September 2007 Unconventional E&P Agreements A review to Governments different approaches to maximize a Nations natural resources wealth

Governments objective is to promote wealth and progress to their citizens They need to secure its budget to provide its citizens with the required social services They are responsible to maximize their countrys natural resource value, generating employment and benefits for their citizens. Governments should look for formulas aligned with its strategic plan, to promote investments and competition, with or without the participation of foreign companies, retaining control over the exploitation of their resources, and modulating Cos. profits. Governments basic needs

– NOCs needs: NOCs need to maximize the income to their Government as its shareholder, implementing Government policy to discover, develop and exploit the countrys hydrocarbon resources NOCs must look for technical efficiency and operational excellence, thus to extract maximum value from their fields, applying Government allocated funds to the most profitable projects – Private Co. or IOCs needs: IOCs need a stable framework to perform the necessary investments, competitive with other projects and with a reasonable profitability for its shareholders, balanced with the specific risk of the project. IOCs require flexibility within upstream operations, with quick decision making to optimize project's efficiency. NOCs vs Private or IOCs Basic Needs

1.The Conventional Agreements Tax & Royalties (USA, Canada, Australia, UK, Russia, Argentina….) PSA & PSC (Nigeria, Algeria, Libya, Angola, Indonesia…..…..) 2. The Unconventional Agreements Islamic Republic of Iran : Buy Back Venezuela :Empresas Mixtas Mexico : Multiple Services Contract Saudi Arabia : NOC-IOC Joint Ventures Governments / NOC´s - IOC´s Agreements

Governments-IOC´s Unconventional agreements

– IOC has the obligation to fully finance and perform all activities relating to Exploration and, in case of discovery, Development, but not Exploitation – IOC bears 100% the exploration risk, and the large investments related to development – IOC recover, in cash equivalence, past investments with a remuneration fee as single annual payments from field production, for 5-8 years. The amount is calculated to provide an agreed IRR – IOC performs the development and transfers the operation to NIOC for the production phase – Once transferred the operation to NIOC, in principle, IOC has not any further involvement with field´s operations but still all reimbursement of its past costs and remuneration is pending IRAN. E&P Buy Back CONTRACT ADVANTAGESDRAWBACKS –If sufficient production available, IOC insensitive to low oil price –Results taken off IOC´s hands, relying on good performance of NIOC in the field as operator and field manager –Do not drain companies resources for the entire life of the field –IOC cannot book reserves –IOC short term view on the project

– At Government request, negotiations during 2005, culminated in an agreement with the state-owned company, PDVSA, to convert former 100% IOC´s operating concessions into mixed companies, with a majority state participation. (Empresas Mixtas). Production phase: PDVSA 60% - IOC 40% – Type of contract: Tax-Royalty – For Exploration and Development, IOC supports 100% of the investment. NOC´s enters exploitation phase – For fields on production, IOC is remunerated through dividends of the company given annually to the shareholders of the Empresa Mixta VENEZUELA. TAX & ROYALTY - EMPRESAS MIXTAS ADVANTAGESDRAWBACKS –Full joint NOC-IOC operations through the life of the field –IOC has minority participation for operational decisions –Aligns economical interests of NOC and IOC –IOC maybe exposed to decisions made not always on the basis of the best economical interest of that project –IOC is able to book its equity share in term of reserves

MEXICO. MULTIPLE SERVICE CONTRACTS – MSC contract is a unique contractual model designed by Mexicos NOC to overcome the strong restrictions within Mexico's constitution for IOC investments in the upstream sector. – IOC´s remuneration on investments relies on the Civil Work Law, that rewards IOC with a pre-specified tariff per work performed. – Only if gross income from the field is available IOC gets remunerated – The essential issue on this contract is the tariff applied which needs to cover the real cost of the job plus some remuneration for the IOC ADVANTAGESDRAWBACKS –Full control on the development–IOC cannot book reserves –If sufficient production, IOC insensitive to low gas prices –Highly sensitive to fluctuations on cost if tariff is not adjusted –IOC cannot fully recover failed exploratory /appraisal wells

– IOC has a majority share within a joint venture company with Saudi Aramco to operate concessions – NOC fully finance its share on the expenditures both, within Exploration & Development phases – IOC remuneration comes from the field´s revenues related to gas, with a variable tax on profits to regulate and limit the project IRR – NOC guarantees gas purchase volumes and price ADVANTAGESDRAWBACKS –IOC´s and NOC´s interests aligned and share the risk of exploration phase –Only gas and condensate. No right on associated oil –Long Term Project years–Restrictions on the amount of production to be delivered to the domestic market SAUDI ARABIA. JOINT VENTURE

Conclusions & Advisors Experience

Then, lets summarize Government/NOCs options 1.NOCs carry out E&P projects on its own The benefit of a second opinion The access to latest technology The improvements from other experiences world wide The efficiency of competition? 2.NOCs contract Services Provider Cos. and Advisors Where is the profit for the Contractor?. The monthly bill Where is the profit for NOC?. Increase reserves, decrease costs The problem of different / colliding? objectives 3.NOCs contract / joins IOCs The need to align NOCs-IOCs objectives. The Contractual framework Get a third opinion. Competition. Include 2-3 IOC into each E&P project

– Working for Repsol, the only IOC with signed contracts within the largest world oil producing countries, Sueñergy experts have long experience in working successfully with the NOC´s in the development and production of oil and gas fields Egypt. EGPC (Egypt NOC) and Repsol operated in the 90´s through Khalda Oil Company the oil and gas fields in the Western Desert. Libya. NOC and Repsol-YPF established and operate today the blocks NC-115 and NC-186 in the Murzuq Basin, jointly through Repsol Oil Operations,. Algeria. Sonatrach, Repsol-YPF and Total have created a Groupement to operate the Tin-Fouye- Tabancourt gas field. Iran. Repsol-YPF has two buy back contracts, one related to onshore Mehr Block and the second for two offshore Blocks within the Persian Gulf Venezuela. PDVSA and Repsol have Petroquiriquire and Quiriquire gas, Empresas Mixtas Mexico. Repsol-YPF operates on behalf of Pemex (Mexico) under a Service Contract for the development and incremental gas production phase for the Reynosa block, Burgos basin Saudi Arabia. Saudi Aramco, Repsol-YPF and Eni have EniRepSa,a Joint Operating Company exploring the large Block C EXPERIENCE

Confidence between NOC and IOC is imperative. Clear and stable contractual agreements are essential for a long term relationship. Governments must understand and preserve IOC´s economical interests, always compatible with the countrys development and production Contracts proposed must have an attractive economical alternative to promote investments in E&P projects in their countries. IOCs have to assume the legal scenario in which the contract is based, and within this framework, perform the projects efficiently in order to optimize results. Flexibility, communication and dedication to the partnership……. For a successful Governments/NOC-IOC marriage