Depreciation and amortization of capitalized costs relating to wells, pipeline and facilities for the production of crude oil are determined using the units of production method by field, based on the proved developed reserves that are the quantities that can be expected to be recovered from existing wells with existing equipment and operating methods. The rates used are reviewed annually, based on an analysis of reserves, and are applied retroactively at the beginning of the year.

Depreciation of property and equipment not related to exploration and exploitation of hydrocarbons is calculated based on the straight-line method using the estimated useful lives of fixed assets:

	Years
Operating equipment		17 - 4
Computer equipment and vehicles		4

When parts of an asset under property, plant and equipment have different useful lives, they are recorded separately as a significant component of that asset.

Depreciation methods, useful lives of property and residual value, plant and equipment are reviewed annually.

(h) Costs Associated to Asset Retirement Obligations

Petroritupano, S.A. capitalizes the estimated cost associated with asset retirement obligations, involving assets for exploration activities and production of crude oil and other industrial facilities, based on the future retirement plan for those assets. Costs are capitalized as part of the long-lived assets and are amortized by charging operating expenses over their useful lives (see note 3-l).

(i) Materials and Supplies Inventories

Materials and supplies inventories these are valued at average cost, which does not exceed the net value realization.

(j) Accounts Receivables

The accounts receivable from sale of crude oil to PDVSA Petróleo are recorded using the amounts billed. As of December 31, 2009 and 2008, the Company believes that there are no accounts receivable considered bad debts; therefore, no estimate has been recorded for doubtful accounts.

(k)	Impairment of Assets
	Financial Assets

The Company reviews the carrying value of its financial assets at each reporting date to determine whether there is any objective evidence of impairment. A financial asset is impaired if there is objective evidence that one or more events have had a negative effect on the estimated future cash flows of the asset.

Significant financial assets are evaluated individually to determine their impairment. The remaining financial assets with similar credit-risk characteristics are evaluated as a group (see note 6).

An impairment loss related to a financial asset is calculated as the difference between the carrying value of the asset and the current value of the future estimated cash flows, discounted at the effective interest rate. Impairment losses are recognized in the statements of comprehensive income. The reversal of an impairment loss only occurs if it can be objectively related to an event occurred after the date in which the impairment loss was recognized.

F-137

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Non-Financial Assets

The carrying amounts of non-financial assets, excluding inventory and deferred tax are reviewed at each reporting date to determine whether evidence of impairment exists. If any such indication exists, then the recoverable amount of the asset is estimated.

The recoverable amount of an asset or cash-generating unit is the greater between the value in use and the fair value less selling costs. To determine the value in use, net future cash flows of those assets are discounted, using the discount rate before tax that reflects the current evaluations of the market on the temporary value of money and the specific risks the asset may have.

An impairment loss is recorded when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. An impairment loss is recorded in the statement of comprehensive income. Impairment losses are recognized in respect of cash- generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of other assets in the unit on a pro rata basis.

An impairment loss is reversed only if the reversal relates to a change in the estimates used after the impairment loss was recognized. Those reversals may not exceed the carrying value of assets net of depreciation or amortization as if the impairment had never been recognized. Impairment losses in respect of goodwill are not reversed.

(l) Provisions

A provision is recorded if, as a result of a past event the Company has a present or legal obligation that can be reliably estimated, and it is probable that an outflow of economic benefits will be required to settle the disbursement. When the effect of the value of money over time is significant, the provision is determined by applying a discount rate associated with the estimated payment terms, if the terms may be reasonably estimated as well as the risk associated with those obligations.

Enviromental policies

According to the environmental policies established by PDVSA and current laws, Petroritupano, S.A. records liabilities when the costs are probable and can be reliably estimated. The obligation for environmental conservation relating to income from current or future operations are recorded as expenses or assets, as the case may be. Obligations for past operations that do not contribute to generating current or future income are charged to expense. The creation of these provisions coincides with the identification of an obligation for environmental remediation where Petroritupano, S.A. has sufficient information to determine a fair estimate of the respective cost. Subsequent adjustments to estimates, if necessary, are made upon obtaining additional information.

Assets Disposal

The obligations associated to disposal of long-term assets are recognized at fair value as incurred, based on the discounted future cash flows. The determination of fair values is based on the existing regulations and technologies.

Changes in the obligation’s fair value are added or deducted from the cost of corresponding asset. The adjusted depreciable amount of the asset is depreciated throughout the asset’s remaining useful life. Therefore, once the asset has reached the end of its useful life, all subsequent changes in the obligation’s fair value are recognized in the results for the period. The increase in the obligation per year is recognized in results as financial expenses (see note 3-h).

F-138

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Litigations and Other Claims

Provisions for litigations and claims are recorded in the case of legal actions, government investigations, diligences or other pending legal actions that can be filed in the future against the Company, due to events occurred in the past, relating to the outflow of resources that incorporate economic benefits to pay for the obligations, and those that make it possible to reliably estimate the amount of such obligation (see note 18).

(m) Recently Issued Accounting Standards

Several new standards, amendments and interpretations to current standards are not effective for the year ended December 31, 2009 and have not been applied in the preparation of these financial statements. The most significant standards for Petroritupano, S.A. follow:

• In November 2009, the IASB issued IFRS 9Financial Instruments, which introduces new requirements for classifying and measuring financial assets, based on whether they correspond to debt instruments or stockholders’ equity, and on application of testing of the business model and the characteristics of contractual cash flows. This standard is effective for fiscal years beginning on or after January 1^st, 2013.

• In November 2009, the IASB issued interpretation 19 (IFRIC 19)Extinguishing Financial Liabilities with Equity Instruments, which establishes accounting for equity instruments issued to extinguish all or part of a financial liability. This interpretation is effective for fiscal years beginning on or after July 1^st, 2010.

• In the year ended December 31, 2009, the IASB issued amendment to the following standards and interpretations: IFRS 7Financial Instruments: Disclosures, IAS 24Related Party Disclosures, IAS 32Financial Instruments: Presentation, IAS 39Financial Instruments:Recognition and Measurement, and IFRIC 9Reassessment of Embedded Derivatives. These amendments are effective for fiscal years beginning on or after January 1^st, 2010.

• In April 2009, the IASB published its annual project of improving IFRS, introducing a series of amendments to several existing standards and interpretations that are not effective for the year ended December 31, 2009. The most important amendments for Petroritupano, S.A. are the following: IAS 1Presentation of Financial Statements; IAS 7Statement of Cash Flows; IAS 17Leases; IAS 18Revenue; IAS 36Impairment of Assets; IAS 38Intangible Assets; IAS 39Financial Instruments:Recognition and Measurementand IFRIC 8Reassessment of Embedded Derivatives.

The Company completed its analysis of these amendments and determined that they will not significantly affect its financial statements.

(n) Recently Adopted Accounting Standards

In 2009, new standards and interpretations are in effect. In this regard, the most significant standards applied by Petroritupano, S.A. follow:

• IAS 1 revisedPresentation of Financial Statements(September 2007), which introduces a comprehensive statement of income including income or loss for the period and other comprehensive income, comprising items of income and expenses not recognized in the results for the period because of the requirements of other standards. Also, it establishes changing “balance sheet” for “statement of financial position”.

• Amendment to IFRS 7Financial Instruments: Disclosures, which requires further disclosures about the measurement of fair value and liquidity risk.

The subsequent other standards and interpretations became effective during the year ended December 31, 2009, but they are not currently significant for the Company:

• Amendment to IAS 1Presentation of Financial Statementsand IAS 32Financial Instruments: Presentation, issued by the IASB in February 2008.

F-139

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

• Amendment to IFRS 1First-Time Adoption of International Financial Reporting Standardsand IAS 27Consolidated and Separate Financial Statements, issued by the IASB in May 2008.

• Interpretation N° 15 (CINIIF 15)Agreement for the Construction of Buildings, issued by the IASB in July 2008.

(4) Foreign Exchange Agreement with the Central Bank of Venezuela (BCV)

According to the Reform Law of the BCV, effective since July 20, 2005, PDVSA must only sell the BCV income in foreign currency required to meet its obligations in domestic currency. The remaining amounts in foreign currency can be used by PDVSA to meet its foreign-currency obligations and investments.

In Official Gazette 38.318, dated November 21, 2005, the Foreign Currency Exchange Agreement 9 was published, which establishes the use of funds derived from the export of hydrocarbons, including gaseous hydrocarbons and others, which must be sold to the BCV, except for those resulting from PDVSA’s activities as mentioned in the BCV Law above. This agreement states that PDVSA and its subsidiaries may not hold funds within the National territory for more than 48 hours, and establishes conditions for the use of funds by PDVSA and the monthly information that must be presented to the BCV relating to the funds generated from its activities, its foreign currency assets and liability positions, and the information of payments made by PDVSA abroad.

On March 1^st, 2005, the National Government and the BCV amended Exchange Agreement N°2 of February 6, 2004, fixing the exchange rates for the sale and purchase of foreign currency at Bs.2.15 and Bs.2.14 to $1, respectively.

Likewise, in accordance with the contract model for the creation of mixed companies, Petroritupano, S. A.’ billing collections related to liquid hydrocarbons sales must be made to the Company in dollars, currency that could be held by the Company in foreign bank accounts and used to pay foreing liabilities.

(5) Balances in Currencies other than the Dollar

As of December 31, 2009 and 2008 Petroritupano, S. A. has the following monetary assets and liabilities denominated in bolivars, which are translated to dollars at the exchange rate prevailing at the statement of financial position (in thousands):

	Unaudited
	2009						2008
	Dollars			Bolivars			Dollars		Bolivars
Monetary assets		417,309			897,214			243,441		523,398
Monetary liabilities		435,104			935,473			226,565		487,115
Net monetary (liabilities) assets position		(17,795	)		(38,259	)		16,876		36,283

The period end exchange rate, the average annual exchange rate, the interannual increase in the exchange rate and the national consumer price index (NCPI) and the consumer price index (CPI) published by the BCV, were as follows:

	Unaudited
	2009		2008
Exchange rate at year-end (Bs./$1)		2.15		2.15
Average annual exchange rate (Bs./$1)		2.15		2.15
Interannual increase in the exchange rate (%)		—		—
Interannual increase in the NCPI/CPI (%)		25		32

F-140

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

(6) Fair Value of Financial Instruments

Certain of the Company’s accounting policies and disclosures require the determination of fair values both for financial and non-financial assets and liabilities. Fair values have been determined for valuation and/or disclosure, using available market information and appropriate valuation methodologies and, as required, additional information about fair value estimates of assets and liabilities is included in the notes to the financial statements.

Non-Derivatives Current Assets and Liabilities

The carrying amounts of accounts receivables, other financial assets recorded in prepaid expenses and other assets, cash, and accrual for accounts payable to suppliers approximate their fair value due to the short maturity of these instruments.

Other assets and Non-Derivatives Financial Liabilities

The fair value of recoverable value added tax and certain accruals and other liabilities is determined by discounting the carrying amounts based on future estimated recoveries and payments, using interest rates based on the inherent risk of the instrument, such as its creditworthiness, liquidity, currency and other factors.

Accounts Payable to Stockholders and Related Companies

The carrying amounts of accounts payable to stockholders and related companies approximate their fair value, as their recovery depends on the volume and nature of the operations between the Company and its stockholders and PDVSA and its subsidiaries.

(7) Financial Risk Management

The Company has exposure to the following risks from its use of financial instruments:

• Credit risk

• Liquidity risk

• Market risk

• Operational risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risks, and the Company’s management of capital. The financial statements include further quantitative disclosures.

The Board of Directors of the Company is responsible for establishing and oversee the Company’s risk management framework. When developing the strategic plan and budget for the Company, business risks are analyzed to gain an understanding of their impact on the Company.

Risk management policies are established to identify and analyze the risks faced by the Company, set proper risk limits and controls, and monitor risks and compliance with limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities.

(a) Credit Risk

Credit risk is the risk of financial loss to the Company if a client or counterparty to a financial instrument fails to meet its contractual obligations, which arise principally from cash accounts receivable from sales. For the purpose of mitigating credit risk, cash is placed in different institutions high prestige and soundness. In this regard, accounts receivable have a high concentration risk as the receiver of 100% of oil sales is the related company PDVSA Petróleo (see note 19).

F-141

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

(b) Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations upon maturity. The Company’s approach is to manage liquidity to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities upon maturity, under both normal and stressed conditions, without incurring unacceptable losses or risking the Company’s reputation.

As a fundamental policy, the Company will ensure that it has enough cash available to meet its payment commitments. This excludes the possible impact of extreme circumstances that may not be reasonably foreseen, such as natural disasters.

(c) Market Risk

Market risk is the risk of changes in market prices, including exchange rates, interest rates or sales prices, affecting the income of the Company or the value of its financial instruments.

The activities of the Company, financial conditions and the results of its operations depend on export volumes and crude oil. These prices are cyclical and tend to be unstable; therefore, the primary risk is volatility of crude oil.

PDVSA and Petroritupano, S.A. constantly monitor market conditions to ensure optimal placement of crude oil and by-products. Furthermore, the Bolivarian Republic of Venezuela is a member of the Organization of Petroleum Exporting Countries (OPEC), through which it enters into agreements with a view to stabilizing prices of crude oil and by-products.

(d) Operating Risk

It is the risk of direct or indirect loss originated by a broad variety of causes associated to the processes, personnel, technology and infrastructure of Petroritupano, S.A. and to the external factors other than liquidity risks, market and credit as those risks that arise as a result of legal and regulatory requirements and the Company’s generally accepted behavior standards. Operating risks arise from all operations of Petroritupano, S.A.

The primary responsibility for developing and implementing controls to address operating risk is supported by the development of standards used by Petroritupano, S.A. for operating risk management such as segregation of duties, reconciliation and transaction monitoring, compliance with regulatory requirements and other of legal nature, documentation of controls and procedures, training and professional development and risk mitigation, including insurance, when they are effective. The Company’s compliance is supported by a program of periodic reviews conducted by Internal Audit.

(8) Taxes

A summary of the taxes affecting the operations of Petroritupano, S. A. for the year ended December 31, 2009 and 2008 follows (in thousands):

	Unaudited					Unaudited
	2009			2008		2009			2008
	Dollars					Bolivars
Income tax		(43,858	)		60,131		(94,295	)		129,282
Production tax and other taxes		190,109			355,840		408,734			765,056
		146,251			415,971		314,439			894,338

F-142

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

(a) Income Tax

The estimated income tax expense (benefit) for the year ended December 31, 2009 and 2008 is composed as follows (in thousands):

	Unaudited						Unaudited
	2009			2008			2009			2008
	Dollars						Bolivars
Estimated income tax expense based on the period’s taxable income		51,282			142,613			110,256			306,618
Deferred income tax benefit		(95,140	)		(82,482	)		(204,551	)		(177,336	)
		(43,858	)		60,131			(94,295	)		129,282

The Company’s tax period ends on December 31, each year.

During the years ended December 31, 2009 and 2008, the Company reported taxable income of $102,563 thousands (Bs.220,511 thousands) and $285,226 thousands (Bs.613,236 thousands), respectively, which generated a current income tax expense of $51,282 thousands (Bs.110,256 thousands) and $142,613 thousands (Bs.306,618 thousands), respectively, and which were offset by taxes paid in advance during 2009 and 2008, resulting in an income tax paid in advance of $29,396 thousands (Bs.63,201 thousands) at December 31, 2009 (see note 10) and taxes payable of $2,936 thousands (Bs.6,313 thousands) at December 31, 2008.

Aliquot of Income Tax

The Law on Income Tax in force in Venezuela establishes a general rate of 50% for companies engaged in the exploitation of hydrocarbons and related activities, and eliminates the application of the rate of 34% for firms that have formed under Conventions Association held under the repealed Organic Law Reserving to the State Industry and Commerce of Hydrocarbons.

The Income Tax Law requires that all taxpayers must, at the end of their first fiscal year, make an initial update of their non-monetary assets and liabilities. Also, taxpayers must register with the Revalued Assets Registry (RAR) in the period in which the initial adjustment for fiscal inflation is determined. This registration gives rise to a payment of 3% of the initial inflation adjustment related to assets subject to depreciation, payable in three equal, annual and consecutive installments.

The initially adjusted values of property, plant and equipment are depreciated or amortized for tax purposes during their remaining useful life. The law also provides a regular annual inflation adjustment, which will be included in the reconciliation of income as a taxable or deductible item.

Pursuant to the Income Tax Law, taxpayers subject to this tax who conduct import, export and loan operations with related companies domiciled abroad are required to determine their income, costs and deductions by applying the methodology stipulated in such law, regarding transfer pricing studies. Petroritupano, S.A. has had transfer pricing studies completed based on the methodology as established in the Law, which have no effect whatsoever in determining the income tax for the period.

F-143

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

The main differences between the amount of the income tax calculated based on the tax rate of 50% and the effective tax rate for the year ended December 31, 2009 and 2008 is presented as follows (in thousands):

				Unaudited
				2009									2008
	%			Dollars			Bolivars			%			Dollars			Bolivars
Income before income tax		100			133,014			285,980			100			401,294			862,782
Income tax calculated based on the tax rate		50			66,507			142,990			50			200,647			431,391
Property, plant and equipment		(53	)		(70,190	)		(150,907	)		(19	)		(77,179	)		(165,935	)
Regular inflation adjustment		(51	)		(67,281	)		(144,654	)		(18	)		(73,443	)		(157,902	)
Non-deductible tax liabilities		10			13,660			29,369			—			—			—
Special advantages tax		8			10,118			21,754			—			—			—
Others		3			3,328			7,153			2			10,106			21,728
		(33	)		(43,858	)		(94,295	)		15			60,131			129,282

The components of deferred tax assets as of December 31, 2009 and 2008 are the following (in thousands):

	Unaudited				Unaudited
	2009		2008		2009		2008
	Dollars				Bolivars
Property, plant and equipment, net		225,441		155,251		484,697		333,790
Asset retirement obligations, net		5,583		2,248		12,004		4,833
Contributions for the Organic Law on Prevention of the Illicit Use or Stupefacient Psychotropic Substances		—		3,009		—		6,469
Accruals and other liabilities		45,865		24,394		98,610		52,447
Others		3,153		—		6,779		—
		280,042		184,902		602,090		397,539

The components of the deferred tax (benefit) expense for the year ended December 31, 2009 and 2008 are the following (in thousands):

	Unaudited						Unaudited
	2009			2008			2009			2008
	Dollars						Bolivars
Property, plant and equipment, net		70,190			77,179			150,907			165,935
Assets retirement obligation, net		3,335			(247	)		7,171			(531	)
Payable contributions		—			(118	)		—			(254	)
Contribution for the Organic Law on Science, Technology and Innovation		(3,009	)		(6,084	)		(6,469	)		(13,081	)
Contribution for the Organic Law on Prevention of the Illicit Use of Stupefacient and Psychotropic Substances		—			2,098			—			4,511
Accruals and other liabilities		21,471			9,654			46,163			20,756
Others		3,153			—			6,779			—
		95,140			82,482			204,551			177,336

F-144

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

(b) Production, Extraction and Other Taxes

A summary of the production, extraction and other taxes for the year ended December 31, 2009 and 2008 follows (in thousands):

	Unaudited					Unaudited
	2009		2008			2009		2008
	Dollars					Bolivars
Crude oil production tax		146,501		317,736			314,978		683,132
Gas production tax		1,753		9,124			3,768		19,617
Production tax to municipalities		16,262		23,513			34,962		50,554
Production tax for endogenous development projects		—		11,756			—		25,276
Accrual for investment in endogenous projects		4,013		2,957			8,628		6,358
Contribution for the application of the Organic Law on Science, Technology and Innovation		—		(12,169	)		—		(26,163	)
Contribution for the Organic Law on Prevention of the Illicit Use of Stupefacient and Psychotropic Substances		1,344		2,923			2,889		6,282
Special advantage tax		20,236		—			43,509		—
		190,109		355,840			408,734		765,056

Crude Oil and Gas Production Tax

Pursuant to Article 44 of the Organic Hydrocarbons Law, from any hydrocarbon volume extracted from any reservoir by mixed companies, the State has the right to a participation of 30% as production tax. During the year ended December 31, 2009 and 2008, Petroritupano, S. A. paid production tax for crude oil of $146,501 thousands (Bs.314,978 thousands) and $317,736 thousands (Bs.683,132 thousands), respectively, through delivery of crude volumes to PDVSA Petróleo, S.A. on account of the MENPET.

In addition, the Company is subject to payment of royalties on natural gas extraction. During the years ended December 31, 2009 and 2008 the Company recorded an accrual for this concept amounting to $1,753 thousands (Bs.3,768 thousands) and $9,124 thousands (Bs.19,617 thousands), respectively.

Other Taxes

The Company is subject to the payment of some additional taxes, which are determinable based on: a) a participation as additional production tax of 3,33% over the volume of hydrocarbons extracted in the specified area, which will be distributed as follows: 2,22% directly to the municipalities composing the specified area, superseding the payments not received by such municipalities for the concept of municipal taxes and 1,11% for a fund to finance endogenous development projects pursuant the guidelines of the National Development Plan in the Relevant Region and; b) an amount equivalent to the difference, if any, between (i) 50% of the value of hydrocarbons extracted from the specified area during each calendar year and (ii) the sum of the payments made by Petroritupano, S.A. to the Bolivarian Republic of Venezuela, regarding the activity developed by the latter during such calendar year, for the production tax applicable on the hydrocarbons, including the ones mentioned above, and the investments in endogenous development projects corresponding to 1% of income before income tax. The additional tax shall be paid on April 20 each year, pursuant to the dispositions established in Annex F of the contract of conversion to Mixed Company.

(c) Value Added Tax (VAT)

Official Gazette N° 38.632 of February 27, 2007 included the Partial Amendment Law of the VAT Law, establishes a decrease in the rate from 14% to 11% , from March 1^st until until June 30, 2007 and to 9% after July 1^st, 2007.

The Company is not subject to VAT withholdings from PDVSA, due to the fact that the natural hydrocarbon sales made by the mixed companies ruled by the Organic Hydrocarbons Law to PDVSA or to any of its subsidiaries are subject to 0% rate, pursuant to the Law on the effective value added tax law.

F-145

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Likewise, the Law establishes that mixed companies ruled by the Organic Hydrocarbons Law will be assimilated to the regular exporting taxpayers, in order to apply the tax credits recovery regime provided in current Law for the sales of hydrocarbons in the country to PDVSA or to any of its subsidiaries. At December 31, 2009 and 2008, the Company had not submitted to the Venezuelan tax authorities the request to recover VAT credits, which fair value amounts to $57,259 thousands (Bs.123,107 thousands) and $44,532 thousands (Bs.95,744 thousands), because the tax authorities are still in the process of defining the procedures for recovering tax credits to be followed by Mixed Companies.

In 2009, the Company recorded a fair value adjustment of $6,917 thousands (Bs.14,872 thousands) on tax credits pending recovery, which is included under financial expenses of the statements of comprehensive income for that same year.

(9) Property, Plant and Equipment

Property, plant and equipment as of December 31, 2009 and 2008 include the following (in thousands):

Dollars —

	Wells and				Industrial support
	production		Operating		services, camping		Works in
	facilities		equipment		and other		process			Totals
Cost:
Balances as of December 31, 2007		303,037		189,747		1,009		54,715			548,508
Acquisitions		—		26		—		103,493			103,519
Capitalizations		7,580		—		—		(7,580	)		—
Asset retirement obligations		324		—		—		—			324
Balances as of December 31, 2008		310,941		189,773		1,009		150,628			652,351
Acquisitions		—		—		—		107,216			107,216
Asset retirement obligations		65,235		—		—		—			65,235
Balances as of December 31, 2009		376,176		189,773		1,009		257,844			824,802
Depreciation and amortization:
Balances as of December 31, 2007		61,774		46,803		308		—			108,885
Depreciation and amortization		32,768		25,877		120		—			58,765
Asset retirement obligations		711		—		—		—			711
Balances as of December 31, 2008		95,253		72,680		428		—			168,361
Depreciation and amortization		46,956		2,140		—		—			49,096
Asset retirement obligations		1,360		—		—		—			1,360
Balances as of December 31, 2009		143,569		74,820		428		—			218,817
Total net cost at December 31, 2009		232,607		114,953		581		257,844			605,985
Total net cost at December 31, 2008		215,688		117,093		581		150,628			483,990

F-146

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Bolivars —

	Wells and				Industrial support
	facilities		Operating		services, camping		Works in
	production		equipment		and other		process			Totals
Cost:
Balances as of December 31, 2007		651,530		407,956		2,169		117,637			1,179,292
Acquisitions		—		56		—		222,510			222,566
Capitalizations		16,298		—		—		(16,298	)		—
Asset retirement obligations		697		—		—		—			697
Balances as of December 31, 2008		668,525		408,012		2,169		323,849			1,402,555
Acquisitions		—		—		—		230,514			230,514
Asset retirement obligations		140,254		—		—		—			140,254
Balances as of December 31, 2009		808,779		408,012		2,169		554,363			1,773,323
Depreciation and amortization:
Balances as of December 31, 2007		132,814		100,626		662		—			234,102
Depreciation and amortization		70,450		55,636		259		—			126,345
Asset retirement obligations		1,529		—		—		—			1,529
Balances as of December 31, 2008		204,793		156,262		921		—			361,976
Depreciation and amortization		100,955		4,601		—		—			105,556
Asset retirement obligations		2,923		—		—		—			2,923
Balances as of December 31, 2009		308,671		160,863		921		—			470,455
Total net cost at December 31, 2009		500,108		247,149		1,248		554,363			1,302,868
Total net cost at December 31, 2008		463,732		251,750		1,248		323,849			1,040,579

As of December 31, 2009 and 2008, the Company recorded $86,447 thousands (Bs.185,861 thousands) and $19,483 thousands (Bs.41,888 thousands) respectively, under provisions, related to accruals for well and production facility retirement obligations (see note 14). The business plan of Petroritupano, S.A., at December 31, 2009, includes drilling and hydrocarbon production until the year 2025; therefore, the asset retirement obligation was determined taking into account disbursements associated with existing wells.

Works in progress

The balance of works in progress is mainly composed of investment programs for works aiming at maintaining the production capacity and to adjust the facilities to the production levels established in the business plan, tangible assets for exploration works and several projects in execution that will be capitalized as property, plants and equipment at their date of incorporation to the activities.

In the years ended December 31, 2009 and 2008, the Company evaluated impairment and, considering market conditions and business aspects, did not identify the need to record any impairment loss for its property, plant and equipment.

F-147

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

(10) Prepaid Expenses and Other Assets

A summary of prepaid expenses and other assets as of December 31, 2009 and 2008 follows (in thousands):

	December 31,
	2009		2008		2009		2008
	Unaudited				Unaudited
	Dollars				Bolivars
Prepaid insurance		767		982		1,649		2,111
Recoverable income tax		29,396		—		63,201		—
Advance to suppliers		7,662		527		16,473		1,133
Recovery expenses		—		2,773		—		5,963
Advances to employees for travel expenses		297		303		639		651
		38,122		4,585		81,962		9,858

(11) Other Investments

At December 31, 2008 the Company maintains unsecured debentures for $1,425 thousands (Bs.3.064 thousands) in Banesco Holding LC maturing in two years. On May 27, 2009 the Company sold these unsecured in $1,455 thousands (Bs.3,128 thousands), generating a gain of $30 thousands (Bs.64 thousands) which was recorded under financial income, in the statements of comprehensive income of 2009.

(12) Cash

A summary of cash as of December 31, 2009 and 2008 follows (in thousands):

	December 31,
	2009		2008		2009		2008
	Unaudited				Unaudited
	Dollars				Bolivars
Petty cash		2		2		4		4
Bank balances		2,476		37,495		5,324		80,615
		2,478		37,497		5,328		80,619

(13) Stockholders’ Equity

(a) Capital Stock

At December 31, 2009 and 2008, the Company’s nominal and legal capital stock is composed as follows:

							Subscribed
							and paid-in
							capital
	Number					Share	(in thousands			(in thousands
	of shares		%			Type	of dollars)			of bolivars)
Corporación Venezolana del Petróleo, S.A. (CVP)		1,317,990		60	%	A		6,130			13,180
Petrobras Energía, S.A.		483,263		22	%	B		2,248			4,833
Venezuela US, S.R.L.		395,397		18	%	B		1,839	��		3,954
		2,196,650		100	%			10,217			21,967

F-148

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

At December 31, 2009 and 2008, common shares have a value of $4.6511 each.

The incorporation document of Petroritupano, S. A., establishes that the Bolivarian Republic of Venezuela’s number of shares shall always represent at least a share percentage higher than 50% of the Company’s capital stock. Likewise, it establishes that in case of the Company’s liquidation, all assets shall be transferred to the class “A” stockholder, except for the cash available not reserved for the payment of expenses and obligations, which will be distributed to the stockholders in proportion to their participation in the Company’s capital stock.

(b) Premium in Issue of Share Stock

During Extraordinary Stockholders’ Meeting held on October 6, 2006, a decision was made as to recognizing as a premium the additional contributions represented in property, plant and equipment for $470,249 thousands (Bs.1,011,036 thousands) (stockholder “A”) and inventories of materials and supplies for $1,652 thousands (Bs.3,551 thousands) (stockholders class “B”) in the issue of new shares, in proportion to the participation of each partner in the Company’s capital stock.

(c) Legal and Other Reserves

The legal reserve is a requirement established in the Venezuelan Code of Commerce, whereby Venezuelan companies must set apart 5% of their net income until the legal reserve amounts to at least 10% of the capital stock in bolivars. The legal reserve cannot be distributed as dividends.

At December 31, 2009 y 2008, the Company has a legal reserve of $1,022 thousands (Bs.2,197 thousands), which represents 10% of the capital stock.

At December 31, 2009 and 2008, other reserves mainly include reserves for the realization of deferred income tax assets of $280,042 thousands (Bs.602,090 thousands) and $184,902 thousands (Bs.397,539 thousands), respectively.

(d) Dividends

In Stockholders’ Meeting held on October 20, 2008, dividends were declared of $164,185 thousands (Bs.352,996 thousands), which were paid according to the number of shares held by each stockholder.

(14) Provisions

The provisions are summarized as follows (in thousands):

	December 31,
	2009		2008		2009		2008
	Unaudited				Unaudited
	Dollars				Bolivars
Obligations for assets disposal and abandonment of wells (see note 3-h)		86,447		19,483		185,861		41,888
Provisions for tax liabilities		27,319		—		58,736		—
		113,766		19,483		244,597		41,888

The business plan of Petroritupano, S. A. at December 31, 2009 establishes the conduction of drilling and production of hydrocarbons until the year 2025; the accrual for asset retirement obligations was calculated considering the disbursements made for this concept, associated to current wells, during that period.

During 2009, the Company recorded a provision for tax obligations of $27,319 thousands (Bs.58,736 thousands) based on certain cases of non-compliance with tax duties incurred in previous years. This provision was recorded with charge to other expenses, net, presented in the statements of comprehensive income of 2009.

F-149

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

The movement of the provisions during the year 2009 is shown below (in thousands):

Dollars —

							Unaudited				Non
	December 31,						December 31,		Current		current
	2008		Increase		Decrease		2009		portion		portion
Obligations for assets disposal and abandonment of wells		19,483		66,964		—		86,447		—		86,447
Provisions for tax liabilities		—		27,319		—		27,319		27,319		—

Bolivars —

							Unaudited				Non
	December 31,						December 31,		Current		current
	2008		Increase		Decrease		2009		portion		portion
Obligations for assets disposal and abandonment of wells		41,888		143,973		—		185,861		—		185,861
Provisions for tax liabilities		—		58,736		—		58,736		58,736		—

(15) Accruals and Other Liabilities

A summary of accruals and other liabilities as of December 31, 2009 and 2008 follows (in thousands):

Dollars —

								Unaudited
	December 31,							December 31,
	2008		Increase		Decrease			2009
Production tax to municipalities		40,509		10,842		—			51,351
Production tax for endogenous development projects		20,255		5,420		(2,662	)		23,013
Special advantage tax		—		20,236		—			20,236
Investment in endogenous projects		5,807		4,013		(50	)		9,770
Special Contribution on Extraordinary Prices of the International
Hydrocarbons Market Law (see notes 19 and 20-c)		—		679		—			679
Application of the Law on Prevention of the Illicit Use of Stupefacient and Psycotropic Substances		6,018		1,344		—			7,362
Retentions payable		16,810		31,872		(22,492	)		26,190
Services and goods received		63,144		228,294		(213,307	)		78,131
Others		322		4,689		(20	)		4,991
Total accruals and other liabilities		152,865		307,389		(238,531	)		221,723

F-150

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Bolivars —

								Unaudited
	December 31,							December 31,
	2008		Increase		Decrease			2009
Production tax to municipalities		87,095		23,310		—			110,405
Production tax for endogenous development projects		43,549		11,652		(5,723	)		49,478
Special advantage tax		—		43,509		—			43,509
Investment in endogenous projects		12,485		8,628		(108	)		21,005
Special Contribution on Extraordinary Prices of the International
Hydrocarbons Market Law (see notes 19 and 20-c)		—		1,460		—			1,460
Application of the Law on Prevention of the Illicit Use of Stupefacient and Psycotropic Substances		12,939		2,889		—			15,828
Payable retentions		36,142		68,525		(48,357	)		56,310
Services and goods received		135,759		491,106		(458,887	)		167,978
Others		692		10,082		(43	)		10,731
Total accruals and other liabilities		328,661		661,161		(513,118	)		476,704

(16) Accounts Payable

Accounts payable as of December 31, 2009 and 2008 include the following (in thousands):

	December 31,
	2009		2008		2009		2008
	Unaudited				Unaudited
	Dollars				Bolivars
Related companies (see note 19)		66,535		227,466		143,050		489,054
Commercial suppliers		48,024		26,765		103,252		57,543
		114,559		254,231		246,302		546,597

(17) Financial Instruments

Credit Risk

Exposure to Credit Risk

The carrying value of financial assets represents the maximum credit risk exposure and is summarized as follows (in thousands):

	December 31,
	2009		2008		2009		2008
	Unaudited				Unaudited
	Dollars				Bolivars
Recoverable value added tax (see note 8-c)		57,259		44,532		123,107		95,744
Related companies accounts receivables (see note 19)		600,416		627,820		1,290,894		1,349,813
Cash (see note 12)		2,478		37,497		5,328		80,619

F-151

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Impairment Loss

As of December 31, 2009 and 2008, the Company believes that there are no trade account receivables considered bad debts; therefore, no allowance for doubtful accounts has been established.

Liquidity Risk

A summary of the contractual maturities of financial liabilities, including estimated payments of interest and excluding the impact of netting agreements as of December 31, 2009 follows (in thousands):

Dollars —

													Between
	Carrying				Contractual				6 months				6 and 12				Over
	value				cash flows				or less				months				12 months
	December 31,				December 31,				December 31,				December 31,				December 31,
	2009 (1)		2008		2009 (1)		2008		2009 (1)		2008		2009 (1)		2008		2009 (1)		2008
Related company accounts payable		12,211		5,062		12,211		5,062		—		—		—		—		12,211		5,062
Accounts payable		114,559		254,231		114,559		254,231		51,093		189,148		63,466		65,083		—		—
Accruals and other liabilities		221,723		152,865		221,723		152,865		158,689		107,006		63,034		45,859		—		—
		348,493		412,158		348,493		412,158		209,782		296,154		126,500		110,942		12,211		5,062

Bolivars —

													Between
	Carrying				Contractual				6 months				6 and 12				Over
	value				cash flows				or less				months				12 months
	December 31,				December 31,				December 31,				December 31,				December 31,
	2009 (1)		2008		2009 (1)		2008		2009 (1)		2008		2009 (1)		2008		2009 (1)		2008
Related company accounts payable		26,254		10,883		26,254		10,883		—		—		—		—		26,254		10,883
Accounts payable		246,302		546,597		246,302		546,597		109,850		406,668		136,452		139,929		—		—
Accruals and other liabilities		476,704		328,661		476,704		328,661		326,131		230,063		150,573		98,598		—		—
		749,260		886,141		749,260		886,141		435,981		636,731		287,025		238,527		26,254		10,883

(1) Unaudited.

F-152

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Fair Value of Financial Instruments

The estimated amounts presented as of December 31, 2009 and 2008 are not necessarily an indication of the amounts that Petroritupano, S.A. could realize in a current market exchange. The use of different market assumptions and/or methodologies to determine estimates may significantly affect the estimated fair values. Fair values determined using the bases disclosed in note 6 follow (in thousands):

	December, 31								December, 31
	2009 (1)				2008				2009 (1)				2008
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
	value		value		value		value		value		value		value		value
	Dollars								Bolivars
Assets:
Recoverable value added tax		57,259		57,259		44,532		44,532		123,107		123,107		95,744		95,744
Related companies accounts receivables		600,416		600,416		627,820		627,820		1,290,894		1,290,894		1,349,813		1,349,813
Cash		2,478		2,478		37,497		37,497		5,328		5,328		80,619		80,619
Liabilities:
Related company accounts payable		12,211		12,211		5,062		5,062		26,254		26,254		10,883		10,883
Accounts payable		114,559		114,559		254,231		254,231		246,302		246,302		546,597		546,597
Accruals and other liabilities		221,723		221,723		152,865		152,865		476,704		476,704		328,661		328,661

(1) Unaudited.

(18) Commitments and Contingencies

Claims

The Company is involved at December 31, 2009 and 2008 in claims and legal actions in the normal course of business of $1,680 thousands (Bs.3,612 thousands) and $1,680 thousands (Bs.3,612 thousands) respectively. In the opinion of management and its legal counsel, the outcome of these claims would not have a materially adverse effect on the financial position, results of operations or liquidity of the Company.

Environmental Compliance

PDVSA and its subsidiaries are subject to various environmental laws and regulations which may require significant expenditures to modify facilities and prevent or remedy the environmental effects of waste disposal and spills of pollutants.

Petroritupano, S.A., along with its majority stockholder CVP, is taking important steps to prevent risks to the environment, people’s health, and the integrity of its facilities.

Agreements with the Organization of Petroleum Exporting Countries (OPEC)

The Bolivarian Republic of Venezuela is a member of OPEC, an organization mainly aimed at establishing agreements to maintain stable crude-oil prices through production quotas. To date, the reduction in the production of crude oil as a result of changes in the production quotas established by OPEC or variation in prices has not had a significant effect on the Company’s financial position, results of operations and cash flows.

(19) Related-Party Transactions

Petroritupano, S.A. considers its stockholders and subsidiaries and affiliated companies of the latter, directors and executives of the Company and other governmental institutions as related parties.

The Company maintains balances and carries out significant mercantile transactions with stockholders, related companies and entities, whose effects are included in its results and financial position.

F-153

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Transactions with PDVSA Petróleo, S.A. (PDVSA Petróleo) and its subsidiaries are accounted for through the PDVSA Petróleo account. This account is not interest-bearing and has no established maturity date. PDVSA Petróleo supplies the funding required by Petroritupano, S.A. to conduct its activities and meet its obligations. The amounts recognized as income in dollars are automatically transferred to the accounts of PDVSA Petróleo, and, subsequently, to the BCV, which accredits the equivalent in bolívares to PDVSA Petróleo and the latter, in turn, to CVP and its subsidiaries, (see note 4).

The balances with related entities as of December 31, 2009 and 2008 follow (in thousands):

	December 31,
	2009		2008		2009		2008
	Unaudited				Unaudited
	Dollars				Bolivars
Accounts receivable-
PDVSA Petróleo, S.A.		580,571		617,256		1,248,228		1,327,101
Petrobras Energía, S.A.		222		222		477		477
PDV Insurance Company LTD		9,502		7,156		20,429		15,386
Petrokariña, S.A.		6,348		2,816		13,648		6,054
Bielovenezuela, S.A.		1,235		213		2,655		458
Petrowayu, S.A.		129		129		278		277
Petronado, S.A.		166		—		357		—
Petrocuragua, S.A.		45		—		96		—
Petrozumano, S.A.		126		—		271		—
Petroindovenezuela, S.A.		2		—		5		—
Petrodelta, S.A.		6		—		14		—
Petroven-bras, S.A.		2,064		28		4,436		60
		600,416		627,820		1,290,894		1,349,813
Account payable-
PDVSA Petróleo, S.A.		45,325		209,987		97,449		451,472
MENPET		5,397		9,124		11,604		19,617
Petrokariña, S.A.		10,845		7,717		23,317		16,592
Petrobras Inversiones y Servicios, S.A.		141		157		303		338
Petroven-bras, S.A		2,663		419		5,725		901
Petrobras Energía, S.A.		143		58		307		125
Venezuela US, S.R.L.		—		4		—		9
PDV Insurance Company LTD		1,489		—		3,201		—
Petrolera Kaki, S.A.		338		—		727		—
Petrolera Sino-Venezolana, S.A.		194		—		417		—
		66,535		227,466		143,050		489,054
Account payable, non-current portion-
PDVSA Petróleo, S.A.		12,211		5,062		26,254		10,883

F-154

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

The most significant transactions with related entities during the years ended December 31, 2009 and 2008 are summarized as follow (in thousands):

	2009		2008		2009		2008
	Unaudited				Unaudited
	Dollars				Bolivars
Sales of crude oil to PDVSA Petróleo		337,638		736,372		725,922		1,583,200
Sales of crude oil as payment of production tax, delivered to PDVSA Petróleo		146,501		317,736		314,977		683,132
		484,139		1,054,108		1,040,899		2,266,332
Social development contribution		679		129,969		1,460		279,433
Labor cost		21,669		25,559		46,588		54,951
Operating expenses		3,922		16,227		8,432		34,888
Other taxes		43,608		50,273		93,756		108,087
Estimated income tax expense		51,282		142,613		110,256		306,618
Dividends paid		—		65,675		—		141,201
Purchase of insurance policies		1,748		1,963		3,758		4,220
Loans received		156,782		—		337,080		—

Accounts receivable from PDVSA Petróleo, are related to sales of crude oil. In addition, the production corresponding to the rest of the income of Petroritupano, S.A. for the years ended December 31, 2009 and 2008 for $146,501 thousands (Bs.314,977 thousands) and $317,736 thousands (Bs.683,132 thousands), respectively, was delivered to PDVSA Petróleo for the payment of the production tax to MENPET, in accordance with the agreement with such ministry (see note 8-b).

The Special Contribution on Extraordinary International Oil Market Prices and the resolutions issued in connection with this contribution provide that this contribution shall be paid on a monthly basis by those entities exporting, or transporting liquid hydrocarbons and its derivatives to other countries (see note 20-c). The Company is not a direct oil exporter. However, under an agreement entered into with PDVSA Petróleo, the payment of a contribution was established which amount must be calculated pursuant to the relevant laws, and must ultimately be destined for social development purposes in Venezuela.

During the years ended December 31, 2009 and 2008, PDVSA Petróleo, S.A. made payments on behalf of Petroritupano, S. A., for labor costs of $21,669 thousands (Bs.46.588 thousands) and $25,559 thousands (Bs.54,951 thousands), respectively, included in the statements of comprehensive income under operating expenses and selling, administrative and general expenses.

Also, PDVSA Petróleo, S.A. employs all employees assigned to Petroritupano, S.A., and this related company bills monthly the cost of payroll and other labor benefits to the Company.

As of December 31, 2009 and 2008, the Company recorded a liability of $12,211 thousands (Bs.26,254 thousands) and $5,062 thousands (Bs.10,883 thousands) , respectively, corresponding to retirement benefits of staff transferred by PDVSA Petróleo, S.A. to Petroritupano, S. A., included in the statements of financial position under non-current accounts payable to PDVSA Petróleo, S.A. and in the statement of income under selling, administrative and general expenses.

At December 31, 2009 and 2008 accounts payable to PDVSA Petróleo, S.A., relate mainly to payments made by the company on behalf of Petroritupano, S.A. for the concept of labor costs and payroll benefits, taxes, operating expenses and cash advances on capital loans.

F-155

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Accounts payable to Petrobras Energía, S.A., at December 31, 2009 and 2008 correspond to certain disbursements made on behalf of Petroritupano, S.A. for the concept of operating costs and expenses and investments in property, plant and equipment.

During the years ended December 31, 2009 and 2008 the Company acquired insurance policies from PDV Company Ltd. for $1,748 thousands (Bs.3,758 thousands) and $1,963 thousands (Bs.4,220 thousands), respectively.

As per instructions received from the management of Corporación Venezolana del Petróleo, S.A. (CVP) the Company proceeded to offset accounts receivable resulting from the sale of crude to PDVSA Petróleo against accounts payable from labor costs and operating expenses; such compensation included the compensation for dividends payable to CVP. At December 31, 2009 and 2008 the balances of the settled accounts follows (in thousands):

	Unaudited						Unaudited
	2009			2008			2009			2008
	Dollars						Bolivars
Accounts receivable to PDVSA Petróleo		362,944			792,534			780,330			1,703,948
Accounts payable to PDVSA Petróleo		(362,944	)		(622,914	)		(780,330	)		(1,339,265	)
Dividends payable to CVP		—			(169,620	)		—			(364,683	)

Transactions with related entities at December 31, 2009 and 2008, do not necessarily represent the results that would have been obtained had these transactions been conducted at arms-length.

Transactions with Key Management Staff

Certain directors of the Company hold key positions in other related entities, and some of their powers include influencing the operating and financial policies of such companies.

(20) Laws, Resolutions and Legal Contributions

Laws and resolutions

Petroritupano, S.A.’s management, through their legal advisors and those of PDVSA, concluded that these laws will have no significant effect on the financial statements of Petroritupano, S.A.

(a) Economic Measures Announced by the National Government

On March 21, 2009, the Venezuelan President announced in the council of Ministers a series of economic measures to face the reduction of oil prices. Among the measures announced, there is a VAT increase from 9% to 12% and the decree for minimum salary increase in 20%; 10% since May 2009 and the remaining 10% for September 2009.

(b) Modification of the Terms and Conditions for the Creation and Operation of Mixed Companies

On September 28, 2009, Official Gazette N° 39.273, published the modification of the Agreement for the Creation and Functioning of Mixed Companies, establishing the new distribution percentages of the additional royalty of 3.33%, also known as special advantage which mixed companies must pay for oil activities. The Agreement’s amendment establishes that the distribution will be as follows: a) 2.22% for the Special Fund for People’s Power (Fondo Especial para el Poder Popular) (FOPO), directly administered by the National Government and will engage in projects for the so-called endogenous development pursuant to the guidelines of the National Development Plan, and b) the remaining 1.11% for the municipalities where the country’s oil activities are conducted, distributed with 30% for the municipalities where mixed companies’ primary activities are developed, and 70% for the rest of the municipalities where oil activities are conducted, in proportion to the population and each entity’s human development index.

F-156

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Legal Contributions

(c) Special Contribution on Extraordinary Prices of the International Hydrocarbons Market Law

On April 15, 2008, Official Gazette 38.910 was published containing the Special Contribution on Extraordinary Prices of the International Hydrocarbons Market Law. Subsequently, Official Gazettes 38.939, dated May 27, 2008 and 38.970, dated July 10, 2008, as well as Resolutions 151 and 195 of MENPET were issued. This Law and its related resolutions establish a special contribution to be paid on a monthly basis by exporters or transporters of liquid hydrocarbons and derivatives to foreign countries. The amount of the contribution will be equivalent to a) 50% of the difference of the average monthly price of “Venezuelan basket” crude and the threshold price of $70 per barrel; and b) 60% of the difference of the average monthly price of “Venezuelan basket” crude and the threshold price of over $100 per barrel. This contribution will be made for each barrel of oil exported or transported to foreign countries and paid on a monthly basis by MENPET to FONDEN for performance of infrastructure, production and social development projects, as well as Community Power strengthening programs. This Law became effective on the date of its publication. The statements of comprehensive income for the years ended December 31, 2009 and 2008 includes under contributions for social development a total of $679 thousands (Bs.1,460 thousands) and $129,969 thousands (Bs.279,433 thousands), respectively, for this special contribution (see note 19).

(d) Organic Law for Science, Technology and Innovation

In August 2005, the Organic Law on Science, Technology and Innovation was enacted. Under this law, beginning on January 1^st, 2006, large corporations of the country must pay on an annual basis a sum equivalent to 0.5% of the gross income obtained within the national territory on any investment activities relating to science, technology and innovation. According to the law, large companies are those with gross annual income greater than 100,000 tax units (TU). Also, this law establishes large corporations carrying out activities established in the Organic Hydrocarbons Law and Hydrocarbon Gas Law must pay on an annual basis a sum equivalent to 2% of the gross income obtained in national territory from investment activities for science, technology and innovation. This contribution is directly undertaken by PDVSA on behalf of its subsidiaries.

(e) Organic Law against Illegal Trafficking and Consumption of Stupefacient and Psychotropic Substances (LOCTICSEP)

On December 16, 2005, Official Gazette 38.337 was published containing the Organic Law against Illegal Trafficking and Consumption of Stupefacient and Psychotropic Substances, which supersedes the previous law dated September 30, 1993. The aforementioned Law establishes that all legal entities, private or public, with 50 or more employees must use 1% of the annual net income for integral social prevention programs against trafficking and consumption of illegal drugs, and from this percentage, 0.5% will be used for integral protection programs for children and adolescents. In the years 2009 and 2008, the Company recorded expenses of approximately $1,344 thousands (Bs.2,889 thousands) and $2,923 thousands (Bs.6,282 thousands), respectively, in this connection, under production, extraction and other taxes in the statements of income.

On May 31, 2006, the National Antidrug Office (ONA) published a notice extending the deadline to make those contributions; therefore, as of December 31, 2008, no payments were made for this concept.

F-157

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Presidential Decree No. 6.776, published in Official Gazette N° 39.211 dated July 1^st, 2009, enacts the LOCTICSEP Partial Regulations. This decree is intended to define and establish the guidelines, mechanisms, modalities, ways and timeframes that must be followed by companies, both government and private companies, as mentioned in Articles No. 96 and No. 97 of this Law in order to comply with the obligation to pay the National Anti-Drug Agency (ONA) the contribution amounts as stipulated in the laws.

Rulings N° 007-2009 and N° 008-2009 were published by the ONA in Official Gazette N° 39.336 on December 29, 2009 specifying the rules and procedures for registration of taxpayers, as well as the collection procedures that must be followed, and control and monitoring of contributions provided for in Articles 96 and 97 of the Law.

(21) Subsequent Events

(a) Administrative Ruling 001-2010 issued by the National Antinarcotics Office (ONA)

On February 10, Official Gazette 39.366 was published including Administrative Ruling 001-2010, which established standards for admissable discounts to the contribution set forth in the LOCTICSEP and its Regulation in relation to proper payment of the amounts corresponding to fiscal years 2006, 2007 and 2008. This ruling establishes that the only amounts that may be discounted are amounts paid by taxpayers during the fiscal years of 2006, 2007 and 2008:

• Performance of projects for comprehensive social prevention

• Contributions under non-reimbursable technical assistance agreements.

• Funding or performance of activities relating to comprehensive social prevention.

(b) Foreign-Currency Exchange Agreement number 15

On January 27, 2010, as a result of a material error, a new publication of Foreign-Currency Exchange Agreement number 15 was made in Official Gazette N° 39.355, which had been originally published in Official Gazette N° 39.349, dated January 19, 2010. This agreement has new provisions and guidelines complementing the official currency exchange rates created by Foreign-Currency Exchange Agreement number 14 (see note 21-e). Its most relevant aspects are the following:

• With regards to Value Added Tax (VAT), import of goods and services are subject to an exchange rate of Bs.2.60 per U.S. dollar and Bs.4.30 per U.S. dollar, depending on whether those goods and services correspond to the sectors of food, health, education, machinery and equipment, science and technology or any other sector, respectively. Export of goods and services are subject to an exchange rate of Bs.4.2893 per U.S. dollar.

• For customs, the applicable exchange rate is Bs.2.60 per U.S. dollar for imports in the areas of food, health, education, machinery and equipment and science and technology or any other sector; and Bs.4.30 per U.S. dollar for other imports.

(c) Employee Benefits

On January 20, 2010, PDVSA entered into a Collective Agreement effective until 2011, which introduced salary improvements and better social benefits for employees in the contractual payroll of Venezuela.

F-158

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

(d) Presidential Decree Restricting the Schedules of National, Central and Decentralized Administration Offices

Special Official Gazette N° 5.955, dated January 13, 2010, was published containing Decree N° 7.175, establishing a provisional measure for a term of 150 days restricting the schedule of National, Central and Decentralized Public Administration Offices, excluding dependencies or public offices and services deemed essential. Petroritupano, S.A. is exempt from this special schedule. Nevertheless, for the purpose of contributing to energy savings, the Company has established measures to save electricity in its facilities.

(e) Foreign-Currency Exchange Agreement number 14

On January 8, 2010, Official Gazette N° 39.340 was published containing Foreign-Currency Exchange Agreement number 14, effective as of January 11, 2010, which establishes exchange rates for purchase and sale of foreign currency by legal entities, as follows:

• Payment of sale operations of foreign currency for imports of the food, health, education, machinery and equipment, and science and technology sectors, as well as payments for the non-petroleum public sector, will be made at an exchange rate of Bs.2.60 per U.S. dollar; all other sale operations of foreign currency will be made at an exchange rate of Bs.4.30 per U.S. dollar.

• Payment of foreign-currency purchase transactions obtained: i) by the public sector other than those originating from import of hydrocarbons, regulated by Foreign-Currency Exchange Agreement number 9, will be made at an exchange rate of Bs.2.5935 per U.S. dollar; and ii) the remaining purchases of foreign currency will be made at an exchange rate of Bs.4.2893 per U.S. dollar.

• Payment of foreign-currency purchase transactions originating from hydrocarbon exports, regulated by Foreign-Currency Exchange Agreement number 9, will be made at an exchange rate of Bs.4.2893 and Bs.2.5935 per U.S. dollar, as accorded by the BCV, in the proportions that the BCV may determine for payment of selling operations. The exchange rate is Bs.2.5935 per U.S. dollar and applies to at least 30% of foreign currency purchase transactions.

This agreement also establishes that purchase and sale operations of foreign currency requested from the BCV prior to this law will be paid at exchange rates of Bs.2.14/$1 and Bs.2.15/$1, respectively, as established in Foreign-Currency Exchange Agreement number 2, dated March 1^st, 2005.

(f) Recently Issued Accounting Pronouncements

In January 2010, the IASB issued an amendment to IFRS 1First-Time Adoption of IFRS, exempting first-time adopters of IFRS from supplying additional information introduced in March 2009 to improve disclosures on Financial Instruments (Amendment to IFRS 7Financial Instruments: Disclosures). The effective date of this amendments for first-time adopters of IFRS is July 2010, and early adoption is allowed.

F-159

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

(22) Summary of Differences Between Financial Statements and Accounting Records

The figures in the financial statements at December 31, 2009 and 2008, presented in this report, differ from those presented in the accounting records at those dates due to the recognition of tax obligations expenses, recording of adjustments related to current and deferred income tax expense and other accruals which were recorded after the date such financial statements were submitted to the CVP. The following is a summary of these adjustments
(in thousands):

Dollars —

	Balances
	according						Balances
	to accounting						according
	records			Adjustments			to this report
	debit			debit			debit
	(credits)			(credits)			(credits)
December 31, 2009
Statements of financial position
Deferred income tax		271,837			8,205			280,042
Recoverable value added tax		60,128			(2,869	)		57,259
Accruals and other liabilities		(212,323	)		(9,400	)		(221,723	)
Income tax payable		(5,768	)		5,768			—
Statements of Comprehensive Income
Selling, administrative and general expenses		17,840			12,269			30,109
Income tax		(29,885	)		(13,973	)		(43,858	)
December 31, 2008
Statements of financial position
Retained earnings at December 31, 2007		(315,433	)		18,176			(297,257	)
Statements of Comprehensive Income
Other expenses, net		9,563			(6,007	)		3,556
Production, extraction and other taxes		368,009			(12,169	)		355,840

F-160

PETRORITUPANO, S.A.
(A subsidiary 60% owned by Corporación Venezolana del Petróleo, S.A. — CVP)
Notes to the Financial Statements
December 31, 2009 and 2008

Bolivars —

	Balances
	according						Balances
	to accounting						according
	records			Adjustments			to this report
	debit			debit			debit
	(credits)			(credits)			(credits)
December 31, 2009
Statements of financial position
Deferred income tax		584,449			17,641			602,090
Recoverable value added tax		129,275			(6,168	)		123,107
Accruals and other liabilities		(456,494	)		(20,210	)		(476,704	)
Income tax payable		(12,401	)		12,401			—
Statements of Comprehensive Income
Selling, administrative and general expenses		38,357			26,378			64,735
Income tax		(64,253	)		(30,042	)		(94,295	)
December 31, 2008
Statements of financial position
Retained earnings at December 31, 2007		(678,181	)		39,078			(639,103	)
Statements of Comprehensive Income
Other expenses, net		20,561			(12,915	)		7,646
Production, extraction and other taxes		791,219			(26,163	)		765,056

F-161