- 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 - PS8: Cultural Heritage PS6 and PS7 are not applicable because of the absence of Indigenous People and of protected habitats in the area of influence of Cerro Dragon operations.

PAE’s Cerro Dragon development and production program including a drilling program, a workover program and expansion and construction of new facilities, 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 the applicable performance standards, guidelines and design criteria.

Key environmental and social issues relating to the project are summarized below along with specific information on how potential impacts will be addressed by the company. Upon implementation of the mitigation measures described below and in the attached Action Plan (AP), the project will comply with environmental and social requirements, namely the laws and regulations of Argentina, IFC’s Policy and Performance Standards on Social and Environmental Sustainability and applicable World Bank/IFC environment, health and safety guidelines. - PS1: Social and Environmental Assessment and Management System Social and Environmental Management System: PAE has a sound and effective EHS&S Management System (EHS&S-MS) that enables the company to maintain a remarkable level of control over the operational risks. The system was certified under the ISO 14001 standard in 2002, and has been recertified in 2005. The company’s EHS&S Policy states: “Pan American Energy in addition to complying with its legal commitments with safety, health and environment, also commits itself to: - Pursue an injury-free environment in its workplaces, homes and communities. - Minimize the environmental impact of its operations by preventing pollution, optimizing the consumption of energy, and preserving energy and other natural resources. - Continuously improve its safety, health and environmental performance through effective management systems. - Help its employees, contractors, business partners and service providers understand how they influence safety, health and environmental performance and how they could help maximize said performance. - Earn the public trust by communicating openly its policies, programs and performance and building strong, credible relationships with its communities.” The EHS&S performance is assessed and improved systematically through an active program of internal and external audits, which has led to continuous refinement of the EHS&S-MS. Argentina has a comprehensive environmental legislation at both the national and provincial level. PAE has a systematic approach to regulatory compliance and its procedures include detailed monitoring to track it. PAE’s contractors are contractually obliged to comply with EHS&S procedures and to periodically report their performance. Once selected, contractors are trained on PAE’s EHS&S-MS requirements. Contractors’ performance is assessed based on technical, organizational, and EHS&S management performance. - Social and Environmental Assessment: Every oil and gas producer in Argentina must comply with regulatory requirements for environmental and social baseline and environmental impact assessment (EIA) studies before starting the field development phase. After that an annual environmental monitoring report (so-called IMAA) that includes an updated EHS&S Action Plan is carried out by consultants authorized by the Secretary of Energy. For certain projects an operator must conduct new EIA studies. For example, during the last year PAE presented to the national and provincial authorities approximately 12 new EIA studies for expansion of existing facilities or building of new ones. As part of its EHS&S -MS, the company has a procedure to identify and assess the potential EHS&S impacts related to the operation and maintenance activities in Cerro Dragon. For every activity the procedure requires the assessment of potential impacts on the air, water, soil, flora, fauna, natural resources, energy and community. Any impact considered significant is addressed through EHS&S operational procedures, facility design, and/or specific management programs. EHS&S performance is included in PAE’s employees’ evaluation and good performance is rewarded through yearly bonuses. - Management program and action plan: PAE has annual program and action plan of EHS&S. The program and plan state who is responsible for the execution of the activities, timetable and key dates for completion and when applicable performance indicators and allocation of resources. Contractors’ management program are agreed with PAE and aligned with the annual plan. Compliance with the program is periodically monitored. - Organizational capacity: Roles and responsibilities in respect to EHS&S management are clearly defined and documented to satisfy ISO 14001 standard. The PAE EHS&S team is very professional and keeps a proactive interaction at all levels of the organization. An adequate level of EHS&S supervision on contractor’s performance is conducted to assure adherence to EHS&S - MS requirements. - Training: Since 2000, PAE has deployed a training program for its own personnel and contractors regarding EHS&S procedures and supervision. There is a strong focus on personnel training and awareness on EHS&S issues. Annual programs for PAE and its contractors are developed and implemented. PAE has defined man/hours training targets for all levels and specific tasks receive tailored EHS&S training. The module of “Task Critical Analysis” has been one of the key tools to raise employee awareness of daily safety risks. - Community engagement: PAE invests in social programs and in a professional team to liaise with the community on social issues. PAE has developed communications plans to keep communities informed throughout the projects cycle and consultations are carried out with local communities and officials as needed and as required by Argentine law. PAE has a process of open communications with communities and at the corporate level, the company also maintains a web site with a range of relevant information. Thematic meetings on specific social development initiatives with different groups are held on an as needed basis. An information request and grievance process exists for each operation and is handled by the operations manager delegated to public relations or human resource team as appropriate. PAE has developed a job posting system to help prioritize local employment. In addition PAE’s efforts to develop Small and Medium Enterprises (SMEs) in the Golfo San Jorge area help maximize the impact of local purchases. This PAE corporate program launched in 2005 has as its objective the promotion of sustainable economic development through supplier development, government capacity building, and access to finance in that geographic area. - Monitoring: The above mentioned IMAA annual report, required by the national energy authorities, is a very thorough monitoring and inspection report performed by a third party (expert consultant company approved by Secretatiat of Energy). PAE performs an array of monitoring programs following an internal procedure (PG-12 Monitoreo y Medicion). The monitoring includes: - cathodic protection, - corrosion control, - pipeline integrity, - waste disposal sites, - air emissions, - soil pollution, - noise levels, and - groundwater quality. - Reporting: The Cerro Dragon senior management reviews every six months the findings of the internal audit program. Additionally, on an annual basis there is an EHS&S -MS review that includes EHS&S policy compliance, internal audit program results, EHS&S Management Program compliance, training program compliance, legal compliance and management of third party requests. - PS2: Labor and Working Conditions During 2006, PAE had approximately 970 direct employees and 7,770 contractors, over 99% Argentine nationals. More than half of the direct employees and the majority of contractors (6,400 contractors in 2006) are employed in its Cerro Dragon operations. Compliance with national labor laws is contractually required. PAE’s own personnel receive a good benefit package, including a pension plan, health coverage and life insurance. Safety is a strong cultural value of the company. A monthly EHS report on proactive and reactive indicators gives managers a tool to track performance and take prompt action. 2006 results compare favorably to 2005 indicators, including a 10% decrease in personnel incidents and a dramatic 40% drop in the vehicular incident rate, demonstrating management success in managing these risks. Several Health and Safety programs in place at Cerro Dragon help sustain constructive behavior with regard to safety. In October 2006, in the area of Comodoro Rivadavia there was a strike lead by labor unions requesting cuts on personal income taxes for oil workers. The strike lasted about 9 days and affected oil and gas companies in the area, including PAE. The company has been able to build an open and continued dialogue with labor unions and is developing joint capacity building programs targeted at union workers. - PS3: Pollution Prevention and Abatement - Pollution prevention: During 2006 in Cerro Dragon, the company had Greenhouse Gas (GHG) emissions of around 1,7 million tons. Combustible gas is mostly sold or used for production purposes such as the gas-lift system. Programs to monitor GHG emissions and an energy efficiency program are implemented. Fugitive emissions are quantified and reported. Facilities at Cerro Dragon comply with World Bank emissions limits for onshore operations. Even though the presence of H2S is not currently an issue, PAE, together with its drilling contractors, is working to include H2S training courses for their employees and beginning to install H2S detectors in the workover rigs. NORM is not an issue in this basin so far. Drilling muds are water-based and after a chemical analysis to confirm its harmless condition are disposed of in the drilling pit with the drilling cuts. Drilling pits are then reinstated once the well is finished. All produced water at Cerro Dragon is treated and reused for secondary oil recovery by re-injecting it into the reservoir at 1500 to 2500 meters below surface. Other minor wastewater streams like oily waters or used oil are recycled at the crude treatment plant. Grey and black water is handled separately by septic tank systems. The company has a “state of the art” solid waste management procedure that handles different types of disposal options for different types of waste. The company has an incineration facility to handle organic and other burnable wastes. PAE is investing in doubling the incineration capacity by acquiring a new incinerator. The oily soils recovered after a spill remediation and the tank bottom residues are stored in appropriate repositories inside the oilfield lined with clay layers, as approved by local authorities. This waste is treated and mixed with sand and gravel and disposed of as road capping. A new bioremediation process will be applied to significantly reduce the volume to be treated. The treatment applied allows lowering the hydrocarbon content to 1%. Chemicals and hazardous substances are properly managed applying HSMS datasheet system recommendations and by records of consumption and disposal. All chemical dosing points are properly designed to contain any spill. As an oilfield that has been in production for the last 50 years, footprint has become a significant environmental issue. The company has implemented different strategies to reduce the footprint like reducing the new production well locations up to 30% when local conditions allow. PAE has a program for revegetation of soil talus which are otherwise subject to erosion. New water injection technologies (that handle simultaneous injection at different levels) reduce the need for new locations. Energy efficiency is another priority for the design of new facilities. The use of combined-cycle turbines for power generation and the use of heated fluids to pre-heated the incoming ones at crude treatment plants is another good example of this. This reduces power consumption and cuts on emissions as well. Emergency Preparedness and Response: the company has emergency response plans for different emergency scenarios. Periodic drills enable PAE to assess the validity of the plans and to amend them as necessary. One of the objectives of the 2007 Management Program is an update of the existing contingency plans for treatment plants, major pipelines and chemical storage. - PS4: Community Health, Safety and Security - Community Health: PAE is one of the sponsors in a health training program at the Regional Hospital of Comodoro Rivadavia and other dependent medical centers, which consists in training the medical staff, so as to reduce infant mortality index in the Comodoro Rivadavia area. In addition, PAE has also sponsored the construction of a new emergency room for the same hospital and will continue to assist its infrastructure improvements during 2007. - Infrastructure and Equipment Safety: There are no communities situated close to the facilities. However, since some roads have public access and certain landowner’s facilities are located in the area of operations, most of the Cerro Dragon’s facilities have a good safety signage system and fencing to avoid risks to the public. Security: PAE employs non-armed guards for its facilities contracted through a security provider. PAE has established an agreement with local police to provide special security in the event of major security risks. - PS5: Land Acquisition and Involuntary Resettlement PAE’s policy with respect to pipeline routing is to avoid social impacts and economic displacement. PAE developed procedures for land use and acquisition in compliance with Argentine law. PAE works to completely avoid physical relocation and to reach mutually-agreeable fair market value compensation for use or acquisition based on willing-buyer willing-seller negotiations, which are properly documented. Impact on land users (whether owners or not), whether for crops, fencing, or pasture land is slight and compensation, is based on replacement value. When possible, owners are allowed to continue using the land for grazing or annual crop planting as the case may be. - PS8: Cultural Heritage The company has a chance-find procedure that is applied whenever archaeological or paleontological relics are unearthed which complies with national and provincial legislation on the matter. Contractors are contractually required to follow PAE’s chance find procedure. At the northwest corner of the Cerro Dragon concession area there is a provincial reserve called “Reserva Natural Bosque Petrificado Sarmiento” (Sarmiento Petrified Forest Reserve) that contains petrified logs of 65 million years in age. The reserve has scientific, paleontological and cultural interest. Currently there are no oil and gas production activities in the reserve’s core area and PAE is committed to implement all necessary measures to avoid or minimize any potential impact on the reserve area.

PAE sponsors or contributes to social programs including health care, job training, income generation, school nutrition, and education, as well as innovative initiatives such as the Small and Medium Enterprise effort with contractors in the Golfo San Jorge area around Cerro Dragon. PAE has also sponsored numerous college scholarships, participated in reforestation and other environmental enhancement projects, supported paleontological surveys, and actively promoted other research, education and cultural activities. PAE invested $5.65 million in such programs over the past two years. These programs grew out of consultation with a range of local leaders, NGOs, and communities from the areas near PAE operations. Many of these groups are involved in both the conception of the projects as well as their execution. PAE retains a professional social team of 8 persons to liaise with communities on social issues and to assist local groups in identifying social investment programs. PAE tracks its social development and conservation initiatives including the types of projects supported, the communities benefited, the value of the programs over time, the number of people benefited, and the roles of other organizations participating. An amount of $3.6 million is budgeted for social programs during for 2007. The environmental documents are available through July 5, 2007 at the following address: Pan American Energy Democracia 51 Planta Baja 9000 – Comodoro Rivadavia Provincia de Chubut