Pan American Energy LLC - Argentine Branch (II) Pan American Energy LLC (PAE or the company) is engaged mainly in the exploration, development and production of oil and gas.  PAE is the second largest oil and gas producer in Argentina and has blocks located in the four major hydrocarbon basins - Golfo San Jorge, Austral, Neuquina and Northwest.  The most significant block in terms of both reserves and production is the Cerro Dragon block in the Golfo San Jorge basin, located in the South of Argentina.  The company holds interests in 10 oil and gas production blocks in Argentina and 13 oil and gas production and development blocks in Bolivia, twelve of which are held through its indirect Bolivian subsidiary, Empresa Petrolera Chaco S.A. (Chaco), and its direct Bolivian subsidiary, PAE E&P Bolivia Ltd.  In addition, PAE holds interests in ten exploration blocks, five in Argentina and five in Bolivia.   IFC has been requested to provide financing of up to $550 million to Pan American Energy LLC, Argentine Branch, to help finance its full year 2007 and first half of 2008 capital expenditure program (Capex Program) for the continued development and production of the Cerro Dragon block in the Golfo San Jorge basin, which represents approximately half of the companys total production.  The project comprises an oil and gas drilling program, completion of water-flooding projects, and the construction of necessary facilities to support the increase in production. - Fit with World Bank Group Strategy:  The World Bank Groups (WBG) current program in Argentina focuses on sustained growth, coupled with enhanced equity, social inclusion and improved governance.  IFCs priorities for its direct investments is to provide long-term financing and structured finance products to companies and projects in strategic sectors with a focus on groups expanding on a South-South basis and export-oriented or export facilitating projects.  Strategic focus sectors are oil, gas, mining, agribusiness, and the financial sector.  The proposed IFC investment is fully consistent with this strategy.   - Development Impact:  Contribution to Alleviate Tight Gas Market in Argentina:  Gas demand growth outpaced gas supply in recent years in Argentina.  The gap has been driven on the one hand by the sustained economic expansion experienced in recent years, fuelled mainly by the growth in the industrial sector and increased use of CNG in vehicles, and further enhanced by the distortion of energy prices, and, on the other, by the investment lag in developing gas reserves as a result of the new context.  PAE is one of the few companies in Argentina that has grown its gas reserves and production during the last five years.  Today, gas represents over 50% of the companys proven reserves.  Part of the 2007 investment in the project will go toward increasing gas production, which will help alleviate the current gas shortage in Argentina.    Creation/Preservation of Employment:  PAE is a key employer in the regions where it operates, especially in the Golfo San Jorge basin where it employs 575 direct staff and almost 6,400 contractors.  The IFC investment will contribute to the companys growth, which has lead to an average of 100 new direct jobs created per annum since 2003. In addition, the investment will help maintain employment levels on a company-wide basis in the provinces of Chubut and Santa Cruz, where the oil and gas industry offers significant employment opportunities.  Local Purchasing and Development of SMEs  PAE procures most of its goods and services in Argentina from over 1,500 suppliers and contractors. In 2006, PAE spent approximately $728 million on Argentine investments, goods and services.  PAEs efforts to develop Small and Medium Enterprises (SMEs) in the Golfo San Jorge area help maximize the impact of this local purchasing.  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.  Support for Local Communities:  PAE has developed a strong positive relationship with the local communities in each of its areas of operation.  Its commitment to sustainable community development is exemplified through the companys support for numerous social development activities focused on the key areas of education, health, employment and environment.  PAE has also engaged with a number of NGOs to identify opportunities for additional social investment and enjoys broad community support throughout its operations.  Benefits to Government:  PAE contributes significant fiscal revenues to all levels of government.  During 2006, PAE made an estimated $1 billion in payments to various levels of government consisting of income taxes, royalties, export tariffs and other taxes.  The company submits on a quarterly basis financial statements as part of its obligations to Argentinas National Securities Commission, and such disclosures are available publicly.  PAE is expected to remain a significant contributor of tax revenues for both the federal and regional budgets and is also expected to continue contributing to Argentinas foreign currency earnings and over the life of the IFC loans.   Indicators to monitor development impact include:   - gas production,  - payments to government,  - employment maintained/created,  - purchases from local and national suppliers, and  - investment in social and community development.