Performance Standards applicable to this investment include: - PS1: Social and Environmental Assessment and Management Systems - PS2: Labor and Working Conditions - PS3: Pollution Prevention and Abatement - PS4: Community Health, Safety and Security - PS5: Land Acquisition and Involuntary Resettlement - PS6: Biodiversity Conservation and Sustainable Natural Resource Management - PS8: Cultural Heritage

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or criteria. The IFC made this categorization based on: - Site visit to the proposed project areas in Turkey and Romania; - Meetings with Environmental and Social staff from the Borrower; - Meetings with communities impacted by the project and local authorities; and - Review of environmental and social documentation. The Turkey offshore facility is located approximately 10 km from shore and has seven producing wells with three platforms. Based on information from the ecological studies performed on the marine environment, the location of the rig and wells is not in a sensitive environment, precautions have also been taken to monitor fishermen, disposal of liquid and solid waste. The gas will be transported in the future via a buried pipeline to a processing facility in the town of Akcakoca, Turkey. An Environmental Impact Assessment has been approved by the regional environmental authorities, and the processing facility is currently under construction. Another component of the project is an offshore pipeline of approximately 18 km to connect with the national pipeline operated by the Turkish national gas utility. The pipeline was constructed by Toreador but will be transferred to BOTAS for operations. The right-of-way (ROW) compensation was done in a willing buyer-willing seller basis. No individual or family has been resettled or rendered economically unviable through the process of land acquisition in either Turkey or Romania. Though the national petroleum law in both countries grants oil and gas companies the right to exercise the faculty of eminent domain, Toreador has expressed unwillingness to avail itself of that right because it is too risky for their reputation. The Romania fields were acquired in a bid process from the state owned entity. The company has constructed a gas processing facility and is currently producing from 6 wells and is continuing with well work over. Through this assessment the IFC has been able to measure the magnitude of the potential impacts and it is considered that the environmental and social impacts from the project are not significant.

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 Turkish and Romanian laws and regulations and the IFC Performance Standards and the environmental, health and safety guidelines. The information about how these potential impacts will be addressed by the project is summarized in the paragraphs that follow. - Corporate Management System Toreador will develop an Integrated Environment, Health, Safety and Social (EHSS) Management System that will guide their operations in each country of operation. The development of an Integrated EHSS Management System will provide the company with a tool to manage their projects in Turkey, Romania and other countries with the same level of standards which will also include the application of International Best Practices for the oil and gas industry, development of Environmental and Social Management Plans, and incorporate the corporate and social responsibility and community development plans for each of their activities which will be implemented in sustainable manner. Toreador has developed a written Human Resource Policy for its employees. The policy covers both corporate headquarters in the US as well as all other operations in Turkey and Romania. In addition, Toreador has a free hotline for any complaints and/or grievances that is accessible by all its employees in the respective countries of operation. Toreador has also committed to hire a corporate environmental and social manager to lead the implementation of goals and strategy as well as to develop and implement the Integrated EHSS Management System. The selected person should be in place by February 2007. Currently, Toreador has the technical capacity to conduct its operations and manage its projects, however, as the project(s) develop, Toreador will need to increase its environmental and social capacity in the countries of operation. To date responsibilities for the environmental, health, safety and community relations have been handled by the Country General Manager. It is not anticipated that Toreador activities will have any significant impacts to cultural heritage, but if future project developments or chance finds results in such impacts IFC’s Performance Standard on Cultural heritage will be applied. Toreador will develop and implement a Public Consultation and Disclosure Plan (PCDP) for the construction, operations and closure phases of projects by May 2007. The plan will include a grievance mechanism for affected individuals and communities. - Specific Project Issues Though Turkish and Romanian law grants energy companies the right to exercise eminent domain, Toreador has chosen not to avail itself of this prerogative. In Turkey, Toreador minimized impacts by rerouting the pipeline and avoiding individuals who refused to relinquish lands for the ROW. No communal lands were affected either in Turkey or in Romania. All IFC Performance Standard 5 requirements have been met and no Resettlement Action Plan is deemed necessary for past land acquisition transactions. However, for all future land acquisitions, Toreador will develop a Land Acquisition and Resettlement Framework by May 2007 for Turkey and Romania to ensure compliance with national laws and the requirements of IFC Performance Standard 5. To that effect, Toreador will carry out a gap analysis between national legal requirements for land acquisition and resettlement, and IFC requirements pursuant to Performance Standard 5, and implement any necessary corrective action. All future land acquisition and resettlement operations covered by IFC Performance Standard 5 will be implemented in accordance with requirements specified therein. - Turkey Toreador’s current activities in Turkey includes 22 exploration and three exploitation permits covering approximately 2.0 million net acres. One of Toreador’s main permits includes the South Akcakoca sub-basin located in the Western Black Sea, offshore of Turkey. The basin covers an area of approximately 50,000 acres. Gas was discovered in September 2004. The company has drilled to date five wells, out of which one was plugged and abandoned. The company will also install an offshore pipeline, and an onshore processing facility. Additionally, the company has built an onshore pipeline of approximately 18 km to connect with the national pipeline operated by the national gas utility. The company prepared through the Turkish Petroleum company (TPAO) an Environmental and Social Impact Assessment (ESIA) for the onshore and processing facility. TPAO has a dedicated Environment, Health and Safety group which oversees the preparation of environmental and social documentation for approval by the Ministry of Environment, after approval TPAO also monitors the projects. TPAO is a certified independent group by the environmental authorities. Prior to the preparation of the ESIA a socio-economic analysis was prepared by TPAO who also consulted with affected communities. The onshore pipeline has been completed with a length of approximately 18 km; the pipeline will connect to the national pipeline. The onshore pipeline does not cross any protected areas, and purchase of the ROW was negotiated with the landowners on willing buyer-willing seller basis. The processing facility is currently under construction, a HAZOP has been prepared by the company, which includes a mechanism for mitigating risk and implementing safety measures. The site was acquired from the Ministry of Forestry and is located far from any local communities. As part of the Integrated EHSS Management System, the company will be required to prepare an Emergency Preparedness plan which is synchronized to the local emergency plan. Materials for construction are transported by truck through a highway system; however, the company through their integrated management system will include provisions to monitor their vehicles. Solid waste is collected from the construction site by an authorized third party entity for final disposal. Air emissions at the site are currently not an issue, but the company will monitor the emissions through their management plan. The offshore platform has 11 wells drilled and two producing wells. Toreador has a manager at the site and the remaining employees are drilling contractors. The drilling operations use water-based drilling fluids. Production liquid waste and burn oil are collected and sent ashore for final disposal by an authorized facility. The platform complies with MARPOL regulations for domestic solid and liquid waste. The platform is equipped with medical personnel and an evacuation system. Housekeeping in the platform will be further improved in order to minimize potential accidents. Toreadors production will be carried to the processing onshore facility for processing via a 2 sub-sea pipeline with a diameter of 12.75” and with a total length of 34 km. A marine assessment was conducted by Toreador and the study concludes that the pipeline will have no significant impact to the marine environment. The study also concludes that no endangered species are in the area of the pipeline. As required by Turkish national law no ESIA is mandated for exploration activities, Toreador has not been able to establish whether seismic activities have had an impact on local fishing industry operations, as well as on fish reproductive patterns. The area in which seismic activities are conducted is an important breeding ground for some fish species important for the local economy. In order to ensure minimization of impacts, Toreador will carry out an impact assessment of seismic activities on fishing operations and aquatic life, and will take into account potential disruptions to local fishing operations by minimizing the impact of seismic on fishing operations and breeding patterns. This will be done in consultation with local fishing cooperatives and local fisher-folk by May 2007. In Turkey, the company has acquired lands for a 18-km long on-shore pipeline from the processing facility located in Akcakoca to the national grid through willing-buyer/willing- seller negotiations. In all transactions, procedures mandated by national law have been followed and compensation rates for crops and trees were established according to national laws. In addition, the gas processing plant is being constructed on a site granted by the Ministry of Forestry. No transaction with private owners was necessary for the acquisition of lands for the processing plant. - Romania Toreador began its activities in Romania through the acquisition of an exploration permit in early 2003 in the Viperesti field. Currently, Toreador has 100% interest in one rehabilitation block and two exploration permits covering approximately 625,000 acres. In the Moinesti field, Toreador holds 100% of the exploration permit and will begin the gathering of geological and seismic data processing. In the Fauresti field, the company holds 100% of the rehabilitation permit. During 2005, Toreador conducted a six well re-entry program and was successful in converting four wells into natural gas and condensate producers. For 2006 a second five re-entry well is planned. Prior to acquisition of the fields environmental assessments were conducted by the owners and environmental legacies such as soil contamination and removal of old equipment were fully addressed. Toreador does not have any environmental legacies from prior operations. The production facilities in Fauresti are located very close to some inhabited houses, including the Mayor’s office. Toreador has coordinated with the local civil protection agency and the local fire department with regards to issues of emergency response planning that may affect the local community. However, Toreador does not have its own Emergency and Preparedness plan, as part of the development and implementation of the integrated management system, and Toreador will be required to prepare, consult with local authorities and implement an Emergency Preparedness plan by May 2007. In Romania, a similar approach for land acquisition as in Turkey has been followed. Toreador acquired necessary lands for the processing facility from municipal authorities. This land was granted by the municipality of Fauresti in the form of a concession. Land acquired for the construction of the pipeline was obtained from private owners through willing buyer-willing seller negotiations, as well as through rental agreements with private owners.

In Turkey, open meetings with local authorities, civil society groups and common citizens were held in towns surrounding the project area (Akcakoca, Eregli and Alapli). Results of the EIA were also discussed in these meetings. As part of the appraisal, IFC met with various civic authorities in Akcakoca and Alapli, as well as representatives of fishing industry and tourism board and could conclude that relationships with local authorities and communities are very good. Locals have high expectations that through this project they could get access to gas in their houses and reduce heavy pollution from coal use, which in turn they feel affects the tourism potential for the area. In Romania, open meetings with local authorities and local communities were held in the town of Fauresti. The town has a long history of oil and gas development and communities established themselves in the area as a result of the oil and gas industry rather than being there prior to such developments.