Argentina - Energy sector study (Vol. 2 of 2) : Annexes

Report No. 7993-AR Argentina Energy Sector Study (In Two Volumes) Volume II: Annexes February 26, 1990 Infrastructure and Energy Operations Country Department IV Latin America and Caribbean Regional Office FOR OFFICIAL USE ONLY ; . 1 Document~~~~~~ of thoodBn C) . h m a a pnly X, bedisclosed/withoutWor[dBankauthorization.-- Domn o h ordBn 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ /  FOR OMCUAL USE ONLY ANNUES Annex 1.0: Official and Adjusted Hydrocarbon Reserves Annex 1.1: Institutional Structure of the Hydrocarbon Subsector Annex 2.Os Taxes, Royalties, and Earmarked Funds Annex 2.1: Public and Private Energy Investment Shares and Growth Rates Annex 2.2: Projection of Foreign Debt 1989-1995 Annex 3.1: Comparison of Prices Annex 3.2: LPG Pricing Annex 3.3: Details of SEGBA's Tariff r'-e.em Annex 3.4: Example of Subsidies and ristortions in the Hydrocarbon Subsector Annex 4.0: Implementation of Deregulation of Crude Oil and Oil Products Prices Annex 4.1: Controlled Transition to a NPv Natural Gas Pricing System Annex 4.2t Reforming Institutional Arrangements on Gas Production and Transmission Annex 4.3: Cost Based Tariffs for Tranesission and Distribution Annex 4.4: Netback to Producers from Reformed Pricing System Annex 5.1: YPF and Service Contracts Annex 5.2: History of Wells Drilled (1977-1988) Annex .3t Crude Oil Production History & Refinery Runs (1977-1988) Annex 5.4: Natural Gas Production & Utilization History (1977-1988) Annex 5.5: Production Operating Costs of YPF Administration - Oil & Gas Annex 5.6: Incremental Prod. Costs Annex 5.7s Incremental Net Income Annex 5.8: Investment Requirements for the Next Five Years Annex 5.9: Hydrocarbon Deregulation Decrees 1055, 1212 and 1589 (all issued fourth quarter 1989; Annex 6.1: Evaluation of YPF snd Private Refinery Capacity Annex 6.2: Inefficiencies in Present Refinery Operations Annex 7.1: Average Incremental Cost Calculation for Gas Annex 7.2(a)t Netback Value Calculations for Gas Amnex 7.2(b)s Petrochemical Sector Annex 7.3: LPG Production by Source Annex 7.4: Methodolgy for Calculating Financial Costs Annex 8.1: SE's Ene jy Plan Electricity Demand Scenario Annex 8.2: Most-Likely Electricity Demand Scenario Annex 8.3: Low Electr.,zity Demand Scenario Annex 8.4: Electricity Demand Projection - Three Scenarios Annex 8.5: Investment Requirements Under ?wo Demand Scenario Annex 8.6: Estimated Generation Cost of Hydroprojects Annex 8.7: Installed Capacity by Company by End 1987 (MW) Annex 8.8s Age of Major Thermal Plants Annex 8.9: Scheduled Retirement of Major Thermal Plants Annex 8.10: Evolution of Unavailability of Thermal Plants (NIS) Annex 8.il: SEGBA: Electricity Rates for Residential 'onsumers in October 1989 Annex 8.12: SEGBA: Electricity Rates for Industrial C.nsumers in October 1989 Annexes 9.1- Annex 9.5s Energy Balances Annex 9.6t Household Expenditures on Energy Annex 10.1: Projections of Income and Expense 1989-1995 (Individual Companies) Annex 10.2: Projections of Income and Expense (Consolidated) Annex 1C.3: Projections of Balance Sheet 1989-1995 (Individual Companies) Annex 10.4: Projections of Br.lance Sheet 1989-1995 (Consolidated) Annex 10.5: Projections of Source and Use of Funds 1989-1995 (Individual Companies) Annex 10.6: Projections of Source and Use of Funds 1989-1995 (Consolidated) Annex 10.7: Projections of Source and Use of Funds 1990-1995 (Power Co's. and Yacyreta) Annex 11: Written Government Comments received December 1989, on Green Cover Version of Energy Sector Report (dated August 1989).. This document ha a restricted distribution and may be used by recipients only .n the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Annex 1.0 Page 1 of 27 ARGENTINA OFFICIAL and ADJUSTED HYDROCARBON RESERVES Responsibility for Reserves Evaluations 1. With exception of minor old concession areas, the Government of Argentina is the legal owner of all hydrocarbon reserves. The State entity, Yacimientos Petroliferos Fiscales (YPF), has been assigned the objective of implementing the Argentine petroleum policies and is charged with the study, the exploration and exploitation of liquid or gaseous hydrocarbon reservoirs, as well as the industrialization, transport and commercialization of these products and their derivatives. Thus, it follows that YPF is responsibile for preparing periodic reserves evaluations of crude oil and natural gas, and providing official reports of remaining reserves volumes to other Government agencies. These official reserves reports are normally issued by YPF as of the end of each calendar year. No audit of YPFFs total hydrocarbon reserves has ever been made by an accredited independent consulting firm. Reserves Evaluations by YPF 2. Reserves evaluations have been prepared by YPF for many years. Geologists and reservoir engineers employed by YPF and who work in t*h Carencia de 1:ineria y ueologia de Explotacion (GkGE), have the experience and capabilities required for adequate determinations of all hydrocarbon reserves. Although the GMGE does not have full capability of performing mathematical modeling of hydrocarbon reservoirs, they are making strong efforts to obtain the necessary hardware and software to provide in-house reservoir modeling applications of this sophisticated technology. Until such time that the GMGE has obtained this hardware and software and trained their professional people with this capability, they are utilizing the services of a private Argentine firm, INLAB, to perform reservoir modeling evalu.tions of their more importait reservoirs. Criteria and Reserves Definitior! 3. During different time periods, the criteria and definitions which YPF employed for reserves determinations were changed, resulting in reported volumes of reserves which were not necessarily comparable between the same reservoirs or fields. Since 1984, the GMGE has used a written guide for reserves, "Definition of Reserves for the Internal Use of YPF"'. As described in that guide, YPF has introduced a unique concept, termed 'conditional", as applied to the generally accepted reserves terminology utilized within the petroleum industry. This term is applied to reserves, proved or probable, in any case where the expio:itation of such reserves iLs *onditionai xn other factors that impede the actual exploitation of these reservtes, such as not having facilities to collect the gas, or the lack of implementation of special exploitation techniques, or whatever other cause that does not permit actual exploitation of the subject reserves. However, in the annual publication of official reserves, YPF does not identify which proved or probable reserves are categor-  - 2- Annex 1.0 Page 2 of 27 ized as "conditional"; this results in confusion and a general misunderstanding of the actual reserves situation. YPF Reserves pefinitiona 4. The follcwing definitions were extracted from the reserves guide used by GMGE ia the determinations of YPF official reserves: A. RESERVES: the volume of liquid or gaseous hydrocarbons (at standard conditions) existing in a reservoir, of which a percentage is feasible to be extracted in a profitable form under existing technology, whether by natural reservoir energy or added energy by means of special methods. As a function of the measure of uncertainty, reserves can be subd4vided in: 1. PROVED: The proved reserves are estimated quantities that geological and engineering data demonstrate with reasonable certainty will be recovered in the future, from known reservoirs and under existing economic conditions. 2. PROBABLE: As indicated by ths name, those reserves which are more uncertain than proved reserves, having less certainty of lithological continuity and petrofisical characteristics of the reservoir. B. TERMS IN COMMON USE: included below are terms which are applicable for petroleum as well as gas. le ORIGINAL RESERVES IN-SITU: the volume of hydrocarbons existing in the reservoir under surface conditions prior to exploitation, expressed in m3. 2, ORIGINAL RECOVERABLE RE11WRVES: the volume of hydrocarbons that can be extracted from a reservoir either by natural energy or the addition of artificial energy. 3. FACTOR OF RECOVERY: the value in percent of the original reserves in situ that can be extracted from a reservoir during its useful life. This is expressed in X and in case it cannot be calculated by one of the known methods, average values for the basin and type ef reservoir will be applied. 4. EXTRACTED: accumulated volume of hydrocarbons recovered, expressed in m3. 5. REMAINING RECOVERABLE RESERVES: the value resulting from deducting the volume extracted from the original volume of recoverable reserves, expressed in m3. The above descriptions and previous definitions constitute  Annex 1.0 3 Page 3 of 27 the maximum level of reserves details, for whatever hydrocarbon substance. 1. CRUDE OIL 1.1. PRIMARY RESERVES Primary reserves are defined as the volume of crude oil at surface conditions that can be extracted by natural resarvoir energy. 1t1.1. PROVED PRIMARY RESERVES The volume of primary reserves that can be considered proved by the definition oased on the characteristics. 1.1.l.t. PROVED PRIMARY RESERVES NOT CONDITIONAL Proved primary reserves corresponding to reservoirs that by their characteristics ot low GOR or existing installations for natural gas collection permit continuous and rational production. 1.1.1.2. PROVED CONDITIONAL PRIMARY RESERVES Within this subdivision are included proved primary reserves pertaining to reservoirs, that because of the type (gas-condensate, extra-heavy crude oil, etc.) have their exploitation conditional on gas collection, or on the implementation of special exploitation technologies or whatever other cause that could impede their actual exploitation. 1.1.2. PROBABLE PRIMARY RESERVES The volume that could be extracted by primary exploitation, from the probable original in-situ reserves. For this determination the recovery factor utilized for proved primary reserves will be assumed as valid. 1.2 * SECONDARY RESERVES The additional volume of crude oil or 4.ondensate that could be extracted from the reservoir as a consequence of inJecting water or gas. 1 .2.1. PROVED SECONDARY RESERVES Considered to be that volume substantiated by a secondary recovery study. 1.2.1.1. PROVED SECONDARY RESERVES NOT CONDITIONAL The reserves corresponding to an integral project, the evaluation of which does not depend upon the results of a pilot project.  - 4 - Annex 1.0 Page 4 Of 27 1.2.1.2. PROVED SECONDARY CONDITIONAL RESERVES Under this classification are included the reserves of pilot projects until definite evaluations can be made and that of extensions or remainder of the project until the results and conclusions obtained from the pilot certify the convenience of implementing the full project. Is= 1.2.2. PROBABLE SECONDARY RESERVES Under this category are included the reserves to be obtained by secondary recovery from those reservoirs that offer good prospects but no studies have been finalized with which to implement an actual pilot project. 2. NATURAL GAS 2.1 PROVED RESERVES Those volumes that correspond to the definition of proved. 2.1.1. PROVED RESERVES DISSOLVED GAS All crude oil at reservoir conditions contains a certain determinable volume of dissolved gas; osemve!!.tly, thte value of proved di-^lvzd ga3 is directly related to the proved crude oil reserves. 2.1.1.1. PROVED DISSOLVED GAS NOT CONDITIONAL Those reservoirs with a very low gas-oil ratio, so the gas can be vented, or that have surface installations adequate for collecting the gas. The reservoir should also be exploited in a rational manner. 2.1.1.2. PROVED CONDITIONAL DISSOLVED GAS Includes those reservoirs with gas-oil ratios above that permitted for venting the gas, and that do not have gas collection facilities, or the lack of transport capacity or reinjection capacity. 2.1.2. PROVED RESERVES OF FREE GAS Under the classification of free gas reserves are included all gas that is not normally dissolved in crude oil, irregardless of its relation to the crude oil. In order to differentiate the types of tree gas, terms are applied to distinguish between (1) gas-caps associated with crude oil. (2) gas-condensate, and (3) dry gas or reservoirs where the gas-oil ratio is above 20,000 m3,m3. This free gas must also satisfy the definition of proved reserves.  Annex 1.0 -5- Page 5 of 27 2.1.2.1. PROVED FREE GAS RESERVES NOT CONDITIONAL 'hese reserves pertain to those reservoirs, with free gas, that produce volumes according to their potential, that do not interfere with the final oil recovery, and that have adequate facilities installed to collect the volumes of gas produ-ed. PROVED CONDITIONAL FREE GAS RESERVES These reserves pertain to those reservoirs with proved free gas that, (a) do not have facilities for collecting the gas produced, (b) if facilities exist, they are not adequate for the potential of the reservoir, and (c) the production fluctuates according to the seasonal fluctuation of gas collection. 5. It is evident that the inclusion of. conditional"' reserves, interpreted to be those for which one or mo-e basic conditions does not exist to permit the rational economic production of those reserves, leads to misconccptions as to the actual volumes of hydrocarbons that can be recovered under existing conditions. The YPF definitions of proved secondary reserves, both conditional and not conditional, are not acceptable to the international petroleum industry. A study of secondary reserves, irregardless of the experience and reputation of the organization preparing such stucy, is nothing otore than an indication of the prospective vou-mame of secondary -eserves to be recovered. Successful actuai response from an install.d secondary recovery project must provide support for the engineering study on which the project is based before those reserves can be classified as proved. YPF has included as proved reserves a large volume of secondary reserves, mainly from estimations provided by contractors at the time of bidding on the contract areas. Even though subsequent experience has demonstrated that these secondary reserves volumes will not be recovered under existing economic and technical conditions, YPF has not made appropriate reductions in their official proved reserves reports. 6. After a number of years of research and exchange of concepts regarding various definitions being utilized by international petroleum companies pertaining to reserves of hydrocarbons, in February 1987, the Society of Petroleum Engineers (SPE) approved definitions of reserves that they believe will be accepted by most Governments and companies concerned with the hydrocarbons industry. As a comparison with the definitions of reserves being utilized by YPF, extracts from the definitions acceptable to SPE are included as follows: A. RESERVES: estimated volumes of crude oil, condensate. natural gas, natural gas liquids, and associated substances anticipated to be comercially recoverable from known accumulations from a given date forward, under existing economic conditions, by established operating practices, and under current government regulations. Reserves estimates are based on interpretations of geologic and/or engineering data available at  -6 - Annex 1. 3 Page b or 27 the time of the estimate. Reserve estimates generally will be revised as reservoirs are produced, as additional geologic and/or engineering data become available, or as economic c nditions change. All reserves estimates involve some degree of uncertairty, depending chiefly on the amount and reliability of geologic and engineering data available at the time of the estimate and the interpretatior of these data. The relative degree of uncertainty may be conveyed by placing reserves in one of two classifications: 1. PROVED: Proved reserves can be estimated with reasonable certainty to be recoverable under current economic conditions. Current economic conditions include prices and costs prevailing at the time of the estimate. Proved reserves may be developed or undeveloped. a) Reserves are considered proved if commercial producibility of the reservoir is supported by actual production or formation tests. The term proved refers to the estimated volume of reserves and not just to the productivity of the well or reservoir. b) The area of a reservoir zonsidered proved includes (1) the area delineated by drilling an" df-"ed by fluid contacts, if any, mnd (2) the undrilled areas that can be reasonably judged as commercially productive on the basis of available geological and engineering data. In the absence of data on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the proved limit unless otherwise indicated by definitive engineering or performance data. c) Proved reserves must have facilities to process and transport those reserves to market that are operational at the time of the estimate, or there is a commitment or reasonable expectation to install such facilities in the future. d) Proved undeveloped reserves are assLgned to undrilled locations that satisfy the following conditions: (1) the locations are direct offsets to wells that have indicated commercial production in the objective formation, (2) it is reasonably certain that the locations are within the known proved productive limits of the objective formation, (3) the locations conform to existing weil spacing requlations, ir any, and (4) it is reasonably certain that the locations will be developed. e) Reserves that can be produced through the application of established improved recovery methods  - 7 - Annex 1. v Page 7 of 27 are included in the proved classification when (1) successful testing by a pilot project or favorable production or pressure response of an installed program in that reservoir, or one in thG immediate area with similar rock and fluid properties, provides support for the engineering analysis on which the project or program is based and (2) it is reasonably certain the proJect will proceed. f) Reserves to be recovered by improved recovery methods that have yet to be established through repeated commercially successful applications are included in the proved classification only (1) after a favorable production response from subject reservoir from either (a) a representative pilot or (b) an installed program, where the response provides support for the engineering analysis on which the project is based, and (2) it is reasonably certain the proJect will proceed. 2. UNPROVED: Unproved reserves are based on geologic and/or engineering data similar to that used in estimates of prved reserves; but technical, contractual, economic, or regulatory uncertainties preclude such reserves being classified as proved. They may be estimated assuming future economic conditions different from those prevailing at the time of thie estimate. Estimates of unproved reserves may be made for internal p4Sanning or special evaluations, but are not routinely compiled. Unproved reserves are not to be added to proved reserves because of different levels of uncertainty. Unproved reserves may be divided into two subclassifications: probable and possible. Probable reserves are less certain than proved reuerves and can be estimated with a degree of certaint'r sufficient to indicate they are more likely to be recovered than not, and may include the following: a) Reserves anticipated to be proved by normal stepout drilling where subsurface control is inadequate to classify these reserves as proved. b) reserves in formations that appear to be productive based on log characteristics but that lack core data or definitive tests and which are not analogous to producing or proved reservoirs in the area. C) incremental reserves attributable to in:il. drilling that otherwise could be classified as proved but closer statutory spacing had not been approved at the time of the estimate. d) reserves attributable to an improved recovery  - 8 - Annex 1.0 Page 8 of 27 method which has been established by repeated commercially successful applications when a project or pilot is planned but not in operation and rock, fluid, and reservoir ch&racteristics appear favorable for commercial application. e) reserves in an area of a formation that has been proved product4ve in other areas of the field but subject area appears to be separated from the proved area by faulting and the geologic interpretation indicates subJect area is structurally higher than the proved area. f) reserves attributable to a successful workover, treatment, change of eqLipment, or other mechanical procedure where such procedure has not been proved successful .n wells exhibiting similar behavior in analogous reservoirs. g) incremental reserves in a proved producing reservoir where an alternate interpretation of performance or volumetric data indicates significantly more reserves than can be classified as proved. .over the vaars yPF has made diBcov ies nf cru4e o',iind aiatu rai gas in numeroui small