24385 - Diadema II

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Environmental Review Summary

Project Number

24385

Company Name

COMPANIAS ASOCIADAS PETROLERAS S.A.

Date ERS Disclosed

Dec 21, 2005

Country

Argentina

Region

Latin America and the Caribbean

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Feb 24, 2006
Signed : Apr 19, 2006
Invested : May 16, 2006

Sector

Oil and Gas Production (Includes Development)

Industry

other

Department

Gbl Infrastructure & Natural Resources

Project Description

Compañías Asociadas Petroleras S.A. (Capsa or the Company) is a small Argentine oil producer which operates seven fields in Comodoro Rivadavia in the province of Chubut in southern Argentina including: Diadema, Sindicato, KM20, Solano, Mina Reserva, Mina Gemelos and Caleta Cordova (the latter is indirectly owned). Capsa proposes to further develop these fields in order to maintain or slightly increase its current production of about 11,500 barrels per day (‘”bbl/d) over the next ten years. To date, reservoir development has mostly relied on waterflood, a secondary recovery technique utilizing water-injection

IFC been requested to extend a revolving credit facility (the “Facility”) of up to $70 million ($50 million of its own account) to Capsa to help finance the company’s capital expenditures, working capital requirements and other corporate activities.

The company’s 5-year $110 million capital expenditure plan entails:

- the implementation of about 6 waterflood projects throughout its fields;
- the drilling of 209 producer and 69 injector wells;
- the maintenance and repair of 56 primary and secondary wells; and
- the construction of associated water treatment facilities.

Environmental and Social

The sponsor has presented plans to address these impacts to ensure that the proposed project will upon implementation of the specific agreed measures, comply with the environmental and social requirements - the host country laws and regulations and the World Bank/IFC environment and social policies and the environmental, health and safety guidelines. The information about how these potential impacts will be addressed by the sponsor/project is summarized in the paragraphs that follow.

Capsa is a small Argentine oil producer that operates the Diadema and the Km 20 fields in the Comodoro Rivadavia region in the province of Chubut. Both Diadema and Km20 are mature fields and have been drilled since the late 1910s and early 1920s respectively. In aggregate these fields currently produce about 11,500 barrels of oil per day (bopd) through 486 active wells, mostly by way of secondary recovery. The Company has successfully implemented 5 waterflood projects throughout the Diadema block and is planning to implement additional projects through the proposed IFC investment.

Both the Diadema and Km 20 blocks are located in the state of Escalante, in the province of Chubut approximately 30 km of the city of Comodoro Rivadavia in southern Argentina. During the year 2004 the Diadema block (which includes the Sindicato field) the company drilled 20 new wells. In Km 20 (which includes the currently non-operating Caleta Cordova, Mina Reserva and Solano fields) only 1 well was drilled

The company is in the process of developing the Environmental Management System (“EMS”) in accordance to the requirements of ISO 14001. As part of the project, the Company has also committed to develop and incorporate a social component into its EMS in accordance to the World Bank Group and international best practices.

The company prepares an Environmental Impact Assessment for each of the activities to be performed in their blocks. For monitoring purposes the company also has in place a system of independent monitors that conduct annual supervision audits of the operations and prepare a report which is presented to the Government authorities in the province of Chubut and the IFC.

In 2004 Capsa repaired an additional 6 water injection wells in Km20, which, in addition to the 10 existing ones improved the management of produced water. The addition of these 6 injection wells contribute to practically terminate the practice of discharging water to a canyon in the area. The company has an established monitoring program and a corrective action plan which is being implemented. In addition, during the year of 2004 the company conducted works of clean-up including the removal of all mud pits.

In the Diadema block the company conducted clean-up activities including minimization of losses from the pumping equipment and acceleration of the removal of the separation of oil and water pits from the dehydration plant. Additionally, the company has approved the budget for the development and implementation of a plan to control erosion in steep slopes. The company continues to install protective devices around the pits and ponds to avoid the trapping of animals, birds in particular. New contention walls have been built in the plants, batteries area and the chemical storage area.

Capsa was one of the first hydrocarbon companies in the San Jorge Gulf Basin to perform an inventory of the Polychlorinated Biphenyls (PCBs) contents in the area. After completion of said studies, the company eliminated the PCBs contents in its operation facilities. The method used for treatment of PCBs was de-chlorination.

The company has established Emergency Procedures and Plans in place in the event of an emergency, including, fire protection. Capsa in addition provides safety training to all its personnel, including contractors as well as information regarding Capsa’s policy. Capsa has not had any fatal accidents for the past nine years.

Capsa has an established foundation “Fundacion Diadema”, which is a non-profit organization, established in 1987 with the purpose of promoting community development in education, environmental care, sports, arts and culture in the region which it operates. Capsa also contributes directly to these various causes on an annual basis.

The proposed expansion of the project will not involve physical resettlement or economic displacement.

Conclusion & Monitoring

IFC will evaluate the project’s compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing the annual monitoring reports (AMRs) prepared for the project covering:

- the status of implementation of any measures contained in the Environmental and Social Action Plan[s] and
- ongoing performance of project-specific environmental, health and safety and social activities as reflected in the results of periodic and quantitative sampling and measuring programs.

Periodic site supervision visits will also be conducted.

This Environmental Review Summary (ERS) is prepared and distributed in advance of the IFC Board of Directors' consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board of Director’s decision. Any documentation that is attached to this ERS has been prepared by the project sponsor or in conjunction with the project sponsor and authorization has been given for public release. IFC has reviewed this documentation and considers that it is of adequate quality to be released to the public but does not endorse the content. The following ERS is disclosed in accordance with IFC's Disclosure of Information Policy that went into effect September 1998.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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