Capsa is a privately owned company, domiciled in Argentina, mainly engaged in the exploration, exploitation, development and production of oil and gas in southern Argentina. Capsa began operations as an exploration and production company in 1977 with the acquisition of the Diadema field from Shell. The company acquired the remaining fields between 1996 and 2000, as they complimented Capsa’s strategy to acquire local acreage with similar characteristics to currently owned areas. Currently, only Diadema, Sindicato and KM20 are producing, with the former representing 90% of the company’s production and revenues.

The company is majority-owned by the Götz family (93.5%), with Deutsche Bank holding the remaining share (6.5%). While Capsa is a family-owned business, the Götz family defers day to day control of operations to the Company’s experienced management team.

IFC will provide a Facility with a ten-year availability period to help finance the company’s capital expenditures, working capital requirements and other corporate activities. IFC’s investment is expected to be up to $50 million for its own account.
In addition, IFC is expecting to mobilize up to $20 million in syndicated B Loans.

50.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	50.0
Equity

* These investment figures are indicative

The company’s fields are located in the province of Chubut in southern Argentina, each between 15 and 27 kilometers north of Comodoro Rivadavia. Its corporate headquarters is located in Buenos Aires.

- World Bank Group Strategy

The World Bank Group’s strategy for Argentina is geared towards reducing the extent and severity of poverty, as the country recovers from the current crisis. In doing so, the World Bank Group’s program will focus on sustained growth coupled with enhanced equity, social inclusion and improved governance. IFC has shifted its strategic focus in Argentina from short-term lines where there is good liquidity at reasonable prices, to providing long-term financing both for its own account and through its syndication program. IFC’s priorities for its direct investments is to provide long-term financing and structured finance products to companies and projects in strategic sectors such as oil, gas and mining. Important criteria that IFC will focus on when considering new projects are the corporate social responsibility and sustainability aspects as well as the track record with respect to honoring contractual obligations. The project is consistent with IFC’s strategic focus as it proposes to provide long-term financing through both A and B Loans to a company in the energy sector.

- Development Impact and Monitorable Indicators

The project is expected to contribute to the benefits provided by Capsa’s continued operations as follows:

- support the continuing development and growth of a small local company, and
- help the country maximize the use of its natural resources by developing and increasing the recovery factor of marginal fields.

This is important as both production and proved reserves of the country have fallen 15% and 19%, respectively, since their peaks in the late 1990s due to inadequate investment by the private sector and opaque and uncertain government policies. As a result, Argentina is expected to become a net importer of crude oil by the end of the decade. Since acquiring the Diadema field from Shell in 1977, Capsa has increased crude oil production from the field from 877 bbl/d to about 10,300 bbl/d. Furthermore, given that many international oil companies have shifted investments away from the country since the Argentine crisis, IFC’s continued support of Capsa will have a positive demonstrative impact. Specifically, the project is anticipated to have the following developmental impacts:

- Employment Preservation:

The project will help sustain employment in Chubut province, a remote region with few other employment opportunities other than the oil and gas industry. The company has a permanent workforce of 129 employees (94 in the fields) and is also a source of indirect employment for 137 people through various contractors in the region. The majority of the workforce (90%) is sourced locally.

- Supporting local communities and suppliers:

The company is highly committed to the local community in which it operates, evidenced by its direct and indirect contributions to schools and hospitals in the region. Capsa actively participates in community development initiatives and is strongly committed to building and maintaining good relationships with its communities. Furthermore, the company procures about 50% of its purchases locally through 50 community suppliers. Capsa is expected to maintain this level of purchases going forward.

- Benefits to the national and local economies:

Capsa is a source of fiscal revenue for the province of Chubut. This income is important as few alternative revenue generation opportunities exist in the area. Under current legislation, the estimated net present value of future aggregate revenues to the government is expected to be about $120 million over the life of the proposed IFC investment.

- Disclosure: The Company has agreed to make its annual payments to the government available to the local community.

IFC plans to monitor the following development impacts:

- employment;
- local/national purchasing;
- payments to regional governments; and
- investments in community programs.

- Governance Context

The benefits of this project come in a number of forms. Besides employment and local supplier linkages, it is expected that a large share of net project benefits will accrue to the government in the form of taxes. On balance, given the prevailing governance situation in Argentina, the risk to these benefits is considered low, and IFC believes that this is a Project in which it should invest.

- IFC Role and Expected Contribution

IFC has several important roles to play in this project. First, IFC’s participation will support an existing client and a small Argentine oil producer. Second, IFC will provide long-term debt of up to ten years, compared to the current commercially available tenor of approximately five years. The proposed tenor is expected to allow the company to match its proposed waterflood expansions with its projected production profile and provide Capsa with greater flexibility with regards to its repayments. Third, IFC will mobilize parallel bank lending in its continued effort to encourage commercial institutions to extend longer maturities to local companies. Finally, IFC will play an important role in helping the company incorporate a social component into Capsa’s planned Environmental Management System (“EMS”), in line with World Bank Group and international best practices.

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 design criteria. The review of this project consisted of appraising technical and E&S information submitted by the company as well as a site visit to the field. The following potential environment, health and safety and social impacts of the project were analyzed:

- establishing an Environmental and Social Management System;
- air emissions, including greenhouse gas emissions;
- management of polychlorinated biphenyls (“PCBs”);
- management of liquid and solid waste;
- occupational, health and safety;
- emergency procedures; and
- community relations.

The project area is located in an arid region of Chubut province and there are no environmentally or socially sensitive habitats. Capsa is the first oil and gas company in the region to remove and safely dispose of PCBs according to the Stockholm Convention on Persistent Organic Pollutants.

The company 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 Argentinean 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 Company is summarized in the Environmental Review Summary (“ERS”) disclosed in the World Bank InfoShop.
Location of environmental documents In locally affected community
Capsa’s offices in Diadema:

Route 39:Km27
Diadema, Argentina
Province of Chubut
Argentina
Opening Hours: 10am to12pm
2pm to 4 pm