The Future of Unconventional Fields in Neuquen Basin

New Horizons Plan 4th Round

Province of Neuquen Argentina
Rubn Etcheverry. President Gas y Petrleo del Neuqun S.A.
HOUSTON, MARCH 2011

Summary
Brief overview of Hydrocarbon history in Argentina A gas dependent country The role of imports Need to underpin growth Response to new market signals Unconventional fields: Neuqun's potential

The creation of the Provincial Oil & Gas Company: G&P

New Horizons Plan
Unconventional Fields Technology Center

Brief overview of hydrocarbon industry in Argentina

Argentina Energy Mix

Biomass Other

Argentina needs to increase its internal energy supply, especially gas and oil, which concentrate 90% of the energy matrix.

Hydroelectric Natural Gas Oil

Gas infrastructure developed throughout 100 years of gas Industry

A gas-dependant country

Gas production por cuenca (en Produccin de gas by basin (Mm3) millones de m3)
Cuenca Ene/oct 2010 Ene/oct 2009 Var. % -5,5 1,5 7,7 -1,1 -12,2 -3,0 Fuente: IAPG

Argentina is one of the few countries where natural gas has a significant share in many consumption segments: residential, commercial, industrial, power generation, GNC and transportation.
Millones m3

Neuquina San Jorge Austral Cuyana Noroeste Total

19.552 3.951 7.925 44 4.146 35.618

20.692 3.892 7.359 44 4.721 36.708

Gas proved reserves and production (Mm3) Reservas probadas de gas y horizonte de produccin
800.000 700.000 600.000 500.000 400.000 300.000 200.000 100.000
25

10 5 0

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 Aos Volumen de reservas Source: Secretariat of Energy

Aos

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

20
15

A gas-dependant country

Produccinproduction by basin (Km3) miles de m3) Oil de petrleo por cuenca (en
Cuenca Neuquina San Jorge Austral Cuyana Noroeste Total Ene/oct 2010 11.276 12.198 1.436 1.412 544 26.866 Ene/oct 2009 11.652 11.904 1.498 1.438 611 27.103 Var. % -3,2 2,5 -4,1 -1,8 -10,9 -0,9 Fuente: IAPG

Net importer country

In 2010, oil production was down in four of the five producing basins. Also, for the first time in 20 years, in 2010 the country became a net fuel importer.

Reservas reserves and production produccin Oil provedde petrleo y horizonte deforecast (Km3)
600.000 500.000 Miles m3 400.000 300.000 200.000 100.000 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 Aos Volum en de reservas Fuente: Secretara de Energa 12 10 Aos 8 6 4 2

The role of imports

12 US$ por MMBTU 10 8 6 4 2

Precio Gas Price comparison Domestic desde Bolivia Natural del gas natural local Vs. importadovs Bolivian import

2Tr

3Tr

The growing supplydemand imbalance has forced the increase in imports of liquid fuels (fuel oil & gas oil), natural gas, LNG, LPG and power.

1Tr 2Tr /08 Impor. Bolivia

4Tr

3Tr 4Tr

1Tr 2Tr 3Tr 4Tr 1Tr 2Tr 3Tr /10 /09 Promedio cuencas argentinas

4Tr

Fuente: M&A con datos de mercado.

Importacionesderivatives imports derivados (9 meses 2009 Vs 2010) HC and de hidrocarburos y (9 months 2009 vs 2010) Combustible Nafta elaborada Gasoil + cortes Fueloil Gas natural Unidades miles m3 miles m3 miles ton. milln m3. Ene/set 2010 Ene/set 2009 Var. % 109,8 1638,7 820,0 2.772,8 42,0 374,1 700,0 1.125,1 161,7 338,1 17,1 146,4
Fuente: IAPG

Source: IAPG

The role of imports

Restrictions
Nevertheless, in spite of the imports growth, consumption restrictions have increased, mainly affecting industrial activity. In August 2010, 5,800 MW of power were inoperative due to lack of fuel (natural gas)
(Besides the curtailments to Chile export contracts)

Argentina gas imports de gas (Agosto/noviembre 2010) Argentina: importaciones(August/November 2010) MM m3/d
12
Millones de m3/da 10 8 6

5,1 5,1
Agos.

4,9 5,5
Set.

2,3 5,1
Oct.

5,9 4,7
Nov.

4
2

GNL

Bolivia

Argentina gas supply cuts for large consumers MM m3/d Millones de m3/da Agosto/10 Julio/10 Mayo-junio/10 Set/09 Agosto/09 Julio/09 Mayo-junio/09
0 2 4 6 8 10. 12
Source: Enargas

The role of imports

During 2011, shipments of imported LNG will go from 20 in 2010 to over 45, as the new YPF regasification facility is commissioned. Government and private analysts have estimated around 330 million dollars per month ($ 3.4 billion in the year) will be spent importing gas, fuel oil and gas oil

The role of imports

Rangos de precios del gas natural y sustitutos Price range for Natural Gas and Alternate Fuels Just to compare
The price of gas, as well as imported liquid fuel, is dictated by international crude oil prices. Where will unconventional gas be situated? US$ MM/BTU
Domestic residential Local residencial Domestic thermal plants (max = Gas Plus) Local usinas (mx = Gas Plus Domestic Industries (max = Gas Plus) Local industrias (mx = Gas Plus) Bolivian imports / LNG Importacin Bolivia / GNL** Gas Oil/Fuel / Imports** Importacin gasoilOilfuel oil** Unconventional (tight, shale) Gas no convencional Gas (tight/shale)

10

15

* transportation a GBA and/or de regasificacin * IncludesIncluye transporteto GBA y/o costo re-gas cost * Paridad 80 US$/bbl ** Import*parity for de importacin para 80 US$ el barril.

Need to underpin growth

In mid February 2011, the Argentine government announced the 2011-2020 Strategic Industrial Plan (Plan Estrategico Industrial), aimed at reducing imports by 45%. The goals are to achieve an average annual GDP growth of 5% and 7% in the industrial sector. To support this growth pace, some 6 billion dollars/year should be invested in the energy sector, not counting the recovery for the recent years under investment. The majority of these investments will have to originate in the private sector and include the oil and gas exploration and production. Without these investments, not only the announced Plan objectives will be at risk, but paradoxically the dependency on imports will increase, as much in energy as in other industrial sectors.

Gas: price for individual purchase users US$ por MMBTU

Response to new market signals

6 5 4 4 2 1 0
1994 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1.1 1.1 1.1 1.2 0.4 0.5 0.7 1 1.8 2.1 2.8 2.9 3.6 4.5 3.2 3.2 3.9 4.8

Price + Gas Specific Charge *

Price

The increase in activity observed lately is a response to price signals and shows trust in the future
Equipos

* Decreto PEN 2068/08

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

Drilling equipment and activity (Aug 2009/Nov 2010) Cantidad de equipos de perforacin en actividad (ago.2009/nov.2010)
100 90 80 70 60 50 40 30 20 10 0
Ago. Set. Oct. Nov. Dic. Ene. Feb. Mar. Abr. May.Jun. Jul. Ago.Set. Oct. Nov. /09 /10 Source: Weatherford

Fuente: Weatherford

Response to new market signals

Trends

Gas prices for consumer tranches Precio de las distintas franjas de consumo de gas
Industrial by producers Industrial by utilities

Average Price

Although the specific gas drilling activity showed caution in 2010 (less wells than in 2009), a substantial reactivation is expected as prices tied to Gas Plus and unconventional fields are strengthened.
(Investment commitments for the 3 rounds of New Horizons Plan)

Residential & Commercial

Drilled gasferos perforados (Ene/set 2009 vs.2010) Pozos gas wells (Jan/Sept 2009 vs 2010)
18 16 14 12 10 8 6 4 2 0 Total Austral

Capsa

YPF SA

P.A.E

Apache

Otros

2010

2009

Unconventional fields: Neuqun's potential

Basin limit

Mendoza The Province of Neuqun continues being the main gas producer in the country (48%) and second oil producer (22%), due to a complete infrastructure in support of production, as well as main and regional gas pipelines, power transmission lines, etc. La Pampa

Areas of greatest conventional oil and gas production

Unconventional fields: Neuqun's potential

Neuqun Basin Characteristics
The Neuqun Basin contains three main formations with exploratory interest for shale and tight gas & oil reservoirs: Precuyo Los Molles Vaca Muerta

Fm. Los Molles

Los Molles: Shale gas and tight gas field. Covers an area of 18.000 Km2. Average thickness of 150200 m. at 1.500-3.500 m. depth. MENDOZA Precuyo: Proven Gas and oil LA PAMPA generation at China Muerta and Loma Negra depocenters, with a surface of 2.050 Km2. Average thickness of 150-290 m. at 3.500-4.000 m. depth. Vaca Muerta: The most extensive formation in the basin, covering a surface of 25,000 Km2. Average thickness over 200 m of shales,3-5% TOC.

Deep marine deposits in center basin

KEROGEN TYPE I & II

NEUQ UN

External platform Shales and turbidites

Unconventional fields: Neuqun's potential

Shale gas world class targets

Haynesville
Lithology Siliceous Marl 3 to 4% 225 to 300 1.7 to 2.8 Average Mature TOC (%) Net Thickness (Ft) Maturity (Ro)

Barnett
Siliceous Shale
4 to 5% 150 to 250 1.3 to 2.1 9.6 to 10.6 4 to 8% 50 to 200 3 to 7 100 to 150 3 to 4.5

Marcellus
Siliceous Shale 4 to 7% 75 to 150 1.3 to 2.4 11.6 to 13.5 7 to 9% 100 to 200 4 to 10 75 to 125 3 to 6

Woodford
Chert 4 to 8% 75 to 150 1.2 to 2.8 9.6 to 10.6 5 to 6% 40 to 70 2 to 6 75 to 150 2.5 to 5

Vaca Muerta
Siliceous Marl 3 to 5% 300 to 1300 1.4 to 1.8 9.4 to 17.3 7 to 12% 50 to 200 2 to 12 300 to 800 (BBN) 8 to 20

Horn River
Chert 3 to 6% 125 to 450 1.6 to 2.7 10.6 to 13.5 4 to 10% 100 to 1000 5 to 8 175 to 250 4 to 10

Eagleford
Calcareus Shale 4 to 8% 120 to 280 0.7 to 1.8 9.6 to 14.5 4 to 10% 100 to 1500 2 to 17 80 to 250 2 to 6

Pressure Gradient (ppg) 13.5 to 17.3 Porosity (%) Permeability (nD) 7 to 9% 100 to 500

Well IP (mcfd peak month) 8 to 25 GIP*/Sq Mi (GCF) EUR**/Well (GCF) 150 to 250 8 to 12

* Gas in place ** Estimated Ultimate Recovery

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

The creation of the Provincial Oil & Gas Company: G&P

Created in late 2008 by the government of the Neuqun as a provincial oil company, after the enactment of the final natural resource provincialization law.

Its goal is to participate by itself or associated with third parties in the exploration and development of hydrocarbon fields within and outside the Province of Neuqun

The creation of the Provincial Oil & Gas Company: G&P

Success at Aguada del Chaar
In 2009, federal state owned ENARSA, and G&P, agreed to jointly explore and exploit the Aguada del Chaar block. In February 2011 results indicates a preliminary estimate of 3.5 million barrels of oil and 4.100 million cubic meters of natural gas. The first time in the last 20 years that a state (federal/provincial) owned company undertakes as operator E&P activities.

Aguada del Chaar Well X-2 Flowing Gas

Neuqun's New Horizons Plan

The Provinces call on the private sector
The New Horizons Plan is Neuqun's Government strategic response to the fall in the reservoir and production of hydrocarbons. The Plan, launched by the provincial oil company G&P, invites and encourages companies, capital and leading technologies to take part of a paradigm shift in Neuqun Basin aimed at pursuing -in the medium term- high volumes of gas and oil from unconventional reservoirs. The Plan was launched in 2009. Three bid rounds have been completed to date, with 33 areas awarded out of 37, and an investment commitment of more than USD 165 millions.

Neuqun's New Horizons Plan

Key bid terms and conditions
G&P will retain exploration and concession rights. G&Ps minimum 10% participating interest in the joint venture. 4-year-exploration term for conventional resources; and a 6-year term for exploration of unconventional and high risk reservoirs. Issuance of a performance bond agreement covering 100% of the Work and Investment Plan in US dollars The evaluation of bids will be based on: a) Work and Investment Plan Offer; b) percentage of participating interest offered to G&P; c) Access Fee granted to G&P. The other party of the joint venture will be liable for exploration risks. G&Ps carried portion provided by the other parties during exploration and production periods will only be recovered if hydrocarbons are produced during exploitation. The following will be given priority: more investment in less time; more percentage of participating interest and Access Fee offered to G&P.

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

Neuqun's New Horizons Plan

1st, 2nd and 3rd Round Results INVESTMENTS Round km2 3.827
(13 blocks)

Investment ($) 84,907,800 82,838,000 68,900,000 236,645,800

$/km2

3rd Round year 2010) 1st and 2nd Round (year 2009) Transferred to Hidenesa
TOTAL

22,187 5,001 5,179 7,023

16.567
(18 blocks)

13.306 33.700

Neuqun's New Horizons Plan

2011 4th Bid Round
The 4th Bid Round of the New Horizons Plan will be opened by the end of the first semester of 2011 for oil and gas Exploration, Development and Production. 17 medium and high risk areas (located most of them in the western area of the Province) and a total surface area of 33,000 Km2 will be offered. Due to the increasing interest shown by companies in the previous rounds, work offers of around USD 80 million are expected.

Neuqun: Unconventional Fields Technology Center

As exploitation of unconventional gas reservoirs is relatively new worldwide, but especially in Argentina, transfer of knowledge becomes a key aspect in order to improve cost and production performance, and, in particular, to prevent any potential environmental risks that new practices and technologies may cause. Thus, the Government of Neuquen has decided to create the Unconventional Fields Technology Center: Alejandria Center.

Neuqun: Unconventional Fields Technology Center

Optimizing expenses and avoiding risks
The Alejandria Center is the result of a new understanding of the size and availability of tight and shale oil and gas resources in Neuquen Basin. It has been created with the aim of providing education, training and special services not only at a national level but also throughout Latin America. It will serve as a hub for the local technology business community.

The Center is governed by a multilateral non profit association created accordingly.

Neuqun: Unconventional Fields Technology Center

Main functions

Unconventional Fields Technology Center

Education and Training

Provided by companies, universities and research centers. Training labs, lab facilities, special equipment, and 3D rooms.

Special services
Special testing lab: tests not yet carried out in Latin America. Shale and tight gas data processing. Reservoir simulations. Geomechanical services Hydraulic fracture simulation and modeling.

Data Processing
Main shale gas fields of Argentina and Latin America. It will enable to compare formations, improve extraction capacity and reduce production costs.

Conclusions
A strategic approach based on confidence and cooperation
The Province of Neuquen produces hydrocarbons since 1918. Given the potential of Neuquens unconventional fields, the Province can become the largest producer of most of the energy the country needs for the next decades. However, it is essential that governments create and maintain conditions for investment; and that companies invest on a long term basis. That is, there is a need for a joint strategic approach, based on mutual cooperation and trust.

Conclusions

The success of the previous bid rounds launched by G&P within the private sector and your presence here today show that we are on the right track.

THANK YOU